Pages 37933±38226 Vol. 60 7±25±95 No. 142 federal register July 25,1995 Tuesday announcement ontheinsidecoverofthisissue. For informationonbriefinginWashington,DC,see Briefings onHowToUsetheFederalRegister 1 II Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995
SUBSCRIPTIONS AND COPIES
PUBLIC Subscriptions: Paper or fiche 202–512–1800 FEDERAL REGISTER Published daily, Monday through Friday, Assistance with public subscriptions 512–1806 (not published on Saturdays, Sundays, or on official holidays), by Online: the Office of the Federal Register, National Archives and Records Telnet swais.access.gpo.gov, login as newuser 2 III Contents Federal Register Vol. 60, No. 142 Tuesday, July 25, 1995 Agency for Health Care Policy and Research Defense Nuclear Agency NOTICES NOTICES Meetings: Privacy Act: Health Care Policy and Research Special Emphasis Panel, Systems of records, 38037–38038 38051–38052 Education Department Agricultural Marketing Service NOTICES RULES Meetings: Potatoes (Irish) grown in— National Educational Research Policy and Priorities Southeastern States, 37934–37935 Board, 38038 Student Financial Assistance Advisory Committee, Agriculture Department 38038–38039 See Agricultural Marketing Service See Animal and Plant Health Inspection Service Energy Department See Federal Crop Insurance Corporation See Energy Efficiency and Renewable Energy Office See Natural Resources Conservation Service See Energy Research Office See Federal Energy Regulatory Commission Animal and Plant Health Inspection Service PROPOSED RULES RULES Foreign atomic energy activities; assistance: Viruses, serums, toxins, etc.: Nuclear information export policy; sensitive nuclear Packaging and labeling; effective date, 37936 technology; designation guidelines, 38220–38226 NOTICES Antitrust Division Natural gas exportation and importation: NOTICES AIG Trading Corp., 38043 National cooperative research notifications: Inland Pacific Energy Services Corp., 38043 Asymetrical Digital Subscriber Line Forum, 38058 Cable Television Laboratories, Inc.; correction, 38058 Energy Efficiency and Renewable Energy Office Flat Earth Group, L.L.C., 38058 PROPOSED RULES OSINET Corp., 38058 Energy conservation: PlantSTEP, Inc., 38059 Home energy rating system; voluntary guidelines, 37949– Coast Guard 37966 RULES Energy Research Office Ports and waterways safety: NOTICES Mississippi River, LA; regulated navigation area, 37941– Meetings: 37944 High Energy Physics Advisory Panel, 38042–38043 Commerce Department Environmental Protection Agency See International Trade Administration See National Oceanic and Atmospheric Administration RULES Air pollution control; new motor vehicles and engines: Commodity Futures Trading Commission On-board diagnostic systems; compliance with Federal RULES requirements by optional compliance with revised Commodity pool operators and commodity trading California requirements advisors: Partial withdrawal, 37945 Disclosure framework, 38146–38193 Toxic substances: Preliminary assessment information and health and safety Comptroller of the Currency data reporting rules— PROPOSED RULES List additions; correction, 37945–37946 Risk-based capital: PROPOSED RULES Market risk, 38082–38142 Acquisition regulations: Energy-efficient computer equipment coverage, 37982– Defense Department 37983 See Defense Nuclear Agency Hazardous waste: PROPOSED RULES Hazardous waste management system— Federal Acquisition Regulation (FAR): Testing and monitoring activities, 37974–37980 Quick contract closeout procedures, 38196–38197 NOTICES NOTICES Agency information collection activities under OMB Meetings: review, 38043–38045 Science Board/Defense Policy Board task forces, 38037 Science Board task forces, 38037 Farm Credit Administration Senior Executive Service: NOTICES Performance Review Board; membership, 38037 Meetings; Sunshine Act, 38078 IV Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Contents Federal Aviation Administration El Paso Natural Gas Co., 38039–38040 RULES Frontier Gas Storage Co., 38040 Airworthiness directives: Koch Gateway Pipeline Co., 38040–38041 Boeing, 37936–37938 Rhinelander Paper Co., 38041 Restricted areas, 37938 South Carolina Electric & Gas Co., 38041 PROPOSED RULES Tennessee Gas Pipeline Co., 38041 Airworthiness directives: Transcontinental Gas Pipe Line Corp., 38041–38042 Jetstream, 37966–37968 Williams Natural Gas Co., 38042 Piper, 37968–37969 Class E airspace, 37969–37972 NOTICES Federal Maritime Commission Advisory circulars; availability, etc.: NOTICES Airplane flight training device qualification, 38076 Agreements filed, etc., 38050 Flammable fluid fire hazards minimization, 38076–38077 Freight forwarder licenses: Organization, functions, and authority delegations: Mercury International, Inc., 38050 Salinas, CA, 38077 Passenger facility charges; applications, etc.: Federal Reserve System Tri-Cities Airport, WA, 38077 PROPOSED RULES Market risk capital requirements, 38142–38144 Federal Communications Commission Risk-based capital: RULES Market risk, 38082–38142 Radio stations; table of assignments: NOTICES Alabama, 37946 Applications, hearings, determinations, etc.: Alaska et al., 37946–37947 Clayton, James Lee, et al., 38050–38051 Arkansas et al., 37947 Comerica Inc., 38051 Georgia, 37947–37948 Riverside Bancshares, Inc., 38051 Montana, 37948 Wisconsin, 37948 PROPOSED RULES Fish and Wildlife Service Common carrier services: PROPOSED RULES International Section 214 authorization process and tariff Endangered and threatened species: requirements; streamlining, 37980–37981 Catalina Island mountain-mahogany, etc. (three plants Television stations; table of assignments: from Channel Islands, CA), 37987–37993 California, 37981 Hoffmann’s rock-cress, etc. (16 plant taxa from Northern NOTICES Channel Islands, CA), 37993–38011 International Bureau; expedited processing of international NOTICES Section 214 applications through grant stamp and Endangered and threatened species permit applications, status conferences, 38045 38055–38056 Applications, hearings, determinations, etc.: Coleman, Chester, et al., 38045–38046 Foreign Assets Control Office Federal Crop Insurance Corporation RULES RULES Libyan sanctions regulations: Crop insurance endorsements, etc.: Specially designated nationals; list, 37940–37941 Corn, grain sorghum, soybeans, etc.; late and prevented planting provisions; 1994 and succeeding crop years, General Services Administration 37933–37934 PROPOSED RULES Crop insurance regulations: Federal Acquisition Regulation (FAR): Figs, 37934 Quick contract closeout procedures, 38196–38197 Federal Deposit Insurance Corporation PROPOSED RULES Health and Human Services Department Risk-based capital: See Agency for Health Care Policy and Research Market risk, 38082–38142 See Health Resources and Services Administration See National Institutes of Health Federal Emergency Management Agency See Public Health Service NOTICES Disaster and emergency areas: Health Resources and Services Administration Missouri, 38046 NOTICES North Dakota, 38046 Grants and cooperative agreements; availability, etc.: Virginia, 38046–38047 Minority faculty fellowship program, 38052 West Virginia, 38047–38048 Hotel and Motel Fire Safety Act; national master list, 38048–38050 Housing and Urban Development Department NOTICES Federal Energy Regulatory Commission Agency information collection activities under OMB NOTICES review: Applications, hearings, determinations, etc.: Proposed agency information collection activities; Consolidated Water Power Co., 38039 comment request, 38054–38055 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Contents V Grants and cooperative agreements; availability, etc.: National Park Service Public and Indian housing— NOTICES Crime prevention through environmental design; National Register of Historic Places: technical assistance and training, 38214–38218 Pending nominations, 38056–38057 Public housing resident patrols training and technical assistance program, 38208–38212 National Transportation Safety Board NOTICES Meetings; Sunshine Act, 38078 Interior Department See Fish and Wildlife Service Natural Resources Conservation Service See Land Management Bureau NOTICES See National Park Service Environmental statements; availability, etc.: See Surface Mining Reclamation and Enforcement Office North Platte River Groundwater Quality Project Watershed, WY, 38031 International Trade Administration NOTICES Nuclear Regulatory Commission Antidumping: NOTICES Brass sheet and strip from— Abnormal occurrence reports: Germany, 38031–38035 Quarterly reports to Congress, 38059 Furfuryl alcohol from— Meetings; Sunshine Act, 38078 Thailand, 38035–38036 Applications, hearings, determinations, etc.: Duquesne Light Co. et al., 38059–38061 Justice Department Washington Public Power Supply System, 38061–38062 See Antitrust Division Postal Service NOTICES NOTICES Pollution control; consent judgments: Privacy Act: AAF McQuay, Inc., et al., 38057 Systems of records, 38062–38065 Alumet Partnership et al., 38057 Potomac Electric Power Co., 38057–38058 Public Health Service See Agency for Health Care Policy and Research Land Management Bureau See Health Resources and Services Administration NOTICES See National Institutes of Health Survey plat filings: NOTICES Arkansas, 38055 Meetings: Oregon, 38055 HIV/AIDS Presidential Advisory Council, 38054 Securities and Exchange Commission National Aeronautics and Space Administration NOTICES PROPOSED RULES Meetings; Sunshine Act, 38078–38079 Acquisition regulations: Self-regulatory organizations; proposed rule changes: Contractor qualifications, cost accounting standards Boston Stock Exchange, Inc., 38065–38066 administration, and contract cost principles and Chicago Board Options Exchange, Inc., 38066–38068 procedures, 37983–37986 Midwest Securities Trust Co., 38068–38069 Federal Acquisition Regulation (FAR): Municipal Securities Rulemaking Board, Inc., 38069– Quick contract closeout procedures, 38196–38197 38071 National Securities Clearing Corp., 38071–38072 National Highway Traffic Safety Administration Options Clearing Corp., 38072–38073 PROPOSED RULES Philadelphia Stock Exchange, Inc., et al., 38073–38075 Motor vehicle safety standards: Applications, hearings, determinations, etc.: Reflecting surfaces; rescission, 37986 Xerographic Laser Images Corp., 38075 National Institutes of Health Small Business Administration NOTICES NOTICES Meetings: Disaster loan areas: National Institute of Dental Research, 38053 Illinois, 38075–38076 Research Grants Division special emphasis panels, Surface Mining Reclamation and Enforcement Office 38053–38054 RULES Permanent program and abandoned mine land reclamation National Oceanic and Atmospheric Administration plan submissions: PROPOSED RULES Ohio, 37938–37940 Marine mammals: PROPOSED RULES Endangered fish or wildlife— Permanent program and abandoned mine land reclamation Coho salmon ranging from Oregon through central plan submissions: California, 38011–38030 Ohio, 37972–37974 NOTICES Meetings: Transportation Department Pacific Fishery Management Council, 38036 See Coast Guard VI Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Contents See Federal Aviation Administration Part V See National Highway Traffic Safety Administration Department of Transportation, 38200–38205 PROPOSED RULES Ominbus Transportation Employee Testing Act of 1991: Workplace drug and alcohol testing programs; Part VI procedures, 38200–38203 Department of Housing and Urban Development, 38208– NOTICES 38212 Workplace drug and alcohol testing programs; role of consortia and third-party administrators; guidance Part VII availability, 38204–38205 Department of Housing and Urban Development, 38214– 38218 Treasury Department See Comptroller of the Currency See Foreign Assets Control Office Part VIII Department of Energy, 38220–38226 Separate Parts In This Issue Part II Reader Aids Department of the Treasury, Comptroller of the Currency, Additional information, including a list of public laws, Federal Reserve System, and Federal Deposit Insurance telephone numbers, and finding aids, appears in the Reader Corporation; Federal Reserve System, 38082–38144 Aids section at the end of this issue. Part III Commodity Futures Trading Commission, 38146–38193 Electronic Bulletin Board Part IV Free Electronic Bulletin Board service for Public Law Department of Defense, General Services Administration, numbers, Federal Register finding aids, and a list of and National Aeronautics and Space Administration, documents on public inspection is available on 202–275– 38196–38197 1538 or 275–0920. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Contents VII 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. 7 CFR 49 CFR 401...... 37933 Proposed Rules: 457...... 37934 40...... 38200 953...... 37934 571...... 37986 9 CFR 50 CFR 112...... 37936 Proposed Rules: 17 (2 documents) ...... 37987, 10 CFR 37993 227...... 38011 Proposed Rules: 437...... 37949 810...... 38220 12 CFR Proposed Rules: 3...... 38082 208...... 38082 225...... 38082 325...... 38082 Ch. II ...... 38142 14 CFR 39...... 37936 73...... 37938 Proposed Rules: 39 (2 documents) ...... 37966, 37968 71 (3 documents) ...... 37939, 37970, 37971 17 CFR 1...... 38146 4...... 38146 30...... 38146 150...... 38146 30 CFR 935...... 37938 Proposed Rules: 935...... 37972 31 CFR 550...... 37940 33 CFR 165...... 37941 40 CFR 86...... 37945 712...... 37945 Proposed Rules: 260...... 37974 264...... 37974 265...... 37974 47 CFR 73 (6 documents) ...... 37946, 37947, 37948 Proposed Rules: 61...... 37980 63...... 37980 73...... 37981 48 CFR Proposed Rules: 42...... 38196 52...... 38196 1523...... 37982 1552...... 37982 1809...... 37983 1830...... 37983 1831...... 37983 37933 Rules and Regulations Federal Register Vol. 60, No. 142 Tuesday, July 25, 1995 This section of the FEDERAL REGISTER cotton, barley, oats, wheat, and soybean Order 12778. The provisions of this rule contains regulatory documents having general endorsement regulations affected by this are retroactively effective as of applicability and legal effect, most of which rule under those procedures. The sunset November 30, 1993, and will preempt are keyed to and codified in the Code of review dates established for these state and local laws to the extent such Federal Regulations, which is published under regulations are as follows: corn, grain 50 titles pursuant to 44 U.S.C. 1510. state and local laws are inconsistent sorghum, hybrid sorghum seed, herewith. The administrative appeal The Code of Federal Regulations is sold by soybeans, cotton, ELS cotton, and rice, provisions located at 7 CFR part 400, the Superintendent of Documents. Prices of March 1, 1999; and barley, oats, and subpart J or promulgated by the new books are listed in the first FEDERAL wheat, July 1, 1998. National Appeals Division, whichever is REGISTER issue of each week. This rule has been determined to be applicable, must be exhausted before ‘‘not significant’’ for the purposes of judicial action may be brought. Executive Order 12866 and, therefore, This action is not expected to have DEPARTMENT OF AGRICULTURE has not been reviewed by the Office of any significant impact on the quality of Management and Budget (‘‘OMB’’). Federal Crop Insurance Corporation The provisions set forth in this rule the human environment, health, and safety. Therefore, neither an 7 CFR Part 401 do not impose burdensome information collection requirements that require Environmental Assessment nor an RIN 0563±AA80 clearance by the Office of Management Environmental Impact Statement is needed. General Crop Insurance Regulations; and Budget under the Paperwork Late and Prevented Planting for Reduction Act of 1980 (44 U.S.C. 3501 On Wednesday, December 22, 1993, Various Crop Endorsements et seq.). FCIC published an interim rule in the It has been determined under section Federal Register at 58 FR 67630 to AGENCY: Federal Crop Insurance 6(a) of Executive Order 12612, amend the General Crop Insurance Corporation. Federalism, that this rule does not have Regulations (7 CFR part 401) by revising ACTION: Final rule. sufficient federalism implication to the late and prevented planting warrant the preparation of a Federalism provisions of the corn endorsement SUMMARY: The Federal Crop Insurance Assessment. The policies and (§ 401.111), grain sorghum endorsement Corporation (FCIC) hereby adopts procedures contained in this rule will (§ 401.113), and the soybean regulations to insure late and prevented not have a substantial direct effect on endorsement (§ 401.117), effective for planting for specific crop provisions states or their political subdivisions, or the 1994 and succeeding crop years, as contained in the General Crop Insurance on the distribution of power and well as incorporating late and prevented Regulations, effective for the 1994 and responsibilities among the various planting provisions into the hybrid succeeding crop years. The intended levels of government. sorghum seed (§ 401.109), rice effect of this action is to revise the late This regulation will not have a (§ 401.120), cotton (§ 401.119), barley planting and prevented planting significant impact on a substantial (§ 401.103), oats (§ 401.105), and wheat provisions of the corn, grain sorghum, number of small entities. The amount of (§ 401.101) endorsements. In addition, and soybean endorsements. work required of the insurance the ELS cotton (§ 401.121) endorsement Additionally, this rule serves to companies delivering these policies and was revised by incorporating the incorporate the late and prevented the procedures therein will not increase planting coverage into the hybrid prevented planting provisions into that from the amount required to deliver policy. Since this rule benefited the sorghum seed, rice, cotton, barley, oats, previous policies. In fact, this action and wheat crop endorsements and to insured by improving coverage for reduces the paperwork burden on the policyholders, good cause was found to incorporate the prevented planting insured farmer and insurance providers. coverage into the ELS cotton make the interim rule retroactively Therefore, this action is determined to effective as of November 30, 1993. endorsement. be exempt from the provisions of the The changes were effective for the EFFECTIVE DATE: November 30, 1993. Regulatory Flexibility Act (5 U.S.C. 605) 1994 and succeeding crop years in all FOR FURTHER INFORMATION CONTACT: and no Regulatory Flexibility Analysis counties for corn, cotton, ELS cotton, Diana Moslak, Federal Crop Insurance was prepared. Corporation, Regulatory and Procedural This program is listed in the Catalog grain sorghum, hybrid sorghum seed, Development Staff, Suite 500, 2101 L of Federal Domestic Assistance under rice, and soybeans; and for barley, oats, Street NW., Washington, DC 20037. No. 10.450. and wheat only in counties with a Telephone (202) 254–8314. This program is not subject to the December 31 contract change. The SUPPLEMENTARY INFORMATION: This provisions of Executive Order 12372 changes will be effective for all barley, action has been reviewed under United which require intergovernmental oat, and wheat counties for the 1995 and States Department of Agriculture consultation with state and local succeeding crop years. (‘‘USDA’’) procedures established by officials. See the Notice related to 7 CFR Following publication of the interim Executive Order 12866 and part 3015, subpart V, published at 48 FR rule, the public was afforded 60 days to Departmental Regulation 1512–1. This 29115, June 24, 1983. submit written comments, data and action does not constitute a review as to The Office of the General Counsel has opinions, but none were received. the need, currency, clarity, and determined that these regulations meet Therefore, the interim rule as published effectiveness of the corn, grain sorghum, the applicable standards provided in on December 22, 1993, at 58 FR 67630 hybrid sorghum seed, rice, cotton, ELS subsections 2(a) and 2(b)(2) of Executive is hereby adopted as a final rule. 37934 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations List of Subjects in 7 CFR Part 401 has not been reviewed by the Office of opinions but none were received. Crop insurance, barley, corn, cotton, Management and Budget (‘‘OMB’’). Therefore, the interim rule as published This rule does not impose ELS cotton, grain sorghum, hybrid on March 1, 1994, is hereby adopted as burdensome information collection sorghum seed, oats, rice, soybeans and a final rule. provisions that would require clearance wheat. by the Office of Management and List of Subjects in 7 CFR Part 457 Final Rule Budget under the Paperwork Reduction Crop insurance, figs. Accordingly, pursuant to the Act of 1980 (44 U.S.C. 3501 et seq.). Final Rule It has been determined under section authority contained in the Federal Crop 6(a) of Executive Order 12612, Accordingly, pursuant to the Insurance Act, as amended (7 U.S.C. Federalism, that this final rule does not authority contained in the Federal Crop 1501 et seq.) and for the reasons set have sufficient federalism implication to Insurance Act, as amended (7 U.S.C. forth in the preamble, the Federal Crop warrant the preparation of a Federalism 1501 et seq.), the Federal Crop Insurance Corporation hereby adopts as Assessment. The policies and Insurance Corporation hereby adopts as a final rule, the interim rule as procedures contained in this rule will a final rule the interim rule as published published at 58 FR 67630 on December not have a substantial direct effect on at 59 FR 9614 on March 1, 1994. 22, 1993. states or their political subdivisions, or Done in Washington, D.C. on July 18, 1995. Done in Washington, D.C., on July 18, on the distribution of power and Kenneth D. Ackerman, 1995. responsibilities among the various Manager, Federal Crop Insurance Kenneth D. Ackerman, levels of government. Corporation. Manager, Federal Crop Insurance This regulation will not have a [FR Doc. 95–18211 Filed 7–24–95; 8:45 am] Corporation. significant impact on a substantial BILLING CODE 3410±08±P [FR Doc. 95–18210 Filed 7–24–95; 8:45 am] number of small entities. This action BILLING CODE 3410±08±P requires no more of the reinsured company or the producer than was Agricultural Marketing Service necessary to deliver previous policies. 7 CFR Part 457 Therefore, this action is determined to 7 CFR Part 953 be exempt from the provisions of the [Docket No. FV95±953±1FIR] RIN 0563±AB03 Regulatory Flexibility Act (5 U.S.C. 605) Common Crop Insurance Regulations; and no Regulatory Flexibility Analysis Southeastern Potatoes; Expenses and Fig Crop Insurance Provisions was prepared. Assessment Rate This program is listed in the Catalog AGENCY: Federal Crop Insurance of Federal Domestic Assistance under AGENCY: Agricultural Marketing Service, Corporation. No. 10.450. USDA. This program is not subject to ACTION: Final rule. ACTION: Final rule. Executive Order 12372 which requires SUMMARY: The Department of SUMMARY: The Federal Crop Insurance intergovernmental consultation with Agriculture (Department) is adopting as Corporation hereby adopts regulations State and local officials. See the Notice related to 7 CFR part 3015, subpart V, a final rule, without change, the to add the fig regulations, the Fig Crop provisions of an interim final rule that Insurance Provisions, to the common published at 48 FR 29115, June 24, 1983. authorized expenses and established an crop insurance regulations. The assessment rate that generated funds to intended effect of this action is to The Office of the General Counsel has determined that these regulations meet pay those expenses. Authorization of provide quality adjustment provisions this budget enables the Southeastern and reflect the lower prices received for the applicable standards provided in subsections 2(a) and 2(b)(2) of Executive Potato Committee (Committee) to incur figs based on the grades contained in the expenses that are reasonable and recently amended marketing order. Order 12778. The provisions of this rule will preempt any state or local laws to necessary to administer the program. EFFECTIVE DATE: February 1, 1994. the extent such state and local laws are Funds to administer this program are FOR FURTHER INFORMATION CONTACT: inconsistent herewith. The derived from assessments on handlers. Diana Moslak, Regulatory and administrative appeal provisions EFFECTIVE DATE: June 1, 1995, through Procedural Development Staff, Federal located at 7 CFR part 400, subpart J or May 31, 1996. Crop Insurance Corporation, USDA, promulgated by the National Appeals FOR FURTHER INFORMATION CONTACT: 2101 L Street, Suite 500, Washington, Division, whichever is applicable, must Martha Sue Clark, Marketing Order D.C. 20036. Telephone (202) 254–8314. be exhausted before judicial action may Administration Branch, Fruit and SUPPLEMENTARY INFORMATION: This be brought. Vegetable Division, AMS, USDA, P.O. action has been reviewed under United This action is not expected to have Box 96456, room 2523–S, Washington, States Department of Agriculture any significant impact on the quality of DC 20090–6456, telephone 202–720– (‘‘USDA’’) procedures established by the environment, health, and safety. 9918. Executive Order 12866 and Therefore, neither an Environmental SUPPLEMENTARY INFORMATION: This rule Departmental Regulation 1512–1. This Assessment nor an Environmental is issued under Marketing Agreement action constitutes a review as to the Impact Statement is needed. No. 104 and Order No. 953, both as need, currency, clarity, and On Tuesday, March 1, 1994, FCIC amended (7 CFR part 953), regulating effectiveness of these regulations under published an interim rule in the Federal the handling of Irish potatoes grown in those procedures. The sunset review Register at 59 FR 9614 to revise the two southeastern States (Virginia and date established for these regulations is Common Crop Insurance Regulations by North Carolina). The marketing March 1, 1999. adding provisions for fig crop insurance. agreement and order are effective under This rule has been determined to be Following publication of the interim the Agricultural Marketing Agreement ‘‘not significant’’ for the purposes of rule, the public was afforded 60 days to Act of 1937, as amended (7 U.S.C. 601– Executive Order 12866 and therefore, submit written comments, data, and 674), hereinafter referred to as the Act. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 37935 The Department is issuing this rule in majority of Southeastern potato are in the form of uniform assessments conformance with Executive Order producers and handlers may be on handlers. Some of the additional 12866. classified as small entities. costs may be passed on to producers. This rule has been reviewed under The budget of expenses for the 1995– However, these costs will be offset by Executive Order 12778, Civil Justice 96 fiscal period was prepared by the the benefits derived by the operation of Reform. Under the provisions of the Southeastern Potato Committee, the the marketing order. Therefore, the marketing order now in effect, Virginia- agency responsible for local Administrator of the AMS has North Carolina potatoes are subject to administration of the marketing order, determined that this action will not assessments. It is intended that the and submitted to the Department for have a significant economic impact on assessment rate as issued herein will be approval. The members of the a substantial number of small entities. applicable to all assessable potatoes Committee are producers and handlers during the 1995–96 fiscal period, which of Southeastern potatoes. They are After consideration of all relevant began June 1, 1995, and ends May 31, familiar with the Committee’s needs and matter presented, including the 1996. This final rule will not preempt with the costs of goods and services in information and recommendations any State or local laws, regulations, or their local area and are thus in a submitted by the Committee and other policies, unless they present an position to formulate an appropriate available information, it is hereby found irreconcilable conflict with this rule. budget. The budget was formulated and that this rule, as hereinafter set forth, The Act provides that administrative discussed in a public meeting. Thus, all will tend to effectuate the declared proceedings must be exhausted before directly affected persons have had an policy of the Act. parties may file suit in court. Under opportunity to participate and provide It is further found that good cause section 608c(15)(A) of the Act, any input. exists for not postponing the effective handler subject to an order may file The assessment rate recommended by date of this rule until 30 days after with the Secretary a petition stating that the Committee was derived by dividing publication in the Federal Register (5 the order, any provision of the order, or anticipated expenses by expected any obligation imposed in connection shipments of Southeastern potatoes, U.S.C. 553), because the Committee with the order is not in accordance with based on last season’s assessable needs to have sufficient funds to pay its law and request a modification of the shipments of approximately 1,124,736 expenses which are incurred on a order or to be exempted therefrom. Such hundredweight. Because that rate will continuous basis. The 1995–96 fiscal handler is afforded the opportunity for be applied to actual shipments, it must period began on June 1, 1995. The a hearing on the petition. After the be established at a rate that will provide marketing order requires that the rate of hearing the Secretary would rule on the sufficient income to pay the assessment for the fiscal period apply to petition. The Act provides that the Committee’s expenses. all assessable Irish potatoes handled district court of the United States in any The Committee met April 20, 1995, during the fiscal period. In addition, district in which the handler is an and unanimously recommended a handlers are aware of this rule which inhabitant, or has his or her principal 1995–96 budget of $12,000, $1,000 more was recommended by the Committee at place of business, has jurisdiction in than the previous year. The budget item a public meeting and published in the equity to review the Secretary’s ruling for 1995–96 which has increased Federal Register as an interim final rule. on the petition, provided a bill in equity compared to that budgeted for 1994–95 is filed not later than 20 days after the (in parentheses) is: Manager’s salary, List of Subjects in 7 CFR Part 953 date of the entry of the ruling. $5,800 ($4,800). All other items are Pursuant to the requirements set forth budgeted at last year’s amounts. in the Regulatory Flexibility Act (RFA), The Committee also recommended an Marketing agreements, Potatoes, the Administrator of the Agricultural assessment rate of $0.0050 per Reporting and recordkeeping Marketing Service (AMS) has hundredweight, $0.0025 less than last requirements. considered the economic impact of this season’s rate. When the Committee met, rule on small entities. planting for the 1995 crop had not been For the reasons set forth in the The purpose of the RFA is to fit completed. Current indications are that preamble, 7 CFR part 953 is amended as regulatory actions to the scale of assessable shipments may be slightly follows: business subject to such actions in order higher than last season and that about that small businesses will not be unduly $6,000 in assessment income will be Note: This section will not appear in the or disproportionately burdened. generated. This, along with funds from Code of Federal Regulations. Marketing orders issued pursuant to the the Committee’s reserve, will be Act, and the rules issued thereunder, are adequate to cover the expenses PART 953ÐIRISH POTATOES GROWN unique in that they are brought about incurred. Funds remaining at the end of IN SOUTHEASTERN STATES through group action of essentially the 1995–96 fiscal period should be small entities acting on their own within the maximum permitted by the behalf. Thus, both statutes have small order of approximately one fiscal Accordingly, the interim final rule entity orientation and compatibility. period’s expenses. adding § 953.252 which was published There are approximately 150 An interim final rule was published at 60 FR 28701, is adopted as a final rule producers of Southeastern potatoes in the Federal Register on June 2, 1995 without change. under this marketing order, and (60 FR 28701). That interim final rule approximately 60 handlers. Small added § 953.252 to authorize expenses Dated: July 20, 1995. agricultural producers have been and establish an assessment rate for the defined by the Small Business Committee. That rule provided that Sharon Bomer Lauritsen, Administration (13 CFR 121.601) as interested persons could file comments Deputy Director, Fruit and Vegetable Division. those having annual receipts of less than through July 3, 1995. No comments $500,000, and small agricultural service were received. [FR Doc. 95–18245 Filed 7–24–95; 8:45 am] firms are defined as those whose annual While this action will impose some receipts are less than $5,000,000. The additional costs on handlers, the costs BILLING CODE 3410±02±P 37936 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations Animal and Plant Health Inspection products are not repackaged or relabeled ACTION: Final rule. Service after leaving a licensed establishment. To allow additional time for SUMMARY: This amendment supersedes 9 CFR Part 112 arrangements to be made for the an existing airworthiness directive (AD), applicable to certain Boeing Model 767 [Docket No. 92±098±4] production of single-dose or individually-packaged biological series airplanes equipped with over- Viruses, Serums, Toxins, and products that would be in compliance wing escape slides, that currently Analogous Products; Packaging and with the provisions of the final rule, requires modification of the trailing Labeling APHIS postponed the effective date of edge panels and the aft flaps. That the rule an additional 180 days until amendment was prompted by the AGENCY: Animal and Plant Health August 19, 1995 (60 FR 2876–2877, results of functional tests of over-wing Inspection Service, USDA. Docket No. 92–098–3, January 12, 1995). escape slides, which revealed that some ACTION: Final rule; confirmation of Several manufacturers are currently slides were damaged when they were effective date. producing such products for distributors deployed across sharp corners on the for further sale to consumers. trailing edge of the wing and the large SUMMARY: This document confirms that This document provides notice to gaps between the trailing edge panels of the final rule on the packaging and interested persons that the final rule on the wing. This amendment expands the labeling of veterinary biological the repackaging and relabeling of applicability of the existing AD to products becomes effective on August veterinary biologics will take effect on include additional airplanes. The 19, 1995. Upon the effective date, the August 19, 1995, as announced in the actions specified by this AD are final rule prohibits the repackaging and January 12, 1995, Federal Register intended to prevent damage to the over- relabeling, for further sale or notice. wing escape slide, which could hinder distribution, of final containers of After the August 19, 1995, effective inflation of the slide to a usable product that are imported or that are date of the rule, veterinary biological configuration during an emergency prepared at licensed establishments. products that have already been evacuation. After the effective date, veterinary repackaged before that date may DATES: Effective August 24, 1995. biological products that have been continue to be distributed for further The incorporation by reference of repackaged before that date may sale for a period of 6 months until Boeing Service Bulletin 767–57–0043, continue to be distributed for further February 19, 1996, to permit final Revision 3, dated February 2, 1995, as sale for a period of 6 months until distribution of repackaged biologics in listed in the regulations, is approved by February 19, 1996, to permit final marketing channels. Distribution of the Director of the Federal Register as of distribution of repackaged biologics that products repackaged after August 19, August 24, 1995. remain in marketing channels. During 1995, would not be allowed. The incorporation by reference of the course of the six-month period, During the course of the six-month certain other publications listed in the APHIS will be closely monitoring the transition period, APHIS will be closely regulations was approved previously by availability of single-dose or monitoring the availability of single- the Director of the Federal Register as of individually-packaged products for use dose products for use by non- January 31, 1994 (58 FR 69221, by non-veterinarians. veterinarians. APHIS is committed to December 30, 1993). EFFECTIVE DATE: The effective date of the ensuring the availability of single-dose ADDRESSES: The service information final rule published at 59 FR 43441 products and will take whatever action referenced in this AD may be obtained (August 24, 1994) and postponed at 60 may be necessary to assure that from Boeing Commercial Airplane FR 2876 (January 12, 1995) is confirmed sufficient product is available for use by Group, P.O. Box 3707, Seattle, as August 19, 1995. consumers. Washington 98124–2207. This FOR FURTHER INFORMATION CONTACT: Dr. Authority: 21 U.S.C. 151–159; 7 CFR 2.17, information may be examined at the David A. Espeseth, Deputy Director, 2.51, and 371.2(d). Federal Aviation Administration (FAA), Veterinary Biologics, BBEP, APHIS, Done in Washington, DC, this 19th day of Transport Airplane Directorate, Rules 4700 River Road Unit 148, Riverdale, July, 1995. Docket, 1601 Lind Avenue, SW., MD, 20737–1237, (301) 734–8245. Terry Medley, Renton, Washington; or at the Office of the Federal Register, 800 North Capitol SUPPLEMENTARY INFORMATION: Under Acting Administrator, Animal and Plant authority of the Virus-Serum-Toxin Act Health Inspection Service. Street, NW., suite 700, Washington, DC. (21 U.S.C. 151–159), as amended by the [FR Doc. 95–18227 Filed 7–21–95; 8:45 am] FOR FURTHER INFORMATION CONTACT: Dorothy Lundy, Aerospace Engineer, Food Security Act of 1985, the Animal BILLING CODE 3410±34±P and Plant Health Inspection Service ANM–120S, Airframe Branch, FAA, (APHIS), U.S. Department of Transport Airplane Directorate, Seattle Agriculture, published a proposed rule Aircraft Certification Office, 1601 Lind DEPARTMENT OF TRANSPORTATION on April 28, 1993 (58 FR 25786–25788, Avenue, SW., Renton, Washington Docket No. 92–098–1) concerning Federal Aviation Administration 98055–4056; telephone (206) 227–1675; repackaging and relabeling of veterinary fax (206) 227–1181. biologics. During the 60-day comment 14 CFR Part 39 SUPPLEMENTARY INFORMATION: A period, thirty-nine comments were proposal to amend part 39 of the Federal received. Thirty-six comments were in [Docket No. 95±NM±08±AD; Amendment Aviation Regulations (14 CFR part 39) support of the rule; three were not. The 39±9304; AD 95±15±01] by superseding AD 93–25–06, final rule was published on August 24, Airworthiness Directives; Boeing amendment 39–8772 (58 FR 69221, 1994 (59 FR 43441–43445, Docket No. Model 767 Series Airplanes Equipped December 30, 1993), which is applicable 92–098–2) with a 180-day transition with Over-Wing Escape Slides to certain Boeing Model 767 series period before the rule was scheduled to airplanes equipped with over-wing become effective on February 21, 1995. AGENCY: Federal Aviation escape slides, was published in the The purpose of the rule is to ensure that Administration, DOT. Federal Register on April 3, 1995 (60 FR Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 37937 16817). That action proposed to Required parts will be supplied by the Authority: 49 U.S.C. App. 1354(a), 1421 continue to require modification of the manufacturer at no cost to the operators. and 1423; 49 U.S.C. 106(g); and 14 CFR trailing edge panels and the aft flaps. Based on these figures, the total cost 11.89. The action also proposed to revise the impact of the AD on U.S. operators is § 39.13 [Amended] applicability of the existing rule to estimated to be $427,200, or $2,400 per include additional airplanes. airplane. 2. Section 39.13 is amended by Interested persons have been afforded However, approximately 166 U.S.- removing amendment 39–8772 (58 FR an opportunity to participate in the registered airplanes previously were 69221, December 30, 1993), and by making of this amendment. Due required by AD 93–25–06 to accomplish adding a new airworthiness directive consideration has been given to the the subject modification. This AD will (AD), amendment 39–9304, to read as single comment received. affect only 12 additional U.S.-registered follows: The commenter requests that the FAA airplanes. Therefore, the cost to modify 95–15–01 Boeing: Amendment 39–9304. revise the term ‘‘serial numbers’’ to these 12 newly added airplanes is Docket 95–NM–08–AD. Supersedes AD 93– ‘‘line numbers’’ in paragraphs (a) and (b) estimated to be $28,800, or $2,400 per 25–06, Amendment 39–8772. of the proposal. The FAA concurs. The airplane. Applicability: Model 767 series airplanes, FAA has determined that the The total cost impact figures having line positions 1 through 542 commenter’s wording is more accurate, discussed above are based on inclusive, and equipped with over-wing and has revised the final rule assumptions that no operator has yet escape slides; certificated in any category. accordingly. accomplished any of the requirements Note 1: This AD applies to each airplane The commenter requests that the FAA of this AD action, and that no operator identified in the preceding applicability revise paragraph (b) of the proposal to would accomplish those actions in the provision, regardless of whether it has been include Boeing Service Bulletin 767– future if this AD were not adopted. modified, altered, or repaired in the area 57–0043, Revision 1, dated May 6, 1993, The regulations adopted herein will subject to the requirements of this AD. For airplanes that have been modified, altered, or and Revision 2, dated September 16, not have substantial direct effects on the repaired so that the performance of the 1993, as additional sources of service States, on the relationship between the requirements of this AD is affected, the information. The commenter states that national government and the States, or owner/operator must use the authority the modification procedures described on the distribution of power and provided in paragraph (c) of this AD to in those revisions are identical to those responsibilities among the various request approval from the FAA. This described in Revision 3 of Boeing levels of government. Therefore, in approval may address either no action, if the Service Bulletin 767–57–0043, dated accordance with Executive Order 12612, current configuration eliminates the unsafe February 2, 1995 [referenced in it is determined that this final rule does condition; or different actions necessary to paragraph (b) of the proposal as the not have sufficient federalism address the unsafe condition described in appropriate source of service implications to warrant the preparation this AD. Such a request should include an assessment of the effect of the changed information.] The FAA has reviewed of a Federalism Assessment. configuration on the unsafe condition Revision 1 and Revision 2 of Boeing For the reasons discussed above, I addressed by this AD. In no case does the Service Bulletin 767–57–0043 and has certify that this action (1) is not a presence of any modification, alteration, or determined that the modification ‘‘significant regulatory action’’ under repair remove any airplane from the procedures described in those service Executive Order 12866; (2) is not a applicability of this AD. bulletins are essentially identical to ‘‘significant rule’’ under DOT Compliance: Required as indicated, unless Revision 3 of the Boeing service Regulatory Policies and Procedures (44 accomplished previously. bulletin. Revision 3 of the Boeing FR 11034, February 26, 1979); and (3) To prevent damage to the over-wing escape service bulletin only revises the will not have a significant economic slide, which could hinder inflation of the effectivity listing to include additional impact, positive or negative, on a slide to a usable configuration during an airplanes. Therefore, the FAA has substantial number of small entities emergency evacuation, accomplish the revised paragraph (b) of the final rule to under the criteria of the Regulatory following: (a) For airplanes having line numbers 1 reference Revision 1 and Revision 2 of Flexibility Act. A final evaluation has through 476 inclusive: Within 15 months Boeing Service Bulletin 767–57–0043 as been prepared for this action and it is after January 31, 1994 (the effective date of additional sources of service contained in the Rules Docket. A copy AD 93–25–06, amendment 39–8772), modify information. of it may be obtained from the Rules the trailing edge panels and the aft flaps, in After careful review of the available Docket at the location provided under accordance with Boeing Service Bulletin data, including the comments noted the caption ADDRESSES. 767–57–0043, Revision 1, dated May 6, 1993; above, the FAA has determined that air Revision 2, dated September 16, 1993; or List of Subjects in 14 CFR Part 39 safety and the public interest require the Revision 3, dated February 2, 1995. adoption of the rule with the changes Air transportation, Aircraft, Aviation (b) For airplanes having line numbers 477 through 542 inclusive: Within 15 months previously described. The FAA has safety, Incorporation by reference, Safety. after the effective date of this AD, modify the determined that these changes will trailing edge panels and the aft flaps, in neither increase the economic burden Adoption of the Amendment accordance with Boeing Service Bulletin on any operator nor increase the scope 767–57–0043, Revision 1, dated May 6, 1993; of the AD. Accordingly, pursuant to the Revision 2, dated September 16, 1993; or There are approximately 542 Model authority delegated to me by the Revision 3, dated February 2, 1995. 767 series airplanes equipped with over- Administrator, the Federal Aviation (c) An alternative method of compliance or wing escape slides of the affected design Administration amends part 39 of the adjustment of the compliance time that in the worldwide fleet. The FAA Federal Aviation Regulations (14 CFR provides an acceptable level of safety may be estimates that 178 airplanes of U.S. part 39) as follows: used if approved by the Manager, Seattle Aircraft Certification Office (ACO), FAA, registry will be affected by this AD, that PART 39ÐAIRWORTHINESS Transport Airplane Directorate. Operators it will take approximately 40 work DIRECTIVES shall submit their requests through an hours per airplane to accomplish the appropriate FAA Principal Maintenance required actions, and that the average 1. The authority citation for part 39 Inspector, who may add comments and then labor rate is $60 per work hour. continues to read as follows: send it to the Manager, Seattle ACO. 37938 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations Note 2: Information concerning the Office (ATM–420), Office of Air Traffic PART 73Ð[AMENDED] existence of approved alternative methods of System Management, Federal Aviation compliance with this AD, if any, may be Administration, 800 Independence 1. The authority citation for part 73 obtained from the Seattle ACO. Avenue, SW., Washington, DC 20591; continues to read as follows: (d) Special flight permits may be issued in telephone: (202) 493–4050. accordance with sections 21.197 and 21.199 Authority: 49 U.S.C. 40103, 40113, 40120; of the Federal Aviation Regulations (14 CFR SUPPLEMENTARY INFORMATION: E.O. 10854, 24 FR 9565, 3 CFR, 1959–1963 21.197 and 21.199) to operate the airplane to Comp., p. 389; 49 U.S.C. 106(g); 14 CFR a location where the requirements of this AD The Rule 11.69. can be accomplished. This amendment to part 73 of the § 73.69 [Amended] (e) The modifications shall be done in Federal Aviation Regulations amends accordance with Boeing Service Bulletin 767–57–0043, Revision 1, dated May 6, 1993; the time of designation for Restricted 2. Section 73.69 is amended as Boeing Service Bulletin 767–57–0043, Areas R–6903, R–6904A, and R–6904B. follows: Revision 2, dated September 16, 1993; or The time of designation for R–6903 is Boeing Service Bulletin 767–57–0043, reduced from ‘‘Continuous, sunrise to R–6903 Sheboygan, WI [Amended] Revision 3, dated February 2, 1995; as sunset,’’ to ‘‘Intermittent by NOTAM.’’ By removing the existing ‘‘Time of applicable. The incorporation by reference of The time of designation for R–6904A designation. Continuous, sunrise to Boeing Service Bulletin 767–57–0043, and R–6904B is reduced from ‘‘Sunrise Revision 3, dated February 2, 1995, is sunset.’’ and substituting the following: approved by the Director of the Federal to 1900 local time, other times by ‘‘Time of designation. Intermittent by Register in accordance with 5 U.S.C. 552(a) NOTAM,’’ to ‘‘0800–1600 local time, NOTAM.’’ Tuesday through Saturday, other times and 1 CFR part 51. The incorporation by R–6904A Volk Field, WI [Amended] reference of the remainder of the service by NOTAM.’’ I find that notice and documents listed above was approved public procedure under 5 U.S.C. 553(b) By removing the existing ‘‘Time of previously by the Director of the Federal are unnecessary because this action is a designation. Sunrise to 1900 local time. Register in accordance with 5 U.S.C. 552(a) minor technical amendment in which Other times by NOTAM.’’ and and 1 CFR part 51 as of January 31, 1994 (58 substituting the following: ‘‘Time of FR 69221, December 30, 1993). Copies may the public would not be particularly be obtained from Boeing Commercial interested. Section 73.69 of part 73 of designation. 0800–1600 local time, Airplane Group, P.O. Box 3707, Seattle, the Federal Aviation Regulations was Tuesday through Saturday. Other times Washington 98124–2207. Copies may be republished in FAA Order 7400.8B by NOTAM.’’ inspected at the FAA, Transport Airplane dated March 9, 1994. R–6904B Volk Field, WI [Amended] Directorate, 1601 Lind Avenue SW., Renton, The FAA has determined that this Washington; or at the Office of the Federal regulation only involves an established By removing the existing ‘‘Time of Register, 800 North Capitol Street NW., suite body of technical regulations for which designation. Sunrise to 1900 local time. 700, Washington, DC. Other times by NOTAM.’’ and (f) This amendment becomes effective on frequent and routine amendments are August 24, 1995. necessary to keep them operationally substituting the following: ‘‘Time of Issued in Renton, Washington, on July 6, current. It, therefore—(1) Is not a designation. 0800–1600 local time, 1995. ‘‘significant regulatory action’’ under Tuesday through Saturday. Other times Darrell M. Pederson, Executive Order 12866; (2) is not a by NOTAM.’’ Acting Manager, Transport Airplane ‘‘significant rule’’ under DOT Issued in Washington, DC, on July 12, Directorate, Aircraft Certification Service. Regulatory Policies and Procedures (44 1995. [FR Doc. 95–17031 Filed 7–24–95; 8:45 am] FR 11034; February 26, 1979); and (3) Nancy B. Kalinowski, BILLING CODE 4910±13±U does not warrant preparation of a Acting Manager, Airspace—Rules and regulatory evaluation as the anticipated Aeronautical Information Division. impact is so minimal. Since this is a [FR Doc. 95–17902 Filed 7–24–95; 8:45 am] 14 CFR Part 73 routine matter that will only affect air BILLING CODE 4910±13±P traffic procedures and air navigation, it [Airspace Docket No. 95±AGL±3] is certified that this rule will not have Change Time of Designation for a significant economic impact on a DEPARTMENT OF THE INTERIOR Restricted Areas R±6903 Sheboygan, substantial number of small entities R±6904A and R±6904B, Volk Field; WI under the criteria of the Regulatory Office of Surface Mining Reclamation Flexibility Act. and Enforcement AGENCY: Federal Aviation Environmental Review Administration (FAA), DOT. 30 CFR Part 935 ACTION: Final rule. The action reduces the restricted areas [OH±235; Amendment Number 70R] time of designation. In accordance with SUMMARY: This action reduces the time FAA Order 1050.1D, ‘‘Policies and Ohio Regulatory Program of designation for Restricted Areas R– Procedures for Considering 6903, Sheboygan, R–6904A, and R– Environmental Impacts,’’ this action is AGENCY: Office of Surface Mining 6904B, Volk Field; WI. The Department not subject to environmental Reclamation and Enforcement (OSM), of the Air Force has reviewed current assessments and procedures and the Interior. requirements for these areas and National Environmental Policy Act. ACTION: Final rule; approval of determined that the current designated amendment. times may be reduced. This action List of Subjects in 14 CFR Part 73 increases the availability of restricted Airspace, Navigation (air). SUMMARY: OSM is announcing the airspace for public use. approval of a proposed amendment to EFFECTIVE DATE: 0901 UTC, September Adoption of the Amendment the Ohio regulatory program (hereinafter 14, 1995. In consideration of the foregoing, the referred to as the Ohio program) under FOR FURTHER INFORMATION CONTACT: Jim Federal Aviation Administration the Surface Mining Control and Robinson, Military Operations Program amends 14 CFR part 73 as follows: Reclamation Act of 1977 (SMCRA). The Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 37939 amendment was initiated by Ohio and one further revision to OAC section IV. Summary and Disposition of is intended to make the Ohio program 1501:13–14–01 paragraph (A)(3)(c)(ii). Comments as effective as the corresponding Federal OSM announced receipt of PA 70R in Public Comments regulations concerning the frequency of the June 16, 1995, Federal Register (60 inspections at abandoned coal mining FR 31661), and in the same document, On April 11 and June 16, 1995, the operations. opened the public comment period and Director solicited public comments and EFFECTIVE DATE: July 25, 1995. provided an opportunity for a public provided an opportunity for a public FOR FURTHER INFORMATION CONTACT: hearing on the adequacy of the proposed hearing on the proposed amendment. Ms. Beverly C. Brock, Acting Director, amendment. The public comment No public comments were received. No Columbus Field Office, Office of Surface period closed on July 3, 1995. public hearings were held as no one Mining Reclamation and Enforcement, III. Director’s Findings requested the opportunity to provide 4480 Refugee Road, Suite 201, testimony. Set forth below, pursuant to SMCRA Columbus, Ohio 43232; Telephone: Agency Comments (614) 866–0578. and the Federal regulations at 30 CFR 732.15 and 732.17, are the Director’s SUPPLEMENTARY INFORMATION: Pursuant to 30 CFR 732.17(h)(11)(i), findings concerning the proposed the Director solicited comments on the I. Background on the Ohio Program. amendment to the Ohio program. Only II. Discussion of the Proposed Amendment. proposed amendment from the Regional III. Director’s Findings. substantive changes to Ohio’s rules are Director of the U.S. Environmental IV. Summary and Disposition of Comments. discussed below. Rule revisions which Protection Agency (EPA) and from the V. Director’s Decision. are not discussed below concern heads of four other Federal agencies and VI. Procedural Determinations. editorial changes intended to improve one State agency with an actual or the clarity and readability of the rules. I. Background on the Ohio Program potential interest in the Ohio program. The EPA commented that abandoned On August 16, 1982, the Secretary of A. Revisions to Ohio’s Regulations That sites can result in acid or other polluted the Interior conditionally approved the Are Substantively Identical to the mine drainage which may vary in Ohio program. Information on the Corresponding Provisions of the Federal severity over the seasons. EPA stated general background of the Ohio Regulations that it is important that Ohio consider program, including the Secretary’s this seasonal variation and other findings, the disposition of comments, State regu- lations Federal reg- variable factors when determining the and a detailed explanation of the (OAC sec- ulations (30 necessary inspection frequency. One conditions of approval of the Ohio tion Subject CFR Part inspection per year may be reasonable program, can be found in the August 10, 1501:13± 840) for non-polluting abandoned sites. 1982, Federal Register (47 FR 34688). 14±01) However, Ohio should inspect polluting Subsequent actions concerning the (A)(3) ...... Definition of 840.11(g) abandoned sites more frequently than conditions of approval and program ``Abandoned one per year to assess changes in amendments are identified at 30 CFR Coal Mining severity and the priority of the site for 935.11, 935.15, and 935.16. and Reclama- tion Oper- environmental cleanup. Polluting II. Discussion of the Proposed ation''. abandoned sites with forfeited Amendment (E) ...... Alternative in- 840.11(h) reclamation bond should be reclaimed The Ohio Department of Natural spection fre- as soon as possible. If forfeited bonds Resources, Division of Reclamation quency at are not sufficient to cover reclamation (Ohio) submitted proposed Program abandoned costs, Ohio should pursue the sites. Amendment Number 70 by letter dated responsible party for available March 28, 1995 (Administrative Record resources. Because the above proposed revisions No. OH–2104). In this amendment, Ohio The Director concurs with EPA’s are identical in meaning to the proposed to revise one rule at Ohio comments and OSM and Ohio staff have corresponding Federal regulations, the Administrative Code (OAC) section discussed these comments. Ohio will Director finds that these proposed rules 1501:13–14–01 to make the Ohio consider actual existing pollutants, are no less effective than the Federal program as effective as the seasonal variation, and potential rules. corresponding Federal regulations generation of pollutants in evaluating concerning the frequency of inspections B. Revisions to the Ohio’s Regulations and establishing any modified at abandoned coal mining operations. With No Corresponding Federal inspection frequency at abandoned OSM announced receipt of PA 70 in Provisions sites. Ohio will give priority to the April 11, 1995, Federal Register (60 reclaiming polluting forfeited sites and 1. OAC Section 1501:13–14–01 FR 18380), and, in the same document, will seek recovery of any additional Paragraph (A)(4) opened the public comment period and funds necessary within its statutory provided an opportunity for a public Ohio is revising its definition of authority. hearing on the adequacy of the proposed ‘‘active coal mining and reclamation Nonsubstantive comments were also amendment. The public comment operation’’ to mean an operation other received from the Mine Safety and period closed on May 11, 1995. than an inactive or abandoned coal Health Administration. No other agency On May 11, 1995, OSM notified Ohio mining reclamation operation. Although comments were received. of its one comment about PA 70 there is no corresponding Federal V. Director’s Decision (Administrative Record No. OH–2128). definition of this term, the Director In response to that OSM comment, Ohio finds that Ohio’s definition is not Based on the above findings, the submitted Revised Program Amendment inconsistent with the Federal Director approves the proposed Number 70 (PA 70R) by letter dated May regulations at 30 CFR 840.11 or with the amendment as submitted by Ohio on 31, 1995 (Administrative Record No. revisions which Ohio is making March 28, 1995, and revised on May 31, OH–2127). In PA 70R, Ohio proposed elsewhere in this rule. 1995. 37940 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations The Federal regulations at 30 CFR National Environmental Policy Act (yyy) The following amendment part 935 codifying decisions concerning No environmental impact statement is (Program Amendment 70R) pertaining the Ohio program are being amended to required for this rule since section to the Ohio regulatory program, as implement this decision. This final rule 702(d) of SMCRA (30 U.S.C. 1292(d)) submitted to OSM on March 28, 1995, is being made effective immediately to provides that agency decisions on and revised on May 31, 1995, is expedite the State program amendment proposed State regulatory program approved, effective July 25, 1995: process and to encourage States to provisions do not constitute major Inspection frequency at abandoned conform their programs with the Federal Federal actions within the meaning of sites, at OAC rule 1501:13–14–01. standards without undue delay. section 102(2)(C) of the National [FR Doc. 95–18221 Filed 7–24–95; 8:45 am] Consistency of State and Federal Environmental Policy Act (42 U.S.C. BILLING CODE 4310±05±M standards is required by SMCRA. 4332(2)(C)). Effect of Director’s Decision Paperwork Reduction Act DEPARTMENT OF THE TREASURY Section 503 of SMCRA provides that This rule does not contain a State may not exercise jurisdiction information collection requirements that Office of Foreign Assets Control require approval by OMB under the under SMCRA unless the State program 31 CFR Part 550 is approved by the Secretary. Similarly, Paperwork Reduction Act (44 U.S.C. 3507 et seq.). 30 CFR 732.17(a) requires that any Libyan Sanctions Regulations; alteration of an approved State program Regulatory Flexibility Act Specially Designated Nationals List be submitted to OSM for review as a The Department of the Interior has AGENCY: Office of Foreign Assets program amendment. Thus, any changes determined that this rule will not have to a State program are not enforceable Control, Treasury. a significant economic impact on a ACTION: until approved by OSM. The Federal Final rule; amendments to the substantial number of small entities list of specially designated nationals. regulations at 30 CFR 732.17(g) prohibit under the Regulatory Flexibility Act (5 any unilateral changes to approved U.S.C. 601 et seq.). The State submittal SUMMARY: The Office of Foreign Assets programs. In the oversight of the Ohio which is the subject of this rule is based Control is amending the Libyan program, the Director will recognize upon corresponding Federal regulations Sanctions Regulations to add three only the approved program, together for which an economic analysis was hotels in Malta, Mistra Village Ltd., with any consistent implementing prepared and certification made that Hotel Milano Due, and Marina San Gorg policies, directives, and other materials, such regulations would not have a Co. Ltd., to appendix A, Organizations and will require the enforcement by significant economic effect upon a Determined to be Within the Term Ohio of such provisions. substantial number of small entities. ‘‘Government of Libya’’ (Specially IV. Procedural Determinations Accordingly, this rule will ensure that Designated Nationals of Libya). existing requirements previously EFFECTIVE DATE: July 25, 1995. Executive Order 12866 promulgated by OSM will be ADDRESS: Copies of the list of persons implemented by the State. In making the whose property is blocked pursuant to This rule is exempted from review by determination as to whether this rule the Libyan Sanctions Regulations are the Office of Management and Budget would have a significant economic available upon request at the following (OMB) under Executive Order 12866 impact, the Department relied upon the location: Office of Foreign Assets (Regulatory Planning and Review). data and assumptions for the Control, U.S. Department of the Executive Order 12778 corresponding Federal regulations. Treasury, Annex, 1500 Pennsylvania List of Subjects in 30 CFR Part 935 Avenue, N.W., Washington, D.C. 20220. The Department of the Interior has The full list of persons blocked pursuant conducted the reviews required by Intergovernmental relations, Surface to economic sanctions programs section 2 of Executive Order 12778 mining, Underground mining. administered by the Office of Foreign (Civil Justice Reform) and has Dated: July 17, 1995. Assets Control is available electronically determined that, to the extent allowed Allen D. Klein, on The Federal Bulletin Board and by law, this rule meets the applicable Regional Director, Appalachian Regional Treasury’s Electronic Library (see standards of subsections (a) and (b) of Coordinating Center. Supplementary Information). that section. However, these standards For the reasons set out in the FOR FURTHER INFORMATION CONTACT: J. are not applicable to the actual language preamble, Title 30, Chapter VII, Robert McBrien, Chief, International of State regulatory programs and Subchapter T of the Code of Federal Programs Division, Office of Foreign program amendments since each such regulations is amended as set forth Assets Control, tel.: 202/622–2420. program is drafted and promulgated by below: SUPPLEMENTARY INFORMATION: a specific State, not by OSM. Under sections 503 and 505 of SMCRA (30 PART 935ÐOHIO Electronic Availability U.S.C. 1253 and 1255) and 30 CFR This document is available as an 730.11, 732.15 and 732.17(h)(10), 1. The authority citation for Part 935 electronic file on The Federal Bulletin decisions on proposed State regulatory continues to read as follows: Board the day of publication in the programs and program amendments Authority: 30 U.S.C. 1201 et seq. Federal Register. By modem dial 202/ submitted by the States must be based 2. Section 935.15 is amended by 512–1387 and type ‘‘/GO/FAC’’ or call solely on a determination of whether the adding new paragraph (yyy) to read as 202/512–1530 for disks or paper copies. submittal is consistent with SMCRA and follows: This file is available for downloading in its implementing Federal regulations WordPerfect 5.1, ASCII, and Postscript and whether the other requirements of § 935.15 Approval of regulatory program formats. The document is also 30 CFR parts 730, 731, and 732 have amendments. accessible for downloading in ASCII been met. * * * * * format without charge from Treasury’s Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 37941 Electronic Library (‘‘TEL’’) in the indirectly on behalf of, the Government APPENDIX A TO PART 550Ð ‘‘Business, Trade and Labor Mall’’ of the of Libya. The Treasury Department ORGANIZATIONS DETERMINED TO BE FedWorld bulletin board. By modem regards it as incumbent upon all persons WITHIN THE TERM ``GOVERNMENT OF dial 703/321–3339, and select self– governed by the Regulations to take LIBYA'' (SPECIALLY DESIGNATED expanding file ‘‘T11FR00.EXE’’ in TEL. reasonable steps to ascertain for NATIONALS OF LIBYA) For Internet access, use one of the themselves whether persons with whom * * * * * following protocols: Telnet = they deal are owned or controlled by, or fedworld.gov (192.239.93.3); World HOTEL MILANO DUE, acting or purporting to act on behalf of, Gzira, Malta. Wide Web (Home Page) = http:// the Government of Libya, or on behalf * * * * * www.fedworld.gov; FTP = of other countries subject to blocking or ftp.fedworld.gov (192.239.92.205). MARINA SAN GORG CO. LTD. transactional restrictions administered (a.k.a. Marina San Gorg Holiday Complex), Background by FAC. Malta. The Office of Foreign Assets Control Section 206 of the International * * * * * (‘‘FAC’’) is amending the Libyan Emergency Economic Powers Act, 50 MISTRA VILLAGE LTD. Sanctions Regulations, 31 CFR part 550 U.S.C. 1705, provides for civil penalties 22 Europa Centre, Floriana, Malta (the ‘‘Regulations’’), to add new entries not to exceed $10,000 for each violation (registered address); to appendix A. Appendix A, Xemija Hill, St. Paul’s Bay, Malta of the Regulations. Criminal violations (operating address). Organizations Determined to be Within of the Regulations are punishable by * * * * * the Term ‘‘Government of Libya’’ fines of up to $250,000 or imprisonment (Specially Designated Nationals of for up to 10 years per count, or both, for Dated: June 28, 1995. Libya), is a list of organizations individuals and criminal fines of up to R. Richard Newcomb, determined by the Director of FAC to be $500,000 per count for organizations. Director, Office of Foreign Assets Control. within the definition of the term See 50 U.S.C. 1705; 18 U.S.C. 3571. Approved: June 30, 1995. ‘‘Government of Libya,’’ as set forth in Dennis M. O’Connell, § 550.304(a) of the Regulations, because Because the Regulations involve a they are owned or controlled by or act foreign affairs function, Executive Order Acting Deputy Assistant Secretary (Regulatory, Tariff and Trade Enforcement). or purport to act directly or indirectly 12866 and the provisions of the on behalf of the Government of Libya. Administrative Procedure Act, 5 U.S.C. [FR Doc. 95–18204 Filed 7–20–95; 11:41 am] Appendix A to part 550 is amended 553, requiring notice of proposed BILLING CODE 4810±25±F to provide public notice of the rulemaking, opportunity for public designation of three Malta hotels, i. e., participation, and delay in effective date, are inapplicable. Because no Mistra Village Ltd., Hotel Milano Due, DEPARTMENT OF TRANSPORTATION and Marina San Gorg Co. Ltd, as notice of proposed rulemaking is Specially Designated Nationals of Libya. required for this rule, the Regulatory Coast Guard All prohibitions in the Regulations Flexibility Act, 5 U.S.C. 601–612, does pertaining to the Government of Libya not apply. 33 CFR Part 165 apply to the entities and individuals identified in appendix A. All List of Subjects in 31 CFR Part 550 [CGD08±94±006] unlicensed transactions with such Administrative practice and RIN 2115±AE81 entities, or transactions in property in procedure, Banks, banking, Blocking of which they have an interest, are assets, Exports, Foreign investment, Regulated Navigation Area; prohibited unless otherwise exempted Foreign trade, Government of Libya, Mississippi River, Miles 88 to 240 or generally licensed in the Regulations. Above Head of Passes Determinations that persons fall Imports, Libya, Loans, Penalties, within the definition of the term Reporting and recordkeeping AGENCY: Coast Guard, DOT. requirements, Securities, Services, ‘‘Government of Libya’’ and are thus ACTION: Final rule. Specially Designated Nationals of Libya Specially designated nationals, Travel are effective upon the date of restrictions. SUMMARY: The Coast Guard is adopting determination by the Director of FAC, For the reasons set forth in the as final, an interim final rule published acting under authority delegated by the preamble, 31 CFR part 550 is amended in April 1994 extending the upper limits Secretary of the Treasury. Public notice as set forth below: of the Mississippi River Regulated is effective upon the date of publication Navigation Area to cover the area or upon actual notice, whichever is PART 550ÐLIBYAN SANCTIONS between river miles 127 and 240, above sooner. REGULATIONS Head of Passes, up to the Port of Baton The list of Specially Designated Rouge. This regulation is necessary to Nationals in appendices A and B is a improve the safety of barge fleeting partial one, since FAC may not be aware 1. The authority citation for part 550 areas that exist on the Mississippi River of all agencies and officers of the continues to read as follows: between New Orleans and Baton Rouge, Government of Libya, or of all persons Authority: 50 U.S.C. 1701–1706; 50 U.S.C. Louisiana, an extremely confined that might be owned or controlled by, or 1601–1651; 22 U.S.C. 287c; 49 U.S.C. App. navigation area with a high volume of acting on behalf of the Government of 1514; 22 U.S.C. 2349aa–8 and 2349aa–9; 3 marine traffic. The Coast Guard believes Libya within the meaning of U.S.C. 301; E.O. 12543, 51 FR 875, 3 CFR, that the extension of the Regulated § 550.304(a). Therefore, one may not 1986 Comp., p. 181; E.O. 12544, 51 FR 1235, Navigation Area has resulted in a rely on the fact that a person is not 3 CFR, 1986 Comp., p. 183; E.O. 12801, 57 decrease in the number of barge listed in appendix A or B as a Specially FR 14319, 3 CFR, 1992 Comp., p. 294. breakaways along the lower Mississippi Designated National as evidence that it 2. Appendix A to part 550 is amended River between New Orleans and Baton is not owned or controlled by, or acting by adding the following entries in Rouge, Louisiana, although the lack of a or purporting to act directly or alphabetical order, to read as follows: high water season earlier this spring 37942 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations may have also contributed to this Mississippi River within the Captain of traffic within the RNA, and barge reduction. the Port New Orleans zone, high water handling and mooring technology make EFFECTIVE DATE: This rule is effective on conditions and higher than normal river it appropriate to conduct a July 25, 1995. stages which were expected to continue comprehensive review of these FOR FURTHER INFORMATION CONTACT: during the summer of 1994. The interim regulations. One commenter CDR Harvey R. Dexter, Marine Safety final rule extended the then-existing recommended the formation of a quality Division, Eighth Coast Guard District, Regulated Navigation Area (mile 88 to action team composed of industry and telephone: (504) 589–6271. mile 127) (hereinafter referred to as the Coast Guard personnel to undertake old RNA) to mile 240 above Head of such a review. At a future date, the SUPPLEMENTARY INFORMATION: Passes. The regulation consisted of Coast Guard will publish an advance Drafting Information general procedural and equipment notice of proposed rulemaking to solicit requirements for mooring of barge fleets public comment and participation in The drafters of this regulation are LT on the Mississippi River and also comprehensive review of the rules in Jeff Novotny, project officer for the outlined additional specific fleeting place throughout the RNA. At that time, Captain of the Port, New Orleans, requirements during periods of high a decision will be made concerning the Louisiana, LT Verne Gifford, project water. best mechanism for obtaining public officer, Eighth Coast Guard District The Regulated Navigation Area input and participation. However, until Marine Safety Division, and LT Elisa extension from mile 127 to mile 240 such time as this review has been Holland, project attorney, Eighth (hereinafter referred to as the new RNA) completed and changes, if any, are District Legal Office. was deemed necessary due to data made, the safety of persons and vessels Regulatory History showing that more barge fleet operating within the RNA as well as the breakaways were occurring in the new environment require that the existing On April 28, 1994, the Coast Guard RNA than in the old RNA. Casualty Interim Final Regulations, as modified issued an Interim Final Rule extending investigations appeared to indicate that in this Final Rule, remain in effect. the upper limits of the Mississippi River a majority of the breakaways occurred as One commenter stated that the Regulated Navigation Area, 33 CFR the result of a passing tow or deep draft present rule (33 CFR 165.803(d)(2)) 165.803, to cover the area between river vessel striking the fleet or from large allows for subjective determination of miles 88 and 240, above Head of Passes, wakes generated by passing vessels. the condition of mooring wires and up to the Port of Baton Rouge. (59 FR Both of those causal factors increase lines and recommended that the Coast 21933) This rule was published as an during high water conditions. Coast Guard work with industry to establish interim rule, effective on the date of Guard fleet inspectors also found that guidelines to be used by Coast Guard publication. The original comment many of the fleeting operations located inspectors and fleet personnel in period expired on June 27, 1994. The in the new RNA not only did not determining whether a line is worn or Coast Guard received three comments conform with the mooring regulations in defective. One commenter suggested during this period. In response to the old RNA, but also had weak and that the captain of the vessel rather than requests from some commenters who inadequate moorings and therefore were the person actually inspecting the wished to gather and provide additional more vulnerable to breakaways during mooring be able to initial each information prior to the issuance of the high water. At the public hearing held inspection in the vessel log as required final rule, the Coast Guard announced a on September 2, 1994, the Coast Guard by 33 CFR 165.803 (h) and (i). The Coast public hearing and reopened the provided statistics showing barge Guard will work with industry to arrive comment period for an additional 90 breakaways for the period 1990–July at some general guidelines for days on August 12, 1994. (59 FR 41407). 1994 in both the old and new RNA’s. determining when a line is excessively Four written comments were received. Those statistics supported, in part, the worn or defective and will examine the A public hearing was held on assertions in the interim final rule. possibility of having the master of the September 2, 1994. Nine persons made tug rather than the person conducting Discussion of Comments and Changes oral comments. Of those nine oral the inspection as part of the commenters, four also provided their Seven written comments were comprehensive review of these comments in written form, two during received in response to the interim final regulations referred to above. However, the original comment period and two rule. Six comments contain significant we feel that if the person actually during the reopened comment period. criticism of the interim final rule and completing the inspection were to Based upon oral testimony and written the seventh comment supported the document the inspection by initiating comments, the Coast Guard prepared Coast Guard’s decision to extend the the log, it will engender a greater sense this final rule. This rule is being made Regulated Navigation Area. Nine oral of responsibility and will result in better effective on the date of publication. The comments were received at the hearing. inspection of the lines. One commenter interim final rule, effective since April Of those nine oral comments, four were recommended that the Regulated 28, 1994, has contributed to a decrease also provided in written form. Specific Navigation Area should include all in barge breakaways. In addition, high comments are discussed below. fleets, not just those with eight or more water conditions have recently One commenter pointed out that the barges, that different regulations should developed and are expected to continue regulations adopted in the Interim Final be established for different size fleets, throughout the summer. Therefore, the Rule were twenty years old and and that the regulation should also Coast Guard for good cause finds, under suggested that the regulatory cover dock facilities. This 5 U.S.C. 553(d)(3), that this rule should requirements should be reviewed recommendation will be considered as be made effective in less than 30 days throughout the entire Regulated part of the comprehensive review after publication. Navigation Area due to changes in the referred to above. industry. Four other commenters also ‘‘Breakaway’’ is presently defined as Background and Purpose made recommendations that a ‘‘a barge that is adrift and is not under The regulation was published as an comprehensive review of the regulations the control of a towing vessel’’. 33 CFR interim final rule in April 1994 due to was in order. The Coast Guard agrees. 165.803(a)(1). One commenter barge fleet breakaways on the Changes in the barge industry, marine recommended that the definition of Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 37943 breakaway be redefined to mean a barge capital expense, approximately $8,000 be approximately $180,000 per year per that is adrift and is not under the per anchor pile. Three commenters additional standby boat. Both control of or being worked by a towing suggested that handling additional and, commenters noted that it would be vessel. It is the Coast Guard’s position in many cases, heavier wires would difficult to pass these costs on to the that the present definition is sufficiently increase the risk of personal injury to customers. In addition, two commenters broad to exclude barges that are briefly crew members. In addition, two noted that there are not enough or temporarily adrift but that are being commenters stated that the annual towboats available. The Coast Guard worked by a tow boat. At the present operating cost to the facility for believes that the goals of promoting time, the Coast Guard plans no changes maintaining stern wires and boat time safety and preventing barge breakaways to the definition. for handling stern wires would increase in the Regulated Navigation Area can be Three commenters recommended that by approximately 10%. For these satisfied if the towboat required by 33 the Coast Guard pursue an aggressive reasons, as well as those discussed CFR 165.803(m)(2)(i) and (iii) is able to role in monitoring the speed and below, at the present time, the Coast work within the fleet. This is permitted performance of deep draft vessels Guard will not require stern moorings in by the language of the existing operating in the Regulated Navigation the new RNA (mile 127 to mile 240). regulation and no enforcement action Area. The Coast Guard does not have Stern moorings will still be required in will be taken against operators because the resources to monitor every deep the old RNA (mile 88 to mile 127). Barge a boat is being used to work the fleet. draft vessel in the Regulated Navigation fleeting facilities in the old RNA may Regulatory Evaluation Area. The Coast Guard relies, in part, on apply for a waiver of the stern mooring the skill and judgment of the master and requirement and the COTP, as In the interim final rule, the Coast pilot to navigate safety. However, the authorized by 33 CFR 165.803(b), may, Guard asserted that the rule was not a Coast Guard actively investigates barge if warranted, grant such a waiver. significant regulatory action under breakaway incidents involving deep Several commenters made comments section 3(f) of Executive Order 12866 draft vessels if the vessel is clearly which indirectly called into question and did not require an assessment of identified, and encourages parties to the usefulness of the stern wires in potential costs and benefits under accurately report deep draft vessels reducing the likelihood of breakaways. section 6(a)(3) of that order. The Coast navigating unsafely. The Coast Guard The Coast Guard believes that stern Guard also asserted that the rule was not will investigate, and, if appropriate, take wires do in fact reduce barge significant under the regulatory policies and procedures of the Department of action against the vessel, the vessel’s breakaways, and is continuing to collect Transportation (DOT) (44 FR 11034), master or the pilot. data concerning this issue. However, February 26, 1979 and that a full Two comments questioned why the this requirement will be reviewed as Regulatory Evaluation under paragraph new RNA was extended to mile 240 part of the comprehensive review AHP since the 190 Highway bridge in 10e of the regulatory policies and referred to above. Three commenters Baton Rouge at mile 234 AHP is the procedures of the Department of also requested that enforcement of the northern-most point reachable by deep- Transportation was unnecessary. The interim final rule be postponed until the draft vessel and the interim final rule Coast Guard received four comments issues raised during the comment focuses on deep-draft vessels as the addressing the issue of whether the period had been resolved. Based on the primary cause of barge breakaways. This interim final rule was a significant comments above concerning the is an incorrect interpretation of the regulatory action. Two comments economic impact of stern wire interim final rule. While deep-draft generally stated that the interim final installation and use, the Coast Guard vessels may contribute to barge rule, with its requirement of stern has exercised its enforcement discretion breakaways, the main concerns of the moorings and additional standby boats Regulated Navigation Area is barge and has not been actively enforcing the could force barge fleeting facilities out fleeting safety, adequacy of barge requirements of 33 CFR 165.803(e)(1) of business. One commenter noted that moorings, and the additional hazards and (2) in the new RNA. To the best of the requirement of stern moorings posed by high water conditions. the Coast Guard’s knowledge, no barge would require an immediate capital Although deep-draft vessels cannot fleeting facility in the new RNA has investment of $400,000 plus additional transit the Mississippi River further installed stern moorings. operating costs of $150,000. In addition, than mile 234 AHP, barge fleeting All six commenters took issue with the commenter noted that requiring a facilities extend above mile 234 AHP. the provisions of 33 CFR stand-by boat would cost an additional Both the Port of Baton Rouge and the 165.803(m)(2)(i) and (iii) and the Coast $600,000 annually. In short, the 190 Highway bridge are at or above mile Guard’s interpretation of those commenter stated, the interim final rule 234 AHP and a barge breakaway in the provisions. Those provisions require would cost him $1,150,000 the first year river above mile 234 AHP could cause that, during high water, each fleet of and $750,000 each year thereafter and property damage, bridge damage or loss between eight and 100 barges be would put him out of business. The of life. Therefore, the Coast Guard attended by one radar-equipped commenter stated this rule would believes the Regulated Navigation Area towboat. The towboat must be catastrophically disrupt the inland river should remain extended to mile 240 immediately operational and within 500 transportation system. Another AHP. yards of the barges. Those provisions commenter echoed these comments, Three commenters stated that it have, in the past, been interpreted to stating that these costs would be would be physically impossible to mean that the towboat must stand by prohibitive for most fleets. The final immediately comply with the stern and could not perform any work in the rule deletes the requirement for stern mooring requirement of 33 CFR fleet. All of the commenters stated that moorings in the new RNA. Additionally, 165.803(e)(1) and (2). A number of not allowing the stand by tug to work the standby boats required by 33 CFR reasons were cited including high water, would create an economic hardship. 165.803(m)(2) (i) and (iii) may perform availability of contractors and the Army One commenter noted that requiring a work within the fleet thereby reducing Corps of Engineers permitting process. stand by boat would cost an additional the economic impact of this Two commenters stated that installing $600,000 annually. Another commenter requirement. No other requirements stern moorings would be a significant stated the cost of a stand by boat would contained in the Regulated Navigation 37944 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations Area constitute a significant regulatory Another commenter took exception to Final Regulation action under section 6(a)(3) of Executive the Coast Guard’s assertion that the Order 12866. Therefore, this regulation interim final rule would not have a Accordingly, the interim final rule is not a significant regulatory action significant economic impact on any amending 33 CFR part 165 which was under section 3(f) of Executive Order small entities. The commenter stated published at 59 FR 21933 on April 28, 12866 and does not require an stern moorings would cost 1994, is adopted as a final rule with the assessment of potential costs and approximately $8,000 per mooring plus following changes: benefits under section 6(a)(3) of that 10% in additional operating costs order. It has not been reviewed by the annually. The cost of a standby boat Office of Management and Budget under would be approximately $180,000 per PART 165Ð[AMENDED] that order. It is not significant under the year per additional standby boat. The regulatory policies and procedures of commenter stated the interim final rule 1. The authority citation for part 165 the Department of Transportation (DOT) would impose a substantial economic continues to read as follows: (44 FR 11034), February 26, 1979). The impact on the barge fleets in the RNA economic impact of this rule is so if the standby boats were prohibited Authority: 33 U.S.C. 1231; 50 U.S.C. 191; minimal that a full Regulatory from working within the barge fleet. As 33 CFR 1.05–1(g), 6.04–1, 6.04–6, and 160.5; Evaluation under paragraph 10e of the previously noted, this final rule deletes 49 CFR 1.46. regulatory policies and procedures of the requirement of stern moorings in the DOT is unnecessary. new RNA and the standby boats 2. In § 165.803, the introductory text Small Entities required by 33 CFR 165.803(m)(2) (i) and paragraphs (e)(1) and (e)(2) are and (iii) are able to perform work within revised to read as follows: The Coast Guard asserted in the the fleet. Therefore, the Coast Guard interim final rule that since the rule did certifies under section 605(b) of the not require a general notice of proposed § 165.803 Mississippi RiverÐregulated Regulatory Flexibility Act (5 U.S.C. 601 navigation area. rulemaking (as it was published as an et seq.) that this rule will not have a interim final rule as allowed by 5 U.S.C. significant economic impact on a The following is a Regulated 553(b)(B) & (d)(3)), it was exempt from substantial number of small entities. the requirements of the Regulatory Navigation Area—The waters of the Flexibility Act (5 U.S.C. section 601 et Collection of Information Mississippi River between miles 88 and seq.). However, the Coast Guard did This rule contains collection-of- 240 above Head of Passes. review the rule for potential impact on information requirements. The Coast * * * * * small entities and took the position that Guard has submitted the requirements the interim final rule would not have a to the Office of Management and Budget (e) Mooring to a mooring device. (1) A significant economic impact on a (OMB) for review under section 3504(h) barge may be moored to mooring substantial number of small entities. of the Paperwork Reduction Act (44 devices if the upstream end of that barge The Coast Guard invited comment from U.S.C. 3501 et seq.), and OMB has is secured to at least one mooring device parties who felt they were a small entity approved them. The section number is and the downstream end is secured to on which the rule would have § 165.803(i) and the corresponding OMB at least one other mooring device, significant economic impact. One approval number is OMB Control except that from mile 127 to mile 240 commenter took issue with the Coast Number 2115–0092. Guard’s assertion that notice and public a barge may be moored to mooring procedure prior to the effective date of Federalism Assessment devices if the upstream end of that barge the rule would be contrary to public This action has been analyzed in is secured to at least one mooring interest, arguing that the extension of accordance with the principles and device. the regulated navigation area was not a criteria contained in Executive Order minor or technical amendment to a rule 12612, and it has been determined that (2) Barges moored in tiers may be as contemplated by 5 U.S.C. 553(b)(3) & this final rule does not raise sufficient shifted to mooring devices if the (d)(3). The commenter stated that an federalism concerns to warrant the shoreward barge at the upstream end of initial and final flexibility analysis preparation of a Federalism Assessment. the tier is secured to at least one under 5 U.S.C. 603 et seq., should be mooring device, and the shoreward done. The commenter provided Environmental Consideration barge at the downstream end of the tier information to support the assertion that This final rule has been thoroughly is secured to at least one other mooring it was a small entity as defined by 15 reviewed by the Coast Guard, the lead device, except that from mile 127 to U.S.C. 632(a). The commenter noted Federal agency for purposes of the mile 240 barges moored in tiers may be that the requirement of stern moorings National Environmental Policy Act shifted to mooring devices if the would require an immediate capital (NEPA). It has been determined not to shoreward barge at the upstream end of investment of $400,000 plus additional have a significant effect on the human the tier is secured to at least one operating costs of $150,000. In addition, environment or environmental mooring device. the commenter noted that requiring a conditions and to be categorically stand-by boat would cost an additional excluded from further environmental * * * * * $500,000 annually. In short, the documentation in accordance with Dated: June 20, 1995. commenter stated, the interim final rule section 2.B.2.c. of Commandant would cost him $1,150,000 the first year Instruction M16475.1B. C.B. Newlin, and $750,000 each year thereafter and would put him out of business. The List of Subjects in 33 CFR Part 165 Captain, U.S. Coast Guard Commander, 8th commenter asserted that the interim Harbors, Marine safety, Navigation Coast Guard Dist., Acting. final rule would have a significant (water), Reporting and recordkeeping [FR Doc. 95–18252 Filed 7–24–95; 8:45 am] economic impact on all of the barge requirements, Security measures, fleeting facilities in the new RNA. Waterways. BILLING CODE 4910±14±M Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 37945 ENVIRONMENTAL PROTECTION comment was received by April 24, PART 86ÐCONTROL OF AIR AGENCY 1995. POLLUTION FROM NEW AND IN-USE EPA has received adverse comment MOTOR VEHICLES AND NEW AND IN- 40 CFR Part 86 from the Motor and Equipment USE MOTOR VEHICLE ENGINES: [AMS±FRL±5225±7] Manufacturers Association (MEMA). CERTIFICATION AND TEST This adverse comment has been placed PROCEDURES RIN 2060±AC65 in the public docket for viewing. The 1. The authority citation for part 86 Control of Air Pollution From New comments submitted by MEMA are continues to read as follows: Motor Vehicles and New Motor Vehicle adverse with regard to a revision of 40 CFR 86.094–17(j) that would allow Authority: Secs. 202, 203, 205, 206, 207, Engines: Regulations Requiring On- 208, 215, 216, 217, and 301(a), Clean Air Act, Board Diagnostic (OBD) SystemsÐ manufacturers the option of complying as amended (42 U.S.C. 7521, 7522, 7524, Regulations Allowing Optional with the recently revised California 7525, 7541, 7542, 7549, 7550, 7552, and OBD II requirements (California Air 7601(a)). Compliance with California OBD II # Requirements as Satisfying Federal Resources Board Mail-Out 95–03). Subpart AÐ[Amended] OBD (MEMA had initially objected to other specific provisions of the direct final 2. Section 86.094–17 is amended by AGENCY: Environmental Protection rule, but MEMA withdrew these revising paragraph (j) to read as follows: Agency (EPA). objections in a letter signed May 18, ACTION: Final rule. 1995.) Therefore, EPA is removing the § 86.094±17 Emission control diagnostic provision of that direct final rule that system for 1994 and later light-duty SUMMARY: Due to one adverse comment, pertains to optional compliance with vehicles and light-duty trucks. EPA is removing one specific provision the revised OBD II requirements of ARB * * * * * of the recent direct final rule revising Mail-Out #95–03. The language of the (j) Demonstration of compliance with requirements associated with on-board prior final rule published on February California OBD II requirements (Title 13 diagnostic (OBD) systems. That direct 19, 1993 (58 FR 9468) allowing California Code section 1968.1) shall final rule was published in the Federal compliance with California OBD II satisfy the requirements of this section Register on March 23, 1995 (60 FR requirements is reinstated in § 86.094– through the 1998 model year except that 15242). EPA is removing only the 17(j) as they existed on that date. compliance with Title 13 California provision concerning the acceptance of It is important to note that EPA’s Code section 1968.1(d), pertaining to revised California OBD II as satisfying removal of this regulatory change is not tampering protection, is not required to federal OBD requirements through the satisfy the requirements of this section. 1998 model year. Because that provision based on EPA’s agreement or is being removed, the Agency intends to disagreement with the adverse comment [FR Doc. 95–17477 Filed 7–24–95; 8:45 am] issue a notice of proposed rulemaking received. The removal is based solely on BILLING CODE 6560±50±P (NPRM) in the near future to reinstate EPA’s determination, announced in the the intent of allowing optional direct final rule, that the provisions of 40 CFR Part 712 compliance with revised OBD II the direct final rule would go into effect requirements. only if no persons submitted adverse [OPPTS±82046A; FRL±4968±4] comments. EFFECTIVE DATE: June 30, 1995. EPA is removing this provision Preliminary Assessment Information ADDRESSES: Materials relevant to this without providing prior notice and and Health and Safety Data Reporting; rulemaking are contained in Docket No. Addition of Chemicals; Correction A–90–35, and are available for public comment because it finds good cause with the meaning of 5 U.S.C. 553(b). inspection and photocopying between 8 AGENCY: Environmental Protection Notice and comment would be a.m. and 5:30 p.m. Monday through Agency (EPA). impracticable, as EPA needs to remove Friday. The telephone number is (202) ACTION: Final rule; correction. 260–7548 and the facsimile number is this revision quickly because it went (202) 260–4400. A reasonable fee may into effect May 22, 1995. Also, EPA has SUMMARY: In the Federal Register of July be charged by EPA for copying docket already informed the public it would 5, 1995, EPA issued a final rule adding material. withdraw any provision that received certain chemical substances to two adverse or critical comments. FOR FURTHER INFORMATION CONTACT: model information-gathering rules: the Todd Sherwood, (313) 668–4405. List of Subjects in 40 CFR Part 86 TSCA Section 8(a) Preliminary SUPPLEMENTARY INFORMATION: On March Assessment Information Rule (PAIR) Environmental protection, 23, 1995, EPA published a direct final and the TSCA Section 8(d) Health and rule revising requirements associated Administrative practice and procedure, Safety Data Reporting Rule. This with on-board diagnostic systems. EPA Air pollution control, Gasoline, document corrects two typographical believed that this direct final rule would Incorporation by reference, Motor errors that appeared in that final rule. not be controversial. In that direct final vehicles, Motor vehicle pollution, EFFECTIVE DATE: This rule is effective rule, EPA stated that, ‘‘If notice is Reporting and recordkeeping July 25, 1995. received that any person or persons requirements. FOR FURTHER INFORMATION CONTACT: wish to submit adverse comments Dated: June 30, 1995. Susan B. Hazen, Director, TSCA regarding some, but not all of the Fred Hansen, Environmental Assistance Division actions taken in this rulemaking, then Acting Administrator. (7408), Office of Pollution Prevention EPA shall withdraw this final action and Toxics, Environmental Protection and publish a proposal only with regard For the reasons set out in the Agency, 401 M St., SW., Rm. E–543, to the actions for which notice has been preamble, part 86 of title 40 of the Code Washington, DC 20460, Telephone: received.’’ EPA stated that it would of Federal Regulations is amended as (202) 554–1404, TDD: (202) 554–0551, make such a withdrawal if adverse follows: e-mail: [email protected]. 37946 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations SUPPLEMENTARY INFORMATION: In the its request for reconsideration, as SUPPLEMENTARY INFORMATION: This is a Federal Register of July 5, 1995 (60 FR required pursuant to Section 1.429 of summary of the Commission’s Order, 34879), EPA issued a final rule adding the Commission’s Rules, and therefore, adopted July 11, 1995, and released July 24 chemical substances to the PAIR and its request is dismissed. With this 18, 1995. The full text of this 12 chemical substances to the section action, the proceeding is terminated. Commission decision is available for 8(d) Health and Safety Data Rule. In the EFFECTIVE DATE: July 25, 1995. inspection and copying during normal regulatory text for § 712.30(e), on page FOR FURTHER INFORMATION CONTACT: business hours in the Commission’s 34883, the reporting date for Isophorone Nancy Joyner, Mass Media Bureau, (202) Reference Center (Room 239), 1919 M (CAS No. 78–59–1) and Isobutyl alcohol 418–2180. Street, NW., Washington, DC. The (CAS No. 78–83–1) was incorrectly SUPPLEMENTARY INFORMATION: This is a complete text of this decision may also listed as ‘‘8/4/95’’, the reporting date synopsis of the Commission’s be purchased from the Commission’s should have read ‘‘10/3/95.’’ Memorandum Opinion and Order copy contractors, International Transcription Services, Inc., 2100 M List of Subjects in 40 CFR Part 712 adopted July 10, 1995, and released July 18, 1995. The full text of this Street, NW., Suite 140, Washington, DC Environmental protection, Chemicals, Commission decision is available for 20037, (202) 857–3800. Hazardous substances, Health and safety inspection and copying during normal data, Recordkeeping and reporting List of Subjects in 47 CFR Part 73 business hours in the FCC’s Reference requirements. Radio broadcasting. Center (Room 239), 1919 M Street, NW., Dated: July 13, 1995. Washington, DC. The complete text of Part 73 of Title 47 of the Code of Charles M. Auer, this decision may also be purchased Federal Regulations is amended as Director, Chemical Control Division, Office from the Commission’s copy follows: of Pollution Prevention and Toxics. contractors, International Transcription In the Federal Register of July 5, Service, Inc., (202) 857–3800, 1919 M PART 73Ð[AMENDED] 1995, on page 34883, in § 712.30(e), Street, NW., Room 246, or 2100 M 1. The authority citation for Part 73 under the category ‘‘OSHA Chemicals in Street, NW., Suite 140, Washington, DC continues to read as follows: Need of Dermal Absorption Testing,’’ 20037. Authority: Secs. 303, 48 Stat., as amended, under the reporting date column, the List of Subjects in 47 CFR Part 73 1082; 47 U.S.C. 154, as amended. reporting date for CAS No. entries for 78–59–1 and 78–83–1 are both corrected Radio broadcasting. § 73.202 [Amended] to read ‘‘10/3/95.’’ Federal Communications Commission. 2. Section 73.202(b), the Table of FM [FR Doc. 95–17761 Filed 7–24–95; 8:45 am] Douglas W. Webbink, Allotments under Alaska, is amended BILLING CODE 6560±50±F Chief, Policy and Rules Division, Mass Media by removing Channel 274C and adding Bureau. Channel 274A at Juneau. [FR Doc. 95–18197 Filed 7–24–95; 8:45 am] 3. Section 73.202(b), the Table of FM Allotments under Arkansas, is amended FEDERAL COMMUNICATIONS BILLING CODE 6712±01±F COMMISSION by removing Channel 252C2 and adding Channel 252C1 at Bentonville; by 47 CFR Part 73 47 CFR Part 73 removing Channel 260A and adding Channel 260C3 at Monticello; and by Radio Broadcasting Services; Chatom, Radio Broadcasting Services; Various removing Channel 223C3 and adding AL Communities Channel 223C2 at Wynne. 4. Section 73.202(b), the Table of FM AGENCY: Federal Communications AGENCY: Federal Communications Allotments under California, is Commission. Commission. amended by removing Channel 240A ACTION: Final rule; petition for ACTION: Final rule. and adding Channel 239B1 at Carlsbad. reconsideration. 5. Section 73.202(b), the Table of FM SUMMARY: The Commission, on its own Allotments under Kansas, is amended SUMMARY: This document dismisses a motion, editorially amends the Table of by removing Channel 234A and adding petition for reconsideration filed on FM Allotments to specify the actual Channel 234C3 at Sterling. behalf of Creek Indian Enterprises, classes of channels allotted to various 6. Section 73.202(b), the Table of FM licensee of Station WYDH(FM), Channel communities. The changes in channel Allotments under Kentucky, is amended 290A, Atmore, Alabama, of the classifications have been authorized in by removing Channel 269A and adding Commission’s letter action dated April response to applications filed by Channel 268C3 at Richmond. 26, 1995, which denied the petitioner’s licensees and permittees operating on 7. Section 73.202(b), the Table of FM request to change the reference these channels. This action is taken Allotments under Louisiana, is coordinates for vacant Channel 291C3 at pursuant to Revision of Section amended by removing Channel 271C3 Chatom, Alabama. The petitioner’s 73.3573(a)(1) of the Commission’s Rules and adding Channel 271C2 at Basile. request, which is premised on its desire Concerning the Lower Classification of 8. Section 73.202(b), the Table of FM to maximize its signal coverage in an FM Allotment, 4 FCC Rcd 2413 Allotments under Minnesota, is conformity with the minimum distance (1989), and the Amendment of the amended by removing Channel 234C3 separation requirements of Section Commission’s Rules to Permit FM and adding Channel 234C2 Staples. 73.207(b)(1) of the Commission’s Rules Channel and Class Modifications 9. Section 73.202(b), the Table of FM without requiring a change in the FM [Upgrades] by Application, 8 FCC Rcd Allotments under Mississippi, is Table of Allotments at Chatom, is 4735 (1993). amended by removing Channel 287C3 inconsistent with Commission policy. EFFECTIVE DATE: July 25, 1995. and adding Channel 287C2 at Aberdeen; The Commission has determined that FOR FURTHER INFORMATION CONTACT: by removing Channel 232A and adding Creek Indian Enterprises has not Kathleen Scheuerle, Mass Media Channel 232C2 at Bay Springs; by presented any new arguments or facts in Bureau, (202) 634–6530. removing Channel 282C2 and adding Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 37947 Channel 282C3 at Greenwood; and by FM Allotments to specify the actual amended by removing Channel 299C3 removing Channel 230A and adding classes of channels allotted to various and adding Channel 300C1 at Erath. Channel 230C3 at Pearl. communities. The changes in channel 7. Section 73.202(b), the Table of FM 10. Section 73.202(b), the Table of FM classifications have been authorized in Allotments under Michigan, is amended Allotments under Missouri, is amended response to applications filed by by removing Channel 262C2 and adding by removing Channel 256A and adding licensees and permittees operating on Channel 262C1 at Grayling and by Channel 256C3 at Halfway and by these channels. This action is taken removing Channel 250C1 and adding removing Channel 224A and adding pursuant to Revision of Section Channel 250C2 at Newberry. Channel 225A at Ironton. 73.3573(a)(1) of the Commission’s Rules 8. Section 73.202(b), the Table of FM 11. Section 73.202(b), the Table of FM Concerning the Lower Classification of Allotments under Nevada, is amended Allotments under Montana, is amended an FM Allotment, 4 FCC Rcd 2413 by removing Channel 267A and adding by removing Channel 231C and adding (1989), and the Amendment of the Channel 267C2 at Fallon. Channel 231C1 at Billings. Commission’s Rules to Permit FM 9. Section 73.202(b), the Table of FM 12. Section 73.202(b), the Table of FM Channel and Class Modifications Allotments under Texas, is amended by Allotments under Nebraska, is amended [Upgrades] by Applications, 8 FCC Rcd removing Channel 249A and adding by removing Channel 234C and adding 4735 (1993). Channel 249C3 at Cuero. Channel 234C1 at Chadron. EFFECTIVE DATE: July 25, 1995. Federal Communications Commission. 13. Section 73.202(b), the Table of FM FOR FURTHER INFORMATION CONTACT: John A. Karousos, Allotments under New Mexico, is Kathleen Scheuerle, Mass Media amended by removing Channel 249C Chief, Allocations Branch, Policy and Rules Bureau, (202) 414–2180. Division, Mass Media Bureau. and adding Channel 249C1 at Belen and SUPPLEMENTARY INFORMATION: This is a by removing Channel 298C and adding [FR Doc. 95–18201 Filed 7–24–95; 8:45 am] summary of the Commission’s Report Channel 298C3 at Los Alamos. BILLING CODE 6712±01±F and Order, MM Docket No. , adopted 14. Section 73.202(b), the Table of FM July 12, 1995, and released July 19, Allotments under Oklahoma, is 1995. The full text of this Commission amended by removing Channel 232A 47 CFR Part 73 decision is available for inspection and and adding Channel 232C3 at Elk City copying during normal business hours and by removing Channel 258A and Radio Broadcasting Services; in the Commission’s Reference Center adding Channel 258C3 at Lawton. Milledgeville, GA 15. Section 73.202(b), the Table of FM (Room 239), 1919 M Street, NW., Washington, DC. The complete text of AGENCY: Federal Communications Allotments under South Carolina, is Commission. amended by removing Channel 296A this decision may also be purchased from the Commission’s copy ACTION: Final rule; petition for and adding Channel 296C2 at Mullins. reconsideration. 16. Section 73.202(b), the Table of FM contractors, International Transcription Services, Inc., 2100 M Street, NW., Suite Allotments under Tennessee, is SUMMARY: This document denies the 140, Washington, DC 20037, (202) 857– amended by removing Channel 254A petition for reconsideration filed by 3800. and adding Channel 254C3 at Oliver Radio Perry, Inc. (‘‘Perry’’). Perry seeks Springs. List of Subjects in 47 CFR Part 73 review of an action taken by the Chief, 17. Section 73.202(b), the Table of FM Radio broadcasting. Allocations Branch on August 17, 1993, Allotments under Texas, is amended by returning its petition for rule making by removing Channel 253C3 and adding Part 73 of title 47 of the Code of letter as unacceptable for consideration. Channel 253C2 at Clarksville. Federal Regulations is amended as Perry’s proposal sought to downgrade 18. Section 73.202(b), the Table of FM follows: Station WLRR(FM) from Channel 264C3 Allotments under Vermont, is amended PART 73Ð[AMENDED] to Channel 264A at Milledgeville, by removing Channel 277A and adding Georgia. The Commission has Channel 277C3 at Waterbury. 1. The authority citation for part 73 determined that Perry has not presented 19. Section 73.202(b), the Table of FM continues to read as follows: any new arguments or facts in this Allotments under Wisconsin, is Authority: Secs. 303, 48 Stat., as amended, proceeding. Therefore, we will deny the amended by removing Channel 269A 1082; 47 U.S.C. 154, as amended. petition for reconsideration. With this and adding Channel 266A at Hayward. action, this proceeding is terminated. § 73.202 [Amended] Federal Communications Commission. EFFECTIVE DATE: July 25, 1995. 2. Section 73.202(b), the Table of FM John A. Karousos, FOR FURTHER INFORMATION CONTACT: Allotments under Arkansas, is amended Chief, Allocations Branch, Policy and Rules Nancy J. Walls, Mass Media Bureau, by removing Channel 258A and adding Division, Mass Media Bureau. (202) 418–2180. [FR Doc. 95–18200 Filed 7–24–95; 8:45 am] Channel 258C3 at Huntsville. 3. Section 73.202(b), the Table of FM SUPPLEMENTARY INFORMATION: This is a BILLING CODE 6712±01±F Allotments under California, is synopsis of the Commission’s amended by removing Channel 291A Memorandum Opinion and Order, adopted July 11, 1995, and released July 47 CFR Part 73 and adding Channel 291B1 at Arnold. 4. Section 73.202(b), the Table of FM 18, 1995. The full text of this Allotments under Florida, is amended Commission decision is available for Radio Broadcasting Services; Various inspection and copying during normal Locations by removing Channel 239A and adding Channel 239C3 at Ormond-by-the-Sea. business hours in the FCC Reference AGENCY: Federal Communications 5. Section 73.202(b), the Table of FM Center (Room 239), 1919 M Street, NW., Commission. Allotments under Iowa, is amended by Washington, DC. The complete text of ACTION: Final rule. removing Channel 298C2 and adding this decision may also be purchased Channel 298C1 at Des Moines. from the Commission’s copy SUMMARY: The Commission, on its own 6. Section 73.202(b), the Table of FM contractors, International Transcription motion, editorially amends the Table of Allotments under Louisiana, is Service, Inc., (202) 857–3800, 1919 M 37948 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations Street, NW., Room 246, or 2100 M List of Subjects in 47 CFR Part 73 filed by Markesan Broadcasting Street, NW., Suite 140, Washington, DC Radio broadcasting. Company to allot Channel 284A to 20037. Markesan, Wisconsin, has been Part 73 of title 47 of the Code of dismissed. With this action, this List of Subjects in 47 CFR Part 73 Federal Regulations is amended as proceeding is terminated. follows: Radio broadcasting. DATES: Effective September 5, 1995. The Federal Communications Commission. PART 73Ð[AMENDED] window period for filing applications Douglas W. Webbink, will open on September 5, 1995, and 1. The authority citation for Part 73 Chief, Policy and Rules Division, Mass Media close on October 6, 1995. continues to read as follows: Bureau. FOR FURTHER INFORMATION CONTACT: [FR Doc. 95–18198 Filed 7–24–95; 8:45 am] Authority: Secs. 303, 48 Stat., as amended, Kathleen Scheuerle, Mass Media 1082; 47 U.S.C. 154, as amended. BILLING CODE 6712±01±F Bureau, (202) 418–2180. § 73.202 [Amended] SUPPLEMENTARY INFORMATION: This is a 2. Section 73.202(b), the Table of FM 47 CFR Part 73 summary of the Commission’s Report Allotments under Montana, is amended and Order, MM Docket No. 93–91, by adding Channel 298C at Billings. adopted July 12, 1995, and released July [MM Docket No. 95±36; RM±8547] Federal Communications Commission. 19, 1995. The full text of this Commission decision is available for Radio Broadcasting Services; Billngs, John A. Karousos, inspection and copying during normal MT Chief, Allocations Branch, Policy and Rules Division, Mass Media Bureau. business hours in the Commission’s AGENCY: Federal Communications [FR Doc. 95–18199 Filed 7–24–95; 8:45 am] Reference Center (Room 239), 1919 M Street, NW., Washington, DC. The Commission. BILLING CODE 6712±01±F ACTION: Final rule. complete text of this decision may also be purchased from the Commission’s SUMMARY: This document allots Channel 47 CFR Part 73 copy contractors, International 298C to Billings, Montana, in response Transcription Services, Inc., 2100 M to a petition filed by Conway [MM Docket No. 93±91; RM±8197 and RM± Street, NW., Suite 140, Washington, DC 8279] Broadcasting. See 60 FR 19206, April 20037, (202) 857–3800. 17, 1995. Channel 298C can be allotted Radio Broadcasting Services; Berlin, List of Subjects in 47 CFR Part 73 to Billings without a site restriction at De Forest, Markesan & Wautoma, WI coordinates 45–46–48 and 108–30–18. Radio broadcasting. With this action, this proceeding is AGENCY: Federal Communications Commission. Part 73 of title 47 of the Code of terminated. Federal Regulations is amended as ACTION: Final rule. DATES: Effective September 5, 1995. The follows: window period for filing applications SUMMARY: This document allots Channel will open on September 5, 1995, and 226A to De Forest, Wisconsin, in PART 73Ð[AMENDED] close on October 6, 1995. response to a petition filed by De Forest 1. The authority citation for Part 73 FOR FURTHER INFORMATION CONTACT: Broadcasting Company. See 58 FR continues to read as follows: Kathleen Scheuerle, Mass Media 25594, April 27, 1993. The coordinates Bureau, (202) 418–2180. for Channel 226A are 43–16–08 and 89– Authority: Secs. 303, 48 Stat., as amended, 1082; 47 U.S.C. 154, as amended. SUPPLEMENTARY INFORMATION: This is a 20–09. There is a site restriction 1.9 summary of the Commission’s Report kilometers (1.2 miles) north of the § 73.202 [Amended] and Order, MM Docket No. 95–36, community. To accommodate Channel 2. Section 73.202(b), the Table of FM adopted July 11, 1995, and released July 226A at De Forest we shall substitute Allotments under Wisconsin, is 19, 1995. The full text of this Channel 272A for Channel 226A at amended by adding De Forest, Channel Commission decision is available for Wautoma, Wisconsin, at coordinates 226A, by removing Channel 226A and inspection and copying during normal 44–04–18 and 89–17–30. Wautoma adding Channel 272A at Wautoma, and business hours in the Commission’s Radio is the sole applicant for the by removing Channel 272A and adding Reference Center (Room 239), 1919 M channel at Wautoma and will be Channel 284A at Berlin. Street, NW., Washington, DC. The allowed to amend its application and complete text of this decision may also retain cut-off protection. We shall also Federal Communications Commission. be purchased from the Commission’s substitute Channel 284A for Channel John A. Karousos, copy contractors, International 272A at Berlin, Wisconsin, and modify Chief, Allocations Branch, Policy and Rules Transcription Services, Inc., 2100 M the license for Station WISS-FM Division, Mass Media Bureau. Street, NW., Suite 140, Washington, DC accordingly at coordinates 43–56–55 [FR Doc. 95–18202 Filed 7–24–95; 8:45 am] 20037, (202) 857–3800. and 88–59–09. The counterproposal BILLING CODE 6712±01±F 37949 Proposed Rules Federal Register Vol. 60, No. 142 Tuesday, July 25, 1995 This section of the FEDERAL REGISTER September 13, 1995. Ten copies of 8. Section 437.103: Reference home contains notices to the public of the proposed statement to be given at the public configuration. issuance of rules and regulations. The hearing must be received by the 9. Section 437.104: Minimum rated purpose of these notices is to give interested features. Department by 4 pm September 28, 10. Section 437.105: Operating condition persons an opportunity to participate in the 1995. rule making prior to the adoption of the final assumptions. rules. ADDRESSES: All written comments (10 11. Section 437.106: Non-rated energy copies), requests to speak at the public consuming devices. hearing, and requests for the supporting 12. Section 437.107: Projected ratings for DEPARTMENT OF ENERGY documentation are to be submitted to: to-be built homes. Voluntary Residential Energy Efficiency 13. Section 437.200: Energy analysis tool Office of Energy Efficiency and requirements. Rating Guidelines, Docket Number EE- 14. Section 437.201: Site data collection Renewable Energy RM–95–202, Buildings Division, EE– manual. 432, Office of Codes and Standards, U. 15. Section 437.202: Training home energy 10 CFR Part 437 S. Department of Energy, 1000 raters. [Docket No. EE-RM±95±202] Independence Avenue, SW., Room 1J– 16. Section 437.203: Quality control. 018, Washington, DC. 20585 17. Section 437.204: Monitoring and RIN 1904±AA 74 The public hearing will begin at 9:00 evaluation. a.m., and will be held at the following 18. Section 437.205: Guideline compliance. Voluntary Home Energy Rating System 19. Section 437.206: Accreditation. Guidelines location: Washington, D.C.: U.S. III. Procedural Requirements Department of Energy, Forrestal A. Environmental Review AGENCY: Office of Energy Efficiency and Building, 1000 Independence Avenue, B. Regulatory Planning and Review Renewable Energy, U.S. Department of SW., Room 1E–245 (1st Floor, E C. Federalism Energy. Corridor), Washington, D.C. 20585. D. Regulatory Flexibility Act ACTION: Notice of proposed rulemaking Copies of the transcripts of the public E. Paperwork Reduction Act and public hearings. hearing, individual oral statements, and IV. Public Comment Procedures the written public comments received A. Participation in Rulemaking SUMMARY: Today, the U.S. Department of may be viewed and/or obtained from the B. Written Comment Procedures C. Public Hearing Energy (‘‘Department’’ or ‘‘DOE’’) is DOE, Freedom of Information Reading 1. Procedure for Submitting Request to proposing statutorily required voluntary Room, Room 1E–190, 1000 Speak guidelines for home energy rating Independence Avenue S.W., 2. Conduct of Hearing systems. The proposed voluntary Washington, D.C. 20585, (202) 586– guidelines are designed to encourage 6020, 9:00 a.m.-4:00 p.m. I. Background uniformity among systems for rating the FOR FURTHER INFORMATION CONTACT: A. Statutory Authority annual energy efficiency of new and Robert Mackie, Buildings Division, EE– Section 102 of the Energy Policy Act existing residential buildings. They 432, U.S. Department of Energy, Room of 1992 (Pub L. 102–486), amended Title provide for a uniform rating method; 1J–018, 1000 Independence Avenue, II of the National Energy Conservation procedures for certification of the SW., Washington, D.C. 20585, (202) Policy Act (Act) by adding sections 271– technical accuracy of the building 586–7892 273 (42 U.S.C. 8236–8236b). Section 271 energy analysis tools used to determine Diana Dean, Office of General Counsel, of the Act directs the Department to energy efficiency ratings; training of GC–12, U.S. Department of Energy, issue, by rule, voluntary guidelines that personnel conducting energy efficiency Room 6B–231, 1000 Independence may be used by state and local ratings; data collection and reporting; Avenue, SW., Washington, D.C. governments, utilities, builders, real quality control; and monitoring and 20585, (202) 586–7440 estate agents, lenders, agencies in evaluation. The voluntary guidelines are SUPPLEMENTARY INFORMATION: mortgage markets, and others, to enable intended for use by state and local I. Background and encourage the assignment of energy governments, utilities, builders, real A. Statutory Authority efficiency ratings to residential estate agents, lenders, agencies in B. General Purpose buildings. Section 271 requires the mortgage markets, and others, to enable C. Guideline Development Department to consult with the and encourage the assignment of energy D. Rating Method Development Secretary of Housing and Urban efficiency ratings to residential 1. Reference House 2. Star Rating Method Development, the Secretary of Veterans buildings and the development of II. Description of the Proposed Rule Affairs, representatives of existing home criteria for attractive financial A. Summary of the Voluntary Guidelines energy rating programs, and other instruments for energy efficient homes. B. Section by Section Description of the appropriate persons. In terms of DATES: Written comments on the Proposed Guidelines specified content, section 271 provides 1. Section 437.1: Purpose. proposed rule (10 copies) must be that the voluntary guidelines shall: received by the Department by October 2. Section 437.2: Scope. 23, 1995. 3. Section 437.3: General definitions and (1) encourage uniformity with regard to acronyms. systems for rating the annual energy A public hearing will be held on 4. Section 437.4: Availability of ratings. efficiency of residential buildings; October 2, 1995. 5. Section 437.100: Rating procedure. (2) establish protocols and procedures for Requests to speak at the public 6. Section 437.101: Rating point score and (A) certification of the technical accuracy hearing must be received by the star rating. of building energy analysis tools used to Department by 4 pm on or before 7. Section 437.102: Rating reporting. determine energy efficiency ratings; 37950 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules (B) training of personnel conducting energy efficient loans. Variation in current local Secretary of Veterans Affairs, efficiency ratings; and statewide home energy rating representatives of existing home energy (C) data collection and reporting; programs impedes the implementation rating programs, and other appropriate (D) quality control; and of energy efficient mortgage programs persons.’’ (E) monitoring and evaluation; The HERS Council is a not-for-profit, (3) encourage consistency with, and because the Federal mortgage agencies support for, the uniform plan for Federal and lenders are uncertain as to the corporation with a nineteen-member energy efficient mortgages, including that reliability of the ratings. board representing various stakeholders developed under section 946 of the Cranston- As of 1993, a number of states had in the matter of home energy ratings. Gonzalez National Affordable Housing Act developed their own unique home The HERS Council’s membership (42 U.S.C. 12712 note) and pursuant to energy rating programs. The National includes builders, mortgage lenders, sections 105 and 106 of the Energy Policy Act Association of State Energy Officials HERS providers, consumer groups, State of 1992; (NASEO) stated that 14 states have state- energy offices, utilities, real estate (4) provide that rating systems take into agents and appraisers, and product account local climate conditions and wide or city-wide, scaled home energy rating programs for new and existing manufacturers. construction practices, solar energy collected The HERS Council formed a homes. Thirty-three states had utility- on-site, and the benefits of peak load shifting Technical Committee comprised of construction practices, and not discriminate run home energy rating certification representatives from electric and gas among fuel types; and programs for new homes in at least utilities and utility trade associations, some areas of the state. In some areas (5) establish procedures to ensure that home energy rating providers, software both state and utility rating programs residential buildings can receive an energy developers, builders, state efficiency rating at the time of sale and that were in use. organizations, product manufacturers, such rating is communicated to potential Today’s proposed rule responds to the and the heating, ventilation and air- buyers. need of mortgage lending institutions conditioning industry. The Department for a reliable technical basis upon which Section 105 of the Energy Policy Act also provided resources from the to underwrite energy efficient of 1992 amends section 104 of the National Renewable Energy Laboratory Cranston-Gonzalez National Affordable mortgages. Providing this solid footing to give technical support to the HERS Housing Act, 42 U.S.C. 12704, by for mortgage underwriting will Council during their work on the defining an ‘‘energy efficient mortgage’’ encourage lenders to issue a variety of Technical Report. as a mortgage that provides financing energy-related financial products which The Department, working through the incentives for the purchase of energy in turn will help stimulate the market HERS Council, attempted to reach all efficient homes, or that provides for energy efficient housing measures. possible stakeholders to obtain financing incentives to make energy Along with access to attractive comments during the development of efficiency improvements in existing financing, homeowners could be these proposed guidelines. homes by incorporating the cost of such encouraged to make investments in Representatives from the U.S. improvements in the mortgage. energy efficiency if they are valued in Department of Housing and Urban The Department is developing the the real estate market. Currently, Development (HUD) and the U.S. guidelines through notice and comment appraisals are based on comparables Department of Veterans Affairs (VA) rulemaking because section 271 that do not necessarily value energy attended HERS Council and Technical specifically requires that they be efficiency measures. A reliable home Committee meetings to remain apprised developed ‘‘by rule.’’ Nevertheless, energy rating gives appraisers a sound of the material being developed and the compliance with the final guidelines is basis for recognizing energy efficient Department has consulted with both strictly voluntary. measures that have been installed. HUD and VA on the contents of these B. General Purpose Uniformity across different home proposed guidelines. The principal purpose of a home energy rating systems could benefit Many of the larger and more active energy rating system is to calculate a consumers and the housing industry by rating organizations participated in this descriptive rating of the energy making energy ratings a standard part of effort, but the Department is aware that performance of a residential building. the real estate process. As ratings there are some home energy rating An accurate home energy rating system become widely utilized, consistency organizations not participating in the will give the lending industry the among systems will promote proper HERS Council. Therefore, the Technical confidence it needs to underwrite market valuation of improvements. Report created by the HERS Council, via energy efficient mortgages, offer Expanded use of home energy rating a consensus process, may not reflect all financing mechanisms, and provide the systems could stimulate increased use opinions on the content of these real estate and appraisal industries with of energy efficiency and renewable guidelines. The proposed guidelines a basis for valuing energy efficiency in energy technologies by making energy allow for delayed compliance as the home sale and resale markets. It is efficiency a quantitative, visible, and described below. The Department anticipated that by providing an recognized attribute as homes are invites all interested parties to provide accurate technical basis for projecting designed, built, bought, and remodeled. the Department with their views energy savings from installations of C. Guideline Development regarding the proposed guidelines in energy efficiency measures, the The Department’s Office of Building comments responding to this notice and guidelines, when finalized, will play a Technologies contracted with the Home at the public hearing. critical role in establishing a market- Energy Rating Systems Council (HERS D. Rating Method Development based system to encourage homeowners Council) in 1993 for the development of The proposed guidelines provide for a to improve the energy efficiency of new, a Technical Report to be used as a basis single method of rating homes that is reconstructed or existing housing. for the guidelines proposed today. The consistent with the statutory Reliable and consistent energy Department acted in response to the requirement in section 271 of the Act to analysis systems are prerequisites for provisions set forth in the Act to encourage uniformity with regard to financing residential energy efficiency develop voluntary guidelines in systems for rating the annual energy through the mortgage process with consultation with the Secretary of efficiency of residential buildings. The energy efficient mortgages or energy Housing and Urban Development, the HERS Council and the Technical Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37951 Committee considered several existing proposed tool certification process system. Under this system, which uses rating methods. Many of the existing found in proposed section 437.200, a a ‘‘one star’’ to ‘‘five stars-plus’’ scale, methods considered utilize a 100-point comparison was made of calculated the reference home located at 80 points scale, and therefore, a large portion of energy consumption for two standard is awarded four stars. consumers and financial institutions prototype homes located in seven cities The divisions of the ‘‘star’’ scale in should find this type of scale an in the United States. The predicted the proposed rating method were appropriate basis for ratings. energy consumption was similar for created by the HERS Technical Many of the existing 100-point either standard in most climates. In Committee based on a study of methods, however, lack consistency in predominantly heating climates, CABO calculated energy consumption. The the specification of the extremes of the was slightly more stringent, whereas HERS Technical Committee used scale (0 and 100 points). In some of the ASHRAE tended to be slightly more incremental levels of efficiency to look existing methods, the least efficient fuel stringent in climates where cooling was at the range of performance that might and type of heating system is used to the greater need. The difference was not be found in the existing housing stock. define the least efficient end of the considered to be substantial. (For example, a pre-1940 home with no scale. In other existing methods, the best The HERS Technical Committee modifications consumes approximately available technology is used to define recommended the use of CABO–MEC as four times the energy used by a the most efficient end of the scale. The the basis for the reference home in the reference home.) The study also looked exact parameters that determine the proposed rating method. CABO–MEC is at logical incremental increases in levels ‘‘least efficient’’ and ‘‘most efficient’’ the qualifying threshold for the energy of thermal performance above the levels ends of the scale are selected efficient mortgage program of the found in the reference home. To attain individually by each HERS provider Federal National Mortgage Association those higher levels, the study looked at which can result in a lack of consistency (Fannie Mae), and the Federal Housing improved insulation equipment among providers. Administration. Further, Section 101 of efficiency and the use of renewable To promote consistency, the proposed the Energy Policy Act of 1992 uses energy sources such as passive and scale utilizes a single fixed reference CABO–MEC as the benchmark for active solar. The ‘‘star’’ breakpoints point from which energy efficiency is residential buildings in the presented in the proposed guidelines measured. The reference point is fixed Department’s Building Energy have their origins in this analysis by the at 80 points, and the proposed method Efficiency Standards Program. assumes zero purchased energy at the On the basis of the foregoing, the HERS Technical Committee. Copies of top end of the 100-point scale. The top Department accepts the HERS Technical the results of this study are available of the scale (100) represents a one Committee’s recommendations to use from the Department information hundred percent improvement over the CABO–MEC. (See proposed section contact listed in the ‘‘Addresses’’ reference point. Therefore, each point 437.102, ‘‘Section Description of the paragraph of this proposed rulemaking. above 80 represents a five percent Guidelines’’, ‘‘Configuration of the The Department has also placed a copy reduction in energy consumption from Reference Home.’’) in its Freedom of Information Reading the reference point. Conversely, at a five As previously stated, several Room. percent increase in consumption per secondary mortgage programs, including Thus, the guidelines proposed today point, zero would represent purchased HUD insured mortgages, recognize are based on the principle of a reference energy that is five (or more) times CABO–MEC as providing a level of house and logical incremental changes greater than the purchased energy energy efficiency that qualifies buyer for in energy consumption. The expression consumed at the reference point. By increases in their debt to income ratio of the results is captured in the ‘‘star’’ selecting the energy efficiency of a limits. These programs currently categories of energy efficiency. hypothetical building (reference house) reference the 1992 edition of CABO– The Department invites comments that remains constant as the reference MEC. The Department selected the 1993 regarding the potential acceptance of point, the rating scale becomes both edition to establish insulation levels for these guidelines by existing home uniform and consistent over time. If no the reference home because it provides energy rating providers and invites changes occur to the rated features of a for more realistic (higher) levels of specific comments on the content of the home, then the rating also remains efficiency in multi-family homes than guidelines. Commenters should bear in consistent over time. those provided in the 1992 edition. In mind that these guidelines would not in addition, some elements to define a themselves set any ‘‘acceptable’’ level of 1. Reference House reference home and a standard set of energy efficiency and that existing The approach used to create the operating conditions are not present in programs could use any point or points specifications for the reference home the 1992 or 1993 editions of CABO– on the proposed scale for comparisons was to base the proposed scale MEC, so they are taken from the 1994 that encourage efficiency. Commenters specifications on an already recognized Amendments. Details are provided in are also encouraged to provide specific standard for ‘‘energy efficiency.’’ Two Section II.B. ‘‘Sections Descriptions’’ examples if comparisons to existing recognized standards for energy under proposed section 437.103, programs are offered. efficiency that are national in scope are ‘‘Configuration of the reference home’’ the Council of American Building and proposed section 437.105, II. Description of the Proposed Rule Officials (CABO), Model Energy Code ‘‘Operating condition assumptions.’’ (CABO–MEC) and the American Society A. Summary of the Proposed Voluntary of Heating, Refrigerating, and Air 2. Star Rating Method Guidelines Conditioning Engineers (ASHRAE) Many of the existing HERS systems The proposed voluntary guidelines Standard 90.2. provide ‘‘star’’ ratings as a way of would establish: (1) A uniform national The HERS Council Technical summarily representing the point rating method, and protocols and Committee compared the specifications scores. Many of the providers support procedures for certification of the of these two documents. Using the concept that a ‘‘four star’’ rating technical accuracy of building energy computer programs that met the should denote efficiency. The proposed analysis tools used to determine energy preliminary requirements of the guidelines include the use of a ‘‘star’’ efficiency ratings; (2) training of 37952 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules personnel conducting energy efficiency voluntary guidelines on CABO–MEC, oppose the concept of rating homes. ratings; (3) data collection and the proposed scope is limited to However the Department is not reporting; (4) quality control; (5) and residential buildings covered by CABO– proposing that such a rating should be monitoring and evaluation. They take MEC. prerequisite to listing a home sale. into account local climate conditions Included are: (a) one and two family dwellings; and (b) all other residential Proposed Section 437.100: Rating and construction practices, solar energy Procedure collected on site, and the benefits of buildings, three stories or less in height. peak load shifting construction As required by section 271, both Proposed § 437.100 sets forth a practices. They are designed not to existing and proposed homes are standard procedure to be used by each discriminate among fuel types. included in the proposed scope of the provider who voluntarily follows the The Department proposes to voluntary guidelines. proposed guidelines. A site visit would incorporate by reference test be required to collect data that is used Proposed Section 437.3: General in making a comparison of estimated procedures, U values and Uo values, and Definitions and Acronyms on site inspection procedures upon yearly energy consumption between the publication of this rule as final. These Proposed § 437.3 provides a listing of home being rated and a standard materials are listed below: all the general definitions and acronyms reference home of the same size and The ‘‘Home Energy Rating Systems used in section 437. ‘‘Home’’ is defined shape. Only the energy consumed for Building Simulation Test (HERS- in this section as a residence or heating, cooling and water heating BESTTEST)’’, NREL/TP–472–7332, dwelling unit in detached or attached would be used in this comparison. The National Renewable Energy Laboratory. structures of three stories or less. The reference home would be defined under rating industry as it exists today favors The U values and Uo values, of proposed § 437.103. paragraph 502.2 of the Model Energy the term ‘‘home energy rating’’ and the Department elects to follow that Proposed Section 437.101: Rating Point Code, 1993 Edition, Council of Score and Star Rating American Building Officials. ‘‘On Site convention. ‘‘HERS provider’’ is defined Inspection Procedures’’, Guidelines No. as a person or organization that This proposed section describes the 10, Home Energy Rating Systems develops, manages and operates a home calculation procedure for determining a Council. energy rating system or ‘‘HERS’’. The point score and star rating. The Copies of these document may be rating industry as it exists today tends procedure would use the estimated reviewed at the Department of Energy, to use the term ‘‘HERS provider’’ to energy consumption of the rated and Freedom of Information Reading Room describe a person or organization that reference houses to determine a rating at the address stated above. Copies of provides HERS generated ratings. score between 0 and 100 points. A score these documents may also be obtained of 0 indicates that the rated home Proposed Section 437.4 Availability of consumes five times or more energy from the organizations and addresses Ratings listed below: than reference home and is considered ‘‘Home Energy Rating Systems To respond to the statutory profoundly inefficient; a score of 100 Building Simulation Test,’’ NREL/TP– requirement ‘‘to ensure that residential indicates that the rated home has zero 472–7332, National Renewable Energy buildings can receive an energy annual purchased energy consumption Laboratory, 1617 Cole Boulevard, efficiency rating at the time of sale and for heating, cooling and water heating. Golden, CO 80401–3393. that such rating is communicated to In addition to a numerical score, the ‘‘Model Energy Code,’’ 1993 Edition, potential buyers,’’ proposed § 437.4 rating is expressed by a ‘‘star’’ value of Council of American Building Officials, recommends certain actions by people between one and five stars (five 5203 Leesburg Pile, Falls Church, VA or organizations that are typically divisions) with a sixth division called 22041. involved with the sale of a home or the ‘‘Five Plus’’. This section identifies the ‘‘On Site Inspection Procedures,’’ creation of a mortgage. relationship of the numerical score to its Guidelines No. 10, HERS Council, 1511 The Department is of the view that corresponding ‘‘star’’ value. K Street, NW, Washington, DC 20005. informing home buyers of any available financing incentives related to energy Proposed Section 437.102: Rating B. Section Descriptions efficiency will encourage consumers to Report Subpart A—General Provisions take steps that will reduce energy use in Proposed § 437.102 lists the minimum this country. Consistent with that view, information that each rating provides. Proposed Section 437.1: Purpose proposed § 437.4(b) provides for Proposed paragraphs (a)(5) and (a)(6) of Proposed § 437.1 defines the purpose encouraging multiple listing services to this section would require each HERS of part 437 as the establishment of include available home energy rating provider to report the name of the voluntary guidelines to be used by information. The Department agency certifying the accuracy of the Home Energy Rating System Providers understands that there is concern among energy analysis tool and the margin of to provide a consistent and uniform stakeholders that buyers may need error accepted by that agency. Section approach to rating homes for energy additional time to investigate available 271 of the Act requires that the efficiency. incentives and, if necessary, have a guidelines establish procedures for rating conducted. In doing so, the certifying the technical accuracy of Proposed Section 437.2: Scope process of home selling might be energy analysis tools, but gives no Proposed § 437.2 specifies the types of delayed. However the Department definition as to what constitutes homes that may be rated using the believes that delays can be minimized ‘‘technical accuracy.’’ As proposed in voluntary guidelines. Section 271 of the by lenders with proper administrative section 437.200, these guidelines look to Act calls for the development of procedures. the accrediting agency to establish pass/ guidelines for ‘‘residential buildings’’ The Department also recognizes fail criteria for energy analysis tools. but does not define that term or further concern that some existing The Department believes that the otherwise dictate the types of homes to homes may be viewed as less acceptable margin of error is an issue to be covered by the guidelines. Consistent marketable as the result of a rating and be decided by the users of these ratings, with the decision to base the proposed therefore some homeowners may such as consumers and lenders. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37953 Therefore, the purpose of these two Model Energy Code, 1993 edition for purposes of solar contribution for proposed reporting requirements is to (CABO-MEC), therefore, specific heating or solar load for cooling. The provide information that allows users to reference is made in this proposed value of 27 percent is taken from the decide for themselves if the accuracy of section to have the enclosure elements information in Chapter 27 of the 1993 the energy analysis tool, as defined by configured to Paragraph 502.2 of CABO- ASHRAE Handbook of Fundamentals the accrediting body, is acceptable. The MEC. This paragraph establishes the which specifies a 27 percent frame area Department expects and encourages criteria for building envelope for a 3 ft. by 4 ft. operable wood comments from the financial components according to the severity of residential window. Frame and sash community on this issue. the normal winter weather conditions adjustments to fenestration area in the Proposed paragraph (a)(7) of this for the geographic location of the home. rated home are based on the actual section requires each HERS provider to The Department considers this windows in use or as proposed for report the level of their accreditation as procedure to be appropriate for the retrofit or to be built homes. either ‘‘basic compliance’’ or ‘‘full determination of insulation levels for Shading Coefficient—Proposed accreditation’’. Existing HERS providers the reference home. paragraph (a)(8) fixes the shading may have functioning systems that To be responsive to the language in coefficient at 0.70 during the cooling would comply, or could readily be made section 271 of the Act regarding the season. This is consistent with the to comply with the majority of these need to take into account ‘‘solar energy provisions for a reference house in guidelines, but would require lengthy collected on-site,’’ this proposed section section 8.8.3.2 of ASHRAE Standard periods of time to come into full would create what the Department 90.2, for energy efficient design of low compliance. In response to this considers a ‘‘solar neutral ‘‘ reference rise residential buildings. It is also situation, the Department proposes two home by fixing the following consistent with the provisions found in levels of performance, basic compliance components: the 1994 amendments to CABO–MEC. and full accreditation, with the Fenestration Area—In proposed The 1994 amendments were used as a opportunity for any existing HERS paragraph (a)(5)(i), the fenestration area source of information to define this provider to meet certain guidelines with is fixed at 18 percent of the conditioned feature of the reference home because their present system for a period of up floor area. The requirements for wall the 1993 code lacks clarity on these to two years, during which time they assemblies in CABO-MEC are based on necessary specifications. It should be may represent themselves as being in the average U-values of those assemblies noted that CABO states the use of basic, but not full compliance with the and therefore the total U-value of the draperies without providing a specific guidelines. The Department invites wall assemblies including windows and shading coefficient which still leaves comments on the advisability of such a doors is calculated, then divided by the some ambiguity that is avoided by structure. gross wall area to determine the average. following the ASHRAE approach. This Paragraph (a)(9) provides for the Since the area of glazing may vary part of the proposed guidelines also reporting of previous energy depending on the thermal performance fixes the shading coefficient for the consumption data if it is made available of the window itself and/or the opaque glazing area at 0.88 during heating. This by the homeowner. Various factors such wall area, it is considered necessary to value is as stated in Chapter 27 of the as prior home improvements or unusual fix the amount of glazing to create 1989 ASHRAE Handbook of weather conditions make it necessary consistency in the reference home. In Fundamentals for clear double 1⁄8 inch for the rater to determine the usefulness the case of multi-family homes, where glass. Shading coefficients for glazing in of such information and to determine if 18 percent of the conditioned floor area the rated home are based on the actual it should be included in the report. may exceed the actual exposed wall windows in use or as proposed, but also To facilitate energy efficient area, a formula is provided in proposed assuming the use of non-white draperies mortgages and loans as provided in section 437.103 to establish the on the same schedule as is specified for section 271 of the Act, paragraph (b) of reference home fenestration on a ratio of the reference home. this proposed section provides for the exposed and common wall areas. In response to the language in section report to include the estimated energy Orientation—Also in proposed 271 of the Act that requires that these cost savings available with the rated paragraph (a)(6)(i), glazing in the proposed guidelines not discriminate home reconfigured with possible reference home would be distributed among fuel types, proposed paragraph improvements to the minimum rated equally in each of four cardinal (a)(10) provides that the reference home features. Paragraph (b)(2) also provides directions—north, south, east and west. utilize the same energy sources for the for reporting of ‘‘The Present Worth As a result, the reference home is same purposes as in the rated home. In Value’’ of the energy cost savings and assumed to experience equally the case of ratings that include proposed the discount rate used to calculate that beneficial solar gains during heating upgrades, this eliminates the possibility value. The Department considers this season and equally detrimental solar of a better rating by fuel switching. information necessary because it is used gains during cooling. The rated home Energy suppliers are free to promote in the qualification process for Federally would reflect the benefits of favorable their particular fuel type by providing backed energy efficient mortgage orientation and/or the negative impact comparative operating costs but should programs such as those provided by the of poor orientation. This principle is do so outside of the information Department of Housing and Urban also utilized with regard to multi-family provided in the rating of the home as it Development (HUD). The Department is homes, which would assume exists. not proposing a specific discount rate. hypothetical glazing in walls even In proposed paragraph (a)(12), the though the actual wall in the rated home equipment efficiencies specified for Proposed Section 437.103: Reference may be common with an adjoining unit HVAC systems and domestic hot water House Configuration and not have any windows. equipment in the reference home, are Proposed § 437.103 establishes the Adjustment to Fenestration Area— the minimum efficiencies initially level of energy efficiency of the Proposed paragraph (a)(7) specifies the established by the National Appliance reference home. The insulation levels percentage of the fenestration area that Energy Conservation Act of 1987 are those that are required by the be assumed as frame or sash. This serves (NAECA)(Pub.L. 100–12). In proposed Council of American Building Officials to further refine the actual glazed area paragraph (a)(11), the reference home is 37954 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules also assumed to have the same type of of the rated home to incorporate passive minimum rated features is not available HVAC system, e.g., forced air or hot solar strategies into the design and to without expensive and destructive water, as the rated home, except that in receive full credit for mass provided for disassembly of the home. The the case of homes heated electrically, that purpose. The internal and Department believes that these default the reference home is assumed to be structural mass values used are those values are best determined by a person heated with an air source heat pump. found in the 1994 Amendments to or persons knowledgeable about typical The Department considers this to be CABO–MEC. construction practices used in any given consistent with the use of the minimum The reference home defined by time frame for homes in any given area. equipment efficiency established by proposed section 437.103 represents a For this reason, this section places the NAECA, but acknowledges the fact that fixed rating point that will not change responsibility for establishing or in some homes with an extremely over time. Homes which have been approving default values on the efficient envelope, the use of resistance rated will never need to be re-rated accrediting body and reflects the heat might very well represent the best unless modifications have been made to expectation that the required expertise value when life-cycle costing principals the home which affect its energy is present in that body. are applied. However, it is considered a efficiency. Paragraph (e) of this section deals greater risk to allow the combined The Department invites comments on specifically with air leakage. It states inefficiency of a poor envelope using the configuration of the reference house that if diagnostic testing equipment is resistance heat to be mitigated if a heat but reminds comment writers that it is not used to determine leakage, then pump system is not specified in the not the intention of these guidelines to based on observations of the general reference home. use the reference house to set any tightness of construction, a value of 0.67 Proposed paragraph (a)(13) provides specific level of efficiency. While the air changes per hour or greater is to be for standard adjustments to HVAC specifications happen to be consistent used. This precludes the use of a lower, systems for duct or piping losses when with some current energy efficient more efficient value in a rated home the rated home has all or part of its mortgage programs, anyone offering than is used for the reference home distribution system outside of the incentives for energy efficiency in unless testing is done. It does not ensure conditioned space. The adjustment financing or otherwise, is free to select that the energy consumption factors are consistent with those found any point on the rating scale as their attributable to air leakage is accurately in the 1994 Amendments to CABO– ‘‘threshold of energy efficiency’’ or other reported in the rating but neither do the MEC. basis for comparison. The objective in models used to extrapolate annual Proposed paragraph (a)(14) provides defining and using the reference home average air leakage rates from a single specifications for water heater efficiency is consistency and the fact that it is diagnostic test. An experienced and expressed as an energy factor (EF). The fixed in time has no bearing on future well trained rater may make reasonable values specified are those found in the definitions of ‘‘energy efficiency’’ or estimates of air leakage and doing so NAECA requirements for domestic future qualifications for energy efficient without the expense of diagnostic water heaters. financing programs. The seasonal average air leakage rate equipment reduces the cost of of 0.67 air changes per hour (ACH) Proposed Section 437.104: Minimum completing a rating. The Department established for the reference house in Rated Features invites comments on the sensitivity of proposed paragraph (a)(15) is consistent Proposed § 437.104 provides in Table the possible range of error which can with the 1994 amendments to CABO– 5, a list of building components and a occur with either estimated air leakage MEC. Consideration was given to corresponding list of features of those or in the models for diagnostic testing. reducing that value to 0.50 air changes building components that must be Proposed paragraph (f) of this section per hour as was done in the 1995 considered when calculating the energy provides methods, listed in a preferred edition of CABO–MEC, but at 0.67 there consumption for the rated home as order of use, for determining efficiencies can be a greater incentive to test with required by § 437.100. The Department of primary types of mechanical diagnostic equipment such as a blower recognizes that there are numerous equipment. Proposed paragraph (g) door. With the reference home set at the additional features or devices that might provides as the last in order of lower level of 0.50, a tested home would affect energy consumption in buildings. preference, an age-based table of default receive minimal credit (0.15 ACH) in Examples are ceiling fans, whole house values for typical space conditioning the rating before reaching the current fans, moveable insulation, etc., most of and domestic water heating equipment. ASHRAE minimum of 0.35 ACH which are occupant controlled. The A non-aged based table of default values assumed necessary for adequate Department believes that those listed in is provided for less common types of ventilation. With an 0.67 rate as the Table 5 represent all the major mechanical equipment. basis for the reference home, a tested influences on energy consumption and These tables identified as Tables 6 home has the opportunity to that it is not necessary to require that and 7, were developed from the demonstrate a 0.32 ACH advantage in each HERS provider be able to evaluate following references: the rating. The minimum standard all options and to do so would place an Department of Energy Residential default value in proposed section undue burden on many existing Conservation Services Training 437.104, unless diagnostic testing is systems. Paragraph (h) of this section Manual (1981) conducted, is 0.67 so in no case could states that any HERS provider may base California Home Energy Efficiency a rated house claim any advantage over a rating on additional features if the Rating System (CHEERS) equipment the reference home without testing. energy analysis tool being used is default table Proposed paragraph (a)(16) sets capable of doing so. Air Conditioning & Refrigeration standard assumptions for the building Proposed paragraph (c) provides Institute (ARI) historic equipment mass found in the reference building methods, listed in the preferred order of shipment data, weighted averages that would be considered when use, to determine building envelope Gas Appliance Manufacturers evaluating the benefits of mass for heat thermal characteristics. Association (GAMA) historic storage during both heating and cooling Proposed paragraph (d) allows for the equipment shipment data, weighted seasons. This approach allows designers use of default values when data for the averages Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37955 Oil equipment shipment data compiled allows interpolation of weather data if but it is necessary to know the operating by R. Krajewksi (Brookhaven National the interpolated weather information is schedule of the lighting to properly Laboratory), weighted averages consistent among all HERS providers identify savings. Therefore the rating operating within a State and is approved would be based on the occupants and Proposed Section 437.105: Operating by the accrediting body. not on the house. In addition, the Condition Assumptions Proposed paragraph (f) provides that number of permanently wired fixtures These guidelines are to be used to rate operating adjustments to equipment in the typical home is limited and, in homes and not the occupants of the efficiencies are to be made to correct for most cases, represent only a small part home. Therefore occupant dependent climate and mis-sizing of equipment. of the total energy use. factors e.g., thermostat set points, are to These correction factors may be In proposed § 437.100(d), each HERS be disregarded when estimating the obtained from recognized sources. The provider is encouraged to provide energy consumption of the rated and most logical sources of this information separate information on the cost of reference homes. Instead, the standard are the Air Conditioning and operating appliances. operating conditions provided in Refrigeration Institute (ARI) or The electric energy use values proposed § 437.105 are to be assumed. ASHRAE. The requirements of this proposed in Table 8 of this section are Proposed paragraph (a) of this section proposed paragraph would be met if the taken from documents published by the provides standard temperature control adjustments are either provided by or Electric Power Research Institute (EPRI). setpoints of 68 °F for heating and 78 °F approved by the accrediting body and Those documents include: EPRI for cooling which are consistent with are consistent among all HERS Residential End-Use Energy those found in the 1994 Amendments to providers operating within a State. Consumption: A Survey of Conditional CABO–MEC. When programmable Proposed paragraph (g) would require Demand Estimates 1989 and EPRI offsets are available in the rated home, each HERS provider to use local utility Residential Energy Usage Comparison proposed paragraph (b) of this section or energy rates when calculating costs Project: An Overview 1990. specifies assumptions for the periods of for reporting as required in proposed The gas energy use values proposed in offset and the amount of offset (5 °F). section 437.102. This paragraph also this section are taken from documents These values are based on information would provide for consistency among published by the Gas Research Institute obtained from an industry survey HERS providers on the updating of the (GRI). Those documents are: GRI conducted by Minneapolis Honeywell rate information by requiring each HERS Baseline Projection Data Book, 1994 that reported typical use of provider operating within a State to Edition; and GRI Interim Technical programmable thermostats. The update information on the same Input to NAECA Rulemaking for Gas- Department considers these schedules schedule which is established by the Fired Ranges, 1993. and offsets to be conservative and accrediting body. Proposed Section 437.107 Projected therefore suitable as an operating Ratings for To-Be-Built Homes conditioning assumption when the rated Proposed Section 437.106: Non-Rated home is so equipped. Energy Consuming Devices This section recognizes that Proposed paragraph (c) sets standard The energy consumed by appliances homebuilders may wish to offer values for internal gains from lights, and lights is not included in standard models that may be built on people and equipment to be used when consumption used to determine the sites that vary in orientation. This calculating the space conditioning loads rating. Proposed § 437.106 would would prevent a rater from meeting a and energy consumption. These values establish standard consumption values provision of section 437.104 which lists are consistent with those found in the for energy consuming devices such as window and skylight orientation as a 1994 Amendments to CABO–MEC. appliances and lights since it is minimum rated feature. Therefore, a Proposed paragraph (d) provides a necessary to estimate the energy usage projected rating for to-be-built homes formula for the determination of of these non-rated devices to comply may be based on plans by estimating the domestic hot water usage. This formula with proposed § 437.102 (Rating energy consumption for each of the four for daily usage, (30 gallons + (10 gallons Report). Proposed § 437.102 would cardinal orientations, (north, south, east × number of bedrooms)), is consistent require that, in addition to reporting the and west), and basing the projected with the formulas found in the 1994 estimated energy use for heating, rating on the orientation that results in Amendments to CABO–MEC and in cooling and water heating, each HERS the greatest energy consumption. ASHRAE Standard 90.2 that establish provider reports the estimated energy Projected ratings for to-be-built homes domestic hot water usage. use and cost of all other energy used in must also use a default value for air Proposed paragraph (e) would require the rated home. leakage of no less than 0.67 air changes the HERS provider to make a The Department recognizes the fact per hour. The rating may be revised determination as to what weather data that some appliances, especially upon completion of the home if is to be used when calculating energy refrigerators, may have a wide variance diagnostic testing results in a lower air usage. The normal source of weather in energy use. There are also dramatic leakage rate (and/or on the basis of information is to be found in the typical savings available with the use of actual orientation). The Department meteorological year (TMY) data alternative lighting fixtures. The recognizes that this may be unfair to published by the National Climatic primary reason behind the decision to builders who consistently deliver homes Center, Asheville, NC. The term neutralize the affect of appliances in the with tighter construction because the ‘‘climatologically most representative’’ rating process is that the rating should projected rating will not reflect the is used regarding the choice of location not be based on items that are not a benefit of additional investment in of the TMY data to be used. This is permanent part of the structure. tightening of the home and may cause because the Department recognizes the Refrigerators and other appliances can the rating to fall short of a level required possibility that the closest TMY weather be moved with the occupants or can be to obtain a particular incentive. The site geographically may not be truly replaced with models that are more or final rulemaking could address this representative of the weather conditions less efficient. In the case of lighting, issue by allowing an exception to the found at the site of the home being there are opportunities to include default value for demonstrated rated. This proposed paragraph also permanently wired fixtures in the rating consistency of tightness by a builder 37956 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules and the Department solicits comments used as a base case with the HERS– Proposed Section 437.201: Site Data on the appropriate basis on which that BESTEST Tier 1 test suite consisting of Collection Manual exception might be made (number of variations to the building in these Proposed § 437.100 states that data is homes with demonstrated tightness, elements: to be collected at the site of the rated • etc.). Air leakage. home. Proposed § 437.201 would Subpart C—How to Administer a Home • Wall and ceiling R-value. require each HERS provider to supply Energy Rating System • Glazing area. each data collector with a manual • Proposed Section 437.200: Energy Glazing physical properties. containing approved data collection Analysis Tool Requirements • Glazing orientation. procedures. Proposed paragraph (a) of • this section provides, as a reference Proposed § 437.200 establishes the South overhang. • source for such procedures, Guideline minimum capabilities that an energy Uninsulated slab. • No. 10 of the Home Energy Rating analysis tool must have in order to Insulated slab. Systems Council HERS Guidelines. The • produce the information used in Uninsulated basement. Department has placed a copy of this determining a rating. These include the • Insulated basement. guideline in the public file for this ability to consider the effect of the • Internal loads. notice. following items when estimating energy • Crawl space. The Department believes that a use: • Exterior surface color. manual of this type can be most useful Building types. (Proposed § 437.2); if it is directed to local building practice Reference home configuration. • Combination of features using the and history. Therefore, proposed (Proposed § 437.103); least energy efficient specifications for Minimum rated features. (Proposed each. paragraph (a) states that a HERS provider may use procedures § 437.104); In each of the variations listed above, established by the accrediting body or Operating condition assumptions. the energy loads calculated by the three may create its own material as long as (Proposed § 437.105); public domain dynamic analysis the procedures used are approved by the Non rated energy consuming devices. programs differ by varying amounts. accrediting body. (Proposed § 437.106). The variation can be up to fifteen Proposed paragraph (a)(5) is provided percent of the mean of all three results. Proposed Section 437.202: Training in response to section 271(b)(2) of the Thus a ‘‘band width’’ of results is Home Energy Raters Act which requires that the voluntary created for each test case. Proposed § 437.202 would require guidelines include protocols and Proposed § 437.206 (Accreditation) procedures for certification of the each HERS provider to provide training provides that it is the responsibility of to any employee who will be involved technical accuracy of building energy a State or any other organization analysis tools used to determine energy in the rating process. This section established as an accrediting body, to provides for the development of a efficiency ratings. establish the pass/fail criteria for The National Renewable Energy syllabus to be used in this training. certification of the tool. The suggested Laboratory (NREL) has developed a Proposed paragraph (a) of this section pass/fail criteria provided in the NREL Home Energy Rating System Building identifies the subject matter for a report are based on the widest interval Energy Simulation Test (HERS classroom training segment of the produced by either a deviation of four BESTEST) for this purpose. HERS– training. Proposed paragraph (b) would million BTU outside, on either side of BESTEST is published as a technical require a written examination. the ‘‘band width’’ created in HERS– report identified as NREL/TP–472–7332, Paragraph (c) would require field BESTEST or an interval produced by the and is available from the information training. Paragraph (d) specifies a 90% confidence interval for the contact identified at the beginning of probationary period. population mean using a Students t this notice or from the National Proposed paragraph (e) provides for distribution based on the reference Technical Information Service, U. S. the use of a challenge test of results of HERS–BESTEST. Department of Commerce, Springfield, competency for rater personnel with Virginia 22161. Proposed paragraph (b) of this section prior experience. The challenge test, if In developing HERS BESTEST, NREL provides for future energy analysis tool passed, would allow the HERS provider used the results of three public domain requirements. The Department believes to waive the classroom training required dynamic analysis programs with time that the accuracy of ratings will be by paragraph (a) of this proposed steps of one hour or less to establish improved with tools that utilize hourly section. reference energy consumption values as simulations to handle the variables The classroom training agenda in a basis for comparison of the energy provided for in this proposed paragraph. proposed paragraph (a) was developed consumption calculations generated by Proposed paragraph (b) of this section from information provided to the HERS tools. The programs used were sets a period of four years from the date Department by the HERS Council DOE 2.1E, BLAST 3.0, and SERI–RES. of final rulemaking for HERS providers Technical Committee and is based on The NREL report establishes the to improve their tools to meet the recommendations made by personnel procedures to administer HERS– requirements of this part. representing the following BESTEST. The NREL report also The Department invites comments on organizations: California Home Energy provides suggested pass/fail criteria for the need for the degree of accuracy Efficiency Rating System (CHEERS), certification of a rating tool based on the expected to result from the HERS– Energy Rated Homes of America tools ability to correctly calculate, BESTEST procedure. Specific questions (ERHA), Oregon Department of Energy, within an allowable deviation, building are: Can accuracy be best determined Policy & Planning Division, Western energy loads for a series of tests using empirical data that compares Massachusetts Electric Co. Energy identified as Test Suite 1 of the HERS– predictions to actual consumptions? Crafted Home Program. BESTEST process. Also, should HERS providers be able to The Department considers these A single story slab on grade house self-certify the accuracy of the energy organizations to be among the most with typical glazing and insulation is analysis tools? experienced HERS providers operating Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37957 today. The Department also believes consisting of authorizations for the existing systems to evaluate active solar that the proposed training requirements release of consumption information by water heating or passive solar systems. are based on sound principles. utility companies. Optimally, the HERS The exception to the use of standard provider could maintain actual operating conditions allowed by Proposed Section 437.203: Quality consumption data for each rated home, paragraph (b)(3) is also considered to Control but even if the information were readily have minimal impact because of the Proposed paragraph (a) requires each available that would place a significant need to pass HER-BESTEST. If a HERS HERS provider to establish a Quality administrative burden on the provider. provider does not use the exact Assurance Plan and specifies the The Department also recognizes the fact prescribed standard operating minimum elements of that plan. The that in many cases these authorizations conditions the results could be slightly first element listed as paragraph (a)(1) is may be difficult or impossible to obtain, less accurate but they must still be the use of a peer review where other but believes the need exists to make a within HERS-BESTEST parameters. raters would be asked to critique the reasonable effort to do so. This data Paragraph (b)(4) allows a HERS work of each rater as part of a must be retained for a minimum of 10 provider to be in basic compliance by continuing re-evaluation program. percent of the ratings performed or 500 passing only the Tier 1 set of HERS- Proposed paragraph (b) would require homes, whichever is less, in order to BESTEST tests. The additional HERS providers to establish a Quality allow the accrediting body or other requirements found in the Tier 2 tests Assurance File and specifies the monitoring entity to make random are all related to a high mass passive minimum contents of that file. This selections of ratings to review. solar building and are not considered paragraph further provides for a Proposed Section 437.205: Guideline critical for basic compliance. minimum updating cycle of two years Compliance The exception to specific training for the information in this file, or sooner Proposed § 437.205 sets forth two requirements allowed under paragraph if changes are made to the HERS levels of compliance for HERS providers (b)(5)is provided to recognize the fact providers system. and also sets future requirements for that many successful HERS providers Proposed paragraph (c) would require energy analysis tool capabilities. The may not have training programs that HERS providers to maintain an Department considers this to be a exactly match the syllabus set forth in electronic database of specific phased-in approach to allow any these proposed guidelines, and therefore information on each home rated and existing HERS provider to represent are given an opportunity to demonstrate specifies the minimum content of that themselves as operating in basic that suitable training has been provided. database. The main purpose of compliance with the requirements of The Department believes that the maintaining this data is to support the this part while in the process of revising exceptions listed will not significantly monitoring and evaluation activities certain elements of their existing system compromise the accuracy or the utility provided in proposed section 437.204. It to become fully accredited. of ratings and provide for a reasonable may also be possible in the future to Proposed paragraph (a) of this section period of time to become fully link these databases with National or provides a list of what must be accredited. State databases that track default data demonstrated to be deemed fully Proposed Section 437.206: on mortgages or loans. Only selected accredited. Proposed paragraph (a)(4) Accreditation parts of the database such as the unique sets forth requirements for the energy Proposed § 437.206 states a ID number would be needed for that analysis tool to pass both Tier 1 and requirement that each HERS provider purpose. Tier 2 sets of tests of HERS-BESTEST. operating in voluntary compliance with The specification of individual The Tier 2 set of tests test for the ability these guidelines shall be accredited by elements listed in proposed paragraphs to evaluate the following features an accrediting body such as a State or (a), (b) and (c) is based on related to high mass passive solar an independent entity meeting the recommendations from the same design: organizations referenced in the • Variations in mass; criteria set forth in this section. discussion above on the development of • Glazing orientation; In it’s consultation with various proposed § 437.202 and the Department • Glazing area; stakeholders in the development of considers the requirements to represent • South overhang; these proposed guidelines, the the minimum effort expected for quality • East and west shading. Department has received conflicting control. Specific recommendations or Proposed paragraph (b) of this section commentary on the need for a system of comments are invited on this subject. provides for ‘‘basic compliance’’ by accrediting HERS providers and providing exceptions (with a maximum certifying the energy analysis tools used Proposed Section 437.204: Monitoring two year duration) to the full by these providers. The leading and Evaluation requirements provided in proposed proponent of accreditation is the HERS Proposed § 437.204 requires each paragraph (a) of this section. Council, supported by its financial HERS provider to semi-annually The exception permitted in paragraph community members. Opposition is evaluate the accuracy of ratings being (b)(1)is the acceptance of simplified primarily found in existing operating performed by a periodic comparison of utility rate structures. Since the rating is HERS systems where an accreditation predicted and actual energy use. based on consumption, the rating process and/or changes to meet the The Department believes that HERS accuracy is not compromised and only proposed guidelines could be disruptive providers should maintain certain minor inaccuracies are anticipated in to their present systems. Many of the information that would facilitate both operating cost estimates. proposed guidelines state that when their own monitoring and evaluation Paragraph (b)(2) allows an exception certain information needed for the program and that of an accrediting body to the minimum rated features but it is rating process is not readily available or other third-party reviewer. Proposed unlikely that any key features would be without destructive disassembly of the section 437.204 specifies that, in excluded because the HERS provider home or without costly diagnostic addition to the data specified in would not pass the HERS-BESTEST procedures, then standard default proposed § 437.203, each HERS procedure. The exception is most likely values may be used. Such default values provider shall maintain a database to be used because of the inability of are best developed by local entities 37958 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules based on local experience or historic consider the impact of Federal actions associations, building owners, building data for building practice. The on States, on the relationship between owner associations, consumers, accreditation process would assure that the Federal Government and the States, mortgage lenders, and others are urged the default values used were consistent and on the distribution of power and to submit written statements on the among HERS providers operating within responsibilities among the various proposal. The Department also a defined area such as a State. levels of government. encourages interested persons to As the proposed guidelines are The guidelines proposed by DOE are participate in the public hearing to be themselves voluntary, a voluntary strictly voluntary. No requirements or held in Washington, D.C., at the time system, probably a combination of states inducements have been placed upon the and place indicated at the beginning of and national entities, could be States to adopt the guidelines. this Notice. developed for home energy rating Consequently, the guidelines do not The Department has established a providers seeking accreditation and tool contain sufficient federalism comment period of 90 days following certification. implications to warrant the preparation publication of this notice, for interested The Department requests comments of a federalism assessment. persons to comment on this proposal. on the processes of accreditation and D. Regulatory Flexibility Act All comments will be available for tool certification, and the establishment review in the Department’s Freedom of of appropriate entities for these The proposed guidelines were Information Reading Room. purposes. Specific questions are: analyzed under the Regulatory Should a national entity be created for Flexibility Act, 5 U.S.C. 601 et seq., B. Written Comment Procedures accreditation of HERS? which directs agencies to prepare a Interested persons are invited to Should States accredit HERS and if regulatory flexibility analysis for each participate in this proceeding by so, who would accredit HERS in states proposed rule or certify that the rule submitting written data, views or where the State is unwilling or unable will not have a ‘‘significant economic arguments with respect to the subjects to do so? impact on a substantial number of small set forth in this notice. Instructions for Should guidelines be developed for entities.’’ submitting written comments are set the accreditation process itself and if so, The proposed guidelines are expected forth in the beginning of this notice and who should develop them? to have a minimal effect on small below. Is self-accreditation a viable approach entities. The guidelines described are Comments (with 7 copies) should be and what process should be voluntary and no requirements or labeled both on the envelope and on the implemented to do so? burdens have been imposed on any documents, ‘‘Residential Energy entity. As permitted by section 605 of III. Procedural Requirements Efficiency Rating Guidelines’’ (Docket the Regulatory Flexibility Act, DOE No. EE–RM–95–202)’’ and must be A. Environmental Review certifies that the proposed guidelines received by the date indicated in the will not have a significant economic The proposed quidelines were beginning of this notice, in order to impact on a substantial number of small reviewed under the National insure full consideration. Additionally, entities. Consequently, no regulatory Environmental Policy Act (42 U.S.C. the Department would appreciate an flexibility analysis will be produced. 4321 et seq.), the Council on electronic copy of the comments to the Environmental Quality regulations E. Paperwork Reduction Act extent possible. The Department is currently using the WordPerfect 5.1 implementing the provisions of the These proposed guidelines were National Environmental Policy Act (40 word processing program. All comments examined with respect to the Paperwork received by the date specified at the CFR parts 1500–1508), and the Reduction Act, 44 U.S.C. 3501 et seq., Department’s regulations for compliance beginning of this notice and other which directs agencies to minimize relevant information will be considered with the National Environmental Policy Federal information collection and Act (10 CFR part 1021). by the Department before final action is reporting burdens imposed on taken on the proposed regulation. DOE concludes that, under Category individuals, small businesses, and State A11 (Technical advice and assistance) All written comments received on the and local governments. proposed voluntary guidelines will be of Appendix A to Subpart D, These proposed guidelines establish ‘‘Categorical Exclusions Applicable to available for public inspection at the voluntary guidelines for residential Department’s Freedom of Information General Agency Actions’’, of 10 CFR energy efficiency ratings and do not part 1021, the voluntary guidelines are Reading Room as provided at the impose requirements for the collection beginning of this notice. categorically excluded from further or reporting of information to the environmental documentation. Pursuant to the provisions of 10 CFR Federal Government. Accordingly, 1004.11, any person submitting B. Regulatory Planning and Review clearance under the Paperwork information or data which the Reduction Act of 1980 is not required by The proposed guidelines do not submitting person believes to be the Office of Information and Regulatory constitutes a ‘‘significant regulatory confidential and exempt by law from Affairs of the Office of Management and action’’ as defined in section 3(f) of public disclosure, should submit one Budget. Executive Order 12866, ‘‘Regulatory complete copy of the document, and 7 Planning and Review’’ (58 FR 51735), IV. Public Comment Procedures copies, if possible, from which the and has not been reviewed by the Office information believed to be confidential A. Public Participation of Information and Regulatory Affairs of has been deleted. The submitter is to the Office of Management and Budget. The Department encourages the include a statement specifying why the maximum level of public participation information is privileged or C. Federalism in developing these guidelines. confidential. The Department will make The proposed guidelines have been Individuals, Federal agencies, its own determination with regard to the reviewed in accordance with Executive architects, engineers, utilities, States confidential status of the information or Order 12612, ‘‘Federalism’’ (52 FR and local governments, building code data and treat it according to its 41685), which directs agencies to organizations, builders, builder determination. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37959 C. Public Hearing statement, subject to time limitations. Issued in Washington, DC, on July 11, The rebuttal statements will be given in 1995. 1. Procedure for Submitting Requests To the order in which the initial statements Christine A. Ervin, Speak were made. The official conducting the Assistant Secretary, Energy Efficiency and In order to have the benefit of a broad hearing will accept additional Renewable Energy. range of public viewpoints in, comments or questions from those For the reasons set forth in the developing these guidelines the attending, as time permits. Any preamble, it is proposed to amend 10 Department will hold a public hearing. interested person may submit to the CFR Chapter II by adding part 437 to Listed earlier in this notice is the date presiding official written questions to be read as follows: and address for the hearing. Any person asked of any person making a statement who has an interest in these at the hearing. The presiding official PART 437ÐVOLUNTARY HOME proceedings, or who is a representative will determine whether the question is ENERGY RATING SYSTEM of any group or class of persons having relevant or whether time limitations GUIDELINES an interest, may make a request for an permit it to be presented for a response. opportunity to make an oral Further questioning of speakers may Subpart AÐGeneral Provisions presentation at the public hearing. Such be permitted by the Department. The Sec. requests should be labeled both on the presiding official will afford any 437.1 Purpose. letter and the envelope, ‘‘Residential interested person an opportunity to 437.2 Scope. Energy Efficiency Rating Guidelines’’ question the interested persons who 437.3 General definitions and acronyms. (Docket No. EE–RM–95–202)’’ and made oral presentations, and employees 437.4 Availability of ratings. should be sent to the address and must of the United States who have made Subpart BÐHow To Rate a Home be received by the time specified at the written or oral presentation with respect Sec. beginning of this notice. to disputed issues of material fact 437.100 Rating procedure. The person making the request should relating to the proposed rule. This 437.101 Rating point score and star rating. briefly describe the interest concerned opportunity will be afforded after any 437.102 Rating report. and, if appropriate, state why he or she rebuttal statements, to the extent that 437.103 Reference home configuration. is a proper representative of the group the presiding official determines that 437.104 Minimum rated features. or class of persons that has such an such questioning is likely to result in a 437.105 Operating condition assumptions. interest, and give a telephone number more timely and effective resolution of 437.106 Non-rated energy consuming where he or she may be contacted. Each such issues. If the time provided is devices. person selected to be heard will be so insufficient, the Department will 437.107 Projected ratings for to-be-built homes. notified by the Department as to the consider affording an additional approximate time they will be speaking. opportunity for questioning at a Subpart CÐHow To Administer a Home Each person to be heard is requested mutually convenient time. Persons Energy Rating System to bring to the hearing seven copies of interested in making use of this Sec. their statement. In the event any person opportunity must submit their request 437.200 Energy analysis tool requirements. wishing to testify cannot meet this to the presiding official no later than 437.201 Site data collection manual. requirement, alternative arrangements shortly after the completion of any 437.202 Training home energy raters. can be made with the Office of Hearings rebuttal statements and be prepared to 437.203 Quality control. and Dockets in advance by so indicating 437.204 Monitoring and evaluation. state specific justifications, including 437.205 Guideline compliance. in a letter requesting to make an oral why the issue is one of disputed fact 437.206 Accreditation. presentation. and how the proposed questions would Authority: 42 U.S.C. 8236–8236b A list of the persons to be heard at the expedite their resolution. hearing will be available upon request Any further procedural rules Subpart AÐGeneral Provisions from the Office of Hearings and Dockets. regarding proper conduct of the hearing The list will also be available for will be announced by the presiding § 437.1 Purpose. inspection in the Department’s Freedom official. The provisions of this part establish of Information Reading Room. Transcripts of the hearing will be voluntary guidelines which any made, and the entire record of this 2. Conduct of Hearing provider of home energy ratings may rulemaking, including the transcripts, follow to produce uniform energy The Department reserves the right to will be retained by the Department and efficiency ratings for residential select the persons to be heard at the made available for inspection at the buildings. The energy efficiency ratings public hearing, to schedule the Department’s Freedom of Information produced under this part may be used representative presentations, and to Reading Room as provided at the to enable and encourage the use of home establish the procedures governing the beginning of this notice. Any person mortgages or home improvement loans conduct of the hearing. The length of may also purchase a copy of the that include incentives for energy each presentation is limited to 20 transcript from the transcribing reporter. efficiency in homes. minutes. The Department may cancel the A Department official will be public hearing if the Department does § 437.2 Scope. designated to preside at the hearing. The not receive sufficient interest These guidelines apply to existing or hearing will not be judicial or concerning the hearing. The Department proposed site-constructed or evidentiary-type hearing, but will be will include for the record a copy of the manufactured residential buildings that conducted in accordance with 5 U.S.C. statement of any person who requested are either one and two family dwellings, 553 and Section 501 of the Department to speak at a hearing that was canceled or other residential dwellings three of Energy Organization Act, 42 U.S.C. by the Department. stories or less in height excepting hotels 7191. At the conclusion of all initial oral and motels. statements, each person who has made List of Subjects in 10 CFR Part 437 an oral statement will be given the Buildings, Energy conservation, § 437.3 General definitions and acronyms. opportunity to make a rebuttal Housing standards, Mortgages. As used in this part— 37960 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules Accrediting body means a State, local operating assumptions, climate data and SEER means seasonal energy government, or other independent calculation methods. efficiency ratio, which is the total agency that meets the criteria provided Energy factor means a measure of cooling output of an air conditioner in § 437.206 of these guidelines for the water heater energy efficiency as during its normal annual usage period accreditation of HERS providers. determined under Department of Energy for cooling, in Btu/h, divided by the AGA means American Gas Regulations. 10 CFR 430.23(e)(2)(ii). total electric energy input during the Association Estimated annual energy cost savings same period, in watt-hours. Annual Fuel Utilization Efficiency or means positive dollar difference Thermal storage mass means AFUE means the ratio of annual output between estimated annual energy costs materials or equipment incorporated energy to annual input energy that for a home with energy saving measures into a home that will store heat, includes any non-heating season pilot and estimated annual energy costs of the produced by renewable or non input loss. same home in its current condition. renewable energy, for release at a later Conditioned space, directly means an Fenestration means a glazed opening time. enclosed space having heating in a building. Trombe wall means a heavy mass equipment with a capacity of 10 BTU/ Full rater means the person trained to wall, usually of masonry materials or (hr-ft2), or cooling equipment with a perform the functions of both a data containing water, constructed adjacent capacity exceeding 10 BTU/(hr-ft2). An collector and a data analyst. to a glazed area, for the purpose of exception is if the heating and cooling HERS-BESTEST means the Home collecting and storing solar energy. equipment is designed and Energy Ratings System Building Typical Meteorological Year or TMY thermostatically controlled to maintain Simulation Test published in NREL Data means hourly data published by a process environment temperature less Report No. NREL/TP–472–7332. the National Climatic Center, Asheville, than 65° Fahrenheit or greater than 85° HERS provider means a person or NC. based on historical weather data for Fahrenheit for the whole space the organization that develops, manages and 216 locations. equipment serves. operates a home energy rating system. U-value means thermal transmittance Conditioned space, indirectly means Home means a one or two family value. dwelling, or multi-family dwelling of enclosed space that is not directly § 437.4 Availability of ratings. conditioned space: three stories or less. Home energy rater or rater means the The purposes of this rating system are (1) With area weighted heat transfer person trained to inspect a home to to permit: coefficient (U-value) to directly evaluate the minimum rated features (a) Each builder, real estate agent, conditioned space exceeding that to the and prepare an energy efficiency rating. lender, or organization in the mortgage outdoors or to unconditioned spaces; or (see also Data collector, Data analyst, business— (2) Through which air from directly Full rater) (1) When rating information is conditioned spaces is transferred at a Home Energy Rating System or HERS available, to communicate that rate exceeding three air changes per means the materials and procedures information in writing to home buyers hour. needed to operate a home energy rating prior to sale; and COP means Coefficient of program including but not limited to: (2) To advise each applicant for Performance, which is the ratio of the marketing materials, training, financing of a home of incentives rate of heat delivered to the rate of publications, rating tool, quality control, relating to qualification criteria, rate energy input, in consistent units, for a data base collection and maintenance, structure, or otherwise, available based complete heat pump system under agreements, data collection sheets, on the energy efficiency of the home as designated operating conditions. home owner reports, and other related measured by ratings conducted under Data analyst means a person trained materials and services. these guidelines, (b) Each multi-listing service (MLS) to to enter the information compiled by a HSPF means Heating Seasonal include available home energy rating data collector into the rating tool and to Performance Factor which is the total information on any applicable listing. produce the energy efficiency rating of heating output of a heat pump during its a home. normal annual usage period for heating, Subpart BÐHow To Rate a Home Data collector means a person trained in Btu, divided by the total electric to evaluate the minimum rated features energy input during the same period, in § 437.100 Rating procedure. of a home on site and collect all the watt-hours. (a) To determine the energy efficiency information required to create a rating. HVAC means Heating, Ventilating and rating of a home, each HERS provider Detached one- and two-family Air Conditioning. shall— dwelling means a building with one or Internal gains means the heat gains (1) If the rating is being conducted for two independent dwelling units with an within a home attributable to lights, an existing home, visit the site of the individual or central HVAC system. people, and miscellaneous equipment home being rated to collect the data Energy analysis tool means a including domestic hot water needed to conduct the rating; calculation procedure for determining a equipment losses. (2) If the rating is being conducted for home’s energy efficiency rating and NREL means National Renewable a to be built home, follow the estimating annual purchased energy Energy Laboratory. procedures set forth in § 437.107 of consumption and cost. Purchased energy means the portion these guidelines to collect the data EER means Energy Efficiency Ratio, of the total energy requirement of a needed to conduct the rating; which is the ratio of net equipment home that is purchased from a utility or (3) Use the collected data to estimate cooling capacity in Btu/h to total rate of other energy supplier. the annual purchased energy electric input in watts under designated Reference home means a hypothetical consumption for heating, cooling and operating conditions. home configured to the specifications water heating for both the rated home Energy efficiency rating or rating set forth in section 437.103 of these and the reference home defined in means an unbiased indication of a guidelines. § 437.103. home’s relative energy efficiency based R-value means thermal resistance (4) If the energy efficiency rating is on consistent inspection procedures, value. conducted to evaluate proposed energy Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37961 conserving improvements to the home, if applicable, the energy efficiency annual purchased energy consumption conduct additional estimates of annual rating of the home with proposed translates to an increase in the rated purchased energy consumption with the conservation measures installed. home’s score of 1 point. An increase of home reconfigured to include those (d) To encourage the use of energy 0.05 in the ratio translates to a decrease improvements sufficient to consider efficient appliances, each HERS in the rated home’s score of one point. interactions among improvement provider may provide additional Equation 1 is used to calculate the point options. information on estimated appliance score. (b) Estimates completed by each energy consumption of the appliances HERS provider under paragraphs (a)(3) in use in the rated home. This Equation 1 and (4) of this section must be— information will not change the rating Point score = 100-((ER/EC)/.05) (1) Based on the minimum rated procedure set forth in this section. Where— features set forth in § 437.104 of these ER=Estimated purchased energy guidelines; § 437.101 Rating point score and star rating. consumption for heating, cooling and (2) Conducted using the standard water heating of rated home (Btu). operating assumptions established in (a) Point score. The reference home EC=Estimated purchased energy § 437.105; has a score of 80 points on a 0 to 100 consumption for heating, cooling and (3) Conducted using an energy point scale. A rated home with the same water heating of reference home (Btu). analysis tool that has been certified for annual purchased energy consumption accuracy under § 437.200. as its associated reference home also has (b) Star rating. The rated home will be (c) Each HERS provider shall compare a score of 80 points. Every 0.05 decrease given a star rating between one and five- the estimates provided under paragraph in the ratio (from 1:1) of the rated plus stars, determined by the numerical (a) of this section to determine the home’s annual purchased energy score and the corresponding number of energy efficiency rating of the home and consumption to the reference home’s stars depicted in Table 1; TABLE 1.ÐSCORE AND STAR SCALES FOR RATED HOMES Score Stars Annual purchased energy consumption 0±39 ...... One ...... > 3.0×Reference house. 40±59 ...... Two ...... > 2.0 and < 3.0×Reference House. 60±79 ...... Three ...... > 1.0 and <= 2.0×Reference House. 80±85 ...... Four ...... > 0.70 and <= 1.0×Reference House. 86±91 ...... Five ...... > 0.40 and <= 0.70×Reference House. 92±100 ...... Five Plus ...... >= zero and <= 0.40×Reference House. (c) Homes that utilize no purchased accreditation determined under used to consider the energy efficiency of energy due to the use of technologies § 437.205 (a) and Guidelines appliances. such as wind generation or photo compliance; and (d) If the rating is a projected rating voltaic power systems will require no (8) Whether infiltration was tested for a to-be-built home, conducted under calculations and will automatically be using diagnostic equipment or estimated § 437.104(d) the rating shall be given a 100 point score and a five-plus by the HERS provider. identified as a rating based on plans. star rating (9) Any available and pertinent prior (e) For each rating conducted under energy consumption data. these guidelines, the following items are § 437.102 Rating report. (b) If ratings are conducted to evaluate to be prominently displayed on all (a) For each rating conducted under energy saving improvements to the reports and labels: this part, a report is to be prepared home, in addition to the information set (1) Date of the rating; containing the following information: forth under paragraph (a) this section, (2) Annual estimated energy costs for (1) The numerical rating score each rating report must include— heating, cooling, water heating and all determined in § 437.101; other use: (2) The star rating determined in (1) The estimated annual energy cost savings available with the home (3) Rating point score: and § 437.101; (4) Star rating. (3) The estimated annual purchased reconfigured to include those energy consumption by fuel type of improvements; § 437.103 Reference home configuration. space heating, space cooling, domestic (2) The discount rate applied to, and (a) To conduct each rating under this hot water, and all other energy use, and present worth value of, the energy cost part, each HERS provider shall establish the total of these four estimates; savings; and a reference home that is used in an (4) The estimated annual energy cost (3) The financing interest rate and life annual purchased energy consumption by fuel type of space heating, space of the measure used by the HERS comparison with the rated home. The cooling, domestic hot water, and all provider to determine the present worth reference home is a hypothetical home other energy use, and the total of these value. configured using— four estimates; (c) The rating report must also (1) The same shape and size as the (5) The name of the accrediting body provide either: rated home; certifying the accuracy of the energy (1) The estimated appliance energy (2) The same area of surfaces analysis tool under § 437.200. consumption of the rated home: or bounding conditioned space as the rated (6) The margin of estimating error (2) Information that additional energy home, but not including surfaces that accepted by the accrediting body savings related to appliance use may be neither gain nor lose heat; certifying the energy analysis tool; attainable and that the information (3) All enclosure elements that meet, (7) The level of accreditation, stated available on Energy Guide labels and but not exceed, the requirements, as either basic compliance or full from other recognized sources may be expressed as U and Uo values, of 37962 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules paragraph 502.2 of the 1993 CABO (9) No external shading assumed at (13) The heating and cooling system Model Energy Code; any time; efficiencies proportionally adjusted for (4) An area of exterior doors of 40 (10) The same energy sources for sections of ductwork located outside or square feet and with the door U-value at heating, cooling and water heating used inside conditioned space, with 0.20. in the rated home; adjustment based on the configuration (5) Vertical fenestration area equal (11) The same type of HVAC system(s) of the ductwork in the rated home and to— using the values set forth in Table 3 and (i) For detached homes, 18% of the as the rated home except that if the floor area of directly conditioned space; rating is for any electrically heated Equation 2; (ii) For attached homes, F×18% of the home, the reference home HVAC system floor area of directly conditioned space is an air source heat pump; TABLE 3.ÐFORCED AIR AND HYDRONIC DISTRIBUTION SYSTEM where: (12) The efficiencies of HVAC systems F=(exposed wall area)/(exposed wall set forth in Table 2; LOSS FACTORS area+common wall area)>=.56 Out- (6) Vertical fenestration distributed— TABLE 2 Within conditioned side Unconditioned (i) For detached homes, equally in space condi- basement each of the four cardinal directions, Type Units Rating tioned north, south, east and west; and space (ii) For attached homes, equally in Heating Equipment: Gas or Oil Warm Air Fur- AFUE 0.78 Forced Air SystemsÐDuct Location each of the four cardinal directions, nace. north, south, east and west, which if Gas Boiler (water) ...... AFUE 0.80 Heating 1.00 ...... 0.72 0.80 necessary may assume fenestration in Gas Boiler (steam) ...... AFUE 0.75 Cooling 1.00 ...... 0.72 0.80 common walls; Oil Boiler (water or AFUE 0.80 Hydronic SystemsÐPiping Location (7) A frame factor equal to 27% of the steam). gross fenestration area calculated under Air Source Heat Pump: 1.00 ...... 0.95 0.95 paragraph (a)(5) of this section; (split system) ...... HSPF 6.80 (8) The glazed area of the fenestration (package system) ...... HSPF 6.60 Equation 2 with a shading coefficient (SC) of 0.70 Cooling Equipment: × assumed during the cooling season, Central Air Conditioner: Adjusted Efficiency=Equipment Efficiency which represents the combined SC of (split system) ...... SEER 10.00 Distribution Loss Factor the glazing and the use of nonwhite (package system) ...... SEER 9.70 (14) The energy factor for the water draperies and with a SC of 0.88 Heat Pump: heater set forth in Table 4 for the size (split system) ...... SEER 10.00 representing the SC of the glazing only (package system) ...... SEER 9.70 used in the rated house; assumed at all other times; TABLE 4 Water heating Rated storage capacity (gallons) Type Unit 30 gal 40 gal 50 gal 60 gal Gas ...... EF 0.56 0.54 0.53 0.51 Oil ...... EF 0.53 0.53 0.50 0.48 Electric ...... EF 0.91 0.90 0.88 0.87 1 EF=Energy Factor. (15) A seasonal average air leakage consumption estimates for heating, (3) current and historical local rate of 0.67 air changes per hour; cooling and water heating set forth in building codes. (16) An internal mass of 8 pounds per § 437.100 of these guidelines using the (d) Default values set forth in square foot of floor area and a structural energy loss and gain associated with the paragraph (c) of this section will be mass of 3.5 pounds per square foot of minimum features set forth in Table 5. established or approved by the floor area; and (b) For existing homes, the envelope accrediting body and consistent for each (17) No heat capacitance associated thermal characteristics of building HERS provider operating within a state. with solar storage mass within the elements 1 through 7 set forth in Table (e) For existing homes, the thermal envelope of the rated home. 5 are determined by site observation. determination of air leakage and duct (b) For walls of attached homes, the (c) If data for the minimum rated leakage values set forth as building U-value calculation set forth under features set forth in paragraph (b) of this elements 10 and 11 in Table 5 are paragraph (a)(3) of this section is section can not be obtained by determined by data collected on site completed using the fenestration area observation or without destructive using the following procedures listed in calculated as F in paragraph (a)(5)(ii) of disassembly of the home, each HERS preferential order of use: this section and the actual area of walls provider shall use default values. The (1) current on-site diagnostic test data; that experience heat loss or gain. default values are determined from the or Common walls that separate homes are following sources listed in the (2) observations of the condition of not included in this calculation. preferential order of use— the building and duct system made by (1) for manufactured homes, available the HERS provider. Based on these § 437.104 Minimum rated features. manufacturer’s data; observations values used will be; (a) Each HERS provider shall (2) current and historical local (i) for air leakage, 0.67 air changes per complete the annual purchased energy building practices; or hour or greater with the minimum value Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37963 of 0.67 to be used only when the rater data collected on site using the listed in paragraph (f) of this section, the observes features that denote tight following sources listed in preferential values set forth in Tables 6 and 7 shall construction; and order of use: be used. (ii) for duct leakage, default values (1) current on-site diagnostic test data; (h) Any HERS provider may base approved or established by the (2) name plate data; annual purchased energy consumption accrediting body. (3) manufacturer’s data sheet; or (f) For existing homes, the energy (4) equipment directories. estimates for the rated home on efficiency of the mechanical equipment (g) If information on the energy additional features if the HERS set forth as building elements 12 efficiency of mechanical equipment provider’s energy analysis tool is through 14 in Table 5 is determined by cannot be determined from the sources capable of doing so. TABLE 5.ÐMINIMUM RATED FEATURES Building element Minimum rated features 1. Floor/Foundation Assem- Construction type (slab-on-grade, crawl space, basement), insulation (edge, under slab, cavity, sheathing), vented bly. or unvented (crawl space), capacitance (if slab or basement receives appreciable solar gain). 2. Walls ...... Construction type, insulation value (cavity, sheathing), capacitance, color (light, medium, or dark). 3. Roof/Ceiling Assembly .... Construction type, insulation value (cavity, sheathing), roof color (light, medium, or dark). 4. Rim Joist ...... Insulation value (cavity, sheathing). 5. Doors ...... Construction type, insulation value. 6. Windows ...... Construction type, orientation, U-value (of complete assembly), solar heat gain coefficient, shading. 7. Skylights ...... Construction type, orientation, tilt, U-value (of complete assembly), heat gain coefficient, shading. 8. Passive Solar System (Di- Solar aperture area and orientation, thermal storage mass. rect Gain System). 9. Solar Domestic Hot Water System type, collector type and area, orientation, tilt, efficiency, storage tank size, pipe insulation value. Equipment. 10. Air Leakage ...... Air leakage measurement type (estimate, blower door test, tracer gas test), volume of conditioned space. 11. Distribution System ...... System type, location, insulation value (duct and pipe), air leakage (ducted systems only). 12. Heating Equipment ...... Equipment type, location, efficiency (AFUE, HSPF). 13. Cooling Equipment ...... Equipment type, location, efficiency (SEER, COP). 14. Domestic Hot Water Equipment type, location, energy factor or seasonal efficiency, extra tank insulation value, pipe insulation value. Equipment. 15. Control Systems ...... Thermostat type. TABLE 6.ÐMECHANICAL 1992 to Mechanical Systems Units Pre-1960 1960±69 1970±74 1975±83 1984±87 1988±91 present Heating: Gas Furnace ...... AFUE 0.60 0.60 0.65 0.65 0.68 0.76 0.78 Gas Boiler ...... AFUE 0.60 0.60 0.65 0.65 0.70 0.77 0.80 Oil Furnace or Boiler ...... AFUE 0.60 0.65 0.72 0.75 0.80 0.80 0.80 Air-Source Heat Pump ...... HSPF 4.50 4.50 4.70 5.50 6.30 6.80 6.80 Ground-Water Geothermal COP 2.70 2.70 2.70 3.00 3.10 3.20 3.50 Heat Pump. Ground-Coupled Geo- COP 2.30 2.30 2.30 2.50 2.60 2.70 3.00 thermal Heat Pump. Cooling: Air-Source Heat Pump ...... SEER 5.00 6.10 6.50 7.40 8.70 9.40 10.00 Ground-Water Geothermal EER 10.00 10.00 10.00 13.00 13.00 14.00 16.00 Heat Pump. Ground-Coupled Geo- EER 8.00 8.00 8.00 11.00 11.00 12.00 14.00 thermal Heat Pump. Central Air Conditioner ...... SEER 5.00 6.10 6.50 7.40 8.70 9.40 10.00 Room Air Conditioner ...... EER 5.00 6.10 6.10 6.70 7.70 8.10 8.50 Water Heating: Storage Gas ...... EF 0.47 0.47 0.47 0.49 0.55 0.56 0.56 Storage Oil ...... EF 0.47 0.47 0.47 0.48 0.49 0.54 0.56 Storage Electric ...... EF 0.79 0.80 0.80 0.81 0.83 0.87 0.88 TABLE 7.ÐMECHANICAL EQUIPMENT TABLE 7.ÐMECHANICAL EQUIPMENT TABLE 7.ÐMECHANICAL EQUIPMENT EFFICIENCY VALUES(Not Age-Based) EFFICIENCY VALUES(Not Age- EFFICIENCY VALUES(Not Age- Based)ÐContinued Based)ÐContinued Units Rating Units Rating Units Rating Heating: Gas Wall Furnace SE 0.70 Gas Water Heater AFUE 0.75 Heat Pump Water HSPF 5.11 (Fan). (Space Heating). Heater (Space). Gas Wall Heater (Grav- SE 0.65 Electric Furnace ...... HSPF 3.413 Electric Water Heater HSPF 2.73 ity). Electric Radiant ...... HSPF 3.413 (Space). Gas Floor Furnace ...... SE 0.60 37964 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules TABLE 7.ÐMECHANICAL EQUIPMENT (b) Where programmable offsets are for each HERS provider operating EFFICIENCY VALUES(Not Age- available in the rated home, 5° F within a state. Based)ÐContinued temperature control point offsets with (g) Local residential energy or utility an 11 PM to 7 AM schedule for heating rates that— Units Rating and a 9 AM to 3 PM schedule for (1) Include fuel/energy unit rates; cooling, and with no offsets assumed for (2) Include fuel/energy unit demand Cooling: the reference home; rates; Electric Evaporative EERrc 30 (c) Internal heat gains from lights, (3) Include fuel/energy block rates; Cooling. people and equipment of 3000 Btu/hr (4) Include customer service and fuel Gas Absorption Cooler COP 0.40 for detached homes and 1500 Btu/hr for charges; Water Heating: attached homes; (5) Are updated at least annually; and Heat Pump ...... COP 2.00 (d) Estimated hot water usage based (6) Are confirmed by the accrediting Instantaneous Electric .. EF 0.87 on Equation 3. body Instantaneous Gas ...... EF 0.75 Solar (Use SRCC Ad- EF 2.00 Equation 3 § 437.106 Non-rated energy consuming justment Procedures). Gallons/day=30 gallons+(10 gallons * devices. number of bedrooms). Consistent with § 437.102(a) (3) and § 437.105 Operating condition (e) the climatologically most (4) of these guidelines each HERS assumptions. representative TMY or equivalent provider shall calculate and report the annual purchased energy consumption To conduct each rating under these weather data, which may be interpolated between weather sites if and energy cost for the operation of all guidelines, each HERS provider shall interpolation is established or approved non-rated energy consuming devices in estimate the annual purchased energy by the accrediting body and consistent the rated and reference homes. Actual consumption for heating, cooling and for each HERS provider operating efficiency of these devices is not water heating for both the rated home within a state. considered and usage estimates are and the reference home using the (f) Corrections for climate conditions based on Table 8. The data in table 8 following assumptions— and mis-sizing of equipment, using may be modified if they are established (a) Temperature control set points for correction factors to HSPF, SEER and or approved by the accrediting body and heating and cooling of 68° F and 78° F; AFUE that are established or approved consistent for each HERS provider . by the accrediting body and consistent operating within the state. TABLE 8.ÐANNUAL ENERGY USE FOR NON-RATED FEATURES End use Units/year Energy estimate Applicability Ceiling Fan ...... kWh ...... 220/ea ...... If present. Dishwasher ...... kWh ...... 299/per cooking area If present, or if space is dedicated for DW. Dryer, electric ...... kWh ...... 875/ea ...... If present, or if 220V wiring is present @ dryer location. Dryer, gas ...... Therms ..... 60/ea ...... If present, or if gas piping is present @ dryer location. kWh ...... 100/ea Lights ...... kWh ...... 940 ...... All homes. Microwave Oven-built-in ...... kWh ...... 191/per cooking area If permanently installed. Miscellaneous Plug Loads ...... kWh ...... 500 ...... All homes. Pool Pump ...... kWh ...... 1700/ea ...... If present. Range/Oven Combo-electric ...... kWh ...... 450/per cooking area If present, or if 220V wiring is present @ range location. Range/Oven Combo-gas w/pilot ...... Therms ..... 44/per cooking area If present, or if gas piping is present @ range location. Range/Oven Combo-gas w/o pilot ...... Therms ..... 22/per cooking area If present. Refrigerator ...... kWh ...... 1150 ...... Each one present. Television ...... kWh ...... 720 ...... All homes. Washer, clothes ...... kWh ...... 99/ea ...... If present, or facilities present for washer. Well pump ...... kWh ...... 288/ea ...... If present. § 437.107 Projected ratings for to-be-built the lowest rating score as the projected (1) Demonstrate the ability to homes. rating. calculate annual purchased energy (a) A HERS provider may calculate (b) Upon completion of construction consumption for each building type for and verification of the proposed the projected rating of a to-be-built which ratings are provided; specifications, the rating may be revised home based on architectural drawings (2) Estimate the total annual using the air leakage rate based on on- with material, mechanical and electrical purchased energy consumption site testing and the actual orientation of specifications; and by— associated with the minimum rated the home. features set forth in § 437.104; (1) Using a default value for air (3) Calculate energy use of non-rated Subpart CÐHow To Administer a leakage of 0.67 air changes per hour; energy consuming devices set forth in Home Energy Rating System and § 437.105 of these guidelines; (2) Using the planned location and § 437.200 Energy analysis tool (4) Reflect the operating conditions orientation of the proposed home, or if requirements. assumptions described in § 437.105 of the proposed orientation is unknown, (a) In order to be certified for the these guidelines; and calculating ratings for the home facing purpose of providing home energy (5) Pass all tests in Tier 1 and Tier 2 each of the four cardinal directions, ratings under these guidelines, an of the Home Energy Ratings System north, south, east and west, and using energy analysis tool must— Building Energy Simulation Test (HERS- Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37965 BESTEST)—NREL Report no. NREL/TP– (6) Types and characteristics of space years or when changes to the system are 472–7332 which is administered by, and conditioning and domestic hot water made, and contains— has pass-fail criteria set by the distribution systems; (1) A description of local rate accrediting body. (7) Types of thermostatic controls; structures for electricity, gas and other (b) Future tool requirements. On or (8) Determination of azimuth; locally used fuels; before [insert date four years from the (9) Determination of air leakage; (2) A description of climatological date of the final rule], each HERS (10) Determination of fuels used by data (including interpolation methods) provider accredited under these major appliances; used; guidelines, shall have updated their (11) Utility rate structures; (3) A description of the data storage energy analysis tool to be capable of (12) On-site inspection procedures; and maintenance systems including— rating the following additional (13) Producing a scale and dimension (i) Software for database; features— drawing of a home; (ii) Training for data entry personnel; (1) Thermostat set-back and set-up; (14) Calculating the area of rectangles, and (iii) Data quality assurance procedures (2) Effects of part load and weather triangles, circles, ovals and that will be exercised; conditions on HVAC systems; combinations of these shapes; (15) Calculating the volume of boxes, (4) A description of each rating tool (3) Demand and time of use utility that the HERS provider uses including rates; pyramids, spheres, and other geometric shapes; a list of which home types the tool (4) Solar water heating; (16) Communicating the benefits of supports; (5) Trombe walls; energy saving measures and practices to (5) The results and date of the (6) Sunspaces; and the consumer; and certified accuracy test conducted for the (7) Whole house fans. (17) Quality assurance. rating tool; (c) Energy analysis tools that are (b) Written examination. Each rater (6) An example of the rating outputs certified under paragraph (a)(5) of this shall be given a written examination that are produced; section must be retested and recertified that evaluates the rater’s understanding (7) The materials and tests used to if a new version of the tool is released of the subjects in paragraph (a) of this provide training for home energy raters; that includes changes to the engineering section. (8) The materials used to document algorithms. (c) Field training. Each rater shall the site data collection procedures; and (9) A description of the individual § 437.201 Site data collection manual. perform two ratings (or portions of ratings for those seeking to be data elements of the quality assurance plan Each HERS provider shall provide collectors or data analysts), including set forth in paragraph (a) of this section. each data collector with a manual software operations, in the presence of (c) Each HERS provider shall containing procedures for the on site trainers. maintain an electronic database of collection of data that are: (d) Probationary period. Each rater information for each home rated. The (a) Consistent with those provided in shall complete a probationary period minimum content of the database is— Guideline No. 10 of the Home Energy where close supervision is provided. (1) A unique file reference or ID Rating Systems Council HERS This period covers a minimum of five number; Guidelines, titled ‘‘On Site Inspection ratings, after which the supervisor shall (2) Date of on-site inspection; Procedures’’; or determine if additional training is (3) Raters name; (4) Tool name and version; (b) Established or approved by the needed. (5) Identification of weather data used accrediting body and updated as (e) Challenge test. A challenge test for the rating; supplemental or revised information may be taken, which, if passed in all becomes available. (6) Type of rating, either complete or competencies, will waive the classroom projected; § 437.202 Training home energy raters. training requirement. The requirements (7) Use of rating, either— of paragraphs (c) and (d) of this section Each person seeking a position as a (i) Time of sale rating; may not be waived. full rater, data collector, or data analyst (ii) Pre-home improvement rating; for any HERS provider shall receive § 437.203 Quality control. (iii) Post home improvement rating; or (iv) Information only rating; training prior to performing rating tasks (a) Each HERS provider shall establish without supervision. The training will (8) Address of rated home; a quality assurance plan that includes— (9) Home type; be conducted in accordance with a (1) Periodic peer review and re- syllabus developed by each HERS (10) Floor area of conditioned space; evaluation of raters; (11) Fuel types used by building provider. The syllabus must specify (2) Random auditing of each rater’s HVAC and water heating systems; subjects that are applicable to each work; (12) Minimum rated feature energy position (i.e. full rater, data collector or (3) Evaluation of the training program efficiency data used to determine the data analyst) and must include— by raters after field experience; rating; (a) Classroom training. Each rater (4) Customer evaluation of rating (13) In the four categories of heating, shall receive classroom training on— services; cooling, water heating and all other (1) Basic principles of heat transfer (5) Random review of the inputs into uses, the— (i.e., viewing the home as a system); the rating tool to ensure that they are (i) Estimated annual purchased energy (2) The minimum rated features of consistent with the data collected in the consumption in total; buildings; field; and (ii) Estimated annual purchased (3) Variations in construction types (6) Verification of the accuracy and energy consumption by fuel; and their ramifications; completion of the input forms and (iii) Estimated annual energy cost in (4) Types and efficiencies of output of the first five ratings performed total; and windows; by each rater. (iv) Estimated annual energy cost by (5) Types and efficiencies of heating, (b) Each HERS provider shall fuel. cooling, water heating, and lighting maintain a permanent quality assurance (14) Estimated total annual energy systems; file that is updated at least every two cost for all uses; and 37966 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules (15) Rating score of the rated home on (3) Use only those standard operating DEPARTMENT OF TRANSPORTATION 0–100 points scale and 1–5+ stars conditions set forth in § 437.105 that category. can be handled by their existing energy Federal Aviation Administration analysis tool; § 437.204 Monitoring and evaluation. 14 CFR Part 39 (4) Pass only the Tier 1 set of HERS– (a) Each HERS provider shall at least BESTEST tests; [Docket No. 95±CE±27±AD] semi-annually evaluate the accuracy of consumption and cost estimates by (5) Meet the training requirements of Airworthiness Directives; Jetstream comparing predicted energy usage and § 437.202 by— Aircraft Limited HP137 Mk1, Jetstream costs to actual billing records. (i) Verification that each person with Series 200, and Jetstream Models 3101 (b) To allow the accrediting body to responsibilities in the conduction of and 3201 Airplanes monitor the accuracy of ratings, each ratings has completed classroom HERS provider shall for 10% or for 500 training on all items set forth in AGENCY: Federal Aviation of the homes rated annually, whichever § 437.202 (a) of these guidelines; Administration, DOT. is less, maintain a database of the ACTION: (ii) Verification that each person with Notice of proposed rulemaking following— (NPRM). (1) Homeowners authorization for the responsibilities for the conduction of release of consumption information by ratings has received field training; SUMMARY: This document proposes to utility company(s); (iii) Verification that all personnel adopt a new airworthiness directive (2) Weather data site selected for have successfully passed a written (AD) that would apply to Jetstream energy estimation; objective examination in all areas Aircraft Limited (JAL) HP137 Mk1, (3) Any energy efficiency applicable to their designated job Jetstream series 200, and Jetstream improvements made to the home, date descriptions; and Models 3101 and 3201 airplanes. The of completion, and whether the (iv) Verification of a probationary proposed action would require improvement plans were evaluated in period set forth in § 437.202 (d); and inspecting (one-time) the threaded the rating report. portion of the aileron mounting spigots (6) Use an existing program to for cracks, replacing any cracked § 437.205 Guideline compliance. monitoring and evaluate the accuracy of spigots, and replacing the securing nut (a) Full accreditation. Any HERS ratings; assemblies with newly designed special provider may be accredited as being in § 437.206 Accreditation. nut assemblies and new split pins. The full compliance with these guidelines if proposed action is prompted by reports it demonstrates that it can— (a) Each HERS provider operating in of cracked mounting spigots caused by (1) Conducts ratings in accordance voluntary compliance with these stress corrosion. The actions specified with the provisions of § 437.100; guidelines shall be accredited only by a by the proposed AD are intended to (2) Reports the results of ratings in State or other independent accrediting prevent damage to the aileron control accordance with the provisions of body having a person or persons— systems, which if not detected and § 437.102 of these guidelines; (1) Qualified to establish and corrected, could cause loss of lateral (3) Produces documentation of a coordinate standard default values control and eventual loss of control of correctly configured reference home in within a State, for— the airplane. accordance with the provisions of DATES: Comments must be received on § 437.103; (i) Default values for minimum rated or before September 29, 1995. (4) Provides documentation that their features set forth in section 437.104; energy analysis tool is certified under (ii) Operating condition assumptions ADDRESSES: Submit comments in § 437.200 as having passed all HERS– and local climatic data interpolation set triplicate to the Federal Aviation BESTEST tests designated as Tier 1 and forth in section 437.105 of these Administration (FAA), Central Region, Tier 2 tests; guidelines; Office of the Assistant Chief Counsel, (5) Provides training in accordance Attention: Rules Docket No. 95–CE–27– (2) Qualified to administer the AD, Room 1558, 601 E. 12th Street, with the provisions of § 437.202; procedures for certification of energy (6) Provides documentation of a Kansas City, Missouri 64106. Comments analysis tools established by HERS– may be inspected at this location quality control plan and a permanent BESTEST set forth in the NREL Report quality assurance file in accordance between 8 a.m. and 4 p.m., Monday no. NREL/TP–472–7332 referenced in through Friday, holidays excepted. with the provisions of § 437.203; and § 437.200; (7) Provides documentation of a Service information that applies to the monitoring and evaluation program in (3) Qualified to evaluate the training proposed AD may be obtained from accordance with the provisions of syllabus and procedures set forth in Jetstream Aircraft Limited, Prestwick § 437.204. § 437.202; International Airport, Ayrshire, KA9 (b) Basic compliance. Any existing (4) Qualified to review and evaluate 2RW, Scotland, telephone (44–292) HERS provider may be accredited for a the quality control procedures set forth 79888; facsimile (44–292) 79703; or period of up to two years from [insert in § 437.203. Jetstream Aircraft Inc., Librarian, P.O. date of issuing final rule], as being in Box 16029, Dulles International Airport, (b) Any Lender or agency in a Washington, D.C. 20041–6029; basic compliance with these guidelines, mortgage business who offers mortgage by demonstrating that it meets all the telephone (703) 406–1161; facsimile or loan incentives for energy efficiency (703) 406–1469. This information also provisions of paragraph (a) of this on the basis of a home energy rating section except that it may— may be examined at the Rules Docket at should require that any HERS provider the address above. (1) Use a simplification of utility rate conducting those ratings be accredited FOR FURTHER INFORMATION CONTACT: structures; under these guidelines. Mr. (2) Rate only the features set forth by Raymond A. Stoer, Program Officer, § 437.104, that may be rated with its [FR Doc. 95–18015 Filed 7–20–95; 8:45 am] Brussels Aircraft Certification Office, existing system capabilities; BILLING CODE 6450±01±P FAA, Europe, Africa, and Middle East Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37967 Office, c/o American Embassy, B–1000 during servicing. The damage is from assemblies with newly designed special Brussels, Belgium; telephone (322) stress corrosion caused by a nut assemblies and new split pins to 513.3830; facsimile (322) 230.6899; or combination of the torque load required prevent future damage to the spigots. Mr. Sam Lovell, Project Officer, Small to align the split pin holes and the The FAA estimates that 160 airplanes Airplane Directorate, Airplane dissimilar materials of the securing nuts in the U.S. registry would be affected by Certification Service, FAA, 1201 and the mounting spigots and could the proposed AD, that it would take Walnut, suite 900, Kansas City, Missouri result in damage to the aileron control approximately 22 hours per airplane to 64105; telephone (816) 426–6934; system. Damage to the aileron control accomplish the proposed action, and facsimile (816) 426–2169. systems, if not detected and corrected, that the average labor rate is could cause loss of lateral control and SUPPLEMENTARY INFORMATION: approximately $60 an hour. Parts will loss of control of the airplane. be provided by the manufacturer at no Comments Invited JAL has issued Jetstream Service cost to the owners/operators. Based on Interested persons are invited to Bulletin (SB) 57–JA 921140, which these figures, the total cost impact of the participate in the making of the incorporates the following pages and proposed AD on U.S. operators is proposed rule by submitting such revision levels: estimated to be $211,200 or $1,320 per written data, views, or arguments as airplane. This figure is based on the they may desire. Communications Pages Revision level Date assumption that no owner/operators has should identify the Rules Docket 4, 5, 8, 9, Original Issue February 24, accomplished the proposed inspection number and be submitted in triplicate to 10, 12, 1993. and modification. the address specified above. All 13, and The compliance time of this AD is communications received on or before 14. presented in calendar time instead of the closing date for comments, specified 1, 2, 3, 6, Revision 1 .... February 3, hours time-in-service (TIS). The FAA above, will be considered before taking 7, and 11. 1994. has determined that a calendar time action on the proposed rule. The compliance is the most desirable proposals contained in this notice may This SB specifies procedures for method because the unsafe condition be changed in light of the comments inspecting the mounting spigots using described by this AD is caused by stress received. both visual and fluorescent dye corrosion. Stress corrosion initiates as a Comments are specifically invited on penetrant methods, and replacing the result of airplane operation, but can the overall regulatory, economic, existing securing nut assemblies and continue to develop regardless of environmental, and energy aspects of split pins with newly designed special whether the airplane is in service or in the proposed rule. All comments nut assemblies, and new split pins. storage. Therefore, to ensure that the In order to assure the continued submitted will be available, both before above-referenced condition is detected airworthiness of these airplanes in the and after the closing date for comments, and corrected on all airplanes within a United Kingdom, the CAA classified in the Rules Docket for examination by reasonable period of time without this service bulletin as mandatory. The interested persons. A report that inadvertently grounding any airplanes, a summarizes each FAA-public contact CAA classifying a service document as mandatory is the same for airplanes compliance schedule based upon concerned with the substance of this calendar time instead of hours TIS is proposal will be filed in the Rules registered in the United Kingdom as the FAA issuing an AD for airplanes required. Docket. The regulations proposed herein Commenters wishing the FAA to registered in the United States. would not have substantial direct effects acknowledge receipt of their comments This airplane model is manufactured on the States, on the relationship submitted in response to this notice in the United Kingdom and is type between the national government and must submit a self-addressed, stamped certificated for operation in the United the States, or on the distribution of postcard on which the following States under the provisions of section power and responsibilities among the statement is made: ‘‘Comments to 21.29 of the Federal Aviation various levels of government. Therefore, Docket No. 95–CE–27–AD.’’ The Regulations (14 CFR 21.29) and the in accordance with Executive Order postcard will be date stamped and applicable bilateral airworthiness 12612, it is determined that this returned to the commenter. agreement between the United States and the United Kingdom. Pursuant to proposal would not have sufficient Availability of NPRMs this bilateral airworthiness agreement, federalism implications to warrant the Any person may obtain a copy of this the CAA has kept the FAA informed of preparation of a Federalism Assessment. NPRM by submitting a request to the the situation described above. For the reasons discussed above, I FAA, Central Region, Office of the The FAA has examined the findings certify that this action (1) is not a Assistant Chief Counsel, Attention: of the CAA, reviewed all available ‘‘significant regulatory action’’ under Rules Docket No. 95–CE–27–AD, Room information, and determined that AD Executive Order 12866; (2) is not a 1558, 601 E. 12th Street, Kansas City, action is necessary for products of this ‘‘significant rule’’ under DOT Missouri 64106. type design that are certificated for Regulatory Policies and Procedures (44 operation in the United States. FR 11034, February 26, 1979); and (3) if Discussion Since an unsafe condition has been promulgated, will not have a significant The Civil Airworthiness Authority identified and is likely to exist or economic impact, positive or negative, (CAA), which is the airworthiness develop in other JAL HP137 Mk1, on a substantial number of small entities authority for the United Kingdom, Jetstream series 200, and Jetstream under the criteria of the Regulatory recently notified the FAA that an unsafe Models 3101 and 3201 airplanes of the Flexibility Act. A copy of the draft condition may exist on JAL HP137 Mk1, same type design, the proposed AD regulatory evaluation prepared for this Jetstream series 200, and Jetstream would require inspecting (using both action has been placed in the Rules Models 3101 and 3201 airplanes. The visual and fluorescent dye penetrant Docket. A copy of it may be obtained by CAA advises that damage to the aileron methods) the mounting spigots for contacting the Rules Docket at the mounting spigot could occur when cracks; replacing any cracked spigots; location provided under the caption removing the securing nut assemblies and replacing the securing nut ADDRESSES. 37968 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules List of Subjects in 14 CFR Part 39 (1) Prior to further flight, replace any SUMMARY: The Federal Aviation cracked spigots with applicable parts Administration (FAA) recently became Air transportation, Aircraft, Aviation specified in the Parts Table in paragraph 5 of safety, Safety. aware of two incidents in the the Accomplishment Instructions section of Netherlands where corrosion on the The Proposed Amendment Jetstream SB 57–JA 921140. (2) Prior to further flight, replace the wing spars of Piper Aircraft Corporation Accordingly, pursuant to the securing nut assemblies and split pins with (Piper) PA28 series airplanes was so authority delegated to me by the new special nut assemblies, (Part No. extensive that the wings were replaced. Administrator, the Federal Aviation SL45022 (Qty. 2)), and new split pins (Part The corrosion, which was discovered in Administration proposes to amend part No. SP90–C8 and SP90–C6), in accordance the wing tank area, caused the wing spar 39 of the Federal Aviation Regulations with the Accomplishment Instructions material to come off in flakes and strips (14 CFR part 39) as follows: section of Jetstream SB 57–JA 921140. This (exfoliation). A review of the U.S. replacement is required regardless of the service difficulty history on Piper PA28 PART 39ÐAIRWORTHINESS results of the inspection required in paragraph (a) of this AD. and PA32 series airplanes revealed DIRECTIVES (b) Special flight permits may be issued in several incidents where exfoliation 1. The authority citation for part 39 accordance with sections 21.197 and 21.199 corrosion was found on the wing spar in continues to read as follows: of the Federal Aviation Regulations (14 CFR the wing tank area. The purpose of this 21.197 and 21.199) to operate the airplane to advance notice is to seek comments Authority: 49 U.S.C. App. 1354(a), 1421 a location where the requirements of this AD from interested persons regarding the and 1423; 49 U.S.C. 106(g); and 14 CFR can be accomplished. best action (if any) to take in order to 11.89. (c) An alternative method of compliance or correct any possible problems with adjustment of the initial or repetitive § 39.13 [Amended] compliance times that provides an equivalent exfoliation corrosion on the wing spar 2. Section 39.13 is amended by level of safety may be approved by the on Piper PA28 and PA32 series adding a new AD to read as follows: Manager, Brussels Aircraft Certification airplanes. All comments will be evaluated by the FAA and the FAA will Jetstream Aircraft Limited: Docket No. 95– Office, FAA, Europe, Africa, and Middle East CE–27–AD. Office, c/o American Embassy, B–1000 research the situation to decide whether Brussels, Belgium The request shall be rulemaking is needed. Applicability: HP137 Mk1, Jetstream Series forwarded through an appropriate FAA DATES: 200, and Jetstream Models 3101 and 3201 Maintenance Inspector, who may add Comments must be received on airplanes (all serial numbers), certificated in comments and then send it to the Manager, or before October 20, 1995. any category. Brussels Aircraft Certification Office, FAA, ADDRESSES: Note 1: This AD applies to each airplane Submit comments in Europe, Africa, and Middle East Office. identified in the preceding applicability triplicate to the FAA, Central Region, provision, regardless of whether it has been Note 2: Information concerning the Office of the Assistant Chief Counsel, modified, altered, or repaired in the area existence of approved alternative methods of Attention: Rules Docket No. 95–CE–28– subject to the requirements of this AD. For compliance with this AD, if any, may be AD, Room 1558, 601 E. 12th Street, airplanes that have been modified, altered, or obtained from the Brussels Aircraft Kansas City, Missouri 64106. Comments repaired so that the performance of the Certification Office. may be inspected at this location requirements of this AD is affected, the (d) All persons affected by this directive between 8 a.m. and 4 p.m., Monday owner/operator must use the authority may obtain copies of the document referred through Friday, holidays excepted. provided in paragraph (c) of this AD to to herein upon request from Jetstream request approval from the FAA. This Aircraft Limited, Prestwick International FOR FURTHER INFORMATION CONTACT: approval may address either no action, if the Airport, Ayrshire, KA9 2RW, Scotland, Christina Marsh, Aerospace Engineer, current configuration eliminates the unsafe telephone (44–292) 79888; facsimile (44–292) FAA, Atlanta Aircraft Certification condition, or different actions necessary to 79703; or Jetstream Aircraft Inc., Librarian, Office, Campus Building, 1701 address the unsafe condition described in P.O. Box 16029, Dulles International Airport, Columbia Avenue, suite 2–160, College this AD. Such a request should include an Washington, D.C. 20041–6029; telephone Park, Georgia 30337–2748; telephone assessment of the effect of the changed (703) 406–1161; facsimile (703) 406–1469; or configuration on the unsafe condition may examine this document at the FAA, (404) 305–7362; facsimile (404) 305– addressed by this AD. In no case does the Central Region, Office of the Assistant Chief 7348. presence of any modification, alteration, or Counsel, Room 1558, 601 E. 12th Street, SUPPLEMENTARY INFORMATION: repair remove any airplane from the Kansas City, Missouri 64106. applicability of this AD. Issued in Kansas City, Missouri, on July 18, Comments Invited 1995. Compliance: Required within the next 6 Interested persons are invited to calendar months after the effective date of Henry A. Armstrong, this AD, unless already accomplished. participate in the making of any Acting Manager, Small Airplane Directorate, proposed rulemaking actions that may To prevent damage to the aileron control Aircraft Certification Service. systems, accomplish the following: occur as a result of this ANPRM by (a) Inspect the mounting spigots for cracks [FR Doc. 95–18184 Filed 7–24–95; 8:45 am] submitting such written data or views as using both visual and fluorescent dye BILLING CODE 4910±13±U they may desire. Communications penetrant methods in accordance with the should identify the Rules Docket Accomplishment Instructions section of number and be submitted in triplicate to Jetstream Service Bulletin (SB) 57–JA 14 CFR Part 39 the address specified above. All 921140, which incorporates the following pages and revision levels: [Docket No. 95±CE±28±AD] communications received on or before the closing date for comments, specified Pages Revision level Date Airworthiness Directives; Piper Aircraft above, will be considered before any Corporation PA28 and PA32 Series proposed rulemaking is initiated. 4, 5, 8, 9, Original Issue February 24, Airplanes All comments submitted will be 10, 12, 1993. available, both before and after the 13 and AGENCY: Federal Aviation Administration, DOT. closing date for comments, in the Rules 14. Docket for examination by interested 1, 2, 3, 6 7, Revision 1 .... February 3, ACTION: Advance notice of proposed persons. A report that summarizes each and 11. 1994. rulemaking (ANPRM). FAA-public contact concerned with the Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37969 substance of this document will be filed the fuel tank or outboard of the fuel Robert C. Durand, AAL–531, 222 West in the Rules Docket. tank)? If so, where was the corrosion 7th Avenue #14, Anchorage, AK 99513– Commenters wishing the FAA to and how much corrosion was found? 7587; telephone: (907) 271–5898. acknowledge receipt of their comments 3. Did you repair or replace the wing SUPPLEMENTARY INFORMATION: submitted in response to this notice or has the wing been repaired or must submit a self-addressed, stamped replaced because of corrosion in the fuel Comments Invited postcard on which the following tank area? Interested parties are invited to statement is made: ‘‘Comments to 4. In your opinion, how accessible is participate in this proposed rulemaking Docket No. 95–CE–28–AD.’’ The the main wing spar in the vicinity of the by submitting such written data, views, postcard will be date stamped and fuel tank for inspection purposes? or arguments as they may desire. returned to the commenter. Would it be helpful to install additional Comments that provide the factual basis Availability of ANPRM’s access plates inboard and outboard of supporting the views and suggestions the fuel tank? presented are particularly helpful in Any person may obtain a copy of this 5. Please provide the following: developing reasoned regulatory ANPRM by submitting a request to the a. model, serial number, and total decisions on the proposal. Comments FAA, Central Region, Office of the number of hours time-in-service of the are specifically invited on the overall Assistant Chief Counsel, Attention: airplane. regulatory, aeronautical, economic, Rules Docket No. 95–CE–28–AD, Room b. the present geographical location of environmental, and energy-related 1558, 601 E. 12th Street, Kansas City, your airplane and the known aspects of the proposal. Missouri 64106. geographical history of the airplane. Communications should identify the airspace docket number and be Discussion Issued in Kansas City, Missouri, on July 17, submitted in triplicate to the address The FAA is currently reviewing two 1995. listed above. Commenters wishing the incidents in the Netherlands where Henry A. Armstrong, FAA to acknowledge receipt of their corrosion on the wing spars of Piper Acting Manager, Small Airplane Directorate, comments on this notice must submit Aircraft Corporation (Piper) PA28 series Aircraft Certification Service. with those comments a self-addressed, airplanes was so extensive that the [FR Doc. 95–18246 Filed 7–24–95; 8:45 am] stamped postcard on which the wings were replaced. The corrosion, BILLING CODE 4910±13±U following statement is made: which was discovered in the wing tank ‘‘Comments to Docket No. 95–AAL–3.’’ area, caused the wing spar material to The postcard will be date/time stamped come off in flakes and strips 14 CFR Part 71 and returned to the commenter. All (exfoliation). communications received on or before A review of the U.S. service difficulty [Airspace Docket No. 95±AAL±3] the closing date for comments will be history on Piper PA28 and PA32 series considered before taking action on the airplanes revealed several incidents Proposed Modification of Class E proposed rule. The proposal contained where exfoliation corrosion was found Airspace; Nome and Unalakleet, AK in this notice may be changed in light on the wing spar. The corrosion of comments received. All comments specified in these reports showed that AGENCY: Federal Aviation Administration (FAA), DOT. submitted will be available for the exfoliation corrosion also was in the examination in the Rules Docket both wing tank area. In at least two instances, ACTION: Notice of proposed rulemaking. before and after the closing date for the exfoliation corrosion was found on SUMMARY: This notice proposes to comments. A report summarizing each the affected airplanes upon removal of substantive public contact with FAA the fuel tanks during a repair. amend Class E2 and E5 airspace areas at Nome, and Unalakleet, Alaska. The personnel concerned with this In order to adequately make a rulemaking will be filed in the docket. determination as to what type of action intended effect of this proposal is to to take (if any) regarding possible provide controlled airspace for aircraft Availability of NPRM’s exfoliation corrosion on Piper PA28 and executing the Standard Instrument Any person may obtain a copy of this PA32 series airplanes, the FAA is Approach Procedure (SIAP) at the Nome Notice of Proposed Rulemaking (NPRM) issuing this advance notice of proposed and Unalakleet Airports. The area by submitting a request to the Federal rulemaking (ANPRM) to provide an would be depicted on aeronautical Aviation Administration, Manager, opportunity for the general public to charts. System Management Branch, AAL–530, participate in the decision whether to DATES: Comments must be received on 222 West 7th Avenue, #14, Anchorage, initiate rulemaking. Interested persons or before September 4, 1995. AK 99513–7587 or by calling (907) 271– are encouraged to provide information ADDRESSES: Send comments on the 5898. Communications must identify that describes what they consider the proposal in triplicate to: Manager, the notice number of this NPRM. best action (if any) to be taken to correct System Management Branch, AAL–530, Persons interested in being placed on a the possible problem. In this regard, the Federal Aviation Administration, mailing list for future NPRM’s should FAA is especially interested in Docket No. 95–AAL–3, 222 West 7th also request a copy of Advisory Circular comments and viewpoints on the Avenue, #14, Anchorage, AK 99513– No. 11–2A, which describes the following: 7587. application procedures. 1. Have you removed or had the fuel tanks removed on one of the affected The official docket may be examined The Proposal airplanes? If so, did you detect or was in the Office of the Assistant Chief The FAA is considering an corrosion detected on the wing spar Counsel for the Alaskan Region at the amendment to part 71 of the Federal (upper cap, lower cap, or web) in the same address. Aviation Regulations (14 CFR part 71) to fuel tank bay? An informal docket may also be revise the existing Class E airspace to 2. Did you detect or has corrosion examined during normal business hours provide additional controlled airspace been detected on the main wing spar in at the address listed above. for Instrument Flight Rules (IFR) the vicinity of the fuel tanks (inboard of FOR FURTHER INFORMATION CONTACT: procedures at the Nome and Unalakleet 37970 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules Airports. The FAA has recomputed the PART 71Ð[AMENDED] radius of the Nome Airport and within 14 terminal airspace requirements which miles of the Nome VORTAC extending 1. The authority citation for part 71 ° ° will now include airspace for newly clockwise from the 002 radial to the 185 continues to read as follows: radial of the VORTAC and within 20 miles developed Microwave Landing System of the Nome VORTAC extending clockwise (MLS) approaches at Nome and Authority: 49 U.S.C. 40103, 40113, 40120; ° ° E.O. 10854, 24 FR 9565, 3 CFR, 1959–1963 from the 185 radial to the 305 radial of the Unalakleet; and Global Positioning VORTAC and within 4 miles north and 8 Comp., p. 389; 49 U.S.C. 106(g); 14 CFR ° System (GPS) approach at Unalakleet. 11.69. miles south of the 106 radial of the Nome The additional airspace would provide VORTAC extending from the VORTAC to 16 § 71.1 [Amended] miles east and within 4 miles north and 8 required controlled airspace for IFR ° procedures at the Nome and Unalakleet 2. The incorporation by reference in miles south of the Nome VORTAC 271 14 CFR 71.1 of Federal Aviation radial extending from the 6.6-miles radius to Airports. The areas would be depicted 27 miles west of the VORTAC; and that on appropriate aeronautical charts Administrative Order 7400.9B, Airspace airspace extending upward from 1,200 feet thereby enabling pilots to Designations and Reporting Points, above the surface within a 39-mile radius of circumnavigate the area or otherwise dated July 18, 1994, and effective the Nome VORTAC and within 39 miles each comply with IFR procedures. Class E September 16, 1994, is amended as side of the Nome VORTAC 092° radial airspace designations for airspace areas follows: extending from the 39-mile radius to 77.4 miles east of the VORTAC; excluding that designated as a surface area for an Paragraph 6002 Class E airspace areas airspace more than 12 miles from the airport are published in paragraph 6002 designated as a surface area for an airport. shoreline. of FAA Order 7400.9B, dated July 18, * * * * * * * * * * 1994, and effective September 16, 1994, AAL AK E2 Nome, AK [Revised] which is incorporated by reference in 14 AAL AK E5 Unalakleet, AK [Revised] Nome Airport, AK Unalakleet Airport, AK CFR 71.1, and Class E airspace (Lat. 64°30′44′′ N, long. 165°26′43′′ W) (Lat. 63°53′17′′ N, long. 160°47′55′′ W) designations for airspace areas Nome VORTAC extending upward from 700 feet or more (Lat. 64°29′06′′ N, long. 165°15′11′′ W) Unalakleet VORTAC (Lat. 63°53′31′′ N, long. 160°41′04′′ W) above the surface of the earth are Nome MLS Azimuth (Lat. 64°30′28′′ N, long. 165°25′35′′ W) Unalakleet Localizer published in paragraph 6005 of FAA (Lat. 63°52′52′′ N, long. 160°47′42′′ W) Order 7400.9B, dated July 18, 1994, and Within a 3.9-mile radius of the Nome Airport and within 3.4 miles each side of the That airspace extending upward from 700 effective September 16, 1994, which is Nome VORTAC 106° radial, extending from feet above the surface within a 6.7-mile incorporated by reference in 14 CFR the 3.9-mile radius to 12.1 miles east of the radius of the Unalakleet Airport and within ° 71.1. The Class E airspace designations airport and within 2.3 miles each side of the 2 miles each side of the 289 radial of the listed in this document would be OME MLS Azimuth west course (110°T), Unalakleet VORTAC extending from the 6.7- published subsequently in the Order. extending from the 3.9-mile radius to 9.1 mile radius to 14.1 miles west of the miles west of the airport. VORTAC and within 3 miles east and 3 miles The FAA has determined that this west of the Unalakleet Localizer front course * * * * * proposed regulation only involves an extending from the 6.7-mile radius to 12.9 established body of technical AAL AK E2 Unalakleet, AK [Revised] miles north of the airport; and that airspace regulations for which frequent and Unalakleet Airport, AK extending upward from 1,200 feet above the (Lat. 63°53′17′′ N, long. 160°47′55′′ W) surface within a 20-mile radius of the routine amendments are necessary to Unalakleet VORTAC extending clockwise keep them operationally current. North River NDB ° ° (Lat. 63°54′27′′ N, long. 160°48′43′′ W) from the 165 radial to the 322 radial and Therefore, this proposed regulation—(1) Unalakleet VORTAC within 4 miles east and 8 miles west of the is not a ‘‘significant regulatory action’’ (Lat. 63°53′31′′ N, long. 160°41′04′′ W) Unalakleet Localizer front course extending from the Localizer to 21.7 miles north of the under Executive Order 12866; (2) is not Within a 4.2-mile radius of Unalakleet airport and within 4 miles north and 8 miles a ‘‘significant rule’’ under DOT Airport and within 3.5 miles each side of the ° Regulatory Policies and Procedures (44 North River NDB 314° bearing extending south of the Unalakleet VORTAC 289 radial from the 4.2-mile radius of Unalakleet extending from 11 miles west of the VORTAC FR 11034; February 26, 1979); and (3) to 27 miles west of the VORTAC; excluding does not warrant preparation of a Airport to 8.4 miles west of the North River NDB and within 1.6 miles each side of the that airspace more than 12 miles from the Regulatory Evaluation as the anticipated 289° radial of the Unalakleet VORTAC shoreline. impact is so minimal. Since this is a extending from the 4.2 mile radius to 11 * * * * * routine matter that will only affect air miles west of the Unalakleet VORTAC. This Issued in Anchorage, Alaska on July 14, traffic procedures and air navigation, it Class E airspace area is effective during the 1995. is certified that the proposed rule will specific dates and times established in Kleve M. Record, advance by Notice to Airmen. The effective not have a significant economic impact date and time will thereafter be continuously Acting Manager, Air Traffic Division, Alaskan on a substantial number of small entities published in the Supplement Alaska Region. under the criteria of the Regulatory (Airport/Facility Directory). [FR Doc. 95–18268 Filed 7–24–95; 8:45 am] Flexibility Act. * * * * * BILLING CODE 4910±13±M List of Subjects in 14 CFR Part 71 Paragraph 6005 Class E airspace areas extending from 700 feet or more above the 14 CFR Part 71 Airspace, Incorporation by reference, surface of the earth. Navigation (air). * * * * * [Airspace Docket No. 95±ASO±14] The Proposed Amendment AAL AK E5 Nome, AK [Revised] Proposed Establishment of Class E Nome Airport, AK Airspace; Knoxville, TN Accordingly, pursuant to the (Lat. 64°30′44′′ N, long. 165°26′43′′ W) authority delegated to me, the Federal Nome VORTAC AGENCY: Federal Aviation Aviation Administration proposes to (Lat. 64°29′06′′ N, long. 165°15′11′′ W) Administration (FAA), DOT. amend part 71 of the Federal Aviation That airspace extending upward from 700 ACTION: Notice of proposed rulemaking. Regulations (14 CFR part 71) as follows: feet above the surface within a 6.6-mile Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37971 SUMMARY: This notice proposes to comments submitted will be available substantial number of small entities establish Class E2 airspace at Knoxville, for examination in the Office of the under the criteria of the Regulatory TN for Knoxville Downtown Island Assistant Chief Counsel for Southern Flexibility Act. Airport, which has a LOC RWY 26 Region, Room 550, 1701 Columbia List of Subjects in 14 CFR Part 71 Standard Instrument Approach Avenue, College Park, Georgia 30337, Procedure (SIAP) and a VOR/DME or both before and after the closing date for Airspace, Incorporation by reference, GPS–B SIAP. Knoxville McGhee-Tyson comments. A report summarizing each Navigation (Air). Airport Tower provides approach substantive public contact with FAA The Proposed Amendment control service to the surface at personnel concerned with this Knoxville Downtown Island Airport. rulemaking will be filed in the docket. In consideration of the foregoing, the Therefore Class E2 airspace is required Federal Aviation Administration Availability of NPRMs to accommodate these SIAPs and for proposes to amend 14 CFR part 71 instrument flight rules (IFR) operations Any person may obtain a copy of this follows: at the airport. Notice of Proposed Rulemaking (NPRM) PART 71Ð[AMENDED] DATES: Comments must be received on by submitting a request to the Federal Aviation Administration, Manager, or before September 10, 1995. 1. The authority citation for 14 CFR System Management Branch, ASO–530, ADDRESSES: Send comments on the part 71 continues to read as follows: proposal in triplicate to: Federal Air Traffic Division, P.O. Box 20636, Atlanta, Georgia 30320. Authority: 49 U.S.C. 40103, 40113, 40120; Aviation Administration, Docket No. E.O. 10854, 24 FR 9565, 3 CFR 1959–1963 95–ASO–14, Manager, System Communications must identify the notice number of this NPRM. Persons Comp., p. 389; 49 U.S.C. 106(g); 14 CFR Management Branch, ASO–530, P.O. 11.69. Box 20636, Atlanta, Georgia 30320. interested in being placed on a mailing The official docket may be examined list for future NPRMs should also § 71.1 [Amended] in the Office of the Assistant Chief request a copy of Advisory Circular No. 2. The incorporation by reference in Counsel for Southern Region, Room 550, 11–2A which describes the application 14 CFR 71.1 of Federal Aviation 1701 Columbia Avenue, College Park, procedure. Administration Order 7400.9B, Airspace Georgia 30337, telephone (404) 305– The Proposal Designations and Reporting Points, 5586. The FAA is considering an dated July 18, 1994, and effective FOR FURTHER INFORMATION CONTACT: amendment to part 71 of the Federal September 16, 1994, is amended as Stanley Zylowski, System Management Aviation Regulations (14 CFR part 71) to follows: Branch, Air Traffic Division, Federal establish Class E2 airspace at Knoxville, Paragraph 6002 Class E airspace areas Aviation Administration, P.O. Box TN for Knoxville Downtown Island designated as a surface area for an airport. 20636, Atlanta, Georgia 30320; Airport, which has a LOC RWY 26 SIAP telephone (404) 305–5570. and a VOR/DME or GPS–B SIAP. * * * * * SUPPLEMENTARY INFORMATION: Knoxville McGhee-Tyson Airport Tower ASO TN E2 Knoxville, TN [New] provides approach control service to the Comments Invited Knoxville Downtown Island Airport, TN surface at Knoxville Downtown Islands (lat. 35°57′50′′N, long. 83°52′26′′ W) Interested parties are invited to Airport. Therefore Class E2 airspace is Within a 4.5-mile radius of Knoxville participate in this proposed rulemaking required to accommodate these SIAPs Downtown Island Airport, excluding that by submitting such written date, views and for IFR operations at the airport. airspace within the Knoxville McGhee Tyson or arguments as they may desire. Class E airspace areas designated as a Airport, TN Class C airspace area. Comments that provide the factual basis surface area for an airport are published * * * * * supporting the views and suggestions in Paragraph 6002 of FAA Order Issued in College Park, Georgia, on July 14, presented are particularly helpful in 7400.9B dated July 18, 1994, and 1995. developing reasoned regulatory effective September 16, 1994, which is Stanley Zylowski, decisions on the proposal. Comments incorporated by reference in 14 CFR Acting Manager, Air Traffic Division, are specifically invited on the overall 71.1. The Class E airspace designations Southern Region. regulatory, aeronautical, economic, listed in this document would be [FR Doc. 95–18270 Filed 7–24–95; 8:45 am] environmental, and energy-related published subsequently in the Order. BILLING CODE 4910±13±M aspects of the proposal. The FAA has determined that this Communications should identify the proposed regulation only involves as airspace docket and be submitted in established body of technical 14 CFR Part 71 triplicate to the address listed above. regulations for which frequent and Commenters wishing the FAA to routine amendments are necessary to [Airspace Docket No. 95±ACE±7] acknowledge receipt of their comments keep them operationally current. It, Proposed Amendment to Class E on this notice must submit with those therefore, (1) is not a ‘‘significant Airspace; Clay Center, KS comments a self-addressed, stamped regulatory action’’ under Executive postcard on which the following Order 12866; (2) is not a ‘‘significant AGENCY: Federal Aviation statement is made: ‘‘Comments to rule’’ under DOT Regulatory Policies Administration (FAA), DOT. Airspace Docket No. 95–ASO–14.’’ The and Procedures (44 FR 11034; February ACTION: Notice of proposed rulemaking. postcard will be date/time stamped and 26, 1979); and (3) does not warrant returned to the commenter. All preparation of a regulatory evaluation as SUMMARY: This notice proposes to communications received before the the anticipated impact is so minimal. amend the Class E airspace area at Clay specified closing date for comments will Since this is a routine matter that will Center, KS. The development of a new be considered before taking action on only affect air traffic procedures and air Standard Instrument Approach the proposed rule. The proposal navigation, it is certified that this rule, Procedure (SIAP) at Clay Center contained in this notice may be changed when promulgated, will not have a Municipal Airport based on the Global in light of the comments received. All significant economic impact on a Positioning System has made the 37972 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules proposal necessary. The intended effect with this rulemaking will be filed in the List of Subjects in 14 CFR Part 71 of this proposal is to provide controlled docket. Airspace, Incorporation by reference, airspace for aircraft executing the SIAP Navigation (air). at Clay Center, KS. Availability of NPRMs The Proposed Amendment DATES: Comments must be received on Any person may obtain a copy of this or before September 4, 1995. Notice of Proposed Rulemaking (NPRM) Accordingly, pursuant to the ADDRESSES: Send comments on the by submitting a request to the Federal authority delegated to me, the Federal proposal in triplicate to: Manager, Air Aviation Administration, Office of Aviation Administration proposes to Traffic Operations Branch, ACE–530, Public Affairs, Attention: Public Inquiry amend part 71 of the Federal Aviation Federal Aviation Administration, Center, APA–230, 800 Independence Regulations (14 CFR part 71) as follows: Docket No. 95–ACE–7, 601 East 12th Avenue SW., Washington, DC 20591, or PART 71Ð[AMENDED] Street, Kansas City, MO. 64106. by calling (202) 267–3484. The official docket may be examined Communications must identify the 1. The authority citation for part 71 in the Office of the Assistant Chief notice number of this NPRM. Persons continues to read as follows: Counsel for the Central Region at the interested in being placed on a mailing Authority: 49 U.S.C. 40103, 40113, 40120; same address between 9:00 a.m. and list for future NPRMs should also E.O. 10854, 24 FR 9565, 3 CFR, 1959–1963 3:00 p.m., Monday through Friday, request a copy of Advisory Circular No. Comp., p. 389; 49 U.S.C. 106(g); 14 CFR except Federal holidays. 11–2A, which describes the procedures. 11.69. An informal docket may also be The Proposal § 71.1 [Amended] examined during normal business hours 2. The incorporation by reference in in the office of the Manager, Air Traffic The FAA is considering an 14 CFR 71.1 of Federal Aviation Operations Branch, Air Traffic Division, amendment to part 71 of the Federal Administration Order 7400.9B, Airspace at the address listed above. Aviation Regulations (14 CFR part 71) to Designations and Reporting Points, FOR FURTHER INFORMATION CONTACT: provide additional controlled airspace dated July 18, 1994, and effective Kathy Randolph, ACE–530c, Federal for Instrument Flight Rules (IFR) September 16, 1994, is amended as Aviation Administration, 601 East 12th procedures at the Clay Center Municipal follows: Airport due to the development of a Street, Kansas City, Missouri 64106; Paragraph 6005 Class E airspace areas telephone number: (816) 426–3408. new SIAP. The additional airspace extending upward from 700 feet or more would segregate aircraft operating under SUPPLEMENTARY INFORMATION: above the surface of the earth. VFR conditions from aircraft operating * * * * * Comments Invited under IFR procedures. The area would ACE KS E5 Clay Center, KS [Revised] Interested parties are invited to be depicted on appropriate aeronautical participate in this proposed rulemaking charts thereby enabling pilots to Clay Center Municipal Airport, KS. (lat. 39°23′14′′ N, long. 97°09′26′′ W) by submitting such written data, views, circumnavigate the area or otherwise or arguments as they may desire. comply with IFR procedures. Class E Clay Center NDB (lat. 39°22′51′′ N, long. 97°09′40′′ W) Comments that provide the factual basis airspace designations for airspace areas extending upward from 700 feet or more That airspace extending upward from 700 supporting the views and suggestions feet above the surface within a 6-mile radius presented are particularly helpful in above the surface of the earth are published in paragraph 6005 of FAA of Clay Center Municipal Airport and within developing reasoned regulatory 2.6 miles each side of the 167° bearing from decisions on the proposal. Comments Order 7400.9B, dated July 18, 1994, and the Clay Center NDB extending from the 6- are specifically invited on the overall effective September 16, 1994, which is mile radius to 7 miles southeast of the airport regulatory, economic, environmental, incorporated by reference in 14 CFR and within 2 miles each side of the 001° and energy-related aspects of the 71.1. The Class E airspace designation bearing from the Clay Center Airport proposal. Communications should listed in this document would be extending from the 6-mile radius to 10 miles north of the airport. identify the airspace docket number and published subsequently in the Order. be submitted in triplicate to the address The FAA has determined that this * * * * * Issued in Kansas City, MO, on June 15, listed above. Commenters wishing the proposed regulation only involves an 1995. FAA to acknowledge receipt of their established body of technical H.J. Lyons, Jr., comments on this notice must submit regulations for which frequent and with those comments a self-addressed, routine amendments are necessary to Acting Manager, Air Traffic Division Central Region. stamped postcard on which the keep them operationally current. following statement is made: Therefore, this proposed regulation—(1) [FR Doc. 95–18269 Filed 7–24–95; 8:45 am] ‘‘Comments to Airspace Docket No. 95– is not a ‘‘significant regulatory action’’ BILLING CODE 4910±13±M ACE–7.’’ The postcard will be date/time under Executive Order 12866; (2) is not stamped and returned to the a ‘‘significant rule’’ under DOT commenter. All communications Regulatory Policies and Procedures (44 DEPARTMENT OF THE INTERIOR received on or before the closing date FR 11034; February 26, 1979); and (3) Office of Surface Mining Reclamation for comments will be considered before does not warrant preparation of a and Enforcement taking action on the proposed rule. The Regulatory Evaluation as the anticipated proposal contained in this notice may impact is so minimal. Since this is a 30 CFR Part 935 be changed in light of comments routine matter that will only affect air received. All comments submitted will traffic procedures and air navigation, it [OH±229; Amendment Number 66] be available for examination in the is certified that this proposed rule will Ohio Regulatory Program Rules Docket both before and after the not have a significant economic impact closing date for comments. A report on a substantial number of small entities AGENCY: Office of Surface Mining summarizing each substantive public under the criteria of the Regulatory Reclamation and Enforcement (OSM), contact with FAA personnel concerned Flexibility Act. Interior. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37973 ACTION: Proposed rule. SUPPLEMENTARY INFORMATION: comment on whether the amendment I. Background on the Ohio Program proposed by Ohio satisfies the SUMMARY: OSM is announcing the applicable program approval criteria of receipt of a proposed amendment to the On August 16, 1982, the Secretary of 30 CFR 732.15. If the amendment is the Interior conditionally approved the Ohio permanent regulatory program deemed adequate, it will become part of Ohio program. Information on the (hereinafter referred to as the Ohio the Ohio program. general background of the Ohio program program) under the Surface Mining submission, including the Secretary’s Written Comments Control and Reclamation Act of 1977 findings, the disposition of comments, (SMCRA). The amendment was initiated Written comments should be specific, and a detailed explanation of the by Ohio and is intended to make the pertain only to the issues proposed in conditions of approval of the Ohio Ohio program as effective as the this rulemaking, and include program, can be found in the August 10, corresponding Federal regulations explanations in support of the 1982, Federal Register (47 FR 34688). concerning the number and frequency of commenter’s recommendations. Subsequent actions concerning the premining water quality samples Comments received after the time conditions of approval and program indicated under ‘‘DATES’’ or at required for previously mined permit amendments are identified at 30 CFR areas. locations other than the Columbus Field 935.11, 935.12, 935.15, and 935.16. Office will not necessarily be This document sets forth the times II. Discussion of the Proposed considered in the final rulemaking or and locations that the Ohio program and included in the Administrative Record. proposed amendments to that program Amendment will be available for public inspection, The Ohio Department of Natural Public Hearing resources, Division of reclamation the comment period during which Persons wishing to comment at the (Ohio) submitted proposed Program interested persons may submit written public hearing should contact the Amendment Number 66 (PA 66) by comments on the proposed amendment, person listed under FOR FURTHER letter dated July 3, 1995 (Administrative and the procedures that will be followed INFORMATION CONTACT by 4:00 p.m., Record No. OH–2143). In this regarding the public hearing, if one is E.D.T. on August 9, 1995. If no one amendment, Ohio is proposing to revise requested. requests an opportunity to comment at one rule at Ohio Administrative Code a public hearing, the hearing will not be DATES: Written comments must be (OAC) section 1501:13–4–15 to make held. received by 4:00 p.m., E.D.T. on August the Ohio program as effective as the Filing of a written statement at the 24, 1995. If requested, a public hearing corresponding Federal regulations time of the hearing is requested as it on the proposed amendment will be concerning the number and frequency of will greatly assist the transcriber. held at 1 p.m., E.D.T. on August 21, premining water quality samples Submission of written statements in 1995. Requests to speak at the hearing required for previously mined permit advance of the hearing will allow OSM must be received by 4 p.m., E.D.T. on areas. Ohio is revising paragraph (D)(2) officials to prepare adequate responses August 9, 1995. of this rule to require that permit and appropriate questions. applicants submit data from a minimum ADDRESSES: Written comments and The public hearing will continue on requests to testify at the hearing should of 12 water quality samples from each sampling location to determine the base the specified date until all persons be mailed or hand-delivered to Ms. scheduled to comment have been heard. Beverly C. Brock, Acting Director, line pollution load of the proposed pollution abatement area. These Persons in the audience who have not Columbus Field Office, at the address been scheduled to comment and who listed below. samples shall be taken at regular intervals and shall be collected over a wish to do so will be heard following Copies of the Ohio program, the period of at least 12 months or longer, those scheduled. The hearing will end proposed amendment, and all written as determined by the chief of the Ohio after all persons scheduled to comment comments received in response to this Department of Natural Resources, and persons present in the audience document will be available for public Division of Reclamation. who wish to comment have been heard. review at the addresses listed below Also as part of PA 66, Ohio is Any disabled individual who has during normal business hours, Monday proposing to revise two of its Policy/ need for a special accommodation to through Friday, excluding holidays. Procedure Directives (PPD) to reflect the attend a public hearing should contact Each requester may receive one free rule changes described above. Ohio is the individual listed under FOR FURTHER copy of the proposed amendment by revising PPD Permitting 92–3 to require INFORMATION CONTACT. contacting OSM’s Columbus Field the 12 water quality samples, to specify Public Meeting Office. that sites may be sampled no more Office of Surface Mining Reclamation frequently than once per month, and to If only one person requests an and Enforcement. change the name of Ohio’s Remining opportunity to comment at a hearing, a Program contact person. Ohio is revising public meeting, rather than a public Columbus Field Office, 4480 Refugee PPD Regulatory 93–4 to clarify that hearing, may be held. Persons wishing Road, Suite 201, Columbus, Ohio pollution abatement areas can include to meet with OSM representatives to 43232, Telephone: (614) 866–0578. contiguous undisturbed areas which discuss the proposed amendment may Ohio Department of Natural Resources, must be affected to improve the base request a meeting at the Columbus Field Division of Reclamation, 1855 line pollutional load, to clarify the Office by contacting the person listed Fountain Square Court, Building H–3, definition of ‘‘no longer exceeding,’’ and under FOR FURTHER INFORMATION Columbus, Ohio 43224, Telephone: to change the name of Ohio’s Remining CONTACT. (614) 265–6675. Program contact person. All such meetings shall be open to the public and, if possible, notices of the FOR FURTHER INFORMATION CONTACT: III. Public Comment Procedures meetings will be posted at the locations Ms. Beverly C. Brock, Acting Director, In accordance with the provisions of listed under ADDRESSES. A written Columbus Field Office, (614) 866–0578. 30 CFR 732.17(h), OSM is now seeking summary of each public meeting will be 37974 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules made a part of the Administrative substantial number of small entities. M Street, SW., Washington, DC 20460. Record. Accordingly, this rule will ensure that The official record for this rulemaking existing requirements previously (Docket No. F–95–WT3P–FFFFF) is IV. Procedural Determinations promulgated by OSM will be located at the above address in Room Executive Order 12866 implemented by the State. In making the M–2616, and is available for viewing This rule is exempted from review by determination as to whether this rule from 9 a.m. to 4 p.m., Monday through the Office of Management and Budget would have a significant economic Friday, excluding Federal holidays. The (OMB) under Executive Order 12866 impact, the Department relied upon the public must make an appointment to (Regulatory Planning and Review). data and assumptions for the review docket materials by calling (202) corresponding Federal regulations. 260–9327. The public may copy a Executive Order 12778 maximum of 100 pages of material from List of Subjects in 30 CFR Part 935 The Department of the Interior has any one regulatory docket at no cost; conducted the reviews required by Intergovernmental relations, Surface additional copies cost $0.15 per page. section 2 of Executive Order 12778 mining, Underground mining. Copies of the Third Edition of SW– (Civil Justice Reform) and has Dated: July 19, 1995. 846, as amended by Updates I, II, IIA, determined that, to the extent allowed Allen D. Klein, and IIB, and the proposed Update III are by law, this rule meets the applicable Regional Director, Appalachian Regional part of the official docket for this standards of subsections (a) and (b) of Coordinating Center. rulemaking, and also are available from that section. However, these standards [FR Doc. 95–18222 Filed 7–24–95; 8:45 am] the Superintendent of Documents, are not applicable to the actual language Government Printing Office (GPO), BILLING CODE 4310±05±M of State regulatory programs and Washington, DC 20402, (202) 512–1800. program amendments since each such The GPO document number is 955–001– program is drafted and promulgated by 00000–1. Copies of the Third Edition a specific State, not by OSM. Under ENVIRONMENTAL PROTECTION and its updates are also available from sections 503 and 505 of SMCRA (30 AGENCY the National Technical Information U.S.C. 1253 and 1255) and 30 CFR 40 CFR Parts 260, 264, and 265 Service (NTIS), 5285 Port Royal Road, 730.11, 732.15, and 732.17(h)(10), Springfield, VA 22161, (703) 487–4650. decisions on proposed State regulatory [FRL±5263±3] FOR FURTHER INFORMATION CONTACT: For programs and program amendments general information contact the RCRA Hazardous Waste Management submitted by the States must be based Hotline at (800) 424–9346 (toll free) or System; Testing and Monitoring solely on a determination of whether the call (703) 412–9810; or, for hearing Activities submittal is consistent with SMCRA and impaired, call TDD (800) 553–7672 or its implementing Federal regulations AGENCY: Environmental Protection TDD (703) 412–3323. For technical and whether the other requirements of Agency. information, contact Kim Kirkland or 30 CFR parts 730, 731, and 732 have ACTION: Proposed rule. Barry Lesnik, Office of Solid Waste been met. (5304), U.S. Environmental Protection National Environmental Policy Act SUMMARY: The Environmental Protection Agency, 401 M Street, SW., Washington, Agency (EPA or Agency) is proposing to DC 20460, (202) 260–4761. No environmental impact statement is revise certain testing methods used in required for this rule since section complying with the requirements of SUPPLEMENTARY INFORMATION: 702(d) of SMCRA (30 U.S.C. 1292(d)) subtitle C of the Resource Conservation Preamble Outline provides that agency decisions on and Recovery Act (RCRA) of 1976, as proposed State regulatory program I. Authority amended. EPA also is proposing to add II. Background Summary and Regulatory provisions do not constitute major several new testing methods that may be Framework Federal actions within the meaning of used in complying with the III. Proposal section 102(2)(C) of the National requirements of subtitle C of RCRA. A. Revised Methods and Chapters Environmental Policy Act (42 U.S.C. These new and revised methods, B. New Methods 4332(2)(C)). designated as Update III, are proposed C. Deletion of Obsolete Methods to be added to the Third Edition of the D. Request for Comment Only on Certain Paperwork Reduction Act Sections of Method 9095A EPA-approved test methods manual This rule does not contain E. Deleting References to Method 8240 in ‘‘Test Methods for Evaluating Solid information collection requirements that §§ 264.1034(d)(iii) and (f), Waste, Physical/Chemical Methods,’’ require approval by OMB under the 264.1063(d)(2), 265.1034(d)(1)(iii) and EPA Publication SW–846. In addition, Paperwork Reduction Act (44 U.S.C. (f), and 265.1063(d)(2) EPA proposes to delete several obsolete IV. State Authority 3507 et seq.). methods from SW–846 and the RCRA V. Regulatory Analyses Regulatory Flexibility Act regulations. The intent of this action is A. Executive Order 12866 B. Unfunded Mandates Reform Act The Department of the Interior has to provide state-of-the-art analytical technologies for RCRA-related testing C. Regulatory Flexibility Act determined that this rule will not have D. Paperwork Reduction Act a significant economic impact on a and thus promote cost effectiveness in substantial number of small entities choosing analytical test methods. I. Authority under the Regulatory Flexibility Act (5 DATES: Comments on this proposed rule These regulations are being U.S.C. 601 et seq.). The State submittal must be submitted on or before promulgated under the authority of which is the subject of this rule is based September 25, 1995. sections 1006, 2002(a), 3001–3007, upon corresponding Federal regulations ADDRESSES: The public should submit 3010, 3013–3018, and 7004 of the Solid for which an economic analysis was an original and two copies of their Waste Disposal Act, as amended by the prepared and certification made that comments on this proposed rule to the Resource Conservation and Recovery such regulations would not have a Docket Clerk (OS–305), U.S. Act of 1976 (commonly known as significant economic effect upon a Environmental Protection Agency, 401 RCRA), as amended (42 U.S.C. 6905, Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37975 6912(a), 6921–6927, 6930, 6934–6939, compliance with air emission standards III. Proposal and 6974). for equipment leaks; A. Revised Methods and Chapters II. Background Summary and (8) Section 266.106(a)—Analysis in Regulatory Framework support of compliance with standards to The Agency is today proposing to control metals emissions from burning revise several methods contained in the EPA Publication SW–846, ‘‘Test hazardous waste in boilers and Third Edition 1 of SW–846 and its Methods for Evaluating Solid Waste, industrial furnaces; Physical/Chemical Methods,’’ contains Updates I, II, IIA, and IIB, as the analytical and test methods that EPA (9) Section 266.112(b)(1) and (2)(i)— incorporated by reference into 40 CFR has evaluated and found to be among Certain analyses in support of exclusion 260.11(a). These proposed revisions those acceptable for testing under from the definition of a hazardous waste would improve the methods and subtitle C of the Resource Conservation of a residue which was derived from provide additional performance and Recovery Act (RCRA) and that are burning hazardous waste in boilers and information for each method. The required for specific regulations as industrial furnaces; Agency is also proposing to revise SW– 846 Chapters Two, Three, Four, Five, discussed below. These methods are (10) Section 268.32(i)—Evaluation of intended to promote accuracy, a waste to determine if it is a liquid for Six, and Ten to incorporate new sensitivity, specificity, precision, and purposes of certain land disposal methods and method revisions into comparability of analyses and test prohibitions; SW–846. results. In situations where the (11) Sections 268.40(a), (b) and (f), Table 1 lists the 37 methods and the regulations require the use of six chapters that are proposed for appropriate SW–846 methods, the 268.41(a), and 268.43(a)—Leaching procedure for evaluation of waste revision. The revised methods and regulations specify use of the Third chapters are available from the Edition of EPA’s SW–846 manual as extract to determine compliance with land disposal treatment standards; Government Printing Office (GPO) and amended by Updates I, II, IIA, and IIB. the National Technical Information SW–846 will be amended further to (12) Section 268.7(a)—Leaching Service (NTIS), and are part of the include the new and revised methods procedure for evaluation of a waste to official docket for this rulemaking. For determine if the waste is restricted from contained in this proposed Update III, comparison purposes, original versions and to delete those methods deemed land disposal; of the methods and chapters before obsolete in this proposal, if this (13) Sections 270.19(c)(1)(iii) and (iv), these revisions can be found in Docket proposal is adopted in final form. and 270.62(b)(2)(i)(C) and (D)—Analysis Several of the hazardous waste Nos. F–93–WTMF–FFFFF (Third and approximate quantification of the Edition and Update I) and F–94–WT2F– regulations under subtitle C of RCRA hazardous constituents identified in the require that specific testing methods FFFFF (Update II). The revised methods waste prior to conducting a trial burn in of proposed Update III can be found in described in SW–846 be employed for support of an application for a certain applications. Any reliable Docket No. F–95–WT3P–FFFFF. Those hazardous waste incineration permit; with SW–846 subscriptions can refer to analytical method may be used to meet and other requirements in 40 CFR parts 260 their copies of the Third Edition of SW– through 270. Listed below are a number (14) Sections 270.22(a)(2)(ii)(B) and 846 as amended by Updates I, II, IIA, of provisions found in 40 CFR parts 260 270.66(c)(2)(i) and (ii)—Analysis and IIB; and to their copy of proposed through 270 that require use of a conducted in support of a destruction Update III. The Agency is soliciting specific method for a particular and removal efficiency (DRE) trial burn comments on all parts of each revised application, or the use of appropriate waiver for boilers and industrial method, with the exception of Method SW–846 methods in general: furnaces burning low-risk wastes, and 9095A for the reasons explained in (1) Section 260.22(d)(1)(i)— analysis and approximate quantification section III.D of this proposed rule. Submission of data in support of conducted for a trial burn in support of In its ongoing program to promote petitions to exclude a waste produced at an application for a permit to burn pollution prevention, the Agency notes a particular facility (i.e., delisting hazardous waste in a boiler and that eighteen (see method numbers petitions); industrial furnace. identified by an asterisk in Table 1) of (2) Section 261.22(a)(1) and (2)— In other situations, SW–846 functions the organic sample preparatory and Evaluation of a waste against the as a guidance document setting forth cleanup methods which are proposed to corrosivity characteristic; acceptable, although not required, be revised in Update III of SW–846 (3) Section 261.24(a)—Leaching methods to be implemented by the user, utilize a modified Kuderna-Danish (K– procedure for evaluation of a waste as appropriate, in responding to RCRA- D) apparatus to concentrate sample against the toxicity characteristic; related sampling and analysis (4) Section 261.35(b)(2)(iii)(A)— extracts and minimize the evaporation requirements. Testing rinsates from wood preserving of extraction solvents into the air. cleaning processes; SW–846 is a document that changes Specifically, the modified K–D (5) Sections 264.190(a), 264.314(c), over time as new information and data apparatus in these methods includes a 265.190(a), and 265.314(d)—Evaluation are developed. Advances in analytical solvent recovery system. The recovered of a waste to determine if free liquid is instrumentation and techniques are solvent can be properly disposed a component of the waste; continually reviewed by the Agency and instead of released to the air as (6) 264.1034(d)(1)(iii) and periodically incorporated into SW–846 previously done. (Note: The K–D 265.1034(d)(1)(iii)—Testing total to support changes in the regulatory apparatus found in new Methods 3535 organic concentration for monitoring program and to improve method and 3542 of proposed Update III also compliance with air emission standards performance. Update III represents such include this pollution prevention for process vents; an incorporation. Therefore, EPA improvement.) (7) 264.1063(d)(2) and solicits any available data and 265.1063(d)(2)—Testing total organic information that may affect the 1 For an exception, see footnote number 1 of Table concentration for monitoring usefulness of SW–846. 1. 37976 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules B. New Methods Method 9200, the brucine- 9250, 9251 and 9253) and from other sulfanilamide method for nitrate sources including, but not limited to, The Agency is today proposing to add determination, is proposed for deletion the ‘‘Annual Book of ASTM Methods’’ 61 new methods to the Third Edition of because it generates unreliable results. It (American Society for Testing and SW–846 (Table 2). If finalized, these was recently demonstrated to be Materials, Philadelphia, PA), ‘‘Standard new methods will provide additional unreliable by both the Agency’s Methods for the Examination of Water flexibility in method selection and also Environmental Monitoring Systems and Wastewater’’ (Eighteenth Edition, may be used during the analyses of Laboratory in Cincinnati (EMSL-Ci) and 1992, American Public Health some analytes for which other SW–846 the American Water Works Association Association, the American Water Works methods may be less than adequate (AWWA). The unstable nature of the Association, and the Water Environment performers. These new methods are analytical reagents and excessively tight Federation, Washington, DC), and the available from GPO and NTIS, and are temperature control requirements were Office of Water methods manual, part of the official docket for this among the factors contributing to the ‘‘Methods for the Chemical Analysis of rulemaking. The Agency is soliciting method’s unreliability. In fact, on Water and Wastes’’ (EPA, March 1983, comments on all sections of these December 15, 1993 (58 FR 65622), the NTIS PB84–128677). methods. Agency proposed to remove Method D. Request for Comment Only on EPA’s Office of Solid Waste is also 353.1 (EPA 600/4–79–020, ‘‘Methods for Certain Sections of Method 9095A considering adopting the Environmental the Chemical Analysis of Water and Monitoring Management Council Wastes’’) which contains a brucine- Revised Method 9095A (‘‘Paint Filter (EMMC) format for use with new SW– sulfanilic acid procedure. Method 419 Liquids Test’’) contains revisions to 846 methods in a future proposed D, a brucine-sulfanilic acid method, was sections 6.2, 7.2, 7.3 and 7.4 that revision (other than Update III) to SW– also removed by the American Water provide direction on how to prepare 846. As part of its efforts to promote Works Association from the publication sorbent materials that do not conform to consolidation and integration between ‘‘Standard Methods for the Examination the shape of the paint filter. This EPA Program Offices, the EMMC of Water and Wastewater’’, Fifteenth direction is intended to facilitate use of developed the consensus format for Edition. Therefore, to be consistent with the method for the testing of analytical methods. The Agency plans these and any other related Agency containerized liquids to which sorbents to consider adopting this format to be actions, the Agency is proposing to have been added before land disposal. The Agency adopted Method 9095A for consistent with an intra-agency effort to remove Method 9200 from SW–846. In this purpose on November 18, 1992 (see achieve uniformity in analytical method the rare cases where nitrate is a target 57 FR 54452, the ‘‘Liquids in Landfills’’ format among all Agency programs. The analyte for RCRA-related analyses, the rule). Method 9095A also contains a use of this new format for new methods regulated community may use Method new section 3.2 which clarifies use of of SW–846 will be proposed per 9056—The Determination of Inorganic the method during freezing conditions. comment in a future rulemaking. The Anions by Ion Chromatography The Agency is requesting comment only Agency is not soliciting comment at this (currently in SW–846). Another on the sections of Method 9095A listed time on its plans to adopt the EMMC appropriate method may be Method above, is not requesting comment on format. 9210—Nitrate in Aqueous Samples by other sections of the method (which C. Deletion of Obsolete Methods Ion-Selective Electrode, which is a were not revised), and is also not proposed Update III method and listed requesting comment on method The Agency is also proposing today to in Table 2 of this notice. Alternative appropriateness for free liquid delete sixteen obsolete methods (Table methods are also available from other determinations. 3) from the Third Edition of SW–846, sources, including, but not limited to, for the reasons delineated in the the ‘‘Annual Book of ASTM Methods’’ E. Deleting References to Method 8240 following paragraphs. The Agency is (American Society for Testing and in §§ 264.1034(d)(iii) and (f), soliciting comments on the removal of Materials, Philadelphia, PA); ‘‘Standard 264.1063(d)(2), 265.1034(d)(1)(iii) and the methods from SW–846. Methods for the Examination of Water (f), and 265.1063(d)(2) Fourteen packed column gas and Wastewater’’ (Eighteenth Edition, The Agency is proposing to delete all chromatographic (GC) methods are 1992, American Public Health references to Method 8240 (Volatile proposed for deletion from SW–846 Association, the American Water Works Organic Compounds by Gas because they have been superseded by Association, and the Water Environment Chromatography/Mass Spectrometry) of capillary column methods or other Federation, Washington, DC); and the SW–846 found in 40 CFR method techniques that provide better Office of Water methods manual 264.1034(d)(1)(iii) and (f), resolution, selectivity and sensitivity. ‘‘Methods for the Chemical Analysis of 264.1063(d)(2), 265.1034(d)(1)(iii) and Capillary columns have an inherently Water and Wastes’’ (EPA, March 1983, (f), and 265.1063(d)(2) of the RCRA greater ability to separate analytes than NTIS PB84–128677) regulations. The Agency is proposing packed columns. A survey performed in Method 9252A—Chloride this action because a method involving 1991 found that few analysts actually (Titrimetric, Mercuric Nitrate) is the determination of volatile organic use packed columns in their laboratories proposed to be deleted from SW–846 as compounds (e.g., Method 8240 or 8260) anymore (Environmental Science and part of the Agency’s ongoing efforts to is not an appropriate method alternative Technology, 26, 1285–1287, 1992). promote pollution prevention measures. for the total organic carbon analysis These packed column GC methods are Although the method does give reliable addressed by 40 CFR 264.1034(d)(1)(iii) also proposed for deletion to be results, it can generate a mercury- and (f), 264.1063(d)(2), consistent with other Agency program containing RCRA hazardous waste, 265.1034(d)(1)(iii) and (f), and offices, e.g., the Office of Water, which which may cause disposal or 265.1063(d)(2), since it exhibits no has withdrawn packed column methods contamination problems for the direct correlation with analytical results from its list of approved drinking water laboratory. Several alternative methods obtained using Method 9060. In methods (see 59 FR 62456, December 5, for the determination of chloride are addition, Method 8240 is a packed 1994). available both in SW–846 (e.g., Methods column method and, for the reasons Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37977 explained in section III.C of this TABLE 1.ÐLIST OF PROPOSED RE- TABLE 2.ÐLIST OF NEW METHODS proposal, the Agency is removing VISED METHODS AND CHAPTERSÐ PROPOSED FOR ADDITION TO SW± Method 8240 (and all other packed Continued 846ÐContinued column methods) from SW–846. Method Method Title Title TABLE 1.ÐLIST OF PROPOSED No. No. REVISED METHODS AND CHAPTERS 8151A* .. Chlorinated Herbicides by GC 0023A 1 . Sampling Method for Poly- Using Methylation or chlorinated Dibenzo-p-Dioxins Method and Polychlorinated No. Title Pentafluorobenzylation Derivatization: Capillary Column Dibenzofuran Emissions from Stationary Sources Chapter TwoÐChoosing the Cor- Technique 0031 ...... Sampling Method for Volatile Or- rect Procedure 8260B ... Volatile Organic Compounds by ganic Compounds (SMVOC) Chapter ThreeÐMetallic Analytes Gas Chromatography/Mass Spectrometry (GC/MS): Cap- 0040 ...... Sampling of Principal Organic Chapter FourÐOrganic Analytes illary Column Technique Hazardous Constituents from Chapter FiveÐMiscellaneous Test 8270C ... Semivolatile Organic Compounds Combustion Sources Using Methods by Gas Chromatography/Mass Tedlar Bags Chapter SixÐProperties Spectrometry (GC/MS): Cap- 0050 ...... Isokinetic HCl/Cl2 Emission Sam- Chapter TenÐSampling Methods illary Column Technique pling Train 3040A ... Dissolution Procedure for Oils, 8275A ... Semivolatile Organic Compounds 0051 ...... Midget Impinger HCl/Cl2 Emission Greases, or Waxes (PAHs and PCBs) in Soils/ Sampling Train 3050B ... Acid Digestion of Sediments, Sludges and Solid Wastes 0060 ...... Determination of Metals in Stack Sludges, and Soils Using Thermal Extraction/Gas Emissions 3060A 1 . Alkaline Digestion for Hexavalent Chromatography/Mass Spec- 0061 ...... Determination of Hexavalent Chro- Chromium trometry (TE/GC/MS) mium Emissions from Stationary 3500B ... Organic Extraction and Sample 8280A* .. The Analysis of Polychlorinated Sources Preparation Dibenzo-p-dioxins and Poly- 0100 ...... Sampling for Formaldehyde and 3510C* .. Separatory Funnel Liquid-Liquid chlorinated Dibenzofurans by Other Carbonyl Compounds in Extraction High Resolution Gas Chroma- Indoor Air 3520C* .. Continuous Liquid-Liquid Extrac- tography/Low Resolution Mass 1030 ...... Ignitability of Solids tion Spectrometry (HRGC/LRMS) 1120 ...... Dermal Corrosion 3540C* .. Soxhlet Extraction 8315A* .. Determination of Carbonyl Com- 3031 ...... Acid Digestion of Oils for Metals Analysis by FLAA or ICP Spec- 3550B* .. Ultrasonic Extraction pounds by High Performance Liquid Chromatography (HPLC) troscopy 3600C ... Cleanup 3052 ...... Microwave Assisted Acid Diges- 8321A* .. Solvent Extractable Non-Volatile 3610B* .. Alumina Cleanup tion of Siliceous and Organically Compounds by High Perform- 3611B* .. Alumina Column Cleanup and Based Matrices ance Liquid Chromatography/ Separation of Petroleum Wastes 3535* .... Solid Phase Extraction (SPE) Thermospray/Mass Spectrom- 3620B* .. Florisil Cleanup 3542* .... Extraction of Semivolatile Analytes etry (HPLC/TS/MS) or Ultra- 3630C* .. Silica Gel Cleanup Collected Using Modified Meth- violet (UV) Detection 3650B* .. Acid-Base Partition Cleanup od 5 (Method 0010) Sampling 9012A ... Total and Amenable Cyanide (Col- 3660B* .. Sulfur Cleanup Train orimetric, Automated UV) 3665A* .. Sulfuric Acid/Permanganate 3545 ...... Accelerated Solvent Extraction 9050A ... Specific Conductance Cleanup (ASE) 9095A ... Paint Filter Liquids Test (sections 4010A ... Screening for Pentachlorophenol 3560 ...... Supercritical Fluid Extraction of 3.2, 6.2, 7.2, 7.3, and 7.4) by Immunoassay Total Recoverable Petroleum Hydrocarbons (TRPH) 5030B ... Purge-and-Trap for Aqueous Sam- NOTE: A suffix of ``A'' in the method number ples indicates revision one (the method has been 3561 ...... Supercritical Fluid Extraction of 5041A ... Analysis of Sorbent Cartridges revised once). A suffix of ``B'' in the method Polynuclear Aromatic Hydro- from Volatile Organic Sampling number indicates revision two (the method has carbons Train (VOST): Capillary GC/MS been revised twice). A suffix of ``C'' in the 3585 ...... Waste Dilution for Volatile method number indicates revision three (the Technique Organics method has been revised three times). 4000 ...... Immunoassay 6010B ... Inductively Coupled PlasmaÐ * Indicates method revisions which include a 4015 ...... Screening for 2,4± Atomic Emission Spectroscopy modification to a Kuderna-Danish (K-D) appa- Dichlorophenoxyacetic Acid by 8000B ... Determinative Chromatographic ratus to promote pollution prevention. Immunoassay Separations 1 Method 3060, ``Alkaline Digestion for Hexavalent Chromium,'' was in the Second 4020 ...... Screening for Polychlorinated 8015B ... Nonhalogenated Organics Using Biphenyls by Immunoassay GC/FID Edition of SW±846, but was not included in SW±846, Third Edition, due to perceived poor 4030 ...... Soil Screening for Petroleum Hy- 8021B ... Halogenated Volatiles by Gas performance. The method has since been ex- drocarbons by Immunoassay Chromatography Using tensively studied, modified, and validated, and 4035 ...... Soil Screening for Polynuclear Ar- Photoionization and Electrolytic Method 3060A is now being proposed for in- omatic Hydrocarbons (PAHs) by Conductivity Detectors in Series: clusion as a revised method to SW±846. Immunoassay Capillary Column Technique 4040 ...... Soil Screening for Toxaphene by 8032A* .. Acrylamide by Gas Chroma- TABLE 2.ÐLIST OF NEW METHODS Immunoassay tography PROPOSED FOR ADDITION TO SW±846 4041 ...... Soil Screening for Chlordane by 8061A* .. Phthalate Esters by Capillary Gas Immunoassay Chromatography with Electron 4042 ...... Soil Screening for DDT by Capture Detection (GC/ECD) Method No. Title Immunoassay 8070A* .. Nitrosamines by Gas Chroma- 4050 ...... TNT Explosives in Water and tography 0011 ...... Sampling for Formaldehyde Emis- Soils by Immunoassay 8081A ... Organochlorine Pesticides by Cap- sions from Stationary Sources 4051 ...... Hexahydro-1,3,5-trinitro-1,3,5-tri- illary Column Gas Chroma- azine (RDX) in Soil and Water tography by Immunoassay 37978 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules TABLE 2.ÐLIST OF NEW METHODS TABLE 2.ÐLIST OF NEW METHODS TABLE 3.ÐLIST OF METHODS PRO- PROPOSED FOR ADDITION TO SW± PROPOSED FOR ADDITION TO SW± POSED FOR REMOVAL FROM SW± 846ÐContinued 846ÐContinued 846ÐContinued Method Method Title Method Title No. Title No. No. 5000 ...... Sample Preparation for Volatile 9057 ...... Determination of Chloride from 8140 ...... Organophosphorus Pesticides Organic Compounds HCl/HCl2 Emission Sampling 8150B ... Chlorinated Herbicides by Gas 5021 ...... Volatile Organic Compounds in Train (Methods 0050 and 0051) Chromatography Soils and Other Solid Matrices by Anion Chromatography 8240B ... Volatile Organics by Gas Chroma- Using Equilibrium Headspace 9078 ...... Screening Test Method for Poly- tography/Mass Spectrometry Apparatus chlorinated Biphenyls in Soil (GC/MS) 5031 ...... Volatile, Nonpurgeable, Water- 9079 ...... Screening Test Method for Poly- 8250A ... Semivolatile Organic Compounds Soluble Compounds by Azeo- chlorinated Biphenyls in Trans- by Gas Chromatography/Mass tropic Distillation former Oil Spectrometry (GC/MS) 5032 ...... Volatile Organic Compounds by 9210 ...... Potentiometric Determination of 9200 ...... Nitrate Vacuum Distillation Nitrate in Aqueous Samples 9252A ... Chloride (Titrimetric, Mercuric Ni- with Ion-Selective Electrode trate) 5035 ...... Closed-System Purge-and-Trap 9211 ...... Potentiometric Determination of and Extraction for Volatile Solubilized Bromide in Aqueous NOTE: A suffix of ``A'' in the method number Organics in Soil and Waste indicates revision one (the method has been Samples with Ion-Selective Samples revised once). A suffix of ``B'' in the method Electrode 7063 ...... Arsenic in Aqueous Samples and number indicates revision two (the method has 9212 ...... Potentiometric Determination of been revised twice). Extracts by Anodic Stripping Chloride in Aqueous Samples Voltammetry (ASV) with Ion-Selective Electrode IV. State Authority 7199 ...... Determination of Hexavalent Chro- 9213 ...... Potentiometric Determination of mium in Drinking Water, Today’s rule, if promulgated, will Solubilized Cyanide in Aqueous provide standards that are not Groundwater and Industrial Samples and Distillates with Wastewater Effluents by Ion Ion-Selective Electrode immediately effective in authorized Chromatography 9214 ...... Potentiometric Determination of States since the requirements are being 7472 ...... Mercury in Aqueous Samples and Fluoride in Aqueous Samples imposed pursuant to pre-HSWA Extracts by Anodic Stripping with Ion-Selective Electrode authority. See RCRA section 3006. The Voltammetry (ASV) 9215 ...... Potentiometric Determination of requirements will be applicable only in 7521 ...... Nickel (Atomic Absorption, Fur- Sulfide in Aqueous Samples those States that do not have interim or nace Method) and Distillates with Ion-Selective final authorization. In authorized States, 7580 ...... White Phosphorus (P4) by Solvent Electrode the requirements will not be applicable Extraction and Gas Chroma- tography *Includes a Kuderna-Danish (K-D) appara- until the State revises its program to tus with a solvent recovery system to promote 8033 ...... Acetonitrile by Gas Chroma- adopt equivalent requirements under pollution prevention. State law. Procedures and deadlines for tography with Nitrogen-Phos- 1 This method is an updated version of the phorus Detection ``Method 23'' currently found in 40 CFR part State program revisions are set forth in 8041 ...... Phenols by Gas Chromatography: 60, Appendix A. Therefore, the Agency has 40 CFR 271.21. 40 CFR 271.3 sets forth Capillary Column Technique added the ``A'' suffix to indicate that Method the requirements a State must meet 8082 ...... Polychlorinated Biphenyls (PCBs) 0023A of SW±846 is revised from Method 23 when submitting its final authorization of 40 CFR part 60. by Capillary Column Gas Chro- application. matography 8091 ...... Nitroaromatics and Cyclic TABLE 3.ÐLIST OF METHODS PRO- V. Regulatory Analyses Ketones: Capillary Column POSED FOR REMOVAL FROM SW± A. Executive Order 12866 Technique 846 8111 ...... Haloethers: Capillary Column Under Executive Order 12866 (58 FR Technique 51735 (October 4, 1993)), EPA must Method Title 8131 ...... Aniline and Selected Derivatives No. determine whether a regulatory action is by GC: Capillary Column Tech- ‘‘significant’’ and therefore subject to nique 5040A ... Analysis of Sorbent Cartridges OMB review and the requirements of 8325 ...... Solvent Extractable Non-Volatile from Volatile Organic Sampling the Executive Order. The Order defines Compounds by High Perform- Train (VOST): Gas Chroma- ‘‘significant regulatory action’’ as one ance Liquid Chromatography/ tography/Mass Spectrometry Technique that is likely to result in a rule that may: Particle Beam/Mass Spectrom- (1) Have an annual effect on the etry (HPLC/PB/MS) 8010B ... Halogenated Volatile Organics by Gas Chromatography economy of $100 million or more or 8332 ...... Nitroglycerine by High Perform- adversely affect in a material way the ance Liquid Chromatography 8020A ... Aromatic Volatile Organics by Gas Chromatography economy, a sector of the economy, 8430 ...... Analysis of Bis(2-chloroethyl)ether 8030A ... Acrolein and Acrylonitrile by Gas Hydrolysis Products by Direct productivity, competition, jobs, the Chromatography Aqueous Injection GC/FT-IR environment, public health or safety, or 8040A ... Phenols by Gas Chromatography State, local, or tribal governments or 8440 ...... Total Recoverable Petroleum Hy- 8060 ...... Phthalate Esters drocarbons by Infrared communities; 8080A ... Organochlorine Pesticides and (2) Create a serious inconsistency or Spectrophotometry Polychlorinated Biphenyls by 8515 ...... Colorimetric Screening Method for Gas Chromatography otherwise interfere with an action taken Trinitrotoluene (TNT) in Soil 8090 ...... Nitroaromatics and Cyclic Ketones or planned by another agency; 8520 ...... Continuous Measurement of 8110 ...... Haloethers by Gas Chroma- (3) Materially alter the budgetary Formaldehyde in Ambient Air tography impact of entitlements, grants, user fees, 9023 ...... Extractable Organic Halides (EOX) 8120A ... Chlorinated Hydrocarbons by Gas or loan programs or the rights and in Solids Chromatography obligations of recipients thereof; or Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37979 (4) Raise novel legal or policy issues and faster sampling, helping to reduce List of Subjects arising out of legal mandates, the the cost of cleanups. Thus, today’s 40 CFR Part 260 President’s priorities, or the principles notice is not subject to the written set forth in the Executive Order. statement requirements in sections 202 Environmental protection, The Agency has determined that this and 205 of the Act. Administrative practice and procedure, rule is not a ‘‘significant regulatory As for section 203 of the Act, today’s Confidential business information, action’’ under the terms of Executive rule is not expected to have any Hazardous waste, Incorporation by Order 12866 and is therefore not subject ‘‘unique’’ effects on small governments; reference. to OMB review and the requirements of the only expected effects on a small the Executive Order. 40 CFR Part 264 government would be where that B. Unfunded Mandates Reform Act government is itself managing Hazardous waste, Insurance, Packaging and containers, Reporting Under section 202 of the Unfunded hazardous wastes, and is using one or and recordkeeping requirements, Mandates Reform Act of 1995 (the Act), more test methods for complying with Pub. L. 104–4, which was signed into RCRA regulations. Further, for the Security measures, Surety bonds. law on March 22, 1995, EPA generally reasons set out in the prior paragraph, 40 CFR Part 265 must prepare a written statement for the revised test methods would not be rules with Federal mandates that may expected to have a ‘‘significant’’ effect Hazardous waste, Insurance, result in estimated costs to State, local, on small governments (or other users of Packaging and containers, Reporting and tribal governments in the aggregate, test methods). Thus, today’s notice is and recordkeeping requirements, or to the private sector, of $100 million not subject to the requirements of Security measures, Surety bonds, Water or more in any one year. When such a section 203 of the Act. supply. statement is required for EPA rules, C. Regulatory Flexibility Act Dated: May 25, 1995. under section 205 of the Act EPA must Elliott P. Laws, identify and consider alternatives, Pursuant to the Regulatory Flexibility Assistant Administrator, Office of Solid Waste including the least costly, most cost- Act (RFA) (5 U.S.C. section 601–612, and Emergency Response. effective or least burdensome alternative Pub. L. 96–354, September 19, 1980), that achieves the objectives of the rule. whenever an agency publishes a General For the reasons set out in the EPA must select that alternative, unless Notice of Rulemaking for any proposed preamble, title 40, Chapter I, of the Code the Administrator explains in the final or final rule, it must prepare and make of Federal Regulations is amended as set rule why it was not selected or it is available for public comment a forth below: inconsistent with law. Before EPA regulatory flexibility analysis (RFA) that establishes regulatory requirements that PART 260ÐHAZARDOUS WASTE describes the impact of the rule on small MANAGEMENT SYSTEM: GENERAL may significantly or uniquely affect entities (i.e., small businesses, small small governments, including tribal organizations, and small governmental 1. The authority citation for part 260 governments, it must develop under jurisdictions). No regulatory flexibility continues to read as follows: section 203 of the Act a small analysis is required, however, if the government agency plan. The plan must head of the Agency certifies that the rule Authority: 42 U.S.C. 6905, 6912(a), 6921– provide for notifying potentially 6927, 6930, 6934, 6935, 6937, 6938, 6939, will not have a significant impact on a and 6974. affected small governments, giving them substantial number of small entities. meaningful and timely input in the Subpart BÐDefinitions development of EPA regulatory This rule will not require the purchase of new instruments or proposals with significant Federal 2. Section 260.11 (a) is amended by intergovernmental mandates, and equipment. The regulation requires no new reports beyond those now required. revising the ‘‘Test Methods for informing, educating, and advising them Evaluating Solid Waste, Physical/ on compliance with the regulatory This rule will not have an adverse economic impact on small entities since Chemical Methods’’ reference to read as requirements. follows: EPA has determined that this rule its effect will be to provide greater does not include a Federal mandate that flexibility and utility to all of the § 260.11 References. regulated community, including small may result in estimated costs of $100 (a) * * * million or more to State, local, and entities, by providing an increased tribal governments in the aggregate, or choice of appropriate analytical ‘‘Test Methods for Evaluating Solid Waste, methods for RCRA applications. Physical/Chemical Methods,’’ EPA to the private sector, in any one year. Publication SW–846 [Third Edition This is due to the fact that this rule Therefore, in accordance with 5 U.S.C. section 605(b), I hereby certify that this (November 1986), as amended by Updates I simply revises available test methods for (July, 1992), II (September, 1994), IIA complying with existing regulatory rule will not have a significant (August, 1993), IIB (January, 1995), and III]. requirements, and in most cases, the economic impact on a substantial The Third Edition of SW–846 and Updates I, SW–846 test methods are provided as number of small entities. Thus, the II, IIA, IIB, and III (document number 955– guidance, not requirements. Even where regulation does not require an RFA. 001–00000–1) are available from the Superintendent of Documents, U.S. the use of a specific test method is D. Paperwork Reduction Act required, the Agency does not believe Government Printing Office, Washington, DC 20402, (202) 512–1800. Copies of the Third that the revised methods will result in There are no additional reporting, Edition and its updates are also available significant cost increases and indeed, notification, or recordkeeping from the National Technical Information most of the revised methods are provisions associated with today’s Service (NTIS), 5285 Port Royal Road, expected to result in reduced costs. For proposed rule. Such provisions, were Springfield, VA 22161, (703) 487–4650. example, new immunoassay methods they included, would be submitted for Copies may be inspected at the Library, U.S. can be run in the field, replacing approval to the Office of Management Environmental Protection Agency, 401 M expensive gas chromatographic and Budget (OMB) under the Paperwork Street SW., Washington, DC 20460. laboratory work; this will allow for more Reduction Act, 44 U.S.C. 3501 et seq. * * * * * 37980 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules PART 264ÐSTANDARDS FOR Subpart AAÐAir Emission Standards 214 authorization requirements as well OWNERS AND OPERATORS OF for Process Vents as tariff requirements. The Commission HAZARDOUS WASTE TREATMENT, believes that the proposals will greatly STORAGE, AND DISPOSAL 7. Section 265.1034 is amended by lessen the regulatory burdens on FACILITIES revising paragraphs (d)(1)(iii) and (f) to applicants, authorized carriers, and the read as follows: Commission and allow carriers to 3. The authority citation for part 264 § 265.1034 Test methods and procedures. operate more efficiently and respond continues to read as follows: better to customers’ needs in a timely * * * * * manner. Additionally, the Commission’s Authority: 42 U.S.C. 6905, 6912(a), 6924, (d) * * * and 6925. proposals will enable international (1) * * * carriers to enter, expand, and exit the Subpart AAÐAir Emission Standards (iii) Each sample shall be analyzed market more quickly. and the total organic concentration of for Process Vents DATES: Comments must be submitted on the sample shall be computed using or before August 23, 1995. Reply Method 9060 of SW–846 (incorporated 4. Section 264.1034 is amended by comments must be submitted on or by reference under § 260.11 of this revising paragraphs (d)(1)(iii) and (f) to before September 7, 1995. read as follows: chapter). ADDRESSES: All comments and reply * * * * * § 264.1034 Test methods and procedures. comments concerning these proposals (f) When an owner or operator and the * * * * * should be addressed to: Office of the Regional Administrator do not agree on Secretary, Federal Communications (d) * * * whether a distillation, fractionation, Commission, Washington, DC 20554. (1) * * * thin-film evaporation, solvent Comments and reply comments will be (iii) Each sample shall be analyzed extraction, or air or steam stripping available for public inspection during and the total organic concentration of operation manages a hazardous waste regular business hours in the FCC the sample shall be computed using with organic concentrations of at least Reference Center (room 239) of the Method 9060 of SW–846 (incorporated 10 ppmw based on knowledge of the Federal Communications Commission, by reference under § 260.11 of this waste, an appropriate procedure 1919 M Street, NW., Washington, DC chapter). referenced in § 260.11(a) of this chapter 20554. may be used to resolve the dispute. * * * * * FOR FURTHER INFORMATION CONTACT: * * * * * (f) When an owner or operator and the Helene T. Schrier or Troy F. Tanner, Regional Administrator do not agree on Attorney-Advisors, Policy and Facilities Subpart BBÐAir Emission Standards Branch, Telecommunications Division, whether a distillation, fractionation, for Equipment Leaks thin-film evaporation, solvent International Bureau, (202) 418–1470. extraction, or air or steam stripping 8. Section 265.1063 is amended by SUPPLEMENTARY INFORMATION: This is a operation manages a hazardous waste revising paragraph (d)(2) to read as summary of the Commission’s Notice of with organic concentrations of at least follows: Proposed Rulemaking adopted on July 10 ppmw based on knowledge of the 13, 1995 and released July 17, 1995. The § 265.1063 Test methods and procedures. waste, an appropriate procedure full text of this notice is available for referenced in § 260.11(a) of this chapter * * * * * inspection and copying during normal may be used to resolve the dispute. (d) * * * business hours in the FCC Reference (2) Method 9060 of SW–846 Center (room 239) of the Federal * * * * * (incorporated by reference under Communications Commission, 1919 M Subpart BBÐAir Emission Standards § 260.11 of this chapter); or Street NW., Washington, DC 20554. The for Equipment Leaks * * * * * complete text of this notice also may be [FR Doc. 95–18257 Filed 7–24–95; 8:45 am] purchased from the Commission’s copy 5. Section 264.1063 is amended by BILLING CODE 6560±50±P contractor, International Transcription revising paragraph (d)(2) to read as Service, Inc., 2100 M Street NW., suite follows: 140, Washington, DC 20037, (202) 857– 3800. § 264.1063 Test methods and procedures. FEDERAL COMMUNICATIONS * * * * * COMMISSION Initial Regulatory Flexibility Act (d) * * * 47 CFR Parts 61 and 63 A. Reason for Action (2) Method 9060 of SW–846 This rulemaking proceeding was [IB Docket No. 95±118, FCC 95±286] (incorporated by reference under initiated to obtain comment regarding § 260.11 of this chapter); or Streamlining the International Section proposed changes to the Commission’s * * * * * 214 Authorization Process and Tariff international Section 214 authorization Requirements process and tariff requirements. PART 265ÐINTERIM STATUS STANDARDS FOR OWNERS AND AGENCY: Federal Communications B. Objectives OPERATORS OF HAZARDOUS WASTE Commission. The Commission seeks to streamline TREATMENT, STORAGE, AND ACTION: Proposed rules. the international Section 214 DISPOSAL FACILITIES authorization process and tariff SUMMARY: The Federal Communications requirements to greatly lessen the 6. The authority citation for part 265 Commission is proposing rules to regulatory burdens on applicants, continues to read as follows: streamline the international Section 214 authorized carriers, and the Commission Authority: 42 U.S.C. 6905, 6912(a), 6924, authorization process and tariff and enable them to operate more 6925, 6935, and 6936, unless otherwise requirements. The Commission efficiently and respond better to noted. proposes to streamline many Section customers’ needs in a timely manner. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37981 Such proposals also seek to enable and cable landing license application Federal Communications Commission. international carriers to enter and exit process. The notice proposes to reduce William F. Caton, the market more quickly with greater the detailed information now required Acting Secretary. flexibility to meet the evolving needs of of these applicants. To accelerate the [FR Doc. 95–18316 Filed 7–24–95; 8:45 am] a global telecommunications market. Commission’s processing of BILLING CODE 6712±01±M applications, the Notice proposes to C. Legal Basis shorten the comment period on The proposed action is authorized applications that are subject to 47 CFR Part 73 under Sections 4 and 203 of the streamlined processing for facilities- Communications Act of 1934, as based and resale applicants from 30 to [MM Docket No. 93±142; RM±8208] amended, 47 U.S.C. 154, 203 (1995). 21 days and for nonstreamlined applications from 30 to 28 days and D. Reporting, Recordkeeping and Other Television Broadcasting Services; proposes a 14 day reply period for all Compliance Requirements Willits, CA applications. The notice also proposes None. to encourage electronic filing of AGENCY: Federal Communications E. Federal Rules That Overlap, international Section 214 applications Commission. Duplicate or Conflict With These Rules and to require that applications in ACTION: Proposed rule; dismissal. foreign languages be accompanied with None. a certified translation in English. SUMMARY: This document dismisses a F. Description, Potential Impact, and The notice also would eliminate petition filed on behalf of Granite Number of Small Entities Involved several regulatory requirements that Broadcasting Corporation and KNTV, delay carriers from expanding their Inc., owner and licensee, respectively of The proposals discussed in this notice services. Under the proposals, resellers Station KNTV(TV), Channel 11, San of proposed rulemaking will reduce could provide international resale Jose, California, seeking the deletion of regulatory requirements on small services via any authorized common vacant VHF television Channel 11 at resellers and facilities-based providers carrier, except those affiliated with the Willits, California, to accommodate its who file international Section 214 reseller, without obtaining additional preference to relocate the transmitter of authorization applications and tariffs. authority. Private line resale carriers Station KNTV(TV) to a seismologically These proposals also are intended to could resell interconnected private lines safer site. See 58 FR 31686, June 4, enable these carriers to enter and exit for switched services to all designated 1993. An expression of interest in the market more quickly thereby ‘‘equivalent’’ countries, without retaining vacant Channel 11 at Willits, enabling increased competition in the obtaining additional authority to serve combined with the petitioner’s inability international markets. Copies of this each equivalent county. Carriers may to demonstrate a compelling showing notice will be sent to the Chief Counsel add circuits on private satellite or cable that the public interest would be better for Advocacy of the Small Business systems, without obtaining prior served by its proposal, precludes Administration. authority. deletion of the Willits allotment. With The notice also eases exit from the G. Any Significant Alternatives this action, the proceeding is market, as the proposals allow dominant Minimizing the Impact on Small Entities terminated. carriers to automatically convey Consistent With Stated Objective(s) transmission capacity in submarine FOR FURTHER INFORMATION CONTACT: None. cables to other carriers without Nancy Joyner, Mass Media Bureau, (202) 418–2180. Summary of Notice of Proposed obtaining prior Section 214 authority. Rulemaking Additionally, the proposals allow SUPPLEMENTARY INFORMATION: This is a nondominant carriers to provide 60, as synopsis of the Commission’s Report The Notice of Proposed Rulemaking opposed to 120, days’ notice to their and Order, MM Docket No. 93–142, proposes to streamline the international customers before discontinuing service adopted July 11, 1995, and released July Section 214 authorization process and or retiring facilities. 19, 1995. The full text of this tariff requirements. The proposed rules The notice also proposes to further Commission decision is available for would greatly reduce the regulatory streamline the tariff requirements for inspection and copying during normal burdens on applicants, authorized nondominant international resale and business hours in the FCC’s Reference carriers, and the Commission and make facilities-based carriers by permitting Center (Room 239), 1919 M Street, NW., it easier for carriers to enter, expand and them to file their international tariffed Washington, DC. The complete text of exit the international service market. rates on one day’s notice instead of the this decision may also be purchased The notice proposes to ease entry into current 14 days’ notice. And, the from the Commission’s copy the marketplace by enabling a Commission seeks comment, in general, contractors, International Transcription nondominant carrier to obtain a global on whether to streamline the Service, Inc., (202) 857–3800, located at Section 214 authorization, which is not international tariff process. 1919 M Street, NW., Room 246, or 2100 Finally, the Commission seeks limited to specific carrier facilities. This M Street, NW., Suite 140, Washington, comments on what, if any, Section 214 authorization would allow carriers to DC 20037. provide international services to authorization requirements it should virtually all points in the world, using forbear from applying if given List of Subjects in 47 CFR Part 73 forbearance authority by Congress. any licensed facility. This authorization Television broadcasting. would be subject to an exclusion list List of Subjects that the Commission would publish Federal Communications Commission. identifying countries or facilities for 47 CFR Part 61 John A. Karousos, which there are restrictions. To further Communications common carriers. Chief, Allocations Branch, Policy and Rules ease entry into the international Division, Mass Media Bureau. marketplace, the Notice proposes to 47 CFR Part 63 [FR Doc. 95–18203 Filed 7–24–95; 8:45 am] simplify and accelerate the Section 214 Communications common carriers. BILLING CODE 6712±01±F 37982 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules ENVIRONMENTAL PROTECTION requirements which would require the entering and recovering from an energy- AGENCY approval of OMB under 44 U.S.C. 3501, efficient low power state. et seq. (b) The EPA Energy Star Computer 48 CFR Parts 1523 and 1552 Program is a voluntary partnership D. Regulatory Flexibility Act [FRL±5260±5] effort with the computer industry to The EPA certifies this proposed rule promote the introduction of energy- Acquisition Regulation does not exert a significant economic efficient personal computers, monitors, impact on a substantial number of small and printers which can reduce air AGENCY: Environmental Protection entities. The proposed rule establishes pollution caused by utility power Agency (EPA). EPA policy for purchasing generation, and ease the burden on ACTION: Proposed Rule. microcomputers, including personal building air conditioning and electrical computers, monitors, and printers systems. The Energy Star Program is SUMMARY: This document proposes to which must meet ‘‘EPA Energy Star’’ designed to be a self-certifying computer add coverage to the EPA Acquisition requirements for energy efficiency. The industry program, policed informally by Regulation (EPAAR) on energy-efficient ‘‘Energy Star Program’’ is a voluntary the computer industry itself. computer equipment. This proposed partnership effort with the computer (c) FIRMR Bulletin C–35 (dated 11/ rule is necessary for ensuring that all industry, which includes small entities, 19/93) describes procedures that will purchases of microcomputers, including to promote the introduction of energy- promote the acquisition of energy- personal computers, monitors, and efficient personal computers, monitors, efficient microcomputers and associated printers meet ‘‘EPA Energy Star’’ and printers which can reduce air computer equipment. requirements for energy efficiency, pollution caused by utility power unless exempted. generation. The ‘‘Energy Star Program’’ 1523.7001 Policy. DATES: Written comments on this has no barriers to entry for small entities (a) The ‘‘Energy Star’’ Executive Order proposed rule must be received on or to procure or develop the necessary applies to the following equipment: before September 25, 1995. technology or components to (1) Personal Computers (stand-alone). ADDRESSES: Comments should be manufacture Energy Star compliant (2) Personal Computers (end-user on addressed to the Environmental computers, monitors and printers. network). Protection Agency, 401 M Street, S.W., Therefore, no regulatory flexibility (3) Notebook and other portable Washington, D.C. 20460, Attn: Paul analysis has been prepared. computers. (4) PC printers—laser, inkjet or dot Schaffer (Mail Code 3802F). Comments E. Unfunded Mandates may also be transmitted electronically matrix (stand-alone or networked). This proposed rule will not impose (5) High-speed printers used on a PC by electronic mail (e-mail) to unfunded mandates on state or local network (less than approximately 20 Schaffer.paul @ epamail.epa.gov. entities or others. pages per minute). Electronic comments must be submitted (6) Monitors (CRT or Flat-panel LCD). as an ASCII file avoiding the use of List of Subjects in 48 CFR Parts 1523 (b) ‘‘Energy Star’’ requirements do not special characters and any form of and 1552 apply to the following equipment: encryption. Comments will also be Environmental Conservation, and (1) Workstations. accepted on disk in Wordperfect in 5.1 Environmental Safety, Solicitation (2) File servers. file format or ASCII file format. No Provisions and Contract Clauses. (3) Mainframe equipment. Confidential Business Information (CBI) For the reasons set out in the (4) Minicomputers. should be submitted through e-mail. preamble, Chapter 15 of Title 48 Code (5) High-speed printers used with Electronic comments of the proposed of Federal Regulations is proposed to be mainframe computers (30 or more pages rule may be filed online at many Federal amended as set forth below: per minute). Deposit Libraries. 1. The authority citation for Parts (6) Mainframe or ‘‘dumb’’ terminals. FOR FURTHER INFORMATION CONTACT: Paul 1523 and 1552 continues to read as (7) X-terminals. Schaffer at (202) 260–9032. follows: (c) All new acquisitions for SUPPLEMENTARY INFORMATION: Authority: Sec 205(c), 63 Stat. 390, as microcomputers, including personal amended, 40 U.S.C. 486(c). computers, monitors, and printers shall A. Background contain specifications which meet EPA 2. Subpart 1523.70 is added to read as Executive Order 12845 (April 23, Energy Star requirements for energy follows: 1993) requires the Federal Government efficiency unless a waiver has been to purchase only microcomputers, PART 1523 ENVIRONMENT, obtained in accordance with internal including personal computers, monitors CONSERVATION, OCCUPATIONAL Agency procedures. and printers, which meet ‘‘EPA Energy SAFETY, AND DRUG-FREE (d) The Energy Star requirement also Star’’ requirements for energy efficiency. WORKPLACE. applies to all applicable equipment ordered from GSA Schedule Contracts, B. Executive Order 12866 Subpart 1523.70ÐEnergy-Efficient open market buys, Bankcard purchases This final rule is not a significant Computer Equipment (Bankcard purchases of equipment in regulatory action as defined in excess of $1,000 are prohibited), Executive Order 12866. Therefore no 1523.7000 Background. contractor-acquired property where title review is required at the Office of (a) Executive Order 12845 requires the reverts to the Agency upon completion Information and Regulatory Affairs Federal Government to purchase only of the contract, and Government- within OMB. microcomputers, including personal furnished property. computers, monitors and printers, C. Paperwork Reduction Act which meet ‘‘EPA Energy Star’’ 1523.7002 Waivers. The Paperwork Reduction Act does requirements for energy efficiency. This (a) There are several types of not apply because this final rule does equipment is often identified by the computer equipment which technically not propose any information collection Energy Star TM logo and is capable of fall under the current Energy Star Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37983 Program, but for which EPA established in a low-power state should not be contractor use of ‘‘Made in America’’ blanket waivers because Energy Star disconnected from the network. labels is removed because the topic is compliant versions of this equipment (d) The contractor shall provide monitors addressed by FAR 9.406–2(a)(4). The were unavailable in the marketplace. that are capable of being powered down when connected to the accompanying PC. discussion of conditions for preaward Blanket waivers apply to the following (End of Clause) surveys at § 1809.106–1 is removed types of equipment: because it is unnecessary guidance. (1) LAN servers, including file July 7, 1995. servers; application servers; Jeanette L. Brown, Several changes are made to communication servers; including Acting Director, Office of Acquisition § 1809.106–70 on preaward surveys. bridges and routers; Management. Paragraphs (d) (2) and (3) are changed (2) UNIX RISC based processors with [FR Doc. 95–17765 Filed 7–24–95; 8:45 am] in order to remove unnecessary words their high-end monitors; BILLING CODE 6560±50±P and provide additional guidance on (3) Large LAN printers (greater than requesting surveys. Unnecessary words 19 pages/minute output); and are removed from paragraphs (j)(4) and (4) Scientific computing equipment NATIONAL AERONAUTICS AND (k)(1). which is used for real-time data SPACE ADMINISTRATION In paragraph 1809.202(a), the acquisition and which, if subjected to a responsibility for justifying qualification 48 CFR Parts 1809, 1830, and 1831 power down mode, would jeopardize requirements is restated. Paragraphs the research project. 1809.203–70(a) and 1809.206–1(b) are (b) It is anticipated that there will be NASA FAR Supplement; Rewrite of Energy Star models of this equipment in NASA Policy on Contractor changed to indicate current the future; but in the near term, EPA Qualifications, Cost Accounting organizational names. Paragraph will not specify Energy Star Standards Administration, and 1809.203–70(c) is removed because it is qualifications when purchasing the Contract Cost Principles and not needed in this regulation. above items. Procedures Subpart 1809.4 on debarment is revised in order to show reassignment of 1523.7003 Contract Clause. AGENCY: Office of Procurement, Contract this responsibility in NASA’s Office of The Contracting Officer shall insert Management Division, National Aeronautics and Space Administration Procurement, reorganize the material for the clause at 1552.239–103, for the clarity, and remove redundant or acquisition of microcomputers, (NASA). unnecessary material. including personal computers, ACTION: Proposed rule. monitors, printers, which are Energy The following sections on cost SUMMARY: This is a proposed revision of Star compliant in all solicitations and accounting standards (CAS) the NASA FAR Supplement in order to administration are removed because contracts, including contractor-acquired rewrite NASA policy on Contractor they provide unnecessary guidance: property where the title reverts to the Qualifications, Cost Accounting § 1830.101 on ‘‘national defense’’ Agency upon completion of the Standards Administration, and Contract contract. Cost Principles and Procedures. The contracts, § 1830.7000 on incentive 3. Section 1552.239–103 is added to changes are intended to streamline the contracts, § 1830.7001–2 on preaward read as follows: regulation. facilities capital applications, and §§ 1830.7002 through 1830.7002–2 on 1552.239±103 Acquisition of Energy Star DATES: Comments are due on or before Compliant Microcomputers, Including September 25, 1995. facilities capital employed for facilities under construction. The remaining CAS Personal Computers, Monitors and Printers. ADDRESSES: Comments should be addressed to: National Aeronautics and sections are revised for clarity. Acquisition of Energy Star Compliant In subpart 1831 on cost principles, Microcomputers, Including Personal Space Administration, Contract § 1831.205–670 is revised in order to Computers, Monitors, and Printers Management Division (Code HK/Beck), Washington, DC 20546. shorten the section. July 1995 FOR FURTHER INFORMATION CONTACT: Paperwork Reduction Act (a) The Contractor shall provide computer David K. Beck, (202) 358–0482. products that meet EPA Energy Star SUPPLEMENTARY INFORMATION: The Paperwork Reduction Act does requirements for energy efficiency. By not apply because the proposed changes acceptance of this contract, the Contractor Background to the NASA FAR Supplement do not certifies that all microcomputers, including We are rewriting the NASA FAR personal computers, monitors, and printers, impose any new recordkeeping meet EPA Energy Star requirements for Supplement in order to streamline the requirements or new collections of energy efficiency. regulation, delegate authority to the information from offerors, contractors, (b) The Contractor shall ship all products lowest possible level, and eliminate or members of the public which require with the standby feature activated or enabled. unnecessary reports and requirements. the approval of the Office of (c) The Contractor shall provide models This rule proposes revisions to three Management and Budget (OMB) under that have equivalent functionality to similar parts of the NASA FAR Supplement. 44 U.S.C. 3501, et seq. non-power managed models. This Although the revisions are minor, we functionality should include as a minimum: are publishing these changes for Regulatory Flexibility Act (1) The ability to run commercial off-the- comment because the parts cover topics shelf software both before and after recovery NASA certifies that this regulation from a low power state, including retention of considerable interest to NASA contractors. will not have a significant economic of files opened (with no loss of data) before impact on a substantial number of small the power management feature was activated. Summary of Changes (2) If equipment will be used on a local entities under the Regulatory Flexibility area network (LAN), the contractor shall The policy on Canadian Act (5 U.S.C. 601 et seq.). provide equipment that is fully compatible subcontractors is shortened and with network environments, e.g., PC’s resting relocated to § 1809.104–4. The policy on 37984 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules List of Subjects in 48 CFR Parts 1809, and submit the report to the requesting Office of Safety and Mission Assurance 1830, and 1831 agency, however, more time should be (Code Q). Government procurement. allowed for the particular circumstances (c) * * * of the survey. For example complex Tom Luedtke, 9. Section 1809.404 is revised to read items, new or inexperienced as follows: Deputy Associate Administrator for contractors, and time-consuming Procurement. requirements, such as, secondary 1809.404 List of Parties Excluded from Accordingly, 48 CFR Parts 1809, 1830, surveys, accounting system reviews, Federal Procurement and Nonprocurement and 1831 are proposed to be amended financial capability analysis, or Programs. as follows: purchasing activity participation may (a) NASA Headquarters, Office of 1. The authority citation for 48 CFR require additional time. Procurement, Program Operations Parts 1809, 1830, and 1831 continues to * * * * * Division (Code HS) is responsible for read as follows: (g) Steps for survey performance. taking the actions enumerated under Authority: 42 U.S.C. 2473 (c)(1). Three steps in performing a preaward FAR 9.404(c). survey are— (b) In compliance with FAR PART 1809ÐCONTRACTOR (1) Preliminary analysis; 9.404(c)(5), contracting officers shall QUALIFICATIONS (2) Development and evaluation of consult the list entitled Parties Excluded 2. Sections 1809.102 and 1809.102–70 information; and from Procurement Programs, which is are removed. (3) Preparation and review of the contained in the GSA publication 3. Section 1809.104 and 1809.104–4 preaward survey report. entitled, Lists of Parties Excluded from are added to read as follows: * * * * * Federal Procurement or (k) * * * Nonprocurement Programs, to ensure 1809.104 Standards. (1) Findings and recommendations of that they do not award contracts to or 1809.104±4 Subcontractor responsibility. team. When the required information consent to subcontracts with listed parties, except as provided in FAR Generally, a Canadian firm proposed has been gathered, each participant 9.405. by the Canadian Commercial shall (i) analyze it and evaluate the Corporation (CCC) as its subcontractor prospective contractor’s capability to (c) For the purpose of obtaining shall be accepted as responsible by the perform with respect to the functions or copies of the list, field installation contracting officer. However, when the elements investigated and (ii) provide procurement offices shall notify NASA CCC determination of responsibility is findings and recommendations to the Headquarters, Office of Procurement, not consistent with other available monitor on one or more of the Program Operations Division (Code HS) information, the contracting officer shall appropriate forms (see FAR 9.106–4(a)) of how many copies they want and request from CCC and any other or on attachments. * ** provide a single mailing address at the appropriate sources additional * * * * * installation. Code HS will, in turn, place information or plant surveys needed in 6. Paragraph (a) of section 1809.202 is the order for the copies which will be order to make the determination of revised to read as follows: mailed directly to the installation. responsibility required by FAR 9.103(b). 10. Section 1809.405 is revised to read 1809.202 Policy. as follows: 1809.104±70 and 1809.106 [Removed] (a) The cognizant technical activity is 4. Sections 1809.104–70 and responsible for meeting the 1809.405 Effect of listing. 1809.106–1 are removed. requirements of FAR 9.202(a) with If a contract, or subcontract subject to 5. Section 1809.106–70 is amended by approval by the installation’s contracting officer consent, must be revising the section heading, revising competition advocate. awarded, renewed, or otherwise paragraphs (d)(2) and (3), revising * * * * * extended with a listed party, the paragraph (g), removing the paragraph 7. Section 1809.203–70 is amended by procurement officer shall prepare a headings from paragraphs (j)(4)(i) and revising paragraph (a) and removing request for a determination with all (ii), and in paragraph (k)(1) by revising paragraph (c) to read as follows: necessary supporting documentation the paragraph heading and the first and forward it to the Associate sentence to read as follows: 1809.203±70 General. Administrator for Procurement (Code (a) The Director, Quality Management HS) for approval. Some examples of 1809.106±70 NASA preaward surveys. Division (QW), is responsible for circumstances that may constitute a * * * * * justifying, determining, and approving compelling reason under FAR 9.405(a), (d) * * * NASA’s need for inclusion and 9.405–1(b), or 9.405–2(a) for award, (2) Any information indicating continued use of qualification renewal, or extension include the previous unsatisfactory contract requirements in specifications under the following: performance shall be furnished to the NASA Microelectronics Reliability (a) The property or services to be survey activity with the preaward Program. acquired are available only from the survey request. (b) * * * listed party. (3) If the survey activity is a DOD 8. Paragraph (b) section 1809.206–1 is (b) The urgency of the requirement agency, the request is to be sent to the revised to read as follows: appropriate office shown in the DOD dictates that NASA deal with the listed Directory of Contract Administration 9.206±1 General. party. Services Components, DLAH 4105.4, (a) * * * (c) Other reasons related to the Attn: Preaward Survey Monitor. The (b) Requests not to enforce a national defense or program date on which the completed survey qualification requirement in a non- requirements that necessitate continued report is desired should be indicated. emergency situation shall be prepared business dealings with the listed party. DOD normally allows seven working by the cognizant requirements office 11. Section 1809.405–1 is revised to days in which to conduct a full survey and approved by the Headquarters read as follows: Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37985 1809.405±1 Continuation of current (OIG) has recommended that the POOL. The allocation base figure for contracts. Associate Administrator for each overhead pool objective is The contracting officer may terminate Procurement take debarment or extracted from the evaluated cost a contract under FAR 9.405–1(a) if it is suspension action. breakdown or pre-negotiation cost in the best interest of the Government to 15. Paragraph (h) of section 1809.470– objective and listed by year in the do so, unless directed otherwise by the 2 is revised to read as follows: second column. Each allocation base is Associate Administrator for then multiplied by the recommended Procurement. 1809.470±2 Contents of reports. facilities capital cost of money factor 12. Sections 1809.405–2, 1809.406, * * * * * calculated on the CASB–CMF for that 1809.406–3, 1809.407, and 1809.407–3 (h) A complete summary of all base. The total facilities capital cost of are removed. pertinent evidence. If a request for money amounts appearing in the last 13. Paragraphs (b), (d), and (e) of debarment or suspension is based on an column labeled AMOUNT are totaled in section 1809.408 are revised to read as indictment or a conviction, provide the space provided in the line labeled follows: copies of those documents. TOTAL. This total represents the * * * * * estimated facilities capital cost of 1809.408 Certification regarding 16. Section 1809.470–3 is revised to money amount for the contract and is debarment, suspension, proposed read as follows: debarment, and other responsibility the figure to be used to calculate the prenegotiation position memorandum matters. 1809.470±3 Addresses and copies of objective cost and to reduce the profit (a) * * * reports. objective in accordance with 1815.970– (b) If the offeror indicates that it is Reports, including enclosures, shall 3(a). The lines labeled TREASURY presently debarred, suspended, or be submitted in duplicate to the RATE and FACILITIES CAPITAL proposed for debarment, the contracting Associate Administrator for EMPLOYED (TOTAL DIVIDED BY officer may make a non-responsibility Procurement (Code HS). TREASURY RATE) and Section 7 of the determination without notifying the form labeled DISTRIBUTION OF Associate Administrator for PART 1830ÐCOST ACCOUNTING FACILITIES CAPITAL EMPLOYED do Procurement. If the contracting officer STANDARDS ADMINISTRATION not apply to NASA and should be determines that award must be made to 17. Subpart 1830.1 is removed. ignored. such firm, follow the procedures set out 18. Section 1830.201–5 is revised to in 1809.405, FAR 9.405–1(b), 9.405–2, read as follows: 1830.7001±2 [Removed] 9.406–1(c) or 9.407–1(d). 21. Sections 1830.7001–2 is removed. (c) * * * 1830.201±5 Waiver. 22. Section 1830.7002 is removed and (d) If the offeror indicates that it has After the contracting officer has made Section 1830.7001–3 is redesignated as been indicted, charged, convicted, or the determination required by FAR section 1830.7002 and revised to read as had a civil judgment rendered against it, 30.201–5, the procurement officer shall follows: the contracting officer, in accordance forward all requests for waiver of CAS 1830.7002 Payments for facilities capital. with FAR 9.408(a), shall immediately requirements to the Associate notify the Associate Administrator for Administrator for Procurement (Code (a) Interim billings based on costs Procurement (Attn: Code HS), providing HC) for submittal to the CAS Board. incurred. Contract Facilities Capital details as known, and shall await a 19. Section 1830.7001 is removed. Cost of Money may be included in cost response from Code H before awarding 20. Section 1830.7001–1 is reimbursement and progress payment the contract. redesignated as section 1830.7001 and invoices. The amount that qualifies as (e) If the offeror discloses information revised to read as follows: cost incurred for purposes of the that indicates a need for a debarment or Allowable Cost and Payment or Progress suspension determination by the agency 1830.7001 Contract facilities capital Payment clause of the contract is the debarring official, the contracting officer estimates. result of multiplying the incurred shall report the facts to the Associate (a) After the appropriate Cost portions of the indirect cost pool Administrator for Procurement (Code Accounting Standards Board-Cost of allocation bases by the latest available HS) in accordance with 1809.470. Money (CASB–CMF) Forms have been CMFs. Like applied overhead at 14. Section 1809.470–1 is amended by analyzed and cost of money factors forecasted overhead rates, such revising the introductory text, revising (CMFs) have been developed, the computations are interim estimates paragraph (b), and adding paragraph (c) contracting officer can estimate the subject to adjustment. As each year’s to read as follows: facilities capital cost of money and data are finalized by computation of the capital employed for a contract actual CFMs under CAS 414 and FAR 1809.470±1 Situations requiring reports. proposal. DD Form 1861 ‘‘Contract 31.205–10, the new factors should be A report incorporating the Facilities Capital Cost of Money’’ shall used to calculate contract facilities cost information required by 1809.470–2 be used for this purpose and, when of money for the next accounting below shall be forwarded by the properly completed, becomes a period. procurement officer to the Associate connecting link between the Forms (b) Final settlement. Contract Administrator for Procurement (Code CASB–CMF and any applicable agency Facilities Capital Cost of Money for final HS) when a contractor— structured approach to determination of cost determination or repricing is based (a) * * * profit or fee objectives. on each year’s final CMFs determined (b) Is suspected of attempting to evade (b) The structure and allocation base under CAS 414 and supported by the prohibitions of a debarment or units-of-measure must be compatible on separate Forms CASB–CMF. Contract suspension by change of address, the DD 1861, the proposal, and the cost must be separately computed in a multiple addresses, formation of new CASB–CMF. Overhead pools, for manner similar to yearly final overhead companies, or other devices. example, engineering, manufacturing, rates. Also like overhead costs, the final (c) This report is not necessary if the and G&A, are listed by year in the first settlement will include an adjustment NASA Office of the Inspector General column of the DD Form 1861 labeled from interim to final contract cost of 37986 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules money. However, estimated or target DEPARTMENT OF TRANSPORTATION components in the driver’s forward field cost will not be adjusted. of view. Since the nonregulated National Highway Traffic Safety components are not glossy, NHTSA 23. Sections 1830.7002–1 through Administration believes that currently regulated 1830.7002–2 are removed. components would not become glossy if 49 CFR Part 571 they were deregulated. The NPRM PART 1831ÐCONTRACT COST [Docket No. 95±50; Notice 02] stated that public comments must be PRINCIPLES AND PROCEDURES RIN 2127±AF74 received on or before July 26, 1995. Federal Motor Vehicle Safety Extension of Comment Period 24. Section 1831.205–670 is revised to Standards; Reflecting Surfaces read as follows: AGENCY: National Highway Traffic In a letter dated July 6, 1995, Safety Administration (NHTSA), DOT. Advocates for Highway and Auto Safety 1831.205±670 Evaluation of contractor and subcontractor compensation for service ACTION: Notice of proposed rulemaking (Advocates) petitioned for a 45-day contracts. (NPRM); extension of comment period. extension of the comment period, i.e., until September 11, 1995. Advocates SUMMARY: On June 26, 1995, NHTSA explained that in its view, the NPRM’s (a) The contracting officer shall published a notice of proposed evaluate the reasonableness of employee comment period did not provide enough rulemaking to rescind Federal Motor time to evaluate the proposed rescission compensation in service contracts: Vehicle Safety Standard No. 107, of a safety standard. Advocates cited a Reflecting Surfaces. The NPRM stated desire to investigate the history of (1) Prior to the award of a cost that the comment period ends July 26, reimbursement or noncompetitive fixed- 1995. In response to a petition from an Standard No. 107, including past price type contract which has a total interested party, NHTSA extends the NHTSA actions described in the NPRM. potential value in excess of $500,000, comment period to August 25, 1995. Advocates argued that public interest in and The extension of time is granted to all Standard No. 107 has continued, and persons. extending the public comment period (2) Periodically after award for cost DATES: Comments must be received on ‘‘will enable interested parties to supply reimbursement contracts and or before August 25, 1995. informed comments to the docket.’’ subcontracts, but at least every three ADDRESSES: Comments must refer to NHTSA has decided to grant years. Docket No. 95–50, Notice 1 and be Advocates’ request for an extension of submitted to: Docket Section, Room (b) The contracting officer shall 5109, NHTSA, 400 Seventh Street SW., the public comment period. NHTSA ensure the reasonableness of Washington, DC 20590. It is requested, will extend the comment period an compensation is evaluated for cost but not required, that 10 copies of the additional 30 days, to August 25, 1995. reimbursement and non-competitive comments be provided. The Docket NHTSA has granted the additional time fixed-price type service subcontracts Section is open on weekdays from 9:30 because Advocates has shown good under a prime contract meeting the a.m. to 4 p.m. cause for the extension of time and that criteria in paragraph (a)(1) of this FOR FURTHER INFORMATION CONTACT: Mr. the extension is consistent with the section if: Richard Van Iderstine, Office of Vehicle public interest. The extension of time is Safety Standards, Office of Safety granted to all persons. (1) The subcontract has a total Performance Standards, NHTSA, 400 potential value in excess of $500,000; Seventh Street SW., Washington, DC NHTSA believes that an additional 30 and 20590. Mr. Van Iderstine’s telephone days should be sufficient to examine the number is (202) 366–5280, and his FAX Standard’s rather limited history. Since (2) The cumulative value of all of a number is (202) 366–4329. Standard No. 107 took effect on January subcontractor’s service subcontracts 1, 1968, it has been the subject of little under the prime contract is in excess of SUPPLEMENTARY INFORMATION rulemaking activity. The two most 10 percent of the prime contract’s total Notice of Proposed Rulemaking notable Standard No. 107 rulemaking potential value. On June 26, 1995, NHTSA published proceedings (neither of which resulted in the Federal Register a notice of in amendments to the standard) were (c) The results of the contracting proposed rulemaking (NPRM) (60 FR discussed in NHTSA’s June 26, 1995 officer’s evaluation, including any 32935) to rescind Federal Motor Vehicle NPRM. excessive compensation found and its Safety Standard No. 107, Reflecting Authority: 49 U.S.C. 322, 30111, 30115, planned resolution, shall be addressed Surfaces (49 CFR § 571.107). The in the prenegotiation position 30117, and 30166; delegation of authority at proposed action is part of NHTSA’s 49 CFR 1.50. memorandum, with the final resolution efforts to implement the President’s discussed in the price negotiation Regulatory Reinvention Initiative to Barry Felrice, memorandum. The results of the remove unnecessary regulations. The periodic evaluations of contractor and proposed action discussed why NHTSA Associate Administrator for Safety subcontractor compensation after believes Standard No. 107 can be Performance Standards. contract award shall be documented in rescinded without adversely affecting the contract file. motor vehicle safety. That belief is [FR Doc. 95–18276 Filed 7–24–95; 8:45 am] based primarily on the vehicle BILLING CODE 4910±59±P [FR Doc. 95–18122 Filed 7–24–95; 8:45 am] manufacturers’ established practice of using nonglossy materials and finishes BILLING CODE 7510±01±M on regulated and nonregulated Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37987 DEPARTMENT OF THE INTERIOR (Santa Cruz Island rockcress) are meters (m) (2,125 feet (ft)) (Powers endemic to the Channel Islands of 1980). Due to its proximity to the Fish and Wildlife Service southern California. These three species mainland, the flora of Santa Catalina are restricted primarily to San Clemente Island is very similar to the flora of the 50 CFR Part 17 and Santa Catalina Islands. Cercocarpus mainland (Thorne 1967). Habitats on the RIN 1018±AD37 traskiae is currently found only on island include oak woodlands, Santa Catalina Island and a single plant chaparral, coastal sage scrub, and Endangered and Threatened Wildlife is also known from the Santa Monica grasslands (Minnich 1980). Santa and Plants; Proposed Rule to List Mountains. Lithophragma maximum Catalina is the home of Cercocarpus Three Plants From the Channel Islands and Sibara filifolia occur on San traskiae and a historical locality for of Southern California as Endangered Clemente Island. Sibara filifolia was Sibara filifolia (Thorne 1967). historically found on Santa Cruz and San Clemente Island is the AGENCY: Fish and Wildlife Service, Santa Catalina Islands. southernmost of the Channel Islands in Interior. The Channel Islands are composed of California. Its terrain is marked by a ACTION: Proposed rule. igneous and sedimentary rocks that broad, high, plateau surrounded by have been uplifted and folded by deeply incised cliffs. The highest SUMMARY: The Fish and Wildlife Service tectonic activity (Raven 1963, Thorne elevation on the 145 sq km (56 sq mi) (Service) proposes to list Cercocarpus 1967, Schaffer 1993). The maritime island is 600 m (1,965 ft) (Powers 1980). traskiae (Catalina Island mountain- climate of the islands is characterized Santa Cruz is the largest of the mahogany), Lithophragma maximum by hot, dry summers and mild, wet northern Channel Islands (250 sq km (96 (San Clemente Island woodland-star), winters with periodic severe droughts sq mi)) with a maximum elevation of and Sibara filifolia (Santa Cruz Island and frequent fog (Minnich 1980, 753 m (2,470 ft) (Powers 1980). The rockcress) as endangered throughout Johnson 1980). The archipelago is made island’s north shore is mountainous and their respective ranges on the Channel up of two chains of islands. The rugged; the topography of the southern Islands of southwestern California, Northern Channel Islands include the side is gentle and rolling. The Nature pursuant to the Endangered Species Act islands of San Miguel, Santa Rosa, Santa Conservancy currently owns of 1973, as amended (Act). Cercocarpus Cruz and Anacapa. The Southern approximately 90 percent of Santa Cruz traskiae is found primarily in coastal Channel Islands are San Nicholas, Santa Island. The remainder is owned by the scrub habitats on Santa Catalina Island. Barbara, Santa Catalina and San National Park Service (Schuyler 1980). Lithophragma maximum is found in Clemente islands (Raven 1967). Cercocarpus traskiae was first rock crevices within coastal bluff scrub The Channel Islands are rich in described by Alice Eastwood (1898) on San Clemente Island. Sibara filifolia endemic species as a result of their based on a specimen collected by is found on talus slopes in coastal scrub geographic isolation. A number of Blanche Trask in 1897. Dunkle (1940) on San Clemente Island. These plants species have persisted on the islands, reduced the rank of C. traskiae to a are threatened by a variety of factors although their mainland counterparts variety of C. betuloides. Although including grazing, competition from have been extirpated by climatic change Martin (1950) subsequently transferred non-native plant species, erosion, and other factors over geologic time this taxon to a variety of C. montanus, hybridization, stochastic events, and the (Raven 1963). The decline of endemic Munz (1959) retained it as C. betuloides inadequacy of existing regulations. This species, including the three plants var. traskiae. Munz (1968) later elevated proposed rule, if made final, would under consideration herein, began C. betuloides var. traskiae to C. traskiae. implement the Federal protection and before thorough botanical studies on the Murray (1982) changed the rank of this recovery provisions under the Act for islands were completed. Their original taxon to a subspecies of C. betuloides; these three species. range and distribution is speculative however, the name C. traskiae has been DATES: Comments from all interested because their original habitats are now retained by both Munz (1974) and Lis parties must be received by October 9, dominated by non-native plants. (1993). 1995. Public hearing requests must be Although these islands have been Cercocarpus traskiae, a member of the received by September 25, 1995. occupied by humans for at least 10,000 rose family (Rosaceae), is an evergreen shrub or small tree that blooms from ADDRESSES: Comments and materials years, non-native plants have only March to May. The flowers lack petals concerning this proposal should be sent become naturalized on the islands since and occur in clusters of 4 to 10. The to the Field Supervisor, U.S. Fish and their introduction by Euro-Americans hypanthium (floral structure derived Wildlife Service, Carlsbad Field Office, during the last 200 years (Dr. Mark from the fused lower portions of petals, 2730 Loker Avenue West, Carlsbad, Raab, California State University, sepals, and stamens) is densely white- California 92008. Comments and Northridge, pers. comm. 1994). woolly, and is approximately 7 to 14 materials received will be available for Overgrazing and trampling of native millimeters (mm) (0.5 inch (in.)) long public inspection, by appointment, vegetation by domestic animals (Lis 1993). The fruit is an achene with during normal business hours at the facilitated the spread of these non- a persistent plumose style, which dries above address. native plants (Raven 1963, Raven 1967, Thorne 1967, Philbrick 1980). Severe in a spiral, typical of the genus. The FOR FURTHER INFORMATION CONTACT: Gail erosion resulting from overgrazing was leathery, clustered leaves are simple, Kobetich, Field Supervisor, at the above exacerbated by a series of droughts in serrate (toothed), and range from 2.5 to address (telephone 619/431–9440; the 1860’s, the first of several periods of 6 centimeters (cm) (1 to 2.5 in.) long. facsimile 619/431–9624). severe vegetation and soil stripping on The upper surface of the leaf is glabrous SUPPLEMENTARY INFORMATION: the islands (Johnson 1980). (smooth); the undersurface is densely Santa Catalina Island is the largest of white-woolly. Cercocarpus betuloides Background the southern Channel Islands, var. blancheae, a relatively common Cercocarpus traskiae (Catalina Island measuring 194 square kilometers (sq endemic on the island, is considered to mountain-mahogany), Lithophragma km) (75 square miles (sq mi)) in area. be distinct from C. traskiae (Eastwood maximum (San Clemente Island The terrain is rugged and mountainous, 1898, Cole and Lu 1979). It is woodland-star), and Sibara filifolia with a maximum elevation of 648 differentiated by its strigose (stiff, sharp, 37988 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules appressed) hairs on the undersides of 1979). Although it was not recognized The type location for Sibara filifolia is the leaves and on the floral tube. In by Taylor (1965), L. maximum was on Santa Cruz Island (Greene 1887a). It addition, the leaves of C. betuloides var. retained by Munz (1968, 1974) and was last seen in 1936 and was not blancheae are not leathery (Eastwood Elvander (1993). relocated during the 1985 survey of 1898, Lis 1993). Lithophragma maximum is a member Santa Cruz Island (CNDDB 1993). It is Cercocarpus traskiae is one of of the saxifrage family (Saxifragaceae) thought to have once been common as California’s rarest trees. It is endemic to and blooms from April to June. It is a well as wide ranging, since it was a particular soil type, derived from rhizomatous, perennial herb with two or collected on two distant islands, Santa sausserite gabbro parent material (Gaye three stout flowering stems from 40 to Catalina and Santa Cruz. Blanche Trask 1991), and is only found in Wild Boar 60 cm (16 to 24 in.) high. Each flower- collected S. filifolia in 1901 on Santa Gully, a steep-sided, narrow arroyo bearing stem produces 20 or more Catalina Island where she reported it to located on southwestern Santa Catalina white, campanulate (bell-shaped) be common in two locations (Thorne Island (Thorne 1967). Cercocarpus flowers, each about 1 cm (0.5 in.) in 1967). Its extirpation on Santa Cruz traskiae occurs in a coastal sage scrub length (Bacigalupi 1963). The leaves are Island was brought about rapidly by containing Eriogonum fasciculatum palmately compound and arise from the intensive browsing of feral goats (California buckwheat), Salvia mellifera base on slender petioles 15 cm (6 in.) (Hochberg et al. 1980b). (black sage), and Rhus integrifolia long. Lithophragma maximum is Sibara filifolia had never been known (lemonade berry). All of the habitat differentiated from other Lithophragma to occur on San Clemente Island occupied by C. traskiae on Santa by its compound trifoliate leaves (Munz (Oberbauer, in litt. 1980) until 1986 Catalina Island is owned by The Santa 1968, Elvander 1993). when it was discovered in two locations Catalina Island Conservancy (a private Lithophragma maximum was thought near Pyramid Head by Mitchell organization), which manages 86 to be extinct until it was rediscovered in Beauchamp (Beauchamp 1987). percent of the land on the island. 1979 by Mitchell Beauchamp Previously, it was thought to be extinct. About 40 or 50 individuals of (Bacigalupi 1979). The number of plants The extent of its original range on San Cercocarpus traskiae were identified on the island at Bryce Canyon has Clemente Island is unknown. from Wild Boar Gully when this taxon declined from between 12 and 15 plants Sibara filifolia presently exists solely was originally discovered (Eastwood (Beauchamp 1980) to 9 plants since its on a sea terrace on the southern part of 1898). The population has since been rediscovery (Beauchamp 1987, Mistretta San Clemente Island, near Pyramid reduced to 11 mature trees (Cole and Lu 1992). Three of the 15 plants originally Head. It grows on volcanic rock scree 1979, Gaye 1991). The Santa Catalina discovered are believed to remain at the (talus) in association with Opuntia Island Conservancy has planted C. bottom of Eagle Canyon (Kellogg and prolifera (cholla), Selaginella bigelovii traskiae seedlings in Campo Blanco Kellogg 1993). Both locations are deeply (spike-moss), and Lotus argophyllus Canyon, Ironwood Grove, and the Santa incised canyons on the northeast side of (birds-foot trefoil) (CNDDB 1993, Catalina Island Nature Center in the island. Sixteen additional plants Beauchamp 1987). This area receives cooperation with the California were found in Near Death Canyon in the highest amount of solar radiation on Department of Fish and Game (Gaye, 1990. However, less than 30 individuals the island (Kellogg, pers. comm. 1994), pers. comm. 1994). of the species are known to exist which conflicts with records of In 1993, a single individual of (California Natural Diversity Data Base historical localities indicating that S. Cercocarpus traskiae was discovered in (CNDDB) 1993, Mistretta 1992). filifolia ‘‘is to be sought in shady places the Santa Monica Mountains by David Sibara filifolia was first collected by on the northward slope [on Santa Cruz Carroll (Rieseberg and Swensen 1994; E.L. Greene in 1886 and described Island]’’ (Greene 1887a). There are 400 Loren Rieseberg, geneticist, Indiana under the name Cardamine filifolia or 500 of these plants currently located State University, pers. comm. 1993; (Greene 1887a). Greene (1887b) later on San Clemente Island. Others are David Carroll, botanist, Carroll and transferred it to Arabis filifolia. He expected to be found on cool, north- Associates, Topanga, California, pers. proposed the new genus Sibara in 1896 facing cliff faces, perhaps at China comm. 1994). Although additional and transferred A. filifolia to Sibara Canyon (Beauchamp, pers. comm. individuals may exist in the Santa filifolia (Greene 1896). Sibara filifolia 1994). However, the presence of S. Monica Mountains, this taxon is not has been retained by Munz and Keck filifolia at this location has yet to be likely to be widespread. It may (1959), Munz (1968, 1974), and Rollins verified. represent a remnant of an ancestral or (1993). sister population of C. traskiae, or a Sibara filifolia is a slender annual Previous Federal Action hybrid between C. traskiae and the herb of the mustard family Federal government action on two of mainland variety, C. betuloides var. (Brassicaceae) that blooms from March the plant taxa considered in this rule betuloides (Rieseberg and Swensen to April (Hochberg et al. 1980b). It is 13 began as a result of section 12 of the 1994). This individual may indicate a to 38 cm (5 to 15 in.) tall. The flowers Endangered Species Act of 1973, which formerly widespread distribution of are pink to purplish with spoon-shaped directed the Secretary of the ancestral stock (Raven 1963). However, petals 3 to 6 mm (1/8 to 1/4 in.) in Smithsonian Institution to prepare a it is also possible that this tree was length. The pinnately compound leaves report on those plants considered to be planted (L. Rieseberg, pers. comm. are 2.5 to 5 cm (1 to 2 in.) long, with endangered, threatened or extinct. This 1993). Additional data or information narrow linear lobes. The fruit is a report, designated as House Document on this particular occurrence is being slender pod (celiac), 1.5 to 3 cm (3/5 to No. 94–51, and presented to Congress solicited. 1 in.) long, that contains many wingless on January 9, 1975, recommended Lithophragma maximum was first seeds. Sibara filifolia is differentiated Cercocarpus traskiae and Lithophragma collected by Mrs. Nell Murbarger in from S. virginica, which has white to maximum (as L. maxima) for 1936 on San Clemente Island. It was pinkish petals and narrowly winged endangered status and Sibara filifolia as originally described as Lithophragma seeds, and from S. rosulata and S. threatened. The Service published a maxima by Rimo Bacigalupi (1963). The deserti, which have white petals. notice in the July 1, 1975, Federal specific epithet was later changed from Neither S. rosulata nor S. deserti occur Register (40 FR 27823), of its acceptance L. maxima to L. maximum (Bacigalupi on the Channel Islands (Munz 1974). of the report as a petition within the Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37989 context of section 4(c)(2) (now section this finding was published in the pigs continued to increase. A goat and 4(b)(3)(A)) of the Act, and of the Federal Register on January 20, 1984 pig management program has reduced Service’s intention to review the status (49 FR 2485). Such a finding requires the number of feral herbivores that of the plant taxa named therein, the petition to be recycled, pursuant to threaten native plant species but the including C. traskiae, L. maximum and section 4(b)(3)(C)(i) of the Act. The threat still remains (see Factor C) (Dave S. filifolia. The Service published a petition was reviewed in October of Garcelon, depredation control biologist, proposal in the June 16, 1976, Federal 1984, 1985, 1986, 1987, 1988, 1989, Institute For Wildlife, Santa Catalina Register (41 FR 24523) to determine 1990, 1991, 1992, and 1993. Publication Island, pers. comm. 1994; Gaye, pers. approximately 1,700 vascular plants to of this proposal constitutes the final comm. 1994). be endangered species pursuant to finding for these three plant taxa. Pigs continue to degrade the habitat of section 4 of the Act. Cercocarpus Summary of Factors Affecting the Cercocarpus traskiae on Santa Catalina traskiae and L. maximum were also Species Island by preventing surface litter from included in this Federal Register notice. accumulating. Surface litter holds This list contained only proposed Section 4 of the Endangered Species moisture and seeds on the steep slopes. endangered species; therefore, Sibara Act (16 U.S.C. 1533 et seq.) and Pigs also create a network of bare trails filifolia was not included on the list. regulations (50 CFR 424) promulgated to with compacted soils. The vegetation General comments received in implement the listing provisions of the loses its tiered, overlapping structure response to the 1976 proposal were Act set forth the procedures for adding because shrubs become isolated by summarized in an April 26, 1978, species to the Federal lists. A species surrounding trails (Gaye, pers. comm. Federal Register (43 FR 17909) notice. may be determined to be an endangered 1994). A noticeable increase in surface The Endangered Species Act or threatened species due to one or more litter and a corresponding increase in amendments of 1978 required all of the five factors described in section seedlings of all types have been 4(a)(1). These factors and their proposals over 2 years old to be observed since the numbers of pigs and application to Cercocarpus traskiae withdrawn, although a 1-year grace goats have declined, but trails and bare Eastwood (Catalina Island mountain- period was given to those proposals. In soil are still common (Gaye, pers. mahogany), Lithophragma maximum the December 10, 1979, Federal Register comm. 1994). (44 FR 70796), the Service published a Bacigalupi (San Clemente Island The San Clemente Island Sheep and notice of withdrawal for that portion of woodland-star), and Sibara filifolia Wool Company leased that island from the June 16, 1976, proposal that had not Greene (Santa Cruz Island rockcress) are the U.S. Government from 1877 to 1934 been made final, along with four other as follows: (Raven 1963). The island’s ownership proposals that had expired. A. The present or threatened The Service published a Notice of destruction, modification, or was subsequently transferred to the Review for plants in the Federal curtailment of their habitat or range. Department of Defense (Navy). The Register on December 15, 1980 (45 FR Destruction of habitat by feral animals island is currently used as an artillery 82480). This notice listed the status of has caused long-term impacts to the practice range and as a ship-to-shore Cercocarpus traskiae and Lithophragma structure of the habitat on all the bombing area (Kellogg and Kellogg maximum as Category 1 candidate taxa Channel Islands. Loss of habitat for 1994). Goats were present on San (species for which data in the Service’s endemic species was precipitated by Clemente Island prior to 1827 (Dunkle possession are sufficient to support a defoliation from overgrazing, the loss of 1950). Although the Navy eliminated proposal for listing) and also added topsoil, and formation of incised sheep grazing in 1934, the goat Sibara filifolia to the list as a Category canyons due to increased erosion population proliferated (Kellogg and 1* candidate taxon (species for which (Kellogg and Kellogg 1994). The loss of Kellogg 1994). In addition, the Service data indicate likely extinction). soil organic matter and reduction of soil California Department of Fish and Game The status of the three species remained nutrient cycling and water-holding introduced pigs to the island in 1951 unchanged until the Notice of Review capacity promoted the invasion of non- and mule deer in 1962. Populations of for plants published in the Federal native plants. feral pigs and goats ranged between Register on February 21, 1990, when The decline of the native flora of 15,000 and 25,000. The Navy removed Sibara filifolia was changed to Category Santa Catalina Island began with the all feral goats and pigs by 1991, in an 1 status following its rediscovery on San proliferation of introduced herbivores effort to preserve endemic flora and Clemente Island. (Thorne 1969). Goats were introduced to fauna (Clark Winchell, biologist, Navy, Section 4(b)(3)(B) of the Endangered the island as early as 1807 (Misty Gaye, Department of Natural Resources, pers. Species Act of 1973, as amended in naturalist, Catalina Island Conservancy, comm. 1994). 1982, requires the Secretary to make pers. comm. 1994). Goats are known to The decline of Santa Cruz Island’s findings on pending petitions within 12 consume coarse vegetation such as flora, including extirpated populations months of their receipt. Section 2(b)(1) shrubs and trees, including Cercocarpus of Sibara filifolia, is primarily due to of the 1982 amendments further traskiae (Coblentz 1980). Sheep overgrazing by sheep and other non- requires that all petitions pending on ranching became important on the native herbivores. Sheep, cattle, horses, October 13, 1982, be treated as having island in the 1850’s (Minnich 1980). and pigs were introduced to Santa Cruz been newly submitted on that date. This Sheep eat herbaceous vegetation that Island (Steve Junak, herbarium curator, was the case for Cercocarpus traskiae would have included Sibara filifolia. Santa Barbara Botanic Gardens, pers. and Lithophragma maximum because Other non-native herbivores introduced comm. 1994). The population of sheep the 1975 Smithsonian report had been to Santa Catalina Island included pigs, has ranged from between 20,000 and accepted as a petition. On October 13, bison, and deer. Pigs uprooted seedlings 50,000 or more (Schuyler 1980, 1983, the Service found that the and impacted both S. filifolia and C. Brumbaugh 1980). Cycles of defoliation petitioned listing of these species was traskiae (Thorne 1969; Gaye, pers. and erosion are evident in the warranted, but precluded by other comm. 1994). Although the Santa stratigraphic studies of deposits from pending listing proposals of higher Catalina Island Company eliminated debris slides and correlate with the priority, pursuant to section sheep grazing in the 1950’s (Thorne introduction of sheep to the island and 4(b)(3)(B)(iii) of the Act. Notification of 1969), the population of feral goats and periods of drought (Brumbaugh 1980). 37990 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules Most feral herbivores have been increase in deer populations might section 21000 et seq.) requires that the removed but pigs remain (see Factor C). reverse this trend. Although the potential environmental impacts of B. Overutilization for commercial, perimeter fencing along Wild Boar Gully proposed projects be disclosed to the recreational, scientific, or educational limits the access of deer and goats to public. The public agency with primary purposes. Due to its extreme rarity, Cercocarpus, it does not entirely authority or jurisdiction over the project Cercocarpus traskiae may become exclude them (Gaye 1988). is designated as the lead agency, and is vulnerable to collecting by curiosity Sibara filifolia was apparently responsible for conducting a review of seekers as a result of increased publicity extirpated from Santa Cruz Island by the project and consulting with the following the publication of a listing overgrazing (Hochberg et al. 1980b). other agencies concerned with the proposal. Overutilization is not known Although some areas have been fenced, resources affected by the project. to be applicable for Lithophragma sheep and pigs continue to re-invade Section 15065 of the CEQA Guidelines maximum and Sibara filifolia. Both these areas and their numbers appear to requires a finding of significance if a species occur on San Clemente Island, be increasing. It is possible that Sibara project has the potential to ‘‘reduce the where public access is restricted by the filifolia could be rediscovered on Santa number or restrict the range of a rare or Navy. Cruz Island; however, grazing by non- endangered plant or animal.’’ Once C. Disease or predation. Feral native animals may prevent its re- significant effects are identified, the herbivores continue to threaten the establishment (Steve Junak, pers. comm. lead agency may either require survival of Cercocarpus traskiae on 1994). mitigation or determine that ‘‘overriding Santa Catalina Island and the possible D. The inadequacy of existing social and economic considerations’’ reappearance of Sibara filifolia on Santa regulatory mechanisms. Existing make mitigation infeasible (California Catalina and Santa Cruz Islands. Non- regulatory mechanisms that could Public Resources Code, Guidelines, native mule deer (Odocoileus hemionus) provide some protection for these section 15093). In the latter case, and goats (Capra hircus) consume species include: (1) Listing under the projects may be approved that cause endemic plants including Cercocarpus California Endangered Species Act significant environmental damage, such traskiae. Severe browsing may kill (CESA); (2) the California as destruction of endangered plant plants directly and prevent successful Environmental Quality Act (CEQA) and species or their habitat. Small projects reproduction of surviving individuals the National Environmental Policy Act on private lands, such as road building (Thorne 1969; Gaye, pers. comm. 1994). (NEPA); (3) conservation provisions or fence installation, often qualify for an The decline of Cercocarpus traskiae is under section 404 of the Federal Clean exemption under CEQA known as a primarily due to grazing by feral goats Water Act (CWA) and section 1603 of ‘‘negative declaration.’’ These projects and pigs (Sus scrofa). They nearly the California Fish and Game Code; (4) do not require a full environmental extirpated this taxon by the early 1970’s occurrence with other species protected assessment. Consequently, take of (Gaye, pers. comm. 1994). Fencing was by the Federal Endangered Species Act endangered species could result because installed around the last two or other Federal laws; and (5) local laws the existence of the plant at the project individuals known to exist at that time and regulations. site may have been overlooked. (Rieseberg 1991). This fencing was The California Fish and Game Like CEQA, the National improved to exclude pigs in 1985, and Commission has listed Cercocarpus Environmental Policy Act (NEPA) perimeter fencing was added to limit traskiae and Lithophragma maximum as requires disclosure of the environmental access by other non-native animals endangered under the Native Plant effects of projects under Federal (Gaye 1991). As a result, seedling counts Protection Act (NPPA) (Division 2, jurisdiction. Sibara filifolia and increased from 1 in 1984 to 55 in 1986 chapter 10, section 1900 et seq. of the Lithophragma maximum are found on and 74 seedlings in 1987 (CNDDB 1993, California Fish and Game Code) and the San Clemente Island, which is federally Gaye 1988). In 1994, however, a total of California Endangered Species Act owned. However, the Service’s only 54 seedlings was found (Gaye, (CESA) (Division 3, chapter 1.5, section comments through NEPA’s pers. comm. 1994). Most of the C. 2050 et seq.). Listing by the State of environmental review processes are traskiae trees do not have individual California requires individuals to obtain only advisory. Project proponents are pig-proof fencing around them and the a memorandum of understanding with not required to avoid impacts to these perimeter fencing does not exclude pigs the California Department of Fish and species, and proposed mitigation (Gaye, pers. comm. 1994). Pigs are Game (CDFG) to possess or ‘‘take’’ a measures are frequently not adequately limiting the recovery of C. traskiae listed species. Although both statutes implemented. seedlings because they uproot new prohibit the ‘‘take’’ of State-listed plants Section 1603 of the California Fish seedlings while searching for bulbs. (chapter 10, section 1908 and chapter and Game Code authorizes the Approximately 2,000 pigs remain on 1.5, section 2080, California Fish and Department of Fish and Game to Santa Catalina Island. The Santa Game Code), State law appears to regulate streambed alteration. The Catalina Island Conservancy pig exempt the taking of such plants via Department must be notified and removal program is keeping the habitat modification or land use change approve any work that substantially populations from increasing (Dave by the landowner. After the CDFG diverts, alters, or obstructs the natural Garcelon, pers. comm. 1994). notifies a landowner that a State listed flow or substantially changes the bed, Although managers for the Santa plant occurs on his or her property, channel, or banks of any river, stream, Catalina Island Conservancy have State law requires only that the or lake. If an existing fish or wildlife removed more than 8,000 goats from the landowner notify the agency ‘‘at least 10 resource may be substantially adversely island, 300 to 400 goats remain on the days in advance of changing the land affected by a project, CDFG must submit island. Populations of introduced mule use to allow salvage of such plant’’ proposals to protect the species within deer are increasing, now that goat (Chapter 10, section 1913, California 30 days. However, if the Department populations have been reduced Fish and Game Code). Sibara filifolia is does not respond within 30 days of (Garcelon, pers. comm. 1994). Reduced not State-listed and has no protection notification, the applicant may proceed predation by goats has resulted in under these laws. with the work. successful basal sprouting of The California Environmental Quality Section 404 of the Clean Water Act Cercocarpus traskiae, but a continued Act (CEQA) (Public Resources Code, authorizes the U.S. Army Corps of Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37991 Engineers (Corps) to regulate the herbivores. Although managers of San of mature hybrids as a means of discharge of dredged or fill materials Clemente Island have removed preserving the species (Rieseberg et al. into waters of the United States (33 CFR herbivores from the island, natural 1989). parts 230–330). Waters of the United threats and impacts from activities such Stochastic (random) events threaten States include navigable and other as fires, bombing, and bulldozing the continued existence of Cercocarpus waters, their headwaters (streams with continue (Kellogg, pers. comm. 1994). traskiae, Lithophragma maximum, and an average annual flow of less than 5 E. Other natural or manmade factors Sibara filifolia by virtue of their small cubic feet per second), and wetlands affecting their continued existence. As a population sizes and limited (either adjacent to other waters or consequence of habitat degradation on distribution. The limited gene pool may isolated). Section 404 regulations the islands, the proportion of invasive depress reproductive vigor, or a single require that applicants obtain an exotic plant species to native and human-caused or natural environmental individual permit for projects that do endemic species has increased. On San disturbance could destroy a significant not meet the terms and conditions of Clemente Island, 98 species are exotic percentage of the remaining individuals. any available Nationwide permits (33 (Kellogg and Kellogg 1994), compared to Cercocarpus traskiae is known from CFR part 330). Projects that qualify for 1886 when Lyon’s ‘‘Flora of our only 2 populations with 12 mature authorization under Nationwide Permit southwestern archipelago’’ listed only individuals. Two populations 26 (NWP 26) will adversely impact 0.40 10 exotic plant species (Lyon 1886). comprising fewer than 30 individuals of to 4.0 hectares (1 to 10 acres) of isolated Naturalized exotics have permanently L. maximum are known to exist. Sibara or headwater wetlands, and cause only altered the species composition of filifolia is known from only 1 minimal environmental impacts. These natural communities and increased population of 400 to 500 individuals. projects can usually be permitted with competition with native species. Non- The Service has carefully assessed the minimal environmental review by the native plants have invaded native best scientific and commercial Corps. Projects that qualify for habitat and removed niches for rare and information available regarding the past, authorization under NWP 26 and that sensitive species (Hochberg et al. present, and future threats faced by affect less than 0.41 hectares (1 acre) of 1980a). The abundance of exotic plants these species in determining to propose isolated waters or headwaters may continues to adversely affect the island’s this rule. Based on this evaluation, the proceed without notifying the Corps. endemic plant species and contributes preferred action is to list Cercocarpus Evaluation of impacts of such projects is to their slow recovery from predation by traskiae, Sibara filifolia, and thus precluded under the section 404 feral animals prior to their removal in Lithophragma maximum as endangered. permit process, although an individual 1991 (Kellogg and Kellogg, 1993). The Two of the species are known from permit may be required by the Corps if disparity between the reported habitat fewer than 30 individuals. All three species are known from no more than projects otherwise qualifying under of Sibara filifolia on shady north-facing two populations. The three species are NWP 26 would have greater than slopes and its present habitat on grass- threatened by one or more of the minimal environmental impacts. The free, south-facing slopes suggests that following: degradation of habitat and Corps, however, is generally reluctant to grasses may prevent the expansion of S. predation by feral animals, competition withhold authorization under NWP 26 filifolia into otherwise suitable habitat with exotic plant species, erosion, unless the existence of a federally listed (Green 1887a; Kellogg, pers. comm. hybridization, and inadequacy of threatened or endangered species would 1994). Lithophragma maximum is thought to existing regulatory mechanisms. Small be jeopardized. Candidate species have existed on the plateau area of San population size and limited distribution receive no special consideration under Clemente Island before the invasion of make these species particularly section 404, regardless of the type of non-native grasses (Kellogg, pers. comm. vulnerable to extinction and/or reduced permit deemed necessary. Thus, these 1994). The remaining habitat of L. reproductive vigor from stochastic three taxa currently receive insufficient maximum persists only within steep events. Because these species are in protection under section 404. canyons. Erosion threatens not only the danger of extinction throughout all or a Cercocarpus traskiae and Lithophragma individual plants but the entire habitat significant portion of their ranges, they maximum may grow in gullies and that supports them. During the winter of fit the definition of endangered as canyons that may be regulated as 1979–1980, ‘‘large portions of canyon defined in the Act. Critical habitat is not jurisdictional waterways under section walls were observed to have sloughed being proposed for these species at this 404 of the CWA or section 1603 of the off taking large numbers of endemic time for reasons discussed below. California Fish and Game Code. These plants with them’’ (Beauchamp and Critical Habitat waterways do not have running water Ferguson 1980). most of the year and plants could be Fires related to military activities, Critical habitat is defined in section 3 damaged when project planners fail to drought, and erosion have contributed of the Act as: (i) the specific areas recognize that a section 404 or section to the decline of Lithophragma within the geographical area occupied 1603 permit is required for the intended maximum, Sibara filifolia, and other by a species, at the time it is listed in action. species endemic to San Clemente Island accordance with the Act, on which are The location of extant populations of (Kellogg and Kellogg 1994). found those physical or biological these three species does not coincide Cercocarpus traskiae is threatened by features (I) essential to the conservation with that of federally listed plant hybridization with the locally common of the species and (II) that may require species on the islands. Therefore, C. betuloides var. betuloides. Because special management considerations or Federal protection under the Act does only 12 mature individuals of C. protection; and (ii) specific areas not currently extend to the species being traskiae are known to exist, genetic outside the geographical area occupied proposed (Kellogg and Kellogg 1994; swamping of the species would be the by a species at the time it is listed, upon Gaye, pers. comm. 1994). Local laws probable outcome of hybridization. The a determination that such areas are and regulations are currently providing uniqueness of the species would be essential for the conservation of the inadequate protection for these species. compromised or lost due to the influx species. ‘‘Conservation’’ means the use Laws prohibiting ‘‘take’’ of native plants of variability from the larger population. of all methods and procedures needed do not protect them from feral Rieseberg has recommended elimination to bring the species to the point at 37992 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules which listing under the Act is no longer Due to the limited, insular range of import or export, transport in interstate necessary. Sibara filifolia and Lithophragma or foreign commerce in the course of a Section 4(a)(3) of the Act, as maximum, designation of critical commercial activity, sell or offer for sale amended, and implementing regulations habitat would not provide any in interstate or foreign commerce, or (50 CFR 424.12) require that, to the additional benefit to them. remove and reduce the species to maximum extent prudent and possession from areas under Federal Available Conservation Measures determinable, the Secretary designate jurisdiction. In addition, for plants critical habitat at the time the species is Conservation measures provided to listed as endangered, the Act prohibits determined to be endangered or species listed as endangered or the malicious damage or destruction on threatened. Service regulations (50 CFR threatened under the Act include areas under Federal jurisdiction and the 424.12(a)(1)) state that designation of recognition, recovery actions, removal, cutting, digging up, or critical habitat is not prudent when one requirements for Federal protection, and damaging or destroying of such plants or both of the following situations exist: prohibitions against certain practices. in knowing violation of any State law or (1) The species is threatened by taking Recognition through listing results in regulation, including State criminal or other human activity, and public awareness and conservation trespass law. Certain exceptions to the identification of critical habitat can be actions by Federal, State, and local prohibitions apply to agents of the expected to increase the degree of such agencies, private organizations, and Service and State conservation agencies. threat to the species; or (2) such individuals. The Act provides for The Act and 50 CFR 17.62 and 17.63 designation of critical habitat would not possible land acquisition and also provide for the issuance of permits be beneficial to the species. cooperation with the States and requires to carry out otherwise prohibited The Service finds that designation of that recovery plans be developed for all activities involving endangered plants critical habitat is not prudent at this listed species. The protection required under certain circumstances. Such time for Cercocarpus traskiae. All of Federal agencies and the prohibitions permits are available for scientific known populations of this species are against certain activities involving listed purposes and to enhance the on privately owned lands with little or plants are discussed, in part, below. propagation or survival of the species. It no Federal involvement. The additional Section 7(a) of the Act, as amended, is anticipated that few trade permits protection of critical habitat is achieved requires Federal agencies to evaluate would ever be sought or issued for these through Federal agency consultation their actions with respect to any species species since they are not in cultivation under section 7 of the Act. The Santa that is proposed or listed as endangered or common in the wild. Catalina Island Conservancy is aware of or threatened and with respect to its It is the policy of the Service, the presence of the species, supports the critical habitat, if any is being published in the Federal Register (59 proposal to list the species, and is designated. Regulations implementing FR 34272) on July 1, 1994, to identify currently working to protect the this interagency cooperation provision to the maximum extent practicable at population. Therefore the designation of of the Act are codified at 50 CFR part the time a species is listed those critical habitat for C. traskiae would not 402. Section 7(a)(4) requires Federal activities that would or would not appreciably benefit the species. agencies to confer with the Service on constitute a violation of section 9 of the Additionally, maps published in the any action that is likely to jeopardize Act. The intent of this policy is to Federal Register giving precise the continued existence of a species increase public awareness of the effect locations of populations of C. traskiae, proposed for listing or result in of this listing on proposed and ongoing as required for designation of critical destruction or adverse modification of activities within the species’ range. habitat, may increase incidents of proposed critical habitat. If a species is Sibara filifolia and Lithophragma vandalism or collection of this species listed subsequently, section 7(a)(2) maximum are known to occur on lands by collectors or curiosity seekers. requires Federal agencies to ensure that under the jurisdiction of the Navy. The Service also determines that activities they authorize, fund, or carry Collection, damage, or destruction of designation of critical habitat is not out are not likely to jeopardize the listed species on these lands is prudent for Sibara filifolia or continued existence of the species or prohibited, although in appropriate Lithophragma maximum. Extant destroy or adversely modify its critical cases a Federal endangered species populations of these two species occur habitat. If a Federal action may affect a permit may be issued to allow on Federal lands managed by the Navy listed species or its critical habitat, the collection. Such activities on non- and are subject to section 7 consultation responsible Federal agency must enter Federal lands, as would be the case for and recovery planning under the Act. into consultation with the Service. Cercocarpus traskiae, would constitute San Clemente Island is owned by the The U.S. Army Corps of Engineers a violation of section 9, if activities were Navy and contains the only known would be involved through their conducted in knowing violation of State populations of these two species (with permitting authority under section 404 law or regulations or in violation of the exception of one mainland of the CWA. The Navy owns San State criminal trespass law. The Service individual of Lithophragma maximum). Clemente Island and administers lands is not aware of any otherwise lawful The present range of Sibara filifolia is containing Sibara filifolia and activities currently being conducted or within the ship to shore bombing area Lithophragma maximum and proposed by the public that would be on San Clemente Island. Section 7 authorizes, funds, or otherwise conducts affected by this listing and result in a consultation (50 CFR 402 subpart B) activities that may affect these species. violation of section 9. requires that Federal agencies confer The Act and its implementing Questions regarding whether specific with the Service to evaluate the regulations set forth a series of general activities would constitute a violation of potential impacts of any federally prohibitions and exceptions that apply section 9 should be directed to the Field executed, funded, or authorized actions to all endangered plants. All Supervisor of the Service’s Carlsbad on listed and proposed species or prohibitions of section 9(a)(2) of the Act, Field Office (see ADDRESSES section). critical habitat. Listing of these two implemented by 50 CFR 17.61, apply. Requests for copies of the regulations species as endangered would ensure These prohibitions, in part, make it concerning listed plants and general that consultation occurs and potential illegal for any person subject to the inquiries regarding prohibitions and impacts to the species are considered. jurisdiction of the United States to permits may be addressed to the U.S. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37993 Fish and Wildlife Service, Ecological Final promulgation of the regulations Carlsbad Field Office (see ADDRESSES Services, Endangered Species Permits, on these species will take into section). 911 N.E. 11th Avenue, Portland, Oregon consideration the comments and any Author. The primary author of this 97232–4181 (telephone 503/231–2063; additional information received by the document is Debra Kinsinger, Carlsbad Field facsimile 503/231–6243). Service, and such communications may Office (see ADDRESSES section). lead to a final regulation that differs Public Comments Solicited List of Subjects in 50 CFR Part 17 from this proposal. The Service intends that any final The Endangered Species Act provides Endangered and threatened species, action resulting from this proposal will for one or more public hearings on this Exports, Imports, Reporting and be as accurate and as effective as proposal, if requested. Requests must be recordkeeping requirements, and possible. Therefore, comments or received by September 25, 1995. Such Transportation. suggestions from the public, other requests must be made in writing and concerned governmental agencies, the addressed to the Field Supervisor of the Proposed Regulation Promulgation scientific community, industry, or any Carlsbad Field Office (see ADDRESSES Accordingly, the Service hereby other interested party concerning this section). proposes to amend part 17, subchapter proposed rule are hereby solicited. National Environmental Policy Act B of chapter I, title 50 of the Code of Comments particularly are sought Federal Regulations, as set forth below: concerning: The Fish and Wildlife Service has (1) Biological, commercial trade, or determined that Environmental PART 17Ð[AMENDED] other relevant data concerning any Assessments or Environmental Impact threat (or lack thereof) to Sibara filifolia, Statements, as defined under the 1. The authority citation for part 17 Lithophragma maximum, and authority of the National Environmental continues to read as follows: Cercocarpus traskiae; Policy Act of 1969, need not be Authority: 16 U.S.C. 1361–1407; 16 U.S.C. (2) The location of any additional prepared in connection with regulations 1531–1544; 16 U.S.C. 4201–4245; Pub. L. 99– populations of these species and the adopted pursuant to section 4(a) of the 625, 100 Stat. 3500, unless otherwise noted. reasons why any habitat should or Endangered Species Act of 1973, as should not be determined to be critical amended. A notice outlining the 2. Section 17.12(h) is amended by habitat as provided by section 4 of the Service’s reasons for this determination adding the following, in alphabetical Act; was published in the Federal Register order under FLOWERING PLANTS, to (3) Additional information concerning on October 25, 1983 (48 FR 49244). the List of Endangered and Threatened the range, distribution, and population Plants, to read as follows: size of these species; and References Cited (4) Current or planned activities in the A complete list of all references cited § 17.12 Endangered and threatened plants. subject area and their possible impacts herein is available upon request from * * * * * on these species. the U.S. Fish and Wildlife Service, (h) * * * Species Historic range Family name Status When listed Critical Special Scientific name Common name habitat rules FLOWERING PLANTS ******* Cercocarpus Catalina Island U.S.A. (CA) ...... Rosaceae ...... E ...... NA NA traskiae. mountain-mahog- any. ******* Lithophragma maxi- San Clemente Is- U.S.A. (CA) ...... Saxifragaceae ...... E ...... NA NA mum. land woodland- star. ******* Sibara filifolia ...... Santa Cruz Island U.S.A. (CA) ...... Brassicaceae ...... E ...... NA NA rockcress. ******* Dated: July 5, 1995. 50 CFR Part 17 SUMMARY: The U.S. Fish and Wildlife Mollie H. Beattie, Service (Service) proposes endangered RIN 1018±AD39 Director, Fish and Wildlife Service. status pursuant to the Endangered [FR Doc. 95–18241 Filed 7–24–95; 8:45 am] Endangered and Threatened Wildlife Species Act of 1973, as amended (Act), BILLING CODE 4310±55±P and Plants; Proposed Rule for 16 Plant for 16 plant taxa from the northern Taxa From the Northern Channel Channel Islands, California: Arabis Islands, California hoffmannii (Hoffmann’s rock-cress), Arctostaphylos confertiflora (Santa Rosa AGENCY: Fish and Wildlife Service, Island manzanita), Berberis pinnata ssp. Interior. insularis (island barberry), Castilleja ACTION: Proposed rule. mollis (soft-leaved paintbrush), Dudleya 37994 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules blochmaniae ssp. insularis (Santa Rosa slender-flowered gilia), Helianthemum Except for the City of Avalon, Santa Island dudleya), Dudleya sp. nov. ‘‘East greenei (island rush-rose), Heuchera Catalina Island is privately owned and Point’’ (munchkin dudleya), Dudleya maxima (island alumroot), managed by the Catalina Island nesiotica (Santa Cruz Island dudleya), Malacothamnus fasciculatus ssp. Conservancy. Galium buxifolium (island bedstraw), nesioticus (Santa Cruz Island Anacapa and Santa Barbara islands Gilia tenuiflora ssp. hoffmannii bushmallow), Malacothrix indecora were set aside as a National Monument (Hoffmann’s slender-flowered gilia), (island malacothrix), Malacothrix in 1938. In 1980 the U.S. Congress Helianthemum greenei (island rush- squalida (Santa Cruz Island abolished the National Monument and rose), Heuchera maxima (island malacothrix), Phacelia insularis ssp. incorporated those lands, waters and alumroot), Malacothamnus fasciculatus insularis (island phacelia), and interests into National Park status, ssp. nesioticus (Santa Cruz Island Thysanocarpus conchuliferus (Santa adding Santa Cruz Island and Santa bushmallow), Malacothrix indecora Cruz Island fringepod) are California Rosa Island (at that time privately (Santa Cruz Island malacothrix), Channel Island endemics. The only owned) within the boundaries. The NPS Malacothrix squalida (island species in this group that is not acquisition of Santa Rosa Island in 1986 malacothrix), Phacelia insularis ssp. exclusive to the northern island group is was accomplished by outright fee insularis (island phacelia), and the island rush-rose, with one purchase from the Vail and Vickers Thysanocarpus conchuliferus (Santa population known from Santa Catalina Ranching Company. This acquisition Cruz Island fringepod). The 16 plant Island. included the potential option for a 25- taxa and their habitats have been Located offshore and south of Santa year continuation of cattle ranching and variously affected or are currently Barbara County, the four northern a subleased commercial deer and elk threatened by one or more of the islands (from west to east: San Miguel, hunting operation, of which 18 years following: soil loss; habitat alteration by Santa Rosa, Santa Cruz, and Anacapa) remain, as long as the Secretary of the mammals alien to the Channel Islands are the highest points on a 130 Interior determines that the property is (pigs, goats, sheep, donkeys, cattle, deer, kilometer (km) (80 mile (mi)) long being used for purposes compatible elk, bison); direct predation by these seamount (Dibblee 1982). They are with the administration of the park or same alien mammals; habitat alteration included within the boundaries of the with the preservation of its resources. by native seabirds; habitat alteration due Channel Islands National Park (CINP). In 1769 in San Diego, the to vehicular traffic; overcollection for Anacapa Island is the smallest of the establishment of the mission system scientific or recreational purposes; four northern islands and is divided began. Attempts to remove the native competition with alien plant taxa; into east, middle, and west islands Chumash Indian populations from Santa reduced genetic viability; depressed totalling 2.9 square km (1.1 square mi); Cruz Island to the mainland were reproductive vigor; and the chance of it is the closest island to the mainland completed by 1814 (Hobbs 1983). stochastic extinction resulting from at a distance of 20 km (13 mi). East and Subsequent land use practices on the small numbers of individuals and Middle Anacapa islands are flat-topped, islands focused on the introduction of a populations. wave-cut terraces largely surrounded by variety of livestock (sheep (Ovis DATES: Comments from all interested steep cliffs. West Anacapa is the highest domesticus), goats (Capra hircus), cattle parties must be received by October 9, of the three, reaching 283 meters (m) (Bos taurus), burros (Equus asinus), and 1995. Public hearing requests must be (930 feet (ft)) above sea level. Santa Cruz horses (E. caballus)) and game species received by September 25, 1995. Island is the largest of the California (pigs (Sus scrofa), deer (Odocoilius hemionus), elk (Cervus canadensis ADDRESSES: Comments and materials Channel Islands at 249 square km (96 should be sent to the Field Supervisor, square mi) with the highest point being roosevelti), rabbits (Oryctolagus Ventura Field Office, U.S. Fish and 753 m (2,470 ft) above sea level and has cuniculus), wild turkey (Melegris gallopavo), California quail (Callipepla Wildlife Service, 2493 Portola Road, a fault-controlled central valley that californica), and chukar (Alectoris Suite B, Ventura, California 93003. creates a dry interior condition. Santa chuckar)) for ranching and hunting Comments and materials received will Rosa Island is 217 square km (84 square purposes (Hochberg et al. 1980a, be available for public inspection, by mi) in area and 475 m (1,560 ft) at its highest point. San Miguel Island, the Minnich 1980, Jones et al. 1989). appointment, during normal business The introduction of domestic animals hours at the above address. westernmost of the northern group, is 37 square km (14 square mi) in area and to island ecosystems has had FOR FURTHER INFORMATION CONTACT: Carl 253 m (830 ft) in height. Santa Catalina catastrophic effects on the vegetation. Benz, Assistant Field Supervisor, Island (south Los Angeles County) is Because of the absence of natural Ventura Field Office (see ADDRESSES 194 square km (75 square mi) in area population controls such as disease and section) (telephone number 805/644– and its highest elevation is 648 m (2,125 predation, livestock overpopulated the 1766; facsimile 805/644–3958). ft) above sea level (Power 1980). islands. The ultimate control on SUPPLEMENTARY INFORMATION: Much of the northern Channel Islands population sizes for livestock on islands are managed by Federal agencies. San has been starvation (Sauer 1988). Background Miguel Island is under the jurisdiction Records for Santa Cruz Island indicate Arabis hoffmanii (Hoffmann’s rock- of the U.S. Department of the Navy that sheep had been introduced in the cress), Arctostaphylos confertiflora (Navy), but the National Park Service early 1830’s; by 1875, sheep stocking (Santa Rosa Island manzanita), Berberis (NPS) has operational jurisdiction was around 50,000 head (Hobbs 1983). pinnata ssp. insularis (island barberry), through a Memorandum of Agreement. In 1890, perhaps as many as 100,000 Castilleja mollis (soft-leaved Anacapa Island is managed by the NPS sheep grazed on Santa Cruz Island paintbrush), Dudleya blochmaniae ssp. with an inholding for the U.S. Coast (Hochberg et al. 1980a). Pigs had been insularis (Santa Rosa Island dudleya), Guard lighthouse. The western 90 released on Santa Cruz Island by 1854 Dudleya sp. nov. ‘‘East Point’’ percent of Santa Cruz Island is owned (Hobbs 1983). Conditions of overgrazing (munchkin dudleya), Dudleya nesiotica and managed by The Nature combined with drought occurred in (Santa Cruz Island dudleya), Galium Conservancy (TNC). Almost all of the 1864, 1870–72, 1877, 1893–1904, 1923– buxifolium (island bedstraw), Gilia remaining 10 percent of the island is 24, 1935, 1946–48, 1964, (Dunkle 1950, tenuiflora ssp. hoffmannii (Hoffmann’s under the jurisdiction of the NPS. Johnson 1980) and most recently 1986– Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37995 91 (Halvorson 1993). These episodes mainland sites where development and et al. 1990, Halvorson 1993). The resulted in livestock losses to starvation recreation have largely eliminated them. riparian habitats are heavily modified (Johnson 1980). Manipulation of the Coastal bluff habitat has provided a physically and structurally, and in some vegetation by over 150 years of intensive refugium from habitat elimination that areas they have been completely grazing and browsing has resulted in the accompanies grazing by non-native eliminated (Hochberg et al. 1980a, replacement of native plant animals (Minnich 1980, Halvorson et al. Minnich 1980). Normally, a canyon communities with non-native grasslands 1992). The upland habitat was largely with year-round water will have well- (Minnich 1980, Hobbs 1983). shrubland; many of the representative developed riparian vegetation that Several non-native weedy plant species are now found only on bluff includes willows (Salix spp.), species have invaded the disturbed sites (D’Antonio et al. 1992). The sycamores (Platanus racemosa), habitats of the islands. One of the most grasslands are largely composed of non- cottonwoods (Populus spp.) and oaks obvious problem species is fennel native annual species and have greatly (Foeniculum vulgare) on Santa Cruz expanded at the expense of most other (Quercus spp.). This vegetation would Island. Fennel and other aggressive non- habitat types (Hobbs 1983, Cole 1994). typically support a rich diversity of native weed species displace native Historic photographs reveal the loss of organisms, especially neo-tropical species and further threaten the insular woody vegetation from the islands migratory bird species (Paul Collins, ecosystems (Smith 1989, Simberloff during the last 100 years (Hobbs 1980, Santa Barbara Museum of Natural 1990). Research methods and results to Minnich 1980). The coastal sage scrub History, pers. comm., 1994). The date for the control of fennel were the habitat has increased in importance on riparian habitat is one of the most topics of many presentations at the Anacapa and San Miguel Islands where significant on the islands. Years of fourth Channel Islands symposium held grazing effects have been removed livestock overutilization have in March 1994 (Brenton and Klinger (Johnson 1980). There, the controlling considerably reduced this resource-rich 1994, Dash and Gliessman 1994, effects of grazing on the elimination of habitat. The pine forests that are Gliessman 1994). shrubs and the artificial maintenance of protected from grazing have well- Some progress has been made toward grasslands have been reversed. The developed foliar cover and pine eliminating alien animals from the coastal sage habitat is composed of soft- reproduction (Hobbs 1978). In contrast, islands. TNC has eliminated the sheep leaved, soft-stemmed plants that are Clark et al. (1990) report that pine from the western portion of Santa Cruz palatable to browsers and grazers. The forests that are subjected to grazing lack Island; however, sheep from the eastern original coastal sage scrub habitat has the protective nutrient layer of ground portion of the island are reinvading been reduced by overgrazing to the litter and exhibit no reproduction. Pigs, westward. The NPS has recently extent that it persists only in locations cattle, deer, goats, sheep, and bison removed all the pigs from Santa Rosa that are inaccessible to grazing and continue to threaten and further degrade Island. A program to control goats and browsing animals, as in patches of pigs is being implemented on western cactus and on bluffs (Minnich 1980, whole ecosystems on the islands (Sauer Santa Catalina Island. However, no Hobbs 1983). 1988, Halvorson 1993). action has been taken to eliminate deer The pre-grazing importance of cactus Islands, with their many endemic and elk from Santa Rosa Island, or pigs in the island communities will never be species of plants and animals, have long and the remaining sheep from Santa known. Overgrazing results in the attracted the attention of biologists and Cruz Island, or bison from Santa spread of cactus to areas that have been are among the world’s most fragile and Catalina Island. denuded by livestock. Overgrazing on unique ecosystems. Fifty-four island The main habitat types on the islands Santa Cruz Island greatly facilitated the endemic plant species are known from include coastal dune, coastal bluff, spread of cactus to the point that over the northern Channel Islands; 15 species grasslands, coastal sage scrub, chaparral, 40 percent of the ‘‘rangeland’’ was are single island endemics (Halvorson et oak and ironwood woodlands, riparian rendered useless (Hochberg et al. al. 1987). Some of the most striking woodlands, and conifer forest; various 1980a). Cactus habitats on Santa Cruz examples of extinction have occurred subdivisions of these types have been and Santa Rosa Islands have been from islands around the world; from the described by Dunkle (1950), Philbrick dramatically reduced to improve cattle and Haller (1977), Minnich (1980), and operations by the introduction of Channel Islands, notable extinctions Clark et al. (1990). The floristics of the biological controls (Hochberg et al. include the Santa Barbara Island song islands are composed of elements that 1980a). sparrow (Melospiza melodia cooperi) have a variety of origins. Relictual The physical condition of the remnant and the Santa Cruz Island species (wide ranging paleobotanic chaparral habitats has been modified by monkeyflower (Mimulus brandegei). fossil records) such as the endemic grazing and browsing such that shrubs Twelve plant species have been island ironwoods (Lyonothamnus form arborescent (treelike) shapes. The extirpated from various islands within floribundus) and species with disjunct continued browsing by deer and elk on the northern island group: three from distributions with the mainland such as Santa Rosa Island has created an open Santa Cruz (Malacothrix incana, the Torrey pine (Pinus torreyana) occur ‘‘skeleton’’ community reticulated by Mimulus brandegei, and Sibaria in canyons and slopes that provide game trails that provide access to nearly filifolia), three from Santa Rosa (Berberis higher moisture levels than the 100 percent of the habitat (Hochberg et pinnata ssp. insularis, Phacelia surrounding areas. Unique insular al. 1980a; Tim Thomas, U. S. Fish and insularis ssp. insularis, and endemics, including all of the species in Wildlife Service (USFWS), pers. obs., Helianthemum greenei), and six from this proposed rule, have been discussed 1993). Historic reports of the conditions San Miguel (Grindelia latifolia, by Raven (1967), Philbrick (1980), and on the islands indicate that the Ceanothus megacarpus ssp. insularis, brushlands were impenetrable Wallace (1985). Rhamnus pirifolia, Haplopappus Coastal beach and associated dune (Hochberg et al. 1980a). Island ericoides, Castilleja mollis, and Dithyrea habitats occur in the windiest sandy woodlands are dominated by unique locations on the three westernmost endemic species and heavily affected by maritima) (Philbrick 1980, Halvorson et islands. These coastal habitats appear to grazing, browsing, and rooting animals al. 1987, Clark et al. 1990). be relatively undisturbed compared to seeking summer shelter and food (Clark 37996 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules Discussion of the Taxa Included in This Proposal Table 1 summarizes the growth habit and population distribution for the 16 taxa in this proposal. TABLE 1.ÐGROWTH HABIT, ESTIMATED POPULATIONS WITHIN THE LAST FIVE YEARS, AND INSULAR DISTRIBUTION OF SIX- TEEN PROPOSED ENDANGERED PLANT TAXA FROM THE NORTHERN CHANNEL ISLANDS, CALIFORNIA; MA=MIDDLE ANACAPA, WA=WEST ANACAPA, CR=SANTA CRUZ, RO=SANTA ROSA, MI=SAN MIGUEL, CA=SANTA CATALINA, ( )=HISTORIC DISTRIBUTION BUT BELIEVED EXTIRPATED FROM THIS LOCATION Scientific name Growth habit Est. pops. Distribution Arabis hoffmanii ...... Perennial herb ...... 3 ...... (RO), CR, (wA) Arctostaphylos confertifolia ...... Shrub ...... Less than 10 ...... RO Berberis pinnata ssp. insularis ...... Shrub/Vine ...... 5 ...... (RO), CR, wA Castilleja mollis ...... Perennial ...... 2 ...... (MI), RO Dudleya blochmaniae ssp. insularis ...... Succulent ...... 1 ...... RO Dudleya sp. nov. ``East Point'' ...... Succulent ...... 1 ...... RO Dudleya nesiotica ...... Succulent ...... 1 ...... CR Galium buxifolium ...... Sub-shrub ...... 10 ...... MI, CR Gilia tenuiflora ssp. hoffmannii ...... Annual ...... 1 ...... RO Helanthemum greenei ...... Sub-shrub ...... 7 ...... (RO), CR, CA Heuchera maxima ...... Perennial ...... 27 ...... RO, CR, wA Malacothamnus fasciculatus ssp. nesioticus ...... Shrub ...... 2 ...... CR Malacothrix indecora ...... Annual ...... 1 ...... (MI), CR Malacothrix squalida ...... Annual ...... 3 ...... CR, mA Phacelia insularis ssp. insularis ...... Annual ...... 5 ...... MI, (RO) Thysanocarpus conchuliferus ...... Annual ...... 8 ...... CR Hoffmann’s rock-cress (Arabis 1950, and Jim McPherson collected the located on rocky volcanic cliffs along a hoffmannii) was first described by plant near Centinela Grade, possibly the north-facing canyon on lands owned by Philip Alexander Munz as Arabis same location, in 1967 (Steve Junak, TNC. Because of their inaccessibility, maxima var. hoffmannii in 1935 based pers. comm. 1993). It was not until 1985 and the loose structure of the volcanic on specimens collected by Ralph that Steve Junak relocated a population rock, the two cliff populations have not Hoffmann at the ‘‘sea cliffs east of Dick’s at this location (Schuyler 1986). For been thoroughly surveyed. Only a few Harbor,’’ now known as Platts Harbor, many decades, Hoffmann’s original dozen plants have been directly on Santa Cruz Island in 1932 (Rollins collection site, near Platts Harbor on observed, but the cliffs may support 1936). However, the first collection of Santa Cruz Island, was in ‘‘an area of additional individuals. The population this rock-cress was made by T.S. intense feral animal (sheep) near Centinela Grade is growing on Brandegee in 1888 from an unspecified disturbance,’’ and no plants could be Santa Cruz Island volcanics and is location on Santa Cruz Island. In 1936, found (Hochberg et al. 1980a). However, associated with giant coreopsis Reed Clark Rollins elevated the taxon to surveys conducted by TNC in 1985 were (Coreopsis gigantea), Santa Cruz Island species status by publishing the name successful in relocating two small buckwheat (Eriogonum arborescens), Arabis hoffmannii. This nomenclature populations, one comprising three and coastal prickly pear (Opuntia is upheld in the most recent treatment individual plants, near Platts Harbor littoralis), on lands owned and managed for the genus (Rollins 1993). (Schuyler 1986). by TNC. When Junak relocated this Arabis hoffmannii is a slender According to Reid Moran’s field population, approximately 30 herbaceous perennial in the mustard notes, he collected Arabis hoffmannii individuals were seen. TNC has (Brassicaceae) family. The one to several from Anacapa Island in 1941 ‘‘on the monitored this population since 1990, stems reach 0.6 m (2.0 ft) high, and have slopes above Frenchy’s Cove’’ (S. Junak, with fewer than 30 plants observed each slightly toothed basal leaves. The white pers. comm. 1993). However, no year (Klinger 1994a). The major threats flowers, comprised of four petals 1 specimens from this collection have to Arabis hoffmannii are loss of soil, centimeter (cm) (0.4 inch (in)) long, are been found in herbaria with known habitat degradation, and predation found at the tips of the stems. The collections of island species, and recent resulting from feral pig rooting. Because slightly curved fruits are borne on long surveys by Junak have failed to relocate of the small numbers of populations and stalks and enclose two rows of seeds in the plant on Anacapa Island (S. Junak, individuals, the taxon is also vulnerable each of two chambers. The only other pers. comm. 1993). Ralph Hoffmann to stochastic (random) extinction by rock-cress that occurs on the islands, reported the plant from ‘‘the bank above such events as storms, drought, Arabis glabra var. glabra, is a taller Water Canyon’’ on Santa Rosa Island in landslide, or fire. Small numbers of plant with cream colored flowers, and 1930, but numerous recent surveys have isolated populations and individuals occurs as an alien in open meadows and failed to locate any plants on that island also make the taxon vulnerable to slopes. (S. Junak, pers. comm. 1993). reduced reproductive vigor. Since Brandegee’s collection was Arabis hoffmannii is currently known Santa Rosa Island manzanita made in 1888, very few collections of from three small populations that (Arctostaphylos confertiflora) was first Arabis hoffmannii have been made. On collectively cover less than 0.4 hectare described by Alice Eastwood as Santa Cruz Island, Reid Moran made a (1 acre) on Santa Cruz Island. The two Arctostaphylos confertiflora in 1934 collection from the ‘‘Central Valley’’ in populations near Platts Harbor are from a collection made by Hoffmann Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37997 four years earlier ‘‘in a sheltered dell vulnerable to reduced reproductive seen (CNDDB 1994). The size of the south of Black Mountain’’ on Santa Rosa vigor. population at Hazard’s Canyon has not Island (Eastwood 1934). Abrams (1951) Island barberry (Berberis pinnata ssp. been determined due to inaccessibility. synonymized the taxon with insularis) was first described by Munz Berberis pinnata ssp. insularis is Arctostaphylos subcordata; eight years and Roos (1950) as Berberis pinnata ssp. threatened by soil loss and habitat later, Munz published the new insularis based on a specimen collected alteration caused by feral pig rooting. combination Arctostaphylos subcordata by Carl B. Wolf in 1932 ‘‘west of summit Because of the small numbers of var. confertiflora (Munz and Keck 1973). of Buena Vista Grade (also known as populations and individuals, the taxon However, in treatments of the genus, Centinela Grade), interior of Santa Cruz is also vulnerable to stochastic including the most recent, Wells (1968, Island.’’ In 1981, James Roof realigned extinction by such events as storms, 1993) has continued to uphold the this taxon with the genus Mahonia drought, or fire. Small numbers of original taxonomy. because the leaves are compound, in isolated populations and individuals Arctostaphylos confertiflora is a contrast with the simple leaves of also make the taxon vulnerable to perennial shrub in the heath (Ericaceae) Berberis (Roof 1981). However, Moran reduced reproductive vigor. family that grows 0.1 to 2.0 m (4 in to (1982) made the case that this one Soft-leaved paintbrush (Castilleja 6.5 ft) high (Wells 1993). The plant has character was insufficient to defend mollis) was first described by Francis W. smooth, dark red-purple bark, densely Mahonia as a distinct natural group; Pennell as Castilleja mollis in 1947, hairy branchlets, bracts, and pedicels, subsequent treatments have included all based on material collected on Santa and light green, round-ovate leaves. The North American taxa previously referred Rosa Island in 1939 (Ingram 1990, flowers are borne in numerous dense to Mahonia as Berberis. Therefore, this Heckard and Ingram 1991). Munz and panicles that mature into flattened taxon has been referred to as Berberis Keck (1973) and Hoover (1970) included reddish-brown fruits (McMinn 1951). pinnata ssp. insularis by Munz (1974), plants of coastal sand dunes of San Luis The only other manzanita that occurs on Smith (1976), and Williams (1993). Obispo County in the description of this Berberis pinnata ssp. insularis is a Santa Rosa Island, Arctostaphylos taxon. However, Ingram (1990) has perennial shrub in the barberry family tomentosa, forms a fire-resistant burl at concluded that the taxon is endemic to (Berberidaceae). The plant has the base of the stems; Arctostaphylos Santa Rosa Island. spreading stems that reach 2 to 8 m (5 confertiflora is not burl-forming and is to 25 ft) high, with large leaves divided Castilleja mollis is a presumably considered an obligate seeder, requiring into 5 to 9 glossy green leaflets. Clusters partially parasitic perennial herb in the fire for regeneration. It occurs in of yellow flowers at the branch tips figwort (Scrophulariaceae) family. The prostrate and upright forms, the former develop into blue berries covered with plant has semi-prostrate branches that most likely due to climatic and a white bloom (waxy coating). Because reach 40 cm (16 in) in length, with herbivorous influences (McMinn 1951). new shoots can sprout from bracts and upper leaves that are grayish, Arctostaphylos confertiflora is known underground rhizomes, many stems fleshy, broad and rounded and crowded only from two areas on Santa Rosa may actually represent one genetic at the apex, and the bract and calyx are Island. In the northeast portion of the clone (Hochberg et al. 1980b, California yellow to yellowish green above island near, and east of, Black Native Plant Society (CNPS) 1984, (Heckard and Ingram 1991). Ingram’s Mountain, individual plants have been Williams 1993). studies outlined a number of observed at scattered sites from upper Berberis pinnata ssp. insularis is morphological differences between Lobos Canyon east to the Torrey pine found in moist, shaded canyons on Castilleja mollis and the similar groves along Becher’s Bay, a distance of Santa Cruz and West Anacapa Island. Castilleja affinis, including the about 5 km (3 mi). The plant occurs on Hoffmann found several individuals ‘‘in indument (covering) of distinctive sedimentary substrates, which consist of Elder canyon that runs from west into branched hairs and rounded stem leaves Monterey shales and soft volcanoclastic Canada de la Casa’’ on Santa Rosa Island in the former taxon. sediments derived from San Miguel in 1930 (California Natural Diversity Two collections of Castilleja mollis volcanics (Weaver et al. 1969). Near the Data Base (CNDDB) 1993); however, in were also made by F.H. Elmore from southern tip of the island, a few spite of recent surveys, no plants have Point Bennett on San Miguel Island in individuals are scattered on the slopes been found on the island since that 1938 (Heckard and Ingram 1991); above South Point on sandstone time. Dunkle collected Berberis pinnata despite recent searches, the taxon has outcrops. The taxon occurs as a ssp. insularis on West Anacapa Island in not been seen on the island since then component of mixed chaparral, mixed 1940; the plant was not found there (S. Junak, pers. comm. 1994). Castilleja woodland, Torrey pine woodland, and again until 1980. One clone is found in mollis is known from two areas on Santa island pine woodland communities. Summit Canyon associated with Rosa Island: Carrington Point in the Junak estimated that total habitat for the chaparral species, including poison oak northeast corner of the island, and west plant comprises only a few acres (S. (Toxicodendron diversilobum), of Jaw Gulch and Orr’s Camp (this Junak, pers. comm. 1994); Clark et al. monkeyflower (Diplaucus parviflorus), location also referred to as Pocket Field) (1990) noted that it occurs in very low coyote bush (Baccharis sp.), goldenbush along the north shore of the island. At numbers. The major threats to (Haplopappus detonsus), island alum- Carrington Point, the plant is associated Arctostaphylos confertiflora are soil root (Heuchera maxima) and wild with stabilized dune scrub vegetation loss, habitat alteration and predation cucumber (Marah macrocarpus). Four that is dominated by goldenbush caused by cattle grazing and elk and populations occur on Santa Cruz Island. (Isocoma venetus var. sedoides), lupine deer browsing, which have resulted in One population on the north slope of (Lupinus albifrons), and Pacific ryegrass reproductive failure. Because of the Diablo Peak comprises 24 large ‘‘stems’’ (Leymus pacificus). At the Pocket Field small numbers of isolated populations and 75 small ‘‘stems’’ (Klinger 1994c); location, the paintbrush is associated and individuals, the taxon is also this number of stems may represent one with the non-native iceplant vulnerable to stochastic extinction by or several clonal individuals. In 1979, (Carpobrotus spp. and such events as storms, drought, or fire. the two populations near Campo Raton Mesembryanthemum spp.), native Small numbers of populations and were estimated to be less than 10 milkvetch (Astragalus miguelensis), and individuals also make the taxon individuals; in 1985, only one plant was alien grasses. 37998 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules In 1993, the Jaw Gulch population and the size and shape of the lower with roots exposed during the spring of was estimated to comprise up to 1,000 bracts (Moran 1950a, Bartel 1993). 1993, most likely a result of cattle individuals covering an area of less than Dudleya blochmaniae ssp. insularis is grazing and trampling (S. Chaney, CINP, 2 hectares (5 acres) (C. Rutherford and only known from the type locality near pers. comm. 1993). Threats to Dudleya T. Thomas, USFWS, pers. obs. 1993). Old Ranch Point, also known as Marsh sp. nov. ‘‘East Point’’ are soil loss, During Ingram’s field studies in 1990, Point, on the east end of the island. The habitat alteration, and predation caused the Carrington Point population taxon occupies an area of less than 1 by cattle and deer trampling and consisted of only 20 individuals (Ingram hectare (2 acres) of an ancient marine grazing. Because it is restricted to one 1990); more favorable climatic terrace with a cobbly surface, and population, the taxon is vulnerable to conditions in the past few years may associated with owl’s clover (Castilleja stochastic extinction by such events as have resulted in higher numbers of exserta), goldfields (Lasthenia storms, drought, or fire. The single plants, perhaps as many as several californica), and alien annual grasses. population and limited number of hundred. The Jaw Gulch population was The number of individuals is estimated individuals also make the taxon also used as a bedding area for deer to be 2,000 (Rutherford and Thomas, vulnerable to reduced reproductive during the fall of 1993 (Dan Richards, pers. obs. 1993). Threats to Dudleya vigor. CINP, pers. comm. 1994). Threats to blochmaniae ssp. insularis are soil loss; Santa Cruz Island dudleya (Dudleya Castilleja mollis are soil loss, habitat habitat alteration caused by cattle, elk, nesiotica) was first described by Reid alteration and predation caused by and deer trampling; vehicle access; and Moran (1950b) as Hasseanthus cattle grazing, deer and elk browsing, collecting. Because this taxon is nesioticus based on a specimen deer bedding, and competition with restricted to one population, the plant is collected from ‘‘flat area near edge of sea alien plant taxa. Because of the small also vulnerable to stochastic extinction bluff, Fraser Point,’’ on the west end of numbers of isolated populations and by such events as storms, drought, or Santa Cruz Island in 1950. Three years individuals, the taxon is also vulnerable fire. The single population and later, Moran (1953) transferred the to stochastic extinction by such events restricted number of individuals also species to the genus Dudleya, thereby as storms, drought, or fire. Small make the taxon vulnerable to reduced forming the new combination Dudleya numbers of populations and individuals reproductive vigor. nesiotica. also make the taxon vulnerable to Munchkin dudleya (Dudleya sp. nov. Like the two previously described reduced reproductive vigor. ‘‘East Point’’ (S. McCabe, pers. comm. dudleyas, Dudleya nesiotica is a Santa Rosa Island dudleya (Dudleya 1994)) was first collected by Reid Moran succulent perennial in the stonecrop blochmaniae ssp. insularis) was first in 1950. In his dissertation on the genus family (Crassulaceae). The plant has a described as Hasseanthus blochmaniae Dudleya, he included it in the corm-like stem with 8 to 16 oblanceolate ssp. insularis by Reid Moran (1950a) description of Dudleya greenei, but leaves in a basal rosette from which based on a collection made at ‘‘Old remarked upon how it differed, and several flowering stems 3 to 10 cm (1.2 Ranch Point’’ on Santa Rosa Island in described it as ‘‘forma nana.’’ to 4.0 in) tall arise. The five white- 1950. Moran (1953) combined the genus Subsequent floras treated the form in petaled flowers and resulting fruits are Hasseanthus as a subgenus of Dudleya; synonymy with Dudleya greenei (Munz erect to ascending. Hasseanthus had previously been and Keck 1973, Smith 1976). In 1993, Dudleya nesiotica is known only from segregated from Dudleya on the basis of Paul H. Thomson illegitimately one population comprising two colonies stem characteristics and the presence of published the name Dudleya nana, within 1.6 km (1 mi) of the type locality vernal (withering) leaves. In so doing, based on the description of forma nana at Fraser Point on the west end of Santa he published the new combination in Moran’s dissertation. Stephen Cruz Island. Approximately 1,000 plants Dudleya blochmaniae ssp. insularis McCabe has submitted an article occupy less than 10 acres of habitat. The (Moran 1953). A recent attempt was describing a new species of Dudleya to colonies are situated on the lowest made by Thompson (1993) to the journal Madron˜ o (S. McCabe, pers. marine terrace in association with resegregate Hasseanthus from Dudleya; comm. 1994). iceplant (Mesembryanthemum however, because rules of nomenclature Like Dudleya blochmaniae ssp. crystallinum and M. nodiflorum), alkali were not followed and the insularis described above, this plant is heath (Frankenia salina), goldfields, and morphological differences between a small succulent perennial in the pickleweed (Salicornia virginica). these two groups do not appear to merit stonecrop family (Crassulaceae). The Threats to Dudleya nesiotica are soil recognition at the genus level, the taxon plant has a short caudex-like stem, and loss, habitat alteration, and predation will be recognized in this proposed rule small, gray, ovate to oblanceolate leaves caused by pig rooting. Like many under the name Dudleya blochmaniae in a cluster of up to 20 basal rosettes, dudleyas, Dudleya nesiotica is also ssp. insularis. from which several flowering stems 2.5 threatened by collecting for botanical or Dudleya blochmaniae ssp. insularis is to 7 cm (1 to 2.75 in) long arise. The horticultural use (Moran 1979). Because a small succulent perennial in the pale yellow, five-petaled flowers are the taxon is restricted to only one stonecrop family (Crassulaceae). The fused at the base and spread only at the population, it is also vulnerable to plant has a corm-like root structure, and tips. stochastic extinction by such events as 15 to 30 oblanceolate leaves in a basal Dudleya sp. nov. ‘‘East Point’’ is storms, drought, or fire. The single rosette, from which several flowering known only from one population population and limited number of stems 3 to 7 cm (1.2 to 2.8 in) long arise. comprising three colonies near East individuals also make the taxon The white, five-petaled flowers and the Point on Santa Rosa Island. The total vulnerable to reduced reproductive resulting fruits are fused at the base and number of individuals in the three vigor. wide-spreading distally. This subspecies colonies has been estimated to be 3,200 Island bedstraw (Galium buxifolium) is distinguished from two other (S. McCabe, pers. comm. 1994). The was first described by E.L. Greene as mainland subspecies of Dudleya colonies occur on a low windswept Galium buxifolium in 1886 based on blochmaniae on the basis of the more ridge with a cobbly soil surface, which specimens collected on Santa Cruz numerous rosette leaves, shorter floral is bereft of any other vegetation save Island (Ferris 1960). In 1958, Lauramay stems, more pronounced glaucousness scattered alien annual grasses. Several Dempster (1958) described the taxon as of young floral stems and their leaves, hundred plants were observed uprooted a variety of Galium catalinense. Ferris Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 37999 (1960) suggested that the taxon was 1940). Eastwood remarked that, such events as storms, drought, or fire. subspecifically distinct, but still although the taxon is related to Gilia The single population and limited synonymized the taxon with Galium tenuiflora, no variation of the latter number of individuals also make the catalinense. Thirteen years later, included the leafy stems and terminal taxon vulnerable to reduced Dempster (1973) reestablished the taxon congested inflorescence of Gilia reproductive vigor. as a separate species based on hoffmannii (Eastwood 1940). Island rush-rose (Helianthemum differences in the nutlet hairs between Nevertheless, Jepson (1943) included greenei) was first described by Robinson it and Galium catalinense. the taxon in the description of Gilia as Helianthemum greenei in 1895 Galium buxifolium is a small, stout tenuiflora var. tenuiflora in his flora of (Abrams 1951). The type locality is woody shrub in the bedstraw California, as did Abrams (1951) in his described as ‘‘a dry summit near the (Rubiaceae) family. The plant grows to flora of the Pacific states. In 1959, Munz central part of the island of Santa Cruz’’ 12 decimeters (dm) (4 ft) in height, and renamed the varieties of tenuiflora as (Abrams 1951). This nomenclature has has swollen nodes bearing numerous subspecies, including ssp. hoffmannii been upheld in the most recent leafy branches. The leaves are larger (Munz and Keck 1973). This treatment for the genus (McClintock than those of most other Galium taxa, nomenclature has been upheld in the 1993). and have conspicuous lateral veins with latest treatment of the genus (Day 1993). Helianthemum greenei is a small stout hairs on the lower surface Of the four subspecies of Gilia shrub in the rock-rose (Cistaceae) (Dempster 1973). The relatively broad tenuiflora, the subspecies hoffmannii is family. The plant grows to 0.5 m (18 in) leaves and the tiny upward-curved hairs the only one that occurs in southern tall and has alternate leaves covered that cover the fruits are unique California. Two other Gilia species with star-shaped hairs. The reddish, characteristics that distinguish it from occur on Santa Rosa Island; Gilia glandular stalks support yellow-petalled the six other species of Galium that tenuiflora ssp. hoffmannii is flowers to 2.5 cm (1 in) wide. The fruit occur on the islands (Hochberg et al. distinguished from them by the is a pointed capsule 0.6 cm (0.25 in) 1980b). presence of arachnoid woolly long. A more abundant species found on A putative collection of Galium pubescence at the base of the stem. the islands, Helianthemum scoparium, buxifolium was made from the ‘‘Torrey Gilia tenuiflora ssp. hoffmannii is a is similar in appearance, but is not Pine grove, Santa Rosa Island,’’ in 1941 small, erect annual herb in the phlox glandular-hairy and has greenish stalks by Reid Moran; apparently this was a (Polemoniaceae) family. The central and smaller fruits (Hochberg 1980b). misidentified collection of Galium stem grows 6 to 12 cm (2.4 to 4.7 in) tall, McMinn (1951) and later Thorne nuttallii (York, in litt. 1987). Therefore arising from a rosette of densely hairy, (1967) report seeing Helianthemum no known collections of this taxon are strap-shaped, short-lobed leaves. The greenei on San Miguel Island, but there known from Santa Rosa Island. Galium flowers are purplish and funnel-shaped are no collections in island herbaria buxifolium is currently known from below, widening to five pinkish corolla (Hochberg et al. 1980b, Wallace n.d.). Santa Cruz and San Miguel Islands lobes. Two collections of the plant were made where it occurs on north-facing sea Gilia tenuiflora ssp. hoffmannii has from Santa Rosa Island by Epling and cliffs. Eight populations occur on TNC only been collected from two locations Erickson and Dunn in the 1930’s lands on Santa Cruz Island. In 1980, on Santa Rosa Island. A collection was (Wallace 1985); however, no collections Hochberg et al. (1980b) noted that 2 of made by Reid Moran from the ‘‘arroyo on Santa Rosa Island have been made these populations comprised fewer than between Ranch and Carrington Point’’ in since that time, despite recent surveys. 50 individuals each, and the remaining 1941 (Rutherford and Thomas 1994); Helianthemum greenei was reported populations comprised less than 6 however, numerous surveys conducted from the northeast side of Black Jack individuals each. Two populations were in recent years have failed to relocate Mountain on Santa Catalina Island by located on San Miguel Island in 1993, the plant at this location. This location Thorne (1967) in 1966; no collections 1 comprising about 200 individuals, and most likely falls within the parcel of have been made since then, but a 1 comprising fewer than 10. Five other property, adjacent to the ranchhouse, population of three individuals was historical collections have been made that has been heavily disturbed by cattle recently reported from this location from the island, but none have been ranching operations. The only currently (Janet Takara, Catalina Island seen for almost 30 years. extant population occurs at the type Conservancy, pers. comm. 1994). The plant occurs on ‘‘bluffs and rocky locality near East Point on Santa Rosa Habitat for the plant on Santa Catalina slopes’’ (Dempster 1973) in coastal sage Island. Here, it occurs as a component Island is being grazed by goats, mule scrub and island pine forest. Threats to of dune scrub vegetation with sand deer, and bison, and is being rooted by Galium buxifolium are soil loss, habitat verbena (Abronia maritima), silver pigs. alteration, and predation caused by feral beach-weed (Ambrosia chamissonis), In addition to the one population on pig rooting and sheep grazing. Because saltgrass (Distichlis spicata), miniature Santa Catalina Island, Helianthemum of the small numbers of isolated lupine (Lupinus bicolor), plantain greenei is currently known from ten populations and individuals, the taxon (Plantago erecta), and sand-dune populations on Santa Cruz Island. The is also vulnerable to stochastic bluegrass (Poa douglasii) (T. Thomas, in taxon is found in open, exposed areas in extinction by such events as storms, litt. 1993). The population consists of chaparral, coastal sage scrub, and island drought, or fire. Small numbers of several hundred individuals and pine forest. In 1980, prior to sheep populations and individuals also make occupies an area of not more than 0.8 removal from TNC lands on Santa Cruz the taxon vulnerable to reduced hectares (2 acres). Threats to Gilia Island, Hochberg et al. (1980b) found reproductive vigor. tenuiflora ssp. hoffmannii are soil loss, that, of ten populations, only two Hoffmann’s slender-flowered gilia habitat alteration and predation caused comprised several dozen individuals, (Gilia tenuiflora var. hoffmannii) was by cattle grazing, and elk and deer and six others comprised less than six first described as Gilia hoffmannii by browsing. A sandy service road used by individuals. Hochberg et al. (1980b) Alice Eastwood in 1940 based on NPS and ranchers bisects the indicated that the plant is eliminated by collections made by Ralph Hoffmann population. Because the taxon is intense feral animal disturbance, and ‘‘in sandy soil at East Point’’ on Santa restricted to one population, it is also noted that the population recorded by Rosa Island ten years earlier (Eastwood vulnerable to stochastic extinction by Abrams and Wiggins in 1930 at Pelican 38000 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules Bay has not been relocated. The major Santa Cruz Island bushmallow numbers of isolated populations and threats to Helianthemum greenei are soil (Malacothamnus fasciculatus var. restricted number of individuals also loss, altered fire frequencies and nesioticus) was first described by James make the taxon vulnerable to reduced intensities, rooting by feral pigs, sheep W. Robinson as Malvastrum nesioticum reproductive vigor. grazing, and competition with other in Asa Gray’s Flora of North America in Santa Cruz Island malacothrix shrubs that have increased in cover due 1897, based on material collected by (Malacothrix indecora) was first to a release in grazing pressure. Because E.L. Greene in 1886 (Abrams 1951). described by E.L. Greene (1886) as of the small numbers of isolated Over the next four decades, the taxon Malacothrix indecora based on populations and individuals, the taxon was placed in several different genera, specimens collected from ‘‘islets close is also vulnerable to stochastic as Malacothamnus nesioticus by to the northern shore’’ of Santa Cruz extinction by such events as storms, Abrams, Sphaeralcea nesiotica and later Island (Smith 1976). In 1957, E. drought, or fire. Sphaeralcea fasciculata var. nesiotica Williams published the combination Island alumroot (Heuchera maxima) by Jepson, and Malvastrum Malacothrix foliosa var. indecora (Ferris was first described by E.L. Greene fasciculatum var. nesioticum by 1960); Munz (1974) subsequently (1886a) as Heuchera maxima based on McMinn (Kearney 1951). Kearney (1951) synonymized the taxon with Malcothrix collections from the ‘‘northward slope published the new combination foliosa. However, Ferris (1960) and of Santa Cruz Island.’’ This Malacothamnus fasciculatus var. others (Smith 1976, Davis 1980) nomenclature has been upheld in the nesioticus. In 1993, David Bates continued to recognize the taxon as a most recent treatment of the genus synonymized var. nesioticus, as well as separate species with the name (Elvander 1993). Heuchera maxima is a seven other taxa, with Malacothamnus Malacothrix indecora. This perennial herb in the saxifrage fasciculatus, a highly variable species nomenclature is upheld in the most (Saxifragaceae) family. The round basal ‘‘with many indistinct and intergrading recent treatment of the genus (Davis leaves are up to 7 cm (2.8 in) broad on local forms’’ (Bates 1993). Of var. 1993). long petioles up to 25 cm (10 in) in nesioticus, he notes that the taxon is Malacothrix indecora is an annual length. The flowering stalks are up to essentially indistinguishable from the herb in the aster (Asteraceae) family. 6.1 dm (2 ft) long and scattered with mainland ‘‘var. nuttallii.’’ However, The 20 to 40 cm (8 to 16 in) tall stems small white-petaled flowers (Hochberg recent studies on the genetics of support numerous broadly lobed fleshy 1980b). No other Heuchera species Malacothamnus have determined that leaves with blunt tips. The greenish occurs on the islands; however, young var. nesioticus is a distinct variety yellow flowers are in hemispheric heads plants of Heuchera maxima could (Swenson et al. in prep.). surrounded by linear bracts (Hochberg resemble species of Jepsonia, Malacothamnus fasciculatus var. 1980b; Scott in Junak et al., in prep.). Lithophragma, or Saxifraga that occurs nesioticus is a small soft-woody shrub Two other annual species of on the islands. Heuchera maxima can in the mallow (Malvaceae) family. The Malacothrix occur on the same islands be distinguished from these other taxa plant reaches up to 2 m (6 ft) tall, and as Malacothrix indecora; however, the by its larger size at maturity, and has slender branches covered with star- achenes (seeds) of Malacothrix similis flowers with ten stamens rather than shaped hairs. The palmately shaped are topped with 18 teeth and 1 bristle five. leaves are dark green on the upper and Malacothrix squalida is topped Heuchera maxima grows primarily on surface and gray on the lower surface. with irregular teeth and no bristle, moist, shady, north-facing canyon The rose-colored flowers are up to 3.75 whereas Malacothrix indecora has bottoms, walls, and seacliffs, but occurs cm (1.5 in) broad and scattered along neither of these features (Scott in Junak in a few interior localities as well. the ends of the branches (Hochberg et al. et al., in prep.). Collections of Heuchera maxima were 1980b). It is differentiated from the Collections of Malacothrix indecora made from Santa Rosa Island by mainland var. nuttallii by its bicolored were made from several locations along Hoffmann in 1929 and Dunkle in 1939; leaves and genetic distinction (Swenson the northeast shore of San Miguel Island however, locality information for these et al. in prep.). and on Prince Island by Greene, and collections is vague. More recently, the Malacothamnus fasciculatus var. later by Hoffmann (Hochberg et al. 1979; plant has been collected from four nesioticus is known from only two small Davis 1987). In 1978, Hochberg et al. locations on Santa Rosa Island (Cherry, populations on Santa Cruz Island where (1979) observed three populations; Lobos, Ranch, and Windmill Canyons) it occurs within a coastal sage scrub Halvorson et al. (1992) reported finding (Rutherford and Thomas 1994). community. One population of less than this species at one location during Heuchera maxima is also known from 50 individuals (10 clones) is located on surveys in 1988 and 1989, but no 11 locations on West Anacapa Island the west shore of the island near the collections were made to confirm (Rutherford and Thomas 1994; S. Junak, historic Christi Ranch. A second identification of the taxon. On Santa in litt. 1984). On Santa Cruz Island, 12 population was discovered in 1993 in Cruz Island, Malacothrix indecora was populations occur along the west half of the Central Valley near the University of first collected near Twin Harbor by the north shore. All populations California Field Station (Swensen et al. Williams in 1939 (Davis 1987); this observed by Hochberg et al. (1980b) on in prep.). Recent genetic analyses of the population has not been relocated. Santa Cruz Island comprised less than Central Valley population indicated Malacothrix indecora is currently 50 individuals each, and in some cases that, although there are 19 individual known from only one population comprised less than 6 individuals each. shrubs, they comprise only 3 genotypes, discovered by Junak in 1980 at Black Threats to Heuchera maxima are soil or 3 clones. Threats to Malacothamnus Point on the west end of Santa Cruz loss, habitat alteration and predation fasciculatus var. nesioticus are soil loss, Island. Several hundred individuals resulting from cattle grazing, feral pig habitat alteration and predation were observed there by Junak in 1985 in rooting, and elk and deer browsing. resulting from past sheep grazing and exposed coastal flats and associated Because of the small numbers of current feral pig rooting. Because of the with Santa Cruz Island buckwheat populations and individuals, the taxon small numbers of populations and (Eriogonum grande var. rubescens) and is also vulnerable to stochastic individuals, the plant is also vulnerable iceplant (Mesembryanthemum extinction by such events as storms, to stochastic extinction by such events nudiflorum) (CNDDB 1991). On a drought, or fire. as storms, drought, or fire. The small subsequent trip in 1989, only 50 plants Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38001 were observed in the same location (S. Malacothrix squalida are soil loss, Island, Phacelia insularis ssp. insularis Junak, pers. comm. 1994). Threats to habitat alteration and predation was collected by Hoffmann in 1930 and Malacothrix indecora are soil loss, resulting from sheep grazing, feral pig by Munz in 1932. It was not collected habitat alteration and predation rooting, and seabird nesting. Because of again until 1978, when four populations resulting from feral pig rooting and the small numbers of isolated were found (Hochberg et al. 1979). A seabird activity. Historic habitat for populations and individuals, the taxon fifth population was discovered by Malacothrix indecora on San Miguel is also vulnerable to stochastic Charles Drost on a bluff above Cuyler Island and Prince Island has been extinction by such events as storms, Harbor in 1984 (Halvorson et al. 1992). altered by seabird nesting activity. drought, or fire. The small numbers of Phacelia insularis ssp. insularis is found Because of the small numbers of isolated populations and restricted within the island grassland community populations and individuals, the taxon number of individuals also make the which is dominated by alien grasses, is also vulnerable to stochastic taxon vulnerable to reduced including slender wild oat (Avena extinction by such events as storms, reproductive vigor. barbata), wild oat (Avena fatua), ripgut drought, or fire. The small numbers of Island phacelia (Phacelia insularis (Bromus diandrus), and soft chess populations and restricted number of ssp. insularis) was first described by (Bromus hordeaceus), with scattered individuals also make the taxon Munz as Phacelia insularis in 1932 occurrences of native bunchgrasses, vulnerable to reduced reproductive based on plants growing ‘‘on sand dunes shrubs, and herbs (Hochberg et al. vigor. at northeastern part of Santa Rosa 1979). Threats to Phacelia insularis ssp. Island malacothrix (Malacothrix Island’’ (Munz 1932). Jepson published insularis are soil loss, habitat alteration squalida) was first described by E.L. the new combination Phacelia curvipes caused by cattle grazing and elk and Greene in 1886 from specimens var. insularis in 1943. After examining deer browsing. Because of the small collected above Prisoner’s Harbor on specimens from coastal northern numbers of populations and Santa Cruz Island (Davis, in litt. 1987). California and determining their affinity individuals, the plant is also vulnerable In 1957, E. Williams published the to the island plants, John Thomas to stochastic extinction by such events combination Malacothrix foliosa var. Howell re-elevated the taxon to specific as storms, drought, or fire. The small squalida; a year later, Roxana Ferris level, separating out the northern numbers of populations and restricted (1960) published the combination California plants as Phacelia insularis number of individuals also make the Malacothrix insularis var. squalida. In var. continentalis, leaving Phacelia taxon vulnerable to reduced 1959, Munz recognized the taxon as insularis var. insularis to refer to the reproductive vigor. Malacothrix squalida; however, 14 years island plants (Howell 1945). In 1951, Santa Cruz Island fringepod later, he synonymized it with M. foliosa Abrams, who did not have access to (Thysanocarpus conchuliferus) was first (Munz 1974). In a review of insular collections of Phacelia from northern described as Thysanocarpus species of Malacothrix, Davis (1980) California, included the taxon in the conchuliferus by E.L. Greene in 1886 recognized the taxon as Malacothrix description of Phacelia divaricata, a based on material he and Brandegee squalida. taxon common in southern California. collected where they found it ‘‘common Like Malacothrix indecora, In 1959, Munz published the new on mossy shelves and crevices of high Malacothrix squalida is an annual herb combination Phacelia divaricata var. rocky summits and northward slopes’’ in the aster family. However, the plant insularis (Constance 1979). Lincoln on Santa Cruz Island (Greene 1886b). only reaches 9 cm (3.5 in) tall, and has Constance agreed with Howell’s Four decades later, Jepson published the linear to widely lanceolate leaves that interpretation and has referred to the new combination Thysanocarpus are irregularly toothed or lobed. The taxon as Phacelia insularis var. insularis laciniatus var. conchuliferus as one of light yellow flowers are clustered in (Constance 1979). This nomenclature three varieties of Thysanocarpus hemispheric heads 12 to 15 millimeters has been upheld in the latest treatment laciniatus (Jepson 1925). Abrams re- (mm) (0.5 to 0.6 in) long. Malacothrix of the genus (Wilken et al. 1993). elevated the taxon to species status in indecora is the only other annual Phacelia insularis ssp. insularis is a 1944. Munz, however, republished the Malacothrix that occurs on the same decumbent (reclining), branched annual taxon as one of six varieties of T. island as M. squalida; however, the of the waterleaf (Hydrophyllaceae) laciniatus in 1959 (Munz and Keck latter is a much larger species, and also family. The short-hairy and glandular 1973). In the most recent treatment of differs in the achene characteristics stems grow to 1.5 dm (6 in) high from the genus, Reed C. Rollins re-elevated previously mentioned (Scott in Junak et a basal rosette of leaves. The small the taxon to species status (Rollins al., in prep.). lavender to violet, bell-shaped flowers 1993). Malacothrix squalida has been are borne in loose cymes. The other Thysanocarpus conchuliferus is a collected from two locations along the variety of Phacelia insularis, the variety small delicate annual herb in the north shore of Santa Cruz Island; Greene continentalis, is found on the mainland mustard (Brassicaceae) family. The one collected it near Prisoner’s Harbor in of northern California. Phacelia to several branches grow 5 to 12.7 cm 1886, but the species was not seen on insularis var. insularis can be (2 to 5 in) high. The narrow, linearly the island again until Philbrick and distinguished from the other species of lobed leaves alternate along the stems, Benedict collected it in 1968 near Potato Phacelia on the islands based on the which terminate in a raceme of minute Harbor (Rutherford and Thomas 1994). hastate leaf shape with basal lobes. The pink to lavender flowers. While all On Middle Anacapa Island, the plant other Phacelia have pinnately divided members of this genus have round, was first collected by Martin Piehl in or undivided but ovate leaves. flattened fruits that are fringed with 1963, and more recently in 1978 and Phacelia insularis ssp. insularis wings, Thysanocarpus conchuliferus is 1986. The plant is known from several occurs on Santa Rosa Island and San the only species with a bowl-shaped small colonies atop coastal bluffs on the Miguel Island. However, the last fruit; this taxon is also smaller in stature east end of the island. Surveys by Junak collections from Santa Rosa Island were than T. lacianatus, which occurs in the and Davis in 1989 failed to find any made by Clifton Smith at Carrington same habitat (Rutherford and Thomas individuals; however, this may have Point in 1973; the plant has not been 1994). been the result of a drought year (S. observed on the island since then In 1932, Ralph Hoffmann reported Junak, pers. comm. 1994). Threats to despite recent searches. On San Miguel that Thysanocarpus conchuliferus was 38002 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules ‘‘frequent. . . from the north shore to the Service published a proposal in the previous Notice of Review. the southwest portion of the island’’ Federal Register (42 FR 24523) to Arctostaphylos confertiflora, Castilleja (Hochberg et al. 1980a). A total of 14 determine approximately 1,700 vascular mollis, Dudleya blochmaniae ssp. historical locations are known from plant species to be endangered species insularis, Dudleya nesiotica, Galium herbarium records. In 1980, eight of pursuant to section 4 of the Act. buxifolium, Gilia tenuiflora ssp. these populations were relocated Dudleya nesiotica was included in the hoffmannii, Helianthemum greenei, (Hochberg et al. 1980b); in 1991, June 16, 1976, Federal Register Heuchera maxima, Berberis pinnata individuals were found at six of these document. ssp. insularis, Malacothamnus locations, and none were found at five General comments received in fasciculatus, Phacelia insularis var. other locations (Klinger 1994b). In 1993, relation to the 1976 proposal were insularis, and Thysanocarpus no individuals were found at any of the summarized in an April 26, 1978, conchuliferus were included as Category 14 known locations. Survey reports Federal Register publication (43 FR 2 candidates. Malacothrix indecora was indicate that, in addition to abundant 17909). The Endangered Species Act included in the February 21, 1990, rainfall that may have increased Amendments of 1978 required that all notice for the first time as a Category 2 competition from alien grasses, rooting proposals over 2 years old be candidate. by feral pigs was observed at all 14 withdrawn. A 1-year grace period was The plant notice was revised on locations (Klinger 1994b). given to those proposals already more September 30, 1993 (58 FR 51144). In Thysanocarpus conchuliferus occurs than 2 years old. In the December 10, this notice, Arabis hoffmannii, on rocky outcrops on ridges and canyon 1979, Federal Register (44 FR 70796), Arctostaphylos confertiflora, Castilleja slopes, and is associated with a variety the Service published a notice of mollis, Dudleya blochmaniae ssp. of herbs, ferns, grasses, dudleya, and withdrawal of the portion of the June 6, insularis, Galium buxifolium, Gilia Selaginella (Santa Barbara Botanical 1976, proposal that had not been made tenuiflora ssp. hoffmannii, Berberis Garden 1994). Threats to Thysanocarpus final, along with four other proposals pinnata ssp. insularis, Malacothamnus conchuliferus are soil loss, habitat that had expired. fasciculatus var. nesioticus, Malacothrix alteration and predation resulting from The Service published an updated indecora, Phacelia insularis var. feral pig rooting. In favorable years, notice of review for plants on December insularis, and Thysanocarpus competition with luxuriant alien grasses 15, 1980 (45 FR 82480). This notice conchuliferus were included as Category may also constitute a threat (Klinger included Arabis hoffmannii, Castilleja 1 candidates. Dudleya nesiotica, 1994b). Because of the small numbers of mollis, Dudleya blochmaniae ssp. Helianthemum greenei, and Heuchera isolated populations and individuals, insularis, Dudleya nesiotica, and maxima were included as Category 2 the plant is also vulnerable to stochastic Malacothamus fasciculatus var. candidates; Malacothrix squalida was extinction by such events as storms, nesiotica as Category 1 taxa. Category 1 included for the first time as a Category drought, landslide, or fire. The small taxa are those for which the Service has 2 candidate. Dudleya nesiotica, numbers of populations and restricted on file substantial information on Helianthemum greenei, Heuchera number of individuals also make the biological vulnerability and threats to maxima, and Malacothrix squalida are taxon vulnerable to reduced support preparation of listing proposals. being included in this proposal based reproductive vigor. Arctostaphylos confertiflora and Galium on a more thorough review of existing buxifolium were included as Category 2 information, and additional information Previous Federal Action taxa. Category 2 taxa are those for which that was brought to the attention of the Federal action on these plants began data in the Service’s possession indicate Service by Steve Junak, botanist at Santa as a result of section 12 of the listing is possibly appropriate, but for Barbara Botanic Garden. Dudleya sp. Endangered Species Act of 1973, which which substantial data on biological nov. ‘‘East Point’’ is being included in directed the Secretary of the vulnerability and threats are not this proposal on the basis of new Smithsonian Institution to prepare a currently known or on file to support published information concerning its report on those plants considered to be proposed rules. On November 28, 1983, distinctness as a taxon and a review of endangered, threatened, or extinct in the the Service published in the Federal existing biological information that United States. This report, designated as Register a supplement to the Notice of indicates the species should be elevated House Document No. 94–51, was Review (48 FR 53640), in which Arabis to Category 1 status and that listing is presented to Congress on January 9, hoffmannii was listed as a Category 1* warranted. 1975. In that document, Arabis taxon, the asterisk indicating that the Section 4(b)(3)(B) of the Act requires hoffmannii, Castilleja mollis, Dudleya species is believed to be extinct. In the the Secretary to make certain findings blochmaniae ssp. insularis, Galium same notice, Castilleja mollis, Dudleya on pending petitions within 12 months buxifolium, Gilia tenuiflora ssp. blochmaniae ssp. insularis, Dudleya of their receipt. Section 2(b)(1) of the hofmannii, and Berberis pinnata ssp. nesiotica, Helianthemum greenei, 1982 amendments further requires that insularis were considered to be Heuchera maxima, Berberis pinnata all petitions pending on October 13, endangered, and Dudleya nesiotica and ssp. insularis, Malacothamnus 1982, be treated as having been newly Malacothamnus fasciculatus var. fasciculatus, Phacelia insularis var. submitted on that date. This was the nesiotica (as Malacothamnus insularis, and Thysanocarpus case for Arabis hoffmannii, Castilleja fasciculatus) were considered to be conchuliferus were included as Category mollis, Dudleya blochmaniae ssp. threatened. The Service published a 2 candidates. insularis, Dudleya nesiotica, Galium notice in the July 1, 1975, Federal The plant notice was revised again on buxifolium, Gilia tenuiflora ssp. Register (40 FR 27823) of its acceptance September 27, 1985 (50 FR 39526). In hoffmannii, Berberis pinnata ssp. of the report of the Smithsonian that notice, all taxa maintained their insularis, and Malacothamnus Institution as a petition within the previous status. On February 21, 1990 fasciculatus var. nesioticus because the context of section 4(c)(2) (petition (55 FR 6184), the plant notice was again 1975 Smithsonian report had been provisions are now found in section revised. In this notice, Arabis accepted as a petition. On October 13, 4(b)(3) of the Act) and its intention hoffmannii was included as a Category 1983, the Service found that the thereby to review the status of the plant 1 candidate, as individuals of this taxon petitioned listing of these species was taxa named therein. On June 16, 1976, had been rediscovered since the warranted, but precluded by other Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38003 pending listing actions, in accordance documented from sediment and pollen contributing factor in such devastation’’ with section 4(b)(3)(B)(iii) of the Act; records in a soil core dating back 5,200 (Hochberg et al. 1980a). notification of this finding was years from the Old Ranch Canyon marsh The importance of soils in published on January 20, 1984 (49 FR on eastern Santa Rosa Island (Cole maintaining habitat for the proposed 2485). Such a finding requires the 1994). Rates of sedimentation prior to taxa is found not only in their physical petition to be recycled, pursuant to the introduction of livestock averaged 9 properties, but in their biotic properties section 4(b)(3)(C)(i) of the Act. The mm/year (yr) (0.35 in/yr), increasing to as well. Healthy soils play host to a finding was reviewed in October of 58 mm/yr (2.28 in/yr) after the complex matrix of soil organisms, 1984, 1985, 1986, 1987, 1988, 1989, introduction of grazing (Cole 1994). including fragile microbial components, 1990, 1991, 1992, and 1993. Publication Pollen records demonstrate that the that assist in such processes as water- of this proposal constitutes the conversion of brushland to grassland holding capacity, soil fertility, and warranted finding for these species, as occured with the onset of ranching in nutrient cycling. These processes have well as for Arctostaphylos confertiflora, the early 1800’s. This change in been adversely affected by the activities Helianthemum greenei, Heuchera vegetation is reflected by an increased of alien mammals. For instance, the loss maxima, Malacothrix indecora, abundance of grass pollen, a decrease in of leaf litter from trampling and rooting Malacothrix squalida, Phacelia insularis pollen from the mint and pea families, changes soil temperatures, increases the var. insularis, and Thysanocarpus and a massive increase in sediment loss of moisture, reduces the humus conchuliferus. (Cole 1994). The potential for large layers, and results in a reduced soil sediment loads is also illustrated by the fauna (Bennett 1993). The breakdown of Summary of Factors Affecting the organic material, transport of fungal Species recent attempts to stabilize soils at Johnson’s Lee on the south side of Santa spores, and nutrient recycling have been Section 4 of the Endangered Species Rosa Island; rice straw wattles placed documented for soil mites on Santa Act (16 U.S.C. 1531 et seq.) and along hillside contours trapped large Catalina Island (Bennett 1993). Soil mite regulations (50 CFR part 424) volumes of sediment after only one diversity decreased with increased promulgated to implement the listing season of rains (Sellgren 1994). disturbance, creating impoverished provisions of the Act set forth the nutrient levels in the soil (Bennett A comparison of historical procedures for adding species to the 1993). A feature of arid-land soils descriptions of island vegetation with Federal lists. A species may be (typical of the island soils) is the determined to be an endangered or current conditions indicates that large- presence of a cyanobacterial-lichen threatened species due to one or more scale alteration of habitats caused by crust that facilitates stabilization of of the five factors described in section large numbers of non-native mammals steep slopes and nutrient cycling 4(a)(1). These factors and their on the islands resulted in significant (Belnap 1994). The crusts are extremely application to Arabis hoffmannii loss of soils as well as changes in plant brittle during the dry summer months (Munz) Roll., Arctostaphylos communities in terms of structural and can be eliminated by the shattering confertiflora Eastw., Berberis pinnata composition, species richness, species influences of trampling by non-native Lag. ssp. insularis Munz, Castilleja composition, and absolute cover. In herbivores (Belnap 1994). The historic mollis Penn., Dudleya blochmaniae 1883, Thompson and West described and current presence of non-native (Eastw.) Moran ssp. insularis (Moran) the effects of sheep grazing on Santa herbivores and pigs has reduced leaf Moran, Dudleya nesiotica (Moran) Cruz Island: ‘‘The island becomes at litter and compacted and degraded the Moran, Dudleya sp. nov. ‘‘East Point’’ some times overstocked, and may be soil structure, resulting in accelerated (S. McCabe), Galium buxifolium E. said to be in that condition much of the rates of erosion (Klinger et al. 1994, Greene, Gilia tenuiflora Benth. ssp. time. The result is that the grasses, being Nishida 1994). hoffmannii (Eastw.) A.& V. Grant, cropped so close, die out, and allow the Even after the agents that initiated Helianthemum greenei Rob., Heuchera loosened soil to be removed by wind erosion have been removed, loss of soils maxima E. Greene, Malacothamnus and rain’’ (Hochberg et al. 1980a). continues (Clark et al. 1990, Halvorson fasciculatus (Nutt.) E. Greene ssp. However, at that time, vegetation 1993). Because both the biotic and nesioticus (Rob.) Kearn., Malacothrix elsewhere on the island was still physical properties of the soils have indecora E. Greene, Malacothrix relatively intact; Greene described been degraded or lost altogether, the squalida E. Greene, Phacelia insularis mixed forests of large-leaved maple soils that remain behind provide poor Munz var. insularis, and Thysanocarpus (Acer macrophyllum), live oak (Quercus conditions for seedlings to germinate conchuliferus E. Greene are as follows: agrifolia), black cottonwood (Populus and establish. On Santa Rosa Island, a trichocarpa), and willow (Salix grove of island oaks (Quercus A. The Present or Threatened laevigata) thriving in the canyons tomentella), a Category 2 candidate for Destruction, Modification, or (Hochberg et al. 1980a). Another Federal listing, has shown few signs of Curtailment of Its Habitat or Range account was given by Delphine regeneration on soils severely affected The single most important loss of Adelaide Caire in 1933, who reflected by erosion even after an exclosure was resources to insular ecosystems is the on the conditions of Santa Cruz Island: built to eliminate cattle, elk, and deer loss of soils, as the soils are the ‘‘Its present natural beauty does not (Danielsen 1989a, 1989b). All 16 taxa in foundation for the unique island come up to that of the past. The bed of this proposed rule are threatened with ecosystems and the insular endemic the stream that skirts the Main Ranch on habitat instability due to the loss and species found within them. This loss of its way from Pacacho Diablo was much degradation of soils on all islands. soils is the result of historic grazing and narrower than it is today; mountain Several historic accounts include browsing by sheep, goat, cattle, deer, slopes were heavily wooded and specific references to the abundance and elk, and bison, and rooting by pigs on centuries-old oaks were numerous. In distribution of several of the proposed the various islands starting in the early the course of years, rains have taxa, which can be compared to current 1800’s, and in certain cases, continuing accomplished their ruinous work, abundance and distribution today. carrying off a great amount of topsoil, information. In a letter to Hoffmann in The increased loss of soils and the the innumerable trails cut by sharp 1932 concerning Berberis pinnata ssp. resulting change in vegetation have been sheep trotters having been a insularis, Munz remarked that, 38004 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules ‘‘Brandegee says of B. pinnata, that it is habitat for Malacothrix indecora has in this proposal. In addition to ‘common’ on S.C.’’ (S. Junak, in litt. likely been affected. modifying habitat through altering the 1994); Berberis pinnata ssp. insularis is Compaction of soils and crushing of structure and composition of plant currently known from three small plants resulting from vehicle traffic is a communities, altering hydrologic and populations. In 1890, Brandegee wrote potential threat to three of the proposed soil characteristics, and increasing the that Heuchera maxima was ‘‘not taxa on Santa Rosa Island: Dudleya potential for erosion as discussed under uncommon throughout Santa Cruz blochmaniae ssp. insularis, Dudleya sp. Factor A, non-native mammals also Island’’ (Hochberg et al. 1980a); it is nov. ‘‘East Point,’’ and Gilia tenuiflora affect the proposed plant taxa through currently reduced to 12 populations on ssp. hoffmannii. Populations of all three direct herbivory. The effects of that island, and 11 populations on West taxa occur at sites where vehicles were defoliation on plants include decreased Anacapa Island. Apparently, historically or are currently used. The aboveground biomass, fewer stems, less Malacothamnus fasciculatus var. only known population of Gilia seed, reduced height of leaves and nesioticus was already rare by the turn tenuiflora ssp. hoffmannii is bisected by stems, decreased root biomass, reduced of the century; Greene wrote that the a road. root length, decreased carbohydrate plant was ‘‘rare; only two bushes seen, B. Overutilization for Commercial, reserves, and reduced vigor (Heady in and these under the protection of large Recreational, Scientific, or Educational Willoughby 1986). The effects of grazing animals on opuntias; perhaps thus kept from the Purposes sheep’’ (Hochberg et al. 1980a). plants can be demonstrated by studies Unrestricted collecting for scientific Seabirds have altered historic habitat on oaks and pines on the Channel or horticultural purposes and excessive for Malacothrix indecora on San Miguel Islands. On Santa Cruz Island, oak visits by individuals interested in seeing groves are more numerous and in better Island and Prince Island, and known rare plants constitutes a potential threat sites for Malacothrix squalida on condition than those on Santa Rosa to certain of the taxa in this proposal. Island, but still show no signs of Anacapa Island. CINP has been In particular, the collection of whole monitoring certain seabirds, including recruitment due to pig rooting. A recent plants or reproductive parts of those comparison of fenced and unfenced the double-crested cormorant annual or herbaceous perennial taxa (Phalacrocorax auritus), the pelagic sites under live oak (Quercus agrifolia) with fewer than 100 individuals, tree canopies showed a significant cormorant (Phalacrocorax pelagicus), including Arabis hoffmannii, Berberis the federally endangered brown pelican number of oak seedlings within the pinnata ssp. insularis, Malacothamnus fenced sites (Peart et al. 1994). On Santa (Pelecanus occidentalis), the western fasciculatus var. nesioticus, Malacothrix Cruz Island, the removal of feral sheep gull (Larus occidentalis), and Cassin’s indecora, Malacothrix squalida, and has been credited with allowing the auklet (Ptychoramphus aleuticus), on Thysanocarpus conchuliferus, could reestablishment of native woody islands within CINP since 1985. Many adversely affect the genetic viability and perennials including the Bishop pine of these bird species experienced severe survival of those taxa. In the (Pinus muricata) (Wehtje 1994). On population declines in the late 1960’s horticultural trade, Dudleya species Santa Rosa Island, the Bishop pine and early 1970’s as a result of DDT- have, in particular, been favorite continues to display low recruitment related reproductive failures (Ingram collection items. Dudleya sp. nov. ‘‘East and high older-tree mortality caused by 1994). However, monitoring results Point’’ was collected and introduced deer browsing, placing the population indicate that populations of most of into the horticultural trade long ago as ‘‘at risk’’ (of extirpation) under present these birds have increased over the past ‘‘white sprite.’’ Dudleya blochmaniae conditions (Viers and Halvorson 1994). decade. Seabirds use local vegetation to ssp. insularis and Dudleya nesiotica, The Santa Cruz Island ironwood construct nests on cliff and blufftop though not in the trade, have been (Lyonothamnus floribundus ssp. sites, create localized soil disturbances cultivated by Dudleya enthusiasts. The asplenifolius), a Category 2 candidate that facilitate establishment of alien limited distribution of these three taxa for Federal listing, is similarly lacking plant species, and promote erosion of makes them vulnerable to such in recruitment on Santa Rosa Island. coastal bluffs. Seabird activity has been enthusiasts. Heuchera maxima is also Clark et al. (1990) noted that most noted on Middle Anacapa Island within found in cultivation; the threat of individuals of Santa Rosa Island habitat for Malacothrix squalida (S. collection for this taxon is unknown. manzanita suffer from severe browsing Junak, pers. comm. 1994). by elk and deer. The shape of individual C. Disease or Predation In 1990, seabirds on Prince Island shrubs has been modified as a result of included 10,000 Cassin’s auklets and In 1875, when sheep stocking on browsing. Short-statured shrubs have 240 double-crested cormorants (Ingram Santa Cruz Island was around 50,000 been hedged to the point that they do 1994); other seabirds that nest on the head, botanist J.T. Rothrock reported not grow above a certain height; in island but were not monitored include that the island was so overgrazed that shrubs that attained a taller stature the ashy storm-petrel (Oceanodroma ‘‘it was with difficulty that I could get before browsing pressure became severe, homochroa), Leach’s storm-petrel even a decent botanical specimen’’ all lower limbs and leaves have been (Oceanodroma lencorhoa), Brandt’s (Hobbs 1983). Although sheep grazing stripped, resulting in a ‘‘lollipop’’ or cormorant (Phalacrocorax penicillatus), has been removed as a current threat, tree-shaped shrub. Apparently, the pelagic cormorant, brown pelican, the decades of overgrazing by sheep browsing pressure on Santa Rosa Island western gull, pigeon guillemot (Cepphus have had long-term effects in reducing manzanita has affected its ability to columba), and Xantus’ murrelet the reproductive capabilities and reproduce; Clark reported not seeing a (Synthliboramphus hypoleuca). Due to distribution of many of the taxa single seedling during a survey in 1988 the degree of protection afforded this included in this proposal. A review of (Ronilee Clark, ecologist, California Park nesting activity by CINP, surveys for literature pertinent to effects of sheep on Service, pers. comm. 1994). Malacothrix indecora within historic island vegetation is included in The widespread effects of grazing on habitat have not been done since the Hochberg et al. (1980a). Feral pigs, feral island vegetation have been illustrated taxon was last seen there in 1978. Given goats, sheep, deer, elk, horses, and bison through the above examples; similar the size of the island (24 hectares (60 currently occur in habitats that support effects on the proposed taxa are acres)) and the number of nesting birds, populations of most of the taxa included inferred. However, specific examples of Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38005 browsing or grazing by alien mammals properties may favor the recovery of populations of the taxa in this proposal on certain proposed taxa have been certain species over others once grazing include most of Santa Cruz Island, 90 observed, including Castilleja mollis, has been eliminated. If ecosystem percent of which is owned by TNC; the Gilia tenuiflora ssp. hoffmannii, Arabis processes have been reduced or remaining 10 percent is owned jointly hoffmannii, and Thysanocarpus eliminated through heavy and/or long- by NPS and a private landowner. On conchuliferus. In 1993, perhaps as much term grazing, pre-grazing conditions Santa Catalina Island, habitat for as 20 percent of the Carrington Point may never be attained during the Helianthemum greenei occurs on land populations of Castilleja mollis were recovery process. The effects of the managed by the Catalina Conservancy, a consumed by deer. Individual plants removal of grazing from the proposed private conservancy owned by the were excavated, leaving depressions in taxa are unknown. While populations of Catalina Island Company. In general, the sandy soils where plants had been other island taxa have increased once these State regulatory mechanisms observed five months earlier (Sarah grazing pressure has been removed would not likely be invoked, because Chaney, CINP, pers. comm. 1993). (Peart et al. 1994, Wehtje 1994), other major changes in land use, such as Grazing can completely eliminate taxa, such as the insular form of Torrey development projects, are not likely to plants and prevent the supplement of pine (Pinus torreyana), may decrease be proposed on these properties. seed to the seed bank. Of the six with a reduction in grazing pressure Furthermore, without such proposed collections of Gilia in the herbarium at (Viers and Halvorson 1994). Junak changes in land use, the State is the Santa Barbara Botanic Garden, only observed that after sheep were removed unlikely to take regulatory action over two collections made during April 1941 in 1989, Helianthemum greenei ongoing activities, such as cattle, sheep, show no signs of browsing. The populations increased in size for several goat, and bison grazing, and deer remaining four collections were made years, most likely in response to the browsing. between the months of May and June release of grazing pressure. However, The California Fish and Game between 1963 and 1978, and all show with grazing pressure removed, other Commission (Commission) also signs of having been browsed shrub taxa also increased in cover, regulates hunting on private and public (Rutherford and Thomas, in litt. 1994). leading to increased competition for lands by issuing permits for the take of In 1993, Thomas visited the Gilia resources, and a subsequent decline in a specified number of animals and population twice; during the first visit Helianthemum greenei population sizes taking measures to manage herd sizes. in April, the Gilia had not been (S. Junak, pers. comm. 1994). The Commission issues permits for deer browsed, but by the second visit in May, Diseases are not specifically known to hunting on Santa Catalina Island. In the Gilia had been browsed (Thomas, in threaten any of the taxa included in this 1993, the Commission issued 300 tags litt. 1993). In response to such browsing, proposal. for deer hunting on the island; due to the annual Gilia forms multiple side an increasing herd size, the Commission D. The Inadequacy of Existing branches; an individual plant may may grant a request from the Catalina Regulatory Mechanisms produce a greater number of flowers, but Island Company to issue a larger this does not necessarily increase the Under the Native Plant Protection Act number of tags in 1994 (Ken Mayer, fecundity of the plant (Painter and (sec. 1900 et seq. of the Fish and Game California Department of Fish and Game Belsky 1993). Flowers produced later in Code) and the California Endangered (CDFG), pers. comm. 1994). Pigs are the season out of synchrony with Species Act (sec. 2050 et seq.), the considered livestock if they are fenced pollinator activity lowers seed California Fish and Game Commission or marked, but considered wild game if productivity. has listed Dudleya nesiotica and Galium they are unfenced and unmarked. The The Nature Conservancy has been buxifolium as rare and Berberis pinnata Catalina Island Company has entered monitoring population sizes for Arabis ssp. insularis and Malacothamnus into a Memorandum of Understanding hoffmannii on Santa Cruz Island since fasciculatus ssp. nesiotica as (MOU) with CDFG to allow eradication 1990. In 1993, only 19 individuals were endangered. The remaining taxa of feral pigs on Catalina Island (Mayer, observed in the Centinela population; included in this listing proposal, pers. comm. 1994). A similar MOU this represented a net loss of 13 excepting Dudleya sp. nov. ‘‘East between CDFG and TNC exists for the individuals from the previous year, with Point,’’ are on List 1B of the California removal of pigs from Santa Cruz Island. mortality of 9 of those plants ‘‘directly Native Plant Society’s Inventory (Smith Bison, which occur on Santa Catalina attributed to pig rooting’’ (Klinger and Berg 1988), indicating that, in Island, are considered livestock and 1994a). Pigs also ‘‘rooted up entirely’’ 6 accordance with sec. 1901, chapter 10 of therefore not regulated by any agency. out of 14 populations of Thysanocarpus the California Department of Fish and Apparently, the Commission has no conchuliferus that were monitored in Game Code, they are eligible for State regulatory authority over hunting or 1993 (Klinger 1994b). listing. Though both the Native Plant herd size of deer and elk on Santa Rosa All of the taxa included in this Protection Act and the California Island, because these ungulates were proposal, with the exception of Berberis Endangered Species Act prohibit the originally transported there under a pinnata ssp. insularis, have populations ‘‘take’’ of State-listed plants (sec. 1908 game breeder’s permit in the early that are subject to predation by one or and sec. 2080 of the Fish and Game 1900’s. more non-native mammals. Apparently, Code), State law appears to exempt the Several Federal laws, Department of the roots of Berberis species are often destruction of such plants via habitat the Interior policies, and National Park toxic (Williams 1993), making modification or land use change by the Service policies and guidelines apply to consumption by feral pigs unlikely. landowner. After the California the management of NPS lands. These The response of plant communities to Department of Fish and Game notifies a laws and guidelines include the the removal of grazing depends in part landowner that a State-listed plant National Environmental Policy Act on the degree of disturbance that has grows on his or her property, State law (NEPA), the Endangered Species Act, already been caused by grazing. Lightly requires only that the landowner notify NPS guidelines for natural resources grazed areas may return to pregrazing the agency ‘‘at least 10 days in advance management (NPS 1991), and the CINP conditions more quickly. In areas that of changing the land use to allow Statement for Management (NPS 1985). have been more heavily grazed, the loss salvage of such plant’’ (sec. 1913). The 1980 Congressional legislation of soils and their physical and biotic Privately owned lands that support enabling purchase of Santa Rosa Island 38006 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules as a national park from the Vail and range management plan. Currently, the island group (Hochberg et al. 1979, Vickers Company stated that the owner condition of the vegetation on Santa Halvorson et al. 1987). Displacement of ‘‘may retain for himself a right of use Rosa Island is monitored by assessing native habitats and species has been a and occupancy of all or such portion of the residual dry matter of grassland concern for the natural resource the property as the owner may elect for vegetation, which is composed managers on the islands. a definite term of not more than twenty- primarily of non-native species (NPS Fennel (Foeniculum vulgare) has five years, or ending at the death of the 1993). apparently become widespread since owner, or his spouse, whichever is later. San Miguel Island and adjacent Prince the removal of sheep from Santa Cruz The owner shall elect the term to be Island (a small islet) are under the Island. Fennel was noticed as a pest reserved. Any such right retained jurisdiction of the Department of the species prior to the removal of sheep as pursuant to this subsection with respect Navy (Navy), but NPS assists in the reported in Hobbs (1983). Sheep kept to any property shall be subject to management of natural, historic, and the plant from growing to its full height termination by the Secretary upon his scientific values of San Miguel Island of 2 m (6 ft); since their removal, the determination that such property is through a Memorandum of Agreement plant has ‘‘appeared’’ over large areas of being used for any purpose which is (MOA) originally signed in 1963, an the island. Several papers were incompatible with the administration of amendment signed in 1976, and a presented at a recent (1994) symposium the park, or with the preservation of the supplemental Interagency Agreement on techniques used to control fennel resources therein, and it shall terminate (IA) signed in 1985. The MOA states (Brenton and Klinger 1994, Dash and by operation of law upon notification by that the ‘‘paramount use of the islands Gliessman 1994, Gliessman 1994), the Secretary to the holder of the right and their environs shall be for the which, when left unchecked, of such determination and tendering to purpose of a missile test range, and all completely dominates the habitats it him the amount equal to the fair market activities conducted by or in behalf of occupies to the exclusion of other value of that portion which remains the Department of the Interior on such species. Fennel apparently contains a unexpired’’ (Public Law 96–199, 94 Stat. islands, shall recognize the priority of chemical that prevents other species 67, March 5, 1980). The legislation also such use’’ (Department of the Navy from competing for occupied sites directed the Secretary to complete a 1963). In addition to San Miguel Island, (Gliessman 1994). natural resources study within two four other islands including Anacapa, Incidental introductions of seed to the years that would supply an inventory of Santa Barbara, Santa Cruz, and Santa Channel Islands occur constantly; all terrestrial and marine species, Rosa lie wholly within the Navy’s sources include wind-blown seed from indicating their population dynamics, Pacific Missile Test Center (PMTC) Sea the mainland, introductions from and probable trends as to future Test Range. The 1985 IA provides for restocking non-native animals, and numbers and welfare, and to PMTC to have access and use of operational equipment (vehicles and recommend action that should be portions of those islands, for construction materials). Deliberate adopted to better protect the natural expeditious processing of any necessary introductions of seed also occur; during resources of the park. permits by NPS, and for mitigation of the 1960’s, one pilot recalled scattering Under this legislation, the former damage of park resources from any such bags of commercial wildflower and owners, the Vail and Vickers Company, activity (Department of the Navy 1985). grass seed on most of the northern chose to retain the rights to occupy 3.1 Should the Navy no longer require use Channel Islands (Rutherford, in litt. hectares (7.6 acres), to continue the of the islands, NPS would seek 1994). When new introductions and cattle ranching operation, and to authorization for the islands to be established seed sources occur in areas continue a commercial deer and elk preserved and protected as units within with consistent disturbance resulting hunting operation. To allow such the NPS system (Department of the from grazing, browsing, and rooting by continued use, NPS issues Special Use Navy 1976). To date, conflicts non-native mammals, the invasions can Permits (SUP) for five-year terms. The concerning protection of sensitive become overwhelming. These invasive first SUP that was issued to Vail and resources on San Miguel Island have not species have a high probability of Vickers Company included a condition occurred; however, protection and preventing recruitment and causing that a range management plan be management for the three proposed taxa habitat displacement of all taxa in this developed within five years. The plan, that occur on the island, Galium proposed rule. TNC acquired nine-tenths of Santa however, does not address protection of buxifolium, Malacothrix squalida, and Cruz Island from the previous the proposed taxa (USFWS 1991, 1992, Phacelia insularis ssp. insularis, have landowner in 1987. TNC’s general goals 1993). Due to unresolved NEPA issues not been addressed, leaving in question for preserve management include the (the apparent need to prepare an which agency has ultimate preservation, protection, restoration, Environmental Impact Statement for the responsibility to do so. first SUP), the Record of Decision for the and understanding of the natural document has not been signed. E. Other Natural or Manmade Factors resources (Rob Klinger, TNC, Santa Cruz In a recent review of the range Affecting Its Continued Existence Island, pers. comm. 1994). Although a management plan, the Service found Several species of non-native specific management plan for the Santa that measuring residual dry matter, the aggressive plant species are considered Cruz Island Preserve has not been proposed means of determining problematic invaders, including developed, certain management appropriate stocking rates, is inadequate Australian fireweed (Erechtites activities have already been undertaken. to monitor other indicators of ecosystem glomerata), several species of iceplant These activities include long-term health, including composition and (Carpobrotus spp., Mesembryanthemum monitoring of specific plant diversity of species, and the condition spp.), several thistle species (Centaurea communities and rare plant of candidate plant species (USFWS spp., Cirsium spp., Silybum sp.), populations; trial programs in feral pig 1993). The monitoring of sensitive German ivy (Senecio mikanoides), hoary removal, herbicide treatment of alien resources within grazed areas is cress (Cardaria draba), and Russian plant species, and controlled burns in commonly recommended (NPS 1991, thistle (Salsola iberica). Over 180 grassland and island pine communities; Ruyle 1987, Willoughby 1986), but in species of non-native plant species have and research on specific species, and this case has not been included in the been documented from the northern response of plant communities to Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38007 removal of non-native mammals. A five- Galium buxifolium, Helianthemum age, and the establishment of new year trial feral pig removal program was greenei, Malacothamnus fasciculatus individuals is completely lacking. The successful in removing all but a few pigs var. nesioticus, Malacothrix indecora, effects of browsing animals on critical from a 2,400-hectare (6,000-acre) Malacothrix squalida, Phacelia insularis portions of the species’ life cycle has exclosure on the south side of the ssp. insularis, and Thysanocarpus resulted in the inability of the species to island. The number of pigs has begun to conchuliferus) are based upon the establish new individuals to replenish increase. TNC also took immediate steps occurrence of fires to promote the population. The degree of to remove sheep upon acquiring the reproduction and reduce competition pollination success for manzanita property, but has been unable to manage with other species. flowers is unknown; however, the the apparent rapid invasion of alien Many of the known pollinators on the presence of alien grazing and browsing fennel that resulted from the release of islands are ground-nesting insects animals has most likely depressed the grazing pressure. TNC is exploring (Miller 1985, Miller and Davis 1985). number of native pollinators available to options for implementing island-wide The habitat of these ground-nesting the native plants. Even if pollination feral pig removal and other management insects has been and is being degraded occurs and results in successful fruiting, activities; these options may include by trampling and serious loss of soils to the fruits are eaten by browsing animals. developing an agreement with NPS for active erosion on all of the islands. Even if fruits escape predation and that agency to manage the island. The small numbers of isolated seeds do germinate, the seedlings are The species that occupy insular populations and individuals of most of either trampled or eaten by those same habitats, like those found on the nearby these taxa increase the potential for animals. All of the species in this rule mainland, have characteristics that extinction from stochastic events. Five that occur on Santa Rosa, Santa Cruz, enable them to recover from fire events. of the proposed taxa, Dudleya and Santa Catalina Islands are similarly These characteristics include the blochmaniae ssp. insularis, Dudleya sp. affected. production of seeds that respond nov. ‘‘East Point,’’ Dudleya nesiotica, Thirdly, catastrophic environmental favorably to fire temperatures and Gilia hoffmannii, and Malacothrix events, such as storms, drought, fire, or chemical products (charates) and root indecora, are known from single landslides, could destroy a significant burls that resprout following a fire populations. Six other proposed taxa, percentage of a species’ individuals, or (Carroll et al. 1993). Tree ring histories Arabis hoffmannii, Berberis pinnata ssp. the only known extant population. from island Torrey pines with fire scars insularis, Castilleja mollis, Arabis hoffmannii and Thysanocarpus reveal that pre-livestock fire events Malacothamnus fasciculatus ssp. conchuliferus are examples of species occurred at 20 to 30 year intervals (Viers nesioticus, Malacothrix squalida, and that could sustain losses of individuals and Halvorson 1994). Since little Phacelia insularis ssp. insularis, are and populations through landslides and evidence exists that lightning fires occur known from only two to five soil sloughing as a result of storm populations. at these frequencies (Carroll et al. 1993), events. man is implicated as the principal agent Species with small numbers of In summary, stochastic events can of ignition (Timbrook et al. 1982). populations and individuals are subject Fire has been removed as a to the threat of stochastic extinction in affect species on three different levels: functioning ecological process on the several ways. First, the loss of genetic through loss of genetic diversity, islands for over 150 years. The absence diversity may decrease the species’ through chance events in survival and of fire has created an imbalance in ability to maintain fitness within the reproduction, and through catastophic recruitment and regeneration of environment, and is frequently environmental events. When numbers of ecosystem components, including many manifested in depressed reproductive populations and individuals reach of the proposed species. Therefore, the vigor. From the genetic analyses critically low levels, more than one of current distribution of island vegetation conducted for the two populations of the three types of stochastic events may does not represent prehistoric Malacothamnus fasciculatus var. combine to cause extinction. For conditions (Minnich 1980). Many of the nesioticus, Swenson et al. (in prep.) instance, a species that has had low brushland species will not regenerate concluded that the two genotypes reproductive success due to grazing or without fire and with age will die back. represented in each of the two browsing pressure during a critical Browsing and grazing animals reduce populations ‘‘probably represent only a portion of its life cycle may the probability of survival for these fire- portion of the diversity once present in subsequently be subject to a severe adapted species by removing seed and var. nesioticus.’’ Elisens (1994) drought or storm event that eliminates seedlings. This could be devastating to documented reduced levels of genetic any remaining individuals or recruitment following a fire event. diversity in Galvesia speciosa, a populations. Stochastic extinction Seedling consumption could effectively Channel Islands endemic plant and constitutes a major threat to all of the terminate the subsequent generation Category 2 candidate for Federal listing, taxa being proposed. necessary to re-establish the seed bank. and noted that the levels were ‘‘likely The Service has carefully assessed the The fuel load (the amount of standing the result of decreased population sizes best scientific and commercial and downed vegetation) has been initiated by human activities and information available regarding the past, dramatically altered from heavy (brush) herbivore introductions.’’ present, and future threats faced by to light (grass) through the agents of Secondly, species with low numbers these taxa in determining to propose ranching and sport hunting of populations or individuals may be this rule. Based on this evaluation, the management. The characteristic fire subject to forces that affect their ability preferred action is to propose Arabis intensities and durations shifted from to complete their life cycle successfully. hoffmannii, Arctostaphylos long duration and high intensity with Arctostaphylos confertiflora, like a host confertiflora, Berberis pinnata ssp. brush fuels to short duration and light of other perennial shrub and tree taxa insularis, Castilleja mollis, Dudleya intensities with grass fuels. The life that are candidates for Federal listing on blochmaniae ssp. insularis, Dudleya sp. history requirements of most taxa in this the northern Channel Islands, provides nov. ‘‘East Point,’’ Dudleya nesiotica, proposed rule (Arabis hoffmannii, an excellent example of this type of Galium buxifolium, Gilia tenuiflora ssp. Arctostaphylos confertiflora, Berberis threat. The only remaining individuals hoffmannii, Helianthemum greenei, pinnata ssp. insularis, Castilleja mollis, of this species are of moderate to old Heuchera maxima, Malacothamnus 38008 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules fasciculatus ssp. nesioticus, Malacothrix Malacothrix squalida, Phacelia insularis subsequently listed, section 7(a)(2) indecora, Malacothrix squalida, ssp. insularis, and Thysanocarpus requires Federal agencies to ensure that Phacelia insularis ssp. insularis, and conchuliferus at this time. Service activities they authorize, fund, or carry Thysanocarpus conchuliferus as regulations (50 CFR 424.12(a)(1)) state out are not likely to jeopardize the endangered. Threats to the 16 taxa that designation of critical habitat is not continued existence of such a species or include soil loss, habitat alteration by prudent when one or both of the to destroy or adversely modify its mammals alien to the Channel Islands following situations exist: (1) the critical habitat. If a Federal action may (pigs, goats, sheep, donkeys, cattle, deer, species is threatened by taking or other affect a listed species or its critical elk, horses, bison) and direct predation human activity, and identification of habitat, the responsible Federal agency by these same alien mammals, habitat critical habitat can be expected to must enter into formal consultation with alteration by native seabirds, habitat increase the degree of such threat to the the Service. alteration due to vehicular traffic, species, or (2) such designation of The Service and NPS have recently overcollection for scientific or critical habitat would not be beneficial agreed to pursue development of a horticultural purposes, and competition to the species. Conservation Agreement under the with alien plant taxa. The 16 taxa also The National Park Service, the Secretary of the Interior’s directive for have an increased vulnerability to Department of Defense, The Nature Federal agencies to cooperate in the extinction due to reduced genetic Conservancy, and other pertinent conservation of species for which listing viability, depressed reproductive vigor, parties have been notified of the may be appropriate (U.S. Dept. of and stochastic environmental events location and importance of protecting Interior 1994). The Conservation resulting from small numbers of these species’ habitat. Because Agreement would focus on the individuals and populations. Because protection of these species’ habitat will prelisting recovery needs of the other these 16 taxa are in danger of extinction be addressed through the recovery plant and animal candidate taxa from throughout all or a significant portion of process and through the section 7 the northern Channel Islands, such that their ranges, they fit the definition of consultation process as a result of listing listing for some of those taxa may be endangered as defined in the Act. these species, there would be little avoided, and would also serve as a Critical habitat is not being proposed for additional benefit to designating critical template for the future development of these taxa for reasons discussed in the habitat. Therefore, the Service finds that a recovery strategy for the 16 taxa ‘‘Critical Habitat’’ section of this designation of critical habitat for these included in this proposal. In addition, if proposal. plants is not prudent at this time as threats to these 16 taxa can be reduced such designation would provide little or eliminated, final listing of some or all Critical Habitat additional benefit beyond that provided of the proposed taxa may be precluded. Critical habitat is defined by section through the section 7 consultation Of the 16 proposed taxa, all except 3 3 of the Act as: (i) the specific areas process. (Dudleya nesiotica, Malacothamnus within the geographical area occupied fasciculatus ssp. nesioticus, and by a species, at the time it is listed in Available Conservation Measures Thysanocarpus conchuliferus) have accordance with the Act, on which are Conservation measures provided to populations or historical habitat located found those physical or biological species listed as endangered or on Federal lands. Three of the taxa features (I) essential to the conservation threatened under the Act include (Galium buxifolium, Malacothrix of the species and (II) that may require recognition, recovery actions, indecora, and Phacelia insularis ssp. special management considerations or requirements for Federal protection, and insularis) have populations or historical protection and; (ii) specific areas prohibitions against certain practices. habitat on San Miguel Island, which is outside the geographical area occupied Recognition through listing encourages owned by the Navy and managed by by a species at the time it is listed, upon and results in conservation actions by NPS through a Memorandum of a determination that such areas are Federal, State, and private agencies, Agreement and Interagency Agreement. essential for the conservation of the groups, and individuals. The Act Navy activities that could potentially species. ‘‘Conservation’’ means the use provides for possible land acquisition affect these taxa and their habitats of all methods and procedures needed and cooperation with the States and include military exercises and to bring any protected species to the requires that recovery actions be carried equipment testing and retrieval carried point at which the measures provided out for all listed species. The protection out under the Executive Order that pursuant to the Act are no longer required of Federal agencies and the established the Pacific Missile Test necessary (50 CFR 424.02(c)). prohibitions against certain activities Center (PMTC) Sea Test Range, which Section 4(a)(3) of the Act, as involving listed plants are discussed, in includes Anacapa, San Miguel, Santa amended, and implementing regulations part, below. Barbara, Santa Cruz, and Santa Rosa (50 CFR 424.12) require that, to the Section 7(a) of the Act, as amended, Islands and their environs. maximum extent prudent and requires Federal agencies to evaluate Three of the taxa (Berberis pinnata determinable, the Secretary specify their actions with respect to any species ssp. insularis, Heuchera maxima, and critical habitat at the time a species is that is proposed or listed as endangered Malacothrix squalida) have populations proposed for listing. The Service finds or threatened and with respect to its or historical habitat on Anacapa Island, that designation of critical habitat is not critical habitat, if any is designated. which is owned and managed by NPS. prudent for Arabis hoffmannii, Regulations implementing this Eleven of the 16 taxa have populations Arctostaphylos confertiflora, Berberis interagency cooperation provision of the or historical habitat on Santa Rosa pinnata ssp. insularis, Castilleja mollis, Act are codified at 50 CFR part 402. Island, which is owned and managed by Dudleya blochmaniae ssp. insularis, Section 7(a)(4) requires Federal agencies NPS. Five of those 11 taxa are single Dudleya sp. nov. ‘‘East Point,’’ Dudleya to confer informally with the Service on island endemics (Arctostaphylos nesiotica, Galium buxifolium, Gilia any action that is likely to jeopardize confertiflora, Castilleja mollis, Dudleya tenuiflora ssp. hoffmannii, the continued existence of a proposed blochmaniae ssp. insularis, Dudleya sp. Helianthemum greenei, Heuchera species or result in destruction or nov. ‘‘East Point,’’ Gilia tenuiflora ssp. maxima, Malacothamnus fasciculatus adverse modification of proposed hoffmannii). NPS activities that could ssp. nesioticus, Malacothrix indecora, critical habitat. If a species is potentially affect these taxa and their Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38009 habitats include specific management agents of the Service and State Service, Endangered Species Permits, plans, including those that address conservation agencies. 911 N.E. 11th Avenue, Portland, Oregon expansion of park facilities; expansion It is the policy of the Service, 97232–4181 (telephone 503/231–2063, of visitor services; range management published in the Federal Register, (59 facsimile 503/231–6243). plans, including those that address FR 34272) on July 1, 1994, to identify Public Comments Solicited cattle ranching and deer and elk to the maximum extent practicable at hunting; alien plant removal programs; the time a species is listed those The Service intends that any final and other ecosystem restoration activities that would or would not be action resulting from this proposal will programs. Other activities include the likely to constitute a violation of section be as accurate and as effective as issuing of permits, including Special 9 of the Act. The intent of this policy possible. Therefore, comments or Use Permits, that authorize continued is to clarify the potential impacts of a suggestions from the public, other ranching and hunting operations on species’ listing on proposed and concerned governmental agencies, the Santa Rosa Island. Also included are ongoing activities within the species’ scientific community, industry, or any permits that authorize activities by other range. Nine of the 16 taxa in this other interested party concerning this agencies or organizations, including proposed rule are known to occur on proposed rule are hereby solicited. rights-of-way to the Department of lands under the jurisdiction of the Comments particularly are sought Commerce to access lighthouse and National Park Service or Department of concerning: communication facilities. The enabling Defense; an additional 4 taxa (1) Biological, commercial trade, or legislation that authorized NPS historically occurred on these same other relevant data concerning any purchase of Santa Rosa Island also Federal lands, and potential habitat may threat (or lack thereof) to these species; provides a mechanism to ensure still exist. Collection, damage, or (2) The location of any additional protection of the island’s natural destruction of listed species on these populations of these species and the resources. Sections 202(d)(1) and lands is prohibited. However, reasons why any habitat should or 202(d)(2) of Title II, Public Law 96–199, authorization to incidentally remove or should not be determined to be critical state that if the Secretary of the Interior destroy such species on Federal lands habitat as provided by section 4 of the determines the property is being used may be granted by the Fish and Wildlife Act; for any purpose that is incompatible Service for any otherwise legal action (3) Additional information concerning with the administration of the park or funded, authorized, or implemented by the range, distribution, and population with the preservation of its resources, a Federal agency through section 7 of size of these species; and the Secretary shall terminate the the Act. The removal and reduction to (4) Current or planned activities in the retained right and use of occupancy by possession of listed species on Federal subject area and their possible impacts the former owner. lands for research activities may be on these species. authorized by the Service under section As mentioned above, there are four Final promulgation of the regulations 10(a)(1)(B) of the Act. on these species will take into taxa that occur wholly on lands owned Section 9 of the Act prohibits consideration the comments and any and managed by TNC. Future removal, cutting, digging up, damaging, additional information received by the management of Santa Cruz Island may or destroying listed species on Federal involve NPS as a cooperator, since the or non-Federal lands in knowing Service, and such communications may island is within National Park violation of any law or regulation of any lead to a final regulation that differs boundaries. NPS has already developed State or in the course of any violation from this proposal. a keen interest in the conservation of the of a State criminal trespass law. As an The Endangered Species Act provides proposed taxa on Santa Cruz Island, and example, if individuals of a listed plant for a public hearing on this proposal, if the Service would anticipate species were grazed or trampled by requested. Requests must be received by coordination with NPS on issues cattle while the livestock was September 25, 1995. Such requests must affecting those taxa. trespassing on either Federal or non- be made in writing and addressed to the The Act and its implementing Federal land, a violation of section 9 Field Office Supervisor of the Ventura regulations set forth a series of general may exist. However, if the livestock Field Office (see ADDRESSES section). prohibitions and exceptions that apply grazing occurred under the authority of National Environmental Policy Act to all endangered plants. All a local permit on non-Federal land or The Fish and Wildlife Service has prohibitions of section 9(a)(2) of the Act, under a section 7 consultation on determined that Environmental implemented by 50 CFR 17.61, apply. Federal land, section 9 would not be Assessments and Environmental Impact These prohibitions, in part, make it violated. Questions regarding whether Statements, as defined under the illegal for any person subject to the specific activities would constitute a authority of the National Environmental jurisdiction of the United States to violation of section 9 should be directed Policy Act of 1969, need not be import or export, transport in interstate to the Field Supervisor of the Service’s prepared in connection with regulations or foreign commerce in the course of a Ventura Field Office (see ADDRESSES adopted pursuant to section 4(a) of the commercial activity, sell or offer for sale section). Endangered Species Act of 1973, as in interstate or foreign commerce, or The Act and 50 CFR 17.62 and 17.63 amended. A notice outlining the remove and reduce the species to also provide for the issuance of permits Service’s reasons for this determination possession from areas under Federal to carry out otherwise prohibited was published in the Federal Register jurisdiction. In addition, the Act activities involving endangered plants on October 25, 1983 (48 FR 49244). prohibits the malicious damage or under certain circumstances. Such destruction on areas under Federal permits are available for scientific References Cited jurisdiction and the removal, cutting, purposes and to enhance the A complete list of all references cited digging up, or damaging or destroying of propagation or survival of the species. herein, as well as others, is available such plants in knowing violation of any Requests for copies of the regulations upon request from the Ventura Field State law or regulation, including State regarding listed species and inquiries Office (see ADDRESSES section). criminal trespass law. Certain about prohibitions and permits may be Authors: The primary authors of this exceptions to the prohibitions apply to addressed to the U.S. Fish and Wildlife proposed rule are Constance Rutherford and 38010 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules Tim Thomas, botanists, Ventura Field Office B of chapter I, title 50 of the Code of 2. Section 17.12(h) is amended by (see ADDRESSES section). Federal Regulations, as set forth below: adding the following, in alphabetical List of Subjects in 50 CFR Part 17 order under FLOWERING PLANTS, to PART 17Ð[AMENDED] the List of Endangered and Threatened Endangered and threatened species, Plants to read as follows: Exports, Imports, Reporting and 1. The authority citation for Part 17 recordkeeping requirements, and continues to read as follows: § 17.12 Endangered and threatened plants. Transportation. Authority: 16 U.S.C. 1361–1407; 16 U.S.C. * * * * * Proposed Regulations Promulgation 1531–1544; 16 U.S.C. 4201–4245; Pub. L. 99– (h) * * * Accordingly, the Service hereby 625, 100 Stat. 3500; unless otherwise noted. proposes to amend part 17, subchapter Species Historic range Family name Status When listed Critical Special Scientific name Common name habitat rules FLOWERING PLANTS ******* Arabis hoffmannii ..... Hoffman's rockcress U.S.A. (CA) ...... BrassicaceaeÐ E NA NA Mustard. ******* Arctostaphylos Santa Rosa Island U.S.A. (CA) ...... EricaceaeÐHeath .. E NA NA confertiflora. manzanita. ******* Berberis pinnata ssp. Island barberry ...... U.S.A. (CA) ...... BerberidaceaeÐ E NA NA insularis. Barberry. ******* Castilleja mollis ...... Soft-leaved Indian U.S.A. (CA) ...... Scrophulariaceae E NA NA paintbrush. Figwort. ******* Dudleya Santa Rosa Island U.S.A. (CA) ...... CrassulaceaeÐ E NA NA blochmaniae ssp. dudleya. Stonecrop. insularis. ******* Dudleya sp. nov. Munchkin dudleya ... U.S.A. (CA) ...... CrassulaceaeÐ E NA NA ``East Point''. Stonecrop. ******* Dudleya nesiotica .... Santa Cruz Island U.S.A. (CA) ...... CrassulaceaeÐ E NA NA dudleya. Stonecrop. ******* Galium buxifolium .... Island bedstraw ...... U.S.A. (CA) ...... RubiaceaeÐBed- E NA NA straw. ******* Gilia tenuiflora ssp. Hoffmann's gilia ...... U.S.A. (CA) ...... PolemoniaceaeÐ E NA NA hoffmannii. Phlox. ******* Helianthemum Island rush rose ...... U.S.A. (CA) ...... CistaceaeÐ E NA NA greenei. Rockrose. ******* Heuchera maxima ... Island alumroot ...... U.S.A. (CA) ...... SaxifragaceaeÐ E NA NA Saxifrage. ******* Malacothamnus Santa Cruz Island U.S.A. (CA) ...... MalvaceaeÐ Mal- E NA NA fasciculatus ssp. bush-mallow. low. nesioticus. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38011 Species Historic range Family name Status When listed Critical Special Scientific name Common name habitat rules ******* Malacothrix indecora Santa Cruz Island U.S.A. (CA) ...... AsteraceaeÐAster .E NA NA malacothrix. ******* Malacothrix squalida Island malacothrix ... U.S.A. (CA) ...... AsteraceaeÐAster .E NA NA ******* Phacelia insularis Island phacelia ...... U.S.A. (CA) ...... Hydrophyllaceae .... E NA NA ssp. insularis. ÐWaterleaf ...... ******* Thysanocarpus Santa Cruz Island U.S.A. (CA) ...... BrassicaceaeÐ E NA NA conchuliferus. lacepod. Mustard. ******* Dated: July 7, 1995. Species Act (ESA), NMFS has identified the ESA) of indigenous, naturally Mollie H. Beattie, specific risk factors and concerns that spawning coho salmon in Oregon and to Director, Fish and Wildlife Service. need to be resolved prior to assessing designate critical habitat under the ESA. [FR Doc. 95–18242 Filed 7–24–95; 8:45 am] the overall health of the ESUs. The five ESUs identified by the BILLING CODE 4310±55±P NMFS is requesting public comments petitioners included coho salmon and input on the biological issues populations from rivers south of Cape pertaining to the proposal. NMFS also is Blanco, the Coquille and Coos Rivers, DEPARTMENT OF COMMERCE soliciting suggestions and input on the Umpqua River, rivers between the integrated local/state/federal Umpqua and Nehalem rivers, and the National Oceanic and Atmospheric conservation measures that might best Columbia River. On October 27, 1993, Administration achieve the purposes of the ESA relative NMFS published a notice of finding (58 50 CFR Part 227 to recovering the health of coho salmon FR 57770) that a listing may be [Docket No. 950407093±5179±02; I.D. populations and the ecosystems upon warranted, soliciting information about 012595A] which they depend. Should the the status of all populations of coho proposed listings be made final, salmon in Washington, Oregon, and Endangered and Threatened Species; protective regulations under the California. NMFS determined that such Proposed Threatened Status for Three Endangered Species Act (ESA) would be an expanded status review was Contiguous ESUs of Coho Salmon put into effect and a recovery program(s) warranted due to the general decline in Ranging From Oregon Through Central would be implemented. many West Coast coho salmon California DATES: Comments must be received by populations. AGENCY: National Marine Fisheries October 23, 1995. NMFS will announce Supplemental to the July 21, 1993, Service (NMFS), National Oceanic and the dates and locations of public petition, on October 20, 1993, NMFS Atmospheric Administration (NOAA), hearings in Washington, Oregon, and received a petition from Pacific Rivers Commerce. California in a separate Federal Register Council and 22 co-petitioners (PRC et ACTION: Proposed rule; request for document. Requests for additional al.) to list under the ESA, either on an comments. public hearings must be received by emergency basis or through normal September 8, 1995. listing procedures, all coho salmon SUMMARY: NMFS has completed a ADDRESSES: Comments on this proposed populations in Washington, Idaho, comprehensive status review of coho rule and requests for public hearings Oregon, and California, and to designate salmon (Oncorhynchus kisutch) should be sent to the Environmental and critical habitat. On January 26, 1994, populations from southern British Technical Services Division, NMFS, NMFS published a notice of finding (59 Columbia to southern California, and Northwest Region, 525 NE Oregon FR 3662) that a non-emergency listing has identified six evolutionarily Street, Suite 500, Portland, OR 97232– may be warranted, soliciting significant units (ESUs) within this 2737. information about the status of all range. NMFS is now issuing a proposed FOR FURTHER INFORMATION CONTACT: populations of coho salmon rule to list three of these ESUs as Garth Griffin, 503–230–5430, Craig ‘‘coastwide’’ (hereinafter defined as threatened (Oregon coast, southern Wingert, 310–980–4021, or Marta populations in the southern portion of Oregon/northern California, and central Nammack, 301–713–1401. the species’ range inhabiting rivers California coast). NMFS is also adding south of Queen Charlotte Strait, British SUPPLEMENTARY INFORMATION: two ESUs (Puget Sound/Strait of Columbia). The notice also announced Georgia, lower Columbia River/ Petition Background that information submitted in response southwest Washington coast) to the On July 21, 1993, NMFS received a to the PRC et al. petition would be used candidate species list because, while petition from Oregon Trout, Portland in NMFS’ coastwide review of coho there is not sufficient information Audubon Society, and Siskiyou salmon populations already underway available at this time to indicate that Regional Educational Project (Oregon (58 FR 57770, October 27, 1993). coho salmon in either ESU warrant Trout et al.) to list five or more ESUs Prior to the Oregon Trout et al. and protection under the Endangered (See Consideration as a ‘‘Species’’ under PRC et al. petitions, NMFS received two 38012 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules separate petitions to list and designate be published in a forthcoming NOAA Consideration as a ‘‘Species’’ Under the critical habitat for (1) lower Columbia Technical Memorandum. ESA River coho salmon (55 FR 37342, September 11, 1990), and (2) coho Biological Background To qualify for listing as a threatened or endangered species, the identified salmon in Scott and Waddell Creeks, CA Coho salmon are anadromous, populations of coho salmon must be (58 FR 33605, June 18, 1993). For both meaning they migrate from the ocean to considered ‘‘species’’ under the ESA. petitions, NMFS published spawn in fresh water. The species was determinations denying listings because The ESA defines a ‘‘species’’ to include historically distributed throughout the evidence indicated that neither of the any ‘‘distinct population segment of any North Pacific Ocean from central petitioned entities constituted a species of vertebrate fish or wildlife California to Point Hope, AK, through ‘‘species’’ under the ESA (56 FR 29553, which interbreeds when mature.’’ the Aleutian Islands, and from the June 27, 1991, and 59 FR 21744, April NMFS published a policy (56 FR 58612, 26, 1994). Information considered in Anadyr River, Russia, south to Hokkaido, Japan. Historically, this November 20, 1991) describing how the these earlier status reviews was also agency will apply the ESA definition of used in NMFS’ coastwide review of species probably inhabited most coastal streams in Washington, Oregon, and ‘‘species’’ to anadromous salmonid coho salmon populations. species. This policy provides that a During the coastwide status review, central and northern California. Some salmonid population will be considered NMFS assessed the best available populations, now considered extinct, scientific and commercial data and are believed to have migrated hundreds distinct, and hence a species under the received technical information from of miles inland to spawn in tributaries ESA, if it represents an ESU of the Pacific Salmon Biological and Technical of the upper Columbia River in biological species. A population must Committees (PSBTCs) in Washington, Washington, and the Snake River in satisfy two criteria to be considered an Oregon, and California; a committee was Idaho. ESU: (1) It must be reproductively isolated from other conspecific not convened in Idaho because coho In contrast to the life history patterns population units, and (2) it must salmon are extinct in that state (see ESU of other anadromous salmonids, coho represent an important component in Determinations). The PSBTCs consisted salmon in the region under status the evolutionary legacy of the biological of scientists (from Federal, state, and review generally exhibit a relatively local resource agencies, Indian tribes, simple, 3 year life cycle. Adults species. The first criterion, reproductive industries, professional societies, and typically begin their freshwater isolation, need not be absolute, but must public interest groups) that have spawning migration in the late summer be strong enough to permit technical expertise relevant to coho and fall, spawn by mid-winter, then die. evolutionarily important differences to salmon. While NMFS’ status review accrue in different population units. focused on coho salmon populations in Run and spawn timing of adult coho salmon varies between and within The second criterion is met if the Washington, Oregon, and California, the population contributes substantially to geographic scope was broadened to coastal and Columbia River Basin populations (see Ecological/Genetic the ecological/genetic diversity of the include populations from southern species as a whole. Guidance on the British Columbia, due to their potential Diversity). Depending on temperature, application of this policy is contained in similarity to coho salmon populations eggs incubate in ‘‘redds’’ (gravel nests a scientific paper ‘‘Pacific Salmon in Washington. excavated by spawning females) for 1.5 A NMFS Biological Review Team, to 4 months before hatching as (Oncorhynchus spp.) and the Definition comprised of staff from NMFS’ ‘‘alevins’’ (a larval life stage dependent of ‘Species’ under the Endangered Northwest Fisheries Science Center on food stored in a yolk sac). Following Species Act’’ and a NOAA Technical (NWFSC) and Southwest Regional yolk sac absorption, alevins emerge Memorandum ‘‘Definition of ‘Species’ Office, has completed a coastwide status from the gravel as young juveniles or Under the Endangered Species Act: review for coho salmon (Memorandum ‘‘fry’’ and begin actively feeding. Application to Pacific Salmon,’’ which to G. Smith from M. Schiewe, July 5, Juveniles rear in fresh water for up to 15 are available upon request (see 1994, Preliminary Conclusions of the months, then migrate to the ocean as ADDRESSES). The following sections Northwest Science Center’s Review of a ‘‘smolts’’ in the spring. Coho salmon describe the genetic, ecological, and life Petition to List Oregon Populations of typically spend two growing seasons in history characteristics, as well as Coho Salmon under the U.S. the ocean before returning to their natal human-induced genetic changes that Endangered Species Act; Memorandum stream to spawn as 3 year-olds. Some NMFS assessed to determine the to W. Stelle from M. Schiewe, precocious males, called ‘‘jacks,’’ return number and geographic extent of coho September 2, 1994, Status Review of to spawn after only 6 months at sea. salmon ESUs. Coho Salmon from California, Oregon, and Washington; Memorandum to W. During this century, indigenous, International ESUs Stelle from M. Schiewe, February 22, naturally-reproducing populations of In the case of Pacific salmon and 1995, Puget Sound Coho Salmon; coho salmon are believed to have been Memorandum to R. Schmitten from W. extirpated in nearly all Columbia River anadromous trout, it is likely that a Stelle, March 20, 1995, Puget Sound tributaries and to be in decline in coastwide status review will result in Coho Salmon. Copies of the memoranda numerous coastal streams in the identification of one or more ESUs are available upon request (see Washington, Oregon, and California. At that, from a biological standpoint, ADDRESSES). The review, summarized least 33 populations have been include populations from foreign below, identifies six ESUs of coho identified by agencies and conservation countries (e.g., Canada). The ESA salmon from southern British Columbia, groups as being at moderate or high risk encourages international efforts to Washington, Oregon, and California. of extinction. In general, there is a protect threatened or endangered NMFS is now issuing a proposed rule to geographic trend in the status of West species and authorizes NMFS to list list three ESUs as threatened under the Coast coho salmon stocks, with the species occurring in foreign countries ESA. Full results of NMFS’ status southernmost and easternmost stocks in after taking into account any efforts review of coho salmon populations will the worst condition. being made to protect the species. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38013 Reproductive Isolation involving a large number of samples. generally consistent with the patterns A review of published accounts Major stock groupings resulting from described above. In addition, Solazzi indicates that homing fidelity in coho NMFS’ analysis are described below. (1986) found that two wild populations salmon is generally strong, with low Southern Oregon/California—Because from the north coast of Oregon, which levels of straying (about 1 percent) the NMFS data set included only a were not included in the NMFS data set, single sample from California, the estimated for most natural populations clustered with hatchery samples from analysis was supplemented with that have been studied. On the other northern Oregon. published data from Olin (1984), Bartley Recent DNA data for Oregon coho hand, coho salmon habitat typically (1987), and Gall (1991). This resulted in salmon are largely consistent with includes small tributaries that data for 13 polymorphic gene loci for 26 results based on protein electrophoretic experience relatively frequent, samples from southern Oregon (south of analyses. Currens and Farnsworth temporary blockages, and there are a Cape Blanco) and California, including (1993) identified three major groups number of examples in which coho 4 from the NMFS data set. Limitations within Oregon: (1) North and central salmon have rapidly recolonized vacant of this analysis are that many sample Oregon coastal populations, (2) habitat that had only recently become sizes were small, and data were not Columbia River populations, and (3) accessible to anadromous fish. Because available for some of the most variable south Oregon coastal populations and ESU determinations focus on units that gene loci. Nevertheless, results clearly two unusual Columbia River are strongly isolated over evolutionarily show two major geographic clusters in populations—the Clatskanie and important time frames, NMFS concludes this region, separated by a relatively Clackamas Rivers. Forbes et al. (1993) that, in general, local spawning large genetic distance. The northern reported highly significant differences populations of coho salmon are unlikely (and primarily large-river) group between Columbia River and Oregon to meet the criterion of reproductive includes 12 samples ranging from the coastal coho salmon, but only marginal isolation. However, groups of local Elk River (just south of Cape Blanco) to differences among stocks within these populations among tributaries within a the Eel River (just north of Cape regions. river drainage may experience Mendocino). The southern (and Lower Columbia River—Another substantial, long-term isolation from primarily small-river) group includes 11 major cluster in the NMFS analysis other such groups. samples, spanning a geographic range includes all of the lower Columbia River Genetic data provide useful indirect from Fort Bragg to Tomales Bay. There samples, as well as samples from the information on reproductive isolation is considerable genetic diversity within southwest Washington coast. Within because they integrate information both groups, particularly the northern. this larger group, several smaller about migration and gene flow over Three small-river samples from the clusters can be identified. Two of the evolutionarily important time frames. southern region (Scott, Cottoneva, and subclusters, one dominated by samples The Genetics Project within the NWFSC Pudding Creeks) are outliers to both of from Washington and the other by is developing a coastwide database of the major groups, and Huckleberry samples from Oregon, include most of protein electrophoretic data for coho Creek (Eel River Basin) is only loosely the samples from the lower Columbia salmon, and the database now includes allied to the northern group. River. Another subcluster contains three information for 53 polymorphic gene Oregon coast—The NMFS study samples from Willapa Bay on the loci in samples from over 100 shows that samples of coho salmon from southwest Washington coast. A final populations covering a geographic range the Oregon coast are genetically distinct subcluster includes samples from the from the Trinity River, CA, to Bristol from other coastal and Columbia River Clackamas and Clatskanie Rivers in the Bay, AK. Published results from several populations. In addition, there is lower Columbia River and samples from other studies of genetic characteristics evidence for genetic differentiation the Humptulips and Simpson of coho salmon populations were also within this group. Samples from four Hatcheries on the southwest considered. These included additional hatcheries on the northern Oregon coast Washington coast. As noted above, studies based on protein electrophoresis form a group that is well differentiated Currens and Farnsworth also found a (Olin 1984, Solazzi 1986, Reisenbichler from other samples. It is not known how genetic similarity between samples from and Phelps 1987, Wehrhahn and Powell accurately these samples reflect genetic the Clackamas and Clatskanie Rivers, 1987, Bartley 1987, Gall 1991), an characteristics of coho salmon native to based on mtDNA markers. agglomerative approach based on data this area. Most samples from the Oregon Puget Sound, Strait of Georgia, and from life history, morphology, and coast are part of a large genetic cluster. Olympic Peninsula—The few samples protein electrophoresis (Hjort and This cluster includes both natural and NMFS examined from Alaska and the Schreck 1982), and two recent studies of hatchery populations. A third cluster upper Fraser River, Canada, are variation at the DNA level (Currens and within the Oregon coastal group substantially different genetically from Farnsworth 1993, who examined consists of wild and hatchery samples all U.S. populations and are not variation at mitochondrial DNA from the Elk and Umpqua Rivers that considered further here. In contrast, (mtDNA) and Forbes et al. 1993, who also share some degree of similarity samples NMFS has examined from examined variation in nuclear DNA). with a hatchery sample from the Rogue Puget Sound and the Strait of Georgia Although collectively these studies River. form a coherent genetic cluster. Closely show that the pattern of relationships Hjort and Schreck (1982) also found allied to this Puget Sound/Strait of among populations is complex, there is that a group of hatchery populations Georgia group is a group of populations a strong geographic component to the from northern Oregon was distinct from from the northwestern Olympic observed population structure, and other hatchery and natural populations Peninsula (northern coast of several major stock groupings can be along the Oregon coast. Their study Washington and the western end of the identified. While a few individual further indicated that Oregon coastal Strait of Juan de Fuca). In earlier samples proved to be exceptions to the populations of coho salmon differed studies, Reisenbichler and Phelps (1987) general patterns, possible explanations from those in other regions, including found little geographic structure among for these results include true ancestral the Columbia River Basin, California, samples of coho salmon from the relationships, stock transfers, and and Washington. Results obtained by northern coast of Washington, whereas random variation in an analysis Olin (1984) and Solazzi (1986) are Wehrhahn and Powell (1987) found 38014 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules significant differences between samples and from mid-December to mid- Columbia have much more northern from the upper Fraser River and the February in rivers farther south. recovery patterns than those from either lower coastal mainland of British Spawning timing shows less variation the Columbia River or the Oregon coast, Columbia. However, because some rare than river entry, but it has similar although distinctive patterns within alleles were shared between the latter patterns. Along most of the Washington Washington and British Columbia are two areas, Wehrharn and Powell and Oregon coasts and in Puget Sound, not as obvious as those for groups concluded that there are no absolute coho salmon spawn in November and farther south. Coho salmon released barriers to dispersal of coho salmon December, with exceptionally early and from central British Columbia were between the lower coastal mainland, late runs occurring along the frequently recovered off Alaska (15 to 39 lower Vancouver Island, and the Fraser Washington coast, in the Columbia percent), with the remainder of the River. River, and in Puget Sound. Spawning in recoveries coming from British southern Oregon and northern Columbia (61 to 85 percent). Coho Ecological/Genetic Diversity California also occurs in December, but salmon released along the east and west Several types of physical and south of the Mattole River it occurs most coasts of Vancouver Island and the biological evidence were considered in frequently in January. Because coho southwest British Columbia mainland evaluating the contribution of coho salmon enter rivers late and spawn late are caught almost exclusively in British salmon from southern British Columbia, south of the Mattole River, they spend Columbia (90 to 99 percent), with Washington, Oregon, and California to much less time in the river prior to infrequent recoveries in Alaska (less the ecological/genetic diversity of the spawning than do coho salmon farther than 1 percent), Washington (0 to 9 biological species throughout its range. north. Coho salmon adults in the three- percent), and Oregon (less than 2 Factors examined included: (1) The state area overwhelmingly (>95%) percent). Coho salmon released from physical environment—geology, soil spawn at age 3, spending just over a Puget Sound, Hood Canal, and the Strait type, air temperature, precipitation, year in fresh water and a year and a half of Juan de Fuca are recovered from river flow patterns, water temperature, in the ocean (Sandercock 1991). In Washington (23 to 72 percent), British and ocean conditions/upwelling; (2) contrast, many coho salmon adults from Columbia (27 to 74 percent), and Oregon biogeography—marine, estuarine, and southeast Alaska spend over 2 years in (0 to 3 percent), with essentially no freshwater fish distributions, and fresh water and return to spawn at age recoveries from Alaska or California. vegetation; and (3) life-history traits— 4. It is not known exactly where the Coho salmon from the Washington coast smolt size and outmigration timing, age transition occurs between these two age have similar CWT recovery patterns, but and size at spawning, river entry timing, structures, but limited information have higher Oregon recoveries than spawning timing, and marine coded- suggests that an increasing proportion of Puget Sound/Hood Canal coho salmon. wire-tag (CWT) recoveries. The relative 2 year-old smolts is seen in coho salmon Because Puget Sound and Hood Canal magnitudes of potential human-induced as one approaches the north end of coho salmon are caught at high levels in genetic changes were also considered. Vancouver Island from the south. Puget Sound, an area not entered by The physical and zoogeographic The life-history trait showing the coho salmon from other areas, evidence supporting the delineation of clearest differentiation coastwide is the recoveries from this area might be each ESU is addressed under ‘‘ESU pattern of ocean distribution inferred considered an extension of freshwater Determinations.’’ Because life history from marine recoveries of hatchery fish recoveries, which were excluded from traits provide important insight into the carrying CWTs. These data, from the the above analyses. Removing Puget ecological/genetic diversity of the Pacific States Marine Fisheries Sound recoveries from total Washington species and can reflect unusual or Commission’s regional Mark marine recoveries results in Puget distinctive adaptations that promote Information System, show that marked Sound and Hood Canal coho salmon evolutionary processes, a more detailed coho salmon from southern Oregon and recovery patterns that are intermediate discussion has been provided below. northern California are most frequently to those of British Columbia and the Coho salmon life-history traits that recovered from California coastal waters Washington coast. show some regional variation include (65 to 92 percent), with some recoveries river entry and spawning timing, age at off Oregon (7 to 34 percent), but almost Genetic Changes Due to Human maturity, and marine CWT recovery none off Washington or British Activities patterns. River entry and spawning Columbia. In contrast, coho salmon The effects of artificial propagation timing patterns of coho salmon are from the Oregon coast north of Cape and other human activities can be considerably variable in time and space, Blanco are recovered primarily in relevant to ESA listing determinations but some regional patterns exist. Puget Oregon waters (57 to 60 percent), with in two ways. First, such activities can Sound coho salmon typically enter the significant appearance in California (27 genetically change natural populations rivers in October, but some basins have to 39 percent), and low but fairly so much that they no longer represent very early and late runs. Along the consistent recovery levels from British an evolutionarily significant component Washington coast, river entry generally Columbia (2 to 6 percent) and of the biological species (Waples 1991). occurs in October, with a few Washington (2 to 9 percent). Compared For example, in 1991, NMFS concluded exceptionally late or early runs. to the Oregon coast populations, that, as a result of massive and Historically, Columbia River coho Columbia River populations have prolonged effects of artificial salmon entered fresh water from August approximately the same proportion of propagation, harvest, and habitat through December, while Oregon coho British Columbia (2 to 16 percent) and degradation, the agency could not salmon enter rivers in October. Coho Oregon (36 to 67 percent) recoveries, but identify natural populations of coho salmon in southern Oregon and the California recoveries are salmon in the lower Columbia River that northern California also enter rivers in considerably lower (1 to 15 percent) and qualified for ESA consideration. September or October. River entry is the Washington recoveries Second, risks to the viability and genetic much later south of the Klamath River correspondingly higher (22 to 54 integrity of native salmon populations Basin, occurring in November and percent). posed by human activities may December in basins south of the Populations from the Washington contribute to their threatened or Klamath River to the Mattole River, CA, coast, Puget Sound, and British endangered status (Goodman 1990, Hard Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38015 et al. 1992). The severity of these effects Southwest Washington hatcheries are some outplants of Puget Sound/Strait of on natural populations depends both on relatively large and numerous for the Georgia, southwest Washington, and the nature of the effects (e.g., harvest area, and most produce 1 to 3 million Columbia River stocks have occurred. rate, gear size, or type of hatchery juveniles annually. Hatcheries in Hatchery production in the Puget practice) and their magnitude (e.g., southwest Washington have used native Sound/Strait of Georgia is extensive, duration of a hatchery program and stocks in addition to those from Puget and many of the larger hatcheries number and life-history stage of Sound/Strait of Georgia, Olympic produce several million smolts hatchery fish involved). Several of these Peninsula, and the Columbia River. annually. However, this geographic area factors may be important to ESA Currently, the magnitude and frequency is quite large and considerable natural considerations of coho salmon. of stock transfers from outside the area production also occurs. Stock transfers Stock transfers—Stock transfers of are relatively small. Within southwest and outplants have also been extensive, coho salmon have been (and continue to Washington, there has been some but most stocks involved have been be) common throughout the West Coast; movement of stocks between rivers derived from within this area. Net pen the nature and magnitude of these draining into Grays Harbor and Willapa production in Puget Sound is also fairly transfers varies by geographic region. Bay. Outplants show a similar pattern to extensive, but unlike hatcheries, has no Compared to areas farther north, hatchery transfers; coho salmon from means to attract and spawn salmon that hatcheries in central California and Puget Sound/Strait of Georgia, Olympic are released from the pens. This can southern Oregon/northern California are Peninsula, and a limited number from result in straying of pen-reared coho relatively small and widely dispersed, the Columbia River have been salmon into adjacent rivers. given the size of both areas. In recent outplanted in southwest Washington, Run timing—Advancement and years, large hatcheries in southern but the most frequent and largest compression of run timing are common phenomena in hatchery populations, Oregon/northern California (e.g., Mad outplants have used southwest and these changes can affect future and Trinity Hatcheries) have produced Washington stocks. generations of naturally-reproducing 400,000 to 500,000 juveniles annually, Hatchery production of coho salmon fish. Fry of early-spawning adults while smaller hatcheries, and most in the Columbia River far exceeds that generally hatch earlier and grow faster, hatcheries in central California, produce of any other area with respect to the and can thus displace fry of later- no more than 100,000 to 200,000 number of hatcheries and quantities of spawning natural fish (Chapman 1962). juveniles each year. There has been fish produced. Many Columbia River hatcheries produce several million Conversely, early-spawning coho considerable transfer of coho salmon smolts annually, with the largest salmon redds are more prone to being among hatcheries or egg-taking stations hatcheries releasing up to 10 million destroyed by early fall floods. in central and northern California, with smolts in a given year. Extensive stock Consequently, early-spawning the fish eventually outplanted in either transfers have occurred within the individuals may be unable to establish area. Northern California hatcheries Columbia River, both within and permanent, self-sustaining populations, have also received fairly large between hatcheries from Washington but may nevertheless adversely affect transplants of coho salmon from and Oregon. Prior to about 1960, existing natural populations (Solazzi et hatcheries in Washington and Oregon, transfers of coho salmon from the al. 1990). A recent study found that over which have spread to central California Oregon coast were also common, and a period of 13 years, the range of through stock transfers. Because of the there have been a few introductions of spawning timing of coho salmon at five predominance of hatchery stocks in the Puget Sound stocks. Columbia River Washington hatcheries decreased from Klamath River Basin, stock transfers outplanting records show a similar 10 weeks to 3 weeks, causing the range into Trinity and Iron Gate Hatcheries pattern of extensive use of Columbia of the period of return to the hatcheries may have had a substantial impact on River and Oregon coast coho salmon, to decrease by one-half (Flagg et al. in natural populations in the basin. In and some Puget Sound stocks. The press). contrast, Cole Rivers Hatchery (on the Clackamas River has also been Juvenile outplants—Another common Rogue River) appears to have relied extensively outplanted with early- hatchery practice with coho salmon is almost exclusively on native stocks. running Columbia River stocks and was release of ‘‘excess’’ hatchery production Most Oregon coastal hatcheries outplanted with coho salmon from the into natural habitat as fry or parr. produce approximately 400,000 to Oregon coast in 1967. Outplanting large numbers of large 1,400,000 juveniles annually, although Most Olympic Peninsula hatcheries hatchery juveniles into streams already private hatcheries (no longer in produce approximately 1 million occupied by naturally-produced operation) recently produced 2 to 5 juvenile coho salmon annually. In juveniles may place the resident fish at million juvenile coho salmon annually. addition to hatchery production, natural a competitive disadvantage and may Most transfers of coho salmon into production in the area is relatively high, force them into marginal habitats that Oregon coastal hatcheries have used due in large part to nearly pristine have low survival potential (Chapman other Oregon coastal stocks. However, habitat within the Olympic National 1962, Solazzi et al. 1990). some coastal hatchery programs Park. The Quillayute Hatchery has Adult size—Ricker (1981) discussed (notably private hatcheries no longer in relied primarily on native stocks, while evidence for declines in size and age of existence) made extensive use of Puget other hatcheries in the area have Pacific salmon in this century and Sound coho salmon stocks. Some incorporated stocks from southwest suggested that size-selective fisheries transfers of Columbia River coho salmon Washington, Puget Sound, and the were an important factor in the observed into Oregon coastal hatcheries have Columbia River, in addition to Olympic trends. Gill nets are probably the most occurred, but these were relatively Peninsula stocks. These transfers from size-selective fishing gear in general use, infrequent and minor. Similarly, most outside the Olympic Peninsula are preferentially harvesting larger fish. outplants of coho salmon into Oregon generally considered to represent only a Gillnet fisheries are important coastal rivers have used Oregon coastal minor contribution to the existing components of coho salmon harvests in stocks, with outplants of stocks from hatchery stocks. Olympic Peninsula most areas of the Pacific Northwest. other areas being relatively small and drainages are primarily outplanted with Between 1972 and 1993, the size of coho infrequent. Olympic Peninsula stocks; however, salmon sampled from in-river gillnet 38016 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules fisheries in Puget Sound decreased by changes occur over a transition zone any coho salmon found spawning south about one-half, and a similar declining rather than abruptly. of the San Lorenzo River that have not pattern has been observed by other Based on the best available biological resulted from stock transfers from researchers for the Strait of Georgia and commercial information, including outside the ESU are also part of the (Ricker 1981). There is some evidence the biological effects of human ESU. for declining size of coho salmon activities, NMFS has identified six ESUs (2) Southern Oregon/northern California outside the Puget Sound/Strait of that include coho salmon populations Coasts Georgia area, but the trends are not as from southern British Columbia, great in other areas. Washington, Oregon, and California. This ESU includes coho salmon from Declines in adult size can have direct The six ESUs are briefly described and coastal drainages between Cape Blanco implications for individual reproductive characterized below. Genetic data (from in southern Oregon and Punta Gorda in success and population viability. As is studies of protein electrophoresis and northern California. Genetic data the case in other salmon species, coho DNA) were the primary evidence indicate that most samples from this salmon fecundity is a non-linear considered for the reproductive region differ substantially from coho function of size (Fleming and Gross isolation criterion, supplemented by salmon from south of Punta Gorda. In 1989), such that a small reduction in inferences about barriers to migration general, populations from southern size can lead to a substantial reduction created by natural geographic features Oregon also differ from coastal Oregon in fecundity. Also, smaller coho salmon and human-induced changes resulting populations north of Cape Blanco. females dig fewer and significantly from artificial propagation and harvest. However, some samples from the Rogue shallower redds than do larger females Factors considered to be most River show an unexplained genetic (van den Berghe and Gross 1984). This informative in evaluating ecological/ affinity to samples from outside the subjects the redds of smaller individuals genetic diversity include data pertaining region, including some from the to greater risk of destruction by to the physical environment, ocean Columbia River. In addition, a sample superimposition of other redds or conditions/upwelling, vegetation, from the Elk River (just south of Cape scouring by floods. Flooding frequency estuarine and freshwater fish Blanco) clusters with samples from the has increased throughout much of Puget distributions, river entry and spawning Umpqua River. In contrast to coho Sound because of habitat degradation timing, and marine CWT recoveries. A salmon from north of Cape Blanco, (Booth 1991), further decreasing the brief description of population segments which are most frequently captured off survival potential of redds created by now considered to be extinct has also Oregon, coho salmon from this region small females. been provided. are captured primarily in California It is not clear whether the dramatic waters. Freshwater fishes in this region size reductions observed in Puget (1) Central California Coast include elements of the Sacramento Sound/Strait of Georgia coho salmon are The geographic boundaries of this River fauna, as well as from the due to harvest practices, effects of fish ESU extend from Punta Gorda in Klamath-Rogue Ichthyofaunal Region. culture, declining ocean productivity, northern California to the San Lorenzo Geologically, this region includes the density-dependent effects in the marine River, in Santa Cruz, CA, and includes Klamath Mountains Province, which is environment attributable to large coho salmon populations from several not as erosive as the Franciscan numbers of hatchery releases, or a tributaries of San Francisco Bay (e.g. formation terrains south of the Klamath combination of these factors. Similarly, Corte Madera and Mill Valley Creeks). River Basin. Dominant vegetation along it is not known whether there have been Genetic data indicate that most samples the coast is redwood forest, while some permanent genetic changes related to from this region differ substantially interior basins are much drier than the size changes in the populations. from coho salmon north of Punta Gorda. surrounding areas and are characterized Regardless of its cause or genetic basis, Run- and spawn-timing of coho salmon by many endemic species. Elevated reduced adult size in itself poses a are very late (peaking in January) and stream temperatures are a factor in some number of serious risks to natural appear to be timed to coincide with the of the larger river basins, but not to the populations of coho salmon, and could single, brief peak of river flow. extent that they are in river basins south be a sign of other factors placing the Freshwater fishes in the region are of Punta Gorda. With the exception of population at risk. derived from the Sacramento River major river basins such as the Rogue fauna. This area is characterized by very and Klamath, most rivers in this region ESU Determinations erosive soils in the coast range have short duration of peak flows. This is the first NMFS status review mountains; redwood forest is the Strong and consistent coastal upwelling that attempts to comprehensively dominant coastal vegetation for these begins at about Cape Blanco and determine ESUs over a broad geographic drainages. Precipitation is lower here continues south into central California, area. The ESU determinations described than in areas to the north, and elevated resulting in a relatively productive here represent a synthesis of a large stream temperatures (greater than 20° C) nearshore marine environment. amount of diverse information. In are common in the summer. Coastal general, the proposed geographic upwelling in this region is strong and (3) Oregon Coast boundaries for each ESU (i.e., the consistent, resulting in a relatively This ESU includes coho salmon from watersheds within which the members productive nearshore marine Oregon coastal drainages between Cape of the ESU are typically found) are environment. Limited CWT data Blanco and the Columbia River. supported by several lines of evidence indicate that nearly all coho salmon Genetically, coastal Oregon populations that show similar patterns. However, the from this ESU are captured in California are distinct from Columbia River, diverse data sets are not always entirely waters. Washington coastal, and northern congruent (nor would they be expected Available information indicates that California/southern Oregon (see above) to be), and the proposed boundaries are the San Lorenzo River currently is the populations. Within the Oregon coast not necessarily the only ones possible. southernmost population of coho ESU, hatchery populations from the For example, in some cases (e.g., on the salmon, and this is the geographic north Oregon coast form a distinctive northern Olympic Peninsula moving boundary for the proposed ESU. subgroup. Adult run- and spawn-timing from west to east), environmental However, it should be recognized that are similar to those along the Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38017 Washington coast and in the Columbia group, several smaller clusters can be to intensive fishing pressure during the River, but less variable. CWT recovery identified. Two of the subclusters, one middle part of the run. patterns for coho salmon released from dominated by samples from Washington Information available to NMFS at the this area are distinctive, compared to and the other by samples from Oregon, present time is not sufficient to identify recovery patterns for coho salmon include most of the samples from the any native populations of coho salmon released from ESUs to the north or lower Columbia River. Another on the southwest Washington coast that south. Freshwater fish fauna are subcluster contains three samples from would qualify for protection under the primarily of Columbia River origin. Willapa Bay on the southwest ESA. However, we cannot exclude the Most rivers in this area drain the Coast Washington coast. A final subcluster possibility that some native late-run Range Mountains, have a single peak in includes samples from the Clackamas coho salmon occur in the Chehalis River flow in December or January, and have and Clatskanie Rivers in the lower basin. relatively low flow during summer and Columbia River and samples from the (5) Olympic Peninsula early fall. The coastal region receives Humptulips and Simpson Hatcheries on fairly high precipitation levels, and the the southwest Washington coast. The geographic boundaries of this ESU are entirely within Washington, vegetation is dominated by Sitka spruce In its 1990–91 status review for lower including coastal drainages from Point and western hemlock. Upwelling off the Columbia River coho salmon (excluding Grenville to and including Salt Creek Oregon coast is much more variable and the Clackamas River), NMFS concluded (Strait of Juan de Fuca). Genetic data generally weaker than areas south of that, historically, at least one ESU of show that coho salmon from this region Cape Blanco. While marine conditions coho salmon probably occurred in the are distinct from populations to the off the Oregon and Washington coasts lower Columbia River Basin, but the south and somewhat differentiated from are similar, the Columbia River has agency was unable to identify any greater influence north of its mouth, and populations in the Puget Sound area. remaining natural populations that Coho salmon from the Olympic the continental shelf becomes broader warranted protection under the ESA (58 off the Washington coast. Peninsula ESU have a more northern FR 29553, June 27, 1991). This status ocean distribution than populations (4) Lower Columbia River/southwest review has not uncovered substantial from the Columbia River or coastal Washington Coast new information on coho salmon regions in Oregon, and are more populations considered by that earlier NMFS has concluded that, commonly captured in Canadian and status review. However, NMFS has historically, this ESU included coho Oregonian waters than are coho salmon salmon from all tributaries of the concluded that, historically, coho from the Puget Sound region. This Columbia River below approximately salmon from the Clackamas River and region is characterized by high levels of the Klickitat and Deschutes Rivers, as the southwest Washington coast were precipitation and streams with cold well as coastal drainages in southwest probably part of the same ESU as lower water, high average flows, and a Washington between the Columbia Columbia River coho salmon. Late-run relatively long duration of peak flows, River and Point Grenville. The Clackamas River coho salmon are including a second peak later in the year Columbia River estuary and Willapa Bay thought to at least partially represent resulting from snow melt. In contrast to and Grays Harbor in southwest native, lower Columbia River coho the more inland areas of Puget Sound, Washington all have extensive intertidal salmon. The relationship of coho where western hemlock is the dominant mud and sand flats and differ salmon in these two areas to the historic forest cover at sea level, lowland substantially from estuaries to the north ESU is uncertain. vegetation in this region is dominated and south. This similarity results from The Clackamas River historically by Sitka spruce. the shared geology of the area and the supported a native, late-run (spawning The west coast of Vancouver Island in transportation of Columbia River in December and January) coho salmon British Columbia shares many of the sediments northward along the population, but access to the upper physical and environmental features of Washington coast. Rivers draining into Clackamas River (above River Mile [RM] the Olympic Peninsula ESU. However, the Columbia River have their 29) was blocked between 1917 and NMFS has little biological information headwaters in increasingly drier areas, 1939, when the fish ladder on Cazadero for coho salmon from this area. The moving from west to east. Columbia Dam failed. After fish passage was Strait of Juan de Fuca is potentially a River tributaries that drain the Cascade restored, late-run coho salmon strong isolating mechanism, and, Mountains have proportionally higher recolonized the upper Clackamas River. although comparable data are not flows in late summer and early fall than The immigrants are thought to have available for coho salmon, genetic data rivers on the Oregon coast. CWT data been primarily natural coho salmon for chinook salmon show that indicate a distinctive oceanic from either the lower Clackamas River, populations from the west coast of distribution pattern for Columbia River the lower Willamette River, or Vancouver Island differ genetically from coho salmon, with a higher percentage elsewhere in the lower Columbia River. those on the northern Washington coast. of Washington recoveries than for In 1958, releases of early-run (spawning Therefore, at least until more complete Oregon coastal stocks and a much lower in October and November) coho salmon information becomes available, NMFS percentage of British Columbia of mixed lower Columbia River lineage has concluded that this ESU does not recoveries than for Washington coastal began in the Clackamas River. Because include coho salmon from Vancouver populations. the timing of early-run and late-run Island. Genetic data indicate that Columbia Clackamas coho salmon overlapped River coho salmon are distinct from extensively, the spawning timings of the (6) Puget Sound/Strait of Georgia coastal Oregon populations but are two populations may have also This ESU includes coho salmon from similar to populations from several overlapped, resulting in mixing of the drainages of Puget Sound and Hood coastal streams in southwest stocks in the hatchery or on the Canal, the eastern Olympic Peninsula Washington. A major cluster includes spawning grounds. Recent (post-1980) (east of Salt Creek), and the Strait of all of the lower Columbia River samples, divergence of run-timing between early- Georgia from the eastern side of as well as samples from the southwest and late-run coho salmon in the Vancouver Island and the British Washington coast. Within this larger Clackamas River is generally attributed Columbia mainland (excluding the 38018 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules upper Fraser River). Genetic and CWT attempts have been made to reintroduce (e.g., from strays or outplants from data both show substantial differences coho salmon to the basin, but these hatchery programs); and (6) recent between coho salmon from this region attempts have not been successful. events (e.g., a drought or changes in and those from the Columbia River and Intermittent reports of small numbers of harvest management) that have more southern coasts, and more modest coho salmon in the Sacramento River predictable short-term consequences for differences between coho salmon from are generally attributed to strays or abundance of the ESU. this region and populations from the remnants of these stocking programs. During the coastwide status review for Olympic Peninsula. Coho salmon NMFS found no evidence that coho coho salmon, NMFS evaluated both samples from Puget Sound and the salmon eligible for ESA consideration qualitative and quantitative information Strait of Georgia form a coherent genetic (i.e., indigenous, naturally-reproducing to determine whether any proposed ESU cluster. The few samples NMFS has fish) presently occur in the Sacramento is threatened or endangered according examined from Alaska and the upper River. to the ESA. Quantitative assessments Fraser River are substantially different Although several tributaries in the were based on historical and recent run- genetically from all Washington, upper Columbia River Basin, including size estimates and time series of Oregon, and California populations. the Snake River, once supported coho freshwater spawner and juvenile survey This region is drier than the rain forest salmon runs, NMFS is not aware of any data, angler catch estimates, harvest rate area of the western Olympic Peninsula native coho salmon production in the estimates, and counts of adults and is dominated by western hemlock upper basin at the present time. migrating past dams. Qualitative forests. Streams are similar to those of Consequently, although the petitioners evaluations considered recent, the Olympic Peninsula, being included Idaho coho salmon in the published assessments by agencies or characterized by cold water, high petition, there are no coho salmon in conservation groups of the status of average flows, and a relatively long Idaho that would qualify for listing coho salmon stocks (Nehlsen et al. 1991, duration of peak flows, including a under the ESA. Columbia River stock Higgins et al. 1992, Nickelson et al. second snow-melt peak. summary reports (CIS 1992) identify no 1992, WDF et al. 1993). A summary of Drainages entering the Strait of coho salmon of native origin in this general findings from qualitative Georgia from both sides share many of region, except in the Hood and assessments follows; specific results the physical and environmental features Deschutes Rivers in Oregon. According will be discussed for each ESU. that characterize the Puget Sound area. to Nehlsen et al. (1991), all coho salmon Nehlsen et al. (1991) considered From Vancouver Island south, coho above Bonneville Dam are extinct, salmon stocks throughout Washington, salmon typically smolt at age 1, whereas except those spawning in the Hood Idaho, Oregon, and California and 2-year old smolts are common from River. Both the Hood and Deschutes enumerated all stocks that they found to southeast Alaska north. Between the Rivers have had extensive planting of be extinct or at risk of extinction. They north end of Vancouver Island and hatchery coho salmon, and no recent considered 15 coho salmon stocks to be southeast Alaska is a transition zone for natural production estimates are extinct, 2 possibly extinct, 15 at high this life history trait. At about this point available. Therefore, NMFS has risk of extinction, 16 at moderate risk of (north end of Vancouver Island), the determined that the available evidence extinction, and 2 of special concern. British Columbia mainland assumes indicates that there are no coho salmon Coho salmon stocks that do not appear more of the physical and environmental populations above Bonneville Dam in their summary were either not at risk characteristics of the outer coast of eligible for ESA consideration at this of extinction or there was insufficient Vancouver Island. However, genetic and time. information to classify them. Higgins et life-history data for populations al. (1992) used the same classification Status of the Coho Salmon ESUs between the Strait of Georgia and Queen scheme as Nehlsen et al. (1991), but Charlotte Strait are insufficient to The ESA defines the term provided a more detailed review of identify relationships between coho ‘‘endangered species’’ as ‘‘any species northern California salmon stocks. Of salmon in this area and those to the which is in danger of extinction the 20 coho salmon stocks Higgins et al. north and south. Therefore, NMFS has throughout all or a significant portion of identified as being at some risk of concluded that, at least until further its range.’’ The term ‘‘threatened extinction, seven were classified as at information is developed, the species’’ is defined as ‘‘any species high risk of extinction and the geographic boundaries of this ESU which is likely to become an remainder were classified as of concern. extend into Canada to include drainages endangered species within the Nickelson et al. (1992) rated coastal from both sides of the Strait of Georgia foreseeable future throughout all or a (excluding Columbia River Basin) as far as the north end of the Strait. significant portion of its range.’’ Oregon salmon stocks on the basis of Thompson (1991) suggested that their status over the past 20 years, Extinctions Within the Historical Range conventional rules of thumb, analytical classifying stocks as ‘‘depressed’’ Historically, coho salmon have been approaches, and simulations may all be (spawning habitat underseeded, reported to occur in U.S. waters that are useful in making this determination. In declining trends, or recent escapements outside of the geographic areas covered previous status reviews (e.g., Johnson et below long-term average), ‘‘healthy’’ by the proposed ESUs. There are few al. 1991), NMFS has identified a number (spawning habitat fully seeded and early records documenting coho salmon of factors that should be considered in stable or increasing trends), or ‘‘of in the Sacramento River Basin, but it is evaluating the level of risk faced by an special concern’’ (300 or fewer spawners believed that at least some populations ESU, including: (1) Absolute numbers of or a problem with hatchery may have existed there prior to 1850 fish and their spatial and temporal interbreeding). Of 55 coastal (Brown and Moyle 1991, Bryant 1994). distribution; (2) current abundance in populations identified, 6 were classified After that time, placer mining, dams, relation to historical abundance and as ‘‘healthy’’, 2 as ‘‘special concern’’, 41 water diversions, and other current carrying capacity of the habitat; as ‘‘depressed’’, and 6 as ‘‘unknown.’’ perturbations caused extreme habitat (3) trends in abundance; (4) natural and WDF et al. (1993) categorized all salmon degradation throughout the basin, and human-influenced factors that cause stocks in Washington on the basis of any coho salmon living there would variability in survival and abundance; stock origin (‘‘native,’’ ‘‘non-native,’’ have become extinct. In recent decades, (5) possible threats to genetic integrity ‘‘mixed,’’ or ‘‘unknown’’), production Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38019 type (‘‘wild,’’ ‘‘composite,’’ or spawning escapement averaged about California Department of Fish and Game ‘‘unknown’’) and status (‘‘healthy,’’ 31,000, with hatchery populations (CDFG) has determined that the ‘‘depressed,’’ ‘‘critical,’’ or ‘‘unknown’’). making up 57% of this total (Brown et remaining coho populations south of Of the 90 coho salmon stocks identified al. 1994). Brown et al. (1994) estimated San Francisco warrant protection as an in Washington, 37 were classified as that there are probably less than 5,000 endangered species under the California ‘‘healthy,’’ 35 as ‘‘critical’’ or naturally-spawning coho salmon Endangered Species Act. However, in ‘‘depressed,’’ and 18 as ‘‘unknown.’’ Of spawning in California each year, and that portion of the ESU north of San the 37 ‘‘healthy’’ stocks, only 4 (all on many of these fish are in populations Francisco, coho salmon populations are the Olympic Peninsula) were identified that contain less than 100 individuals. more abundant, and in fact most of the as ‘‘native’’ and ‘‘wild’’ production. Estimated average coho salmon fish within the ESU occur there. Thus, Despite recent regulations which have spawning escapement in the central while the southernmost populations in resulted in the closure or severe California coast ESU for the period from the ESU may warrant endangered status, curtailment of ocean and river harvest the early 1980’s through 1991 was 6,160 it is not clear that the ESU as a whole along much of the west coast, the naturally-spawning coho salmon and is in imminent danger of extinction. In number of adult coho salmon returning 332 hatchery spawned coho salmon addition to this uncertainty, several in 1994 was very low in some river (Brown et al. 1994). Of the naturally- actions have been taken or are basins. Many of the coho salmon spawning coho salmon, 3,880 were from anticipated which are expected to help populations which are not in decline tributaries in which supplementation protect and conserve coho populations have a large hatchery-produced occurs (the Noyo River and coastal in this ESU. component that could hinder the ability streams south of San Francisco). Only First, the State of California accepted of natural populations to sustain 160 fish in the range of this ESU (all in a petition to list coho populations south themselves in the long term. Habitat the Ten Mile River) were identified as of San Francisco in 1994 under the degradation, overfishing, inadequate ‘‘native’’ fish, lacking a history of California Endangered Species Act and regulatory mechanisms, negative effects supplementation with non-native has been conducting a status review of artificial propagation programs, hatchery stocks. Based on redd counts, over the past year. Since the petition drought and adverse ocean conditions the estimated run of coho salmon in the was accepted, the coho populations over the last two decades are believed Ten Mile River during the 1991–92 proposed for listing by the State have to be factors contributing to the species’ spawning season was 14 to 42 fish been protected under the State ESA. The decline. (Maahs and Gilleard 1994). CDFG recently completed its review and 1. Central California Coast—Data are Of 186 streams in the range of the recommended that these populations be limited for determining the status of this central California ESU identified as listed under State law as endangered. ESU. Recent population estimates have having historic accounts of adult coho NMFS anticipates that the State Fish been compiled for NMFS (Brown and salmon, recent data exist for 133 (72 and Game Commission will take action Moyle 1991; Brown et al. 1994). Other percent). Of these 133 streams, 62 (47 to list these populations, and thereby recent status reviews of coho salmon in percent) have recent records of implement protective actions, in the California (Bryant 1994, CDFG 1994) occurrence of adult coho salmon and 71 summer of 1995. have expanded some of the work of (53 percent) no longer have coho salmon Second, the Pacific Fishery Brown and Moyle (1991). In compiling spawning runs. Nehlsen et al. (1991) Management Council (PFMC) prohibited estimates of recent spawner abundance, provided no information on individual the retention of coho salmon in both the Brown and Moyle relied on a ‘‘20-fish coho salmon stocks in this region, but commercial and recreational salmon rule’’: If a stream with historic accounts identified stocks in small coastal fisheries along the entire west coast in of coho salmon lacked recent data, it streams north of San Francisco as at 1994. A similar action prohibiting the was assumed to still support a run of 20 moderate risk of extinction, and those in retention of coho in all salmon fisheries adults; if coho salmon were present in small coastal streams south of San south of Cape Falcon has been recent stream surveys, they used the Francisco as at high risk of extinction. implemented in 1995. These actions larger of 20 or the most recent run Higgins et al. (1992) considered only were taken because of the depressed estimate. While these estimates are drainages from the Russian River north, status of Oregon and California coastal crude, in most cases they are the best but four coho salmon stocks within this coho stocks in 1994 and 1995, and are data available, and they are generally ESU were identified as at risk: Three of expected to immediately benefit these comparable with other estimates (Bryant special concern and one (Gualala River) stocks by increasing escapement. 1994, CDFG 1994, Maahs and Gilleard as at high risk of extinction. Finally, the State of California 1994). Unless otherwise indicated, the In comparison with ESUs that occur Resources Agency has initiated an effort recent abundance data used to to the north, it is evident that coho to coordinate a broad state-wide habitat determine the status of this ESU are salmon populations in the central conservation planning program taken from Brown et al. (1994). California ESU are more depressed and designed to protect and conserve coho Statewide (including areas outside at greater risk of extinction since the populations in California under the this ESU) coho salmon spawning abundance of fish is generally lower and State’s Natural Communities escapement in California apparently a larger number of populations which Conservation Planning (NCCP) program. ranged between 200,000 to 500,000 occurred historically have apparently This effort will involve the Federal adults per year in the 1940s (Brown et been extirpated. However, the available government, all necessary State al. 1994). By the mid-1960s, statewide data for assessing population numbers agencies, county and local jurisdictions, spawning escapement was estimated to and trends over time in the northern and affected stakeholders, and is aimed have fallen to about 100,000 fish per portion of this ESU are limited for at developing a NCCP conservation year (CDFG 1965, California Advisory making a determination as to whether or program for coho salmon which would Committee on Salmon and Steelhead not the ESU warrants listing as serve as the basis for an ESA 4(d) rule Trout 1988), followed by a further threatened or endangered. In the area that could be promulgated by NMFS. decline to about 30,000 fish in the mid- south of San Francisco, however, it is The Resources Agency intends to model 1980s (Wahle and Pearson 1987; Brown clear that coho salmon populations are this planning effort for coho salmon et al. 1994). From 1987 to 1991, severely depressed. For this reason, the after the NCCP program which was 38020 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules developed and implemented for the long-term conservation and recovery estimates (1979–86, Cramer 1994) have California Gnatcatcher in southern strategy for coho salmon in California. ranged from approximately 800 to California. In a June 21, 1995 letter to NMFS will consider the State’s 19,800 naturally-produced adults, and NMFS, the Resources Agency progress in developing a coho salmon from 500 to 8,300 hatchery-produced emphasized its belief that the habitat conservation strategy to be adults. Average run sizes for this period conservation and recovery of coho satisfactory if a framework protection were 4,900 natural and 3,900 hatchery salmon in California can best be plan and associated implementation fish, with the total run averaging 45 accomplished by development and schedule are developed in coordination percent hatchery fish. Adult passage implementation of a NCCP conservation with NMFS, non-federal agencies, and counts at Gold Ray Dam provide a long- program and promulgation of a special stakeholders within the next 9 months. term view of coho salmon abundance in section 4(d) rule because of the complex To be effective, this protection plan the upper Rogue River (Cramer et al. nature of the habitats, ownership should include both interim protective 1985). In the 1940’s, passage counts patterns, and interests within the range measures and a long-term protection averaged approximately 2,000 adults per of coho salmon. In this regard, the and monitoring plan. Any year. Numbers declined and fluctuated Resources Agency has strongly urged implementation schedule developed for during the 1950’s and early 1960’s, then that NMFS propose coho salmon in the plan should commit to stabilized at an average of fewer than California be listed as threatened so that implementation of the long-term 200 adults during the late 1960’s and the full flexibility of section 4(d) component of the plan within 1–2 years early 1970’s. In the late 1970’s, the run rulemaking can be retained and the of any final federal listing increased with returning fish produced NCCP planning process can move determination. Finally, any protection at Cole Rivers Hatchery. Angler catch of forward. NMFS believes that the NCCP plan must incorporate increased coho salmon in the Rogue River conservation planning process monitoring of coho salmon populations fluctuated considerably, ranging from envisioned by the Resources Agency is and habitat conditions so that the less than 50 (late 1970’s) to a peak of the best approach for developing and continuing status of individual about 800 in 1991; average annual catch implementing a successful conservation populations can be assessed, and the over the last 10 years has been about and recovery strategy for coho salmon in effectiveness of conservation measures 250 fish. Angler catch in other rivers in California. However, NMFS also can be evaluated. This coordination southern Oregon has been low, believes it is essential that a NCCP effort by the Resources Agency should representing only a minor fraction of the program be developed and implemented focus on facilitating the development of total south of Cape Blanco. as quickly as possible in order to arrest local Coordinated Resource While there have been no directed the decline of coho salmon populations Management Planning (CRMP) groups spawner surveys for coho salmon in this in this ESU and promote their which in turn could be integrated into region, the species would be expected to successful recovery. In its letter to larger scale bioregional planning groups. be observed in the annual chinook NMFS, the Resources Agency recognizes This would provide for regional salmon spawner surveys. However, few the importance of making demonstrable coordination of locally based efforts to coho salmon have been observed in progress in developing an acceptable improve coho salmon habitat these surveys; for example, in 23 years program for conserving coho salmon in conditions. In the event that NMFS of chinook salmon surveys in six California. determines there is any new information segments of the Elk River, the highest Based on the uncertainty of the data indicating that coho salmon populations count of coho salmon was 20 adults in and the high potential for success of the in this ESU are at greater risk of 1971. In Oregon south of Cape Blanco, developing NCCP conservation plan, extinction than is currently believed, or Nehlsen et al. (1991) considered all but NMFS concludes that the central that satisfactory progress is not being two coho salmon stocks to be at high California coast coho salmon ESU made by the Resources Agency on risk of extinction; of the remaining two, should be proposed for listing as a developing and implementing a coho one (Euchre Creek) was identified as threatened species. However, during the conservation program, then NMFS will extinct and the other (Hunter Creek) was period between publication of this reconsider this determination in its final not mentioned. (The status of coho proposed rule and publication of any rulemaking. salmon in Euchre Creek is in some final rule, NMFS will be gathering 2. Southern Oregon/northern doubt: No surveys have been conducted additional information to aid in making California coasts—NMFS examined all recently, but ODFW biologists believe a final determination concerning the available data for naturally-reproducing there may be a small coho salmon status of this ESU. Specifically, NMFS coho salmon in this ESU. Because this population there.) South of Cape will: (1) Gather additional biological ESU includes spawning runs in both Blanco, all Oregon coho salmon stocks information on the status of coho southern Oregon and northern were rated by Nickelson et al. (1992) as salmon populations in this ESU; (2) California, information available for depressed. attempt to assess the response of coho inland recoveries and spawning Most information for the northern populations to the fishery conservation escapements differ widely by California region of this ESU was measures implemented by the PFMC; (3) geographic area. Data for the Oregon recently summarized by the CDFG review and evaluate any new protective portion of this ESU include adult (CDFG 1994). They concluded that measures implemented by the State of passage counts at Gold Ray Dam in the ‘‘coho salmon in California, including California resulting from the State upper Rogue River (Cramer et al. 1985), hatchery stocks, could be less than 6 listing coho south of San Francisco; (4) angler catch estimates for all Oregon percent of their abundance during the review and evaluate any additional rivers (ODFW 1992, 1993), and seine- 1940’s, and have experienced at least a protective or conservation measures survey estimates of adult coho salmon 70 percent decline in numbers since the implemented by State or private run size in the Rogue River (Cramer 1960’s’’ (CDFG 1994, p. 5–6). The entities; and (5) evaluate whether the 1994). Klamath River Basin (including the Resources Agency has made satisfactory Recently, most coho salmon Trinity River) historically supported progress in coordinating the production in the Oregon portion has abundant coho salmon runs. In both development and implementation of a been in the Rogue River. Recent run-size systems, runs have been greatly Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38021 diminished and are now composed previous assessments of stock status. rivers within this ESU is a cause for largely of hatchery fish, although there Based on historical commercial landing concern about the sustainability of may be small wild runs remaining in statistics and estimated exploitation natural production in these systems. some tributaries (CDFG 1994). Of 396 rates, Mullen (1981) estimated Also, coastwide abundance of many streams within the range of this ESU escapement of coho salmon in coastal stocks appears to be very low this year, identified as once having coho salmon Oregon to be nearly 1 million fish in the and there has been a complete ban of runs, Brown et al. (1994) were able to early 1900’s, with harvest of nearly most ocean fishing for coho salmon. For find recent survey information on 117 400,000 fish. In a more extensive these reasons, NMFS concludes that (30 percent) streams. Of these 117 analysis of similar data, Lichatowich coho salmon in the Oregon coast ESU streams, 73 (64 percent) still supported (1989) concluded that coho salmon are presently threatened. coho salmon runs while 42 (36 percent) abundance in the same region at that 4. Lower Columbia River/southwest have lost their coho salmon runs. The time was about 1.4 million fish. Washington coast—A status review of streams identified as presently lacking Lichatowich also concluded that current lower Columbia River coho salmon coho salmon runs were all tributaries of production potential (based on stock- stocks outside of the Willamette River the Klamath and Eel River systems recruit models) for coho salmon in Basin has been published by NMFS (Brown et al. 1994). The rivers and Oregon coastal rivers was about 800,000 (Johnson et al. 1991). NMFS concluded tributaries in the California portion of fish, a reduction of nearly 50 percent in that, historically, at least one ESU of this ESU were estimated to have average habitat capacity. Recent spawning coho salmon probably occurred in the recent runs of 7,080 natural spawners escapement estimates indicate an lower Columbia River Basin, but the and 17,156 hatchery returns, with 4,480 average spawning escapement of less agency was unable to identify any identified as ‘‘native’’ fish occurring in than 30,000 adults (Jacobs and Cooney remaining natural populations that tributaries having little history of 1991, 1992, 1993). While the methods of warranted protection under the ESA. supplementation with non-native fish. estimating total escapement are not The information considered in this In this region of California, Nehlsen et comparable between the historical and earlier status review is not repeated al. (1991) identified coho salmon in the recent periods, these numbers suggest here. Based on its present status review, Klamath River as of special concern, that current abundance of coho salmon NMFS has determined that the range of and those in small northern streams as on the Oregon coast may be less than 5 the historic ESU probably extended at moderate risk of extinction. Higgins et percent of that in the early part of this beyond the lower Columbia River to al. (1992) identified 10 coho salmon century. include coho salmon populations from stocks as of special concern, and 6 as at Kostow et al. (1994) provide estimates the southwest Washington coast and the high risk of extinction. of hatchery composition of naturally- Willamette River below Willamette Falls While there are limited data to assess spawning coho salmon in several (including the Clackamas River). population numbers or trends in this Oregon coastal rivers, ranging from 18 to However, the relationship of natural ESU, NMFS has determined that all 62 percent. These estimates are for populations of coho salmon in these two coho salmon stocks between Punta rivers that are known to have high areas to the historic ESU is uncertain. Gorda and Cape Blanco are depressed hatchery influence, so do not represent Several recent reports have evaluated relative to their past abundance. The the average condition along the Oregon the status of coho salmon in the main stocks in this region (Rogue River, coast. However, these rivers represent a Columbia River Basin. Nehlsen et al. Klamath River, and Trinity River) are substantial portion of natural coho (1991) classified all coho salmon stocks heavily influenced by hatcheries, salmon production in Oregon, and above Bonneville Dam (except Hood apparently with little natural indicate that hatchery fish have an River) as extinct; Hood River, Sandy production in mainstem rivers. The extensive presence within the Oregon River, and all other lower Columbia apparent declines in production in these coastal ESU. tributary stocks were classified as at rivers, in conjunction with heavy Based on NMFS’s examination of the high risk of extinction, except the hatchery production, suggest that the available information, it is apparent that Clackamas River stock, which was natural populations are not self- spawning escapements for coho salmon classified as at moderate risk of sustaining. The status of coho salmon populations in the Oregon coastal ESU extinction. The historic ESU also stocks in most small coastal tributaries have declined substantially during this included populations in portions of the is not well known, but these century. Average spawner abundance southwest Washington coast. Nehlsen et populations are small. NMFS concludes has been relatively constant since the al (1991) identified coho salmon stocks that coho salmon in this ESU are late 1970’s, but pre-harvest abundance in Willapa Bay as at high risk of presently threatened, i.e., the ESU is has declined. Spawner-to-spawner extinction. WDF et al. (1993) identified likely to become in danger of extinction return ratios (based on peak counts) the Willapa Bay stocks as of unknown in the foreseeable future if present have been below replacement in 5 of the status, but of mixed origin and trends continue. At least within the past 6 years, in spite of reductions in composite production; they identified California portion of this ESU, NMFS harvest, and average recruits-per- all stocks in Grays Harbor tributaries as believes that the NCCP conservation spawner may also be declining. Of the healthy, but of mixed origin and planning process described for the 43 Oregon coho salmon stocks north of composite production. Central California Coast ESU is the best Cape Blanco identified by Nickelson et The largest production of coho approach for developing and al. (1992), 31 were considered as either salmon along the southwest Washington implementing a successful conservation depressed or special concern, and only coast is in the Chehalis River Basin. and recovery strategy for coho salmon. 6 stocks were considered healthy (the Hiss and Knudsen (1993) estimated that 3. Oregon coast—NMFS bases its remaining 6 stocks were listed as current coho salmon run sizes (before proposed listing of this ESU on the ‘‘unknown’’). In this same region, terminal harvest) in this basin following types of information: Nehlsen et al. (1991), classified two (including the Humptulips River) total Historical estimates of abundance, stocks (Sixes River and New River) to be about 266,000 adults, of which 135,000 extensive spawner survey records at high risk of extinction and 14 stocks are naturally-produced and 131,000 are (Cooney and Jacobs 1994), estimates of at moderate risk of extinction. The of hatchery origin. They noted that ocean harvest rates (PFMC 1993), and heavy hatchery influence on many hatchery influence on these runs has 38022 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules increased rapidly since 1970. Coho Therefore, NMFS concludes that a these stocks, the Quinault River and the salmon in the Chehalis River Basin listing is not warranted for the lower Salmon River (tributary of the Queets exhibit two run timings: ‘‘Normal,’’ with Columbia River/southwest Washington River) were identified by WDF et al. spawning in early December throughout coast ESU at this time. However, there (1993) as of mixed origin, while the the basin, and ‘‘late,’’ with spawning in is sufficient concern regarding the majority of other stocks were identified January and February in lower Chehalis overall health of this ESU (especially in as of native origin. Average recent (1989 River tributaries. Hiss and Knudsen light of evidence that some native, to 1993) natural adult escapement suggested that the normal run is naturally-reproducing fish may exist). estimates for some of these stocks are composed of a mixture of hatchery and Therefore, NMFS is adding the lower (PFMC 1994): Quinault River—4,700, wild fish, while the late run is virtually Columbia River/southwest Washington Queets River—5,400, Hoh River—3,100, all wild fish (but they did not specify coast ESU to the Candidate List until the Quillayute River—800 summer run and whether ‘‘wild’’ implies native fish, or distribution and status of the native 7,500 fall run. NMFS found no simply natural production regardless of populations can be resolved. historical run-size estimates for these origin). The two run timings are treated During the period between this stock complexes to compare with recent as a single stock for fishery management proposed rule and publication of any abundance, but there have presumably purposes, and NMFS has no separate final rule, NMFS will conduct a been substantial declines in coho abundance estimates for the late run. thorough reevaluation of this ESU and salmon production as a result of well- Hiss and Knudsen identified three will reconsider the present decision that documented habitat degradation since streams known to have late-run fish a listing is not warranted. In the event European settlement. (Bingham Creek, the upper Wynoochee that this reevaluation establishes that NMFS also reviewed assessments of River, and the Wishkah River), and listing the lower Columbia River/ coho salmon stocks by Nehlsen et al. noted that this run has always been less southwest Washington coast ESU is (1991) and WDF et al. (1993). Nehlsen abundant than the normal run, but has warranted, NMFS would issue a et al. identified only one at risk coho been particularly small in recent years. proposed rule to list this ESU as salmon stock in this ESU: Lake Ozette No escapement estimates are available threatened or endangered. coho salmon as of special concern. WDF for other streams in Grays Harbor or 5. Olympic Peninsula—Evidence et al. considered most coho salmon Willapa Bay. examined by NMFS for this ESU stocks in this ESU to be healthy or of Abundance of late-run coho salmon in included trends in terminal run size unknown status, representing a mixture the Clackamas River has been measured (i.e., the number of adults returning to of native, mixed, and non-native origins since 1950 as adult passage at River Mill the river mouth), hatchery contribution, and wild or composite (hatchery and (1950 to 1957) and North Fork (1958 to trends in ocean exploitation rate, and wild) production. Some stocks along the present) Dams, and total run size (early trends in the size of fish in terminal Strait of Juan de Fuca were identified as and late runs) has ranged from 416 landings. Data on terminal run for depressed. WDF et al. identified eight (1950) to 4,700 (1968). The late portion stocks in this ESU are collected stocks of native origin with wild of the run has ranged from 309 (1958) cooperatively by the Washington production in this ESU, four of healthy to 3,588 (1968), however it is unclear Department of Fish and Wildlife status and four of unknown status. whether these are native fish or (WDFW) and the coastal tribes. NMFS has determined that, relative to naturalized hatchery fish. Cramer and Spawning escapements to most streams the other ESUs, coho salmon abundance Cramer (1994) concluded that are estimated by extrapolating from within the Olympic Peninsula ESU is production of the population is cumulative redd counts on index moderate, but stable. While these stocks depressed due to a variety of factors. reaches of the streams. Because streams have been reduced from historical levels They further concluded that, under within the range of this ESU typically by large-scale habitat degradation in the current harvest rates, the population have highly variable flows during the lower river basins, there is a significant will remain stable, but it is vulnerable spawning season, (making it difficult to portion of coho salmon habitat in to overharvest. Johnson et al. (1991) conduct accurate counts of spawning several rivers protected within the briefly reviewed abundance data for this fish) WDFW and tribal biologists believe boundaries of Olympic National Park. population and concluded that it had a that redd counts provide the most This habitat refuge, along with the low risk of extinction if population reliable estimates of total escapement relatively moderate use of hatchery parameters remain stable, but (PFMC 1990). These natural escapement production (primarily derived from recommended close monitoring of the estimates, combined with hatchery native stocks), appears to have protected population. escapements, form the basis for these coho salmon stocks from the While the number of naturally- escapement summaries for the Olympic serious losses seen in adjacent regions. reproducing fish within the lower Peninsula (WDF et al. 1993, PFMC While there is continuing cause for Columbia River/southwest Washington 1994). However, no attempt has been concern about habitat destruction and coast ESU is fairly large, evaluating the made to estimate the number of hatchery practices within this ESU, risk to this ESU is difficult because of hatchery-produced fish that spawn NMFS believes that there is substantial the uncertainty about the relationship of naturally. native, natural production of coho the present natural populations to the No trends were detected in terminal salmon in the Olympic Peninsula ESU historic ESU. If native coho salmon run size, and there is no evidence for and that it is not threatened or persist in the Clackamas River or in trends in ocean exploitation rates. In the endangered at this time. southwest Washington, they would stock complexes monitored and 6. Puget Sound/Strait of Georgia—To represent a small fraction of the ESU’s reported by the PFMC, hatchery returns determine the status of this ESU, NMFS historical abundance. However, it is not accounted for 50 percent of the examined spawning escapement data, presently possible, with the limited spawning escapement in the period long-term trends in escapement to information available, to identify with from 1982 through 1992, with the counting facilities, hatchery certainty native, naturally-reproducing majority of hatchery production contribution rates, ocean and total populations in lower Columbia River contributing to the Quillayute River exploitation rates, and trends in the size tributaries or along the Washington summer-run, Quinault River, and of fish in the terminal landings. coast south of Point Grenville. Queets River stocks (PFMC 1994). Of Spawning escapements in the Puget Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38023 Sound portion of this ESU are estimated which could result from any of several because accompanying land use changes primarily by spawner surveys causes, could seriously reduce the can adversely affect freshwater and conducted by WDFW in index reaches fecundity and fitness of naturally- marine habitats in a variety of ways; of selected streams (PFMC 1990). Only reproducing fish. examples include reduced infiltration of three rivers have long-term (extending The range of the ESU that includes water into the soil due to increases in back to the 1930’s or 1940’s) escapement Puget Sound coho salmon extends into impervious surfaces and loss of forest data from which to estimate trends. southern British Columbia, for which habitats, simplification of stream Long-term trap counts at Baker River NMFS has not received detailed channel structure, changes in flow and White River generally showed abundance information. Northcote and patterns, water quality degradation, loss declining trends in the 1960’s and Atagi (in preparation) have reviewed of stream bank cover, loss of wetland 1970’s, with some evidence of recovery abundance trends for all salmon species habitats, dissociation of wetlands from in the 1980s. The number of adults in various regions of British Columbia. stream channels, and loss of gravel passed above the hatchery racks on the Two of their regions include fish that sources due to bank stabilization. These Samish River showed neither increasing are part of this ESU. Coho salmon have changes affect all anadromous nor decreasing trends over a 55-year shown both historical (1800’s to 1953– salmonids, but have particularly severe period. More recent spawner survey 92 average) and recent (1953 to 1992) impacts on coho salmon. The data are available for numerous rivers declines both on Vancouver Island and population of Washington state has within the range of this ESU, but no along the south-central British Columbia grown from about 1 million in 1910 to reliable breakdown of natural and coast (excluding the Fraser River). In over 5 million today, and is expected to hatchery production is available for both areas, the historical decline was reach 7 million by 2020, with over 70 these data. Of the stocks examined for roughly two-fold. On Vancouver Island, percent of this total residing in western this review, two stocks had significant coho salmon escapements have recently Washington. Population densities have downward trends, five had significant declined from more than 300,000 in the increased from 1.1 people/mi2 for the upward trends, and the remainder had mid-1950’s to about 150,000 at present. entire state in 1880 to 725, 496, and 232 no significant trend. Along the south-central coast, people/mi2 in King, Kitsap and Ocean exploitation rates on wild coho escapement declines in the same period Snohomish Counties, respectively, in from the Deschutes River, Snohomish have been more dramatic, from about 1990. The counties encompassing the River, and Big Beef Creek declined from 500,000 in the mid-1950’s to less than Snohomish, Stillaguamish, Skagit and the late 1970s through the mid-1980s 100,000 at present. This is a much more Hood Canal systems have some of the and have increased since then, but have severe decline than the trends highest growth rates and population remained in the range of 0.3 to 0.5. Total documented in the U.S. portion of the densities statewide, and land use exploitation rates have shown no ESU. Northcote and Atagi did not changes in those systems have apparent trend, but have fluctuated in address levels of hatchery production drastically altered historic habitat the range of 0.6 to 0.9. The average for British Columbia coho salmon. conditions. hatchery contribution rate for stocks However, there has been a substantial The areal extent of estuarine wetlands monitored and reported by the PFMC increase in coho salmon releases from in Puget Sound is one of the few habitat for the period 1981 to 1992 has been 62 British Columbia hatcheries since 1975 characteristics for which there are percent, with Nooksack/Samish and (Hilborn and Winton 1993). historical records that can be compared South Puget Sound stock complexes The stock assessment by Nehlsen et to results of current surveys. During the managed for, and clearly dominated by, al. (1991) identified three coho salmon last century, the Snohomish, hatchery production. stocks in this region as at high risk of Stillaguamish, and Skagit Rivers have Bledsoe et al. (1989) examined extinction, and one (Nooksack River) to lost 75 to 90 percent of their delta changes in run sizes of Puget Sound be possibly extinct. The assessment by wetlands, and substantial losses (34 salmon since 1896. They failed to find WDF et al. considered stocks in this percent of wetlands) have also occurred a statistically significant general decline region to range from healthy to critical in the relatively rural Skokomish River in run sizes for wild runs of coho in status, predominantly of mixed delta. The loss of freshwater wetlands, salmon in this period, although they did origin, and predominantly of composite which may be even more critical to report a dramatic 85-percent decline of production. None of the stocks in this juvenile coho salmon, has not been coho salmon terminal runs in the south region that they identify as healthy were quantified, but is extensive and sound from 1935 to 1975, which they of strictly native origin. Two stocks continues at present. attribute at least in part to increasing (Deer Creek and Sumas/Chilliwack) Timber harvest and associated road catch in non-terminal fisheries. Overall were identified as of native origin with building can adversely affect fish habitat catch of coho salmon in Puget Sound wild production, but of unknown status. in a number of ways, including fisheries shows a substantial decline Systematic assessments of fish habitat disturbance of forest soils and increased from 1896 to the early 1940s, but this is conditions have not been routinely erosion, more frequent landslides and largely attributed to the prohibition of conducted within Washington state. debris torrents. Past logging practices fishing for this species with purse seines Hence it is difficult to directly assess have removed riparian vegetation, and fish traps starting in 1935. Overall general trends in habitat conditions, which increases stream temperatures catch within Puget Sound has increased either throughout the state or within and decreases the amount of large, gradually since that time, but has not individual regions or watersheds. woody debris in streams, a critical returned to earlier levels, possibly as a However, some general relationships component of coho salmon habitat. The result of greater interceptions of coho between land use and habitat changes volume of timber harvest in Washington salmon in ocean fisheries (Bledsoe et al. have been well documented. Salmon increased from approximately 3.5 1989). Of further note is the fact that production is strongly tied to freshwater billion board feet per year in the 1950’s between 1972 and 1993, the average size habitat conditions, which continue to be to about 5.5 billion board feet per year of fish in the terminal landings has destroyed or degraded in Puget Sound. during much of the 1970’s and 1980’s. undergone a sharp decline from an Human population growth is probably The vast majority of timberlands in average of about 4 kg to about 2 kg. This the best overall measure of disturbance Puget Sound have been logged at least dramatic decline in average fish size, to freshwater salmonid ecosystems, once, and many areas have experienced 38024 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules second or third rotations. Within the Strait of Georgia ESU at this time. A. The Present or Threatened Puget Sound area, the acreage of land However, there is sufficient concern Destruction, Modification, or managed for forest products has actually regarding the overall health of this ESU, Curtailment of Its Habitat or Range declined, as timberlands are converted and therefore, NMFS is adding the Puget Logging, agricultural activities, to residential and non-forest commercial Sound/Strait of Georgia ESU to the urbanization, stream channelization, uses. Candidate List. During the period dams, wetland loss, water withdrawals In the marine environment, increasing between this proposed rule and and unscreened diversions for inputs from point and non-point publication of any final rule, NMFS will irrigation, and mining have contributed discharge of pollutants and surface run- conduct a thorough reevaluation of the to the decline of numerous West Coast off affect water quality and the status of status of this ESU and will reconsider populations of coho salmon. Logging the marine ecosystem as a whole. activities, and the associated road Concentrations of sediment-associated the present decision that a listing is not networks, often result in soil erosion chemical contaminants and disease warranted. In the event that this prevalence in fish from heavily reevaluation establishes that listing the and stream sedimentation such that industrialized sites in Puget Sound are Puget Sound/Strait of Georgia ESU is spawning habitat is seriously degraded. among the highest in the nation. warranted, NMFS would issue a Removal of trees within the riparian NMFS has determined that, relative to proposed rule to list this ESU as zone of coastal streams has resulted in the other coho salmon ESUs, threatened or endangered. increased summer water temperatures, populations in the Puget Sound/Strait of eliminated the potential for trees to fall Georgia ESU are abundant, and with Summary of Factors Affecting the into streams, and altered the natural some exceptions, run sizes and natural Species hydrograph. Decreases in large woody material in streams reduces habitat spawning escapements have been Section 2(a) of the ESA states that generally stable. However, artificial complexity and contributes to the loss various species of fish, wildlife, and of cover, shade, and pools; these habitat propagation of coho salmon may have plants in the United States have been had a substantial impact on native, features are required by juvenile coho rendered extinct as a consequence of naturally-reproducing coho salmon salmon. Livestock grazing can damage economic growth and development populations, to the point that it is streambanks and eliminate streamside difficult to identify self-sustaining, untempered by adequate concern and vegetation, thereby preventing riparian native stocks within this region. In conservation. Section 4(a)(1) of the ESA species from growing to maturity and addition, the continuing loss of habitat, and the listing regulations (50 CFR part has resulted in shallow, warm streams extremely high harvest rates, and a 424) set forth procedures for listing that are not suitable for juvenile and potentially severe, recent decline in species. NMFS must determine, through adult coho salmon. Agricultural average size of spawners indicate that the regulatory process, if a species is activities and urbanization often result there are substantial risks to the endangered or threatened based upon in pollution from both point and remaining native production in this any one or a combination of the nonpoint sources, and stream ESU. following factors: (1) The present or channelization (e.g., for flood control) However, each of these concerns is threatened destruction, modification, or can alter the physical and hydrographic based as much on professional curtailment of its habitat or range; (2) properties of streams such that the judgement as on hard data. Although overutilization for commercial, quality and amount of habitat available the magnitude of artificial propagation recreational, scientific, or education to coho salmon is reduced. Water in the Puget Sound region ensures that purposes; (3) disease or predation; (4) withdrawals reduce stream flow and the there are ample opportunities for inadequacy of existing regulatory amount of available habitat, sometimes adverse effects on natural populations, mechanisms; or (5) other natural or during critical drought periods, and can few studies have been conducted to contribute to high water temperatures. human-made factors affecting its determine the extent to which such continued existence. B. Overutilization for Commercial, effects actually occur. Similarly, Recreational, Scientific, or Education because virtually no information is The factors threatening naturally- Purposes available on size of naturally spawning reproducing coho salmon populations coho salmon in Puget Sound, NMFS’ are numerous and varied. Given the vast This species has historically been a evaluation of the decline in adult size is geographic scope of NMFS’ status staple of Pacific Northwest Indian based on data for terminal, in-river review, it is difficult to determine which tribes, and has been targeted in fisheries, which primarily target factors are primarily responsible for the recreational and commercial fisheries hatchery fish. Although harvest rates on decline of a specific ESU. For most of since the early 1800’s. Marine harvest of natural populations appear to be high, the coho salmon ESUs proposed for coho salmon in the range of this status whether fishing mortality is too high for protection under the ESA, the present review occurs primarily in nearshore natural populations to sustain has not condition of the population is a result waters off British Columbia, been formally evaluated. Finally, during of long-standing, human-induced Washington, Oregon, and California. the course of this status review, only conditions (e.g., harvest, habitat Recreational fishing for coho salmon is pursued in numerous streams when limited life history and abundance degradation and artificial propagation) adults return on their fall spawning information was gathered for the that serve to exacerbate the negative substantial portion of this ESU that migration. Due to low escapements and effects of adverse environmental occurs in British Columbia. increased concern for protecting coho Because of the general lack of conditions (e.g., drought, poor ocean and chinook salmon runs, recent definitive information on the identified conditions). The following examples regulations on ocean and river harvest risk factors, and because the number of provide an overview of the types of have resulted in the closure or severe naturally-reproducing fish within the activities and conditions that threaten curtailment of fisheries along much of ESU is fairly large and apparently the conservation of these ESUs over a the West Coast. Unfortunately, the stable, NMFS concludes that a listing is significant portion of their ranges. confounding effects of habitat not warranted for the Puget Sound/ deterioration, drought, and poor ocean Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38025 conditions on coho salmon survival Plans, and Resource Management Plans coho salmon stocks originating from the make it difficult to assess the degree to for Federal lands within the range of the Oregon Production Index area (Johnson which recreational and commercial northern spotted owl (which overlaps 1988). harvest have contributed to the overall considerably with the freshwater range As described previously, the decline of coho salmon in West Coast of coho salmon). As part of the Forest widespread use of artificial propagation rivers. However, it is clear that more Plan, implementation of an Aquatic has undoubtedly had a significant stringent fishing regulations have not Conservation Strategy (ACS) on Federal impact on the production of West Coast resulted in increased returns of coho land is expected to reverse the trend of coho salmon. Potential problems salmon. Scientific research and aquatic ecosystem degradation and associated with hatchery programs educational programs are believed to contribute toward fish habitat recovery. include genetic impacts on indigenous, have had little or no impact on coho Coordination between the Federal land naturally-reproducing populations (see salmon populations. management agencies and NMFS, the Waples 1991), disease transmission, Environmental Protection Agency predation on wild fish, difficulty in C. Disease or Predation (EPA), and the U.S. Fish and Wildlife determination of wild run status due to Relative to effects of fishing, habitat Service (USFWS) should ensure that the incomplete marking of hatchery degradation, and hatchery practices, ACS objectives are achieved. In releases, and replacement (rather than disease and predation are not believed addition, the adoption of forest practices supplementation) of wild stocks through to be major factors contributing to the regulations and fisheries management competition and continued annual decline of West Coast coho salmon plans and policies aimed at protecting introductions of hatchery fish. During populations. However, disease and and restoring naturally-reproducing fish the period between this proposed rule predation may have substantial impacts populations in Washington, Oregon, and and a final rule, NMFS will continue to in local areas. For example, Bacterial California emphasizes the widespread evaluate the relationship between Kidney Disease (BKD), a bacterial concern over declining wild salmon hatchery and native, naturally- infection that can adversely affect runs. Because most of these programs reproducing populations of coho salmon salmon smolts, has been a problem in are new, it is not possible to determine in the proposed ESUs (see Public most California state fish hatcheries and if they will be adequate to reverse the Comments Solicited). the CDFG has recently initiated a declining trend in coho salmon Proposed Determination treatment protocol to attempt to control abundance. Moreover, it is unclear what BKD outbreaks in hatchery populations level of protection will be afforded to The ESA defines an endangered released into the Russian River and coho salmon habitat on private lands species as any species in danger of Scott Creek (Central California ESU). and in non-forested areas. During the extinction throughout all or a significant period between this proposed rule and portion of its range, and a threatened D. Inadequacy of Existing Regulatory species as any species likely to become Mechanisms a final rule, NMFS will continue to evaluate the efficacy of existing efforts an endangered species within the Under the ESA, a determination to to protect and restore coho salmon foreseeable future throughout all or a propose a species for listing as populations (see Public Comments significant portion of its range. Section threatened or endangered requires Solicited). 4(b)(1) of the ESA requires that the considering the biological status of the listing determination be based solely on species, as well as efforts being made to E. Other Natural or Human-made the best scientific and commercial data protect the species. Typically, Factors Affecting its Continued available, after conducting a review of regulatory mechanisms established by Existence the status of the species and after taking Federal, state, tribal, and local Long-term trends in rainfall and into account those efforts, if any, being governments provide the most effective marine productivity associated with made to protect such species. means to prevent a species from facing atmospheric conditions in the North Based on results from its coastwide the peril of extinction. Unfortunately, Pacific Ocean may have a major assessment, NMFS has determined that the continued widespread decline of influence on coho salmon production. in the region south of Queen Charlotte native, naturally-reproducing coho The effects of extended drought on Strait, British Columbia, there are six salmon in numerous West Coast streams water supplies and water temperatures ESUs of coho salmon that constitute suggests that management plans and are a major concern for California ‘‘species’’ under the ESA. NMFS has practices followed by the numerous populations of coho salmon. Poor ocean determined that three of the six ESUs Federal, state, tribal, and local entities conditions are believed to have played are currently threatened, and therefore, within the range of this status review, a prominent role in the decline of coho proposes to list coho salmon in the have not provided adequate protection salmon populations in Washington, central California coast, southern for this species. Of encouraging note is Oregon, and California. Unusually warm Oregon/northern California, and Oregon a Federal interagency cooperative ocean surface temperatures and coast ESUs as threatened. The program, the Record of Decision for associated changes in coastal currents geographic boundaries (i.e., the Amendments to U.S. Forest Service and upwelling, known as El Nin˜ o watersheds within which the members (USFS) and Bureau of Land conditions, result in ecosystem of the ESU are typically found) for these Management (BLM) Planning alterations such as reductions in ESUs are described under ‘‘ESU Documents Within the Range of the primary and secondary productivity and Determinations.’’ In all three ESUs, only Spotted Owl (i.e., the ‘‘Forest Plan’’, changes in prey and predator species naturally-reproducing populations are April 1994), that has recently been distributions. The degree to which being proposed for listing as threatened implemented to provide a coordinated adverse ocean conditions can influence at this time. However, prior to the final management direction for the lands coho salmon production was listing determinations, NMFS will administered by USFS and BLM. The demonstrated during the El Nin˜ o event examine and attempt to characterize the Forest Plan’s region-wide management of 1982–83, which resulted in a 24- to relationship of existing hatchery direction will amend existing 27-percent reduction in fecundity and a populations to the ESUs proposed for management plans, including Forest 58-percent reduction (based on pre- listing. This may result in including Plans, Regional Guides, Timber Sale return predictions) in survival of adult some existing hatchery populations in 38026 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules some of the ‘‘species’’ that may be listed conduct. This adoption is the normal 1. Measures could be taken to in the final rule. NMFS has also course followed by the USFWS with promote land management practices determined that the Puget Sound/Strait respect to threatened listings (see 50 that protect and restore coho salmon of Georgia ESU and lower Columbia CFR 17.31(a)). NMFS is extending the habitat. Land management practices River/southwest Washington coast ESU provisions of section 9 and section 10 to affecting coho salmon habitat include do not warrant listing at this time, but these species in order to provide timber harvest, road building, because there is sufficient concern immediate protections to them. agriculture, livestock grazing, and urban regarding the health of these ESUs, However, prior to the final listing development. NMFS is adding them to the Candidate determination, NMFS will consider 2. Evaluation of existing commercial List. NMFS will conduct a thorough adopting specific regulations under and recreational harvest regulations for reevaluation of the status of both ESUs section 4(d) that will apply to one or ocean and river fisheries could identify and will reconsider the present decision more ESUs of coho salmon identified as any changes necessary to protect coho that listings are not warranted. In the threatened (see Public Comments salmon populations. event that this reevaluation establishes Solicited). These regulations, 3. Artificial propagation programs that listing either ESU is warranted, promulgated pursuant to the could be required to incorporate NMFS will issue a proposed rule to list Administrative Procedures Act, 5 U.S.C. practices that minimize impacts upon one or both ESUs as threatened or 551 et seq., with prior notice and native populations of coho salmon. endangered. opportunity for comment, may be in 4. Efforts could be made to ensure that A Technical Memorandum will be lieu of the Section 9 taking prohibition existing and proposed dam facilities are prepared by NMFS and will provide and Section 10 permit exception. designed and operated in a manner that more detailed information and will not adversely affect listed references concerning the coastwide Available Conservation Measures populations. For example, NMFS could status review of coho salmon. The Conservation measures provided to require that fish passage facilities at availability of new information may species listed as threatened or dams effectively pass migrating juvenile cause NMFS to re-assess these proposed endangered under the ESA include and adult salmon. 5. All water diversions could have listings. prohibitions on taking, recovery actions, adequate headgate and staff gauge and Federal agency consultation Prohibitions and Proposed Protective structures installed to control and requirements. Recognition through Measures monitor water usage accurately. Water listing promotes conservation actions by Section 9 of the ESA prohibits certain rights could be enforced to prevent Federal and state agencies and private activities that directly or indirectly irrigators from exceeding the amount of groups and individuals. affect endangered species. These water to which they are legally entitled. prohibitions apply to all individuals, Section 7(a)(4) of the ESA requires 6. All irrigation diversions affecting organizations, and agencies subject to that Federal agencies confer with NMFS downstream migrating coho salmon U.S. jurisdiction. Section 4(d) of the on any actions likely to jeopardize the could be screened. A thorough review of ESA allows the promulgation of continued existence of a species the impact of irrigation diversions on regulations that modify or apply any or proposed for listing and on actions coho salmon could be conducted. all of the prohibitions of section 9 to likely to result in the destruction or Should the proposed listings be made threatened species. Section 9 also adverse modification of proposed final, protective regulations under the prohibits violations of protective critical habitat. For listed species, ESA would be put into effect and a regulations for threatened species section 7(a)(2) requires Federal agencies recovery program(s) would be promulgated under section 4(d). As to ensure that activities they authorize, implemented. NMFS recognizes that to announced in a recent joint policy with fund, or conduct are not likely to be successful, protective regulations and the USFWS (59 FR 34272, July 1, 1994), jeopardize the continued existence of a recovery programs for coho salmon will NMFS will identify, to the extent known listed species or to destroy or adversely need to be developed in the context of at the time of the final rule, specific modify its critical habitat. If a Federal conserving aquatic ecosystem health. activities that will not be considered action may affect a listed species or its NMFS intends that Federal lands and likely to result in violation of section 9, critical habitat, the responsible Federal Federal activities bear as much of the as well as activities that will be agency must enter into consultation burden as possible for conserving listed considered likely to result in violation. with NMFS. populations and the ecosystems upon For those activities whose likelihood of Examples of Federal actions that may which they depend. However, violation is uncertain, a contact will be be affected by this proposal include throughout the range of all three ESUs identified in the final listing document various Federal land management proposed for listing, coho salmon to assist the public in determining agency activities (e.g., actions associated habitat occurs and can be affected by whether a particular activity would with timber harvest, recreation, mining, activities on state, tribal or private constitute a prohibited act under section agriculture, and grazing), U.S. Army (nonfederal) land. Agricultural, urban 9. Corps of Engineers Clean Water Act and timber management activities on At this time, NMFS proposes to adopt section 404 permitting activities, nonfederal land could and should be protective measures to prohibit, with Federal Energy Regulatory Commission conducted in a manner that avoids respect to the three ESUs of coho licenses for nonfederal development adverse effects to coho salmon aquatic salmon proposed as threatened herein, and operation of hydropower projects, habitat. ‘‘taking,’’ interstate commerce, and the and Federal salmon hatcheries. NMFS encourages nonfederal other ESA prohibitions applicable to Based on information presented in landowners to assess the impacts of endangered species, with the exceptions this proposed rule, general conservation their actions on potentially threatened provided under section 10 of the ESA. measures that could be implemented to or endangered salmonids. In particular, Under the ESA, the term ‘‘take’’ means help conserve the species are listed NMFS encourages the formulation of to harass, harm, pursue, hunt, shoot, below. This list does not constitute watershed partnerships to promote wound, kill, trap, capture, or collect, or NMFS’ interpretation of a recovery plan conservation in accordance with to attempt to engage in any such under section 4(f) of the ESA. ecosystem principles. These Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38027 partnerships will be successful only if NMFS is requesting information hatchery production practices to all watershed stakeholders (i.e., state, regarding: (1) The existence of native, support the recovery effort while tribal, and local governments, naturally-reproducing coho salmon in achieving other related objectives of the landowner representatives, and Federal the proposed ESUs, especially the lower existing programs. and nonfederal biologists) participate Columbia River/southwest Washington NMFS also is requesting quantitative and share the goal of restoring coho coast ESU, and in the Puget Sound/ evaluations describing the quality and salmon to the watersheds. To assist with Strait of Georgia ESU; (2) trends in adult extent of freshwater and marine habitats such efforts, NMFS, the USFWS and the size of native, naturally-reproducing for juvenile and adult coho salmon as EPA, with technical assistance from the fish, especially in the Puget Sound/ well as information on areas that may Natural Resources Conservation Service, Strait of Georgia ESU; (3) progeny/ qualify as critical habitat in Washington, have contracted a study to provide parent return ratios for naturally- Oregon, and California for the proposed technical guidance and training to reproducing fish, both before and after ESUs. Areas that include the physical agency staff. This guidance is intended harvest; (4) coho salmon escapement, and biological features essential to the to produce a technical foundation and particularly escapement data partitioned recovery of the species should be informational support base for fostering into natural and hatchery components; identified. Areas outside the present development of conservation plans (5) the proportion of naturally- range should also be identified if such pursuant to section 10 of the ESA and reproducing fish that were reared as areas are essential to the recovery of the cooperative agreements with the states juveniles in a hatchery; (6) the species. Essential features should of Washington, Oregon, and California, reproductive success of naturally- include, but are not limited to: (1) Space pursuant to section 6 of the ESA. reproducing hatchery fish (i.e. hatchery for individual and population growth, Furthermore, NMFS intends to enlist fish spawning in the wild); (7) straying and for normal behavior; (2) food, water, nonfederal jurisdictions, including rates of hatchery fish to other hatcheries air, light, minerals, or other nutritional tribal and county governments, private and into natural populations; (8) efforts or physiological requirements; (3) cover organizations and affected individuals being made to protect native, naturally- or shelter; (4) sites for reproduction and in recovery plan development and reproducing populations of coho salmon rearing of offspring; and (5) habitats that implementation. in British Columbia, Washington, are protected from disturbance or are representative of the historic Critical Habitat Oregon, and California; and (9) suggestions for specific regulations geographical and ecological Section 4(a)(3)(A) of the ESA requires under section 4(d) of the ESA that could distributions of the species. that, to the extent prudent and apply to one or more ESUs of coho For areas potentially qualifying as determinable, critical habitat be salmon proposed as threatened. critical habitat, NMFS is requesting designated concurrently with the listing information describing: (1) The Suggested regulations should address of a species. However, this section of the activities that affect the area or could be activities, plans, or guidelines that, ESA specifically precludes NMFS from affected by the designation, and (2) the despite their potential to result in the designating critical habitat in foreign economic costs and benefits of incidental take of listed fish, will countries, e.g., Canada. While NMFS additional requirements of management ultimately promote the conservation of has completed its initial analysis of the measures likely to result from the threatened ESUs. biological status of coho salmon designation. populations from southern British In addition to comments on the The economic cost to be considered in Columbia to southern California, it has proposal concerning the biological the critical habitat designation under not completed the analysis necessary for status of the stocks, NMFS is soliciting the ESA is the probable economic designating critical habitat. Therefore, to suggestions and proposals on impact ‘‘of the [critical habitat] avoid delaying this listing proposal, conservation measures that might best designation upon proposed or ongoing NMFS will propose critical habitat in a achieve the purposes of the ESA relating activities’’ (50 CFR 424.19). NMFS must separate rulemaking. Also, NMFS is to recovering the health of coho salmon consider the incremental costs nearing completion of a coastwide populations and the ecosystems upon specifically resulting from a critical status review of steelhead (O. mykiss) which they depend. These conservation habitat designation that are above the populations, a species that has similar measures include: (1) The best approach economic effects attributable to listing habitat requirements and considerable to integrate federal efforts with state and the species. Economic effects geographic overlap with coho salmon. local efforts on habitat protection and attributable to listing include actions Hence, a delay will allow NMFS to more restoration, harvest management resulting from section 7 consultations clearly and efficiently identify proposed regimes and hatchery production under the ESA to avoid jeopardy to the critical habitat for threatened or programs; (2) the best method to species and from the taking prohibitions endangered ESUs of both species. integrate and encourage private efforts under section 9 of the ESA. Comments at habitat protection and restoration, concerning economic impacts should Public Comments Solicited and the most effective role of NMFS and distinguish the costs of listing from the To ensure that the final action other federal agencies for promoting incremental costs that can be directly resulting from this proposal will be as private conservation efforts for purposes attributed to the designation of specific accurate and as effective as possible, of achieving the goals of the ESA; (3) the areas as critical habitat. NMFS is soliciting comments and role of successful local watershed NMFS will review all public suggestions from the public, other protection programs in the larger comments and any additional concerned governmental agencies, the conservation effort, and the best information regarding the status of the scientific community, industry, and any mechanisms to encourage these efforts; coho salmon ESUs described herein other interested parties. Public hearings (4) the most appropriate mechanisms for and, as required under the ESA, intends will be held in various locations integrating existing harvest management to complete a final rule within 1 year of throughout the range of the proposed regimes with the needs of coho salmon this proposed rule. The availability of ESUs; details regarding locations, dates, populations proposed for listing; and, new information may cause NMFS to re- and times will be published in a (5) the most effective mechanisms for assess the status of any coho salmon forthcoming Federal Register document. instituting necessary reforms in the ESU, including ESUs not proposed for 38028 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules listing at this time. In particular, NMFS Forestry, 1416 Ninth St., Sacramento, CA Forbes, S., K. Knudsen, and F. Allendorf. will conduct a thorough reevaluation of 95814.) 1993. Genetic Variation in DNA of Coho the status of the Puget Sound/Strait of California Resources Agency. 1995. Letter Salmon from the Lower Columbia River. Georgia and lower Columbia River/ to Hilda Diaz-Soltero, NMFS, from John Final Report to the U.S. Department of Amodio, Assistant Secretary, dated June 21, Energy, Bonneville Power Administration, southwest Washington coast ESUs 1995, regarding conservation and recovery of Division of Fish and Wildlife, Contract DE- before the final listing determination. coho through the NCCP conservation BI79–92BP 30198, 25 p. (Available from Although NMFS has concluded that program. (Available from National Marine Bonneville Power Administration, Public information available at the present time Fisheries Service, Southwest Region, 501 Information Office—ALP–22, P.O. Box 3621, is not sufficient to demonstrate that a West Ocean Blvd., Suite 4200, Long Beach, Portland, OR. 97208.) listing is warranted for these ESUs, CA 90802. Gall, G.A.E. 1991. Allele Frequencies of there is concern over the health of Chapman, D.W. 1962. Aggressive Behavior Selected Stocks of California, Coastal Oregon, natural populations. in Juvenile Coho Salmon as a Cause of and Columbia River Coho Salmon. Data Emigration. J. Fish. Res. Board Can. 19:1047– Submitted to ESA Administrative Record for Classification 1080. Coho Salmon, 16 January 1991, 59 p. Columbia River Coordinated Information (Available from Environmental and The 1982 amendments to the ESA, in System (CIS). 1992. Stock Summary Reports Technical Services Division, Natl. Marine section 4(b)(1)(A), restrict the for Columbia River Anadromous Salmonids, Fish. Serv., 525 NE Oregon St., Suite 500, information that may be considered 5 volumes. U.S. Department of Energy, Portland, OR. 97232–2737.) when assessing species for listing. Based Bonneville Power Administration, Division Goodman, M.L. 1990. Preserving the on this limitation of criteria for a listing of Fish and Wildlife, Portland, OR. DOE/BP– Genetic Diversity of Salmonid Stocks: A Call 94402. for Federal Regulation of Hatchery Programs. decision and the opinion in Pacific Cooney, C.X., and S.E. Jacobs. 1994. Environ. Law 120:111–166. Legal Foundation v. Andrus, 675 F. 2d Oregon Coastal Salmon Spawning Surveys, Hard, J.J., R.P. Jones, M.R. Delarm, and R.S. 825 (6th Cir., 1981), NMFS has 1992. Fish Division Information Reports 94– Waples. 1992. Pacific Salmon and Artificial categorically excluded all ESA listing 2. Oregon Department of Fish and Wildlife, Propagation under the Endangered Species actions from environmental assessment Portland, OR. 103 p. Act. U.S. Dep. Commer., NOAA Tech. Memo. requirements of the National Cramer, D.P., and S.P. Cramer. 1994. Status NMFS F/NWFSC–2, 56 p. Environmental Policy Act under NOAA and Population Dynamics of Coho Salmon in Higgins, P., S. Dobush, and D. Fuller. 1992. Administrative Order 216–6. the Clackamas River. Tech. Rep., Portland Factors in Northern California Threatening General Electric Co., 105 p. (Available from Stocks with Extinction. Humboldt Chapter of This proposed rule is exempt from Portland General Electric Co., 33831 S.E. the American Fisheries Society, Arcata, CA. review under E.O. 12866. Faraday Rd., Estacada, OR. 97023.) 24 p. References Cramer, S.P. 1994. Status of Oregon’s Hilborn, R., and J. Winton. 1993. Learning Coastal Coho and Measures for Population to Enhance Salmon Production: Lessons from Bartley, D.M. 1987. The Genetic Structure Rebuilding. Final Report, May 1994. the Salmonid Enhancement Program. Can. J. of Chinook and Coho Salmon Populations in Submitted to National Marine Fisheries Fish. Aquat. Sci. 50:2043–2056. California, with a Note on the Genetic Service by S.P. Cramer and Associates, Hiss, J.M., and E.E. Knudsen. 1993. Variability in Sturgeon (Acipenseridae). Gresham, OR, 142 p. (Available from Chehalis River Basin Fishery Resources: Ph.D. Dissertation, Univ. California, Davis. Environmental and Technical Services Status, Trends, and Restoration. U.S. Fish 204 p. Division, Natl. Marine Fish. Serv., 525 NE and Wildlife Service, Western Washington Bledsoe, L.J., D.A. Somerton, and C.M. Oregon St., Suite 500, Portland, OR. 97232– Fishery Resource Office, 128 p. (Available Lynde. 1989. The Puget Sound Runs of 2737.) from USFWS, Western Washington Fishery Salmon: An Examination of the Changes in Cramer, S.P., T.D. Satterthwaite, R.B. Resource Office, 2625 Parkmont Lane, Bldg. Run Size since 1896. In C.D. Levings, L.B. Boyce, and B.P. McPherson. 1985. Lost Creek A, Olympia, WA 98502–5751.) Holtby, and M.A. Henderson (editors), Dam Fisheries Evaluation Phase I Completion Hjort, R.C., and C.B. Schreck. 1982. Proceedings of the National Workshop on Report. Volume I: Impacts of Lost Creek Dam Phenotypic Differences among Stocks of Effects of Habitat Alteration on Salmonid on the Biology of Anadromous Salmonids in Hatchery and Wild Coho Salmon, Stocks. Can. Spec. Publ. Fish. Aquat. Sci. the Rogue River. Submitted to U.S. Army Oncorhynchus kisutch, in Oregon, 105:50–61. Corps of Engineers, Contract DACW57–77– Washington, and California. Fish. Bull., U.S. Brown, L.R., and P.B. Moyle. 1991. Status C–0027, 271 p. (Available from Oregon 80:105–119. of Coho Salmon in California. Report to the Department of Fish and Wildlife, P.O. Box Jacobs, S.E., and C.X. Cooney. 1991. National Marine Fisheries Service, Southwest 59, Portland, OR. 97207.) Improvement of Methods Used to Estimate Region, Terminal Island. 114 p. Currens, K.P., and D. Farnsworth. 1993. the Spawning Escapement of Oregon Coastal Brown, L.R., P.B. Moyle, and R.M. Mitochondrial DNA Variation in Oregon Natural Coho Salmon. Fish Division Progress Yoshiyama. 1994. Historical Decline and Coho Salmon. Report to Oregon Department Reports 1991, Oregon Department of Fish and Current Status of Coho Salmon in California. of Fish and Wildlife, 16 p. (Available from Wildlife, Portland, OR, 24 p. N. Am. J. Fish. Manage. 14:237–261. Oregon Department of Fish and Wildlife, P.O. Jacobs, S.E., and C.X. Cooney. 1992. Bryant, G.J. 1994. Status Review of Coho Box 59, Portland, OR 97207.) Improvement of Methods Used to Estimate Salmon Populations in Scott and Waddell Flagg, T.A., F.W. Waknitz, D.J. Maynard, the Spawning Escapement of Oregon Coastal Creeks, Santa Cruz County, CA. National G.B. Milner, and C.V. Mahnken. In press. Natural Coho Salmon. Fish Division Progress Marine Fisheries Service, Southwest Region, Impact of Hatcheries on Native Coho Salmon Reports 1992, Oregon Department of Fish and Santa Rosa. 102 p. Populations in the Lower Columbia River. In Wildlife, Portland, OR, 23 p. Booth, D.B. 1991. Urbanization and the H. Shamm and B. Piper (editors) Proceedings Jacobs, S.E., and C.X. Cooney. 1993. Natural Drainage System—Impacts, of the American Fisheries Society Improvement of Methods Used to Estimate Solutions, and Prognoses. Northwest Symposium on the Uses and Effects of the Spawning Escapement of Oregon Coastal Environ. J. 7:93–118. Cultured Fishes in Aquatic Ecosystems, Natural Coho Salmon. Fish Division Progress California Advisory Committee on Salmon Albuquerque, New Mexico. (Available from Reports 1993, Oregon Department of Fish and and Steelhead Trout. 1988. Restoring the National Marine Fisheries Service, Northwest Wildlife, Portland, OR, 28 p. Balance. Annual Report 124–J. 84 p. Fisheries Science Center, 2725 Montlake Johnson, O.W., T.A. Flagg, D.J. Maynard, California Department of Fish and Game Blvd. E., Seattle, WA 98112.) G.B. Milner, and F.W. Waknitz. 1991. Status (CDFG). 1994. Petition to the Board of Fleming, I.A., and M.R. Gross. 1989. Review for Lower Columbia River Coho Forestry to List Coho Salmon (Oncorhynchus Evolution of Adult Female Life History and Salmon. U.S. Dep. Commer., NOAA Tech. kisutch) as a Sensitive Species. California Morphology in a Pacific Salmon (coho: Memo. NMFS F/NWC–202, 94 p. Department of Fish and Game, Sacramento, Oncorhynchus kisutch). Evolution 43:141– Johnson, S.L. 1988. The Effects of the 1983 CA, 35 p. (Available from California Board of 157. El Nin˜ o on Oregon’s Coho (Oncorhynchus Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38029 kisutch) and Chinook (O. tshawytscha) Nehlsen, W., J.E. Williams, and J.A. Coho Salmon Presmolts to Supplement Wild Salmon. Fish. Res. 6:105–123. Lichatowich. 1991. Pacific Salmon at the Production in Oregon Coastal Streams. Kostow, K., and 13 coauthors. 1994. The Crossroads: Stocks at Risk from California, Oregon Department of Fish and Wildlife, Natural Production Program 1994 Biennial Oregon, Idaho, and Washington. Fisheries Fisheries Research Report 10:1–22. Report on the Status of Wild Fish in Oregon (Am. Fish. Soc.) 16(2):4–21. Thompson, G.G. 1991. Determining and the Implementation of Fish Conservation Nickelson, T.E., J.W. Nicholas, A.M. Minimum Viable Populations under the Policies. Oregon Department of Fish and McGie, R.B. Lindsay, D.L. Bottom, R.J. Kaiser, Endangered Species Act. U.S. Dep. Commer., Wildlife, Portland, OR. 165 p. and S.E. Jacobs. 1992. Status of Anadromous NOAA Tech. Memo. NMFS F/NWC–198, 78 Lichatowich, J.A. 1989. Habitat Alteration Salmonids in Oregon Coastal Basins. p. and Changes in Abundance of Coho Research and Development Section and van den Berghe, E.P., and M.R. Gross. (Oncorhynchus kisutch) and Chinook (O. Ocean Salmon Management, Oregon 1984. Female Size and Nest Depth in Coho tshawytscha) Salmon in Oregon’s Coastal Department of Fish and Wildlife, 83 p. Salmon (Oncorhynchus kisutch). Can. J. Fish. Streams. Can. Spec. Publ. Fish. Aquat. Sci. (Available from Oregon Department of Fish Aquat. Sci. 412:204–206. 105:92–99. and Wildlife, P.O. Box 59, Portland, OR Waples, R.S. 1991. Pacific Salmon, Maahs, M., and J. Gilleard. 1994. 97207.) Oncorhynchus Spp., and the Definition of Anadromous Salmonid Resources of Northcote, T.C., and D.Y. Atagi. In ‘‘Species’’ under the Endangered Species Act. Mendocino Coastal and Inland Rivers 1990– Preparation. Pacific Salmon Abundance Mar. Fish. Rev. 53(3):11–22. 91 through 1991–92: An Evaluation of Trends in the Fraser River Watershed Washington Department of Fisheries Rehabilitation Efforts Based on Carcass Compared with other British Columbia (WDF). 1994. Historical Commercial Catch Recovery and Spawning Activity. Draft Final Systems. In D.J. Stouder, P.A. Bisson, and R.J. and Effort Database, In-river Harvest Data for Report to California Department of Fish and Naiman (editors), Pacific Salmon and their Selected Washington Rivers, 1972–93. Game, Fisheries Division, Fisheries Ecosystems, Status and Future Options. (Available from Washington Department of Restoration Program, Contract FG–9364. 66 p. Chapman and Hall, Inc., New York, NY. Fish and Wildlife, 600 Capitol Way N., Mullen, R.E. 1981. Estimates of the Olin, P.G. 1984. Genetic Variability in Olympia, WA 98501–1091.) Historical Abundance of Coho Salmon Hatchery and Wild Populations of Coho WDF, Washington Department of Wildlife, Oncorhynchus kisutch (Walbaum), in Oregon Salmon, Oncorhynchus kisutch, in Oregon. and Western Washington Treaty Indian Coastal Streams and in the Oregon M.S. Thesis, Univ. California, Davis. 73 p. Tribes. 1993. 1992 Washington State Salmon Production Index Area. Oregon Department Oregon Department of Fish and Wildlife and Steelhead Stock Inventory. Olympia, of Fish and Wildlife Population Dynamics (ODFW). 1992. Oregon Salmon and Steelhead WA. 212 p. and Statistical Services Section, Corvallis, Catch Data, 1979–91. Fish Division, Oregon Wehrhahn, C.F., and R. Powell. 1987. OR. 9 p. Department of Fish and Wildlife, 22 p. Electrophoretic Variation, Regional National Marine Fisheries Service (NMFS), (Available from Oregon Department of Fish Differences, and Gene Flow in the Coho Northwest Fisheries Science Center, Coastal and Wildlife, P.O. Box 59, Portland, OR Salmon (Oncorhynchus kisutch) of Southern Zone and Estuarine Studies Division. 1994. 97207.) British Columbia. Can. J. Fish. Aquat. Sci. 44: Memo to ESA Administrative Record for ODFW. 1993. Oregon Salmon and 822–831. Coastal Coho Salmon RE: Preliminary Steelhead Catch Data, 1980–92. Fish Conclusions of the Northwest Fisheries Division, Oregon Department of Fish and List of Subjects in 50 CFR Part 227 Science Center’s Review of a Petition to list Wildlife, 21 p. (Available from Oregon Endangered and threatened species, Oregon Populations of Coho Salmon under Department of Fish and Wildlife, P.O. Box Exports, Imports, Marine mammals, the U.S. Endangered Species Act, 5 July 59, Portland, OR 97207.) Transportation. 1994, 17 p. (Available from Environmental Pacific Fishery Management Council and Technical Services Division, Natl. (PFMC). 1990. Scientific and Statistical Dated: July 19, 1995. Marine Fish. Serv., 525 NE Oregon St., Suite Committee (SSC) Review of Washington Rolland A. Schmitten, 500, Portland, OR 97232–2737.) Coastal and Puget Sound Coho Salmon National Marine Fisheries Service (NMFS), Escapement Estimation Methodologies: Assistant Administrator for Fisheries, Northwest Fisheries Science Center, Coastal Summary and Recommendations. SSC National Marine Fisheries Service. Zone and Estuarine Studies Division. 1994. Supplemental Report B.5–2 from the PFMC For the reasons set out in the Memo to ESA Administrative Record for Meeting March 1990. preamble, 50 CFR part 227 is proposed Coastal Coho Salmon RE: Conclusions of the PFMC. 1993. Preseason Report I: Stock to be amended as follows: Northwest Fisheries Science Center’s Review Abundance Analysis for 1993 Ocean Salmon of the Status of Coho Salmon from California, Fisheries. Pacific Fishery Management PART 227ÐTHREATENED FISH AND Oregon, and Washington under the U.S. Council, Portland, OR. WILDLIFE Endangered Species Act, 2 September 1994, PFMC. 1994. Review of 1993 Ocean 41 p. (Available from Environmental and Salmon Fisheries. Pacific Fishery 1. The authority citation for part 227 Technical Services Division, Natl. Marine Management Council, Portland, OR, February continues to read as follows: Fish. Serv., 525 NE Oregon St., Suite 500, 1994. Authority: 16 U.S.C. 1531 et seq. Portland, OR 97232–2737.) Reisenbichler, R.R., and S.R. Phelps. 1987. National Marine Fisheries Service (NMFS), Genetic Variation in Chinook, Oncorhynchus 2. In § 227.4, paragraphs (j), (k), and Northwest Fisheries Science Center, Coastal tshawytscha, and Coho, O. kisutch, Salmon (l) are added to read as follows: Zone and Estuarine Studies Division. 1994. from the North Coast of Washington. Fish. Memo to ESA Administrative Record for Bull., U.S. 85(4):681–701. § 227.4 Enumeration of threatened Coastal Coho Salmon RE: Puget Sound Coho Ricker, W.E. 1981. Changes in Average Size species. Salmon, 22 February 1995, 3 p. (Available and Average Age of Pacific Salmon. Can. J. * * * * * from Environmental and Technical Services Fish. Aquat. Sci. 38:1636–1656. (j) Central California coho salmon Division, Natl. Marine Fish. Serv., 525 NE Sandercock, F.K. 1991. Life History of (Oncorhynchus kisutch). Oregon St., Suite 500, Portland, OR 97232– Coho Salmon (Oncorhynchus kisutch). In C. (k) Southern Oregon/northern 2737.) Groot and L. Margolis (editors), Pacific California coast coho salmon National Marine Fisheries Service (NMFS), Salmon Life Histories, p. 396–445. Univ. Northwest Region. 1995. Memo to R. British Columbia Press, Vancouver. (Oncorhynchus kisutch). Schmitten from M. Schiewe RE: Puget Sound Solazzi, M.F. 1986. Electrophoretic Stock (l) Oregon coast coho salmon Coho Salmon—Recommendation not to Characterization of Coho Salmon Populations (Oncorhynchus kisutch). propose to list as threatened under the in Oregon and Washington, and Coastal 3. Section 227.21 is revised to read as Endangered Species Act, 20 March 1995, 14 Chinook Salmon Populations in Oregon. follows: p. (Available from Environmental and Oregon Dep. Fish and Wildlife, Info. Rep. 86– Technical Services Division, Natl. Marine 5:1–16. § 227.21 Threatened salmon. Fish. Serv., 525 NE Oregon St., Suite 500, Solazzi, M.F., T.E. Nickelson, and S.L. (a) Prohibitions. The prohibitions of Portland, OR 97232–2737.) Johnson. 1990. An Evaluation of the Use of section 9 of the Act (16 U.S.C. 1538) 38030 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules relating to endangered species apply to threatened species of salmon listed in § 227.4 (f), (g), (j), (k), and (l), except as provided in paragraph (b) of this section. (b) Exceptions. The exceptions of section 10 of the Act (16 U.S.C. 1539) and other exceptions under the Act relating to endangered species, including regulations implementing such exceptions, also apply to the threatened species of salmon listed in § 227.4 (f), (g), (j), (k), and (l). This section supersedes other restrictions on the applicability of parts 217 and 222 of this chapter, including, but not limited to, the restrictions specified in §§ 217.2 and 222.22(a) of this chapter with respect to the species identified in § 227.21(a). [FR Doc. 95–18146 Filed 7–19–95; 4:00 pm] BILLING CODE 3510±22±P 38031 Notices Federal Register Vol. 60, No. 142 Tuesday, July 25, 1995 This section of the FEDERAL REGISTER accelerated financial assistance to treat The review indicates the existence of contains documents other than rules or 5,800 acres to reduce the amount of de minimis dumping margins for this proposed rules that are applicable to the nitrogen available to be leached to the period. public. Notices of hearings and investigations, groundwater, and eight animal waste We gave interested parties an committee meetings, agency decisions and management facilities. rulings, delegations of authority, filing of opportunity to comment on our petitions and applications and agency The Notice of a Finding Of No preliminary results. Based on our statements of organization and functions are Significant Impact (FONSI) has been analysis of the comments received, we examples of documents appearing in this forwarded to the Environmental have adjusted Wieland’s margin for section. Protection Agency (EPA) and to various these final results. federal, state, and local agencies and EFFECTIVE DATE: July 25, 1995. interested parties. A limited number of DEPARTMENT OF AGRICULTURE copies of the FONSI are available to fill FOR FURTHER INFORMATION CONTACT: single copy requests at the above Thomas Killiam, Chip Hayes, or John Natural Resources Conservation address. Basic data developed during Kugelman, Office of Antidumping Service the environmental assessment are on Compliance, Import Administration, file and may be reviewed by contacting International Trade Administration, Goshen County, North Platte River Lincoln E. Burton. U.S. Department of Commerce, 14th Groundwater Quality Project No administrative action on Street and Constitution Avenue, NW., Watershed, Goshen, WY implementation of the proposal will be Washington, DC 20230; telephone: (202) 482–5253. AGENCY: Natural Resources taken until 30 days after the date of this Conservation Service, USDA. publication in the Federal Register. SUPPLEMENTARY INFORMATION: ACTION: Notice of a finding of no (This activity is listed in the Catalog of Background significant impact. Federal Domestic Assistance under NO. 10.904, Watershed Protection and Flood On January 17, 1995, the Department SUMMARY: Pursuant to Section 102(2)(c) Prevention, and is subject to the provisions published in the Federal Register (60 of the National Environmental Policy of Executive Order 12372, which requires FR 3392) the preliminary results of its Act of 1969; the Council on intergovernmental consultation with state 1993–94 administrative review of the Environmental Quality regulations (40 and local officials.) antidumping duty order on brass sheet CFR part 1500); and the Natural Lincoln E. Burton, and strip from Germany (52 FR 6997, Resources Conservation Service State Conservationist. March 6, 1987). Regulations (7 CFR part 650); the [FR Doc. 95–18223 Filed 7–24–95; 8:45 am] Applicable Statute and Regulations Natural Resources Conservation Service, BILLING CODE 3410±16±M U.S. Department of Agriculture, gives The Department has now completed notice that an environmental impact this administrative review in statement is not being prepared for the accordance with section 751 of the Goshen County, North Platte River DEPARTMENT OF COMMERCE Tariff Act of 1930, as amended (the Act). Groundwater Quality Project Watershed, Unless otherwise indicated, all citations International Trade Administration Goshen County, Wyoming. to the statute and to the Department’s FOR FURTHER INFORMATION CONTACT: regulations are in reference to the Lincoln E. Burton, State [A±428±602] provisions as they existed on December Conservationist, Natural Resources Brass Sheet and Strip From Germany; 31, 1994. Conservation Service, Room 3124, Final Results of Antidumping Duty Federal Building, 100 East B Street, Scope of the Review Administrative Review Casper, Wyoming 82601, telephone Imports covered by this review are (307) 261–5201. AGENCY: Import Administration, sales or entries of brass sheet and strip, SUPPLEMENTARY INFORMATION: The International Trade Administration, other than leaded and tinned brass sheet environmental assessment of this Department of Commerce. and strip. The chemical composition of federally assisted action indicates that ACTION: Notice of final results of the products under review is currently the project will not cause significant antidumping duty administrative defined in the Copper Development local, regional, or national impacts on review. Association (C.D.A.) 200 Series or the the environment. As a result of these Unified Numbering System (U.N.S.) findings, Lincoln E. Burton, State SUMMARY: On January 17, 1995, the C20000 series. This review does not Conservationist, has determined that the Department of Commerce (the cover products the chemical preparation and review of an Department) published the preliminary compositions of which are defined by environmental impact statement are not results of its administrative review of other C.D.A. or U.N.S. series. The needed for this project. the antidumping duty order on brass merchandise is currently classified The project purpose is watershed sheet and strip from Germany. The under Harmonized Tariff Schedule protection—the on-site treatment of review covers exports of this (HTS) item numbers 7409.21.00 and agricultural related pollutants for off- merchandise to the United States by one 7409.29.20. The HTS item numbers are site benefits. The planned works of manufacturer/exporter, Wieland-Werke provided for convenience and Customs improvement include accelerated AG (Wieland), during the period March purposes. The written description technical assistance for land treatment, 1, 1993 through February 28, 1994. remains dispositive. 38032 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices The review period is March 1, 1993 distinguish alloys for high copper defined proportions of metals. Matching through February 28, 1994. The review content (i.e., greater than 75 percent), by specific alloys provides more involves one manufacturer/ exporter, that customers specify exact alloys in precision than merely differentiating Wieland. placing their orders, that in all other between merchandise which contains antidumping proceedings involving above or below 75 percent copper. Analysis of Comments Received brass sheet and strip the Department has The respondent’s grouped-alloy We received case and rebuttal briefs always made exact-alloy matches, and approach would assign all home market from Wieland and from the petitioners, that Wieland’s alloy groupings disregard merchandise to one of two groupings, Hussey Copper, Ltd., The Miller the Department’s conclusion in an would compare each U.S. sale to home Company, Outokumpu American Brass, earlier review that it should abandon market merchandise containing up to Revere Copper Products, Inc., the grouping methodology and instead seven different alloys, and would not International Association of Machinists make matches on an exact-alloy basis. necessarily result in comparisons of and Aerospace Workers, International The petitioners further assert that U.S. sales to home market merchandise Union, Allied Industrial Workers of Wieland failed to establish that its home made of only the identical alloy, or of America (AFL-CIO), Mechanics market sales, when matched to U.S. only the single most similar alloy. The Educational Society of America (Local sales on the basis of exact alloys, ought respondent’s suggested groupings could 56), and the United Steelworkers of not to be taken as representative of result in understated or overstated America. home market prices. dumping margins, due to the mix of Department’s Position: We disagree home market models which would form Model-matching Methodology with the respondent. We did not employ the basis of foreign market value (FMV). Comment 1: Wieland disputes the the alloy-specific approach merely to Matching by specific alloys, on the other Department’s use of specific alloy conform to approaches used in reviews hand, ensures that we use the most grades in matching U.S. to home market of other brass sheet and strip orders, but similar merchandise possible to sales. Wieland would have the in order to follow section 771(16)(B) of establish FMV in our dumping Department use only two classes of the Act, which requires us to compare calculations. Therefore, the Department alloys, above or below 75 percent U.S. sales to home market merchandise has continued to use the alloy-specific copper content, instead of using exact which is identical or, when not matching method. alloy grades. The respondent states that identical, is ‘‘like that (U.S.) Comment 2: The respondent the exact-alloy comparison method merchandise in component material or complains that the Department’s change which we used in the preliminary materials and in the purposes for which in model-matching methodology results is a change from the method used,’’ prior to resorting, if necessary, to reduces the dumping analysis to ‘‘little used in the prior review. less similar merchandise as described in more than a game of chance,’’ since, The respondent further alleges that 771(16)(C)(i)–(iii). according to Wieland, the margin the Department used the exact-alloy Wieland does not identify which U.S. depends far more on the chance method in order to conform the model- sales, if any, are not ‘‘appropriately’’ occurrence that a home market customer matching criteria with other orders, and matched to home market merchandise will place an order for an alloy identical that in so doing the Department ignored by our method, or otherwise explain to one sold in the United States than on record evidence demonstrating that how its less specific standard would be Wieland’s general pricing policies for its Wieland’s U.S. sales cannot be more appropriate. Nor does Wieland U.S. and home market sales. Where a ‘‘appropriately matched’’ to home explain how its grouped alloy approach single home market sale serves as the market sales of identical alloys. Wieland would be ‘‘the most practical means of basis for comparison, Wieland argues, claims that ‘‘using alloy groups . .. achieving reasonable comparisons’’, the results of the U.S./home market provides the most practical means of other than by arguing that it would price comparison will depend achieving reasonable comparisons’’. make the number of home market sales completely on the date on which that Wieland claims that our approach is used in sales comparisons ‘‘sufficient’’. home market sale was made, or, more contrary to Department practice in other Regarding Wieland’s claim that particularly, on the metal pricing date cases involving brass sheet and strip, matching by alloy groups would more for the metal component of the home because the Department failed, in this appropriately reflect the nature of market sale. Thus, Wieland argues, review, to determine the appropriate Wieland’s sales, nothing in the record differences between U.S. and home matching criteria on the basis of the supports this claim. On the contrary, market prices are caused by volatility in specific nature of Wieland’s sales. The according to Wieland, its customers the market prices for copper, zinc, and respondent alleges that by relying on generally specify exact alloys in their tin, rather than by Wieland’s brass sheet specific alloy grades rather than using orders. While its customers may and strip pricing strategies. Wieland Wieland’s two alloy groups, the sometimes choose the lowest-cost suggests that as an alternative the Department ‘‘fails to take account of the combination of metals within a narrow Department should use alloy groups for nature of Wieland’s sales’’. Wieland range, no information on the record model-matching purposes. Wieland does not make clear how our approach suggests that Wieland’s customers use points out that differences in alloy costs neglects to take account of the nature of the standard of 75 percent copper could then be adjusted for with a sale- its sales, but implies that its sales are content in ordering merchandise. specific metal adjustment. made more often on the basis of whether In arguing that grouping alloys would Department’s Position: We disagree products are above or below 75 percent be appropriate because grouping is used with the respondent. Wieland’s ‘‘game in copper content than on the basis of for gauge and width ranges, Wieland of chance’’ complaint is not supported exact alloys. glosses over the distinction between the by the facts of the case or the The respondent also asserts that, since gauge and width measures on the one methodology we used. This complaint certain other model-matching criteria, hand, and alloy grades on the other. hinges on Wieland’s implicit suggestion namely gauge and width, are grouped by Gauge and width are both infinitely that individual home market sales, or classes, alloys should also be grouped. variable and therefore must be divided pairs of sales, somehow may not The petitioners note in rebuttal that into tiers to permit any comparisons. conform to its pricing policies. Wieland there is no industry standard to Alloy grades, by contrast, are discretely offers no evidence on the record that Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38033 any home market sale prices should be United States, 834 F. Supp. 413 (CIT particular purpose and to use with their excluded as unrepresentative. Wieland 1993). particular equipment, and no gauge or has not argued or demonstrated that Department’s Position: As explained width substitutes would be acceptable’’. some of its home market sales are in our response to Comment 2 above, Notwithstanding the petitioners’ outside the ordinary course of trade or the Department has concluded that the allegation, there is nothing in the record are, for some other reason, inappropriate exact-alloy matching methodology more of this review to confirm or support the as the basis of FMV. closely follows the statute, which petitioners’ suggestion that customers While Wieland has alleged that there requires us to make comparisons of have less flexibility in alloy than in is a danger that price differences for identical merchandise, when this is gauge and width specifications, which identical merchandise comparisons possible, before making comparisons typically have narrow tolerances might result from changes in commodity with similar merchandise. reflecting the customers’ machining or prices of components, it has not Comment 4: The petitioners request assembly requirements. Thus, the demonstrated that such price that the Department alter the hierarchy petitioners’ assertion that alloy is more fluctuations should affect the model- of traits used in matching U.S. sales to important than gauge and width to the match methodology. home market sales. In particular, the respondent’s customers is without In the statutory definition of such or petitioners ask the Department to place foundation in the record of this review. similar merchandise (section 771(16) of alloy in the third position, instead of the Therefore, we have determined for the Act) there is a clear preference for fifth position. According to the these final results to use the model- matching U.S. sales to home market petitioners, alloy was placed in the third matching methodology used for the merchandise which is composed of the position in certain other brass sheet and preliminary results. same materials, before resorting to strip cases, and alloy specifications are more important to customers than gauge Differences in Average Order Size comparisons to less similar and width differences. Comment 5: Defending its claim for merchandise. Our approach reflects this Department’s Position: The adjustments in price to reflect the preference; the respondent’s approach petitioners argue that the model-match different average order sizes of its U.S. would ignore it. We are not permitted to methodology used in this review is a sales, Wieland contests our preliminary ignore contemporaneous sales of departure from the methodology used in finding that it has not demonstrated a identical merchandise. Wieland’s reviews of brass sheet and strip from relationship between order size and suggested approach simply does not other countries. In fact, although there price. In support of the claimed conform to the requirements of the are many similarities in the adjustment, Wieland cites the price lists antidumping law and regulations. methodologies used in the various brass in its questionnaire responses, the The risk of price differences caused sheet and strip cases, they are not Department’s verification report in the by changes in the prices of commodities identical. Because the facts of each case 1991–1992 administrative review, used as components is not unique to are distinct from those of other cases, section 773(a)(4)(A) of the Act, and the this proceeding but is inherent in price different hierarchies are applied to the regulations (19 CFR 353.55). comparisons in many industries. That criteria to define home market sales of In rebuttal, the petitioners point to the risk has not heretofore served as the most similar merchandise. Department’s disallowance in the first justification for omitting comparisons of In this review, as in preceding review, as upheld by the CIT, U.S. sales to contemporaneous home reviews under this order, the concerning the same cost adjustment market sales of identical or most similar Department used five criteria to define claim for different order sizes. The merchandise. Yet the respondent’s models in order to compare sales: Form, petitioners also note Wieland’s failure to approach would make comparisons to coating, gauge, width, and alloy. For show that it met the regulatory identical or most similar merchandise those U.S. sales for which we did not requirement for such an adjustment, i.e., impossible, by defining models so find sales of identical home market that Wieland must show that it ‘‘granted broadly that all comparisons would merchandise, we determined that the quantity discounts of at least the same potentially include similar merchandise most similar home market merchandise magnitude on 20 percent or more of as well as identical merchandise (and for comparison purposes was sales of such or similar merchandise would thus be subject to adjustments for merchandise which was identical in ** *’’ (19 CFR 353.55(b)(1)). differences in alloy values under 19 CFR form, coating, gauge, and width, and Department’s Position: We disagree 353.57(b)). But this grouped-alloy similar in alloy content. Therefore, we with the respondent. The regulations do approach would not be warranted by the used specific programming instructions not allow for adjustments to price based regulations cited above or by the facts of to search for contemporaneous home merely on claimed differences in per- this review; using exact alloy market sales of merchandise which was pound costs according to order size. The comparisons, we were able to match a identical except for alloy. Thus, the only adjustments allowed are only for substantial portion of U.S. sales to home criterion for which we considered differences in price or discounts for market merchandise of identical alloys, differences was alloy, no matter what different quantities produced. The and all the remaining U.S. sales with the order of the criteria as listed in the regulations (19 CFR 353.55(b)(2)) home market merchandise containing program. Consequently, we do not agree provide for adjustments if ‘‘the producer one of the three most similar alloys. with the petitioner’s suggestion that we demonstrates * * * that the discounts Comment 3: Wieland states that the change the ordering of the criteria in a reflect savings specifically attributable Court of International Trade (CIT), search for similar merchandise. to the production of the different addressing the model-matching issue in Concerning the question of whether quantities.’’ In its questionnaire remanding the final results in the first alloy is more important to customers response Wieland complied in part, by administrative review, did not require than gauge and width specification, as showing the savings, in the form of the Department to abandon the use of the petitioners allege, we note that differences in per-kilogram costs for two alloy groups, but merely asked the Wieland states in its February 23, 1995 processing different order quantities. Department to articulate the reasons Rebuttal Brief (p. 3) that ‘‘generally But Wieland did not place on the record why it did not use the exact-alloy customers must have very precise any evidence of quantity discounts method. See Hussey Copper Ltd., v. gauges and widths to serve their actually given, or information showing 38034 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices that prices were affected by different dumping duties is otherwise overstated, that denominator, but to remove the tax production quantities. Indeed, and that ad valorem margins are on this amount. Just as we treat the tax Wieland’s questionnaire response states consequently reduced improperly. on ocean freight consistently with ocean unequivocally: ‘‘Wieland does not The respondent, in rebuttal, argues freight itself, where we include the full provide price-based quantity that the petitioners cannot have it both adjusted U.S. price in the denominator discounts’’. ways, and that the Department cannot of the deposit rate equation, we must The price list Wieland cites in this selectively apply the tax rate to sales also leave the tax on that full U.S. price regard is not an adequate basis for this which may have dumping margins and in the denominator. claim since it is a matter of record that apply the absolute tax amount only to the respondent’s prices are negotiated those sales which do not have margins. Interest Rates Used in Credit Expenses ad-hoc and do not necessarily follow Department Position: We disagree Comment 8: The petitioners claim the price list. The verification report for with the petitioners. The Department’s that the Department should correct for a prior review, in which we noted methodology consists of applying the Wieland’s use of Wieland-America’s variations in prices for varying home market tax rate to the U.S. price short-term borrowing rate to calculate quantities in one particular contract, is at the same point in the chain of direct expenses for U.S. sales, since not dispositive; our inspection of a distribution at which the home market during the period of review U.S. contract in a verification does not signal tax base is determined and then customers were billed by Wieland- our acceptance of a claimed adjustment reducing the tax in each market by that Werke in Germany. The petitioners to price. Wieland has the burden, in portion of the tax attributable to argue that the U.S. imputed credit each review, of showing how its actual expenses which are deducted from each expenses should have been calculated prices varied according to quantity, as price. For example, because we deduct on the basis of Wieland-Werke’ short- required by 19 CFR 353.55. ocean freight from U.S. price, ocean term interest rates, rather than on the freight is also eliminated from the U.S. basis of Wieland-America’s short-term Value-added Tax tax base. This is consistent with the interest rate. Comment 6: While conceding that the decision of the CIT in Federal-Mogul. The respondent argues in rebuttal that practice is consistent with current The effect of these adjustments is the the Department correctly measured the Department policy on value-added tax same as initially calculating the tax in cost of financing sales made in dollars (VAT), Wieland contests the each market on the basis of adjusted by applying a dollar interest rate, citing Department’s application of a 14- prices. Department policy in Final percent VAT adjustment to both U.S. The ‘‘cap’’ was devised at a time Determination of Sales at Less than Fair and home market sales in this review, when the Department was not Value: Fresh Cut Roses from Colombia, and requests that the Department effectively calculating the tax in each 60 FR 6980, 6998 (1995) (Comment 21) instead add the actual home market market on the basis of adjusted prices. (Roses). Wieland also notes that in Final VAT amount to U.S. price. Wieland It was intended to keep differences in Determination of Sales at Less than Fair alleges that the use of the VAT rate on expenses which were eliminated Value: Class 150 Stainless Steel sales in both markets introduces a through adjustments to the price in each Threaded Pipe Fittings from Taiwan (59 multiplier effect. Wieland urges the market from continuing to affect the FR 38432 (July 28, 1994) (Class 150 Department to instead adopt its dumping margin by remaining in the Stainless Steel Pipe), the Department alternative solution, at least until this basis upon which the tax in each market stated that it ‘‘is required to use the issue can be resolved more definitively was determined. The Department’s lowest rate at which the respondent has by the U.S. Court of Appeals for the current practice of effectively using borrowed or to which the respondent Federal Circuit (CAFC), once an appeal adjusted prices in each market as the tax has access.’’ is heard in the case of Federal Mogul base automatically achieves this Department’s Position: We disagree Corporation v. United States, 834 purpose. The imputed U.S. tax will with the petitioners and concur with the F.Supp 1391 (Fed. Cir. 1993). exceed the tax on home market respondent that it is reasonable to use Department’s Position: We disagree comparison sales only where the local, dollar-denominated borrowing with Wieland. We adjusted U.S. Price adjusted U.S. price is higher than the rates in this case. The respondent is (USP) and FMV for VAT in accordance adjusted home market price, i.e., where correct in arguing that the interest rate with our practice, pursuant to the there is no dumping margin. A tax cap used for credit expenses should match decision of the CIT in Federal-Mogul is irrelevant for such sales, because no the currency in which the sales are Corporation and the Torrington duties are assessed upon them and they denominated, as stated in Roses. On the Company v. United States, 813 F. Supp. do not contribute to the weighted- question of whether the parent’s or the 856 (October 7, 1993) (Federal-Mogul) average margin. Consequently, the U.S. subsidiary’s dollar-denominated and as outlined in Silicomanganese absolute margins obtained under the borrowing rate should be applied, where From Venezuela; Preliminary Department’s current approach are a company had access, directly or Determination of Sales at Less than Fair identical to those which would have through its U.S. affiliate, to two different Value, 59 FR 31204, June 17, 1994, been obtained after imposing the tax dollar-denominated rates, the lower of where we address the multiplier effect cap. the two rates is presumed to have been issue in detail. Although applying a tax cap may used. See, for example, Class 150 Comment 7: Citing 19 U.S.C. affect the relative weighted-average Stainless Steel Pipe, where the 1677a(d)(1)(C), the petitioners state that margins, and hence deposit rates, we Department calculated imputed credit for U.S. sales not found to be sold at less decline to reapply the tax cap solely to for purchase price sales using the lower than fair value, the Department must achieve this purpose. The Department of two U.S. interest rates available to the cap the absolute tax amount added to includes the U.S. prices that exceed respondent. In this case we are aware of U.S. price, limiting it to the absolute foreign market prices in the only the U.S. subsidiary having U.S. amount of taxes in the home market. denominator of the deposit rate borrowings during this POR. See also The petitioners argue that the absolute equation. It would be inconsistent to Notice of Final Determinations of Sales net U.S. price that becomes the include that portion of the U.S. price at Less than Fair Value: Certain Hot- denominator in our calculation of that exceeds the home market price in Rolled Carbon Steel Flat Products, Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38035 Certain Corrosion-Resistant Carbon Failure to comply with the regulations Manufacturer/exporter Period Percent Steel Flat Products, and Certain Cut-to- margin and terms of an APO is a violation Length Carbon Steel Plate from France, which is subject to sanction. This 1 58 FR 37125 (1993)(Comment 30); the Wieland-Werke AG ..... 3/1/93± 0.495 administrative review and this notice 2/28/94 Department does not concern itself with are in accordance with section 751(a)(1) determining which of the corporate 1 We have not rounded this result to two of the Act (19 U.S.C. 1675(a)(1)) and 19 places, as is our usual practice, since doing CFR 353.22. entities related to the respondent so would indicate a margin above de minimis, actually incurs the cost of financing. where the actual margin is de minimis. Dated: July 11, 1995. Sales to Related Parties Individual differences between the Susan G. Esserman, USP and FMV may vary from the above Assistant Secretary for Import Comment 9: The petitioners state that percentage. The Department shall Administration. the Department failed to exclude sales instruct the U.S. Customs Service to [FR Doc. 95–18262 Filed 7–24–95; 8:45 am] to related parties from home market assess antidumping duties on all BILLING CODE 3510±DS±P sales, or test such sales for arm’s-length appropriate entries. pricing. In rebuttal, the respondent Furthermore, the following deposit [A±549±812] states that all sales between related requirements will be effective for all parties are at arm’s length, but that, in shipments of subject merchandise Amended Final Antidumping Duty any case, excluding related-party sales entered, or withdrawn from warehouse, Determination and Order; Furfuryl will not significantly affect sales for consumption on or after the Alcohol From Thailand matching. publication date of these final results, as provided for by section 751(a)(1) of the AGENCY: Import Administration, Department’s Position: We agree with Act. International Trade Administration, the petitioners and have included an (1) Because the rate for Wieland is de Department of Commerce. arm’s-length test in our analysis. We minimis, the Department shall not ACTION: Notice. compared prices net of difference-in- require cash deposits on shipments from merchandise adjustments, movement Wieland; EFFECTIVE DATE: July 25, 1995. expenses, early payment discounts, (2) For previously reviewed or FOR FURTHER INFORMATION CONTACT: John commissions and after-sale rebates. The investigated companies not listed above, Brinkmann or Greg Thompson, Office of results of that test indicate that a the cash deposit rate will continue to be Antidumping Investigations, Import substantial number of sales to affiliates the company-specific rate published for Administration, International Trade were at lower prices than those to the most recent period; Administration, U.S. Department of unrelated parties. In accordance with 19 (3) If the exporter is not a firm Commerce, 14th Street and Constitution CFR 353.45(a), we have therefore covered in this review, a prior review, Avenue, NW, Washington, DC 20230; excluded those sales to related parties or the original less-than-fair-value telephone: (202) 482–5288 or (202) 482– that were not at arm’s length, and have (LTFV) investigation, but the 3003, respectively. used home market sales by Wieland to manufacturer is, the cash deposit rate will be the rate established for the most Amended Final Determination unrelated customers, and home market recent period for the manufacturer of We presented counsel for the sales to related parties that were at arm’s the merchandise; and respondent, Indo-Rama Chemicals Ltd. length, as the basis for FMV. (4) If neither the exporter nor the (Thailand) (IRCT), and counsel for the Clerical and Programming Errors manufacturer is a firm covered in this or petitioner, QO Chemicals, with the any previous review conducted by the calculations and disclosure materials Comment 10: The respondent points Department, the cash deposit rate will concerning the final determination on out that adjustments for different alloys be 8.87 percent, the ‘‘all others’’ rate May 4, and 8, 1995, respectively. were not converted to pounds. established in the LTFV investigation. The petitioner filed a timely Department’s Position: We agree with This notice also serves as a final submission alleging a ministerial error the respondent and have converted the reminder to importers of their in the Department of Commerce’s responsibility under 19 CFR 353.26 to (Department) final determination adjustments for different alloys to file a certificate regarding the calculations. On May 12, 1995, the pounds. reimbursement of antidumping duties petitioner alleged that the Department Comment 11: The petitioners state, prior to liquidation of the relevant incorrectly calculated the number of and Wieland agrees, that for U.S. sales, entries during the review period. Failure credit days in the home market by the Department neglected to adjust the to comply with this requirement could taking the difference from the sale date difference-in-merchandise data for result in the Secretary’s presumption to the payment date. (For specific physical characteristics and for different that reimbursement of antidumping details of these allegations and our alloys by the VAT rate. duties occurred and the subsequent analysis thereof, see Memorandum from Department Position: We agree with assessment of double antidumping the Easton Team to Barbara R. Stafford the petitioners and have adjusted these duties. dated May 25, 1995). This notice also serves as a reminder We have reviewed the petitioner’s data by the VAT rate. to parties subject to administrative allegation and agree that we erred in Final Results of Review protective order (APOs) of their calculating the number of days for the responsibility concerning the home-market credit expense. In As a result of our analysis of the disposition of proprietary information accordance with 19 CFR 353.28, we comments received, we determine that disclosed under APO in accordance have corrected the calculations for the the following margin exists for Wieland: with 19 CFR 353.34(d). Timely written final determination. The final dumping notification of the return/destruction of margin for IRCT and ‘‘All Others’’ has APO materials or conversion to judicial been amended from 5.49 to 7.82 protective order is hereby requested. percent. 38036 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices Scope of Order of an updated list of antidumping duty 3. Oregon Department of Fish and The merchandise covered by this orders currently in effect. Wildlife Report on Proposed Scaling of This order is published in accordance Oregon Coastal Natural Coho Spawning order is furfuryl alcohol (C4H3OCH2OH). with section 736(a) of the Act and 19 Furfuryl alcohol is a primary alcohol, Escapements CFR 353.21. and is colorless or pale yellow in D. Habitat Issues Dated: July 19, 1995. appearance. It is used in the E. Highly Migratory Species Paul L. Joffe, manufacture of resins and as a wetting Management—Status of Data Collection agent and solvent for coating resins, Acting Assistant Secretary for Import nitrocellulose, cellulose acetate, and Administration. F. Groundfish Management other soluble dyes. [FR Doc. 95–18263 Filed 7–24–95; 8:45 am] G. Administrative and Other Matters The product subject to this order is BILLING CODE 3510±DS±P classifiable under subheading Other Meetings 2932.13.00 of the Harmonized Tariff The Groundfish Subcommittee of the Schedule of the United States (HTSUS). National Oceanic and Atmospheric Administration SSC will meet at 3:00 p.m. on August Although the HTSUS subheading is 13, to review groundfish stock provided for convenience and customs [I.D. 071795H] assessments. purposes, our written description of the scope of this proceeding is dispositive. Pacific Fishery Management Council; The Scientific and Statistical Public Meetings Committee will meet on Antidumping Duty Order AGENCY: August 14–15 at 8:00 a.m., to address On July 18, 1995, in accordance with National Marine Fisheries Service (NMFS), National Oceanic and scientific issues related to Council section 735(d) of the Act, the U.S. agenda items. International Trade Commission (ITC) Atmospheric Administration (NOAA), Commerce. notified the Department that imports of The Groundfish Management Team furfuryl alcohol from Thailand ACTION: Notice of public meetings. will convene on August 14 at 8:00 a.m. to address groundfish management materially injure a U.S. industry. SUMMARY: The Pacific Fishery items on the Council agenda. Therefore, in accordance with section Management Council (Council) and its 736 of the Act, the Department will advisory entities will hold public The Groundfish Advisory Subpanel direct United States Customs officers to meetings. will convene on August 14 at 1:00 p.m. assess, upon further advice by the DATES: The meetings will be held to address groundfish management administering authority pursuant to August 14–18, 1995. The Council items on the Council agenda and will section 736(a)(1) of the Act, meeting will begin on August 15, at reconvene at 8:00 a.m. on August 15. antidumping duties equal to the amount 8:00 a.m. in a closed session (not open The Habitat Steering Group will meet by which the foreign market value of the to the public) to discuss personnel on August 14 at 10:00 a.m. to consider merchandise exceeds the United States matters and litigation. The open session price for all entries of furfuryl alcohol activities affecting the habitat of fish will begin at 8:30 a.m. The Council stocks managed by the Council. from Thailand. These antidumping meeting will reconvene at 8:00 a.m. duties will be assessed on all each day, August 16, through August 18. The Budget Committee will convene unliquidated entries of furfuryl alcohol The meetings may continue each day on August 14 at 3:00 p.m. to review the from Thailand entered, or withdrawn into the evening hours if necessary to status of the fiscal year 1995 Council from warehouse, for consumption on or complete business. budget and the fiscal year 1996 budget after May 8, 1995, the date on which the ADDRESSES: The meetings will be held at proposal. Department published its final the Holiday Inn and Conference Center, The Enforcement Consultants meet on determination notice in the Federal 275 South Airport Boulevard, South San August 15 at 7:00 p.m. to address Register (60 FR 22557). Francisco, CA 94080; telephone: (415) enforcement issues related to Council On or after the date of publication of 873–3550. agenda items. this notice in the Federal Register, U.S. Council address: Pacific Fishery Customs officers must require, at the Management Council, 2130 SW Fifth Detailed agendas for the above same time as importers would normally Avenue, Suite 224, Portland, OR 97201. advisory meetings will be available from the Council after July 28, 1995. deposit estimated duties, the following FOR FURTHER INFORMATION CONTACT: cash deposits for the subject Lawrence D. Six, Executive Director, Special Accommodations merchandise: Pacific Fishery Management Council; telephone: (503) 326–6352. These meetings are physically Weighted- average SUPPLEMENTARY INFORMATION: The accessible to people with disabilities. Manufacturer/producer/exporter margin per- following items are on the Council Requests for sign language centage agenda: interpretation or other auxiliary aids A. Call to Order should be directed to Michelle M. Sailer Indo-Rama Chemicals Ltd. B. Pacific Halibut Management at (503) 326–6352 at least 5 days prior (Thailand) ...... 7.82 1. Status of Fisheries to the meeting date. All Others ...... 7.82 2. Scientific and Statistical Committee (SSC) Review of Bycatch Estimate Dated: July 18, 1995. This notice constitutes the 3. Proposed Changes to Sport Fishery Richard W. Surdi, antidumping duty order with respect to Measures Acting Director, Office of Fisheries furfuryl alcohol from Thailand, C. Salmon Management Conservation and Management, National pursuant to section 736(a) of the Act. 1. Sequence of Events and Status of Marine Fisheries Service. Interested parties may contact the Fisheries [FR Doc. 95–18209 Filed 7–24–95; 8:45 am] Central Records Unit, Room B–099 of 2. Status of SSC Methodology the Main Commerce Building, for copies Reviews BILLING CODE 3510±22±F Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38037 DEPARTMENT OF DEFENSE Defense for Acquisition and Technology the Office of the Secretary of Defense on scientific and technical matters as PRB; specific PRB panel assignments Office of the Secretary they affect the perceived needs of the will be made from this group. Department of Defense. At this meeting Executives listed will serve a one-year Defense Science Board 1995 Summer the Task Force will review the purposes renewable term, effective July 1, 1995. Study Task Force on Technology of the U.S. theater missile defense effort, Office of the Secretary of Defense Investments for 21st Century Military including the nature of the threat (types Superiority, Integration Group; Notice and quantities of missiles and Chairman of Advisory Committee Meetings payloads); how might it evolve; the Vincent P. Roske, Jr. degree of defense we seek; what we SUMMARY: The Defense Science Board Members wish to defend; under what 1995 Summer Study Task Force on Ronald L. Adolphi Technology Investments for 21st circumstances; and to what levels. In accordance with Section 10(d) of Howard G. Becker Century Military Superiority, Diana L. Blundell Integration Group will meet in closed the Federal Advisory Committee Act, John V. Bolino session on July 31, 1995 at the Pentagon, P.L. No. 92–463, as amended (5 U.S.C. Vernon Chang Arlington, Virginia. In order for the Task App. II, (1988)), it has been determined Kenneth I. Daugherty Force to obtain time sensitive classified that this DSB Task Force meeting Raymond Dominguez briefings, critical to the understanding concerns matters listed in 5 U.S.C. Barbara Ann Falkner of the issues, this meeting is scheduled 552b(c)(1) (1988), and that accordingly Elaine F. Litman on short notice. this meeting will be closed to the Gail H. McGinn public. Kevin C. Moody The mission of the Defense Science Francis M. Rush, Jr. Board is to advise the Secretary of Dated July 19, 1995. Melvin W. Russell Defense through the Under Secretary of L.M. Bynum, George W. Siebert Defense for Acquisition and Technology Alternate OSD Federal Register Liaison Frederick C. Smith on scientific and technical matters as Officer, Department of Defense. Robert Snyder they affect the perceived needs of the [FR Doc. 95–18248 Filed 7–24–95; 8:45 am] Gordan K. Soper Diana G. Tabler Department of Defense. At this meeting BILLING CODE 5000±04±M the Task Force will focus on those R&D Mary Tomkey investments that must be made now so George G. Wauer Karen M. Yannello as to assure a technology base in the Membership of the Office of the year 2000 capable of providing U.S. Secretary of Defense Performance Alternates military superiority in the 21st century. Review Board Steven A. Austin In accordance with Section 10(d) of William S. Boone the Federal Advisory Committee Act, AGENCY: Department of Defense. Albert V. Conte P.L. No. 92–463, as amended (5 U.S.C. ACTION: Notice. William N. Early App. II, (1988)), it has been determined Thomas E. Ewald SUMMARY: that this DSB Task Force meeting This notice announces the Thomas F. Garnett, Jr. Alfred Goldberg concerns matters listed in 5 U.S.C. appointment of the members of the Performance Review Board (PRB) of the William G. Lese § 552b(c) (1) (1988), and that John L. Maddy accordingly this meeting will be closed Office of the Secretary of Defense, the Joint Staff, the U.S. Mission to NATO, J. David Martin to the public. John S. Mester the Advanced Research Projects Agency, Dated: July 19, 1995. Kurt N. Molholm the Defense Commissary Agency, the Michael A. Parmentier L.M. Bynum, Defense Investigative Service, the John Roth Alternate OSD Federal Register Liaison Defense Security Assistance Agency, the Ronald P. Sanders Officer, Department of Defense. Ballistic Missile Defense Organization, Wayne S. Sellman [FR Doc. 95–18247 Filed 7–24–95; 8:45 am] the Defense Field Activities, and the John E. Smith BILLING CODE 5000±04±M U.S. Court of Military Appeals. The Alfred B. Stille, Jr. publication of PRB membership is Nicolai Timenes, Jr. required by 5 U.S.C. 4314(c)(4). Charles M. Wiker Defense Science Board/Defense Policy The PRB provides fair and impartial John A. Wiles Samuel J. Worthington Board Task Force on Theater Missile review of Senior Executive Service Defense (TMD); Notice of Advisory performance appraisals and makes Dated: July 19, 1995. Committee Meeting recommendations regarding L.M. Bynum, performance ratings and performance Alternate OSD Federal Register Liaison SUMMARY: The Defense Science Board/ awards to the Secretary of Defense. Officer, Department of Defense. Defense Policy Board Task Force on [FR Doc. 95–18249 Filed 7–24–95; 8:45 am] EFFECTIVE DATES: July 1, 1995. Theater Missile Defense (TMD) will BILLING CODE 5000±04±M meet in closed session on July 28, 1995 FOR FURTHER INFORMATION CONTACT: at Science Applications International Christropher S. Koehle, Assistant Corporation (SAIC), McLean, Virginia. Director for Executive Personnel and Defense Nuclear Agency In order for the Task Force to obtain Classification, Directorate for Personnel time sensitive classified briefings, and Security, Washington Headquarters Privacy Act of 1974; Notice to Delete a critical to the understanding of the Services, Office of the Secretary of System of Records issues, this meeting is scheduled on Defense, Department of Defense, The short notice. Pentagon, (703) 697–8304. AGENCY: Defense Nuclear Agency, DoD. The mission of the Defense Science SUPPLEMENTARY INFORMATION: In ACTION: Notice to delete a system of Board is to advise the Secretary of accordance with 5 U.S.C. 4314(c)(4), the records. Defense through the Under Secretary of following executives are appointed to 38038 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices SUMMARY: The Defense Nuclear Agency intended to notify the public of their Advisory Committee on Student is deleting a system of records notice opportunity to attend. Financial Assistance; Meeting from its existing inventory of record DATE AND TIME: August 8, 1995, 9 a.m. AGENCY: Advisory Committee on systems subject to the Privacy Act of to 4:30 p.m. 1974, (5 U.S.C. 552a), as amended. The Student Financial Assistance, notice HDNA008, entitled Biographies, ADDRESS: Capitol Room, Washington Education. no longer qualifies as a system of Court Hotel, 525 New Jersey Avenue ACTION: Notice of upcoming meeting. records. NW., Washington, D.C. 20001. SUMMARY: This notice sets forth the DATES: Deletion is effective July 25, FOR FURTHER INFORMATION CONTACT: schedule and proposed agenda of a 1995. John Christensen, Designated Federal forthcoming meeting sponsored by the ADDRESSES: Send comments to General Official, National Educational Research Advisory Committee on Student Counsel, Defense Nuclear Agency, 6801 Policy and Priorities Board, 555 New Financial Assistance. This notice also Telegraph Road, Alexandria, VA 22310– Jersey Avenue NW., Washington, D.C. describes the functions of the 3398 20208–7564. Telephone: (202) 219– Committee. This document is intended FOR FURTHER INFORMATION CONTACT: Ms. 2065; Fax: (202) 219–1528. to notify the general public. Sandy Barker at (703) 325–7681. SUPPLEMENTARY INFORMATION: The DATES AND TIMES: Monday, August 7, SUPPLEMENTARY INFORMATION: The National Educational Research Policy 1995, beginning at 9 a.m. and ending at Defense Nuclear Agency systems of and Priorities Board is authorized by 4:45 p.m. and Tuesday, August 8, 1995, records notices subject to the Privacy Section 921 of the Educational beginning at 8:30 a.m. and ending at 2 Act of 1974, (5 U.S.C. 552a), as Research, Development, Dissemination, p.m. amended, have been published in the and Improvement Act of 1994 (the Act). ADDRESS: Roger Williams University, Federal Register and are available from The Board works collectively with the School of Law, the Cafeteria, One Old the address above. Assistant Secretary for the Office of Ferry Road, Bristol, Rhode Island 02809. The Defense Nuclear Agency is Educational Research and Improvement FOR FURTHER INFORMATION CONTACT: deleting a system of records notice from (the Office) to forge a national Dr. Brian K. Fitzgerald, Staff Director, its existing inventory of record systems consensus with respect to a long-term Advisory Committee on Student subject to the Privacy Act of 1974, (5 agenda for educational research, Financial Assistance, 1280 Maryland U.S.C. 552a), as amended. The notice development, and dissemination, and to Avenue SW., Suite 601, Washington, DC HDNA008, entitled Biographies, no provide advice and assistance to the 20202–7582 (202) 708–7439. longer qualifies as a system of records. Assistant Secretary in administering the SUPPLEMENTARY INFORMATION: The Dated: July 17, 1995. duties of the Office. Advisory Committee on Student The Act directs the Board to provide Financial Assistance is established a guidance to the Congress in its under Section 491 of the Higher Patricia Toppings, oversight of the Office; to advise the Education Act of 1965 as amended by Alternate OSD Federal Register Liaison United States on the Federal Public Law 100–50 (20 U.S.C. 1098). Officer, Department of Defense. educational research and development The Advisory Committee is established effort; and to solicit advice from to provide advice and counsel to the HDNA0008 practitioners, policymakers, and Congress and the Secretary of Education researchers to define research needs and on student financial aid matters SYSTEM NAME: suggestions for research topics. The including providing technical expertise Biographies (February 22, 1993, 58 FR Board has designated the Committee to with regard to systems of need analysis 10555). work on its behalf in these matters in and application forms, making Reason: System does not qualify as a the interim between full meetings of the recommendations that will result in the system of records. Records have been Board. The meeting of the Committee on maintenance of access to postsecondary destroyed. Partnerships and Outreach is open to education for low- and middle-income [FR Doc. 95–18250 Filed 07–24–95; 8:45 am] the public. The agenda for the meeting students, conducting a study of includes discussions about BILLING CODE 5000±04±F institutional lending in the Stafford strengthening linkages with Student Loan Program and an in-depth representatives of research, practitioner, study of student loan simplification. and policy-making communities so that The Advisory Committee fulfills its DEPARTMENT OF EDUCATION research findings can improve practice. charge by conducting objective, National Educational Research Policy A final agenda will be available from nonpartisan, and independent analyses and Priorities Board; Meeting the Board’s office on July 28, 1995. of important student aid issues. As a Records are kept of all Board result of passage of the Omnibus Budget AGENCY: National Educational Research proceedings, and are available for public Reconciliation Act (OBRA) of 1993, Policy and Priorities Board, Education. inspection at the office of the National Congress assigned the Advisory ACTION: Notice of committee meeting. Educational Research Policy and Committee the major task of evaluating Priorities Board, 555 New Jersey the Ford Federal Direct Loan Program SUMMARY: This notice sets forth the Avenue, NW., Washington, D.C. 20208– (FDLP) and the Federal Family schedule and proposed agenda of a 7564. Education Loan Program (FFELP). The meeting of the Committee on Committee will report to the Secretary Partnerships and Outreach, Educational Dated: July 19, 1995. and Congress on not less than an annual Research Policy and Priorities Board. Sharon P. Robinson, basis on the operation of both programs This notice also describes the functions Assistant Secretary, Office of Education and submit a final report by January 1, of the Committee. Notice of this meeting Research and Improvement. 1997. is required under Section 10(a)(2) of the [FR Doc. 95–18147 Filed 7–24–95; 8:45 am] The Advisory Committee will meet in Federal Advisory Committee Act and is BILLING CODE 4000±01±M Bristol, Rhode Island on August 7, 1995, Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38039 from 9 a.m. to 4:45 p.m. and on August gravity dam about 28 feet high and information is now available from the 8, from 8:30 a.m. to 2 p.m. 1,390 feet long composed of a licensee at 610 High Street, Wisconsin The proposed agenda will consist of powerhouse section, a spillway section Rapids, WI 54495. discussion sessions on the Advisory with fifteen tainter gates, also dikes at Pursuant to 18 CFR 16.8, 16.9 and Committee’s activities pertaining to the the ends of the dam; a 3,915-acre 16.10, each application for a new Title IV programs including the delivery reservoir at elevation 1,088.07 feet; a license and any competing license system, budget reconciliation and 2,000-foot-long concrete overflow weir applications must be filed with the appropriations, reauthorized, and other located about 3⁄4 mile upstream of the Commission at least 24 months prior to legislative proposals. In addition, the dam at elevation 1,088.57 feet USGS the expiration of the existing license. Committee will discuss plans for fiscal datum; a powerhouse with six All applications for license for this year 1996. Space is limited and you are generating units each rated at 640-kW; project must be filed by June 30, 1998. encouraged to register early if you plan generator leads and the 2.3/46 kV Lois D. Cashell, to attend. To register, please fax your substation; and appurtenant facilities. Secretary. name, title, affiliation, complete address Pursuant to 18 CFR 16.7, the licensee [FR Doc. 95–18163 Filed 7–24–95; 8:45 am] (including Internet and E-Mail—if is required henceforth to make available BILLING CODE 6717±01±M available), telephone number, and fax certain information to the public. This number to the Advisory Committee staff information is now available from the office at (202) 401–3467. If you are licensee at 610 High Street, Wisconsin [Docket No. RP95±388±000] unable to fax, please mail your Rapids, WI 54495. registration information or contact the Pursuant to 18 CFR 16.8, 16.9 and El Paso Natural Gas Company; Notice Advisory Committee staff office at (202) 16.10, each application for a new of Tariff Filing 708–7439. Also, you may register license and any competing license July 19, 1995. through INTERNET at applications must be filed with the l Take notice that on July 14, 1995, El Hope [email protected]. The Commission at least 24 months prior to Paso Natural Gas Company (El Paso), registration deadline is Tuesday, August the expiration of the existing license. tendered for filing pursuant to Part 154 1, 1995. All applications for license for this of the Commission’s Regulations Under Records are kept of all Committee project must be filed by June 10, 1998. the Natural Gas Act and in compliance proceedings, and are available for public Lois D. Cashell, with the Commission’s Order Granting inspection at the Office of the Advisory Secretary. Rehearing (Order No. 577–A) issued Committee on Student Financial [FR Doc. 95–18162 Filed 7–24–95; 8:45 am] May 31, 1995 at Docket No. RM95–5– Assistance, 1280 Maryland Avenue, BILLING CODE 6717±01±M 001, certain revised tariff sheets to its SW., Suite 601, Washington, DC from FERC Gas Tariff, Second Revised the hours of 9 a.m. to 5:30 p.m., Volume No. 1–A. [Project No. 2192 Wisconsin] weekdays, except Federal holidays. El Paso states that the tendered tariff Dated: July 19, 1995. Consolidated Water Power Company; sheets reflect the Commission’s revision Brian K. Fitzgerald, Notice of Intent To File An Application of Section 284.243(h)(1) of its Staff Director, Advisory Committee on For A New License Regulations and provide for the Student Financial Assistance. extension of the exception which allows [FR Doc. 95–18183 Filed 7–24–95; 8:45 am] July 19, 1995. shippers to release capacity without the BILLING CODE 4000±01±M Take notice that the Consolidated advance posting and bidding to 31 days. Water Power Company, the existing El Paso, pursuant to Section 154.51 of licensee for the Biron Hydroelectric the Commission’s Regulations, DEPARTMENT OF ENERGY Project No. 2192, filed a timely notice of respectfully requests waiver of the intent to file an application for a new notice requirement of Section 154.22 of Federal Energy Regulatory license, pursuant to 18 CFR 16.6 of the said Regulations to permit the tendered Commission Commission’s Regulations. The original tariff sheets to become effective on July license for Project No. 2192 was issued 10, 1995 which is the date Order No. [Project No. 2110 Wisconsin] effective August 1, 1980, and expires 577–A became effective. Consolidated Water Power Company; June 30, 2000. El Paso states that copies of the filing Notice of Intent To File An Application The project is located on the were served upon all of El Paso’s For A New License Wisconsin River in Wood County, interstate pipeline system transportation Wisconsin. The principal works of the customers and interested state July 19, 1995. Biron Project include a 2,533-foot-long, regulatory commissions. Take notice that the Consolidated 34-foot-high concrete gravity dam with Any person desiring to be heard or to Water Power Company, the existing intake section, three spillway sections, protest said filing should file a motion licensee for the Stevens Point and 22 Tainter gates; a concrete seawall to intervene or protest with the Federal Hydroelectric Project No. 2110, filed a and earth embankments along the banks Energy Regulatory Commission, 825 timely notice of intent to file an of the reservoir; a 2,078-acre reservoir at North Capitol Street NE., Washington, application for a new license, pursuant elevation 1036.1 feet USC&GS datum; a DC 20426, in accordance with Sections to 18 CFR 16.6 of the Commission’s powerhouse, integral with the dam, 385.214 and 385.211 of the Regulations. The original license for containing two 1,450-Kw generators and Commission’s Rules and Regulations. Project No. 2110 was issued effective an industrial building with one 400-Kw All such motions or protests should be January 1, 1977, and expires June 30, generator; generator leads, 2.4/46 Kv filed on or before July 26, 1995. Protests 2000. transformer bank, and 46 Kv bus in the will be considered by the Commission The project is located on the substation; and appurtenant facilities. in determining the appropriate action to Wisconsin River in Portage County, Pursuant to 18 CFR 16.7, the licensee be taken, but will not serve to make Wisconsin. The principal works of the is required henceforth to make available protestants parties to the proceeding. Stevens Point Project include a concrete certain information to the public. This Any person wishing to become a party 38040 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices must file a motion to intervene. Copies Commission and are available for public Commission and are available for public of this filing are on file with the inspection. inspection. Commission and are available for public Lois D. Cashell, Lois D. Cashell, inspection in the Public Reference Room. Secretary. Secretary. Lois D. Cashell, [FR Doc. 95–18165 Filed 7–24–95; 8:45 am] [FR Doc. 95–18166 Filed 7–24–95; 8:45 am] Secretary. BILLING CODE 6717±01±M [FR Doc. 95–18164 Filed 7–24–95; 8:45 am] BILLING CODE 6717±01±M BILLING CODE 6717±01±M [Docket No. CP85±221±049] [Docket No. RP85±209±043] [Docket No. CP85±221±049] Frontier Gas Storage Company; Notice of Sale Pursuant To Settlement Koch Gateway Pipeline Company; Frontier Gas Storage Company; Notice Agreement Notice of Proposed Changes in FERC of Sale Pursuant to Settlement Gas Tariff Agreement July 19, 1995. July 19, 1995. July 19, 1995. Take notice that on July 13, 1995, Take notice that on July 13, 1995, Frontier Gas Storage Company Take notice that on July 17, 1995, Koch Gateway Pipeline Company (Koch Frontier Gas Storage Company (Frontier), c/o Reid & Priest, Market Gateway) tendered for filing as part of (Frontier), c/o Reid & Priest, Market Square, 701 Pennsylvania Avenue NW., its FERC Gas Tariff, Fifth Revised Square, 701 Pennsylvania Avenue NW., Suite 800, Washington, D.C. 20004, in compliance with the provisions of the Volume No. 1, the following tariff sheets Suite 800, Washington, D.C. 20004, in to be effective August 4, 1994: compliance with the provisions of the Commission’s February 13, 1985, Order Commission’s February 13, 1985, Order in Docket No. CP82–487–000, et al., Substitute First Revised Sheet No. 30 in Docket No. CP82–487–000, et al., submitted an executed Service Substitute Original Sheet No. 31 submitted an executed Service Agreement under Rate Schedule LVS–1 Substitute Original Sheet No. 32 Agreement under Rate Schedule LVS–1 providing for the possible sale of up to Substitute Original Sheet No. 33 a daily quantity of 50,000 MMBTu, not Substitute Original Sheet No. 34 providing for the possible sale of up to Substitute Original Sheet No. 35 a daily quantity of 50,000 MMBtu, not to exceed 2 Bcf for the term of the Agreement, of Frontier’s gas storage Substitute Original Sheet No. 36 to exceed 2 Bcf for the term of the Substitute Original Sheet No. 37 Agreement, of Frontier’s gas storage inventory on an ‘‘as metered’’ basis to Substitute Original Sheet No. 38 inventory on an ‘‘as metered’’ basis to Rainbow Gas Company. Rainbow Gas Company. Koch Gateway states that the above Under Subpart (b) of Ordering referenced tariff sheets reflect Koch Under Supart (b) of Ordering Paragraph (F) of the Commission’s Gateway’s compliance with the Paragraph (F) of the Commission’s February 13, 1985, Order, Frontier is Commission’s July 6, 1995 Order February 13, 1985, Order, Frontier is ‘‘authorized to commence the sale of its Granting in Part and Denying in Part ‘‘authorized to commence the sale of its inventory under such an executed Clarification. Koch Gateway states that inventory under such an executed service agreement fourteen days after these tariff sheets reflect the inclusion of service agreement fourteen days after filing the agreement with the $1,439,996 which Southern Natural Gas filing the agreement with the Commission, and may continue making Company still owes Koch Gateway Commission, and may continue making such sale unless the Commission issues pursuant to the September 14, 1992 such sale unless the Commission issues an order either requiring Frontier to stop take-or-pay settlement agreement and an order either requiring Frontier to stop selling and setting the matter for hearing the necessary modifications to selling and setting the matter for hearing or permitting the sale to continue and implement the other take-or-pay or permitting the sale to continue and establishing other procedures for settlements included in the establishing other procedures for resolving the matter.’’ Commission’s August 4, 1994 Order 68 resolving the matter.’’ FERC ¶61,219 (1994) in this proceeding. Any person desiring to be heard or to Koch Gateway states that the tariff Any person desiring to be heard or to make a protest with reference to said sheets are being mailed to all parties on make a protest with reference to said filing should, within 10 days of the the official service list created by the filing should, within 10 days of the publication of such notice in the Secretary in this proceeding. publication of such notice in the Federal Register, file with the Federal Any person desiring to protest said Federal Register, file with the Federal Energy Regulatory Commission (825 filing should file a protest with the Energy Regulatory Commission (825 North Capitol Street NE., Washington, Federal Energy Regulatory Commission, North Capitol Street, NE., Washington, D.C. 20426) a motion to intervene or 825 North Capitol Street NE., D.C. 20426) a motion to intervene or protest in accordance with the Washington, DC 20426, in accordance protest in accordance with the requirements of the Commission’s Rules with Section 385.211 of the requirements of the Commission’s Rules of Practice and Procedures, 18 CFR Commission’s Rules and Regulations. of Practice and Procedures, 18 CFR 385.214 or 385.211. Protests will be All such protests should be filed on or 385.214 or 385.211. Protests will be considered by the Commission in before July 26, 1995. Protests will be considered by the Commission in determining the appropriate action to be considered by the Commission in determining the appropriate action to be taken, but will not serve to make determining the appropriate action to be taken, but will not serve to make taken, but will not serve to make protestants parties to the proceeding. protestants parties to the proceeding. protestants parties to the proceedings. Copies of this filing are on file with the Copies of this filing are on file with the Copies of this filing are on file with the Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38041 Commission and are available for public [Project No. 1895 South Carolina] Any party, as defined by 18 CFR inspection in the Public Reference 385.102(c), or any participant, as Room. South Carolina Electric & Gas defined by 18 CFR 385.102(b), is invited Company; Notice of Intent To File an to attend. Persons wishing to become a Lois D. Cashell, Application for a New License party must move to intervene and Secretary. July 19, 1995. receive intervenor status pursuant to the [FR Doc. 95–18167 Filed 7–24–95; 8:45 am] Take notice that the South Carolina Commission’s Regulations (18 CFR 385.214). BILLING CODE 6717±01±M Electric & Gas Company, the existing licensee for the Columbia Hydroelectric For additional information, contact Project No. 1895, filed a timely notice of Sandra J. Delude at (202) 208–0583 or Edith A. Gilmore at (202) 208–2158. [Project No. 2161 Wisconsin] intent to file an application for a new license, pursuant to 18 CFR 16.6 of the Lois D. Cashell, Commission’s Regulations. The original Secretary. Rhinelander Paper Company; Notice of license for Project No. 1895 was issued [FR Doc. 95–18170 Filed 7–24–95; 8:45 am] Intent To File an Application for a New effective April 1, 1980, and expires June BILLING CODE 6717±01±M License 30, 2000. The project is located on the Broad July 19, 1995. [Docket Nos. RP92±137±039, RP93±136± River and the Congaree River in 007] Take notice that the Rhinelander Richland County, South Carolina. The Paper Company, the existing licensee principal works of the Columbia Project Transcontinental Gas Pipe Line for the Rhinelander Hydroelectric include a diversion dam about 1,021 Corporation; Notice of Filing feet long and 14 feet high with a canal Project No. 2161, filed a timely notice of gate section; a 265 acre reservoir at July 19, 1995. intent to file an application for a new elevation 153.8 feet USGS datum; a Take notice that on July 14, 1995, license, pursuant to 18 CFR 16.6 of the power canal, 200 feet wide and 3 miles Transcontinental Gas Pipe Line Commission’s Regulations. The original long; a masonry and brick powerhouse Corporation (Transco), tendered for license for Project No. 2161 was issued containing five 1,600-Kw and two 1,300- filing Substitute 1st Revised 12th effective January 31, 1981, and expires Kw generator units; generator leads, the Revised 2nd Revised Sheet No. 23 to its June 30, 2000. 4.8-Kv bus, a tie from the hydro station FERC Gas Tariff, Third Revised Volume No. 1, which tariff sheet is proposed to The project is located on the to the terminal substation; and be effective July 1, 1995. Transco states Wisconsin River in Oneida County, appurtenant facilities. that the purpose of the instant filing is Wisconsin. The principal works of the Pursuant to 18 CFR 16.7, the licensee is required henceforth to make available to revise the Non-Gas Demand Fee Rhinelander Project include an 180-foot- certain information to the public. This under Transco’s sales service Rate long earth dam with a concrete section information is now available from the Schedules FS and OFS based on daily containing two waste gates; a 3,576-acre licensee at 1426 Main Street, Columbia, billing determinants of 1,065,469 Mcf. reservoir with a normal water surface South Carolina 29201. As background to the instant filing, on elevation at 1555.33 feet msl; an intake Pursuant to 18 CFR 16.8, 16.9 and June 1, 1995 (June 1 Filing), Transco structure containing 14 gates; an intake 16.10, each application for a new filed revised tariff sheets in compliance canal about 965 feet long and 60 feet license and any competing license with a May 24, 1995 Commission order wide; a 36-foot wide tainter gate applications must be filed with the requiring Transco to reallocate spillway adjacent to the intake canal; a Commission at least 24 months prior to approximately $5.6 million of A&G brick powerhouse containing two 560- the expiration of the existing license. costs from its production and gathering KW and one 1,000-kW generating units; All applications for license for this function to its merchant service. On transmission line connections; and project must be filed by June 30, 1998. June 29, 1995 the Commission issued an appurtenant facilities. Lois D. Cashell, order (June 29 Order) accepting such Secretary. tariff sheets subject to Transco filing, Pursuant to 18 CFR 16.7, the licensee within 15 days of the date of the order, [FR Doc. 95–18169 Filed 7–24–95; 8:45 am] is required henceforth to make available to revise the Non-Gas Demand Fee certain information to the public. This BILLING CODE 6717±01±M under Transco’s Rate Schedules FS and information is now available from the OFS based on daily billing determinants licensee at 515 West Davenport Street, of 1,065,469 Mcf. [Docket No. RP95±112±000] Rhinelander, WI 54501. Accordingly, in compliance with the Tennessee Gas Pipeline Company; Commission’s June 29 Order, Transco is Pursuant to 18 CFR 16.8, 16.9 and submitting Substitute 1st Revised 12th 16.10, each application for a new Notice of Informal Settlement Conference Revised 2nd Revised Sheet No. 23 license and any competing license reflecting a reduced Non-Gas Demand applications must be filed with the July 19, 1995. Fee (from the fee proposed in the June Commission at least 24 months prior to Take notice that an informal 1 Filing), of $1.3601 per Mcf. the expiration of the existing license. settlement conference will be convened Transco states that it is serving copies All applications for license for this in this proceeding commencing at 9:00 of the instant filing to interested parties project must be filed by June 30, 1998. a.m. on July 25, 1995 and continuing on to Docket No. RP92–137. Lois D. Cashell, July 26, 1995, at the offices of the Any person desiring to protest said Federal Energy Regulatory Commission, filing should file a protest with the Secretary. 810 First Street NE., Washington, D.C., Federal Energy Regulatory Commission, [FR Doc. 95–18168 Filed 7–24–95; 8:45 am] for the purpose of exploring the possible 825 North Capitol Street NE., BILLING CODE 6717±01±M settlement of the above-referenced Washington, DC 20426, in accordance docket. with 385.211 of the Commission’s Rules 38042 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices and Regulations. All such protests [Docket No. RP94±296±005] Volume No. 1, the following tariff should be filed on or before July 26, sheets: Williams Natural Gas Company; Notice 1995. Protests will be considered by the of Proposed Changes in FERC Gas First Revised First Revised Sheet No. 204 Commission in determining the Tariff Substitute First Revised Sheet Nos. 215, 232, appropriate action to be taken, but will 233, 234, and 249 not serve to make protestants parties to July 19, 1995. Substitute Second Revised Sheet No. 250 the proceeding. Copies of this filing are Take notice that on July 17, 1995, Substitute First Revised Sheet Nos. 257, 261, on file with the Commission and are Williams Natural Gas Company (WNG) and 263 available for public inspection in the tendered for filing to become part of its Substitute Second Revised Sheet No. 264 Public Reference Room. FERC Gas Tariff, Second Revised The proposed effective date of these Lois D. Cashell, Volume No. 1, the following tariff tariff sheets is July 1, 1995. Secretary. sheets: WNG states that this filing is being Effective September 19, 1994 [FR Doc. 95–18171 Filed 7–24–95; 8:45 am] made in compliance with Commission Substitute Third Revised Sheet No. 9 order issued June 30, 1995 in Docket BILLING CODE 6717±01±M Substitute Second Revised Sheet No. 10 No. RP95–303–000. WNG was directed Effective March 31, 1995 to file the revisions required by the [Docket No. RP94±296±004] Second Substitute Fourth Revised Sheet No. 9 order within 15 days of the issuance of the order. Williams Natural Gas Company; Notice Second Substitute Third Revised Sheet No. 10 WNG states that a copy of its filing of Refund Report WNG states that this filing is being was served on all participants listed on July 19, 1995. made in compliance with Commission the service lists maintained by the Take notice that on July 17, 1995, order issued June 16, 1995 in Docket Commission in the dockets referenced Williams Natural Gas Company (WNG) No. RP94–296–000. WNG was directed above and on all jurisdictional tendered for filing a report of refunds to file the revisions required by the customers and interested state made to customers, pursuant to order within 30 days of the issuance of commissions. Commission order issued June 16, 1995 the order. The tendered tariff sheets Any person desiring to protest said (June 16 order), in the above referenced reflect a reduction in the amount of filing should file a protest with the docket. unrecovered purchased gas costs of Federal Energy Regulatory Commission, WNG states that ordering paragraph approximately $7.9 million. 825 North Capitol Street NE., (C) of the June 16 order directed WNG WNG states that a copy of its filing Washington, D.C. 20426, in accordance to refund those amounts, with interest, was served on all participants listed on with Section 385.211 of the previously recovered through direct the service lists maintained by the Commission’s Rules and Regulations. bills in this proceeding that the Commission in the dockets referenced All such protests should be filed on or Commission has determined to be above and on all jurisdictional before July 26, 1995. Protests will be ineligible for direct billing, within 30 customers and interested state considered by the Commission in days of the issuance of the order. WNG commissions. determining the appropriate action to be is concurrently filing revised tariff Any person desiring to protest said taken, but will not serve to make sheets and workpapers detailing the filing should file a protest with the protestants parties to the proceedings. total reduction in the direct bill amount Federal Energy Regulatory Commission, Copies of this filing are on file with the required by the June 16 order. 825 North Capitol Street NE., Commission and are available for public WNG states that a copy of its filing Washington, D.C. 20426, in accordance inspection in the Public Reference was served on all customers receiving a with Section 385.211 of the Room. refund, all participants listed on the Commission’s Rules and Regulations. Lois D. Cashell, service lists maintained by the All such protests should be filed on or Secretary. before July 26, 1995. Protests will be Commission in the docket referenced [FR Doc. 95–18174 Filed 7–24–95; 8:45 am] considered by the Commission in above, and interested state BILLING CODE 6717±01±M commissions. determining the appropriate action to be Any person desiring to protest said taken, but will not serve to make filing should file a protest with the protestants parties to the proceedings. Office of Energy Research; High Federal Energy Regulatory Commission, Copies of this filing are on file with the Energy Physics Advisory Panel 825 North Capitol Street NE., Commission and are available for public Washington, D.C. 20426, in accordance inspection in the Public Reference AGENCY: Department of Energy. Room. with Section 385.211 of the ACTION: Notice of open meeting. Commission’s Rules and Regulations. Lois D. Cashell, All such protests should be filed on or Secretary. [FR Doc. 95–18173 Filed 7–24–95; 8:45 am] SUMMARY: Pursuant to the provisions of before July 26, 1995. Protests will be BILLING CODE 6717±01±M the Federal Advisory Committee Act considered by the Commission in (Public Law 92–463, 86 Stat. 770), determining the appropriate action to be notice is given of a meeting of the High [Docket No. RP95±303±001] taken, but will not serve to make Energy Physics Advisory Panel. protestants parties to the proceedings. Copies of this filing are on file with the Williams Natural Gas Company; Notice DATES: Monday, September 18, 1995; 9 Commission and are available for public of Proposed Changes in FERC Gas a.m. to 6 p.m.; and Tuesday, September inspection in the Public Reference Tariff 19, 1995; 9 a.m.—4 p.m. Room. July 19, 1995. ADDRESSES: U.S. Department of Energy, Lois D. Cashell, Take notice that on July 14, 1995, 19901 Germantown Road, Germantown, Secretary. Williams Natural Gas Company (WNG) Maryland 20874. [FR Doc. 95–18172 Filed 7–24–95; 8:45 am] tendered for filing to become a part of FOR FURTHER INFORMATION CONTACT: Dr. BILLING CODE 6717±01±M its FERC Gas Tariff, Second Revised P. K. Williams, Executive Secretary, Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38043 High Energy Physics Advisory Panel, Office of Fossil Energy Issued in Washington, D.C., July 13, 1995. U.S. Department of Energy, ER–221, Clifford P. Tomaszewski, GTN, Germantown, Maryland 20874, [FE Docket No. 95±38±NG] Director, Office of Natural Gas, Office of Fuels Telephone: (301) 903–4829. Programs, Office of Fossil Energy. AIG Trading Corporation; Order [FR Doc. 95–18239 Filed 7–24–95; 8:45 am] SUPPLEMENTARY INFORMATION: Granting Authorization to Import and BILLING CODE 6450±01±P Purpose of the Meeting Export Natural Gas From and to To provide advice and guidance on a Canada continuing basis with respect to the high ENVIRONMENTAL PROTECTION energy physics research program. AGENCY: Office of Fossil Energy, DOE. AGENCY ACTION: Notice of order. Tentative Agenda [FRL±5263±6] Monday, September 18, 1995 and Tuesday, SUMMARY: The Office of Fossil Energy of Agency Information Collection September 19, 1995 the Department of Energy gives notice Activities Under OMB Review Discussion of Department of Energy High that it has issued an order granting AIG AGENCY: Environmental Protection Energy Physics Programs Trading Corporation (AIG) authorization Agency (EPA). Discussion of National Science Foundation to import up to 100 Bcf of natural gas Elementary Particle Physics Programs each year from Canada, and to export up ACTION: Notice. Discussion of and Action on the Report of the to 100 Bcf of natural gas each year to SUMMARY: In compliance with the Canada. This import/export Subpanel on Long Baseline Neutrino Paperwork Reduction Act (44 U.S.C. Oscillations authorization shall extend for a period 3501 et seq.), this notice announces that Discussion of High Energy Physics at Fermi of ten years beginning on the date of the the Information Collection Request (ICR) National Accelerator Laboratory, Stanford initial import or export delivery, abstracted below has been forwarded to Linear Accelerator Center, Brookhaven whichever occurs first. the Office of Management and Budget National Laboratory, Cornell University, AIG’s order is available for inspection Argonne National Laboratory, and (OMB) for review and comment. The and copying in the Office of Fuels ICR describes the nature of the Lawrence Berkeley Laboratory and the FY Programs Docket Room, 3F–056, 1996 Budgets information collection and its expected Forrestal Building, 1000 Independence cost and burden. Discussion of Status of Large Hadron Collider Avenue SW., Washington, D.C. 20585, DATE: Comments must be submitted on Project and U.S. Participation (202) 586–9478. The docket room is or before August 24, 1995. Discussion of University-based High Energy open between the hours of 8 a.m. and Physics Programs 4:30 p.m., Monday through Friday, FOR FURTHER INFORMATION OR A COPY Reports on and Discussions of Topics of except Federal holidays. CALL: Sandy Farmer at EPA (202) 260– General Interest in High Energy Physics 2740, please refer to ICR #1446.05. Public Comment (10 minute rule) Issued in Washington, D.C., July 12, 1995. Clifford P. Tomaszewski, SUPPLEMENTARY INFORMATION: Public Participation Director, Office of Natural Gas, Office of Fuels Office of Prevention, Pesticides and The two-day meeting is open to the Programs, Office of Fossil Energy. Toxic Substances public. The Chairperson of the Panel is [FR Doc. 95–18237 Filed 7–24–95; 8:45 am] Title: Polychlorinated Biphenyls empowered to conduct the meeting in a BILLING CODE 6450±01±P (PCBs)—Notification and Manifesting of fashion that will, in his judgment, PCB Waste Activities and Records of facilitate the orderly conduct of PCB Storage and Disposal. (EPA ICR No. business. Any member of the public [FE Docket No 95±53±NG] 1446.05; OMB No. 2070–0112). This who wishes to make oral statements notice requests an extension of a pertaining to agenda items should Inland Pacific Energy Services Corp.; currently approved collection. contact the Executive Secretary at the Order Granting Blanket Authorization Abstract: Under section 6(e) of the address or telephone number listed to Import Natural Gas From Canada Toxic Substances Control Act (TSCA), above. Requests must be received at generators of PCB waste must prepare AGENCY: least 5 days prior to the meeting and Office of Fossil Energy, DOE. manifests when they ship the waste for reasonable provision will be made to ACTION: Notice of order. storage and disposal. The manifests include the presentation on the agenda. enable EPA to track the chain of custody SUMMARY: The Office of Fossil Energy of Minutes for a particular PCB waste shipment. the Department of Energy gives notice Generators must also submit to EPA an Available for public review and that it has issued an order granting Exception Report if, within 45 days, copying at the Public Reading Room, Inland Pacific Energy Services Corp. they do not receive a copy of the PCB Room 1E–190, Forrestal Building, 1000 authorization to import up to 48 Bcf of waste manifest signed by the owner or Independence Avenue SW., natural gas from Canada over a two-year operator of the PCB commercial storage Washington, D.C. between 9 a.m. and 4 term beginning on the date of the first and disposal facility to which the waste p.m., Monday through Friday, except delivery after August 2, 1995. was shipped. They are also required to Federal holidays. This order is available for inspection submit an annual report of and copying in the Office of Fuels unmanifested PCB waste. Issued at Washington, D.C. on July 20, Programs Docket Room, 3F–056, All commercial storers, transporters 1995 Forrestal Building, 1000 Independence and disposers of PCB waste must notify Rachel Murphy Samuel, Avenue SW., Washington, D.C. 20585, the EPA of their PCB waste handling Acting Deputy Advisory Committee (202) 586–9478. The docket room is activities, and they must obtain an ID Management Officer. open between the hours of 8 a.m. and number to be used on the required PCB [FR Doc. 95–18240 Filed 7–24–95; 8:45 am] 4:30 p.m., Monday through Friday, waste manifests. Owners and operators BILLING CODE 6450±01±P except Federal holidays. of commercial storage and disposal 38044 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices facilities, must submit to the Agency an [FRI±5263±7] Send comments regarding the burden annual report of discrepancies between estimate, or any other aspect of this the quantity and type of PCB waste Agency Information Collection information collection, including designated on the manifest or shipping Activities Under OMB Review suggestions for reducing the burden, # papers, and the quantity or type of PCB AGENCY: Environmental Protection (please refer to EPA ICR 1292.04 and # waste actually delivered to, and Agency (EPA). OMB 2060–0135) to: # received by, their designated facilities. ACTION: Notice. Sandy Farmer, EPA ICR 1292.04 U.S. Commercial storers of PCB waste must Environmental Protection Agency, submit financial assurance and closure SUMMARY: In compliance with the Information Policy Branch (2136), 401 plans for EPA approval of their Paperwork Reduction Act (44 U.S.C. M Street SW., Washington, DC 20460 facilities. Commercial storers must also 3501 et seq.), this notice announces that and keep records of burden associated with the Information Collection Request (ICR) Troy Hillier, OMB #2060–0135, Office of 3rd-party notifications. In addition, abstracted below has been forwarded to Management and Budget, Office of users, storers, and disposers of PCB the Office of Management and Budget Information and Regulatory Affairs, waste must keep records of all their PCB (OMB) for review and comment. The 725 17th Street NW., Washington, DC activities, including copies of manifests ICR describes the nature of the 20503. and all annual records of the disposition information collection and its expected Dated: July 17, 1995. of PCBs. The Agency uses the cost and burden; where appropriate, it Joseph Retzer, includes the actual data collection information to monitor the movement of Director, Regulatory Information Division. instrument. PCBs and their ultimate disposal, and to [FR Doc. 95–18260 Filed 7–24–95; 8:45 am] ensure compliance with the regulations. DATE: Comments must be submitted on or before August 24, 1995. BILLING CODE 6560±50±M Burden Statement: The estimated FOR FURTHER INFORMATION CONTACT: average public reporting burden for this For further information, or a copy of this [FRL±5263±8] collection of information is .38 hour per ICR, contact Sandy Farmer at (202) 260– respondent for reporting, and 7.4 hours 2740, please refer to EPA ICR #1292.04. Agency Information Collection per recordkeeper annually. This SUPPLEMENTARY INFORMATION: Activities Under OMB Review estimate includes the time to read instructions, gather existing information Office of Air and Radiation AGENCY: Environmental Protection Agency (EPA). and complete the required reports. Title: Enforcement Policy Regarding ACTION: Notice. Respondents: Handlers, users, storers the Sale and Use of Aftermarket # and disposers of PCBs, and owners and Catalytic Converters (EPA ICR 1292.04; SUMMARY: In compliance with the # operators of PCB disposal facilities. OMB 2060–0135). This ICR requests Paperwork Reduction Act (44 U.S.C. renewal of the existing clearance. Estimated No. of Respondents: 3501 et seq.), this notice announces that Abstract: Manufacturers who 22,600. the Information Collection Request (ICR) recondition used catalytic converters abstracted below has been forwarded to Estimated No. of Responses Per and who manufacture replacement the Office of Management and Budget Respondent: 1. catalytic converters must submit semi- (OMB) for review and comment. The Estimated Total Annual Burden on annual reports to the EPA describing the ICR describes the nature of the Respondents: 175,648 hours. reconditioned or manufactured information collection and its expected catalysts. For each catalyst line, the cost and burden; where appropriate, it Frequency of Collection: Annually Agency requires information concerning and on occasion. includes the actual data collection and the catalysts’ design, testing and its expected cost and burden; where Send comments regarding the burden warranty as well as the make, model appropriate, it includes the actual data estimate, or any other aspect of the and year of the vehicle(s) in which the collection instrument. information collection, including catalyst may be installed. The EPA uses DATE: Comments must be submitted on this information in enforcing its policies suggestions for reducing the burden, or before August 24, 1995. (please refer to EPA ICR #1446.05 and on the sale and use of aftermarket FOR FURTHER INFORMATION CONTACT: OMB #2070–0112) to: catalytic converters. Sandy Farmer at EPA, (202) 260–2740, # Burden Statement: The public # Sandy Farmer, EPA ICR 1446.05, U.S. reporting and recordkeeping burden for (please refer to ICR 1760.01.) Environmental Protection Agency, this collection of information is SUPPLEMENTARY INFORMATION: Regulatory Information Division estimated to average 4 hours per Office of Air Quality Policy and (2136), 401 M Street SW., respondent, including time for Standards Washington, DC 20460 reviewing instructions, testing, and searching existing data sources, Title: Significance of Effects Resulting gathering and maintaining the data From Exposure to Irritant Gases: A Tim Hunt, OMB #2070–0112, Office of needed, and completing and reviewing Survey of Respiratory Physicians and Management and Budget, Office of the collection of information. Scientists. Information and Regulatory Affairs, Respondents: manufacturers, Abstract: The Office of Air Quality 725 17th Street NW., Washington, DC reconditioners and installers of Planning and Standards (OAQPS) of the 20503. aftermarket catalytic converters. Environmental Protection Agency (EPA) Dated: June 28, 1995. Estimated Number of Respondents: has prepared a statistical survey to 17,020. characterize the medical significance of Joseph Retzer, Estimated Total Annual Burden on respiratory effects in both children and Director, Regulatory Information Division. Respondents: 65,288. adults that are attributable to exposure [FR Doc. 95–18261 Filed 7–24–95; 8:45 am] Frequency of Collection: semi- to irritant gases. Under section 109 of BILLING CODE 6560±50±M annually. the Clean Air Act the EPA is charged Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38045 with reviewing and setting primary FEDERAL COMMUNICATIONS 3. The special temporary National Ambient Air Quality Standards COMMISSION authorizations granted under the Grant (NAAQS) to protect the public health Stamp procedure are subject of the same from adverse effects of selected [Report No. IN 95±12] terms and conditions as currently exist. pollutants. The survey results will assist Expedited Processing of International For informational purposes, these terms in determining what levels of symptoms Section 214 Applications and conditions are: and measurable outcomes should be (a) the Special Temporary Authority is considered adverse health effects, which AGENCY: Federal Communications subject to change in any of its terms or the standards are intended to prevent. Commission. to cancellation in its entirety at any time Overall, the project will benefit the ACTION: Notice. upon notice, but without hearing, if in Agency as it reviews and sets NAAQS the opinion of the Commission for irritant gases such as ozone, nitrogen SUMMARY: The International Bureau will circumstances should so require. dioxide, and sulfur dioxide. The EPA expedite the processing of international (b) the Special Temporary Authority will collect information regarding the Section 214 Applications by using a is granted without prejudice to action significance of health effects resulting grant stamp to approve Section 214 on any underlying Section 214 from exposure to irritant gases by special temporary requests, and by application. surveying members of the American calling status conferences in all Thoracic Society. The survey results contested section 214 proceedings. (c) the Special Temporary Authority will be stored in an OAQPS computer EFFECTIVE DATE: July 25, 1995. will automatically expire should the underlying application for regular database. FOR FURTHER INFORMATION CONTACT: Troy authority be dismissed or denied. Burden Statement: The public F. Tanner, Attorney, International reporting burden for this collection of Bureau, (202) 418–1468. (d) the Special Temporary Authority information is estimated to average 0.4 is effective upon grant and will remain hours per response, including time for SUPPLEMENTARY INFORMATION: in effect until further order of the reviewing instructions, and completing International Bureau Speeds Processing Commission, but not beyond either: 180 and mailing the survey. Through the Expanded Use of Grant days from the grant date if the applicant Respondents: Members of the Stamp and Status Conferences has filed a Section 214 application for American Thoracic Society. permanent authorization; or thirty days By the Chief International Bureau: Estimated Number of Respondents: from the grant date if no Section 214 1. In response to recent suggestions 1,800. application has been filed. from the International Practice Estimated Total Annual Burden on Committee of the Federal 4. If an international Section 214 Respondents: 750 hours. Communications Bar Association, the application is opposed, the Bureau will Frequency of Collection: One-time. Bureau will implement the following promptly call a status conference of all Send comments regarding the burden improvements to expedite the parties to discuss the merits of the estimate, or any other aspect of this processing of international Section 214 parties’ positions. During the status information collection, including applications. These procedures will go conference, the Bureau will seek suggestions for reducing burden, to: into effect upon publication of this stipulations to agreed upon facts, and Sandy Farmer, ICR Number 1760.01, notice in the Federal Register. explore settlement options. U.S. Environmental Protection 2. The International Bureau will Federal Communication Commission. Agency, Regulatory Information approve special temporary authorization Scott Blake Harris, Division (2136), 401 M Street SW., requests for international Section 214 Chief, International Bureau. Washington, DC 20460 authorization from applicants that have [FR Doc. 95–18220 FIled 7–24–95; 8:45 am] and complied with Section 63.04 of the BILLING CODE 6712±01±M Chris Wolz, OMB #2060–XXXX, Office Commission’ Rules, 47 CFR 63.04, of Management and Budget, Office of through a Grant Stamp procedure. Information and Regulatory Affairs, Under this procedure, applications that Applications, Hearings, 725 17th Street NW., Washington, DC have been found to be in the public Determinations, Etc.: Colemans, 20530. interest, convenience and necessity will Chesters, et al. be stamped ‘‘Granted.’’ This stamp will Dated: July 13, 1995. also provide lines on which staff will 1. Pursuant to Section 316(a) of the David Schwarz, sign and note the grant date. Applicants Communications Act of 1934, as Acting Director, Regulatory Information will be notified by Bureau staff that amended, 47 U.S.C. 316, the following Division. their applications have been granted licensees are ordered to show cause why [FR Doc. 95–18259 Filed 7–24–95; 8:45 am] and will be forwarded a copy of their licenses should not be modified to BILLING CODE 6560±50±M stamped application. specify operation on a new channel: Present Licensee Call sign City/State channel New channel A. Chester Coleman ...... KABN(AM) .... Long Island, 830 kHz ...... 840kHZ AK. B. Aleutian Peninsula Broadcasting, Inc ...... KSDP(AM) .... Sand Point, 840 kHz ...... 830kHz AK. 2. Chester Coleman is ordered to show operation on 840 kHz as authorized in Commission’s Rules, 47 C.F.R. § 1.87, cause why the license of KABN(AM) its construction permit, BP–891109AD. Chester Coleman may, not later than 30 should not be modified to specify Pursuant to Section 1.87 of the days from the date of the Order to Show 38046 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices Cause, request a hearing or file a written FEDERAL EMERGENCY [FEMA±1050±DR] statement showing with particularity MANAGEMENT AGENCY why the license of KABN(AM) should North Dakota; Amendment to Notice of a Major Disaster Declaration not be modified as proposed in the [FEMA±1054±DR] order to show cause. Pursuant to 47 AGENCY: Federal Emergency C.F.R. § 1.87, failure to file a written Missouri; Amendment to Notice of a Management Agency (FEMA). statement or to request a hearing within Major Disaster Declaration the time specified will result in a waiver ACTION: Notice. of the right to file such a statement or AGENCY: Federal Emergency to request a hearing. If no written Management Agency (FEMA). SUMMARY: This notice amends the notice of a major disaster for the State of North statement is filed or no request is made ACTION: Notice. for a hearing, Chester Coleman will be Dakota (FEMA–1050–DR), dated May 16, 1995, and related determinations. deemed to have consented to the SUMMARY: This notice amends the notice modification as proposed in the order to of a major disaster for the State of EFFECTIVE DATE: July 5, 1995. show cause and action will be taken to Missouri, (FEMA–1054–DE), dated June FOR FURTHER INFORMATION CONTACT: modify the license of KABN(AM) to 840 2, 1995, and related determinations. Pauline C. Campbell, Response and kHz. EFFECTIVE DATE: July 13, 1995. Recovery Directorate, Federal 3. Aleutian Peninsula Broadcasting, Emergency Management Agency, FOR FURTHER INFORMATION CONTACT: Inc. is ordered to show cause why the Washington, DC 20472, (202) 646–3606. license of KSDP(AM) should not be Pauline C. Campbell, Response and SUPPLEMENTARY INFORMATION: modified to specify operation on 830 Recovery Directorate, Federal Notice is hereby given that the incident period for kHz as authorized in its construction Emergency Management Agency, this disaster is closed effective July 5, permit, BP–891109AA. Pursuant to Washington, DC 20472, (202) 646–3606. 1995. Section 1.87 of the Commission’s Rules, SUPPLEMENTARY INFORMATION: The notice 47 C.F.R. § 1.87, Aleutian Peninsula of a major disaster for the State of (Catalog of Federal Domestic Assistance No. Broadcasting, Inc. may, not later than 30 Missouri dated June 2, 1995, is hereby 83.516, Disaster Assistance) days from the date of the Order to Show amended to including the following Richard W. Krimm, Cause request a hearing or file a written areas among those areas determined to Associate Director, Response and Recovery statement showing with particularity have been adversely affected by the Directorate. why the license of KSDP(AM) should catastrophe declared a major disaster by [FR Doc. 95–18229 Filed 7–24–95; 8:45 am] not be modified as proposed in the the President in this declaration of June BILLING CODE 6718±02±M order to show cause. Pursuant to 47 2, 1995: C.F.R. § 1.87, failure to file a written The Counties of Barton, Cass, Dallas, and statement or to request a hearing within Saint Francois for Individual Assistance [FEMA±1059±DR] the time specified will result in a waiver and Hazard Mitigation Assistance. Virginia; Amendment to Notice of a of the right to file such a statement or The Counties of Adair, Camden, Cooper, Major Disaster Declaration to request a hearing. If no written Jackson, Jasper, Lewis, Lincoln, Maries, statement is filed or no request is made Morgan, Newton, New Madrid, Osage, Pemiscot, Scotland, and Scott for Hazard AGENCY: Federal Emergency for a hearing, Aleutian Peninsula Mitigation Assistance (already designated Management Agency (FEMA). Broadcasting, Inc. will be deemed to for Individual Assistance only). ACTION: Notice. have consented to the modification as The Counties of Barry, Clark and McDonald proposed in the order to show cause and for Public Assistance and Hazard SUMMARY: This notice amends the notice action will be taken to modify the Mitigation Assistance (already designated of a major disaster for the license of KSDP(AM) to 830 kHz. for Individual Assistance.) The Counties of Nodaway, Saline, Stone, and Commonwealth of Virginia, (FEMA– A copy of the complete Order to Show Sullivan for Individual Assistance, Public 1059–DR), dated July 1, 1995, and Cause in this proceeding is available for Assistance, and Hazard Mitigation related determinations. inspection and copying during normal Assistance. EFFECTIVE DATE: July 12, 1995. business hours in the FCC Reference The Counties of Andrew, Atchinson, Bates, Center (Room 239), 1919 M Street NW., Callaway, Cape Girardeau, Carroll, FOR FURTHER INFORMATION CONTACT: Washington, D.C. The complete text Chariton, Daviess, Dekalb, Gentry, Henry, Pauline C. Campbell, Response and may also be purchased from the Howard, Lafayette, Linn, Macon, Recovery Directorate, Federal Commission’s duplicating contractor, Mississippi, Moniteau, Montgomery, Perry, Emergency Management Agency, Ray, Vernon, and Warren for Hazard International Transcription Services, Washington, DC 20472, (202) 646–3606. Mitigation Assistance already designated 2100 M Steet NW., Suite 140, for Individual Assistance and Public SUPPLEMENTARY INFORMATION: The notice Washington, D.C. 20037 (telephone Assistance). of a major disaster for the 202–857–3800). The City of St. Louis for Hazard Mitigation Commonwealth of Virginia dated July 1, Federal Communications Commission. Assistance ((already designated for 1995, is hereby amended to include the Individual Assistance). Larry D. Eads, following areas among those areas (Catalog of Federal Domestic Assistance No. determined to have been adversely Chief, Audio Services Division, Mass Media 83.516, Disaster Assistance) Bureau. affected by the catastrophe declared a Craig S. Wingo, major disaster by the President in his [FR Doc. 95–18148 Filed 7–24–95; 8:45 am] Division Director, Infrastructure Support declaration of July 1, 1995: BILLING CODE 6712±01±M Division, Response and Recovery Directorate. The Counties of Amherst and Franklin for [FR Doc. 95–18228 Filed 7–24–95; 8:45 am] Individual Assistance, Public Assistance, BILLING CODE 6718±02±M and Hazard Mitigation Assistance. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38047 (Catalog of Federal Domestic Assistance No. SUMMARY: This notice amends the notice In order to provide Federal assistance, you 83.516, Disaster Assistance) of a major disaster for the are hereby authorized to allocate from funds G. Clay Hollister, Commonwealth of Virginia, (FEMA– available for these purposes, such amounts as Deputy Associate Director, Response and 1059–DR), dated July 1, 1995, and you find necessary for Federal disaster Recovery Directorate. assistance and administrative expenses. related determinations. You are authorized to provide Individual [FR Doc. 95–18230 Filed 7–24–95; 8:45 am] EFFECTIVE DATE: July 10, 1995. Assistance, Public Assistance, and Hazard BILLING CODE 6718±02±M FOR FURTHER INFORMATION CONTACT: Mitigation Assistance in the designated areas. Pauline C. Campbell, Response and Consistent with the requirement that Federal assistance be supplemental, any Federal [FEMA±1059±DR] Recovery Directorate, Federal Emergency Management Agency, funds provided under the Stafford Act for Washington, DC 20472, (202) 646–3606. Public Assistance and Hazard Mitigation Virginia; Amendment to Notice of a Assistance will be limited to 75 percent of Major Disaster Declaration SUPPLEMENTARY INFORMATION: The notice the total eligible costs. of a major disaster for the AGENCY: Federal Emergency Commonwealth of Virginia dated July 1, The time period prescribed for the Management Agency (FEMA). 1995, is hereby amended to include the implementation of section 310(a), ACTION: Notice. following areas among those areas Priority to Certain Applications for Public Facility and Public Housing SUMMARY: This notice amends the notice determined to have been adversely affected by the catastrophe declared a Assistance, 42 U.S.C. 5153, shall be for of a major disaster for the a period not to exceed six months after Commonwealth of Virginia, (FEMA– major disaster by the President in his declaration of July 1, 1995: the date of this declaration. 1059–DR), dated July 1, 1995, and Notice is hereby given that pursuant related determinations. The City of Bedford and Bedford County for to the authority vested in the Director of EFFECTIVE DATE: July 11, 1995. Individual Assistance and Public the Federal Emergency Management FOR FURTHER INFORMATION CONTACT: Assistance. Agency under Executive Order 12148, I Pauline C. Campbell, Response and (Catalog of Federal Domestic Assistance No. hereby appoint Alfred Hahn of the Recovery Directorate, Federal 83.516, Disaster Assistance) Federal Emergency Management Agency Emergency Management Agency, Richard W. Krimm, to act as the Federal Coordinating Washington, DC 20472, (202) 646–3606. Associate Director, Response and Recovery Officer for this declared disaster. SUPPLEMENTARY INFORMATION: The notice Directorate. I do hereby determine the following of a major disaster for the [FR Doc. 94–18231 Filed 7–24–94; 8:45 am] areas of the State of West Virginia to Commonwealth of Virginia dated July 1, BILLING CODE 6718±02±M have been affected adversely by this 1995, is hereby amended to include the declared major disaster. following areas among those areas [FEMA±1060±DR] Mineral and Nicholas Counties for Individual determined to have been adversely Assistance and Hazard Mitigation; and affected by the catastrophe declared a West Virginia; Major Disaster and Mercer County for Individual Assistance, major disaster by the President in his Related Determinations Public Assistance and Hazard Mitigation. declaration of July 1, 1995: (Catalog of Federal Domestic Assistance No. AGENCY: Federal Emergency 83.516, Disaster Assistance) The City of Roanoke for Hazard Mitigation Management Agency (FEMA). Assistance (already designated for James L. Witt, Individual Assistance.) ACTION: Notice. Director. The City of Bedford for Hazard Mitigation [FR Doc. 95–18233 Filed 7–24–95; 8:45 am] Assistance (already designated for SUMMARY: This is a notice of the Individual Assistance and Public Presidential declaration of a major BILLING CODE 6718±02±M Assistance.) disaster for the State of West Virginia The Counties of Albemarle, Augusta, Bath, (FEMA–1060–DR), dated July 12, 1995, [FEMA±1060±DR] Bedford, Campbell, Culpeper, Giles, and related determinations. Greene, Halifax, Madison, Orange, EFFECTIVE DATE: July 12, 1995. West Virginia; Amendment to Notice of Pittsylvania, Rappahannock, Rockbridge a Major Disaster Declaration and Warren, and the Cities of Buena Vista, FOR FURTHER INFORMATION CONTACT: Lexington, Lynchburg, and Staunton for Pauline C. Campbell, Response and AGENCY: Federal Emergency Hazard Mitigation Assistance (already Recovery Directorate, Federal Management Agency (FEMA). designated for Individual Assistance and Emergency Management Agency, ACTION: Notice. Public Assistance.) Washington, DC 20472, (202) 646–3606. (Catalog of Federal Domestic Assistance No. SUPPLEMENTARY INFORMATION: Notice is SUMMARY: This notice amends the notice 83.516, Disaster Assistance) hereby given that, in a letter dated July of a major disaster for the State of West Richard W. Krimm, 12, 1995, the President declared a major Virginia, (FEMA–1060–DR), dated July Associate Director, Response and Recovery disaster under the authority of the 12, 1995, and related determinations. Directorate. Robert T. Stafford Disaster Relief and EFFECTIVE DATE: July 19, 1995. [FR Doc. 95–18232 Filed 7–24–95; 8:45 am] Emergency Assistance Act (42 U.S.C. FOR FURTHER INFORMATION CONTACT: BILLING CODE 6718±02±M 5121 et seq.), as follows: Pauline C. Campbell, Response and I have determined that the damage in Recovery Directorate, Federal [FEMA±1059±DR] certain areas of the State of West Virginia Emergency Management Agency, resulting from severe storms, heavy rain, and Washington, DC 20472, (202) 646–3606. flash flooding on June 23–27, 1995, is of Virginia; Amendment to Notice of a SUPPLEMENTARY INFORMATION: The notice Major Disaster Declaration sufficient severity and magnitude to warrant a major disaster declaration under the Robert of a major disaster for the State of West AGENCY: Federal Emergency T. Stafford Disaster Relief and Emergency Virginia dated July 12, 1995, is hereby Management Agency (FEMA). Assistance Act (‘‘the Stafford Act’’). I, amended to include the following areas among those areas determined to have ACTION: Notice. therefore, declare that such a major disaster exists in the State of West Virginia. been adversely affected by the 38048 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices catastrophe declared a major disaster by ACTION Notice. published in 59 FR 50132 on September the President in his declaration of July 30, 1994. If the published list is 12, 1995: SUMMARY The Federal Emergency unavailable to you, the State Fire Management Agency (FEMA or Agency) Marshal’s office can direct you to the The counties of Mineral and Nicholas for gives notice of additions and Public Assistance (already designated for appropriate office. Periodically FEMA Individual Assistance and Hazard Mitigation corrections/changes to, and deletions from, the national master list of places will update and redistribute the national Assistance. master list to incorporate additions and (Catalog of Federal Domestic Assistance No. of public accommodations which meet the fire prevention and control corrections/changes to the list, and 83.516, Disaster Assistance deletions from the list, that are received Laurence Zensinger, guidelines under the Hotel and Motel Fire Safety Act. from the State offices. Division Director, Human Services Division. EFFECTIVE DATE August 24, 1995. Each update contains or may contain [FR Doc. 95–18234 Filed 7–24–95; 8:45 am] ADDRESSES Comments on the master list three categories: ‘‘Additions;’’ BILLING CODE 6718±02±M are invited and may be addressed to the ‘‘Corrections/changes;’’ and Rules Docket Clerk, Federal Emergency ‘‘Deletions.’’ For the purposes of the [FEMA±1060±DR] Management Agency, 500 C Street SW., updates, the three categories mean and room 840, Washington, D.C. 20472, (fax) include the following. West Virginia; Amendment to Notice of (202) 646–4536. To be added to the a Major Disaster Declaration ‘‘Additions’’ are either names of National Master List, or to make any properties submitted by a State but AGENCY: Federal Emergency other change to the list, please see inadvertently omitted from the initial Management Agency (FEMA). Supplementary Information below. master list or names of properties ACTION: Notice. FOR FURTHER INFORMATION CONTACT: John submitted by a State after publication of Ottoson, Fire Management Programs the initial master list; SUMMARY: This notice amends the notice Branch, United States Fire of a major disaster for the State of West Administration, Federal Emergency ‘‘Corrections/changes’’ are corrections Virginia (FEMA–1060–DR), dated July Management Agency, National to property names, addresses or 12, 1995, and related determinations. Emergency Training Center, 16825 telephone numbers previously EFFECTIVE DATE: July 18, 1995. South Seton Avenue, Emmitsburg, MD published or changes to previously FOR FURTHER INFORMATION CONTACT: 21727, (301) 447–1272. published information directed by the Pauline C. Campbell, Response and SUPPLEMENTARY INFORMATION Acting State, such as changes of address or Recovery Directorate, Federal under the Hotel and Motel Fire Safety telephone numbers, or spelling Emergency Management Agency, Act of 1990, 15 U.S.C. 2201 note, the corrections; and Washington, DC 20472, (202) 646–3606. United States Fire Administration has ‘‘Deletions’’ are entries previously SUPPLEMENTARY INFORMATION: Notice is worked with each State to compile a submitted by a State and published in hereby given that the incident period for national master list of all of the places the national master list or an update to this disaster has been changed. The of public accommodation affecting the national master list, but incident period for this disaster is June commerce located in each State that subsequently removed from the list at 23, 1995 through June 28, 1995. meet the requirements of the guidelines the direction of the State. under the Act. FEMA published the (Catalog of Federal Domestic Assistance No. national master list in the Federal Copies of the national master list and 83.516, Disaster Assistance) its updates may be obtained by writing Richard W. Krimm, Register on Friday, December 2, 1994, 59 FR 61932, with corrections published to the Government Printing Office, Associate Director, Response and Recovery Superintendent of Documents, Directorate. Monday, February 27, 1995, 60 FR 10636, and published changes Washington, DC 20402–9325. When [FR Doc. 95–18235 Filed 7–24–95; 8:45 am] approximately monthly since then. requesting copies please refer to stock BILLING CODE 6718±02±M Parties wishing to be added to the number 069–001–00049–1. National Master List, or to make any The update to the national master list Changes to the Hotel and Motel Fire other change, should contact the State follows below. Safety Act National Master List office or official responsible for compiling listings of properties which Dated: July 19, 1995. AGENCY United States Fire comply with the Hotel and Motel Fire John P. Carey, Administration, FEMA. Safety Act. A list of State contacts was General Counsel. HOTEL AND MOTEL FIRE SAFETY ACT NATIONAL MASTER LIST JULY 18, 1995 UPDATE PO Box/ Index Property Name Rt No Street Address City State/ZIP Telephone ADDITIONS AK AK0046 Westmark Cape Fox ...... 800 Venetia Way .... Ketchikan ...... AK 99901 (907)225-8001 Lodge. CA CA1451 Hyatt Newporter ...... 1107 Jamboree Newport Beach ...... CA 92660 (714)729-1234 Road. IA IA0151 Embassy Suites ...... 101 East Locust ..... Des Moines ...... IA 50309 (515)244-1700 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38049 HOTEL AND MOTEL FIRE SAFETY ACT NATIONAL MASTER LIST JULY 18, 1995 UPDATEÐContinued PO Box/ Index Property Name Rt No Street Address City State/ZIP Telephone IL IL0546 Comfort Suites ...... 310 Greenbriar Dr .. Normal ...... IL 61761 (309)452-8588 Bloomington. KY KY0419 Convention Center ...... 2011 W. Everly Central City ...... KY 42345 (502)338-9797 Inn. Brothers Blvd. KY0418 Holiday InnÐCin- ...... 600 W. Third St...... Covington ...... KY 41011 (606)291-4300 cinnati Riverfront. KY0420 Super 8 Motel ...... 2030 US 41 N...... Henderson ...... KY 42420 ( ) - NJ NJ0211 The Royal Inn ...... 120 Evergreen Pl. .. East Orange ...... NJ 07018 (201)677-3100 NJ0212 Ramada Inn ...... 109 Route 36 ...... W. Long Branch ...... NJ 07764 (908)229-9000 NY NY0616 Holiday InnÐTurf ...... 1442 Western Ave- Albany ...... NY 12203 (518)438-0001 on Western Ave- nue. nue. NY0619 Steuben Athletic ...... 1 Steuben Place ..... Albany ...... NY 12207 (518)434-6116 Club. NY0621 The Desmond ...... 660 Albany Shaker Albany ...... NY 12211 (518)869-8100 Road. NY0618 University Inn and PO Box 2401 North Forest Amherst ...... NY 142260823 (716)636-7500 Conference Cen- 823. Road. ter. NY0622 Armonk Ramada ...... 94 Business Park Armonk ...... NY (914)273-9090 Inn. Drive. NY0617 Belhurst Castle ...... Rt. 14 South ...... Geneva ...... NY 14456 (315)781-0201 NY0620 Ramada Inn ...... 114 Rt. 28 ...... Kingston ...... NY 12401 (914)339-3900 PA PA0433 Howard Johnson ...... 4848 Admiral Perry Ebensburg ...... PA 15931 (814)472-7201 Lodge. Hwy. TX TX0644 Inn of the Concho's ...... 2021 North Bryant .. San Angelo ...... TX 76903 (915)658-2811 TX0643 Waco Fairfield Inn ...... 5805 North Woodway ...... TX 76712 (817)776-7821 Woodway Drive. Corrections/Changes KY KY0105 Sugar Creek Inn ...... 2072 US 41 N...... Henderson ...... KY 42420 (502)827-0127 NJ NJ0111 Econo Lodge Uni- ...... 26 RT. 1 N...... New Brunswick ...... NJ 08901 (908)828-8000 versity Center. NJ0174 Comfort Inn Atlantic ...... 7095 Black Horse W. Atlantic City ...... NJ 08232 (609)645-1818 City West. Pike. NJ0119 Sheraton Inn Atlan- ...... 6821 Black Horse W. Atlantic City ...... NJ 08232 (609)272-0200 tic City West. Pike. NJ0201 McIntosh Inn of ...... 294 Monmouth Park W. Long Branch ...... NJ 07764 (908)542-7900 West Long Hwy. Branch. TX TX0420 Embassy Suites ...... 4337 S. Padre Is- Corpus Christi ...... TX 78411 (512)853-7899 Hotel. land Drive. TX0639 Super 8 Motel & RV ...... 3800 IH 20 E ...... Eastland ...... TX 76448 (817)629-3336 Park. Deletions KY KY0001 Oak Tree Inn ...... Hwy. 52 Richmond Irvine ...... KY 40336 (606)723-2600 Rd.. 38050 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices [FR Doc. 95–18226 Filed 7–24–95; 8:45 am] following agreement(s) pursuant to License Name/address Date reissued BILLING CODE 6718-26-U section 5 of the Shipping Act of 1984. No. Interested parties may inspect and 2852 Mercury Inter- July 10, 1995. obtain a copy of each agreement at the national, Inc., FEDERAL MARITIME COMMISSION Washington, D.C. Office of the Federal 12850 Reeveston, Notice of Agreement(s) Filed Maritime Commission, 800 North Capitol Street NW., 9th Floor. Interested Houston, TX The Federal Maritime Commission parties may submit comments on each 77039. hereby gives notice that the following agreement to the Secretary, Federal Bryant L. VanBrakle, (agreement) has been filed with the Maritime Commission, Washington, Commission pursuant to section 15 of Director, Bureau of Tariffs, Certification and D.C. 20573, within 10 days after the date Licensing. the Shipping Act, 1916, and section 5 of of the Federal Register in which this [FR Doc. 95–18207 Filed 7–24–95; 8:45 am] the Shipping Act of 1984. notice appears. The requirements for Interested parties may inspect and BILLING CODE 6730±01±M comments are found in section 572.603 obtain a copy of each agreement at the of Title 46 of the Code of Federal Washington, D.C. Office of the Federal Regulations. Interested persons should Maritime Commission, 800 North FEDERAL RESERVE SYSTEM Capitol Street, N.W., 9th Floor. consult this section before communicating with the Commission Interested parties may submit protests James Lee Clayton, et al. Change in regarding a pending agreement. or comments on each agreement to the Bank Control Notices; Acquisitions of Secretary, Federal Maritime Agreement No.: 203–011507. Shares of Banks or Bank Holding Commission, Washington, D.C. 20573, Title: Di Gregorio-Tricon Agreement. Companies within 10 days after the date of the Federal Register in which this notice Parties: The notificants listed below have applied under the Change in Bank appears. The requirements for Di Gregorio Navegacao Ltda. comments and protests are found in Control Act (12 U.S.C. 1817(j)) and § section 560.602 and/or 572.603 of Title Tricon Parties DSR-Senator Lines Cho 225.41 of the Board’s Regulation Y (12 46 of the Code of Federal Regulations. Yang Shipping Co., Ltd. CFR 225.41) to acquire a bank or bank Interested persons should consult this Synopsis: The proposed Agreement holding company. The factors that are section before communicating with the permits the parties to consult and agree considered in acting on the notices are set forth in paragraph 7 of the Act (12 Commission regarding a pending upon the deployment and utilization of U.S.C. 1817(j)(7)). agreement. vessels, to charter space from one Any person filing a comment or The notices are available for another, and to rationalize sailings in protest with the Commission shall, at immediate inspection at the Federal the trade between all U.S. Atlantic and the same time, deliver a copy of that Reserve Bank indicated. Once the document to the person filing the Gulf Coast ports and points (Bangor, notices have been accepted for agreement at the address shown below. Maine/Brownsville, Texas range and processing, they will also be available ports and points on the Atlantic side of Agreement No.: 224–200955. for inspection at the offices of the Board Title: Howland Hook/Global Terminal South America including the Atlantic of Governors. Interested persons may Agreement. islands. In addition, the parties may express their views in writing to the Parties: discuss and agree upon rates, charges, Reserve Bank indicated for that notice Howand Hook Container Terminal, service items, practices and conditions or to the offices of the Board of Inc. of service and policy by any party or by Governors. Comments must be received Global Terminal & Container Services, any conference to which any party may not later than August 8, 1995. Inc. be a member. Adherence to any A. Federal Reserve Bank of Atlanta Filing Agent: Brien E. Kehoe, Esquire, agreement reached is voluntary. (Zane R. Kelley, Vice President) 104 Hill, Bets & Nash, Suite 200, 1615 New Dated: July 20, 1995. Marietta Street, N.W., Atlanta, Georgia Hampshire Avenue N.W., Washington, By Order of the Federal Maritime 30303: DC 20009. Commission. 1. James Lee Clayton, Knoxville, Tennessee; to acquire 60.6 percent of Synopsis: The proposed Agreement Joseph C. Polking, authorizes the parties to establish a the voting shares of Smoky Mountain terminal conference to permit the Secretary. Bancorp, Inc., Gatlinburg, Tennessee, parties to discuss, fix or regulate rates at [FR Doc. 95–18206 Filed 7–24–95; 8:45 am] and thereby indirectly acquire First the Port of New York and other East BILLING CODE 6730±01±M National Bank of Gatlinburg, Gatlinburg, Coast ports. Tennessee. Dated: July 20, 1995. B. Federal Reserve Bank of Kansas Ocean Freight Forwarder License City (John E. Yorke, Senior Vice By order of the Federal Maritime Reissuance of License Commission President) 925 Grand Avenue, Kansas City, Missouri 64198: Joseph C. Polking, Notice is hereby given that the 1. Jack L. Grimmett, Jr., Pauls Valley, Secretary. following ocean freight forwarder Oklahoma; to acquire an additional [FR Doc. 95–18205 Filed 7–24–95; 8:45 am] license has been reissued by the Federal 23.76 percent, for a total of 34.05 BILLING CODE 6730±01±M Maritime Commission pursuant to percent, and Robert Brent Grimmett, section 19 of the Shipping Act of 1984 Pauls Valley, Oklahoma, to acquire an (46 U.S.C. app. 1718) and the additional 23.76 percent, for a total of Notice of Agreement(s) Filed regulations of the Commission 34.25 percent, of the voting shares of The Federal Maritime Commission pertaining to the licensing of ocean Valley Bancshares, Inc., Pauls Valley, hereby gives notice of the filing of the freight forwarders, 46 CFR 510. Oklahoma, and thereby indirectly Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38051 acquire The Pauls Valley National Bank, of the Board’s Regulation Y (12 CFR DEPARTMENT OF HEALTH AND Pauls Valley, Oklahoma. 225.23(a)(1)) for the Board’s approval HUMAN SERVICES Board of Governors of the Federal Reserve under section 4(c)(8) of the Bank System, July 19, 1995. Holding Company Act (12 U.S.C. Agency for Health Care Policy and Jennifer J. Johnson, 1843(c)(8)) and § 225.21(a) of Regulation Research Deputy Secretary of the Board. Y (12 CFR 225.21(a)) to commence or to Health Care Policy and Research [FR Doc. 95–18186 Filed 7–24–95; 8:45 am] engage de novo, either directly or through a subsidiary, in a nonbanking Special Emphasis Panel Meeting BILLING CODE 6210±01±F activity that is listed in § 225.25 of Regulation Y as closely related to In accordance with section 10(a) of Comerica Inc.; Formation of, banking and permissible for bank the Federal Advisory Committee Act (5 Acquisition by, or Merger of Bank holding companies. Unless otherwise U.S.C., Appendix 2) announcement is Holding Companies noted, such activities will be conducted made of the following special emphasis throughout the United States. panel scheduled to meet during the The company listed in this notice has The application is available for month of August 1995: applied for the Board’s approval under immediate inspection at the Federal Name: Health Care Policy and Research section 3 of the Bank Holding Company Reserve Bank indicated. Once the Special Emphasis Panel. Act (12 U.S.C. 1842) and § 225.14 of the Date and Time: August 24, 1995, 8:30 a.m. Board’s Regulation Y (12 CFR 225.14) to application has been accepted for Place: DoubleTree Hotel, 1750 Rockville become a bank holding company or to processing, it will also be available for Pike, Montrose Room, Rockville, Maryland acquire a bank or bank holding inspection at the offices of the Board of 20852. company. The factors that are Governors. Interested persons may Open August 24, 8:30 a.m. to 9 a.m. considered in acting on the applications express their views in writing on the Closed for remainder of meeting. are set forth in section 3(c) of the Act question whether consummation of the Purpose: This Panel is charged with (12 U.S.C. 1842(c)). proposal can ‘‘reasonably be expected to conducting the initial review of grant The application is available for produce benefits to the public, such as applications for cooperative agreements to: immediate inspection at the Federal greater convenience, increased (1) Produce reliable, valid, and rigorously Reserve Bank indicated. Once the competition, or gains in efficiency, that tested survey protocols for collecting application has been accepted for outweigh possible adverse effects, such information from consumers regarding their processing, it will also be available for as undue concentration of resources, decreased or unfair competition, assessments of health plans and services; (2) inspection at the offices of the Board of develop and test the effectiveness of different Governors. Interested persons may conflicts of interests, or unsound banking practices.’’ Any request for a formats for conveying resulting information express their views in writing to the to consumers; (3) demonstrate the resulting Reserve Bank indicated for that hearing on this question must be accompanied by a statement of the survey protocols in real world settings; and application or to the offices of the Board (4) evaluate the usefulness of this of Governors. Any comment on an reasons a written presentation would not suffice in lieu of a hearing, information in assisting consumers, and application that requests a hearing must purchasers acting on their behalf, in making include a statement of why a written identifying specifically any questions of fact that are in dispute, summarizing the informed selections of health care plans and presentation would not suffice in lieu of services. a hearing, identifying specifically any evidence that would be presented at a questions of fact that are in dispute and hearing, and indicating how the party Agenda summarizing the evidence that would commenting would be aggrieved by be presented at a hearing. approval of the proposal. The open session of the meeting on August 24, from 8:30 a.m. to 9 a.m., will Comments regarding this application Comments regarding the application must be received not later than August must be received at the Reserve Bank be devoted to a business meeting 18, 1995. indicated or the offices of the Board of covering administrative matters. During A. Federal Reserve Bank of Chicago Governors not later than August 8, 1995. the closed session, the committee will (James A. Bluemle, Vice President) 230 be reviewing and discussing grant A. Federal Reserve Bank of Dallas South LaSalle Street, Chicago, Illinois applications dealing with health (Genie D. Short, Vice President) 2200 60690: services research issues. In accordance 1. Comerica Inc., Detroit, Michigan, North Pearl Street, Dallas, Texas 75201- with the Federal Advisory Committee and Comerica California Inc., San Jose, 2272: Act, section 10(d) of 5 U.S.C., Appendix California; to acquire 100 percent of the 1. Riverside Bancshares, Inc., 2 and 5 U.S.C., 552b(c)(6), it has been voting shares of Metrobank, Los Logansport, Louisiana; to engage de determined that this latter session will Angeles, California. novo through its subsidiary, Gateway be closed because the discussions are Board of Governors of the Federal Reserve Finance, Inc., Logansport, Louisiana, in likely to reveal personal information System, July 19, 1995. making and servicing loans, pursuant to concerning individuals associated with Jennifer J. Johnson, section 225(b)(1)(i) of the Board’s the grant applications. This information Deputy Secretary of the Board. Regulation Y. The geographic scope of is exempt from mandatory disclosure. these activities is north of Leesville, [FR Doc. 95–18187 Filed 7–24–95; 8:45 am] Anyone wishing to obtain a roster of Louisiana, and Shelby, Panola, Rusk, BILLING CODE 6210±01±F members or other relevant information and Nacogdoches Counties in Texas. should contact Gerald E. Calderone, Board of Governors of the Federal Reserve Ph.D., Agency for Health Care Policy Riverside Bancshares, Inc.; Notice of System, July 19, 1995. and Research, Suite 400, 2101 East Application to Engage de novo in Jennifer J. Johnson, Jefferson Street, Rockville, Maryland Permissible Nonbanking Activities Deputy Secretary of the Board. 20852, telephone (301) 594–2462. The company listed in this notice has [FR Doc. 95–18188 Filed 7–24–95; 8:45 am] Agenda items for this meeting are filed an application under § 225.23(a)(1) BILLING CODE 6210±01±F subject to change as priorities dictate. 38052 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices Dated: July 18, 1995. Health Resources and Services 1. The extent to which the institution Clifton R. Gaus, Administration demonstrates that it has the Administrator. RIN 0905-ZA89 commitment and ability to identify, [FR Doc. 95–18264 Filed 7–24–95; 8:45 am] recruit, and select underrepresented BILLING CODE 4160±90±M Final Review Criteria for Grants for the minority faculty, and its ability to Minority Faculty Fellowship Program provide health services to rural or for Fiscal Year 1995 medically underserved populations; AGENCY FOR HEALTH CARE POLICY The Health Resources and Services 2. The extent to which the AND RESEARCH Administration (HRSA) announces the institution’s training program will final review criteria for Grants for the provide the fellow with the preparation, Health Care Policy and Research Minority Faculty Fellowship Program training and skills needed to secure an Special Emphasis Panel Meeting (MFFP) under the authority of section academic career. Training may include: 738(b), title VII of the Public Health pedagogical skills, program In accordance with section 10(a) of Service Act, as amended by the Health the Federal Advisory Committee Act (5 administration, grant writing and Professions Education Extension U.S.C., Appendix 2) announcement is publication skills, research methodology Amendments of 1992, Pub. L. 102–408, made of the following special emphasis and development of research grant dated October 13, 1992. panel scheduled to meet during the proposals, and community service month of September 1995: Purpose abilities; Name: Health Care Policy and Research The purpose of the MFFP is to 3. The degree to which the Special Emphasis Panel. increase the number of institution’s senior faculty are involved Date and Time: September 22, 1995 8:30 underrepresented minority faculty in the training and preparation of a.m. members in health professions schools, fellows pursuing an academic career, Place: The Double Tree, 1750 Rockville i.e., schools of medicine, osteopathic and the potential of the institution to Pike, Conference Room TBA, Rockville, MD medicine, dentistry, veterinary continue the program without Federal 20852. medicine, optometry, podiatric support beyond the approved project Open September 22, 8:30 a.m. to 9:30 a.m. medicine, pharmacy, public health, period; and Closed for remainder of meeting. health administration, clinical 4. The extent to which the institution Purpose: This Panel is charged with psychology, and other public or private meets the eligibility requirements set conducting review of competing continuation nonprofit health or educational entities. of grant applications for MEDTEP Research Specifically, these grant awards are forth in section 738(b) of the Public Centers on Minority Populations. intended to allow institutions an Health Service Act. opportunity to provide a fellowship to In determining awards, the Secretary Agenda individuals who have the potential for will also take into consideration The open session of the meeting on teaching, administering programs, or equitable distribution among health September 22 from 8:30 a.m. to 9:30 conducting research as faculty members. disciplines and geographic areas. Institutions must demonstrate a a.m. will be devoted to a business Additional Information meeting covering administrative commitment and ability to identify, matters. During the closed session, the recruit, and select underrepresented If additional programmatic committee will be reviewing and minorities in health professions. The information is needed, please contact: discussing grant applications dealing institutions’ training programs provide Mr. Lafayette Gilchrist, Analysis and the fellows with the techniques and with health services research issues. In Evaluation Branch, Division of skills needed to secure an academic accordance with the Federal Advisory Disadvantaged Assistance, Bureau of career including competence in: Committee Act, section 10(d) of 5 Health Professions, Health Resources U.S.C., Appendix 2 and 5 U.S.C., Pedagogical skills, research methodology, development of research and Services Administration, Parklawn 552b(c)(6), it has been determined that Building, Room 8A–09, 5600 Fishers this latter session will be closed because grant proposals, writing and publication Lane, Rockville, Maryland 20857, the discussions are likely to reveal skills, and the ability to work with telephone: (301) 443–3680 FAX: (301) personal information concerning minority populations and provide individuals associated with the grant health services to medically 443–5242. applications. This information is underserved communities. In addition, This program, Grants for the Minority exempt from mandatory disclosure. the fellows must work under the direct Faculty Fellowship Program, is listed at supervision of a senior level faculty Anyone wishing to obtain a roster of 93.923 in the Catalog of Federal member engaged in the disciplines members or other relevant information Domestic Assistance. It is not subject to mentioned above, and upon successful should contact Linda Blankenbaker, the provisions of Executive Order completion of the program would be Agency for Health Care Policy and 12372, Intergovernmental Review of assured a teaching position at the Research, Suite 400, 2101 East Jefferson Federal Programs (as implemented institution. Street, Rockville, Maryland 20852, through 45 CFR part 100). This program Telephone (301) 594–1438. Final Review Criteria is not subject to the Public Health Agenda items for this meeting are The program announcement System Reporting Requirements. subject to change as priorities dictate. published in the Federal Register at 60 Dated: July 19, 1995. Dated: July 11, 1995. FR 28619 on June 1, 1995, proposed Ciro V. Sumaya, four review criteria for this program. No Administrator. Clifton R. Gaus, comments were received within the 30 [FR Doc. 95–18266 Filed 7–24–95; 8:45 am] Administrator. day comment period. Therefore, the [FR Doc. 95–18265 Filed 7–24–95; 8:45 am] following review criteria remain as BILLING CODE 4160±15±P BILLING CODE 4160±90±M proposed. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38053 National Institutes of Health The meetings will be closed in clearly unwarranted invasion of accordance with the provision set forth personal privacy. National Institute of Dental Research; in secs. 552b(c)(4) and 552b(c)(6), Title This notice is being published less Notice of Closed Meetings 5, U.S.C. Applications and/or proposals than 15 days prior to the meeting due to the urgent need to meet timing Pursuant to Section 10(d) of the and the discussions could reveal limitations imposed by the grant review Federal Advisory Committee Act, as confidential trade secrets or commercial cycle. amended (5 U.S.C. Appendix 2), notice property such as patentable material is hereby given of the following and personal information concerning (Catalog of Federal Domestic Assistance National Institute of Dental Research individuals associated with the Program Nos. 93.306, 93.333, 93.337, 93.393– Special Emphasis Panel (SEP) meetings: applications and/or proposals, the 93.396, 93.837–93.844, 93.846–93.878, disclosure of which would constitute a 93.892, 93.893, National Institutes of Health, Name of SEP: National Institute of Dental clearly unwarranted invasion of HHS) Research Special Emphasis Panel—Small personal privacy. Dated: July 19, 1995. Business Research Program (Teleconference). Susan K. Feldman, Dates: August 3, 1995. This notice is being published less Time: 12:00 noon. than fifteen days prior to the meeting Committee Management Officer, NIH. Place: Natcher Building, Rm. 4AN–38J, due to the urgent need to meet timing [FR Doc. 95–18178 Filed 7–24–95; 8:45 am] National Institutes of Health, Bethesda, MD limitations imposed by the extramural BILLING CODE 4140±01±M 20892. research review cycle. Contact Person: Dr. George Hausch, Chief, Review Section, 4500 Center Drive, Natcher (Catalog of Federal Domestic Assistance Program No. 93.121, Oral Diseases and Division of Research Grants; Notice of Building, Room 4AN–44F, Bethesda, MD Closed Meetings 20892, (301) 594–2372. Disorders Research) Purpose/Agenda Dated: July 19, 1995. Pursuant to Section 10(d) of the To evaluate and review grant applications Susan K. Feldman, Federal Advisory Committee Act, as and/or contract proposals. Committee Management Officer, NIH. amended (5 U.S.C. Appendix 2), notice Name of SEP: National Institute of Dental [FR Doc. 95–18177 Filed 7–24–95; 8:45 am] is hereby given of the following Division Research Special Emphasis Panel—Various BILLING CODE 4140±01±M of Research Grants Special Emphasis Small Research Grants (Teleconference). Panel (SEP) meetings: Dates: August 4, 1995. Purpose/Agenda Time: 1 p.m. Division of Research Grants; Notice of Place: Natcher Building, Rm. 4AN–44F, Closed Meetings To review individual grant applications. National Institutes of Health, Bethesda, MD Name of SEP: Chemistry and Related 20893. Pursuant to Section 10(d) of the Sciences. Contact Person: Dr. Yong Shin, Scientist Date: August 11, 1995. Review Administrator, 4500 Center Drive, Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice Time: 9 a.m. Natcher Building, Room 4AN–38J, Bethesda, Place: NIH, Rockledge II, Room 4152, MD 20892, (301) 594–2372. is hereby given of the following Division Telephone Conference. of Research Grants Special Emphasis Purpose/Agenda Contact Person: Dr. Marcelina Powers, Panel (SEP) meetings: Scientific Review Administrator, 6701 To evaluate and review grant applications Purpose/Agenda Rockledge Drive, Room 4152, Bethesda, MD and/or contract proposals. 20892, (301) 435–1720. Name of SEP: National Institute of Dental To review individual grant applications. Name of SEP: Chemistry and Related Research Special Emphasis Panel— Name of SEP: Clinical Sciences. Sciences. Conference Grants (Teleconference). Date: August 17, 1995. Date: August 15, 1995. Dates: August 7, 1995. Time: 2 p.m. Time: 9 a.m. Time: 2 p.m. Place: NIH, Rockledge II, Room 4104, Place: NIH, Rockledge II, Room 4152, Place: Natcher Building, Rm. 4AN–44F, Telephone Conference. Telephone Conference. National Institutes of Health, Bethesda, MD Contact Person: Dr. Priscilla Chen, Contact Person: Dr. Marcelina Powers, 20893. Scientific Review Administrator, 6701 Scientific Review Administrator, 6701 Contact Person: Dr. Yong Shin, Scientist Rockledge Drive, Room 4104, Bethesda, MD Rockledge Drive, Room 4152, Bethesda, MD Review Administrator, 4500 Center Drive, 20892, (301) 435–1787. 20892, (301) 435–1720. Natcher Building, Room 4AN–38J, Bethesda, Name of SEP: Microbiological and Name of SEP: Chemistry and Related MD 20892, (301) 594–2372. Immunological Sciences. Sciences. Purpose/Agenda Date: August 15, 1995. Date: August 18, 1995. Time: 1:30 p.m. Time: 9 a.m. To evaluate and review grant applications Place: NIH, Rockledge II, Room 4182, Place: NIH, Rockledge II, Room 4152, and/or contract proposals. Telephone Conference. Telephone Conference. Name of SEP: National Institute of Dental Contact Person: Dr. William Branche, Jr., Contact Person: Dr. Marcelina Powers, Research Special Emphasis Panel—NRSA & Scientific Review Administrator, 6701 Scientific Review Administrator, 6701 Dentist Scientist Award Review Rockledge Drive, Room 4182, Bethesda, MD Rockledge Drive, Room 4152, Bethesda, MD (Teleconference). 20892, (301) 435–1148. 20892, (301) 435–1720. Dates: August 17, 1995. Name of SEP: Chemistry and Related Time: 1 p.m. The meetings will be closed in accordance with the provisions set forth Sciences. Place: Natcher Building, Rm. 4AN–44F, Date: August 22, 1995. National Institutes of Health, Bethesda, MD in secs. 552b(c)(4) and 552(c)(6), Title 5, Time: 1 p.m. 20893. U.S.C. Applications and/or proposals Place: NIH, Rockledge II, Room 5154, Contact Person: Dr. Philip Washko, and the discussions could reveal Telephone Conference. Scientist Review Administrator, 4500 Center confidential trade secrets of commercial Contact Person: Dr. Alec Liacouras, Drive, Natcher Building, Room 4AN–44F, property such as patentable material Scientific Review Administrator, 6701 Bethesda, MD 20892, (301) 594–2372. and personal information concerning Rockledge Drive, Room 5154, Bethesda, MD Purpose/Agenda individuals associated with the 20892, (301) 435–1740. To evaluate and review grant applications applications and/or proposals, the The meetings will be closed in and/or contract proposals. disclosure of which would constitute a accordance with the provisions set forth 38054 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices in secs. 552b(c)(4) and 552(c)(6), Title 5, Dated: July 19, 1995. Reduction Act. The Department is U.S.C. Applicants and/or proposals and Susan K. Feldman, soliciting public comments on the the discussions could reveal Committee Management Officer, NIH. subject proposal. confidential trade secrets of commercial [FR Doc. 95–18179 Filed 7–24–95; 8:45 am] ADDRESSES: Interested persons are property such as patentable material BILLING CODE 4140±01±M invited to submit comments regarding and personal information concerning this proposal. Comments must be individuals associated with the received within thirty (30) days from the applications and/or proposals, the Public Health Service date of this Notice. Comments should disclosure of which would constitute a refer to the proposal by name and clearly unwarranted invasion of Office of the Assistant Secretary for should be sent to: Joseph F. Lackey, Jr., personal privacy. Health; Notice of Meeting OMB Desk Officer, Office of This notice is being published less Pursuant to Section 10(d) of the Management and Budget, New than 15 days prior to the meeting due Federal Advisory Committee Act, as Executive Office Building, Washington, to the urgent need to meet timing amended (5 U.S.C. Appendix 2), notice DC 20503. limitations imposed by the grant review is hereby given of a meeting of the FOR FURTHER INFORMATION CONTACT: Kay cycle. Presidential Advisory Council on HIV/ F. Weaver, Reports Management Officer, (Catalog of Federal Domestic Assistance AIDS to be held July 27 and 28, 1995, Department of Housing and Urban Program Nos. 93.306, 93.333, 93.337, 93.393– at the Madison Hotel, 15th and M Development, 451 7th Street, 93.396, 93.837–93.844, 93.846–93.878, Streets, NW. Washington, DC. The Southwest, Washington, DC 20410, 93.892, 93.893, National Institutes of Health, telephone (202) 708–0050. This is not a HHS) meeting will be held from 9 a.m. to 5 toll-free number. Copies of the proposed Dated: July 19, 1995. p.m. on both days. The meeting is open to the public, with attendance limited to forms and other available documents Susan K. Feldman, space available. submitted to OMB may be obtained Committee Management Officer, NIH. The agenda will include: (1) A from Ms. Weaver. [FR Doc. 95–18180 Filed 7–24–95; 8:45 am] discussion of the Committee’s duties SUPPLEMENTARY INFORMATION: The BILLING CODE 4140±01±M and responsibilities and (2) reports on Department has submitted the proposal relevant Federal activities and for the collection of information, as programs. described below, to OMB for review, as Division of Research Grants; Notice of Kimberly Farrell, Social and Scientific required by the Paperwork Reduction a Closed Meeting Systems, Inc., 301–986–4870, will Act (44 U.S.C. Chapter 35). Pursuant to Section 10(d) of the furnish the meeting agenda and roster of The Notice lists the following Federal Advisory Committee Act, as Committee members. Individuals who information: (1) The title of the amended (5 U.S.C. Appendix 2), notice plan to attend the meeting and need information collection proposal; (2) the is hereby given of the following Division special assistance, such as sign language office of the agency to collect the of Research Grants Special Emphasis interpretation or other special information; (3) the description of the Panel (SEP) meeting: accommodations, should contact Ms. need for the information and its Farrell in advance of the meeting. In proposed use; (4) the agency form Purpose/Agenda light of scheduling difficulties, this number, if applicable; (5) what members To review individual grant applications. notice is being provided at the earliest of the public will be affected by the Name of SEP: Multidisciplinary Sciences. possible time. proposal; (6) an estimate of the total Date: August 8, 1995. Records shall be kept of all Council Time: 1 p.m. number of hours needed to prepare the Place: NIH, Rockledge II, Room 5116. proceedings and shall be available for information submission including Contact Person: Dr. Lee Rosen, Scientific public inspection. number of respondents, frequency of Review Admin., 6701 Rockledge Drive, Room Dated: July 18, 1995. response, and hours of response; (7) 5116, Bethesda, MD 20892, (301) 435–1171. Ellen Washington, whether the proposal is new or an The meeting will be closed in Department Committee Management Officer, extension, reinstatement, or revision of accordance with the provisions set forth HHS. an information collection requirement; in secs. 552b(c)(4) and 552b(c)(6), Title [FR Doc. 95–18158 Filed 7–24–95; 8:45 am] and (8) the names and telephone numbers of an agency official familiar 5, U.S.C. Applications and/or proposals BILLING CODE 4150±04±M and the discussions could reveal with the proposal and of the OMB Desk confidential trade secrets or commercial Officer for the Department. property such as patentable material DEPARTMENT OF HOUSING AND Authority: Section 3507 of the Paperwork and personal information concerning URBAN DEVELOPMENT Reduction Act, 44 U.S.C. 3507; Section 7(d) individuals associated with the of the Department of Housing and Urban applications and/or proposals, the Office of Administration Development Act, 42 U.S.C. 3535(d). disclosure of which would constitute a Dated: July 18, 1995. [Docket No. FR±3917±N±10] clearly unwarranted invasion of David S. Cristy, personal privacy. Submission of Proposed Information Director, Information Resources, Management This notice is being published less Collection to OMB Policy and Management Division. than 15 days prior to the meeting due Notice of Submission of Proposed to the urgent need to meet timing AGENCY: Office of Administration, HUD. Information Collection to OMB limitations imposed by the grant review ACTION: Notice. cycle. Proposal: Single Family Mortgage SUMMARY: The proposed information (Catalog of Federal Domestic Assistance Insurance Premium Remittance Program Nos. 93.306, 93.333, 93.337, 93.393– collection requirement described below Summary. 93.396, 93.837–93.844, 93.846–93.878, has been submitted to the Office of Office: Housing. 93.892, 93.893, National Institutes of Health, Management and Budget (OMB) for Description of the Need for the HHS) review, as required by the Paperwork Information and Its Proposed Use: This Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38055 information is used to ensure that all income due the Government is Respondents: Business or Other For- compliance on the part of the mortgage being remitted. Profit. and to ensure that HUD received all Form Number: HUD–2748 and HUD– Reporting Burden: income due. Without the forms, HUD 2752. could not ensure compliance nor ensure No. of × Frequency of × Hours per Burden respondents response response = hours HUD±2748 ...... 8,000 .12 .75 72,000 HUD±2752 ...... 8,000 .12 .50 48,000 Total Estimated Burden Hours: SUMMARY: The plan of survey of the Dated: July 10, 1995. 120,000. following described lands are scheduled Robert D. DeViney, Jr., Status: Reinstatement with changes. to be officially filed in the Oregon State Acting Chief, Branch of Realty and Records Contact: Cyndy E. Zemitis, HUD, Office, Portland, Oregon, thirty (30) Services. (202) 708–2754; Joseph F. Lackey, Jr., calendar days from the date of this [FR Doc. 95–18225 Filed 7–24–95; 8:45 am] OMB, (202) 395–7316. publication. BILLING CODE 4310±33±M Dated: July 18, 1995. Willamette Meridian [FR Doc. 95–18181 Filed 7–24–95; 8:45 am] BILLING CODE 4210±01±M Oregon Fish and Wildlife Service T. 30 S., R. 4 E., accepted June 30, 1995 Endangered and Threatened Species T. 31 S., R. 4 E., accepted June 30, 1995 Permit Applications DEPARTMENT OF THE INTERIOR T. 28 S., R. 5 E., accepted June 30, 1995 T. 29 S., R. 5 E., accepted June 30, 1995 AGENCY: Fish and Wildlife, Interior. Bureau of Land Management T. 30 S., R. 5 E., accepted June 30, 1995 ACTION: Notice of receipt of applications. [ES±960±9800±02] ES±47417, Group 87, T. 31 S., R. 5 E., accepted June 30, 1995 Arkansas T. 29 S., R. 51⁄2 E., accepted June 30, 1995 The following applicants have T. 29 S., R. 6 E., accepted June 30, 1995 applied for a permit to conduct certain Notice of Filing of Plat of Survey; activities with endangered species. This Arkansas If protests against a survey, as shown notice is provided pursuant to section on any of the above plat(s), are received 10(c) of the Endangered Species Act of The plat of the dependent resurvey of prior to the date of official filing, the 1973, as amended (16 U.S.C. 1531, et the north, south, east and west filing will be stayed pending seq.). boundaries and the subdivisional lines consideration of the protest(s). A plat Permit No. 702631 of Township 2 South, Range 25 West, will not be officially filed until the day Fifth Principal Meridian, Arkansas, will Applicant: Assistant Regional Director- after all protests have been dismissed be officially filed in Eastern States, Ecological Services, Region 1, U.S. Fish and become final or appeals from the and Wildlife Service, Portland, Oregon. Springfield, Virginia at 7:30 a.m., on August 31, 1995. dismissal affirmed. The applicant requests amendment of The survey was requested by the U.S. The plat(s) will be placed in the open his permit to allow take of the following Forest Service. files of the Oregon State Office, Bureau species: whooping crane (Grus All inquiries or protests concerning of Land Management, 1515 SW. 5th americana), southwestern willow the technical aspects of the survey must Avenue, Portland, Oregon 97201, and flycatcher (Empidonax traillii extimus), be sent to the Chief Cadastral Surveyor, will be available to the public as a Mariana mallard (Anas oustaleti), Eastern States, Bureau of Land matter of information only. Copies of Micronesian Megapode (=La Perouse’s) Management, 7450 Boston Boulevard, the plat(s) may be obtained from the (Megapodius laperouse), Point Arena Springfield, Virginia 22153, prior to above office upon required payment. A mountain beaver (Aplodontia rufa 7:30 a.m., August 31, 1995. person or party who wishes to protest nigra), brown pelican (Pelecanus Copies of the plat will be made against a survey must file with the State occidentalis), Yuma clapper rail (Rallus available upon request and prepayment Director, Bureau of Land Management, longirostris yumanensis), Morro of the reproduction fee of $2.75 per shoulderband snail (= banded dune) Portland, Oregon, a notice that they copy. (Helminthoglyptoa walkeriana), Arroyo wish to protest prior to the proposed Dated: July 17, 1995. southwestern toad (Bufo microscaphus official filing date given above. A californicus), hawksbill sea turtle Stephen G. Kopach, statement of reasons for a protest may be Chief Cadastral Surveyor. (Eretmochelys imbricata), and filed with the notice of protest to the leatherback sea turtle (Dermochelys [FR Doc. 95–18224 Filed 7–24–95; 8:45 am] State Director, or the statement of coriacea). Authorization to collect BILLING CODE 4310±GJ±M reasons must be filed with the State specimens of the following plant species Director within thirty (30) days after the is also requested: Bidens micrantha ssp. [OR±942±00±14200±00; G5±165] proposed official filing date. kalealaha (ko’oko’alau), Chorizanthe The above-listed plats represent robusta (robust spineflower), Cyrtandra Filing of Plats of Survey: Oregon/ dependent resurveys, survey and giffardii (ha‘iwale), Cyanea lobata Washington subdivision. FOR FURTHER INFORMATION (haha), Neraudia sericea (plant, no AGENCY: Bureau of Land Management, CONTACT Bureau of Land Management, common name), Plantago princeps Interior. (1515 SW. 5th Avenue,) P.O. Box 2965, (Laukahi kuahiwi), Poa mannii (Mann’s bluegrass), Schiedea spergulina var. ACTION: Notice. Portland, Oregon 97208. leiopoda (plant, no common name), 38056 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices Serianthes nelsonii (Hayn lagu = californica) in San Diego County, Dated: July 18, 1995. Tronkon guafi), Sesbania tomentosa California for scientific research for the Thomas Dwyer, (‘Ohai), Solanum incompletum (popolo purpose of enhancing the survival of the Deputy Regional Director, Region 1, Portland, ku mai), Stenogyne angustifolia var. species. Oregon. angustifolia (plant, no common name), Permit No. 804076 [FR Doc. 95–18185 Filed 7–24–95; 8:45 am] Stenogyne bifida (plant, no common BILLING CODE 4310±55±P name), Stenogyne campanulata (plant, Applicant: Becky Yeager, Logan, Utah. no common name), Adenophorus The applicant requests a permit to periens (Fern, pendant kihi), and take (survey using taped vocalizations, National Park Service Asplenium fragile var. insulare (plant, monitor nests) the southwestern willow no common name). Take and collection flycatcher (Epidonax traillii extimus) for National Register of Historic Places; activities will be conducted throughout Notification of Pending Nominations the range of the species for recovery presence/absence surveys along the efforts in order to enhance the Virgin River in Nevada for the purpose Nominations for the following propagation and survival of the species. of enhancing the survival of the species. properties being considered for listing Permit No. 804203 Permit No. 804072 in the National Register were received Applicant: Stephen J. Myers, Riverside, Applicant: Douglas Markle, Corvallis, by the National Park Service before July California. Oregon. 15, 1995. Pursuant to section 60.13 of 36 CFR part 60 written comments The applicant requests a permit to The applicant requests a permit to concerning the significance of these take (capture and release) the Stephen’s take (capture, mark, measure, and properties under the National Register kangaroo rat (Dipodomys stephensi) for release) the shortnose sucker criteria for evaluation may be forwarded presence/absence surveys in Riverside, (Chasmistes brevirostris), and Lost River to the National Register, National Park San Bernardino, and San Diego sucker (Deltistes luxatus) in Klamath Service, P.O. Box 37127, Washington, Counties, California for the purpose of County, Oregon for scientific research DC 20013–7127. Written comments enhancing the survival of the species. for the purpose of enhancing the should be submitted by August 9, 1995. Permit No. 804207 propagation and survival of the species. Carol D. Shull, Applicant: Robert A. Aramayo, Albany, These activities were previously Keeper of the National Register. California. authorized under the Regional Director’s The applicant requests a permit to blanket permit no. PRT–702631. COLORADO take (capture and release) the tidewater Denver County DATES: Written comments on the permit goby (Eucyclogobius newberryi) for applications must be received on or Rossonian Hotel, 2650 Welton St., Denver, presence/absence surveys in the Big Sur 95001009 River lagoon, Monterey County, before August 24, 1995. CONNECTICUT California for the purpose of enhancing ADDRESSES: Written data or comments the survival of the species. should be submitted to the Chief, Hartford County Permit. No. 804206 Division of Consultation and Main Street Historic District, Roughly, Main Applicant: Steve Clark, Portland, Oregon. Conservation Planning, Ecological St. from School St. to Summer St. and The applicant requests a permit to Services, U.S. Fish and Wildlife Service, adjacent areas of Prospect St., Bristol, 95001006 take (capture and release) the salt marsh 911 N.E. 11th Avenue, Portland, Oregon harvest mouse (Reithrodontomys 97232–4181. Please refer to the New London County respective permit number for each raviventris) for presence/absence The Seaside, 36 Shore Rd., Waterford, surveys on Navy installations in application when submitting comments. 95001007 Alameda, Contra Costa, Napa, San All comments, including names and Francisco, San Mateo, and Solano addresses, received will become part of ILLINOIS Counties, California for the purpose of the official administrative record and Cook County enhancing the survival of the species. may be made available to the public. Dempster Street Station, 5001 Dempster St., Permit No. 775869 FOR FURTHER INFORMATION CONTACT: Skokie, 95001005 Applicant: Richard Friesen, Irvine, Documents and other information MASSACHUSETTS California. submitted with these applications are Worcester County The applicant requests an amendment available for review, subject to the of his permit to take (capture and requirements of the Privacy Act and Blackstone Canal Historic District, Address release) the Pacific pocket mouse Freedom of Information Act, by any Restricted, Blackstone vicinity, 95001004 (Perognathus longimembris pacificu) for party who submits a written request for NEW YORK presence/absence surveys in Los a copy of such documents, within 30 Oneida County Angeles, Orange, and San Diego days of the date of publication of this Counties, California for the purpose of notice, to the following office: U.S. Fish Neck Canal of 1730, Cavanaugh Rd. (Co. Rt. enhancing the survival of the species. and Wildlife Service, Ecological 30), Marcy vicinity, 95001011 Permit No. 800922 Services, Division of Consultation and Schoharie County Applicant: Manomet Observatory for Conservation Planning, 911 NE. 11th Schoharie County Courthouse Complex, Conservation Sciences, Manomet, Avenue, Portland, Oregon 97232–4181. Main St., Schoharie, 95001010 Massachusetts. Telephone: 503–231–2063; FAX: 503– WEST VIRGINIA The applicant requests an amendment 231–6243. Please refer to the respective to their permit to take (collect feather permit number for each application Marion County samples) the coastal California when requesting copies of documents. Fairmont Downtown Historic District, Along gnatcatcher (Polioptila californica Jackson, Adams, Washington and Quincy Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38057 Sts. and Cleveland and Fairmont Aves., 20005, (202) 624–0892. A copy of the Agency, 999 18th Street, Suite 500, Fairmont, 95001008 proposed Consent Decree may be Denver, Colorado 80202; and at the [FR Doc. 95–18161 Filed 7–24–95; 8:45 am] obtained in person or by mail from the Consent Decree Library, 1120 ‘‘G’’ BILLING CODE 4310±70±P Consent Decree Library, 1120 G Street, Street, NW., 4th Floor, Washington, DC NW., 4th Floor, Washington, DC 20005, 20005, (202) 624–0892. A copy of each (202) 624–0892. In requesting a copy, proposed decree may be obtained in DEPARTMENT OF JUSTICE please refer to the referenced case and person or by mail from the Consent enclose a check in the amount of $12.50 Decree Library at the address listed Lodging of Consent Decree Pursuant (25 cents per page reproduction costs), above. In requesting a copy, please refer to the Comprehensive Environmental payable to the Consent Decree Library. to the referenced case and number, and Response, Compensation, and Liability Bruce S. Gelber, enclose a check in the amount of $7.75 Act Acting Chief, Environment and Natural (25 cents per page reproduction costs), Resources Division. payable to the Consent Decree Library. In accordance with Departmental [FR Doc. 95–18149 Filed 7–24–95; 8:45 am] Bruce S. Gelber, policy, 28 C.F.R. § 50.7, notice is hereby BILLING CODE 4410±01±M Acting Section Chief, Environmental given that a proposed Consent Decree in Enforcement Section, Environment and United States v. AAF McQuay, Inc., et Natural Resources Div. al., Case No. 3:95–2023–0 was lodged Lodging a Final Judgment by Consent [FR Doc. 95–18150 Filed 7–24–95; 8:45 am] on June 30, 1995, with the United States Pursuant to the Comprehensive BILLING CODE 4410±01±M District Court for the District of South Environmental Response Carolina. This settlement agreement Compensation and Liability Act resolves the claims asserted by the (CERCLA) Lodging of Consent Decree Pursuant United States in an enforcement action to the Clean Water Act brought on behalf of the Environmental Notice is hereby given that on July 10, Protection Agency (‘‘EPA’’) against 30 1995, a proposed consent decree in In accordance with Departmental Potentially Responsible Parties (‘‘PRPs’’) United States v. Alumet Partnership, et policy, 28 C.F.R. § 50.7, notice is hereby (referred to as the ‘‘SEPCO Group’’) al., Civ. A. No. 95–C–1718, was lodged given that a proposed consent decree in pursuant to the Comprehensive with the United States District Court for United States v. Potomac Electric Power Environmental Response, the District of Colorado. The complaint Company, Civil Action No. PJM 95– Compensation, and Liability Act in this action seeks recovery of costs 1967, was lodged on July 3, 1995, with (‘‘CERCLA’’), 42 U.S.C. 9601 et seq. The under Section 107(a) of the the United States District Court for the complaint alleges defendants are liable Comprehensive Environmental District of Maryland. The complaint for CERCLA response costs incurred and Response, Compensation and Liability alleges that PEPCO discharged fly-ash to be incurred by the United States at Act (‘‘CERCLA’’), as amended by the wastewater (a pollutant) into waters of the ‘‘Carolawn Superfund Site,’’ an Superfund Amendments and the United States without a permit in approximately 60-acre property with an Reauthorization Act of 1986, Pub. L. 99– violation of the Clean Water Act. 33 abandoned waste storage and disposal 499, 42 U.S.C. §§ 9606, 9607(a). This U.S.C. 1251, et seq. The consent decree facility located near Fort Lawn, South action involves the Lowry Landfill requires PEPCO to pay a civil penalty of Carolina. The Site was owned and Superfund Site in Arapahoe County, $975,000.00. No injunctive relief is operated as a waste storage and disposal Colorado. imposed because the violations have facility by the now defunct Carolawn The consent decree is a ‘‘cash-out’’ ceased and PEPCO has taken Company, Southeastern Pollution decree which requires a payment of appropriate steps to ensure they are not Control Company (‘‘SEPCO’’), and other $7.28 million and resolves the United repeated. prior owner/operators. Under the States’ cost claims against the Alumet The Department of Justice will Consent Decree, the SEPCO Group shall Partnership and certain of that receive, for a period of thirty (30) days pay $292,500 (63%) of the $465,000 in partnership’s present and/or former from the date of this publication, outstanding identified response costs general partners. comments relating to the proposed associated with the remedial actions at The Department of Justice will receive consent decree. Comments should be the Site. comments relating to the proposed addressed to the Assistant Attorney The Department of Justice will consent decree for a period of thirty General for the Environment and receive, for a period of thirty (30) days days from the date of publication of this Natural Resources Division, Department from the date of this publication, notice. Comments should be addressed of Justice, Washington, DC 20530, and comments relating to the proposed to the Assistant Attorney General of the should refer to United States v. Potomac Consent Decree. Comments should be Environment and Natural Resources electric Power Company, DOJ Ref. #90– addressed to the Assistant Attorney Division, Department of Justice, P.O. 5–1–1–4153. General for the Environment and Box 7611, Ben Franklin Station, The proposed consent decree may be Natural Resources Division, Department Washington, DC 20044, and should refer examined at the Office of the United of Justice, Washington, DC 20530, and to United States v. Alumet Partnership, States Attorney, 604 United States Court should refer to United States v. AAF et al., DOJ Reference No. 90–11–2–93I. House, 101 West Lombard Street, McQuay, Inc., et al., 90–11–2–1A. In accordance with Section 7003(d) of Baltimore, Maryland 21201; the The proposed Consent Decree may be RCRA, 42 U.S.C. § 6973(d), commenters Regional III Office of the Environmental examined at the office of the United may request a public meeting in the Protection Agency, 841 Chestnut States Attorney, 1441 Main Street, affected areas. Building, Philadelphia, PA 19107; and Columbia, South Carolina, the Region IV The proposed consent decree may be at the Consent Decree Library, 1120 G office of the U.S. Environmental examined at the Office of the United Street, NW., 4th Floor, Washington, DC Protection Agency, 345 Courtland States Attorney for the District of 20005, 202–624–0892. A copy of the Street, NE., Atlanta, GA 30365, and at Colorado, 1961 Stout Street, Suit 1100, proposed consent decree may be the Consent Decree Library, 1120 G Denver, Colorado 80294; the Region VIII obtained in person or by mail from the Street, NW., 4th Floor, Washington, DC office of the Environmental Protection Consent Decree Library, 1120 G Street, 38058 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices NW., 4th Floor, Washington, DC 20005. strategic means of interactive developing mechanisms for presentation In requesting a copy, please refer to the multimedia transmission. and marketing of information using new referenced case and enclose a check in Constance K. Robinson, technologies in order to help each joint the amount of $1.75 (25 cents per page Director of Operations Antitrust Division. venture member and its affiliates make reproduction costs), payable to the [FR Doc. 95–18152 Filed 7–24–95; 8:45 am] better individual decisions concerning Consent Decree Library. BILLING CODE 4410±01±M the future of their respective businesses. Bruce S. Gelber, Constance K. Robinson, Environmental Enforcement Section, Director of Operations, Antitrust Division. Pursuant to the National Cooperative Environment and Natural Resources Division. [FR Doc. 95–18154 Filed 7–24–95; 8:45 am] [FR Doc. 95–18151 Filed 7–24–95; 8:45 am] Research and Production Act of 1993ÐCable Television Laboratories BILLING CODE 4410±01±M BILLING CODE 4410±01±M In notice document 95–7108 concerning Cable Television Pursuant to the National Cooperative Antitrust Division Laboratories, Inc., appearing in the issue Research and Production Act of of Thursday, March 23, 1995 at 60 F.R. 1993ÐOSINET Corporation Pursuant to the National Cooperative 15307, make the following corrections: Research and Production Act of In the third column; third paragraph; Notice is hereby given that, on May 1993ÐThe Asymetrical Digital the notice should read ‘‘On August 8, 22, 1995, pursuant to Section 6(a) of the Subscriber Line Forum 1988 CableLabs filed its original National Cooperative Research and notification pursuant to Section 6(a) of Production Act of 1993, 15 U.S.C. 4301 Notice is hereby given that, on May the Act. The Department of Justice et seq. (‘‘the Act’’), OSINET Corporation 15, 1995, pursuant to Section 6(a) of the published a notice in the Federal (‘‘OSINET’’) has filed written National Cooperative Research and Register pursuant to Section 6(b) of the notifications simultaneously with the Production Act of 1993, 15 U.S.C. 4301 Act on September 7, 1988 (53 Fed. Reg. Attorney General and the Federal Trade et seq. (‘‘the Act’’), The Asymetrical 34593). The last notification was filed Commission disclosing certain Digital Subscriber Line Forum on September 26, 1994. A notice was (‘‘ADSL’’), filed written notifications published in the Federal Register information. The notifications were simultaneously with the Attorney pursuant to Section 6(b) of the Act on filed for the purpose of extending the General and the Federal Trade March 20, 1995 (60 Fed. Reg. 14779). Act’s provisions limiting the recovery of Commission disclosing (1) the identity Constance K. Robinson, antitrust plaintiffs to actual damages of the parties and (2) the nature and Director of Operations, Antitrust Division. under specified circumstances. Specifically, the changes are as follows: objectives of the venture. The [FR Doc. 95–18153 Filed 7–24–95; 8:45 am] Amdahl Corporation; AT&T; Data notifications were filed for the purpose BILLING CODE 4410±01±M of invoking the Act’s provisions limiting General; Lotus Development the recovery of antitrust plaintiffs to Corporation (formerly Soft-Switch); actual damages under specified Pursuant to the National Cooperative National Institute for Standards and circumstances. Pursuant to Section 6(b) Research and Production Act of Technology; Northern Telecom; and The of the Act, the identities of the parties 1993ÐFlat Earth Group, L.L.C. Wollongong Group, Inc., ceased are: ADC Fibermux, Chatsworth, CA; membership in OSINET effective Alcatel Bell, Antwerp, BELGIUM; Notice is hereby given that, on April December 31, 1994. Ameritech, Hoffman Estates, IL; Analog 25, 1995, pursuant to Section 6(a) of the National Cooperative Research and No other changes have been made in Devices, Inc., Wilmington, MA; Applied either the membership or planned Innovation Inc, Dublin, OH; AT&T Production Act of 1993, 15 U.S.C. 4301 et seq. (‘‘the Act’’), Flat Earth Group, activity of the group research project. Paradyne, Largo, FL; Bell Atlantic, L.L.C., a joint venture formed as a Membership in this group research Arlington, VA; BT Labs, Ipswich, Virginia limited liability company by project remains open, and OSINET Suffolk, ENGLAND; CSELT-Stet, Torino, the parties set forth in this notice intends to file additional written ITALY; DSC Communications Corp, pursuant to the Virginia Limited notifications disclosing all changes in Petaluma, CA; Ericsson Schrack, Liability Company Act (the ‘‘Joint membership. Vienna, AUSTRIA; Gorham & Partners, Venture’’), has filed written London, ENGLAND; GTE Laboratories, On April 15, 1991, OSINET filed its notifications simultaneously with the Waltham, MA; Independent Editions, original notification pursuant to Section Attorney General and the Federal Trade Palo Alto, CA; Italtel, Milano, ITALY; 6(a) of the Act. The Department of Commission disclosing (1) the identities Motorola, Austin, TX; Nokia Justice published a notice in the Federal of the parties to the Joint Venture and Register pursuant to Section 6(b) of the Telecommunications, Helsinki, (2) the nature and objectives of the Joint FINLAND; Orckit Communications, San Venture. The notifications were filed for Act on November 19, 1991 (56 Fed. Reg. Diego, CA; Pairgain Technologies, the purpose of invoking the Act’s 58400). The last notification was filed Tustin, CA; Racal-Datacom, Boxboro, provisions limiting the recovery of with the Department on March 31, 1994. MA; Samsung A.I.T., Suwon, KOREA; antitrust plaintiffs to actual damages A notice was published in the Federal Telecom Italia, Rome, ITALY; US West, under specified circumstances. Pursuant Register pursuant to Section 6(b) of the Denver, CO; and Westell, Inc., Aurora, to Section 6(b) of the Act, the identities Act on May 25, 1994 (59 Fed. Reg. IL. of the parties are Media General, Inc., 27034). The area of planned activity is to Richmond, VA; Multimedia, Inc., Constance K. Robinson, work towards facilitating development Greenville, SC; News and Observer Director of Operations, Antitrust Division. and interoperable end-to-end ADSL Publishing Company, Raleigh, NC; and [FR Doc. 95–18155 Filed 7–24–95; 8:45 am] based networks, identify services Evening Post Publishing Company, BILLING CODE 4410±01±M suitable for ADSL transmission and Charleston, SC. The general area of promote the ADSL concept as one of the planned activity is to engage in Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38059 Notice Pursuant to the National 1995’’). This report will be available at automatically, reentered the treatment Cooperative Research and Production NRC’s Public Document Room, 2120 L time instead, and failed to notice the Act of 1993ÐPlantSTEP, Inc. Street NW. (Lower Level), Washington, error; and (2) the treatment software did DC, about three weeks after the not stop the technologist from Notice is hereby given that, on March publication date of this Federal Register proceeding after the initial error was 10, 1995, pursuant to section 6(a) of the Notice. made as it was supposed to because an National Cooperative Research and integrated circuit containing the Other NRC Licensees (Industrial Production Act of 1993, 15 U.S.C. 4301 software code failed to operate. et seq (‘‘the Act’’), PlantSTEP, Inc., has Radiographers, Medical Institutions, filed written notifications Industrial Users, etc.) Action Taken To Prevent Recurrence simultaneously with the Attorney 95–1 Medical Brachytherapy Licensee—In order to prevent General and the Federal Trade Misadministration at Welborn Memorial recurrence of the incident as of Commission disclosing (1) the identities Baptist Hospital in Evansville, Indiana November 25, 1994, the licensee revised of the parties and (2) the nature and its internal ‘‘Policy and Procedure for all objectives of the venture. The One of the AO reporting guidelines HDRs’’ to require both individuals notifications were filed for the purpose notes that a therapeutic dose that is operating the unit to verify the of invoking the Act’s provisions limiting greater than 1.5 times the prescribed displayed time factor and compare it to the recovery of antitrust plaintiffs to dose can be considered an abnormal the factor supplied by the manufacturer. actual damages under specified occurrence. Prior to this misadministration, the Date and Place—November 18, 1994; circumstances. Pursuant to section 6(b) device operators were required to verify Welborn Memorial Baptist Hospital, of the Act, the identities of the parties only operator entered data. Also, the Inc.; Evansville, Indiana. are Autodesk, Inc., Sausalito, CA; unit was evaluated by the licensee’s Nature and Probable Consequences— Bechtel Corporation, San Francisco, CA; medical physicist and a GammaMed On November 18, 1994, a 73–year–old Bentley Systems, Houston, TX; Black & service representative. As a result of the patient was prescribed to receive a Veatch, Overland Park, KS; CADCentre, evaluation, the printed circuit board brachytherapy treatment dose of 600 Inc., Houston, TX; Computervision (card) with the read-only-memory centigray (cGy) (600 rad) at the vaginal Corporation, Bedford, MA; Dassault integrated circuits containing the cavity using a GammaMed IIi high dose Systems of America, Burbank, CA; defective software program was rate afterloading unit. However, because Eastman Chemical Company, Kingsport, replaced with a card having the correct of a treatment error the patient received TN; E.I. DuPont & Co., Inc., Wilmington, software program. DE; H.B. Zachry Company, San Antonio, a 1250 cGy (1250 rad) dose instead of NRC—NRC conducted a safety TX; Intergraph Corporation, Huntsville, the prescribed dose. inspection on November 30 and The licensee identified the AL; Jacobus Technology Inc., December 1, 1994. An interoffice review misadministration during a quality Gaithersburg, MD; John Brown E&C, of the event was conducted through management review on November 21, Houston, TX; and Sunland Fabricators, December 8, 1994, to review the 1994. The licensee reported the event to Inc., Walker, LA. circumstances of the misadministration. the NRC on November 22, 1994, and The nature and objectives of this joint No violations of NRC requirements were followed up with a written report on venture are to undertake and develop a identified. As a result of the incident, December 6, 1994. The referring standard, computer-intelligible product NRC contacted the manufacturer of the physician was notified. The patient was data exchange specification. GammaMed IIi and sent a letter to all notified on November 23, 1994, by the Constance K. Robinson, GammaMed IIi users to inform them of licensee’s Radiation Safety Officer and Director of Operations, Antitrust Division. this potential problem and tell them was provided with a written report of [FR Doc. 95–18156 Filed 7–24–95; 8:45 am] how to test their software to prevent the incident. similar events. BILLING CODE 4410±01±M An NRC medical consultant was retained to evaluate the medical * * * * * consequences of the misadministration. Dated at Rockville, MD, this 19th day of July, 1995. NUCLEAR REGULATORY The medical consultant expressed For the Nuclear Regulatory Commission. COMMISSION concern that long term effects such as John C. Hoyle, Report to Congress on Abnormal fibrosis or loss of blood supply may occur as a result of the 1250 cGy (1250 Secretary of the Commission. Occurrences January±March, 1995 [FR Doc. 95–18196 Filed 7–24–95; 8:45 am] Dissemination of Information rad) treatment. The medical consultant also suggested that this case be BILLING CODE 7590±01±M Section 208 of the Energy considered for the U.S. Department of Reorganization Act of 1974, as Energy (DOE), Office of Epidemiology [Docket Nos. 50±334 and 50±412] amended, requires NRC to disseminate and Health Surveillance long term information on abnormal occurrences medical study program. Information Exemption (AOs) (i.e., unscheduled incidents or regarding the DOE program and a copy events that the Commission determines of the NRC medical consultant’s report In the Matter of Duquesne Light Company; are significant from the standpoint of were provided to the referring Ohio Edison Company; Pennsylvania Power Company; the Cleveland Electric public health and safety). During the physician. Illuminating Company; and the Toledo first quarter of CY 1995, the following Cause or Causes—NRC concluded Edison Company; (Beaver Valley Power incident at an NRC licensed facility was that the cause of the misadministration Station, Unit Nos. 1 and 2). determined to be an AO and is was twofold: (1) The technologist failed described below, together with the to activate a button that automatically I remedial actions taken. The event is also corrects for treatment time based on Duquesne Light Company, et al. (the being included in NUREG–0090, Vol. source decay, failed to notice a display licensee) is the holder of Facility 18, No. 1, (‘‘Report to Congress on indicating the treatment time correction Operating Licenses Nos. DPR–66 and Abnormal Occurrences: January–March that would have been entered NPF–73, which authorize operation of 38060 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices the Beaver Valley Power Station, Unit such exemptions from the requirements unique to each individual and its Nos. 1 and 2. The operating licenses of the regulations in this part as it application in the entry screening provide, among other things, that the determines are authorized by law and function would preclude unauthorized licensee is subject to all rules, will not endanger life or property or the use of a badge/keycard, the requested regulations, and orders of the common defense and security, and are exemption would allow employees and Commission now and hereafter in effect. otherwise in the public interest. contractors to keep their badges/ The facility comprises two Pursuant to 10 CFR 73.55, the keycards at the time of exiting the pressurized-water reactors at the Commission may authorize a licensee to protected area. The process of verifying licensee’s site in Beaver County, provide alternative measures for badge/keycard issuance, ensuring Pennsylvania. protection against radiological sabotage badge/keycard retrieval, and provided the licensee demonstrates that II maintaining badges/keycards could be the alternative measures have ‘‘the same eliminated while the balance of the The Code of Federal Regulations at 10 high assurance objective’’ and meet ‘‘the access procedure would remain intact. CFR 73.55, ‘‘Requirements for physical general performance requirements’’ of Firearm, explosive, and metal detection protection of licensed activities in the regulation, and ‘‘the overall level of equipment and provisions for nuclear power reactors against system performance provides protection conducting searches will remain as radiological sabotage,’’ paragraph (a), in against radiological sabotage well. The security officer responsible for part, states that ‘‘The licensee shall equivalent’’ to that which would be the last access control function establish and maintain an onsite provided by the regulation. (controlling admission to the protected physical protection system and security Currently, employee and contractor area) will also remain isolated within a organization which will have as its identification badges/keycards are bullet-resistant structure in order to objective to provide high assurance that issued and retrieved on the occasion of assure his or her ability to respond or activities involving special nuclear each entry to and exit from the to summon assistance. material are not inimical to the common protected areas of the Beaver Valley Use of a hand geometry biometrics defense and security and do not Power Station site. Station security system exceeds the present verification constitute an unreasonable risk to the personnel are required to maintain methodology’s capability to discern an public health and safety.’’ control of the badges/keycards while the individual’s identity. Unlike the Paragraph (1), ‘‘Access individuals are offsite. This practice has photograph identification badge/ Requirements,’’ of 10 CFR 73.55(d), been in effect at Beaver Valley Power keycard, hand geometry is specifies that ‘‘The licensee shall Station, Unit Nos. 1 and 2 since the nontransferable. During the initial control all points of personnel and operating licenses were issued. Security access authorization or registration vehicle access into a protected area.’’ 10 personnel retain each identification process, hand measurements are CFR 73.55(d)(5) requires that ‘‘A badge/keycard when not in use by the recorded and the template is stored for numbered picture badge identification authorized individual, within subsequent use in the identity system shall be used for all individuals appropriately designed storage verification process required for entry who are authorized access to protected receptacles. An individual who meets into the protected area. areas without escort.’’ 10 CFR the access authorization requirements is Authorized individuals insert their 73.55(d)(5) also states that an individual issued an individual picture badge/ picture badges/keycards into the card not employed by the licensee (i.e., keycard which allows entry into reader and the biometrics system contractors) may be authorized access to preauthorized areas of the station. While records an image of the hand geometry. protected areas without escort provided entering the plant in the present The unique features of the newly the individual ‘‘receives a picture badge configuration, an authorized individual recorded image are than compared to upon entrance into the protected area is ‘‘screened’’ by the required detection the template previously stored in the which must be returned upon exit from equipment and by the issuing security database. Access is ultimately granted the protected area * * * ’’ officer. Having received the picture based on the degree to which the The licensee proposed to implement badge/keycard, the individual proceeds characteristics of the image match those an alternative unescorted access control to the access portal, inserts the picture of the ‘‘signature’’ template. system which would eliminate the need badge/keycard into the card reader, and Since both the badges/keycards and to issue and retrieve badges at each passes through the turnstile which hand geometry would be necessary for entrance/exit location and would allow unlocks if the present criteria are met. access into the protected area, the all individuals with unescorted access This present procedure is labor proposed system would provide for a to keep their badge with them when intensive since security personnel are positive verification process. Potential departing the site. required to verify badges/keycards loss of a badge/keycard by an An exemption from 10 CFR issuance, ensure badges/keycards individual, as a result of taking the 73.55(d)(5) is required to allow retrieval, and maintain the badges/ badge/keycard offsite, would not enable contractors who have unescorted access keycards in orderly storage until the an unauthorized entry into protected to take their badges offsite instead of next entry into the protected area. The areas. returning them when exiting the site. By regulations permit employees to remove The access process will continue to be letter dated February 8, 1995, as their badges/keycards from the site, but under the observation of security supplemented May 12, 1995, the an exemption from 10 CFR 73.55(d)(5) personnel. The system of identification licensee requested an exemption from is required to permit contractors to take badges/keycards will continue to be certain requirements of 10 CFR their badges/keycards offsite instead of used for all individuals who are 73.55(d)(5) for this purpose. returning them when exiting the site. authorized access to protected areas Under the proposed system, all without escorts. Badges/keycards will III individuals authorized to gain continue to be displayed by all Pursuant to 10 CFR 73.5, ‘‘Specific unescorted access will have the physical individuals while inside the protected exemptions,’’ the Commission may, characteristics of their hand (hand area. Addition of a hand geometry upon application of any interested geometry) recorded with their badge/ biometrics system will provide a person or upon its own initiative, grant keycard. Since the hand geometry is significant contribution to effective Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38061 implementation of the security plan at II high assurance objective’’ and meet ‘‘the the site. It is stated in 10 CFR 73.55, general performance requirements’’ of the regulation, and ‘‘the overall level of IV ‘‘Requirements for physical protection of licensed activities in nuclear power system performance provides protection For the foregoing reasons, pursuant to reactors against radiological sabotage,’’ against radiological sabotage 10 CFR 73.55, the NRC staff has paragraph (a), that ‘‘the licensee shall equivalent’’ to that which would be determined that the proposed establish and maintain an onsite provided by the regulation. alternative measures for protection Currently, unescorted access to the physical protection system and security against radiological sabotage meet ‘‘the protected area of WNP–2 is controlled organization which will have as its same high assurance objective,’’ and through the use of a photograph on a objective to provide high assurance that ‘‘the general performance requirements’’ badge with a keycard attached activities involving special nuclear of the regulation and that ‘‘the overall (hereafter, these are referred to as ‘‘the material are not inimical to the common level of system performance provides badge’’). The security officers at the defense and security and do not protection against radiological sabotage entrance station use the photograph on constitute an unreasonable risk to the equivalent’’ to that which would be the badge to visually identify the public health and safety.’’ provided by the regulation. individual requesting access. The It is specified in 10 CFR 73.55(d), Accordingly, the Commission has individual is then given the badge to ‘‘Access Requirements,’’ paragraph (1), determined that, pursuant to 10 CFR allow access. The badges for both that ‘‘the licensee shall control all 73.5, an exemption is authorized by law, licensee employees and contractor points of personnel and vehicle access will not endanger life or property or personnel who have been granted into a protected area.’’ Section common defense and security, and is unescorted access are issued upon 73.55(d)(5) requires that ‘‘a numbered otherwise in the public interest. entrance at the access point. Another picture badge identification system shall Therefore, the Commission hereby security officer in the same control area be used for all individuals who are grants Duquesne Light Company, et al. collects the badges upon exit from the authorized access to protected areas an exemption from those requirements protected area. The badges are then without escort.’’ Section 73.55(d)(5) also of 10 CFR 73.55(d)(5) relating to the placed in a badge rack located at the states that an individual not employed returning of picture badges/keycards badge issue station and stored at the by the licensee (e.g., contractors) may be upon exit from the protected area such entrance until the individual again authorized access to protected areas that individuals not employed by the needs access into the protected area. In without escort provided the individual licensee, i.e., contractors, who are accordance with 10 CFR 73.55(d)(5), ‘‘receives a picture badge upon entrance authorized unescorted access into the individuals not employed by the into the protected area which must be protected area, can take their badges/ licensee (e.g., contractors) are not returned upon exit from the protected keycards offsite. allowed to take badges offsite. area.’’ Under the proposed system, each Pursuant to 10 CFR 51.32, the The licensee proposed to implement Commission has determined that the individual who is authorized for an alternative unescorted access control unescorted entry into the protected area granting of this exemption will have no system which would eliminate the need significant impact on the quality of the would have the physical characteristics to issue and retrieve badges at the of their hand (hand geometry) registered human environment (60 FR 27922). This entrance/exit location and would allow exemption is effective upon issuance. with their badge number in the access all individuals with unescorted access control computer. Access is then Dated at Rockville, Maryland, this 18th day to keep their badge with them when initiated by the individual requesting of July 1995. departing the site. access by placing their badge up to the For the Nuclear Regulatory Commission, An exemption from 10 CFR card reader and their hand on a Steven A. Varga, 73.55(d)(5) is required to allow measuring surface. The computer then Director, Division of Reactor Projects—I/II, personnel not employed by the licensee compares the hand geometry to that Office of Nuclear Reactor Regulation. who have unescorted access to take registered for the badge number. If the [FR Doc. 95–18194 Filed 7–24–95; 8:45 am] their badges offsite instead of returning characteristics of the hand geometry BILLING CODE 7590±01±M them when exiting the site. By letter stored in the computer match the badge dated March 1, 1995, the licensee number, access is granted. If the requested an exemption from certain characteristics of the hand geometry do [Docket No. 50±397] requirements of 10 CFR 73.55(d)(5) for not match the badge number, access is this purpose. denied. This provides a non-transferable means of identifying that the individual Exemption III processing the badge is the individual In the matter of Washington Public Power Pursuant to 10 CFR 73.5, ‘‘Specific who was granted unescorted access. Supply System; (WPPSS Nuclear Project No. exemptions,’’ the Commission may, This method also provides a positive 2). upon application of any interested means of assuring that a stolen or lost person or upon its own initiative, grant badge could not be used to gain access, I such exemptions in this part as it thus eliminating the need to issue and On December 20, 1983, the determines are authorized by law and retrieve the badges while maintaining Commission issued Facility Operating will not endanger life or property or the the same high level of assurance that License No. NPF–21 to Washington common defense and security, and are access is granted to only authorized Public Power Supply System (the otherwise in the public interest. individuals. All other access processes, licensee) for the WPPSS Nuclear Project Pursuant to 10 CFR 73.55, the including search function capability, No. 2. The license provides, among Commission may authorize a licensee to would remain the same. The system will other things, that the licensee is subject provide alternative measures for not be used for visitors requiring to all rules, regulations, and orders of protection against radiological sabotage escorted access. The access process will the Commission now or hereafter in provided the licensee demonstrates that continue to be under the observation of effect. the alternative measures have ‘‘the same security personnel located within the 38062 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices hardened cubicle who have final control For the Nuclear Regulatory Commission. 475 L’Enfant Plaza SW., Washington, over the release of the entrance station Jack W. Roe, DC 20260–5240. Copies of all written turnstiles. A numbered badge Director, Division of Reactor Projects III/IV, comments will be available for identification system will continue to be Office of Nuclear Reactor Regulation. inspection and photocopying between used for all individuals who are [FR Doc. 95–18195 Filed 7–24–95; 8:45 am] 8:15 a.m. and 4:45 p.m., Monday authorized access to the protected areas. BILLING CODE 7590±01±M through Friday, at the above address. Badges will continue to be displayed by FOR FURTHER INFORMATION CONTACT: all individuals while inside the Sheila Allen, Records Office, (202) 268– protected area. POSTAL SERVICE 4869. The licensee will use hand geometry SUPPLEMENTARY INFORMATION: The Privacy Act of 1974; System of Omnibus Transportation Employee equipment that will meet the detection Records probability of 90 percent with a 95 Testing Act of 1991 requires alcohol and percent confidence level. Testing AGENCY: Postal Service. drug testing of safety-sensitive evaluated by Sandia National ACTION: Advance notice of amendment employees in the motor vehicle Laboratory (Sandia report entitled, ‘‘A and proposed addition of four new industry. The U.S. Department of Performance Evaluation of Biometric routine uses for an existing system of Transportation (DOT) published rules Identification Devices,’’ SAND91–0276 records; creation of a new system of mandating drug and alcohol misuse UC–906 Unlimited Release, printed June records. prevention programs for employers of 1991), demonstrated that the proposed 50 or more safety-sensitive employees, SUMMARY: The Postal Service proposes including random, reasonable hand geometry system is capable of to amend USPS Privacy Act System of suspicion, and post-accident testing. To meeting the proposed detection Records 120.210, Personnel Records— comply with these rules, which required probability and confidence level. Based Vehicle Maintenance Personnel and implementation beginning in January on the results of the Sandia report and Operators Records, and to add USPS 1995, the Postal Service has developed on the licensee’s experience with photo- Privacy Act System of Records 120.091, a comprehensive drug and alcohol identification processes, the proposed Personnel Records—Vehicle Operators testing program that will be system will have a false acceptance rate Controlled Substance and Alcohol administered by the Vice President of less than the current system. Testing Records, to comply with the Operations Support and the National For the foregoing reasons, pursuant to requirements of the Omnibus Medical Director at Postal Service 10 CFR 73.55, the NRC staff has Transportation Employee Testing Act of Headquarters. determined that the proposed 1991 (Pub. L. 102–143). This law For purposes of the DOT regulations, alternative measures for protection requires the Postal Service to implement a safety-sensitive employee is defined as against radiological sabotage meet the procedures for random, reasonable one who holds a state commercial same high assurance objective and the suspicion, post-accident, return-to-duty, driver’s license (CDL) and who drives general performance requirements of the and follow-up drug and alcohol testing vehicles in excess of 26,000 pounds regulation, and that the overall level of of employees required to have gross vehicle weight rating (GVWR). The system performance provides protection commercial driver’s licenses, and to DOT rules cover approximately 10,000 against radiological sabotage equivalent create, maintain, and disclose certain Postal Service employees who are to that which would be provided by the subject records in conjunction with the required to operate commercial motor regulation. implementation of such testing vehicles during the performance of their procedures. The Postal Service is jobs. This number includes motor Accordingly, the Commission has implementing these procedures through vehicle operators, tractor-trailer determined that, pursuant to 10 CFR a combination of activities: in the field, operators, vehicle mechanics, certain 73.5, this exemption is authorized by where testing notifications and certain plant maintenance mechanics, and some law, will not endanger life or property follow-up activities will occur; through city mail carriers. or the common defense and security, a contractor, who will maintain the Prior to the DOT mandate, the Postal and is otherwise in the public interest. database for employee random testing Service already had in place Privacy Act Therefore, the Commission hereby selection; and through postal medical System of Records USPS 120.210, grants the Washington Public Power facilities, where most of the actual Personnel Records—Vehicle Supply System an exemption from the testing will be done and where records Maintenance Personnel and Operators requirements of 10 CFR 73.55(d)(5) of test results and associated follow-up Records. This system covers the records relating to the returning of picture actions will be maintained. of postal employees who operate USPS- badges, by individuals not employed by This notice complies with subsection owned or USPS-leased vehicles and the licensee who are authorized (e)(11) of the Privacy Act, which contains various records associated with unescorted access to the protected area, requires agencies to publish advance that function, including driver’s upon exit from the protected area, such notice for public comment of any use of physical condition; licensing that these personnel can take their information in a new system of records information; driver training, testing, and badges offsite. or any new use of information in an performance; and route and vehicle existing system. Any interested party Pursuant to 10 CFR 51.32, the assignments. The records in this system may submit written comments on the Commission has determined that the are maintained in the field where postal proposed new uses. granting of this exemption will not vehicles are operated. These records are result in any significant adverse DATES: This proposal will become used by postal management to schedule environmental impact (60 FR 35965). effective without further notice August and monitor the utilization of those 24, 1995, unless comments are received vehicles and the performance of the This exemption is effective upon that result in a contrary determination. drivers. issuance. ADDRESSES: Written comments should Because most of the individuals Dated at Rockville, Maryland this 17th day be mailed or delivered to the Records covered by this system are the same as of July 1995. Office, U.S. Postal Service, Room 8831, those to be covered by the new DOT Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38063 regulations, the Postal Service CATEGORIES OF RECORDS IN THE SYSTEM: Transportation; to any U.S. Department determined that it was appropriate to [CHANGE TO READ] ‘‘Records of Transportation agency; or to any state revise USPS 120.210 to incorporate the relating to individual employee or local official with regulatory rules mandated by DOT. As a result, operation of USPS-owned or USPS- authority over the Postal Service or its necessary changes are made to the leased vehicles, including employee employees (as authorized by DOT sections covering the System Locations, name; social security number; age; agency regulations). Categories of Individuals Covered by the length of service; physical condition; 4. Information in these records may be System, Categories of Records in the qualifications to drive; results of driving provided to the National Transportation System, Authority for Maintenance of tests; vehicle and safety training; Safety Board in conjunction with an the System, and Purpose(s). New licensing information (including accident investigation. Routine Uses 2 through 5 are added; and revocations and suspensions); driving 5. Information in these records may be the Policies and Practices for Storing, habits; route and vehicle assignments; provided to the employee or to the Retrieving, Accessing, Retaining, and vehicle accidents; driving citations and decisionmaker in a lawsuit, grievance, Disposing of Records in the System are safety awards; notifications of substance or other proceeding initiated by or on expanded to reflect the specified testing and alcohol tests, with related checklists behalf of the employee and arising from and the associated recordkeeping and and correspondence; employee the results of a controlled substance reporting required by DOT, as well as workload; work schedule; performance and/or alcohol test administered under the participation of the contractor in the analysis; and work habits.’’ the regulations issued by DOT, or from random employee testing selection a determination that the employee process. The title of System Manager is AUTHORITY FOR MAINTENANCE OF THE SYSTEM: engaged in conduct prohibited by Pub. changed to Vice President of Operations [CHANGE TO READ] ‘‘39 U.S.C. 401; L. 102–143.’’ Support, who issues policy and Pub. L. 102–143; and 49 CFR 40 and POLICIES AND PRACTICES FOR STORING, procedures to those field supervisors 382, 391, 392, 395.’’ RETRIEVING, ACCESSING, RETAINING, AND who are responsible for vehicle operator PURPOSE(S): DISPOSING OF RECORDS IN THE SYSTEM: and maintenance assignments, as well [CHANGE TO READ] as for the implementation of certain STORAGE: parts of the new drug and alcohol ‘‘a. To provide local post office [CHANGE TO READ] ‘‘Preprinted testing procedures. managers, supervisors, and forms and paper files (including hard- transportation managers with Following, in Part I, is the complete copy computer printouts) and computer information to assign routes and files.’’ text of USPS 120.210. vehicles and to adjust workload, A new system of records, USPS schedules, and type of equipment RETRIEVABILITY: 120.091, is also added to cover the operated. [CHANGE TO READ] ‘‘Employee collection and maintenance of b. To serve as a basis for corrective name; social security number; facility controlled substance and alcohol testing action and presentation of safe driving name; vehicle number; route number; records, test results, and related records awards. and work order number.’’ under the program. These records will c. To comply with the testing and be kept at postal medical facilities and documentation requirements of the SAFEGUARDS: in the offices of certain contract medical Omnibus Transportation Employee [CHANGE TO READ] ‘‘Kept in locked officers. Part II contains the notice for Testing Act of 1991 (Pub. L. 102–143) file cabinets in secured Postal Service the new system. implementing a controlled substance and contractor facilities. Access to and alcohol testing program for computer data is restricted to authorized Part I employees required to have commercial contractor personnel.’’ USPS 120.210 driver’s licenses (CDLs).’’ RETENTION AND DISPOSAL: ROUTINE USES OF RECORDS MAINTAINED IN THE SYSTEM NAME: [CHANGE TO READ] SYSTEM, INCLUDING CATEGORIES OF USERS AND ‘‘a. Destroy the records related to the Personnel Records—Vehicle THE PURPOSES OF SUCH USES: employee’s random selection for Maintenance Personnel and Operators General routine use statements a, b, c, controlled substance and alcohol testing Records, 120.210. d, e, f, g, h, j, k, l, and m listed in the when the records are 1 year old. prefatory statement at the beginning of SYSTEM LOCATIONS: b. Destroy the checklists, the Postal Service’s published system correspondence, and any other [CHANGE TO READ] ‘‘Postal Service notices apply to this system. documentation related to the vehicle maintenance facilities; [CHANGE TO READ] ‘‘Other routine employee’s testing for controlled processing and distribution centers; uses are as follows: substances and alcohol when the bulk mail centers; post offices; area 1. Information in these records records are 5 years old. offices; district offices; Headquarters; provides GSA and Postal Service driver c. Destroy records maintained in the and program contractor’s office.’’ credentials.’’ database of employees subject to Pub. L. [ADD] 102–143 when the employee separates CATEGORIES OF INDIVIDUALS COVERED BY THE ‘‘2. Information in these records may from the Postal Service or is no longer SYSTEM: be provided to the contractor authorized to operate a Postal Service [CHANGE TO READ] ‘‘Current and responsible for maintaining the database vehicle. former postal employees who operate or of employees to be selected randomly d. Destroy the remaining records maintain postal vehicles, including for controlled substance and alcohol related to the employee’s operation or those employees required to have testing. maintenance of Postal Service vehicles commercial driver’s licenses (CDLs) and 3. Information in these records may be 4 years from the date of separation, who drive vehicles in excess of 26,000 provided to the Federal Highway transfer (unless requested by new pounds gross vehicle weight rating Administration (FHWA), when installation or agency), expiration of (GVWR).’’ requested by the Secretary of license, rescission of authorization, or 38064 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices transfer of the employee into a SYSTEM LOCATIONS: employees (as authorized by DOT nondriving status.’’ Postal Service medical facilities, agency regulations). designee medical offices, and program 2. Information in these records may be SYSTEM MANAGER(S) AND ADDRESS: contractor’s office. provided to the National Transportation [CHANGE TO READ] ‘‘VICE Safety Board in conjunction with an CATEGORIES OF INDIVIDUALS COVERED BY THE accident investigation. PRESIDENT, OPERATIONS SYSTEM: SUPPORT, UNITED STATES 3. Information in these records may be POSTAL SERVICE, 475 L’ENFANT Current and former postal employees provided to a subsequent employer PLAZA SW, WASHINGTON DC who are or were required to have a upon receipt of a written request from 20260–2402’’. commercial driver’s license (CDL) and the employee, or as directed by the subject to the controlled substance and specific written consent of the employee NOTIFICATION PROCEDURES: alcohol testing requirements of the to an identified individual. Omnibus Transportation Employee 4. Information in these records may be [CHANGE TO READ] ‘‘An employee Testing Act of 1991 (Pub. L. 102–143) as wanting to know whether information provided to the employee or to the mandated by the U.S. Department of decisionmaker in a lawsuit, grievance, about him or her is maintained in this Transportation (DOT). system of records must address or other proceeding initiated by or on inquiries to the head of the facility CATEGORIES OF RECORDS IN THE SYSTEM: behalf of the employee and arising from the results of a controlled substance where the employee is employed. Employee or applicant name; social and/or alcohol test administered under Inquiries must contain the employee’s security number; work address and the regulations issued by DOT, or from full name, social security number, route telephone number; controlled substance a determination that the employee number, work station, and facility and alcohol testing records and results, engaged in conduct prohibited by Pub. where employed.’’ including date, time, and reason for L. 102–143. each test; test results from former RECORD ACCESS PROCEDURES: employers; medical personnel POLICIES AND PRACTICES FOR STORING, Requests for access must be made in assessments of employees’ test results, RETRIEVING, ACCESSING, RETAINING, AND accordance with the notification recommendations for action, and related DISPOSING OF RECORDS IN THE SYSTEM: procedures above and the Postal Service documentation; employee or applicant STORAGE: Privacy Act regulations regarding access statements concerning controlled Preprinted forms and paper files to records and verification of identity substance and alcohol test results; and (including hard-copy computer under 39 CFR 266.6. documentation of substance abuse printouts) and computer files. professionals’ (SAPs) determinations of CONTESTING RECORD PROCEDURES: employees’ need for assistance and RETRIEVABILITY: See Notification Procedures and employees’ compliance with SAPs’ Employee or applicant name; social Record Access Procedures above. recommendations. security number; and chain of custody form numbers. RECORD SOURCE CATEGORIES: AUTHORITY FOR MAINTENANCE OF THE SYSTEM: SAFEGUARDS: [CHANGE TO READ] ‘‘Postal Service 39 U.S.C. 401; Pub. L. 102–143; and employees, supervisors, and medical 49 CFR 40 and 382, 391, 392, 395. Kept in locked file cabinets in secured Postal Service medical units and those staff; state motor vehicle departments; PURPOSE(S): of its designees. and designated contractor(s).’’ a. To comply with the requirements of the Omnibus Transportation Employee RETENTION AND DISPOSAL: SYSTEMS EXEMPTED FROM CERTAIN PROVISIONS OF THE ACT: Testing Act of 1991 (Pub. L. 102–143) to a. Destroy the records related to implement a controlled substance and alcohol test results indicating a breath Records or information in this system alcohol testing program for employees alcohol concentration of 0.02 or greater, that have been compiled in reasonable in safety-sensitive positions. verified positive controlled substance anticipation of a civil action or b. To provide for the uniform test results, refusals, medical review proceeding are exempt from individual collection and compilation of controlled officer’s evaluations, employee access under 5 U.S.C. 552a(d)(5). In substance and alcohol test results for statements, and substance abuse addition, the Postal Service has claimed reporting, analysis, evaluation, and professionals’ evaluations and referrals exemption from certain provisions of corrective action. when the records are 5 years old. the Act for several of its other systems b. Destroy the records related to of records as permitted by 5 U.S.C. ROUTINE USES OF RECORDS MAINTAINED IN THE alcohol test results indicating a breath 552a(j) and (k). See 39 CFR 266.9. To the SYSTEM, INCLUDING CATEGORIES OF USERS AND THE PURPOSES OF SUCH USES: alcohol concentration of less than 0.02 extent that copies of exempted records and negative and canceled controlled General routine use statements a, b, c, are incorporated into this system, the substance test results when the records d, e, f, j, k, l, and m listed in the exemptions applicable to the original are 1 year old. primary system must continue to apply prefatory statement at the beginning of to the incorporated records. the Postal Service’s published system SYSTEM MANAGER(S) AND ADDRESS: notices apply to this system. VICE PRESIDENT, HUMAN Part II Other routine uses are as follows: RESOURCES, UNITED STATES [ADD] 1. Information in these records may be POSTAL SERVICE, 475 L’ENFANT provided to the Federal Highway PLAZA SW, WASHINGTON DC 20260– USPS 120.091 Administration (FHWA), when 4200. requested by the Secretary of SYSTEM NAME: Transportation; to any U.S. Department NOTIFICATION PROCEDURES: Personnel Records—Vehicle of Transportation agency; or to any state An employee wanting to know Operators Controlled Substance and or local official with regulatory whether information about him or her is Alcohol Testing Records, 120.091. authority over the Postal Service or its maintained in this system of records Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38065 must address inquiries to the head of the Exchange’s Executive Committee to The Executive Committee will review the facility where the employee is review proposed combinations that, in any arrangement where previously employed. Inquiries must contain the the Exchange’s view, may lead to undue separate specialist organizations would employee’s or applicant’s full name, concentration within the specialist be operating under common control and social security number, and facility community. would comprise: where employed (or tested). (a) 15% or more of the 100 most II. Self-Regulatory Organization’s actively traded CTA stocks; or, RECORD ACCESS PROCEDURES: Statement of the Purpose of, and (b) 15% or more of the second 100 Requests for access must be made in Statutory Basis for, the Proposed Rule Change most actively traded CTA stocks; or, accordance with the notification (c) 20% or more of the third 100 most procedures above and the Postal Service In its filing with the Commission, the actively traded CTA stocks; or Privacy Act regulations regarding access self-regulatory organization included (d) 15% or more of all the CTA stocks to records and verification of identity statements concerning the purpose of eligible for trading on the BSE where the under 39 CFR 266.6. and basis for the proposed rule change Free List contains fewer than 100 CONTESTING RECORD PROCEDURES: and discussed any comments it received issues.3 See Notification Procedures and on the proposed rule change. The test of The Executive Committee shall Record Access Procedures above. these statements may be examined at approve or disapprove the proposed the places specified in Item IV below. combination based on its assessment of RECORD SOURCE CATEGORIES: The self-regulatory organization has the following considerations: Postal Service employees, Postal prepared summaries, set forth in (a) Specialist performance and market Service medical staff, Postal Service Sections A, B, and C below, of the most quality in the stocks subject to the designee testing facilities, substance significant aspects of such statements. proposed combination; abuse professionals, and designated A. Self-Regulatory Organization’s (b) The effects of the proposed contractors.’’ Statement of the Purpose of, and combination in terms of the following Stanley F. Mires, Statutory Basis for, the Proposed Rule criteria: Chief Counsel, Legislative. Change (i) Strengthening the capital base of [FR Doc. 95–18159 Filed 7–24–95; 8:45 am] the resulting specialist organization; 1. Purpose BILLING CODE 7710±12±P (ii) Minimizing both the potential for The purpose of the proposed rule financial failure and the negative change is to seek permanent approval of consequences of any such failure on the SECURITIES AND EXCHANGE the concentration policy, which specialist system as a whole; and COMMISSION establishes certain standards based on (iii) Maintaining or increasing Consolidated Tape Association (‘‘CTA’’) operational efficiencies; [Release No. 34±35987; File No. SR±BSE± 2 (c) Commitment to the Exchange 95±12] ranking of specialist stocks for reviewing certain proposed mergers, market, focusing on whether the Self-Regulatory Organizations; Notice acquisitions and other combinations constituent specialist organizations of Filing of Proposed Rule Change by between or among specialist units. The engage in business activities that might Boston Stock Exchange, Inc. Relating proposed policy would authorize the detract from the resulting specialist to Specialist Concentration Executive Committee of the Board of organization’s willingness or ability to Governors to review proposed act to strengthen the Exchange agency/ July 18, 1995. combinations that, in the Exchange’s auction market and its competitiveness Pursuant to Section 19(b)(1) of the view, may lead to undue concentration in relation to other markets; and Securities Exchange Act of 1934 within the specialist community. (d) The effect of the proposed (‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is combination on overall concentration of hereby given that on June 19, 1995, the (February 7, 1990), 55 FR 5527 (approving File No. specialist organizations. Boston Stock Exchange, Inc. (‘‘BSE’’ or SR–BSE–89–05). The Commission later approved With respect to the criteria relating to ‘‘Exchange’’) filed with the Securities the renewal of the pilot program for additional one- the ‘‘commitment to the Exchange and Exchange Commission year periods ending August 1, 1991, August 13, market,’’ the Executive Committee 1992, August 13, 1993, and August 13, 1994. See (‘‘Commission’’) the proposed rule Securities Exchange Act Release Nos. 28327 would look to a variety of factors that change as described in Items I, II and III (August 10, 1990), 55 FR 33794 (File No. SR–BSE– extend beyond compliance with the below, which Items have been prepared 90–11); 29551 (August 13, 1991), 56 FR 41380 (File Exchange’s requirements for providing by the self-regulatory organization. The No. SR–BSE–91–06); 31037 (August 13, 1992), 57 sufficient capital, talent and order FR 37854 (File No. SR–BSE–92–08); and 32753 Commission is publishing this notice to (August 16, 1993), 58 FR 44707 (File No. SR–BSE– handling services. For example, the solicit comments on the proposed rule 93–15). Committee would review and assess change from interested persons. 2 The CTA disseminates last sale transaction each constituent unit’s past performance information for trades executed on any of the on the Exchange relating to such matters I. Self-Regulatory Organization’s participant exchanges or the Nasdaq Stock Market. as: Statement of the Terms of Substance of The current CTA participants include the New York • Acceptance and cooperation in the the Proposed Rule Change Stock Exchange (‘‘NYSE’’), American Stock Exchange (‘‘Amex’’), Chicago Stock Exchange development, implementation and The Exchange seeks to obtain (‘‘CHX’’), Philadelphia Stock Exchange (‘‘Phlx’’), enhancement to the Boston Exchange permanent approval of its Specialist Pacific Stock Exchange (‘‘PSE’’), BSE, Chicago Automated Communications and Order- 1 Board Options Exchange (‘‘CBOE’’), Cincinnati Concentration Policy. This will permit Stock Exchange (‘‘CSE’’), and the National routing Network (‘‘BEACON’’); Association of Securities Dealers (‘‘NASD’’). Each • Efforts at resolving problems 1 On February 7, 1990, the Commission approved, specialist stock is ranked according to the number concerning customer orders; on a six-month pilot basis ending August 7, 1990, of CTA trades in such stock. The ranking is based a proposed rule change by the BSE to establish upon the average volume of trades and shares procedures for reviewing proposed combinations reported to CTA over the past four quarters. 3 The Free List is made up of securities that are among specialist units on the Exchange. See Conversation between Karen Aluise, BSE, and Amy not registered to certain specialists and can be Securities Exchange Act Release No. 27684 Bilbija, SEC, on July 12, 1995. traded by any specialist. 38066 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices • Willingness to facilitate early Secretary, Securities and Exchange II. Self-Regulatory Organization’s openings in order to compete effectively Commission, 450 Fifth Street, NW., Statement of the Purpose of, and with other exchanges; and Washington, DC 20549. Copies of the Statutory Basis for, the Proposed Rule • Willingness to voluntarily provide submission, all subsequent Change Execution Guarantees beyond the amendments, all written statements 4 In its filing with the Commission, the minimum required under Rule 2039A. with respect to the proposed rule CBOE included statements concerning 2. Statutory Basis change that are filed with the the purpose of and basis for the Commission, and all written proposed rule change. The text of these The Exchange believes that the basis communications relating to the under the Act for the proposed policy is statements may be examined at the proposed rule change between the places specified in Item IV below. The Section 6(b)(5) in that the policy enables Commission and any person, other than the Exchange to monitor the tendencies Exchange has prepared summaries, set those that may be withheld from the forth in Section (A), (B), and (C) below, toward concentration in the specialist public in accordance with the community and to intervene to prevent of the most significant aspects of such provisions of 5 U.S.C. 552, will be statements. undue concentration. As such, it is available for inspection and copying at designed to protect investors and the the Commission’s Public Reference (A) Self-Regulatory Organization’s public interest, and is not designed to Section, 450 Fifth Street, NW., Statement of the Purpose of, and permit unfair discrimination between Washington, DC 20549. Copies of such Statutory Basis for, the Proposed Rule customers, issuers, brokers, or dealers, filing will also be available for Change or to regulate by virtue of any authority inspection and copying at the principal The purpose of the proposed rule conferred by this title matters not office of the BSE. All submissions change is to permit the Exchange to list related to the purpose of this title or the should refer to File No. SR–BSE–95–12 and trade cash-settled, European-style 1 administration of the Exchange. and should be submitted by August 15, stock index options on the Tech Index. B. Self-Regulatory Organization’s 1995. The Exchange represents that the Tech Statement on Burden on Competition For the Commission, by the Division of Index meets the generic criteria for listing options on narrow-based indexes The Exchange does not believe that Market Regulation, pursuant to delegated set forth in Exchange Rule 24.2 and the the proposed rule change will impose authority. Margaret H. McFarland, Commission’s order approving that any burden on competition. 2 Deputy Secretary. Rule. Accordingly, the CBOE is C. Self-Regulatory Organization’s submitting this proposed rule change [FR Doc. 95–18214 Filed 7–24–95; 8:45 am] Statement on Comments on the pursuant to, and in accordance with, the Proposed Rule Change Received From BILLING CODE 8010±01±M procedures set forth in CBOE Rule 24.2. Members, Participants or Others In accordance with Rule 24.2, the CBOE The Exchange has neither solicited proposes to list and trade options on the [Release No. 34±35989; File No. SR±CBOE± Tech Index beginning 30 days from July nor received written comments on the 95±37] proposed rule change. 14, 1995, the filing date of this proposed rule change. III. Date of Effectiveness of the Self-Regulatory Organizations; Notice The Tech Index consists of the stocks Proposed Rule Change and Timing for of Filing and Immediate Effectiveness of 30 issuers involved in various high Commission Action of Proposed Rule Change by the technology industries, including: Chicago Board Options Exchange, Inc. Within 35 days of the publication of computer services, telecommunications Relating to the Listing of Options on equipment, server software and this notice in the Federal Register or the CBOE Technology Index within such longer period (i) as the hardware, design software, PC software Commission may designate up to 90 July 18, 1995. and hardware, networking, peripherals, 3 days of such date if it finds such longer Pursuant to Section 19(b)(1) of the and semiconductors. The Exchange period to be appropriate and publishes Securities Exchange Act of 1934 represents that no proxy for the its reasons for so finding or (ii) as to (‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is performance of the high technology which the self-regulatory organization hereby given that on July 14, 1995, the sector is currently available in the U.S. consents, the Commission will: Chicago Board Options Exchange, Inc. derivative markets. The Exchange (A) By order approve the proposed (‘‘CBOE’’ or ‘‘Exchange’’) filed with the believes, therefore, that options on the rule change, or Securities and Exchange Commission Index will provide investors with a low- (B) Institute proceedings to determine (‘‘Commission’’) the proposed rule 1 whether the proposed rule change change as described in Items I, II, and European-style options may only be exercised should be disapproved. during a specified period prior to expiration of the III below, which Items have been options. IV. Solicitation of Comments prepared by the Exchange. The 2 See Securities Exchange Act Release No. 34157 (June 3, 1994), 59 FR 30062 (June 10, 1994) Interested persons are invited to Commission is publishing this notice to solicit comments on the proposed rule (‘‘Generic Index Approval Order’’). submit written data, views and 3 change from interested persons. The components of the Index are: Apple arguments concerning the foregoing. Computer, Inc.; Adobe Systems Inc.; ADC Persons making written submissions I. Self-Regulatory Organization’s Telecommunications Inc.; Adaptec Inc.; Advanced Micro Devices Inc.; Bay Networks Inc.; Computer should file six copies thereof with the Statement of the Terms of Substance of Associates International; 3Com Corp; Compaq the Proposed Rule Change Computer Corp; Cirrus Logic Inc.; Cabletron 4 See BSE Rule 2039A. The Rule states that the Systems Inc.; Computer Sciences Corp.; Cisco BSE Execution Guarantee shall be available to each The CBOE proposes to list and trade Systems Inc.; Digital Equipment Corp.; DSC member firm in all issues traded through the options on the CBOE Technology Index Communications Corp.; Hewlett Packard Co.; IBM; Intermarket Trading System (ITS) registered to a (‘‘Tech Index’’ or ‘‘Index’’). The text of Intel Corp.; Motorola Inc.; Microsoft Corp.; Micron member specialist of the Exchange. The Rule Technology Inc.; Novell Inc.; Oracle Corporation; imposes an obligation upon specialists to guarantee the proposed rule change is available at Picturetel Corp.; Parametric Technology Corp.; executions on all agency orders from 100 up to and the Office of the Secretary, the CBOE, Seagate Technology Inc.; Silicon Graphics Inc.; including 1,299 shares. and at the Commission. Synopsys Inc.; Tellabs Inc.; and Xilinx Inc. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38067 cost means of participating in the the Index. Changes which may result in If the Index fails at any time to satisfy performance of the high technology divisor changes include, but are not the maintenance criteria discussed sector or hedging against the risks of limited to, stock splits and dividends, above, the Exchange will immediately investing in high tech industries. spin-offs, certain rights issuances and notify the Commission of that fact and mergers and acquisitions. will not open for trading any additional Stocks Comprising the Index The value of the Index will be series of options on the Index unless All of the stocks in the Index are calculated on a real-time basis using such failure is determined by the securities of U.S. issuers and currently last-sale prices by the CBOE or its Exchange not to be significant and the trade on the New York Stock Exchange designee, and will be disseminated Commission concurs in that (‘‘NYSE’’) or as National market every 15 seconds by the CBOE. If a determination, or unless the continued securities traded through Nasdaq. component stock is not currently being listing of options on the Tech Index has Additionally, all of the stocks are traded, the most recent price at which been approved by the Commission ‘‘reported securities’’ as defined in Rule the stock traded will be used in the under Section 19(b)(2) of the Exchange 11Aa3–1 under the Exchange Act. Index calculation. The value of the Act. The Exchange represents that all of Index at the close on June 27, 1995 was the stocks in the Index meet the CBOE’s 289.07. Index Option Trading listing criteria for equity options as set The Exchange proposes to base forth in CBOE Rule 5.3. Accordingly, Maintenance trading in options on the Tech Index on 100% of the stocks in the index—both The Index will be maintained by the the full value of that Index. The by number and by weight—are eligible CBOE. The Index is reviewed on Exchange may also list full-value long- for standardized options trading approximately a monthly basis by the term index option series (‘‘Index pursuant to CBOE rules. In fact, all of CBOE staff. The CBOE may change the LEAPS’’) on the Tech Index having the stocks are currently the subject of composition of the Index at any time to expirations of up to 60 months from the listed options trading in the U.S. reflect changes affecting the components date of issuance, as provided in CBOE In accordance with CBOE Rule 24.2, of the Index or the technology industry Rule 24.9. The Exchange also may the Exchange further represents that generally. If it becomes necessary to provide for the listing of reduced-value each of the stocks in the index has a remove a stock from the Index (for Index LEAPS, for which the underlying market capitalization well in excess of example, because of a takeover or value would be computed at one-tenth $75 million. Specifically, the stocks merger), the CBOE will only add a stock of the value of the Index. The current comprising the Index ranged in having characteristics that will permit and closing index value of any such capitalization from $736 million to the Index to remain within the reduced-value Index LEAPS will, after $55.4 billion as of June 27, 1995. The maintenance criteria specified in such initial computation, be rounded to total capitalization as of that date was CBOE’s Rules and the Generic Index the nearest one-hundredth. $370.4 billion, and the mean and Approval Order.4 The CBOE will take median capitalizations were $12.3 into account the capitalization, Exercise and Settlement billion and $5.0 billion, respectively. liquidity, volatility, and name Tech Index options will have In addition, each of the component recognition of any proposed European-style exercise and will be stocks in the index has had monthly replacement stock. ‘‘A.M.-settled index options’’ within the trading volumes in excess of one million Absent prior Commission approval, meaning of the Rules in Chapter XXIV, shares over the six month period ending the CBOE will not increase to more than including Rule 24.9, which is being on May 31, 1995. The average monthly 40, or decrease to fewer than 20, the amended to refer specifically to Tech trading volumes per Index component number of stocks in the Index. Index options. The Index options will over this six month period ranged from Additionally, the CBOE will not make expire on the Saturday following the a low of 4.5 million shares to a high of any change in the composition of the third Friday of the expiration month. 265.4 million shares. As of June 27, Index that would cause fewer than 90% Thus, the last day for trading in a 1995, the largest stock in the Index, by of the stocks by weight, or fewer than expiring series will be the second weight, accounted for 5.97% of the 80% of the total number of stocks in the business day (ordinarily a Thursday) Index, while the smallest represented index, to qualify as stocks eligible for preceding the expiration date. 0.35% of the Index. Also on that date, equity options trading under CBOE Rule Exchange Rules Applicable the top 5 stocks in the Index accounted 5.3. for 26.14% of the weight of the Index. Except as modified herein, the Rules Accordingly, the Exchange represents 4 These maintenance criteria provide, among in Chapter XXIV will be applicable to that the Index satisfies the CBOE’s other things, that each component security must Tech Index options. Index option have (1) a market capitalization of at least $75 contracts based on the Tech Index will generic listing standards for options on million, except that securities accounting for no narrow-based stock indexes. more than 10% of the weight of the Index may have be subject to the position limit market capitalizations of at least $50 million, and requirements of Rule 24.4A, which Calculation (2) trading volume of at least 500,000 shares in each presently would result in position limits The Index is price-weighted and of the last six months, except that securities for full-value Tech Index options of accounting for no more than 10% of the weight of reflects changes in the prices of the the Index may have trading volumes of at least 10,500 contracts. Positions in Index component stocks relative to the Index 400,000 shares in each of the last six months. options and full and reduced-value base date, January 3, 1995, when the Additionally, no single security may account for Index LEAPS will be aggregated for Index was set to 200.00. Specifically, over 25% of the weight of the Index and no five position and exercise limit purposes. securities may account for over 50% of the weight the Index value is calculated by adding of the Index. Furthermore, each component security Ten reduced-value options will equal the prices of the component stocks and must be a reported security as defined in Rule one full-value contract for such then dividing this sum by the Index 11Aa3–1 of the Act. Finally, at least 90% of the purposes. divisor. The Index divisor is adjusted to weight of the Index and 80% of the number of The CBOE represents that it has the components in the Index must be eligible for reflect non-market related changes in standardized options trading pursuant to CBOE necessary systems capacity to support the prices of the component securities Rule 5.3. See CBOE Rule 24.2 and Generic Index new series that would result from the as well as changes in the composition of Approval Order, supra note 2. introduction of Tech Index options. The 38068 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices CBOE also represents that the Options Washington, D.C. 20549. Copies of the transfer agents that are not participants Price Reporting Authority (‘‘OPRA’’) has submission, all subsequent of MSTC pursuant to individually the capacity to support such new amendments, all written statements negotiated contracts with MSTC. series.5 with respect to the proposed rule II. Self-Regulatory Organization’s The CBOE believes that the proposed change that are filed with the Statement of the Purpose of, and rule change is consistent with Section Commission, and all written 6(b) of the Act, in general, and furthers Statutory Basis for, the Proposed Rule communications relating to the Change the objectives of Section 6(b)(5) of the proposed rule change between the Act, in particular, in that it will permit Commission and any person, other than In its filing with the Commission, trading in options based on the Tech those that may be withheld from the MSTC included statements concerning Index pursuant to rules designed to public in accordance with the the purpose of and basis for the prevent fraudulent and manipulative provisions of 5 U.S.C. § 552, will be proposed rule change and discussed any acts and practices and to promote just available for inspection and copying at comments it received on the proposed and equitable principles of trade, and the Commission’s Public Reference rule change. The text of these statements thereby will provide investors with the Section, 450 Fifth Street, N.W., may be examined at the places specified ability to invest in options based on an Washington, D.C. 20549. Copies of such in Item IV below. MSTC has prepared additional index. filing will also be available for summaries, set forth in sections (A), (B), inspection and copying at the principal and (C) below, of the most significant (B) Self-Regulatory Organization’s aspects of such statements.3 Statement on Burden on Competition office of the CBOE. All submissions should refer to File No. SR–CBOE–95– The Exchange does not believe that (A) Self-Regulatory Organization’s 37 and should be submitted by August Statement of the Purpose of, and the proposed rule change will impose 15, 1995. any burden on competition. Statutory Basis for, the Proposed Rule For the Commission, by the Division of Change (C) Self-Regulatory Organization’s Market Regulation, pursuant to delegated The purpose of the proposed rule authority.7 Statement on Comments on the change is to provide transfer agents that Proposed Rule Change Received From Margaret H. McFarland, are not MSTC participants with access Members, Participants or Others Deputy Secretary. to MSTC’s inquiry-only Legal Expert No written comments were solicited [FR Doc. 95–18215 Filed 7–24–95; 8:45 am] System (‘‘LES’’). LES is a menu-driven or received with respect to the proposed BILLING CODE 8010±01±M computer program that allows a user to rule change. inquire about the documentation III. Date of Effectiveness of the [Release No. 34±35984; File No. SR±MSTC± necessary for effecting a legal transfer of Proposed Rule Change and Timing for 95±07] securities. The information found in Commission Action LES is based on standard industry Self-Regulatory Organizations; Notice criteria as well as on individual state Because the foregoing proposed rule of Filing and Immediate Effectiveness regulations for effecting legal transfers. change complies with the standards set of Proposed Rule Change by Midwest LES provides the user with a main forth in CBOE Rule 24.2 and the Generic Securities Trust Company Relating to registration menu and a submenu for Index Approval Order,6 it has become Access to the Legal Expert System specific transfer situations. The self- effective pursuant to section 19(b)(3)(A) help narratives guide the user through of the Act. Pursuant to CBOE Rule 24.2 July 18, 1995. the system by providing information and the Generic Index Approval Order, Pursuant to Section 19(b)(1) of the and examples for each certificate the Exchange may not list Tech Index Securities Exchange Act of 1934 registration classification. The user is 1 options for trading until 30 days after (‘‘Act’’), notice is hereby given that on prompted to answer basic questions July 14, 1995, the date the proposed rule May 8, 1995, the Midwest Securities about the certificate registration and change was filed with the Commission. Trust Company (‘‘MSTC’’) filed with the transfer situation to determine the legal At any time within 60 days of the Securities and Exchange Commission delivery requirements and filing of the proposed rule change, the (‘‘Commission’’) the proposed rule documentation needed for the specific Commission may summarily abrogate change as described in Items I, II, and state involved. such rule change if it appears to the III below, which Items have been LES will be available to Commission that such action is prepared primarily by MSTC. The nonparticipant transfer agents pursuant necessary or appropriate in the public Commission is publishing this notice to to individually negotiated contracts interest, for the protection of investors, solicit comments on the proposed rule between MSTC and individual transfer or otherwise in furtherance of the change from interested persons. agents. Among other things, the purposes of the Act. I. Self-Regulatory Organizations contracts will contain provisions that at IV. Solicitation of Comments Statement of the Terms of Substance of a minimum waive MSTC’s liability to the Proposed Rule Change the same extent as provided in MSTC’s Interested persons are invited to rules. The contracts also will require submit written data, views and MSTC proposes to make its inquiry- 2 that transfer agents post a deposit with arguments concerning the foregoing. only Legal Expert System available to MSTC to protect MSTC against any Persons making written submissions unpaid fees. The fees that MSTC will 7 17 CFR 200.30–3(a)(12) (1994). should file six copies thereof with the charge the transfer agents (i.e., the Secretary, Securities and Exchange 1 15 U.S.C. 78s(b)(1) (1988). Commission, 450 Fifth Street, N.W., 2 For a complete description of the Legal Expert System, refer to Securities Exchange Act Release 65551 [SR–MSTC–94–17] (order modifying the Nos. 33756 (March 11, 1994), 59 FR 13350 [File No. pricing structure of the Legal Expert System); and 5 See Letter from Joe Corrigan, Executive Director, SR–MSTC–94–02] (order approving a rule change 35447 (March 6, 1995) 60 FR 15177 [SR–MSTC–95– OPRA, to Eileen Smith, Director, Product regarding the Legal Expert System’s fees and a 03] (order waiving the fees associated with the Development, Research Department, CBOE, dated clarification disclaiming any liability on MSTC’s Legal Expert System until March 1, 1995). June 29, 1995. part for any misinformation contained in the Legal 3 The Commission had modified the text of the 6See supra note 2. Expert System); 35098 (December 13, 1994), 59 FR summaries prepared by MSTC. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38069 terminal inquiry fee, leased line fee, and provisions of 5 U.S.C. § 552, will be concerning each broker or dealer that is communications fee) will be identical to available for inspection and copying at party to a transaction, including the fees charged participants. the Commission’s Public Reference introducing brokers who are currently MSTC believes that the proposed rule Section, 450 Fifth Street, N.W., not identified on some transactions change is consistent with Section 17A of Washington, DC 20549. Copies of such submitted to the Board. Such the Act because it will facilitate the filings also will be available for information would be made available prompt and accurate clearance and inspection and copying at the principal through the Board’s pilot automated settlement of securities transactions. office of MSTC. All submissions should transaction reporting system to the refer to File No. SR–MSTC–95–07 and Commission and to organizations (B) Self-Regulatory Organization’s should be submitted by August 15, charged with inspection for compliance Statement on Burden on Competition 1995. with, and enforcement of, Board rules MSTC believes that no burden will be For the Commission by the Division of (‘‘enforcement agencies’’). The Board placed on competition as a result of the Market Regulation, pursuant to delegated requests that the proposed rule change proposed rule change. authority. 6 be effective July 24, 1995. (C) Self-Regulatory Organization’s Margaret H. McFarland, II. Self-Regulatory Organization’s Statement on Comments on the Deputy Secretary. Statement of the Purpose of, and Proposed Rule Change Received From [FR Doc. 95–18216 Filed 7–24–95; 8:45 am] Statutory Basis for, the Proposed Rule Members, Participants or Others BILLING CODE 8010±01±M Change MSTC neither solicited nor received In its filing with the Commission, the written comments on the proposed rule [Release No. 34±35988; File No. SR±MSRB± self-regulatory organization included change. 95±12] statements concerning the purpose of and basis for the proposed rule change III. Date of Effectiveness of the Self-Regulatory Organization; Notice of and discussed any comments it received Proposed Rule Change and Timing for Filing and Immediate Effectiveness of on the proposed rule change. The text Commission Action Proposed Rule Change by the of these statements may be examined at The foregoing rule change has become Municipal Securities Rulemaking the places specified in Item IV below. effective pursuant to Section Board Relating to Report of Sales and The self-regulatory organization has 19(b)(3)(A)(iii) 4 of the Act and Rule Purchases and Associated Transaction prepared summaries, set forth in 19b–4(e)(4) 5 thereunder because it Reporting Procedures Sections A, B, and C below, of the most effects a change in an existing service significant aspects of such statements. that does not adversely affect the July 18, 1995. A. Self-Regulatory Organization’s safeguarding of securities or funds in Pursuant to Section 19(b)(1) of the Statement of the Purpose of, and the custody or control of MSTC or for Securities Exchange Act of 1934 Statutory Basis for, the Purpose Rule which MSTC is responsible and does (‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is Change not significantly affect the respective hereby given that on June 22, 1995, the rights or obligations of MSTC or persons Municipal Securities Rulemaking Board, 1. Purpose using the service. At any time within Inc (‘‘MSRB’’ or ‘‘Board’’) filed with the On November 9, 1994, the sixty days of the filing of this rule Securities and Exchange Commission Commission approved an amendment to change, the Commission may summarily (‘‘Commission’’) the proposed rule Board rule G–14, on reports of sales or abrogate this rule change if it appears to change as described in Items I, II and III purchase of municipal securities, and the Commission that such action is below, which Items have been prepared associated transaction reporting necessary or appropriate in the public by the self-regulatory organization. The procedures.1 Approval of the interest, for the protection of investors, Commission is publishing this notice to amendment represented a first step in or otherwise in furtherance of the solicit comments on the proposed rule achieving transparency in the municipal purposes of the Act. change from interested persons. securities market, as it requires dealers IV. Solicitation of Comments I. Self-Regulatory Organization’s to report to the Board or its designee 2 Statement of the Terms of Substance of information on each inter-dealer Interested persons are invited to the Proposed Rule Change transaction in municipal securities, for submit written data, views, and public dissemination and for The MSRB is filing a proposed rule arguments concerning the foregoing. surveillance and enforcement uses. The change to rule G–14, on reports of sales Persons making written submissions amendment enabled implementation of and purchases and associated should file six copies thereof with the the Board’s transaction reporting pilot transaction reporting procedures, to Secretary, Securities and Exchange program and operation of an automated enhance the Board’s transaction Commission, 450 Fifth Street, N.W., information system for transaction reporting pilot program to provide Washington, D.C. 20549. Copies of the reporting (‘‘system’’).3 submission, all subsequent improved support of market amendments, all written statements surveillance and enforcement of Board 1 See Securities Exchange Act Release No. 34955 with respect to the proposed rule rules. The proposed rule change would (November 9, 1994), 59 FR 59810. change that are filed with the require brokers, dealers, and municipal 2 The Board has designated National Securities Commission, and all written securities dealers (‘‘dealers’’) that clear Clearing Corporation (‘‘NSCC’’) as its agent for transactions for other dealers to identify receiving interdealer transaction information. communications relating to the Before this designation, NSCC already was proposed rule change between the the dealers that executed the receiving transaction information in its role as the Commission and any person, other than transaction, when submitting central facilities provider of the automated those that may be withheld from the transaction information to the Board comparison system. public in accordance with the under rule G–14. This would make 3 Other required information was also submitted by the Board to the Commission before the pilot available reliable information system became operational. See Securities 4 15 U.S.C. 78s(b)(3)(A)(iii) (1988). Exchange Act Release No. 35181 (December 30, 5 17 CFR 240.19b–4(e)(4) (1994). 6 17 CFR 200.30–3(a)(12) (1994). Continued 38070 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices The system produces daily, public inter-dealer municipal securities system.10 In addition, each executing reports of frequently traded issues 4 and transaction. broker of municipal securities summary volume and price information Currently, transaction information transactions that has not yet been about the inter-dealer market on the reported to the Board under rule G–14 assigned an executing broker symbol previous business day (‘‘daily report’’), through the automated comparison would have to request an assignment.11 and is building a surveillance database system always includes a numerical 2. Statutory Basis of detailed records about every inter- identifier for the dealer that ‘‘clears’’ the dealer transaction that has been transaction through NSCC. In many The Board believes the proposed rule successfully compared 5 by the cases, this dealer, called the ‘‘clearing change is consistent with Section automated comparison system. Dealers broker,’’ is also the dealer that executed 15B(b)(2)(C), which requires, in report transaction information to the the transaction. In other cases, the pertinent part, that the Board’s rules: Board, pursuant to rule G–14, through ‘‘clearing broker’’ submits the trade on be designed to prevent fraudulent and the automated comparison system. The behalf of another dealer that executed manipulative acts and practices, to promote transaction reporting system has been the transaction. In a clearing- just and equitable principles of trade, * ** operational and has been collecting and introducing broker arrangement, the to remove impediments to and perfect the publicly reporting inter-dealer clearing broker may submit transaction mechanism of a free and open market in transaction information since January information on behalf of the introducing municipal securities, and, in general, to 23, 1995. The Board had begun working broker. In this case, the introducing protect investors and the public interest. *** with the National Association of broker generally is identified as the Securities Dealers (‘‘NASD’’) and the ‘‘executing broker’’ in the comparison B. Self-Regulatory Organization’s bank regulatory agencies to establish system. Statement on Burden on Competition detailed operational arrangements by During the first months of transaction The Board does not believe that the which comprehensive information will reporting operations, the Board has be made available.6 This information proposed rule change will impose any noted that a substantial number of burden on competition in that it applies includes, among other things transactions submitted under G–14 do identification of parties to each equally to all dealers in municipal not include any indication whether the securities. compared trade and the prices of all trade is actually done by the ‘‘clearing securities traded, and is not limited to broker’’ or on behalf of another C. Self-Regulatory Organization’s transactions in issues that are traded ‘‘executing broker.’’ 8 Under these Statement on Comments on the four or more times a day. circumstances, the surveillance database Proposed rule Change Received From The Commission has often noted the does not reflect the identity of all Members, Participants or Others need to make an ‘‘integrated audit trail’’ dealers involved in the transaction. The of transaction information available to The Board has neither solicited nor identity of the actual executing brokers the agencies charged with enforcement received comments on the proposed of Board rules. The Commission on each transaction is critical to the rule change. surveillance database and to monitoring believes that an audit trail will ‘‘provide III. Date of Effectiveness of the valuable information for market individual dealers’ compliance with the requirement for trade comparison on the Proposed Rule Change and Timing for surveillance and inspection purposes to 9 Commission Action the MSRB, the Commission, the NASD, night of trade date. and the relevant banking agencies.’’7 The proposed rule change would Because the foregoing proposed rule The surveillance databases of require dealers who clear transactions change: (1) Does not significantly affect transactions being built as part of the for other dealers to identify the the protection of investors or the public transaction reporting system will executing dealers involved in the trade. interest; (2) does not impose any provide an effective audit trail for the This would involve relatively minor significant burden on competition; (3) enforcement agencies. The proposed changes in current practice. Clearing was provided to the Commission for its rule change will help to ensure that the brokers would have to ensure the review at least five days prior to the audit trail contains the identify of all presence of the executing broker filing date; and (4) does not become dealers involved in each compared identification for both the ‘‘buy side’’ operative for thirty days from the date and the ‘‘sell side’’ for every transaction of its filing on June 22, 1995, the 1994), 60 FR 2412, and see letters from Larry M. submitted to the automated comparison proposed rule change has become Lawrence, MSRB, to Keith Riley, SEC, dated effective pursuant to Section 19(b)(3)(A) December 31, 1994, and January 23, 1995. 8 Clearing brokers have the option of including of the Act and Rule 19b–4(e)(6) 4 Currently, only issues that are traded four or the identity of the introducing brokers when thereunder. In particular, the more times during a day are included in the next reporting a transaction, in which case the Commission believes the proposed rule day’s daily report. introducing broker identifiers are entered into the 5 In general, a ‘‘compared’’ transaction is one for Board’s surveillance database. The database lacks change would qualify as a ‘‘non- which salient information items, provided by both the introducing broker identifier of transactions for controversial filing’’ in that the parties to a trade, are matched and found to agree which the clearing broker chooses not to identify proposed standards do not significantly by the automated comparison system. the introducing broker. affect the protection of investors or the 6 Cooperation between the Board and the 9 Clearing and introducing brokers are jointly enforcement agencies was noted by the Commission responsible for submitting transaction information public interest and do not impose any as important in the enforcement of the customer for automated comparison under rule G–12(f). See protection rules, and the Commission’s order ‘‘Enforcement Initiative,’’ MSRB Reports, Vol. 14, 10 A clearing broker that uses an ‘‘omnibus’’ approving the system described the NASD as the No. 3 (June 1994), at 35. Therefore, the clearing account to handle introducing brokers’ trades might primary entity responsible for conducting market broker bears responsibility for obtaining accurate have to change its practices to identify the surveillance. The NASD already has requested and and timely information from its executing brokers introducing broker in each case, rather than using received transaction information from the and submitting it for comparison in time to achieve its own clearing broker symbol. surveillance database, as part of its enforcement comparison on the night of trade data. However, 11 The NASD assigns executing broker symbols to activities. The Board is making arrangements to charting the performance of individual executing brokers, dealers, and municipal securities dealers. further automate the process of making surveillance brokers would be helpful both to the clearing A self-clearing broker may use an NASD-assigned information available to the NASD and to expand brokers and to the enforcement agencies, since it symbol to identify itself in its role as executing such support to all enforcement agencies. would indicate which executing brokers are broker, or it may use its NSCC-assigned broker 7 See note 1, supra. presenting problems. number for this purpose. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38071 significant burden on competition. At Items I, II, and III below, which items change is consistent with the any time within sixty days of the filing have been prepared primarily by NSCC. requirements of Section 17A(b)(3)(D) of of the proposed rule change, the The Commission is publishing this the Act because the new fee schedule Commission may summarily abrogate notice to solicit comments on the allocates fees more equitably among such rule change if it appears to the proposed rule change from interested NSCC participants. Commission that such action is person. (B) Self-Regulatory Organization’s necessary or appropriate in the public I. Self-Regulatory Organizations Statement on Burden on Competition interest, for the protection of investors, Statement of the Terms of Substance of NSCC does not believe that the or otherwise in furtherance of the the Proposed Rule Change purposes of the Act. proposed rule change will impact or NSCC is filing the proposed rule impose a burden on competition. IV. Solicitation of Comments change to reduce certain of the (C) Self-Regulatory Organization’s Interested persons are invited to Networking service 2 account fees charged to NSCC participants. Statement on Comments on the submit written data, views and Proposed Rule Change Received From arguments concerning the foregoing. II. Self-Regulatory Organization’s Members, Participants or Others Persons making written submissions Statement of the Purpose of, and NSCC neither solicited nor received should file six copies thereof with the Statutory Basis for, the Proposed Rule written comments on the proposed rule Secretary, Securities and Exchange Change Commission, 450 Fifth Street, N.W., change. NSCC will notify the Washington, D.C. 20549. Copies of the In its filing with the Commission, Commission of any written comments it submission, all subsequent NSCC included statements concerning receives. the purpose of and basis for the amendments, all written statements III. Date of Effectiveness of the with respect to the proposed rule proposed rule change and discussed any comments it received on the proposed Proposed Rule Change and Timing for change that are filed with the Commission Action Commission, and all written rule change. The text of these statements communications relating to the may be examined at the places specified The foregoing rule change has become proposed rule change between the in Item IV below. NSCC has prepared effective pursuant to Section 5 Commission and any person, other than summaries, set forth in sections (A), (B), 19(b)(3)(A)(ii) of the Act and Rule 19b- 6 those that may be withheld from the and (C) below, of the most significant 4(e)(2) thereunder because the rule 3 public in accordance with the aspects of such statements. change establishes or changes a due, fee, or other charge. At any time within sixty provisions of 5 U.S.C. § 552, will be (A) Self-Regulatory Organization’s days of the filing of such proposed rule available for inspection and copying at Statement of the Purpose of, and change, the Commission may summarily the Commission’s Public Reference Statutory Basis for, the Proposed Rule abrogate such rule change if it appears Room. Copies of such filing will also be Change to the Commission that such action is available for inspection and copying at The purpose of the proposed rule the principal office of the MSRB. All necessary or appropriate in the public change is to reduce the Networking interest, for the protection of investors, submissions should refer to File No. service monthly account base fees SR–MSRB–95–12 and should be or otherwise in furtherance of the charged to NSCC participants in order purpose of the Act. submitted by August 15, 1995. that such fees will reflect more For the Commission, by the Division of accurately the current costs of providing IV. Solicitation of Comments Market Regulation, pursuant to delegated the service. For accounts with funds Interested persons are invited to authority. paying dividends monthly, the monthly submit written data, views, and Margaret H. McFarland, account base fee will be reduced from arguments concerning the foregoing. Deputy Secretary. $.045 per side to $.035 per networking Persons making written submissions [FR Doc. 95–18175 Filed 7–24–95; 8:45 am] subaccount. Similarly, for accounts with should file six copies thereof with the BILLING CODE 8610±01±M funds paying dividends less frequently Secretary, Securities and Exchange than monthly, the monthly account base Commission, 450 Fifth Street, N.W., fee will be reduced from $.03 per side Washington, D.C. 20549. Copies of the [Release No. 34±35983; File No. SR±NSCC± 95±07] to $.023 per networking subaccount. submission, all subsequent This reduced fee structure will take amendments, all written statements Self-Regulatory Organizations; effect on June 1, 1995. with respect to the proposed rule National Securities Clearing Section 17A(b)(3)(D) of the Act 4 change that are filed with the Corporation; Notice of Filing and requires that the rules of a clearing Commission, and all written Immediate Effectiveness of a Proposed agency provide for the equitable communications relating to the Rule Change Reducing Networking allocation of reasonable dues, fees, and proposed rule change between the Account Fees other charges among its participants. Commission and any person, other than NSCC believes that the proposed rule those that may be withheld from the July 18, 1995. public in accordance with the Pursuant to Section 19(b)(1) of the 2 Networking is NSCC’s centralized and provisions of 5 U.S.C. § 552, will be Securities Exchange Act of 1934 standardized data communications system that available for inspection and copying in 1 enables members to transmit mutual fund customer (‘‘Act’’), notice is hereby given that on account data and to settle mutual fund payments the Commission’s Public Reference May 21, 1995, the National Securities between themselves. For a complete description of Section, 450 Fifth Street, N.W., Clearing Corporation (‘‘NSCC’’) filed the Networking service, refer to Securities Exchange Washington, DC 20549. Copies of such with the Securities and Exchange Act Release No. 26376 (December 28, 1988), 53 FR filing also will be available for 52544 [File No. SR–NSCC–88–08] (order granting Commission (‘‘Commission’’) the approval to NSCC’s Networking service). inspection and copying at the principal proposed rule change as described in 3 The Commission has modified the text of the summaries prepared by NSCC. 5 15 U.S.C. 78s(b)(3)(A)(ii) (1988). 1 15 U.S.C. 78s(b)(1) (1988). 4 15 U.S.C. 78q-1(b)(3)(D) (1988). 6 17 CFR 240.19b-4(e)(2) (1994). 38072 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices office of NSCC. All submissions should specified threshold immediately prior to Commission believes that OCC’s refer to File No. SR–NSCC–95–07 and expiration. Accordingly, all options proposed rule change is consistent with should be submitted by August 15, subject to ex-by-ex processing are this obligation because it should 1995. identified as being in-the-money, at-the- facilitate the prompt and accurate For the Commission by the Division of money, or out-of-the-money in a report clearance and settlement of index Market Regulation, pursuant to delegated provided to each clearing member options transactions by providing authority.7 through OCC’s Clearing/Management promptness and precision in the Margaret H. McFarland, and Control System (‘‘C/MACS’’) 6 or by exercise of certain in-the-money index Deputy Secretary. hard copy on each expiration date. After options. [FR Doc. 95–18217 Filed 7–24–95; 8:45 am] receipt and review of its report, each The rule change should assure that clearing member resubmits its report to BILLING CODE 8010±01±M certain customer-held index option OCC reflecting that the clearing member contracts that are in-the-money by $1 or is instructing OCC to exercise all more will not go unexercised unless the [Release No. 34±35982; File No. SR±OCC± options that are in-the-money by the clearing member provides contrary 95±03] certain threshold amount. However, the exercise advice. By lowering the ex-by- clearing member can issue contrary ex threshold for index option contracts Self-Regulatory Organizations; The instructions (‘‘Contrary Exercise Options Clearing Corporation; Order carried in customer accounts from $25 Advice’’) to OCC by notating on the to $1, OCC has reduced the burden Approving a Proposed Rule Change report additional contracts it desires to Relating to OCC's Exercise-by- placed on clearing members to provide exercise and contracts that are in the exercise advice on index options in-the- Exception Procedures Applicable to money by the threshold amount that it Expiring Index Options money by $1 or more that are due to does not want exercised. expire. Reducing the ex-by-ex July 18, 1995. OCC’s Rules currently specify two ex- processing threshold to $1 per index On February 16, 1995, The Options by-ex processing thresholds for index option contract will mean that clearing 7 Clearing Corporation (‘‘OCC’’) filed with options. The first threshold applies to members will have to manually identify the Securities and Exchange index options carried in clearing for exercise only those customer-held Commission (‘‘Commission’’) a members’ customers’ accounts, and the index option contracts that are in-the- proposed rule change (File No. SR– second threshold applies to index money by less than $1.00 per contract; OCC–95–03) pursuant to Section options carried in all other clearing therefore, the cost associated with 8 19(b)(1) of the Securities Exchange Act members’ accounts. The current manually exercising customer-held of 1934 (‘‘Act’’).1 Notice of the proposal aggregate price threshold for customer index option contracts should be was published in the Federal Register positions is $25.00 per index option reduced. The proposal also should on April 11, 1995.2 No comment letters contract, and the aggregate price reduce the risk that a clearing member were received. For the reasons threshold for all other positions is $1.00 will fail to exercise a customer-held discussed below, the Commission is per index option contract. OCC’s rule index option because under the new approving the proposed rule change. change reduces the aggregate price lower threshold only those options that threshold for customer positions to are in-the-money by less than $1.00 will I. Description of the Proposal $1.00 per index option contract. Now, not be exercised.10 any index option contract position, The purpose of the proposed rule Originally, the $25 threshold was whether carried in clearing members’ change is to modify the exercise established because of the anticipation customers’ accounts or in any of their threshold for expiring index option of transaction costs related to the 3 other accounts, in-the-money by that contracts, including American, exercise and settlement of index option 4 5 amount or more, will be exercised European, and Capped Quarterly contracts. Because index options are immediately prior to expiration unless Index Expiration option contracts, cash settled and the exercise fees for the clearing member submits a timely, carried in a clearing member’s customer such options either do not exist, are contrary instruction to OCC. The account in connection with OCC’s waived, or are not expected to exceed proposed change to the threshold for ex- exercise-by-exception (‘‘ex-by-ex’’) the exercise proceeds, OCC believes that by-ex processing of certain index processing procedures. The ex-by-ex a lower ex-by-ex threshold can be options carried in customers’ accounts exercise threshold used for flexibility applied and that its clearing members will not affect clearing members’ structured index options is not effected will not charge a fee for the cash obligations to their customers or by the rule change. settlement of an index option where a correspondent brokers, which are Ex-by-ex processing presumes that customer will be left with a loss. clearing members desire to exercise all determined by contract and by generally options that are in-the-money by a applicable principles of law. III. Conclusion II. Discussion On the basis of the foregoing, the 7 17 CFR 200.30-3(a)(12) (1994). Commission finds that the proposal is 1 Section 17A(b)(3)(F) requires that the 15 U.S.C. 78s(b)(1) (1988). consistent with the requirements 2 rules of a clearing agency be designed to Securities Exchange Act Release No. 35566 Section 17A(b)(3)(F) of the Act and the (April 5, 1995), 60 FR 18435. promote the prompt and accurate rules and regulations thereunder. 3 OCC defines the term ‘‘American’’ option to clearance and settlement of securities It is therefore ordered, pursuant to mean an option contract that may be exercised at transactions.9 As discussed below, the any time from its commencement time until its Section 19(b)(2) of the Act, that the expiration. proposed rule change (File No. SR– 4 OCC defines the term ‘‘European’’ option to 6 C/MACS is an on-line, menu-driven system that mean an option contract that may be exercised only allows OCC member firms to access or input trade OCC–95–03) be, and hereby is, on its expiration date. information directly from or to OCC’s clearing approved. 5 OCC defines the term ‘‘Capped’’ option to mean systems. an option contract in a series which has a cap price 7 Different ex-by-ex thresholds are applied to 10 As discussed earlier, clearing members can at which all options in such series will be equity options. issue Contrary Exercise Advice instructions to automatically exercised and which otherwise may 8 OCC Rule 1804(a) and (b). exempt specified customer-held index option only be exercised on its expiration date. 9 15 U.S.C. 78q–1(b)(3)(F) (1988). contracts from ex-by-ex processing. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38073 For the Commission by the Division of March 24, March 27, March 29 and the proposals.7 This order approves the Market Regulation, pursuant to delegated March 29, 1995, the PSE, the CBOE, the proposed rule changes, as amended. 11 authority. Phlx, and the NYSE submitted II. Description of the Proposals Margaret H. McFarland, Amendment Nos. 1, 1, 2, and 1, Deputy Secretary. respectively, to their proposals.4 On The Exchanges have submitted a joint [FR Doc. 95–18218 Filed 7–24–95; 8:45 am] June 14, June 14, June 30, and July 6, the proposal regarding the listing of 21⁄2 BILLING CODE 8010±01±M Phlx, the PSE, the CBOE, and the Amex point strike prices for selected equity submitted Amendments Nos. 3, 2, 2, options on a pilot basis. The pilot and 1, respectively, to their proposals.5 program would operate for a twelve- [Release No. 34±35993; File Nos. SR±Phlx± month period commencing on Monday, 95±08, SR±Amex±915±12, SR±PSE±95±07, Notices of the Exchanges’ proposals July 24, 1995, which is the Monday SR±CBOE±95±19, SR±NYSE±95±12] and Amendment No. 1 to the CBOE’s following the July 1995 expiration. proposal, Amendment No. 1 to the Self-Regulatory Organizations; Order Currently, the Exchanges list strike PSE’s proposal, Amendment Nos. 1 and prices for equity options at 5 point Approving Proposed Rule Changes by 2 to the Phlx’s proposal, and the Philadelphia Stock Exchange, Inc., intervals, where the strike price is Amendment No. 1 to the NYSE’s 8 the American Stock Exchange, Inc., the between $25 and $200. proposal were published for comment Pacific Stock Exchange, Inc., the The Exchanges propose to list in the Federal Register on May 12, Chicago Board Options Exchange, selected options trading at a strike price 1995.6 No comments were received on 9 Inc., and the New York Stock greater than $25 but less than $50 (i.e., 1 1 1 1 1 10 1 Exchange, and Amendment No. 1 by 27 ⁄2, 32 ⁄2, 37 ⁄2, 42 ⁄2 and 47 ⁄2 at 2 ⁄2 the Chicago Board Options Exchange, in Phlx Rule 1012, Commentary .05, in order to be consistent with CBOE Rule 5.5, Interpretation .01, 7 Inc., Amendment No. 1 by the Pacific Before the proposals were published for in that strike price intervals may be $10 ‘‘or greater’’ comment, the Committee on Options Proposals Stock Exchange, Inc., Amendment No. where the strike price is $200 or more. See Letter (‘‘COOP’’) indicated that it favors the Exchanges’ 1 by the New York Stock Exchange, from Gerald O’Connell, First Vice President, Market proposed 21⁄2 point strike pilot program. See Letter and Amendments Nos. 1 and 2 by the Regulation and Trading Operations, Phlx, to from Michael Schwartz, Chairman, COOP, to Michael Walinskas, Branch Chief, Office of Market Philadelphia Stock Exchange, Inc., and Jonathan Katz, Secretary, Commission, dated April Supervision (‘‘OMS’’), Division of Market 5, 1995. Notice of Filing and Order Granting Regulation (‘‘Market Regulation’’), Commission, 8 See Securities Exchange Act Release No. 21985 Accelerated Approval of Amendment dated March 10, 1995 (‘‘Phlx Letter, dated March (April 25, 1985), 50 FR 18595 (May 1, 1985) No. 3 by the Philadelphia Stock 10, 1995’’). (Approving File Nos. SR–Phlx–85–9 and SR–PSE– 4 Exchange, Inc., Amendment No. 2 by The PSE, the CBOE, the Phlx, and the NYSE 85–9, amending both exchanges’ policies regarding submitted amendments in order to codify the strike price intervals to conform to those of the the Pacific Stock Exchange, Inc., extended duration of the pilot program from six to other options exchanges); see also Securities Amendment No. 2 by the Chicago twelve months. See Letters from Timothy Exchange Act Release No. 21929 (April 10, 1985), Board Options Exchange, Inc., and Thompson, Attorney, CBOE, dated March 27, 1995 50 FR 15258 (April 17, 1985) (File Nos. SR–CBOE– Amendment No. 1 by the American (‘‘CBOE Letter, dated March 27, 1995’’), Michael 85–1 and SR–Amex–85–6). Pierson, Senior Attorney, PSE, dated March 24, 9 Proposed NYSE Rule 703, Supplementary Stock Exchange, Inc., to Adopt a 21¤2 1995 (‘‘PSE Letter, dated March 24, 1995’’), to John Material .30(f) states that selected options may be Point Strike Price Pilot Program Ayanian, Attorney, OMS, Market Regulation, listed at 21⁄2 point strike price intervals ‘‘if the strike Commission, and Letters from Gerald O’Connell, price for that series is greater than $25.00, but is less July 19, 1995. First Vice President, Phlx, dated March 29, 1995 than or equal to $50.00.’’ While the NYSE has (‘‘Phlx Letter, dated March 29, 1995’’), and Daniel proposed slightly different language to make the I. Introduction Parker Odell, Assistant Secretary, NYSE, dated proposed rule consistent with other NYSE rules, the March 29, 1995 (‘‘NYSE Letter, dated March 29, 1 On February 6, March 8, March 8, NYSE proposal allows for the listing of 2 ⁄2 point 1995’’), to Michael Walinskas, Branch Chief, OMS, 1 1 1 1 1 March 15, and March 22, 1995, strike prices at 27 ⁄2, 32 ⁄2, 37 ⁄2, 42 ⁄2 and 47 ⁄2 in Market Regulation, Commission. accordance with the terms of the pilot program. respectively, the Philadelphia Stock The Amex also submitted a clarifying amendment Telephone conversation between Gary Katz, Exchange, Inc. (‘‘Phlx’’), the American to extend the pilot program from six to twelve Managing Director, Options and Index Products, Stock Exchange, Inc. (‘‘Amex’’), the months, but did not codify the duration of the pilot NYSE, and John Ayanian, Attorney, OMS, Market Pacific Stock Exchange, Inc. (‘‘PSE’’), program in its rules. See Letter from Claire Regulation, Commission, on May 2, 1995. McGrath, Special Counsel, Amex, to Michael The Phlx and Amex submitted clarifying the Chicago Board Options Exchange, Walinskas, Branch Chief, OMS, Market Regulation, amendments to their proposals to indicate that the Inc. (‘‘CBOE’’), and the New York Stock Commission, dated April 3, 1995 (‘‘Amex Letter, pilot program does not apply to options classes Exchange (‘‘NYSE’’) (collectively the dated April 3, 1995’’). where the underlying stock is trading between $25 ‘‘Exchanges’’) submitted to the The NYSE also submitted Amendment No. 1 to and $50, rather it includes equity options trading Securities and Exchange Commission amend the text of proposed Supplementary Material at a strike price between $25 and $50. See Letter .30(f) and .30(f)(i) to NYSE Rule 703 to list 21⁄2 from Gerald D. O’Connell, First Vice President, (‘‘SEC’’ or ‘‘Commission’’), pursuant to strike prices for 14 options, instead of 11 options Market Regulation and Trading Operations, to Section 19(b)(1) of the Securities as originally stated. Michael Walinskas, Branch Chief, OMS, Market Exchange Act of 1934 (‘‘Act’’) 1 and Rule 5 The Phlx, PSE, CBOE, and Amex propose to Regulation, Commission, dated June 14, 1995 19b–4 thereunder,2 proposed rule amend their filings to conform with NYSE’s (‘‘Phlx Letter, dated June 14, 1995’’). See also Amex proposal, in that the Exchanges would not require Letter, dated July 6, 1995, supra note 6. changes to adopt a pilot program, 1 the listing of 2 ⁄2 point strikes for all expiration 10 The applicable strike price codes will be Y whereby the Exchanges may select a months in selected option classes. See Letters from 271⁄2; Z 321⁄2; U 371⁄2; V 421⁄2; and W 471⁄2. The certain number of their listed options Gerald O’Connell, First Vice President, Market CBOE, Amex, and NYSE submitted clarifying for inclusion in a twelve month pilot Regulation and Trading Floor Operations, Phlx, amendments to their proposals to indicate, among program for the listing of strike prices at dated June 14, 1995 (‘‘Phlx Letter, dated June 14, other things, that each exchange intends to use 1995’’), David Semak, Vice President, Regulation, these strike price codes for the additional strike 1 2 ⁄2 point intervals. PSE, dated June 14, 1995 (‘‘PSE Letter, dated June price intervals. See Letter from Timothy Thompson, On March 10, 1995, the Phlx 14, 1995’’), and Claire McGrath, Special Counsel, Attorney, CBOE, to John Ayanian, Attorney, OMS, submitted to the Commission Amex, dated July 6, 1995 (‘‘Amex Letter, dated July Market Regulation, Commission, dated May 4, 1995 Amendment No. 1 to its proposal.3 On 6, 1995’’) to Michael Walinskas, Branch Chief, (‘‘CBOE Letter, dated May 4, 1995’’). See also OMS, Market Regulation, Commission. See also Letters from Claire McGrath, Special Counsel, Letter from Timothy Thompson, Attorney, CBOE, to Amex, dated June 6, 1995 (‘‘Amex Letter, dated 11 17 CFR 200.30–3(a)(12) (1994). John Ayanian, Attorney, OMS, Market Regulation, June 6, 1995’’), and James E. Buck, Senior Vice 1 15 U.S.C. 78s(b)(1). Commission, dated June 30, 1995 (‘‘CBOE Letter, President, NYSE, dated June 15, 1995 (‘‘NYSE 2 17 CFR 240.19b–4. dated June 30, 1995’’). Letter, dated June 15, 1995’’), to Michael Walinskas, 3 The Phlx submitted Amendment No. 1 to add 6 See Securities Exchange Act Release No. 35680 Branch Chief, OMS, Market Regulation, the phrase ‘‘or greater’’ to the last clause of the text (May 5, 1995), 60 FR 25752 (May 12, 1995). Commission. 38074 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices point intervals. The Exchanges would significant number of new strikes, accommodate the additional strike generally list 21⁄2 point strike prices in including both puts and calls for all four prices. selected options for all expiration listed expiration months.14 The Further, the Exchanges believe that months on all participating exchanges, Exchanges believe that limiting the pilot the addition of 21⁄2 point strike price but not for long-term options (LEAPS).11 program to 100 selected equity options intervals will stimulate customer Pursuant to the pilot program, the is a reasonable alternative to adding 21⁄2 interest by creating greater trading Exchanges would be permitted to use point strike price intervals for all equity opportunity and flexibility. The 1 such 21⁄2 point strike price intervals for options trading at a strike price greater Exchanges believe that 2 ⁄2 point strikes a joint total of up to 100 option issues. than $25 but less than $50. Further, the will provide customers the ability to Each exchange may select 10 options Exchanges believe that the allocated more closely tailor investment strategies to the precise movement of the plus a percentage of the remaining 50 number of options limits the number of underlying security. The Exchanges also options equal to that exchange’s pro rata new strike prices while providing believe that an increase in customer share of the total number of equity important investment opportunities for 12 options listed by the Exchanges. If an 15 interest will, in turn, enhance the depth selected options. Additionally, both and liquidity of the markets in the exchange chooses a multiply-traded the Exchanges 16 and the Options Price option for its allotment, any other selected equity options. Reporting Authority (‘‘OPRA’’),17 exchange trading that option would be represent that each will have adequate III. Commission Finding and allowed to subsequently list 21⁄2 point computer processing capacity to Conclusions strike prices wihtout having such listing count toward that other exchange’s The Commission finds that the 14 The Exchanges submitted clarifying proposed rule changes are consistent allotted amount. amendments to their proposals to indicate that the When more than one exchange selects with the requirements of the Act and the maximum number of allotted new strikes created as rules and regulations thereunder a multiply-traded option for its a result of this pilot program for each exchange is: allotment, the Options Clearing CBOE (1,120); Amex (880); Phx (720); PSE (720); applicable to a national securities Corporation (‘‘OCC’’) will determine and NYSE (560). See Letter from Michael Pierson, exchange, and, in particular, the Senior Attorney, Market Regulation, PSE, to John 18 which exchange will be deemed to have requirements of Section 6(b)(5). Ayanian, Attorney, OMS, Market Regulation, Specifically, the Commission believes selected the option according to the Commission, dated May 11, 1995, and Letter from 1 following procedures. The Exchanges Gerald O’Connell, First Vice President, Market that the proposed listing of 2 ⁄2 point have agreed that an exchange Regulation and Trading Operations, Phlx, to strike price intervals in selected equity Michael Walinskas, Branch Chief, OMS, Market (‘‘Selecting Exchange’’) intending to list options on a pilot basis will provide Regulation, Commission, dated May 16, 1995. See investors with more flexibility in the 21⁄2 point strikes on an option will also CBOE Letter, dated May 4, 1995; Amex Letter, trading of equity options with a strike inform OCC of its selection by dated June 6, 1995; and NYSE Letter, dated June 15, price greater than $25 but less than $50, submitting a notice (‘‘Selection Notice’’) 1995, supra note 10. These figures do not include LEAPs or new strikes created from multiply-traded thereby furthering the public interest by to OCC between the hours of 8:30 a.m. options simultaneously selected by more than one allowing investors to establish equity and 12:00 Noon (Central Time). In the exchange in accordance with the terms of the pilot options positions that are better tailored event that more than one exchange program. to meet their investment objectives. The submits a Selection Notice to the OCC 15 The Amex notes in its proposal that certain low Commission also believes that the for the same multiply-traded option, the volatility stocks of highly capitalized companies usually trade in fairly narrow price ranges. Amex Exchanges’ proposal strikes a reasonable exchange which first submits a Section further notes that options on such stocks generally balance between the Exchanges’ desire Notice to the OCC will be deemed to be have limited trading activity since in-the-money options sell for little more than intrinsic value and to accommodate market participants by the Selecting Exchange for that option. offering a wide array of investment Such option will count toward the out-of-the-money options yield little premium income to attract uncovered or covered writers. (See opportunities and the need to avoid allotment of the Selecting Exchange, but File No. SR–Amex–95–12). excessive proliferation of options series. not toward the allotment of any other The NYSE notes in its proposal that it anticipates The Commission expects the Exchanges selecting its allotment from among those options exchange submitting a Selection Notice to monitor the applicable equity options 13 that overlie less volatile stocks. The NYSE believes under the terms of the pilot program. activity closely to detect any In implementing the proposals, the that the market for options that overlie low volatility stocks will benefit from the pilot program proliferation of illiquid options series Exchanges note that the pilot program because options series with strike prices that are resulting from the narrower strike price effectively adds five additional strike closer to the price of the underlying stock will be intervals and to act promptly to remedy prices to each of the applicable classes available. Consequently, expanded options strategies will be available to investors. (See File this situation should it occur. of equity options, thereby creating a No. SR–NYSE–95–12). In addition, based on the 16 See Letters from Michael Pierson, Senior representations from OPRA, the 11 The Exchanges do not propose to require the Attorney, Market Regulation, PSE, dated June 6, Commission believes that adequate listing of 21⁄2 point strikes for all expiration months 1995 (‘‘PSE Capacity Statement’’), and Edward in selected option classes. See NYSE Letter, dated Provost, Senior Vice President, CBOE, dated June 5, computer processing capacity to June 15, 1995, supra note 10. See also Phlx Letter, 1995 (‘‘CBOE Capacity Statement’’), to John accommodate the additional strike dated June 14, 1995; PSE Letter, dated June 14, Ayanian, Attorney, OMS, Market Regulation, prices is currently available.19 The 1995; CBOE Letter, dated June 30, 1995; and Amex Commission. See also Memorandum from Donna Exchanges also represent that their Letter, dated July 6, 1995, supra note 6. Gervasi, Phlx, to Gerald O’Connell, First Vice 12 The actual allotment of option issues for each President, Market Regulation and Trading Floor current systems capacities are sufficient exchange is: CBOE (28), Amex (22), Phlx (18), PSE Operations, Phlx, dated June 8, 1995, which is to meet the expected demands of the (18), and NYSE (14). The Amex submitted a enclosed in letter from Gerald O’Connell, dated additional strike prices.20 Nevertheless, clarifying amendment to indicate that its allotment June 8, 1995 (‘‘Phlx Capacity Statement’’), and the Commission requests that the of option issues pursuant to the pilot program is 22. Letter from Wendy Hoffman, Amex, dated June 23 Exchanges monitor the trading volume See Amex Letter, dated June 6, 1995, supra note 10. (‘‘Amex Capacity Statement’’), to Michael See also NYSE Letter, dated March 29, 1995, supra Walinskas, Branch Chief, OMS, Market Regulation, note 4. Commission. See also NYSE Letter, dated June 15, 18 15 U.S.C. 78f(b)(5). 13 See Letter from James C. Yong, First Vice 1995, supra note 10. 19 See OPRA Capacity Statement, supra note 17. President and General Counsel, Options Clearing 17 See Letter from Joseph P. Corrigan, Executive 20 See PSE Capacity Statement, Phlx Capacity Corporation (‘‘OCC’’), to Michael Walinskas, Branch Director, OPRA, to Michael Walinskas, Branch Statement, Amex Capacity Statement, and CBOE Chief, OMS, Market Regulation, Commission, dated Chief, OMS, Market Regulation, Commission, dated Capacity Statement, supra note 16. See also NYSE July 6, 1995 (‘‘OCC Letter, dated July 6, 1995’’). June 27, 1995 (‘‘OPRA Capacity Statement’’). Letter, dated June 15, 1995, supra note 10. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38075 associated with the additional options Secretary, Securities and Exchange listing and registration include the series listed as a result of the pilot Commission, 450 Fifth Street, N.W., following: program and the effect of these Washington, DC 20549. Copies of the According to the Company, it wishes additional series on the capacity of the submission, all subsequent to withdraw its Securities from listing Exchanges’, OPRA’s, and vendors’ amendments, all written statements and registration on the BSE. The automated systems. with respect to the proposed rule Company does not meet the minimum The Commission notes that the change that are filed with the maintenance requirements of the BSE Exchanges intend to commence this Commission, and all written and, therefore, in accordance with the pilot program on July 24, 1995.21 In the communications relating to the rules of the BSE, the Company has filed event an exchange desires to extend the proposed rule change between the an application for voluntary delisting pilot program beyond the twelve month Commission and any person, other than with the BSE. The Securities will trade period, it should submit a report to the those that may be withheld from the on the Nasdaq Bulletin Board following Commission before May 31, 1996. The public in accordance with the delisting. report should cover the ten month provisions of 5 U.S.C. 552, will be Any interested person may, on or period from July 24, 1995 to May 20, available for inspection and copying in before August 10, 1995, submit by letter 1996, and should include data and the Commission’s Public Reference to the Secretary of the Securities and written analysis on the open interest Section, 450 Fifth Street, N.W., Exchange Commission, 450 Fifth Street, and trading volume in affected series, Washington, D.C. Copies of such filing N.W., Washington, D.C. 20549, facts and delisted options series (for all strike will also be available for inspection and bearing upon whether the application price intervals) on the selected pilot copying at the principal offices of the has been made in accordance with the program option classes. The exchange Exchanges. All submissions should refer rules of the BSE and what terms, if any, should also discuss any capacity to File Nos. SR–Phlx–95–08, SR–PSE– should be imposed by the Commission problems that may have arisen during 95–07, SR–CBOE–95–19, and SR– for the protection of investors. The the pilot program and provide any other Amex–95–12 and should be submitted Commission, based on the information data it believes is relevant to the by [insert date 21 days after the date of submitted to it, will issue an order analysis of the pilot program. this publication]. granting the application after the date In sum, the Commission finds the mentioned above, unless the IV. Conclusion Exchanges’ proposal to implement a Commission determines to order a 1 twelve month pilot program to list 2 ⁄2 It is therefore ordered, pursuant to hearing on the matter. point strike price intervals in selected Section 19(b)(2) of the Act,22 that the equity options with strike prices For the Commission, by the Division of proposed rule changes (SR–Phlx–95–08, Market Regulation, pursuant to delegated between $25 and $50 should provide SR–Amex–95–12, SR–PSE–95–07, SR– authority. investors with more flexibility to CBOE–95–19, and SR–NYSE–95–12), as Johathan G. Katz, establish equity options positions that amended, are approved through July 15, may be better tailored to meet their Secretary. 1996. [FR Doc. 95–18176 Filed 7–24–95; 8:45 am] investment objectives. For the Commission, by the Division of BILLING CODE 8010±01±M The Commission finds good cause for Market Regulation, pursuant to delegated approving Amendment Nos. 3, 2, 2, and authority.23 1, respectively, to the Phlx’s, the Margaret H. McFarland, SMALL BUSINESS ADMINISTRATION CBOE’s, the PSE’s, and Amex’s Deputy Secretary. proposals, prior to the thirtieth day after [FR Doc. 95–18219 Filed 7–24–95; 8:45 am] [Declaration of Disaster Loan Area #2782; the date of publication of notice of filing Amdt. #2] thereof in the Federal Register. BILLING CODE 8010±01±M Specifically, the amendments conform Illinois; Declaration of Disaster Loan other exchanges’ proposals with the Issuer Delisting; Notice of Application Area NYSE’s proposal, in that the Exchanges to Withdraw From Listing and The above-numbered Declaration is will not be required to list 21⁄2 point Registration; (Xerographic Laser hereby amended, effective June 30, strikes for all expiration months in Images Corporation, Common Stock, selected option classes. The 1995, to include Fulton County in the $.01 Par Value, Preferred Stock, $.01 State of Illinois as a disaster area due to Commission notes that the NYSE Par Value) File No. 1±11236 proposal was subject to a full notice and damages caused by severe storms and comment period, and no comments July 19, 1995. flooding beginning on May 15, 1995 and continuing through June 15, 1995. were received. Xerographic Laser Images Corporation Accordingly, the Commission believes In addition, applications for economic (‘‘Company’’) has filed an application that it is consistent with Section 6(b)(5) injury loans from small businesses with the Securities and Exchange of the Act to approve Amendment Nos. located in the contiguous counties of Commission (‘‘Commission’’), pursuant 3, 2, 2, and 1, respectively, to the Phlx, Knox, Peoria, and Warren may be filed to section 12(d) of the Securities PSE, CBOE, and Amex proposals on an until the specified date at the previously Exchange Act of 1934 (‘‘Act’’) and Rule accelerated basis. designated location. 12d2–2(d) promulgated thereunder, to Interested persons are invited to Any counties contiguous to the above- withdraw the above specified securities submit written data, views and named primary county and not listed (‘‘Securities’’) from listing and arguments concerning Amendment Nos. herein have been previously declared. registration on the Boston Stock 3, 2, 2, and 1, respectively, to the Phlx, All other information remains the Exchange, Inc. (‘‘BSE’’). PSE, CBOE, and Amex proposals. same, i.e., the termination date for filing Persons making written submissions The reasons alleged in the application applications for physical damage is July should file six copies thereof with the for withdrawing the Securities from 29, 1995, and for loans for economic injury the deadline is March 1, 1996. 21 See OCC Letter, dated July 6, 1995, supra note 22 15 U.S.C. 78s(b)(2). The economic injury number for 13. 23 17 CFR 200.30–3(a)(12). Illinois is 853300. 38076 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices (Catalog of Federal Domestic Assistance FOR FURTHER INFORMATION CONTACT: as an assistive listening device, if Program Nos. 59002 and 59008.) Questions regarding the logistics of the requested from the NSPM at least 10 Dated: July 19, 1995. meeting should be directed to Joan calendar days before the meeting. Bernard Kulik, Hollingsworth, FAA, NSPM Office, (2) Representatives of the FAA will Associate Administrator for Disaster AFS–205, at the address shown in the preside over the meeting. FAA Assistance. preceding paragraph; telephone (404) personnel involved in this issue will be present. [FR Doc. 95–18213 Filed 7–24–95; 8:45 am] 305–6100; facsimile (404) 305–6118. (3) Meeting participants will be BILLING CODE 8025±01±M Questions concerning the subject provided an opportunity to raise issues, matter of the meeting should be directed ask questions, or make comments from to Ed Cook, National Simulator the floor in relation to the topic under Program, telephone (404) 305–6101; or discussion. Comments received from DEPARTMENT OF TRANSPORTATION Larry Basham, Flight Standards Service, persons not able to attend (but who Certification Branch, telephone (202) mailed or faxed comments received on Federal Aviation Administration 267–3837. or prior to August 22, 1995) will be read Qualification and Approval of Flight SUPPLEMENTARY INFORMATION: or summarized and read to those in Training Devices, Advisory Circular Background attendance. (AC) 120±45 (4) No formal meeting notes will be On March 11, 1987, the FAA issued taken and no summary of proceedings AGENCY: Federal Aviation AC 120–45, ‘‘Advanced Training will be made available. Administration (FAA), DOT. Devices (Airplane Only) Evaluation and Issued in Washington, DC, on July 14, ACTION: Notice of meeting. Qualification,’’ applicable to that part of 1995. the aviation community regulated under Thomas C. Accardi, SUMMARY: Part 135 of Title 14, Code of Federal This notice announces the Director, Flight Standards Service. date, time, and location of a public Regulations (14 CFR). On February 5, [FR Doc. 95–18272 Filed 7–24–95; 8:45 am] meeting to address issues related to the 1992, this AC was modified qualification and approval of certain substantially with the issuance of AC BILLING CODE 4910±13±M equipment utilized in pilot flight 120–45A, ‘‘Airplane Flight Training training. This equipment has been Device Qualification,’’ which Proposed Advisory Circular 25.1187±1, defined by the FAA as Flight Training established the technical standards for Minimization of Flammable Fluid Fire Devices (FTD) in AC 120–45, as devices for flight training, qualification, Hazards (Flammable Fluid Fire amended. The meeting will specifically or certification of all airmen under 14 Protection) include discussion and consideration of: CFR. Since its publication, questions (1) The criteria for qualification and have been asked about the specific AGENCY: Federal Aviation approval of FTD not capable of meeting technical standards described in this Administration, DOT. the standards for, or not submitted for, revised document and the application of ACTION: Notice of Availability of a specified level of qualification under those standards for various levels of Proposed Advisory Circular (AC) the current AC; (2) the criteria for FTD, including the necessity for, and 25.1187–1 and request for comments. qualification and approval of devices the source of, supporting and validation commonly called Personal Computer- data used to evaluate and qualify FTD’s. SUMMARY: This notice announces the based Flight Training Devices (PCFTD); Other questions centered around the availability of and requests comments and (3) additional definitions and type and level of detail required for on a proposed advisory circular (AC) clarification that may be necessary certain objective tests for some levels of which provides a method of compliance regarding specific issues relative to FTD FTD. Additional questions arose with the requirements of § 25.1187 of Levels 2–7; i.e., data, objective testing, concerning devices currently in the Federal Aviation Regulations (FAR). Section 25.1187 contains the etc. The purpose of this meeting is to operation and authorized by the FAA, certification requirements for drainage provide the public with the opportunity but not capable of meeting the stated and ventilation of fire zones for to provide comments on these and other technical criteria; ways which some of transport category airplanes. This notice relevant matters pertaining to AC 120– the specific technical standards may be is necessary to give all interested 45, as amended. met; and whether some of the personal computer-based training systems/aids persons an opportunity to present their DATES: The meeting will be held on views on the proposed AC. August 29, 30, and 31, 1995. The may be qualified under this AC. AC 102–45A published specific DATES: Comments must be received on meeting will begin at 9 a.m. on the first or before November 22, 1995. day, and 8 a.m. the second and third technical criteria for FTD annotated as ADDRESSES: Send all comments on days. Levels 2 through 7. Level 1 was reserved for future use. Questions arose regarding proposed AC to: Federal Aviation ADDRESSES: The meeting will be held in the use of Level 1 as a broad-based Administration, Attention: Mike the first floor auditorium of the FAA ‘‘parking place’’ for unqualified FTDs Dostert, Airframe and Propulsion Southern Region Headquarters, 1701 currently in operation and for at least Branch, ANM–112, Transport Airplane Columbia Avenue, College Park, Georgia some of the personal computer-based Directorate, Aircraft Certification 30337. training systems/aids. Many Service, 1601 Lind Avenue SW, Renton, Persons unable to attend the meeting unanswered questions still remain about WA 98055–4056. Comments may be may mail their comments in triplicate use of Level 1 for either or both of these inspected at the above address between to: Federal Aviation Administration, two types of FTD and what technical 7:30 a.m. and 4 p.m. weekdays, except National Simulator Program Manager standards should be required of them. Federal holidays. (NSPM), P.O. Box 20636, Atlanta, FOR FURTHER INFORMATION CONTACT: Georgia 30320. Written comments are Meeting Procedures Jan Thor, Transport Standards Staff, at invited and must be received on or (1) Sign and oral interpretation can be the address above, telephone (206) 227– before September 8, 1995. made available at the meeting, as well 2127. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38077 SUPPLEMENTARY INFORMATION: provided by the Automated Flight 1601 Lind Avenue, SW., Suite 250; Comments Invited Service Station (AFSS) in Oakland, Renton, Washington 98055–4056. The California. This information will be application may be reviewed in person A copy of the draft AC may be reflected in the next issue of the FAA at this same location. obtained by contacting the person Organization Statement. named above under FOR FURTHER SUPPLEMENTARY INFORMATION: The FAA INFORMATION CONTACT. Interested (Sec. 313(a), 72 Stat. 752, 49 U.S.C. 1354) proposes to rule and invites public persons are invited to comment on the Issued in Lawndale, California, on July 14, comment on the application to impose proposed AC by submitting such written 1995. and use PFC revenue at Tri-Cities data, views, or arguments as they may Lynore C. Brekke, Airport, under the provisions of 49 desire. Commenters should identify AC Acting Regional Administrator, Western- U.S.C. 40117 and Part 158 of the Federal 25.1187–1 and submit comments, in Pacific Region. Aviation Regulations (14 CFR Part 158). duplicate, to the address specified [FR Doc. 95–18273 Filed 7–24–95; 8:45 am] On July 17, 1995, the FAA determined above. All communications received on BILLING CODE 4910±13±M that the application to impose and use or before the closing date for comments the revenue from a PFC submitted by will be considered by the Transport the Port of Pasco Port Commission was Standards Staff before issuing the final Notice of Intent To Rule on Application substantially complete within the AC. To Use the Revenue From a Passenger requirements of section 158.25 of Part Facility Charge (PFC) at Tri-Cities 158. The FAA will approve or Discussion Airport, Submitted by the Port of disapprove the application, in whole or A common cause of airplane fires has Pasco Port Commission, Pasco, in part, no later than October 28, 1995. been the ignition of leaked flammable Washington The following is a brief overview of fluids. The primary means of preventing the application. these fires is to safely drain the fluid AGENCY: Federal Aviation Administration (FAA), DOT. Level of the proposed PFC: $3.00. away from the airplane, both in flight Actual charge effective date: and on the ground, and to provide ACTION: Notice of intent to rule on September 1, 1997. ventilation that results in a lean fuel to application. air mixture. The purpose of this AC is Proposed charge expiration date: SUMMARY: The FAA proposes to rule and April 31, 1998. to provide guidance in what factors invites public comment on the should be considered in the design of Total estimated PFC revenues: application to impose and use PFC $260,000.00. flammable fluid drainage systems and revenue at Tri-Cities Airport under the ventilation systems, and to describe a Brief description of proposed project: provisions of 49 U.S.C. 40117 and Part means of showing compliance with the Airport master plan update. 158 of the Federal Aviation Regulations sections of the FAR that require these Class or classes of air carriers which (14 CFR 158). systems. This AC provides information the public agency has requested not be and guidance concerning a means, but DATES: Comments must be received on required to collect PFC’s: None. or before August 24, 1995. not the only means, of compliance with Any person may inspect the the portions of part 25 of the FAR ADDRESSES: Comments on this application in person at the FAA office pertaining to certification requirements application may be mailed or delivered listed above under FOR FURTHER for compartments in transport category in triplicate to the FAA at the following INFORMATION CONTACT and at the FAA airplanes that contain flammable fluid address: J. Wade Bryant, Manager; Regional Airports Office located at: leakage sources. Seattle Airports District Office, SEA– Federal Aviation Administration, ADO; Federal Aviation Administration; Issued in Renton, Washington, on July 14, Northwest Mountain Region, Airports 1995. 1601 Lind Avenue, SW., Suite 250; Division, ANM–600, 1601 Lind Avenue, Renton, WA 98055–4056. SW., Suite 540, Renton, WA 98055– James V. Devany, In addition, one copy of any 4056. Acting Manager, Transport Airplane comments submitted to the FAA must Directorate, Aircraft Certification Service, be mailed or delivered to Mr. James In addition, any person may, upon ANM–100. Morasch, Director of Airports, at the request, inspect the application, notice [FR Doc. 95–18271 Filed 7–24–95; 8:45 am] following address: Port of Pasco, 3601 and other documents germane to the BILLING CODE 4910±13±M North 20th Avenue, Pasco, WA 99301. application in person at the Tri-Cities Air Carriers and foreign air carriers Airport. may submit copies of written comments Issued in Renton, Washington on July 17, Flight Service Station at Salinas, CA; previously provided to Tri-Cities 1995. Notice of Closure Airport, under section 158.23 of Part David A. Field, Notice is hereby given that on July 20, 158. Manager, Planning, Programming and 1995, the Flight Service Station (FSS) at FOR FURTHER INFORMATION CONTACT: Capacity Branch, Northwest Mountain Salinas, California, closed. Services to Mr. Paul Johnson, (206) 227–2655; Region. the general public of Salinas, California, Seattle Airports District Office, SEA– [FR Doc. 95–18274 Filed 7–24–95; 8:45 am] formerly provided by this facility, are ADO; Federal Aviation Administration; BILLING CODE 4910±13±M 38078 Sunshine Act Meetings Federal Register Vol. 60, No. 142 Tuesday, July 25, 1995 This section of the FEDERAL REGISTER (Contact: Richard Correia, 301–415–1009) NATIONAL TRANSPORTATION SAFETY BOARD contains notices of meetings published under 11:30 a.m. TIME AND DATE: 9:30 a.m., Tuesday, the ``Government in the Sunshine Act'' (Pub. Affirmation Session (Public Meeting) L. 94-409) 5 U.S.C. 552b(e)(3). a. Georgia Institute of Technology Appeal August 1, 1995. of LBP–95–6 (Tentative) PLACE: The Board Room, 5th Floor, 490 (Contact: Andres Bates, 301–415–1963) L’Enfant Plaza, S.W., Washington, D.C. FARM CREDIT ADMINISTRATION 2:00 p.m. 20594. Briefing on Reactor Inspection Program STATUS: Farm Credit Administration Board; The first two items are open to (Public Meeting) the public. The last item is close to the Amendment to Sunshine Act Meeting (Contact: Frank Gillespie, 301–415–1275) public under Exemption 10 of the SUMMARY: Pursuant to the Government Thursday, July 27 Government in Sunshine Act. in the Sunshine Act (5 U.S.C. 2:00 p.m. MATTERS TO BE CONSIDERED: 552b(e)(3)), the Farm Credit Meeting with Nuclear Safety Research Administration gave notice on July 17, Review Committee (NSRRC) (Public 6588 Aviation Accident Report: Phoenix 1995 (60 FR 36461) of the special Meeting) Air Learjet 35A, Crash During Emergency meeting of the Farm Credit (Contact: George Sege, 301–415–6593) Landing, Fresno, California, December 14, 1994. Administration Board (Board) Week of July 31—Tentative 6585 Briefs of Aviation Accidents: Briefs scheduled for July 19, 1995. This notice There are no meetings scheduled for the is to amend the agenda by adding a of 11 Accidents. The Board will only discuss Week of July 31. the four listed below: closed session to that meeting. Week of August 7—Tentative File No. 1439 FOR FURTHER INFORMATION CONTACT: File No. 1522 Floyd Fithian, Secretary to the Farm There are no meetings scheduled for the Week of August 7. File No. 1560 Credit Administration Board, (703) 883- File No. 1706 4025, TDD (703) 883-4444. Week of August 14—Tentative 6578 Opinion and Order: Neel v. ADDRESS: Farm Credit Administration, There are no meetings scheduled for the Administrator, Docket SE–13573; disposition 1501 Farm Credit Drive, McLean, Week of August 14. of applicant’s appeal. Virginia 22102-5090. Note: The Nuclear Regulatory Commission NEWS MEDIA CONTACT: Telephone: (202) is operating under a delegation of authority SUPPLEMENTARY INFORMATION: Parts of 382–0660. to Chairman Shirley A. Jackson, because with this meeting of the Board were open to three vacancies on the Commission, it is FOR MORE INFORMATION CONTACT: Bea the public (limited space available), and temporarily without a quorum. As a legal Hardesty, (202) 382–6525. parts of this meeting were closed to the matter, therefore, the Sunshine Act does not Dated: July 21, 1995. public. The agenda for July 19, 1995, is apply; but in the interests of openness and Bea Hardesty, amended as follows: public accountability, the Commission will conduct business as though the Sunshine Act Federal Register Liaison Officer. Closed Session* were applicable. [FR Doc. 95–18345 Filed 7–21–95; 3:12 pm] 1. Other The schedule for Commission BILLING CODE 7533±01±P —Comments on Farmer Mac meetings is subject to change on short Dated: July 19, 1995. notice. To verify the status of meetings SECURITIES AND EXCHANGE COMMISSION Floyd Fithian, call (Recording)–(301) 415–1292. Agency Meetings Secretary, Farm Credit Administration Board. CONTACT PERSON FOR MORE INFORMATION: Notice is hereby given, pursuant to *Session Closed—Exempt pursuant to 5 Bill Hill (301) 415–1661. U.S.C. 552b(c)(8) and (9). This notice is distributed by mail to the provisions of the Government in the several hundred subscribers; if you no Sunshine Act, Pub. L. 94–409, that the [FR Doc. 95–18322 Filed 7–21–95; 10:49 am] longer wish to receive it, or would like Securities and Exchange Commission BILLING CODE 6705±01±P to be added to it, please contact the will hold the following meetings during Office of the Secretary, Attn: Operations the week of July 24, 1995. An open meeting will be held on NUCLEAR REGULATORY COMMISSION Branch, Washington, D.C. 20555 (301– 415–1963). Thursday, July 27, 1995, at 10:00 a.m. A DATE: Weeks of July 24, 31, August 7, In addition, distribution of this closed meeting will be held on and 14, 1995. meeting notice over the internet system Thursday, July 27, 1995, following the PLACE: Commissioners’ Conference is available. If you are interested in 10 a.m. open meeting. Room, 11555 Rockville Pike, Rockville, receiving this Commission meeting Commissioners, Counsel to the Maryland. schedule electronically, please send an Commissioners, the Secretary to the Commission, and recording secretaries STATUS: Public. electronic message to [email protected] or [email protected]. will attend the closed meetings. Certain MATTERS TO BE CONSIDERED: staff members who have an interest in Dated: July 21, 1995. the matters may also be present. Week of July 24 William M. Hill, Jr., The General Counsel of the Wednesday, July 26 SECY Tracking Officer, Office of the Commission, or his designee, has 10:00 a.m. Secretary. certified that, in his opinion, one or Briefing on Status of Maintenance Rule [FR Doc. 95–18398 Filed 7–21–95; 3:12 pm] more of the exemptions set forth in 5 (Public Meeting) BILLING CODE 7590±01±M U.S.C. 552b(c)(4), (8), (9)(A) and (10) Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Sunshine Act Meetings 38079 and 17 CFR 200.402(a)(4), (8), (9)(i) and foreign banks and securities depositories that 27, 1995, after the 10:00 open meeting, (10), permit consideration of the could serve as investment company will be: custodians. scheduled matters at the closed meeting. Institution of injunctive actions. Commissioner Wallman, as duty 2. Consideration of whether to publish for Settlement of injunctive action. officer, voted to consider the items public comment revised proposed rule 3a–4 Institution of administrative proceedings of listed for the closed meeting in a closed and proposed Form N–3a4, both under the Investment Company Act of 1940. Revised an enforcement nature. session. proposed rule 3a–4 would provide a Settlement of administrative proceedings The subject matters of the open nonexclusive safe harbor from the definition of an enforcement nature. meeting scheduled for Thursday, July of investment company for certain programs Formal orders of investigation. 27, 1995, at 10 a.m., will be: under which investment advisory services Opinion. 1. Consideration of whether to propose for are provided to clients (‘‘investment advisory public comment amendments to rule 17f–5 programs’’). Proposed Form N–3a4 would be At times, changes in Commission under the Investment Company Act of 1940, filed with the Commission by sponsors of priorities require alterations in the the rule that governs the custody of investment advisory programs intending to scheduling of meeting items. For further rely on rule 3a–4. Additionally, the investment company assets outside the information and to ascertain what, if United States. The amendments would revise Commission is considering requesting the findings that currently must be made in comment regarding the application of certain any, matters have been added, deleted establishing foreign custody arrangements to provisions of the Investment Advisers Act of or postponed, please contact: The Office focus exclusively on the safekeeping of 1940 to investment advisers participating in of the Secretary (202) 942–7070. investment advisory programs. investment company assets, permit a Dated: July 21, 1995. company’s board of directors to delegate its responsibilities under the rule to evaluate The subject matter of the closed [FR Doc. 95–18336 Filed 7–21–95; 3:12 pm] these arrangements, and expand the class of meeting scheduled for Thursday, July BILLING CODE 8010±01±M federal register July 25,1995 Tuesday Proposed Rules Capital RequirementsforMarketRisk; Market Risk-BasedCapitalStandardsand 12 CFRPart325 Corporation Federal DepositInsurance 12 CFRPart208etal. Federal ReserveSystem 12 CFRPart3 Department oftheTreasury Part II 38081 38082 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules DEPARTMENT OF THE TREASURY Comments will be available for SUPPLEMENTARY INFORMATION: The inspection and photocopying at that Agencies are proposing amendments to Office of the Comptroller of the address. their risk-based capital requirements to Currency Board: Comments directed to the incorporate a measure for market risk. Board should refer to Docket No.R–0884 The proposed amendments would 12 CFR Part 3 and may be mailed to William W. Wiles, generally apply only to institutions that [Docket No. 95±19] Secretary, Board of Governors of the have (1) total assets exceeding $5 billion Federal Reserve System, 20th Street and and either on-balance-sheet trading RIN 1557±AB14 Constitution Avenue, N.W., activities representing at least 3.0 Washington, D.C. 20551. Comments percent of total assets or a volume of off- FEDERAL RESERVE SYSTEM may also be delivered to Room B–2222 balance-sheet trading activities with of the Eccles Building between 8:45 and notional amounts exceeding $5 billion, 12 CFR Parts 208 and 225 5:15 p.m. weekdays, or to the guard or (2) total assets of $5 billion or less [Regulations H and Y; Docket No. R±0884] station in the Eccles Building courtyard and a volume of trading activities on 20th Street, N.W. (between representing at least 10.0 percent of total FEDERAL DEPOSIT INSURANCE Constitution Avenue and C Street) at assets. CORPORATION any time. Comments may be inspected I. Background in Room MP–500 of the Martin Building 12 CFR Part 325 between 9 a.m. and 5 p.m. weekdays, The Agencies’ risk-based capital except as provided in 12 CFR 261.8 of standards are based upon the principles RIN 3064±AB64 the Board’s rules regarding availability contained in the agreement on of information. International Convergence of Capital Risk-Based Capital Standards: Market Measurement and Capital Standards of Risk FDIC: Written comments should be sent to Jerry L. Langley, Executive July, 1988 (the Accord) that was agreed AGENCIES: Office of the Comptroller of Secretary, Attention: Room F–402, to by the Basle Committee on Banking the Currency (OCC), Department of the Federal Deposit Insurance Corporation, Supervision (the Committee) and Treasury; Board of Governors of the endorsed by the central bank governors 550 17th Street N.W., Washington, D.C. 1 Federal Reserve System (Board), and the 20429. Comments may be hand- of the Group of Ten (G–10) countries. Federal Deposit Insurance Corporation delivered to Room, F–402, 1776 F Street That Accord sets forth a framework for measuring capital adequacy under (FDIC). N.W., Washington, D.C. 20429, on which weighted risk assets are ACTION: business days between 8:30 a.m. and 5 Joint notice of proposed calculated by weighting an institution’s p.m. (Fax number (202)898–3838; rulemaking. assets and off-balance-sheet items on the Internet address: [email protected]). basis of their perceived credit risk using SUMMARY: The Office of the Comptroller Comments will be available for a relatively small number of risk of the Currency (OCC), the Board of inspection and photocopying in Room Governors of the Federal Reserve categories. 7118, 550 17th Street, N.W., By focusing on credit risk, the risk System (Board), and the Federal Deposit Washington, D.C. 20429, between 9 a.m. Insurance Corporation (FDIC) (the that a loss will be incurred due to an and 4:30 p.m. on business days. obligor or counterparty default on a Agencies) are proposing to amend their FOR FURTHER INFORMATION CONTACT: risk-based capital requirements to transaction, the Accord generally OCC: Roger Tufts, Senior Economic excludes coverage of risks arising from incorporate a measure for market risk in Advisor (202/874–5070), or Christina foreign exchange and commodity adverse movements in market interest Benson, Capital Markets Specialist, rates, foreign exchange rates, or activities and in the trading of debt and (202/874–5070) Office of the Chief commodity or equity prices. The equity instruments. Under the proposal, National Bank Examiner. For legal potential for loss from such movements banks and bank holding companies issues, Ronald Shimabukuro, Senior is referred to as market risk. In April (institutions) regulated by the OCC, the Attorney, Legislative and Regulatory 1993, the Committee, recognizing the Board, and the FDIC with relatively Activities Division (202/874–5090), need to incorporate market risk into the large trading activities would calculate Office of the Comptroller of the risk-based capital standard, requested their capital charges for market risk Currency, 250 E Street S.W., comments on an initial measurement using either their own internal value-at- Washington, D.C. 20219. framework. The Agencies’ current risk model(s) or, alternatively, risk Board: Roger Cole, Deputy Associate proposal reflects substantial revisions to measurement techniques that were Director (202/452–2618), James Houpt, that 1993 paper and is based upon developed by supervisors. The effect of Assistant Director (202/452–3358), revisions to the Accord that were the proposed market risk measure Barbara Bouchard, Supervisory proposed by the Committee on April 12, would be that, in addition to existing Financial Analyst (202/452–3072), 1995.2 capital requirements for credit risk, Division of Banking Supervision and The 1993 paper proposed certain institutions would be required to Regulation; or Stephanie Martin, Senior standardized measurement procedures hold capital based on the measure of Attorney (202/452–3198), Legal for assessing risks in traded debt, equity, their market risk exposure. Division. For the hearing impaired only, DATES: Comments must be received on Telecommunication Device for the Deaf, 1 The Basle Supervisors’ Committee is comprised or before September 18, 1995. Dorothea Thompson (202/452–3544). of representatives of the central banks and supervisory authorities from the G–10 countries ADDRESSES: Comments should be FDIC: William A. Stark, Assistant (Belgium, Canada, France, Germany, Italy, Japan, directed to: Director, (202/898–6972), Kenton Fox, The Netherlands, Sweden, Switzerland, the United OCC: Comments may be submitted to Senior Capital Markets Specialist, (202/ Kingdom, and the United States) plus Luxembourg. Docket Number 95–19, Communications 898–7119), Division of Supervision; 2 The Committee’s document is entitled ‘‘Proposal to Issue a Supplement to the Basle Capital Accord Division, Third Floor, Office of the Jamey Basham, Counsel, (202/898– to Cover Market Risks’’ and is available through the Comptroller of the Currency, 250 E 7265), Legal Division, FDIC, 550 17th Board’s and the OCC’s Freedom of Information Street, S.W., Washington, DC 20219. Street, N.W., Washington, D.C. 20429. Office and the FDIC’s Reading Room. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38083 and foreign exchange activities and approval of its appropriate supervisor standards that address credit risk provided only a limited role for a bank’s and would be contingent upon through the current weighted-risk assets internal model(s) in measuring market conformance with certain qualitative measure. risk exposure for regulatory capital and quantitative standards regarding the For purposes of this proposal, general purposes. These procedures were measurement and management of market risk refers to changes in the strongly criticized by commenters to the market risks. An institution whose market value of the covered transactions consultative document, especially by internal model failed to meet those that arise from broad market institutions in the United States. These standards or otherwise failed to gain movements, such as changing levels of institutions generally believed that the regulatory approval would be required market interest rates, broad equity measurement framework was unduly to use standardized risk measurement indices, or currency exchange rates. cumbersome and potentially inaccurate, techniques as set forth in the Specific risk includes the credit risk of especially for institutions with Committee’s April 1995 proposal. This an issuer of a traded security, as well as significant and diversified trading latter approach is referred to as the other factors that affect the market value activities. ‘‘standardized risk measure’’ approach, of specific instruments, but that do not In lieu of the standardized framework, as it applies standardized assumptions materially alter broad market these institutions urged the Committee and risk factors to an institution’s conditions. Consequently, instruments to allow greater use of an institution’s activities. other than over-the-counter (OTC) internal market risk models. They noted The Agencies are now proposing derivatives that are covered by this that large trading banks have materially amendments to their risk-based capital proposal would, in effect, be removed expanded the sophistication and standards that are similar to the from and no longer subject to the credit coverage of their market risk trading proposal recently issued by the risk standard previously established. models. These models are typically Committee.4 The Agencies would OTC derivatives would remain subject described as ‘‘value-at-risk’’ (VAR) encourage institutions that are affected to the counterparty credit risk models, which estimate the maximum by this proposal, and especially those requirements set forth in the existing amount by which an institution’s with large trading accounts, to comply risk-based capital standard. portfolio could decline in market value, with the proposed requirements by This proposal defines trading given a certain level of statistical using the proprietary internal models activities as the sum of all trading assets confidence and an assumed holding that they use to manage market risk. and liabilities as reported in the period. The commenters believed that The Agencies believe that such quarterly Consolidated Reports of these models would provide a more models should provide a more accurate Condition and Income (call report) and accurate risk measure and would be measure of market risk than the would apply on a fully consolidated better able to incorporate new products standardized risk measure and would basis to all national banks, state member and activities than would the impose fewer costs and burdens on banks, and bank holding companies that standardized framework. They also institutions. By using internal models meet the following criteria: believed that imposing a rigid not only for operating purposes, but also (1) The institution has total assets supervisory measurement system on as a basis for determining capital exceeding $5 billion, and (a) the gross institutions would result in unnecessary requirements, institutions should be sum of trading assets and liabilities on costs and could encourage improper risk further encouraged to continue their a daily average basis for the quarter management practices if institutions efforts to refine the accuracy of their account for 3.0 percent or more of total sought to minimize the capital proprietary models, especially with assets, or (b) the sum of the notional requirements resulting from the regard to options risk. Given their amount of interest rate, foreign proposed risk measure. Many large preference for the use of internal models exchange, equity and commodity off- European banks also urged the use of for measuring market risk, the Agencies balance-sheet derivative contracts internal models for measuring market request comments regarding whether relating to trading activities exceeds $5 risks for regulatory capital purposes, but institutions should be permitted a billion, or were generally less critical, in part choice between the two measurement (2) The institution has total assets of because the European Union had procedures, or only be permitted to use $5 billion or less and trading assets and adopted into European law a regime internal models. liabilities exceed 10 percent of total similar to the one outlined in the 1993 II. Scope: Activities and Institutions assets. paper.3 The Agencies may also apply the Covered by the Proposal In response to these and other standard to other institutions for safety comments and concerns, the Committee This proposal would establish new and soundness purposes in limited issued a new proposal on April 12, capital requirements for general market circumstances and on a case-by-case 1995. In addition to expanding the risk and specific risk as they pertain to basis. earlier proposal by providing measures the trading activities of a banking for risks in commodities and options, organization and to the organization’s III. Definition of Capital and the Capital this latest proposal would allow other foreign exchange and commodities Requirement institutions to use their internal market activities. As such, the proposed The Agencies are also proposing to risk models to measure the level of their standard, by creating a risk-based expand the definition and types of market risk exposure against which they capital ratio adjusted for market risk qualifying capital that an institution would be required to hold capital. This through the addition of a market risk- could use to meet its market risk capital approach is referred to as the ‘‘internal equivalent assets measure, is an requirements. This modification and models approach.’’ An institution’s use integrated supplement to existing others require that the procedures for of this approach would be subject to the calculating an institution’s overall risk- 4 As set forth in the regulatory text, the Agencies based capital ratio be changed. 3 The European Union’s Second Directive sets propose to adopt the market risk requirements as Definition of capital. The Accord forth a capital regime for market risk that applies new appendices to their capital adequacy permits institutions to meet regulatory to banking and securities firms that operate in EU standards. The OCC may be required to make member countries. These capital requirements additional conforming amendments to its risk-based capital requirements with a combination become effective at the beginning of 1996. capital guidelines. of ‘‘core’’ (Tier 1) and ‘‘supplementary’’ 38084 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules (Tier 2) capital. Tier 1 includes equity, the proposal, an institution would however, should be limited to situations noncumulative perpetual preferred accomplish this by multiplying its in which the institution is in the process stock, and minority interest in capital requirement for market risk (as of developing and implementing the consolidated subsidiaries, less goodwill, calculated by the internal model or internal models approach for all of its while Tier 2 includes the allowance for standardized approach) by 12.5 (the trading activities and would be loan and lease losses, other preferred reciprocal of the minimum capital ratio permitted only on a temporary basis. In stock, and subordinated debt that has an of 8.0 percent) and adding the resulting addition, the combination of approaches original weighted average maturity of at market risk equivalent figure to its used should be consistent with the least five years.5 weighted risk assets, as calculated by method the institution uses in managing This proposal would permit the credit risk standard. The its risks. For example, if an institution institutions to use a third tier of capital institution’s Tier 1 and total risk-based has a comprehensive value-at-risk (Tier 3), consisting of short-term capital ratios would be calculated as the model for its interest rate exposures in subordinated debt. However, this capital sum of the eligible capital as a percent its trading portfolio but not for its could be used only to meet capital of the sum of market risk-equivalent equities exposures, the agencies would requirements pertaining to market risk assets and weighted risk assets. This expect the institution to use the and only if that debt meets certain approach avoids the distortions that standardized measure for equities and qualifying conditions: It must have an could result from allocating the the internal model for interest rate original maturity of at least two years, necessary capital to either market or exposures. These conditions are be unsecured and fully paid up, and credit risk and then calculating an designed to prevent institutions from subject to a lock-in provision that institution’s capital ratio on the basis of selecting the lower of alternative risk prevents the issuer from repaying the the remaining capital. It also measures and are also intended to debt even at maturity if the issuer’s incorporates the risk-based capital ratio encourage institutions to develop and capital ratios are, or with repayment adjusted for market risk into the capital improve their risk measurement and would become, less than the minimum category definitions under the Agencies’ management practices. 8.0 percent risk-based capital prompt corrective action regulations. When combinations of the two risk requirement. Due to the 250 percent constraint on measurement techniques are used, the The agencies are proposing to allow Tier 3 capital, an institution that wishes institution should measure a complete the use of Tier 3 capital in recognition to use Tier 3 capital must first calculate risk category using a single approach that such short-term subordinated debt its minimum credit risk requirement to and not mix techniques within a given can help to protect depositors and the determine the amount of Tier 1 capital category of risk. For this purpose, the Bank Insurance Fund against loss. that is available to support market risk. risk categories are defined as interest Indeed, because the underwriting This amount sets an upper limit on the rates, foreign exchange, equity prices, activities of securities firms often create amount of Tier 3 capital that the and commodity prices. Moreover, once volatile capital requirements, securities institution may have. In calculating its an institution adopts a comprehensive regulators in many countries permit aggregate capital ratio, however, only value-at-risk model that is acceptable, it their institutions to treat such debt as that portion of Tier 3 that is actually may not revert to the standardized risk capital, with similar qualifications. The needed to meet its market risk measure, except in unusual Agencies, however, believe that Tier 1 requirement may be included as eligible circumstances and only with instruments should remain a substantial capital. Tier 3 capital in excess of this supervisory consent. The proposal proportion of an institution’s total amount will not be considered as provides some flexibility for de minimis capital and, therefore, propose the eligible capital as it is not permitted to positions, activities in remote locations, following constraints: meet credit risk. Eligible capital would in minor currencies, or in activities that (1) Tier 3 capital may not exceed 250 be the sum of the whole of the present negligible risk to the institution. institution’s Tier 1 capital, plus all of its percent of the amount of Tier 1 capital V. Internal Models Approach allocated for market risk, and Tier 2 capital under the limits imposed in the credit risk Accord, and Tier 3 The Agencies believe that an (2) Tier 1 capital must represent at institution’s market risk can be most least 50 percent of an institution’s total capital subject to the above restrictions. The quoted ratio will thus represent accurately measured using detailed eligible capital—the sum of Tier 1, information available only to the qualifying Tier 2, and Tier 3 to the capital that is available to meet both credit risk and market risk.6 institution and processed by its own extent it is permitted in item (1), above. proprietary risk measurement model(s). Note that any element of Tier 2 capital IV. Partial Models Accordingly, the Agencies would must continue to conform with the With supervisory approval, encourage all institutions—especially requirements of the original Accord; institutions whose internal models do those with significant trading that is, Tier 2 may not exceed total Tier not cover all elements of their trading activities—to pursue this approach. To 1 capital, and long-term subordinated activities may use components of the be most reliable, however, the debt may not exceed 50 percent of alternative standardized approach to modelling process must be fully Tier 1. measure market risks for risk-based integrated into the institution’s broader Calculation of the capital ratio. An capital purposes. Such combinations, procedures for managing risk and must institution subject to this proposal be actively supported by senior would remain subject to the Agencies’ 6 For example, if an institution had $120 of Tier management. It must also conform with risk-based capital standards based on 1 capital, of which $100 was needed to meet its other specific qualitative and credit risk, but would also be required minimum 8.0 percent risk-based capital standard quantitative standards that the Agencies to supplement its risk-based capital for credit risk, only $20 would be available for market risk. That $20, in turn, would ‘‘support’’ as believe are necessary in order to achieve ratio to adjust it for market risk. Under much as $50 of Tier 3 capital ($20 X 250%) for an adequate level of rigor and purposes of meeting the capital requirement for consistency in a capital standard. Under 5 Bank holding companies may include market risk. If the market risk capital requirement cumulative perpetual preferred stock in Tier 1 were $50, the institution could count only $30 of this proposal, institutions that plan to capital, subject to the conditions that are specified Tier 3 capital as eligible capital in calculating its use internal models in calculating their in the Board’s capital guidelines. regulatory capital requirements. capital requirements for market risk Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38085 would need to contact their appropriate holding period. Just as institutions use similar risk exposures have similar supervisor and make arrangements for different historical time periods when capital requirements. having their models validated for computing possible changes in market Since institutions use VAR to guide regulatory capital purposes. risk factors, they also use different them in setting trading limits, rather confidence levels to estimate potential than for evaluating capital adequacy, Modelling Market Risk losses. Some institutions use a 90 or 95 they set their model parameters to In order to measure exposures when percent confidence level (one-tail), address normal conditions. Indeed, the evaluating trading risks, many while others use a higher level of models are designed to ensure that institutions calculate the ‘‘value-at-risk’’ statistical confidence. actual trading results often exceed the (VAR), representing the maximum Institutions also use different projected levels so that management is amount by which the market value of modelling procedures in calculating better able to evaluate the model’s their trading portfolios could decline their market risk exposures. The most predictive accuracy and to respond to during a specific period of time and common models are based upon events that generate unexpectedly large with a certain degree of statistical variance/covariance methodologies, gains or losses. During a given year, for confidence. For example, at the close of historical simulations, or Monte Carlo example, a model based on a 90 percent business on day one a bank might simulation techniques. In the case of the confidence level (one tail) could be calculate its VAR to be $10 million, variance/covariance approach, the expected to underestimate actual indicating that it has only some small change in value of the portfolio is trading losses more than 20 times. chance of losing more than that amount calculated by combining the risk factor Moreover, knowing that a day’s on its existing holdings, if they were sensitivities of the individual trading results could be expected to held through the end of day two. Most positions—derived from valuation exceed the VAR ten percent, five institutions use this measure as a models—with a variance/covariance percent, or even only one percent of the management tool for evaluating their matrix based on risk factor volatilities time, says nothing about the magnitude trading positions, limits, and strategies. and correlations. An institution would by which the VAR might be exceeded. By measuring the risk daily, calculate the volatilities and The probabilities of VAR models cannot management can quickly revise its correlations of the risk factors on the be extended to estimate the size of a positions, limits and strategies as market basis of the holding period and the highly unlikely event because most conditions change. observation period. Value-at-risk is models assume that market movements A value-at-risk model requires a are distributed normally. While that variety of inputs: (1) Accurate and determined according to the desired level of statistical confidence. assumption may be adequate for a timely information about the model’s intended purpose, it permits institution’s trading positions, (2) Using historical simulations, an institution would calculate the the model to greatly understate the information about past movements of likelihood of a large loss. For example, relevant market prices and rates, and (3) hypothetical change in value of the current portfolio in the light of actual assuming a normal distribution, the several key measurement parameters, likelihood of experiencing a four such as the length of the historical historical movements in risk factors. standard deviation event is period for which market changes are This calculation is done for each of the approximately 3 in 100,000—in trading observed (observation period), defined holding periods over a given terms, about once in 130 years. In management’s required level of historical measurement horizon to practice, however, such unusual market confidence, and the assumed holding arrive at a range of simulated profits and movements are seen in most major period for which the value of current losses, and the confidence level, again, markets on average almost every year.7 trading positions may change. When determines the value-at-risk. These conditions require that evaluating their current positions and Monte Carlo techniques also consider regulators impose some constraints or estimating future market volatility, historical movements, but only to other adjustments to the VAR figure that institutions typically use a series of determine the probability of particular each institution derives in order to ‘‘market risk factors’’ that they have price and rate changes. Using these provide the rigor and consistency that a determined affect the value of their probabilities, the institution would then capital requirement demands. At the positions and the risks to which they are construct a large number of theoretical same time, the Agencies want to exposed. These factors, in turn, can be movements to evaluate the range of its minimize the costs and dislocations to grouped into four categories, depending portfolio’s potential market values and an internal modelling system that on the nature of the underlying risk: identify the maximum loss consistent external constraints could create and interest rates, exchange rates, and equity with the necessary confidence level. have sought to balance these conflicting and commodity prices, with related Proposed Modelling Constraints objectives through a combination of options volatilities included in each risk qualitative and quantitative constraints. factor category. The Agencies recognize that Having determined which risk factors institutions have adopted different Qualitative Standards to use, an institution estimates the assumptions and measurement The qualitative standards are potential future volatility of the factors. techniques in their internal market risk designed to ensure that institutions Most often this calculation is based on models and that such differences often using internal models have market risk the past movements of these factors over reflect distinct business strategies and management systems that are some specified time horizon, with some approaches to risk management. In conceptually sound and implemented institutions using long historical time developing a framework for the use of periods and others focusing on more internal models for regulatory capital 7 Daily rate or price movements of a half-dozen recent market behavior. However purposes, the Agencies believe that major currencies and U.S. Treasury maturities and derived, the estimates of potential some constraints should be placed on of several U.S. equity indices each moved by at market movements are combined with model parameters and assumptions. least four standard deviations on average about once a year during the period 1977–1994. The drop current position data to calculate an Such restrictions would help to ensure in the value of the S&P 500 index on October 19, estimate of the potential loss that may that prudential capital levels are 1987 represented a 20 standard deviation event in arise from those positions for a specified maintained and that institutions with terms of daily price movements. 38086 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules with integrity.8 The internal risk standards are designed to develop a period (e.g. less than 6 months), with measurement model should be closely prudential capital requirement by the capital requirement based on the integrated in the daily risk management addressing the level of rigor in an higher result. process and serve as a basis for institution’s models and the consistency (7) Data must be updated no less reporting of risk exposures to senior of model parameters among institutions. frequently than once every three months officers. Institutions should have, for The Agencies have sought to minimize and more frequently if market example, highly trained personnel who the quantitative constraints and to make conditions warrant. can evaluate the adequacy of the risk those that were deemed necessary as (8) Each yield curve in a major models and who are organizationally compatible as practicable with existing currency must be modeled using at least independent of personnel responsible procedures of institutions. The Agencies six risk factors, selected to reflect the for executing trades. These individuals recognize, however, that some of these characteristics of the interest rate should compare actual daily trading standards may require an institution to sensitive instruments that the gains and losses with VAR figures make certain modifications to its institution trades. The model must also generated by the model as part of their internal model when using it for take account of spread risk. on-going evaluations of the modelling computing regulatory capital Several of these constraints warrant a process. At least annually, internal requirements. The Agencies propose discussion of their underlying rationale: auditors should assess the institution’s that an institution that elects to use the Minimum holding period (and issues regarding options). Typically, longer overall process for managing and internal model approach be subject to holding periods lead to larger expected measuring trading risks. the following standards for its internal price changes and, consequently, to Notwithstanding the use of VAR as a model: basis for a regulatory capital charge, (1) Value-at-risk should be computed larger measures of risk. When estimating risk in trading activities for management institutions should also routinely each business day and should be based purposes, most institutions assume only evaluate their exposures to highly on a 99 percent (one-tailed) confidence a one-day holding period, since trading stressful events, selected to identify the level of estimated maximum loss. decisions are made constantly, and circumstances to which their particular (2) The assumed holding period used some instruments are held for only trading portfolios are most vulnerable. for the VAR measure must be 10 minutes or hours. This approach may be Such a program of stress testing business days, although for positions fully satisfactory for day-to-day supplements the capital standard and that display linear price characteristics management purposes but seems less illustrates management’s commitment to (not options, which display nonlinear appropriate when designing a prudent evaluating trading risks fully. characteristics) the institution may use The stress testing process, along with capital standard. results based on one-day periods, In periods of market turmoil, when an other relevant internal policies, increased to ten days by multiplying by institution’s capital is most needed, controls, and procedures, should be 9 the square root of time. many financial instruments could well documented and available for (3) The model must measure all become unexpectedly illiquid, as market examiners to review. Examiners will material risks incurred by the participants become less willing to need this information, as well as institution, although no specific type of accept market risk. One method of comparisons of VAR measures with model is prescribed. increasing the rigor of the risk measure actual daily trading results, to judge the (4) The model may utilize historical and addressing an unexpectedly large acceptability of the institution’s model correlations within broad categories of price change that could result from a on an initial and periodic basis. Under risk factors (interest rates, exchange decline in market liquidity would be to the proposal, if key management rates, and equity and commodity assume a longer holding period. The procedures are missing or weak, or if the prices), but not among these categories. proposed requirement that institutions integrity of a model is questionable, the That is, the consolidated value-at-risk is use a 10-day holding period does not appropriate supervisor may either the sum of the individual VARs imply that the Agencies would expect disallow the model for regulatory measured for each broad category. them to plan for that eventuality. capital purposes or require capital above (5) The non-linear price Indeed, some positions, such as those the minimum specified in the proposal. characteristics of options must be involving spot foreign exchange The latter may be done by increasing the adequately addressed, both by ensuring contracts, will mature and settle within size of the multiplier that would be that the model incorporates potential that time frame and could not be held applied to an institution’s VAR non-linear price behavior and by for 10 days, in any event. Therefore, in (discussed below under ‘‘Capital evaluating actual minimum 10 day this context, the 10-day period should Requirement’’). Typically, the Agencies holding periods, rather than multiplying be viewed simply as a way of producing would expect to see any management or the results based on one-day periods by a more stressful market shock by modelling shortcomings addressed and the square root of time. The volatility of assuming an instantaneous price the risk measure improved, rather than the rates and prices (vega) underlying movement of a size that one would seek to resolve the matter by applying the options must also be included normally expect to witness only over a larger multiplier to a marginally among the risk factors. the longer period of time. satisfactory or questionable modelling (6) The historical observation period However, in order to minimize or management approach. used to estimate future price and rate modelling costs and recognize the linear changes must have a minimum length of Quantitative Standards nature of price movements of many one year. The Agencies request specific financial instruments, the Agencies Whereas the qualitative standards comment on whether they should also would permit institutions to estimate a focus on the integrity of the modelling require institutions to calculate their 10-day price or rate movement—for process and incorporate standards of exposures using a shorter observation instruments other than options—using sound practice, the quantitative the risk factor changes calculated on the 9 For example, one can estimate the ten day price 8 With respect to the qualitative standards, the volatility of an instrument by multiplying the basis of one-day holding periods. This OCC is planning to provide additional guidance volatility calculated on one-day changes by the adjustment could be accomplished through supplementary banking issuances. square root of ten. using the ‘‘square root of time’’ method Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38087 by multiplying the one-day results by risk factors (interest rates, foreign requirements at all times. While the 3.16 (the square root of ten trading exchange, etc.). Agencies believe such a one-year days). The Agencies do not want to specify constraint may be sufficient, they are The prices of options, however, do correlations or to set standards for what also requesting comment on whether not change proportionately with the levels of correlations could be institutions should be required to price of the underlying instrument, and recognized by a model. Given the calculate their exposures using two their potential price volatility cannot be importance—but also the uncertainty— observation periods—one as constrained so easily estimated. Therefore, of historical correlations, the Agencies above and the other representing a institutions would be required to take propose to permit institutions to use shorter period, such as six months or steps to identify the non-linear behavior correlations within categories of risk less. Under this dual observation of option prices with respect to changes factors, but not among categories, where approach, the capital requirement in underlying rates or prices. In the interrelationships of market factors would be based on the period that addition, institutions would not, for may be more tenuous, especially during indicated the greater risk. example, be allowed to scale the price 10 periods of market stress. Thus, total Minimum Number of Risk Factors volatility of an option that was based on VAR would be the simple sum of the one-day sensitivities using the square calculated VAR for individual The risk factors contained in an root of ten. However, since the price or categories. The Agencies recognize that institution’s market risk measurement rate volatility of the instrument on this approach is conservative and system should be sufficiently which the option is based is considered believe that it is appropriate for a capital comprehensive to capture all of the to increase proportionately with the charge against market price moves material risks inherent in the portfolio square root of time, institutions would during periods of stress, when historic of its on- and off-balance sheet trading be permitted to use the square root of correlations have been observed to positions, including interest and time technique to expand the one-day breakdown. The Agencies also note that exchange rates, equity and commodity volatility of the option’s underlying it is consistent with the risk prices, and the volatilities related to instrument when calculating the price measurement practices of many large option positions. Although institutions volatility of the option itself. trading banks. will have substantial flexibility in Alternatively, institutions could specifying the risk factors that are most estimate the changes in the value of Minimum Observation Period relevant to their portfolios, the Agencies options on the basis of actual In managing market risk, institutions expect the number and composition of movements in underlying factors draw from a broad range of historical factors to be commensurate with the measured during a full 10-day period. periods to calculate historical nature and scope of each institution’s Institutions should also evaluate the volatilities and correlations for the risks. effect of changes in the volatility of rate purpose of estimating future price and In order to adequately measure or price movements of instruments rate movements. Some institutions use exposures to interest rates and to bring underlying their option positions (vega) periods as short as 30–60 days, while about greater conformity of results on option values. This can be done by others use periods extending as long as among institutions, the Agencies are modelling volatilities as additional risk several years. Although the choice of proposing a minimum of six maturity factors and including them in the historical periods may have little effect bands (each representing a separate risk overall set of risk factors affecting the on a trading portfolio’s level of expected factor) to be used for material positions value of the institution’s trading VAR over an extended period of time, in the major currencies and markets. All positions. Institutions with relatively it can have a significant effect on the institutions would be expected to large or complex options portfolios measure of exposure at any specific measure spread risk (e.g., the difference should also measure volatilities across time. VARs based on short historical between rates on corporate and U.S. different points along the maturity yield periods will be more volatile and government instruments) adequately, curve. responsive to changing market with the required level of sophistication Aggregating Exposures conditions than measures based on being a function of the nature and scope longer periods, producing relatively of the institution’s activities and When evaluating the potential change exposures. in a portfolio’s market value, one must large VARs during periods of high consider the likelihood that prices of market volatility and low VARs when Capital Requirement the markets are calm. Conversely, VARs certain instruments in the portfolio may Experience has shown that financial based on longer periods will exhibit move together (or in opposite markets can have brief periods of high more stability, reflecting a wider range directions). However, observed volatility preceded or followed by of market conditions and the smaller correlations among the prices of some extended periods of calm. Under some effect of recent observations. instruments are themselves volatile and modelling procedures, the large number Since VARs based on short periods may be especially likely to change of small daily market changes can may, at times, produce small estimates during periods of market stress. substantially offset the infrequent of risk and could also produce a wide Therefore, which assumptions are periods of high volatility. Even when range of risk measures among prudent and which ones are not cannot constrained and calculated as proposed, institutions having similar portfolios, be determined in advance. Moreover, there are several reasons why an the Agencies are proposing a minimum one correlation assumption is not institution’s need for capital might historical observation period of one always more conservative than another, sometimes exceed this figure: since the outcome depends on whether year. That constraint should reduce the (1) The past is not always a good an institution’s position in a given dispersion and help ensure that guide to the future; instrument is long or short. In practice, institutions have adequate capital (2) The assumptions about statistical most models calculate the correlations ‘‘normality’’ built into some models may 10 Use of correlations is permitted provided the within risk factor categories, but differ supervisor is satisfied that the calculation of not be justified because of the relatively in their recognition of historical correlations within a category is performed with high frequency of large market correlations across broad categories of integrity. movements; 38088 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules (3) The correlations assumed in the VI. Standardized Risk Measure based on the maturity or nearest interest model may prove to be incorrect; The standardized risk measure rate reset date of the instrument. Long (4) Market liquidity may become calculates separate capital requirements positions would be treated as positive inadequate to close out positions; and for specific and general market risks and amounts and short positions would be treated as negative amounts. The (5) The institution may face multiple uses different techniques to measure an institution’s risk exposure, depending institution would then calculate its net stressful events over short periods of long or short position for each time- time. upon its source: debt instruments, equities, foreign currencies, and band and would multiply that net Consequently, the Agencies believe commodities, including their respective position by the risk weight provided by that in order for an institution’s VAR options.12 the supervisor for that time-band. The figure to serve as an adequate basis for resulting risk-weighted position a capital requirement, it should be Debt instruments held in trading represents the amount by which the multiplied by an appropriate prudential portfolios market value of that debt position is factor. The Agencies are proposing a The market risk capital requirement expected to change for a specified minimum multiple of three, which for debt instruments in a trading movement in interest rates. The risk could be increased if the results of account consists of separate charges for weights and associated interest rate ‘‘back-testing’’ are not sufficiently general market and specific risks. changes are shown in each Agency’s satisfactory.11 a. General market risk. The general proposed regulatory language (OCC— market risk capital requirement for debt The Agencies also recognize that Table 2, Board—Table I, and FDIC— instruments (including off-balance-sheet 13 institutions may change their trading Table 1). Adding the sum of all risk- derivatives) that are part of trading positions rapidly and may substantially weighted positions (long or short) across activities is designed to capture the all time-bands results in a final net risk- increase their exposures for brief potential loss that may arise from periods in order to respond to perceived weighted position. This amount would movements in market interest rates. An be the base capital charge for general opportunities or market conditions. At institution may determine this market risk.14 such times, an institution’s exposure to component of its capital requirement The base charge is calculated market risk may be larger than its either by using standardized risk differently under the second, or average VAR times three. In order to weights that approximate the price alternative ‘‘duration’’ method. In this address such circumstances, the sensitivity of various instruments or by case, an institution would calculate the Agencies are proposing that institutions calculating, itself, the precise duration estimated price movement for a specific maintain capital on a daily basis to of each instrument, weighted by a instrument by multiplying the support the larger of either (1) the specified change in interest rates. average VAR figure for the last 60 Both methods use a maturity-ladder instrument’s modified duration by a business days, calculated under the approach that employs a series of time specified interest rate shock that is proposed criteria and increased by the bands and zones, designed to take into based on the instrument’s duration as assigned multiple, or (2) the previous shown in the proposed regulatory account differences in price sensitivities 15 day’s VAR, similarly calculated but and interest rate volatilities across language. That product, representing without the multiple. By considering various maturities. Under either the amount of expected price change of not only an average VAR but also a method, the institution’s capital charge the instrument, is then distributed into single day’s measure, the Agencies for general market risk would be the the array of time-bands on the basis of expect institutions to hold capital sum of a base charge that results from the instrument’s duration (see proposed sufficient to cover peak levels of market fully netting various risk-weighted Table 4—OCC, Table III—Board, Table volatility and to manage their activities positions (i.e., longs versus shorts) and 3—FDIC). For example, an instrument accordingly. a series of additional charges (add-ons) with a maturity of 4 years and 3 months might have a modified duration of 3.5 Many VAR models focus principally that effectively disallow part of the previous full netting in order to address years. Based on its duration, it would be on measuring general market risks and ‘‘shocked’’ by 75 basis points, resulting incorporate only partial elements of basis and yield curve risk. The capital charges would be separately computed in an expected price change of 2.625 specific risk. Therefore, institutions percent (3.5 × 0.75 percent). That would remain subject to separate capital for each currency in which an institution has significant positions. No estimated 2.625 percent change, requirements to cover specific risk on multiplied by the current value of the equities and traded debt, to the extent netting of positions or charges would be allowed across different currencies. instrument, would be placed into the it is not addressed by their VAR models. 3.3 to 4.0 year time-band for This separate charge would be added When using the first approach, referred to as the ‘‘maturity’’ method, an after the VAR figure is increased by the 13 In the case of securities backed by fixed rate multiplier and would, in no case, be less institution would first distribute its on- and off-balance-sheet positions in each mortgages, an institution would slot the than one-half the specific risk charge instruments into time bands on the basis of their calculated using the standardized currency among a range of time-bands current expected weighted average lives (reflecting the effect of expected prepayments at current approach. The Agencies specifically 12 Several techniques are offered for measuring market interest rates), rather than by their request comments on which features to the price risk in options (see ‘‘Options’’, discussed contractual maturities. consider when reviewing models in below or in the proposed regulatory language for 14 Since the price sensitivity of zero coupon and order to evaluate their coverage of each agency). Under one approach, called the low coupon instruments can be materially greater specific risk. ‘‘delta-plus’’ approach, an institution would than that of instruments with higher coupons, include the delta-equivalent value of the underlying institutions would be required to assign higher risk instrument when evaluating the market risk of each weights to low coupon instruments as shown in the 11 Back-testing refers to the process of comparing category of instruments (debt, equity, etc.). Under proposed Tables. calculated daily VARs with actual daily trading the two other approaches, the underlying 15 The duration of an instrument indicates its results to determine how effectively the risk instrument of an option may be ‘‘carved-out’’, not approximate percentage change in price for a small measure identified the boundaries of gains or losses subject to the prescribed risk measure for the parallel shift in the yield curve assuming that its consistent with the predetermined level of underlying, and evaluated together with its option cash flow does not change when the yield curve statistical confidence. according to the procedures described for options. shifts. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38089 determining the charge for general The second disallowance (or ranging from 0.25 percent to 1.6 percent market risk. horizontal disallowance) addresses the if they are issued by qualifying As in the maturity method, the base risk that interest rates along the yield borrowers. Securities of nonqualifying capital charge for general market risk is curve are not perfectly correlated and issuers are charged a specific risk of 8.0 the sum of the estimated price changes that risk-weighted positions that might percent. To be considered as qualifying, across all time bands. If that sum is have been expected to offset will not the security must be rated as investment negative, the base charge would be its fully offset, in practice. The horizontal grade by at least two nationally absolute value. Different time-bands are disallowance applies to the smaller of recognized credit rating firms or, if the used for the two methods because an the offsetting positions across different issuer has securities listed on a instrument’s duration can be time-bands. The amount of this recognized stock exchange, it must be substantially different from its maturity. disallowance varies in size by zone (that deemed to be of comparable investment In addition to the base capital charge is, a grouping of contiguous time bands), quality by the reporting institution. for general market risk, as reflected by with greater netting allowed for This latter condition is provided to the institution’s net risk-weighted positions in different time bands but accommodate the fact that in some position, an institution would be subject within the same zone than is allowed countries credit ratings and the coverage to a series of capital ‘‘add-ons’’ that are for positions that are in different zones of credit rating firms are not as designed to take into account imperfect (Table 3—OCC, Table II—Board, Table extensive as in the United States. and uncertain correlations among 2—FDIC in the proposed regulatory Consequently, the securities of many instrument types and maturities. These language). The horizontal disallowances large and well-established foreign add-ons recognize that long and short range from 30 percent to 100 percent of companies may not be rated. In such positions might not, in practice, offset the smaller figure in a pair of offsetting cases, a company’s listing on an each other by the full amount that their transactions.18 organized exchange may be an risk-weightings would suggest, and In calculating these disallowances, an acceptable substitute for credit ratings if therefore, some portion of the hedged or institution would first determine its such listings are limited to financially offsetting position should be offsetting positions within a zone and strong and well-established firms. In disallowed. the associated ‘‘within zone’’ these cases, and in the absence of The first disallowance (referred to as disallowance amounts. Once the independent credit ratings, the the vertical disallowance) is intended to institution has netted its positions securities of a listed company may address the basis risk that exists within a zone, it would determine the qualify for a lower capital charge if the between instruments with the same or amount of offsetting and associated trading institution and its appropriate similar maturities and also the possibly disallowances across zones. An supervisor believe the securities are different price movements that may be institution’s general market risk equivalent to investment grade. experienced by different instruments requirement for debt instruments within However, the Agencies are proposing within the same time-band due to the a given currency would be the sum of that, given the presence and wide range of maturities (or repricing periods) (1) the value of its net risk-weighted coverage in the United States of credit that may exist within a time-band. To position (base charge) and (2) all of its rating firms, institutions would not be capture this risk, a vertical disallowance vertical and horizontal disallowances. allowed to qualify the securities of a is applied to the smaller of the offsetting b. Specific risk. Under the proposal, U.S. firm on the basis of a listing on an (long or short) positions within a time- generally every traded security, whether organized exchange. band.16 This disallowance is 10 percent long or short, would be assessed a During the examination process, the under the maturity method, and 5 capital charge for specific market risk. Agencies would also consider the extent percent under the duration method. For In the debt portfolio this charge is based to which an institution trades non- example, under the maturity method, if on the identity of the obligor and, in the investment grade instruments the sum of weighted long positions case of corporate securities, on the (sometimes called high yield debt) that within a time-band equals $100 million credit rating and maturity of the do not qualify for risk weights less than and the sum of weighted short positions instrument. Consistent with the original 8.0 percent because of the lack of equals $90 million, the vertical Accord, debt instruments of national investment grade ratings. If these disallowance for the time-band would governments of OECD countries are holdings are not well diversified or if be 10 percent of $90 million, or $9 assigned zero specific risk. Other they otherwise represent material million. This amount would be added to securities are assigned risk weights exposures to the institution, the the institution’s base capital charge. The Agencies may prevent an institution use of two different vertical standardization in the terms and credit risk from netting the exposures arising from characteristics of swaps, can produce large swap these instruments with otherwise disallowances recognizes that because portfolios and potentially large disallowances under the duration method takes into account the standardized approach. offsetting exposures resulting from an instrument’s specific characteristics Consequently, the Agencies’ proposal would positions in qualifying instruments. allow institutions with large swap books to use (maturity and coupon), there is less Equities Held in Trading Portfolios opportunity for measurement error.17 alternative procedures for calculating the amounts that would be distributed into the maturity or The standardized measure of market duration time bands. One approach would be to 16 If the offsetting amounts (long and short) are convert the payments required by a swap into their risk in traded equities also consists of equal, the disallowance can be applied to either present values using zero coupon yields and then separate charges for specific and general figure. to place those amounts into their appropriate time market risk. These charges would apply 17 In the case of cash positions and transactions bands using the procedures that apply to zero (or not only to direct holdings of equity conducted on an exchange (e.g. futures) an low) coupon bonds. The net amounts for each time institution has the opportunity to adjust its market band would then be weighted and subject to the securities, but also to equity derivatives risk either by acquiring a new position or selling an disallowances of the general market risk framework and off-balance-sheet positions whose existing one. However, that is not typically the case as if they were bonds. The Agencies would also market values are directly affected by with interest rate swaps, for which an institution consider other procedures. equity prices. almost always adjusts its position by entering into 18 Since the disallowance is applied to only one a new or offsetting swap, rather than by selling or side of an offsetting transaction, a 100 percent a. General market risk. An unwinding one that it already holds. This disallowance effectively treats the hedge as being 50 institution’s general market risk capital procedure, required partly because of the lack of percent effective. charge would be 8.0 percent of its net 38090 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules equity position—the difference between trading account. Net positions, in turn, rough indication of the risk exposure the sum of its long and the sum of its include an institution’s net spot and and is appropriate only for institutions short positions. The net long or short forward positions; any guarantees that with relatively small amounts of position against which a general market are certain to be called and likely to be commodities activity. risk charge would be assessed must be irrecoverable; net future income and Within the standardized approach, calculated on a market-by-market basis, expenses that are not yet accrued, but two alternative measures are available, i.e., a separate calculation must be that are already fully hedged; and any referred to as the ‘‘simple’’ and the computed for each national market in other items representing a profit or loss ‘‘maturity’’ methods. Both measures which the institution holds equities. in foreign currencies. Forward and address directional risk, which is the Institutions would not, for example, be future positions would be converted risk that a commodity’s spot price will able to net a long position in U.S. into the reporting currency at spot increase or decrease, as well as basis companies traded on the New York market rates. risk, interest rate risk, and forward gap Stock Exchange against a short position Institutions may, subject to risk, which are also important risks, in Japanese companies traded on the supervisory approval, exclude from this especially for institutions that engage in Tokyo Stock Exchange. calculation any structural positions in forward or derivative contracts. These b. Specific risk. The capital charge for foreign currencies. For this purpose, institutions can face significant losses in specific risk is based on the reporting such structural positions are limited to their positions as a result of adverse institution’s gross equity positions (i.e., transactions designed to hedge an changes in the relationship between the absolute sum of all long equity institution’s capital ratios against the prices of similar commodities, increases positions and of all short equity effect of adverse exchange rate in the cost of financing forward positions, with netting allowed only movements on (1) subordinated debt, positions, or changes in forward prices when the institution has long and short equity, or minority interests in produced by any number of economic or positions in exactly the same consolidated subsidiaries and dotation market conditions. instrument). This charge would also be capital assigned to foreign branches that Both the simple and maturity 8.0 percent, unless the portfolio is both are denominated in foreign currencies, approaches require an institution to liquid and well-diversified or the and (2) any positions related to calculate its net position in each position relates to an index comprising unconsolidated subsidiaries and to commodity on the basis of spot rates. a diversified portfolio of equities. other items that are deducted from an Long and short positions in the same Examiners will verify that any institution’s capital when calculating its commodity may be netted, but positions portfolio designated as ‘‘liquid and well- capital base. In any event, such in different commodities would diversified’’ by an institution is structural foreign currency positions generally not be allowed to offset, characterized by a limited sensitivity to should reflect long-term policies of the except where different sub-categories of price changes of any single equity issue institution and not relate to trading commodities are deliverable against or closely related group of equity issues positions. each other. held in the portfolio. In particular, the The standardized approach assumes Under the simple approach, an volatility of the value of the portfolio the same volatility for all currencies and institution’s capital charge for should not be dominated by the requires an institution to hold capital directional risk would equal 15 percent volatility of any individual equity issue equal to 8.0 percent of the sum of (a) its of its net position, long or short, in each or by equity issues from any single net position in gold and (b) the sum of commodity. A supplemental charge of industry or economic sector. In general, the net short positions or the sum of the 3.0 percent of the gross position in each such portfolios should be characterized net long positions in each foreign commodity would be added to cover by a large number of individual equity currency, whichever is greater. With basis, interest rate and forward gap risk. positions, with no single position supervisory approval, an institution The capital charge using the maturity representing a large portion of the may be exempt from this capital method reflects not only the net and portfolio’s total market value. In requirement if the sum of its gross long gross positions in each commodity, but addition, it would generally be the case and short positions does not exceed 100 also the maturity of each commodity that a sizeable proportion of the percent of its eligible capital and its contract. For each commodity, positions portfolio would be comprised of issues overall net foreign exchange position would first be distributed among seven traded on organized exchanges. does not exceed 2.0 percent of this time bands. Physical holdings of For such liquid and well-diversified capital, as defined above in Section II. commodities would be allocated to the portfolios, the specific risk charge first band. The matched long position Commodities would be 4.0 percent. A specific risk plus the matched short position within charge of 2.0 percent would apply to the The capital requirement for each time-band would then be net long or short position in a broad- commodities risk applies to holdings or multiplied by a ‘‘spread rate,’’ (proposed based, diversified equity index and is positions taken in commodities, at a uniform 1.5 percent rate) to capture viewed as necessary to provide for the including precious metals, but forward gap and interest rate risk. Net risk that the performance of the index excluding gold (which is treated as a positions from one time-band must be will differ from those of other market foreign currency because of its market used to offset opposite positions in measures and also for potential liquidity). As with foreign currencies, another time-band and would incur a difficulties that could arise in executing the coverage extends to all commodities ‘‘surcharge’’ equal to 0.6 percent of the transactions at expected prices. positions of the institution, not only to net position for every time-band it is those booked in trading accounts. For carried forward in recognition that such Foreign Exchange this purpose, a commodity is defined as offsetting may not be perfect. This This capital requirement covers the a physical product which is or can be process ultimately produces an overall risk of holding or taking positions in traded on a secondary market, e.g., net position for each commodity. A 15 foreign currencies, including gold, and agricultural products, minerals, and percent capital charge would be applied is based on an institution’s net positions precious metals. The standardized to that net position. The total capital in individual currencies, whether or not approach for measuring general market charge for any given commodity would those positions are booked in the risk in commodities provides only a be the sum of (a) the initial 1.5 percent Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38091 charge for the matched positions in each volume of purchased options. This options would be consistent with the time band, (b) any surcharge, and (c) the approach permits an institution either to assumed price or rate change applied to charge on the overall net position. ‘‘carve out’’ both the option and a their underlying cash positions: 8 corresponding underlying position from percent for foreign exchange, 12 percent Options other elements of the standardized for individual equities, 8 percent for The Agencies recognize the diversity approach or to view the option as equity indices, and 15 percent for of activities in options and the ‘‘naked’’—that is, without a matching commodities. In all cases, the range difficulties in measuring an option’s cash position. In order to avoid would cover both an increase and price risk. Accordingly, the proposal potentially penalizing an institution for decrease from current values of the provides three alternative risk measures purchasing an option, institutions could underlying security (or rate) by these for institutions that do not adopt the avoid linking (and subsequently percentages and would be divided into internal models approach. These carving-out) a purchased option and a at least 10 equally spaced intervals alternatives are: (a) a ‘‘simplified’’ corresponding cash position if doing so centered by the current rate or price. method, which is available to would create an exposure within the Given the near-linear relationship institutions that only purchase traded underlying position and produce a between volatility and option values for options, (b) a ‘‘scenario analysis’’ capital requirement that exceeded the many options, the Agencies believe it method that evaluates option values value of the purchased option. would be sufficient in most cases to under a range of market scenarios, and Consequently, there are two evaluate the option portfolio assuming a (c) a ‘‘delta-plus’’ method that provides possibilities: 25 percent increase and decrease in the specific measures of individual (1) If a carve-out is made, the capital level of volatility from that implied by components of an option’s risk. The charge is equal to the specific and current market prices. If warranted, method used should be commensurate general market risk charge on the however, the Agencies may require a with and appropriate for the nature and underlying position, less the amount the different change in volatility and the scope of the institution’s options option is in the money, bounded at zero. consideration of intermediate points. activities. Institutions that have (2) If the purchased option is viewed An institution would determine the extensive dealings in options must have by itself, the charge for the option is the market value of each option and any appropriately accurate measures of risk. smaller of (a) its market value or (b) the related hedging position or group of Several variables determine an sum of the specific and general market options and related hedging positions option’s price: risk charge that would apply to its for each scenario.19 Such options and (1) The current price of the underlying instrument. Any existing positions based on debt instruments in underlying asset; related (but not linked) cash position the same zone, or on the same equity, (2) The strike price of the option, would continue to receive the full equity index, exchange rate, or which is the price of the underlying specific and general market risk charge commodity may be grouped together security at which the option has value; produced by other elements of the and evaluated on a portfolio basis when (3) The volatility of the price of the standardized approach. evaluating the effect of a given scenario. underlying security; In both cases, the method is relatively The market risk capital charge for a (4) The time remaining before the conservative, creating an incentive for portfolio would be the largest loss option expires; and institutions to use a more accurate estimated for that portfolio from among (5) The prevailing ‘‘risk free’’ interest measure of risk. Institutions that want a the evaluated scenarios. The charge for rate. more accurate measure of option risk or all option portfolios would be the sum The effect of these variables on an whose trading activities include the of the charges on the individual option’s value are represented by a writing (selling) of options must use portfolios. The Agencies recognize that series of Greek letters: delta (the price either the scenario or the delta-plus this approach is conservative, since it sensitivity of an option relative to price methods offered under the standardized assumes that the largest loss will occur changes in the underlying security, rate, approach, or the previously described within each segment of the option or index—the ‘‘underlying’’), gamma internal models approach. (the change in delta for a given change portfolio simultaneously. Scenario Analysis in the underlying), vega (the effect of The delta-plus method changes in the volatility of the Using scenario analysis, institutions Institutions that write options would underlying), theta (the effect given the would evaluate the market values of be allowed to include delta-weighted passage of time), and rho (how the their options and related hedging options positions within the option price changes for a given change positions by changing the underlying standardized methodology. Such in risk free interest rates). Delta is a rate or price over a specified range and options should be reported as a position frequently used indicator of an option’s by also assuming different levels of equal to the market value of the risk, but others—particularly gamma— volatility for that rate or price. Each underlying instrument multiplied by the should be specifically addressed by combination of assumed volatilities and delta. However, since an option’s delta institutions that trade options to any rate or price changes would represent a does not sufficiently address other risks material extent. Such institutions scenario. associated with the option’s market should not rely merely on linear The range of rate or price movements value, institutions would also be approximations of price movements, but would be based on the nature of the required to measure the option’s gamma should undertake to capture the non- option. For options based on debt and vega in order to calculate the total linear relation between changes in the instruments or interest rates, the range capital charge for the option. These option’s price and changes in the would be consistent with the maximum sensitivities would be calculated by an underlying rate or price. rate movement indicated in the proposal dealing with traded debt: 100 basis approved exchange model or by the Simplified Approach points for underlying instruments in 19 For this purpose, a single option and any The simplified approach for options zone 1, 90 basis points for those in zone related hedging position and a group of options and may only be used by institutions whose 2, and 75 basis points for those in zone any related hedging positions are all referred to as options activities are confined to a small 3. Similarly, the ranges used for other an ‘‘options portfolio.’’ 38092 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules institution’s proprietary options pricing individual capital charges for net negative gammas plus the absolute model, subject to oversight by the negative gammas plus the absolute value of the sum of the individual appropriate supervisor. value of the sum of the individual capital charges for vega risk. Delta-weighted positions of options capital charges for vega risk for each The capital charge for options on based on debt securities or interest rates time-band. commodities would be based on the would be slotted into the debt securities The capital charge for options on same approach set out above for time-bands, as set out above for debt equities would also be based on the commodities. The delta weighted instruments, under the following delta weighted positions of the options positions would be incorporated into procedure. A two-legged approach by incorporating those weighted one of the two measures described in would be used as for other derivatives, positions into the market risk measure that section. In addition to the capital requiring one entry at the time the for equities described above. For charge for delta risk, institutions would underlying contract takes effect and a purposes of this calculation individual incur a further capital charge for gamma second at the time the underlying equity issues and indices are to be and vega risk: contract matures. For instance, a bought treated as separate underlyings. In (1) For gamma risk, net negative call option on a June three-month addition to the capital charge for delta gammas for each underlying would be interest-rate future will in April be risk, institutions would apply a further multiplied by 1.125 percent and by the considered, on the basis of its ‘‘delta’’ capital charge for gamma and vega risk: square of the market value of the equivalent value, to be a long position (1) For gamma risk, the net negative commodity; 22 with a maturity of five months and a gammas for each underlying instrument (2) For volatility risk, institutions short position with a maturity of two would be multiplied by 0.72 percent would be required to calculate the months. The written option would be when that instrument is an individual capital charges for vegas for each similarly slotted as a long position with equity and by 0.32 percent when it is an commodity as defined above in the a maturity of two months and a short index.20 That product would then be section dealing with commodities, position with a maturity of five months. multiplied by the square of the market assuming a proportional shift in Floating rate instruments with caps or value of the underlying; volatility of plus or minus 25 percent; floors would be treated as a combination (2) For volatility risk, institutions (3) The capital charge would be the of floating rate securities and a series of would be required to calculate the absolute value of the sum of the European-style options. For example, capital charges for vegas for each individual capital charges for net the holder of a three-year floating rate underlying instrument assuming a negative gammas plus the absolute bond indexed to six month LIBOR with proportional shift in volatility of plus or value of the sum of the individual a cap of 15 percent would treat the minus 25 percent; capital charges for vega risk. instrument as: (1) A debt security that (3) The capital charge would be the A worked example of the delta-plus reprices in six months; and (2) a series absolute value of the sum of the method for commodities is set out in of five written call options on a floating individual capital charges for net Attachment IV of the Board’s and the rate asset (FRA) with a basis of 15 negative gammas plus the absolute FDIC’s proposed regulatory language. In percent, each with a negative sign at the value of the sum of the individual the case of options based on debt time the underlying FRA takes effect capital charges for vega risk. securities or interest rates and with the and a positive sign at the time the The capital charge for options on approval of the appropriate supervisor, underlying FRA matures. foreign exchange and gold positions institutions that are significant traders In addition to the above capital would be based on the shorthand in options could be allowed to net charges arising from delta risk, the method set out earlier. For delta risk, positive and negative gammas and vegas proposal requires capital for gamma and the net delta (or delta-based) equivalent across time-bands to a limited extent. vega risks. Institutions using this of the total book of foreign currency and However, such netting would be method would be required to calculate gold options would be incorporated into permitted only if it is based on prudent the gamma and vega for each option the measurement of the exposure in a and conservative assumptions and the position. The results would be slotted single currency position. The gamma institution materially satisfies the into separate maturity ladders by and vega risks would be measured as qualitative standards outlined under the currency. For options such as caps and follows: internal models approach. floors whose underlying instrument is (1) For gamma risk, for each In addition, instead of applying a an interest rate, the delta and gamma underlying exchange rate net gammas uniform relative change in volatility to would be expressed in terms of a which are negative would be multiplied measure vega risk, institutions may base hypothetical underlying security. by 0.32 percent and by the square of the the calculation on a volatility ladder in Subsequently: market value of the position; 21 which the implied change in volatility (1) For gamma risk, for each time- (2) For volatility risk, institutions varies with the maturity of the option. band, net gammas which are negative would be required to calculate the When using such a volatility ladder the would be multiplied by the risk weights capital charges for vegas for each assumed proportional shift in volatility set out in the proposed regulatory currency pair and gold assuming a should be at least 25 percent at the short language (OCC—Table 5, Board—Table proportional shift in volatility of plus or end of the maturity spectrum. The IV, FDIC—Table 4) and by the square of minus 25 percent; proportional shift in volatility for longer the market value of the underlyings (net (3) The capital charge would be the maturities should be at least as stringent gammas which are positive would be absolute value of the sum of the in statistical terms as the 25 percent disregarded); individual capital charges for net shift at the short end. Use of this (2) For volatility risk, institutions alternative would be subject to would be required to calculate the 20 Using the Taylor expansion, the risk weights validation by the supervisor, and to the capital charges for vegas in each time- are calculated as follows: Risk weight for gamma qualitative standards listed in the × 2 band assuming a proportional shift in =0.5 (assumed price change of underlying) For an internal models section that are relevant individual equity, 0.5×0.122= 0.72%. In the case of volatility of 25 percent; an index as the underlying, the assumed price to this aspect of the institution’s (3) The capital charge would be the change of the underlying equals 8.0 percent. absolute value of the sum of the 21 The assumed price change is 8.0 percent. 22 The assumed price change is 15 percent. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38093 business. In the long term, institutions with the scaling factor, could result in are the costs and burden implications of using this alternative would be expected capital requirements that on average are requiring such a dual calculation? to move to fully articulated value-at-risk significantly different (for example, 2. All institutions affected by the models, subject to the full qualitative higher) than those required under the proposal would be required to have and quantitative standards for models. standardized approach. capital covering both general market Besides the options risks mentioned 6. The Agencies propose to allow and specific risks. Institutions using the above, the Agencies recognize that there institutions to use the standardized internal model approach would be are other risks associated with options, method for measuring some categories required to apply the specific risk e.g., rho and theta. While they are not of risk (e.g., debt, equities, etc.), and charge (or a portion thereof) calculated proposing a measurement system for internal models for other categories. using the standardized approach, if their those risks at present, institutions Should institutions be given this models do not adequately capture undertaking significant options business flexibility, or should they be required to specific risk. What modelling would still be expected to monitor such use one approach throughout? techniques should the Agencies risks closely. 7. The Agencies propose a reduced consider when evaluating an institution’s model and determining the VII. Questions on Which the Agencies capital charge for specific risk in extent to which the model includes Specifically Request Comment equities if an institution’s equities portfolio is ‘‘liquid and well- specific risk in its VAR measure? General Topics diversified,’’ a concept that is defined in 3. As part of an on-going process of 1. The Agencies propose to apply qualitative terms in the proposal. evaluating the accuracy of an these standards to a relatively small Should this concept be described more institution’s internal model, actual daily number of institutions that have specifically and, if so, what criteria trading profits and losses would be material trading activities. As the should be applied? compared with the measured VAR (so- called ‘‘back-testing’’). The Agencies criteria are proposed, about 25 ‘‘large’’ Questions on the Standardized Method institutions and a few other smaller would expect this back-testing normally institutions with relatively more 1. Under the proposal, institutions to rely upon the VARs actually used by significant trading activities would meet would be allowed to net offsetting the institution for nonregulatory the requirements and be subject to the positions in different commodities only purposes, which in most cases would new capital standards. Is the exemption if the commodities were deliverable reflect a confidence level less than the of smaller institutions appropriate, against each other. To what extent, if 99 percent level on which the capital given their risk profile and the implied any, should the Agencies allow netting requirement would be based. Would regulatory burden, or does it provide on the basis of the historical correlations this approach be less burdensome to the them with an undue competitive of price movements of different institution than requiring a separate advantage? On the other hand, would commodities within the standardized calculation for the 99 percent the amendment affect too many approach? If netting is allowed on the confidence level, and would it provide institutions, given the nature of their basis of past correlations, what specific a more statistically reliable basis for trading activities and market risk criteria should be required? evaluating the results? Please comment profiles? 2. One of the alternative ways of on these procedures and any other 2. Consistent with their procedures measuring the market risk of options in considerations the Federal Reserve for existing capital standards, the the standardized approach is to should take into account in reviewing Agencies would apply the proposed calculate separate charges for an back-tests. standard to any national bank, state option’s delta, gamma, and vega risk 4. The Agencies recognize that daily member bank and bank holding (see the delta-plus method). This VAR is used by institutions for setting company that meets the criteria on a approach permits an institution to daily trading limits, rather than for consolidated basis. What are the burden measure the risk of its options positions evaluating capital adequacy. The implications of applying the standard to while measuring the risk of its other regulatory use of VAR as a basis for a both banks and bank holding positions and, thereby, to evaluate them capital requirement is predicated on the companies? more fully on a portfolio basis. It also specification of several constraints on 3. The Board currently evaluates the permits an institution to avoid incurring modelling parameters, as well as the use capital adequacy of bank holding the worst-case charge for the option of a multiplication factor. Do these companies that have Section 20 under the scenario method. The delta- constraints provide sufficient capital for subsidiaries on a fully consolidated plus calculations, however, are complex the underlying activities? basis and also without the assets and and potentially inaccurate since they do 5. To qualify for the use of the capital of the Section 20 subsidiaries. not permit full use of a revaluation internal models approach, an institution Should it continue this practice model. Is the method sufficiently useful must have a rigorous stress testing regarding market risk, or should it focus to warrant its complexity, and does it program which would be subject to on only the consolidated holding provide a sufficiently conservative supervisory review. What stress tests for company? measure of risk for institutions that market risk should institutions be 4. Should the Agencies permit write options but do not have options expected to perform as part of their institutions the choice of the pricing models integrated into their risk internal management process? standardized or internal model measurement systems? VIII. Regulatory Flexibility Act approaches, or should it permit only the Questions on the Internal Model Method Analysis internal model approach on the basis that the institution’s trading activities 1. The Agencies are considering OCC Regulatory Flexibility Act Analysis are sufficient to warrant the more whether to require institutions to Pursuant to section 605(b) of the accurate measure of risk? calculate their VARs using two Regulatory Flexibility Act, the 5. The Agencies are interested in observation periods (one long, one Comptroller of the Currency certifies comments on whether the internal short) and basing the capital that this proposal would not have a model quantitative standards, together requirement on the larger figure. What significant impact on a substantial 38094 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules number of small business entities in which contribute to increased safety and the OCC has not prepared a budgetary accord with the spirit and purposes of soundness in the banking system. impact statement or specifically the Regulatory Flexibility Act (5 U.S.C. addressed the regulatory alternatives Board Paperwork Reduction Act and 601 et seq.). Accordingly, a regulatory considered. As discussed in the Regulatory Burden flexibility analysis is not required. The preamble, this proposed rule may impact of this proposed rule on banks The Board has determined that this require additional capital for market regardless of size is expected to be proposal would not increase the risks. However, the application of this minimal. Further, this proposed rule regulatory paperwork burden of banking proposed rule would be generally generally would apply to larger banks organizations pursuant to the provisions limited to banks with significant trading with significant trading account of the Paperwork Reduction Act (44 account activities and would cover only activities and would cover only trading U.S.C. 3501 et seq.). Section 302 of the foreign exchange and commodity activities and foreign exchange and Riegle Community Development and positions throughout the bank. commodity positions throughout the Regulatory Improvement Act of 1994 Currently, the OCC estimates that less bank. (Pub. L. 103–325, 108 Stat 2160) than 25 national banks will be subject provides that the federal banking to the requirements of this proposed Board Regulatory Flexibility Act agencies must consider the rule. In addition, any burden imposed Analysis administrative burdens and benefits of on this small group of national banks Pursuant to section 605(b) of the any new regulations that impose would be lessened to the extent that a Regulatory Flexibility Act, the Board additional requirements on insured bank may use its own qualifying does not believe this proposal would depository institutions. As noted above, internal market risk model. the proposed market risk measure have a significant impact on a List of Subjects substantial number of small business would affect only a small number of entities in accord with the spirit and institutions. The Board believes that any 12 CFR Part 3 additional burden placed on these purposes of the Regulatory Flexibility Administrative practice and institutions is outweighed by the Act (5 U.S.C. 601 et seq.). Accordingly, procedure, Capital, National banks, advantages of greater accuracy in risk a regulatory flexibility analysis is not Reporting and recordkeeping measurement and capital allocation, required. In addition, because the risk- requirements, Risk. based capital standards generally do not which contribute to increased safety and apply to bank holding companies with soundness in the banking system. 12 CFR Part 208 consolidated assets of less than $150 FDIC Paperwork Reduction Act Accounting, Agriculture, Banks, banking, Confidential business million, this proposal would not affect The FDIC has determined that his information, Crime, Currency, Federal such companies. proposed rulemaking does not contain Reserve System, Mortgages, Reporting any collections of information as FDIC Regulatory Flexibility Act Analysis and recordkeeping requirements, defined by the Paperwork Reduction Securities. Pursuant to section 605(b) of the Act (44 U.S.C. 3501 et seq.). Regulatory Flexibility Act (Pub. L. 96– 12 CFR Part 225 354, 5 U.S.C. 601 et seq.), it is certified X. OCC Executive Order 12866 Administrative practice and that the proposed rule would not have Determination procedure, Banks, banking, Federal a significant impact on a substantial The Comptroller of the Currency has Reserve System, Holding companies, number of small entities. determined that this notice of proposed Reporting and recordkeeping rulemaking is not a significant requirements, Securities. IX. Paperwork Reduction Act and regulatory action under Executive Order Regulatory Burden 12866. 12 CFR Part 325 OCC Regulatory Burden XI. OCC Unfunded Mandates Reform Administrative practice and Section 302 of the Riegle Community Act of 1995 Determination procedure, Banks, banking, Capital Development and Regulatory Section 202 of the Unfunded adequacy, Reporting and recordkeeping Improvement Act of 1994, Pub. L. 103– Mandates Reform Act of 1995 requirements, Savings associations, 325, 108 Stat. 2160 (September 23, (Unfunded Mandates Act), Pub. L. 104– State non-member banks. 1994), provides that the federal banking 4, 109 Stat. 48 (March 22, 1995) requires Authority and Issuance agencies must consider the that an agency prepare a budgetary administrative burdens and benefits of impact statement before promulgating a OFFICE OF THE COMPTROLLER OF any new regulations that impose rule that includes a Federal mandate THE CURRENCY additional requirements on insured that may result in the expenditure by 12 CFR Chapter I depository institutions. As discussed, state, local, and tribal governments, in this proposed rule would affect only a the aggregate, or by the private sector, of For the reasons set out in the small number of banks and generally $100 million or more in any one year. preamble, part 3 of title 12, chapter I of would cover only trading account If a budgetary impact statement is the Code of Federal Regulations is activities and foreign exchange and required, section 205 of the Unfunded proposed to be amended as set forth commodity positions throughout the Mandates Act also requires an agency to below. bank. Additionally, any burden imposed identify and consider a reasonable PART 3ÐMINIMUM CAPITAL RATIOS; would be lessened to the extent that a number of regulatory alternatives before ISSUANCE OF DIRECTIVES bank may use its own qualifying promulgating a rule. Because the OCC internal market risk model. The OCC has determined that this notice of 1. The authority citation for part 3 believes that any additional burden proposed rulemaking will not result in continues to read as follows: placed on a bank is outweighed by the expenditures by state, local and tribal Authority: 12 U.S.C. 93a, 161, 1818, advantages of greater accuracy in risk governments, or by the private sector, of 1828(n), 1828 note, 1831n note, 1835, 3907, management and capital allocation, more than $100 million in any one year, and 3909. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38095 2. New appendix B is added to part the change in market value of a particular Section 3. Eligible Market Risk Capital 3 to read as follows: asset that results from broad market (a) Types of eligible market risk capital. A movements such as a change in market bank may use Tier 1 and Tier 2 capital, as Appendix B to Part 3ÐMarket Risk interest rates, foreign exchange rates, equity determined in accordance with § 3.2 of this prices, and commodity prices. Specific part 3, to satisfy the market risk requirement. Section 1. Purpose, Applicability, Effective market risks are those risks that affect the A bank also may use Tier 3 capital to satisfy Date, and Definitions market value of a specific instrument, such its market risk requirement as determined in (a) Purpose. The purpose of this appendix as the credit risk of the issuer of that accordance with section 3(b) and subject to B is to ensure that banks maintain adequate particular instrument, but do not materially the limitations of section 3(c) of this capital for market risk. Market risk is alter broad market conditions. appendix B. generally the risk of loss arising from (5) Tier 3 capital means capital that may (b) Tier 3 capital. For the purposes of this movements in market prices. The market risk be used by a bank to satisfy the market risk appendix B, Tier 3 capital consists of short- requirements of this appendix B are limited capital requirements under this appendix B term subordinated debt subject to a lock-in to the market risk associated with the trading as determined in accordance with section 3 clause. In addition, the subordinated debt account of the bank and to the overall foreign of this appendix B. must have an original maturity of at least two exchange risk and the commodities risk (6) Total assets means the quarter-end total years, be unsecured and subordinated to the throughout the bank, including related assets figure required to be computed for and claims of depositors must be fully paid-in, options and other derivative contracts. Under stated in a bank’s most recent quarterly and may not be subject to any covenants, this appendix B a bank may measure its Consolidated Report of Condition and terms, or restrictions inconsistent with safe market risk exposure with either its own Income (Call Report). and sound banking practices. qualifying internal market risk model or the (7) Trading account activities means the (c) Limitations. Tier 3 capital only may be alternative standardized market risk model sum of trading account assets and trading used to satisfy the market risk capital provided. However, the OCC generally account liabilities. requirements under this appendix B and may expects that banks with significant trading (8) Trading account assets means all not be used to satisfy the capital risk-based activities will calculate their market risk positions in financial instruments acquired capital requirements for counterparty risk using a qualifying internal market risk model. with the intent to resell in order to profit under appendix A of this part 3, including (b) Applicability. The market risk from short-term price movements. Trading counterpart credit risk associated with requirement of this appendix B applies to the account assets include, but are not limited to: derivative transactions in either the trading following banks: (i) Assets acquired with the intent to resell or nontrading accounts. In addition, the use (1) Any bank with total assets in excess of to customers; of Tier 3 capital is subject to the following $5 billion and either total on-balance sheet (ii) Positions in financial instruments quantitative limitations: trading account activities of 3 percent or arising from matched principal brokering or (1) Tier 3 capital may not exceed 250 more of the total assets of the bank, or total market making; or percent of a bank’s Tier 1 capital allocated for notional off-balance sheet trading account (iii) Positions in financial instruments market risk. activities in excess of $5 billion; and taken in order to hedge positions in other (2) The total of Tier 2 capital and Tier 3 (2) Any bank with total assets of $5 billion financial instruments of the trading account.1 capital is limited to 100 percent of Tier 1 or less and total trading account activities in (9) Value-at-risk means the statistical capital. excess of 10 percent of the total assets of the estimate representing the maximum amount (3) Tier 2 capital may be substituted for bank; and by which the market value of covered market Tier 3 capital up subject to the same 250 (3) Any bank with a significant exposure to risk assets could decline during a specific percent limitation on Tier 3 capital and all market risk and the OCC deems necessary to period for a stated level of statistical other limitations on Tier 2 capital under the protect the safety and soundness of the bank. confidence. risk-based capital guidelines, as determined (c) Effective date. The market risk by appendix A of this part 3. requirements of this appendix B are effective Section 2. Market Risk Capital Requirement Section 4. Market Risk Exposure December 31, 1997. (a) Capital requirement. All banks subject (d) Definitions. For the purposes of this to this appendix B shall maintain a minimum Market risk exposure represents the total appendix B, the following definitions apply: market risk capital ratio of 8 percent. The dollar amount at risk arising from movements (1) Covered market risk assets means all market risk capital ratio is the ratio of eligible in market prices. A bank may determine its trading account assets plus all other on- and market risk capital to adjusted market risk market risk exposure either through a off-balance sheet assets which have foreign assets. Eligible market risk capital consists of qualifying internal market risk model as exchange risk, equity price risk, and Tier 1, Tier 2, and Tier 3 capital as provided in accordance with section 5 of this commodity risk throughout the bank determined in accordance with section 3 of appendix B, or through the standardized including related options and other this appendix B. Adjusted market risk assets market risk model as provided in accordance derivative contracts. is the sum of the risk weighted assets as with section 6 of this appendix B. (2) Derivative contract means generally a determined in accordance with appendix A (a) Qualifying internal market risk model. financial contract whose value is derived of this part 3 (risk-based capital guidelines) For a bank permitted or required by the OCC from the values of one or more underlying plus the market risk equivalent assets. The to use a qualifying internal market risk asset, reference rate or index of asset values. market rate equivalent assets equal 12.5 times model, the market risk exposure of covered Derivative contracts include both the market risk exposure as determined in market risk assets is equal to the greater of: standardized contracts that are traded on accordance with section 4 of this appendix (1) The aggregate value-at-risk amount for exchanges and customized, privately B. the previous day; or negotiated contracts known as over-the- (b) Relationship to risk-based capital (2) The average of the daily value-at-risk counter (OTC) derivative contracts. requirement. The amount of capital required amounts for each of the preceding 60 (3) Lock-in clause means a provision in a for market risk is in addition to the amount business days times a multiplication factor of subordinated debt agreement that precludes of capital required for counterparty credit three. payment by the bank of either interest or risk under the risk-based capital guidelines (b) Standardized market risk model. For principal (even upon maturity) of the as determined in accordance with appendix banks using the standardized market risk subordinated debt if such payment would A of this part 3. model, the market risk exposure equals the cause the issuing bank to fall or remain measured value-at-risk amount for covered below the minimum risk-based capital 1 market risk assets as determined in section 6 requirement as provided in appendix A of When non-trading account instruments are of this appendix B. this part 3 as adjusted for market risk. hedged with trading account instruments, whether on- or off-balance-sheet, the bank may include the (4) Market risk means the risk of loss Section 5. Qualifying Internal Market Risk non-trading account instruments in the measure for Model resulting from movements in market prices. general market risk. However, such non-trading Market risks consist of both general and account instruments remain subject to the credit As provided in this section, a bank may specific market risks. General market risk is risk capital charges of appendix A of this part. use a qualifying internal market risk model 38096 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules to determine its market risk exposure. The within each risk category. However, (iii) The qualifying category includes qualifying internal market risk model may empirical correlations across risk categories securities of U.S. government-sponsored use any generally accepted measurement may not be incorporated. The value-at-risk agencies, general obligation securities issued technique including, but not limited to, measurement for each risk category must be by states and other political subdivisions of variance-covariance models, historical added together on a simple sum basis to the OECD-based group of countries, simulations, or monte carlo simulations; determine the aggregate value-at-risk multilateral development banks, and debt however, the qualifying internal market risk exposure. instruments issued by U.S. depository model must capture all material market risk. (vii) The value-at-risk measurement must institutions or OECD-banks that do not (a) Value-at-risk measurement. A capture the unique risks associated with qualify as capital of the issuing institution. It qualifying internal market risk model must options within each of the risk categories also includes other securities, including incorporate a value-at-risk measurement that subject to the following criteria: revenue securities issued by states and other adequately evaluates the market risk (A) The value-at-risk measurement must political subdivisions of the OECD-based associated with all covered market risk capture the non-linear price characteristics of group of countries, that are rated investment- assets. option positions using an options pricing grade by at least two nationally recognized (b) Risk factor categories. The value-at-risk technique. credit rating services, or rated investment- measurement must include risk factors (B) The bank must apply a minimum ten- grade by one nationally recognized credit sufficient to capture the market risk inherent day holding period to option positions or rating agency and not less than investment- in all covered market risk assets. In addition, grade by any other credit rating agency, or, the risk factors must cover the risk categories positions that display option-like characteristics. Options may not be scale-up with the exception of securities issued by of interest rates, exchange rates, equity U.S. firms and subject to review by the OCC, prices, commodity prices, and the volatility the daily value-at-risk exposure by the square root of time. unrated but deemed to be of comparable of related market factors. investment quality by the reporting bank and (C) The value-at-risk measurement must (c) Prior approval. Prior OCC approval is the issuer has securities listed on a capture the volatilities of the rates and prices required before a bank may use an internal recognized stock exchange. underlying option positions. market risk model for the purposes of the (iv) The other category includes debt (viii) The accuracy of a bank’s qualifying market risk requirement of this appendix B. securities not qualifying as government or internal market risk model must be validated A qualifying internal market risk model must qualifying securities. This would include by auditors. satisfy the following criteria: non-OECD central government securities that (1) Qualitative factors. (i) The level of Section 6. Standardized Market Risk Model do not meet the criteria for the government sophistication and accuracy of the internal or qualifying categories. This category also market risk model must be commensurate As provided in this section, a bank may includes instruments that qualify as capital with the nature and volume of bank’s trading use the standardized market risk model to issued by other banking organizations. account activities. determine its market risk exposure. (v) The OCC will consider the extent of a (ii) The market risk management systems (a) Debt Instruments. (1) Specific Risk. (i) bank’s position in non-investment grade must adequately monitor compliance with The market risk requirement for specific risk instruments (sometimes referred to as ‘‘high internal procedures and controls which is based on the identity of the obligor and, yield debt’’) that do not have investment- generally would include independent risk in the case of corporate securities, on the grade ratings. If those holdings are not well- management, annual internal audits, back credit rating and maturity of the instrument. diversified or otherwise represent a material testing, and stress testing. The specific risk is calculated by weighting position to the institution, the OCC may (2) Quantitative factors. (i) The value-at- the current market value of each individual prohibit a bank from offsetting positions in risk measurement must be calculated with position, whether long or short, by the these instruments with other positions in sufficient frequency to allow the bank appropriate specific risk factor and summing qualifying instruments that may be offset enough time to react to changing market the weighted values. In measuring specific conditions. when calculating its general market risk risk, the bank may offset and exclude from requirement. In addition, the OCC may (ii) The value-at-risk measurement must be its calculations any matched positions in the based on a 99th percentile, one-tailed impose a specific risk capital requirement as identical issue (including positions in high as 16.0 percent. confidence interval 2 with an assumed derivative contracts). Even if the issuer is the holding period of ten trading days. (2) General Market Risk. (i) A bank may same, offsetting is not permitted between measure its exposure to general market risk (iii) For positions that display linear price different issues. The specific risk factors are relationships, a bank may use value-at-risk using, on a continuous basis, either the set forth in Table 1—Specific Risk Factors for maturity method (which uses standardized measurement using shorter holding periods Debt Instruments, as follows: which are scaled up to ten days by the square risk weights that approximate the price root of time.3 sensitivity of various instruments) or the (iv) The value-at-risk measurement must be TABLE 1.ÐSPECIFIC RISK FACTORS duration method (where the institution calculated using an observation period of at FOR DEBT INSTRUMENTS calculates the precise duration of each least one year to measure historical changes instrument, weighted by a specified change in rates and prices. Remaining in interest rates). Factor (In (ii) Both methods use a maturity-ladder (v) A bank must update its historical rates Category contractual percent) and prices at least once every three months maturity that incorporates a series of ‘‘time bands’’ and must reassess them whenever market and ‘‘zones’’ to group together securities of conditions change materially. Government .. N/A ...... 0.00 similar maturities and that are designed to (vi) A bank may incorporate into its value- Qualifying ...... 6 months or 0.25 take into account differences in price at-risk measurement empirical correlations less. sensitivities and interest rate volatilities Over 6 to 12 1.00 across different maturities. Under either months. 2 A one-tailed confidence interval of 99 percent method, the capital requirement for general means that there is a 1 percent probability based on Over 12 1.60 market risk is the sum of a base charge that historical experience that the combination of months. results from fully netting various risk- positions in a bank’s portfolio would result in a loss Other ...... N/A ...... 8.00 weighted positions and a series of additional higher than the measured value-at-risk. charges (add-ons), which effectively 3 This transformation entails multiplying a bank’s (ii) The government category includes all ‘‘disallow’’ part of the previous full netting value-at-risk by the square root of the ratio of the forms of debt instruments of central to address basis and yield curve risk. required holding period (ten days) to the holding governments of the OECD-based group of (iii) For each currency in which a bank has period embodied in the value-at-risk exposure. For countries including bonds, Treasury bills and significant positions, a separate capital example, the value-at-risk calculated according to a one-day holding period would be scaled-up by the other short-term instruments, as well as local requirement must be calculated. No netting ‘‘square root of time’’ by multiplying the value-at- currency instruments of non-OECD central of positions is permitted across different risk by 3.16 (the square root of the ratio of a ten- governments to the extent that the bank has currencies. Offsetting positions of the same day holding period to a one-day holding period). liabilities booked in that currency. amount in the same issues, whether actual or Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38097 notional, may be excluded from the next repricing date. A callable bond trading and the short positions in each time-band are calculation, as well as closely matched above par is slotted according to its first call summed. The summed long and/or short swaps, forwards, futures, and forward rate date, while a callable bond priced below par positions are multiplied by the appropriate agreements (FRAs) that meet the conditions is slotted according to remaining maturity. risk-weight factor (reflecting the price set out in section 6(a)(3) of this appendix B. Fixed-rate mortgage-backed securities, sensitivity of the positions to changes in (iv) In the maturity method, the bank including collateralized mortgage obligations interest rates) to determine the risk-weighted distributes each long or short position (at (CMOs) and real estate mortgage investment current market value) of a debt instrument conduits (REMICs), are slotted according to long and/or short position for each time- into the time bands of the maturity ladder. their expected weighted average lives. band. The risk weights for each time-band are Fixed-rate instruments are allocated (v) Once all long and short positions are set out in Table 2—Maturity Method: Time- according to the remaining term to maturity slotted into the appropriate time band, the Band and Weights, as follows: and floating-rate instruments according to the long positions in each time-band are summed TABLE 2.ÐMATURITY METHOD: TIME-BANDS AND WEIGHTS Risk Zone Coupon 3% or more Coupon less than 3% and zero coupon bonds weights 1 ...... Up to 1 month ...... Up to 1 month ...... 0.00 1 up to 3 months ...... 1 up to 3 months ...... 0.20 3 up to 6 months ...... 3 up to 6 months ...... 0.40 6 up to 12 months ...... 6 up to 12 months ...... 0.70 2 ...... 1 up to 2 years ...... 1 up to 1.9 years ...... 1.25 2 up to 3 years ...... 1.9 up to 2.8 years ...... 1.75 3 up to 4 years ...... 2.8 up to 3.6 years ...... 2.25 3 ...... 4 up to 5 years ...... 3.6 up to 4.3 years ...... 2.75 5 up to 7 years ...... 4.3 up to 5.7 years ...... 3.25 7 up to 10 years ...... 5.7 up to 7.3 years ...... 3.75 10 up to 15 years ...... 7.3 up to 9.3 years ...... 4.50 15 up to 20 years ...... 9.3 up to 10.6 years ...... 5.25 Over 20 years ...... 10.6 up to 12 years ...... 6.00 12 up to 20 years ...... 8.00 Over 20 years ...... 12.50 (vi) Within each time-band for which there different time-bands, the weighted long and element of the general market risk capital are risk-weighted long and short positions, short positions in all of the time-bands requirement. the risk-weighted long and short positions within the zone are then netted, resulting in (viii) Risk-weighted long and short are then netted, resulting in a single net risk- a single net long or short position for each positions in different zones are then netted weighted long or short position for each time- zone. Because different instruments and between the zones. Zone 1 and zone 2 are band. Because different instruments and different maturities may be included and netted if possible, reducing or eliminating the different maturities may be included and netted within each zone, a capital net long or short position in zone 1 or zone netted within each time-band, a capital requirement, referred to as the horizontal 2 as appropriate. Zone 2 and zone 3 are then requirement, referred to as the vertical disallowance, is assessed to allow for the netted if possible, reducing or eliminating the disallowance, is assessed for basis risk. The imperfect correlation of interest rates along net long or short position in zone 2 or zone vertical disallowance capital requirement is 3 as appropriate. Zone 3 and zone 1 are then the yield curve. The horizontal disallowance 10.0 percent of the position eliminated by the netted if possible, reducing or eliminating the capital requirement is calculated as a intra-time-band netting, that is, 10.0 percent long or short position in zone 3 and zone 1 percentage of the position eliminated by the of the smaller of the net risk-weighted long as appropriate. A horizontal disallowance or net risk-weighted short position, or if the intra-zone netting, that is, a percentage of the capital requirement is then assessed, positions are equal, 10.0 percent of either smaller of the net risk-weighted long or net calculated as a percentage of the position position.4 The vertical disallowances for each risk-weighted short position, or if the eliminated by the inter-zone netting. The time-band are absolute values, that is, neither positions are equal, a percentage of either horizontal disallowance capital requirements long nor short. The vertical disallowances for position.5 The percent disallowance factors for each zone are then summed as absolute all time-bands in the maturity ladder are for intra-zone netting are set out in Table 3— values and included in the general market summed and included as an element of the Horizontal Disallowances in section risk capital charge. The percent disallowance general market risk capital requirement. 6(a)(2)(H). The horizontal disallowances, like factors for inter-zone netting are set out in (vii) Within each zone for which there are the vertical disallowances, are absolute Table 3—Horizontal Disallowances, as risk-weighted long and short positions in values that are summed and included as an follows: TABLE 3.ÐHORIZONTAL DISALLOWANCES Between Within the adjacent Between Zone Time-band zone (per- zones (per- zones 1 and cent) cent) 3 (percent) 1 ...... 0 up to 1 month ...... 40 40 100 1 up to 3 months. 3 up to 6 months. 4 For example, if the sum of the weighted longs disallowance for the time-band is 10.0 percent of million and the sum of the weighted shorts in the in a time-band is $100 million and the sum of the $90 million, or $9 million. 3- to 6-month time-band is $10 million, the weighted shorts is $90 million, the vertical 5 For example, if the sum of the weighted longs horizontal disallowance for the zone is 40 percent in the 1- to 3-month time-band in Zone 1 is $8 of $8 million, or $3.2 million. 38098 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules TABLE 3.ÐHORIZONTAL DISALLOWANCESÐContinued Between Within the adjacent Between Zone Time-band zone (per- zones (per- zones 1 and cent) cent) 3 (percent) 6 up to 12 months. 2 ...... 1 up to 2 years ...... 30 40 100 2 up to 3 years 3 up to 4 years 3 ...... 1 up to 5 years ...... 30 40 100 5 up to 7 years 7 up to 10 years 10 up to 15 years 15 up to 20 years Over 20 years (ix) Finally, the net risk-weighted long or (xii) The duration method maturity ladder the life of the underlying instrument.8 Where net risk-weighted short positions remaining is set out in Table 4—Duration Method: Time a range of instruments may be delivered to in the zones are summed to reach a single net Bands and Assumed Changes in Yield, as fulfill the contract, the bank may chose risk-weighted long or net risk-weighted short follows: which deliverable instrument goes into the position for the bank’s portfolio. The sum of maturity or duration ladder as the notional the absolute value of this position and the TABLE 4.ÐDURATION METHOD: TIME- underlying. In the case of a future on a vertical and horizontal disallowances is the BANDS AND ASSUMED CHANGES IN corporate bond index, positions are included capital requirement for general market risk. at the market value of the notional (x) In the duration method, the bank, after YIELD underlying portfolio of securities. calculating each instrument’s modified (iv) Swaps are treated as two notional duration,6 multiplies that modified duration Assumed positions in the relevant instruments with by the interest rate shock specified for an Zone Time-band change in appropriate maturities. The receiving side is yield instrument of that duration in Table 4— treated as the long position and the paying Duration Method: Time-Band and Assumed side is treated as the short position.9 The Changes in Yield in section 6(a)(2)(K). The 1 ...... Up to 1 month ...... 1.00 1 up to 3 months ...... 1.00 separate sides of cross-currency swaps or resulting product (representing the expected forward foreign exchange transactions are percentage change in the price of the 3 up to 6 months ...... 1.00 6 up to 12 months ..... 1.00 slotted in the relevant maturity ladders for instrument for the given interest rate shock) the currencies concerned. For swaps that pay 2 ...... 1.0 up to 1.8 years .... 0.90 is then multiplied by the current market or receive a fixed or floating interest rate 1.8 up to 2.6 years .... 0.80 value of the instrument. The resulting against some other reference price, for 2.6 up to 3.3 years .... 0.75 amount is then slotted as a long or short example, an equity index, the interest rate 3 ...... 3.3 up to 4.0 years .... 0.75 position into a time-band in the maturity component is slotted into the appropriate 4.0 up to 5.2 years .... 0.70 ladder in Table 4—Duration Method: Time- repricing maturity category, with the long or 5.2 up to 6.8 years .... 0.65 Band and Assumed Changes in Yield on the short position attributable to the equity 7 6.8 up to 8.6 years .... 0.60 basis of the instrument’s modified duration. component being included in the equity 8.6 up to 9.9 years .... 0.60 (xi) Once all of the bank’s traded debt framework set out in section 6(b) of this 9.9 up to 11.3 years .. 0.60 instruments have been slotted into the appendix B.10 maturity ladder, the bank conducts the same 11.3 up to 16.6 years 0.60 rounds of netting and disallowances Over 16.6 years ...... 0.60 8 described in sections 6(a)(2)(F) through (H) of For example, a long position in a June three- (3) Interest rate derivative contracts. (i) month interest rate future (taken in April) is the maturity method in this appendix B, with reported as a long position in a government security the exception that the vertical disallowance Derivative contracts and other off-balance with a maturity of five months and a short position requirement for the duration method is 5.0 sheet positions that are affected by changes in a government security with a maturity of two percent (horizontal disallowances continue in interest rates are included in the months. to be those set out in Table 3—Horizontal measurement system under section 6(a) of 9 For example, an interest rate swap in which a Disallowances). As with the maturity this appendix B (except for options and the bank is receiving floating-rate interest and paying method, the sum of the absolute value of the associated underlyings, which are included fixed is treated as a long position in a floating rate final net position and the vertical and in the measurement system under the instrument with a maturity equivalent to the period horizontal disallowances is the general treatment discussed in section 6(e) of this until the next interest rate reset date and a short appendix B). position in a fixed-rate instrument with a maturity market risk capital requirement. equivalent to the remaining life of the swap. (ii) Derivatives are converted into positions 10 A bank with a large swap book may, with prior 6 The duration of an instrument is its approximate in the relevant underlying instrument and are approval of the OCC, use alternative formulae to percentage change in price for a 100 basis point included in the calculation of specific and calculate the positions to be included in the parallel shift in the yield curve assuming that its general market risk capital charges as maturity or duration ladder. For example, a bank cash flows do not change when the yield curve described above. The amount to be included could first convert the payments required by the shifts. Modified duration is duration divided by a is the market value of the principal amount swap into present values. For that purpose, each factor of 1 plus the interest rate. of the underlying or of the notional payment would be discounted using zero coupon 7 Example, an instrument held by a bank with a underlying. yields, and the payment’s present value entered maturity of 4 years and 3 months and a current (iii) Futures and forward contracts into the appropriate time-band using procedures market value of $1,000 might have a modified that apply to zero (or low) coupon bonds. The net duration of 3.5 years. Based on its modified (including FRAs) are broken down into a amounts would then be treated as bonds, and duration, it would be subjected to the 75-basis point combination of a long position and short slotted into the general market risk framework. interest rate shock, resulting in an expected price position in the notional security. The Such alternative treatments will, however, only be change of 2.625 percent (3.5 × 0.75). The maturity of a future or a FRA is the period allowed if: (i) the OCC is satisfied with the accuracy corresponding expected change in price of $26.25, until delivery or exercise of the contract, plus of the system being used, (ii) the calculated calculated as 2.625 percent of $1,000, would be positions fully reflect the sensitivity of the cash slotted as a long position in the 3.3 to 4.0 year time- flows to interest rate changes; and (iii) the positions band of the maturity ladder. are denominated in the same currency. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38099 (v) A bank may offset long and short requirement is 8.0 percent of that sum, unless on a broad diversified equity index matches positions (both actual and notional) in the portfolio is both liquid and well- a basket of securities, it may exclude both identical derivative instruments with exactly diversified, in which case the specific risk positions from the standardized approach on the same issuer, coupon, currency, and capital requirement is 4.0 percent of the gross the condition that the trade has been maturity before slotting these positions into equity position. A specific risk charge of 2.0 deliberately entered into and separately time-bands. A matched position in a future percent applies to the net long or short controlled and the composition of the basket and its corresponding underlying may also be position in a broad, diversified equity index. of stocks represents at least 90 percent of the fully offset and, thus, excluded from the (2) General market risk. The measure of market value of the index. In such a case, the calculation, except when the future general market risk is based on the difference minimum capital requirement is 4.0 percent comprises a range of deliverable instruments. between the sum of the long positions and (that is, 2.0 percent of the gross value of the However, in cases where, among the range of the sum of the short positions (i.e., the positions on each side). This applies even if deliverable instruments, there is a readily overall net position in an equity market) at all of the securities comprising the index are identifiable underlying instrument that is current market value. An overall net position held in identical proportions. Any excess most profitable for the trader with a short must be separately calculated for each value of the securities comprising the basket position to deliver, positions in the futures national market in which the bank holds over the value of the futures contract or contract and the instrument may be offset. No equities. The capital requirement for general excess value of the futures contract over the offsetting is allowed between positions in market risk is 8.0 percent of the net position value of the basket is treated as an open long different currencies. in each equity market. or short position. (3) Equity derivatives. (i) Equity derivatives (v) If a bank takes a position in depository (vi) Offsetting positions in the same 14 category of instruments can in certain and other off-balance-sheet positions that are receipts against an opposite position in the underlying equity, it may offset the position. circumstances be regarded as matched and affected by changes in equity prices are (c) Foreign Exchange Risk. (1) The capital treated by the bank as a single net position included in the measurement system under requirement for foreign exchange risk covers which should be entered into the appropriate section 6(b) of this appendix B (except for the risk of holding or taking positions in time-band. To qualify for this treatment the equity options, equity index options, and the foreign currencies, including gold, and is positions must be based on the same associated underlying, which are included in the measurement system under the treatment based on a bank’s net open long positions or underlying instrument, be of the same net open short positions in each currency, nominal value, and be denominated in the discussed in section 6(e) of this appendix B).12 This includes futures and swaps on both whether or not those positions are in the same currency. The separate sides of trading portfolio, plus the net open position individual equities and on equity indices. different swaps may also be ‘‘matched’’ in gold, regardless of sign.15 Equity derivatives should be converted into subject to the same conditions. In addition: (2) A bank’s net open position in each notional equity positions in the relevant (A) For futures, offsetting positions in the currency (and gold) is calculated by underlying. notional or underlying instruments to which summing: the futures contract relates must be for (ii) Futures and forward contracts relating (i) The net spot position (i.e., all asset identical instruments and the instruments to individual equities should be reported as items less all liability items, including must mature within seven days of each other; current market prices of the underlying. accrued interest earned but not yet received (B) For swaps and FRAs, the reference rate Futures relating to equity indices should be and accrued expenses, denominated in the (for floating rate positions) must be identical reported as the marked-to-market value of the currency in question); and the coupon closely matched; and notional underlying equity portfolio. Equity (ii) All foreign exchange derivative (C) For swaps, FRAs and forwards, the next swaps are treated as two notional positions, instruments and other off-balance-sheet interest reset date, or for fixed coupon with the receiving side as the long position positions that are affected by changes in positions or forwards the remaining maturity, and the paying side as the short position.13 exchange rates are included in the must correspond within the following limits: If one of the legs involves receiving/paying measurement system under section 6(c) of If the reset (remaining maturity) dates occur a fixed or floating interest rate, the exposure this appendix B (except for options and their within one month, then the reset (remaining should be slotted into the appropriate associated underlyings, which are included maturity) dates must be on the same day; if repricing maturity band for debt securities. in the measurement system under the the reset (remaining maturity) dates occur The stock index is covered by the equity treatment discussed in section 6(e) of this between one month and one year later, then treatment. appendix B). Forward currency positions the reset (remaining maturity) dates must (iii) In the case of futures-related arbitrage should be valued at current spot market occur within seven days of each other, or if strategies, the 2.0 percent specific risk charge exchange rates. For a bank in which the basis the reset (remaining maturity) dates occur applicable to broad diversified equity indices of its normal management accounting is to over one year later, then the reset (remaining may be applied to only one index. The use net present values, forward positions maturity) dates must occur within thirty days opposite position is exempt from a specific may be discounted to net present values as of each other. risk charge. The strategies qualifying for this an acceptable way of measuring currency (vii) Interest rate and currency swaps, treatment are: positions for regulatory capital purposes; FRAs, forward foreign exchange contracts (A) When the bank takes an opposite (iii) Guarantees (and similar instruments) and interest rate futures are not subject to a position in exactly the same index at that are certain to be called and are likely to specific risk charge. This exemption also different dates; and be irrevocable; applies to futures on a short-term (e.g., (B) When the bank has an opposite (iv) Net future income/expenses not yet LIBOR) interest rate index. However, in the position in different but similar indices at the accrued but already fully hedged (at the case of futures contracts where the same date, subject to supervisory oversight. discretion of the bank). A bank that includes underlying is a debt security, or an index (iv) If a bank engages in a deliberate future income and expenses must do so on representing a basket of debt securities, a arbitrage strategy, in which a futures contract a consistent basis without selecting expected specific risk charge will apply according to future flows in order to reduce the bank’s position; and the category of the issuer as set out in section specific and general market risk. For example, a (v) Any other item representing a profit or 6(a)(2) of this appendix B. future in a given equity may be offset against an loss in foreign currencies. (b) Equities. (1) Specific risk. The measure opposite cash position in the same equity. of specific risk is calculated on the basis of 12 Where equities are part of a forward contract the bank’s gross equity positions, that is, the (both equities to be received or to be delivered), any 14 Depository receipts are instruments issued by a absolute sum of the current market value of interest rate or foreign currency exposure from the trust company or other depository institution other side of the contract should be appropriately evidencing the deposit of foreign securities and all long equity positions and of all short included in sections 6(a) and (c) of this appendix facilitating trading in such instruments on U.S. 11 equity positions. The specific risk capital B. stock exchanges. 13 For example, an equity swap in which a bank 15 Where a bank has future and forward contracts 11 Matched positions in each identical equity in is receiving an amount based on the change in value to deliver and receive gold, a maturity ladder each national market may be treated as offsetting of one particular equity or equity index and paying should be constructed in accordance with section and excluded from the capital calculation, with any a different index will be treated as a long position 6(a) of this appendix B treating gold as a zero remaining position included in the calculations for in the former and a short position in the latter. coupon instrument. 38100 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules (3) For measuring a bank’s open positions, forward) is expressed in terms of the the sum of the 15.0 percent base capital positions in composite currencies, such as standard unit of measurement (such as requirement for each net commodity position the ECU, may be either treated as a currency barrels, kilos, or grams). The open positions and the additional requirements for matched in their own right or split into their in each category of commodities are then positions and for unmatched positions component parts on a consistent basis. converted at current spot rates into U.S. carried forward. Positions in gold are measured in the same currency, with long and short positions offset (5) Commodity derivatives and other off- manner as described in section 6(d) of this to arrive at the net open position in each balance-sheet positions that are affected by appendix B.16 commodity. Positions in different categories changes in commodity prices are included in (4) The capital requirement is determined of commodities may not, generally, be the measurement system under section 6(d) 18 by converting the nominal amount (or net offset. Under either method, the base of this appendix B (except for options and present value) of the net open position in capital requirement is 15.0 percent of the net the associated underlying, which are open position, long or short, in each each foreign currency (and gold) at spot rates included in the measurement system under commodity.19 into the reporting currency. The capital the treatment discussed in section 6(e) of this (3) Simplified method. To protect a bank requirement is 8.0 percent of the sum of: appendix B). Commodity derivatives are (i) The greater of the sum of the net short against basis risk, interest rate risk, and forward gap risk, each category of commodity converted into notional commodity open positions or, the sum of the net long positions. Under the maturity method, the open positions; and is also subject to a 3.0 percent capital requirement on the bank’s gross positions, positions are slotted into maturity time-bands (ii) The net open position in gold, as follows: regardless of sign.17 long plus short, in the particular commodity. In valuing gross positions in commodity (i) Futures and forward contracts relating (5) A bank doing negligible business in to individual commodities are incorporated foreign currency and that does not take derivatives for this purpose, a bank should in the measurement system as notional foreign exchange positions for its own use the current spot price. The total capital amounts (of, for example, barrels or kilos) account may be exempted from the capital requirement for commodities risk is the sum that are converted to U.S. dollars at current requirement for foreign exchange risk of the 15.0 percent base charges for each net spot rates and are assigned a maturity provided that: commodity position and the 3.0 percent according to expiration date; (i) Its foreign currency business, defined as requirements on the gross commodity the greater of the sum of its gross long positions. (ii) Commodity swaps where one side of positions and the sum of its gross short (4) Maturity method. (i) Under this method, the contract is a fixed price and the other positions in all foreign currencies, does not a bank must slot each long and short side is the current market price are exceed 100 percent of eligible capital as commodity position (converted into U.S. incorporated as a series of positions equal to defined in section 3 of this appendix B; and currency at current spot rates) into a maturity the notional amount of the contract at current (ii) Its overall net open foreign exchange ladder. The time-bands for the maturity spot rates, with one position corresponding position as determined in section 6(c)(2) does ladder are; from zero to one month, one up to each payment on the swap and slotted in to three months, three up to six months, six not exceed 2.0 percent of its eligible capital. the maturity ladder accordingly. The up to twelve months, one up to two years, (6) Where a bank is assessing its foreign positions are long positions if the bank is two up to three years, and over three years. exchange risk on a consolidated basis, it may paying a fixed price and receiving a floating A separate maturity ladder is used for each be impractical in the case of some marginal price, and short positions if the bank is category of commodity. Physical operations to include the currency positions receiving a fixed price and paying a floating commodities are allocated to the first time- of a foreign branch or subsidiary of the bank. price; 21 and band. In such cases, the internal limit in each (iii) Commodity swaps where the sides of (ii) In order to capture forward gap and currency may be used as a proxy for the the transaction are in different commodities interest rate risk within a time-band (together positions, provided there is adequate ex post are included in the relevant reporting ladder. sometimes referred to as curvature/spread No offsetting is allowed unless the monitoring of actual positions complying risk), offsetting long and short positions in commodities are in the same sub-category. with such limits. In these circumstances, the each time-band are subject to an additional (e) Options. (1) Several alternatives are limits should be added, regardless of sign, to capital requirement. Beginning with the the net open position in each currency. shortest-term time-band and continuing with available for a bank to use in measuring its (d) Commodities risk. (1) Measurement subsequent time-bands, the amount of the market risk for options activities. A bank that methods. This section provides a minimum matched short positions plus the amount of only has purchased options may use the capital requirement to cover the risk of the matched long position is multiplied by a simplified method set forth in section 6(e)(2) holding or taking positions in commodities. spread rate of 1.5 percent. of this appendix B. A bank that also writes There are two methods under the (iii) The unmatched net position from a options may use the scenario method standardized approach for measuring shorter-term time-band must be carried described in section 6(e)(3) of this appendix commodity market risk—the simplified forward to offset exposures in longer-term B, or the delta-plus method set forth in method and the maturity method. These time-bands. A capital requirement of 0.6 section 6(e)(4) of this appendix B.22 These methods are only appropriate for banks that percent of the net position carried forward is methods may only be used by banks which, conduct a limited amount of commodities added for each time-band that the net in relative terms, have limited options business. All other banks must adopt an position is carried forward.20 The total activities. Banks with more significant internal measurement system conforming to capital requirement for commodities risk is options business are expected to adopt an the criteria in section 5 of this appendix B. internal measurement system conforming to (2) Base capital requirement. Under both 18 However, netting is permitted between different the criteria in section 5 of this appendix B. the simplified and maturity methods, each sub-categories of the same commodity in cases Regardless of the method used, specific risk long and short commodity position (spot and where the sub-categories are deliverable against related to the issuer of an instrument still each other. applies to options positions for equities, 16 Where gold is part of a forward contract 19 When the funding of a commodity position equity indices and corporate debt securities (quantity of gold to be received or to be delivered), opens a bank to interest rate or foreign exchange as set forth in sections 6(a) and (b) of this any interest rate or foreign currency exposure from exposure the relevant positions should be included appendix B. There remains a separate capital the other side of the contract should be reported as in the measures of interest rate and foreign set out in section 6(a) and (c) of this appendix B. exchange risk described in sections 6(a) and (c) of 17 For example, a bank has the following net this appendix B. When a commodity is part of a 21 If one of the sides of the transaction involves currency positions: Yen = +50, DM = +100, GB = forward contract, any interest or foreign currency receiving/paying a fixed or floating interest rate, +150, FFR = ¥20, US$= ¥180, and gold = ¥35. exposure from the other side of the contract should that exposure should be slotted into the appropriate The bank would sum its long positions (total = be appropriately included in sections 6(a) and 6(c) repricing maturity band in section 6(a) of this +300) and sum its short positions (total = ¥200). of this appendix B. appendix B. The bank’s capital requirement for foreign exchange 20 For example, if $200 short is carried forward 22 Unless all their written option positions are market risk would be: (300 (the larger of the from the 3–6 month time-band to the 1–2 year time- hedged by perfectly matched long positions in summed long and short positions) + 35 (gold)) × band, the capital charge would be $200 × .006 × 2 exactly the same options, in which case there is no 8.0% = $26.80. = $2.40. capital requirement for market risk. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38101 requirement for counterparty credit risk as positions by changing the underlying rate or regarding the precise way the analysis is set forth in appendix A to this part 3. price over a specified range and by assuming constructed. A bank using the scenario (2) Under the simplified and scenario different levels of volatility for that rate or approach should meet the appropriate methods, the positions for the options and price. qualitative criteria set forth in section 5 of the associated underlying, cash or forward, (i) For each of its option portfolios, a bank this appendix B. are not included in the measurement constructs a grid based on a fixed range of (5) Under the delta-plus method, a bank framework for debt securities, equities, changes in the portfolio’s risk factors and that writes options may include delta- foreign exchange or commodities risk as set calculates changes in the value of the option weighted options positions within each forth in sections 6(a) through (d) of this portfolio at each point within the grid. For measurement framework as set forth in appendix B. Rather, they are subject to this purpose, an option portfolio consists of sections 6(a) through 6(d) of this appendix B. capital requirements as calculated in this an option and any related hedging positions (i) Options positions should be measured section. The capital requirements calculated or multiple options and related hedging as a position equal to the market value of the under this section should then be added to positions that are grouped together according underlying instrument multiplied by the the capital requirements for debt securities, to their remaining maturity or the type of delta. In addition, a bank must measure the equities, foreign exchange and commodities underlying. sensitivities of the option’s gamma (the risk as appropriate. Under the delta-plus (ii) Options based on interest rates and change of the delta for a given change in the 23 method, the delta equivalent position for debt instruments are grouped into portfolios price of the underlying) and vega (the each option is included in the measurement according to the maturity zones that are set sensitivity of the option price with respect to frameworks set forth in sections 6(a) through forth in section 6(a) of this appendix B. (Zone a change in volatility) to calculate the total (d) of this appendix B. 1 instruments have a remaining maturity of capital requirement. These sensitivities may (3) A bank that has only a limited amount up to 1 year, zone 2 instruments have a be calculated according to an exchange and range of purchased options may use the remaining maturity from 1 year up to 4 years, model approved by the OCC or to the bank’s following simplified approach to measure its and zone 3 instruments have a remaining own options pricing model, subject to market risk exposure: 24 maturity of 4 years or more.) oversight by the OCC. (i) For a bank with a long cash position and (iii) These options and the associated (ii) For options with debt instruments or a long put or with a short cash position and hedging positions should be evaluated under a long call, the capital requirement is the the assumption that the relevant interest rates interest rates as the underlying instrument, market value of the underlying instrument move simultaneously. For options based on delta-weighted options positions should be multiplied by the sum of the specific and equities, separate grids are constructed for slotted into the debt instrument time-bands general market risk requirements for the each individual equity issue and index. For in section 6(a) of this appendix B using a underlying (that is, the specific and general options based on exchange rates, separate two-legged approach (as is used for other market risk requirements that would have grids are constructed for individual exchange derivatives), requiring one entry at the time applied to the underlying directly under rates. For options based on commodities, the underlying contract takes effect and one sections 6(a) through (d) of this appendix B), separate grids are constructed for each at the time the underlying contract matures.27 less the amount the option is in the money category of commodity (as defined in Floating rate instruments with caps or floors (if any) bounded at zero.25 sections 6(a) and (d) of this appendix B). should be treated as a combination of floating (ii) For a bank with a long call or a long (iv) For option portfolios with options rate securities and a series of European-style put, the capital charge is the lesser of: based on equities, exchange rates, and options.28 A bank must also calculate the (A) The market value of the underlying commodities, the first dimension of the grid gamma and vega for each such option security multiplied by the sum of specific consists of rate or price changes within a position (including hedge positions). The and general market risk requirements for the specified range above and below the current results should be slotted into separate underlying (that is, the specific and general market value of the underlying; for equities, maturity ladders by currency. For options market risk requirements that would have the range is +/¥ 12.0 percent (or in the case such as caps and floors whose underlying applied to the underlying directly under of an index +/¥ 8.0 percent), for exchange instrument is an interest rate, the delta and sections 6(a) through (d) of this appendix B); rates the range is +/¥ 8.0 percent, and for gamma should be expressed in terms of a or commodities the range is +/¥ 15.0 percent. hypothetical underlying security. (B) The market value of the option. For option portfolios with options based on Subsequently: (iii) Under this measure, the capital interest rates, the range for the first (A) For gamma risk, for each time-band, net requirement for currency options is 8.0 dimension of the grid depends on the gammas that are negative are multiplied by percent of the market value of the underlying remaining maturity zone. The range for zone the risk weights set out in Table 5 and by the and for commodity options is 15.0 percent of 1 is +/¥ 100 basis points, the range for zone square of the market value of the underlying the market value of the underlying. 2 is +/¥ 90 basis points, and the range for instrument (net positive gammas may be (4) Under the scenario approach, a bank zone 3 is +/¥ 75 basis points. For all option disregarded); revalues its options and related hedging portfolios, the range is divided into at least (B) For volatility risk, a bank calculates the ten equally spaced intervals. The second capital requirements for vega in each time- 23 The delta equivalent of an option is the option’s dimension of each grid is a shift in the band assuming a proportional shift in delta value multiplied by its principal or notional volatility of the underlying rate or price equal volatility of ±25.0 percent; value. The delta value of an option represents the to +/¥ 25.0 percent of the current (C) The capital requirement is the absolute expected change in the option’s price as a volatility.26 value of the sum of the individual capital proportion of a small change in the price of the (v) For each assumed volatility and rate or requirements for net negative gammas plus underlying instrument. For example, an option price change (a scenario), the bank revalues the absolute value of the sum of the whose price changes $1 for every $2 dollar change each option portfolio. The market risk capital in the price of the underlying instrument has a delta requirement for the portfolio is the largest of 0.50. loss in value from among the scenario 27 For example, in April a purchased call option 24 For example, if a holder of 100 shares currently revaluations. The total market risk capital on a June three-month interest-rate future would be valued at $10 each has an equivalent put option requirement for all option portfolios is the considered on the basis of its delta-equivalent value with a strike price of $11, the capital charge would to be a long position with a maturity of five months be: $1,000 × 16.0 percent (e.g., 8.0 percent specific sum of the individual option portfolio capital and a short position with a maturity of two months. plus 8.0 percent general market risk) = $160, less requirements. The written option would be slotted as a long the amount the option is in the money ($11¥$10) (vi) The OCC will review the application position with a maturity of two months and a short × 100 = $100, i.e., the capital charge would be $60. of the scenario approach, particularly position with a maturity of five months. A similar methodology applies for options whose 28 For example, the holder of a three-year floating underlying is a foreign currency, a debt security or 26 For example, if the underlying in an equity rate bond indexed to six-month LIBOR with a cap a commodity. instrument with a current market value of $100 and of 15 percent would treat the bond as a debt 25 Some options (e.g., where the underlying is an a volatility of 20 percent, the first dimension of the security that reprices in six months, and a series of interest rate, a currency, or a commodity) bear no grid would range from $88 to $112, divided into ten five written call options on a FRA with a strike rate specific risk but specific risk will be present in the intervals of $2.40 and the second dimension would of 15 percent, each slotted as a short position at the case of options on corporate debt securities and for assume volatilities of 15 percent, 20 percent, and expiration date of the option and as a long position options on equities and equity indices. 25 percent. at the time the FRA matures. 38102 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules individual capital requirements for vega risk (D) The delta plus method risk weights are: for each time-band; and TABLE 5.ÐDELTA PLUS METHOD RISK WEIGHTS Modified du- ration (aver- Assumed Risk-weight Time-band age as- interest rate 1 sumed for change (%) for gamma time-band) Under 1 month ...... 0.00 1.00 0.00000 1 up to 3 months ...... 0.20 1.00 0.00020 3 up to 6 months ...... 0.40 1.00 0.00080 6 up to 12 months ...... 0.70 1.00 0.00245 1 up to 2 years ...... 1.40 0.90 0.00794 2 up to 3 years ...... 2.20 0.80 0.01549 3 up to 4 years ...... 3.00 0.75 0.02531 4 up to 5 years ...... 3.65 0.75 0.03747 5 up to 7 years ...... 4.65 0.70 0.05298 7 up to 10 years ...... 5.80 0.65 0.07106 10 up to 15 years ...... 7.50 0.60 0.10125 15 up to 20 years ...... 8.75 0.60 0.13781 Over 20 years ...... 10.00 0.60 0.18000 1 According to the Taylor expansion, the risk weights are calculated as 1¤2 (modified duration x assumed interest rate change) 2/100. (iii) For options with equities as the the measures described in section 6(d) of this any combination thereof, for the purposes of underlying, delta-weighted option positions appendix B. In addition, a bank must apply compliance with the capital requirements of should be incorporated in the measure of a capital requirement for gamma and vega this appendix B.29 market risk set forth in section 6(b) of this risk: (b) De minimis exposures. The OCC also appendix B. Individual equity issues and (A) For gamma risk, net gammas that are may permit a bank with negligible exposures indices should be treated as separate negative for each underlying are multiplied to certain types of market risk (activities in underlyings. In addition to the capital by 1.125 percent and by the square of the remote locations and minor currencies) to requirement for delta risk, a bank should market value of the commodity; adopt alternative measurements for those apply a further capital charge for gamma and (B) For volatility risk, a bank calculates the exposures if the alternative measurements are vega risk: capital requirements for vega for each able to adequately measure the risk. (A) For gamma risk, the net gammas that commodity assuming a proportional shift in (c) Multiplication factor for qualifying are negative for each underlying are volatility of ±25.0 percent; and internal market risk model. The OCC may multiplied by 0.72 percent (in the case of an (C) The capital requirement is the absolute increase or decrease the multiplication factor individual equity) or 0.32 percent (in the case value of the sum of the individual capital applicable to the capital requirement under of an index as the underlying) and by the requirements for net negative gammas plus a qualifying internal market risk model based square of the market value of the underlying; the absolute value of the sum of the on an assessment of the quality and historic (B) For volatility risk, a bank calculates the individual capital requirements for vega risk. accuracy of the bank’s risk management capital requirement for vega for each (vi) Under certain conditions and to a system. underlying, assuming a proportional shift in limited extent, the OCC may permit banks Office of the Comptroller of the Currency. volatility of ±25.0 percent; and that are significant traders in options with Dated: July 10, 1995. (C) The capital requirement is the absolute debt securities or interest rates as the value of the sum of the individual capital underlying to net positive and negative Eugene A. Ludwig, requirements for net negative gammas plus gammas and vegas across time-bands. Such Comptroller of the Currency. the absolute value of the individual capital netting must be based on prudent and requirements for vega risk. conservative assumptions and the bank must FEDERAL RESERVE BOARD (iv) For options on foreign exchange and materially meet the qualitative standards set gold, the net delta (or delta-based) equivalent forth in section 5 of this appendix B. 12 CFR Chapter II of the total book of foreign currency and gold (vii) A bank may base the calculation of For the reasons set out in the options is incorporated into the measurement vega risk on a volatility ladder in which the preamble, parts 208 and 225 of title 12 of the exposure in a single currency position implied change in volatility varies with the of the Code of Federal Regulations are as set forth in section 6(c) of this appendix maturity of the option. The assumed proposed to be amended as set forth B. The gamma and vega risks should be proportional shift in volatility must be at below. measured as follows: least ±25.0 percent at the short end of the (A) For gamma risk, for each underlying maturity spectrum. The proportional shift for PART 208ÐMEMBERSHIP OF STATE exchange rate, net gammas that are negative longer maturities must be at least as stringent BANKING INSTITUTIONS IN THE are multiplied by 0.32 percent and by the in statistical terms as the 25.0 percent shift square of the market value of the positions; at the short end. FEDERAL RESERVE SYSTEM (B) For volatility risk, a bank calculates the (viii) A bank should also monitor the risks (REGULATION H) capital requirements for vega for each of rho (the rate of change of the value of the 1. The authority citation for part 208 currency pair and gold assuming a option with respect to the interest rate) and is revised to read as follows: proportional shift in volatility of ±25.0 theta (the rate of change of the value of the percent; and option with respect to time). Authority: 12 U.S.C. 36, 248(a), 248(c), (C) The capital requirement is the absolute 321–338a, 371d, 461, 481–486, 601, 611, value of the sum of the individual capital Section 7. Reservation of authority 1814, 1823(j), 1828(o), 1831o, 1831p–1, 3105, requirements for net negative gammas plus (a) Partial models. The OCC reserves the 3310, 3331–3351, and 3905–3909; 15 U.S.C. the absolute value of the sum of the authority to require a bank subject to the individual capital requirements for vega risk. market risk requirements of this appendix B 29 The OCC generally expect banks with (v) For options on commodities, the delta- to develop or use an internal market risk significant trading positions to use internal market weighted positions are incorporated in one of model, the supervisory market risk model, or risk models for the purposes of this appendix B. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38103 78b, 78l(b), 78l(g), 78l(i), 78o–4(c)(5), 78q, capital measure to assist in the assessment of For this purpose, market risk is defined as 78q–1 and 78w; 31 U.S.C. 5318; 42 U.S.C. the capital adequacy of state member banks.1 the risk of losses in a bank’s on- and off- 4012a, 4104a, 4104b, 4106, and 4128. The principal objectives of this measure are balance-sheet positions arising from 2. In Part 208, § 208.13 is revised to to (i) make regulatory capital requirements movements in market prices. The market more sensitive to differences in risk profiles risks subject to these capital requirements are read as follows: among banks; (ii) factor off-balance-sheet those associated with debt and equity § 208.13 Capital adequacy. exposures into the assessment of capital instruments held in the bank’s trading adequacy; (iii) minimize disincentives to account, as well as foreign exchange risk and The standards and guidelines by holding liquid, low-risk assets; and (iv) commodities risk throughout the bank, which the capital adequacy of state achieve greater consistency in the evaluation including options and other derivative member banks will be evaluated by the of the capital adequacy of major banks contracts in each risk category. Board are set forth in appendix A and throughout the world. 2. Effective December 31, 1997, the market appendix E to part 208 for risk-based The risk-based capital guidelines include risk measure will be applied to all state capital purposes, and, with respect to both a definition of capital and a framework member banks that, on a consolidated basis: the ratios relating capital to total assets, for calculating weighted risk assets by a. Have total assets in excess of $5 billion; assigning assets and off-balance-sheet items and either have a total volume of trading in appendix B to part 208 and in 2 appendix B to the Board’s Regulation Y, to broad risk categories. A bank’s risk-based activities (measured as the sum of the bank’s capital ratio is calculated by dividing its trading assets and liabilities 2 on a daily 12 CFR part 225. qualifying capital (the numerator of the ratio) average basis for the quarter) that is 3.0 3. In Part 208, § 208.31 is amended by by its weighted risk assets (the percent or more of the total assets of the revising paragraphs (e), (h), and (j) to denominator).3 The definition of qualifying bank, or have interest rate, foreign exchange, read as follows: capital is outlined below in section II. of this equity, and commodity off-balance-sheet appendix A, and the procedures for derivative contracts relating to trading § 208.31 Definitions. calculating weighted risk assets are discussed activities whose total notional amounts * * * * * in section III. of this appendix A. Attachment exceed $5 billion; or (e) Risk-weighted assets means total I to this appendix A illustrates a sample b. Have total assets of $5 billion or less; weighted risk assets, as calculated in calculation of weighted risk assets and the and have trading activities exceeding 10.0 accordance with the Board’s Capital risk-based capital ratio. percent of the total assets of the bank. Adequacy Guidelines for State Member * * * * * 3. Such banks are still subject to the risk- Banks: Risk-Based Measure (appendix A 5. In Part 208, a new Appendix E is based capital measure set forth in appendix added to read as follows: A of this part, subject to the exclusion of to this part 208) and adjusted for market certain assets specified in this appendix E. risk in accordance with the Board’s Appendix E to Part 208—Capital However, these banks must calculate their Capital Adequacy Guidelines for State Adequacy Guidelines for State Member market risk-equivalent assets and determine Member banks: Market Risk Measure Banks: Market Risk Measure risk-based capital ratios adjusted for market (appendix E to this part 208). risk in accordance with this appendix E.3 * * * * * I. Introduction 4. The market risk measure provides two (h) Tier 1 risk-based capital ratio A. Overview ways for a bank to determine its exposure to market risk. A bank may use its internal risk means the ratio of Tier 1 capital to 1. The Board of Governors of the Federal measurement model, subject to the weighted risk assets, as calculated in Reserve System has adopted a framework for conditions and criteria set forth in section III. accordance with the Board’s Capital determining capital requirements for the of this appendix E (referred to as the internal 1 Adequacy Guidelines for State Member market risk exposure of state member banks. models approach), or when appropriate, a Banks: Risk-Based Measure (appendix A bank may use all or portions of the to this part 208) and adjusted for market 1 Some banks are also subject to capital alternative measurement system described in requirements for market risk as set forth in risk in accordance with the Board’s section IV. of this appendix E (referred to as appendix E of this part. Banks that are subject to the standardized approach). Capital Adequacy Guidelines for State the market risk measure are required to follow the guidelines set forth in appendix E of this part for a. With prior approval from the Federal Member Banks: Market Risk Measure Reserve, for regulatory capital purposes, a (appendix E to this part 208). determining qualifying and eligible capital, calculating market risk-equivalent assets and bank may use its internal risk measurement * * * * * adding them into weighted-risk assets, and model to measure its value-at-risk 4 for each (j) Total risk-based capital ratio calculating risk-based capital ratios adjusted for of the following risk factor categories; interest means the ratio of qualifying total market risk. Supervisory ratios that relate capital to rates, exchange rates, equity prices, and total assets for state member banks are outlined in commodity prices. The value-at-risk amount capital to weighted risk assets, as appendix B of this part and in appendix B to part calculated in accordance with the for each risk factor category should include 225 of the Board’s Regulation Y, 12 CFR part 225. volatilities of related options. The value-at- 2 Board’s Capital Adequacy Guidelines The risk-based capital measure is based upon a risk amount for each risk factor category is for State Member Banks: Risk-Based framework developed jointly by supervisory Measure (appendix A to this part 208) authorities from the countries represented on the Basle Committee on Banking Regulations and of Ten Central Bank Governors. The framework is and adjusted for market risk in Supervisory Practices (Basle Supervisors’ described in a paper prepared by the Basle accordance with the Board’s Capital Committee) and endorsed by the Group of Ten Supervisors Committee entitled ‘‘[Proposal to issue Adequacy Guidelines for State Member Central Bank Governors. The framework is a] Supplement to the Basle Capital Accord to Cover Banks: Market Risk Measure (appendix described in a paper prepared by the Basle Market Risks.’’ [April] 1995. Supervisors’ Committee entitled ‘‘International 2 As reflected in the bank’s quarterly Consolidated E to this part 208). Convergence of Capital Measurement,’’ July 1988. Reports of Condition and Income (call report). 4. In part 208, Appendix A is 3 Banks generally are expected to utilize period- 3 The Federal Reserve may apply all or portions amended by revising the first and end amounts in calculating their risk-based capital of this Appendix E to other banks when deemed second paragraphs of section I. to read ratios. When necessary and appropriate, ratios necessary for safety and soundness purposes. as follows: based on average balances may also be calculated 4 A bank evaluates its current positions and on a case-by-case basis. Moreover, to the extent estimates future market volatility through a value- Appendix A to Part 208—Capital banks have data on average balances that can be at-risk measure, which is an estimate representing, Adequacy Guidelines for State Member used to calculate risk-based ratios, the Federal with a certain degree of statistical confidence, the Reserve will take such data into account. maximum amount by which the market value of Banks: Risk-Based Measure 1 The market risk measure is based on a trading positions could decline during a specific I. Overview framework developed jointly by supervisory period of time. The value-at-risk is generated authorities from the countries represented on the through an internal model that employs a series of The Board of Governors of the Federal Basle Committee on Banking Supervision (Basle market risk factors (for example, market rates and Reserve System has adopted a risk-based Supervisors Committee) and endorsed by the Group prices that affect the value of trading positions). 38104 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules summed to determine the aggregate value-at- i. Assets acquired with the intent to resell futures and the principal on currency swaps risk for the bank. to customers; not included in the spot position); and b. The standardized approach uses a set of ii. Positions in financial instruments certain guarantees. It includes future income standardized calculations and assumptions to arising from matched principal brokering and and expenses from foreign currency measure market risk exposure depending on market making; or transactions not yet accrued but already fully its source; debt instruments, equities, foreign iii. Positions taken in order to hedge other hedged (at the discretion of the reporting currencies, and commodities, including elements of the trading account (that is, bank), foreign exchange derivative and other volatilities of related options. reduce risk by offsetting other positions that off-balance-sheet positions that are affected 5. The Board generally expects any bank have exposure to changes in market rates or by changes in exchange rates, and any other that is subject to the market risk measure, prices).6 Trading activities may include item representing a profit or loss in foreign especially those with large trading accounts, positions in debt instruments, equities, currencies. to comply with the measure by using internal foreign currencies, and commodity b. A bank may, subject to approval by the risk-measurement models. A bank may not instruments, or related derivative 7 or other Federal Reserve, exclude from its foreign change its measurement approach for the off-balance-sheet contracts. exchange positions any structural positions purpose of minimizing capital requirements. b. Debt instruments in the trading account in foreign currencies. For this purpose, such In limited instances, on a case-by-case basis, are all fixed-rate and floating-rate debt structural positions are limited to the Federal Reserve may permit a bank that securities and instruments that behave like transactions designed to hedge a bank’s has internal models to incorporate risk debt, including non-convertible preferred capital ratios against the effect of adverse measures of negligible exposures, for stock. Convertible bonds, i.e., preferred stock exchange rate movements on subordinated example, de minimis positions, activities in or debt issues that are convertible, at a stated debt, equity, or minority interests in remote locations, minor exposures in a price, into common shares of the issuer, consolidated subsidiaries and dotation currency, or activities that present negligible should be treated as debt instruments if they capital assigned to foreign branches that are risk to the bank, in an alternative manner, so trade like debt instruments and as equities if denominated in foreign currencies. Also long as it adequately captures the risk. they trade like equities. Also included are included are any positions related to 6. The risk-based capital ratios adjusted for derivative contracts of debt instruments and unconsolidated subsidiaries and to other market risk determined in accordance with other off-balance-sheet instruments in the items that are deducted from a bank’s capital trading account that react to changes in this appendix E are minimum supervisory when calculating its capital base. In any interest rates. A security that has been sold ratios. Banks generally are expected to event, such structural foreign currency subject to a repurchase agreement or lent operate with capital positions well above the positions must reflect long-term policies of subject to a securities lending agreement is minimum ratios. In all cases, banks should the institution and not relate to trading treated as if it were still owned by the lender hold capital commensurate with the level positions. of the security. Such transactions remain and nature of the risks to which they are c. A bank doing negligible business in subject to capital requirements for credit risk exposed. foreign currency and that does not take for the off-balance-sheet portion of the 7. The Federal Reserve will monitor the foreign exchange positions for its own transaction as set forth in section III.D. of implementation and effect of these guidelines account may be exempted from the capital in relation to domestic and international appendix A of this part. c. Equities in the trading account are equity requirement for foreign exchange risk developments in the banking industry. When provided that: necessary and appropriate, the Board will instruments that behave like equities. The instruments covered include common stocks i. Its foreign currency business, defined as consider the need to modify this appendix E the greater of the sum of its gross long in light of any significant changes in the (whether voting or non-voting), convertible securities that behave like equities, and positions and the sum of its gross short economy, financial markets, banking positions in all foreign currencies, does not practices, or other relevant factors. commitments to buy or sell equity securities. Also included are derivative contracts of exceed 100 percent of eligible capital as B. Market Risks Subject to a Capital equity instruments and other off-balance- defined in section II. of this appendix E; and Requirement sheet instruments in the trading account that ii. Its overall net open foreign exchange 1. General Market Risk and Specific Risk. are affected by changes in equity prices. position as determined in section IV.C.2. of A bank must hold capital against exposure to However, non-convertible preferred stock is this appendix E does not exceed 2.0 percent general market risk and specific risk arising included in debt instruments. of its eligible capital. from its trading and other foreign exchange 3. Foreign Exchange and Commodities d. The capital requirement for commodities and commodity activities. For this purpose, Risk. Foreign exchange or commodities risk applies to a bank’s total commodities general market risk refers to changes in the positions, whether or not included in a positions, including commodity futures, market value of covered transactions bank’s trading account, are subject to a commodity swaps, and all other commodity resulting from market movements, such as capital requirement for the market risk of derivatives or other off-balance-sheet changing levels of market interest rates, those positions. positions that are affected by changes in broad equity indices, or currency exchange a. The capital requirement for foreign commodity prices. A commodity is defined rates. Specific risk refers to credit risk, that exchange risk applies to a bank’s total as a physical product that is or can be traded is, the risk that the issuer of a debt or equity currency and gold positions. This includes on a secondary market (such as agricultural instrument might default, as well as to other spot positions (that is, asset items and products, minerals (including oil), and factors that affect the market value of specific liability items, including accrued interest and precious metals), but excluding gold (which instruments but that do not materially alter expenses, denominated in each currency); is treated as foreign exchange). 5 market conditions. forward positions (that is, forward foreign C. Capital Requirements 2. Trading Activities. a. The general market exchange transactions, including currency risk and specific risk capital requirements for 1. Capital Requirements. The minimum capital requirement for a state member bank trading activities are based on on- and off- 6 At a bank’s option, when non-trading account balance-sheet positions in a bank’s trading instruments are hedged with instruments in the subject to the market risk measure is the sum account. For this purpose, trading account trading account, on- or off-balance-sheet, the non- of: means positions in financial instruments trading account instruments may be included in the a. The capital requirement for credit risk as acquired with the intent to resell in order to measure for general market risk. Such non-trading determined in accordance with appendix A profit from short-term price movements (or account instruments remain subject to the credit of this part, excluding debt and equity risk capital requirements of appendix A of this part. other price or interest-rate variations), instruments in the trading book and positions 7 In general terms, a derivative is a financial including, but not limited to: in commodities, but including the contract whose value is derived from the values of counterparty credit risk requirements on all one or more underlying assets or reference rates or over-the-counter derivative activities whether 5 This appendix E does not impose specific risk indexes of asset values (referred to as ‘‘the capital requirements for foreign exchange risk and underlying’’). Derivatives include standardized in the bank’s trading account or not; and commodities positions because they do not have the contracts that are traded on exchanges and b. The capital requirement for market risk type of issuer-specific risk associated with debt and customized, privately negotiated contracts known as determined by the internal models equity instruments in the trading account. as over-the-counter (OTC) derivatives. approach, the standardized approach, or a Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38105 combination of the two approaches deemed category. Once a bank adopts an acceptable capital. (Examples of how to calculate these to be appropriate by the Federal Reserve. value-at-risk model for a particular risk factor limits are set forth in Attachment I to this 2. Internal Models. a. For a bank approved category, it may not revert to the appendix E.) Tier 2 elements may be to use the internal models approach, the standardized approach except in unusual substituted for Tier 3 up to the same limit of capital requirement for market risk is the circumstances and with prior approval of the 250 percent, so long as the overall limits for higher of: Federal Reserve. Tier 2 capital set forth in appendix A of this i. The bank’s previous day’s aggregate b. For a bank using a combination of part are not exceeded, that is, Tier 2 capital value-at-risk amount calculated subject to approaches, the capital requirement for may not exceed total Tier 1 capital, and long- certain supervisory requirements set forth in market risk is the sum of (i) the appropriate term subordinated debt may not exceed 50 section III. of this appendix E; or value-at-risk amount (as determined under percent of Tier 1 capital. ii. An average of the daily aggregate value- section I.C.2.a. of this appendix E), and (ii) at-risk amounts, calculated subject to the the capital requirement for each risk category B. Calculation of Eligible Capital and the same restrictions, measured on each of the that is calculated using the standardized Capital Ratio preceding sixty (60) business days, approach. 1. In order to calculate eligible capital, a multiplied by a minimum ‘‘multiplication 5. Application. The capital requirements bank must first calculate its minimum capital factor’’ of three (3).8 for market risk apply to state member banks requirement for credit risk in accordance b. A bank approved to use the internal on a worldwide consolidated basis. The with appendix A of this part and then its models approach may also be subject to a Federal Reserve may, however, evaluate capital requirement for market risk. Eligible separate capital requirement for specific market risk on an unconsolidated basis when capital is the sum of the bank’s qualifying market risk of traded debt and equity necessary. For example, when there are Tier 1 capital, its qualifying Tier 2 capital instruments to the extent that the specific obstacles to the repatriation of profits from a subject to the limits stated above, and its market risk associated with these instruments foreign subsidiary or where management eligible Tier 3 capital subject to the is not captured by the bank’s models. structure does not allow timely management conditions set out under section II. of this However, for all banks using internal models, of risk on a consolidated basis. appendix E. the total specific risk charge should in no 6. Other considerations. All transactions, 2. A bank that is subject to the market risk case be less than one-half the specific risk including forward sales and purchases, measure must calculate its risk-based capital charges calculated according to the should be included in the calculation of ratios as follows: standardized approach. market risk capital requirements from the a. Determine total weighted-risk assets 3. Standardized approach. A bank whose date on which they were entered into. The using the procedures and criteria set forth in model has not been approved by the Federal Federal Reserve expects a bank to meet its appendix A of this part, excluding debt and Reserve must use the standardized approach capital requirements for market risk on a equity instruments in the trading book and for measuring its market risk. For a bank continuous basis (that is, at a minimum, at positions in commodities, but including all using this approach, the capital requirement the close of each business day). over-the-counter derivative activities whether for market risk is the sum of the market risk in the bank’s trading account or not. capital requirement for debt and equity II. Qualifying Capital and the Market Risk- b. Calculate the measure for market risk instruments in the trading account, foreign Adjusted Capital Ratio using the internal models approach, the exchange and commodities risk throughout A. Qualifying and Eligible Capital standardized approach, or an approved the bank, and options and other derivative combination of these two approaches. positions in each risk category as set forth in 1. The principal forms of qualifying capital c. Multiply the measure for market risk by for market risk are Tier 1 capital and Tier 2 sections IV.A. to IV.E. of this appendix E.9 12.5 (i.e., the reciprocal of the 8.0 percent 4. Partial models. a. With approval from capital as defined in section II. of appendix minimum risk-based capital ratio). The the Federal Reserve, a bank whose internal A of this part and subject to the conditions resulting product is referred to as ‘‘market model does not cover all risk factor categories and limitations of appendix A of this part. A risk-equivalent assets.’’ may use the standardized approach to bank may use Tier 3 capital for the sole d. Add market risk-equivalent assets to the purpose of meeting a portion of the capital weighted-risk assets compiled for credit risk measure market risk exposure arising from 10 the risk factor categories that are not covered. requirements for market risk. purposes (section II.B.2.a. of this appendix The Federal Reserve will approve combining 2. Tier 3 capital consists of short-term E). The sum of these two amounts is the the two approaches only on a temporary subordinated debt that is subject to a lock-in denominator of risk-based capital ratios basis in situations where the bank is clause providing that neither interest nor adjusted for market risk. The numerator of developing, but has not fully implemented, a principal payment is due (even at maturity) the total risk-based capital ratio is eligible comprehensive value-at-risk measurement if such payment would cause the issuing capital and the numerator of the Tier 1 risk- system. When a bank uses both approaches, bank to fall or remain below the minimum based capital ratio is Tier 1 capital. 8.0 percent risk-based capital requirement as each risk factor category (that is, interest III. The Internal Models Approach rates, exchange rates, equity prices, and set forth in appendix A and adjusted for commodity prices) must be measured using market risk. A. Use of Models 3. In order to qualify as Tier 3 capital, the one or the other approach. The methods may 1. With prior approval of the Federal not be combined within a risk factor short-term debt must be unsecured, subordinated, and fully paid up; it must have Reserve, a bank may use its internal risk an original maturity of at least two years; and measurement model(s) for purposes of 8 The Federal Reserve may adjust the it may not be redeemed before maturity measuring value-at-risk and determining the multiplication factor for a bank to increase its without prior approval by the Federal associated regulatory capital requirements for capital requirement based on an assessment of the market risk exposure. quality and historic accuracy of the bank’s risk Reserve. In addition, it may not contain or be covered by any covenants, terms, or a. Requests for approval under section management system. III.A.1. of this appendix E should include, at 9 restrictions that are inconsistent with safe Section IV.E. of this appendix E provides several a minimum, a complete description of the alternatives for measuring the market risk of and sound banking practices. options. Under two of the alternatives, the 4. Eligible Tier 3 capital may not exceed bank’s internal modeling and risk simplified and scenario methods, the underlying 250 percent of a bank’s Tier 1 capital management systems and how these systems position of an option is ‘‘carved-out,’’ and is not allocated for market risk and the maximum conform to the criteria set forth in this included in the prescribed risk measure for the eligible amount of Tier 2 and Tier 3 capital section III., an explanation of the policies and underlying. Instead it is evaluated together with the together is limited to 100 percent of Tier 1 procedures established by the bank to ensure related option according to the procedures continued compliance with such criteria, a described for options to determine the capital 10 discussion of internal and external validation requirement. Under the third alternative, the ‘‘delta- A bank may not use Tier 3 capital to satisfy any procedures, and a description of other plus’’ approach, the delta-equivalent value of each capital requirements for counterparty credit risk position is included in the measurement framework under appendix A of this part, including relevant policies and procedures consistent for the appropriate risk category (that is, debt or counterparty credit risk associated with derivative with sound practices. equity instruments in the trading account, foreign transactions in either trading or non-trading b. The Federal Reserve will approve an exchange or commodities risk). accounts. internal model for regulatory capital 38106 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules purposes only after determining that the identify the effect of low-probability events balance- sheet positions. The risk bank’s internal model and risk management on the bank’s trading portfolio. Senior measurement system must model the yield systems meet the criteria in section III. of this management must routinely review the curve 15 using one of a number of generally appendix E. Such a determination may results of stress-testing in the context of the accepted approaches, for example, by require on-site examinations of the systems. potential effect of the events on bank capital estimating forward rates of zero coupon The Federal Reserve may require and the appropriate procedures the bank yields. The yield curve must be divided into modification to an internal model as deemed should take to minimize losses. The policies various maturity segments in order to capture necessary to ensure compliance, on a of the bank set by management and the board variation in the volatility of rates along the continuing basis, with the provisions of this of directors should identify appropriate yield curve; there will typically be one risk appendix E. A bank’s internal model will be stress-tests and the procedures to follow in factor corresponding to each maturity subject to continuing review, both on- and response to the test results. segment. off-site, by the Federal Reserve.11 d. The bank must have established b. For material exposures to interest rate 2. A bank should ensure that the level of procedures for ensuring compliance with a movements in the major currencies and sophistication of its internal model is documented set of internal policies and markets, a bank must model the yield curve commensurate with the nature and volume of controls, as well as for monitoring the overall using a minimum of six risk factors. the bank’s trading activity in the risk factor operation of the risk measurement system. However, the number of risk factors used categories covered by this appendix E and e. Not less than once a year, the bank must should ultimately be driven by the nature of measures market risk as accurately as conduct, as part of its regular internal audit the bank’s trading strategies.16 The risk possible. In addition, the model should be process, an independent review of the risk measurement system must incorporate adjusted to reflect changing portfolio measurement system. This review must separate risk factors to capture spread risk.17 composition and changing market include both the activities of the business 3. Exchange rates. A bank must use market conditions. trading units and of the independent risk risk factors corresponding to the exchange control unit of the bank. rate between the domestic currency and each B. Qualitative Criteria f. Not less than once a year, the bank must foreign currency in which the bank has a 1. A bank using the internal models conduct a review of its overall risk significant exposure. The risk measurement approach should have market risk management process. The review must system must incorporate market risk factors management systems that are conceptually consider: corresponding to the individual foreign sound and implemented with integrity. i. The adequacy of the documentation of currencies in which the bank’s positions are Internal risk measurement models must be the risk management system and process and denominated. closely integrated into the day-to-day risk the organization of the risk control unit; 4. Equity prices. A bank must use market management process of the bank. For ii. The integration of market risk measures risk factors corresponding to each of the example, the risk measurement model must into daily risk management and the integrity equity markets in which it holds significant be used in conjunction with internal trading of the management information system; positions. The sophistication and nature of and exposure limits. iii. The process the bank employs for the modeling technique for a given market 2. A bank must meet the following approving risk pricing models and valuation must correspond to the bank’s exposure to minimum qualitative criteria before using its systems that are used by front- and back- the overall market as well as to the bank’s internal model to measure its exposure to office personnel; concentration in individual equity issues in 12 market risk. iv. The scope of market risks captured by that market. At a minimum, there must be a a. A bank must have a risk control unit that the risk measurement model and the risk factor designed to capture market-wide is independent from business trading units validation of any significant changes in the movements in equity prices (such as a market and reports directly to senior management of risk measurement process; index), but additional risk factors could track the bank. The unit must be responsible for v. The accuracy and completeness of various sectors or individual issues. designing and implementing the bank’s risk position data, the accuracy and 5. Commodity prices. A bank must use management system and analyzing daily appropriateness of volatility and correlation market risk factors corresponding to each of reports on the output of the bank’s risk assumptions, and the accuracy of valuation the commodity markets in which it holds measurement model in the context of trading and risk sensitivity calculations; significant positions. The internal model limits. The unit must conduct regular back- vi. The verification process the bank must encompass directional risk, forward gap testing.13 18 employs to evaluate the consistency, and interest rate risk, and basis risk. The b. Senior management must be actively timeliness, and reliability of data sources involved in the risk control process. The used to run internal models, including the 15 Generally, a yield curve is a graph showing the daily reports produced by the risk independence of such data sources; and term structure of interest rates by plotting the yields management unit must be reviewed by a vii. The verification process the bank uses of all instruments of the same quality by maturities level of management with sufficient authority ranging from the shortest to the longest available. to evaluate back-testing that is conducted to to enforce both reductions in positions taken The resulting curve shows whether short-term assess the model’s accuracy. by individual traders, as well as in the bank’s interest rates are higher or lower than long-term overall risk exposure. C. Market Risk Factors interest rates. 16 For example, a bank that has a portfolio of c. The bank must have a routine and 1. Overview. For regulatory capital rigorous program of stress-testing 14 to various types of securities across many points of the purposes, a bank’s internal risk measurement yield curve and that engages in complex arbitrage system(s) must use sufficient risk factors to strategies would require a greater number of risk 11 Banks that need to modify their existing capture the risks inherent in the bank’s factors to capture interest rate risk accurately. modeling procedures to accommodate the portfolio of on- and off-balance-sheet trading 17 Spread risk refers to the potential changes in requirements of this appendix E should, value of an instrument or portfolio arising from nonetheless, continue to use the internal models positions and must, subject to the following guidelines, cover interest rates, equity prices, differences in the behavior of baseline yield curves, they consider most appropriate in evaluating risks such as those for U.S. Treasury securities, and yield for other purposes. exchange rates, commodity prices, and curves reflecting sector, quality, or instrument 12 If the Federal Reserve is not satisfied with the volatilities related to options positions in specific factors. A variety of approaches may be extent to which a bank meets these criteria, the each risk factor category. The level of used to capture the spread risk arising from less Federal Reserve may adjust the multiplication sophistication of the bank’s risk factors must than perfectly correlated movements between factor used to calculate market risk capital be commensurate with the nature and scope government and other interest rates, such as requirements or otherwise increase capital of the risks taken by the bank. specifying a completely separate yield curve for requirements. 2. Interest Rates. a. A bank must use a set non-government instruments (for example, swaps or 13 Back-testing includes ex post comparisons of of market risk factors corresponding to municipal securities) or estimating the spread over the risk measures generated by the model against government rates at various points along the yield the actual daily changes in portfolio value. interest rates in each currency in which it has curve. 14 Bank stress-testing should cover a range of material interest rate-sensitive on- or off- 18 Directional risk is the risk that a spot price will factors that can create extraordinary losses or gains increase or decrease. Forward gap risk refers to the in trading portfolios or make the control of risk in probability events of all types, including the various effects of owning a physical commodity versus those portfolios difficult. These factors include low- components of market, credit, and operational risks. owning a forward position in a commodity. Interest Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38107 model should also take into account the for each risk category must be added together features, etc., mean that prices may diverge market characteristics, for example, delivery on a simple sum basis to determine the in the short run. The categories and factors dates and the scope provided to traders to aggregate value-at-risk amount. are: close out positions. 3. A bank’s models must accurately capture the unique risks associated with options Remaining ma- Factor D. Quantitative Standards within each of the market risk factor Category turity (contrac- (In per- 1. A bank may use one of a number of categories. The following minimum criteria tual) cent) generally accepted measurement techniques apply to the measurement of options risk: including, for example, an internal model a. A bank’s internal model must capture Government ...... N/A ...... 0.00 based on variance-covariance matrices, the non-linear price characteristics of option Qualifying ...... 6 months or less 0.25 historical simulations, or Monte Carlo positions using an options pricing technique. 6 to 12 months . 1.00 simulations so long as the model employed The bank must apply a minimum ten-day Over 12 months 1.60 captures all the material market risks.19 The holding period to option positions or Other ...... N/A ...... 8.00 following minimum standards apply for positions that display option-like purposes of using an internal model for characteristics. Banks may not scale-up the b. The government category includes all calculating market risk capital requirements: daily value-at-risk numbers by the square forms of debt instruments of central a. Value-at-risk must be calculated on a root of time. governments of the OECD-based group of daily basis using a 99th percentile, one- b. A bank’s internal model must capture countries 23 including bonds, Treasury bills tailed confidence interval 20 and the holding the volatilities of the rates and prices (that is, and other short-term instruments, as well as period must be ten trading days. For the vega) underlying option positions and a local currency instruments of non-OECD positions that display linear price bank should measure the volatilities of the central governments to the extent that the characteristics, a bank may use value-at-risk underlying instruments broken down by bank has liabilities booked in that currency. numbers calculated according to shorter different option maturities. c. The qualifying category includes holding periods scaled up to ten days by the 4. The accuracy of a bank’s internal model securities of U.S. government-sponsored square root of time.21 will be reviewed periodically by the Federal agencies, general obligation securities issued b. Value-at-risk must be calculated using Reserve. Such review, during which, when by states and other political subdivisions of an observation period of at least one year to appropriate, the Federal Reserve may take the OECD-based group of countries, measure historical changes in rates and into consideration reports and opinions multilateral development banks, and debt prices. generated by external auditors or qualified instruments issued by U.S. depository c. A bank must update its historical rates consultants, will include, at a minimum: institutions or OECD-banks that do not and prices at least once every three months a. Verification that the internal validation qualify as capital of the issuing institution.24 and must reassess them whenever market processes described in section III.B.2. of this It also includes other securities, including conditions change materially. Appendix E are operating in a satisfactory revenue securities issued by states and other 2. A bank may use discretion in manner; political subdivisions of the OECD-based recognizing empirical correlations within b. Affirmation that the formulae used in group of countries, that are rated investment- each market risk factor category.22 However, the calculation process and for the pricing of grade by at least two nationally recognized empirical correlations among risk categories options and other complex instruments, are credit rating services, or rated investment- are not recognized. The value-at-risk measure validated by a qualified unit of the bank, grade by one nationally recognized credit which in all cases must be independent from rating agency and not less than investment- grade by any other credit rating agency, or, rate risk is the risk of a change in the cost of the trading areas; carrying forward positions and options. Basis risk c. Confirmation that the structure of the with the exception of securities issued by is the risk that the relationship between the prices internal model is adequate with respect to U.S. firms and subject to review by the of similar commodities changes over time. the bank’s activities and geographical Federal Reserve, unrated but deemed to be of 19 In a variance/covariance approach, the change coverage; comparable investment quality by the in value of the portfolio is calculated by combining d. Confirmation that the results of the reporting bank and the issuer has securities the risk factor sensitivities of the individual bank’s back-testing of its internal listed on a recognized stock exchange. positions—derived from valuation models—with a measurement system (that is, comparing d. The other category includes debt variance/covariance matrix based on risk factor securities not qualifying as government or volatilities and correlations. A bank using this value-at-risk estimates with actual profits and losses) are being used effectively to monitor qualifying securities. This would include approach would calculate the volatilities and non-OECD central government securities that correlations of the risk factors on the basis of the reliability of the model’s estimates over time; holding period and the observation period. A bank and do not meet the criteria for the government using a historical simulation would calculate the e. Affirmation that, for regulatory capital or qualifying categories. This category also hypothetical change in value of the current purposes, the model processes all relevant includes instruments that qualify as capital portfolio in the light of historical movements in risk data and that the modeling procedures issued by other banking organizations. factors. This calculation would be done for each of conform with the parameters and e. The Federal Reserve will consider the the defined holding periods over a given historical specifications set forth in this appendix E. extent of a bank’s position in non-investment measurement horizon to arrive at a range of grade instruments (sometimes referred to as simulated profits and losses. A bank using a Monte IV. The Standardized Approach high yield debt). If those holdings are not Carlo technique would consider historical movements to determine the probability of A. Debt Instruments well-diversified or otherwise represent a material position to the institution, the particular price and rate changes. 1. Specific Risk. a. The capital requirement 20 A one-tailed confidence interval of 99 percent Federal Reserve may prevent a bank from for specific risk is based on the identity of offsetting positions in these instruments with means that there is a 1 percent probability based on the obligor and, in the case of corporate historical experience that the combination of other positions in qualifying instruments that positions in a bank’s portfolio would result in a loss securities, on the credit rating and maturity may be offset when calculating its general higher than the measured value-at-risk. of the instrument. The specific risk capital market risk requirement. In addition, the 21 This transformation entails multiplying a requirement is calculated by weighting the Board may impose a specific risk capital bank’s value-at-risk by the square root of the ratio current market value of each individual requirement as high as 16.0 percent. of the required holding period (ten days) to the position, whether long or short, by the 2. General Market Risk. a. A bank may holding period embodied in the value-at-risk figure. appropriate category factor as set forth below measure its exposure to general market risk For example, the value-at-risk calculated according and summing the weighted values. In using, on a continuous basis, either the to a one-day holding period would be scaled-up by measuring specific risk, the bank may offset the ‘‘square root of time’’ by multiplying the value- and exclude from its calculations any at-risk by 3.16 (the square root of the ratio of a ten- 23 The OECD-based group of countries is defined day holding period to a one-day holding period). matched positions in the identical issue in section III.B.1. of appendix A of this part. 22 While a bank has flexibility to use correlations, (including positions in derivatives). Even if 24 U.S. government-sponsored agencies, the Federal Reserve must be satisfied that there is the issuer is the same, no offsetting is multilateral development banks, and OECD banks integrity in the bank’s process for calculating permitted between different issues since are defined in section III.C.2. of appendix A of this correlations. differences in coupon rates, liquidity, call part. 38108 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules maturity method (which uses standardized c. For each currency in which a bank has is slotted according to remaining maturity. risk weights that approximate the price significant positions, a separate capital Fixed-rate mortgage-backed securities, sensitivity of various instruments) or the requirement must be calculated. No netting including collateralized mortgage obligations duration method (where the institution of positions is permitted across different (CMOs) and real estate mortgage investment calculates the precise duration of each currencies. Offsetting positions of the same conduits (REMICs), are slotted according to instrument, weighted by a specified change amount in the same issues, whether actual or in interest rates). notional, may be excluded from the their expected weighted average lives. b. Both methods use a maturity-ladder that calculation, as well as closely matched e. Once all long and short positions are incorporates a series of ‘‘time-bands’’ and swaps, forwards, futures, and forward rate slotted into the appropriate time-band, the ‘‘zones’’ to group together securities of agreements (FRAs) that meet the conditions long positions in each time-band are summed similar maturities and that are designed to set out in section IV.A.3. of this Appendix E. and the short positions in each time-band are take into account differences in price d. In the maturity method, the bank summed. The summed long and/or short sensitivities and interest rate volatilities distributes each long or short position (at positions are multiplied by the appropriate across different maturities. Under either current market value) of a debt instrument risk-weight factor (reflecting the price method, the capital requirement for general into the time-bands of the maturity ladder. sensitivity of the positions to changes in market risk is the sum of a base charge that Fixed-rate instruments are allocated results from fully netting various risk- according to the remaining term to maturity interest rates) to determine the risk-weighted weighted positions and a series of additional and floating-rate instruments according to the long and/or short position for each time- charges (add-ons), which effectively next repricing date. A callable bond trading band. The risk weights for each time-band are ‘‘disallow’’ part of the previous full netting above par is slotted according to its first call set out in Table I below: to address basis and yield curve risk. date, while a callable bond priced below par TABLE I.ÐMATURITY METHOD: TIME-BANDS AND WEIGHTS Risk Zone Coupon 3% or more Coupon less than 3% and zero coupon bonds weights [percent] 1 ...... up to 1 month ...... up to 1 month ...... 0.00 1 up to 3 months ...... 1 up to 3 months ...... 0.20 3 up to 6 months ...... 3 up to 6 months ...... 0.40 6 up to 12 months ...... 6 up to 12 months ...... 0.70 2 ...... 1 up to 2 years ...... 1 up to 1.9 years ...... 1.25 2 up to 3 years ...... 1.9 up to 2.8 yrs ...... 1.75 3 up to 4 years ...... 2.8 up to 3.6 yrs ...... 2.25 3 ...... 4 up to 5 years ...... 3.6 up to 4.3 yrs ...... 2.75 5 up to 7 years ...... 4.3 up to 5.7 yrs ...... 3.25 7 up to 10 years ...... 5.7 up to 7.3 yrs ...... 3.75 10 up to 15 years ...... 7.3 up to 9.3 yrs ...... 4.50 15 up to 20 years ...... 9.3 up to 10.6 yrs ...... 5.25 Over 20 years ...... 10.6 up to 12 yrs ...... 6.00 12 up to 20 yrs ...... 8.00 Over 20 years ...... 12.50 f. Within each time-band for which there g. Within each zone for which there are summed and included as an element of the are risk-weighted long and short positions, risk-weighted long and short positions in general market risk capital requirement. the risk-weighted long and short positions different time-bands, the weighted long and h. Risk-weighted long and short positions are then netted, resulting in a single net risk- short positions in all of the time-bands in different zones are then netted between weighted long or short position for each time- within the zone are then netted, resulting in the zones. Zone 1 and zone 2 are netted if band. Since different instruments and a single net long or short position for each possible, reducing or eliminating the net long different maturities may be included and zone. Since different instruments and or short position in zone 1 or zone 2 as netted within each time-band, a capital different maturities may be included and appropriate. Zone 2 and zone 3 are then requirement, referred to as the vertical netted within each zone, a capital netted if possible, reducing or eliminating the requirement, referred to as the horizontal disallowance, is assessed to allow for basis net long or short position in zone 2 or zone disallowance, is assessed to allow for the risk. The vertical disallowance capital 3 as appropriate. Zone 3 and zone 1 are then imperfect correlation of interest rates along requirement is 10.0 percent of the position the yield curve. The horizontal disallowance netted if possible, reducing or eliminating the eliminated by the intra-time-band netting, capital requirement is calculated as a long or short position in zone 3 and zone 1 that is, 10.0 percent of the smaller of the net percentage of the position eliminated by the as appropriate. A horizontal disallowance risk-weighted long or net risk-weighted short intra-zone netting, that is, a percentage of the capital requirement is then assessed, position, or if the positions are equal, 10.0 smaller of the net risk-weighted long or net calculated as a percentage of the position percent of either position.25 The vertical risk-weighted short position, or if the eliminated by the inter-zone netting. The disallowances for each time-band are positions are equal, a percentage of either horizontal disallowance capital requirements absolute values, that is, neither long nor position.26 The percent disallowance factors for each zone are then summed as absolute short. The vertical disallowances for all time- for intra-zone netting are set out in Table II values and included in the general market bands in the maturity ladder are summed and in section IV.A.2.h. of this Appendix E. The risk capital charge. The percent disallowance included as an element of the general market horizontal disallowances, like the vertical factors for inter-zone netting are set out in risk capital requirement. disallowances, are absolute values that are Table II below: 25 For example, if the sum of the weighted longs disallowance for the time-band is 10.0 percent of and the sum of the weighted shorts in the 3–6 in a time-band is $100 million and the sum of the $90 million, or $9 million. month time-band is $10 million, the horizontal weighted shorts is $90 million, the vertical 26 For example, if the sum of the weighted longs disallowance for the zone if forty percent of $8 in the 1–3 month time-band in Zone 1 is $8 million million, or $3.2 million. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38109 TABLE II.ÐHORIZONTAL DISALLOWANCES Between Within the adjacent Between Zone Time-band zone (per- zones (per- zones 1±3 cent) cent) (percent) 1 ...... 0±1 month ...... 40 40 100 1±3 months 3±6 months 6±12 months 2 ...... 1±2 years ...... 30 40 100 2±3 years 3±4 years 3 ...... 1±5 years ...... 30 40 100 5±7 years 7±10 years 0±15 years 5±20 years over 20 years i. Finally, the net risk-weighted long or net Table II).29 As with the maturity method, the of the underlying or of the notional risk-weighted short positions remaining in sum of the absolute value of the final net underlying. For instruments where the the zones are summed to reach a single net position and the vertical and horizontal apparent notional amount differs from the risk-weighted long or net risk-weighted short disallowances is the general market risk effective notional amount, a bank must use position for the bank’s portfolio. The sum of capital requirement: the effective notional amount. the absolute value of this position and the c. Futures and forward contracts (including vertical and horizontal disallowances is the TABLE III.ÐDURATION METHOD: TIME- FRAs) are broken down into a combination capital requirement for general market risk. BANDS AND ASSUMED CHANGES IN of a long position and short position in the An example of the calculation of general notional security. The maturity of a future or market risk under the maturity method is in YIELD a FRA is the period until delivery or exercise Attachment II to this appendix E. of the contract, plus the life of the underlying j. In the duration method, the bank, after Assumed instrument.30 Where a range of instruments calculating each instrument’s modified Zone Time-band change in may be delivered to fulfill the contract, the yield duration 27 using a formula that is subject to bank may chose which deliverable supervisory review, multiplies that modified 1 ...... Up to 1 month ...... 1.00 instrument goes into the maturity or duration duration by the interest rate shock specified 1 up to 3 months ...... 1.00 ladder as the notional underlying. In the case for an instrument of that duration in Table 3 up to 6 months ...... 1.00 of a future on a corporate bond index, III in section IV.A.2.k. of this appendix E. 6 up to 12 months ..... 1.00 positions are included at the market value of The resulting product (representing the 2 ...... 1.0 up to 1.8 years .... 0.90 the notional underlying portfolio of expected percentage change in the price of 1.8 up to 2.6 years .... 0.80 securities. the instrument for the given interest rate 2.6 up to 3.3 years .... 0.75 d. Swaps are treated as two notional shock) is then multiplied by the current 3 ...... 3.3 up to 4.0 years .... 0.75 positions in the relevant instruments with market value of the instrument. The resulting 4.0 up to 5.2 years .... 0.70 appropriate maturities. The receiving side is amount is then slotted as a long or short 5.2 up to 6.8 years .... 0.65 treated as the long position and the paying 31 position into a time-band in the maturity 6.8 up to 8.6 years .... 0.60 side is treated as the short position. The ladder in Table III on the basis of the 8.6 up to 9.9 years .... 0.60 separate sides of cross-currency swaps or instrument’s modified duration.28 9.9 up to 11.3 years .. 0.60 forward foreign exchange transactions are k. Once all of the bank’s traded debt 11.3 up to 16.6 years 0.60 slotted in the relevant maturity ladders for instruments have been slotted into the Over 16.6 years ...... 0.60 the currencies concerned. For swaps that pay maturity ladder, the bank conducts the same or receive a fixed or floating interest rate rounds of netting and disallowances 3. Interest rate derivatives. a. Debt against some other reference price, for described in sections IV.A.2.f. through derivatives and other off-balance-sheet example, an equity index, the interest rate IV.A.2.h. of this appendix E for the maturity positions that are affected by changes in component is slotted into the appropriate method, with the exception that the vertical interest rates are included in the repricing maturity category, with the long or disallowance requirement for the duration measurement system under section IV.A. of short position attributable to the equity method is 5.0 percent (horizontal this Appendix E (except for options and the component being included in the equity disallowances continue to be those set out in associated underlyings, which are included framework set out in section IV.B. of this in the measurement system under the Appendix E.32 27 The duration of an instrument is its treatment discussed in section IV.E. of this approximate percentage change in price for a 100 Appendix E). A summary of the treatment for 30 For example, a long position in a June three- basis point parallel shift in the yield curve debt derivatives is set out in Attachment III month interest rate future (taken in April) is assuming that its cash flow does not change the to this Appendix E. reported as a long position in a government security yield curve shifts. Modified duration is duration b. Derivatives are converted into positions with a maturity of five months an a short position divided by a factor of 1 plus the interest rate. in the relevant underlying instrument and are in a government security with a maturity to two 28 months. For example, an instrument held by a bank included in the calculation of specific and 31 For example, an interest rate swap under which with a maturity of 4 years and 3 months and a general market risk capital charges as current market value of $1,000 might have a a bank is receiving floating-rate interest and paying modified duration of 3.5 years. Based on its described above. The amount to be included fixed is treated as a long position in a floating rate modified duration, it would be subjected to the 75- is the market value of the principal amount instrument with a maturity equivalent to the period basis point interest rate shock, resulting in an until the next interest reset date and a short expected price change of 2.625 percent (3.5 × 0.75). 29 Two different vertical disallowances are used position in a fixed-rate instrument with a maturity The corresponding expected change in price of since the duration method takes into account an equivalent to the remaining life of the swap. $26.25, calculated as 2.625 percent of $1,000, instrument’s specific characteristics (maturity and 32 A bank with a large swap book may, with prior would be slotted as a long position in the 3.3 to 4.0 coupon) and there is less opportunity for approval of the Federal Reserve, use alternative year time-band of the maturity ladder. measurement error. Continued 38110 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules e. A bank may offset long and short the category of the issuer as set out in section Futures relating to equity indices should be positions (both actual and notional) in IV.A.1. of this Appendix E. reported as the marked-to-market value of the identical derivative instruments with exactly notional underlying equity portfolio. Equity B. Equities the same issuer, coupon, currency, and swaps are treated as two notional positions, maturity before slotting these positions into 1. Specific risk. The measure of specific with the receiving side as the long position time-bands. A matched position in a future risk is calculated on the basis of the bank’s and the paying side as the short position.36 and its corresponding underlying may also be gross equity positions, that is, the absolute If one of the legs involves receiving/paying fully offset and, thus, excluded from the sum of all long equity positions and of all a fixed or floating interest rate, the exposure calculation, except when the future short equity positions at current market should be slotted into the appropriate 33 comprises a range of deliverable instruments. value. The specific risk capital requirement repricing maturity band for debt securities. However, in cases where, among the range of is 8.0 percent of that sum, unless the The stock index is covered by the equity portfolio is both liquid and well-diversified, deliverable instruments, there is a readily treatment. identifiable underlying instrument that is in which case the specific risk capital c. In the case of futures-related arbitrage most profitable for the trader with a short requirement is 4.0 percent of the gross equity strategies, the 2.0 percent specific risk charge position to deliver, positions in the futures position. A specific risk charge of 2.0 percent applicable to broad diversified equity indices contract and the instrument may be offset. No applies to the net long or short position in may be applied to only one index. The offsetting is allowed between positions in a broad, diversified equity index and is opposite position is exempt from a specific different currencies. viewed as necessary to provide for risks f. Offsetting positions in the same category associated with contract execution.34 risk charge. The strategies qualifying for this of instruments can in certain circumstances 2. General Market risk. The measure of treatment are: be regarded as matched and treated by the general market risk is based on the difference i. When the bank takes an opposite bank as a single net position which should between the sum of the long positions and position in exactly the same index at be entered into the appropriate time-band. To the sum of the short positions (i.e., the different dates; and qualify for this treatment the positions must overall net position in an equity market) at ii. When the bank has an opposite position be based on the same underlying instrument, current market value. An overall net position in different but similar indices at the same be of the same nominal value, and be must be separately calculated for each date, subject to supervisory oversight. denominated in the same currency. The national market in which the bank holds d. If a bank engages in a deliberate separate sides of different swaps may also be equities. The capital requirement for general arbitrage strategy, in which a futures contract ‘‘matched’’ subject to the same conditions. In market risk is 8.0 percent of the net position on a broad diversified equity index matches addition: in each equity market. a basket of securities, it may exclude both i. For futures, offsetting positions in the 3. Equity derivatives. a. Equity derivatives positions from the standardized approach on notional or underlying instruments to which and other off-balance-sheet positions that are condition that the trade has been deliberately the futures contract relates must be for affected by changes in equity prices are entered into and separately controlled and identical instruments and the instruments included in the measurement system under the composition of the basket of stocks must mature within seven days of each other; section IV.B. of this Appendix E (except for represents at least 90 percent of the market ii. For swaps and FRAs, the reference rate equity options, equity index options, and the value of the index. In such a case, the (for floating rate positions) must be identical associated underlying, which are included in minimum capital requirement is 4.0 percent and the coupon closely matched (i.e., within the measurement system under the treatment (that is, 2.0 percent of the gross value of the 15 basis points); and discussed in section IV.E. of this Appendix positions on each side) to reflect risk iii. For swaps, FRAs and forwards, the next E).35 This includes futures and swaps on both associated with executing the transaction. interest reset date, or for fixed coupon individual equities and on equity indices. This applies even if all of the securities positions or forwards the remaining maturity, Equity derivatives should be converted into comprising the index are held in identical must correspond within the following limits: notional equity positions in the relevant proportions. Any excess value of the If the reset (remaining maturity) dates occur underlying. A summary of the rules for securities comprising the basket over the within one month, then the reset dates must equity derivatives is set out in Attachment III value of the futures contract or excess value be on the same day; if the reset dates occur to this Appendix E. of the futures contract over the value of the between one month and one year later, then b. Futures and forward contracts relating to basket is treated as an open long or short the reset dates must occur within seven days individual equities should be reported at position. of each other, or if the reset dates occur over current market prices of the underlying. e. If a bank takes a position in depository one year later, then the reset dates must receipts 37 against an opposite position in the occur within thirty days of each other. 33 Matched positions in each additional equity in underlying equity, it may offset the position. g. Interest rate and currency swaps, FRAs, each national market may be treated as offsetting forward foreign exchange contracts and and excluded from the capital calculation, with any C. Foreign Exchange Risk interest rate futures are not subject to a remaining position included in the calculations for 1. The capital requirement for foreign specific risk charge. This exemption also specific and general market risk. For example, a exchange risk covers the risk of holding or future in a given equity may be offset against an applies to futures on a short-term (e.g., taking positions in foreign currencies, LIBOR) interest rate index. However, in the opposite cash position in the same equity. 34 A portfolio that is liquid and well-diversified including gold, and is based on a bank’s net case of futures contracts where the open long positions or net open short underlying is a debt security, or an index is characterized by a limited sensitivity to price changes of any single equity issue or closely related positions in each currency, whether or not representing a basket of debt securities, a group of equity issues held in the portfolio. The those positions are in the trading portfolio, specific risk charge will apply according to volatility of the portfolio’s value should not be plus the net open position in gold, regardless dominated by the volatility of any individual equity of sign.38 formulae to calculate the positions to be included issue or by equity issues from any single industry in the maturity or duration ladder. For example, a or economic sector. In general, such portfolios bank could first convert the payments required by should be characterized by a large number of 36 For example, an equity swap in which a bank the swap into present values. For that purpose, each individual equity positions, with no single position is receiving an amount based on the change in value payment would be discounted using zero coupon representing a large portion of the portfolio’s total of one particular equity or equity index and paying yields, and the payment’s present value entered market value. In addition, it would generally be the a different index will be trated as a long position into the apprioriate time-band using procedures case that a sizeable proportion of the portfolio in the former and a short position in the latter. that apply to zero (or low) coupon bonds. The net would be comprised of issues traded on organized 37 Depository receipts are instruments issued by amounts would then be treated as bonds, and exchanges or in well-established over-the-counter a trust company or other depository institution slotted into the general market risk framework. markets. evidencing the deposit of foreign securities and Such alternative treatments will, however, only be 35 Where equities are part of a forward contract facilitating trading in such instruments on U.S. allowed if: (i) the Federal Reserve is fully satisified (both equities to be received or to be delivered), any stock exchanges. with the accuracy of the system being used, (ii) the interest rate or foreign currency exposure from the 38 Gold is treated as a foreign exchange position positions calculated fully reflect the sensitivity of other side of the contract should be appropriately rather than a commodity because its volatility is the cash flows to interest rate changes; and (iii) the included in the measurement systems in sections more in line with foreign currencies and banks positions are denominated in the same currency. IV.A. and IV.C. of this Appendix E. manage it in a manner similar to foreign currencies. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38111 2. A bank’s net open position in each each currency may be used as a proxy for the commodities are allocated to the first time- currency (and gold) is calculated by positions, provided there is adequate ex post band. summing: monitoring of actual positions complying b. In order to capture forward gap and a. The net spot position (i.e., all asset items with such limits. In these circumstances, the interest rate risk within a time-band (together less all liability items, including accrued limits should be added, regardless of sign, to sometimes referred to as curvature/spread interest earned but not yet received and the net open position in each currency. risk), offsetting long and short positions in accrued expenses, denominated in the D. Commodities Risk each time-band are subject to an additional currency in question); capital requirement. Beginning with the 1. Measurement methods. This section b. All foreign exchange derivative shortest-term time-band and continuing with provides a minimum capital requirement to instruments and other off-balance-sheet subsequent time-bands, the amount of the cover the risk of holding or taking positions positions that are affected by changes in matched short position plus the amount of exchange rates are included in the in commodities. There are two methods under the standardized approach for the matched long position is multiplied by a measurement system under section IV.C. of spread rate of 1.5 percent. this Appendix E (except for options and their measuring commodity market risk—the simplified method and the maturity method. c. The unmatched net position from associated underlyings, which are included shorter-term time-bands must be carried in the measurement system under the These methods are only appropriate for banks that conduct a limited amount of forward to offset exposures in longer-term treatment discussed in section IV.E. of this commodities business. All other banks must time-bands. A capital requirement of 0.6 Appendix E). Forward currency positions adopt an internal measurement system percent of the net position carried forward is should be valued at current spot market conforming to the criteria in section III. of added for each time-band that the net exchange rates. For a bank in which the basis this Appendix E. position is carried forward.43 The total of its normal management accounting is to 2. Base capital requirement. Under both capital requirement for commodities risk is use net present values, forward positions the simplified and maturity methods, each the sum of the 15.0 percent base capital may be discounted to net present values as long and short commodity position (spot and requirement for each net commodity position an acceptable way of measuring currency forward) is expressed in terms of the and the additional requirements for matched positions for regulatory capital purposes; standard unit of measurement (such as positions and for unmatched positions c. Guarantees (and similar instruments) barrels, kilos, or grams). The open positions carried forward. An example of this that are certain to be called and are likely to in each category of commodities are then be irrevocable; calculation is in Attachment IV to this converted at current spot rates into U.S. Appendix E. d. Net future income/expenses not yet currency, with long and short positions offset accrued but already fully hedged (at the 5. Commodity derivatives. Commodity to arrive at the net open position in each derivatives and other off-balance-sheet discretion of the bank). A bank that includes commodity. Positions in different categories future income and expenses must do so on positions that are affected by changes in of commodities may not, generally, be commodity prices are included in the a consistent basis without selecting expected 41 offset. Under either method, the base measurement system under section IV.D. of future flows in order to reduce the bank’s capital requirement is 15.0 percent of the net position; and this Appendix E (except for options and the open position, long or short, in each associated underlying, which are included in e. Any other item representing a profit or commodity.42 the measurement system under the treatment loss in foreign currencies. 3. Simplified method. To protect a bank discussed in section IV.E. of this Appendix 3. For measuring a bank’s open positions, against basis risk, interest rate risk, and E). Commodity derivatives are converted into positions in composite currencies, such as forward gap risk, each category of commodity the ECU, may be either treated as a currency is also subject to a 3.0 percent capital notional commodity positions. Under the in their own right or split into their requirement on the bank’s gross positions, maturity method, the positions are slotted component parts on a consistent basis. long plus short, in the particular commodity. into maturity time-bands as follows: Positions in gold are measured in the same In valuing gross positions in commodity a. Futures and forward contracts relating to manner as described in section IV.D. of this derivatives for this purpose, a bank should individual commodities are incorporated in Appendix E.39 use the current spot price. The total capital the measurement system as notional amounts 4. The capital requirement is determined requirement for commodities risk is the sum (of, for example, barrels or kilos) that are by converting the nominal amount (or net of the 15.0 percent base charges for each net converted to U.S. dollars at current spot rates present value) of the net open position in commodity position and the 3.0 percent and are assigned a maturity according to each foreign currency (and gold) at spot rates requirements on the gross commodity expiration date; into the reporting currency. The capital positions. b. Commodity swaps where one side of the requirement is 8.0 percent of the sum of: 4. Maturity method. a. Under this method, contract is a fixed price and the other side a. The greater of the sum of the net short a bank must slot each long and short is the current market price are incorporated open positions or the sum of the net long commodity position (converted into U.S. as a series of positions equal to the notional open positions (absolute values); and currency at current spot rates) into a maturity amount of the contract at current spot rates, b. The net open position in gold, regardless ladder. The time-bands for the maturity with one position corresponding to each of sign.40 ladder are; from zero to one month, one up payment on the swap and slotted in the 5. Where a bank is assessing its foreign to three months, three up to six months, six maturity ladder accordingly. The positions exchange risk on a consolidated basis, it may up to twelve months, one up to two years, are long positions if the bank is paying a be technically impractical in the case of some two up to three years, and over three years. fixed price and receiving a floating price, and marginal operations to include the currency A separate maturity ladder is used for each short positions if the bank is receiving a fixed positions of a foreign branch or subsidiary of category of commodity. Physical price and paying a floating price; 44 and the bank. In such cases, the internal limit in c. Commodity swaps where the sides of the 41 However, offsetting is permitted between transaction are in different commodities are 39 Where gold is part of a forward contract different sub-categories of the same commodity in included in the relevant reporting ladder. No (quantity of gold to be received or to be delivered), cases where the sub-categories are deliverable offsetting is allowed unless the commodities any interest rate or foreign currency exposure from against each other. are in the same sub-category. the other side of the contract should be included 42 When the funding of a commodity position in measurement system in section IV.A. (as a zero opens a bank to interest rate or foreign exchange coupon instrument) and IV.C. of this Appendix E. exposure the relevant positions should be included 43 For example, if $200 short is carried forward 40 For example, a bank has the following net in the measures of interest rate and foreign from the 3–6 month time-band to the 1–2 year time- currency positions: Yen=+50, DM=+100, GB=+150, exchange risk described in sections IV.A. and IV.C. band, the capital charge would be FFR=¥20, US$=¥180, and gold=¥35. The bank of this Appendix E. When a commodity is part of $200×.006×2=$2.40. would sum its long positions (total=+300) and sum a forward contract, any interest or foreign currency 44 If one of the sides of the transaction involves its short positions (total=¥200). The bank’s capital exposure from the other side of the contract should receiving/paying a fixed or floating interest rate, requirement for foreign exchange market risk would be appropriately included in the measurement that exposure should be slotted into the appropriate be: (300 (the larger of the summed long and short systems in sections IV.A. and IV.C. of this repricing maturity band in section IV.A. of this positions) +35 (gold)) ×8.0%=$26.80. Appendix E. Appendix E. 38112 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules E. Options E 47), less the amount the option is in the specified range above and below the current 48 1. Three alternatives are available for a money (if any) bounded at zero. market value of the underlying; for equities, b. For a bank with a long call or a long put, the range is ±12.0 percent (or in the case of bank to use in measuring its market risk for the capital charge is the lesser of: an index ±8.0 percent), for exchange rates the options activities. A bank that only has i. The market value of the underlying range is ±8.0 percent, and for commodities purchased options may use the simplified security multiplied by the sum of specific the range is ±15.0 percent. For option method set forth in section IV.E.2. of this and general market risk requirements for the portfolios with options based on interest Appendix E. A bank that also writes options underlying (that is, the specific and general rates, the range for the first dimension of the may use the scenario method described in market risk requirements that would have grid depends on the remaining maturity section IV.E.3. of this Appendix E or the applied to the underlying directly under zone. The range for zone 1 is ±100 basis delta-plus method set forth in section IV.E.4. sections IV.A. through IV.D. of this Appendix points, the range for zone 2 is ±90 basis 49 ± of this Appendix E.45 These methods may E ); or points, and the range for zone 3 is 75 basis ii. The market value of the option. only be used by banks which, in relative points. For all option portfolios, the range is c. Under this measure, the capital terms, have limited options activities. Banks divided into at least ten equally spaced requirement for currency options is 8.0 intervals. The second dimension of each grid with more significant options business are percent of the market value of the underlying is a shift in the volatility of the underlying expected to adopt an internal measurement and for commodity options is 15.0 percent of rate or price equal to ±25.0 percent of the system conforming to the criteria in section the market value of the underlying. current volatility.50 III. of this Appendix E. Regardless of the 4. Under the scenario approach, a bank d. For each assumed volatility and rate or method used, specific risk related to the revalues its options and related hedging price change (a scenario), the bank revalues issuer of an instrument still applies to positions by changing the underlying rate or each option portfolio. The market risk capital options positions for equities, equity indices price over a specified range and by assuming requirement for the portfolio is the largest and corporate debt securities as set forth in different levels of volatility for that rate or loss in value from among the scenario sections IV.A. and IV.B. of this Appendix E. price. revaluations. The total market risk capital a. For each of its option portfolios, a bank There remains a separate capital requirement requirement for all option portfolios is the constructs a grid based on a fixed range of for counterparty credit risk as set forth in sum of the individual option portfolio capital changes in the portfolio’s risk factors and requirements. appendix A to this part. calculates changes in the value of the option 2. Under the simplified and scenario e. The Federal Reserve will review the portfolio at each point within the grid. For application of the scenario approach, methods, the positions for the options and this purpose, an option portfolio consists of particularly regarding the precise way the the associated underlying, cash or forward, an option and any related hedging positions analysis is constructed. A bank using the are not included in the measurement or multiple options and related hedging scenario approach should meet the framework for debt securities, equities, positions that are grouped together according appropriate qualitative criteria set forth in foreign exchange or commodities risk as set to their remaining maturity or the type of section III.B. of this Appendix E. underlying. forth in sections IV.A. through IV.D. of this 5. Under the delta-plus method, a bank that b. Options based on interest rates and debt Appendix E. Rather, they are subject to writes options may include delta-weighted instruments are grouped into portfolios capital requirements as calculated in this options positions within each measurement according to the maturity zones that are set framework as set forth in sections IV.A. section IV.E. The capital requirements forth in section IV.A. of this Appendix E. through IV.D. of this Appendix E. calculated under this section IV.E. should (Zone 1 instruments have a remaining a. Options positions should be measured as then be added to the capital requirements for maturity of up to 1 year, zone 2 instruments a position equal to the market value of the debt securities, equities, foreign exchange, have a remaining maturity from 1 year up to underlying instrument multiplied by the and commodities risk as appropriate. Under 4 years, and zone 3 instruments have a delta. In addition, a bank must measure the the delta-plus method, the delta equivalent remaining maturity of 4 years or more.) These sensitivities of the option’s gamma (the 46 for each option is included in the options and the associated hedging positions position change of the delta for a given change in the measurement frameworks set forth in should be evaluated under the assumption that the relevant interest rates move price of the underlying) and vega (the sections IV.A. through IV.D. of this Appendix sensitivity of the option price with respect to E. simultaneously. For options based on equities, separate grids are constructed for a change in volatility) to calculate the total 3. A bank that has only a limited amount each individual equity issue and index. For capital requirement. These sensitivities may and range of purchased options may use the options based on exchange rates, separate be calculated according to an exchange following simplified approach to measure its grids are constructed for individual exchange model approved by the Federal Reserve or to market risk exposure. rates. For options based on commodities, the bank’s own options pricing model, a. For a bank with a long cash position and separate grids are constructed for each subject to review by the Federal Reserve. a long put or with a short cash position and category of commodity (as defined in b. For options with debt instruments or a long call, the capital requirement is the sections I.B.3. and IV.D. of this Appendix E). interest rates as the underlying instrument, market value of the underlying instrument c. For option portfolios with options based delta-weighted options positions should be multiplied by the sum of the specific and on equities, exchange rates, and slotted into the debt instrument time-bands in section IV.A. of this Appendix E using a general market risk requirements for the commodities, the first dimension of the grid consists of rate or price changes within a two-legged approach (as is used for other underlying (that is, the specific and general derivatives), requiring one entry at the time market risk requirements that would have the underlying contract takes effect and one applied to the underlying directly under 47 Some options (e.g., where the underlying is an interest rate, a currency, or a commodity) bear no at the time the underlying contract sections IV.A. through IV.D. of this Appendix 51 specific risk but specific risk will be present in the matures. Floating rate instruments with case of options on corporate debt securities and for 45 Unless all their written option positions are options on equities and equity indices. 50 For example, if the underlying of an equity hedged by perfectly matched long positions in 48 For example, if a holder of 100 shares currently instrument has a current market value of $100 and exactly the same options, in which case there is no valued at $10 each has an equivalent put option a volatility of 20 percent, the first dimension of the capital requirement for market risk. with a strike price of $11, the capital charge would grid would range from $88 to $112, divided into ten 46 The delta equivalent of an option is the be: $1,000 × 16.0 percent (e.g., 8.0 percent specific intervals of $2.40 and the second dimension would option’s delta value multiplied by its principal or plus 8.0 percent general market risk)=$160, less the assume volatilities of 15 percent, 20 percent, and notional value. The delta value of an option amount the option is in the money 25 percent. represents the expected change in the option’s price ($11¥$10) × 100=$100, i.e., the capital charge 51 For example, in April, a purchased call option as a proportion of a small change in the price of would be $60. A similar methodology applies for on a June three-month interest-rate future would be the underlying instrument. For example, an option options whose underlying is a foreign currency, a considered on the basis of its delta-equivalent value whose price changes $1 for every $2 dollar change debt security or a commodity. to be a long position with a maturity of five months in the price of the underlying instrument has a delta 49 See footnote 47 in section IV.E.3.a. of this and a short position with a maturity of two months. of 0.50. appendix E. The written option would be slotted as a long Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38113 caps or floors should be treated as a terms of a hypothetical underlying security. band assuming a proportional shift in combination of floating rate securities and a Subsequently: volatility of ±25.0 percent; series of European-style options.52 A bank i. For gamma risk, for each time-band, net iii. The capital requirement is the absolute must also calculate the gamma and vega for gammas that are negative are multiplied by value of the sum of the individual capital the risk weights set out in Table IV in section each such option position (including hedge requirements for net negative gammas plus IV.E.5.b.iv. of this Appendix E and by the the absolute value of the sum of the positions). The results should be slotted into square of the market value of the underlying separate maturity ladders by currency. For instrument (net positive gammas may be individual capital requirements for vega risk options such as caps and floors whose disregarded); for each time-band; and underlying instrument is an interest rate, the ii. For volatility risk, a bank calculates the iv. The delta plus method risk weights are: delta and gamma should be expressed in capital requirements for vega in each time- TABLE IV.ÐDELTA PLUS METHOD RISK WEIGHTS Modified duration Assumed interest Risk-weight for Time-band (average assumed 1 for time band) rate change (%) gamma Under 1 month ...... 0.00 1.00 0.00000 1 up to 3 months ...... 0.20 1.00 0.00020 3 up to 6 months ...... 0.40 1.00 0.00080 6 up to 12 months ...... 0.70 1.00 0.00245 1 up to 2 years ...... 1.40 0.90 0.00794 2 up to 3 years ...... 2.20 0.80 0.01549 3 up to 4 years ...... 3.00 0.75 0.02531 4 up to 5 years ...... 3.65 0.75 0.03747 5 up to 7 years ...... 4.65 0.70 0.05298 7 up to 10 years ...... 5.80 0.65 0.07106 10 up to 15 years ...... 7.50 0.60 0.10125 15 up to 20 years ...... 8.75 0.60 0.13781 Over 20 years ...... 10.00 0.60 0.18000 1 According to the Taylor expansion, the risk weights are calculated as 1¤2 (modified duration x assumed interest rate change) 2/100. c. For options with equities as the are multiplied by 0.32 percent and by the gammas and vegas across time-bands. Such underlying, delta-weighted option positions square of the market value of the positions; netting must be based on prudent and should be incorporated in the measure of ii. For volatility risk, a bank calculates the conservative assumptions and the bank must market risk set forth in section IV.B. of this capital requirements for vega for each materially meet the qualitative standards set Appendix E. Individual equity issues and currency pair and gold assuming a forth in section III.B. of this Appendix E. ± indices should be treated as separate proportional shift in volatility of 25.0 g. A bank may base the calculation of vega underlyings. In addition to the capital percent; and risk on a volatility ladder in which the requirement for delta risk, a bank must apply iii. The capital requirement is the absolute implied change in volatility varies with the a further capital charge for gamma and vega value of the sum of the individual capital maturity of the option. The assumed requirements for net negative gammas plus risk: proportional shift in volatility must be at i. For gamma risk, the net gammas that are the absolute value of the sum of the ± individual capital requirements for vega risk. least 25.0 percent at the short end of the negative for each underlying are multiplied e. For options on commodities, the delta- maturity spectrum. The proportional shift for by 0.72 percent (in the case of an individual weighted positions are incorporated in one of longer maturities must be at least as stringent equity) or 0.32 percent (in the case of an the measures described in section IV.D. of in statistical terms as the 25.0 percent shift index as the underlying) and by the square this Appendix E. In addition, a bank must at the short end. of the market value of the underlying; apply a capital requirement for gamma and h. A bank should also monitor the risks of ii. For volatility risk, a bank calculates the vega risk: rho (the rate of change of the value of the capital requirement for vega for each i. For gamma risk, net gammas that are option with respect to the interest rate) and underlying, assuming a proportional shift in theta (the rate of change of the value of the ± negative for each underlying are multiplied volatility of 25.0 percent; and by 1.125 percent and by the square of the option with respect to time). iii. The capital requirement is the absolute market value of the commodity; value of the sum of the individual capital ii. For volatility risk, a bank calculates the Attachments to Appendix E requirements for net negative gammas plus capital requirements for vega for each Attachment I—Sample Calculation of the absolute value of the individual capital commodity assuming a proportional shift in requirements for vega risk. volatility of ±25.0 percent; and Eligible Tier 1, Tier 2, and Tier 3 d. For options of foreign exchange and gold iii. The capital requirement is the absolute Capital for the Risk-Based Capital Ratio positions, the net delta (or delta-based) value of the sum of the individual capital Adjusted for Market Risk equivalent of the total book of foreign requirements for net negative gammas plus a. In each example the weighted-risk assets currency and gold options is incorporated the absolute value of the sum of the are $8000 and the market risk-adjusted assets into the measurement of the exposure in a individual capital requirements for vega risk. are $625 (capital requirement for market single currency position as set forth in f. Under certain conditions and to a limited risk=$50 $50×12.5=$625): section IV.C. of this Appendix E. The gamma extent, the Federal Reserve may permit banks and vega risks are measured as follows: that are significant traders in options with Example 1: A bank has the following i. For gamma risk, for each underlying debt securities or interest rates as the qualifying capital: exchange rate, net gammas that are negative underlying to net positive and negative Tier 1=$600 Tier 2=$100 Tier 3=$1000 position with a maturity of two months and short security that reprices in six months, and a series of position with a maturity of five months. five written call options a FRA with a strike rate 52 For example, the holder of a three-year floating of 15 percent, each slotted as a short position at the rate bond indexed to six-month LIBOR with a cap expiration date of the option and as a long position of 15 percent would treat the bond as a debt at the time the FRA matures. 38114 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules (1) The minimum capital requirement for Example 2: A bank has the following greater than 100 percent of Tier 1 capital for credit risk is $640 ($8000×8.0%). This qualifying capital: credit risk. requirement could be satisfied with $540 of Tier 1=$500 Tier 2=$140 Tier 3=$600 Tier 1 capital and $100 of Tier 2 capital. Attachment II—Sample Calculation of (1) The minimum capital requirement for General Market Risk for Debt (2) The remaining capital available for credit risk is $640 ($8000×8.0%). This market risk would be: requirement could be satisfied with $500 of Instruments Using the Maturity Method Tier 1=$60, Tier 2=0, and Tier 3=$1000. The Tier 1 capital and $140 of Tier 2 capital. a. A bank with the following positions minimum capital requirement for market (2) The remaining capital available for would slot them into a maturity ladder as risk is $50 ($625×8.0%). Eligible Tier 3 market risk would be: Tier 1=0, Tier 2=$0, shown below: capital would be limited to $125 and Tier 3=$600. Eligible Tier 3 capital i. Qualifying bond, $13.33mn market value, × would be limited to $0 ( 0×2.5). Because ($50 2.5). remaining maturity 8 years, coupon 8%; there is no Tier 1 capital required to support (3) The Tier 1 capital required to support ii. Government bond, $75mn market value, market risk, no eligible Tier 3 capital may be market risk could be satisfied by allocating remaining maturity 2 months, coupon 7%; × used for market risk. $14 ($50 .285), with eligible Tier 3 capital (3) Total qualifying and eligible capital iii. Interest rate swap, $150 mn, bank used for market risk being $36 ($50¥$14). would be: $500 (Tier 1)+$140 (Tier 2)=$640. receives floating rate interest and pays fixed, (4) Total qualifying and eligible capital The bank’s ratio of qualifying and eligible next interest reset after 12 months, remaining would be: capital to weighted-risk assets adjusted for life of swap is 8 years (assumes the current $540 (Tier 1)+$100 (Tier 2)+$60 (Tier 1, market risk would be: $640/$8,625)=7.4%. interest rate is identical to the one the swap comprising $14 allocated for market risk b. In both of the examples described in is based on); and and $46 unallocated)+$36 (Tier 3)=$736. paragraph a. of this attachment the total of iv. Long position in interest rate future, The bank’s ratio of qualifying and Tier 2 and Tier 3 capital for credit and $50mn, delivery date after 6 months, life of eligible capital to weighted-risk assets market risk is not greater than 100 percent of underlying government security is 3.5 years adjusted for market risk would be: $736/ Tier 1 capital for credit and market risk and (assumes the current interest rate is identical $8,625)=8.5%. the total of Tier 2 capital for credit risk is not to the one the swap is based on). Risk wght Risk-weighted Net time-band Net zone Zone Time-band and position [%] position positions positions 1 ...... 0±1 mth ...... 0.00 1±3 mth Long 75 Gov. bond ...... 0.20 Long 0.15 ...... Long 0.15 ...... Long 1.00. 3±6 mth ...... 0.40 Short 0.20 ...... Short 0.20 ...... Short 50 Future 6±12 mths ...... 0.70 Long 1.05 ...... Long 1.05 ...... Long 150 Swap 2 ...... 1±2 yrs ...... 1.25 2±3 yrs ...... 1.75 3±4 yrs ...... 2.25 Long 1.125 ...... Long 1.125 ...... Long 1.125 Long 50 Future 3 ...... 4±5 yrs ...... 2.75 5±7 yrs ...... 3.25 7±10 yrs ...... 3.75 Short 5.625 ...... Short 5.125 ...... Short 5.125 Short 150 Swap Long 13.33 Qual Bond Long 0.50 10±15 yrs ...... 4.50 15±20 yrs ...... 5.25 Over 2 yrs ...... 6.00 b. A vertical disallowance would be (450,000). The remaining position in zone 3 Horizontal disallowance in calculated for time-band 7–10 years. It would would be ¥4.00. zone 1 ...... 80,000 be 10 percent of the matched positions in the e. A horizontal disallowance would Horizontal disallowance— time-band—10.0×0.5=0.05 ($50,000). be calculated between zones 1 and 3. It zones 2 and 3 ...... 450,000 c. A horizontal disallowance would be would be 100 percent of the matched Horizontal disallowance— calculated for zone 1. It would be 40 percent positions between the zones— zones 1 and 3 ...... 1,000,000 of the matched positions in the zone— 100×1.00=1.00 (1,000,000). Overall net open position ...... 3,000,000 40.0×0.20=0.80 ($80,000). The remaining net f. The remaining net open position for Total requirement for gen- position in Zone 1 would be +1.00. the bank would be 3.00 ($3,000,000). eral market risk ...... 4,580,000 d. A horizontal disallowance would be The total capital requirement for general calculated for adjacent zones 2 and 3. It market risk for this portfolio would be: Attachment III—Summary of would be 40 percent of the matched positions The vertical disallowance ...... $50,000 Treatment for Interest Rate and Equity between the zones—40.0×1.125=0.45 Derivatives Summary of Treatment for Interest Rate Derivatives Specific Instrument risk charge General market risk charge Exchange-Traded Future Government security ...... No ...... Yes, as two positions. Corporate debt security ...... Yes ...... Yes, as two positions. Index on short-term interest rates (e.g. LIBOR) ...... No ...... Yes, as two positions. OTC Forward Government security ...... No ...... Yes, as two positions. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38115 Summary of Treatment for Interest Rate Derivatives—Continued Specific Instrument risk charge General market risk charge Corporate debt security ...... Yes ...... Yes, as two positions. Index on short-term interest rates ...... No ...... Yes, as two positions. FRAs, Swaps ...... No ...... Yes, as two positions. Forward foreign exchange ...... No ...... Yes, as one position in each currency. Options: ...... For each type of transaction, ei- ther: Government security ...... No ...... (a) Carve out together with the associated hedging positions —simplified method —scenario analysis —internal models, or Corporate debt security ...... Yes ...... (b) General market risk charge according to the Delta-plus method (gamma and vega receive separate capital charges) Index on short-term interest rates ...... No ...... Note: Specific risk charges relate to the issuer of the instrument. There remains a separate capital requirement for counterparty credit risk. Summary of Treatment for Equity Derivatives Specific Instrument risk charge General market risk charge Exchange-Traded or OTC Future: Individual equity ...... Yes ...... Yes, as underlying. Index ...... 2.0% ...... Yes, as underlying. Options: ...... For each type of transactions ei- ther: Individual equity ...... yes ...... (a) Carve out together with the associated hedging positions —simplified method —scenario approach —internal models, or Index ...... 2.0% ...... (b) General market risk require- ment according to the Delta- plus method (gamma and vega receive separate capital charges). Note: Specific risk charges relate to the issuer of the instrument. There remains a separate capital requirement for counterparty credit risk. Attachment IV—Sample Calculation of Standardized Approach for Commodities Risk Spread Capital Time-band Position rate Capital calculation charge 0 up to 1 month ...... None 1 up to 3 months ...... None 3 up to 6 months ...... Long 800 ...... 1.5% 800 long+800 short (matched)×1.5%= ...... 24 Short 1000 ...... 200 short carried forward to 1±2 yrs, capital charge: 2.4 200×2×0.6%=. 6 up to 12 months ...... None 1 up to 2 yrs ...... Long 600 ...... 200 long+200 short (matched)×1.5%= ...... 6 400 long carried forward to over 3 yrs capital charge: 4.8 400×2×0.6%=. 2 up to 3 yrs ...... None Over 3 years ...... Short 600 ...... 400 long+400 short (matched)×1.5%= ...... 12 Net position: 200 capital charge: 200×15.0%= ...... 30 NOTE: Assume all positions are in the same commodity and converted at current spot rates into U.S. dollars. The total capital requirement would be $79.2. 38116 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules Attachment V—Sample Calculation for Appendix A to Part 225—Capital Appendix E to Part 225—Capital Delta-Plus Method for Options Adequacy Guidelines for Bank Holding Adequacy Guidelines for Bank Holding Companies: Market Risk Measure a. Assume a bank has a European short call Companies: Risk-Based Measure option on a commodity with an exercise I. Overview I. Introduction price of 490 and a market value of the The Board of Governors of the Federal A. Overview underlying 12 months from the expiration of Reserve System has adopted a risk-based 1. The Board of Governors of the Federal the option at 500; a risk-free interest rate at capital measure to assist in the assessment of Reserve System has adopted a framework for 8% per annum, and the volatility at 20 the capital adequacy of bank holding determining capital requirements for the percent. The current delta for this position is companies (banking organizations).1 The market risk exposure of bank holding companies (banking organizations).1 For this according to the Black-Scholes formula principal objectives of this measure are to (i) ¥ purpose, market risk is defined as the risk of 0.721 (that is, the price of the option make regulatory capital requirements more changes by ¥0.721 if the price of the losses in a banking organization’s on- and off- sensitive to differences in risk profiles among balance-sheet positions arising from underlying moves by 1). The gamma is banking organizations; (ii) factor off-balance- ¥0.0034 (that is, the delta changes by movements in market prices. The market sheet exposures into the assessment of risks subject to these capital requirements are ¥0.0034 from ¥0.721 to ¥0.7244 if the capital adequacy; (iii) minimize disincentives those associated with debt and equity price of the underlying moves by 1). The to holding liquid, low-risk assets; and (iv) instruments held in the banking current value of the option is 65.48. achieve greater consistency in the evaluation organization’s trading account, as well as b. The first step under the delta-plus of the capital adequacy of major banking foreign exchange risk and commodities risk method is to multiply the market value of the organizations throughout the world. throughout the organization, including options and other derivative contracts in commodity by the absolute value of the delta. The risk-based capital guidelines include each risk category. 500 x 0.721 = 360.5. The delta-weighted both a definition of capital and a framework position is then incorporated into the 2. Effective December 31, 1997, the market for calculating weighted risk assets by risk measure will be applied to all bank measure described in section IV.D. of this assigning assets and off-balance-sheet items Appendix E. If the bank uses the maturity holding companies that, on a consolidated to broad risk categories.2 An institution’s basis: approach and no other positions exist, the risk-based capital ratio is calculated by a. Have total assets in excess of $5 billion; delta-weighted position is multiplied by 0.15 dividing its qualifying capital (the numerator and have a total volume of trading activities to calculate the capital requirement for delta. of the ratio) by its weighted risk assets (the (measured as the sum of the banking 360.5 x 0.15 = 54.075. 2 denominator).3 The definition of qualifying organization’s trading assets and liabilities c. The capital requirement for gamma is capital is outlined below in section II. of this on a daily average basis for the quarter) that is 3.0 percent or more of the total assets of calculated according to the Taylor expansion appendix A, and the procedures for the banking organization, or have interest by multiplying the absolute value of the calculating weighted risk assets are discussed assumed gamma of ¥0.0034 by 1.125% and rate, foreign exchange, equity, and in section III. of this appendix A. Attachment commodity off-balance-sheet derivative by the square of the market value of the I to this appendix A illustrates a sample underlying. ¥0.0034 x 0.0125 x 5002 = contracts relating to trading activities whose calculation of weighted risk assets and the total notional amounts exceed $5 billion; or 10.625. risk-based capital ratio. b. Have total assets of $5 billion or less; d. The capital requirement for vega is * * * * * and have trading activities exceeding 10.0 calculated next. The assumed current percent of the total assets of the banking (implied) volatility is 20%. Since only an 3. In Part 225 a new appendix E is organization. increase in volatility carries a risk of loss for added to read as follows: 3. Such banking organizations are still a short call option, the volatility has to be subject to the risk-based capital measure set increased by a relative shift of 25%. This forth in appendix A of this part, subject to means that the vega capital requirement has 1 Some banking organizations are also subject to the exclusion of certain assets specified in to be calculated on the basis of a change in capital requirements for market risk as set forth in this appendix E. However, these banking volatility of 5 percentage points from 20% to appendix E of this part. Banking organizations that organizations must calculate their market 25% in this example. According to the Black- are subject to the market risk measure are required risk-equivalent assets and determine risk- to follow the guidelines set forth in appendix E of based capital ratios adjusted for market risk Scholes formula used here, the vega equals this part for determining qualifying and eligible in accordance with this appendix E.3 168. Thus, a 1% or 0.01 increase in volatility capital, calculating market risk-equivalent assets 4. The market risk measure provides two increases the value of the option by 1.68. and adding them into weighted-risk assets, and ways for a banking organization to determine Accordingly, a change in volatility of 5 calculating risk-based capital ratios adjusted for its exposure to market risk. A banking percentage points increases the value of 5 x market risk. Supervisory ratios that relate capital to organization may use its internal risk 1.68 = 8.4. This is the capital requirement for total assets for bank holding companies are outlined measurement model, subject to the vega risk. The total capital requirement in appendices B and D of this part. conditions and criteria set forth in section III. would be $73.10 (54.075 + 10.625 + 8.4). 2 The risk-based capital measure is based upon a of this appendix E (referred to as the internal framework developed jointly by supervisory models approach), or when appropriate, a PART 225ÐBANK HOLDING authorities from the countries represented on the COMPANIES AND CHANGE IN BANK Basle Committee on Banking Regulations and 1 The market risk measure is based on a CONTROL (REGULATION Y) Supervisory Practices (Basle Supervisors’ framework developed jointly by supervisory Committee) and endorsed by the Group of Ten authorities from the countries represented on the Central Bank Governors. The framework is Basle Committee on Banking Supervision (Basle 1. The authority citation for part 225 described in a paper prepared by the Basle Supervisors Committee) and endorsed by the Group continues to read as follows: Supervisors’ Committee entitled ‘‘International of Ten Central Bank Governors. The framework is Convergence of Capital Measurement,’’ July 1988. described in a paper prepared by the Basle Authority: 12 U.S.C. 1817(j)(13), 1818, Supervisors Committee entitled ‘‘[Proposal to issue 3 Banking organizations generally are expected to 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), a] Supplement to the Basle Capital Accord to Cover utilize period-end amounts in calculating their risk- 1972(1), 3106, 3108, 3310, 3331–3351, 3907, Market Risks.’’ [April] 1995. based capital ratios. When necessary and and 3909. 2 As reflected in the Consolidated Financial appropriate, ratios based on average balances may Statements for Bank Holding Companies (FR Y–9C also be calculated on a case-by-case basis. 2. In part 225, appendix A to part 225 Report). Moreover, to the extent banking organizations have 3 The Federal Reserve may apply all or portions is amended by revising the first and data on average balances that can be used to of this appendix E to other banking organizations second paragraphs of section I. to read calculate risk-based ratios, the Federal Reserve will when deemed necessary for safety and soundness as follows: take such data into account. purposes. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38117 banking organization may use all or portions foreign exchange and commodity activities. risk for the off- balance-sheet portion of the of the alternative measurement system For this purpose, general market risk refers transaction as set forth in section III.D. of described in section IV. of this appendix E to changes in the market value of covered appendix A of this part. (referred to as the standardized approach). transactions resulting from market c. Equities in the trading account are equity a. With prior approval from the Federal movements, such as changing levels of instruments that behave like equities. The Reserve, for regulatory capital purposes, a market interest rates, broad equity indices, or instruments covered include common stocks banking organization may use its internal risk currency exchange rates. Specific risk refers (whether voting or non-voting), convertible measurement model to measure its value-at- to credit risk, that is, the risk that the issuer securities that behave like equities, and risk 4 for each of the following risk factor of a debt or equity instrument might default, commitments to buy or sell equity securities. categories; interest rates, exchange rates, as well as to other factors that affect the Also included are derivative contracts of equity prices, and commodity prices. The market value of specific instruments but that equity instruments and other off-balance- value-at-risk amount for each risk factor do not materially alter market conditions.5 sheet instruments in the trading account that category should include volatilities of related 2. Trading Activities. a. The general market are affected by changes in equity prices. options. The value-at-risk amount for each risk and specific risk capital requirements for However, non-convertible preferred stock is risk factor category is summed to determine trading activities are based on on- and off- included in debt instruments. the aggregate value-at-risk for the banking balance-sheet positions in a banking 3. Foreign Exchange and Commodities organization. organization’s trading account. For this Risk. Foreign exchange or commodities b. The standardized approach uses a set of purpose, trading account means positions in positions, whether or not included in a standardized calculations and assumptions to financial instruments acquired with the banking organization’s trading account, are measure market risk exposure depending on intent to resell in order to profit from short- subject to a capital requirement for the its source; debt instruments, equities, foreign term price movements (or other price or market risk of those positions. currencies, and commodities, including interest-rate variations), including, but not a. The capital requirement for foreign volatilities of related options. limited to: exchange risk applies to a banking 5. The Board generally expects any banking i. Assets acquired with the intent to resell organization’s total currency and gold organization that is subject to the market risk to customers; positions. This includes spot positions (that measure, especially those with large trading ii. Positions in financial instruments is, asset items and liability items, including accounts, to comply with the measure by arising from matched principal brokering and accrued interest and expenses, denominated using internal risk-measurement models. A market making; or in each currency); forward positions (that is, banking organization may not change its iii. Positions taken in order to hedge other forward foreign exchange transactions, measurement approach for the purpose of elements of the trading account (that is, including currency futures and the principal minimizing capital requirements. In limited reduce risk by offsetting other positions that on currency swaps not included in the spot instances, on a case-by-case basis, the Federal have exposure to changes in market rates or position); and certain guarantees. It includes Reserve may permit a banking organization prices).6 Trading activities may include future income and expenses from foreign that has internal models to incorporate risk positions in debt instruments, equities, currency transactions not yet accrued but measures of negligible exposures, for foreign currencies, and commodity already fully hedged (at the discretion of the example, de minimis positions, activities in instruments, or related derivative 7 or other reporting bank), foreign exchange derivative remote locations, minor exposures in a off-balance-sheet contracts. and other off-balance-sheet positions that are currency, or activities that present negligible b. Debt instruments in the trading account affected by changes in exchange rates, and risk to the banking organization, in an are all fixed-rate and floating-rate debt any other item representing a profit or loss alternative manner, so long as it adequately securities and instruments that behave like in foreign currencies. captures the risk. debt, including non-convertible preferred b. A banking organization may, subject to 6. The risk-based capital ratios adjusted for stock. Convertible bonds, i.e., preferred stock approval by the Federal Reserve, exclude from its foreign exchange positions any market risk determined in accordance with or debt issues that are convertible, at a stated structural positions in foreign currencies. For this appendix E are minimum supervisory price, into common shares of the issuer, this purpose, such structural positions are ratios. Banking organizations generally are should be treated as debt instruments if they limited to transactions designed to hedge a expected to operate with capital positions trade like debt instruments and as equities if banking organization’s capital ratios against well above the minimum ratios. In all cases, they trade like equities. Also included are the effect of adverse exchange rate banking organizations should hold capital derivative contracts of debt instruments and movements on subordinated debt, equity, or commensurate with the level and nature of other off-balance-sheet instruments in the minority interests in consolidated the risks to which they are exposed. trading account that react to changes in subsidiaries and dotation capital assigned to 7. The Federal Reserve will monitor the interest rates. A security that has been sold foreign branches that are denominated in implementation and effect of these guidelines subject to a repurchase agreement or lent in relation to domestic and international foreign currencies. Also included are any subject to a securities lending agreement is positions related to unconsolidated developments in the banking industry. When treated as if it were still owned by the lender necessary and appropriate, the Board will subsidiaries and to other items that are of the security. Such transactions remain consider the need to modify this appendix E deducted from a banking organization’s subject to the capital requirements for credit in light of any significant changes in the capital when calculating its capital base. In economy, financial markets, banking any event, such structural foreign currency practices, or other relevant factors. 5 This Appendix E does not impose specific risk positions must reflect long-term policies of capital requirements for foreign exchange risk and the institution and not relate to trading B. Market Risks Subject to a Capital commodities positions because they do not have the positions. Requirement. type of issuer-specific risk associated with debt and c. A banking organization doing negligible 1. General Market Risk and Specific Risk. equity instruments in the trade account. 6 business in foreign currency and that does A banking organization must hold capital At a banking organization’s option, when non- trading account instruments are hedged with not take foreign exchange positions for its against exposure to general market risk and instruments in the trading account, on- or off- own account may be exempted from the specific risk arising from its trading and other balance-sheet, the non-trading account instruments capital requirement for foreign exchange risk may be included in the measure for general market provided that: 4 A banking organization evaluates its current risk. Such non-trading account instruments remain i. Its foreign currency business, defined as positions and estimates future market volatility subject to the credit risk capital charges of appendix the greater of the sum of its gross long through a value-at-risk measure, which is an A of this part. positions and the sum of its gross short estimate representing, with a certain degree of 7 In general terms, a derivative is a financial positions in all foreign currencies, does not statistical confidence, the maximum amount by contract whose value is derived from the values of exceed 100 percent of eligible capital as which the market value of trading positions could one or more underlying assets or reference rates or decline during a specific period of time. The value- indexes of asset values (referred to as ‘‘the defined in section II. of this appendix E; and at-risk is generated through an internal model that underlying’’). Derivatives include standardized ii. Its overall net open foreign exchange employs a series of market risk factors (for example, contracts that are traded on exchanges and position as determined in section IV.C.2. of market rates and princes that affect the value of customized, privately negotiated contracts known this appendix E does not exceed 2.0 percent trading positions). as over-the-counter (OTC) derivatives. of its eligible capital. 38118 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules d. The capital requirement for commodities other derivative positions in each risk II. Qualifying Capital and the Market Risk- risk applies to a banking organization’s total category as set forth in sections IV.A to IV.E. Adjusted Capital Ratio commodities positions, including commodity of this appendix E.9 A. Qualifying and Eligible Capital futures, commodity swaps, and all other 4. Partial models. a. With approval from 1. The principal forms of qualifying capital commodity derivatives or other off-balance- the Federal Reserve, a banking organization sheet positions that are affected by changes for market risk are Tier 1 capital and Tier 2 whose internal model does not cover all risk in commodity prices. A commodity is capital as defined in section II. of appendix factor categories may use the standardized defined as a physical product that is or can A of this part and subject to the conditions be traded on a secondary market (such as approach to measure market risk exposure and limitations of appendix A of this part. A agricultural products, minerals (including arising from the risk factor categories that are banking organization may use Tier 3 capital not covered. The Federal Reserve will for the sole purpose of meeting a portion of oil), and precious metals), but excluding gold 10 (which is treated as foreign exchange). approve combining the two approaches only the capital requirements for market risk. on a temporary basis in situations where the 2. Tier 3 capital consists of short-term C. Capital Requirements subordinated debt that is subject to a lock-in banking organization is developing, but has 1. Capital Requirements. The minimum clause providing that neither interest nor not fully implemented, a comprehensive capital requirement for a bank holding principal payment is due (even at maturity) company subject to the market risk measure value-at-risk measurement system. When a if such payment would cause the issuing is the sum of: banking organization uses both approaches, banking organization to fall or remain below a. The capital requirement for credit risk as each risk factor category (that is, interest the minimum 8.0 percent risk-based capital determined in accordance with appendix A rates, exchange rates, equity prices, and requirement as set forth in appendix A of this of this part, excluding debt and equity commodity prices) must be measured using part and adjusted for market risk. instruments in the trading book and positions one or the other approach. The methods may 3. In order to qualify as Tier 3 capital, the in commodities, but including the not be combined within a risk factor short-term debt must be unsecured, counterparty credit risk requirements on all category. Once a banking organization adopts subordinated, and fully paid up; it must have over-the-counter derivative activities whether an original maturity of at least two years; and an acceptable value-at-risk model for a it may not be redeemed before maturity in the banking organization’s trading account particular risk factor category, it may not or not; and without prior approval by the Federal revert to the standardized approach except in b. The capital requirement for market risk Reserve. In addition, it may not contain or be as determined by the internal models unusual circumstances and with prior covered by any covenants, terms, or approach, the standardized approach, or a approval of the Federal Reserve. restrictions that are inconsistent with safe combination of the two approaches deemed b. For a banking organization using a and sound banking practices. to be appropriate by the Federal Reserve. combination of approaches, the capital 4. Eligible Tier 3 capital may not exceed 2. Internal Models. a. For a banking requirement for market risk is the sum of (i) 250 percent of a banking organization’s Tier organization approved to use the internal the appropriate value-at-risk amount (as 1 capital allocated for market risk and the models approach, the capital requirement for determined under section I.C.2.a. of this maximum eligible amount of Tier 2 and Tier 3 capital together is limited to 100 percent of market risk is the higher of: appendix E, aggregating the value-at-risk i. The banking organization’s previous Tier 1 capital. (Examples of how to calculate amount for each risk factor category included these limits are set forth in Attachment I to day’s aggregate value-at-risk amount in the internal model), and (ii) the capital calculated subject to certain supervisory this appendix E.) Tier 2 elements may be requirement for each risk category that is substituted for Tier 3 up to the same limit of requirements set forth in section III. of this calculated using the standardized approach. appendix E; or 250 percent, so long as the overall limits for 5. Application. The capital requirements ii. An average of the daily aggregate value- Tier 2 capital set forth in appendix A of this at-risk amounts, calculated subject to the for market risk apply to bank holding part are not exceeded, that is, Tier 2 capital same restrictions, measured on each of the companies on a worldwide consolidated may not exceed total Tier 1 capital, and long- preceding sixty (60) business days, basis. The Federal Reserve may, however, term subordinated debt may not exceed 50 multiplied by a minimum ‘‘multiplication evaluate market risk on an unconsolidated percent of Tier 1 capital. factor’’ of three (3).8 basis when necessary. For example, when B. Calculation of Eligible Capital and the b. A banking organization approved to use there are obstacles to the repatriation of Capital Ratio the internal models approach may also be profits from a foreign subsidiary or where 1. In order to calculate eligible capital, a subject to a separate capital requirement for management structure does not allow timely banking organization must first calculate its specific market risk of traded debt and equity management of risk on a consolidated basis. minimum capital requirement for credit risk instruments to the extent that the specific 6. Other Considerations. All transactions, in accordance with appendix A of this part market risk associated with these instruments including forward sales and purchases, and then its capital requirement for market is not captured by the banking organization’s should be included in the calculation of risk. Eligible capital is the sum of the banking models. However, for all banking market risk capital requirements from the organization’s qualifying Tier 1 capital, its organizations using internal models, the total qualifying Tier 2 capital subject to the limits specific risk charge should in no case be less date on which they were entered into. The Federal Reserve expects banking stated above, and its eligible Tier 3 capital than one-half the specific risk charges subject to the conditions set out under organizations to meet their capital calculated according to the standardized section II. of this appendix E. approach. requirements for market risk on a continuous 2. A banking organization that is subject to 3. Standardized approach. A banking basis (that is, at a minimum, at the close of the market risk measure must calculate its organization whose model has not been each business day). risk-based capital ratios as follows: approved by the Federal Reserve must use a. Determine total weighted-risk assets the standardized approach for measuring its 9 Section IV.E. provides several alternatives for using the procedures and criteria set forth in market risk. For a banking organization using measuring the market risk of options. Under two of appendix A of this part, excluding debt and this approach, the capital requirement for the alternatives, the simplified and scenario equity instruments in the trading book and market risk is the sum of the market risk methods, the underlying position of an option is positions in commodities, but including all capital requirement for debt and equity ‘‘carved-out,’’ and is not included in the prescribed over-the-counter derivative activities whether instruments in the trading account, foreign risk measure for the underlying. Instead it is in the banking organization’s trading account exchange and commodities risk throughout evaluated together with the related option according to the procedures described for options or not. the banking organization, and options and to determine the capital requirement. Under the third alternative, the ‘‘delta-plus’’ approach, the 10 A banking organization may not use Tier 3 8 The Federal Reserve may adjust the delta-equivalent value of each position is included capital to satisfy any capital requirements for multiplication factor for a banking organization to in the measurement framework for the appropriate counterparty credit risk under appendix A of this increase its capital requirement based on an risk category (that is, debt or equity instruments in part, including counterparty credit risk associated assessment of the quality and historic accuracy of the trading account, foreign exchange or with derivative transactions in either the trading or the banking organization’s risk management system. commodities risk). non-trading accounts. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38119 b. Calculate the measure for market risk conceptually sound and implemented with overall risk management process. The review using the internal models approach, the integrity. Internal risk measurement models must consider: standardized approach, or an approved must be closely integrated into the day-to-day i. The adequacy of the documentation of combination of these two approaches. risk management process of the banking the risk management system and process and c. Multiply the measure for market risk by organization. For example, the risk the organization of the risk control unit; 12.5 (i.e., the reciprocal of the 8.0 percent measurement model must be used in ii. The integration of market risk measures minimum risk-based capital ratio). The conjunction with internal trading and into daily risk management and the integrity resulting product is referred to as ‘‘market exposure limits. of the management information system; risk-equivalent assets.’’ 2. A banking organization must meet the iii. The process the banking organization d. Add market risk-equivalent assets to the following minimum qualitative criteria employs for approving risk pricing models weighted-risk assets compiled for credit risk before using its internal model to measure its and valuation systems that are used by front- purposes (section II.B.2.a. of this appendix exposure to market risk.12 and back-office personnel; E). The sum of these two amounts is the a. A banking organization must have a risk iv. The scope of market risks captured by denominator of the risk-based capital ratios control unit that is independent from the risk measurement model and the adjusted for market risk. The numerator of business trading units and reports directly to validation of any significant changes in the the total risk-based capital ratio is eligible senior management of the banking risk measurement process; capital and the numerator of the Tier 1 risk- organization. The unit must be responsible v. The accuracy and completeness of based capital ratio is Tier 1 capital. for designing and implementing the banking position data, the accuracy and organization’s risk management system and appropriateness of volatility and correlation III. The Internal Models Approach analyzing daily reports on the output of the assumptions, and the accuracy of valuation A. Use of Models banking organization’s risk measurement and risk sensitivity calculations; model in the context of trading limits. The 1. With prior approval of the Federal vi. The verification process the banking unit must conduct regular back-testing.13 Reserve, a banking organization may use its organization employs to evaluate the b. Senior management must be actively internal risk measurement model(s) for consistency, timeliness, and reliability of involved in the risk control process. The purposes of measuring value-at-risk and data sources used to run internal models, daily reports produced by the risk determining the associated regulatory capital including the independence of such data management unit must be reviewed by a requirements for market risk exposure. sources; and level of management with sufficient authority a. Requests for approval under section vii. The verification process the banking to enforce both reductions in positions taken organization uses to evaluate back-testing III.A.1. of this appendix E should include, at by individual traders, as well as in the a minimum, a complete description of the that is conducted to assess the model’s banking organization’s overall risk exposure. accuracy. banking organization’s internal modeling and c. The banking organization must have a risk management systems and how these routine and rigorous program of stress- C. Market Risk Factors systems conform to the criteria set forth in testing14 to identify the effect of low- 1. Overview. For regulatory capital this section III., an explanation of the policies probability events on the banking purposes, a banking organization’s internal and procedures established by the banking organization’s trading portfolio. Senior risk measurement system(s) must use organization to ensure continued compliance management must routinely review the sufficient risk factors to capture the risks with such criteria, a discussion of internal results of stress-testing in the context of the inherent in the banking organization’s and external validation procedures, and a potential effect of the events on bank capital portfolio of on- and off-balance-sheet trading description of other relevant policies and and the appropriate procedures the banking positions and must, subject to the following procedures consistent with sound practices. organization should take to minimize losses. guidelines, cover interest rates, equity prices, b. The Federal Reserve will approve an The policies of the banking organization set exchange rates, commodity prices, and internal model for regulatory capital by management and the board of directors volatilities related to options positions in purposes only after determining that the should identify appropriate stress-tests and each risk factor category. The level of banking organization’s internal model and the procedures to follow in response to the sophistication of the banking organization’s risk management systems meet the criteria in test results. risk factors must be commensurate with the section III. of this appendix E. Such a d. The banking organization must have nature and scope of the risks taken by the determination may require on-site established procedures for ensuring examinations of the systems. The Federal banking organization. compliance with a documented set of 2. Interest Rates. a. A banking organization Reserve may require modification to an internal policies and controls, as well as for internal model as deemed necessary to must use a set of market risk factors monitoring the overall operation of the risk corresponding to interest rates in each ensure compliance, on a continuing basis, measurement system. with the provisions of this appendix E. A currency in which it has material interest e. Not less than once a year, the banking rate-sensitive on- or off-balance-sheet banking organization’s internal model will be organization must conduct, as part of its subject to continuing review, both on-and off- positions. The risk measurement system must regular internal audit process, an 15 11 model the yield curve using one of a site, by the Federal Reserve. independent review of the risk measurement 2. A banking organization should ensure number of generally accepted approaches, for system. This review must include both the example, by estimating forward rates of zero that the level of sophistication of its internal activities of the business trading units and of model is commensurate with the nature and coupon yields. The yield curve must be the independent risk control unit of the divided into various maturity segments in volume of the banking organization’s trading banking organization. activity in the risk factor categories covered order to capture variation in the volatility of f. Not less than once a year, the banking rates along the yield curve; there will by this appendix E and measures market risk organization must conduct a review of its as accurately as possible. In addition, the typically be one risk factor corresponding to model should be adjusted to reflect changing each maturity segment. 12 portfolio composition and changing market If the Federal Reserve is not satisfied with the b. For material exposures to interest rate extent to which a banking organization meets these conditions. movements in the major currencies and criteria, the Federal Reserve may adjust the markets, a banking organization must model B. Qualitative Criteria multiplication factor used to calculate market risk capital requirements or otherwise increase capital the yield curve using a minimum of six risk 1. A banking organization using the requirements. factors. However, the number of risk factors internal models approach should have 13 Back-testing includes ex post comparisons of used should ultimately be driven by the market risk management systems that are the risk measures generated by the model against the actual daily changes in portfolio value. 15 Generally, a yield curve is a graph showing the 11 Banking organizations that need to modify their 14 Stress-testing should cover a range of factors term structure of interest rates by plotting the yields existing modeling procedures to accommodate the that can create extraordinary losses or gains in of all instruments of the same quality by maturities requirements of this appendix E should, trading portfolios or make the control of risk in ranging from the shortest to the longest available. nonetheless, continue to use the internal models those portfolios difficult. These factors include low- The resulting curve shows whether short-term they consider most appropriate in evaluating risks probability events of all types, including the various interest rates are higher or lower than long-term for other purposes. components of market, credit, and operational risks. interest rates. 38120 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules nature of the banking organization’s trading apply for purposes of using an internal model positions that display option-like strategies.16 The risk measurement system for calculating market risk capital characteristics. Banking organizations may must incorporate separate risk factors to requirements: not scale-up the daily value-at-risk numbers capture spread risk.17 a. Value-at-risk must be calculated on a by the square root of time. 3. Exchange rates. A banking organization daily basis using a 99th percentile, one-tailed b. A banking organization’s internal model must use market risk factors corresponding to confidence interval 20 and the holding period must capture the volatilities of the rates and the exchange rate between the domestic must be ten trading days. For positions that prices (that is, the vega) underlying option currency and each foreign currency in which display linear price characteristics, a banking positions and a banking organization should the banking organization has a significant organization may use value-at-risk numbers measure the volatilities of the underlying exposure. The risk measurement system must calculated according to shorter holding instruments broken down by different option incorporate market risk factors corresponding periods scaled up to ten days by the square maturities. to the individual foreign currencies in which root of time.21 4. The accuracy of a banking organization’s the banking organization’s positions are b. Value-at-risk must be calculated using internal model will be reviewed periodically denominated. an observation period of at least one year to by the Federal Reserve. Such review, during 4. Equity prices. A banking organization measure historical changes in rates and which, when appropriate, the Federal must use risk factors corresponding to each prices. Reserve may take into consideration reports of the equity markets in which it holds c. A banking organization must update its and opinions generated by external auditors significant positions. The sophistication and historical rates and prices at least once every or qualified consultants, will include, at a nature of the modeling technique for a given three months and must reassess them minimum: market must correspond to the banking whenever market conditions change a. Verification that the internal validation organization’s exposure to the overall market materially. processes described in section III.B.2. of this as well as to the banking organization’s 2. A banking organization may use appendix E are operating in a satisfactory concentration in individual equity issues in discretion in recognizing empirical manner; that market. At a minimum, there must be a correlations within each market risk factor b. Affirmation that the formulae used in risk factor designed to capture market-wide category.22 However, empirical correlations the calculation process and for the pricing of movements in equity prices (such as a market among risk categories are not recognized. The options and other complex instruments, are index), but additional risk factors could track value-at-risk measure for each risk category validated by a qualified unit of the banking various sectors or individual issues. must be added together on a simple sum organization, which in all cases must be 5. Commodity prices. A banking basis to determine the aggregate value-at-risk independent from the trading areas; organization must use market risk factors amount. c. Confirmation that the structure of the corresponding to each of the commodity 3. A banking organization’s models must internal model is adequate with respect to markets in which it holds significant accurately capture the unique risks the banking organization’s activities and positions. The internal model must associated with options within each of the geographical coverage; encompass directional risk, forward gap and market risk factor categories. The following d. Confirmation that the results of the interest rate risk, and basis risk.18 The model minimum criteria apply to the measurement banking organization’s back-testing of its should also take into account the market of options risk: internal measurement system (that is, characteristics, for example, delivery dates a. A banking organization’s internal model comparing value-at-risk estimates with actual and the scope provided to traders to close out must capture the non-linear price positions. profits and losses) are being used effectively characteristics of option positions using an to monitor reliability of the model’s estimates D. Quantitative Standards options pricing technique. The banking over time; and organization must apply a minimum ten-day 1. A banking organization may use one of e. Affirmation that, for regulatory capital holding period to option positions or a number of generally accepted measurement purposes, the model processes all relevant techniques including, for example, an data and that the modeling procedures internal model based on variance-covariance the risk factor sensitivities of the individual conform with the parameters and matrices, historical simulations, or Monte positions—derived from valuation models—with a specifications set forth in this appendix E. Carlo simulations so long as the model variance/covariance matrix based on risk factor volatilities and correlations. A banking organization IV. The Standardized Approach employed captures all the material market using this approach would calculate the volatilities 19 risks. The following minimum standards and correlations of the risk factors on the basis of A. Debt Instruments the holding period and the observation period. A 1. Specific Risk. a. The capital requirement 16 For example, a banking organization that has a banking organization using a historical simulation for specific risk is based on the identity of portfolio of various types of securities across many would calculate the hypothetical change in value of the obligor and, in the case of corporate the current portfolio in the light of historical points of the yield curve and that engages in securities, on the credit rating and maturity complex arbitrage strategies would require a greater movements in risk factors. This calculation would number of risk factors to accurately capture interest be done for each of the defined holding periods of the instrument. The specific risk capital rate risk. over a given historical measurement horizon to requirement is calculated by weighting the 17 Spread risk refers to the potential changes in arrive at a range of simulated profits and losses. A current market value of each individual value of an instrument or portfolio arising from banking organization using a Monte Carlo technique position, whether long or short, by the differences in the behavior of baseline yield curves, would consider historical movements to determine appropriate category factor as set forth below such as those for U.S. Treasury securities, and yield the probability of particular price and rate changes. and summing the weighted values. In curves reflecting sector, quality, or instrument 20 A one-tailed confidence interval of 99 percent measuring specific risk, the banking specific factors. A variety of approaches may be means that there is a 1 percent probability based on organization may offset and exclude from its used to capture the spread risk arising from less historical experience that the combination of than perfectly correlated movements between positions in a banking organization’s portfolio calculations any matched positions in the government and other interest rates, such as would result in a loss higher than the measured identical issue (including positions in specifying a completely separate yield curve for value-at-risk. derivatives). Even if the issuer is the same, non-government instruments (for example, swaps or 21 This transformation entails multiplying a no offsetting is permitted between different municipal securities) or estimating the spread over banking organization’s value-at-risk by the square issues since differences in coupon rates, government rates at various points along the yield root of the ratio of the required holding period (ten liquidity, call features, etc., mean that prices curve. days) to the holding period embodied in the value- may diverge in the short run. The categories 18 Directional risk is the risk that a spot price will at-risk figure. For example, the value-at-risk and factors are: increase or decrease. Forward gap risk refers to the calculated according to a one-day holding period effects of owning a physical commodity versus would be scaled-up by the ‘‘square root of time’’ by owning a forward position in a commodity. Interest multiplying the value-at-risk by 3.16 (the square Remaining ma- Factor rate risk is the risk of a change in the cost of root of the ratio of a ten-day holding period to a Category turity [contrac- [In per- carrying forward positions and options. Basis risk one-day holding period). tual] cent] is the risk that the relationship between the prices 22 While a banking organization has flexibility to of similar commodities changes over time. use correlations, the Federal Reserve must be Government ..... N/A ...... 0.00 19 In a variance/covariance approach, the change satisfied that there is integrity in the banking Qualifying ...... 6 months or 0.25 in value of the portfolio is calculated by combining organization’s process for calculating correlations. less. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38121 Remaining ma- Factor d. The other category includes debt ‘‘disallow’’ part of the previous full netting Category turity [contrac- [In per- securities not qualifying as government or to address basis and yield curve risk. tual] cent] qualifying securities. This would include c. For each currency in which a banking non-OECD central government securities that organization has significant positions, a 6 to 12 months . 1.00 do not meet the criteria for the government separate capital requirement must be over 12 months 1.60 or qualifying categories. This category also calculated. No netting of positions is Other ...... N/A ...... 8.00 includes instruments that qualify as capital permitted across different currencies. issued by other banking organizations. Offsetting positions of the same amount in b. The government category includes all e. The Federal Reserve will consider the the same issues, whether actual or notional, forms of debt instruments of central extent of a banking organization’s position in may be excluded from the calculation, as non-investment grade instruments governments of the OECD-based group of well as closely matched swaps, forwards, (sometimes referred to as high yield debt). If countries 23 including bonds, Treasury bills futures, and forward rate agreements (FRAs) those holdings are not well-diversified or and other short-term instruments, as well as that meet the conditions set out in section otherwise represent a material position to the IV.A.3. of this appendix E. local currency instruments of non-OECD institution, the Federal Reserve may prevent central governments to the extent that the d. In the maturity method, the banking a banking organization from offsetting organization distributes each long or short subsidiary depository institutions have positions in these instruments with other position (at current market value) of a debt liabilities booked in that currency. positions in qualifying instruments that may instrument into the time bands of the c. The qualifying category includes be offset when calculating its general market maturity ladder. Fixed-rate instruments are securities of U.S. government-sponsored risk requirement. In addition, the Board may allocated according to the remaining term to agencies, general obligation securities issued impose a specific risk capital requirement as maturity and floating-rate instruments by states and other political subdivisions of high as 16.0 percent. according to the next repricing date. A the OECD-based group of countries, 2. General Market Risk. a. A banking callable bond trading above par is slotted multilateral development banks, and debt organization may measure its exposure to according to its first call date, while a instruments issued by U.S. depository general market risk using, on a continuous basis, either the maturity method (which uses callable bond priced below par is slotted institutions or OECD-banks that do not according to remaining maturity. Fixed-rate qualify as capital of the issuing institution.24 standardized risk weights that approximate the price sensitivity of various instruments) mortgage-backed securities, including It also includes other securities, including collateralized mortgage obligations (CMOs) revenue securities issued by states and other or the duration method (where the institution calculates the precise duration of each and real estate mortgage investment conduits political subdivisions of the OECD-based (REMICs), are slotted according to their group of countries, that are rated investment- instrument, weighted by a specified change in interest rates). expected weighted average lives. grade by at least two nationally recognized b. Both methods use a maturity-ladder that e. Once all long and short positions are credit rating services, or rated investment- incorporates a series of ‘‘time-bands’’ and slotted into the appropriate time band, the grade by one nationally recognized credit ‘‘zones’’ to group together securities of long positions in each time-band are summed rating agency and not less than investment- similar maturities and that are designed to and the short positions in each time-band are grade by any other credit rating agency, or, take into account differences in price summed. The summed long and/or short with the exception of securities issued by sensitivities and interest rate volatilities positions are multiplied by the appropriate U.S. firms and subject to review by the across different maturities. Under either risk-weight factor (reflecting the price Federal Reserve, unrated but deemed to be of method, the capital requirement for general sensitivity of the positions to changes in comparable investment quality by the market risk is the sum of a base charge that interest rates) to determine the risk-weighted reporting banking organization and the issuer results from fully netting various risk- long and/or short position for each time- has securities listed on a recognized stock weighted positions and a series of additional band. The risk weights for each time-band are exchange. charges (add-ons), which effectively set out in Table I below: TABLE I.ÐMATURITY METHOD: TIME-BANDS AND WEIGHTS Risk Zone Coupon 3% or more Coupon less than 3% and zero coupon bonds weights [percent] 1 ...... Up to 1 month ...... Up to 1 month ...... 0.00 1 up to 3 months ...... 1 up to 3 months ...... 0.20 3 up to 6 months ...... 3 up to 6 months ...... 0.40 6 up to 12 months ...... 6 up to 12 months ...... 0.70 2 ...... 1 up to 2 years ...... 1 up to 1.9 years ...... 1.25 2 up to 3 years ...... 1.9 up to 2.8 years ...... 1.75 3 up to 4 years ...... 2.8 up to 3.6 years ...... 2.25 3 ...... 4 up to 5 years ...... 3.6 up to 4.3 years ...... 2.75 5 up to 7 years ...... 4.3 up to 5.7 years ...... 3.25 7 up to 10 years ...... 5.7 up to 7.3 years ...... 3.75 10 up to 15 years ...... 7.3 up to 9.3 years ...... 4.50 15 up to 20 years ...... 9.3 up to 10.6 years ...... 5.25 Over 20 years ...... 10.6 up to 12 years ...... 6.00 12 up to 20 years ...... 8.00 Over 20 years ...... 12.50 f. Within each time-band for which there are then netted, resulting in a single net risk- different maturities may be included and are risk-weighted long and short positions, weighted long or short position for each time- netted within each time, a capital the risk-weighted long and short positions band. Since different instruments and requirement, referred to as the vertical 23 The OECD-based group of countries is defined 24 U.S. government-sponsored agencies, in section III.B.1 of appendix A of this part. multilateral development banks, and OECD banks are defined in section III.C.2. of appendix A of this part. 38122 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules disallowance, is assessed to allow for basis different maturities may be included and the zones. Zone 1 and zone 2 are netted if risk. The vertical disallowance capital netted within each zone, a capital possible, reducing or eliminating the net long requirement is 10.0 percent of the position requirement, referred to as the horizontal or short position in zone 1 or zone 2 as eliminated by the intra-time-band netting, disallowance, is assessed to allow for the appropriate. Zone 2 and zone 3 are then imperfect correlation of interest rates along that is, 10.0 percent of the smaller of the net netted if possible, reducing or eliminating the risk-weighted long or net risk-weighted short the yield curve. The horizontal disallowance position, or if the positions are equal, 10.0 capital requirement is calculated as a net long or short position in zone 2 or zone percent of either position.25 The vertical percentage of the position eliminated by the 3 as appropriate. Zone 3 and zone 1 are then disallowances for each time-band are intra-zone netting, that is, a percentage of the netted if possible, reducing or eliminating the absolute values, that is, neither long nor smaller of the net risk-weighted long or net long or short position in zone 3 and zone 1 short. The vertical disallowances for all time- risk-weighted short position, or if the as appropriate. A horizontal disallowance bands in the maturity ladder are summed and positions are equal, a percentage of either capital requirement is then assessed, included as an element of the general market position.26 The percent disallowance factors calculated as a percentage of the position risk capital requirement. for intra-zone netting are set out in Table II eliminated by the inter-zone netting. The g. Within each zone for which there are in section IV.A.2.h. of this appendix E. The horizontal disallowance capital requirements risk-weighted long and short positions in horizontal disallowances, like the vertical different time-bands, the weighted long and disallowances, are absolute values that are for each zone are then summed as absolute short positions in all of the time-bands summed and included as an element of the values and included in the general market within the zone are then netted, resulting in general market risk capital requirement. risk capital charge. The percent disallowance a single net long or short position for each h. Risk-weighted long and short positions factors for inter-zone netting are set out in zone. Since different instruments and in different zones are then netted between Table II below: TABLE II.ÐHORIZONTAL DISALLOWANCES Between Zone Time-band Within the zone Between adjacent zones zones 1±3 1 0±1 month ...... 40 percent...... 40 percent...... 100 percent. 1±3 months. 3±6 months. 6±12 months. 2 1±2 years ...... 30 percent ...... 40 percent ...... 100 percent 2±3 years. 3±4 years. 3 1±5 years. 30 percent ...... 40 percent ...... 100 percent 5±7 years. 7±10 years. 10±15 years. 15±20 years. Over 20 years. i. Finally, the net risk-weighted long or net instrument for the given interest rate shock) TABLE IIIÐDURATION METHOD: TIME- risk-weighted short positions remaining in is then multiplied by the current market BANDS AND ASSUMED CHANGES IN the zones are summed to reach a single net value of the instrument. The resulting risk-weighted long or net risk-weighted short amount is then slotted as a long or short YIELD position for the banking organization’s position into a time-band in the maturity portfolio. The sum of the absolute value of ladder in Table III on the basis of the Assumed 28 Zone Time-band change in this position and the vertical and horizontal instrument’s modified duration. yield disallowances is the capital requirement for k. Once all of the banking organization’s general market risk. An example of the traded debt instruments have been slotted 1 ...... Up to 1 month ...... 1.00 calculation of general market risk under the into the maturity ladder, the banking 1 up to 3 months ...... 1.00 maturity method is in Attachment II to this organization conducts the same rounds of 3 up to 6 months ...... 1.00 appendix E. netting and disallowances described in 6 up to 12 months ..... 1.00 j. In the duration method, the banking sections IV.A.2.f. through IV.A.2.h. of this organization, after calculating each appendix E for the maturity method, with the 2 ...... 1.0 up to 1.8 years .... 0.90 instrument’s modified duration27 using a exception that the vertical disallowance 1.8 up to 2.6 years .... 0.80 formula that is subject to supervisory review, requirement for the duration method is 5.0 2.6 up to 3.3 years .... 0.75 multiplies that modified duration by the percent (horizontal disallowances continue 3 ...... 3.3 up to 4.0 years .... 0.75 interest rate shock specified for an to be those set out in Table II).29 As with the 4.0 up to 5.2 years .... 0.70 instrument of that duration in Table III in maturity method, the sum of the absolute 5.2 up to 6.8 years .... 0.65 section IV.A.2.k. of this appendix E. The value of the final net position and the vertical 6.8 up to 8.6 years .... 0.60 resulting product (representing the expected and horizontal disallowances is the general 8.6 up to 9.9 years .... 0.60 percentage change in the price of the market risk capital requirement: 9.9 up to 11.3 yrs ...... 0.60 25 For example, if the sum of the weighted longs 27 The duration of an instrument is its basis point interest rate shock, resulting in an in a time-band is $100 million and the sum of the approximate percentage change in price for a 100 expected price change of 2.625 percent (3.5×0.75). weighted shorts is $90 million, the vertical basis point parallel shift in the yield curve the corresponding expected change in price of disallowance for the time-band is 10.0 percent of assuming that its cash flow does not change when $26.25, calculated as 2.625 percent of $1,000, $90 million, or $9 million. the yield curve shifts. Modified duration is duration would be slotted as a long position in the 3.3 to 4.0 26 For example, if the sum of the weighted longs divided by a factor of 1 plus the interest rate. year time-band of the maturity ladder. in the 1–3 month time-band in Zone 1 is $8 million 28 For example, an instrument held by a banking 29 Two different vertical disallowances are used and the sum of the weighted shorts in the 3–6 organization with a maturity of 4 years and 3 since the duration method takes into account an month time-band is $10 million, the horizontal months and a current market value of $1,000 might instrument’s specific characteristics (maturity and disallowance for the zone is forty percent of $8 have a modified duration of 3.5 years. Based on its coupon) and there is less opportunity for million, or $3.2 million. modified duration, it would be subjected to the 75- measurement error. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38123 TABLE IIIÐDURATION METHOD: TIME- component is slotted into the appropriate interest rate futures are not subject to a BANDS AND ASSUMED CHANGES IN repricing maturity category, with the long or specific risk charge. This exemption also short position attributable to the equity applies to futures on a short-term (e.g., YIELDÐContinued component being included in the equity LIBOR) interest rate index. However, in the framework set out in section IV.B. of this case of futures contracts where the Assumed appendix E.32 underlying is a debt security, or an index Zone Time-band change in e. A banking organization may offset long representing a basket of debt securities, a yield and short positions (both actual and notional) specific risk charge will apply according to in identical derivative instruments with the category of the issuer as set out in section 11.3 up to 16.6 yrs .... 0.60 exactly the same issuer, coupon, currency, IV.A.2. of this appendix E. Over 16.6 years ...... 0.60 and maturity before slotting these positions B. Equities into time-bands. A matched position in a 3. Interest rate derivatives. a. Debt future and its corresponding underlying may 1. Specific risk. The measure of specific derivatives and other off-balance-sheet also be fully offset and, thus, excluded from risk is calculated on the basis of the banking positions that are affected by changes in the calculation, except when the future organization’s gross equity positions, that is, interest rates are included in the comprises a range of deliverable instruments. the absolute sum of all long equity positions measurement system under section IV.A. of However, in cases where, among the range of and of all short equity positions at current this appendix E (except for options and the deliverable instruments, there is a readily market value.33 The specific risk capital associated underlyings, which are included identifiable underlying instrument that is requirement is 8.0 percent of that sum, unless in the measurement system under the most profitable for the trader with a short the portfolio is both liquid and well- treatment discussed in section IV.E. of this position to deliver, positions in the futures diversified, in which case the specific risk appendix E). A summary of the treatment for contract and the instrument may be offset. No capital requirement is 4.0 percent of the gross debt derivatives is set out in Attachment III offsetting is allowed between positions in equity position. A specific risk charge of 2.0 to this appendix E. different currencies. percent applies to the net long or short b. Derivatives are converted into positions f. Offsetting positions in the same category position in a broad, diversified equity index in the relevant underlying instrument and are of instruments can in certain circumstances and is viewed as necessary to provide for included in the calculation of specific and be regarded as matched and treated by the risks associated with contract execution.34 general market risk capital charges as banking organization as a single net position 2. General Market risk. The measure of described above. The amount to be included which should be entered into the appropriate general market risk is based on the difference is the market value of the principal amount time-band. To qualify for this treatment the between the sum of the long positions and of the underlying or of the notional positions must be based on the same the sum of the short positions (i.e., the underlying. For instruments where the underlying instrument, be of the same overall net position in an equity market) at apparent notional amount differs from the nominal value, and be denominated in the current market value. An overall net position effective notional amount, a banking same currency. The separate sides of must be separately calculated for each organization must use the effective notional different swaps may also be ‘‘matched’’ national market in which the banking amount. subject to the same conditions. In addition: organization holds equities. The capital c. Futures and forward contracts (including i. For futures, offsetting positions in the requirement for general market risk is 8.0 FRAs) are broken down into a combination notional or underlying instruments to which percent of the net position in each equity of a long position and short position in the the futures contract relates must be for market. notional security. The maturity of a future or identical instruments and the instruments 3. Equity derivatives. a. Equity derivatives a FRA is the period until delivery or exercise must mature within seven days of each other; and other off-balance-sheet positions that are of the contract, plus the life of the underlying ii. For swaps and FRAs, the reference rate affected by changes in equity prices are 30 instrument. Where a range of instruments (for floating rate positions) must be identical included in the measurement system under and the coupon closely matched (i.e., within may be delivered to fulfill the contract, the section IV.B. of this appendix E (except for 15 basis points); and banking organization may chose which equity options, equity index options, and the iii. For swaps, FRAs and forwards, the next deliverable instrument goes into the maturity associated underlying, which are included in interest reset date, or for fixed coupon or duration ladder as the notional the measurement system under the treatment positions or forwards the remaining maturity, underlying. In the case of a future on a discussed in section IV.E. of this appendix corporate bond index, positions are included must correspond within the following limits: E).35 This includes futures and swaps on both at the market value of the notional If the reset (remaining maturity) dates occur underlying portfolio of securities. within one month, then the reset dates must 33 d. Swaps are treated as two notional be on the same day; if the reset dates occur Matched positions in each identical equity in positions in the relevant instruments with between one month and one year later, then each national market may be treated as offsetting the reset dates must occur within seven days and excluded from the capital calculation, with any appropriate maturities. The receiving side is remaining position included in the calculations for treated as the long position and the paying of each other, or if the reset dates occur over specific and general market risk. For example, a side is treated as the short position.31 The one year later, then the reset dates must future in a given equity may be offset against an separate sides of cross-currency swaps or occur within thirty days of each other. opposite cash position in the same equity. forward foreign exchange transactions are g. Interest rate and currency swaps, FRAs, 34 A portfolio that is liquid and well-diversified slotted in the relevant maturity ladders for forward foreign exchange contracts and is characterized by a limited sensitivity to price the currencies concerned. For swaps that pay changes of any single equity issue or closely related or receive a fixed or floating interest rate 32 A banking organization with a large swap book group of equity issues held in the portfolio. The against some other reference price, for may, with prior approval of the Federal Reserve, volatility of the portfolio’s value should not be example, an equity index, the interest rate use alternative formulae to calculate the positions dominated by the volatility of any individual equity to be included in the maturity or duration ladder. issue or by equity issues from any single industry For example, a banking organization could first or economic sector. In general, such portfolios 30 For example, a long position in a June three- convert the payments required by the swap into should be characterized by a large number of month interest rate future (taken in April) is present values. For that purpose, each payment individual equity positions, with no single position reported as a long position in a government security would be discounted using zero coupon yields, and representing a large portion of the portfolio’s total with a maturity of five months and a short position the payment’s present value entered into the market value. In addition, it would generally be the in a government security with a maturity of two appropriate time-band using procedures that apply case that a sizable proportion of the portfolio would months. to zero (or low) coupon bonds. The net amounts be comprised of issues traded on organized 31 For example, an interest rate swap under which would then be treated as bonds, and slotted into the exchanges or in well-established over-the-counter a banking organization is receiving floating-rate general market risk framework. Such alternative markets. interest and paying fixed is treated as a long treatments will, however, only be allowed if: (i) the 35 Where equities are part of a forward contract position in a floating rate instrument with a Federal Reserve is fully satisfied with the accuracy (both equities to be received or to be delivered), any maturity equivalent to the period until the next of the system being used, (ii) the positions interest rate or foreign currency exposure from the interest reset date and a short position in a fixed- calculated fully reflect the sensitivity of the cash other side of the contract should be appropriately rate instrument with a maturity equivalent to the flows to interest rate changes; and (iii) the positions included in the measurement system in sections remaining life of the swap. are denominated in the same currency. IV.A. and IV.C. of this appendix E. 38124 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules individual equities and on equity indices. taking positions in foreign currencies, b. The net open position in gold, regardless Equity derivatives should be converted into including gold, and is based on a banking of sign.40 notional equity positions in the relevant organization’s net open long positions or net 5. Where a banking organization is underlying. A summary of the rules for open short positions in each currency, assessing its foreign exchange risk on a equity derivatives is set out in Attachment III whether or not those positions are in the consolidated basis, it may be technically to this appendix E. trading portfolio, plus the net open position impractical in the case of some marginal b. Futures and forward contracts relating to in gold, regardless of sign.38 operations to include the currency positions individual equities should be reported at 2. A banking organization’s net open of a foreign branch or subsidiary of the current market prices of the underlying. position in each currency (and gold) is banking organization. In such cases, the Futures relating to equity indices should be calculated by summing: internal limit in each currency may be used reported as the marked-to-market value of the a. The net spot position (i.e., all asset items as a proxy for the positions, provided there notional underlying equity portfolio. Equity less all liability items, including accrued is adequate ex post monitoring of actual swaps are treated as two notional positions, interest earned but not yet received and positions complying with such limits. In with the receiving side as the long position accrued expenses, denominated in the these circumstances, the limits should be 36 added, regardless of sign, to the net open and the paying side as the short position. currency in question); position in each currency. If one of the legs involves receiving/paying b. All foreign exchange derivative a fixed or floating interest rate, the exposure instruments and other off-balance-sheet D. Commodities Risk. should be slotted into the appropriate positions that are affected by changes in 1. Measurement methods. This section repricing maturity band for debt securities. exchange rates are included in the provides a minimum capital requirement to The stock index is covered by the equity measurement system under section IV.C. of cover the risk of holding or taking positions treatment. this appendix E (except for options and their in commodities. There are two methods c. In the case of futures-related arbitrage associated underlyings, which are included under the standardized approach for strategies, the 2.0 percent specific risk charge in the measurement system under the measuring commodity market risk—the applicable to broad diversified equity indices treatment discussed in section IV.E. of this simplified method and the maturity method. may be applied to only one index. The appendix E). Forward currency positions These methods are only appropriate for opposite position is exempt from a specific should be valued at current spot market banking organizations that conduct a limited risk charge. The strategies qualifying for this exchange rates. For a banking organization in amount of commodities business. All other treatment are: which the basis of its normal management banking organizations must adopt an internal i. When the banking organization takes an accounting is to use net present values, measurement system conforming to the opposite position in exactly the same index forward positions may be discounted to net criteria in section III. of this appendix E. at different dates; and present values as an acceptable way of 2. Base capital requirement. Under both ii. When the banking organization has an measuring currency positions for regulatory the simplified and maturity methods, each opposite position in different but similar capital purposes; long and short commodity position (spot and indices at the same date, subject to c. Guarantees (and similar instruments) forward) is expressed in terms of the supervisory oversight. that are certain to be called and are likely to standard unit of measurement (such as d. If a banking organization engages in a be irrevocable; barrels, kilos, or grams). The open positions deliberate arbitrage strategy, in which a d. Net future income/expenses not yet in each category of commodities are then futures contract on a broad diversified equity accrued but already fully hedged (at the converted at current spot rates into U.S. index matches a basket of securities, it may discretion of the banking organization). A currency, with long and short positions offset exclude both positions from the standardized banking organization that includes future to arrive at the net open position in each approach on condition that the trade has income and expenses must do so on a commodity. Positions in different categories been deliberately entered into and separately consistent basis without selecting expected of commodities may not, generally, be controlled and the composition of the basket 41 future flows in order to reduce the banking offset. Under either method, the base of stocks represents at least 90 percent of the organization’s position; and capital requirement is 15.0 percent of the net market value of the index. In such a case, the open position, long or short, in each e. Any other item representing a profit or minimum capital requirement is 4.0 percent commodity.42 loss in foreign currencies. (that is, 2.0 percent of the gross value of the 3. Simplified method. To protect a banking 3. For measuring a banking organization’s positions on each side) to reflect risk organization against basis risk, interest rate open positions, positions in composite associated with executing the transaction. risk, and forward gap risk, each category of currencies, such as the ECU, may be either This applies even if all of the securities commodity is also subject to a 3.0 percent treated as a currency in their own right or comprising the index are held in identical capital requirement on the banking proportions. Any excess value of the split into their component parts on a organization’s gross positions, long plus securities comprising the basket over the consistent basis. Positions in gold are short, in the particular commodity. In value of the futures contract or excess value measured in the same manner as described in section IV.D. of this appendix E.39 of the futures contract over the value of the 40 4. The capital requirement is determined For examples, a banking organizations has the basket is treated as an open long or short following net currency positions: Yen=+50, by converting the nominal amount (or net position. DM=+100, GB=+150, FFR=¥20, US$=¥180, and present value) of the net open position in e. If a banking organization takes a position gold=¥35. The banking organization would sum its each foreign currency (and gold) at spot rates in depository receipts 37 against an opposite long positions (total=+300) and sum its short into the reporting currency. The capital positions (total=¥200). The banking organization’s position in the underlying equity, it may requirement is 8.0 percent of the sum of: capital requirement for foreign exchange market offset the position. a. The greater of the sum of the net short risk would be: (300 (the larger of the summed long × C. Foreign Exchange Risk open positions or, the sum of the net long and short positions) + 35 (gold)) 8.0%=26.80. 41 1. The capital requirement for foreign open positions; and However, offsetting is permitted between different sub-categories of the same commodity in exchange risk covers the risk of holding or cases where the sub-categories are deliverable 38 Gold is treated as a foreign exchange position against each other. 36 For example, an equity swap in which a rather than a commodity because its volatility is 42 When the funding of a commodity position banking organization is receiving an amount based more in line with foreign currencies and banking opens a banking organization to interest rate or on the change in value of one particular equity or organizations manage it in a manner similar to foreign exchange exposure the relevant positions equity index and paying a different index will be foreign currencies. should be included in the measures of interest rate treated as a long position in the former and a short 39 Where gold is part of a forward contract and foreign exchange risk described in section IV.A. position in the latter. (quantity of gold to be received or to be delivered), and IV.C of this appendix E. When a commodity is 37 Depository receipts are instruments issued by any interest rate or foreign currency exposure from part of a forward contract, any interest or foreign a trust company or other depository institution the other side of the contract should be included currency exposure from the other side of the evidencing the deposit of foreign securities and in the measurement system in section IV.A. (as a contract should be appropriately included in the facilitating trading in such instruments on U.S. zero coupon instrument) and IV.C. of this appendix measurement systems in sections IV.A. and IV.C. of stock exchanges. E. this appendix E. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38125 valuing gross positions in commodity amount of the contract at current spot rates, sections IV.A. through IV.D. of this appendix derivatives for this purpose, a banking with one position corresponding to each E. organization should use the current spot payment on the swap and slotted in the 3. A banking organization that has only a price. The total capital requirement for maturity ladder accordingly. The positions limited amount and range of purchased commodities risk is the sum of the 15.0 are long positions if the banking organization options may use the following simplified percent base charges for each net commodity is paying a fixed price and receiving a approach to measure its market risk position and the 3.0 percent requirements on floating price, and short positions if the exposure. the gross commodity positions. banking organization is receiving a fixed a. For a banking organization with a long 4. Maturity method. a. Under this method, price and paying a floating price; 44 and cash position and a long put or with a short a banking organization must slot each long c. Commodity swaps where the sides of the cash position and a long call, the capital and short commodity position (converted transaction are in different commodities are requirement is the market value of the into U.S. currency at current spot rates) into included in the relevant reporting ladder. No underlying instrument multiplied by the sum a maturity ladder. The time-bands for the offsetting is allowed unless the commodities of the specific and general market risk maturity ladder are; from zero to one month, are in the same sub-category. requirements for the underlying (that is, the specific and general market risk requirements one up to three months, three up to six E. Options months, six up to twelve months, one up to that would have applied to the underlying 1. Three alternatives are available for a two years, two up to three years, and over directly under sections IV.A. through IV.D. of banking organization to use in measuring its 47 three years. A separate maturity ladder is this appendix E. ), less the amount the market risk for options activities. A banking used for each category of commodity. option is in the money (if any) bounded at organization that only has purchased options 48 Physical commodities are allocated to the zero. may use the simplified method set forth in b. For a banking organization with a long first time-band. section IV.E.2. of this appendix E. A banking b. In order to capture forward gap and call or a long put, the capital charge is the organization that also writes options may use lesser of: interest rate risk within a time-band (together the scenario method described in section sometimes referred to as curvature/spread i. The market value of the underlying IV.E.3. of this appendix E or the delta-plus security multiplied by the sum of specific risk), offsetting long and short positions in method set forth in section IV.E.4. of this and general market risk requirements for the each time-band are subject to an additional appendix E.45 These methods may only be underlying (that is, the specific and general capital requirement. Beginning with the used by banking organizations which, in market risk requirements that would have shortest-term time-band and continuing with relative terms, have limited options applied to the underlying directly under subsequent time-bands, the amount of the activities. Banking organizations with more sections IV.A. through IV.D. of this appendix matched short positions plus the amount of significant options business are expected to E 49); or the matched long position is multiplied by a adopt an internal measurement system ii. The market value of the option. spread rate of 1.5 percent. conforming to the criteria in section III. of c. Under this measure, the capital c. The unmatched net position from this appendix E. Regardless of the method requirement for currency options is 8.0 shorter-term time-bands must be carried used, specific risk related to the issuer of an percent of the market value of the underlying forward to offset exposures in longer-term instrument still applies to options positions and for commodity options is 15.0 percent of time-bands. A capital requirement of 0.6 for equities, equity indices and corporate the market value of the underlying. percent of the net position carried forward is debt securities as set forth in sections IV.A. 4. Under the scenario approach, a banking added for each time-band that the net and IV.B. of this appendix E. There remains organization revalues its options and related 43 position is carried forward. The total a separate capital requirement for hedging positions by changing the capital requirement for commodities risk is counterparty credit risk as set forth in underlying rate or price over a specified the sum of the 15.0 percent base capital appendix A to this part. range and by assuming different levels of requirement for each net commodity position 2. Under the simplified and scenario volatility for that rate or price. and the additional requirements for matched methods, the positions for the options and a. For each of its option portfolios, a positions and for unmatched positions the associated underlying, cash or forward, banking organization constructs a grid based carried forward. An example of this are not included in the measurement on a fixed range of changes in the portfolio’s calculation is in Attachment IV to this framework for debt securities, equities, risk factors and calculates changes in the appendix E. foreign exchange or commodities risk as set value of the option portfolio at each point 5. Commodity derivatives. Commodity forth in sections IV.A. through IV.D. of this within the grid. For this purpose, an option derivatives and other off-balance-sheet appendix E. Rather, they are subject to portfolio consists of an option and any positions that are affected by changes in capital requirements as calculated in this related hedging positions or multiple options commodity prices are included in the section. The capital requirements calculated and related hedging positions that are measurement system under section IV.D. of under this section IV.E. should then be added grouped together according to their this appendix E (except for options and the to the capital requirements for debt remaining maturity or the type of underlying. associated underlying, which are included in securities, equities, foreign exchange and b. Options based on interest rates and debt the measurement system under the treatment commodities risk as appropriate. Under the instruments are grouped into portfolios discussed in section IV.E. of this appendix delta-plus method, the delta equivalent according to the maturity zones that are set E). Commodity derivatives are converted into position 46 for each option is included in the forth in section IV.A. of this appendix E. notional commodity positions. Under the measurement frameworks set forth in (Zone 1 instruments have a remaining maturity method, the positions are slotted maturity of up to 1 year, zone 2 instruments into maturity time-bands as follows: 44 If one of the sides of the transaction involves a. Futures and forward contracts relating to receiving/paying a fixed or floating interest rate, 47 Some options (e.g., where the underlying is an individual commodities are incorporated in that exposure should be slotted into the appropriate interest rate, a currency, or a commodity) bear no the measurement system as notional amounts repricing maturity band in section IV.A. of this specific risk but specific risk will be present in the (of, for example, barrels or kilos) that are appendix E. case of options on corporate debt securities and for converted to U.S. dollars at current spot rates 45 Unless all their written option positions are options on equities and equity indices. and are assigned a maturity according to hedged by perfectly matched long positions in 48 For example, if a holder of 100 shares currently expiration date; exactly the same options, in which case there is no valued at $10 each has an equivalent put option capital requirement for market risk. with a strike price of $11, the capital charge would b. Commodity swaps where one side of the × contract is a fixed price and the other side 46 The delta equivalent of an option is the be: $1,000 16.0 percent (e.g., 8.0 percent specific plus 8.0 percent general market risk) = $160, less is the current market price are incorporated option’s delta value multiplied by its principal or notional value. The delta value of an option the amount the option is in the money as a series of positions equal to the notional represents the expected change in the option’s price ($11¥$10)×100 = $100, i.e., the capital charge as a proportion of a small change in the price of would be $60. A similar methodology applies for 43 For example, if $200 short is carried forward the underlying instrument. For example, an option options whose underlying is a foreign currency, a from the 3–6 month time-band to the 1–2 year time- whose price changes $1 for every $2 dollar change debt security or a commodity. band, the capital charge would be $200 × .006 × 2 in the price of the underlying instrument has a delta 49 See footnote 47 in section IV.E.3.a of this = $2.40. of 0.50. appendix E. 38126 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules have a remaining maturity from 1 year up to organization revalues each option portfolio. slotted into the debt instrument time-bands 4 years, and zone 3 instruments have a The market risk capital requirement for the in section IV.A. of this appendix E using a remaining maturity of 4 years or more.) These portfolio is the largest loss in value from two-legged approach (as is used for other options and the associated hedging positions among the scenario revaluations. The total derivatives), requiring one entry at the time should be evaluated under the assumption market risk capital requirement for all option the underlying contract takes effect and one that the relevant interest rates move portfolios is the sum of the individual option at the time the underlying contract matures.51 simultaneously. For options based on portfolio capital requirements. Floating rate instruments with caps or floors equities, separate grids are constructed for e. The Federal Reserve will review the should be treated as a combination of floating each individual equity issue and index. For application of the scenario approach, rate securities and a series of European-style options based on exchange rates, separate particularly regarding the precise way the options.52 A banking organization must also grids are constructed for individual exchange analysis is constructed. A banking calculate the gamma and vega for each such rates. For options based on commodities, organization using the scenario approach option position (including hedge positions). separate grids are constructed for each should meet the appropriate qualitative The results should be slotted into separate category of commodity (as defined in criteria set forth in section III.B. of this maturity ladders by currency. For options sections I.B.3. and IV.D. of this appendix E). appendix E. such as caps and floors whose underlying c. For option portfolios with options based 5. Under the delta-plus method, a banking instrument is an interest rate, the delta and on equities, exchange rates, and organization that writes options may include gamma should be expressed in terms of a commodities, the first dimension of the grid delta-weighted options positions within each consists of rate or price changes within a measurement framework as set forth in hypothetical underlying security. specified range above and below the current sections IV.A. through IV.D. of this appendix Subsequently: market value of the underlying; for equities, E. i. For gamma risk, for each time-band, net the range is ± 12.0 percent (or in the case of a. Options positions should be measured as gammas that are negative are multiplied by an index ± 8.0 percent), for exchange rates a position equal to the market value of the the risk weights set out in Table IV in section the range is ± 8.0 percent, and for underlying instrument multiplied by the IV.E.5.b.iv. of this appendix E and by the commodities the range is ± 15.0 percent. For delta. In addition, a banking organization square of the market value of the underlying option portfolios with options based on must measure the sensitivities of the option’s instrument (net positive gammas may be interest rates, the range for the first gamma (the change of the delta for a given disregarded); dimension of the grid depends on the change in the price of the underlying) and ii. For volatility risk, a banking remaining maturity zone. The range for zone vega (the sensitivity of the option price with organization calculates the capital 1 is ± 100 basis points, the range for zone 2 respect to a change in volatility) to calculate requirements for vega in each time-band is ± 90 basis points, and the range for zone the total capital requirement. These assuming a proportional shift in volatility of 3 is ± 75 basis points. For all option sensitivities may be calculated according to ± 25.0 percent; portfolios, the range is divided into at least an exchange model approved by the Federal iii. The capital requirement is the absolute ten equally spaced intervals. The second Reserve or to the banking organization’s own value of the sum of the individual capital dimension of each grid is a shift in the options pricing model, subject to review by requirements for net negative gammas plus volatility of the underlying rate or price equal the Federal Reserve. the absolute value of the sum of the to ± 25.0 percent of the current volatility.50 b. For options with debt instruments or individual capital requirements for vega risk d. For each assumed volatility and rate or interest rates as the underlying instrument, for each time-band; and price change (a scenario), the banking delta-weighted options positions should be iv. The delta plus method risk weights are: TABLE IV.ÐDELTA PLUS METHOD RISK WEIGHTS Modified du- ration (aver- Assumed Risk-weight Time-band age as- interest rate 1 sumed for change (%) for gamma time band) Under 1 month ...... 0.00 1.00 0.00000 1 up to 3 months ...... 0.20 1.00 0.00020 3 up to 6 months ...... 0.40 1.00 0.00080 6 up to 12 months ...... 0.70 1.00 0.00245 1 up to 2 years ...... 1.40 0.90 0.00794 2 up to 3 years ...... 2.20 0.80 0.01549 3 up to 4 years ...... 3.00 0.75 0.02531 4 up to 5 years ...... 3.65 0.75 0.03747 5 up to 7 years ...... 4.65 0.70 0.05298 7 up to 10 years ...... 5.80 0.65 0.07106 10 up to 15 years ...... 7.50 0.60 0.10125 15 up to 20 years ...... 8.75 0.60 0.13781 Over 20 years ...... 10.00 0.60 0.18000 1 According to the Taylor expansion, the risk weights are calculated as 1¤2 (modified duration × assumed interest rate change) 2 100. c. For options with equities as the market risk set forth in section IV.B. of this underlyings. In addition to the capital underlying, delta-weighted option positions appendix E. Individual equity issues and requirement for delta risk, a banking should be incorporated in the measure of indices should be treated as separate 50 For example, if the underlying in an equity 51 For example, in April, a purchased call option 52 For example, the holder of a three-year floating instrument with a current market value of $100 and on a June three-month interest-rate future would be rate bond indexed to six-month LIBOR with a cap a volatility of 20 percent, the first dimension of the considered on the basis of its delta-equivalent value of 15 percent would treat the bond as a debt grid would range from $88 to $112, divided into ten to be a long position with a maturity of five months security that reprices in six months, and a series of intervals of $2.40 and the second dimension would and a short position with a maturity of two months. five written call options on a FRA with a strike rate The written option would be slotted as a long of 15 percent, each slotted as a short position at the assume volatilities of 15 percent, 20 percent, and position with a maturity of two months and a short expiration date of the option and as a long position 25 percent. position with a maturity of five months. at the time the FRA matures. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38127 organization should apply a further capital the absolute value of the sum of the (Tier 1, comprising $14 allocated for market charge for gamma and vega risk: individual capital requirements for vega risk. risk and $46 unallocated) + $36 (Tier 3) = i. For gamma risk, the net gammas that are f. Under certain conditions and to a limited $736. The banking organization’s ratio of negative for each underlying are multiplied extent, the Federal Reserve may permit qualifying and eligible capital to weighted- by 0.72 percent (in the case of an individual banking organizations that are significant risk assets adjusted for market risk would be: equity) or 0.32 percent (in the case of an traders in options with debt securities or $736/$8,625) = 8.5%. index as the underlying) and by the square interest rates as the underlying to net positive Example 2: A banking organization has the of the market value of the underlying; and negative gammas and vegas across time- following qualifying capital: Tier 1 = $500, ii. For volatility risk, a banking bands. Such netting must be based on Tier 2 = $140, Tier 3 = $600. organization calculates the capital prudent and conservative assumptions and (1) The minimum capital requirement for requirement for vega for each underlying, the banking organization must materially credit risk is $640 ($8000 x 8.0%). This assuming a proportional shift in volatility of meet the qualitative standards set forth in requirement could be satisfied with $500 of ±25.0 percent; and section III.B. of this appendix E. Tier 1 capital and $140 of Tier 2 capital. iii. The capital requirement is the absolute g. A banking organization may base the value of the sum of the individual capital calculation of vega risk on a volatility ladder (2) The remaining capital available for requirements for net negative gammas plus in which the implied change in volatility market risk would be: Tier 1 = 0, Tier 2 = the absolute value of the individual capital varies with the maturity of the option. The $0, and Tier 3 = $600. Eligible Tier 3 capital requirements for vega risk. assumed proportional shift in volatility must would be limited to $0 (0 x 2.5). Because d. For options of foreign exchange and gold be at least +/- 25.0 percent at the short end there is no Tier 1 capital required to support positions, the net delta (or delta-based) of the maturity spectrum. The proportional market risk, no eligible Tier 3 capital may be equivalent of the total book of foreign shift for longer maturities must be at least as used for market risk. currency and gold options is incorporated stringent instatistical terms as the 25.0 (3) Total qualifying and eligible capital into the measurement of the exposure in a percent shift at the short end. would be: $500 (Tier 1) + $140 (Tier 2) = single currency position as set forth in h. A banking organization should also $640. The banking organization’s ratio of section IV.C. of this appendix E. The gamma monitor the risks of rho (the rate of change qualifying and eligible capital to weighted- and vega risks should be measured as of the value of the option with respect to the risk assets adjusted for market risk would be: follows: interest rate) and theta (the rate of change of $640/$8,625) = 7.4%. i. For gamma risk, for each underlying the value of the option with respect to time). b. In both of the examples described in exchange rate, net gammas that are negative paragraph a. of this attachment the total of are multiplied by 0.32 percent and by the Attachments to Appendix E square of the market value of the positions; Tier 2 and Tier 3 capital for credit and ii. For volatility risk, a banking Attachment I—Sample Calculation of market risk is not greater than 100 percent of organization calculates the capital Eligible Tier 1, Tier 2, and Tier 3 Tier 1 capital for credit and market risk and requirements for vega for each currency pair Capital for the Risk-Based Capital Ratio the total of Tier 2 capital for credit risk is not and gold assuming a proportional shift in Adjusted for Market Risk greater than 100 percent of Tier 1 capital for volatility of ± 25.0 percent; and credit risk. iii. The capital requirement is the absolute a. In each example the weighted-risk assets value of the sum of the individual capital are $8000 and the market risk-adjusted assets Attachment II—Sample Calculation of requirements for net negative gammas plus are $625 (capital requirement for market risk General Market Risk for Debt the absolute value of the sum of the = $50, $50 x 12.5 = $625): Instruments Using the Maturity Method individual capital requirements for vega risk. Example 1: A banking organization has the following qualifying capital: Tier 1 = $600, a. A banking organization with the e. For options on commodities, the delta- following positions would slot them into a weighted positions are incorporated in one of Tier 2 = $100, Tier 3 = $1000. maturity ladder as shown below: the measures described in section IV.D. of (1) The minimum capital requirement for i. Qualifying bond, $13.33mn market value, this appendix E. In addition, a banking credit risk is $640 ($8000 x 8.0%). This organization must apply a capital requirement could be satisfied with $540 of remaining maturity 8 years, coupon 8%; requirement for gamma and vega risk: Tier 1 capital and $100 of Tier 2 capital. ii. Government bond, $75mn market value, i. For gamma risk, net gammas that are (2) The remaining capital available for remaining maturity 2 months, coupon 7%; negative for each underlying are multiplied market risk would be: Tier 1 = $60, Tier 2 iii. Interest rate swap, $150mn, banking by 1.125 percent and by the square of the = 0, and Tier 3 = $1000. The minimum organization receives floating rate interest market value of the commodity; capital requirement for market risk is $50 and pays fixed, next interest reset after 12 ii. For volatility risk, a banking ($625 x 8.0%). Eligible Tier 3 capital would months, remaining life of swap is 8 years organization calculates the capital be limited to $125 ($50 x 2.5). (assumes the current interest rate is identical requirements for vega for each commodity (3) The Tier 1 capital required to support to the one the swap is based on); and assuming a proportional shift in volatility of market risk could be satisfied by allocating iv. Long position in interest rate future, +/¥ 25.0 percent; and $14 ($50 x .285), with eligible Tier 3 capital $50mn, delivery date after 6 months, life of iii. The capital requirement is the absolute used for market risk being $36 ($50 ¥ $14). underlying government security is 3.5 years value of the sum of the individual capital (4) Total qualifying and eligible capital (assumes the current interest rate is identical requirements for net negative gammas plus would be: $540 (Tier 1) + $100 (Tier 2) + $60 to the one the swap is based on). Risk wght Risk-weighted Net time-band Net zone posi- Zone Time-band and position (%) position positions tions 1 ...... 10±1 mth ...... 0.00 1±3 mth Long 75 Gov.bond ...... 0.20 Long 0.15 ...... Long 0.15 ...... Long 1.00 3±6 mt Short 50 Future ...... 0.40 Short 0.20 ...... Short 0.20 ...... 6±12 mths Long 150 Swap ...... 0.70 Long 1.05 ...... Long 1.05. 2 ...... 1±2 yrs ...... 1.25 2±3 yrs ...... 1.75 3±4 yrs Long 50 ...... 2.25 Long 1.125 ...... Long 1.125 ...... Long 1.125 Future 3 ...... 4±5 yrs ...... 2.75 5±7 yrs ...... 3.25 7±10 yrs Short 150 Swap Long 13.13 Qual Bond ...... 3.75 Short 5.625 ...... Short 5.125 ...... Short 5.125 Long 0.50 ...... 10±15 yrs ...... 4.50 38128 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules Risk wght Risk-weighted Net time-band Net zone posi- Zone Time-band and position (%) position positions tions 15±20 yrs ...... 5.25 over 20 yrs ...... 6.00 b. A vertical disallowance would be (450,000). The remaining position in zone 3 Horizontal disallowance in calculated for time-band 7–10 years. It would would be ¥4.00. zone 1 ...... 80,000 be 10 percent of the matched positions in the e. A horizontal disallowance would be Horizontal disallowance be- time-band—10.0x0.5=0.05 ($50,000). calculated between zones 1 and 3. It would tween zones 2 and 3 ...... 450,000 c. A horizontal disallowance would be be 100 percent of the matched positions Horizontal disallowance be- between the zones—100x1.00=1.00 calculated for zone 1. It would be 40 percent tween zones 1 and 3 ...... 1,000,000 (1,000,000). The overall net open position 3,000,000 of the matched positions in the zone— f. The remaining net open position for the Total requirement for gen- 40.0x0.20=0.80 ($80,000). The remaining net banking organization would be 3.00 eral market risk ...... 4,580,000 position in Zone 1 would be +1.00 . ($3,000,000). d. A horizontal disallowance would be The total capital requirement for general Attachment III—Summary of calculated for adjacent zones 2 and 3. It market risk for this portfolio would be: Treatment for Interest Rate and Equity would be 40 percent of the matched positions The vertical disallowance ...... $50,000 Derivatives between the zones—40.0x1.125=0.45 SUMMARY OF TREATMENT FOR INTEREST RATE DERIVATIVES Specific Instrument risk charge General market risk charge Exchange-Traded Future: Government security ...... No ...... Yes, as two positions. Corporate debt security ...... Yes ...... Yes, as two positions. Index on short-term interest rates (e.g. LIBOR) ...... No ...... Yes, as two positions. OTC Forward: Government security ...... No ...... Yes, as two positions. Corporate debt security ...... Yes ...... Yes, as two positions. Index on short-term interest rates ...... No ...... Yes, as two positions. FRAs, Swaps ...... No ...... Yes, as two positions. Forward foreign exchange ...... No ...... Yes, as one position in each currency. Options: Government security ...... No ...... For each type of transaction, either: Corporate debt security ...... Yes ...... (a) Carve out together with the associated hedging positions Index on short-term interest rates ...... No ...... Ðsimplified methodÐscenario analysisÐinternal models, or (b) General market risk charge according to the Delta-plus method (gamma and vega receive separate capital charges) NOTE: Specific risk charges relate to the issuer of the instrument. There remains a separate capital requirement for counterparty credit risk. SUMMARY OF TREATMENT FOR EQUITY DERIVATIVES Specific Instrument risk charge General market risk charge Exchange-Traded or OTC Future: Individual equity ...... Yes ...... Yes, as underlying. Index ...... 2.0% ...... Yes, as underlying. Options: Individual equity ...... yes ...... For each type of transactions either: Index ...... 2.0% ...... (a) Carve out together with the associated hedging positions Ðsimplified methodÐscenario approachÐinternal models, or (b) General market risk requirement according to the Delta-plus method (gamma and vega receive separate capital charges). NOTE: Specific risk charges relate to the issuer of the instrument. There remains a separate capital requirement for counterparty credit risk. Attachment IV—Sample Calculation of Standardized Approach for Commodities Risk Spread Capital Time band Position rate Capital calculation charge 0 up to 1 month ...... None 1 up to 3 months ...... None 3 up to 6 months ...... Long 800 ...... 1.5% 800 long+800 short (matched)×1.5%= ...... 24 Short 1000 ...... 200 Short carried forward to 1±2 yrs, capital charge: 24 200×2×0.6%=. 6 up to 12 months ...... None. 1 up to 2 yrs ...... Long 600 ...... 200 long+200 short (matched)×1.5%= ...... 6 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38129 Spread Capital Time band Position rate Capital calculation charge 400 long carried forward to over 3 yrs capital charge: 4.8 400×2×0.6%=. 2 up to 3 yrs ...... None over 3 years ...... Short 600 ...... 400 long+400 short (matched)+1.5%= ...... 12 Net position: 200 capital charge: 200×15.0%= ...... 30 NOTE: Assume all positions are in the same commodity and converted at current spot rates into U.S. dollars. The total capital requirement would be $79.2. Attachment V—Sample Calculation for For the reasons indicated in the For this purpose, market risk refers to the risk Delta-Plus Method for Options preamble, the FDIC Board of Directors of losses in a bank’s on- and off-balance-sheet positions arising from movements in market a. Assume a banking organization has a hereby proposes to amend part 325 of chapter III of Title 12 of the Code of prices. The market risks subject to these European short call option on a commodity capital requirements are those associated with an exercise price of 490 and a market Federal Regulations as follows: with debt and equity instruments held in the value of the underlying 12 months from the bank’s trading account, as well as foreign expiration of the option at 500; a risk-free PART 325ÐCAPITAL MAINTENANCE exchange risk and commodities risk interest rate at 8% per annum, and the 1. The authority citation for part 325 throughout the bank, including options and volatility at 20 percent. The current delta for continues to read as follows: other derivative contracts in each risk this position is according to the Black- category. As is further detailed in section II Scholes formula ¥0.721 (that is, the price of Authority: 12 U.S.C. 1815(a), 1815(b), of this appendix C, debt and equity the option changes by ¥0.721 if the price of 1816, 1818(a), 1818(b), 1818(c), 1818(t), instruments and commodities positions the underlying moves by 1). The gamma is 1819(Tenth), 1828(c), 1828(d), 1828(i), subject to the measure for market risk under ¥0.0034 (that is, the delta changes by 1828(n), 1828(o), 1831o, 3907, 3909, 4808; this appendix C are generally excluded from ¥0.0034 from ¥0.721 to ¥0.7244 if the Pub. L. 102–233, 105 Stat. 1761, 1789, 1790 the calculation of risk-weighted assets under price of the underlying moves by 1). The (12 U.S.C. 1831n note); Pub. L. 102–242, 105 appendix A of this part. current value of the option is 65.48. Stat. 2236, 2355, 2386 (12 U.S.C. 1828 note). (ii) This appendix C provides two ways for b. The first step under the delta-plus 2. Appendix A to part 325 is amended a bank to determine its exposure to market method is to multiply the market value of the in the introductory text, by adding a risk. A bank may use its internal risk measurement model, subject to the commodity by the absolute value of the delta. new paragraph after the third 500×0.721=360.5. The delta-weighted conditions and criteria set forth in section III undesignated paragraph to read as of this appendix C (referred to as the internal position is then incorporated into the follows: models approach), or when appropriate, a measure described in section IV.D. of this bank may use all or portions of the Appendix E. If the banking organization uses Appendix A to Part 325—Statement of alternative measurement system described in the maturity approach and no other positions Policy on Risk-Based Capital section IV of this appendix C (referred to as exist, the delta-weighted position is the standardized approach). multiplied by 0.15 to calculate the capital * * * * * × In addition, when certain banks that (iii) With prior approval from the FDIC, for requirement for delta. 360.5 0.15=54.075. regulatory capital purposes, a bank may use c. The capital requirement for gamma is engage in trading activities calculate their risk-based capital ratio under this appendix its internal risk measurement model to calculated according to the Taylor expansion measure its value-at-risk 2 for each of the by multiplying the absolute value of the A, they must also refer to appendix C of this part, which incorporates capital charges for following risk factor categories: interest rates, assumed gamma of ¥0.0034 by 1.125% and certain market risks into the risk-based exchange rates, equity prices, and commodity by the square of the market value of the capital ratio. When calculating their risk- prices. The value-at-risk amount for each risk underlying. 0.0034×0.0125×5002=10.625 based capital ratio under this appendix A, factor category should include volatilities of d. The capital requirement for vega is such banks are required to refer to appendix related options. The value-at-risk amount for calculated next. The assumed current C of this part for supplemental rules to each risk factor category is summed to (implied) volatility is 20%. Since only an determine qualifying and eligible capital, determine the aggregate value-at- risk for the increase in volatility carries a risk of loss for calculate risk-weighted assets, calculate bank. a short call option, the volatility has to be market-risk equivalent assets and add them (iv) The standardized approach uses a set increased by a relative shift of 25%. This to risk- weighted assets, and calculate risk- of standardized calculations and assumptions means that the vega capital requirement has based capital ratios adjusted for market risk. to measure market risk exposure depending to be calculated on the basis of a change in on its source: debt instruments, equities, volatility of 5 percentage points from 20% to * * * * * 3. A new appendix C is added to part foreign currencies, and commodities, 25% in this example. According to the Black- including volatilities of related options.3 Scholes formula used here, the vega equals 325 to read as follows: 168. Thus, a 1% or 0.01 increase in volatility Appendix C to Part 325—Risk-Based described in a paper prepared by the Basle increases the value of the option by 1.68. Capital for State Non-Member Banks: Supervisors Committee entitled ‘‘Proposal to issue Accordingly, a change in volatility of 5 a Supplement to the Basle Capital Accord to Cover percentage points increases the value of Market Risk Market Risks’’. April 1995. 5×1.68=8.4. This is the capital requirement (i) The Federal Deposit Insurance 2 A bank evaluates its current positions and for vega risk. The total capital requirement Corporation (FDIC) has adopted a framework estimates future market volatility through a value- would be $73.10 (54.075+10.625+8.4). to supplement the risk-based capital at-risk measure, which is an estimate representing, requirements set out in appendix A of this with a certain degree of statistical confidence, the By Order of the Board of Governors of the maximum amount by which the market value of Federal Reserve System, July 12, 1995. part with capital requirements for the market trading positions could decline during a specific 1 William W. Wiles, risk exposure of state non-member banks. period of time. The value-at-risk is generated through an internal model that employs a series of Secretary of the Board. 1 The market risk measure is based on a market risk factors (for example, market rates and framework developed jointly by supervisory prices that affect the value of trading positions). FEDERAL DEPOSIT INSURANCE authorities from the countries represented on the 3 There are three alternatives for measuring the CORPORATION Basle Committee on Banking Supervision (Basle market risk of options under the standardized Supervisors Committee) and endorsed by the Group approach. Under two of the alternatives, the 12 CFR Chapter III of Ten Central Bank Governors. The framework is Continued 38130 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules (v) The FDIC generally expects any bank calculate risk-based capital ratios adjusted for that behave like debt, including non- that is subject to this appendix C, especially market risk.5 convertible preferred stock. Convertible those with large trading accounts, to compute bonds, i.e., preferred stock or debt issues that B. Market Risks Subject to a Capital are convertible, at a stated price, into the measure for market risk by using internal Requirement risk-measurement models. A bank may not common shares of the issuer, should be change its measurement approach for the 1. General Market Risk and Specific Risk. treated as debt instruments if they trade like purpose of minimizing capital requirements. A bank must hold capital against exposure to debt instruments and as equities if they trade In limited instances, on a case-by-case basis, general market risk and specific risk arising like equities. Also included are derivative the FDIC may permit a bank that has internal from its trading and other foreign exchange contracts of debt instruments and other off- and commodity activities. For this purpose, balance-sheet instruments in the trading models to incorporate alternative measures general market risk refers to changes in the account that react to changes in interest rates for market risk of negligible exposures (for market value of covered transactions (for example, forward rate agreements example, de minimis positions, activities in resulting from market movements, such as (FRAs), bond futures, interest rate and cross- remote locations, minor exposures in a changing levels of market interest rates, currency swaps and forward foreign currency, or activities that present negligible broad equity indices, or currency exchange exchange positions). A security that has been risk to the bank), so long as it adequately rates. Specific risk refers to credit risk, that sold subject to a repurchase agreement or lent captures the risk. is, the risk that the issuer of a debt or equity subject to a securities lending agreement is (vi) The FDIC will monitor the instrument might default, as well as to other treated as if it were still owned by the lender implementation and effect of these guidelines factors that affect the market value of specific of the security, but the off-balance-sheet in relation to domestic and international instruments but that do not materially alter portion of the transaction remains an element developments in the banking industry. When market conditions.6 of risk-weighted assets as set forth in section necessary and appropriate, the FDIC will 2. Trading Activities. a. The measure for II. of appendix A of this part. consider the need to modify this appendix C market risk in trading activities is based on d. The equities in the trading account in light of any significant changes in the on- and off-balance-sheet positions in a category consist of equity instruments that economy, financial markets, banking bank’s trading account. For this purpose, the behave like equities. The instruments practices, or other relevant factors. trading account consists of positions in covered include common stocks (whether financial instruments acquired with the voting or non-voting), convertible securities I. Scope of the Market Risk Capital intent to resell in order to profit from short- that behave like equities, and commitments Requirement term price movements (or other price or to buy or sell equity securities. Also included A. Banks Subject to This Appendix C interest-rate variations), including, but not are derivative contracts of equity instruments limited to: and other off-balance-sheet instruments in 1. Effective December 31, 1997, this i. Assets acquired with the intent to resell the trading account that are affected by appendix C will be applied to any FDIC- to customers; changes in equity prices. However, non- insured state-chartered bank that is not a ii. Positions in financial instruments convertible preferred stock is included in member of the Federal Reserve System arising from matched principal brokering and debt instruments. (excluding insured branches of foreign banks) market making; or 3. Foreign Exchange and Commodities and that, on a consolidated basis, either: iii. Positions taken in order to hedge other Risk. Foreign exchange or commodities a. Has total assets in excess of $5 billion, elements of the trading account (that is, positions, whether or not included in a and: reduce risk by offsetting other positions that bank’s trading account, are subject to a i. Has a total volume of trading activities have exposure to changes in market rates or measure for market risk of those positions. (measured as the sum of the bank’s trading prices).7 a. The measure for market risk of foreign assets and liabilities 4 on a daily average basis b. Trading account activities may include exchange applies to a bank’s total currency for the quarter) that is 3.0 percent or more of positions in debt instruments, equities, and gold positions. This includes spot the total assets of the bank; or foreign currencies, and commodity positions (that is, asset items and liability ii. Has interest rate, foreign exchange, instruments, or related derivative 8 or other items, including accrued interest and equity, and commodity off-balance-sheet off-balance-sheet contracts. expenses, denominated in each currency); derivative contracts relating to trading c. The debt instruments in the trading forward positions (that is, forward foreign activities whose total notional amounts account category consists of all fixed-rate and exchange transactions, including currency exceed $5 billion; or floating-rate debt securities and instruments futures and the principal on currency swaps b. Has total assets of $5 billion or less and not included in the spot position); and certain guarantees. It also includes future has a total volume of trading activities 5 The FDIC may apply all or portions of this income and expenses from foreign currency exceeding 10.0 percent of the total assets of appendix C to other state non-members banks when transactions not yet accrued but already fully the bank. deemed necessary for safety and soundness hedged (at the discretion of the reporting 2. Such banks identified in paragraph 1 purposes. 6 bank), foreign exchange derivative and other (hereinafter referred to as ‘‘banks’’), when This appendix C does not impose specific risk capital requirements for foreign exchange risk and off-balance-sheet positions that are affected calculating their risk-based capital ratio commodities positions because they do no have the by changes in exchange rates, and any other under appendix A of this part, are required type of issuer-specific risk associated with debt and item representing a profit or loss in foreign to refer to this appendix C for supplemental equity instruments in the trading account. currencies. rules to determine their qualifying and 7 Subject to FDIC review, when on- or off-balance- b. A bank doing negligible business in eligible capital, calculate risk-weighted sheet non-trading account instruments are foreign currency and that does not take assets, calculate market-risk equivalent assets deliberately used to hedge trading account foreign exchange positions for its own and add them to risk-weighted assets, and instruments, the non-trading account instruments may be included in the measure for general market account may be exempted from the market risk, but if so included, are not included in the risk measure for foreign exchange risk simplified and scenario methods, the underlying measure for specific risk and instead remain an provided that: position of an option is ‘‘carved-out,’’ and is not element of risk-weighted assets under section II of i. Its foreign currency business, defined as included in the prescribed risk measure for the appendix A of this part. Instruments such as swaps the greater of the sum of its gross long underlying debt, equity, foreign exchange or used to hedge non-trading account activities should positions and the sum of its gross short commodity. Instead it is evaluated together with the be excluded from the measure for market risk if positions in all foreign currencies as related option according to the procedures they are not part of the trading account. determined under section IV.C.2 of this described for options to determine the capital 8 In general terms, a derivative is a financial appendix C, does not exceed 100 percent of requirement. Under the third alternative, the ‘‘delta- contract whose value is derived from the values of eligible capital as defined in section II. of this plus’’ approach, the delta-equivalent value of each one or more underlying assets or reference rates or position is included in the measurement framework indexes of asset values (referred to as ‘‘the appendix C; and for the prescribed risk measure for the underlying. underlying’’). Derivatives include standardized ii. Its overall net open foreign exchange 4 As reflected in the bank’s quarterly contracts that are traded on exchanges and position as determined under section IV.C.3. Consolidated Reports of Condition and Income (call customized, privately negotiated contracts known of this appendix C does not exceed 2.0 report.) as over-the-counter (OTC) derivatives. percent of eligible capital. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38131 c. A bank may, subject to approval by the a. All debt and equity instruments in the the prior approval of the FDIC.10 For a bank FDIC, exclude from its foreign exchange trading account required to be included using a combination of approaches, the total positions any structural positions in foreign under the measure for market risk, with the measure for market risk is the sum of: currencies. For this purpose, such structural exception of over-the-counter derivatives or i. The appropriate value-at-risk measure (as positions are limited to transactions designed non-trading account instruments used to determined in paragraph B.2.a. of this to hedge a bank’s capital ratios against the hedge trading account instruments and section, aggregating the value-at-risk measure effect of adverse exchange rate movements on included in the measure for general market for each risk factor category included in the subordinated debt, equity, or minority risk at the bank’s option; and internal model); and interests in consolidated subsidiaries and b. All positions in commodities required to ii. The measure for market risk for each dotation capital assigned to foreign branches be included under the measure for market risk factor category that is calculated using that are denominated in foreign currencies. risk. the standardized approach. Also included are any positions related to 2. Calculate the total measure for market 3. Calculate the market-risk equivalent unconsolidated subsidiaries and to other risk using the internal models approach, the assets by multiplying the total measure for items that are deducted from a bank’s capital standardized approach, or an approved market risk by 12.5 (i.e., the reciprocal of the when calculating its capital base. In any combination of these two approaches: 8.0 percent minimum risk-based capital event, such structural foreign currency a. Internal Models. i. For a bank approved ratio). positions must reflect long-term policies of to use the internal models approach under 4. Add the market-risk equivalent assets to the institution and not relate to trading section III of this appendix C, the total total risk-weighted assets (as determined in positions. measure for market risk is the higher of: paragraph B.1. of this section). The sum of d. The measure for market risk of A. The bank’s previous day’s aggregate these two amounts is the denominator of the commodities applies to a bank’s total value-at-risk amount; or total risk-based capital ratio, adjusted for commodities positions, including commodity B. An average of the daily aggregate value- market risk. futures, commodity swaps, and all other at-risk amounts measured on each of the 5.a. In order to calculate eligible capital to commodity derivatives or other off-balance- preceding 60 business days multiplied by a be included in the numerator of the ratio, a sheet positions that are affected by changes minimum ‘‘multiplication factor’’ of 3. The bank must first allocate the qualifying Tier 1 in commodity prices. A commodity is FDIC may adjust the multiplication factor for and Tier 2 capital necessary to support total defined as a physical product that is or can a bank to increase its capital requirement risk-weighted assets (as determined in be traded on a secondary market (such as based on an assessment of the quality and paragraph B.1. of this section) in accordance agricultural products, minerals (including historic accuracy of the bank’s risk with the terms and restrictions of section I of oil), and precious metals), but excluding gold management system. appendix A of this part, achieving at least the (which is treated as foreign exchange). ii. Additionally, if a bank’s internal model minimum supervisory ratio in section III. of appendix A of this part. Remaining Tier 1, II. Qualifying Capital and the Market Risk- does not capture the specific risk of debt and eligible Tier 2, and eligible Tier 3 capital Adjusted Capital Ratio equity instruments in the trading account,9 the specific risk measure as calculated under should then be allocated to support market- A. Qualifying and Eligible Capital the standardized approach may be added to risk equivalent assets (as determined in 1. The principal forms of qualifying capital the bank’s measure for market risk. paragraph B.3. of this section), achieving at for market risk are Tier 1 capital and Tier 2 b. Standardized Approach. A bank that has least a minimum supervisory ratio of 8.0 capital as defined in, and subject to the not obtained the FDIC’s approval to use an percent, subject to the following restrictions: conditions and limitations of, section I of internal model must use the standardized i. Eligible Tier 3 capital may not exceed appendix A of this part. A bank may use Tier approach for measuring its market risk. For 250 percent of a bank’s Tier 1 capital 3 capital for the sole purpose of meeting a a bank using this approach, the total measure allocated for market risk; portion of the capital requirements for market for market risk is the sum of the market risk ii. Tier 2 elements may be substituted for risk. Tier 3 capital may be allocated only to measures for debt and equity instruments in Tier 3 up to the same 250 percent limit, so support market-risk equivalent assets, and the trading account, foreign exchange and long as the overall limits for Tier 2 capital may in no event be allocated to support commodities risk throughout the bank, and set out in section I of appendix A of this part capital requirements associated with risk- options and other derivative positions in are not exceeded (i.e., Tier 2 capital may not weighted assets under appendix A of this each risk category as set forth in sections exceed total Tier 1 capital, and long-term part. IV.A through IV.E. of this appendix C. subordinated debt may not exceed 50 percent 2. Tier 3 capital consists of short-term c. Partial Models. With approval from the of Tier 1 capital); and subordinated debt that is subject to a lock-in FDIC, a bank whose internal model does not iii. The maximum eligible amount of Tier clause providing that neither interest nor cover all risk factor categories may use the 2 and Tier 3 capital, summed together, may principal payment is due (even at maturity) standardized approach for measuring market not exceed 100 percent of Tier 1 capital. if such payment would cause the issuing risk arising from the risk factor categories b. Eligible capital for the total risk-based bank to fall or remain below the minimum that are not covered. The FDIC will approve capital ratio is then the sum of the bank’s 8.0 percent risk-based capital requirement as combining the two approaches only on a qualifying Tier 1 capital, its qualifying Tier set forth in appendix A of this part and temporary basis in situations in which the 2 capital subject to the limits stated in this adjusted for market risk. institution is developing but has not fully paragraph and eligible Tier 3 capital subject 11 3. In order to qualify as Tier 3 capital, the implemented a comprehensive internal to the limits stated in this paragraph B.5. short-term debt must be unsecured, model. When a bank uses both approaches, C. Consolidation and Reporting subordinated, and fully paid up; it must have each risk factor category (i.e., interest rates, 1. The capital requirements for market risk an original maturity of at least two years; and equity prices, exchange rates, and commodity apply to banks on a worldwide consolidated it may not be redeemed before maturity prices) must be measured using one or the basis. The FDIC may, however, evaluate without prior approval by the FDIC. In other approach. The methods may not be market risk on an unconsolidated basis when addition, it may not contain or be covered by combined within a single risk factor category. necessary (for example, when there are any covenants, terms, or restrictions that are Once a bank adopts an acceptable internal inconsistent with safe and sound banking model for a particular risk factor category, it practices. may not revert to the standardized approach 10 Banks that have modeling capabilities are except in unusual circumstances and with expected to use their internal models for measuring B. Calculation of Eligible Capital and the market risk for regulatory capital purposes. Capital Ratio However, the FDIC may permit a bank to use A bank that is subject to the market risk 9 If a bank uses an internal model that measures another measurement technique for de minimis positions, activities in remote locations, minor measure must calculate its risk-based capital specific risk of debt and equity instruments in the trading account, the measure should in no case be exposures in a currency, or in activities that present ratio and eligible capital as follows: less than one-half the specific risk measure as negligible risk to the bank. 1. Determine total risk-weighted assets calculated under the standardized approach (taking 11 Examples of the method used to calculate under appendix A of this part, excluding into account the effect of the multiplier under eligible capital are set forth in attachment I to this from risk-weighted assets: paragraph B.2.a.ii. of this section). appendix C. 38132 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules obstacles to the repatriation of profits from a sound and implemented with integrity. ii. The integration of market risk measures foreign subsidiary or where management Internal risk measurement models must be into daily risk management and the integrity structure does not allow timely management closely integrated into the day-to-day risk of the management information system; of risk on a consolidated basis). management process of the bank. For iii. The process the bank employs for 2. All transactions, including forward sales example, the risk measurement model must approving risk pricing models and valuation and purchases, should be included in the be used in conjunction with internal trading systems that are used by front- and back- calculation of market risk capital and exposure limits. office personnel; requirements from the date on which they 2. A bank must meet the following iv. The scope of market risks captured by were entered into. Although banks subject to minimum qualitative criteria before using its the risk measurement model and the the capital requirements for market risk will internal model as the measure for market validation of any significant changes in the continue to report their capital on a quarterly risk:13 risk measurement process; basis, the FDIC expects banks to meet their a. A bank must have a risk control unit that v. The accuracy and completeness of capital requirements for market risk on a is independent from business trading units position data, the accuracy and continuous basis (that is, at a minimum, at and reports directly to senior management of appropriateness of volatility and correlation the close of each business day). the bank. The unit must be responsible for assumptions, and the accuracy of valuation 3. The risk-based capital ratios adjusted for designing and implementing the bank’s risk and risk sensitivity calculations; market risk are minimum supervisory ratios. management system and analyzing daily vi. The verification process the bank The FDIC expects banks to operate with reports on the output of the bank’s risk employs to evaluate the consistency, capital positions well above the minimum measurement model in the context of trading timeliness, and reliability of data sources ratios. In all cases, banks should hold capital limits. The unit must conduct regular back- used to run internal models, including the commensurate with the level and nature of testing.14 independence of such data sources; and the risks to which they are exposed. b. Senior management must be actively vii. The verification process the bank uses involved in the risk control process. The to evaluate back-testing that is conducted to III. The Internal Models Approach daily reports produced by the risk assess the model’s accuracy. management unit must be reviewed by a A. Use of Models level of management with sufficient authority C. Market Risk Factors 1. With prior approval of the FDIC, a bank to enforce both reductions in positions taken 1. Generally. For regulatory capital may use its internal risk measurement by individual traders, as well as in the bank’s purposes, a bank’s internal risk measurement model(s) for measuring value-at-risk to be overall risk exposure. system must use sufficient risk factors to used as the measure for market risk. c. The bank must have a routine and capture the risks inherent in the bank’s a. Requests for approval should include, at rigorous program of stress-testing to identify portfolio of on- and off-balance-sheet trading a minimum, a complete description of the the effect of low-probability events on the positions and must, subject to the following bank’s internal modeling and risk bank’s trading portfolio. Bank stress-testing guidelines, cover interest rates, equity prices, management systems and how these systems should cover a range of factors that can create exchange rates, commodity prices, and conform to the criteria set forth in this extraordinary losses or gains in trading volatilities related to options positions in section III, an explanation of the policies and portfolios or make the control of risk in those each risk factor category. The level of procedures established by the bank to ensure portfolios difficult. These factors include sophistication of the bank’s risk factors must continued compliance with such criteria, a low-probability events of all types, including be commensurate with the nature and scope discussion of internal and external validation the various components of market, credit, of the risks taken by the bank. procedures, and a description of other and operational risks. Senior management 2. Interest Rates. a. A bank must use a set relevant policies and procedures consistent must routinely review the results of stress- of market risk factors corresponding to with sound practices. testing in the context of the potential effect interest rates in each currency in which it has b. The FDIC will approve an internal of the events on bank capital and the material interest rate-sensitive on- or off- model for regulatory capital purposes only appropriate procedures the bank should take balance-sheet positions. The risk after determining that the bank’s internal to minimize losses. The policies of the bank measurement system must model the yield model and risk management systems meet set by management and the bank’s board of curve 15 using one of a number of generally the criteria in this section III. Such a directors should identify appropriate stress- accepted approaches, for example, by determination may require on-site tests and the procedures to follow in estimating forward rates of zero coupon examinations of the systems. The FDIC may response to the test results. yields. The yield curve must be divided into require modification to an internal model as d. The bank must have established various maturity segments in order to capture deemed necessary to ensure compliance, on procedures for ensuring compliance with a variation in the volatility of rates along the a continuing basis, with the provisions of this documented set of internal policies and yield curve; there will typically be one risk appendix C. A bank’s internal model will be controls, as well as for monitoring the overall factor corresponding to each maturity operation of the risk measurement system. subject to continuing review, both on- and segment. e. Not less than once a year, the bank must off-site, by the FDIC.12 b. For significant exposures to interest rate conduct, as part of its regular internal audit 2. A bank should ensure that the level of movements in the major currencies and process, an independent review of the risk sophistication of its internal model is markets, a bank must model the yield curve measurement system. This review must commensurate with the nature and volume of using a minimum of six risk factors. include both the activities of the business However, the number of risk factors used the bank’s trading activity in the risk factor trading units and of the independent risk categories covered by this appendix C and should ultimately be driven by the nature of control unit of the bank. the bank’s trading strategies.16 The risk measures market risk as accurately as f. Not less than once a year, the bank must possible. In addition, the model should be measurement system must incorporate conduct a review of its overall risk separate risk factors to capture spread risk.17 adjusted to reflect changing portfolio management process. The review must composition and changing market consider: conditions. 15 Generally, a yield curve is a graph showing the i. The adequacy of the documentation of term structure of interest rates by plotting the yields B. Qualitative Criteria the risk management system and process, and of all instruments of the same quality by maturities the organization of the risk control unit; ranging from the shortest to the longest available. 1. A bank using the internal models The resulting curve shows whether short-term approach should have market risk 13 If the FDIC is not satisfied with the extent to interest rates are higher or lower than long-term management systems that are conceptually which a bank meets these criteria, the FDIC may interest rates. adjust the multiplication factor used in section 16 For example, a bank that has a portfolio of 12 Banks that need to modify their existing II.B.2.a.ii. of this appendix C to determine the total various types of securities across many points of the modeling procedures to accommodate the measure for market risk or otherwise increase yield curve and that engages in complex arbitrage requirements of this appendix C should, capital requirements. strategies would require a greater number of risk nonetheless, continue to use the internal models 14 Back-testing includes ex post comparisions of factors to accurately capture interest rate risk. they consider most appropriate in evaluating risks the risk measures generated by the model against 17 For these purposes, spread risk refers to the for other purposes. the actual daily changes in portfolio value. potential changes in value of an instrument or Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38133 3. Exchange Rates. A bank must use market following minimum standards apply for a. Verification that the internal validation risk factors corresponding to the exchange purposes of using an internal model for processes described in paragraph B.2. of this rate between the domestic currency and each calculating market risk capital requirements: section are operating in a satisfactory foreign currency in which the bank has a a. Value-at-risk must be calculated on a manner; significant exposure. The risk measurement daily basis using a 99th percentile, one-tailed b. Assurance that the formulae used in the system must incorporate market risk factors confidence interval 20 and the holding period calculation process and for the pricing of corresponding to the individual foreign must be ten trading days. For positions that options and other complex instruments, are currencies in which the bank’s positions are display linear price characteristics, a bank validated by a qualified unit of the bank, denominated. may use value-at-risk numbers calculated which in all cases must be independent from 4. Equity Prices. A bank must use risk according to shorter holding periods scaled the trading areas; factors corresponding to each of the equity up to ten days by the square root of time.21 c. Confirmation that the structure of the markets in which it holds significant b. Value-at-risk must be calculated using internal model is adequate with respect to positions. The sophistication and nature of an observation period of at least one year to the bank’s activities and geographical the modeling technique for a given market measure historical changes in rates and coverage; must correspond to the bank’s exposure to prices. d. Confirmation that the results of the the overall market as well as to the bank’s c. A bank must update its historical rates bank’s back-testing of its internal concentration in individual equity issues in and prices at least once every three months measurement system (that is, comparing that market. At a minimum, there must be a and must reassess them whenever there is a value-at-risk estimates with actual profits and risk factor designed to capture market-wide change in market conditions of any losses) are being used effectively to monitor movements in equity prices (such as a market significance. reliability of the model’s estimates over time; index), but additional risk factors could track 2. A bank may use its discretion in and various sectors or individual issues. recognizing empirical correlations within e. Assurance that, for regulatory capital 5. Commodity Prices. A bank must use each market risk factor category, provided purposes, the model processes all relevant market risk factors corresponding to each of that the FDIC is satisfied that there is data and that the modeling procedures the commodity markets in which it holds integrity in the bank’s process for calculating conform with the parameters and significant positions. The internal model correlations. However, empirical correlations specifications set forth in this appendix C. must encompass directional risk, forward gap among risk categories are not recognized. The and interest rate risk, and basis risk.18 The value-at-risk measure for each risk category IV. The Standardized Approach model should also take into account the must be added together on a simple sum A. Debt Instruments market characteristics, for example, delivery basis to determine the aggregate value-at-risk 1. Specific Risk. a. The specific risk dates and the scope provided to traders to amount. element of the measure for market risk is close out positions. 3. A bank’s model must accurately capture the unique risks associated with options based on the identity of the obligor and, in D. Quantitative Standards within each of the market risk factor the case of corporate securities, on the credit rating and maturity of the instrument. The 1. A bank may use one of a number of categories. The following minimum criteria specific risk element is calculated by generally accepted measurement techniques apply to the measurement of options risk: weighting the current market value of each including, for example, an internal model a. A bank’s internal model must capture individual position, whether long or short, by based on variance-covariance matrices, the non-linear price characteristics of option the appropriate factor as set forth below and historical simulations, or Monte Carlo positions using an options pricing technique. summing the weighted values. In simulations, so long as the model employed The bank must apply a minimum ten-day holding period to option positions or determining specific risk, the bank may offset captures all significant market risks.19 The positions that display option-like and exclude from its calculations any characteristics. Banks may not scale-up the matched positions in the identical issue portfolio arising from differences in the behavior of daily value-at-risk numbers by the square (including positions in derivatives). Even if baseline yield curves, such as those for U.S. the issuer is the same, no offsetting is Treasury securities, and yield curves reflecting root of time. sector, quality, or instrument specific factors. A b. A bank’s internal model must, for permitted between different issues since variety of approaches may be used to capture the example, capture the sensitivity of the value differences in coupon rates, liquidity, call spread risk arising from less than perfectly of the options positions to changes in the features, etc., mean that prices may diverge correlated movements between government and volatility of the options’ underlying rates or in the short run. The categories and factors other interest rates, such as specifying a completely prices (that is, the vega) and must measure are: separate yield curve for non-government the volatilities of options positions broken instruments (for example, swaps or municipal down by different maturities. Remaining securities) or estimating the spread over 4. The accuracy of a bank’s internal model Factor (in Category maturity (con- percent) government rates at various points along the yield will be reviewed periodically by the FDIC. tractual) curve. 18 Such review—during which, when For these purposes, directional risk refers to the appropriate, the FDIC may take into Government .. N/A ...... 0.00 risk that a spot price will increase or decrease. Qualifying ...... 6 months or 0.25 Forward gap risk refers to the effects of owning a consideration reports and opinions generated physical commodity versus owning a forward by external auditors or qualified less. position in a commodity. Interest rate risk refers to consultants—will include at a minimum: 6 to 12 1.00 the risk of a change in the cost of carrying forward months. positions and options. Basis risk refers to the risk measurement horizon to arrive at a range of over 12 1.60 that the relationship between the prices of similar simulated profits and losses. The Monte Carlo months. commodities changes over time. approach refers to an approach in which a bank Other ...... N/A ...... 8.00 19 For these purposes, a variance/covariance would consider historical movements to determine approach refers to an approach in which the change the probability of particular price and rate changes. b. The government category consists of all in value of the portfolio is calculated by combining 20 A one-tailed confidence interval of 99 percent forms of debt instruments of central the risk factor sensitivities of the individual means that there is a 1 percent probability based on positions—derived from valuation models—with a historical experience that the combination of governments of the OECD-based group of 22 variance/covariance matrix based on risk factor positions in a bank’s portfolio would result in a loss countries including bonds, Treasury bills volatilities and correlations. A bank using this higher than the measured value-at-risk. and other short-term instruments, as well as approach would calculate the volatilities and 21 This transformation entails multiplying a local currency instruments of non-OECD correlations of the risk factors on the basis of the bank’s value-at-risk by the square root of the ratio central governments to the extent that the holding period and the observation period. The of the required holding period (ten days) to the bank has liabilities booked in that currency. historical simulation approach refers to an holding period embodied in the value-at-risk figure. c. The qualifying category consists of approach in which a bank would calculate the For example, the value-at-risk calculated according securities of U.S. government-sponsored hypothetical change in value of the current to a one-day holding period would be scaled-up by portfolio in light of historical movements in risk the ‘‘square root of time’’ by multiplying the value- factors. This calculation would be done for each of at-risk by 3.16 (the square root of the ratio of a ten- 22 As defined in section III.B. and III.C. of the defined holding periods over a given historical day holding period to a one-day holding period). appendix A of this part. 38134 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules agencies, general obligation securities issued diversified or otherwise represent a positions is permitted across different by states and other political subdivisions of significant position to the institution, the currencies. Offsetting positions of the same the OECD-based group of countries, FDIC may prevent a bank from offsetting amount in the same issues, whether actual or multilateral development banks, and debt positions in these instruments with other notional, may be excluded from the instruments issued by U.S. depository positions in qualifying instruments that may calculation, as well as closely matched institutions or OECD-banks that do not be offset when calculating its general market swaps, forwards, futures, and forward rate qualify as capital of the issuing institution.23 risk element. In addition, the FDIC may agreements (FRAs) that meet the conditions It also includes other securities, including impose a specific risk factor as high as 16.0 set out in paragraph A.3. of this section. revenue securities issued by states and other percent. d. In the maturity method, the bank political subdivisions of the OECD-based 2. General Market Risk. a. A bank may distributes each long or short position (at group of countries, that are: determine the general market risk element of current market value) of a debt instrument i. Rated investment-grade by at least two the measure for market risk by using, on a into the time bands of the maturity ladder. nationally recognized credit rating services, continuous basis, either the maturity method Fixed-rate instruments are allocated or rated investment-grade by one nationally (which uses standardized risk weights that according to the remaining term to maturity recognized credit rating agency and not less approximate the price sensitivity of various and floating-rate instruments according to the than investment-grade by any other credit instruments) or, subject to the FDIC’s review, next repricing date. A callable bond trading rating agency; or the duration method (in which the institution above par is allocated according to its first ii. With the exception of securities issued calculates the precise duration of each call date, while a callable bond priced below by U.S. firms and subject to review by the instrument, weighted by a specified change par is allocated according to remaining FDIC, unrated but deemed to be of in interest rates). maturity. Fixed-rate mortgage-backed comparable investment quality by the b. Both methods use a maturity-ladder that securities, including collateralized mortgage reporting bank and issued by an entity which incorporates a series of ‘‘time bands’’ and obligations (CMOs) and real estate mortgage has securities listed on a recognized stock ‘‘zones’’ to group together securities of investment conduits (REMICs), are allocated exchange. similar maturities and that are designed to according to their expected weighted average d. The other category consists of debt take into account differences in price lives. securities not meeting the criteria for sensitivities and interest rate volatilities e. Once all long and short positions are government or qualifying securities. This across different maturities. Under either allocated into the appropriate time band, the would include non-OECD central method, the general market risk element is long positions in each time band are summed government securities that do not meet the the sum of a base charge that results from and the short positions in each time band are criteria for the government or qualifying fully netting various risk-weighted positions summed. The summed long and/or short categories. This category also includes and a series of additional charges (add-ons), positions are multiplied by the appropriate instruments that qualify as capital issued by which effectively ‘‘disallow’’ part of the risk-weight factor (reflecting the price other banking organizations. previous full netting to address basis and sensitivity of the positions to changes in e. The FDIC will consider the extent of a yield curve risk. interest rates) to determine the risk-weighted bank’s position in non-investment grade c. For each currency in which a bank has long and/or short position for each time instruments (sometimes referred to as ‘‘high significant positions, a separate maturity band. The risk weights for each time band are yield debt’’). If those holdings are not well- ladder must be constructed. No netting of set out in Table 1: TABLE 1.ÐMATURITY METHOD: TIME BANDS AND WEIGHTS Risk Zone Coupon 3% or more Coupon less than 3 % and zero-coupon bonds weights 1 ...... Up to 1 month ...... Up to 1 month ...... 0.00 1 up to 3 months ...... 1 up to 3 months ...... 0.20 3 up to 6 months ...... 3 up to 6 months ...... 0.40 6 up to 12 months ...... 6 up to 12 months ...... 0.70 2 ...... 1 up to 2 years ...... 1 up to 1.9 years ...... 1.25 2 up to 3 years ...... 1.9 up to 2.8 years ...... 1.75 3 up to 4 years ...... 2.8 up to 3.6 years ...... 2.25 3 ...... 4 up to 5 years ...... 3.6 up to 4.3 years ...... 2.75 5 up to 7 years ...... 4.3 up to 5.7 years ...... 3.25 7 up to 10 years ...... 5.7 up to 7.3 years ...... 3.75 10 up to 15 years ...... 7.3 up to 9.3 years ...... 4.50 15 up to 20 years ...... 9.3 up to 10.6 years ...... 5.25 Over 20 years ...... 10.6 up to 12 years ...... 6.00 12 up to 20 years ...... 8.00 Over 20 years ...... 12.50 f. Next, within each time band for which disallowance, is assessed to allow for basis neither long nor short. The vertical there are risk-weighted long and short risk. The vertical disallowance is 10.0 disallowances for all time bands in the positions, the risk-weighted long and short percent of the position eliminated by the maturity ladder are summed and included as positions are then netted, resulting in a single intra-time band netting, that is, 10.0 percent an element of the general market risk net risk-weighted long or short position for of the smaller of the net risk-weighted long element. each time band. Since different instruments or net risk-weighted short position, or if the g. Next, within each zone for which there and different maturities may be included and positions are equal, 10.0 percent of either are risk-weighted long and short positions in netted within each time band, an addition to position.24 The vertical disallowances for different time bands, the weighted long and the risk measure, referred to as the vertical each time band are absolute values, that is, short positions in all of the time bands 23 U.S. government-sponsored agencies, 24 For example, if the sum of the weighted longs multilateral development banks, and OECD banks in a time band is $100 million and the sum of the are defined in section III.C. of appendix A of this weighted shorts is $90 million, the vertical part. disallowance for the time band is 10.0 percent of $90 million, or $9 million. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38135 within the zone are then netted, resulting in percentage of either position.25 The percent net long or short position in zone 2 or zone a single net long or short position for each disallowance factors for intra-zone netting 3 as appropriate. Zone 3 and zone 1 are then zone. Since different instruments and are set out in table 2. The horizontal netted if possible, reducing or eliminating the different maturities may be included and disallowances, like the vertical long or short position in zone 3 and zone 1 netted within each zone, an addition to the disallowances, are absolute values that are as appropriate. A horizontal disallowance is risk measure, referred to as the horizontal summed and included as an element of the then assessed, calculated as a percentage of disallowance, is assessed to allow for the general market risk element. the position eliminated by the inter-zone imperfect correlation of interest rates along h. Next, risk-weighted long and short the yield curve. The horizontal disallowance positions in different zones are then netted netting. The horizontal disallowances for is calculated as a percentage of the position between the zones. Zone 1 and zone 2 are each zone are then summed as absolute eliminated by the intra-zone netting, that is, netted if possible, reducing or eliminating the values and included in the general market a percentage of the smaller of the net risk- net long or short position in zone 1 or zone risk element. The percent disallowance weighted long or net risk-weighted short 2 as appropriate. Zone 2 and zone 3 are then factors for inter-zone netting are set out in position, or if the positions are equal, a netted if possible, reducing or eliminating the Table 2: TABLE 2.ÐHORIZONTAL DISALLOWANCES Between Within the adjacent Between Zone Time band zone (per- zones (per- zones 1 & 3 cent) cent) (percent) 1 ...... 0±1 month ...... 40 40 100 1±3 months. 3±6 months. 6±12 months. 2 ...... 1±2 years ...... 30 40 100 2±3 years. 3±4 years. 3 ...... 1±5 years ...... 30 40 100 5±7 years. 7±10 years. 10±15 years. 15±20 years. over 20 years. i. Finally, the net risk-weighted long or net exception that the vertical disallowance TABLE 3.ÐDURATION METHOD: TIME risk-weighted short positions remaining in requirement for the duration method is 5.0 BANDS AND ASSUMED CHANGES IN the zones are summed to reach a single net percent. Horizontal disallowances continue risk-weighted long or net risk-weighted short to be those set out in table 2. As with the YIELDÐContinued position for the bank’s portfolio. The sum of maturity method, the sum of the absolute the absolute value of this position and the value of the final net position and the vertical Assumed vertical and horizontal disallowances is the and horizontal disallowances is the general Zone Time band change in yield general market risk element of the measure market risk element of the measure for of market risk. An example of this calculation market risk: is in attachment II to this appendix. 9.9 up to 11.3 years .. 0.60 11.3 up to 16.6 years 0.60 j. In the duration method, the bank, after TABLE 3.ÐDURATION METHOD: TIME calculating each instrument’s modified Over 16.6 years 0.75 . 0.60 duration 26 using a formula that is subject to BANDS AND ASSUMED CHANGES IN FDIC review, multiplies that modified YIELD 3. Interest Rate Derivatives. a. Debt duration by the interest rate shock specified derivatives and other off-balance-sheet for an instrument of that duration in table 3. Assumed positions that are affected by changes in The resulting product (representing the Zone Time band change in interest rates are included in the expected percentage change in the price of yield measurement system under this section IV.A. the instrument for the given interest rate (except for options and the associated shock) is then multiplied by the current 1 ...... Up to 1 month ...... 1.00 underlyings, which are included in the market value of the instrument. The resulting 1 up to 3 months ...... 1.00 measurement system under the treatment amount is then allocated as a long or short 3 up to 6 months ...... 1.00 discussed in section IV.E. of this appendix position into a time band in the maturity 6 up to 12 months ..... 1.00 C). A summary of the treatment for debt ladder in table 3 on the basis of the 2 ...... 1.0 up to 1.8 years .... 0.90 derivatives is set out in Attachment III to this instrument’s modified duration.27 1.8 up to 2.6 years .... 0.80 appendix C. k. Once all of the bank’s traded debt 2.6 up to 3.3 years .... 0.75 b. Derivatives are converted into positions instruments have been allocated into the 3 ...... 3.3 up to 4.0 years .... 0.75 in the relevant underlying instrument and are maturity ladder, the bank conducts the same 4.0 up to 5.2 years .... 0.70 included in the calculation of the specific rounds of netting and disallowances 5.2 up to 6.8 years .... 0.65 and general market risk elements. The described in paragraphs A.2.f. through h. of 6.8 up to 8.6 years .... 0.60 amount to be included is the market value of the maturity method in this section, with the 8.6 up to 9.9 years .... 0.60 25 For example, if the sum of the weighted longs basis point parallel shift in the yield curve modified duration, it would be subjected to the 75- in the 1–3 month time band in Zone 1 is $8 million assuming that its cash flow does not change when basis point interest rate shock, resulting in an and the sum of the weighted shorts in the 3–6 the yield curve shifts. Modified duration is duration expected price change of 2.625 percent (3.5×0.75). month time band is $10 million, the horizontal divided by a factor of 1 plus the interest rate. The corresponding expected change in price of disallowance for the zone is forty percent of $8 27 For example, an instrument held by a bank $26.25, calculated as 2.625 percent of $1,000, million, or $3.2 million. with a maturity of 4 years and 3 months and a would be slotted as a long position in the 3.3 to 4.0 26 The duration of an instrument is its current market value of $1,000 might have a approximate percentage change in price for a 100 modified duration of 3.5 years. Based on its year time band of the maturity ladder. 38136 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules the notional underlying. If the apparent into time bands. A matched position in a single equity issue or closely related group of notional amount of an instrument differs future and its corresponding underlying may equity issues held in the portfolio. The from the effective notional amount, a bank also be fully offset and, thus, excluded from volatility of the portfolio’s value should not must use the effective notional amount. the calculation, except when the future be dominated by the volatility of any c. Futures and forward contracts (including comprises a range of deliverable instruments. individual equity issue or by equity issues FRAs) are broken down into a combination However, if, among the range of deliverable from any single industry or economic sector. of a long position and short position in the instruments, there is a readily identifiable In general, such portfolios should be notional security. The maturity of a future or underlying instrument that is most profitable characterized by a large number of individual a FRA is the period until delivery or exercise for the trader with a short position to deliver, equity positions, with no single position of the contract, plus the life of the underlying positions in the futures contract and the representing a large portion of the portfolio’s instrument.28 If a range of instruments may instrument may be offset. Positions in total market value. In addition, it would be delivered to fulfill the contract, the bank different currencies are not subject to offset. generally be the case that a sizeable may choose which deliverable instrument f. Offsetting positions in the same category proportion of the portfolio would be goes into the maturity or duration ladder as of instruments can in certain circumstances comprised of issues traded on organized the notional underlying. In the case of a be regarded as matched and treated by the exchanges or in well-established over-the- future on a corporate bond index, positions bank as a single net position which should counter markets. are included at the market value of the be entered into the appropriate time band. To 2. General Market Risk. The general market notional underlying portfolio of securities. qualify for this treatment the positions must risk element of the measure for market risk d. i. Swaps are treated as two notional be based on the same underlying instrument, is calculated on the difference between the positions in the relevant instruments with be of the same nominal value, and be sum of the long positions and the sum of the appropriate maturities. The receiving side is denominated in the same currency. The short positions (i.e., the overall net position treated as the long position and the paying separate sides of different swaps may also be in an equity market) at current market value. side is treated as the short position.29 The ‘‘matched’’ subject to the same conditions. In An overall net position must be separately separate sides of cross-currency swaps or addition: calculated for each national market in which forward foreign exchange transactions are i. For futures, offsetting positions in the the bank holds equities. The general market allocated in the relevant maturity ladders for notional or underlying instruments to which risk element is 8.0 percent of the net position the currencies concerned. For swaps that pay the futures contract relates must be for in each equity market. or receive a fixed or floating interest rate identical instruments and the instruments 3. Matched Positions. Matched positions in against some other reference price, for must mature within seven days of each other; each identical equity in each national market example, an equity index, the long or short ii. For swaps and FRAs, the reference rate may be treated as offsetting and excluded position attributable to the interest rate (for floating rate positions) must be identical from the capital calculation, with any component is allocated into the appropriate and the coupon closely matched (i.e., within remaining position included in the repricing maturity category, with the long or 15 basis points); and calculations for specific and general market short position attributable to the equity iii. For swaps, FRAs and forwards, the next risk. For example, a future in a given equity component being included in the equity interest reset date, or for fixed coupon may be offset against an opposite cash framework set out in section IV.B. of this positions or forwards the remaining maturity, position in the same equity. appendix C. must correspond within the following limits: 4. Equity Derivatives. a. Equity derivatives ii. A bank with a large swap book may, If the reset (remaining maturity) dates occur and other off-balance-sheet positions that are with prior approval of the FDIC, use within one month, then the reset dates must affected by changes in equity prices are alternative formulae to calculate the be on the same day; if the reset dates occur included in the measurement system under positions to be included in the maturity or between one month and one year later, then this section IV.B. (except for equity options, duration ladder. For example, a bank could the reset dates must occur within seven days equity index options, and the associated first convert the payments required by the of each other, or if the reset dates occur over underlying, which are included in the swap into present values. For that purpose, one year later, then the reset dates must measurement system under the treatment each payment would be discounted using occur within thirty days of each other. discussed in section IV.E. of this appendix zero coupon yields, and the payment’s g. Interest rate and currency swaps, FRAs, C).30 This includes futures and swaps on both present value entered into the appropriate forward foreign exchange contracts and individual equities and on equity indices. time band using procedures that apply to interest rate futures are not subject to a Equity derivatives should be converted into zero (or low) coupon bonds. The net amounts specific risk charge. This exemption also notional equity positions in the relevant would then be treated as bonds, and applies to futures on a short-term (e.g., underlying. A summary of the rules for allocated into the general market risk LIBOR) interest rate index. However, in the equity derivatives is set out in attachment III framework. Such alternative treatments will, case of futures contracts in which the to this appendix C. however, only be allowed if the FDIC is fully underlying is a debt security, or an index b. Futures and forward contracts relating to satisfied with the accuracy of the system representing a basket of debt securities, a individual equities should be reported at being used; the positions calculated fully specific risk charge will apply according to current market prices of the underlying. reflect the sensitivity of the cash flows to the category of the issuer as set out in Futures relating to equity indices should be interest rate changes; and the positions are paragraph A.2. of this section. reported as the marked-to-market value of the denominated in the same currency. notional underlying equity portfolio. Equity e. A bank may offset long and short B. Equities swaps are treated as two notional positions, positions (both actual and notional) in 1. Specific Risk. The specific risk element with the receiving side as the long position identical derivative instruments with exactly of the measure for market risk is calculated and the paying side as the short position.31 the same issuer, coupon, currency, and on the basis of the bank’s gross equity If one of the legs involves receiving/paying maturity before allocating these positions positions, that is, the absolute sum of all long a fixed or floating interest rate, the exposure equity positions and of all short equity should be allocated into the appropriate 28 For example, a long position in a June three- positions at current market value. The risk repricing maturity band for debt securities. month interest rate future (taken in April) is measure is 8.0 percent of that sum, unless the reported as a long position in a government security portfolio is both liquid and well-diversified, 30 If equities are part of a forward contract (either with a maturity of five months and a short position in which case the specific risk measure is 4.0 equities to be received or to be delivered), any in a government security with a maturity of two percent of the gross equity position. A interest rate or foreign currency exposure from the months. specific risk measure of 2.0 percent applies other side of the contract should be appropriately 29 For example, an interest rate swap under which to the net long or short position in a broad, included in sections IV.A. and IV.C. of this appendix C. a bank is receiving floating-rate interest and paying diversified equity index and is viewed as fixed is treated as a long position in a floating rate 31 For example, an equity swap in which a bank instrument with a maturity equivalent to the period necessary to provide for risks associated with is receiving an amount based on the change in value until the next interest reset date and a short contract execution. A portfolio that is liquid of one particular equity or equity index and paying position in a fixed-rate instrument with a maturity and well-diversified is characterized by a a different index will be treated as a long position equivalent to the remaining life of the swap. limited sensitivity to price changes of any in the former and a short position in the latter. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38137 The stock index is covered by the equity b. The net forward position.34 All foreign adopt an internal model measurement system treatment. exchange derivative instruments and other conforming to the criteria in section III. of c. In the case of futures-related arbitrage off-balance-sheet positions that are affected this appendix C. strategies, the 2.0 percent specific risk charge by changes in exchange rates are included in 2. Base Measure. Under both the simplified applicable to broad diversified equity indices the measurement system under this section and maturity methods, each long and short may be applied to only one index. The IV.C. (except for options and their associated commodity position (spot or forward) is opposite position is exempt from a specific underlyings, which are included in the expressed in terms of the standard unit of risk charge. The strategies qualifying for this measurement system under the treatment measurement (such as barrels, kilos, or treatment are: discussed in section IV.E. of this appendix ounces). The positions are then converted at i. When the bank takes an opposite C). Forward currency positions should be current spot rates into U.S. currency, with position in exactly the same index at valued at current spot market exchange rates, long and short positions in each category of different dates; or but for a bank in which the basis of its commodities offset to arrive at the net open ii. When the bank has an opposite position normal management accounting is to use net position in each commodity. Positions in in different but similar indices at the same present values, forward positions may be different categories of commodities may not, discounted to net present values as an date, subject to FDIC review. generally, be offset. However, offsetting is acceptable way of measuring currency d. If a bank engages in a deliberate permitted between different sub-categories of positions for regulatory capital purposes; the same commodity if the sub-categories are arbitrage strategy, in which a futures contract c. Guarantees (and similar instruments) on a broad diversified equity index matches deliverable against each other. Under the that are certain to be called and are likely to simplified or maturity method, the base a basket of securities, it may exclude both be irrecoverable; measure for market risk is 15.0 percent of the positions from the standardized approach on d. At the discretion of the bank, net future absolute value (i.e., neither long nor short) of condition that the trade has been deliberately income/expenses not yet accrued but already the net open position in each commodity.36 entered into and separately controlled and fully hedged. A bank that includes future 3. Simplified Method. To protect a bank the composition of the basket of stocks income and expenses must do so on a against basis risk, interest rate risk, and represents at least 90 percent of the market consistent basis without selecting expected forward gap risk, the measure of market risk value of the index. In such a case, the future flows in order to reduce the bank’s under the simplified method includes an minimum measure for market risk is 4.0 position; and additional 3.0 percent of the bank’s gross percent (that is, 2.0 percent of the gross value e. Any other item representing a profit or positions, long plus short, in each of the positions on each side) to reflect risk loss in foreign currencies. commodity. In valuing gross positions in associated with executing the transaction. 3. The measure for market risk of foreign commodity derivatives for this purpose, a This applies even if all of the securities exchange is determined by converting the net bank should use the current spot price. The comprising the index are held in identical open position in each foreign currency at total measure for commodities risk is thus the proportions. Any excess value of the spot rates into U.S. currency. The risk sum of the 15.0 percent base charges for each securities comprising the basket over the measure is 8.0 percent of the overall net open net commodity position and the 3.0 percent value of the futures contract or excess value foreign exchange position, which is requirements on the gross commodity of the futures contract over the value of the determined by summing: positions. basket is treated as an open long or short a. The greater of the sum of the net long 4. Maturity Method. a. Under this method, position. open positions or, the sum of the net short a bank must allocate each long and short e. If a bank takes a position in depository open positions; and commodity position (converted into U.S. receipts 32 against an opposite position in the b. The absolute value (that is, regardless of currency at current spot rates) into a maturity underlying equity, it may offset the position. whether it is long or short) of the net open ladder with time bands as set out in table 4. position in gold.35 C. Foreign Exchange Risk A separate maturity ladder is used for each 4. If a bank is assessing its foreign category of commodity. Physical 1. The measure for market risk in foreign exchange risk on a consolidated basis, it may commodities are allocated to the first time exchange covers the risk of holding or taking be technically impractical in the case of some band: positions in foreign currencies, including marginal operations to include the currency gold, whether or not those positions are in positions of a foreign branch or subsidiary of TABLE 4.ÐCOMMODITY TIME BANDS the trading portfolio.33 The measure is the bank. In such cases, the branch or calculated as 8.0 percent of the sum of the subsidiary’s internal limit in each currency Time Bands greater of a bank’s total net open long may be used as a proxy for the positions, positions or net open short positions in each provided there is adequate ex post 0±1 month currency and the net open position in gold. monitoring of actual positions complying 1±3 months 2. When calculating a bank’s net open with such limits. In these circumstances, the 3±6 months position in each currency and gold, positions absolute value of the limits should be added 6±12 months in composite currencies, such as the ECU, to the net open position in each currency. 1±2 years may be either treated as a currency in their D. Commodities Risk 2±3 years own right or split into their component parts Over 3 years on a consistent basis. Positions in gold 1. Measurement Methods. The measure for market risk in commodities is calculated by (including futures and forwards) should be b. In order to capture forward gap and converted to U.S. currency at current spot either the simplified method or the maturity method. These methods are only appropriate interest rate risk within a time band (together rates. The bank’s net open position in each sometimes referred to as curvature/spread currency is the sum of: for banks that conduct a limited amount of commodities business. All other banks must risk), offsetting long and short positions in a. The net spot position (i.e., all asset items each time band are subject to an additional less all liability items, including accrued charge. Beginning with the shortest-term time interest earned but not yet received and 34 Where gold is part of a forward contract (quantity of gold to be received or to be delivered), band and continuing with subsequent time accrued expenses, denominated in the bands, the amount of the matched short currency in question); any interest rate or foreign currency exposure from the other side of the contract should be reported as set out in section IV.A. (treating gold as a zero- 36 When the funding of a commodity position 32 Generally, depository receipts are instruments coupon instrument) and this section. opens a bank to interest rate or foreign exchange issued by a trust company or other depository 35 For example, a bank has the following net exposure the relevant positions should be included institution evidencing the deposit of foreign currency positions: Yen=+50, DM=+100, GB=+150, in the measures of interest rate and foreign securities and facilitating trading in such FFR=+¥20, US$=¥180, and gold=¥35. The bank exchange risk described in sections IV.A. and IV.C. instruments on U.S. stock exchanges. would sum its long positions (total=+300) and sum of this appendix C. When a commodity is part of 33 Gold is treated as a foreign exchange position its short positions (total=¥200). The bank’s capital a forward contract, any interest or foreign currency rather than a commodity because its volatility is requirement for foreign exchange market risk would exposure from the other side of the contract should more in line with foreign currencies and banks be: (300 (the larger of the summed long and short be appropriately included in sections IV.A. and manage it in a manner similar to foreign currencies. positions)+35 (gold))×8.0%=$26.80. IV.C. of this appendix C. 38138 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules positions plus the amount of the matched used by banks which, in relative terms, have underlying (that is, the specific and general long position is multiplied by a spread rate limited options activities. Banks with more market risk requirements that would have of 1.5 percent. significant options business are expected to applied to the underlying directly under c. The unmatched net position from adopt an internal measurement system sections IV.A. through IV.D. of this appendix shorter-term time bands must be carried conforming to the criteria in section III of this C) 43; or forward to offset exposures in longer-term appendix C. Regardless of the method used, ii. The market value of the option. time bands. A charge of 0.6 percent of the net specific risk related to the issuer of an 4. Under the scenario approach, a bank position carried forward is added for each instrument still applies to options positions revalues its options and related hedging time band that the net position is carried for equities, equity indices and corporate positions by changing the underlying rate or forward.37 The total measure for commodities debt securities as set forth in sections IV.A. price over a specified range and by assuming risk is the sum of the 15.0 percent base and IV.B. of this appendix C. Options remain different levels of volatility for that rate or measurement for each net commodity an element of risk-weighted assets under price. position and the additional charges for section II of appendix A of this part. a. For each of its option portfolios, a bank matched positions and for unmatched 2. Under the simplified and scenario constructs a grid based on a fixed range of positions carried forward. An example of this methods, the positions for the options and changes in the portfolio’s risk factors and calculation is in attachment IV to this the associated underlying, cash or forward, calculates changes in the value of the option appendix C. are not included in the measurement portfolio at each point within the grid. For 5. Commodity derivatives and other off- framework for debt securities, equities, this purpose, an option portfolio consists of balance-sheet positions that are affected by foreign exchange or commodities risk as set an option and any related hedging positions changes in commodity prices are included in forth in sections IV.A. through IV.D. of this or multiple options and related hedging the measurement system under this section appendix C. Rather, they are subject to the positions that are grouped together according IV.D. (except for options and the associated measure of market risk as calculated in this to their remaining maturity or the type of underlying, which are included in the section. The risk measures calculated under underlying. measurement system under the treatment this section should then be added to the risk b. Options based on interest rates and debt discussed in section IV.E. of this appendix measures for debt securities, equities, foreign instruments are grouped into portfolios C). Commodity derivatives are converted into exchange and commodities risk as according to the maturity zones that are set notional commodity positions. Under the appropriate. Under the delta-plus method, forth in section IV.A. of this appendix C. maturity method, the positions are allocated the delta equivalent position 40 for each (Zone 1 instruments have a remaining in maturity time bands as follows: option is included in the measurement maturity of up to 1 year, zone 2 instruments a. Futures and forward contracts relating to frameworks set forth in sections IV.A. have a remaining maturity from 1 year up to individual commodities are incorporated in through IV.D. of this appendix C. 4 years, and zone 3 instruments have a the measurement system as notional amounts 3. A bank that has only a limited amount remaining maturity of 4 years or more.) These (of, for example, barrels or kilos) that are and range of purchased options may use the options and the associated hedging positions converted to U.S. currency at current spot following simplified approach to measure its should be evaluated under the assumption rates and are assigned a maturity according market risk exposure. that the relevant interest rates move to expiration date; a. For a bank with a long cash position and simultaneously. For options based on b. Commodity swaps in which one side of a long put or with a short cash position and equities, separate grids are constructed for the contract is a fixed price and the other a long call, the measure for market risk is the each individual equity issue and index. For side is the current market price are market value of the underlying instrument options based on exchange rates, separate incorporated as a series of positions equal to multiplied by the sum of the specific and grids are constructed for individual exchange the notional amount of the contract at current general market risk requirements for the rates. For options based on commodities, spot rates, with one position corresponding underlying (that is, the specific and general separate grids are constructed for each to each payment on the swap and allocated market risk requirements that would have category of commodity (as defined in section in the maturity ladder accordingly. The applied to the underlying directly under IV.D. of this appendix C). positions are long positions if the bank is sections IV.A. through IV.D. of this appendix c. For option portfolios with options based paying a fixed price and receiving a floating C 41), less the amount the option is in the on equities, exchange rates, and price, and short positions if the bank is money (if any) bounded at zero.42 commodities, the first dimension of the grid receiving a fixed price and paying a floating b. For a bank with a long call or a long put, consists of rate or price changes within a price; 38 and the measure for market risk is the lesser of: specified range above and below the current c. Commodity swaps in which the sides of i. The market value of the underlying market value of the underlying. For equities, the transaction are in different commodities security multiplied by the sum of specific the range is ±12.0 percent (or in the case of are included in the relevant reporting ladder. and general market risk requirements for the an index ±8.0 percent); for exchange rates the No offsetting is allowed unless the range is ±8.0 percent; and for commodities ± commodities are in the same sub-category. exactly the same options, in which case there is no the range is 15.0 percent. For option portfolios with options based on interest E. Options measure for market risk. 40 The delta equivalent of an option is the option’s rates, the range for the first dimension of the 1. Three alternatives are available for a delta value multiplied by its principal or notional grid depends on the remaining maturity bank to use in measuring its market risk for value. The delta value of an option represents the zone. The range for zone 1 is ±100 basis options activities under the standardized expected change in the option’s price as a points, the range for zone 2 is ±90 basis approach. A bank that only has purchased proportion of a small change in the price of the points; and the range for zone 3 is ±75 basis options may use the simplified method set underlying instrument. For example, an option points. For all option portfolios, the range is forth in paragraph E.2 of this section. A bank whose price changes $1 for every $2 dollar change divided into at least ten equally spaced that also writes options may use the scenario in the price of the underlying instrument has a delta intervals. The second dimension of each grid method described in section IV.E.3., or the of 0.50. is a shift in the volatility of the underlying 41 delta-plus method set forth in paragraph E.4. Because some underlying instruments are not rate or price equal to ±25.0 percent of the of this section.39 These methods may only be subject to a specific risk charge under sections IV.A current volatility.44 through IV.D of this appendix C, such instruments will only be multiplied by the general market risk d. For each assumed volatility and rate or 37 For example, if $200 short is carried forward charge in making this calculation. price change (a scenario), the bank revalues from the 3–6 month time band to the 1–2 year time 42 For example, if a holder of 100 shares currently band, the capital charge would be valued at $10 each has an equivalent put option 43 See footnote 41 in section IV.E.3.a. of this × × $200 .006 2=$2.40. with a strike price of $11, the risk measure would appendix C. 38 If one of the sides of the transaction involves be: $1,000×16.0 percent (e.g., 8.0 percent specific 44 For example, if the underlying in an equity receiving/paying a fixed or floating interest rate, plus 8.0 percent general market risk)=$160, less the instrument with a current market value of $100 and that exposure should be allocated into the amount the option is in the money ($11– a volatility of 20 percent, the first dimension of the appropriate repricing maturity band in section IV.A. $10)×100=$100, i.e., the measure for market risk grid would range from $88 to $112, divided into ten of this appendix C. would be $60. A similar methodology applies for intervals of $2.40 and the second dimension would 39 Unless all their written option positions are options for which the underlying is a foreign assume volatilities of 15 percent, 20 percent, and hedged by perfectly matched long positions in currency, a debt security or a commodity. 25 percent. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38139 each option portfolio. The measure for price of the underlying) and vega (the results should be allocated into separate market risk for the portfolio is the largest loss sensitivity of the option price with respect to maturity ladders by currency. For interest in value from among the scenario a change in volatility) to calculate the rate options such as caps and floors, the delta revaluations. The total measure for market measure for market risk. These sensitivities and gamma should be expressed in terms of risk for all option portfolios is the sum of the may be calculated according to an exchange a hypothetical underlying security. individual option portfolio measures. model approved by the FDIC or to the bank’s Subsequently: e. The FDIC will review the application of own options pricing model, subject to review i. For gamma risk, for each time band, net the scenario approach, particularly regarding by the FDIC. gammas on short positions are multiplied by the precise way the analysis is constructed. b. For options with debt instruments or the risk weights set out in table 5 and by the A bank using the scenario approach should interest rates as the underlying instrument, square of the market value of the underlying meet the appropriate qualitative criteria set delta-weighted options positions should be instrument (net gammas on long positions forth in section III.B. of this appendix C. allocated into the debt instrument time bands may be disregarded); 5. Under the delta-plus method, a bank that in section IV.A. of this appendix C using a ii. For volatility risk, a bank calculates the writes options may include delta-weighted two-legged approach (as is used for other risk measure for vega in each time band options positions within each measurement derivatives), requiring one entry at the time assuming a proportional shift in volatility of framework as set forth in sections IV.A. the underlying contract takes effect and one ±25.0 percent; through IV.D. of this appendix C. at the time the underlying contract matures.45 iii. The measure for market risk is the a. Options positions should be measured as Floating rate instruments with caps or floors absolute value of the sum of the individual a position equal to the market value of the should be treated as a combination of floating measures for net gammas on short positions underlying instrument multiplied by the rate securities and a series of European-style plus the absolute value of the sum of the delta. In addition, a bank must measure the options.46 A bank must also calculate the individual measures for vega risk for each sensitivities of the option’s gamma (the gamma and vega for each such option time band; and change of the delta for a given change in the position (including hedge positions). The iv. The delta plus method risk weights are: TABLE 5.ÐDELTA PLUS METHOD RISK WEIGHTS Modified du- ration (aver- Assumed Risk-weight Time-band age as- interest rate 1 sumed for change (%) for gamma time band) Under 1 month ...... 0.00 1.00 0.00000 1 up to 3 months ...... 0.20 1.00 0.00020 3 up to 6 months ...... 0.40 1.00 0.00080 6 up to 12 months ...... 0.70 1.00 0.00245 1 up to 2 years ...... 1.40 0.90 0.00794 2 up to 3 years ...... 2.20 0.80 0.01549 3 up to 4 years ...... 3.00 0.75 0.02531 4 up to 5 years ...... 3.65 0.75 0.03747 5 up to 7 years ...... 4.65 0.70 0.05298 7 up to 10 years ...... 5.80 0.65 0.07106 10 up to 15 years ...... 7.50 0.60 0.10125 15 up to 20 years ...... 8.75 0.60 0.13781 Over 20 years ...... 10.00 0.60 0.18000 1 According to the Taylor expansion, the risk weights are calculated as 1¤2 (modified duration x assumed interest rate change) 2100. c. For options with equities as the measures for net gammas on short positions iii. The measure for market risk is the underlying, delta-weighted option positions plus the absolute value of the individual absolute value of the sum of the individual should be incorporated in the measure of measures for vega risk. measures for net gammas on short positions market risk set forth in section IV.B. of this d. For options on foreign exchange and plus the absolute value of the sum of the appendix C. Individual equity issues and gold positions, the net delta (or delta-based) individual measures for vega risk. indices should be treated as separate equivalent of the total book of foreign e. For options on commodities, the delta- underlyings. In addition to the measure for currency and gold options is incorporated weighted positions are incorporated in one of delta risk, a bank should apply a further into the measurement of the exposure in a the measures described in section IV.D. of charge for gamma and vega risk: net open position in each currency as set this appendix C. In addition, a bank must i. For gamma risk, the net gammas on short apply a capital requirement for gamma and forth in section IV.C. of this appendix C. The positions for each underlying are multiplied vega risk: gamma and vega risks should be measured as by 0.72 percent (in the case of an individual i. For gamma risk, net gammas on short follows: equity) or 0.32 percent (in the case of an positions for each underlying are multiplied index as the underlying) and by the square i. For gamma risk, for each underlying by 1.125 percent and by the square of the of the market value of the underlying; exchange rate, net gammas on short positions market value of the commodity; ii. For volatility risk, a bank calculates the are multiplied by 0.32 percent and by the ii. For volatility risk, a bank calculates the risk measure for vega for each underlying, square of the market value of the positions; risk measures for vega for each commodity assuming a proportional shift in volatility of ii. For volatility risk, a bank calculates the assuming a proportional shift in volatility of ±25.0 percent; and risk measure for vega for each currency pair ±25.0 percent; and iii. The measure for market risk is the and gold assuming a proportional shift in iii. The measure for market risk is the absolute value of the sum of the individual volatility of ±25.0 percent; and absolute value of the sum of the individual 45 For example, in April a purchased call option position with a maturity of two months and a short security that reprices in six months, and a series of on a June three-month interest-rate future would be position with a maturity of five months. five written call options on a FRA with a strike rate considered on the basis of its delta-equivalent value 46 For example, the holder of a three-year floating of 15 percent, each allocated as a short position at to a long position with a maturity of five months rate bond indexed to six-month LIBOR with a cap the expiration date of the option and as a long and a short position with a maturity of two months. position at the time the FRA matures. The written option would be allocated as a long of 15 percent would treat the bond as a debt 38140 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules measures for net gammas on short positions are $625 (capital requirement for market market risk, no eligible Tier 3 capital may be plus the absolute value of the sum of the risk=$50 $50×12.5=$625): used for market risk. individual measures for vega risk. Example 1: A bank has the following (3) Total qualifying and eligible capital f. Under certain conditions and to a limited qualifying capital: Tier 1=$600, Tier 2=$100, would be: $500 (Tier 1)+$140 (Tier 2)=$640. extent, the FDIC may permit banks that are Tier 3=$1000. The bank’s ratio of qualifying and eligible significant traders in options with debt (1) The minimum capital requirement for capital to weighted-risk assets adjusted for securities or interest rates as the underlying credit risk is $640 ($8000×8.0%). This market risk would be: $640/$8,625)=7.4% to net gammas on long and short positions requirement could be satisfied with $540 of b. In both of the examples described in and vegas across time bands. Such netting Tier 1 capital and $100 of Tier 2 capital. paragraph a. of this attachment the total of must be based on prudent and conservative (2) The remaining capital available for Tier 2 and Tier 3 capital for credit and assumptions and the bank must materially market risk would be: Tier 1=$60, Tier 2=0, market risk is not greater than 100 percent of meet the qualitative standards set forth in and Tier 3=$1000. The minimum capital Tier 1 capital for credit and market risk and section III.B. of this appendix C. requirement for market risk is $50 the total of Tier 2 capital for credit risk is not × g. A bank may base the calculation of vega ($625 8.0%). Eligible Tier 3 capital would be greater than 100 percent of Tier 1 capital for × risk on a volatility ladder in which the limited to $125 ($50 2.5). credit risk. implied change in volatility varies with the (3) The Tier 1 capital required to support maturity of the option. The assumed market risk could be satisfied by allocating Attachment II—Sample Calculation of $14 ($50×.285), with eligible Tier 3 capital General Market Risk for Debt proportional shift in volatility must be at × least ±25.0 percent at the short end of the used for market risk being $36 ($50 $14). Instruments Using the Maturity Method (4) Total qualifying and eligible capital maturity spectrum. The proportional shift for would be: $540 (Tier 1)+$100 (Tier 2)+$60 a. A bank with the following positions longer maturities must be at least as stringent (Tier 1, comprising $14 allocated for market would allocate them into a maturity ladder in statistical terms as the 25.0 percent shift risk and $46 unallocated)+$36 (Tier 3)=$736. as shown below: at the short end. The bank’s ratio of qualifying and eligible i. Qualifying bond, $13.33mn market value, h. A bank should also monitor the risks of capital to weighted-risk assets adjusted for remaining maturity 8 years, coupon 8%; rho (the rate of change of the value of the market risk would be: $736/$8,625)=8.5%. ii. Government bond, $75mn market value, option with respect to the interest rate) and Example 2: A bank has the following remaining maturity 2 months, coupon 7%; theta ( the rate of change of the value of the qualifying capital: Tier 1=$500, Tier 2=$140, iii. Interest rate swap, $150mn, bank option with respect to time). Tier 3=$600. receives floating rate interest and pays fixed, Attachments to Appendix C (1) The minimum capital requirement for next interest reset after 12 months, remaining credit risk is $640 ($8000×8.0%). This life of swap is 8 years (assumes the current Attachment I—Sample Calculation of requirement could be satisfied with $500 of interest rate is identical to the one the swap Eligible Tier 1, Tier 2, and Tier 3 Tier 1 capital and $140 of Tier 2 capital. is based on); and Capital for the Risk-Based Capital Ratio (2) The remaining capital available for iv. Long position in interest rate future, Adjusted for Market Risk market risk would be: Tier 1=0, Tier 2=$0, $50mn, delivery date after 6 months, life of and Tier 3=$600. Eligible Tier 3 capital underlying government security is 3.5 years a. In each example the weighted-risk assets would be limited to $0 (0×2.5). Because there (assumes the current interest rate is identical are $8000 and the market risk-adjusted assets is no Tier 1 capital required to support to the one the swap is based on). Risk Zone Time band and position weight Risk-weighted position Net time-band positions Net zone positions [%] 1 ...... 0±1 Month ...... 0.00 1±3 Months ...... 0.20 Long 0.15 ...... Long 0.15 ...... Long 1.00 Long 75 Gov. Bond. 3±6 Months ...... 0.40 Short 0.20 ...... Short 0.20. Short 50 Future. 6±12 Months ...... 0.70 Long 1.05 ...... Long 1.05. Long 150 Swap. 2 ...... 1±2 yrs ...... 1.25 2±3 yrs ...... 1.75 3±4 yrs ...... 2.25 Long 1.125 ...... Long 1.125 ...... Long 1.125 Long 50 Future. 3 ...... 4±5 yrs ...... 2.75 5±7 yrs ...... 3.25 7±10 yrs ...... 3.75 Short 5.625 ...... Short 5.125 ...... Short 5.125 Short 150 Swap. Long 13.33 ...... Long 0.50. Qual. Bond. 10±15 yrs ...... 4.50 15±20 yrs ...... 5.25 Over 20 yrs ...... 6.00 b. A vertical disallowance would be d. A horizontal disallowance would be netting between the zones—100 x 1.00 = 1.00 calculated for time band 7–10 years. It would calculated for adjacent zones 2 and 3. It ($1,000,000). be 10 percent of the positions eliminated by would be 40 percent of the positions f. The remaining net open position for the netting in the time band—10.0 x 0.5 = 0.05 eliminated by netting between the zones— bank would be 3.00 ($3,000,000). The total ($50,000). 40.0 x 1.125 = 0.45 ($450,000). The capital requirement for general market risk c. A horizontal disallowance would be calculated for zone 1. It would be 40 percent remaining position in zone 3 would be short for this portfolio would be: of the positions eliminated by netting in the 4.00. The vertical disallowance ...... $50,000 zone—40.0 x 0.20 = 0.80 ($80,000). The e. A horizontal disallowance would be Horizontal disallowance in remaining net position in zone 1 would be calculated between zones 1 and 3. It would zone 1 ...... 80,000 long 1.00. be 100 percent of the positions eliminated by Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38141 The horizontal disallowance The overall net open position 3,000,000 Attachment III—Summary of between zones 2 and 3 ...... 450,000 Treatment for Interest Rate and Equity The horizontal disallowance Total requirement for gen- Derivatives between zones 1 and 3 ...... 1,000,000 eral market risk ...... $4,580,000 SUMMARY OF TREATMENT FOR INTEREST RATE DERIVATIVES Specific Instrument risk charge General market risk charge Exchange-Traded Future: Government security ...... No ...... Yes, as two positions. Corporate debt security ...... Yes ...... Yes, as two positions. Index on short-term interest rates (e.g. LIBOR) ...... No ...... Yes, as two positions. OTC Forward: Government security ...... No ...... Yes, as two positions. Corporate debt security ...... Yes ...... Yes, as two positions. Index on short-term interest rates ...... No ...... Yes, as two positions. FRAs, Swaps ...... No ...... Yes, as two positions. Forward foreign exchange ...... No ...... Yes, as one position in each currency. Options: Government security ...... No ...... For each type of transaction, either: Corporate debt security ...... Yes ...... (a) Carve out together with the associated hedging positions Index on short-term interest rates ...... No ...... Ðsimplified method Ðscenario analysis Ðinternal models, or (b) General market risk charge according to the Delta-plus method (gamma and vega receive separate capital charges). NOTE: Specific risk charges relate to the issuer of the instrument. There remains a separate capital requirement for counterparty credit risk. SUMMARY OF TREATMENT FOR EQUITY DERIVATIVES Specific Instrument risk charge General market risk charge Exchange-Traded or OTC Future: Individual equity ...... Yes ...... Yes, as underlying. Index ...... 2.0% ...... Yes, as underlying. Options: Individual equity ...... Yes ...... For each type of transactions either: Index ...... 2.0% ...... (a) Carve out together with the associated hedging positions Ðsimplified method Ðscenario approach Ðinternal models, or (b) General market risk requirement according to the Delta-plus method (gamma and vega receive separate capital charges). NOTE: Specific risk charges relate to the issuer of the instrument. There remains a separate capital requirement for counterparty credit risk. Attachment IV—Sample Calculation of Standardized Approach for Commodities Risk Spread Capital Time-band Position rate Capital calculation charge 0 up to 1 month ...... None 1 up to 3 months ...... None 3 up to 6 months ...... Long 800 ...... 1.5% 800 long + 800 short (matched) × 1.5%= ...... 24 Short 1000 ...... 200 short carried forward to 1±2 yrs, capital charge: 2.4 200×2×0.6%=. 6 up to 12 months ...... None 1 up to 2 yrs ...... Long 600 ...... 200 long + 200 short (matched) × 1.5%= ...... 6 400 long carried forward to over 3 yrs capital charge: 4.8 400×2×0.6%=. 2 up to 3 yrs ...... None Over 3 years ...... Short 600 ...... 400 long + 400 short (matched) × 1.5%= ...... 12 Net position: 200 capital charge: 200×15.0%= ...... 30 NOTE: Assume all positions are in the same commodity and converted at current spot rates into U.S. dollars. The total capital requirement would be $79.2. Attachment V—Sample Calculation for price of 490 and a market value of the according to the Black-Scholes formula Delta-Plus Method for Options underlying 12 months from the expiration of ¥0.721 (that is, the price of the option the option at 500; a risk-free interest rate at changes by ¥0.721 if the price of the a. Assume a bank has a European short call 8% per annum, and the volatility at 20 underlying moves by 1). The gamma is option on a commodity with an exercise percent. The current delta for this position is ¥0.0034 (that is, the delta changes by 38142 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules ¥0.0034 from ¥0.721 to ¥0.7244 if the activities. In theory, the penalties could capital adequacy, the Board is price of the underlying moves by 1). The be calibrated to ensure that capital requesting comment on a novel current value of the option is 65.48. allocations were consistent with approach, which has been termed the b. The first step under the delta-plus supervisory objectives. ‘‘pre-commitment’’ approach. While in method is to multiply the market value of the theory this approach might offer commodity by the absolute value of the delta. DATES: Comments must be submitted on 500×0.721=360.5. The delta-weighted or before November 1, 1995. significant advantages over existing position is then incorporated into the ADDRESSES: Comments should refer to alternatives, many of the practical measure described in section IV.D. of this Docket No. R–0886, and may be mailed details have not yet been worked out. appendix C E. If the bank uses the maturity to William W. Wiles, Secretary, Board of The Board believes that public approach and no other positions exist, the Governors of the Federal Reserve comments would be of great assistance delta-weighted position is multiplied by 0.15 System, 20th Street and Constitution in evaluating the overall feasibility of to calculate the capital requirement for delta. the approach and in identifying the × Avenue, NW., Washington, D.C. 20551. 360.5 0.15=54.075. most practical and effective means of c. The capital requirement for gamma is Comments also may be delivered to Room B–2222 of the Eccles Building implementing it. Public comments calculated according to the Taylor expansion would also be of value in assessing by multiplying the absolute value of the between 8:45 a.m. and 5:15 p.m. assumed gamma of ¥0.0034 by 1.125% and weekdays, or to the guard station in the whether future implementation of the by the square of the market value of the Eccles Building courtyard on 20th Street proposal might have unintended underlying. 0.0034×0.0125 ×5002=10.625. NW. (between Constitution Avenue and consequences on banks or on financial d. The capital requirement for vega is C Street) at any time. Comments markets. calculated next. The assumed current received will be available for inspection I. Description of the Pre-Commitment (implied) volatility is 20%. Since only an in Room MP–500 of the Martin Building increase in volatility carries a risk of loss for Approach between 9 a.m. and 5 p.m. weekdays, a short call option, the volatility has to be The pre-commitment approach draws except as provided in 12 CFR 261.8 of increased by a relative shift of 25%. This its inspiration from the economic the Board’s rules regarding availability means that the vega capital requirement has literature on ‘‘incentive-compatible’’ of information. to be calculated on the basis of a change in regulatory schemes.1 As in the internal volatility of 5 percentage points from 20% to FOR FURTHER INFORMATION CONTACT: models approach to market risk capital 25% in this example. According to the Black- Patrick Parkinson, Associate Director Scholes formula used here, the vega equals requirements that the Board has (202–452–3526), or Paul Kupiec, Senior proposed, the regulatory objective is to 168. Thus, a 1% or 0.01 increase in volatility Economist (202–452–3723), or James increases the value of the option by 1.68. require a bank to maintain sufficient Accordingly, a change in volatility of 5 O’Brien, Senior Economist (202–452– capital to cover potential losses in its percentage points increases the value of 2384), Division of Research and trading activities from all but the most 5×1.68=8.4. This is the capital requirement Statistics; for users of the extreme price movements.2 The internal for vega risk. The total capital requirement Telecommunications Device for the Deaf models approach seeks to ensure would be $73.10 (54.075+10.625+8.4). (TDD) only, Dorothea Thompson (202– compliance with this objective by By Order of the Board of Directors. 452–3544); Board of Governors of the standardizing the parameters under Dated at Washington, DC, this 11th day of Federal Reserve System, Washington, which a bank would calculate the value July 1995. D.C. 20551. at risk (VaR) of its trading portfolio and Jerry L. Langley, SUPPLEMENTARY INFORMATION: The Board then applying a multiplication factor to Executive Secretary. is requesting comment on a proposed each bank’s calculated VaR, in part to [FR Doc. 95–17542 Filed 7–24–95; 8:45 am] rulemaking that would amend its risk- cover potential losses over longer BILLING CODES 4810±33±P; 6210±01±P; 6714±01±P based capital requirements to horizons. By contrast, the pre- incorporate measures of market risk that commitment approach would seek to have been developed by the Basle induce banks to meet the regulatory FEDERAL RESERVE SYSTEM Committee on Banking Supervision. objective by providing them with a This proposed rule is published common set of economic incentives. 12 CFR Chapter II elsewhere in today’s Federal Register, Specifically, in the pre-commitment under Docket No. R–0884. The Board’s approach a bank would specify its [Docket No. R±0886] publication of this proposed rulemaking desired amount of capital for supporting Capital Requirements for Market Risk reflects its judgment that the Basle market risks and would commit to proposal, especially the internal models manage its trading portfolio so as to AGENCY: Board of Governors of the option, constitutes a very significant limit any cumulative trading losses over Federal Reserve System. improvement in supervisory methods some subsequent interval to an amount ACTION: Request for comments. for assessing capital adequacy. less than that capital allocation. The Nonetheless, the Board believes that length of the interval would be SUMMARY: The Board is requesting further evolution of supervisory established by the bank’s regulator, comment on a possible approach to approaches to assessing capital based on the regulator’s ability to setting capital requirements for market adequacy will be necessary over time. risk, which, if feasible, might form the Techniques for measuring and managing 1 The theory underlying the pre-commitment basis for future enhancements to market risk have been progressing approach is presented in Paul H. Kupiec and James supervisory procedures. The approach rapidly in recent years, and further M. O’Brien, ‘‘A Pre-Commitment Approach to would require a bank to specify the advances can be expected in the future. Capital Requirements for Market Risk.’’ Board of Governors of the Federal Reserve System, Division amount of capital it chose to allocate to It is important that capital requirements of Research and Statistics, staff memorandum, June support market risks. If cumulative provide incentives for such advances 1995. This paper can be obtained from the Board’s losses over some subsequent trading and that these requirements remain Freedom of Information Office. interval exceeded the commitment, the compatible with best practices as they 2 The scope of activities and banks that would be covered under a pre-commitment approach bank would be subject to regulatory evolve. presumably would be the same as the scope of the penalties, such as fines, higher capital Recognizing the need for further proposed rulemaking on market risk that was requirements, or restrictions on trading evolution in supervisory approaches to referenced above. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38143 monitor losses from the bank’s trading tests’’ of a null hypothesis that a bank’s approach is the specification of the activities and, if necessary, to force internal model is accurately estimating penalties that would result from a reductions in the size of the bank’s open a 99 percent confidence limit have little failure to limit trading losses to an positions. The interval might be three or statistical power against alternatives amount less than the commitment. six months, but a shorter interval would that would involve substantial Analysis suggests that the cost of the be possible if the regulator can underestimation of potential losses. penalties should increase with the size effectively monitor trading activity at A further implication is that declines of the gap between the losses incurred that frequency and if the relevant in the market values of portfolios and the pre-commitment. These markets are sufficiently liquid that the beyond those anticipated by the models penalties could take various forms. trading positions could, if necessary, be are inevitable. In such circumstances, Fines (monetary penalties) would be closed out promptly without substantial what is critical—and what cannot be especially effective in creating market impact. At the end of the captured in standard risk measures—is appropriate incentives because of their interval, the bank could either increase the potential for losses to be contained transparency. (U.S. insured banks might or decrease its capital commitment. through active portfolio management, be required to pay any fines into the To ensure that the bank committed an and, conversely, the potential for Bank Insurance Fund.) As an alternative amount of capital commensurate with catastrophic losses if such active to fines, supervisors could impose the risks in its trading portfolio and its management is not forthcoming. In punitive capital charges. The severity of capacity to manage those risks, the choosing its capital commitment, a fines or capital penalties could be regulator would need to provide bank’s management would incorporate reduced if they were accompanied by appropriate incentives in the form of its judgments about the combined supervisory sanctions, such as economic costs or ‘‘penalties’’ for failing effectiveness of all critical elements of restrictions on future trading activity. to limit losses to less than the capital the bank’s risk management system— The costs of these restrictions would be commitment. The magnitude of the not only its internal models, but also its measured by the loss of profitable penalties would depend on the structure of risk limits and the trading activities in future periods. Such regulatory objective. A bank that is management information systems and costs could be considerable; a bank that managed as a going concern would be audit programs it has in place to ensure is unable to pursue profitable trading expected to choose a capital compliance with those limits. opportunities for an extended period commitment that entailed a marginal Furthermore, management would have a would have difficulty covering overhead cost of regulatory capital equal to the strong incentive to strengthen over time costs in its trading businesses and, over expected cost of the penalty for a all elements of its risk management time, likely would suffer defections by violation. The more conservative the system to economize on capital while its best traders to other firms. capitalization that the regulator desired, avoiding the penalties. For the pre-commitment approach to the larger would be the specified The bank’s choice of a capital be credible, banks would need to be penalty. commitment for market risk could be reasonably certain that supervisory Given these costs, the bank’s choice of subject to review by supervisory authorities would impose the specified a capital commitment would be based authorities. Bank management could be penalties when losses exceed the on a self-assessment of its capabilities to expected to explain how cumulative commitment. The certainty of the measure and control the risks of its losses would be contained within the penalty would strengthen the incentive trading activities. The adequacy and amount of the commitment. This for the bank to make the initial capital reliability of its internal models for necessarily would require commitment commensurate with the measuring risk would play an important documentation of how internal models supervisor’s desired coverage of role in the bank’s determination. But, as are used to measure risks, how limits potential losses. Nonetheless, recognized in the qualitative standards are applied to the measured risks, how supervisors would need to reserve the for risk management that are part of the compliance with limits is ensured, and right to suspend the penalties in the internal models approach, there is more how management would respond to event of extreme price movements that to risk management than risk unanticipated losses. Furthermore, reflect macroeconomic instability. This measurement. In addition to internal supervisors could condition use of the would help ensure that banks could models for risk measurement, sound pre-commitment alternative on the continue to provide liquidity to markets risk management requires a detailed bank’s meeting the same qualitative following such stressful episodes. But structure of limits on risk and a strong standards for market risk management suspensions should not include management information system for systems that would be required for use situations in which a penalty would controlling, monitoring, and reporting of the internal models approach, or simply be very costly to an individual risks. perhaps on even more stringent bank but without systemic The measurement of market risk is standards. consequences. fraught with uncertainty. It would be important to emphasize, Market forces might also be utilized to The magnitude of the low probability however, that any supervisory review of provide banks with incentives to events about which regulators are the commitment would in no way allocate adequate capital. If the capital concerned (for example, the lower limit diminish the bank management’s commitment were publicly disclosed, of a 99 percent confidence interval for responsibility for setting aside adequate the reporting of losses in excess of the trading gains and losses) simply cannot capital to cover its market risks. An commitment not only would imply that be estimated with much precision.3 A attractive feature of the pre-commitment supervisory sanctions had been imposed corollary of this result is that ‘‘back- approach is that it would underscore the on the bank, but could also cast doubts responsibility of bank management for on the effectiveness of the bank’s risk 3 This point is developed further in Paul H. maintaining adequate capital, even if management capabilities. Together, Kupiec, ‘‘Techniques for Verifying the Accuracy of the amount needed exceeds what these factors could adversely affect its Risk Measurement Models.’’ Board of Governors of otherwise might be regulatory minimum share price and its funding costs. For the Federal Reserve System, Division of Research and Statistics, staff memorandum, April 1995. This requirements. this reason, some banks might actually paper can be obtained from the Board’s Freedom of The key to the feasibility and be tempted to commit more capital than Information Office. effectiveness of the pre-commitment is necessary to meet regulatory 38144 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules objectives. However, this tendency certain circumstances? If so, under what limiting use of the pre-commitment toward conservatism would be circumstances? To avoid adverse effects approach to adequately capitalized tempered by fears that an excessive on market liquidity? To avoid impairing banks (or even to well-capitalized capital commitment would cause the a bank’s capital so significantly that its banks)? public (including stock analysts and viability is threatened? Is there a danger Q10. Even for well-capitalized banks, rating agencies) to overestimate the that the prospect of a waiver could is the approach viable if market risk is riskiness of the bank’s trading activities. undermine the incentive effects of the the predominant element in the Thus, market forces could be harnessed penalties? How could such adverse institution’s overall risk profile? Or to induce banks to make appropriate incentive effects of waivers be must its use be restricted to banks for capital commitments. minimized? which market risk associated with the Q6. Should capital commitments, trading account is a relatively small II. Issues and Questions for Public trading results, and penalties be element in their overall risk profile? As Comment publicly disclosed? What effects would practical matter, do banks typically The basic issue is whether the pre- public disclosure have on capital allocate more than a small fraction of commitment approach is feasible and, if allocations? On trading behavior? How their total capital to cover market risk? so, whether it might form the basis for would stockholders and creditors react future enhancements to supervisory to news that a capital commitment had A final issue that would benefit from approaches to assessing capital been violated? Could the reactions be public comment relates to how trading adequacy. destabilizing? On the other hand, if gains and losses should be measured for Q1. Should the Board explore use of commitments and results are not purposes of determining whether the the pre-commitment approach during publicly disclosed, would the approach capital commitment has been violated. the time that will elapse before the lack credibility? Q11. Should spreads on customer or scheduled implementation of the Another set of issues that would need market-making businesses be included proposed market risk capital to be addressed is the restrictions and in trading gains and losses or should requirements? limitations that would be placed on use they be excluded? Why or why not? Can Q2. What are the advantages of the of a pre-commitment approach. revenues from customer accommodation pre-commitment approach compared to Q7. Are qualitative standards for and market making be separated reliably other approaches under consideration market risk management necessary to from revenues from position taking? by supervisors? Would it, in fact, implement the pre-commitment produce capital allocations that more approach? What qualitative standards Q12. Should gains or losses from accurately reflect banks’ assessments of for market risk management should be changes in the credit quality of assets trading risks? Would it be more met by banks seeking to use the pre- held in trading accounts be included or compatible with banks’ risk commitment approach? Are the excluded? If included, would there be measurement systems? Would it provide qualitative standards set out by the any need for separate capital stronger incentives for the improvement Basle Supervisors for use of the internal requirements for specific risk (as of risk management systems? models approach sufficient? Or should opposed to general market risk)? Q3. What are the potential drawbacks more stringent standards be imposed? If Q13. In general, are profits and losses to the pre-commitment approach? Could so, in what ways should the standards on trading accounts sufficiently penalties be destabilizing to banks? To be more stringent? transparent that supervisors could the financial system? What other Q8. Should a bank’s choice of a reliably determine whether a capital unintended consequences might result capital commitment be subject to review commitment has been violated? Could from implementation of the approach? by supervisory authorities? Or would concerns on this score be addressed Before the pre-commitment approach such a review be unnecessary or through qualitative standards for could be implemented,the penalties undesirable? valuation (e.g., standards for associated with failure to limit trading Q9. The incentive effects of the pre- documentation of policies regarding losses to an amount less than the capital commitment approach can be relied valuation adjustments and adherence to commitment would need to be specified upon to induce banks to make realistic those policies)? more precisely. capital commitments only if the bank is Q4. What form should the penalties being managed as a going concern. (A By order of the Board of Governors of the Federal Reserve System, July 12, 1995. take? Fines? Higher future capital bank would not necessarily be requirements? Other restrictions on concerned about penalties that would be William W. Wiles, future trading opportunities? imposed only in the event of its Secretary of the Board. Q5. Should regulators reserve the insolvency.) Could this potential [FR Doc. 95–17541 Filed 7–24–95; 8:45 am] right to waive the penalties under problem be addressed adequately by BILLING CODE 6210±01±P federal register July 25,1995 Tuesday Rule Operator andCommodityTrading;Final Amendments toCommodityPool 17 CFRParts1,4,30,and150 Trading Commission Commodity Futures Part III 38145 38146 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations COMMODITY FUTURES TRADING B. Required Performance Disclosures a. Conflicts of Interests—CPOs COMMISSION 1. Required Performance Disclosures in b. Conflicts of Interests—CTAs CPO Disclosure Documents: Rule 4.25 c. Related Party Transactions a. Capsule Performance Presentation: Rule 7. Litigation: Rules 4.24(l) for CPOs and 17 CFR Parts 1, 4, 30, 150 4.25(a)(1) 4.34(k) for CTAs b. Pools With Three or More Years 8. Principal-Protected Pools: Rule 4.24(o) Amendments to Commodity Pool Operating History that Meet Contribution for CPOs Operator and Commodity Trading Criteria: Rule 4.25(b) C. Supplemental and Voluntary Advisor Disclosure Rules c. Pools With Less Than A Three-Year Disclosures: Rules 4.24(v) for CPOs and Operating History: Rule 4.25(c) 4.34(m) for CTAs AGENCY: Commodity Futures Trading 2. Required Past Performance Disclosure in VII. Other Changes Commission. CTA Disclosure Documents: Rule 4.35 A. Deletion of Negative Disclosures ACTION: Final rules. 3. Time Period for Which Required Past B. Use, Amendment and Filing of Performance Disclosure Must Be Made: Disclosure Documents: Rules 4.26 for SUMMARY: The Commodity Futures Rules 4.25(a)(5) for CPOs and 4.35(a)(5) CPOs and 4.36 for CTAs Trading Commission (‘‘Commission’’) is for CTAs C. Disclosure Document Delivery announcing the adoption of substantial 4. Composite Performance Presentations: Requirements revisions to the disclosure framework Rules 4.25 (a)(3) and (a)(4) for CPOs and 1. Notice of Intended Offering and Term applicable to commodity pool operators Rule 4.35(a)(3) for CTAs Sheet a. CPO Disclosure Documents 2. Acknowledgment of Disclosure (‘‘CPOs’’) and commodity trading Document advisors (‘‘CTAs’’). These amendments b. CTA Disclosure Documents c. Substantiating Composite Presentations D. Conforming Changes are intended to achieve greater 5. Order of Required Performance VIII. Related Matters simplicity, focus and clarity in Disclosures: Rules 4.25(a)(2), (a)(3)(i) A. Regulatory Flexibility Act performance history; to streamline other and (a)(3)(ii) for CPOs and 4.35 (a)(1) B. Paperwork Reduction Act required disclosures; to improve the and (a)(2) for CTAs I. Background presentation and understandability of 6. Required Performance Legends disclosures to investors; and to create a a. Legends Relating to Lack of Trading A. Development of Proposed Part 4 more concise and readable format for Experience: Rules 4.25(c) for CPOs and Revisions Disclosure Documents. 4.35(b) for CTAs b. Legends Relating to Predictive Value of On May 5, 1994, the Commission EFFECTIVE DATE: August 24, 1995. Past Performance: Rules 4.25(a)(9) for proposed comprehensive revisions to FOR FURTHER INFORMATION CONTACT: CPOs and 4.35(a)(8) for CTAs the disclosure framework for CPOs and Susan C. Ervin, Deputy Director/Chief 7. Summary Tables CTAs (‘‘Proposing Release’’).1 This Counsel, Barbara Stern Gold, Assistant a. Performance Disclosure Requirements proposal followed more than fifteen Chief Counsel, or Christopher W. b. Sample Capsule Performance years of experience in administering the Cummings, Attorney/Advisor, Division Presentations part 4 disclosure framework and of Trading and Markets, Commodity c. Sample Bar Chart/Graph of Monthly reflected a comprehensive review of the Rates of Return Futures Trading Commission, 2033 K disclosure requirements for CPOs and C. Non-Required Performance Disclosures CTAs designed to identify aspects of the Street, NW., Washington, DC 20581. 1. Voluntary and Supplemental Telephone: (202) 254–8955. Performance Disclosures: Rules 4.24(v) regulatory structure that could be streamlined or simplified, while SUPPLEMENTARY INFORMATION: for CPOs and 4.34(n) for CTAs 2. Proprietary Trading Results: Rules enhancing appropriate customer Table of Contents 4.25(a)(8) for CPOs and 4.35(a)(7) for protection. The first phase of this review I. Background CTAs resulted in the adoption of Rules 4.7 A. Development of Proposed Part 4 3. Pro-Forma, Hypothetical and Extracted and 4.8 in 1992.2 The adoption of the Revisions Performance Results rules set forth herein is part of the B. National Futures Association Proposals VI. Non-Performance Disclosures: Section-by- second phase of the Commission’s C. April 25, 1995 Roundtable Discussion Section Analysis review of part 4.3 As the Commission D. Review of Public Comments A. Introduction 1. Disclosures Concerning a Pool’s CTAs II. Transitional Provisions 1 2. Disclosures Concerning Investee Pools 59 FR 25351 (May 16, 1994). The initial sixty- III. Summary of Rule Changes day period for public comment on the Proposing A. Definitions B. Required Non-Performance Disclosures Release expired on July 15, 1994 but was extended B. Required Performance Disclosures 1. Prescribed Non-Performance Statements, to August 17, 1994. The proposed amendments C. Required Non-Performance Disclosures Table of Contents and Forepart included conforming changes to other rules, e.g., to D. Non-Required Disclosures Information: Rules 4.24 (a) through (d) Rule 30.6, which pertains to disclosures required of E. Format Improvements to Enhance for CPOs and 4.34 (a) through (d) for CPOs and CTAs offering pools or accounts, Readability CTAs respectively, to trade in foreign futures contracts as defined in Rule 30.1. 59 FR 37189 (July 21, 1994). F. Other Revisions a. Cautionary Statement The Commission’s rules governing the operations G. Distribution Table b. Risk Disclosure Statement c. Table of Contents of CPOs and CTAs are set forth in part 4 of the IV. Definitions Commission’s regulations, 17 CFR part 4 (1994). All A. Major Commodity Trading Advisor: d. Information To Be Included in Forepart other Commission rules referred to herein are found Rule 4.10(i) e. Persons To Be Identified at 17 CFR Ch. I (1994). B. Major Investee Pool: Rule 4.10(d)(5) 2. Business Background: Rules 4.24(f) for 2 Rule 4.7 provides relief from certain disclosure, C. Multi-Advisor Pool: Rule 4.10(d)(2) CPOs and 4.34(f) for CTAs reporting and recordkeeping requirements D. Principal-Protected Pool: Rule 4.10(d)(3) 3. Principal Risk Factors: Rules 4.24(g) for applicable to CPOs for pools offered and sold only E. Trading Manager: Rule 4.10(h) CPOs and 4.34(g) for CTAs to ‘‘qualified eligible participants’’ and CTAs F. Trading Principal: Rule 4.10(e)(2) 4. Investment Program and Use of providing commodity interest trading advice to G. Break-Even Point: Rule 4.10(j) Proceeds: Rule 4.24(h) for CPOs ‘‘qualified eligible clients,’’ as defined therein, and 5. Fees and Expenses; ‘‘Break-even’’ who satisfy other specified criteria for relief. Rule H. Draw-Down and Worst Peak-To-Valley 4.8 provides relief from the twenty-one day Draw-Down: Analysis: Rules 4.24(i) for CPOs and Disclosure Document pre-filing requirement (now Rules 4.10(k) and (l) 4.34(i) for CTAs contained in new Rule 4.26(d)(1)) for CPOs of V. Performance Disclosures: Section-by- 6. Conflicts of Interest: Rules 4.24(j) for certain privately-offered pools. Section Analysis CPOs and 4.34(j) for CTAs; Related Party 3 This second phase will also consider, in A. Introduction Transactions: Rule 4.24(k) for CPOs consultation with the Securities and Exchange Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38147 stated in the Proposing Release, the which to invest, the pool’s assets 12 and appropriate circumstances through purposes of these revisions are: (1) may employ dynamic asset allocation grants of exemptive or no-action relief.15 Simplification of past performance strategies entailing periodic replacement Thus, the proposal to revise the part disclosures; (2) reduction of required of, or reallocation of assets among, CTAs 4 rules reflected the Commission’s disclosures concerning matters of for the pool. experience in addressing a wide range of CPO and CTA disclosure issues under secondary relevance; and (3) In implementing its statutory mandate the prior rules, the evolution of the clarification and modernization of to regulate the activities of CPOs and 4 marketplace, the development of new various requirements. CTAs, the Commission has endeavored In announcing the adoption of part 4 trading structures and the views of the to refine its rules as appropriate to public and of market participants. in 1979, the Commission stated that the respond to changing market conditions Disclosure Document requirement for in a manner consistent with customer B. National Futures Association CPOs was intended ‘‘to protect pool protection.13 The Commission’s Proposals participants—particularly those who are Division of Trading and Markets unsophisticated in financial matters—by As detailed in the Proposing (‘‘Division’’) has issued relief on a case- 16 ensuring that they are informed about Release, on March 15, 1994, the by-case basis to facilitate application of the material facts regarding the pool National Futures Association (‘‘NFA’’) the disclosure requirements to new submitted to the Commission proposed before they commit their funds.’’ 5 amendments to, and interpretations of, Similarly, the Disclosure Document market conditions not contemplated by NFA’s Compliance Rules based upon requirement for CTAs was premised, in the existing regulatory framework, such the recommendations of NFA’s Special part, upon the view that ‘‘a prospective as multi-advisor and fund-of-funds Committee for the Review of CPO/CTA (CTA) client or subscriber should be structures. The objective in such cases Disclosure Issues (‘‘NFA’s aware of the advisor’s commodity and is to apply the rules so as to foster clear Submission’’). NFA’s Submission general business experience if he is to and succinct disclosure of material consisted of several parts, including: make an informed decision as to information, especially concerning fees Proposals concerning presentation of whether or not to avail himself of the and other aspects of fund operations past performance data, including advisor’s services.’’ 6 affected by such structures, taking into account the particular characteristics of proposed capsule formats for CPO and In the Proposing Release, the CTA performance; proposed Commission noted that since the the offered investment vehicle.14 In many cases, strict application of existing requirements for calculation and original adoption of the part 4 rules, the disclosure of break-even analyses by number of registered CPOs had more disclosure requirements to pools whose CPOs have voluminous performance CPOs; proposed rules for the use of than doubled and the number of CTAs hypothetical trading results by NFA 7 histories or which invest through had increased nearly threefold; assets members in promotional material; and multiple CTAs or investee funds could under the management of CPOs had proposals dealing with the use of 8 result in undue emphasis upon grown dramatically; and the range of ‘‘nominal’’ or ‘‘notionally funded’’ performance record disclosure and available futures and option contracts accounts. The proposals requiring, and had increased substantially.9 In reduced focus upon more germane data. providing instructions for, break-even addition, during the past decade, These effects have been mitigated in analyses were published for public trading structures and investment comment and subsequently approved by portfolios have become increasingly 12 59 FR 25351, 25353. Rule 4.10(h) defines the the Commission on April 26, 1995, diverse and complex. A single term ‘‘trading manager,’’ as discussed more fully substantially as proposed.17 Rule 4.10(j) commodity pool may engage multiple below. 13 See, e.g., Rules 4.5, 4.12(b) and 4.7, adopted in CTAs and invest in multiple commodity 1985, 1987 and 1992, respectively, and the 15 See, e.g., CFTC Interpretative Letter No. 94–12, pools (‘‘investee pools’’) 10 or securities discussion of those rules at 59 FR 25351, 25353. (Current Transfer Binder), Comm. Fut. L. Rep. funds in order to access the services of 14 59 FR 25351, 25353–25354. In reviewing (CCH) ¶ 25,993 (December 27, 1993) (capsule performance disclosure permitted for CPO’s other particular traders or advisors, employ Disclosure Documents for fund-of-funds structures, Division comment letters previously have stated pools; CFTC Interpretative Letter No. 94–10, (Current Transfer Binder) Comm. Fut. L. Rep. (CCH) multiple trading strategies or programs, that although pool documents should provide all 11 ¶ 25,991 (December 16, 1993) (capsule performance or diversify its portfolio. Further, information required by (former) Rule 4.21 for each disclosure permitted); CFTC Interpretative Letter investee pool, ‘‘generally at the same level of detail commodity pools frequently retain No. 93–107, (Current Transfer Binder) Comm. Fut. as though the investee pool were providing its own ‘‘trading managers’’ to recommend or L. Rep. (CCH) ¶ 25,899 (October 26, 1993) (CPO select CTAs to manage, or funds in separate disclosure document,’’ nevertheless permitted to omit disclosures concerning its single reduced disclosures are appropriate where less than advisor pools in Disclosure Document for a multi- twenty-five percent of the assets of the offered pool advisor pool under certain conditions); CFTC Commission and the states, the appropriateness of would be invested in an investee pool. The Division Interpretative Letter No. 92–12, (1990–1992 a two-part format for pool Disclousre documents. has also provided guidance through interpretative Transfer Binder) Comm. Fut. L. Rep. (CCH) ¶ 25,343 See 59 FR 25351. statements and advisories with respect to past (July 28, 1992) (CPO permitted to omit required 4 59 FR 25351. These revisions do not, however, performance presentations in Disclosure disclosures concerning CTAs and investee pools affect the basic organizational structure of part 4. Documents. See, e.g., CFTC Advisory 87–2, (1986– allocated less than 10% of pool’s assets under Thus, the subparts thereunder continue to apply as 1987 Transfer Binder) Comm. Fut. L. Rep. (CCH) certain conditions); and CFTC Interpretative Letter follows: subpart A, to definitions and exemptions ¶ 23, 624 (June 2, 1987), defining the term No. 92–9, (1990–1992 Transfer Binder) Comm. Fut. (Rule 4.1 et seq.); subpart B, to the operations and ‘‘beginning net asset value’’ for rate of return L. Rep. (CCH) ¶ 25,300 (June 1, 1992) (CPO activities of CPOs (Rule 4.20 et seq.); subpart C, to calculations; CFTC Advisory (unnumbered, dated permitted to use two-part Disclosure Document the operations and activities of CTAs (Rule 4.30 et February 27, 1991), (1990–1992 Transfer Binder) with past performance of CTAs in second part seq.); and subpart D, to advertising (Rule 4.40 et Comm. Fut. L. Rep. (CCH) ¶ 25,005, permitting delivered contemporaneously with first part) and seq.). CPOs and CTAs to use alternative rate of return Advisory 27–92 (June 3, 1992) (Commission has no 5 44 FR 1918, 1920 (January 8, 1979). computation methods to more accurately reflect the objection to use of two-part Disclosure Document return on funds available for trading during the subject to conditions set forth in Interpretative 6 42 FR 9278, 9279 (February 15, 1977). period; and CFTC Advisory 93–13, [Current Letter 92–9), issued in connection therewith. The 7 59 FR 25351, 25352 and n.7. Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 25,554 foregoing generally are discussed at 59 FR 25351, 8 59 FR 25351, 25352 and n.8. (February 12, 1993), permitting the use of an 25353–54. 9 59 FR 25351, 25352 and n.9. alternative method for computing CTAs’ rates of 16 See 59 FR 25351, 25354. 10 Rule 4.10(d)(4) defines the term ‘‘investee return. 17 NFA Compliance Rule 2–13(b) and Interpretive pool,’’ discussed more fully below. As noted below (see n.15), the staff addresses Notice to Compliance Rule 2–13(b). The ‘‘break- 11 59 FR 25351, 25353 and n.11. specific requests for relief on a case-by-case basis. Continued 38148 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations incorporates by reference NFA’s which meaningful benchmarks or for a period of six months after the instructions for calculating the ‘‘break- standards are available to measure effective date, it will not take even’’ point. The portion of NFA’s performance.20 enforcement action against any person Submission concerning hypothetical solely on the basis of such person’s use D. Review of Public Comments trading results 18 was modified by NFA of a Disclosure Document prepared in response to Commission and public The Commission received thirty pursuant to the former rules rather than comments and remains under comment letters in response to the the revised rules. For pools that are consideration.19 Rule 4.41, revised as Proposing Release: three from persons continuously offered, amendment of the discussed herein, permits persons to registered as CTAs; five from persons Disclosure Document is not required follow either the Commission or rules registered as both a CPO and a CTA; two solely due to the rule revisions adopted by NFA. from persons registered as both a CTA announced herein, and operators of NFA’s Submission included proposed and an introducing broker (‘‘IB’’); two such pools may make conforming rules with respect to past performance from persons registered as futures changes as part of their next regular presentations, which were considered commission merchants (‘‘FCMs’’); two update. by the Commission in preparing the from self-regulatory organizations; two Persons to whom the Division recommendations set forth in the from a futures industry trade previously has granted exemptive or no- Proposing Release. As noted in the organization; two from certified public action relief permitting them to prepare Proposing Release, the portion of NFA’s accountants; nine from law firms; two Disclosure Documents in accordance Submission addressing the use of from bar associations; and one from an with certain provisions of the proposed ‘‘nominal’’ or ‘‘notionally funded’’ academician. rules set forth in the Proposing Release accounts was remitted to the NFA for The commenters strongly supported are reminded that such relief is further explanation and documentation. the rulemaking in general. Many superseded by the revisions adopted The Commission is not addressing the commenters, however, advocated herein, and any Disclosure Document issue of ‘‘nominal’’ or ‘‘notional’’ changes in various aspects of the used by any such person subsequent to account size in this release. proposed rules. The Commission has the effective date of these revisions must carefully considered the comments comply with the revised rules. C. April 25, 1995 Roundtable Discussion received and, based upon its review of On April 25, 1995, the Commission the comments and its own III. Summary of Rule Changes convened a roundtable discussion led reconsideration of the proposed The following summary is intended to by Chairman Mary L. Schapiro, entitled amendments, has determined to adopt provide interested persons with ‘‘Rethinking Past Performance the revisions contained in the Proposing information concerning significant Disclosure,’’ to elicit input from Release, with certain modifications, as changes to the Commission’s disclosure industry, academic, end-user, regulatory discussed below. Comments received on framework and the manner in which and other sources with respect to public the proposed amendments are discussed those changes vary, if at all, from the policy issues relevant to past below in the context of the particular Commission’s proposals. These and all performance disclosure, as well as provisions to which they relate. other changes to part 4 and other technical and pragmatic aspects of past The Commission believes that the Commission rules are discussed below performance presentations. A number of revised rules, as adopted, not only in the section-by-section analysis. For the speakers expressed the view that respond to the concerns of the purposes of this release, the rules as in past performance data alone are not commenters but, also, meet the effect prior to the amendments directly predictive of future trading regulatory objectives of this rulemaking. discussed herein are referred to as the results but that past performance data Notwithstanding the adoption of the ‘‘former’’ rules. provide information that is important in rule amendments discussed herein, the evaluating a contemplated pool offering Commission intends that the staff will A. Definitions 21 or trading program. For example, continue to respond to requests for relief patterns of volatility and other trading from the Part 4 rules on a case-by-case Many of the proposed amendments patterns in various market conditions basis consistent with the objectives and set forth in the Proposing Release may be evident. principles of this rulemaking. The introduced new concepts into the rules. Participants also noted the tendency Commission also is exploring possible As a consequence, the Proposing for past performance data to have a mechanisms for addressing additional Release contained several new potent persuasive effect, which some CPO and CTA disclosure issues with the definitions designed to modernize the viewed as significantly exceeding the benefit of industry and other external rules in light of marketplace usefulness of such information as a input, including input from other developments and to aid in basis for an investment decision. federal and state regulators, on an implementation of the revised rules. Speakers discussed the effect of such ongoing basis. Several of these new definitions have factors as the volume of performance been adopted with modifications: II. Transitional Provisions data and the format in which ‘‘multi-advisor pool’’ (Rule 4.10(d)(2)); performance information is provided, The revisions being announced today ‘‘principal-protected pool,’’ which was the utility of monthly as opposed to will become effective thirty days from proposed as ‘‘limited risk pool’’ (Rule annual rates of return, and the extent to the date hereof, but Disclosure 4.10(d)(3)); ‘‘trading manager’’ (Rule Documents may be prepared, filed and 4.10(h)); ‘‘major commodity trading even’’ analysis is a computation of the trading profit used in accordance with the revised advisor’’ (Rule 4.10(i)); ‘‘major investee that a pool must realize in the first year of an rules prior to the effective date. To pool’’ (Rule 4.10(d)(5)); ‘‘trading investor’s participation for the investor to recoup facilitate the transition to compliance principal’’ (Rule 4.10(e)(2)); and ‘‘break- his or her initial investment. even point’’ (Rule 4.10(j)). Two of the 18 with the revised rules adopted herein, Proposed NFA Compliance Rule 2–29(c). proposed definitions have been 19 Separately, the Commission contemplates the Commission has determined that, further review of the subject of hypothetical performance presentations to assure adequate 20 A summary of the roundtable discussion is on 21 The section-by-section analysis of revised and safeguards against the misuse of such disclosure. file with the Commission’s Office of the Secretariat. new definitions is set forth in Section IV below. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38149 eliminated,22 and three additional than a three-year history in trading participant to recover his entire initial definitions which were not included in pools for which at least seventy-five investment if he redeems his interest the Proposing Release have been added: percent of pool contributions were made after one year. (Rules 4.10(j), 4.24(d)(5) ‘‘investee pool’’ (Rule 4.10(d)(4)), by persons not affiliated with the CPO, and 4.24(i)(6) for CPOs). The break-even ‘‘draw-down’’ (Rule 4.10(k)), and ‘‘worst trading manager, or CTA for the pool or point is required to be calculated in peak-to-valley draw-down’’ (Rule their respective principals, the past accordance with rules promulgated by a 4.10(l)). As adopted, the new definitions performance of the CPO’s (and trading registered futures association pursuant are included in Rule 4.10, and where manager’s) trading principals 26 is to section 17(j) of the Commodity appropriate, related definitions have required to be presented unless that Exchange Act (the ‘‘Act’’).28 been made part of the same paragraph.23 performance does not differ materially 2. Material Litigation. Actions from the performance of the offered pool adjudicated on the merits in favor of B. Required Performance Disclosures 24 and the CPO of the offered pool. (Rule persons whose litigation history is 1. CPO Disclosure Documents 4.25(c)(2)). required need not be disclosed. Rule 4.25 of the amended rules d. The requirement in proposed Rule Required disclosures concerning actions creates a simplified structure for the 4.25(c)(3)(iii) to disclose certain against FCMs and IBs are significantly presentation of required past information under the designation reduced. (Rules 4.24(l) for CPOs and performance by CPOs. In each case, the ‘‘adverse performance’’ has not been 4.34(k) for CTAs). 3. Principal Risk Factors. CPOs and presentation must cover the five most adopted. However, the terms ‘‘major CTAs must discuss the principal risk recent calendar years and year-to-date, commodity trading advisor’’ and ‘‘major factors of the pool or trading program, or the entire life of the subject pool, investee pool’’ have been redefined to including but not limited to volatility, account or trading program, whichever include CTAs and investee pools with leverage, liquidity and counter-party is shorter. (Rule 4.25(a)(5)). ten percent, rather than twenty-five a. All required past performance percent, allocations of pool assets and a creditworthiness. (Rules 4.24(g) for presentations for pools are reduced to a narrative discussion of the performance CPOs and 4.34(g) for CTAs). 4. Business Background. Disclosure of summary, capsule format containing history of non-major CTAs and investee the business backgrounds of principals specified core information. (Rule pools is required. (Rule 4.25(c)(5)). is limited to principals (including 4.25(a)(1)). In a change from the 2. CTA Disclosure Documents officers and directors) who participate proposal, CPOs may present monthly Under proposed Rule 4.34(a)(1), CTAs in making trading or operational rates of return required for the offered would have been required to continue to decisions for the pool or CTA (or who pool for five calendar years and year-to- present the performance of the offered supervise persons so engaged). date either in tabular form or in a bar trading program in the full multi- Disclosure of CTA and investee pool graph. (Rules 4.25(a)(1) and (a)(2)). b. For an offered pool which meets column tabular format previously operator business backgrounds in CPO the following criteria, the past required under Rule 4.31(a)(3). Disclosure Documents is limited to performance record of only the offered Performance of all other trading major CTAs and major investee pools. pool itself is required to be presented in programs directed by the CTA would (Rules 4.24(f) for CPOs and 4.34(f) for the Disclosure Document: (1) The pool have been presented in the new capsule CTAs). 5. Conflicts of Interest. Rule 4.24(j) has at least a three-year history of format used in CPO Disclosure calls for a full description of actual and trading commodity interests; and (2) Documents. As adopted, Rule 4.35(a)(1) permits CTAs to use a capsule format potential conflicts involving the CPO, during that minimum three-year period (similar to the capsule format adopted the trading manager, major CTA or at least seventy-five percent of the for CPOs) for all programs. The offered major pool operator and any principal pool’s assets were contributed by trading program’s capsule must include thereof, as well as any person providing persons not affiliated with the CPO, monthly rates of return and the numbers services to the pool or soliciting trading manager, CTA or FCM for the of profitable and losing accounts in the participants for the pool. The rule also pool, or their respective principals. trading program. The required monthly calls for the disclosure of any other (Rule 4.25(b)). c. For offered pools which do not rates of return may be presented either material conflict of interest involving in tabular form or as a bar graph, as is meet the three-year operating history the pool. Disclosure with respect to the case for the offered pool in a CPO criteria of Rule 4.25(b), past payment for order flow, soft dollar Disclosure Document. As with CPO performance data for the offered pool, arrangements and similar arrangements Documents, all required performance is for other pools operated by (or accounts is specifically called for. Rule 4.34(j) for to be presented for the five most recent traded by) the CPO and trading CTAs also specifically references calendar years and year-to-date or for manager, and for each ‘‘major’’ CTA or payment for order flow and soft dollar the life of the trading program, ‘‘major’’ investee pool is required.25 If arrangements. whichever is shorter. (Rule 4.35(a)(5)). 6. Fees and Expenses. Rule 4.24(i) the CPO or trading manager has less requires the CPO to describe the C. Required Non-Performance expenses incurred in the previous year 22 The definition of ‘‘adverse performance,’’ Disclosures 27 which was included in proposed Rule 4.25(a)(8), and to be incurred in the current year and the definition of ‘‘trading program,’’ which was Required non-performance and to disclose fees and commissions in included in proposed Rule 4.34(a)(5), have not been disclosures are revised as follows. connection with pool solicitations. The adopted. 1. Break-Even Point. CPOs are rule also specifies significant expense 23 Pool-related definitions are now sub- required to disclose the pool’s break- categories not previously enumerated in paragraphs of Rule 4.10(d) and the definition of even point, indicating the trading profit ‘‘trading principal’’ has been included as a sub- Rule 4.21 and requires an explanation of paragraph of Rule 4.10(e). the pool must realize in order for a 24 The section-by-section analysis of required 28 7 U.S.C. 1 et seq. (1994). As noted above, NFA performance disclosure revisions is set forth in 26 The term ‘‘trading principal’’ is defined in Rule rules governing calculations of the break-even point Section V below. 4.10(e)(2). are included in an Interpretive Notice 25 Rules 4.10(i) and 4.10(d)(5) define the terms 27 A section-by-section analysis of required non- accompanying NFA Compliance Rule 2–13(b), ‘‘major commodity trading advisor’’ and ‘‘major performance disclosure revisions is set forth in which Rule and Notice the Commission approved investee pool,’’ respectively. Section VI below. on April 26, 1995. 38150 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations the calculation of the pool’s break-even even point, is required to be set forth in DISTRIBUTION TABLEÐContinued point. If a fee is determined by reference the forepart of the document. (Rules to a base amount, the manner in which 4.24(a) through (d) for CPOs and 4.34(a) Old section New section the base amount is calculated must be through (d) for CTAs). disclosed.29 (Rules 4.10(j), 4.24(d)(5) A significant change from the 4.10(e) ...... 4.10(e)(1) and 4.24(i) for CPOs, and 4.34(i) for Proposing Release is the renumbering of 4.10(e)(2) 4.10(h)±(1) CTAs). the CTA disclosure rules to correspond 4.21(a) ...... 4.21(a) to the numbering of the CPO disclosure D. Non-Required Disclosures 30 4.24(c) rules. To accomplish this, proposed 4.24(d) 1. Proprietary Trading Results. As Rules 4.32, 4.33, 4.34 and 4.35 have 4.21(a)(1)(i)±(1)(vii) ... 4.24(d)(1)±(d)(2), proposed and as adopted, the rules been adopted as Rules 4.33, 4.34, 4.35 4.24(e) provide that proprietary trading results and 4.36, respectively, and Rule 4.32 4.21(a)(1)(viii) ...... 4.24(h) presented in either a CPO or CTA has been reserved. 4.24(d)(3), 4.24(d)(5) Disclosure Document must be labelled 4.21(a)(2) ...... 4.24(f) as such and placed at the end of the 4.24(g) Subject CPO CTA document. (Rules 4.24(v) and 4.25(a)(8) rule rule 4.21(a)(3) ...... 4.24(j) for CPOs, and 4.34(n) and 4.35(a)(7) for 4.21(a)(4) ...... 4.24(n), 4.25 4.21(a)(5) ...... 4.24(n), 4.25 CTAs). Required delivery of Disclo- sure Document ...... 4.21 4.31 4.21(a)(6) ...... 4.24(t) 2. Supplemental Information. 4.21(a)(7) ...... 4.24(i)(i)±(i)(4) Proposed Rules 4.24(v) and 4.33(n) Report to pool participants ... 4.22 ...... Recordkeeping ...... 4.23 4.33 4.21(a)(8) ...... 4.24(s) generally would have required that General disclosures required 4.24 4.34 4.21(a)(9) ...... 4.24(h)(4) information not specifically called for Performance disclosures ...... 4.25 4.35 4.24(o) by Commission rules or federal or state Use, amendment and filing of 4.21(a)(10) ...... 4.24(p) securities laws or regulations could only Disclosure Document ...... 4.26 4.36 4.21(a)(11) ...... 4.24(q) appear following the related required 4.21(a)(12) ...... 4.24(r) 4.24(k) disclosure. The new rules, as adopted, F. Other Revisions 33 require that any supplementally 4.21(a)(13) ...... 4.24(l) provided performance information be The rule amendments also are 4.21(a)(14) ...... 4.24(i)(5) 4.21(a)(15) ...... 4.24(m) presented after the entire required designed to facilitate pool offerings, particularly with respect to areas of 4.21(a)(16) ...... 4.24(u) performance presentation. 4.24(v) Supplemental non-performance overlap or potential inconsistency with the rules of the Securities and Exchange 4.21(a)(17) ...... 4.24(b) information relating to required 4.21(a)(18) ...... 4.24(a) disclosures may be included with the Commission (‘‘SEC’’). Thus, CPOs and 4.21(b) ...... 4.26(c) respective related required disclosures. CTAs may now update Disclosure 4.21(c) ...... 4.24(d)(4) Other supplemental information is Documents every nine months, rather 4.21(d) ...... 4.21(b) required to follow the last required than every six months as formerly 4.21(e) ...... 4.26(a) disclosure, and any proprietary, required. (Rules 4.26(a) for CPOs and 4.21(f) ...... 4.26(b) hypothetical, simulated or pro forma 31 4.36(a) for CTAs.) In addition, CPOs 4.21(g) ...... 4.26(d) may provide accredited investors with a 4.21(h) ...... 4.24(w) trading results must be placed at the end 4.31(a) ...... 4.31(a) of the Disclosure Document. notice of intended offering and statement of the terms of the proposed 4.34(c) Supplemental information must not 4.34(d) mislead or obscure or diminish in offering, prior to delivery of a Disclosure 4.31(a)(1)(i) ...... 4.34(d)(1) prominence any required disclosure. Document. (Revised Rule 4.21(a) for 4.31(a)(1)(ii), 4.34(e) (Rules 4.24(v) for CPOs and 4.34(n) for CPOs.) 4.31(a)(iv). CTAs). G. Distribution Table 4.31(a)(1)(iii) ...... 4.34(h) 4.31(a)(2) ...... 4.34(f) E. Format Improvements to Enhance In light of the extensive substantive 4.34(g) Readability 32 and organizational revisions to the 4.31(a)(3) ...... 4.34(m), 4.35 A number of revisions to the rules are content of Disclosure Documents, and 4.31(a)(4) ...... 4.34(i) 4.31(a)(5) ...... 4.34(j) intended to enhance the accessibility therefore to the part 4 rules, the Commission is setting forth below a 4.31(a)(6) ...... 4.34(l) and prominence of relevant disclosures. 4.31(a)(7) ...... 4.34(k) Disclosure Documents are now required distribution table to assist interested 4.34(n) to contain a table of contents. Further, persons in complying with the new 4.31(a)(8) ...... 4.34(b) the number and content of various disclosure framework for CPOs and 4.31(a)(9) ...... 4.34(a) previously required bold-face CTAs. 4.31(b) ...... 4.36(c) ‘‘boilerplate’’ risk and cautionary 4.31(c) ...... 4.34(d)(2) statements has been reduced. Certain DISTRIBUTION TABLE 4.31(d) ...... 4.31(b) core information, including the break- 4.31(e) ...... 4.36(a) Old section New section 4.31(f) ...... 4.36(d) 4.31(g) ...... 4.34(o) 29 Except for this provision, Rule 4.34(i) for CTAs 4.32 ...... 4.33 is unchanged from the former rule. 1.55(a)(1)(iii) 4.41(b)(1) ...... 4.41(b)(1)(A)± 30 A detailed discussion of non-required 4.10(d) ...... 4.10(d)(1) disclosures is included in Sections V and VI below. 4.10(d)(2)±(d)(5) (b)(1)(B) 31 However, pro forma adjustments to performance data are required for certain purposes 33 The section-by-section analysis of other IV. Definitions and such adjustments are not affected by the revisions (including: Deletion of certain restrictions upon placement of supplemental requirements to state that a disclosable situation A. Major Commodity Trading Advisor: information. See Section V.C.3., infra. does not exist; changes to the Disclosure Document Rule 4.10(i) 32 The section-by-section analysis of format amendment, filing and use requirements; and improvement revisions is set forth in paragraph B.6. technical conforming changes) is set forth in In proposed Rule 4.10(k), the term of Section V and in Section VI below. Section VII below. ‘‘major commodity trading advisor’’ Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38151 would have been defined as a CTA gauge the ability of the various CTAs for assets of the pool. Conversely, in the allocated or intended to be allocated at the pool to place the assets of the pool unlikely scenario of a CTA having an least twenty-five percent of the pool’s at risk. To further this objective, the allocation that, although insignificant aggregate initial margin and premiums Commission has adopted a revised compared to the aggregate allocations to for futures and commodity option definition of major CTA in Rule 4.10(i). CTAs, is significant relative to the assets contracts. The Commission requested Under the revised definition, the of the pool, that CTA should also be comment concerning this proposed determination as to whether a CTA is a considered major. This scenario could definition, specifically as to the use of major CTA is based upon the percentage occur if CTAs collectively are allocated a percentage of the pool’s aggregate allocation to the CTA of the pool’s more than the net asset value of the initial margin and premiums for futures aggregate net assets or the aggregate pool; 36 in such a case, a CTA might, in and commodity option contracts as value of the net assets allocated to the effect, be trading more than ten percent compared to a percentage of the pool’s pool’s trading advisors, whichever is of the pool’s assets even though his total assets, which was proposed in Rule smaller, as determined by the agreement allocation represented less than ten 4.10(l) as the basis for determining between the CPO and the CTA. These percent of total CTA allocations. In such whether an investee pool would be a alternate measures are designed to a case, the CTA should be considered a major investee pool. The Commission assure that the major CTA definition major CTA, thus potentially resulting in asked whether the proposed distinction identifies CTAs which have the ability a pool having more than ten major between the definition of major CTA to expose the pool’s assets to significant CTAs, based upon the level of exposure and major investee pool would risk because the amount of funds over of pool assets. appropriately reflect the relative risks of which they have trading authority direct futures trading as compared to represents a significant proportion Because the major CTA definition is trading through vehicles which limit the either of the pool’s net asset value or of intended to identify advisors whose risk of loss to the initial investment. the aggregate value of the assets trading is significant to the pool in The majority of the commenters on allocated to the pool’s trading advisors, terms of overall risk, any percentage the major CTA definition recommended whichever is less.34 As discussed more allocation figure based upon a single that the definition be based on the fully below, the Commission has benchmark such as funds allocated by percentage of the pool’s net asset value determined to use a lower percentage written or other agreement is likely to allocated to the CTA, rather than on the threshold of ten percent in lieu of the provide only a rough comparative percentage of the pool’s aggregate initial proposed twenty-five percent threshold measure. This is so because trading margin and option premiums. as part of a restructuring of the CTA and advisors’ programs may lead to different Commenters stated that it would be investee pool performance disclosure degrees of futures or other risk exposure difficult to determine how much of the requirements of Rule 4.25 to eliminate and different volatility patterns despite assets allocated to a CTA would be used the proposed category of ‘‘adverse the same quantitative allocation of for margin and premiums, noted that performance,’’ which would have funds. Consequently, in determining pool operators do not base allocations to applied to CTAs with allocations of ten whether a trading advisor’s performance CTAs on margins and premiums, and percent to twenty-five percent of the should be disclosed as material urged that the amount of assets pool’s futures margins and commodity information, even if the trading advisor allocated to a CTA better indicates the option premiums. would not constitute a major CTA under CTA’s potential impact on the pool’s Thus, under the alternate test being the definition set forth in Rule 4.10(i), performance. Several commenters adopted in Rule 4.10(i), if, for example, the pool operator should assess the suggested substitute benchmarks, the total dollar value allocated to likelihood that the CTA’s trading, given including standards based on the CTA’s advisors for commodity interest trading the leverage used, may expose ‘‘trading level,’’ i.e., the portion of the represented fifty percent of the net asset significantly more of the fund’s net asset pool’s ‘‘market exposure’’ allocated to value of the pool, a trading advisor value in a worst case scenario than his the CTA and the portion of the pool’s allocated ten percent of the total dollar percentage allocation level would assets committed to trading that had value allocated to advisors, even though indicate. Such a case may warrant been allocated to the CTA. The that amount would represent less than inclusion of capsule performance Commission was also urged to provide ten percent of the pool’s assets, would information for the CTA even if his expressly that pool assets allocated to a be a major CTA.35 This result is allocation does not exceed the ten CTA include notional equity, since appropriate because the major CTA percent threshold. In most cases, otherwise the standard may fail to definition is designed to include CTAs however, a textual discussion will reflect the actual portion of the pool’s who hold authority over a substantial suffice, and the Commission has assets at risk with the CTA, and to use portion of the pool’s commodity interest emphasized the requirement for this the percentage of pool assets allocated trading, even if the absolute dollar value type of supplementary disclosure as to to an advisor specified in the written of the funds allocated to the CTA is non-major CTAs generally by adopting agreement between the advisor and the relatively small compared to the total Rule 4.25(c)(5), discussed infra. Further, pool operator to measure the allocation a CTA’s performance may be marketed amount, regardless of how such 34 Adoption of this standard for determining a in such a manner as to render more allocations are drawn upon by advisors major CTA is not intended to address or relate to comprehensive disclosure of his from time to time for margin and the use of so-called ‘‘notional’’ or ‘‘nominal’’ performance material, e.g., the CTA may premiums. A number of commenters account sizes for purposes of calculation of rates of be accorded ‘‘major’’ importance by expressed agreement with the proposed return. 35 The standards discussed herein do not affect twenty-five percent threshold amount the scope of the existing exemption available under 36 The Commission does not encourage such (while urging that it be based on pool Rule 4.12(b), which provides an exemption from, allocations and notes that the leverage inherent in assets). inter alia, past performance disclosure, for pools such vehicles creates corresponding risks, which The Commission agrees with the that commit no more than ten percent of the fair must be appropriately disclosed. The Commission market value of their assets to establish commodity notes the recent heightened recognition in the concept advanced or implicit in several interest positions and trade such commodity domestic and foreign regulatory communities of the of the comment letters that a key interests in a manner solely incidental to their risks inherent in leveraged instruments and trading objective of defining major CTAs is to securities trading. vehicles. 38152 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations virtue of prominent references to such overall distribution of pool assets to the proposed ‘‘adverse performance’’ CTA in promotional material. CTAs and investee pools, the historical disclosure requirement for CTAs and The comments indicated, and the frequency of such changes and the investee pools with allocations ranging Commission would generally expect, pool’s overall trading program. from ten to twenty-five percent. One that allocations to CTAs would Substitutions of, and reallocations to, commenter noted that in determining generally be evidenced by written CTAs or investee pools are more likely the percentage of a pool’s assets agreement, between the CPO (or the to be material changes for a pool with allocated to an investee pool, as with trading manager, if any) on behalf of the one or two trading advisors, than for a CTA allocations, notional equity should pool and the CTA, assigning a particular pool that accesses a variety of advisors be included in order to capture the risk dollar amount of the pool’s assets to be and investee pools and that redirects its exposure created by the investee pool’s traded by the CTA. This dollar amount assets frequently in response to changes trading. This approach was advocated would be converted into a percentage in market conditions. because the percentage of the offered using the alternate standards in Rule pool’s assets used to purchase the B. Major Investee Pool: Rule 4.10(d)(5) 4.10(i). CPOs should be prepared to participation in an investee pool may document their determinations as to the Proposed Rule 4.10(l) would have not reflect the additional risk created status of CTAs as major or non-major for defined ‘‘major investee pool’’ as an where the assets of the investee pool are audit purposes but, in most cases, the investee pool allocated or intended to be traded at a leverage factor that results in written agreement should be sufficient. allocated at least twenty-five percent of trading exposure of, for example, twice Proposed Rules 4.10(k) and 4.10(l) the assets of a pool. As noted above, in the actual assets of the investee pool. would have required that ‘‘major’’ CTA contrast to the proposed definition of Although the Commission does not and investee pool status be determined major CTA, which would have relied believe that this consideration warrants at the time the Disclosure Document is upon a percentage of the pool’s initial express treatment in the major investee prepared 37 and on an ongoing basis.38 futures margin and commodity option pool definition, it recognizes that there As the Commission explained in the premiums, the major investee pool may be applications of the major Proposing Release, the ‘‘major definition was based upon the investee pool definition, as in the case commodity trading advisor’’ and ‘‘major percentage of the assets of the investor of CTA allocations, where the basic investee pool’’ definitions are intended pool allocated to the investee pool. This benchmarks used in the rule do not to include CTAs or investee pools to distinction in the basis for determining capture all of the investee pools that whom the CPO of a pool that has not allocations to pools was based upon the may be of major impact on the offered commenced trading intends to make fact that investments in other pools pool. In such cases, i.e., where the allocations at or above the specified generally expose the investor pool only investee pool is traded on a highly thresholds.39 Similarly, any CTA or to loss of the initial investment and that leveraged basis, the pool operator investee pool to whom the CPO of an the full amount of the investment is should be mindful of the obligation to operating pool intends to reallocate required to be paid at the inception of disclose all material information and assets such that the allocations to such the investment. The relative importance should take into consideration the CTA or investee pool will total ten of investee pools to prospective pool nature of the investee pool’s trading in percent or more also would be included. participants is thus appropriately determining whether it should be One commenter recommended that the determined by reference to the treated as a major investee pool for asset allocations which determine major proportion of the pool’s total assets disclosure purposes. CTA or major investee pool status only actually invested in the investee pool, The time at which major investee pool be required to be accurate as of a date and the major investee pool definition status is determined is discussed in not more than ninety days prior to the did not appear to present the same paragraph A, above. issues concerning quantification of date of the Disclosure Document. In C. Multi-Advisor Pool: Rule 4.10(d)(2) response, the Commission notes that, relative risk exposure as the major CTA pursuant to Rule 4.26(c), the CPO must definition. Proposed Rule 4.10(h), the multi- notify existing participants of changes Commenters who addressed the major advisor pool definition, would have in major CTAs and investee pools, to the investee pool definition pointed out that employed a twenty-five percent or extent they represent material changes, ‘‘investee pool’’ was not defined in the greater allocation standard based on the within twenty-one days and must so Proposing Release or in existing pool’s aggregate initial margin and notify previously solicited prospective Commission rules. The Commission is premiums for futures and commodity participants prior to accepting or receiv- adopting in Rule 4.10(d)(4) a definition option contracts. Thus, as proposed, the ing funds from such prospective of ‘‘investee pool’’ as ‘‘any pool in ‘‘multi-advisor pool’’ definition participants. This can be accomplished which another pool participates or effectively would not have applied if a by formally amending the Disclosure invests, e.g., as a limited partner pool had one major CTA or major Document, ‘‘stickering’’ the document, thereof.’’ The Commission is adopting investee pool, and the minimum including information in an Account as Rule 4.10(d)(5) a definition of ‘‘major number of CTAs in a multi-advisor pool investee pool’’ that differs from the would have been five. Two commenters Statement, or other similar means. proposal in that it specifies that the asserted that any pool with two or more Whether a given major CTA or investee allocation threshold is ten percent of the CTAs should be considered a multi- pool change is material would depend net asset value of the pool, instead of advisor pool, although one commenter upon a variety of factors such as the twenty-five percent of the assets of the acknowledged that a pool that allocated 37 The definitions adopted in Rules 4.10(i) and pool. This modification was made in ninety percent of its assets to one CTA 4.10(d)(5) include CTAs and investee pools order to make the allocation measure should not qualify as a multi-advisor ‘‘allocated or intended to be allocated * * *’’ consistent with the capsule performance pool. As adopted, the definition of 38 Rule 4.26(c) requires distribution of corrections format, which calls for net asset value. ‘‘multi-advisor pool’’ in Rule 4.10(d)(2) of any material inaccuracies to all participants As in the case of the major CTA is a pool in which no CTA is allocated within twenty-one days of the date on which the CPO knows or has reason to know of the definition, the proposed twenty-five or intended to be allocated more than inaccuracy. percent threshold has been reduced to twenty-five percent of the pool’s funds 39 59 FR 25351, 25357. ten percent in light of the elimination of available for commodity interest trading Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38153 and in which no investee pool is proposed rules would have made promulgated by a registered futures allocated or intended to be allocated disclosure of the trading manager’s association.41 more than twenty-five percent of the performance a substitute for that of the Many commenters supported the pool’s net assets. (Rule 4.10(d)(2)). In CPO. However, as noted below, the proposal to require disclosure of a determining whether a CTA has been Commission has revised the proposed pool’s break-even point.42 However, allocated more than twenty-five percent rules to require disclosure both as to a comments on the break-even point (and of the pool’s funds available for pool’s CPO and the trading manager, if the requirement to disclose the relevant commodity interest trading, the any, in a number of contexts, e.g., calculations) indicated some confusion alternate standard in the major CTA conflicts of interest, on the ground that regarding whether the break-even point definition should be used, i.e., the in the vast majority of cases, even if the is based on the pool’s first year of percentage allocation is the amount of CPO has delegated substantial operation or an investor’s first year of funds allocated to the trading advisor by responsibility to the trading manager to participation in the pool. For ongoing agreement with the CPO, expressed as a hire and monitor CTAs, the CPO retains pool offerings, commenters suggested percentage of the lesser of the aggregate ultimate responsibility for operation of that the break-even point be optional value of the assets allocated to the the pool. However, with respect to past after the first year of a pool’s operation, pool’s trading advisors or the net assets performance disclosure, if the CPO has that it be based on a prior year’s actual of the pool at the time of allocation. completely delegated trading authority results, or that a range of break-even to a trading manager and the past points be permitted keyed to various D. Principal-Protected Pool: Rule performance of the trading manager total offering sizes. 4.10(d)(3) does not differ materially from that of As adopted, Rule 4.10(j) defines the The term ‘‘limited risk pool’’ was the commodity pool operator, only the term ‘‘break-even point’’ as the trading defined in proposed Rule 4.10(i) as a trading manager’s past performance is profit that a pool must realize in the first pool (commonly referred to as a required to be disclosed. year of a participant’s investment to ‘‘guaranteed pool’’) that is designed to equal all fees and expenses such that the F. Trading Principal: Rule 4.10(e)(2) limit the loss of the initial investment of participant will recoup its initial its participants. Commenters pointed A ‘‘trading principal’’ would have investment. The break-even point is out that most pools are formed as been defined in proposed Rule 4.10(m) required to be calculated pursuant to limited partnerships, thus limiting at as a principal of a CPO or CTA who rules promulgated by a registered least some of the participant’s risk. participates in making commodity futures association and it must be Other commenters offered alternative interest trading decisions for a pool or expressed both as a dollar amount and terms 40 or suggested that the definition client or who supervises, or has as a percentage of the minimum unit of specify that loss would be limited by authority to allocate pool assets to, initial investment. The proposed guaranty, letter of credit or other third- persons so engaged. The sole definition referred to the trading profit party undertaking. As adopted in Rule commenter who addressed this that a pool or trading program must 4.10(d)(3), the term has been definition urged that it be limited to realize in the pool or trading program’s redesignated ‘‘principal-protected principals who make trading decisions, first year, and the break-even point was pool,’’ but the definition is unchanged excluding principals who supervise or not expressly required to be presented from that set forth in the Proposing hire traders. The Commission notes, as a dollar amount.43 Release. however, that persons who select or The Commission is clarifying that the supervise traders effectively determine break-even point must present the E. Trading Manager: Rule 4.10(h) how a pool’s or client’s assets will be trading profit that the pool must realize As proposed in Rule 4.10(j), and as traded. Accordingly, where disclosure in the first year of an investor’s adopted in Rule 4.10(h), the ‘‘trading of information concerning traders is participation in order for the investor to manager’’ of a pool is defined as any appropriate, the same information recoup his initial investment, and Rule person other than the pool’s CPO with should be required of those who 4.10(j) as adopted so states. As noted authority to allocate pool assets to CTAs supervise or hire them. As adopted in above, Rule 4.10(j) provides that the or investee pools. Rule 4.10(h) further Rule 4.10(e)(2) only grammatical break-even point must be calculated makes clear that sole or partial authority changes were made to the definition of pursuant to rules promulgated by a will bring a person within the trading ‘‘trading principal’’ in proposed Rule registered futures association. NFA’s manager definition. 4.10(m). Interpretive Notice accompanying its Compliance Rule 2–13(b) sets forth the No comments addressing the trading G. Break-Even Point: Rule 4.10(j) manager definition were received. manner in which the break-even point Commission rules have not previously In order to make the impact of costs must be calculated and includes a expressly taken account of pool and fees on an investment more sample break-even presentation. The structures in which a trading manager, understandable to the prospective amount of trading profit required for the rather than the pool’s CPO, allocates investor, the Commission proposed that pool assets. The Commission the narrative discussion of fees and 41 Proposed Rule 4.10(n) would also have expenses be supplemented by required that the break-even point be expressed as emphasizes that trading managers are a percentage of the minimum unit of initial CTAs and are required to be registered presentation of the ‘‘break-even point’’ investment based upon assumed redemption of the as such. Thus, although trading for an offered pool and a clear initial investment at the end of the first year of managers do not function as direct explanation of how that break-even investment. point is calculated. Proposed Rule 42 Comments addressing the manner of traders for the pool, they have the calculating the break-even point are discussed ability to influence the pool’s trading to 4.10(n) would have defined ‘‘break-even below with Rule 4.24(i) (‘‘Fees and Expenses’’) in a very significant degree. Due to the point’’ as the trading profit that a pool paragraph B.5. of Section VI. importance of the role of trading or trading program must realize in its 43 Rule 4.10(j) omits the reference in the proposed manager, in a number of contexts the first year to equal all fees and expenses rule to ‘‘trading program’’ and ‘‘client.’’ A break- such that a participant or client will even point is not required for CTA Disclosure Documents, as CTA clients generally are subject to 40 Suggested options included ‘‘capital protected recoup its initial investment, as a much simpler fee and expense structure than are pools’’ and ‘‘principal return guaranteed pools.’’ calculated pursuant to rules pool participants. 38154 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations net asset value per unit of participation period in which the initial month-end past performance generally is the only after one year to equal the initial selling net asset value is not equaled or required performance presentation. price per unit is expressed both as a exceeded by a subsequent month-end (Rule 4.25(b)). dollar amount and as a percentage of the net asset value. The worst peak-to-valley Where the offered pool does not have initial selling price per unit. The draw-down must be expressed as a the requisite operating history, the CPO Commission based its approval of NFA’s percentage of the initial month-end net must present performance data for the amendment to Compliance Rule 2–13 asset value, together with an indication offered pool, for the CPO (and trading and accompanying Interpretive Notice of the months and year(s) of such manager, as applicable), and the pool’s on, among other things, the decline from the initial month-end net major CTAs and investee pools. (Rules understanding that NFA would amend asset value to the lowest month-end net 4.25 (c)(2) through (c)(4)). A textual the Interpretive Notice to clarify that the asset value of the draw-down. For discussion of relevant performance CPO of a continuously-offered pool purposes of Rules 4.25 and 4.35, a peak- factors for non-major CTAs and investee must include an updated break-even to-valley draw-down which began prior pools also is required. (Rule 4.25(c)(5)). analysis in the pool’s Disclosure to the beginning of the most recent five Some performance data may be Document throughout the pool’s calendar years is deemed to have presented on a composite basis. (Rule existence, such that each new occurred during such five-calendar-year 4.25(a)(3)). All performance data may be participant would be informed of a period. presented in a capsule format. break-even point that was accurate as of With respect to CTA Disclosure the date of the Disclosure Document.44 V. Performance Disclosures: Section-by- Section Analysis 46 Documents, the performance of the Revision of the break-even point is thus offered trading program is the primary required for ongoing pool offerings A. Introduction focus. (Rules 4.35 (a)(1) and (a)(2)). The whenever the actual break-even point performance of accounts traded becomes materially different from that As noted above, the Commission is revising and reorganizing the CPO/CTA pursuant to other trading programs of which appears in the Disclosure the CTA may be presented in single Document. disclosure rules with a view towards simplification of presentation. Rules composite, provided the rates of return H. Draw-Down and Worst Peak-to- 4.21 and 4.31 continue to require CPOs are not materially different, material Valley Draw-Down: Rules 4.10 (k) and and CTAs, respectively, to deliver a differences among the accounts (l) Disclosure Document.47 Rules 4.24 with included in the composite are disclosed, Commenters noted that although the respect to CPOs, and 4.34 with respect and the composite presentation is not capsule performance presentation to CTAs, set forth requirements misleading. (Rule 4.35(a)(3)). format in proposed Rules 4.25 and 4.34 concerning disclosure of all matters As the volume of required required registrants to disclose the other than past performance, and Rules performance disclosures for both CPOs largest monthly draw-down and the 4.25 for CPOs and 4.35 for CTAs set and CTAs is being considerably worst continuous peak-to-valley draw- forth past performance disclosure reduced, the time period for these down for the pool or account, the term requirements.48 disclosures is being increased from ‘‘draw-down’’ was not defined. To As proposed and as adopted, past three years to five years in order to address this concern, the Commission is performance disclosure requirements provide investors with a better adopting as Rule 4.10(k) a definition of are being substantially condensed with chronological perspective of the ‘‘draw-down’’ as ‘‘losses experienced by the objective of eliminating required performance records presented in the a pool or account over a specified disclosure of performance that is of Disclo- sure Document. (Rule 4.25(a)(5) period.’’ Similarly, the Commission has secondary relevance to the offered pool for CPOs and Rule 4.35(a)(5) for CTAs). adopted Rule 4.10(l), which defines the or trading program. Thus, the revised This approach accords with the views of ‘‘worst peak-to-valley draw-down,’’ 45 as rules provide a new ‘‘capsule’’ format the NFA Special Committee for Review the greatest cumulative percentage for performance record presentations of CPO/CTA Disclosure Issues.49 decline in month-end net asset value that is intended to provide a simple, B. Required Performance Disclosures 50 due to losses sustained by a pool, balanced and succinct overview of account or trading program during a performance. Use of the capsule format 1. Required Performance Disclosures in should substantially reduce the volume CPO Disclosure Documents: Rule 4.25 44 The Commission also reminded NFA that in of performance data presented without explaining and enforcing member compliance with The new summary format for sacrificing material content. presentation of past performance history NFA break-even analysis requirements the fee and With respect to past performance in expense categories in the Interpretive Notice to is intended to capture the most CPO Disclosure Documents, the revised Compliance Rule 2–13(b) should not be considered significant information concerning a exhaustive or exclusive, and that NFA should rules focus primarily upon the historical pool’s performance in a reader-friendly, ensure that CPOs do not use that listing to avoid performance of the offered pool. Where largely nontabular form. This format including a cost in the pool’s break-even analysis. the offered pool has a three-year trading With respect to interest income, the Commission will generally permit multiple track history and meets certain contribution stated its understanding that NFA would require records to be provided on a single page. inclusion in the break-even analysis of a projection criteria as specified in Rule 4.25(b), its of a pool’s expected interest income at an assumed The new format is set forth in Rule interest rate reflecting then current cash market 4.25(a)(1) for pool documents and Rule 46 Tables summarizing past performance conditions, and it stated that to the extent that a 4.35(a)(1) for CTA documents.51 person other than a pool participant receives any disclosure requirements under the revised rules and portion of the pool’s interest income, such payment demonstrating the use of the new capsule format are should be disclosed as a fee or expense in the pool’s set forth below at paragraph B.7. of this Section V. 49 NFA’s Submission at 7. break-even analysis. 47 Requirements with respect to the use, 50 To facilitate understanding of the new 45 As discussed in paragraph B.1. of Section V amendment and filing of the Disclosure Document performance requirements, paragraph B.7., infra, below, the word ‘‘continuous’’ has been omitted are now contained in new Rules 4.26 for CPOs and provides: (1) A table summarizing the past from the capsule item ‘‘worst continuous peak-to- 4.36 for CTAs, discussed more fully below at performance requirements of Rules 4.25 and 4.35; valley draw-down’’ in proposed Rule Section VII. and (2) examples of capsule performance 4.25(a)(1)(i)(G) and from the item ‘‘worst ever 48 Captions have been added to the subparagraphs presentation under the rules. continuous peak-to-valley draw-down’’ in proposed of Rules 4.25 (a), (b) and (c) and Rules 4.35 (a) and 51 As discussed more fully below, the Rule 4.25(a)(1)(ii)(F). (b) to increase ease of reference. Commission has determined to permit CTA Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38155 a. Capsule Performance Presentation: in CTA Disclosure Documents, with the The Commission requested comment Rule 4.25(a)(1) 52 exception of the performance of the as to whether past performance offered trading program, to follow the presentations would provide more CPOs capsule format as specified in Rule meaningful information if they were As proposed in Rule 4.25(a)(1)(i), the 4.25(a)(1)(ii) (C) through (G). required to include rates of return on a capsule for pool performance in CPO Comments. Commenters expressed risk-adjusted basis, that is, reduced by Disclosure Documents would have been uniformly strong support for the the relevant Treasury Bill rate or required to contain the following proposed new capsule format for past comparable interest figure, or to break information: The name of the pool; a performance disclosure. One out trading results from passive interest statement as to whether the pool is commenter, however, recommended income. The only commenter privately offered pursuant to the that the revised rules expressly permit specifically addressing this request Securities Act of 1933, as amended (the a CPO to continue to present expressed the view that risk-adjusted ‘‘Securities Act’’),53 a multi-advisor pool performance in the multi-column rates of return would not make or a principal-protected pool; the date tabular format required by former Rule performance presentations more when the pool commenced trading; the 4.21(a)(4). Many commenters requested meaningful and contended that aggregate gross capital subscriptions to that the Commission define the term indexing performance based upon the pool; the pool’s current net asset ‘‘draw-down,’’ as used in the proposed another form of investment implied that value; the ‘‘largest monthly draw- capsule format. Commenters also noted participation in a commodity pool was down’’; the ‘‘worst continuous peak-to- that use of the word ‘‘continuous’’ in the somehow comparable to such other valley draw-down’’; and annual and capsule item ‘‘worst continuous peak-to- investment. year-to-date rates of return, computed valley draw-down’’ could be read to on a monthly compounded basis,54 for mean that any intermediate upward Technical Changes to Capsule the preceding five calendar years and movement terminates the draw-down, The Commission is adopting the year-to-date (or for the life of the pool thus permitting a small ‘‘uptick’’ to capsule format for performance if shorter). In the case of the offered disguise the true magnitude of a long presentations in pool Disclosure pool’s capsule, monthly rates of return draw-down, since the uptick would Documents, with certain technical would have been required for the entire break the continuity but not the decline modifications as noted below. In performance period. in asset value. Suggested alternatives adopting the capsule performance Similar data would have been were ‘‘worst absolute peak-to-valley format, the Commission stresses that required in capsule presentations of the draw-down’’ and ‘‘worst peak-to-valley this summary format is designed for performance of accounts in CPO period.’’ One commenter sought purposes of presentation in Disclosure Disclosure Documents. Proposed Rule confirmation that the proposed rule Documents only. CPOs and CTAs must 4.25(a)(1)(ii) would have called for would require disclosure of the number continue to compute performance on inclusion in the capsule format of: The of successive months during which net the same basis as under the former name of the CTA or other person trading asset value failed to exceed the pool’s rules 56 and to maintain records the account and the name of the trading prior high water mark and the total substantiating such computations in program; the date when the CTA began percentage decline over that period. accordance with Rule 1.31.57 The trading client funds and the date of Numerous commenters criticized the Commission is not adopting at this time inception of trading for the trading proposed requirement that monthly a requirement that registrants present program being disclosed; the number of rates of return be presented for the past performance on a risk-adjusted accounts in the program as of the offered pool over the entire five-year basis. performance period (or for the life of the Disclosure Document date; the total Draw-Down Information assets under the management of the offered pool if less than five years), CTA and in the trading program; the claiming that such data would detract The required draw-down information, ‘‘largest monthly draw-down’’ for the from the simplicity and clarity of the which is based upon activity occurring program; the ‘‘worst ever continuous capsule format. One commenter for the most recent five calendar years peak-to-valley draw-down’’ for the contended that monthly rates of return and year-to-date, is intended to inform trading program; and annual and year- are not relevant to a medium to long- prospective participants of the nature of to-date rates of return for the offered term investment such as managed the volatility actually experienced by trading program (again, computed on a futures. Various alternative indicators of the pool by demonstrating the monthly compounded basis). volatility were proposed in lieu of significant one-month and sustained monthly rates of return, including the declines to which the commodity pool CTAs pool’s standard deviation over its life, As proposed, Rule 4.34(a)(2) would the best and worst monthly and annual and academic input provided at the Commission’s returns, and the number of profitable April 25, 1995, roundtable discussion and other have required all performance presented available data. and losing months. One commenter 56 Although only the amounts specified in Rules documents to present the past performance of the recommended that the capsule also 4.25(a) (1) and (2), and Rules 4.35(a) (1) and (2) offered trading program in the new capsule format. include such information as largest need be set forth in the Disclosure Document, the 52 Rule 4.10(k), which defines the term ‘‘draw- monthly increase and greatest valley-to- same performance calculations as previsouly down,’’ and Rule 4.25(a)(7), relating to required must be made, as specified in Rule substantiating past performance calculations, are peak increase in order to provide a 4.25(a)(7) for CPOs and Rule 4.35(a)(6) for CTAs, as also discussed in this section. balanced presentation. A number of such rules may be interpreted by the Commission. 53 For this purpose private offerings may be commenters urged the Commission to The corresponding former rules are former Rule pursuant to section 4(2) of the Securities Act of resolve the issue of the use of notional 4.21(a)(4)(ii) and former Rule 4.31(a)(3)(ii), 1933, as amended, 15 U.S.C. 77d(2), or Regulation funds and nominal account sizes in respectively. D thereunder, 17 CFR 230.501–230.508 (1994). 57 55 Among other things, Rule 1.31 requires all 54 See Rule 4.25(a)(1)(i)(H). Annual rates of return performance presentations. books and records to be maintained for a period of computed on a monthly compounded basis assume five years and to be available for inspection by any reinvestment of accrued profits and therefore the 55 As noted above, the Commission is reviewing representatives of the Commission or the U.S. investment base on which rates of return are the subject of ‘‘notional funds’’ performance data Department of Justice. CTAs also are subject to calculated is effectively adjusted by these amounts. with the benefit of industry, end-user, regulatory those requirements. 38156 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations has actually been subject. To ensure that draw-downs of several pools. As funding and the generic disclosures the worst long-term draw-down is explained in the Proposing Release,59 a discussed in Advisory 93–13. properly represented, Rules 4.25(a) and peak-to-valley draw-down of 4 to 8–91/ b. Pools With Three or More Years 4.35(a), as adopted, require the capsule 25% would indicate that the peak-to- Operating History That Meet to include the ‘‘worst peak-to-valley valley lasted from April to August of Contribution Criteria: Rule 4.25(b) 62 draw-down,’’ eliminating the 1991 and resulted in a twenty-five qualification ‘‘continuous.’’ 58 percent draw-down of the pool’s net As proposed, Rule 4.25(b) would have The Commission also is adopting asset value. limited required performance definitions of the terms ‘‘draw-down’’ disclosures in pool Disclosure and ‘‘worst peak-to-valley draw-down.’’ Monthly Rates of Return Documents to the offered pool’s performance if: (1) The pool had traded Rule 4.10(k) provides that ‘‘draw-down’’ The Commission has determined to means losses experienced by a pool or commodity interests for three years or modify the proposal with respect to account over a specified time period. more, (2) no fewer than fifteen pool monthly rates of return for the offered Thus, a draw-down is a decline in net participants were unaffiliated with the pool to permit flexibility as to the form asset value due to reasons other than CPO, and (3) no more than ten percent of presentation. As adopted, Rule redemptions or withdrawals. To assist of the pool’s assets were contributed by 4.25(a)(2) provides that the capsule for readers who may not be familiar with the CPO. As stated in the Proposing the offered pool must contain monthly industry terminology, the Commission Release, the Commission believes that, rates of return for the five most recent has also added a requirement that the generally, ‘‘where a pool has an calendar years and year-to-date (or the capsule format include, in a footnote or extensive operational history, pool’s life, if shorter) presented either in otherwise, a definition of the term presentation of the pool’s own past tabular form or in a bar graph. If a bar ‘‘draw-down’’ that is consistent with the performance record should fulfill the chart is used, the bar chart must clearly definition set forth in Rule 4.10(k). Rule objectives of past performance indicate monthly rates of return and 63 4.10(l) defines ‘‘worst peak-to-valley disclosure.’’ If, however, the pool’s must also prominently indicate annual draw-down’’ as the greatest cumulative past performance record was accrued rates of return. Rule 4.25(a)(2)(iv) percentage decline in month-end net under conditions that differed requires that the CPO make available asset value due to losses sustained by a materially from those which will obtain upon request to prospective and existing pool, account or trading program during prospectively, the pool’s historical participants the supporting data any period in which the initial month- performance record alone may not be necessary to calculate monthly rates of end net asset value is not equaled or sufficient. For example, if the pool’s return for the offered pool as specified exceeded by a subsequent month-end past performance record encompasses in Rule 4.25(a)(1). net asset value. The rule specifies that periods when the pool was essentially a the worst peak-to-valley draw-down The Commission notes that registrants proprietary trading vehicle investing a must be expressed as a percentage of the may present performance information in relatively small amount of funds initial month-end net asset value, the multi-column format specified by contributed by third party sources, the together with an indication of the former Rule 4.21(a)(4) in addition to the performance record generated may have months and year(s) of such decline from capsule format specified by Rule little or no relevance to a publicly offered pool.64 Accordingly, to assure the initial month-end net asset value to 4.25(a)(1), provided that any that the three-year performance history the lowest month-end net asset value of performance presented in the would not represent the performance of such decline. For purposes of the superseded format is treated as a significantly dissimilar trading revised rules, a peak-to-valley draw- supplemental information and is placed vehicle, the Commission proposed to down which began prior to the following all of the required limit past performance disclosure to the beginning of the most recent five performance disclosures in the past performance of only the offered calendar years is deemed to have Disclosure Document.60 pool where, and only where, the pool occurred during such five-calendar-year Registrants who offer notional period. programs may disclose monthly rates of 62 Former Rule 4.21(a)(4) required disclosure of Both monthly and peak-to-valley return in the capsule disclosure for CTA the performance record of the offered pool. If the draw-down amounts are to be expressed programs using the fully-funded subset offered pool had less than a twelve-month as a percentage of the net asset value at described in Advisory 93–13.61 performance history, the performance of the CPO the beginning of the specified period. and of each of its principals was also required to Commission staff will provide guidance be disclosed. Former Rule 4.21(a)(5) also required The largest monthly draw-down concerning supplemental data to disclosure of the past performance of all other indicates the largest net asset loss accompany the capsule disclosure to accounts directed by the pool’s CTA and each of its experienced by the pool in any calendar reflect the range of levels of partial principals, regardless of the duration of the pool’s month, and the month and year in operating history. which that loss occurred. The worst 63 59 FR 25351, 25356. 59 59 FR 25351, 25356. 64 See Elton, Gruber and Rentzler, New Public peak-to-valley draw-down indicates the 60 This statement also applies to CTAs. See Rule Offerings. Information and Investor Rationality: The largest calendar month-to-calendar 4.24(v) for CPOs and Rule 4.34(n) for CTAs, Case of Publicly Offered Funds, 62 J. Bus. 1 (1988); month net asset loss experienced by the concerning supplemental disclosures, discussed in and Edwards and Ma, Commodity Pool pool during any period and the months paragraph C.1. of this Section V. Performance: Is the Information Contained in Pool 61 CFTC Advisory 93–13, (Current Transfer Prospectuses Useful?, Working Paper Series No. 16, and year in which it occurred. Dating Binder) Comm. Fut. L. Rep. (CCH) ¶ 25,554 Center for the Study of Futures Markets, Col. Bus. the monthly and peak-to-valley draw- (February 12, 1993). Advisory 93–13 requires that Sch. (January 1988). See also, Statement of the downs permits participants to assess CTAs who manage or offer to manage partially- Commodity Futures Trading Commission Regarding whether the losses were connected to funded (‘‘notionally’’ funded) accounts present both Disclosure by Commodity Pool Operators of Past actual and nominal funds under management and Performance Records and Pool Expenses and market conditions by comparing the give certain disclosures in connection with Request for Comments, 54 FR 5597, (February 6, partially-funded accounts. The Advisory also 1989); and companion release of the Securities and 58 The word ‘‘continuous’’ is eliminated from provides a method for presenting rates of return for Exchange Commission, Statement of the Rules 4.25(a)(1) (i)(G) and (ii)(F), and the extraneous a trading program in a single table on the basis of Commission Regarding Disclosure by Issuers of word ‘‘ever’’ is eliminated from Rule a ‘‘fully funded subset’’ of accounts within that Interest in Publicly Offered Commodity Pools, 54 FR 4.25(a)(1)(ii)(F). trading program. 5600 (February 6, 1989). Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38157 had a three-year trading history with at commenters contended that Rule 4.25 as of the pool during the three years, given least fifteen unaffiliated participants proposed would have the undesirable appropriate disclosure, generally should and no more than ten percent effect of discouraging CPOs from not disqualify the pool from satisfying participation by the CPO. investing in the pools they operate. the three-year criteria. However, The Commission requested comment Three commenters proposed adopting registrants should exercise caution in as to whether, where the offered pool either the CPO investment test or the cases in which such differences exist, has a three-year operating history, that unaffiliated participant test. taking into account that the requirement performance record is generally The Commission has adopted Rule to disclose all material information sufficient without supplementary 4.25(b) with several modifications to includes past performance disclosure performance data concerning the pool’s afford greater flexibility in its and thus that where significant changes CTAs or other pools operated by the application. The requirement that the in the offered pool might cause CPO. Three of the nine commenters who pool have had no fewer than fifteen presentation of the offered pool’s past responded to the Commission’s request participants unaffiliated with the pool performance by itself to be misleading, operator has been eliminated and the agreed with the proposal, stating that if additional performance disclosure may a pool has a three-year history, only its maximum level of contribution of assets be required. own past performance should be by the CPO has been increased. As required. Six of the nine recommended adopted, Rule 4.25(b) provides for past The Commission believes that the that the twelve-month standard of performance disclosure to be limited to different purposes of Rule 4.25(a)(8), former Rule 4.21(a)(4), which related to that of the offered pool if both of the which defines proprietary trading the presentation of other pools operated following criteria are met: (1) The pool results and requires appropriate by the CPO, should be used to identify has traded commodity interests for at placement and labelling of such results, pools for which only the performance of least three years; and (2) during the and of Rule 4.25(b), which identifies the offered pool is required. three-year (or greater) period, at least pools for which no performance history The Commission also sought seventy-five percent of the pool’s assets other than that of the offered pool is comment as to whether the offered were contributed by persons unaffiliated required, warrant different standards as pool’s operating history should be with the CPO, the trading manager (if to the relevant amount of proprietary considered for purposes of the three- applicable), the pool’s CTAs, or any of participation. A more stringent year minimum if such history was their principals. limitation upon qualifying pools is acquired when the pool differed in some The performance of an offered pool appropriate for use in Rule 4.25(b), material respect from the pool as which has the requisite three-year which eliminates the necessity for offered, for example, in cases in which operating history is required to be certain otherwise required disclosures, the pool’s CTA, types of interests traded disclosed for five full calendar years and as compared to that of proposed Rule or the trading program had been year-to-date or, if the pool has less than 4.25(a)(8). Unlike Rule 4.25(b), which significantly modified or the pool was a five-year history, for the pool’s entire identifies pools for which no additional initially privately offered but operating history,66 in the specified performance data other than that of the subsequently was offered to the public. capsule format.67 The CPO is free to offered pool is required, Rule 4.25(a)(8) All but one of the persons who include additional performance determines the percentage at which responded to this request stated that information, subject to the provisions proprietary participation essentially 68 material differences should be disclosed relating to supplemental disclosures. renders a trading vehicle a proprietary but should not disqualify a pool from The Commission notes that the vehicle, the trading results for which meeting the three-year criteria of the twelve-month standard in former Rule were obtained under conditions that 4.21(a)(4) related only to disclosure of rule. render the performance data the performance of other pools operated Several commenters suggested presumptively inappropriate for by the CPO and did not affect former elimination or modification of the inclusion with and, indeed, potentially Rule 4.21(a)(5)’s requirement to disclose requirement that the requisite three-year misleading if included with, the the performance of the CTAs for the operating history be obtained when the performance of the offered pool. pool had at least fifteen unaffiliated pool. Under Rule 4.25(b), if the offered participants. Commenters warned that pool has the requisite three-year c. Pools With Less Than A Three-Year pools with high minimum investments operating history, neither the Operating History: Rule 4.25(c) 69 (and few participants) would be performance of the CPO’s other pools Disclosure Documents for offered unjustly penalized by this restriction. nor the performance of the pool’s Several commenters recommended that CTA(s) must be presented. In view of pools that do not satisfy the criteria of the requirement that the CPO have the elimination of all other performance proposed Rule 4.25(b) would have been contributed no more than ten percent of data, including CTA performance under required under proposed Rule 4.25(c) to the pool’s assets be modified to increase the new disclosure framework, the include the performance records of the the permissible level of CPO Commission believes that a three-year offered pool, each other pool operated participation, e.g., to fifty percent, and rather than a one-year history is the or account traded by the CPO (or trading two commenters noted that this would appropriate minimum. manager), the CPO’s (or trading The Commission agrees that material harmonize with the fifty percent manager’s) trading principals if the CPO differences in the operation or structure standard in proposed Rule 4.25(a)(9) for (or trading manager) had less than a determining whether past performance three-year history, and the performance 66 Rule 4.25(a)(5). of each ‘‘major’’ CTA and ‘‘major’’ results must be treated as proprietary 67 Rule 4.25(b). As adopted, the text of Rules trading results for the purpose of 4.25(b) and 4.25(c) is being amended to clarify that separating such results from other past where the offered pool meets the criteria of Rule 69 Rule 4.25(c) employs certain key terms, 65 4.25(b), the CPO is required to present only the ‘‘trading manager,’’ ‘‘major commodity trading performance information. Several offered pool’s performance. Where the offered pool advisor,’’ ‘‘major investee pool,’’ and ‘‘trading does not meet the Rule 4.25(b) criteria, the CPO principal,’’ which are defined in Rules 4.10(h), 65 Proposed Rule 4.25(a)(9), adopted as Rule must provide additional performance disclosure as 4.10(i), 4.10(d)(5) and 4.10(e)(2), respectively. These 4.25(a)(8), is discussed at paragraph C.2. of this detailed in Rule 4.25(c). definitions are discussions in detail in Section IV, Section V. 68 See Rule 4.24(v). supra. 38158 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations investee pool.70 Disclosure of ‘‘adverse not provide an objective basis for (i) Performance of Major Commodity performance’’ results would have been distinguishing among pools for past Trading Advisors: Rule 4.25(c)(3) required to be indicated (or in the performance disclosure purposes. For pools that do not have the three- alternative, capsule performance could Accordingly, given the lack of precise year operating history specified in Rule have been presented) for non-major standards on which to base a regulatory 4.25(b), the revised rules require capsule CTAs allocated at least ten percent of distinction between dynamically format disclosure of CTA past the pool’s initial margins and managed multi-advisor pools and other performance only for ‘‘major’’ CTAs. commodity option premiums and for types of pools, the Commission has As discussed above,75 the term ‘‘major investee pools allocated at least ten elected not to employ such a distinction commodity trading advisor’’ is defined percent of the pool’s assets.71 in constructing the past performance in Rule 4.10(i) as a CTA allocated or Adverse performance was defined in disclosure requirements. intended to be allocated ten percent or proposed Rule 4.25(a)(8) as ‘‘any annual As adopted, Rule 4.25(c) reflects more of the smaller of (i) the pool’s return of one hundred basis points less several modifications from the proposed aggregate net assets, or (ii) the aggregate than the ninety day Treasury Bill rate on rules, principally the elimination of the value of the assets allocated to the December 31 of the calendar year in category of CTAs and investee funds for pool’s trading advisors, as determined which the performance occurred or any which disclosure of adverse based upon the agreement between the termination of a pool pursuant to a loss performance would have been required. CPO and the CTA. termination provision.’’ The Commission received comments Upon consideration of the comments (ii) Performance of Major Investee Pools: on various components of Rule 4.25(c). received, the Commission has Rule 4.25(c)(4) A number of commenters urged the determined to simplify the disclosure requirements such that all CTAs and The revised rules also require Commission to eliminate the proposed disclosure of past performance of intermediate category for CTAs and investee funds will be either major and capsule format presentations of their investee pools constituting ‘‘major investee pools 72 for whom adverse investee pools,’’ if the offered pool does performance disclosure would have past performance required (Rule 4.25 (c)(3) and (c)(4)), or non-major and a not meet the standard of Rule 4.25(b). been required and to adopt a two-tier As discussed above,76 Rule 4.10(d)(5) narrative discussion of matters relevant system in which full performance defines ‘‘major investee pool’’ as an to their past performance required. disclosure would be made for CTAs investee pool allocated or intended to be (Rule 4.25(c)(5)). As noted above, the (and investee pools) above the allocated at least ten percent of the net definitions of ‘‘major commodity trading threshold, and none for CTAs (and asset value of a pool.77 A commenter advisor’’ (Rule 4.10(i)) and ‘‘major investee pools) below the threshold. noted that the term ‘‘investee pool’’ was investee pool’’ (Rule 4.10(d)(5)) have Several commenters suggested that not defined in the former rules or in the been revised accordingly, such that a where a CPO makes (and is authorized proposed revisions. As noted above,78 ten percent, rather than a twenty-five to make) frequent changes in the pool’s the Commission has adopted a percent allocation is the operative CTAs and the size of the allocations to definition of ‘‘investee pool,’’ set forth those CTAs, required disclosures with threshold. in Rule 4.10(d)(4), as ‘‘any pool in respect to CTAs should be eliminated or With respect to pools that do not have which another pool or account substantially reduced. The emphasis in the requisite three-year operating participates or invests, e.g., as a limited such cases, according to these history with at least seventy-five percent partner thereof.’’ commenters, should be on the CPO/ of the pool’s assets contributed by trading manager’s performance persons unaffiliated with the CPO, (iii) CTAs and Investee Pools That Are operating multi-advisor pools. The trading manager, CTAs, or their Not ‘‘Major’’: Proposed Rules 4.25(a)(8) Commission notes, however, that the respective principals, Rule 4.25(c) and 4.25(c)(3)(iii) distinction between ‘‘active allocation’’ requires presentation of the past The Commission had proposed in CPOs (or trading managers) and other performance records of the offered pool, Rule 4.25(c)(3)(iii) to require that the CPOs (or trading managers) does not each other pool operated or account CPO of an offered pool that does not appear to be susceptible to a bright line traded by the CPO (and trading satisfy the criteria of Rule 4.25(b) test, as most if not all CPOs and trading manager, if applicable), the CPO’s (and indicate any ‘‘adverse performance’’ (or, managers assume some responsibility trading manager’s) trading principals if alternatively, provide a complete past for ongoing management and evaluation the CPO (or trading manager) has less performance capsule) with respect to of CTAs. Consequently, the relative than a three-year history, and the those CTAs and investee pools allocated significance of the CPO’s or trading performance of each major CTA and at least ten but less than twenty-five manager’s asset allocation expertise, as major investee pool.73 If a CTA or percent of the pool’s assets (initial compared to the CTAs’ trading program investee pool is not ‘‘major,’’ a summary margins and premiums in the case of and skills, varies significantly and may description of the performance history CTAs). Under proposed Rule 4.25(a)(8), of such advisor or pool is required in ‘‘adverse performance’’ would have 70 If the pool or such persons did not have a prior lieu of capsule performance data. To the included: (i) Any annual rate of return trading history, indication of the lack thereof would have been required, using legends set forth in Rule extent that performance of principals is that was at least one hundred basis 4.25(c). required, the revised rules require points less than the ninety-day Treasury 71 Proposed Rule 4.25(c)(3)(iii) would also have disclosure of the past performance of Bill rate on December 31 of the same required that adverse performance be indicated for ‘‘trading principals’’ only.74 any account directed, or pool operated, by the CPO, requirements mandated disclosures concerning all and any trading principal of the CPO or trading principals. manager (if any), unless such person’s performance 73 If the pool or such specified persons do not 75 was otherwise required to be disclosed. have a prior trading history, the lack thereof must See paragraph A. of Section IV. 76 72 The middle tier of the proposed three-tier be indicated by legends set forth in Rule 4.25(c), See paragraph B. of Section IV. disclosure scheme consisted of CTAs allocated at and discussed below in paragraph B.6. of this 77 The term ‘‘pool’’ continues to be defined in least ten, but less than twenty-five, percent of initial Section V. Rule 4.10(d)(1) as ‘‘any investment trust, syndicate futures margin and option premiums, and investee 74 See Rule 4.25(c)(2), and Rule 4.10(e)(2) which or similar form of enterprise operated for the pools allocated at least ten, but less than twenty- defines the term ‘‘trading principal,’’ discussed purpose of trading commodity interests.’’ five, percent of pool assets. above in Section IV. Former disclosure 78 See paragraph B. of Section IV. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38159 year; or (ii) the termination of a pool investee pools. As adopted, the revised portion of the pool’s assets, all of the pursuant to a loss termination rules omit the proposed requirement to pool’s assets, or even a multiple of the provision. Adverse performance would indicate adverse performance for CTAs pool’s assets, may effectively be have been indicated by giving the year and investee pools with allocations of at allocated to CTAs or investee pools of occurrence, the rate of return, the least ten percent, but less than twenty which are not ‘‘major’’ and about whom identity of the CPO or CTA responsible, five percent.80 Because this type of performance data and other information and that person’s relationship to the individual performance disclosure is may not generally be presented. offered pool.79 The Commission sought being eliminated for non-major CTAs Nonetheless, such advisors and investee comment with respect to the proposed and investee pools, the Commission has pools collectively may determine the definition of adverse performance, and determined to reduce the percentage success or failure of the pool. It also in particular, as to whether any allocation standard for major CTAs and reflects the fact that quantitative additional benchmarks would be investee pools from twenty-five to ten allocation figures alone may not be appropriate for identifying what past percent. As discussed more fully below, adequate to identify the extent of a performance was sufficiently ‘‘adverse’’ a narrative summary description is particular advisor’s or investee pool’s to warrant disclosure. required for CTAs and investee pools impact upon the offered pool. For Numerous commenters strongly with lesser allocations. example, a CTA with a five percent allocation may have such an aggressive criticized both the adverse performance (iv) Past Performance of CTAs and trading strategy that the impact of its characterization and the concept of Investee Pools That Are Not Major: Rule trading results on the overall return of requiring specific disclosure of 4.25(c)(5) performance below a selected risk-free the pool may be greater than the impact rate. In particular, several commenters As noted above, the Commission has of a trading advisor with an equivalent objected to the adjective ‘‘adverse’’ as adopted a simplified approach to the or larger allocation who follows a less unnecessarily pejorative. Several disclosure of past performance under aggressive trading strategy. Under Rule commenters criticized the Treasury Bill which capsule performance data would 4.25(c)(5), CPOs will be able to devise benchmark as an inappropriate standard be required for CTAs and investee pools individualized approaches to conveying for a managed futures investment, and with ten percent or greater allocations the historical volatility and other some commenters proposed alternative and no intermediate category of CTAs pertinent characteristics of the past triggering events, such as a losing year, and investee funds would exist for performance of non-major CTAs and or a specified monthly or quarterly which ‘‘adverse performance’’ would be investee pools. draw-down. Commenters asserted that disclosable. The Commission recognizes, however, that any simple (v) Updating Past Performance CPOs would generally opt for including Information for Certain Persons: the full performance capsule rather than quantitative standard such as the ten percent allocation standard can provide Proposed Rules 4.22(a)(4) and 4.26(c) highlight negative results and, thus, that for CPOs 81 performance presentations would not in only a convenient point of reference to fact be streamlined by use of the adverse assure a minimum level of performance The Commission proposed to add a performance concept. Several disclosure, but that pools may be new paragraph (a)(4) to Rule 4.22, commenters suggested a simplified, structured, or their assets traded in such which would have required the periodic a manner, that use of the ten percent Account Statement that a CPO must two-tier allocation standard for CTA and allocation standard will not be sufficient deliver to pool participants to include investee pool performance disclosure, to identify all potentially relevant past the names of all of the pool’s CTAs and with full disclosure for those above a performance data. Consequently, to investee funds (including investee specified percentage (between ten and supplement the required performance pools), together with the percentage of twenty-five percent) and no data for major CTAs and investee pools, pool assets each is allocated, regardless performance disclosure for those with the Commission is requiring in Rule of the amount of pool assets so lesser allocations. 4.25(c)(5) a summary description of the 82 The Commission agrees with the allocated. Rule 4.22(a)(4) would also performance history of non-major CTAs proposition that material CTA or have required that the Account and investee pools, including monthly investee pool performance should be Statement include past performance return parameters, i.e., highest and fully disclosed, and it believes that disclosure with respect to each new lowest monthly rates of return, multiple standards can be confusing. major CTA or major investee pool for historical volatility information, an Accordingly, the Commission is whom past performance data was not explanation of the degree of leverage adopting a two-tier disclosure standard previously provided in the Disclosure used in the trading of such CTA or for an offered pool’s CTAs and investee Document, i.e., CTAs and investee investee pool, and an identification of pools, rather than the three-level funds previously allocated less than ten any material differences between the approach set forth in the Proposing percent of the pool’s futures margins or performance of such advisors and pools Release. Under the adopted standard, assets, respectively. and that of the offered pool’s major Commenters criticized the proposed full performance disclosure, i.e., capsule trading advisors and investee pools. inclusion of performance information in performance data, is required with This requirement for summary Account Statements as unreasonably respect to CTAs and investee pools with performance disclosure of non-major expensive and burdensome. Some allocations in excess of the designated CTAs and investee pools reflects the fact commenters contended that Account benchmark, i.e., ‘‘major’’ CTAs and that the trading of pool assets may be Statements are essentially financial distributed among multiple CTAs and statements subject to audit and should 79 Unless their past performance was otherwise disclosed, Rule 4.25(c)(3)(iii) would also have investee funds, such that a substantial required an indication of adverse performance with 81 Because of the differences between CPOs and respect to accounts (including pools) traded by the 80 The requirement in proposed Rule CTAs, CTAs have no corresponding requirements. CPO, the trading principals of the CPO (or trading 4.25(c)(3)(iii) to indicate adverse performance on 82 Rule 4.22(b) states that the Account Statement manager), trading principals of major CTAs that had the part of accounts (including pools) directed or must be distributed at least monthly in the case of no prior trading history, and the trading principals operated by the offered pool’s CPO, any trading pools with net assets of more than $500,000 at the of major investee pools that had no prior trading principal of the CPO or any trading principal of the beginning of the pool’s fiscal year, and otherwise history. trading manager is also being eliminated. at least quarterly. 38160 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations not include performance information. term ‘‘trading manager’’ is defined in that the past performance of the CTA’s Still others argued that Account new Rule 4.10(h) as any person, other offered trading program be presented in Statements should not be used to update than the pool’s CPO, with authority to capsule format.86 The capsule will or amend Disclosure Documents. Other allocate pool assets to CTAs or investee include the names of the CTA and the commenters criticized the requirement pools.85 Rule 4.25(c)(2) requires trading trading program, the dates on which the to identify all CTAs and investee pools, manager performance in addition to CTA began trading client accounts and while under proposed Rules 4.24 (e)(3) CPO performance if the pool has a on which accounts were first traded and (e)(4) only those allocated ten trading manager. In such cases, the pursuant to the trading program, the percent or more of pool assets would be trading manager is, in effect, a number of accounts traded pursuant to required to be identified in the supervisory CTA and the performance the trading program, and the total assets Disclosure Document. of such manager is clearly material. As under management by the CTA and total The Commission notes that the discussed supra, the requirement has assets traded pursuant to the trading proposed expansion of the data to be been changed from an alternate one, i.e., program. The worst monthly and peak- included in Account Statements was CPO or trading manager’s performance, to valley draw-downs experienced by designed largely in response to concerns to include performance of both on the the trading program are also required. expressed by CPOs as to how to basis that even where a trading manager Like the offered pool’s performance in a efficiently update Disclosure Documents has been appointed, generally the CPO CPO Disclosure Document, the capsule to include new CTAs and in response to will continue to exercise ultimate for a CTA’s offered program is required claims that disclosure of the names of control over the pool’s operations. to include monthly rates of return. The investee funds was less onerous and However, in cases where the trading offered trading program’s monthly rates more appropriate in communications manager has been given complete of return may be presented either in a with existing pool participants than in authority over the pool’s trading and the table or in a bar graph or chart. (Rule Disclosure Documents. Further, such performance of the trading manager 4.35(a)(2) (ii) and (iii)). The offered CTA and investee pool information does not differ materially from that of program’s capsule must also include the would not be required to be certified by the pool operator, Rule 4.25(c)(2) number of accounts closed with positive the pool’s accountants. Thus, as provides that performance data for the net performance during the most recent proposed, the rule would have provided pool operator may be omitted. five calendar years and year-to-date, as a convenient mechanism for providing a well as the number of accounts closed 2. Required Past Performance Disclosure complete, current picture of the pool’s with negative net performance during in CTA Disclosure Documents: Rule CTAs and investee pools. the same period. (Rule 4.35(a)(1)(viii)). 4.35 Nonetheless, since the commenters CTAs will be required to provide appeared to find the proposed Proposed Rule 4.34(a)(1) would have prospective and existing clients, upon modifications of Rule 4.22 burdensome required CTAs to continue to present request, with the offered trading rather than helpful, the Commission has past performance of the offered trading program’s performance in the multi- determined not to amend Rule 4.22. program in the full multi-columnar column format previously required. Instead, the existing updating format required by former Rule (Rule 4.35(a)(2)(iv)). requirements for Disclosure Documents 4.31(a)(3). Most commenters strongly The Commission believes that with will continue to apply, except as noted urged that CTAs be permitted to use the the specified additional requirements below with respect to the periodic new capsule format. Some argued that if for the offered trading program, this update requirement. When a pool the offered trading program’s modification of the proposal will result acquires a new major CTA or major performance must be presented in the in simplified CTA Disclosure investee pool, if such event is of multi-column format, the CTA will be Documents, while providing material significance, the CPO will be forced to produce a separate Disclosure prospective clients with material required to notify pool participants and Document for each program he offers or information regarding trading program to provide the relevant information to include all past performance in the volatility. including performance records, as multi-columnar format. One commenter required by Rule 4.26(c),83 within suggested permitting use of the capsule 3. Time Period for Which Required Past twenty-one calendar days after the CPO format for the CTA’s offered trading Performance Disclosures Must Be Made: knows or should know of this program but requiring monthly rates of Rules 4.25(a)(5) for CPOs and 4.35(a)(5) 87 occurrence. As was the case under the return. for CTAs former rules, correction of Disclosure The Commission has determined to Proposed Rules 4.25(a)(7) and Documents may be accomplished by modify proposed Rule 4.34(a) to provide 4.34(a)(4) would have extended the time way of an amended Disclosure period for which performance must be Document, Account Statement, a sticker 85 As the Commission noted in the Proposing disclosed from three years to five years on the Disclosure Document, or other Release, the practice of retaining trading managers (or the life of the pool or account, if less to select and monitor the performance of CTAs and similar means. investee pools to which pool assets will be than five years). As stated in the committed has become commonplace. CPOs Proposing Release, the Commission (vi) Trading Managers: Rule 4.25(c)(2) commonly seek to maximize pool returns by believes that requiring performance to The revised rules take into account allocating pool assets based on analysis of the returns achieved by CTAs retained for the pool and arrangements in which a CPO delegates investee pools in which the pool has invested in 86 With respect to CTAs calculating rates of return authority to a trading manager to select light of their aggregate results, market conditions, on the basis permitted by Advisory 93–13, as CTAs or investee pools to which the and the performance of other CTAs and investee discussed supra, the capsule must include rates of pool’s assets will be allocated.84 The pools. CPOs frequently rely on trading managers to return for the fully-funded subset and Commission continously review the performance of CTAs and staff will provide guidance concerning investee pools and allocate and reallocate pool supplemental data to accompany the capsule 83 Rule 4.26(c), discussed below at paragraph B of funds. Because of the importance of the trading disclosure to reflect the range of levels of partial Section VII, sets forth the requirements for manager and the fact that the trading manager is a funding and the generic disclosures discussed in amending pool Disclosure Documents to reflect a CTA for the pool, when a pool has a trading Advisory 93–13. material change in the document. This requirement manager, the trading manger’s performance is 87 Former Rules 4.21 (a)(4) and (a)(5) for CPOs previously was found in former Rule 4.21(b). generally required in addition to that of the CPO. and 4.31(a)(3) for CTAs generally required past 84 See, e.g., Rule 4.25 (c)(2). 59 FR 25351, 25357. performance to be presented for a three-year period. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38161 be disclosed for a period longer than Thus, as proposed and as adopted, the composite presentations might be three years will make the timespan new rules employ an approach designed precluded altogether under the covered by performance disclosures to realize the benefits of reducing the proposed rule. Other commenters more uniform and will better portray the volume of performance data created by contended that some of the listed pool evolution of performance over time, the use of composites while minimizing categories were too broadly worded. including positive and negative the potential for misleading past Still other commenters criticized use of fluctuations in returns.88 Two performance presentations. the concept of specified pool classes for purposes of determining what pools commenters supported the proposed a. CPO Disclosure Documents five-year timeframe, noting that if all may be combined in a single composite registrants may use the capsule format, Proposed Rule 4.25(a)(3) would have or the particular categories proposed by investors will be provided with material required that past performance data for the Commission, suggesting either a information without increasing the the offered pool and for pools similar to general materiality standard for volume of performance disclosure. One the offered pool be separately disclosed, determining whether differences among commenter, however, claimed that on a pool-by-pool basis. (Rule pools require separate composites or extending performance from three to 4.25(a)(3)(i)). Pools of a different type inclusion in a single composite of all five years would work against from the offered pool could be pools operated by the CPO and streamlining and reducing the volume presented in composites with other structured similarly to the offered pool. of disclosure and would not enhance pools of the same class, provided that Some commenters contended that even investor understanding. such presentations were not misleading, pools similar to the offered pool should The Commission is adopting Rules that the manner in which the composite be included in one composite, instead of 4.25(a)(7) and 4.34(a)(4) as proposed was developed was disclosed, and that separately presented.94 One commenter (proposed Rule 4.34(a)(4) has been re- the CPO was able to justify the inclusion urged that CPOs not be under an numbered Rule 4.35(a)(5), however). As of pools in a composite. (Rule obligation to be prepared to justify the noted in the Proposing Release, under 4.25(a)(3)(ii)). As proposed, Rule inclusion of pools in a composite but, the new summary format for 4.25(a)(3)(iii) listed a non-exclusive set rather, that the CPO be permitted to performance disclosure, performance of five specific class distinctions exercise reasonable discretion in this presentations are substantially requiring separate rather than composite matter. condensed and multiple tables in the presentation but recognized that The Commission specifically new summary format can be included additional factors might warrant requested comment as to the costs and creation of additional composite on a single page. Consequently, benefits of a general requirement of categories.92 In addition, Rule adoption of a five-year disclosure period separate rather than composite 4.25(a)(3)(iv) would have required that should not entail any significant presentations of pool performance in material differences among the pools for increase in the volume of performance lieu of a qualified approach of the which past performance is presented disclosures. The Commission believes nature proposed. Commenters stated must be disclosed. that the benefits of this additional that greater use of composite Numerous comments were received disclosure outweigh any minor resulting presentations should be permitted, e.g., on proposed Rule 4.25(a)(3), several of increase in the quantity of data composite presentation of performance which urged the adoption of three disclosed.89 for pools of the same class as the offered categories for composite performance pool or inclusion of all of a CPO’s prior 4. Composite Performance presentation: guaranteed pools, non- pools in one composite. Presentations: Rules 4.25(a)(3) and (a)(4) guaranteed multi-advisor pools and Rule 4.25(a)(3) has been adopted as for CPOs and Rule 4.35(a)(3) for CTAs 90 non-guaranteed single-advisor pools.93 proposed with certain modifications. Several commenters asserted that the Pools with materially different rates of As noted in the Proposing Release, the distinction between public and return may not be included in the same Commission has carefully considered privately offered pools can be composite, regardless of class. (Rule the benefits and disadvantages that may eliminated by pro forma adjustments for 4.25(a)(3)(ii)(B)). The Commission accrue from the use of composites.91 cost differences. One commenter believes that separate presentation of 88 59 FR 25351, 25358. remarked that since virtually all pools the performance of other pools of the 89 As noted above, the NFA Special Committee for use different trading programs, same class as the offered pool provides the Review of CPO/CTA Disclosure Issues suggested useful information to the reader since that the capsule include at least five years of presentations of potentially quite different types of such pools should provide the most performance history. pools and trading programs and may smooth or comparable performance content and 90 Former Rule 4.21(a)(4)(iv) permitted the camouflage actual rates of return. Composite results performance of pools operated by each person for not only fail to reflect differences among the pools has thus retained this requirement. whom performance was required to be disclosed to and accounts whose results are presented but also However, the Commission has be presented on a composite basis, provided that merge potentially disparate trading results into simplified the criteria for determining the performance of the offered pool was separately average trading results and thus fail to reflect the what types of pools may be included in disclosed, the CPO described how each composite actual dispersion of returns as well as the volatility was developed, and the composite was not of individual pools and accounts. Id. a composite capsule. The Commission misleading. Former Rule 4.31(a)(3)(iii) also 92 The distinctions set forth in proposed Rule has determined to delete two of the permitted composite presentation of the 4.25(a)(3)(iii) are: Pools privately offered pursuant distinctions specified in proposed Rule performance of accounts directed by the CTA and to Regulation D under the Securities Act of 1933 4.25(a)(3)(iii) (‘‘pools using different each of its principals, provided that material and publicly offered pools; pools using materially leverages’’ and ‘‘pools using different differences among the accounts and the manner in different leverages; pools using different trading which the composite was developed were programs; pools with a guarantee feature and pools trading programs’’), on the ground that described. without such a feature; and multi-advisor pools and 91 59 FR 25351, 25359. Specifically, the non-multi-advisor pools. The CPO would have 94 One commenter suggested that performance of Commission noted that: discretion to use additional criteria and would be all pools other than the pool being offered should Composite presentations have the obvious required to do so where use of a composite would be presented in the second part of a two-part advantage of reducing the volume of past be misleading. See Rule 4.24(w), which requires Disclosure Document. The Commission will take performance data presented. However, composite disclosure of all material information. this comment into consideration in the course of its presentations raise a number of regulatory concerns 93 NFA’s Submission had proposed the same review of other issues raised by the bifrucated precisely because they supplant individualized three categories. disclosure format. 38162 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations they may be difficult to apply and thus that differ from the offered pool, the adopted, Rule 4.25(a)(4) permits may preclude the use of composites in Commission notes that while program-by-program presentation unless most or all cases, and otherwise to adopt composites condense voluminous such a presentation would be Rule 4.25(a)(3) essentially as material into digestible units, overly misleading. In addition, accounts with proposed.95 Two pools that use different inclusive composites tend to flatten materially different rates of return may trading programs or different degrees of performance fluctuations and thus may not be included in the same composite, leverage could therefore be included in obscure variations in rates of return and and the CPO must discuss all material the same composite, provided that volatility among pools. Registrants differences among accounts included in material differences among the pools are therefore must use care in constructing a composite. disclosed and provided that such pools’ composites, and material differences b. CTA Disclosure Documents rates of return are not materially between and among pools (including different. the distinctions set forth in Rule Proposed Rule 4.34(a)(5) would have The Commission is retaining two of 4.25(a)(3)(iii)) are ordinarily indications provided that the performance of the remaining pool categories specified against composite presentation.97 accounts traded pursuant to the same in proposed Rule 4.25(a)(3), i.e., pools As the Commission noted in the trading program could be presented in privately offered pursuant to the Proposing Release, there may be the same composite, unless to do so Securities Act 96 and public offerings; instances in which even composites of would be misleading, provided that the and principal-protected and non- pools of the same class may be CTA describes how the composite principal-protected pools. With respect misleading, such as where differences performance information was to the proposed differentiation between between or among the trading results of calculated. Under proposed Rule multi-advisor pools as defined in Rule the pools are so great that a composite 4.34(a)(5), ‘‘trading program’’ would 4.10(d)(2) and non-multi-advisor pools, would materially distort their results.98 have been defined as a trading strategy the Commission is adopting a more The express restriction against inclusion differentiated from other trading flexible approach pursuant to which of pools with materially different rates strategies by commodity trading multi-advisor pools will be presumed to of return in the same composite methodology, degree of risk or degree of have rates of return that are materially addresses this concern to some extent, leverage. Commenters stated that different from those of non-multi- ‘‘trading program’’ was already defined but other types of differences, e.g., 99 advisor pools and thus may not be different volatility levels, could be in existing Rule 4.10(g) and argued included in the same composite, absent material. The proviso in Rule that the Commission’s proposal would have conflicted with the existing rule. clear evidence to the contrary. The 4.25(a)(3)(ii) that results may be In adopting Rule 4.34(a)(5), Commission believes that this qualified presented in composite form ‘‘unless renumbered as Rule 4.35(a)(3), the approach is warranted because multi- such presentation would be misleading’’ Commission has revised the text to advisor pools will tend to have different is intended to ensure that composites eliminate the proposed definition of fee structures and risk/reward profiles are carefully reviewed to protect against trading program as a trading strategy than non-multi-advisor pools, yet, in any material distortion that may result differentiated from other such strategies part due to the definitional complexity from use of this format. by trading methodology, degree of risk of the multi-advisor pool concept, this To present capsule performance of or degree of leverage. Instead, Rule may not be true in all cases. pools in a composite, the CPO must 4.35(a)(3), like the parallel provision for As adopted, Rule 4.25(a)(3) retains the name all pools included in the CPO Disclosure Documents, provides proposed requirements regarding composite, set forth the classes of these that unless such a presentation would separate and composite performance pools (which, as discussed above, be misleading, past performance of presentations for the CPO’s other pools. would be the same for each pool in the accounts may be presented in a First, pools of the same class as the composite), including at a minimum composite form on a program-by- offered pool must be presented and, as applicable, the classes specified program basis and that accounts that separately, following the offered pool’s in Rule 4.25(a)(3)(iii) and specify the differ materially with respect to rates of performance. Second, performance of date on which each pool commenced return may not be presented in the same any remaining pools must be presented trading. For composite capsule composite. In determining which less prominently, and may be presented performance purposes, the aggregate accounts may be included in a single in composites. Third, only pools gross capital subscriptions are the total composite, the factors set forth in the belonging to the same class, and that do subscriptions for all pools in the proposed rule, trading methodology, not differ materially from each other in composite, the draw-down figures are degree of risk and degree of leverage, are their rates of return, may be included in the worst experienced by any one of the ones that should be taken into the same composite. Finally, material pools included in the composite and the consideration. Like Rule 4.25(a)(4) for differences among pools for which rate of return is the weighted average CPOs, Rule 4.35(a)(3) for CTAs contains performance is presented must be rate of return for all pools included. a proviso that results may be presented disclosed. The Commission reiterates Proposed Rule 4.25(a)(4) would have in composite form ‘‘unless such that the categories specified in Rule required that the past performance of presentation would be misleading.’’ 4.25(a)(3)(iii) are illustrative and not accounts be presented in capsule format Further, CTAs are cautioned that other exclusive. on a program-by-program basis. As In deciding not to permit general material differences among accounts may make presentation in the same compositizing of the CPO’s other pools 97 Material differences among the pools for which past performance is disclosed must be described. composite misleading. As with 95 The text of Rule 4.25(a)(3)(iii) is affected by the (Rule 4.25(a)(3)(iv)). change of the term ‘‘limited risk pool’’ to ‘‘principal 98 59 FR 25351, 25359. For example, two multi- 99 The term ‘‘trading program’’ continues to be protected pool’’ in Rule 4.10(d)93) and the changed advisor pools with no guarantee feature using the defined in existing Rule 4.10(g) as ‘‘the program definition of ‘‘multi-advisor pool’’ in Rule same CTAs could show widely disparate results pursuant to which a (CTA) (1) directs a client’s 4.10(d)(2). unless each CTA were allocated substantially the commodity interest account, or (2) guides the 96 See Section 4(2) of the Securities Act and same portion of each pool’s assets. Also, two single- client’s commodity interest trading by means of a Regulation D thereunder, 17 CFR 230.501–230.508 advisor pools with different CTAs may achieve very sytematic program that recommends specific (1994). different results. transactions.’’ Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38163 composite presentations of pool than the offered pool must provide CTA and its trading principals. In the performance, the draw-down figures in annual and year-to-date rates of interest of simplification and a composite in a CTA Disclosure return.103 Similarly, for CTAs, proposed readability, the Commission proposed Documents are the worst experienced by Rules 4.34(a)(1) and (a)(2) would have substantial revisions of the legends any one of the accounts included in the required that the performance of the required by the former rules, generally composite. offered trading program be displayed to shorten them and to sharpen their first and the performance of all other focus upon the matters most pertinent to c. Substantiating Composite programs after that presentation. investors.107 Presentations The Commission is adopting the The Commission received several Rules 4.25(a)(7) and 4.35(a)(6) require required order of performance comments favoring the proposed that records be maintained presentation specified in proposed shortening of the required legends. The substantiating the performance data set Rules 4.25(a)(2), (a)(3)(i) and (a)(3)(ii) for revised legends in proposed Rules forth in CPO and CTA Disclosure CPOs and in proposed Rules 4.34(a)(1) 4.25(c) and 4.34(b) are being adopted as Documents, respectively, and and (a)(2) for CTAs. Registrants are proposed (with Rule 4.34(b) being documenting the underlying reminded that disclosure of renumbered as Rule 4.35(b)) to provide calculations, in accordance with Rule performance information not required and highlight important information in 1.31. Naturally, this requirement also by Commission rules, federal or state a more concise and comprehensible applies with respect to composite laws or regulations, self-regulatory manner.108 Prescribed legends in pool presentations. Although not specified in agency rules or laws of non-United Disclosure Documents apply only where Rule 4.25(a)(3)(ii), as adopted, a CPO States jurisdictions is subject to the the offered pool does not meet the must be prepared to justify the inclusion rules on supplemental information, i.e., trading history criteria of Rule of a given pool’s past performance it may not be misleading and it must 4.25(b).109 The prescribed legends have results in a composite. follow the entire presentation of been shortened by eliminating 5. Order of Required Performance required performance information introductory language stating that (except that proprietary, hypothetical, disclosure of the referenced information Disclosures: Rules 4.25(a)(2), (a)(3)(i) 104 and (a)(3)(ii) for CPOs and 4.35(a)(1) and extracted, pro forma or simulated is required by the Commission. This trading results must be placed at the end focuses attention upon the primary (a)(2) for CTAs 100 of the Disclosure Document).105 point to be conveyed, e.g., the fact that Proposed Rule 4.25(a)(2) for CPO the CPO and its principals have not 6. Required Performance Legends Disclosure Documents would have previously operated any commodity required that the performance of the a. Legends Relating to Lack of Trading pools. Thus, the legend relating to the offered pool be identified as such, Experience: Rules 4.25(c) for CPOs and lack of trading history of a pool now presented separately, and included 4.35(b) for CTAs 106 reads: ‘‘THIS POOL HAS NOT before any other performance The proposed rules would have COMMENCED TRADING AND DOES information.101 Thus, if presentation of continued to require the inclusion of NOT HAVE ANY PERFORMANCE past performance in addition to that of 110 prescribed legends in specific HISTORY.’’ (Rule 4.25(c)(1)(ii)). the offered pool was required because circumstances, alerting prospective pool Similarly, the legend relating to the lack the offered pool did not have the participants and discretionary account of experience of the CPO or trading requisite three-year operating history clients to the lack of performance manager and its trading principals now under Rule 4.25(b), the offered pool’s history on the part of specified persons. reads: ‘‘NEITHER THIS POOL performance must be presented In the case of pool Disclosure OPERATOR (TRADING MANAGER, if separately from, and prior to, any such Documents, the proposed rules would applicable) NOR ANY OF ITS TRADING other required performance data.102 have required legends with respect to PRINCIPALS HAS PREVIOUSLY Under proposed Rule 4.25(a)(3), the absence of performance history, OPERATED ANY OTHER POOLS OR performance data for pools of the same TRADED ANY OTHER ACCOUNTS.’’ where applicable, on the part of the class as the offered pool would be (Rule 4.25(c)(2)(ii)). Similar legends are pool, the CPO (or trading manager) and presented on a pool-by-pool, non- required, where applicable, with respect its trading principals, major CTAs and composite basis, after the performance to major CTAs and investee pools. major investee pools. In CTA history of the offered pool. The Documents, such legends would be performance histories of pools of a 107 59 FR 25351, 25361. required, if applicable, on the part of the different class from the offered pool 108 The Commission is retaining in Rules 4.25(c) would be presented after, and less and 4.35(b) the explanation that if any of the 103 As discussed above, Rules 4.25(a)(3) and (a)(4) persons for whom a prescribed legend must be prominently than, the performance provide guidance for determining whether pools or displayed is a sole proprietorship, reference to its records of pools of the same class as the accounts may be included in the same composite. trading principals need not be included. offered pool. Proposed Rule 104 As discussed in Section V.C.3. infra, pro forma 109 Those criteria, as adopted, are: (1) The pool 4.25(a)(1)(i)(H) specified that required adjustments to performance data are required for has traded commodity interests for at least three certain purposes and such adjustments are not years; and (2) during the three-year (or greater) performance disclosure for pools other affected by the restrictions upon placement of period, at least seventy-five percent of the pool’s supplemental information. assets were contributed by persons unaffiliated with 100 The Commission’s disclosure rules previously 105 Rules 4.24(v) for CPOs and 4.34(n) for CTAs the CPO, the trading manager (if applicable), the did not specifically address the order of required (both captioned ‘‘Supplemental information’’), are CTA or any of their principals. performance disclosures. discussed more fully below in Section VI. 110 The legend required by former Rule 101 Proposed Rule 4.25(a)(2) also required that the 106 Former Rules 4.21(a)(4) and (a)(5) for CPOs 4.21(a)(4)(c) read as follows: offered pool’s rate of return be stated in monthly and 4.31(a)(3) for CTAs required lengthier legends. THE COMMODITY FUTURES TRADING increments. For example, former Rule 4.21(4)(i)(B) specified a COMMISSION REQUIRES A COMMODITY POOL 102 As discussed above, Rule 4.25(b) provides that statement that the Commission requires disclosure OPERATOR TO DISCLOSE TO PROSPECTIVE if the offered pool has traded commodity interests of the performance of the offered pool and of other POOL PARTICIPANTS THE ACTUAL for at least three years, during which time at least pools operated by the CPO and its principals and PERFORMANCE RECORD OF THE POOL FOR 75% of its assets were contributed by persons that neither the CPO nor its principals have any WHICH THE OPERATOR IS SOLICITING unaffiliated with its CPO, trading manager, CTAs or prior performance history. See 59 FR 25351, 25361 PARTICIPANTS. YOU SHOULD NOTE THAT THIS any of their principals, only the offered pool’s past for a more complete discussion of the former POOL HAS NOT BEGUN TRADING AND DOES performance must be disclosed. requirements. NOT HAVE ANY PERFORMANCE HISTORY. 38164 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations (Rules 4.25(c)(3)(ii) and (c)(4)(ii), information, proposed Rules 4.25(a)(10) establishing a single, uniform standard. respectively). The revised rules for CPOs and 4.34(a)(7) for CTAs would Consequently, the Commission has similarly require a CTA Disclosure have required that any past performance revised the text of the proposed legend Document to disclose, if applicable, the information, whether required or to conform it to the language of NFA lack of experience of the CTA and its voluntarily provided, be preceded by Compliance Rule 2–29, that is, ‘‘Past principals. If the CTA has no prior the statement that ‘‘PAST performance is not necessarily experience, the following legend is to be PERFORMANCE IS NOT PREDICTIVE indicative of future results.’’ 114 included: ‘‘THIS TRADING ADVISOR OF FUTURE PERFORMANCE,’’ However, the Commission may revisit 112 PREVIOUSLY HAS NOT DIRECTED prominently displayed. Thus, if a this issue in the context of its further ANY ACCOUNTS.’’ (Rule 4.35(b)(1)). registrant presents both required and consideration of past performance and The following legend is to be used for voluntarily provided performance risk disclosure issues. The Commission trading principals: ‘‘NONE OF THE information in its Disclosure Document, TRADING PRINCIPALS OF THIS the specified disclaimer must precede believes that pools are likely to be sold TRADING ADVISOR HAS each such performance presentation. based on past performance claims and PREVIOUSLY DIRECTED ANY One commenter strongly opposed the therefore, a formatted disclosure ACCOUNTS.’’ (Rule 4.35(b)(2)). If proposal as a ‘‘potentially misleading’’ requirement assures consistency and neither the CTA nor any of its principals departure from the language of NFA auditability. The Commission remains has prior trading experience, rather than Compliance Rule 2–29, which prohibits convinced that past performance is not displaying two separate cautionary reference to past trading profits without generally predictive of future rates of legends concerning the CTA and the mentioning that past results ‘‘are not return. CTA’s principals, the following single necessarily indicative of future 7. Summary Tables sentence is to be included: ‘‘NEITHER results.’’ 113 Other commenters stated, THIS TRADING ADVISOR NOR ITS similarly, that ‘‘not necessarily a. Performance Disclosure Requirements TRADING PRINCIPALS HAVE indicative’’ is more accurate and PREVIOUSLY DIRECTED ANY balanced than ‘‘not predictive.’’ The following table summarizes the ACCOUNTS.’’ (Rule 4.35(b)(3)). Although the Commission does not past performance requirements set forth agree that the proposed legend was in Rules 4.25 and 4.35. b. Legends Relating to Predictive Value either potentially misleading or less of Past Performance: Rules 4.25(a)(9) for accurate than NFA’s existing 111 CPOs and 4.35(a)(8) for CTAs performance disclaimer, it has To indicate the general lack of determined to revise the proposed text predictive value of past performance of this legend in the interest of SUMMARY OF REQUIRED PERFORMANCE DISCLOSURESÐCPO DISCLOSURE DOCUMENTS Category Requirement Offered pools with 3 years ÐPerformance of offered pool for five most recent calendar years and year-to-date (``YTD'') (or if shorter, for life history & 75% or more of of pool), with monthly rates of return (``RORs'') presented in bar graph or table. Rules 4.25(b); 4.25(a)(5); assets from non-affiliates 4.25(a)(2). of CPO, trading mgr., CTAs or principals. Offered pools that do not ÐPerformance of offered pool for life of pool first, with monthly RORs in table or bar chart. Prescribed statement if meet three-year history pool has no operating history. Rules 4.25(c)(1); 4.25(a)(2). and asset contribution ÐPerformance of CPO's and trading manager's other pools and accounts for five most recent calendar years and standards. YTD, with annual RORs. Performance for pools of the same class as the offered pool must be presented more prominently than that of other pools. Rule 4.25(c)(2)(i). ÐIf CPO or trading manager has less than three-year history in trading pools with 75% outside contributions, per- formance of CPO's trading principals, with annual RORs. Prescribed statement if no prior trading history of CPO/trading manager or trading principals. Rules 4.25(c)(2)(i); 4.25(c)(2)(ii). ÐPerformance of major CTAs and investee pools. Prescribed statement if no prior history. Rules 4.25(c)(3), 4.25(c)(4). ÐNarrative description of non-major CTAs' and/or investee pools' past performance, trading, investment activities, strategies, and experience. Rule 4.25(c)(5). All ...... ÐRequired performance is to be given for most recent five calendar years and YTD (or, if shorter, for life of ac- count). Rule 4.35(a)(5). ÐPerformance of offered trading program presented first, with monthly rates of return presented in bar graph or table. CTA must make performance available in multi-column format of former Rule 4.21(a)(5) upon request. Rule 4.35(a)(2). ÐPerformance of each other account directed by CTA and by each of CTA's trading principals, with annual RORs. Rule 4.35(b). ÐPerformance of accounts traded pursuant to same trading program may be presented in composite unless mis- leading. Rule 4.35(a)(3). ÐPrescribed statement if no prior trading history of CTA or trading principals. Rule 4.35(b). 111 The Commission’s former disclosure rules did 112 As the Commission noted in its proposal, material which ‘‘includes any reference to actual not contain any such legends with respect to past numerous studies have shown the general lack of past trading profits without mentioning that past performance generally. Rule 4.41(b) specifies a predictive value of past performance. 59 FR 25351, results are not necessarily indicative of future disclaimer required to precede the presentation of 25361 at n.42. results.’’ (NFA Compliance Rule 2–29(b)(5)). simulated or hypothetical performance results, and 113 NFA Compliance Rule 2–29, which concerns 114 The Commission is adopting proposed Rules NFA Compliance Rule 2–29(b)(5) requires language communications with the public and use of 4.25(a)(10) and 4.34(a)(7) as Rules 4.25(a)(9) and similar to that in proposed Rules 4.25(a)(10) and promotional materials by NFA members, prohibits 4.34(a)(7). a member or associate from using promotional 4.35(a)(8), respectively. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38165 b. Sample Capsule Performance Presentations The following are examples of ‘‘capsule’’ performance presentation under Rules 4.25 and 4.35. CAPSULE PERFORMANCE EXAMPLES UNDER RULE 4.25 CAPSULE PERFORMANCE OF THE OFFERED POOL [XYZ Partners, L.P. is a privately offered, single-advisor pool that does not have a guarantee feature. Past performance is shown for the most re- cent five calendar years and year-to-date (monthly rates of return for the most recent calendar year and year-to-date). For purposes of this example, it is assumed that thirty percent of the assets were provided by X, the CPO, and that the performance of other pools operated by X is therefore required to be presented. Of the other pools operated by X, Pool A, which is of the same class as the offered pool is pre- sented first (and separately). Pools B, C and D are of different classes than that of the offered pool, and since Pools B and C belong to the same class, the performance of B and C is presented in a composite.] Month Percentage rate of return (computed on a compounded monthly basis) Year- to-date 1994 1993 1992 1991 1990 January ...... 1.12 2.43 3.50 2.56 1.54 0.69 February ...... 1.34 3.11 (2.30) 1.96 (0.89) (0.82) March ...... 0.96 (0.23) 1.60 3.72 1.15 0.55 April ...... 1.45 1.16 1.22 4.66 0.97 1.06 May ...... 1.54 (3.62) 2.75 1.21 0.90 June ...... 0.32 1.32 (16.87) 0.51 1.12 July ...... 1.28 1.15 (9.87) 0.11 1.01 August ...... 1.12 1.85 (7.03) (0.14) 0.93 September ...... 2.09 0.87 5.61 0.56 0.99 October ...... 1.34 2.10 4.23 0.23 1.01 November ...... 1.57 0.90 3.97 1.11 1.19 December ...... 1.04 0.825 3.81 0.32 1.14 Year ...... 6.32 18.66 8.48 (3.60) 7.80 12.11 Offered pool Name of Pool: XYZ Partners, L.P. Type of Pool: Privately offered Inception of Trading: January 1, 1989 Aggregate Subscriptions: $1,673,000 Current Net Asset Value: $1,925,000 Worst Monthly Percentage Draw-down:* 7±92/16.54% Worst Peak-to-Valley Draw-down: 6 to 9±92/30.52% *``Draw-down'' means losses experienced by the pool over a specified period. CAPSULE PERFORMANCE OF OTHER POOLS OPERATED BY THE OFFERED POOL'S CPO Aggre- Percentage rate of return gate Current Worst (computed on a compounded monthly basis) Incep- sub- total monthly Worst peak- Name of pool Type tion of scrip- NAV percent to valley of pool trading tion ($ × draw- draw-down Year-to- ($ × 1,000) down 1990 1991 1992 1993 1994 date 1,000) Other pools operated by X, dif- ferent class from offered pool: A ...... 2 8/86 617 730 (11.73) 7/ (19.61%) 11.17 6.2 3.4 10.6 6.8 6.82 93 4±8/91 Other pools operated by X, same class as offered pool: B; C ...... 2, 3 8/93; 9,101 20,701 (1.09) 12/ (1.09%) 6.8 8.9 9.6 11.2 12.6 0.51 10/89 93* 10±12/93* D ...... 1, 2 1/90 931 379 (16.01) 6/ (40.81%) (2.3) 4.3 6.2 (8.2) 13.9 (17.26%) 92 5±8/92 Key to type of pool 1ÐPrincipal-protected pool 1ÐPrivately offered pool 3ÐMulti-advisor pool *Worst draw-down for any of the pools included in the composite. **In the case of composite presentation, combined rate of return figures are weighted on the basis of the net asset values of the pools included in the composite. c. Sample Bar Chart/Graph of Monthly Rates of Return The following is an example of monthly rates of return for a five-year period presented in the form of a bar chart. BILLING CODE 6351±01±P 38166 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations BILLING CODE 6351±01±C disclosures can readily be constructed following the related required C. Non-Required Performance to create misleading effects by, for disclosures). One commenter suggested Disclosures example, focusing attention upon that placement of non-required positive performance while omitting information adjacent to the required 1. Voluntary and Supplemental negative results. If the performance of information to which it relates may be Performance Disclosures: Rules 4.24(v) two pools (other than the offered pool) clearer to the reader. for CPOs and 4.34(n) for CTAs 115 operated by a CPO were voluntarily One commenter urged that CPOs and Proposed Rules 4.24(v) and 4.33(n) provided, it could be misleading to CTAs be permitted to present would have required that information show the favorable performance of Pool performance disclosure beyond the (including performance information) 1 but not the negative performance of required five-year period, provided other than that required by Commission Pool 2 or to show the performance of material changes are disclosed, while rules, the antifraud provisions of the Pool 1 in capsule format and that of another commenter urged that CPOs and Act,116 or federal or state securities laws Pool 2 in full format. It could also be CTAs be required to present either five and regulations ‘‘appear following the misleading to show the performance of years’ performance or the full trading related required disclosures.’’ In a pool in capsule format for year one history of the pool or trading program, addition, the proposed rules provided and in full format for year two or to in order to prevent ‘‘cherry picking.’’ that such information could not be show the pool’s performance for 1991 As adopted, Rules 4.24(v) and 4.34(n) misleading in content or presentation and not 1992. Clearly, care must be provide significantly more guidance nor inconsistent with required taken to assure that supplementally regarding the placement of disclosures. The purpose of these rules provided performance disclosures are supplementally provided information. was to ensure that the principal focus of not presented in a manner that creates 117 Rules 4.24(v) and 4.34(n), as adopted, the Disclosure Document would remain the potential to mislead. also expand the category of required Commenters claimed that in view of upon the required information because information to include information the requirement to disclose all material of its generally high degree of required by ‘‘any applicable laws of information,118 the determination that materiality. non-United States jurisdictions.’’ In As emphasized in the Proposing information is not required by addition, applicable federal and state Release, voluntary performance Commission rules, the Act or other laws requirements are no longer restricted to necessarily involves a determination securities laws and regulations. The 115 Rules 4.24(v) and 4.34(n) regulate placement that the information is not material and comments received and the of all supplementally supplied information. that designating it as ‘‘voluntary’’ Application of these rules to non-performance Commission’s action with respect to the reinforces that determination. A number disclosures is discussed below at paragraph C of application of proposed Rules 4.24(v) of commenters stressed the difficulty of Section VI. The Commission’s former disclosure and 4.33(n) to supplementally provided rules did not specifically address the placement of determining in many cases what non-performance information are voluntary performance disclosures. information is required to be disclosed 116 discussed below in Section VI. With See Sections 4b and 4o of the Act, 7 U.S.C. and what is merely advisable, and 6b and 6o (1994). Section 4b of the Act prohibits respect to supplemental past believed that, in consequence, fraud in connection with the making of any contract performance, however, the Commission of sale of any commodity for future delivery. mandating that non-required believes that requiring such data to Section 4o of the Act prohibits CPOs, CTAs and information follow required disclosures follow required past performance their associated persons from employing any could create confusion. Further, some device, scheme, or artifice to defraud a pool disclosure is appropriate. participant, prospective pool participant or client commenters incorrectly read proposed and from engaging in any transaction, practice or Rules 4.24(v) and 4.33(n) to require The Commission will permit course of business which operates as a fraud or placing all non-required information at presentation of additional past deceit upon such participant or client. In addition, the end of the document (instead of performance information beyond the under section 4o(2) of the Act CPOs, CTAs and their required five calendar years and year-to- associated persons are precluded from representing or implying that they have been sponsored, 117 59 FR 25351, 25361. date, provided that any such recommended or approved by the United States or 118 Former Rules 4.21(h) and 4.31(g), renumbered supplemental information is calculated by any agency or officer thereof. as Rules 4.24(w) and 4.34(o). in compliance with the requirements of Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38167 Rules 4.25 or 4.35, as applicable, and is appropriate restrictions. Proposed Rule information, subject to restrictions presented following all required 4.25(a)(9) would have provided that the intended to assure that the disclosure of performance disclosures. Such performance of pools and accounts in such information is not misleading. additional performance information which the CPO, trading manager, CTA Further, the Commission has must not be misleading. For example, if or other person providing services to the determined to adopt the comment that additional performance information pool owns or controls fifty percent or accounts in which an affiliate or family beyond the required five years is more of the beneficial interest may not member of the CPO, trading manager or presented but the entire history of the be included in pool Disclosure CTA owns or controls fifty percent of pool or program is not covered, the Documents unless prominently labeled more of the beneficial interest should be additional performance results shown as proprietary and set forth separately characterized as proprietary and has must be representative of the results that following all required performance and revised the rules accordingly. As would have been shown if the entire non-performance disclosures. Proposed adopted, the text of these rules has been history were presented. Thus, ‘‘cherry Rule 4.34(a)(6) set forth similar reorganized for clarity and cross- picking’’ of performance data to restrictions for CTA Disclosure references to the respective rule highlight positive performance is a Documents with respect to accounts in provisions governing placement of misleading practice precluded under which the CTA or any of its principals supplemental information have been existing antifraud standards. Generally, or any person providing services to the included. The word ‘‘required’’ has been inclusion of voluntarily provided account owns or controls fifty percent or omitted to clarify the requirement that performance data should be made on a more of the beneficial interests. proprietary trading results (together result-neutral basis that results in While a number of commenters with any hypothetical, extracted, pro inclusion of all similar data.119 The agreed with the intent of the forma 123 or simulated results) follow all Commission also notes that the practice Commission’s proposal, i.e., to prevent of the other disclosures in a Disclosure of advertising a pool by touting the disguising of proprietary trading by Document. excellent past performance record of a including an insignificant amount of Although proprietary performance particular CTA to attract prospective money from ‘‘outside’’ participants, results in CPO and CTA Disclosure participants and shortly thereafter other commenters claimed that the Documents have a significant potential reallocating pool assets to another CTA, proposal would have the undesirable to mislead, given the often material a practice commonly referred to as effect of discouraging CPOs from differences in the conditions under ‘‘bait-and-switch,’’ is misleading and investing in their own pools. One which proprietary trading results as that use of performance data in this commenter stressed that proprietary opposed to non-proprietary results are manner would violate relevant antifraud trading is often the only way a pool can obtained, the Commission recognizes provisions. begin trading before raising outside that proprietary trading results may be Any proprietary performance must be capital. Commenters suggested raising the only performance results available presented in accordance with Rule the threshold for ownership or control to some new traders to present to 4.25(a)(8) for CPOs and Rule 4.35(a)(7) by the pool operator, advisor, principals customers as evidence of trading for CTAs, as discussed below. or other service providers from fifty to experience.124 The requirement that Hypothetical, extracted, simulated and between sixty and eighty percent. proprietary trading results be presented pro forma 120 performance information Commenters also asked the Commission after all required and non-required is also now required by Rules 4.4(v) and to clarify that the interests in the pool disclosures, rather than just the required 4.34(n) to be presented separately after of the CPO, the CTA, their principals performance disclosures, reflects the all other information.121 and other service providers are not relatively low utility of such data to required to be added together when prospective customers and the relatively 2. Proprietary Trading Results: Rules applying the fifty percent test in high potential for confusion of 4.25(a)(8) for CPOs and 4.35(a)(7) for proposed Rule 4.25(a)(9) unless such proprietary and customer trading CTAs 122 persons are affiliated. One commenter results. Given the significant potential Proposed Rules 4.25(a)(9) and urged that the definition of proprietary 4.34(a)(6) would have permitted CPOs performance should be broadened to 123 See discussion in Section 3, infra, concerning and CTAs, respectively, to disclose include both accounts for which the required pro forma adjustments. proprietary trading results under CPO, trading manager, CTA or 124 As the Commission explained in its proposal, Use of proprietary trading results in soliciting respective principals receive no direct customer accounts is a practice which has long 119 Thus, for example, and as the Commission fees, as well as pools in which an been of concern to the Commission. CPOs and explained in the Proposing Release, in the case of affiliate or family member of the CPO, CTAs may trade proprietary funds for a variety of a pool meeting the criteria of Rule 4.25(b), where trading manager or CTA owns or purposes, including to test a new trading strategy only the past performance of the offered pool is before implementing it for customer funds or to required, the past performance of two CTAs each controls fifty percent or more of the establish a track record prior to trading customer allocated an equal portion of the pool’s assets beneficial interest. Several commenters funds. However, proprietary accounts may be generally should either be included for both CTAs suggested that if proprietary accounts traded in a different manner, for example, more or omitted entirely. Similarly, where only the past aggressively, using higher leverage and assuming performance of the offered pool is required, are traded in a manner similar to pool and customer accounts, the rules should greater risk, than customer accounts. Also, generally the past performance of the CPO’s other proprietary accounts are usually not subject to the pools should be shown in total or omitted. Id. permit CPOs and CTAs to include the same fee schedule as customer accounts. Naturally, 120 As discussed in section 3, infra, pro forma performance in a composite with no management or incentive fee would apply where adjustments to performance data are required for customer accounts, provided pro forma a CTA traded its own account, and clearing fees certain purposes and such adjustments are not adjustments are made for fees and other may be waived or reduced if the account is cleared affected by the restrictions upon placement of by an affiliate. In addition, where proprietary and supplemental information. differences. customer assets are combined for purposes of 121 If a Disclosure Document contains two or more The Commission is adopting Rule performance presentations, the total amount of of these types of performance information, the 4.25(a)(9) (renumbered as Rule assets under management is inflated and conceals registrant may choose the order of presentation 4.25(a)(8)) and Rule 4.34(a)(6) the actual amount of customer funds being traded. between or among them at the end of the document. For these reasons, proprietary trading results may, 122 The Commission’s former disclosure rules did (renumbered as Rule 4.35(a)(7)) in many cases, be of little relevance to a prospective not specifically address the placement of substantially as proposed, permitting pool participant or CTA client and actually proprietary trading results. presentation of proprietary performance misleading in others. 59 FR 25351, 25360. 38168 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations to mislead inherent in proprietary reflect the same type of hindsight The restrictions in NFA Compliance trading results, the Commission believes selection as hypothetical results and are Rule 2–29(c) do not apply to that if such data are permitted to be thus also subject to abuse. Similarly, promotional materials directed included in the Disclosure Document, although extracted results are taken exclusively to ‘‘qualified eligible they should be placed after all required from actual results, they are subject to participants’’ as defined in Commission information in order to minimize the manipulation through, for example, Rule 4.7(a)(1)(ii). However, Rule 4.41 likelihood that such results will be emphasis upon results of an isolated requires that such a statement be accorded undue weight. portion of an overall trading strategy. provided without regard to the status of The Commission noted in the Under the proposed rules, hypothetical, the offeree and will thus require that Proposing Release that staff have pro forma and extracted results would either the statement specified in Rule previously advised registrants that any be treated like other disclosures 4.41 or the statement specified in NFA proprietary trading results presented in voluntarily provided (proposed Rules Compliance Rule 2–29(c), if approved a Disclosure Document must be clearly 4.24(v) and 4.33(n)) and would be by the Commission, be provided labeled as such and presented in a subject to the Commission’s general whenever simulated or hypothetical separate table.125 Staff have also antifraud provisions and such trading results are presented. required that if fees, expenses, restrictions as may be imposed under Commenters generally agreed that commissions, margin-to-equity ratios, or the rules of a registered futures hypothetical, pro forma, extracted (and any other item pertaining to the association. Further, of course, Rule simulated) results should not be proprietary trading is materially 4.41 requires that any presentation of prohibited, but should be subject to different from that relevant to the pool simulated or hypothetical trading strict regulatory oversight and controls. or trading program offered to results must be accompanied by a The Commission was also urged to participants or clients the registrant prescribed cautionary statement delegate to NFA and industry groups must ‘‘pro forma’’ such items to describing the limited value of such any rulemaking regarding use of pro correspond to those in the pool or results.129 As discussed infra, the forma, hypothetical and simulated program being offered.126 The Commission is amending Rule 4.41 to results. Commission will continue to require provide that such presentations must be Based upon its review of the registrants to make such pro-forma accompanied either by the statement set comments received and of NFA adjustments to proprietary trading forth therein or a statement provided for Compliance Rule 2–29(c) and the results. this purpose by a registered futures accompanying interpretive release, the With respect to whether the interests association. Commission has determined to retain of the CPO, the CTA, their principals In some circumstances, the the same general approach to pro forma, and other service providers would be Commission requires registrants to make hypothetical and extracted results as required to be aggregated for purposes of pro forma adjustments to disclosed indicated in the Proposing Release, applying the fifty-percent test, the information, e.g., to adjust performance pending further review of this area. Commission generally agrees that the presentations to the same fee structure Although such results would not be interests of unaffiliated parties need not as that of the pool or program being precluded from inclusion in the be aggregated. However, a CPO would offered. Such pro forma adjustments are Disclosure Document, Rule be considered to be affiliated with the not within the scope of the restrictions 4.24(v)(2)(iii) requires that such results, CPO’s principal, affiliates or family of Rules 4.24(v) and 4.34(n). As noted in if included, must appear as the last members, for example, and a CTA with the Proposing Release, NFA has recently disclosure in the document following all its principals, affiliates or family adopted Compliance Rule 2–29(c) required and non-required disclosures. members for this purpose. which, together with an accompanying Further, such disclosures would be interpretive notice, requires that 3. Pro Forma, Hypothetical and required to be accompanied by the promotional materials containing Extracted Performance Results 127 cautionary language of Rule 4.41 or of hypothetical results include a NFA Compliance Rule 2–29(c), if In the Proposing Release, the prominently displayed prescribed approved by the Commission, with Commission discussed the potential for disclaimer, comparable actual respect to the limited usefulness of inappropriate use of certain types of performance results displayed at least as hypothetical results, where applicable. performance data, specifically, prominently as hypothetical results, and To avoid duplication of cautionary hypothetical, pro forma and extracted a description of the material statements as to the limitations of pro results.128 Hypothetical results are assumptions used, and that no forma, hypothetical and extracted based on hindsight and can be readily statement be made placing undue results, the Commission is adopting an manipulated. Pro forma results can 130 emphasis on the hypothetical results. amendment to Rule 4.41 to permit use of an NFA disclaimer in lieu of the 125 59 FR 25351, 25360. 129 The statement required by Rule 4.41(b)(1) 126 Id. See discussion in Section 3, infra, reads as follows: disclaimer in Rule 4.41. concerning required pro forma adjustments. ‘‘Hypothetical or simulated performance results Like other supplemental disclosures, 127 Hypothetical results are results calculated have certain inherent limitations. Unlike an actual disclosure of pro forma, hypothetical based upon the application of a given program to performance record, simulated results do not and extracted results must comply with historical market prices and purport to present represent actual trading. Also, since the trades have Rule 4.24(v) for CPOs and Rule 4.34(n) results that could have been obtained in trading a not actually been executed, the results may have particular program during the specified historical under-or-over compensated for the impact, if any, for CTAs. Moreover, such disclosures period. Pro forma results present trading results of certain market factors, such as lack of liquidity. with adjustments to reflect certain factors, such as Simulated trading programs in general are also adjusting performance presentations to the same fee a particular fee schedule or degree of leverage, to subject to the fact that they are designed with the structure as that of the pool or program offered. No permit easier comparison with other types of benefit of hindsight. No representation is being pro forma results which reflect a hindsight analysis, results. Extracted performance results isolate a made that any account will or is likely to achieve such as to show results a multi-advisor pool could single component of a trading strategy for profits or losses similar to those shown.’’ have achieved using a different allocation of assets presentation to customers. The Commission’s 130 59 FR 25351, 25360. The draft Interpretive among CTAs, would be permitted. Extracted results former disclosure rules did not specifically address Notice accompanying NFA’s proposed amendments would only be permitted to be presented based on the placement of such performance results. to Compliance Rule 2–29 would permit pro forma the percentage of net asset value actually committed 128 59 FR 25351, 25360. performance histories solely for the purpose of to the particular component extracted. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38169 must comply with applicable NFA as adopted uses the major CTA pools with redemption periods different restrictions and they are subject to the definition adopted in Rule 4.10(i). from those of the pool offered or with antifraud provisions of the Act and minimum ‘‘lock-in’’ provisions 138 may 2. Disclosures Concerning Investee Commission rules. affect the ability of the top tier pool Pools 134 promptly to honor redemption requests VI. Non-Performance Disclosures: Unlike the former rules, the new 139 Section-by-Section Analysis from its participants. disclosure framework (as proposed and The Commission sought comment A. Introduction as adopted) specifically addresses concerning the proposed treatment of disclosures concerning investee pools. As proposed and as adopted, non- investee pools. In particular, As with performance disclosure performance disclosure requirements commenters were invited to address any requirements, non-performance are now set forth in Rules 4.24 for CPOs special public policy or disclosure disclosure requirements relating to and 4.34 for CTAs.131 considerations presented by tiered Preliminarily, the Commission notes investee pools are also being tailored to investment structures by means of that it did not receive any comments on take into account the relative which a commodity pool can, in effect, certain of its proposed non-performance importance of the investee pool to the appropriate the value of a second fund’s disclosure requirements and is adopting offered pool, as measured by the amount management by investing all or a those requirements as proposed. of assets allocated or intended to be portion of its funds in the second fund. Specifically, these are the CPO allocated to the investee pool. Thus, no No commenter specifically addressed requirements found in the following disclosures would have been required this issue. The Commission also paragraphs of Rule 4.24: (n) (specified for investee pools allocated or intended requested comment concerning whether performance); (p) (transferability and to be allocated less than ten percent of any additional protections, other than redemption); (q) (liability of pool the assets of the offered pool. With disclosure of applicable fees, are participants); (r) (distribution of profits respect to each investee pool allocated appropriate in light of the ‘‘layering’’ of and taxation); (t) (ownership in pool);132 at least ten percent of the assets of the fees that typically occurs at each level (u) (reporting to participants); and (w) offered pool, the CPO would have been of a fund of funds structure. No (material information). For CTAs, required to disclose the name of the comments specifically responded to this operator and the operator’s request.140 corresponding requirements are found 135 in the following paragraphs of Rule principals and any conflicts of The Commission has determined to 4.34: (h) (description of trading interest on the part of the investee key non-performance disclosures with pool’s operator in respect of the offered respect to a pool’s investee pools to the program); (i) (fees); (m) (specified 136 performance disclosures); and (o) pool. new definition of major investee pool With respect to investee pools (material information). adopted as Rule 4.10(d)(5). Thus, for allocated twenty-five percent or more of 137 purposes of Rules 4.24 (f), (l) and (t) as 1. Disclosures Concerning a Pool’s CTAs the assets of the offered pool, the adopted, disclosure is required with As proposed, several provisions of CPO would have been required to respect to investee pools allocated ten Rule 4.24 would have based the level of disclose the business background of, required non-performance disclosures material litigation against, and any 138 Certain pools lock in initial investments for a with respect to a pool’s CTAs (and their ownership in the offered pool on the specified period before allowing any redemptions. principals) on such CTAs’ respective part of the investee pool’s operator and Because there are no Commission rules requiring that an opportunity for redemption of pool interests percentage allocations of the pool’s the operator’s principals. (Rules 4.24 (f), (l) and (t)). In addition, the proposed be afforded in very short timeframes as for aggregate initial futures margin and investment companies, disclosure of volatility risks premiums for commodity option rules requiring disclosure of the use of as required by new Rule 4.24(g) has added contracts.133 Several commenters proceeds (Rule 4.24(h)), risk factors importance. recommended that these disclosure (Rule 4.24(g)), fees and expenses (Rule 139 59 FR 25351, 25363. 140 requirements (as well as the major CTA 4.24(i)), and redemption restrictions A number of commenters, however, claimed (Rule 4.24(p)) would have required that the proposed revisions failed to adequately and multi-advisor pool definitions) be address the compliance problems faced by funds- based upon the percentage of the pool’s information relative to the offered pool’s of-funds. Some stated that obtaining required assets allocated to each CTA. As investments, including participation in information from investee funds on a timely basis discussed above, the definition of major investee pools. As the Commission is often difficult or impossible for a variety of explained in the Proposing Release, reasons, e.g., because securities investee fund commodity trading advisor, as adopted managers may consider the names of investee funds in Rule 4.10(i), no longer is based upon these provisions are appropriate because and managers to be proprietary; Rule 4.12(b) the percentage of initial margin and investments in investee pools may investee funds and securities trading partnerships premiums but, instead, considers the entail both the risks inherent in the report on a quarterly basis; partnerships that investee pool’s own investments and predominantly trade securities do not provide the CTA’s allocated portion of the pool’s same level of expense reporting as do pools; and if funds available for futures and option liquidity risks due to restrictions upon an investee pool is not soliciting participants when transactions pursuant to agreement redemption of the investment in the the investor pool prepares its Disclosure Document, between the pool’s CPO or trading investee pool; fees and expenses may the information from the investee pool may be unavailable or stale. Other commenters suggested manager, on behalf of the pool, and the accrue at each level of a multi-tier structure; and investments in investee that specific information regarding investee pools is CTA. Wherever Rule 4.24, as proposed, unhelpful and may be misleading where the CPO keyed disclosure requirements regarding frequently drops and adds investee pools. As a 134 a pool’s CTAs to allocation size, the rule As discussed above in Section IV, ‘‘investee general matter, the Commission does not believe pool’’ is now defined in Rule 4.10(d)(4). Former that fund-of-funds structures should be permitted to Rule 4.21 did not specifically address disclosures impair or diminish the duty of pool operators to 131 As proposed, Rule 4.34 was numbered 4.33. relative to these trading vehicles. provide timely material information to prospective 132 Because proposed Rule 4.24(t) required 135 See proposed Rule 4.24(e). and current pool participants. Consequently, the disclosure with respect to major CTAs, it was 136 See proposed Rule 4.24(j). pool operator should ascertain the availability of indirectly addressed by the commenters who 137 As proposed in Rule 4.10(l), such investee such information prior to using pool funds for such suggested changes to the major CTA definition. pools would be ‘‘major’’ investee pools. Rule investments. However, the Commission intends that 133 These were proposed Rules 4.24 (e)(3) 4.10(d)(5) contains the definition, as adopted, of the the staff will continue to grant relief from reporting (names), (f) (business backgrounds), (j) (conflicts of term major investee pool, discussed above at timeframes in fund-of-funds contexts as warranted interest), (l) (litigation) and (t) (ownership in pool). paragraph B. of Section IV. by the circumstances presented. 38170 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations percent or more of the offered pool’s net The Commission believes that the Disclosure Document as provided by assets, rather than the proposed twenty- investors are well served by requiring the Commission or any applicable five percent standard of the proposed that certain items of particular federal or state securities laws and major investee pool definition. Rule significance be placed at the front of the regulations or by any applicable laws of 4.24(j) (conflicts of interest involving Disclosure Document. With minor non-United States jurisdictions.144 As the pool) effectively retains the ten exceptions as noted below, it is proposed, the revised Risk Disclosure percent threshold of the proposal. adopting Rules 4.24(a) through (d) for Statement included page references to CPO documents and Rules 4.33(a) textual descriptions of fees and B. Required Non-Performance through (d) for CTA documents (Rule expenses, principal risk factors and the Disclosures 4.33 is renumbered 4.34) as proposed. break-even point. Inadvertently omitted 1. Prescribed Non-Performance The Commission notes that federal and from the Proposing Release was the Statements, Table of Contents and state securities laws may also address requirement for a legend (if applicable) Forepart Information: Rules 4.24 (a) the order and format of certain to warn of potential liability in excess through (d) for CPOs and 4.34 (a) disclosures. These rules are not of the amount of a pool participant’s through (d) for CTAs intended to supersede such investment. As explained in the requirements. Proposing Release, the proposed Proposed Rules 4.24 (a) through (d) Placement of all required disclosures revisions to the prescribed Risk for CPOs and 4.33 (a) through (d) for other than those specified in Rules Disclosure Statements were also CTAs would have specified the content 4.24(a) through (d) and 4.34(a) through intended to address the potential for and order of certain core information (d) is left to the discretion of the duplicative disclosure created by prior required to be placed at the front of registrant. Placement of information revisions of Rules 1.55 145 and Disclosure Documents. In particular, other than required disclosures is 30.6(a) 146 by eliminating the need to proposed Rules 4.24 (a) and (b) would addressed by Rules 4.24(v) and 4.34(n), provide two prescribed Risk Disclosure have required a cautionary statement to which are intended to maintain the Statements, one for domestic futures be placed on the cover page of a pool prominence of required disclosures trading and one for foreign futures Disclosure Document, followed by a risk while giving discretion to the registrant trading.147 Thus, the proposed revised disclosure statement. Rule 4.24(c) with respect to placement of other statements addressed the risks of foreign would have required a table of contents matters, e.g., supplementally provided as well as domestic transactions and to follow the risk disclosure statement, performance information.142 Thus, revision of Rule 30.6(b) was proposed to and Rule 4.24(d) would have required registrants will retain substantial cross-reference the Part 4 Risk specified descriptive information discretion in arranging information in Disclosure Statements. In addition, the regarding the offered pool and the CPO the Document. However, the required proposal would have replaced the terms to follow the table of contents in the table of contents should facilitate review ‘‘domestic’’ and ‘‘foreign,’’ previously forepart of the Disclosure Document. notwithstanding differences in used to refer to contract markets or Proposed Rules 4.33 (a), (b) and (c) placement of some items. exchanges in foreign jurisdictions, with would have required the cautionary the terms ‘‘United States’’ and ‘‘non- statement, risk disclosure statement and a. Cautionary Statement United States,’’ in order to avoid table of contents to be sequenced in the Rules 4.24(a) and 4.34(a), which confusion in the context of offerings in same manner in CTA Disclosure contain the requirements of former non-United States jurisdictions to non- Documents as in pool documents. Rules 4.21(a)(18) and 4.31(a)(9), United States participants for whom the Proposed Rule 4.33(d) would have respectively, specify that a Cautionary term ‘‘foreign’’ does not mean ‘‘non- required inclusion of descriptive Statement, i.e., a statement that the United States.’’ information regarding the CTA in the Commission has not passed upon the Some commenters encouraged forepart.141 merits of the investment or the minimizing required verbatim Two commenters favored adequacy of the Disclosure Document, cautionary statements and legends. Two standardizing the order of disclosures, appear on the cover page of the commenters suggested that the asserting that it would promote Document. Apart from comments Commission prescribe one risk consistency, clarity and comparability generally urging that specific required statement for inclusion in both CPO and within the industry, both for potential statements and legends be minimized, CTA documents, incorporating all of the investors and for regulators. Of the five no comments were received on the text issues the Commission believes are commenters who opposed regulation of of the proposed Cautionary Statement. necessary for investor protection, in the placement of information, two The Commission is adopting Rules order to increase the effectiveness of suggested that the Commission’s review 4.24(a) and 4.33(a) as proposed (except such disclosure. Another commenter process is capable of effectuating more that Rule 4.33(a) is renumbered asked whether the Risk Disclosure prominent disclosure of 4.34(a)).143 Statement would be more effective if set forth in the text of the Disclosure underemphasized or ‘‘buried’’ b. Risk Disclosure Statement information and one claimed that a Document. summary cross-reference to the body of The Risk Disclosure Statement specified in Rules 4.24(b) and 4.34(b) is 144 The Risk Disclosure Statement must be the document should provide sufficient printed in capital letters and in boldface type. Rule clarity. required to be ‘‘prominently displayed’’ immediately following any disclosures 4.1(b). 145 59 FR 25351, 25363. Rule 1.55 sets forth the required to appear on the cover page of 141 In connection with developing its proposed basic risk disclosure requirement applicable to revisions to the disclosure rules, the Commission FCMs and IBs opening accounts for domestic also considered whether a particular order for all 142 Rules 4.24(v) and 4.34(n) are discussed in futures and option contracts. required information should be mandated in order detail in Section C of this Section VI. 146 Part 30 generally governs transactions in to ‘‘standardize’’ the entire format of Disclosure 143 The requirement in Rules 4.24(a) and 4.34(a) foreign futures and option contracts. Rule 30.6(a) Documents. However, the Commission determined that the Cautionary Statement be ‘‘prominently’’ requires an FCM or IB to deliver a risk disclosure to propose, and now to adopt, only the limited displayed means that, as with the former rules, statement (pursuant to Rule 1.55(b)) prior to the sequence requirements contained in Rules 4.24 (a) capital letters and boldface type are required. See opening of a foreign futures or options account. through (d) and 4.34 (a) through (d). Rule 4.1(b). 147 59 FR 25351, 25363. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38171 The Commission is adopting Rules One commenter stated that a table of disclosure only in the event that one or 4.24(b) and 4.34(b) 148 as proposed with contents should be optional for smaller more of such descriptions applies to the the following exceptions. As adopted, documents. Several commenters favored offered pool. In addition, instead of the Rules 4.24(b)(1) and 4.34(b)(1) recognize requiring a table of contents but date the Disclosure Document will that foreign jurisdictions may require requested latitude in its placement, e.g., actually be used, the forepart must specific information on the cover page to permit it to appear on the back cover indicate the date the CPO or CTA first by adding the language ‘‘or by any page. The Commission believes that intends to use it.153 Cross-references applicable laws of non-United States placement of the table of contents at the have been conformed and corrected. jurisdictions.’’ As adopted, Rule 4.24(b) beginning, rather than the end of (or Finally, proposed Rule 4.33(d) is incorporates the requirement of former elsewhere in) the Disclosure Document adopted as 4.34(d). Rule 4.21(a)(17)(ii) to include in the will be most helpful to investors, given Risk Disclosure Statement additional the format of most pool documents, and e. Persons To Be Identified language if the pool participant’s that the benefits of a table of contents Proposed Rule 4.24(e) would have liability can exceed the purchase price outweigh any burdens attendant to its required disclosure of names of the of his interest in the pool. Further, Rule preparation. The Commission thus is CPO’s principals, the trading manager 4.34(b) as adopted omits reference to a adopting as proposed the requirement (if any) and its principals, each investee break-even point. In addition, Rule 1.55 that a table of contents be included in pool allocated at least ten percent of the is being amended, as proposed, to all Disclosure Documents immediately assets of the offered pool, each CTA provide that pools need not be treated following the Risk Disclosure Statement. allocated at least ten percent of the as customers for purposes of delivery of d. Information To Be Included in pools initial margin and option the Risk Disclosure Statement required Forepart 150 premiums, the person who will make thereunder. trading decisions for the offered pool, The Commission believes that the Proposed Rules 4.24(d) and 4.33(d) and, if known, the FCM to be used by different risks and characteristics of would have required that specified basic the offered pool. Proposed Rule 4.33(e) pools as compared to direct trading information appear immediately would have required a CTA to name through a managed account, perhaps following the table of contents, in the each of its principals, as well as any most notably the difference between forepart of the Disclosure Document. FCM or IB the CTA’s client will be participating in a limited liability With respect to CPO documents, this required to use. trading vehicle as opposed to an information would have included the Rule 4.24(e), as adopted, eliminates individually-managed account, warrant following: The name, business address, the initial margin and premiums different risk disclosure statements. business phone number and form of standard for CTA disclosure and Accordingly, the Commission is not organization of the offered pool and of requires instead that only CTAs (and prescribing a single, common statement the CPO (and if the pool’s address is a investee pools) that are ‘‘major’’ must be for both CPO and CTA Disclosure post office box or is outside the United named. Rule 4.24(e) also requires Documents. Further, the Commission States, the location of the books and identification of any IB the offered pool believes that the information contained records); a statement whether the will use, and otherwise is adopted as in the Risk Disclosure Statement is offered pool is privately offered under proposed. Rule 4.33(e) is adopted as critical in order to inform potential the Securities Act, a multi-advisor pool proposed except that it is renumbered 151 investors as to many of the generic risks or a limited risk pool; the closing 4.34(e). inherent in commodity interest trading, date of the pool offering (or a statement and that the importance of this that the offering is continuous); the date 2. Business Background: Rules 4.24(f) information is appropriately highlighted the Disclosure Document will first be for CPOs and 4.34(f) for CTAs by placing the Risk Disclosure used; and the break-even point of the As proposed, Rule 4.24(f) would have Statement at the beginning of the pool.152 The forepart of a CTA required disclosure in a pool document document. document would have been required to of the business backgrounds of the CPO, contain the business address, business c. Table of Contents 149 any trading manager of the pool, major phone number and form of organization CTAs, and the operators of major Rules 4.24(c) and 4.34(c) specify that of the CTA (and if the address is a post investee pools. The only principals of the Disclosure Document must include office box or is outside the United the foregoing for whom disclosure of a table of contents immediately States, the location of the books and business backgrounds would have been following the Risk Disclosure Statement. records) as well as the date the required are those ‘‘who participate in The table of contents must show, by Disclosure Document will first be used. making trading or operational decisions subject matter, the location of The Commission is adopting Rules ** * or who supervise those so disclosures in the Disclosure Document. 4.24(d) and 4.33(d) as proposed, with engaged.’’ Proposed Rule 4.33(f) would the following exceptions. Instead of have required a CTA document to 148 requiring a ‘‘statement whether the pool Rule 4.34(b) was proposed as Rule 4.33(b). provide the business background of the 149 Neither former Rule 4.21 for CPOs nor former is’’ privately offered, a multi-advisor CTA and the principals thereof Rule 4.31 for CTAs required a table of contents. pool or a limited risk (principal- participating in making trading or However, most Disclosure Documents reviewed by protected) pool, Rule 4.24(d)(3) requires the Division contain such a table. Further, Form S– operational decisions. 1, the form most frequently used to register pool Former Rule 4.21(a)(2) required offerings with the SEC, requires ‘‘a reasonably 150 Neither former Rule 4.21 nor 4.31 required detailed table of contents showing the subject specified information to be placed in the forepart business backgrounds for the CPO, the matter of the various sections or subdivisions of the of the Disclosure Document. CTA and all of their respective prospectus and the page number on which each 151 As discussed at Section IV above, new Rule principals, and, similarly, former Rule section or subdivision begins.’’ See Item 502(g) of 4.10(d)(3) replaces the proposed term ‘‘limited risk 4.31(a)(2) called for the backgrounds of Regulation S–K, 17 CFR 229.502(g) (1994), pool’’ with the term ‘‘principal-protected pool’’ incorporated by reference into Item 2 of Form S– (while continuing to define it, as proposed, as pool the CTA and all of its principals. The 1, 17 CFR 239.11 (1994). The Commission believes designed to limit the loss of the initial investment that a table of contents should contribute to making of its participants). 153 Proposed Rules 4.24(d)(4) and 4.33(d)(2) had the disclosure document ‘‘reader-friendly’’ and 152 The term ‘‘break-even point’’ is discussed in required ‘‘[t]he date when the Disclosure Document readily reviewable. Section IV above. will first be used.’’ 38172 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations proposed revisions were designed to 3. Principal Risk Factors: Rules 4.24(g) The Commission requested comment reduce the number of principals subject for CPOs and 4.34(g) for CTAs156 as to whether additional guidance to business background disclosure and, As noted above, Rules 4.24(b) and should be given in the rules as to the in the context of trading advisors and 4.34(b) require the inclusion, at the types of risk factors that should be operators of investee pools, restricted beginning of the Disclosure Document, discussed and as to any specific factors business background disclosure to major of a standardized Risk Disclosure that should be identified in this context. CTAs and the operators of major Statement that generically describes the The commenters did not suggest any investee pools. risks of the investment. Proposed Rules additional specific risk factors. One Commenters generally supported the 4.24(g) and 4.33(g) would have required commenter supported the proposed proposed reduction of business that the prescribed generic risk requirement for a particularized background disclosure. Six suggested disclosures be supplemented by a discussion of the risks beyond the further limiting disclosure with respect particularized discussion of the standardized required risk disclosure. to principals by deleting the words ‘‘or ‘‘principal risk factors’’ specific to the Another urged that the rules not list operational’’ and effectively employing pool or trading program being offered, specific required risk factors, since risks the definition of ‘‘trading principal’’ in including, without limitation, risks due vary by pool or program, and such a Rule 4.10(e)(2).154 to volatility, leverage and counterparty requirement would mean that risks that creditworthiness. As the Commission are important in certain contexts but not The Commission is adopting Rules in others would be required to be 4.24(f) and 4.33(f) as proposed, except explained in the Proposing Release, this requirement was designed to elicit a disclosed in the same manner in all that the provision with respect to contexts. Another commenter stated that principals who participate in making ‘‘plain English’’ discussion of the risks of the offered investment, with discussion of counterparty trading or operational decisions for the creditworthiness is not warranted for a pool or supervise persons so engaged is particular attention to the risks created by over-the-counter transactions.157 For pool that restricts its trading to revised to make clear that officers and exchange-traded instruments. One directors are included among the example, as noted in the Proposing Release, the discussion of principal risk commenter proposed that the level of principals whose business background risk factor disclosure with respect to an is required, as only shareholders and factors should address the volatility of an offered pool investment as compared investee pool be determined by the other passive investors who would percentage of assets allocated to such constitute principals were intended to to investments in other types of trading vehicles and other risks relevant to the investee pool. be excluded. Proposed Rule 4.33(f) is The Commission is adopting Rules adopted as Rule 4.34(f). The trading program to be followed, such as risks resulting from concentration of 4.24(g) and 4.33(g) as proposed requirement to disclose business (renumbering proposed Rule 4.33(g) as backgrounds for principals who investments in particular commodities or from trading foreign contracts that are 4.34(g)) with certain modifications participate in making operational designed to provide more specific decisions for a pool operator or advisor subject to currency rate fluctuations. Other risks cited included risks inherent guidance as to the types of disclosures is retained because such persons can called for in the discussion of principal have as significant an effect on the in transactions in off-exchange instruments and risks arising from the risks. The principal risk factor performance of the pool operator or discussion must now include, without advisor as those who make its trading lack of relevant experience of the CPO or CTA.158 The Commission noted that limitation, risks relating to volatility, decisions. For example, the persons leverage, liquidity and counterparty who supervise sales solicitations, in establishing an express requirement for disclosure of principal risk factors, it creditworthiness, as applicable to the manage the pool’s back office and types of trading programs to be perform compliance functions may be was essentially codifying disclosure requirements previously required under followed, trading structures to be wholly uninvolved in the pool’s trading employed and investment activity yet integral to the pool’s success or the obligation to disclose all material information or under other provisions of expected to be engaged in by the offered failure. Accordingly, the Commission pool. Similarly, under Rule 4.34(g), the believes that the business backgrounds the former rules. This provision also accords with existing SEC requirements focus is on the trading program and the of such persons should be disclosed to types of transactions and investment 155 for publicly offered funds.159 prospective participants or clients. activity expected to be engaged in As noted above, the Commission pursuant to the trading program. As intends that the principals who 156 Former Rules 4.21 and 4.31 did not contain any specific requirements applicable to the noted, the specific types of risks cited in participate in making trading or particular risks of the pool or trading program. the rules (volatility, leverage, liquidity operational decisions for the pool or 157 59 FR 25351, 25364. These risks may differ and counterparty creditworthiness) are who supervise persons so engaged materially from those entailed in exchange-traded futures and option transactions, which generally are illustrative, not exclusive, are likely to would include all principals other than be significant across a wide range of purely passive investors or owners. backed by clearing organization guarantees, daily marking-to-market and settlement, and segregation trading programs and investments and and minimum capital requirements applicable to thus are logical starting points for a 154 Under the rule amendments as proposed and intermediaries. Transactions entered directly discussion of principal risk factors. The as adopted, the ‘‘trading principal’’ concept is not between two counterparties generally do not benefit used in connection with non-performance from such protections and expose the parties to the final rule includes specific reference to disclosure requirements. See Rule 4.25(c) for CPOs risk of counterparty default. and Rule 4.35(b) for CTAs. 15859 FR 25351, 25364. position, nature of the registrant’s business and 155 The Commission emphasizes that while 159 Public securities offerings are required by Item absence of a previous market for the offered disclosure of business backgrounds of principals is 503(c) of Regulation S–K (17 CFR 229.503(c) (1994)) securities. SEC Release Number 33–6900, which being limited to officers, directors and other to include immediately following the cover page of provides guidance with respect to disclosure operational or trading principals, the names of all the prospectus (or following the summary, if one is requirements for limited partnership offerings and principals of the CPO, trading manager, major included) ‘‘a discussion of the principal factors that roll-up transactions, requires that the cover page of CTAs, and operators of major investee pools make the offering speculative or one of high risk.’’ a limited partnership prospectus indicate the most continue to be required to be disclosed in the Possible risk factors included in Item 503(c) include significant risk factors ‘‘highlighted through the use Disclosure Document. See Rules 4.24(e) for CPOs absence of an operating history, absence of of a concise list of bullet-type statements.’’ (17 CFR and 4.34(e) for CTAs. profitable operations in recent periods, financial 231.6900 (1994)). Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38173 ‘‘liquidity’’ as a risk factor, in 4. Investment Program and Use of be sufficient. Another commenter recognition that the risk of illiquidity is Proceeds: Rule 4.24(h) for CPOs 161 suggested that the requirement for use of one that arises in a wide range of Proposed Rule 4.24(h) would have proceeds disclosure should be based instruments and that liquidity issues consolidated under the caption ‘‘Use of upon the percent of assets allocated to may often be linked to the other Proceeds’’ the provisions of former Rule the investee pool and that if the identified risk factors. 4.21(a)(1)(viii), which required a investment involved less than ten Rule 4.24(g) as adopted provides three description of the types of commodity percent of the offered pool’s assets, contexts in which such risks should be interests the pool is expected to trade disclosure should not be required. Two considered, the trading programs to be and any restrictions on such trading, commenters criticized the requirement followed, the trading structures to be with those of former Rule 4.21(a)(9), to disclose whether (and in what form) employed and the investment activity which required disclosure of the assets are held in segregation. expected to be engaged in by the offered manner in which the pool would fulfill Based upon its review of the pool. Risk factors specific to each its margin requirements and the form in comments received and of the overall context should be discussed. For which non-margin funds would be held. content of the proposed and final rules, example, this discussion should As a result, taken together, former Rules the Commission has determined to indicate any material historical or 4.21(a)(1)(viii) and (a)(9) called for modify proposed Rule 4.24(h) in order expected volatility of the trading disclosure of both the commodity to provide greater clarity and specificity program and any other special interest trading expected to be engaged as to the disclosures called for. In characteristics of the trading program, in by the pool and all other types of essence, proposed Rule 4.24(h) was such as concentration in a particular trading, investments, custodial designed to elicit a description of the commodity, lack of trading history, or arrangements and other uses of the types of interests in which the proceeds negative performance history associated funds of the pool. Proposed Rule 4.24(h) of the offering would be invested and of with the trading program. The trading thus would have unified previously the trading programs to be followed. To structures or vehicles to be employed separate related disclosures to create a better reflect the overall intent and may also present significant risks. For single, cogent discussion of all of the scope of this provision, it has been example, multi-CTA and multi-investee- contemplated uses of pool funds. In retitled ‘‘Investment Program and Use of fund structures generally involve more addition to integrating disclosures Proceeds’’ and the text has been complex fee structures than other pools previously required under separate rule restructured and refined to provide and their profit potential may be provisions, Proposed Rule 4.24(h) was more specific guidance as to the adversely affected as a result of the designed to reflect the increasingly minimum disclosures called for. As potential for the pool to maintain diverse nature of non-futures revised, Rule 4.24(h) calls for four main offsetting positions due to the separate investments made by pools, for types of information: Information about trading of various CTAs and investee example, interests in other commodity the types of commodity interests and funds. The specific types of investment pools, commercial paper and foreign other interests which the pool will activity in which the pool is expected to securities. trade; a description of the trading and engage must also be examined to Several commenters recommended investment programs and policies that identify principal risk factors. For that use of proceeds disclosure will be followed by the offered pool; a example, highly leveraged off-exchange requirements minimize (or eliminate) summary description of the pool’s transactions such as some types of information regarding ‘‘normal’’ commodity trading advisors and swaps, may present risks of rapid price investment uses and concentrate on (or investee pools or funds; and information movements, illiquidity, lack of be limited to) ‘‘unusual’’ uses of assets concerning the manner in which the transparency and the potential for or uses that present special risks to the pool will fulfill its margin requirements, counterparty default which may not be investor. Several commenters argued the approximate percentage of the pool’s material in the context of domestic that expanded use of proceeds assets that will be held in segregation exchange-traded futures contracts. disclosures have unnecessarily and related matters. With respect to Given the wide range of potential pool lengthened Disclosure Documents, each topic, explanatory text has been investments, the CPO must determine resulting in disproportionate emphasis added to clarify the types of information on a case-by-case basis what risk factors on standard or mundane investments to be provided. For example, must be addressed in light of the and obscuring the pool’s primary information concerning the ‘‘types of contemplated trading and investment business objectives. Some commenters commodity interests or other interests activity of the pool. urged that the use of pool assets in the commodity pool operator intends A CPO must make a determination securities trading that is independent of that the pool will hold or trade’’ is to whether the risks affecting each investee rather than incidental to a pool’s include the approximate percentage of pool (or investee fund), when commodity interest trading should not the pool’s assets that will be used to considered in the context of the investor require disclosure. With respect to trade commodity interests, securities pool’s participation in such investee participation in investee pools or funds, and other types of interests. The pool (or fund), constitute principal risk one commenter suggested that only a provision also calls for the different factors of the investor pool. In general statement that the pool would types of interests in which the pool will determining whether counterparty invest in investee pools or funds should trade to be categorized so as to provide creditworthiness is a principal risk a meaningful explanation of the factor in the context of a given pool subject to some of the same risks as over-the- contemplated trading and investment offering or trading program, factors such counter transactions. portfolio. Thus, the rule provides for as the use of instruments other than 161 Because of the differences between CPOs and categorization by the type of commodity those that are traded on United States CTAs, the Commission did not propose nor is it now adopting any general ‘‘use of proceeds’’ or market sector, type of security, contract markets must be considered.160 disclosure requirement for CTAs. However, both whether traded or listed on a regulated new Rules 4.24(h)(2) for CPOs and Rule 4.34(h) for 160 As shown by the recent events involving the CTAs require a description of the trading progrm exchange market, maturity ranges, and collapse of Barings, PLC, under certain that will be used for the pool or managed account investment rating, as applicable. circumstances exchange-traded instruments may be client. Further, the regulatory status of such 38174 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations interests, i.e., the extent to which they margin deposits and to whom income required or whether the break-even are subject to state or federal regulation, generated by margin assets will be paid. analysis is sufficient to accurately describe the costs of participation in a foreign regulation or supervision by a 5. Fees and Expenses; ‘‘Break-Even’’ pool. These comments included the self-regulatory organization, is called Analysis for CPOs: Rules 4.24(i) for following: That a break-even analysis is for. CPOs and 4.34(i) for CTAs 163 sufficient unless in the CPO’s judgment Second, Rule 4.24(h)(2) requires a Proposed Rule 4.24(i) was intended to more information is required to make description of the trading and provide in a single location a complete the break-even analysis more investment program and policies to be discussion of costs incurred by a understandable; that investors benefit followed by the offered pool. This commodity pool for all purposes. The from receiving a separate, more description must include an explanation proposed rule combined the comprehensive description of of the methodologies and data used to requirements of former Rule 4.21(a)(7), applicable fees than is contained in a select CTAs, investee pools and types of which called for a description of the break-even discussion; that for a pool in investment activity to which pool assets expenses that the CPO knew or should operation for more than one year the will be committed. The objective is to have known had been incurred in the prior year’s actual expenses should provide an explanation of the basic preceding year or would be incurred in suffice with no requirement for trading and investment approach to be the current year (e.g., fees for estimated expenses; that estimated followed by the pool, including, if management, trading advice, brokerage expenses be required to be disclosed in applicable, an explanation of the commissions, legal advice, accounting a manner similar to that required under systems used to select the pool’s and organizational services), with those SEC rules applicable to mutual funds; advisors and the types of investment of former Rule 4.21(a)(14), which and that a description of fees and activity in which the pool will required disclosure of fees and expenses that are paid by the CPO or the engage.162 commissions paid in connection with CTA out of their own assets on behalf 164 of the pool should not be required. A new subparagraph, designated as solicitations for the pool. In addition, Some commenters asserted that Rule 4.24(h)(3), calls for a narrative it called for a description of certain fees and expenses that were not specifically calculation of a break-even point would description of the major commodity be difficult or impossible for pools with trading advisors and investee funds to enumerated in the former rules but that nonetheless constitute material no maximum amount of capital that can which the pool will commit funds. This information about which a prospective be raised, for pools invested in other discussion is required to include investor should be informed. These collective investment vehicles, and for percentage allocations of pool assets to include clearance fees and fees paid to multi-advisor pools with high CTA major CTAs and investee pools and national exchanges and self-regulatory turnover and reallocation. One funds, a description of the trading organizations, incentive fees (including commenter suggested a convention programs to be followed by such any disproportionate share of profits (such as 2% of average net asset value) advisors, and for each such advisor and allocated to the CPO, i.e., a right of the for approximating the profit shares to be investee fund, the types of interests CPO to receive a greater than pro-rata paid in a multi-advisor fund with non- traded and material information as to share of the pool’s profits), and fees and netted incentive fees. the advisor’s historical experience expenses incurred as a result of Several commenters argued that trading such program, including investments in investee pools and other estimating incentive and other fees material information as to volatility, investment vehicles or in connection would be difficult or impossible for leverage and rates of return and the with funding the guarantee of a CPOs of existing pools as well as length of time during which the advisor principal-protected pool. The proposed operators of new pools. One commenter, has traded such program. Similarly, for rule also required an explanation of the however, stated that since the CPO the pool’s investee pools or funds, the calculation of the pool’s ‘‘break-even establishes and understands the fee description should extend to the nature point.’’ structure (and is allowed to make and to and operation of such investee pools With respect to CTAs, proposed Rule state any necessary assumptions) it is and funds, including for each investee 4.33(i) differed from former Rule incorrect to argue that a break-even pool or fund the types of interests 4.31(a)(4) only in requiring that if a fee analysis cannot be provided because traded, material information as to is determined by reference to a base fees cannot be estimated. The Commission is adopting Rules volatility, leverage and rates of return amount such as net assets or net profits, 4.24(i) and 4.33(i) as proposed for such investee pool or fund and the the manner in which such base amount (renumbering proposed Rule 4.33(i) as period of its operation. will be calculated must be explained, 4.34(i)). For pool Disclosure Documents Finally, Rule 4.24(h)(4), like the where former Rule 4.31(a)(4) simply both the break-even analysis and the proposed ‘‘Use of proceeds’’ section, required that such base amount be 165 narrative fee and expense description calls for information as to the manner in defined. are required because the Commission which the pool will fulfill its margin The Commission received numerous believes that each serves a valuable requirements and the approximate comments in response to its request for purpose. A description of each separate percentage of the pool’s assets that will comment as to whether a description of fee and expense may not convey a clear be held in segregation pursuant to the fees and expenses should continue to be understanding of the actual portion of Act and the Commission’s regulations, each pool participation absorbed by the 163 The Commission’s former disclosure rules did the nature of anticipated non-cash not require a break-even analysis. aggregate fees and expenses of the pool. 164 By way of clarification, as proposed and as To foster a better understanding of the 162 The requirement in proposed Rule 4.24(h)(1) adopted, Rule 4.24(i) also requires that disclosure nature of those costs and their impact to disclose ‘‘any restrictions or limitations on such of fees paid in connection with solicitations for the upon an investment in the pool, the interests or trading required by the pool’s pool must include trailing commissions as well as revised rules require that the narrative organizational documents or otherwise’’ (originally any type of benefit that may accrue to persons part of former Rule 4.21(a)(1)(viii)) was revised to engaged in such solicitations. description of fees and expenses, which refer to ‘‘any material restrictions or limitations 165 The same change was also incorporated in is designed to explain the basis for each * * *’’ proposed CPO Rule 4.24(i). such expenditure, be accompanied by a Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38175 tabular presentation of fees and expenses are subsequently charged to investment of pool assets in investee expenses from all sources, setting forth the pool or account. pools or other investments. Former Rule how the break-even point for the pool is Where a fee or expense item is 4.21(a)(3) required disclosure of calculated (‘‘break-even analysis’’). variable or otherwise difficult to conflicts involving the following Where specific components of the determine (e.g., in the case of a multi- persons or their principals: The CPO, break-even analysis are not available or advisor pool rapidly substituting and re- the CTA, any FCM that will execute the are not subject to precise determination, allocating among numerous advisors), pool’s trades, and any IB through which good faith estimates should be made, the narrative discussion required by the pool’s trades will be introduced. The based on reasonable assumptions Rule 4.24(i) must indicate a range based former rule specified that such properly disclosed. As noted above, the upon the CPO’s advisor selection description should include any ‘‘break-even point’’ for the pool is criteria, investment objectives and other arrangement whereby the CPO or the required by Rule 4.24(d)(5) and 4.10(j) business practices. For purposes of the CTA might benefit directly or indirectly to be set forth as a separate item in the break-even analysis, however, a good forepart of the Disclosure Document, faith estimate should be used, as from maintenance of the pool’s account immediately following the table of discussed above, and the assumptions with the FCM or introduction of the contents, and must be expressed both as for such estimate disclosed. This account by the IB. The proposed rule a dollar amount and as a percentage of situation illustrates the benefit of would have retained the requirement to the minimum unit of initial investment. requiring both the break-even analysis disclose conflicts of interest on the part The break-even analysis provides an and the narrative discussion. of the CPO and its principals but, explanation, in tabular form, of how the The Commission believes that the subject to the requirement that all break-even point is calculated, taking revised fee and expense disclosure material information be disclosed, into account all fees, expenses and requirements better codify disclosures generally would have eliminated such commissions applicable to the pool. required under the former rules, that the disclosure with respect to CTAs Rule 4.10(j) requires that the break-even break-even analysis makes such allocated less than ten percent of the point be prepared in accordance with disclosures more understandable, and pool’s futures margins and option rules promulgated by a registered that the revised requirements will better premiums. Further, rather than limiting futures association pursuant to section assist readers of Disclosure Documents the disclosure of conflicts of interest to 17(j) of the Act. As noted above, NFA in understanding the nature and effect specified categories of registrants, such has adopted (and the Commission has upon investment returns of costs as FCMs and IBs, specifically identified approved) an Interpretive Notice to incidental to the offering and operation in the former rule, the proposed rule accompany NFA Compliance Rule 2–13, of the pool or trading program. would have encompassed conflicts of setting forth how a break-even point interest on the part of any person must be calculated and the format in 6. Conflicts of Interest: Rules 4.24(j) for which such calculation must be CPOs and 4.34(j) for CTAs; Related providing services to, or soliciting disclosed. Party Transactions: Rule 4.24(k) for participants for, the pool. As noted in The Commission is clarifying that the CPOs 166 the Proposing Release, the purposes of conflict of interest disclosure are not break-even point must represent the a. Conflicts of Interest—CPOs trading profit the pool must realize in confined to conflicts involving a the first year of an investor’s Proposed Rule 4.24(j) called for a full Commission registrant.168 Unregulated participation in order for the investor to description of any actual or potential parties such as a CPO affiliate acting as recoup his initial investment, and Rule conflicts on the part of: (a) The pool’s counterparty to over-the-counter 4.10(j) as adopted so states. Revision of CPO, trading manager (if any), CTAs transactions with the pool may be the break-even point is required for allocated at least ten percent of the equally relevant for such purposes. ongoing pool offerings whenever the pool’s initial margin and premiums, the Finally, unlike former Rule 4.21(a)(3), operators of investee pools allocated at Disclosure Document is amended or proposed Rule 4.24(j) would have least ten percent of pool assets; (b) any updated. Of course, if the actual break- specifically referenced payment for even point becomes materially different principal of the foregoing; and (c) any person providing services to the pool or order flow and soft-dollar arrangements from that which appears in the as types of disclosable arrangements by Disclosure Document, amendment is soliciting participants for the pool. Proposed Rule 4.24(j) specifically which a person may benefit from required. maintenance of the pool’s account with As proposed and as adopted, Rules referred to arrangements whereby a 4.24(i) and 4.34(i) require disclosure of person benefits from the pool’s use of a an FCM or the introduction of the pool’s fees and expenses expected to be particular FCM or IB (specifically account by an IB. As with the former incurred in the current fiscal year, including payment for order flow and rule, disclosure of all material conflicts including estimated figures if actual soft dollar arrangements) 167 or from the would continue to be required, whether amounts cannot be determined. The Commission believes that reliance 166 Former Rules 4.21(a)(3) for CPOs and January 1994). The SEC recently adopted Rule 4.31(a)(5) for CTAs addressed conflicts of interest. 11Ac1–3 and amendments to Rule 10b–10 (17 CFR solely upon the prior year’s actual fees The Commission’s former disclosure rules did not 240.10b–10 (1994)) under the Securities Exchange and expenses may be misleading, contain any specific requirements with respect to Act of 1934 15 U.S.C. 78a et seq. to require especially if the CPO has reason to related party transactions. enhanced disclosure on customer confirmations anticipate changes in investment 167 Payment for order flow is a practice whereby and account statements (and upon opening of new strategies or advisors or market FCMs and IBs compensate CPOs (and CTAs) for accounts) with respect to payment for order flow directing customers to them. Soft dollar practices. Release No. 34–34902, 59 FR 55006 conditions. With respect to fees and arrangements consist of arrangements whereby (November 2, 1994). At the same time, revisions to expenses borne entirely by the CPO or customer or pool funds are used to pay for research Rule 11Ac1–3 and further amendments to Rule the CTA, disclosure should not be or other services that benefit the CPO (or CTA). 10b–10 were proposed. Release No. 34–34903, 59 necessary unless the compensation paid Both practices have concerned regulators because, FR 55014 (November 2, 1994). The effective date of among other things, they are often inadequately Rule 11Ac1–3 and the amendments to Rule 10b–10 by the pool or account to the CPO or disclosed. See Market 2000, An Examination of has been postponed to October 2, 1995 (Release No. CTA is increased as a result. Of course, Current Equity Market Developments: Study V, Best 34–35473, 60 FR 14366, March 17, 1995). disclosure is required if such fees and Execution (Division of Market Regulation, SEC, 168 59 FR 25351, 25365. 38176 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations or not specifically called for under expected quantitative impact on a pool’s disclosure of the benefit to the related proposed Rule 4.24(j).169 rate of return, but rather, on the basis of entity and the potential detriment to the Several commenters supported the what a prospective investor would pool. Another commenter stated that it expansion of the range of required consider to be material. will be very difficult, if not impossible, conflicts disclosure to include persons for a sponsor to quantify the spreads b. Conflicts of Interest—CTAs not registered with the Commission. charged on forward trades between its However, several commenters noted Proposed Rule 4.33(j) differed from pools and counterparties affiliated with that conflict of interest disclosures have former Rule 4.31(a)(5) in that the the sponsor and urged that no greater expanded beyond reasonable measure proposed rule would have added the cost detail be required than ‘‘cannot be and recommended restricting disclosure words ‘‘(a) full description of’’ any quantified but will constitute a to ‘‘actual’’ as opposed to ‘‘potential’’ actual or potential conflict. Also, the significant cost to the pool.’’ One conflicts. Others urged that only those following paragraph, which was commenter urged that if Rule 4.24(k) conflicts that the CPO reasonably proposed as part of the conflicts of applies to investee pools, no disclosure believes might be considered material interest provision for CPO Disclosure should be required with respect to pools should be required. One commenter Documents in proposed Rule 4.24(j), allocated less than ten percent of pool suggested that only conflicts likely to was inadvertently omitted from Rule assets; an intermediate level of have a direct material adverse effect on 4.33(j) in the Proposing Release, and it disclosure should be required for pools the pool, its performance or its has been included in the rule as allocated at least ten but less than relationships with its FCMs should be adopted:170 twenty-five percent; and full disclosure required. (2) Included in the description of such should be required for pools allocated The Commission is adopting Rule conflict shall be any arrangement whereby more than twenty-five percent. 4.24(j) generally as proposed. However, the trading advisor or any principal thereof The Commission is adopting Rule the Commission has added to the final may benefit, directly or indirectly, from the 4.24(k) as proposed (with a word order rule new § 4.24(j)(2) which requires maintenance of the client’s commodity change for clarity).171 In situations in description of ‘‘(a)ny other material interest account with a futures commission which a transaction is undertaken with conflict of interest involving the pool,’’ merchant or the introduction of that account an affiliate for which there is no to make clear that material conflicts through an introducing broker (such as publicly disseminated price, the payment for order flow or soft dollar involving non-major CTAs and the arrangements). Commission recognizes that operators of non-major investee pools quantification of the ‘‘cost’’ thereof to must be disclosed. Under the general No comments were received the pool may be difficult. In such materiality standard, disclosure of specifically addressing proposed Rule contexts, the Commission believes that, conflicts of interest on the part of CTAs 4.33(j). The Commission is adopting as suggested by a commenter, an and CPOs of investee pools below the Rule 4.33(j) as proposed (renumbering it explanation of the benefit to the related ten percent thresholds is required if, in as 4.34(j)), with the addition of the party and the potential detriment to the light of all relevant circumstances, foregoing paragraph, including the pool may be sufficient. In other cases, a including, for example, the nature and reference to payment for order flow and good faith estimate or a qualitative severity of the conflict, such disclosure soft dollar arrangements. description of the potential negative would be material to prospective pool c. Related Party Transactions impact on the pool may be sufficient. participants. Thus, the additional The fact that such transactions are subparagraph will reinforce the dictates Proposed Rule 4.24(k) would have entered into on a noncompetitive basis of the general materiality standard required that the CPO describe and should also be highlighted. With respect stated in Rule 4.24(w) in this area. discuss the costs to the pool of any to investee pools, the Commission does With respect to the comments material transactions or arrangements not believe that the three-level concerning the desirability of limiting between the pool and any person disclosure suggested by one of the conflict of interest disclosures, for affiliated with a person providing commenters is warranted because Rule example, by requiring the disclosure services to the pool for which there is 4.24(k) applies to transactions or only of ‘‘actual’’ as opposed to no publicly disseminated price. arrangements that directly involve, and ‘‘potential’’ conflicts of interest or Although the rules previously contained that are material to, the offered pool.172 material conflicts, the Commission does no corresponding provision, the Thus, in applying Rule 4.24(k) to not believe that a clear bright line Commission believes that this type of investee pool transactions, pool distinction of this nature can disclosure is already mandated in many operators may consider the extent of the meaningfully be drawn on a prospective cases under the general requirement that pool’s allocation of funds to an investee basis. A situation that may ripen into a material information be disclosed. pool in assessing the materiality of a conflict of interest, although it has not However, given the increasing use of related party transaction. done so as of the date of the Disclosure over-the-counter transactions in which Document, nonetheless may be as pools contract with their CPO or an 7. Litigation: Rules 4.24(l) for CPOs and material as an actual conflict that affiliate of the CPO as counterparty to 4.34(k) for CTAs currently exists. However, the the transaction, the Commission As proposed, Rule 4.24(l) would have Commission does believe that conflict of believes that an express requirement for required disclosure of any material interest disclosure should be guided by such disclosure is warranted. administrative, civil or criminal action a rule of reason and that only those Two commenters claimed that within the preceding five years against conflicts that are reasonably likely to be computing costs of related party the pool’s CPO, trading manager (if any), material must be disclosed. The transactions is difficult. One asked the major CTAs and operators of major Commission stresses, however, that Commission to consider requiring materiality in this context should not 171 See 59 F.R. 25351, 25365 n.67 for a discussion necessarily be determined on a strictly 170 Except for the language in parentheses, the of the litigation involving Stotler Funds, Inc., as an paragraph is identical to the last paragraph of illustration of the purpose of this requirement. quantitative basis, e.g., in terms of the former Rule 4.31(a)(5)(i). The parenthetical 172 Moreover, as adopted, the revised rules do not language conforms to proposed Rule 4.24(j) for retain the proposed three-level disclosure 169 Former Rule 4.21(h) and new Rule 4.24(w). CPOs. framework for past performance disclosures. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38177 investee pools, any principal of the statements as discussed above or if they the litigation disclosure requirement foregoing, and the pool’s FCMs and IBs involved allegations of fraud or willful upon funds-of-funds is unclear. (if any). Disclosure of actions that were misconduct. Proposed Rule 4.24(l) also The Commission is adopting Rules concluded by adjudication on the merits would expressly have required 4.24(l) and 4.33(k) as proposed in favor of the listed persons would not disclosure of litigation against a pool’s (renumbering proposed Rule 4.33(k) as have been required. Proposed Rule trading manager, if any, and its 4.34(k)) with the exception that the rule 4.33(k) would have required similar principals, a requirement previously is clarified to make explicit that actions disclosure with respect to the CTA and encompassed within the former involving an FCM or IB brought by a with respect to the FCM and IB required requirement for disclosure of litigation non-United States regulatory agency and to be used by the CTA’s client. against CTAs. involving allegations of fraud or willful Former Rule 4.21(a)(13) required Proposed Rules 4.24(l) and 4.33(k) misconduct will be considered material. disclosure of any action against a pool’s thus represented a reduction of required The requirement to disclose actions that CPO, CTA, FCM, IB or any of their litigation disclosure, particularly with would be required to be disclosed in an principals within five years preceding respect to FCMs and IBs. The scope of FCM’s or IB’s financial statements is the Document date without regard to the previously required litigation being retained. Since FCMs carry funds outcome. Former Rule 4.31(a)(7) disclosures as to CTAs would have been of the pool or managed account, their required similar disclosure with respect limited under proposed Rule 4.24(l) to financial status and reliability are to the CTA, any FCM or IB the client is major, as opposed to all, CTAs for the matters of material importance to required to use, and any principal of pool, and only litigation against prospective investors. those persons. If there had been no operators of major investee pools would Except for events occurring actions against any of the listed persons, be included.174 Litigation involving subsequent to the issuance of the latest the former rules required a statement to FCM and IB principals was not included certified financial statements, litigation that effect. in the proposed rule. required to be disclosed would already In addition to eliminating the Commenters generally supported the have been disclosed in the FCM’s or IB’s requirement to disclose actions resolved proposed changes but suggested certain latest certified financial statements. on the merits in favor of one of the further revisions. One commenter urged Generally, the CPO or CTA will be able identified persons, the proposed rules that all Commission and other to rely, under a reasonable diligence would have substantially reduced regulatory matters concluded favorably standard, upon these pre-existing required litigation disclosures with respect to the respondent (whether disclosures as to matters covered by concerning FCMs and IBs. First, the or not involving allegations of fraud or such statements. A CPO should exercise basic determinant of whether FCM or IB willful conduct) should be considered reasonable diligence in determining litigation would be material would be not material. Several commenters which subsequent actions are required the extent of potential impact of the contended that litigation against FCMs to be so disclosed. Generally, absent proceeding upon the FCM or IB, unless is immaterial because such litigation facts placing the CPO or CTA on notice the proceeding were brought by the generally does not jeopardize customer of special circumstances, the CPO or Commission or another regulatory or funds and virtually all FCMs have been CTA should be able to rely upon self-regulatory organization. The subject to litigated customer claims. One representations by the FCM or IB as to proceeding would be disclosable only if commenter stated that only litigation what litigation is required to be it would be required to be disclosed in required to be disclosed in the FCM’s disclosed in the firm’s financial the notes to the FCM’s or IB’s financial financial statements (and not the statements. statements prepared pursuant to regulatory matters required by Rule Actions brought by the Commission generally accepted accounting 4.24(l)(2) (ii) and (iii)) is material and are treated differently from those principles.173 Disclosure of actions should be required in CPO and CTA brought by other regulatory agencies brought by the Commission and other Documents. Other commenters due to the presumptively greater regulatory agencies was also proposed contended that CPOs and CTAs must relevance of such actions to the to be streamlined. Commission actions rely upon the FCM to furnish its investment decision being made. All would have been deemed material litigation history and are unable to actions brought by the Commission are except for concluded actions which did verify independently the information considered material other than not result in civil monetary penalties that is provided. Consequently, concluded actions that did not result in exceeding $50,000 and did not involve commenters recommended, variously, civil monetary penalties exceeding allegations of fraud or willful that litigation disclosures be limited to $50,000 and did not involve allegations misconduct or which was adjudicated those actions against an FCM that the of fraud or other willful misconduct or on the merits in favor of the specified FCM reasonably believes are likely to which were adjudicated on the merits in person. Actions brought by other federal have a material adverse effect on the favor of the specified person. Actions or state regulatory agencies or domestic FCM’s ability to provide brokerage brought by any other federal or state or foreign self-regulatory organizations services to the pool or managed account agency, by a non-United States would have been required to be program or upon the investor’s decision regulatory agency or by a self-regulatory disclosed either if they were required to to place his funds with that FCM, or organization, whether domestic or be disclosed in the notes to financial actions actually disclosed in an FCM’s foreign, are material if they involve or IB’s financial statements. Another allegations of fraud or other willful 173 Proposed Rules 4.24(l)(2)(i) and 4.33(k)(2)(i). commenter asserted that the impact of misconduct. In all cases, subject to the Under generally accepted accounting principles, general materiality standard, concluded certain information regarding litigation must be disclosed if the potential of a financial loss from the 174 See Rules 4.10(i) and (d)(5), which define the actions resulting in an adjudication on litigation is either probable (i.e., likely to occur) or terms ‘‘major commodity trading advisor’’ and the merits in favor of such persons reasonably possible (more than remote but less than ‘‘major investee pool.’’ Of course, as noted above would not be required to be disclosed. likely). See ACCOUNTING FOR CONTINGENCIES, with respect to conflicts of interest on the part of As in the case of other provisions of Statement of Financial Accounting Standard No. 5, FCM and IB pricnipals, the requirement to disclose (Financial Accounting Standards Board, 1975) all material information may require disclosure of the final rules, Rule 4.24(l) provides relating to disclosure of contingencies, including litigation involving persons not expressly parallel treatment of litigation against litigation. designated in the rules. CTAs for the pool and the operators of 38178 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations investee pools. Subject to the general often subject to significant restrictions, necessary to fund the principal materiality standard of Rule 4.24(w),175 for example, that the participant protection feature be included in the disclosure of litigation against non- maintain his investment in the fund for break-even analysis required by Rule major CTAs and investee pool operators a specified period of years in order to 4.24(i)(6), expressed as a percentage of would not be required by Rule 4.24(l). realize on the guarantee, and are subject the price of a unit of participation. Rule Litigation against the FCM and IB for to the risk of nonfulfillment due to 4.24(o) is intended to supersede the investee funds, absent special various causes. Consequently, in the specific disclosures set forth in circumstances, would not be required to past, representations in pool Disclosure Advisory 86–1. However, Advisory 86– be disclosed. Documents concerning various types of 1 may continue to be helpful in guarantee structures have been carefully constructing disclosures under 4.24(o), 8. Principal-Protected Pools: Rule scrutinized and guidance has been as well as providing insight into the 4.24(o) for CPOs176 provided by advisory concerning purposes of this provision. Further, Proposed Rule 4.24(o) would have set material disclosures that should be CPOs are reminded of the admonition in forth minimum disclosures relevant to made to prospective investors in pools Advisory 86–1 that ‘‘(a)ny statements so-called ‘‘guaranteed pools,’’ which the with ‘‘guarantee’’ structures.179 that suggest that the risks of futures Proposing Release termed ‘‘limited risk Proposed Rule 4.24(o) was designed to trading are decreased by reason of this pools.’’ Generally, Proposed Rule codify these specific minimum structure have a high potential to 4.24(o) would have codified disclosures concerning ‘‘guarantee’’ mislead or deceive and could result in Commission Advisory 86–1177 by structures. serious violations of the Commission’s requiring the CPO of a ‘‘limited risk The principal comment offered on regulations and anti-fraud provisions.’’ pool’’ to describe the nature of the this provision of the proposed rules was C. Supplemental and Voluntary limitation on risk intended to be that the term ‘‘limited risk pool’’ Disclosures: Rules 4.24(v) for CPOs and provided, the manner in which the proposed to be used in Rule 4.24(o) was 4.34(n) for CTAs 180 limitation would be achieved, including potentially confusing in that most the cost of providing it, the conditions commodity pools are limited A frequent complaint concerning to be satisfied in order for participants partnerships in which the risk to commodity pool Disclosure Documents to receive the benefits of the risk investors is to some degree limited no is that in many cases the disclosure limitation and the circumstances in matter what other measures are taken. A process fails to achieve its intended which the risk limitation would become variety of substitute terms were purpose due to the high volume of operative.178 Proposed Rule 4.24(o) proposed, including ‘‘capital protected information, much of which is beyond would also have required the CPO to pools’’ and ‘‘principal return guaranteed the scope of Commission requirements, include in the break-even analysis pools.’’ Other than the comments on the included in the Disclosure Document. required by Rule 4.24(i)(6) disclosure of proposed ‘‘limited risk pool’’ term, the To address this concern, the the cost of establishing and maintaining Commission did not receive any specific Commission proposed a format for the risk limitation, expressed as a comments on proposed Rule 4.24(o). Disclosure Documents under which percentage of the price of a unit of The Commission has determined to disclosures that are ‘‘volunteered’’ participation in the pool. substitute the term ‘‘principal-protected would be required to be placed after all The Commission noted in the pool’’ for ‘‘limited risk pool,’’ and relevant required disclosures. Proposing Release the proliferation of otherwise to adopt Rule 4.24(o) as Specifically, proposed Rules 4.24(v) and so-called ‘‘guaranteed pools,’’ which are proposed. As discussed above, 4.33(n) would have required all designed to assure participants the ‘‘principal-protected pool’’ is defined in information, other than that required by return of their initial investment, Rule 4.10(d)(3) to mean ‘‘a pool the Commission,181 the antifraud generally by committing a substantial (commonly referred to as a ‘‘guaranteed provisions of the Act, and any federal or portion of the assets of the pool to pool’’) that is designed to limit the loss state securities laws and regulations, to interest-bearing instruments or of the initial investment of its be placed ‘‘following the related comparable investments in order to participants.’’ The Commission agrees required disclosures, unless otherwise fund the guarantee feature. As noted, that use of the ‘‘limited risk’’ specified in this rule.’’ Additionally, such ‘‘guarantee’’ structures generally terminology of the proposal could be such information could not have been impose costs which limit the potential confusing to investors and that misleading in content or presentation or for return on futures transactions and ‘‘principal-protected’’ better inconsistent with required disclosures, other types of investment returns, are distinguishes pools supported by a and it would be subject to the anti-fraud guarantee feature from those that are provisions of the Act 182 and the 175 Former Rule 4.21(h). not. regulations thereunder, and to rules 176 Former Rule 4.21 did not specifically address As adopted, Rule 4.24(o) requires that regarding the use of promotional disclosures relative to principal-protected pools. the CPO describe the nature of the material promulgated by a registered This section also discusses Rule 4.10(d)(3), which futures association pursuant to section defines the term ‘‘principal-protected pool.’’ See, contemplated principal protection also Rule 4.24(i)(xi), which requires disclosures of feature, disclosing the manner by which 17(j) of the Act. Essentially, Proposed costs arising from the guarantee of a principal- protection of principal will be achieved, protected pool. sources of funding for the protection 180 The Commission’s former disclosure rules did 177 (1986–1987 Transfer Binder) Comm. Fut. L. feature, conditions that must be satisfied not specifically address supplemental and Rep. (CCH) ¶23,035 (April 25, 1986). voluntary disclosures. 178 Rule 4.24(p), which deals with transferability for participants to receive the benefits of 181 Commission-required disclosures include and redemption, requires a description of the protection feature, and when the information required by former Rules 4.21(h) restrictions on redemption associated with the protection feature becomes operative. (renumbered as Rule 4.24(w) for CPOs)) and 4.31(g) pool’s investments. The Commission intends that The rule also specifies that the costs of (renumbered as Rule 4.34(o) for CTAs)). As noted this discussion include a description of any above, these rules require CPOs and CTAs to restrictions on transferability and redemption due purchasing and carrying assets disclose all material information to existing and to use of pool funds to support a guarantee or prospective pool participants and clients even if the principal protection feature and of any restrictions 179 See, e.g., Advisory 86–1 (1986–1987 Transfer information is not specifically required by upon vesting of such guarantee or principal Binder) Comm. Fut. L. Rep. (CCH) ¶23,035 (April Commission rules. protection feature. 25, 1986), cited previously. 182 See sections 4b and 4o of the Act. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38179 Rules 4.24(v) and 4.33(n) were designed and 4.34(n) as adopted, treat no actual or potential conflicts of to assure that core disclosures required supplemental performance and non- interest regarding any aspect of the pool under Commission and other rules and performance information differently due or trading program on the part of certain statutes are given due prominence and to the extensive specific requirements of persons;186 that certain persons do not that focus upon these matters is not Commission rules with respect to own any beneficial interest in the displaced by the often voluminous performance data and the high pool;187 that there is no minimum or material gratuitously included in the susceptibility of performance data to use maximum amount of contributions or Disclosure Document. in a misleading manner. Thus, the entire maximum amount of time pool funds The comments received by the required performance presentation must will be held prior to trading;188 that Commission indicated significant precede any supplemental performance there are no restrictions on transfer or confusion regarding the meaning and data.183 However, required volatility redemptions of participations;189 that no operation of proposed Rules 4.24(v) and disclosure, for example, supplemental material actions have been brought 4.33(n). Commenters asserted that it was disclosure to indicate high monthly within the past five years against certain unclear where various types of volatility for a CTA whose performance persons;190 and that certain persons will voluntary information would be is otherwise required to be provided not trade for their own accounts.191 required (or permitted) to be placed. only on an annual basis, is expressly There remain requirements for They noted the potential for scattering permitted to be included with the affirmative, positive related disclosures of related items in different portions of related performance disclosure. on these subjects, as applicable. a Disclosure Document, when clarity Supplemental non-performance B. Use, Amendment and Filing of would be fostered by placing non- information that relates to a disclosure required information adjacent to the Disclosure Documents: Rules 4.26 for required by Commission rules may be CPOs and 4.36 for CTAs required information to which it relates. included in the text of or immediately Also, commenters claimed that, in following the related required As proposed, Rules 4.26 and 4.35, essence, by designating information as disclosure, provided that the required which govern the use, amendment and ‘‘voluntary,’’ registrants would be disclosure is not thereby obscured or filing of Disclosure Documents, would declaring that such information was not made less prominent. Other have retained, substantially unchanged, material or important, when in fact such supplemental information must follow the requirements of the former rules, 192 information may be necessary to explain the last required disclosure, except that with one exception. The Commission or clarify required disclosures. proprietary, hypothetical, extracted, pro proposed to extend the length of time Commenters also noted that it is often forma (except as previously that a Disclosure Document could have difficult to determine what information discussed)184 or simulated trading been used following the date thereof is mandated by law or regulation and results, because of their inherent lack of from six to nine months. As the what is merely advisable to include. reliability and high potential to mislead, Commission noted in the Proposing The Commission has adopted Rules must be placed at the end of the Release, this would conform the 4.24(v) and 4.33(n) (renumbered as Disclosure Document following all other updating requirements of pool 4.34(n)) with the following information.185 Disclosure Documents to those of modifications. The word ‘‘voluntary’’ section 10(a)(3) of the Securities Act for has been replaced in the rule heading VII. Other Changes public securities offerings.193 Thus, with ‘‘supplemental,’’ and the rules as A. Deletion of Negative Disclosures adopted distinguish among 186 See former Rules 4.21(a)(3)(iii) and supplemental performance disclosures The Commission proposed to 4.31(a)(5)(iii). (which must be placed after the last eliminate certain statements which the 187 See former Rule 4.21(a)(6)(ii). required performance disclosure), former rules had required registrants to 188 See former Rules 4.21(a)(8)(i)(B), include if there was no affirmative 4.21(a)(8)(ii)(B) and 4.21(a)(8)(iii)(B). supplemental information with respect 189 See former Rule 4.21(a)(10)(ii)(C)(2). to required non-performance disclosures response to a particular disclosure 190 See former Rules 4.21(a)(13)(ii) and (which may be placed after or within requirement (e.g., a statement that no 4.31(a)(7)(ii). the text of the corresponding required material actions had been brought 191 See former Rules 4.21(a)(15)(iii) and disclosures), and supplemental against the CPO in the preceding five 4.31(a)(6)(iii). information which relates neither to the years). Although many commenters 192 Proposed Rule 4.26 would have combined the requirements of former Rules 4.21 (b), (e), (f) and performance nor the non-performance generally approved of the Commission’s (g), which, respectively, required correction of disclosures required by Commission efforts to eliminate excessive and material inaccuracies or omissions in a Disclosure rules, federal or state laws and burdensome required statements, none Document, specified how current the performance regulations, self-regulatory agency of the comments received specifically and non-performance information must be and how long a Disclosure Document could be used, required regulations or laws of non-United States addressed these proposed changes. attachment of the current Account Statement and jurisdictions (which must be placed As adopted, the revised disclosure Annual Report, and specified the filing after the last required disclosure). rules thus no longer require CPOs or requirements for CPO Disclosure Documents. As proposed, Rules 4.24(v) and CTAs to make the following types of Proposed Rule 4.35 would have combined the 4.33(n) referred to disclosures required, statements, as applicable: That there are requirements of former Rules 4.31 (b), (e) and (f), which, respectively, required correction of material inter alia, by federal or state securities inaccuracies or omissions in a Disclosure laws or regulations. The modifier 183 The Commission does not consider footnotes Document, specified how current the performance ‘‘securities’’ has been deleted from the and explanatory text,if any, directly related to a and non-performance information must be and how final rules to take account of the required performance presentation to be long a Disclosure Document could be used, and supplemental performance disclosures and thus specified the filing requirements for CTA Disclosure potential applicability of other bodies of they should be included with the required Documents. law. Further, as adopted, the required performance. 193 59 FR 25351, 25367. Section 10(a)(3) of the disclosures from which supplemental 184 See discussion in Section V.C.3., supra, Securities Act (15 U.S.C. 77j(a)(3)) requires that information is distinguished by Rules concerning required pro forma adjustments. when a securities prospectus is used more than 185 See Rules 4.25(a)(8) for CPOs and 4.35(a)(7) for nine months after the effective date of the 4.24(v) and 4.34(n) include information CTAs. The Commission is not specifying the order registration statement, information contained required by applicable laws of a non- of presentation as among proprietary, hypothetical, therein may not be as of a date more than sixteen United States jurisdiction. Rules 4.24(v) extracted, pro forma or simulated trading results. Continued 38180 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations these rules would have continued to the Commission, i.e., not more than Document, the pool operator would address the currentness of a Disclosure twenty-one days after the date on which provide performance information for the Document and the information therein, the CPO or CTA first knows or has pool (which may be, but is not required corrections, filing and, in the case of reason to know that the Disclosure to be, set forth in the form of a monthly CPOs, attachment of the most recent Document is materially inaccurate or Account Statement) current as of a date Account Statement and Annual Report incomplete. In response to a not more than sixty days prior to the to pool Disclosure Documents. commenter’s request for clarification, date on which the Disclosure Document Two commenters questioned whether the Commission also is confirming that is provided to the prospective it was appropriate to adopt a nine- an offering memorandum distributed participant and covering the period month standard from Securities Act pursuant to Rule 4.12(b) must be since the most recent performance data Section 10(a)(3), and recommended updated in the same manner as a contained in the Disclosure Document. instead an annual updating schedule. Disclosure Document. Of course, any material changes in the One commenter objected to maintaining In response to the comment pool’s performance would require the former rules’ requirement to deliver concerning the difficulty of, and lack of supplementation of the Disclosure a current Account Statement with the benefit from, including the current Document. Disclosure Document, contending that Account Statement with the Disclosure In response to another commenter’s in a medium- to long-term investment, Document, the Commission notes that request for clarification, the monthly account statements are not the information contained in the Commission is confirming that a CPO material and that the requirements to Account Statement provides a need not (1) file the most current attach the most recent Account prospective participant with relevant Account Statement for a pool unless it Statement to thousands of prospectuses current information, particularly with is being used as an amendment to the distributed to various branch offices respect to the pool’s performance, that pool’s Disclosure Document; (2) include presents substantial compliance is not available in the Disclosure the most current Account Statement and problems.194 Document. The requirement to provide Annual Report with a Disclosure Rules 4.26 and 4.35 are being adopted the most recent monthly Account Document amendment prior to filing generally as proposed, with Rule 4.35 Statement is a means of assuring that such amendment with the Commission; renumbered as 4.36. With respect to the prospective investors receive recent data or (3) physically attach the most current comments favoring a one-year updating concerning the pool’s performance. This Account Statement and Annual Report cycle for Disclosure Documents, the requirement, coupled with the duty to to a Disclosure Document amendment Commission notes that since provide material information to prior to distributing the amendment to performance information need only be prospective investors, should assure investors—inclusion in the same current as of a date three months prior that prospective investors receive timely package is sufficient. When an to the Disclosure Document date, information concerning the pool’s amendment is distributed to existing extending the updating requirement to performance as necessary to balance the pool participants, the CPO need not nine months means that the potentially stale performance data in the include the latest Annual Report and performance information in the Disclosure Document. If it would be Account Statement (provided the Disclosure Document may be as much misleading not to disclose performance existing participants have been as a year old. The Commission believes information for the period subsequent to receiving such reports on a timely that further extending the updating that reflected in the Disclosure basis). If a Disclosure Document cycle to twelve months is unwarranted, Document but prior to the Account amendment is distributed to previously and that the purpose of the proposed Statement, the CPO may be required to solicited prospective investors, revisions to permit updating on a nine- provide additional information. In light however, the most recent Annual Report month cycle, i.e., harmonization with of the new nine-month update cycle, and Account Statement must be the SEC update cycle, is achieved by pool operators should exercise special included. adoption of the update provisions as caution in assuring that sufficient proposed. additional information is provided to C. Disclosure Document Delivery The Commission notes that Disclosure investors concerning performance Requirements Document amendments are not subject volatility occurring subsequent to the As proposed, Rules 4.21 and 4.31 to the twenty-one day prefiling period covered in the Disclosure would have retained, respectively, only requirement, but may be used Document. The Commission does not paragraphs (a) and (d) of former Rules simultaneously with their filing with agree with the view expressed by the 4.21 and 4.31. In each case, paragraph commenter that monthly data are not (a) was the requirement for delivery of months prior to such use if the information is material to prospective pool a Disclosure Document at or before the known and can be furnished without unreasonable participants. The importance of such time of solicitation, and paragraph (d) effort or expense. 194 Another commenter sought guidance (or a safe current data will in fact be heightened was the requirement that a signed harbor) with respect to the level of investee pool under these rules, given the extension of acknowledgment of receipt of the changes or reallocations which trigger the need to the update cycle to nine months rather Disclosure Document be obtained. The update performance information and/or the than six months. requirements specified in former Rules Disclosure Document for a fund-of-funds (suggesting a quarterly performance update). But The Commission believes that the 4.21(a) and (d) and former Rules 4.31(a) see Rule 4.8, which provides specified relief from purpose of the requirement to attach the and (d) were left intact in the proposed the pre-filing requirement for CPOs who operate most recent Account Statement may, revisions, except that CPOs would have pools of the nature specified therein. Further, as however, be accomplished by other been permitted to use summary offering discussed above, whether a given investee pool allocation or reallocation is material depends upon methods and has provided in the final materials in certain circumstances. the particular factual circumstances of the pool, rules an alternative procedure to including the overall frequency and significance of attachment of the Account Statement to 1. Notice of Intended Offering and Term such changes. Thus, for example, in a dynamically the Disclosure Document. Under the Sheet allocated multi-advisor pool with multiple monthly CTA changes, the likelihood of a given CTA change alternative procedure, in lieu of Proposed Rule 4.21(a) would have being material is less than in a pool with fewer attaching the most recent monthly permitted CPOs to provide prospective advisors and less frequent reallocations. Account Statement to the Disclosure participants who are accredited Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38181 investors as defined in Rule 501 of that CPOs and CTAs must receive from determined that registered CPOs are not Regulation D under the Securities a prospective investor a signed and small entities for the purpose of the Act 195 with a notice of intended dated acknowledgment continues to be RFA.197 With respect to CTAs, the offering and term sheet prior to delivery necessary. Three commenters proposed Commission has stated that it would of the Disclosure Document, subject to that, in the case of pools, the evaluate within the context of a rules promulgated by a registered requirement be permitted to be satisfied particular rule proposal whether all or futures association pursuant to Section if an acknowledgment is included in the some affected CTAs would be 17(j) of the Act. This provision was subscription documents, with one such considered to be small entities and, if intended to facilitate the offering of commenter suggesting that such an so, the economic impact on them of any pools that qualify for relief from acknowledgment need not include the rule.198 registration under the Securities Act as date of the Disclosure Document in The revised rules reduce rather than private offerings. order to permit use of the subscription increase the requirements of former One commenter called the proposed documents throughout the offering, Rule 4.21 for CPOs and the change a worthwhile advance. Most asserting that a blank left for the requirements of former Rule 4.31 for commenters on the proposed provision Disclosure Document date would likely CTAs. The revised rules significantly urged that its coverage be expanded. be overlooked. The Commission decrease the amount of past Two commenters suggested that a CPO confirms that an acknowledgment may performance and other information should be able to deliver a term sheet be included in the subscription required to be disclosed by CPOs and to a person who is not an accredited documents for a pool, provided that the CTAs, and Disclosure Documents may investor, so long as a Disclosure text of the acknowledgment is be used for nine months rather than six Document was delivered, ultimately or prominently captioned and months. The Commission has adopted within a ‘‘reasonable time.’’ Several distinguished from the subscription in the final revised rules further commenters urged that CTAs be agreement and that there is a separate reductions in disclosure requirements permitted to use term sheets and notices line for the acknowledgment signature from the proposed revisions (e.g., of intended offerings to solicit and date thereof. The Commission notes permitting CTAs to use the new capsule accredited investors. Another that the required provision of a date format for presenting the past commenter stated that the proposed imposes a minimal burden, if any at all, performance of the offered pool). amendment to Rule 4.21 would provide protects the interests of both the CPO no additional relief beyond that already In certifying pursuant to section 3(a) and the participant and is a critical of the RFA that the proposed revisions provided by Rule 4.8 and sought both component of the pool’s audit trail. clarification whether a Disclosure to the part 4 CPO and CTA disclosure Document must still be provided to the D. Conforming Changes rules would not have a significant recipient of a term sheet and inclusion economic impact on a substantial The Proposing Release contained a number of small entities, the in the rule itself of the requirement (if number of changes to conform cross- any) that the term sheet be filed. Commission invited comments from any references in the text of various CPO or CTA who believed that the The Commission has determined to Commission rules to the new section adopt Rule 4.21 as proposed. The proposed revisions, if adopted, would numbering within part 4, which changes have a significant economic impact on Commission believes that extending the are being adopted. The rules so affected use of term sheets to non-accredited their activities. No such comments were are Rules 4.12, 4.21, 4.23, 4.32 received on the proposed revisions. investors is not appropriate at this time (renumbered as 4.33), 30.6 and 150.3. Accordingly, pursuant to Rule 3(a) of and that such investors should receive One commenter pointed out that cross the RFA (5 U.S.C. 605(b)), the Chairman, the full protection of the disclosure references in Rule 4.7 to former Rules on behalf of the Commission, certifies rules to make an informed decision 4.21 and 4.31 required amendment to that the action taken herein will not about participating in a pool. The conform with the reorganization and have a significant economic impact on Commission is also declining to permit separate designation of certain a substantial number of small entities. CTAs to employ a procedure provisions of former Rules 4.21 and comparable to the use of a notice of 4.31. The Commission has revised Rule B. Paperwork Reduction Act intended offering and term sheet. The 4.7 accordingly, and has also revised The Paperwork Reduction Act of purpose of allowing the use of this type Rule 4.8 to conform cross-references to 1980, (‘‘PRA’’) 44 U.S.C. 3501 et seq., of short-form solicitation in the case of the revised rule numbers. a pool offering is to permit a simple imposes certain requirements on federal statement of basic terms to be provided VIII. Related Matters agencies (including the Commission) in connection with their conducting or in lieu of an often lengthy pool A. Regulatory Flexibility Act Disclosure Document. The relative sponsoring any collection of brevity and simplicity of CTA The Regulatory Flexibility Act information as defined by the PRA. In Disclosure Documents do not at this (‘‘RFA’’), 5 U.S.C. 601–611 (1988), compliance with the PRA, the time appear to warrant establishment of requires that agencies, in proposing Commission has submitted these a comparable procedure. The rules, consider the impact of those rules proposed rule amendments and the Commission confirms that a Disclosure on small businesses. The rule associated information collection Document must be provided to the amendments discussed herein will requirements to the Office of recipient of a term sheet and that the affect registered CPOs and CTAs. The Management and Budget. The burden term sheet is not required to be filed. Commission has previously established associated with this entire collection, certain definitions of ‘‘small entities’’ to including these rules, is as follows: 2. Acknowledgment of Disclosure be used by the Commission in Document Average burden hours per 124.65 evaluating the impact of its rules on response. The Commission also sought such entities in accordance with the comment on whether the requirement RFA.196 The Commission previously has 197 47 FR 18619–18620. 195 17 CFR 230.501 (1994). 196 47 FR 18618–18621 (April 30, 1982). 198 47 FR 18618–18620. 38182 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations Number of respondents ...... 3,924 PART 4ÐCOMMODITY POOL pool’s funds available for commodity Frequency of response ...... On occasion OPERATORS AND COMMODITY interest trading; and The burden associated with these TRADING ADVISORS (ii) No investee pool is allocated or specific rules, is as follows: intended to be allocated more than Subpart AÐGeneral Provisions, twenty-five percent of the pool’s net Average burden hours per 8.05 Definitions and Exemptions response. asset value. (3) Principal-protected pool means a Number of respondents ...... 1,162 3. The authority citation for part 4 pool (commonly referred to as a Frequency of response ...... On occasion continues to read as follows: ‘‘guaranteed pool’’) that is designed to Copies of the information collection Authority: 7 U.S.C. 1a, 2, 4, 6b, 6c, 6l, 6m, limit the loss of the initial investment of submission to OMB are available from 6n, 6o, 12a and 23. its participants. Joe F. Mink, CFTC Clearance officer, § 4.7 [Amended] (4) Investee pool means any pool in 2033 K Street, NW, Washington, DC which another pool or account 4. In § 4.7, paragraph (a)(2)(i)(A) is 20581, (202) 254–9735. participates or invests, e.g., as a limited amended by removing the reference partner thereof. List of Subjects ‘‘§ 4.21’’ and by adding the reference (5) Major investee pool means, with ‘‘§§ 4.21, 4.24, 4.25 and 4.26’’ in its 17 CFR Part 1 respect to a pool, any investee pool that place. Consumer protection, Risk disclosure is allocated or intended to be allocated statements. § 4.7 [Amended] at least ten percent of the net asset value of the pool. 17 CFR Part 4 5. In § 4.7, paragraph (a)(4) is amended by removing the reference (e)(1) Principal, when referring to a Brokers, Commodity futures, ‘‘§§ 4.21, 4.22 or 4.23’’ and by adding person that is a principal of a particular Commodity pool operators and the reference ‘‘§§ 4.21, 4.22, 4.23, 4.24, entity, means: commodity trading advisors. 4.25 or 4.26’’ in its place. (i) Any person including, but not limited to, a sole proprietor, general 17 CFR Part 30 § 4.7 [Amended] partner, officer or director, or person Commodity futures, Consumer 6. In § 4.7, paragraph (b)(2)(i)(A) is occupying a similar status or performing protection, Foreign futures and foreign amended by removing the reference similar functions, having the power, options transactions. ‘‘§ 4.31’’ and by adding the reference directly or indirectly, through ‘‘§§ 4.31, 4.34, 4.35 and 4.36’’ in its agreement or otherwise, to exercise a 17 CFR Part 150 place. controlling influence over the activities of the entity; Commodity futures, Limits on § 4.7 [Amended] positions. (ii) Any holder or any beneficial 7. In § 4.7, paragraph (b)(4) is owner of ten percent or more of the In consideration of the foregoing, and amended by removing the reference outstanding shares of any class of stock pursuant to the authority contained in ‘‘§§ 4.31 or 4.32’’ and by adding the of the entity; and the Commodity Exchange Act, and in reference ‘‘§§ 4.31, 4.33, 4.34, 4.35 or (iii) Any person who has contributed particular, sections 2(a)(1), 4b, 4c, 4l, 4.36’’ in its place. ten percent or more of the capital of the 4m, 4n, 4o, and 8a, 7 U.S.C. 2, 6b, 6c, entity. 6l, 6m, 6n, 6o, and 12a, the Commission § 4.8 [Amended] (2) ‘‘Trading principal’’ means: hereby amends Chapter I of Title 17 of 8. In § 4.8, the section heading is (i) With respect to a commodity pool the Code of Federal Regulations as amended by removing the reference to operator, a principal who participates in follows: ‘‘rules 4.21’’ and by adding the reference making trading decisions for a pool, or ‘‘rule 4.26’’ in its place. PART 1ÐGENERAL REGULATIONS who supervises, or has authority to UNDER THE COMMODITY EXCHANGE § 4.8 [Amended] allocate pool assets to, persons so ACT 9. In § 4.8, paragraphs (a) and (b) are engaged; and amended by removing the reference (ii) With respect to a commodity 1. The authority citation for Part 1 ‘‘paragraph (g) of § 4.21’’ and by adding trading advisor, a principal who continues to read as follows: the reference ‘‘paragraph (d) of § 4.26’’ participates in making trading decisions Authority: 7 U.S.C. 1a, 2, 2a, 4, 4a, 6, 6a, in its place. for the account of a client or who 6b, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6j, 6k, 6l, 6m, 10. Section 4.10 is amended by supervises or selects persons so 6n, 6o, 6p, 7, 7a, 7b, 8, 9, 12, 12a, 12c, 13a, designating paragraph (d) as paragraph engaged. 13a–1, 16, 16a, 19, 21, 23 and 24. (d)(1), by adding new paragraphs (d)(2), * * * * * 2. Section 1.55 is amended by adding (d)(3), (d)(4), (d)(5), (h), (i), (j), (k) and (h) Trading manager means, with paragraph (a)(1)(iii) to read as follows: (l), and by revising paragraph (e) to read respect to a pool, any person, other than as follows: the commodity pool operator of the § 1.55 Distribution of ``Risk Disclosure pool, having sole or partial authority to Statement'' by futures commission § 4.10 Definitions. allocate pool assets to commodity merchants and introducing brokers. * * * * * trading advisors or investee pools. (a)(1) * * * (d)(1) Pool means any investment (i) Major commodity trading advisor (iii) Solely for purposes of this trust, syndicate or similar form of means, with respect to a pool, any section, a pool operated by a commodity enterprise operated for the purpose of commodity trading advisor that is pool operator registered under the trading commodity interests. allocated or is intended to be allocated Commodity Exchange Act or exempt (2) Multi-advisor pool means a pool in at least ten percent of the pool’s funds from such registration need not be which: available for commodity interest treated as a customer. (i) No commodity trading advisor is trading. For this purpose, the percentage * * * * * allocated or intended to be allocated allocation shall be the amount of funds more than twenty-five percent of the allocated to the trading advisor by Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38183 agreement with the commodity pool Provided, however, that the offering § 4.23 Recordkeeping. operator (or trading manager) on behalf memorandum: * * * * * of the pool, expressed as a percentage of (A) Is prepared pursuant to the (a) * * * the lesser of the aggregate value of the requirements of the Securities Act of (3) The acknowledgement specified assets allocated to the pool’s trading 1933, as amended, or the exemption by § 4.21(b) for each participant in the advisors or the net assets of the pool at from said Act pursuant to which the pool. the time of allocation. pool is being offered and sold; * * * * * (j) Break-even point: (B) Contains the information required 14. Sections 4.24, 4.25 and 4.26 are (1) Means the trading profit that a by §§ 4.24(c) through (m) and (o) added to read as follows: pool must realize in the first year of a through (u); and participant’s investment to equal all fees (C) Complies with the requirements of § 4.24 General disclosures required. and expenses such that such participant §§ 4.24(v) and (w). Except as otherwise provided herein, will recoup its initial investment, as * * * * * a Disclosure Document must include the calculated pursuant to rules (5)(i) If a claim of exemption has been following information. promulgated by a registered futures made under § 4.12(b)(2)(i), the (a) Cautionary Statement. The association pursuant to section 17(j) of commodity pool operator must make a following Cautionary Statement must be the Act; and statement to that effect on the cover prominently displayed on the cover (2) Must be expressed both as a dollar page of each offering memorandum, or page of the Disclosure Document. amount and as a percentage of the amendment thereto, that it is required to THE COMMODITY FUTURES TRADING minimum unit of initial investment and file with the Commission pursuant to COMMISSION HAS NOT PASSED UPON assume redemption of the initial § 4.26. THE MERITS OF PARTICIPATING IN THIS investment at the end of the first year of POOL NOR HAS THE COMMISSION investment. * * * * * PASSED ON THE ADEQUACY OR (k) Draw-down means losses ACCURACY OF THIS DISCLOSURE Subpart BÐCommodity Pool DOCUMENT. experienced by a pool or account over Operators a specified period. (b) Risk Disclosure Statement. (1) The (l) Worst peak-to-valley draw-down 12. Section 4.21 is revised to read as following Risk Disclosure Statement means the greatest cumulative follows: must be prominently displayed percentage decline in month-end net immediately following any disclosures asset value due to losses sustained by a § 4.21 Required delivery of pool Disclosure Document. required to appear on the cover page of pool, account or trading program during the Disclosure Document as provided by any period in which the initial month- (a) No commodity pool operator the Commission, by any applicable end net asset value is not equaled or registered or required to be registered federal or state securities laws and exceeded by a subsequent month-end under the Act may, directly or regulations or by any applicable laws of net asset value. Such decline must be indirectly, solicit, accept or receive non-United States jurisdictions. funds, securities or other property from expressed as a percentage of the initial RISK DISCLOSURE STATEMENT month-end net asset value, together a prospective participant in a pool that YOU SHOULD CAREFULLY CONSIDER with an indication of the months and it operates or that it intends to operate unless, on or before the date it engages WHETHER YOUR FINANCIAL CONDITION year(s) of such decline from the initial PERMITS YOU TO PARTICIPATE IN A month-end net asset value to the lowest in that activity, the commodity pool COMMODITY POOL. IN SO DOING, YOU month-end net asset value of such operator delivers or causes to be SHOULD BE AWARE THAT FUTURES AND decline.1 For purposes of §§ 4.25 and delivered to the prospective participant OPTIONS TRADING CAN QUICKLY LEAD 4.35, a peak-to-valley draw-down which a Disclosure Document for the pool TO LARGE LOSSES AS WELL AS GAINS. began prior to the beginning of the most containing the information set forth in SUCH TRADING LOSSES CAN SHARPLY recent five calendar years is deemed to § 4.24; Provided, however, that where REDUCE THE NET ASSET VALUE OF THE have occurred during such five- the prospective participant is an POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN calendar-year period. accredited investor, as defined in 17 CFR 230.501(a), a notice of intended ADDITION, RESTRICTIONS ON 11. Section 4.12 is amended by REDEMPTIONS MAY AFFECT YOUR revising paragraphs (b)(2)(i) and (b)(5)(i) offering and statement of the terms of ABILITY TO WITHDRAW YOUR to read as follows: the intended offering may be provided PARTICIPATION IN THE POOL. prior to delivery of a Disclosure FURTHER, COMMODITY POOLS MAY BE § 4.12 Exemption from provisions of part Document, subject to compliance with SUBJECT TO SUBSTANTIAL CHARGES 4. rules promulgated by a registered FOR MANAGEMENT, AND ADVISORY AND * * * * * futures association pursuant to section BROKERAGE FEES. IT MAY BE (b) * * * 17(j) of the Act. NECESSARY FOR THOSE POOLS THAT (2) * * * (b) The commodity pool operator may ARE SUBJECT TO THESE CHARGES TO (i) In the case of § 4.21, that the not accept or receive funds, securities or MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION Commission accept in lieu and in other property from a prospective OF THEIR ASSETS. THIS DISCLOSURE satisfaction of the Disclosure Document participant unless the pool operator first DOCUMENT CONTAINS A COMPLETE specified by that section an offering receives from the prospective DESCRIPTION OF EACH EXPENSE TO BE memorandum for the pool which does participant an acknowledgment signed CHARGED THIS POOL AT PAGE (insert page not contain the information required by and dated by the prospective participant number) AND A STATEMENT OF THE §§ 4.24(a), 4.24(b), and 4.24(n); stating that the prospective participant PERCENTAGE RETURN NECESSARY TO received a Disclosure Document for the BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, 1 For example, a worst peak-to-valley draw-down pool. of ‘‘4 to 8–92/25%’’ means that the peak-to-valley AT PAGE (insert page number). draw-down lasted from April to August of 1992 and 13. Section 4.23 is amended by THIS BRIEF STATEMENT CANNOT resulted in a twenty-five percent cumulative draw- revising paragraph (a)(3) to read as DISCLOSE ALL THE RISKS AND OTHER down. follows: FACTORS NECESSARY TO EVALUATE 38184 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations YOUR PARTICIPATION IN THIS pool’s books and records will be kept (2) The pool operator must include in COMMODITY POOL. THEREFORE, BEFORE and made available for inspection; the description of the business YOU DECIDE TO PARTICIPATE IN THIS (2) The name, address of the main background of each person identified in COMMODITY POOL, YOU SHOULD business office, main business § 4.24(f)(1) the name and main business CAREFULLY STUDY THIS DISCLOSURE telephone number and form of DOCUMENT, INCLUDING A DESCRIPTION of that person’s employers, business OF THE PRINCIPAL RISK FACTORS OF organization of the commodity pool associations or business ventures and THIS INVESTMENT, AT PAGE (insert page operator. If the mailing address of the the nature of the duties performed by number). main business office is a post office box such person for such employers or in number or is not within the United (2) If the pool may trade foreign connection with such business States, its territories or possessions, the futures or options contracts, the Risk associations or business ventures. The pool operator must state where its books Disclosure Statement must further state: location in the Disclosure Document of and records will be kept and made any required past performance YOU SHOULD ALSO BE AWARE THAT available for inspection; disclosure for such person must be THIS COMMODITY POOL MAY TRADE (3) As applicable, a statement that the indicated. FOREIGN FUTURES OR OPTIONS pool is: (g) Principal risk factors. A discussion CONTRACTS. TRANSACTIONS ON (i) Privately offered pursuant to of the principal risk factors of MARKETS LOCATED OUTSIDE THE section 4(2) of the Securities Act of UNITED STATES, INCLUDING MARKETS participation in the offered pool. This FORMALLY LINKED TO A UNITED STATES 1933, as amended (15 U.S.C. 77d(2)), or discussion must include, without MARKET, MAY BE SUBJECT TO pursuant to Regulation D thereunder (17 limitation, risks relating to volatility, REGULATIONS WHICH OFFER DIFFERENT CFR 230.501 et seq.); leverage, liquidity, and counterparty OR DIMINISHED PROTECTION TO THE (ii) A multi-advisor pool as defined in creditworthiness, as applicable to the POOL AND ITS PARTICIPANTS. FURTHER, § 4.10(d)(2); types of trading programs to be UNITED STATES REGULATORY (iii) A principal-protected pool as followed, trading structures to be AUTHORITIES MAY BE UNABLE TO defined in § 4.10(d)(3); or employed and investment activity COMPEL THE ENFORCEMENT OF THE (iv) Continuously offered. If the pool expected to be engaged in by the offered RULES OF REGULATORY AUTHORITIES is not continuously offered, the closing OR MARKETS IN NON-UNITED STATES pool. date of the offering must be disclosed. (h) Investment program and use of JURISDICTIONS WHERE TRANSACTIONS (4) The date when the commodity FOR THE POOL MAY BE EFFECTED. proceeds. The pool operator must pool operator first intends to use the (3) If the potential liability of a disclose the following: Disclosure Document; and (1) The types of commodity interests participant in the pool is greater than (5) The break-even point per unit of and other interests which the pool will the amount of the participant’s initial investment, as specified in trade, including: contribution for the purchase of an § 4.10(j). (i) The approximate percentage of the interest in the pool and the profits (e) Persons to be identified. The pool’s assets that will be used to trade earned thereon, whether distributed or names of the following persons: commodity interests, securities and not, the commodity pool operator must (1) Each principal of the pool other types of interests, categorized by make the following additional statement operator; type of commodity or market sector, (2) The pool’s trading manager, if any, in the Risk Disclosure Statement, to be type of security (debt, equity, preferred and each principal thereof; prominently disclosed as the last equity), whether traded or listed on a paragraph thereof: (3) Each major investee pool, the operator of such investee pool, and each regulated exchange market, maturity ALSO, BEFORE YOU DECIDE TO principal of the operator thereof; ranges and investment rating, as PARTICIPATE IN THIS POOL, YOU applicable; SHOULD NOTE THAT YOUR POTENTIAL (4) Each major commodity trading advisor and each principal thereof; (ii) The extent to which such interests LIABILITY AS A PARTICIPANT IN THIS are subject to state or federal regulation, POOL FOR TRADING LOSSES AND OTHER (5) Which of the foregoing persons EXPENSES OF THE POOL IS NOT LIMITED will make trading decisions for the pool; regulation by a non-United States TO THE AMOUNT OF YOUR and jurisdiction or rules of a self-regulatory CONTRIBUTION FOR THE PURCHASE OF (6) If known, the futures commission organization; (iii)(A) The custodian or AN INTEREST IN THE POOL AND ANY merchant through which the pool will other entity (e.g., bank or broker-dealer) PROFITS EARNED THEREON. A COMPLETE execute its trades, and, if applicable, the which will hold such interests; and DESCRIPTION OF THE LIABILITY OF A introducing broker through which the (B) If such interests will be held or if PARTICIPANT IN THIS POOL IS pool will introduce its trades to the pool assets will be invested in a non- EXPLAINED MORE FULLY IN THIS United States jurisdiction, the DISCLOSURE DOCUMENT. futures commission merchant. (f) Business background. (1) The jurisdiction in which such interests or (c) Table of contents. A table of business background, for the five years assets will be held or invested. contents showing, by subject matter, the preceding the date of the Disclosure (2) A description of the trading and location of the disclosures made in the Document, of: investment programs and policies that Disclosure Document must appear (i) The commodity pool operator; will be followed by the offered pool, immediately following the Risk (ii) The pool’s trading manager, if any; and any material restrictions or Disclosure Statement. (iii) Each major commodity trading limitations on trading required by the (d) Information required in the advisor; pool’s organizational documents or forepart of the Disclosure Document. (1) (iv) The operator of each major otherwise. This description must The name, address of the main business investee pool; and include, if applicable, an explanation of office, main business telephone number (v) Each principal of the foregoing the systems used to select commodity and form of organization of the pool. If persons who participates in making trading advisors, investee pools and the mailing address of the main trading or operational decisions for the types of investment activity to which business office is a post office box pool or who supervises persons so pool assets will be committed; number or is not within the United engaged, including, without limitation, (3)(i) A summary description of the States, its territories or possessions, the the officers and directors of such pool’s major commodity trading pool operator must state where the persons. advisors, including their respective Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38185 percentage allocations of pool assets, a a pro rata share of the pool’s profits (iv) The commodity pool operator of description of the nature and operation based on the percentage of capital any major investee pool; of the trading programs such advisors contributions made by the commodity (v) Any principal of the persons will follow, including the types of pool operator; described in paragraphs (k)(1) (i), (ii), interests traded pursuant to such (vii) Commissions or other benefits, (iii) and (iv) of this section; and programs, and each advisor’s historical including trailing commissions paid or (vi) Any other person providing experience trading such program that may be paid or accrue, directly or services to the pool or soliciting including material information as to indirectly, to any person in connection participants for the pool. volatility, leverage and rates of return with the solicitation of participations in (2) Any other material conflict and the length of time during which the the pool; involving the pool. advisor has traded such program; (viii) Professional and general (3) Included in the description of such (ii) A summary description of the administrative fees and expenses, conflicts must be any arrangement pool’s major investee pools or funds, including legal and accounting fees and whereby a person may benefit, directly including their respective percentage office supplies expenses; or indirectly, from the maintenance of allocations of pool assets and a (ix) Organizational and offering the pool’s account with the futures description of the nature and operation expenses; commission merchant or from the of such investee pools and funds, (x) Clearance fees and fees paid to introduction of the pool’s account to a including for each investee pool or fund national exchanges and self-regulatory futures commission merchant by an the types of interests traded, material organizations; introducing broker (such as payment for information as to volatility, leverage and (xi) For principal-protected pools, any order flow or soft dollar arrangements) rates of return for such investee pool or direct or indirect costs to the pool or from an investment of pool assets in fund and the period of its operation; and associated with providing the protection investee pools or funds or other (4)(i) The manner in which the pool feature, as referred to in paragraph (o)(3) investments. will fulfill its margin requirements and of this section; and (k) Related party transactions. A full the approximate percentage of the pool’s (xii) Any other direct or indirect cost. description, including a discussion of assets that will be held in segregation (3) Where any fee, commission or the costs thereof to the pool, of any pursuant to the Act and the other expense is determined by material transactions or arrangements Commission’s regulations thereunder; reference to a base amount including, for which there is no publicly (ii) If the pool will fulfill its margin but not limited to, ‘‘net assets,’’ disseminated price between the pool requirements with other than cash ‘‘allocation of assets,’’ ‘‘gross profits,’’ and any person affiliated with a person deposits, the nature of such deposits; ‘‘net profits,’’ or ‘‘net gains,’’ the pool providing services to the pool. and operator must explain how such base (l) Litigation. (1) Subject to the (iii) If assets deposited by the pool as amount will be calculated, in a manner provisions of § 4.24(l)(2), any material margin generate income, to whom that consistent with calculation of the break- administrative, civil or criminal action, income will be paid. even point. whether pending or concluded, within (i) Fees and expenses. (1) The (4) Where any fee, commission or five years preceding the date of the Disclosure Document must include a other expense is based on an increase in Document, against any of the following complete description of each fee, the value of the pool, the pool operator persons; Provided, however, that a commission and other expense which must specify how the increase is concluded action that resulted in an the commodity pool operator knows or calculated, the period of time during adjudication on the merits in favor of should know has been incurred by the which the increase is calculated, the fee, such person need not be disclosed: pool for its preceding fiscal year and is commission or other expense to be (i) The commodity pool operator, the expected to be incurred by the pool in charged at the end of that period and the pool’s trading manager, if any, the its current fiscal year, including fees or value of the pool at which payment of pool’s major commodity trading other expenses incurred in connection the fee, commission or other expense advisors, and the operators of the pool’s with the pool’s participation in investee commences. major investee pools; pools and funds. (2) This description must include, (5) Where any fee, commission or (ii) Any principal of the foregoing; without limitation: other expense of the pool has been paid and (i) Management fees; or is to be paid by a person other than (iii) The pool’s futures commission (ii) Brokerage fees and commissions, the pool, the pool operator must merchants and introducing brokers, if including interest income paid to disclose the nature and amount thereof any. futures commission merchants; and the person who paid or who is (2) With respect to a futures (iii) Fees and commissions paid in expected to pay it. commission merchant or an introducing connection with trading advice (6) The pool operator must provide, in broker, an action will be considered provided to the pool; a tabular format, an analysis setting material if: (iv) Fees and expenses incurred forth how the break-even point for the (i) The action would be required to be within investments in investee pools, pool was calculated. The analysis must disclosed in the notes to the futures investee funds and other collective include all fees, commissions and other commission merchant’s or introducing investment vehicles, which fees and expenses of the pool, as set forth in broker’s financial statements prepared expenses must be disclosed separately § 4.24(i)(2). pursuant to generally accepted for each investment tier; (j) Conflicts of interest. (1) A full accounting principles; (v) Incentive fees; description of any actual or potential (ii) The action was brought by the (vi) Any allocation to the commodity conflicts of interest regarding any aspect Commission; Provided, however, that a pool operator, or any agreement or of the pool on the part of: concluded action that did not result in understanding which provides the (i) The commodity pool operator; civil monetary penalties exceeding commodity pool operator with the right (ii) The pool’s trading manager, if any; $50,000 need not be disclosed unless it to receive a distribution, where such (iii) Any major commodity trading involved allegations of fraud or other allocation or distribution is greater than advisor; willful misconduct; or 38186 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations (iii) The action was brought by any (r) Distribution of profits and taxation. rules and to rules regarding the use of other federal or state regulatory agency, (1) The pool’s policies with respect to promotional material promulgated by a a non-United States regulatory agency or the payment of distributions from registered futures association pursuant a self-regulatory organization and profits or capital and the frequency of to section 17(j) of the Act; and involved allegations of fraud or other such payments; (3) Must be placed as follows, unless willful misconduct. (2) The federal income tax effects of otherwise specified by Commission (m) Trading for own account. If the such payments for a participant, rules: commodity pool operator, the pool’s including a discussion of the federal (i) Supplemental performance trading manager, any of the pool’s income tax laws applicable to the form information (not including proprietary commodity trading advisors or any of organization of the pool and to such trading results as defined in § 4.25(a)(8), principal thereof trades or intends to payments therefrom; and or hypothetical, extracted, pro forma or trade commodity interests for its own (3) If a pool is specifically structured simulated trading results) must be account, the pool operator must disclose to accomplish certain federal income tax placed after all specifically required whether participants will be permitted objectives, the commodity pool operator performance information; Provided, to inspect the records of such person’s must explain those objectives, the however, that required volatility trades and any written policies related manner in which they will be achieved disclosure may be included with the to such trading. and any risks relative thereto. related required performance disclosure; (n) Performance disclosures. Past (s) Inception of trading and other (ii) Supplemental non-performance performance must be disclosed as set information. (1) The minimum aggregate information relating to a required forth in § 4.25. subscriptions that will be necessary for disclosure may be included with the the pool to commence trading (o) Principal-protected pools. If the related required disclosure; and commodity interests; pool is a principal-protected pool as (iii) Other supplemental information (2) The minimum and maximum may be included after all required defined in § 4.10(d)(3), the commodity aggregate subscriptions that may be pool operator must: disclosures; Provided, however, that any contributed to the pool; proprietary trading results as defined in (1) Describe the nature of the (3) The maximum period of time the principal protection feature intended to § 4.25(a)(8), and any hypothetical, pool will hold funds prior to the extracted, pro forma or simulated be provided, the manner by which such commencement of trading commodity trading results included in the protection will be achieved, including interests; Disclosure Document must appear as sources of funding, and what conditions (4) The disposition of funds received must be satisfied for participants to if the pool does not receive the the last disclosure therein following all receive the benefits of such protection; necessary amount to commence trading, required and non-required disclosures. (w) Material information. Nothing set (2) Specify when the protection including the period of time within forth in §§ 4.21, 4.24, 4.25 or § 4.26 shall feature becomes operative; and which the disposition will be made; and (3) Disclose, in the break-even (5) Where the pool operator will relieve a commodity pool operator from analysis required by § 4.24(i)(6), the deposit funds received prior to the any obligation under the Act or the costs of purchasing and carrying the commencement of trading by the pool, regulations thereunder, including the assets to fund the principal protection and a statement specifying to whom any obligation to disclose all material feature or other limitation on risk, income from such deposits will be paid. information to existing or prospective expressed as a percentage of the price of (t) Ownership in pool. The extent of pool participants even if the information a unit of participation. any ownership or beneficial interest in is not specifically required by such (p) Transferability and redemption. the pool held by the following: sections. (1) A complete description of any (1) The commodity pool operator; § 4.25 Performance disclosures. restrictions upon the transferability of a (2) The pool’s trading manager, if any; (3) The pool’s major commodity (a) General principles—(1) Capsule participant’s interest in the pool; and performance information—(i) For pools. (2) A complete description of the trading advisors; (4) The operators of the pool’s major Unless otherwise specified, disclosure frequency, timing and manner in which investee pools; and of the past performance of a pool must a participant may redeem interests in (5) Any principal of the foregoing. include the following information. the pool. Such description must specify: (u) Reporting to pool participants. A Amounts shown must be net of any fees, (i) How the redemption value of a statement that the commodity pool expenses or allocations to the participant’s interest will be calculated; operator is required to provide all commodity pool operator. (ii) The conditions under which a participants with monthly or quarterly (A) The name of the pool; participant may redeem its interest, (whichever applies) statements of (B) A statement as to whether the pool including the cost associated therewith, account and with an annual report is: the terms of any notification required containing financial statements certified (1) Privately offered pursuant to and the time between the request for by an independent public accountant. section 4(2) of the Securities Act of redemption and payment; (v) Supplemental information. If any 1933, as amended (15 U.S.C. 77d(2)), or (iii) Any restrictions on the information, other than that required by pursuant to Regulation D thereunder (17 redemption of a participant’s interest, Commission rules, the antifraud CFR 230.501 et seq.); including any restrictions associated provisions of the Act, other federal or (2) A multi-advisor pool as defined in with the pool’s investments; and state laws or regulations, rules of a self- § 4.10(d)(2); and (iv) Any liquidity risks relative to the regulatory agency or laws of a non- (3) A principal-protected pool as pool’s redemption capabilities. United States jurisdiction, is provided, defined in § 4.10(d)(3); (q) Liability of pool participants. The such information: (C) The date of inception of trading; extent to which a participant may be (1) May not be misleading in content (D) The aggregate gross capital held liable for obligations of the pool in or presentation or inconsistent with subscriptions to the pool; excess of the funds contributed by the required disclosures; (E) The pool’s current net asset value; participant for the purchase of an (2) Is subject to the antifraud (F) The largest monthly draw-down interest in the pool. provisions of the Act and Commission during the most recent five calendar Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38187 years and year-to-date, expressed as a (ii) The rate of return of the offered different trading programs, must be percentage of the pool’s net asset value pool must be presented on a monthly described. and indicating the month and year of basis for the period specified in (4) Additional requirements with the draw-down (the capsule must § 4.25(a)(5), either in a numerical table respect to accounts. (i) Unless such include a definition of ‘‘draw-down’’ or in a bar graph; presentation would be misleading, past that is consistent with § 4.10(k)); (iii) A bar graph used to present performance of accounts required to be (G) The worst peak-to-valley draw- monthly rates of return for the offered presented under this section may be down during the most recent five pool: presented in composite form on a calendar years and year-to-date, (A) Must show percentage rate of program-by-program basis using the expressed as a percentage of the pool’s return on the vertical axis and one- format set forth in § 4.25(a)(1)(ii). net asset value and indicating the month increments on the horizontal (ii) Accounts that differ materially months and year of the draw-down; and axis; with respect to rates of return may not (H) Subject to § 4.25(a)(2) for the (B) Must be scaled in such a way as be presented in the same composite. offered pool, the annual and year-to- to clearly show month-to-month (iii) The commodity pool operator date rate of return for the pool for the differences in rates of return; and must disclose all material differences most recent five calendar years and (C) Must separately display numerical among accounts included in a year-to-date, computed on a percentage annual rates of return for the composite. compounded monthly basis; period covered by the bar graph; and (5) Time period for required (ii) For accounts. Disclosure of the (iv) The pool operator must make performance. All required performance past performance of an account required available upon request to prospective information must be presented for the under this § 4.25 must include the and existing participants all supporting most recent five calendar years and following capsule performance data necessary to calculate monthly year-to-date or for the life of the pool, information: rates of return for the offered pool as account or trading program, if less than (A) The name of the commodity specified in § 4.25(a)(7), for the period five years. trading advisor or other person trading specified in § 4.25(a)(5). (6) Trading programs. If the offered (3) Additional requirements with the account and the name of the trading pool will use any of the trading respect to pools other than the offered program; programs for which past performance is pool. With respect to pools other than (B) The date on which the commodity required to be presented, the Disclosure the offered pool for which past trading advisor or other person trading Document must so indicate. the account began trading client performance is required to be presented (7) Calculation of, and recordkeeping accounts and the date when client funds under this section: concerning, performance information. began being traded pursuant to the (i) Performance data for pools of the (i) All performance information trading program; same class as the offered pool must be presented in a Disclosure Document, (C) The number of accounts directed presented following the performance of including performance information by the commodity trading advisor or the offered pool, on a pool-by-pool contained in any capsule and other person trading the account basis. performance information not pursuant to the trading program (ii) Pools of a different class than the specifically required by Commission specified, as of the date of the offered pool must be presented less rules, must be current as of a date not Disclosure Document; prominently and, unless such (D)(1) The total assets under the presentation would be misleading, may more than three months preceding the management of the commodity trading be presented in composite form; date of the Document, and must be advisor or other person trading the Provided, however, that: supported by the following amounts, account, as of the date of the Disclosure (A) The Disclosure Document must calculated on an accrual basis of Document; and disclose how the composite was accounting in accordance with generally (2) The total assets traded pursuant to developed; accepted accounting principles, as the trading program specified, as of the (B) Pools of different classes or pools specified below or by a method date of the Disclosure Document; with materially different rates of return otherwise approved by the Commission. (E) The largest monthly draw-down may not be presented in the same (A) The beginning net asset value for for the trading program specified during composite. the period, which shall be the same as the most recent five calendar years and (iii) For the purpose of § 4.25(a)(3)(ii), the previous period’s ending net asset year-to-date expressed as a percentage of the following, without limitation, shall value; client funds, and indicating the month be considered pools of different classes: (B) All additions, whether voluntary and year of the draw-down; Pools privately offered pursuant to or involuntary, during the period; (F) The worst peak-to-valley draw- section 4(2) of the Securities Act of (C) All withdrawals and redemptions, down for the trading program specified 1933, as amended (15 U.S.C. 77d(2)), or whether voluntary or involuntary, during the most recent five calendar pursuant to Regulation D thereunder (17 during the period; years and year-to-date, expressed as a CFR 230.501 et seq.), and public (D) The net performance for the percentage of net asset value and offerings; and principal-protected and period, which shall represent the indicating the months and year of the non-principal-protected pools. Multi- change in the net asset value net of draw-down; and advisor pools as defined in § 4.10(d)(2) additions, withdrawals, and (G) The annual and year-to-date rate- will be presumed to have materially redemptions; of-return for the program specified, different rates of return from those of (E) The ending net asset value for the computed on a compounded monthly non-multi-advisor pools absent period, which shall represent the basis. evidence sufficient to demonstrate beginning net asset value plus or minus (2) Additional requirements with otherwise. additions, withdrawals, redemptions respect to the offered pool. (i) The (iv) Material differences among the and net performance; performance of the offered pool must be pools for which past performance is (F) The rate of return for the period, identified as such and separately disclosed, including, without limitation, which shall be calculated by dividing presented first; differences in leverage and use of the net performance by the beginning 38188 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations net asset value or by a method otherwise (ii) If the offered pool has no be deleted from the prescribed approved by the Commission; and operating history, the pool operator statement. (G) The number of units outstanding must prominently display the following (3) Major commodity trading advisor at the end of the period, if applicable. statement: performance. (i) The commodity pool (ii) All supporting documents THIS POOL HAS NOT COMMENCED operator must disclose the perfor- necessary to substantiate the TRADING AND DOES NOT HAVE ANY mance of any accounts (including pools) computation of such amounts must be PERFORMANCE HISTORY. directed by a major commodity trading maintained in accordance with § 1.31. advisor in accordance with paragraphs (8) Proprietary trading results. (i) (2) Other performance of commodity (a)(1)(ii) (C) through (G) of this § 4.25. Proprietary trading results may not be pool operator. (i)(A) Except as provided (ii) If a major commodity trading included in a Disclosure Document in § 4.25(a)(8), the commodity pool advisor has not previously traded unless such performance is prominently operator must disclose, for the period accounts, the pool operator must labeled as proprietary and is set forth specified by § 4.25(a)(5), the prominently display the following separately after all disclosures in performance of each other pool operated statement: accordance with § 4.24(v), together with by the pool operator (and by the trading (name of the major commodity trading a discussion of any differences between manager if the offered pool has a trading advisor), A COMMODITY TRADING such performance and the performance manager) in accordance with paragraphs ADVISOR THAT HAS DISCRETIONARY of the offered pool, including, but not (a)(1)(i) (C) through (H) and (a)(3) of this TRADING AUTHORITY OVER (percentage of limited to, differences in costs, leverage § 4.25, and the performance of each the pool’s funds available for commodity and trading methodology. other account traded by the pool interest trading allocated to that trading (ii) For the purposes of § 4.24(v) and operator (and by the trading manager if advisor) PERCENT OF THE POOL’S FUTURES AND COMMODITY OPTION this § 4.25(a), proprietary trading results the offered pool has a trading manager) means the performance of any pool or TRADING HAS NOT PREVIOUSLY in accordance with paragraphs (a)(1)(ii) DIRECTED ANY ACCOUNTS. account in which fifty percent or more (C) through (G) of this § 4.25. If the (4) Major investee pool performance. of the beneficial interest is owned or trading manager has been delegated (i) The commodity pool operator must controlled by: complete authority for the offered pool’s disclose the performance of any major (A) The commodity pool operator, trading, and the trading manager’s investee pool. trading manager (if any), commodity performance is not materially different trading advisor or any principal thereof (ii) If a major investee pool has not from that of the pool operator, the commenced trading, the pool operator (B) An affiliate or family member of performance of the other pools operated the commodity pool operator, trading must prominently display the following by and accounts traded by the pool manager (if any) or commodity trading statement: operator is not required to be disclosed. advisor; or (name of the major investee pool), AN (C) Any person providing services to (B) In addition, if the pool operator, INVESTEE POOL THAT IS ALLOCATED the pool. or if applicable, the trading manager, (percentage of the pool assets allocated to (9) Required legend. Any past has not operated for at least three years that investee pool) PERCENT OF THE performance presentation, whether or any commodity pool in which seventy- POOL’S ASSETS HAS NOT COMMENCED not required by Commission rules, must five percent or more of the contributions TRADING. be preceded by the following statement, to the pool were made by persons (5) Other commodity trading advisor prominently displayed: unaffiliated with the commodity pool and investee pool performance. With PAST PERFORMANCE IS NOT operator, the trading manager, the pool’s respect to commodity trading advisors NECESSARILY INDICATIVE OF FUTURE commodity trading advisors or their and investee pools for which RESULTS. respective principals, the pool operator performance is not required to be must also disclose the performance of (b) Performance disclosure when the disclosed pursuant to this § 4.25(c) (3) each other pool operated by and account offered pool has at least a three-year and (4), the pool operator must provide traded by the trading principals of the operating history. The commodity pool a summary description of the pool operator (and of the trading operator must disclose the performance performance history of each of such manager, as applicable) unless such of the offered pool, in accordance with advisors and pools, including: performance does not differ in any (i) Monthly return parameters (highs paragraphs (a)(1)(i) (A) through (H) and material respect from the performance and lows); (a)(2) of this § 4.25, where: (ii) Historical volatility and degree of (1) The offered pool has traded of the offered pool and the pool operator leverage; and commodity interests for three years or (and trading manager, if any) disclosed in the Disclosure Document. (iii) Any material differences between more; and the performance of such advisors and (2) For at least such three-year period, (ii) If neither the pool operator or pools as compared to that of the offered seventy-five percent or more of the trading manager (if any), nor any of its pool’s major trading advisors and major trading principals has operated any contributions to the pool were made by investee pools. persons unaffiliated with the other pools or traded any other commodity pool operator, the trading accounts, the pool operator must § 4.26 Use, amendment and filing of manager (if any), the pool’s commodity prominently display the following Disclosure Document. trading advisors, or the principals of any statement: NEITHER THIS POOL (a)(1) Subject to paragraph (c) of this of the foregoing. OPERATOR (TRADING MANAGER, IF section, all information contained in the (c) Performance disclosure when the APPLICABLE) NOR ANY OF ITS Disclosure Document must be current as offered pool has less than a three-year TRADING PRINCIPALS HAS of the date of the Document; Provided, operating history.—(1) Offered pool PREVIOUSLY OPERATED ANY OTHER however, that performance information performance. (i) The commodity pool POOLS OR TRADED ANY OTHER may be current as of a date not more operator must disclose the performance ACCOUNTS. If the commodity pool than three months prior to the date of of the offered pool, in accordance with operator or trading manager, if the Document. paragraphs (a)(1)(i)(A) through (H) and applicable, is a sole proprietorship, (2) No commodity pool operator may (a)(2) of this § 4.25; or reference to its trading principals may use a Disclosure Document dated more Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38189 than nine months prior to the date of its under the Act may solicit a prospective the Commission, by any applicable use. client, or enter into an agreement with federal or state securities laws and (b) The commodity pool operator a prospective client to direct the client’s regulations or by any applicable laws of must attach to the Disclosure Document commodity interest account or to guide non-United States jurisdictions: the most current Account Statement and the client’s commodity interest trading RISK DISCLOSURE STATEMENT Annual Report for the pool required to by means of a systematic program that THE RISK OF LOSS IN TRADING be distributed in accordance with § 4.22; recommends specific transactions, COMMODITIES CAN BE SUBSTANTIAL. Provided, however, that in lieu of the unless the commodity trading advisor, YOU SHOULD THEREFORE CAREFULLY most current Account Statement the at or before the time it engages in the CONSIDER WHETHER SUCH TRADING IS commodity pool operator may provide solicitation or enters into the agreement SUITABLE FOR YOU IN LIGHT OF YOUR performance information for the pool (whichever is earlier), delivers or causes FINANCIAL CONDITION. IN CONSIDERING current as of a date not more than sixty to be delivered to the prospective client WHETHER TO TRADE OR TO AUTHORIZE days prior to the date on which the a Disclosure Document for the trading SOMEONE ELSE TO TRADE FOR YOU, YOU Disclosure Document is distributed and SHOULD BE AWARE OF THE FOLLOWING: program pursuant to which the trading IF YOU PURCHASE A COMMODITY covering the period since the most advisor seeks to direct the client’s OPTION YOU MAY SUSTAIN A TOTAL recent performance information account or to guide the client’s trading, LOSS OF THE PREMIUM AND OF ALL contained in the Disclosure Document. containing the information set forth in TRANSACTION COSTS. (c) (1) If the commodity pool operator §§ 4.34 and 4.35. IF YOU PURCHASE OR SELL A knows or should know that the (b) The commodity trading advisor COMMODITY FUTURE OR SELL A Disclosure Document is materially may not enter into an agreement with a COMMODITY OPTION YOU MAY SUSTAIN inaccurate or incomplete in any respect, prospective client to direct the client’s A TOTAL LOSS OF THE INITIAL MARGIN it must correct that defect and must commodity interest account or to guide FUNDS AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER distribute the correction to: the client’s commodity interest trading (i) All existing pool participants TO ESTABLISH OR MAINTAIN YOUR unless the trading advisor first receives POSITION. IF THE MARKET MOVES within 21 calendar days of the date from the prospective client an AGAINST YOUR POSITION, YOU MAY BE upon which the pool operator first acknowledgment signed and dated by CALLED UPON BY YOUR BROKER TO knows or has reason to know of the the prospective client stating that the DEPOSIT A SUBSTANTIAL AMOUNT OF defect; and client received a Disclosure Document ADDITIONAL MARGIN FUNDS, ON SHORT (ii) Each previously solicited for the trading program pursuant to NOTICE, IN ORDER TO MAINTAIN YOUR prospective pool participant prior to which the trading advisor will direct his POSITION. IF YOU DO NOT PROVIDE THE accepting or receiving funds, securities REQUESTED FUNDS WITHIN THE account or will guide his trading. PRESCRIBED TIME, YOUR POSITION MAY or other property from any such 16. Section 4.32 is redesignated prospective participant. The pool BE LIQUIDATED AT A LOSS, AND YOU Section 4.33, and amended by revising WILL BE LIABLE FOR ANY RESULTING operator may furnish the correction by paragraph (a)(2) to read as follows: DEFICIT IN YOUR ACCOUNT. way of an amended Disclosure UNDER CERTAIN MARKET CONDITIONS, Document, a sticker on the Document, § 4.33 Recordkeeping. YOU MAY FIND IT DIFFICULT OR or other similar means. * * * * * IMPOSSIBLE TO LIQUIDATE A POSITION. (2) The pool operator may not use the (a) * * * THIS CAN OCCUR, FOR EXAMPLE, WHEN Disclosure Document until such (2) The acknowledgement specified in THE MARKET MAKES A ‘‘LIMIT MOVE.’’ correction has been made. § 4.31(b). THE PLACEMENT OF CONTINGENT (d) Except as provided by § 4.8: * * * * * ORDERS BY YOU OR YOUR TRADING (1) The commodity pool operator ADVISOR, SUCH AS A ‘‘STOP-LOSS’’ OR must file with the Commission two § 4.32 [Reserved] ‘‘STOP-LIMIT’’ ORDER, WILL NOT copies of the Disclosure Document for NECESSARILY LIMIT YOUR LOSSES TO 17. Section 4.32 is added and THE INTENDED AMOUNTS, SINCE each pool that it operates or that it reserved. MARKET CONDITIONS MAY MAKE IT intends to operate not less than 21 18. Sections 4.34, 4.35 and 4.36 are IMPOSSIBLE TO EXECUTE SUCH ORDERS. calendar days prior to the date the pool added to read as follows: A ‘‘SPREAD’’ POSITION MAY NOT BE operator first intends to deliver the LESS RISKY THAN A SIMPLE ‘‘LONG’’ OR Document to a prospective participant § 4.34 General disclosures required. ‘‘SHORT’’ POSITION. in the pool; and Except as otherwise provided herein, THE HIGH DEGREE OF LEVERAGE THAT (2) The commodity pool operator a Disclosure Document must include the IS OFTEN OBTAINABLE IN COMMODITY must file with the Commission two following information. TRADING CAN WORK AGAINST YOU AS copies of all subsequent amendments to (a) Cautionary Statement. The WELL AS FOR YOU. THE USE OF the Disclosure Document for each pool following Cautionary Statement must be LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. that it operates or that it intends to prominently displayed on the cover page of the Disclosure Document: IN SOME CASES, MANAGED operate within 21 calendar days of the COMMODITY ACCOUNTS ARE SUBJECT date upon which the pool operator first THE COMMODITY FUTURES TRADING TO SUBSTANTIAL CHARGES FOR knows or has reason to know of the COMMISSION HAS NOT PASSED UPON MANAGEMENT AND ADVISORY FEES. IT defect requiring the amendment. THE MERITS OF PARTICIPATING IN THIS MAY BE NECESSARY FOR THOSE TRADING PROGRAM NOR HAS THE ACCOUNTS THAT ARE SUBJECT TO Subpart CÐCommodity Trading COMMISSION PASSED ON THE THESE CHARGES TO MAKE SUBSTANTIAL Advisors ADEQUACY OR ACCURACY OF THIS TRADING PROFITS TO AVOID DEPLETION DISCLOSURE DOCUMENT. OR EXHAUSTION OF THEIR ASSETS. THIS 15. Section 4.31 is revised to read as (b) Risk Disclosure Statement. (1) The DISCLOSURE DOCUMENT CONTAINS, AT follows: PAGE (insert page number), A COMPLETE following Risk Disclosure Statement DESCRIPTION OF EACH FEE TO BE § 4.31 Required delivery of Disclosure must be prominently displayed CHARGED TO YOUR ACCOUNT BY THE Document to prospective clients. immediately following any disclosures COMMODITY TRADING ADVISOR. (a) No commodity trading advisor required to appear on the cover page of THIS BRIEF STATEMENT CANNOT registered or required to be registered the Disclosure Document as provided by DISCLOSE ALL THE RISKS AND OTHER 38190 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations SIGNIFICANT ASPECTS OF THE not within the United States, its commodity trading advisor intends to COMMODITY MARKETS. YOU SHOULD territories or possessions, the trading trade, with a description of any THEREFORE CAREFULLY STUDY THIS advisor must state where its books and restrictions or limitations on such DISCLOSURE DOCUMENT AND records will be kept and made available trading established by the trading COMMODITY TRADING BEFORE YOU TRADE, INCLUDING THE DESCRIPTION OF for inspection; and advisor or otherwise. THE PRINCIPAL RISK FACTORS OF THIS (2) The date when the commodity (i) Fees. A complete description of INVESTMENT, AT PAGE (insert page trading advisor first intends to use the each fee which the commodity trading number). Disclosure Document. advisor will charge the client. (e) Persons to be identified. The (2) If the commodity trading advisor (1) Wherever possible, the trading names of the following persons: advisor must specify the dollar amount may trade foreign futures or options (1) Each principal of the trading contracts pursuant to the offered trading of each such fee. advisor; (2) Where any fee is determined by program, the Risk Disclosure Statement (2) The futures commission merchant must further state the following: reference to a base amount including, with which the commodity trading but not limited to, ‘‘net assets,’’ ‘‘gross YOU SHOULD ALSO BE AWARE THAT advisor will require the client to profits,’’ ‘‘net profits’’ or ‘‘net gains,’’ the THIS COMMODITY TRADING ADVISOR maintain its account or, if the client is trading advisor must explain how such MAY ENGAGE IN TRADING FOREIGN free to choose the futures commission base amount will be calculated. FUTURES OR OPTIONS CONTRACTS. merchant with which it will maintain TRANSACTIONS ON MARKETS LOCATED (3) Where any fee is based on an its account, the trading advisor must increase in the value of the client’s OUTSIDE THE UNITED STATES, make a statement to that effect; and INCLUDING MARKETS FORMALLY commodity interest account, the trading (3) The introducing broker through LINKED TO A UNITED STATES MARKET advisor must specify how that increase which the commodity trading advisor MAY BE SUBJECT TO REGULATIONS is calculated, the period of time during will require the client to introduce its WHICH OFFER DIFFERENT OR which the increase is calculated, the fee account or, if the client is free to choose DIMINISHED PROTECTION. FURTHER, to be charged at the end of that period UNITED STATES REGULATORY the introducing broker through which it and the value of the account at which AUTHORITIES MAY BE UNABLE TO will introduce its account, the trading payment of the fee commences. COMPEL THE ENFORCEMENT OF THE advisor must make a statement to that (j) Conflicts of interest. (1) A full RULES OF REGULATORY AUTHORITIES effect. description of any actual or potential OR MARKETS IN NON-UNITED STATES (f) Business background. (1) The JURISDICTIONS WHERE YOUR conflicts of interest regarding any aspect business background, for the five years TRANSACTIONS MAY BE EFFECTED. of the trading program on the part of: preceding the date of the Disclosure BEFORE YOU TRADE YOU SHOULD (i) The commodity trading advisor; INQUIRE ABOUT ANY RULES RELEVANT Document, of: (i) The commodity trading advisor; (ii) Any futures commission merchant TO YOUR PARTICULAR CONTEMPLATED with which the client will be required TRANSACTIONS AND ASK THE FIRM and WITH WHICH YOU INTEND TO TRADE (ii) Each principal of the trading to maintain its commodity interest FOR DETAILS ABOUT THE TYPES OF advisor who participates in making account; REDRESS AVAILABLE IN BOTH YOUR trading or operational decisions for the (iii) Any introducing broker through LOCAL AND OTHER RELEVANT trading advisor or supervises persons so which the client will be required to JURISDICTIONS. engaged, including, without limitation, introduce its account to a futures (3) If the commodity trading advisor the trading advisor’s officers and commission merchant; and is not also a registered futures directors. (iv) Any principal of the foregoing. commission merchant, the trading (2) The trading advisor must include (2) Any other material conflict advisor must make the additional in the description of the business involving any aspect of the offered following statement in the Risk background of each person identified in trading program. Disclosure Statement, to be included as § 4.34(f)(1) the name and main business (3) Included in the description of any the last paragraph thereof: of that person’s employers, business such conflict must be any arrangement associations or business ventures and whereby the trading advisor or any THIS COMMODITY TRADING ADVISOR principal thereof may benefit, directly IS PROHIBITED BY LAW FROM the nature of the duties performed by ACCEPTING FUNDS IN THE TRADING such person for such employers or in or indirectly, from the maintenance of ADVISOR’S NAME FROM A CLIENT FOR connection with such business the client’s commodity interest account TRADING COMMODITY INTERESTS. YOU associations or business ventures. The with a futures commission merchant or MUST PLACE ALL FUNDS FOR TRADING location in the Disclosure Document of the introduction of such account IN THIS TRADING PROGRAM DIRECTLY any required past performance through an introducing broker (such as WITH A FUTURES COMMISSION disclosure for such person must be payment for order flow or soft dollar MERCHANT. indicated. arrangements). (c) Table of contents. A table of (g) Principal risk factors. A discussion (k) Litigation. (1) Subject to the contents showing, by subject matter, the of the principal risk factors of this provisions of § 4.34(k)(2), any material location of the disclosures made in the trading program. This discussion must administrative, civil or criminal action, Disclosure Document, must appear include, without limitation, risks due to whether pending or concluded, within immediately following the Risk volatility, leverage, liquidity, and five years preceding the date of the Disclosure Statement. counterparty creditworthiness, as Document, against any of the following (d) Information required in the applicable to the trading program and persons; Provided, however, that a forepart of the Disclosure Document. (1) the types of transactions and investment concluded action that resulted in an The name, address of the main business activity expected to be engaged in adjudication on the merits in favor of office, main business telephone number pursuant to such program. such person need not be disclosed: and form of organization of the (h) Trading program. A description of (i) The commodity trading advisor commodity trading advisor. If the the trading program, which must and any principal thereof: mailing address of the main business include the types of commodity (ii) Any futures commission merchant office is a post office box number or is interests and other interests the with which the client will be required Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38191 to maintain its commodity interest (ii) Supplemental non-performance percentage of net asset value and account; and information relating to a required indicating the months and year of the (iii) Any introducing broker through disclosure may be included with the draw-down; which the client will be required to related required disclosure; and (vii) Subject to § 4.35(a)(2) for the introduce its account to the futures (iii) Other supplemental information offered trading program, the annual and commission merchant. may be included after all required year-to-date rate-of-return for the (2) With respect to a futures disclosures; Provided, however, That program specified for the five most commission merchant or an introducing any proprietary trading results as recent calendar years and year-to-date, broker, an action will be considered defined in § 4.35(a)(7), and any computed on a compounded monthly material if: hypothetical, extracted, pro forma or basis; Provided, however, That (i) The action would be required to be simulated trading results included in performance of the offered trading disclosed in the notes to the futures the Disclosure Document must appear program must include monthly rates of commission merchant’s or introducing as the last disclosure therein following return for such period; and broker’s financial statements prepared all required and non-required (viii) In the case of the offered trading pursuant to generally accepted disclosures. program: accounting principles; (o) Material information. Nothing set (A) The number of accounts traded (ii) The action was brought by the forth in §§ 4.31, 4.34, 4.35 or § 4.36 shall pursuant to the offered trading program Commission; Provided, however, that a relieve a commodity trading advisor that were closed during the period concluded action that did not result in from any obligation under the Act or the specified in § 4.35(a)(5) with positive civil monetary penalties exceeding regulations thereunder, including the net performance (profits) as of the date $50,000 need not be disclosed unless it obligation to disclose all material the account was closed; and involved allegations of fraud or other information to existing or prospective (B) The number of accounts traded willful misconduct; or clients even if the information is not pursuant to the offered trading program (iii) The action was brought by any specifically required by such sections. that were closed during the period other federal or state regulatory agency, § 4.35 Performance disclosures. specified in § 4.35(a)(5) with negative a non-United States regulatory agency or net performance (losses) as of the date (a) General principles.—(1) Capsule a self-regulatory organization and the account was closed. performance information. Unless involved allegations of fraud or other (2) Additional requirements with otherwise specified, disclosure of the willful misconduct. respect to the offered trading program. past performance of an account or (l) Trading for own account. If the (i) The performance of the offered trading program required under this commodity trading advisor or any trading program must be identified as § 4.35 must include the following principal thereof trades or intends to such and separately presented first; information: trade commodity interests for its own (i) The name of the commodity (ii) The rate of return of the offered account, the trading advisor must trading advisor or other person trading trading program must be presented on a disclose whether clients will be the account and the name of the trading monthly basis for the period specified in permitted to inspect the records of such program; § 4.35(a)(5), either in a numerical table person’s trading and any written (ii) The date on which the commodity or in a bar graph; policies related to such trading. trading advisor or other person trading (iii) A bar graph used to present (m) Performance disclosures. Past the account began trading client monthly rates of return for the offered performance must be disclosed as set accounts and the date when client funds trading program: forth in § 4.35. began being traded pursuant to the (A) Must show percentage rate of (n) Supplemental information. If any trading program; return on the vertical axis and one- information, other than that required by (iii) The number of accounts directed month increments on the horizontal Commission rules, the antifraud by the trading advisor or other person axis; provisions of the Act, other federal or trading the account pursuant to the (B) Must be scaled in such a way as state laws and regulations, any rules of trading program specified, as of the date to clearly show month-to-month a self-regulatory agency or laws of a of the Disclosure Document; differences in rates of return; and non-United States jurisdiction, is (iv)(A) The total assets under the (C) Must separately display numerical provided, such information: management of the trading advisor or percentage annual rates of return for the (1) May not be misleading in content other person trading the account, as of period covered by the bar graph; and or presentation or inconsistent with the the date of the Disclosure Document; (iv) The commodity trading advisor required disclosures; and must make available to prospective and (2) Is subject to the antifraud (B) The total assets traded pursuant to existing clients upon request a table provisions of the Act and Commission the trading program specified, as of the showing at least quarterly the rules, and to rules regarding the use of date of the Disclosure Document; information required to be calculated promotional material promulgated by a (v) The largest monthly draw-down pursuant to § 4.35(a)(6). registered futures association pursuant for the account or trading program (3) Composite presentation. (i) Unless to section 17(j) of the Act; and specified during the most recent five such presentation would be misleading, (3) Must be placed as follows, unless calendar year and year-to-date the performance of accounts traded otherwise specified by Commission expressed as a percentage of client pursuant to the same trading program rules: funds and indicating the month and may be presented in composite form on (i) Supplemental performance year of the draw-down (the capsule a program-by-program basis, using the information (not including proprietary must include a definition of ‘‘draw- format set forth in § 4.35(a)(1). trading results as defined in § 4.35(a)(7), down’’ that is consistent with § 4.10(k)); (ii) Accounts that differ materially or hypothetical, extracted, pro forma or (vi) The worst peak-to-valley draw- with respect to rates of return may not simulated trading results) must be down for the trading program specified be presented in the same composite. placed after all required performance during the most recent five calendar (iii) The commodity trading advisor information; year and year-to-date, expressed as a must discuss all material differences 38192 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations among the accounts included in a of the offered trading program, Disclosure Document is materially composite. including, but not limited to, differences inaccurate or incomplete in any respect, (4) Current information. All in costs, leverage and trading. it must correct that defect and must performance information presented in (ii) For the purposes of § 4.34(n) and distribute the correction to: the Disclosure Document must be this § 4.35(a), proprietary trading results (i) All existing clients in the trading current as of a date not more than three means the performance of any account program within 21 calendar days of the months preceding the date of the in which fifty percent or more of the date upon which the trading advisor Document. beneficial interest is owned or first knows or has reason to know of the (5) Time period for required controlled by: defect; and performance. All required performance (A) The commodity trading advisor or (ii) Each previously solicited information must be presented for the any of its principals; prospective client for the trading most recent five calendar years and (B) An affiliate or family member of program prior to entering into an year-to-date or for the life of the trading the commodity trading advisor; or agreement to direct or to guide such program or account, if less than five (C) Any person providing services to prospective client’s commodity interest years. the account. account pursuant to the program. The (6) Calculation of, and recordkeeping (8) Required legend. Any past trading advisor may furnish the concerning, performance information. performance presentation, whether or correction by way of an amended (i) All performance information not required by Commission rules, must Disclosure Document, a sticker on the presented in a Disclosure Document, be preceded with the following Document, or other similar means. including performance information statement, prominently displayed: (2) The trading advisor may not use contained in any capsule and the Disclosure Document until such performance information not PAST PERFORMANCE IS NOT correction is made. NECESSARILY INDICATIVE OF FUTURE (d) (1) The trading advisor must file specifically required by Commission RESULTS. rules, must be current as of a date not with the Commission two copies of the more than three months preceding the (b) Performance to be disclosed. Disclosure Document for each trading date of the Document, and must be Except as provided in § 4.35(a)(7), the program that it offers or that it intends supported by the following amounts, commodity trading advisor must to offer not less than 21 calendar days calculated on an accrual basis of disclose the actual performance of all prior to the date the trading advisor first accounting in accordance with generally accounts directed by the commodity intends to deliver the Document to a accepted accounting principles, as trading advisor and by each of its prospective client in the trading specified below or by a method trading principals; Provided, however, program. otherwise approved by the Commission. that if the trading advisor or its trading (2) The commodity trading advisor (A) The beginning net asset value for principals previously have not directed must file with the Commission two the period, which shall represent the any accounts, the trading advisor must copies of all subsequent amendments to previous period’s ending net asset prominently disclose this fact with one the Disclosure Document for each value; of the following statements, as trading program that it offers or that it (B) All additions, whether voluntary applicable: intends to offer within 21 calendar days or involuntary, during the period; (1) THIS TRADING ADVISOR of the date upon which the trading (C) All withdrawals and redemptions, PREVIOUSLY HAS NOT DIRECTED advisor first knows or has reason to whether voluntary or involuntary, ANY ACCOUNTS; or know of the defect requiring the during the period; (2) NONE OF THE TRADING amendment. (D) The net performance for the PRINCIPALS OF THIS TRADING period, which shall represent the ADVISOR HAS PREVIOUSLY Subpart DÐAdvertising change in the net asset value net of DIRECTED ANY ACCOUNTS; or 19. Section 4.41 is amended by additions, withdrawals, redemptions, (3) NEITHER THIS TRADING revising paragraph (b)(1) to read as fees and expenses; ADVISOR NOR ANY OF ITS TRADING follows: (E) The ending net asset value for the PRINCIPALS HAVE PREVIOUSLY period, which shall represent the DIRECTED ANY ACCOUNTS. If the § 4.41 Advertising by commodity pool beginning net asset value plus or minus commodity trading advisor is a sole operators, commodity trading advisors, and additions, withdrawals and proprietorship, reference to its trading the principals thereof. redemptions, and net performance; and principals need not be included in the * * * * * (F) The rate of return for the period, prescribed statement. (b) (1) No person may present the computed on a compounded monthly performance of any simulated or basis, which shall be calculated by § 4.36 Use, amendment and filing of hypothetical commodity interest dividing the net performance by the Disclosure Document. account, transaction in a commodity beginning net asset value. (a) Subject to paragraph (c) of this interest or series of transactions in a (ii) All supporting documents section, all information contained in the commodity interest of a commodity necessary to substantiate the Disclosure Document must be current as pool operator, commodity trading computation of such amounts must be of the date of the Document; Provided, advisor, or any principal thereof, unless maintained in accordance with § 1.31. however, that performance information such performance is accompanied by (7) Proprietary trading results. (i) must be current as of a date not more one of the following: Proprietary trading results shall not be than three months preceding the date of (i) The following statement: included in a Disclosure Document the Document. ‘‘Hypothetical or simulated performance unless such performance is prominently (b) No commodity trading advisor results have certain inherent limitations. labeled as proprietary and is set forth may use a Disclosure Document dated Unlike an actual performance record, separately after all disclosures in more than nine months prior to the date simulated results do not represent accordance with § 4.34(n), together with of its use. actual trading. Also, since the trades a discussion of any differences between (c)(1) If the commodity trading have not actually been executed, the such performance and the performance advisor knows or should know that the results may have under- or over- Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Rules and Regulations 38193 compensated for the impact, if any, of indirectly, solicit, accept or receive the Disclosure Document as provided by certain market factors, such as lack of funds, securities or other property from the Commission or any applicable liquidity. Simulated trading programs in a prospective participant in a foreign federal or state securities laws and general are also subject to the fact that pool that it operates or that it intends to regulations. they are designed with the benefit of operate or, in the case of a commodity * * * * * hindsight. No representation is being trading advisor, no commodity trading made that any account will or is likely advisor registered or required to be PART 150ÐLIMITS ON POSITIONS to achieve profits or losses similar to registered under this part, or exempt 22. The authority citation for part 150 those shown;’’ or from registration pursuant to § 30.5 of continues to read as follows: (ii) A statement prescribed pursuant this part, may solicit or enter into an to rules promulgated by a registered agreement with a prospective client to Authority: 7 U.S.C. 6a, 6c and futures association pursuant to section direct or to guide the client’s foreign 12a(5)(1988). 17(j) of the Act. commodity interest trading by means of 23. Section 150.3 is amended by * * * * * a systematic program that recommends revising paragraph (a)(4)(i)(D) to read as specific transactions, unless the follows: PART 30ÐFOREIGN FUTURES AND commodity pool operator or commodity FOREIGN OPTIONS TRANSACTIONS trading advisor, at or before the time it § 150.3 Exemptions. engages in such activities, first provides (a) * * * 20. The authority citation for part 30 each prospective participant or client (4) * * * continues to read as follows: with the Risk Disclosure Statement set (i) * * * Authority: 7 U.S.C. 1a, 2, 4, 6, 6c, and 12a. forth in § 4.24(b) in the case of a (D) Solicit funds for such trading by commodity pool operator or § 4.34(b) in separate Disclosure Documents that 21. Section 30.6 is amended by the case of a commodity trading advisor. meet the standards of § 4.24 or § 4.34 of revising paragraphs (b)(1) and (b)(2) to this chapter, as applicable, where such read as follows: (2) The disclosure statement required to be provided in paragraph (b)(1) of this Disclosure Documents are required § 30.6 Disclosure. section may be given as a separate under part 4 of this chapter. * * * * * document or, if part of the Disclosure * * * * * (b) Commodity pool operators and Document required to be furnished Issued in Washington, DC, on July 14, commodity trading advisors. (1) No customers or potential customers 1995, by the Commission. commodity pool operator registered or pursuant to § 4.21 or § 4.31 of this Jean A. Webb, required to be registered under this part, chapter, must be prominently disclosed Secretary of the Commission. or exempt from registration pursuant to immediately following any disclosures [FR Doc. 95–17871 Filed 7–24–95; 8:45 am] § 30.5 of this part, may, directly or required to appear on the cover page of BILLING CODE 6351±01±P federal register July 25,1995 Tuesday Rule Contract CloseoutProcedures;Proposed Federal AcquisitionRegulation:Quick 48 CFRParts42and52 Space Administration National Aeronauticsand Administration General Services Department ofDefense Part IV 38195 38196 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules DEPARTMENT OF DEFENSE unsettled indirect costs allocable to any and by revising paragraph (a)(2) (i) and one contract from $500,000 to $1 (ii) to read as follows: GENERAL SERVICES million; and (3) to revise FAR ADMINISTRATION 42.708(a)(2)(ii) to permit the contracting 42.708 Quick-closeout procedures. officer to waive the 15 percent (a) * * * NATIONAL AERONAUTICS AND restriction based upon a risk assessment (2) * * * SPACE ADMINISTRATION that considers contractor’s accounting, estimating, and purchasing systems; (1) The total unsettled indirect cost to 48 CFR Parts 42 and 52 other concerns of the cognizant contract be allocated to any one contract does auditors; and any other pertinent not exceed $1,000,000; and [FAR Case 95±9] information. Paragraph (f) of the clause (ii) Unless otherwise provided in RIN 9000±AG57 at 52.216–7 and paragraph (e) of the agency procedures, the cumulative clause at 52.216–13 have also been unsettled indirect costs to be allocated Federal Acquisition Regulation; Quick revised to be consistent with the to one or more contracts in a single Contract Closeout Procedures revisions to 42.708 as outlined above. fiscal year do not exceed 15 percent of AGENCIES: Department of Defense (DOD), B. Regulatory Flexibility Act the estimated, total unsettled indirect General Services Administration (GSA), The proposed rule is not expected to costs allocable to cost-type contracts for and National Aeronautics and Space have a significant economic impact on that fiscal year. The contracting officer Administration (NASA). a substantial number of small entities may waive the 15 percent restriction ACTION: Proposed rule. within the meaning of the Regulatory based upon risk assessment that Flexibility Act, 5 U.S.C. 601 et seq., considers contractor’s accounting, SUMMARY: The Civilian Agency because nearly all contracts awarded to estimating, and purchasing systems; Acquisition Council and the Defense small business are awarded on the basis other concerns of the cognizant contract Acquisition Regulations Council are of a firm fixed price and settlement of auditors; and any other pertinent proposing to amend the Federal indirect cost rates prior to contract information; and Acquisition Regulation (FAR) to ensure closeout is therefore not an issue. An * * * * * maximum use of the quick-closeout Initial Regulatory Flexibility Analysis procedure. has, therefore, not been performed. PART 52ÐSOLICITATION PROVISIONS This regulatory action was not subject Comments from small entities AND CONTRACT CLAUSES to Office of Management and Budget concerning the affected FAR subpart review under Executive Order 12866, will be considered in accordance with 5 3. Section 52.216–7 is amended by dated September 30, 1993. U.S.C. 610 of the Act. Such comments revising the date in the clause heading; DATES: Comments should be submitted must be submitted separately and by revising paragraph (f); and by on or before September 25, 1995 to be should cite 5 U.S.C. 601, et seq. (FAR removing ‘‘(R 7–203.4(a) 1978 SEP)’’ ‘‘(R considered in the formulation of a final case 95–9), in correspondence. 7–203.4(b) 1979 MAR)’’, ‘‘(R 7– rule. 203.4(c)(4)(iv))’’, ‘‘(R 7–402.3 (a) C. Paperwork Reduction Act ADDRESSES: Interested parties should and(c)(5)(iii)’’, ‘‘(R 7–605.5)’’, ‘‘(R 7– submit written comments to: General The Paperwork Reduction Act does 1909.4)’’, ‘‘(R 1–7.202–4)’’, ‘‘(R 1–7.203– Services Administration, FAR not apply because the proposed changes 9)’’, ‘‘(R 1–3.704–1 and –2)’’, ‘‘(R 1– Secretariat (VRS), 18th & F Streets NW., to the FAR do not impose recordkeeping 7.402–3 (a) and (b) (1) and (3))’’, and ‘‘(R Room 4037, Washington, DC 20405. or information collection requirements, 1–7.403–9)’’ following ‘‘(End of clause)’’ Please cite FAR case 95–9 in all or collections of information from to read as follows: correspondence related to this case. offerors, contractors, or members of the public which require the approval of the 52.216±7 Allowable Cost and Payment. FOR FURTHER INFORMATION CONTACT: Ms. Office of Management and Budget under Linda Klein at (202) 501–3775 in * * * * * 44 U.S.C. 3501, et seq. reference to this FAR case. For general ALLOWABLE COST AND PAYMENT information, contact the FAR List of Subjects in 48 CFR Parts 42 and (DATE) Secretariat, Room 4037, GS Building, 52 * * * * * Washington, DC 20405 (202) 501–4755. Government procurement. (f) Quick-closeout procedures. Quick Please cite FAR case 95–9. closeout procedures are applicable when the Dated: July 19, 1995. conditions in FAR 42.708(a) are satisfied. SUPPLEMENTARY INFORMATION: C. Allen Olson, * * * * * A. Background Director, Office of Federal Acquisition Policy. 4. Section 52.216–13 is amended by In response to the recommendation of Therefore, it is proposed that 48 CFR parts 42 and 52 be amended as set forth revising the introductory paragraph, the an Interagency Process Action Team date in the clause heading, and sponsored by the Air Force, this below: 1. The authority citation for 48 CFR paragraph (e); and by removing ‘‘(R 7– proposed rule amends FAR 42.708, parts 42 and 52 continues to read as 702.10 1978 AUG)’’ following ‘‘(End of Quick-closeout procedure, the clause at follows: clause)’’ to read as follows: 52.216–7, Allowable Cost and Payment, and the clause at 52.216–13, Allowable Authority: 40 U.S.C. 486(c); 10 U.S.C. 52.216±13 Allowable Cost and PaymentÐ Cost and Payment—Facilities, to ease chapter 137; and 42 U.S.C. 2473(c). Facilities. the restrictions and maximize the use of PART 42ÐCONTRACT As prescribed in 16.307(g), insert the the quick-closeout procedure. The ADMINISTRATION following clause: Councils propose to (1) revise FAR 42.708(a) by substituting the word 2. Section 42.708 is amended in the ALLOWABLE COST AND PAYMENT— ‘‘shall’’ for ‘‘may’’; (2) raise the introductory text of paragraph (a) by FACILITIES (DATE) threshold in FAR 42.708(a)(2)(i) for total removing ‘‘may’’ and inserting ‘‘shall’’; * * * * * Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38197 (e) Quick-closeout procedures. Quick closeout procedures are applicable when the conditions in FAR 42.708(a) are satisfied. * * * * * [FR Doc. 95–18160 Filed 7–24–95; 8:45 am] BILLING CODE 6820±EP±M federal register July 25,1995 Tuesday Programs; ProposedRuleandNotice Workplace DrugandAlcoholTesting 49 CFRPart40 Office oftheSecretary Transportation Department of Part V 38199 38200 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules DEPARTMENT OF TRANSPORTATION Department established new ‘‘shy can carry a nine-month suspension) bladder’’ procedures, for situations in have become concerned about the Office of the Secretary which employees cannot provide a operation of this provision. The sufficient urine sample. These principal concern expressed has been 49 CFR Part 40 procedures were established in that two hours is too short a time to [Docket OST 95±321; Notice 95±8] conjunction with a reduction in the allow employees to generate sufficient required sample volume from 60 to 45 urine, particularly if employees have RIN 2105±AC22 milliliters (mL) (for split samples) or 30 become somewhat dehydrated on the Procedures for Transportation mL (single specimen collections). For job (e.g., railroad unions have said that Workplace Drug and Alcohol Testing employees who are unable to provide their members are sometimes on the job Programs this reduced sample volume, the rule for several hours without relief, with (§ 40.25(f)(10)(iv)) directs the collection little fluid intake). Another concern is AGENCY: Office of the Secretary, DOT. site person to ‘‘instruct the individual to that the regulation does not provide ACTION: Notice of proposed rulemaking. drink not more than 24 ounces of fluid sufficient guidance on the factors on and, after a period of up to two hours, which physicians should rely in SUMMARY: The Department of again attempt to provide a complete determining whether the employee’s Transportation proposes to modify sample.’’ If the individual cannot do so, inability to provide a sufficient current procedures governing situations the medical review officer (MRO) is specimen is medically ‘‘genuine.’’ in which employees are unable to directed to ‘‘refer the individual for a The Department is willing to consider provide sufficient specimens for urine medical evaluation to develop pertinent changing the ‘‘shy bladder’’ provision of drug testing. The proposed changes information concerning whether the the rule in response to these concerns. would allow additional time to collect individual’s inability to provide a We will propose several changes for a sufficient sample. In addition, the specimen is genuine or constitutes a purposes of soliciting comment on Department proposes to clarify refusal to test.’’ (This referral is not them. These changes are intended to requirements concerning relationships mandated in the case of pre- balance the considerations favoring the between laboratories and medical employment testing where the employer present rule (e.g., lower probability of review officers; provide procedures for does not want to hire the individual.) water intoxication, less likelihood of situations in which employees do not There were several reasons for this producing a dilute specimen, fewer have contact with medical review action. First, the Department of hours off the job) and those favoring a officers following a laboratory- Transportation and the Department of longer period of time (e.g., greater confirmed positive test; and make Health and Human Services had both probability of producing a complete explicit that MROs are to report split received information indicating that specimen). The amendment would specimen test results to employers, forcing large quantities of fluids over a provide up to four hours for an regardless of who pays for the test. longer period of time could result in employee to drink up to 40 ounces of DATES: Comments should be received by water intoxication (i.e., a condition fluid before making the second attempt September 25, 1995. Late-filed resulting from rapid, copious water to provide a complete specimen. The comments will be considered to the intake, that may result in dilution of the employee would be directed to drink 8 extent practicable. plasma and an influx of water into the ounces of fluid each 30 minutes during ADDRESSES: Comments should be sent to brain), which if severe can result in this period until the 40 ounce maximum Docket Clerk, Att: Docket No. OST–95– harm to employees’ health (e.g., is reached. Obviously, this process 321, Department of Transportation, 400 lethargy, confusion, or seizures). would be cut short if the employee 7th Street, SW., Room PL401, Second, ingesting large quantities of provided a sufficient specimen. Refusal Washington DC, 20590. For the fluids can help to dilute specimens, to drink the fluids or make another convenience of persons wishing to giving drug-using employees a attempt to provide a new specimen review the docket, it is requested that mechanism for trying to ‘‘beat the test.’’ would be treated as a refusal to test. The quantity of water consumed comments be sent in triplicate. Persons Third, the Department’s Drug under these provisions would be wishing their comments to be Enforcement and Program Compliance unlikely to result in water intoxication. acknowledged should enclose a Office consulted with the medical A medical journal article addressing this stamped, self-addressed postcard with community, learning that most adults, issue that has recently come to our their comment. The docket clerk will in most circumstances, could produce attention (‘‘Acute Water Intoxication as date stamp the postcard and return it to 45 mL of urine following the ingestion a Complication of Urine Drug Testing in the sender. Comments may be reviewed of 24 ounces of fluid over a two-hour period. Fourth, allowing up to eight the Workplace,’’ David Klonoff and at the above address from 9 a.m. through hours for testing had resulted in Andrew Jurow, Journal of the American 5:30 p.m. Monday through Friday. employees remaining off the job for long Medical Association, January 2, 1991, FOR FURTHER INFORMATION CONTACT: periods of time, with consequent costs pp. 84–85) related that, in every Albert Alvarez, Director, Office of Drug to employers, including some reported case of water intoxication the Enforcement and Program Compliance, employees who appeared to authors found in their literature search, 400 7th Street, SW., Room 10317, 202– intentionally and unnecessarily delay the patient consumed at least 1.35 liters 366–3784; or Robert C. Ashby, Deputy the provision of a specimen. of water. (In a particular case cited at Assistant General Counsel for Since the adoption of this provision, length in the article, the patient, in the Regulation and Enforcement, 400 7th employers, employees and MROs have course of a drug test, consumed 3 liters Street, SW., Room 10424, 202–366– expressed various concerns to the of water in a 3-hour period.) They also 9306. Department. Since, absent an adequate noted that it was common medical SUPPLEMENTARY INFORMATION: medical explanation, a ‘‘shy bladder’’ practice to administer up to 1 liter of constitutes a refusal to test, and a refusal water over a period of 1 hour to distend ‘‘Shy Bladder’’ to test is equivalent to a positive test, the bladder for ultrasound examination. In the February 15, 1994, revision of program participants (especially in the Forty fluid ounces is approximately 49 CFR Part 40 (59 FR 7340), the railroad industry, where a refusal to test equivalent to 1.2 liters, less than the Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38201 1.35 liters or more that the authors provide an adequate amount of breath shall The laboratory shall not enter into any found in water intoxication cases be regarded as a refusal to take a test. The relationship with an employer’s MRO that reported in the medical literature. While licensed physician shall provide a written may be construed as a potential conflict of greater than the 1 liter the authors found statement of the basis for his or her interest or derive any financial benefit by conclusion to the employer. having an employer use a specific MRO. to be common medical practice, the fluids provided under these procedures The NPRM proposes similar language This language is the definitive, and most would be administered in stages over a for ‘‘shy bladder’’ situations. By a recent, statement by the Department of two-hour period, rather than in one ‘‘medical condition,’’ we mean an the rules governing relationships hour. While avoiding water ascertainable physiological condition between MROs and laboratories. As intoxication, this approach would (e.g., a urinary system dysfunction), as such, it was intended to supersede the provide 16 more ounces of fluids and 2 distinct from assertions of ‘‘situational older language of § 40.33(b)(2), which more hours than the current rules, anxiety’’ or unsupported claims of provided that allowing a greater probability of the dehydration. The MRO shall not be an employee of the individual being able to provide a The Department is not proposing to laboratory conducting the drug test unless sufficient specimen. allow urine from different voids to be the laboratory establishes a clear separation The Department seeks comment from combined. That is, if an individual of functions to prevent any appearance of a conflict of interest, including assuring that the medical community, employers, voids and provides 25 mL of urine, that employees, and other interested persons the MRO has no responsibility for, and is not specimen must be discarded. It could supervised by or the supervisor of, any concerning the appropriateness of the not be added to a subsequent 20 mL persons who have responsibility for the drug proposed 4 hour/40 ounce rule. In void to create a combined 45 mL testing or quality control operations of the particular, we are seeking comments, specimen. Testing a specimen laboratory. with rationales and information consisting of urine from two different In the August 19, 1994, amendments to attached, about whether a longer or voids at two separate times adds too part 40, the Department inadvertently shorter time period or greater or lesser much uncertainty to the testing process. failed to remove the latter provision. water intake would be desirable. In Nor is the Department proposing to While the two provisions have a addition, we seek comment on whether allow individuals who have failed to common purpose—ensuring that there an unsuccessful attempt to provide a provide a sufficient specimen to provide is not even the appearance of a conflict sufficient specimen should be required a subsequent urine sample when they of interest between the laboratory and in every instance before the four-hour visit the physician for the assessment of the MRO—it has been pointed out to the clock begins to run. (This is the whether a medical condition exists that Department that, considered together, Department’s interpretation of its prevents them providing a complete they may cause confusion as to the current rule.) That is, if an individual sample. Such a provision would allow Department’s intent. To avoid the comes to the collection site and reports employees time to take steps to avoid a possibility of any such confusion, this that he or she cannot provide a sample positive test by drinking enough fluids NPRM would remove § 40.33(b)(2). immediately, should the collection site to dilute the specimen or otherwise to The Department is also seeking person have the discretion to skip the ‘‘beat the test.’’ In addition, producing a comment on a related issue, concerning first collection attempt and proceed specimen at the doctor’s office a short the application of this conflict of immediately to the shy bladder time after failing to provide it at the interest provision. In response to an procedure? testing site might well be viewed as inquiry from a laboratory, the To further clarify the rule, we would evidence that there is, in fact, no Department determined that a ‘‘closed incorporate language from the parallel medical condition preventing the panel’’ type of operation—in which a provision of the alcohol testing individual from providing a sufficient laboratory that packaged drug testing procedures concerning the task of the sample. services to clients provided a list of physician who evaluates the employee. Body Temperature MROs to the clients from which the Section 40.69(d) provides as follows: clients had to choose—was inconsistent (d) If the employee attempts and fails to Currently, § 40.25(e)(i) refers to with this provision. The rationale of this provide an adequate amount of breath, the measurements of oral body temperature determination was that since there is a employer shall proceed as follows ‘ that are made as part of the process of financial advantage to MROs to be on (1) [Reserved] determining whether the temperature of (2) The employer shall direct the employee such a list (i.e., it directs business to to obtain, as soon as practical after the a urine specimen is consistent with the them), there could be an incentive for attempted provision of breath, an evaluation temperature of the employee. The the MROs to be less than ideally from a licensed physician who is acceptable reference to ‘‘oral’’ may unnecessarily independent in their reviews of test to the employer concerning the employee’s restrict the means used to test body results from the laboratory establishing medical ability to provide an adequate temperature, since other ways of taking the list. This, in turn, can create at least amount of breath. body temperature (e.g., tympanic the appearance of a conflict of interest. (i) If the physician determines, in his or her temperature) exist. We propose to delete reasonable medical judgment, that a medical (Though the issue did not arise in the condition has, or with a high degree of the word ‘‘oral,’’ with the result that context of this determination, we note probability, could have, precluded the taking the individual’s temperature by that the conflict of interest provision employee from providing an adequate any medically-accepted means works both ways, and would apply to amount of breath, the employee’s failure to (including oral) would be permitted. arrangements in which MROs select provide an adequate amount of breath shall MRO/Laboratory Relationships laboratories as well as to arrangements not be deemed a refusal to take a test. The in which laboratories select MROs.) physician shall provide to the employer a In its August 19, 1994, amendments to The laboratory in question and other written statement of the basis for his or her Part 40 (59 FR 42996), the Department participants have responded that conclusion. (ii) If the licensed physician, in his or her added § 40.29(n)(6). Based on a arrangements of this kind are common reasonable medical judgment, is unable to Department of Health and Human and accepted in the industry and make the determination set forth in Services regulatory provision, it provide for a higher level of quality paragraph (d)(2)(i), the employee’s failure to provides that control in the drug testing process, since 38202 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules laboratories have a market incentive to unresolved test situation described Reporting of Split Sample Results provide only the best-qualified MROs to above, however, a previous employer Section 40.33 goes into some detail their clients. Other parties have will not have a drug test result that it concerning the procedures the MRO suggested that MRO/laboratory can report, because only a verified must follow concerning reporting the arrangements that are not arms-length, positive or negative test can be reported. split specimen test results to the however configured, will compromise The employee, in this case, may be able employer and employee. The section is the independence of the parties in the to obtain employment with another quite specific on the consequences of a process to an unacceptable degree. The employer because the ‘‘limbo’’ positive test of the split specimen that does not Department wishes to maintain this was never reported. reconfirm the positive result of the independence, but also wishes to avoid To avoid this difficulty, the primary sample. However, the section interfering unreasonably with rational Department is proposing to add does not explicitly specify what the arrangements that may serve employers language to § 40.33. In any situation MRO does in the case of a split well. The Department seeks comment where neither the MRO nor the specimen test that does reconfirm the on whether there are some specific employer has been able to contact the positive result of the test of the primary provisions that should be included in employee within 30 days from the date specimen. The Department has the regulation, or in guidance, that the MRO receives the confirmed encountered situations in which strike an appropriate balance. positive test result from the laboratory, the MRO will be instructed to verify the employees who have paid for the test of Unresolved Confirmed Positive Tests laboratory result positive and report it to the split specimen have objected to the Section 40.33 establishes procedures the employer as such. The same MRO reporting the positive result to the for MROs and employers to follow when provisions allowing the employee to employer. To clarify that the it is difficult for the MRO to contact an reopen the verification will apply as in Department intends that the result of the employee following a report from the the case where the employer did contact test of a split specimen be reported to laboratory of a confirmed positive drug the employee and the employee failed to both the employer and the employee— test. If, after making all reasonable contact the MRO within 5 days. The regardless of who pays for the test—we efforts to contact the employee, the Department seeks comment on this propose to add language to this effect. MRO cannot do so, the MRO asks a approach and on the appropriate Electronic Signatures designated management official to amount of time before a ‘‘non-contact contact the employee. If the designated positive’’ can be declared. We also seek Various inquiries from drug and management official cannot do so, then comment on what, if any, alcohol testing industry sources have the employer may place the employee documentation of the efforts to contact raised the question of the place that on medical leave or similar status. The the employee should be maintained by technological developments, such as confirmed positive does not become a the MRO and/or designated employer electronic signatures, should play in the verified positive—the only result having representative. Department’s programs. In an electronic consequences under the rule—in this The Department also seeks comment signature system, an individul using a situation. There can be a ‘‘non-contact on how this provision should apply in pen-like stylus signs an electronic pad positive’’ only if the employee declines the case of opiate positives. Once an connected to a computer system. The an opportunity to discuss the test with MRO has a confirmed positive signature is recorded electronically by the MRO or the employer has contacted laboratory test result for other drugs, the the computer system and incorporated the employee and the employee fails to MRO verifies the test as positive unless into a data base, without any technical contact the MRO within five days. In the he or she determines that there is a need for a paper signature or printout. latter circumstances, the MRO can legitimate medical explanation for the The use of this technology raises a reopen the verified positive test if there presence of the drug. By contrast, the number of issues in the context of the is a showing that illness, injury, or other MRO cannot verify a confirmed opiate Department’s testing programs. Part 40 circumstances beyond the control of the positive unless the MRO finds currently calls for signatures on a employee prevented a timely contact. independent clinical evidence multiple-copy paper form, and does not, The Department has become aware of supporting the positive result. In the absent future modification, provide for a situation these procedures do not Department’s experience, a high the use of electronic signatures. Copies cover. If neither the MRO nor employer percentage of confirmed laboratory of the form are distributed to various ever succeeds in contacting the positives for opiates are verified parties (e.g., the employer, employee, employee (e.g., the applicant never gets negative. Given this background, should laboratory, MRO). It is unclear how a back in touch with the employer in a there be different procedures for ‘‘non- ‘‘paperless’’ system would provide pre-employment test case, an employee contact positives’’ involving laboratory equivalent service. While one could quits or never shows up again following results that are positive only for opiates? presumably use an electronic signature a random test), a confirmed laboratory If so, how should the procedures differ? device in something short of a literally positive test is left in limbo, with no We also seek comment on whether a paperless system, combining electronic way to verify it either as a positive or similar provision should be extended to signatures with a system using paper negative test. This creates problems for situations in which an employee has forms creates its own set of questions. MROs, who have the unresolved tests contacted the MRO and, in the course of For example, would there be both a on their books indefinitely. the verification interview, asserted that paper and an electronic signature? This situation can also create there is documentation of a legitimate Would an electronic signature somehow problems for subsequent employers and medical explanation for the presence of be transferred to the paper form? What the Department’s program. For example, a drug or metabolite. If the individual, efficiencies are gained if one has both an under the Federal Highway or the individual’s physician, does not electronic and paper signature? Administration’s drug testing produce this documentation after 30 There are also important issues requirements (49 CFR part 382), the new days or some other reasonable time concerning the security and employer is required to seek period, should the rule explicitly identification of electronic signatures. information on previous drug test authorize the MRO to verify the test What kinds of technical requirements results from other employers. In the positive at that time? (e.g., electronic encryption for Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38203 signatures, computer security software) (f) * * * paragraph (b)(2), by revising paragraphs and operational safeguards (e.g., access (10) * * * (c)(5) and (c)(6), by designating the restrictions) should surround their use? (iv)(A)(1) In either collection existing text of paragraph (f) as Should such controls be part of DOT methodology, upon receiving the paragraph (f)(1), and by adding regulations? Are there industry specimen from the individual, the paragraph (f)(2) to read as follows: consensus standards that have been or collection site person shall determine if could be developed to address these it has at least 30 milliliters of urine for § 40.33 Reporting and review of results. issues, to which DOT rules could refer? a single specimen collection or 45 * * * * * What are the electronic equivalents of milliliters of urine for a split specimen (c) * * * the physical security measures and collection. (5) The MRO may verify a test as (2) If the individual has not provided controls the Department requires for positive without having communicated the required quantity of urine, the paper records? directly with the employee about the specimen shall be discarded. The While the Department is not, at this test in four circumstances: time, making specific proposals in this collection site person shall direct the individual to drink 8 ounces of fluid (i) The employee expressly declines area, we are interested in receiving the opportunity to discuss the test; thoughts and information from immediately. The individual shall be interested parties on how the directed to drink an additional 8 ounces (ii) Neither the MRO nor the Department can best respond to of fluid each 30 minutes thereafter up to designated employer representative, technological changes of this kind that a total of 40 ounces or until the after making all reasonable efforts, has can affect its program. We invite individual has provided a new urine been able to contact the employee comment on these matters. specimen, whichever occurs first. If the within 30 days of the date on which the employee refuses to drink fluids as MRO receives the confirmed positive Regulatory Analyses and Notices directed or to provide a new urine test result from the laboratory; This is not a significant rule under specimen, the collection site person (iii) The designated employer Executive Order 12866 or under the shall terminate the collection and notify representative has successfully made Department’s Regulatory Policies and the employer that the employee has and documented a contact with the Procedures. It does not impose costs on refused to submit to testing. employee and instructed the employee regulated parties. It merely clarifies (3) If the individual has not, within to contact the MRO (see paragraphs (c) four hours from the time the original provisions of the regulations and (3) and (4) of this section), and more insufficient urine specimen was addresses certain administrative than five days have passed since the presented to the collection site person, problems that have arisen in the drug date the employee was successfully provided a sufficient specimen, the testing program. There are not sufficient contacted by the designated employer collection site person shall discontinue Federalism implications to warrant the representative; or the collection and notify the employer. preparation of a Federalism Assessment. (B) The employer shall direct any (iv) Other circumstances provided for The Department certifies that this rule employee who does not provide a in DOT agency drug testing regulations. will not have a significant economic sufficient urine specimen (see paragraph (6) If a test is verified positive under impact on a substantial number of small (f)(10)(iv)(A)(3) of this section) to obtain, the circumstances specified in entities. as soon as practical after the attempted paragraph (c)(5) (ii) or (iii) of this List of Subjects in 49 CFR Part 40 provision of urine, an evaluation from a section, the employee may present to licensed physician who is acceptable to the MRO information documenting that Drug testing, Alcohol testing, Laboratories, the employer concerning the employee’s serious illness, injury, or other Reporting and recordkeeping requirements, Safety, Transportation. medical ability to provide an adequate circumstances unavoidably prevented amount of urine. the employee from being contacted by Issued this 11th Day of July, 1995, at (1) If the physician determines, in his the MRO or designated employer Washington, D.C. or her reasonable medical judgment, representative (paragraph (c)(5)(iii) of Federico Pen˜ a, that a medical condition has, or with a this section) or from contacting the Secretary of Transportation. high degree of probability, could have, MRO (paragraph (c)(5)(iii) of this For the reasons set forth in the precluded the employee from providing section) within the times provided. The preamble, 49 CFR Part 40 is proposed to an adequate amount of urine, the MRO, on the basis of such information, be amended as follows: employee’s failure to provide an may reopen the verification, allowing adequate amount of urine shall not be the employee to present information PART 40Ð[AMENDED] deemed a refusal to take a test. The concerning a legitimate explanation for physician shall provide to the employer the confirmed positive test. If the MRO 1. The authority citation for Part 40 a written statement of the basis for his concludes that there is a legitimate would be revised to read as follows: or her conclusion. explanation, the MRO declares the test Authority: 49 U.S.C. 102, 301, 322, 5331, (2) If the physician, in his or her to be negative. 20140, 31306, 45101–45106. reasonable medical judgment, is unable * * * * * to make the determination set forth in 2. Section 40.25 is proposed to be (f)(1) * * * amended by removing the word ‘‘oral’’ paragraph (f)(10)(iv)(B)(1) of this section, the employee’s failure to (2) If the analysis of the split from paragraph (e)(2)(i)(A) and by specimen is reconfirmed by the second removing the words ‘‘Oral body’’ from provide an adequate amount of urine shall be regarded as a refusal to take a laboratory for the presence of the drug(s) paragraph (e)(2)(i)(B) and adding or drug metabolite(s), the MRO shall ‘‘Body’’ in their place. test. The physician shall provide a written statement of the basis for his or notify the employer and employee of the 3. Section 40.25(f)(10)(iv) is proposed results of the test. to be revised to read as follows: her conclusion to the employer. * * * * * * * * * * § 40.25 Specimen collection procedures. 4. Section 40.33 is proposed to be [FR Doc. 95–18041 Filed 7–24–95; 8:45 am] * * * * * amended by removing and reserving BILLING CODE 4910±62±U 38204 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices DEPARTMENT OF TRANSPORTATION General Role and Functions of C/TPAs compliance to C/TPA. The employer • Employers are permitted to use remains obligated to DOT for Office of the Secretary C/TPAs to carry out certain aspects of compliance, and the C/TPA’s failure to implement any aspect of the program as Workplace Drug and Alcohol Testing their drug and alcohol testing programs. • If an employer uses a C/TPA to required in Part 40 and applicable Programs implement its program, the employer operating administration regulations must ensure that the C/TPA performs its makes the employer subject to AGENCY: Office of the Secretary, DOT. services in accordance with the enforcement action by the Department. * A C/TPA cannot act as ‘‘program ACTION: Notice: Guidance on the Role of applicable rules. manager’’ in FAA and RSPA programs, Consortia and Third-Party • C/TPAs may operate random testing which call for the employer itself to Administrators in DOT Drug and programs for employers and may have an individual designated to Alcohol Testing Programs. facilitate the conduct of other functions manage the drug and alcohol testing (e.g., contracting with labs or collectors, program for the employer. SUMMARY: The Department of conducting collections). • * The fact that a C/TPA stands in the Transportation encourages the provision C/TPAs may combine employees employer’s shoes does not obviate the of drug and alcohol testing services from more than one entity or one C/TPA’s obligation to transmit quarterly through consortia and third-party industry in a random pool. It should be laboratory statistical summaries to each administrators. The guidance in this noted that employees not covered by actual employer. notice responds to a number of DOT rules may not be part of the same * The limitations on self-referrals by questions that have arisen about the random pool with DOT employees, that SAPs for treatment apply in situations proper role of these organizations in adjustment to random testing rates in in which SAPs are part of a C/TPA. assisting employers to meet the various industries may complicate the * It is not appropriate for laboratories requirements of the Department’s drug ability of C/TPAs to operate multi- to receive drug and alcohol forms for an and alcohol testing regulations. industry pools, and that any C/TPA individual packaged or attached (e.g., including aviation employees must be stapled) together, since this is FOR FURTHER INFORMATION CONTACT: approved by the FAA. inconsistent with the privacy and Albert Alvarez, Director, Office of Drug • C/TPAs may assist medical review confidentiality of personally-identified Enforcement and Program Compliance officers and substance abuse test records. Consequently, C/TPAs 400 7th Street SW., Room 9404A. 202– professionals (MROs/SAPs) in ensuring (including those that are operated by or 366–3784; or Robert C. Ashby, Deputy that follow-up testing is conducted in affiliated with laboratories) must ensure Assistant General Counsel for accordance with the schedule that laboratories receive only the drug Regulation and Enforcement, 400 7th established by the MRO/SAP. Like an chain of custody form. One useful way Street SW., Room 10424. 202–366–9306. employer, a C/TPA may not randomly in which C/TPAs can implement this SUPPLEMENTARY INFORMATION: The select employees from a ‘‘follow-up guidance is to establish separate Department of Transportation’s drug pool’’ for follow-up testing. (Follow-up addresses for the receipt of drug and and alcohol testing programs require testing, while unannounced, is not alcohol forms, respectively. C/TPAs employers to take a variety of actions to random: it follows individualized could also establish procedures to ensure a transportation workplace free directions established by the MRO/SAP separate alcohol and drug forms that of drug and alcohol misuse. Consortia for the particular employee.) arrive together. • The C/TPA acts as an agent of the and third-party administrators (C/TPAs) employer, and ‘‘stands in the shoes’’ of Confidentiality, Test Results, can play an important role in assisting the employer, subject to certain limits. Recordkeeping employers to meet these requirements, Within these limits, the duties the rule • and the Department’s policy is to C/TPAs may receive from assigns to employers are to be carried encourage their availability to employers or other parties and maintain out by the C/TPAs acting as their agents. employers. At the same time, the all records concerning DOT alcohol and Because the C/TPA acts as an agent of Department is committed to ensuring drug testing programs, including the employer, it is not required that the individual test results, both positive and that the confidentiality of the testing employee provide written consent to negative. Record retention requirements process for employees is not permit the employer to provide (i.e., requirements that records be compromised. confidential information to the C/TPA maintained for a certain amount of time) The following guidance spells out the (e.g., individual test results). In their apply to records maintained by C/TPAs Department’s views and interpretations role as agents of the employer, C/TPAs in the same way as the requirements of the proper role of C/TPAs in DOT must follow the same confidentiality apply to employers. drug and alcohol testing programs. It rules as the employer itself. • Where operating administration responds to a number of questions that • Limits on use of C/TPAs as agents rules or policies require employers to participants have raised about the place include the following: keep certain information in their own of these organizations. This is * A C/TPA cannot make reasonable files (e.g., for purposes of review during Department-wide guidance, applying to suspicion, post-accident, or refusal inspections), employers must do so, participants in the programs of all DOT determinations. This is a non-delegable even though the same information is operating administrations involved: the duty of the employer itself. maintained by a C/TPA for other Federal Aviation Administration (FAA), * The employer itself is responsible purposes. Federal Railroad Administration (FRA), for making sure that an employee who • Information needed for operating a Federal Highway Administration has tested positive for alcohol or drugs, drug/alcohol program (e.g., names of (FHWA), Federal Transit or otherwise violated the rules, is employees in random pool, random Administration (FTA), United States removed from performance of safety- selection lists, copies of notices to Coast Guard (USCG), and Research and sensitive positions. employers of selected employees) may Special Programs Administration * As noted above, an employer be maintained by C/TPAs. Consortia (RSPA). cannot delegate responsibility for may make random selections from the Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38205 pool and notifications of random tests. concerning relationships between concerning whether to verify a test as If the C/TPA does not maintain this laboratories and MROs apply, they do positive or negative. MRO staff cannot information, the employer itself must do not prevent independent C/TPAs (e.g., a perform these functions. so. C/TPA not operated by a laboratory) • MROs and BATs must send final • If the C/TPA is conducting or from employing or contracting with individual test results directly to the arranging for drug testing, the MROs or contracting for laboratory actual employer as soon as the results employer’s copy of the COC form may services. are available, since it is employers who pass through the C/TPA to provide • If an MRO is employed or have the authority to remove employees notice to the C/TPA that the employee’s contracted for by a C/TPA, the MRO from performing safety-sensitive specimen has been collected. The must perform duties independently and functions. While results may be document must be forwarded to the confidentially. C/TPAs which have maintained afterwards by the C/TPA, actual employer, if required by relationships with MROs must structure and while there is no objection to the applicable operating administration these relationships to ensure that this MRO or BAT transmitting results rules. independence and confidentiality are simultaneously both to the employer • C/TPAs must follow all not compromised. Specific means and to the C/TPA, it is not appropriate confidentiality requirements applicable (including both physical and for the MRO or BAT to send the results to employers. operational provisions, as appropriate) * Like an employer, a C/TPA may not only to the C/TPA, which subsequently to separate MRO functions and other retransmits them to the employer. This provide individual test results or other C/TPA functions are essential. The confidential information to another is true even where the MRO or BAT is purpose of this mechanism is to ensure employed by or under contract with the employer without a specific, written that the MRO is independently in consent from the employee. For C/TPA. Operating administrations are charge of all MRO functions and that, example, suppose a consortium has authorized to make exceptions to this with respect to performing MRO-related employers X and Y as members. general rule in situations where it may functions, C/TPA staff are subject to the Employee Jones works for X, and has a be impracticable for the individual test direction and control only of the MRO. drug or alcohol test result kept for X by results to be sent to individual • Only those C/TPA staff members the consortium. Jones wants to change employers before going to the C/TPA who are actually under the day-to-day jobs and work for Y. The consortium (e.g., where a C/TPA is the only party may not inform Y of the test result supervision and control of an MRO with in a position to inform an owner- without obtaining specific, written respect to MRO functions may perform operator who has tested positive that he consent from Jones. Likewise, the these functions. This does not mean that or she must cease performing safety- consortium cannot provide this those staff may not perform other sensitive functions). functions at other times. However, the information to Z, who is not a Enforcement consortium member, without Employee designation of C/TPA staff as MRO Jones’ consent. purposes should be limited and not • Consistent with this guidance, * Blanket consent forms authorizing used as a subterfuge to circumvent employers may contract out their drug the release of employee testing confidentiality requirements in DOT and alcohol testing functions to C/TPAs; information by C/TPAs to a third party rules and guidance. MRO staff must also employers may not contract away their are not permitted. operate under controls sufficient to responsibility to comply with DOT * C/TPAs must establish adequate ensure that the independence and rules. confidentiality of the MRO process are confidentiality and security measures to • DOT regulates employers, not not compromised (see previous ensure that confidential employee C/TPAs (with the exception of FAA’s records are not available to paragraph). • approval process for C/TPAs in the unauthorized persons. This includes Confirmed test results must be sent aviation industry). It is the employer, protecting the physical security of directly from the laboratory to the MRO not the C/TPA, who must answer to records, limiting the number of persons or MRO staff designated in accordance DOT for noncompliance with DOT with access to the records and other with this guidance. For example, a requirements if the employer’s C/TPA appropriate access controls, and practice in which results are transmitted does not properly carry out the computer security measures to from a laboratory to a C/TPA computer requirements of DOT rules. safeguard confidential data in electronic system, and then assigned to an Issued this 11th day of July, 1995 at data bases. available MRO, is inconsistent with this guidance. Washington D.C. Medical Review Officer Issues • MROs must personally conduct the Federico Pen˜ a, • Employers may obtain MRO final interviews with employees who Secretary of Transportation. services through C/TPAs. While the have tested positive and must [FR Doc. 95–18042 Filed 7–24–95; 8:45 am] conflict-of-interest provisions of Part 40 personally make the decision BILLING CODE 4910±62±U federal register July 25,1995 Tuesday Resident Patrols;Notice Technical AssistanceforPublicHousing Funding AvailabilityforTrainingand Public andIndianHousing Office oftheAssistantSecretaryfor Development Housing andUrban Department of Part VI 38207 38208 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices DEPARTMENT OF HOUSING AND Seventh Street, SW, Washington, DC elimination technical assistance and URBAN DEVELOPMENT 20410. Facsimile (‘‘FAX’’) applications training. are not acceptable. (c) Award mounts. This NOFA makes Office of the Assistant Secretary for FOR FURTHER INFORMATION CONTACT: a total amount of $500,000 available for Public and Indian Housing Elizabeth A. Cocke, Crime Prevention one or more cost reimbursable grants. (d) Objectives. The Department’s [Docket No. FR±3920±N±01] and Security Division, Office of Community Relations and Involvement, overall objectives in awarding this Grant Notice of Funding Availability for Public and Indian Housing, Department are to build upon the initial TA and Training and Technical Assistance for of Housing and Urban Development, training grant awarded by the Public Housing Resident Patrols Room 4116, 451 Seventh Street, SW, Department in 1994. Successful Washington, DC 20410, telephone (202) applicants for this grant award must AGENCY: Office of the Assistant 708–1197. A telecommunications device design, develop and administer a variety Secretary for Public and Indian for hearing or speech impaired persons of resident patrol TA and training Housing, HUD. (TDD) is available at (202) 708–0850. instruments that will have functional ACTION: Notice of Funding Availability (These are not toll-free telephone use beyond the period of this grant, and (NOFA) for Training of Trainers and numbers.) that will assist public and Indian Technical Assistance for Public Housing housing authority staff and residents, SUPPLEMENTARY INFORMATION: Resident Patrols. and local law enforcement officers. Paperwork Reduction Act Statement Specifically grantees must: SUMMARY: This NOFA announces (1) Use and build on HUD’s past funding available up to $500,000 for the The information collection successful Resident Patrol TA and development and implementation of requirements contained in this NOFA training. A copy of the training technical assistance and training for have been submitted to the Office of curriculum for FY 1994 will be available resident patrols in public and Indian Management and Budget (OMB) for for review at HUD’s Community housing. The U.S. Department of review under the Paperwork Reduction Relations and Involvement Housing and Urban Development is Act of 1980 and have been assigned Clearinghouse, telephone 1–800–578– seeking proposals for one or more OMB control number 2577–0197. 3472. Grant(s) to be executed through I. Purpose and Substantive Description (2) Provide training and technical Cooperative Agreement(s) to develop assistance using state-of-the-art (a) Purpose. The U.S. Department of and implement training, technical techniques which can be easily Housing and Urban Development is assistance (TA) and TA instruments. transferable and replicable to assist seeking proposals for one or more The purpose of this assistance is to housing authority staff and residents in Grant(s) to provide resident patrol provide state-of-the-art resident patrol understanding and implementing training and technical assistance in training and TA to housing authority Resident Patrols. The media could public housing. The purpose of this staff, residents, Resident Councils (RC), include but is not limited to on-site training is to develop and provide state- Resident Management Corporations visits, printed materials, ‘‘fact sheets’’, of-the-art training and technical (RMC), housing authority security staff, ‘‘how-to’’ technical material, training assistance to housing authority and local law enforcement personnel. material and training meetings, videos, management and security staff, DATES: Proposals must be received at or other instruments. residents, Resident Councils (RC), (3) Design and develop a series of TA HUD Headquarters at the address below Resident Management Corporations on or before 3 pm, Eastern Daylight instruments for housing authority staff (RMC), and local law enforcement and residents on issues specific to Time, August 24, 1995. This application personnel in their development and deadline is firm as to date and hour. In Resident Patrol implementation. These implementation of volunteer resident include but are not limited to: the interest of fairness to all competing patrols. Recipients of the TA and applicants, the Department will treat as (i) Increasing the number of residents training should be better able to participating in volunteer resident ineligible for consideration any implement volunteer resident patrols in application that is received after the patrols; their authorities and developments. (ii) Increasing the number of deadline. Applicants should take this (b) Authority. This Grant is authorized successful patrols; practice into account and make early under Chapter 2, Subtitle C, Title V of (iii) Improving the administration and submission of their materials to avoid the Anti-Drug Abuse Act of 1988 (42 active membership of existing patrols; any risk of loss of eligibility brought U.S.C. 11901 et seq.), as amended by (iv) Improving coordinated about by any unanticipated or delivery- Section 581 of the National Affordable administration by resident groups, related problems. Applications received Housing Act of 1990 (NAHA), approved housing authorities, and police after the deadline will not be November 28, 1990, Pub. L. 101–625, departments, and considered. and section 161 of the Housing and (v) Increasing the number of and APPLICATION SUBMISSION: There is no Community Development Act of 1992 quality of state-of-the-art TA and application kit for this grant application (HCDA 1992) (Pub. L. 102–550, training instruments and media submission. All applications should be approved October 28, 1992). available to HA staff and residents submitted with the required tabs and The Departments of Veterans Affairs interested in developing or improving Federal forms. Copies of the forms are and Housing and Urban Development, their patrols. available from the contact listed below. and Independent Agencies (4) Design and develop an impact/ An original and two copies of the Appropriations Act 1995, (approved process evaluation methodology for HA application must be sent to the Crime September 28, 1994, Pub. L. 103–327), staff and residents to use in measuring Prevention and Security Division, Office (95 App. Act) appropriated $290 million their progress after implementing of Community Relations and for the Drug Elimination Program of resident patrols. Involvement, Public and Indian which $10 million, a portion of which (5) Successfully complete all tasks Housing, Department of Housing and is made available through this NOFA, within a 24 month period and within Urban Development, Room 4116, 451 will be used for funding drug budget. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38209 (e) Scope of work. TASK 3—Review of Resident Patrols TASK 4—Revision of TA and Training (1) General Requirements. and Other TA and Training Current in Plan Public Housing (A) The grantee shall furnish all HUD and the grantee will work to necessary personnel, materials, services, The grantee will review a variety of incorporate into the original plan any and equipment and shall otherwise do available documents, and work with new issues, or TA and training all things necessary for, or incidental to, previous grantees, HA staff, residents techniques identified during the review the performance of the tasks set forth in and law enforcement personnel to and develop a revised action plan for this Statement of Work. identify issues involving resident the grant. The revised plan will be made patrols and TA and training. The review available to the GTR for comment and (B) The work to be performed under should include housing authorities and approval, and will incorporate HUD’s this Grant includes, but is not limited resident councils with new resident comments and suggestions. The grantee to: A brief report on the current status patrols, Public Housing Drug must submit any revised budget, plan of the administration and effectiveness Elimination Program (PHDEP) grantees and timetable by Week 12 of the Grant. of current resident patrols in public with funds designated for training and The GTR will work with the grantee to housing, especially those formed and implementing volunteer Resident approve a revised budget, plan and operating in the past twelve months; the Patrols, and former PHDEP grantees. timetable no later than Week 14 of the development, dissemination and The review should concentrate on Grant. implementation of several tools for TA learning from housing authority staff, TASK 5—Choosing HAs for Targeting and training. In addition, the grantee residents and law enforcement TA and Training shall attend one or more meetings at personnel what they consider the most HUD Headquarters for the purpose of useful forms of resident patrol TA. The grantee shall define the target discussing HUD’s comments pertaining At a minimum the grantee should audience, including any specific HAs, to the grantee’s services. address the following issues: for all TA, training and related TA instruments. All TA, training and TA (2) Specific Requirements. The (1) Outlining and understanding the instruments must address issues in a grantee shall perform the following role of the participants; (2) Identifying available funding comprehensive manner, including tasks in accordance with the objectives issues raised by HA staff, residents, and general scope of the Grant. resources; (3) Recruiting, screening and local law enforcement and other parties TASK 1—Orientation organizing patrol members; involved in the training, development (4) Curriculum and training of patrol and implementation of Resident Patrols. Within the first week after the members; Additionally, any HA participating in effective date of the Grant, the Project (5) Written policies, practices and the TA or training must establish a team Director and other key personnel shall procedures; including three to five members attend a meeting at HUD Headquarters representing housing authority staff, (6) The working relationships and residents and law enforcement. HA in Washington, DC, for the purpose of necessary communications between teams participating in the TA and establishing a common understanding patrols and local law enforcement training should demonstrate their and strategy with respect to the Grant agencies; commitment and ability to use the TA objectives, the scope of work necessary (7) Patrol techniques; insurance and or training at their own developments. to achieve the objectives, the time legal issues; frame, methodology, and deliverables. (8) Deportment of patrol members; TASK 6—Develop and Administer TASK 2—Management and Work Plan (9) Clothing and equipment needs; Resident Patrol Training Workshops, (10) Community relations; TA, and TA Instruments The grantee shall develop a draft (11) How to train new members; From the plan revised in Task 4, and management and work plan that (12) Group cohesion and group approved by the GTR, the grantee will addresses all of the requirements dynamics; begin and complete the administration contained in the approved Grant (13) Action planning; and implementation of the TA, training strategy and provide an updated and (14) Team decision-making processes; and TA instruments identified as most detailed work plan for the entire project. (15) Conflict management; effective for the issues and problems This draft plan shall be submitted to the (16) Impact/process evaluation. identified. This will be provided to the HUD Government Technical The grantee should also work with HA teams specified in Task 5. Representative (GTR) for review and HAs and other interested parties to Training, TA and the use of TA comment by the end of the second week identify TA, training, and TA instruments will be provided to the HA of the Grant, setting forth the timing of instruments from a variety of media, teams from selected housing authorities all stages of the project, describing the especially those which can continue to using the TA, training and TA training techniques, materials, and be of use after the end of the grant. The instruments identified in the plan. For experiences of trainers for this project. grantee will confer with several any training, the grantee will submit a The plan shall include a detailed Clearinghouses which disseminate TA list of proposed training sites, and HUD allocation of Grant resources and a material, as well as other training and the grantee will choose the final list schedule for the accomplishment of the organizations for public housing staff of training sites. Attendees will be Grant work. HUD shall submit its and residents, and law enforcement, to responsible for their own travel, lodging comments and suggestions to the identify popular, useful and cost- and per diem costs. The grantee will be grantee within one week from receipt of effective media for TA and training. responsible for all costs associated with the draft plan. A Final Management and This could include on-site visits, facilities, training materials, and Work Plan incorporating HUD’s printed materials, ‘‘fact sheets’’, ‘‘how- training staff costs of travel, lodging and comments and suggestions shall be to’’ technical material, training material per diem at non-governmental rates. All submitted by the end of the 5th week of and training meetings, videos, or other provision of TA and training must begin the Grant. instruments. no later than week 22. 38210 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices For any training, the grantee will fiscal controls and accounting which clearly identifies the major provide printed materials, or if required, procedures which assure that Federal milestones and products, organizational curriculum, instructor manual, funds will be accounted for properly. responsibility, and schedule for the participant manual, student materials, Applicants must demonstrate that they completion of activities and products. and state-of-the-art videos and other have the financial capability to The plan must discuss how the supporting student aids for each of the effectively implement a project of this proposed activities reflect a knowledge elements addressed above. size and scope. of the subject and the target populations As part of each training or TA, the (d) Tab 3—Organizational (including persons from diverse ethnic/ attendees shall have developed a Qualifications. Applicants must fully racial backgrounds and persons with specific plan of action for using the TA, describe their organizational structure disabilities), and how the applicant training or TA instrument in their and staff size, and demonstrate that they plans to take into account any minor or public housing community. are sufficient to effectively implement a major changes in the timetable that project of this size and scope. might result from the review of the TASK 7—Analysis, Evaluation and Applicants should outline a list of Reporting issues outlined in Task 3 above. housing authorities where similar (h) Tab 7—Representations, The grantee will develop an activities were conducted, the dates and certifications, and other statements of evaluation instrument for each of the numbers of persons involved, any offerors or quoters. TA and training instruments developed. current points of contact, and the results (i) HUD Form 2880—Applicant This will be used to assess the of any evaluations of the work. Disclosure Report. effectiveness of each of the instruments. (e) Tab 4—Staff Qualifications. (ii) SF-LLL Disclosure of Lobbying The draft evaluation form for each Applicants must fully describe the Activities. instrument shall be provided to the GTR capabilities and work experience of the (iii) Certification Regarding Drug-Free for review and comments. The GTR’s proposed director, and all key staff. Workplace Requirements. comments will be provided to the Applicants must fully describe their (iv) Prior to award execution, a grantee and incorporated into the final knowledge and experience with the successful applicant must submit a product(s). proposed activities, preferably in public certification that it will comply with: (f) Eligibility. Organizations that can housing. Applicants should have (A) Section 3 of the Housing and demonstrate experience with successful successful experience in working with Community Development Act of 1968, implementation and continuation of persons with disabilities and with Economic Opportunities for Low and resident patrols, working with public persons from diverse ethnic and racial Very-Low Income Persons (12 U.S.C. and Indian housing authorities and backgrounds. Applicants must include a 1701u), and with implementing resident groups, and in resident training staffing plan to fulfill the requirements regulations at 24 CFR part 135. Section programs are eligible to apply. of the statement of work, including staff 3 requires, that to the greatest extent (g) Application submission titles, related work and educational feasible, opportunities for training and requirements. (1) Applicants must background, experience, and skills of employment arising in connection with submit a completed Application for the director and the staff; and the time housing rehabilitation, construction or Federal Assistance (Standard Form 424). each will be required to contribute to other public construction projects be The SF–424 is the face sheet for the the project. Applicants must provide a given to lower income residents within application. Applicants must also short list of names and current phone the metropolitan area (or submit a Standard Form 424A (Budget numbers of individuals or firms for nonmetropolitan county) and for Information), including a program which the proposed project director has contracts for work to be performed in narrative, a detailed budget with budget previously accomplished work. connection with the housing narrative with supporting cost analysis (f) Tab 5—Project Experience. rehabilitation, construction or other and legal and accounting services. Applicants must fully describe prior public construction project be awarded (2) Application format requirements. experience in designing and delivering to eligible businesses that provide The application must be no longer than TA, training and TA instruments. economic opportunities for low and 25 pages, excluding attachments (e.g. Applicants must demonstrate that their very-low income persons residing resumes, certifications, etc.). All organization, staff size, and prior within the metropolitan area (or materials must be typewritten, single- experience is sufficient to effectively nonmetroplitan county) in which the spaced, with type no smaller than 10 implement a project of this size and assistance is expended; cpi, on 8.5′′ by 11′′ paper, with at least scope. Applicants should outline a list (B) Title VI of the Civil Rights Act of 1′′ margins on all sides and printed on of housing authorities or other sites 1964 (42 U.S.C. 2000d–2000d–4) one side only. Each application must where similar training was offered, the (Nondiscrimination in Federally include the items listed in the following dates of the training, numbers of Assisted Programs) and implementing format: persons trained, any current points of regulations issued at 24 CFR part 1; and (a) Cover letter. contact, and the results of any (C) The prohibitions against (b) Tab 1—Standard Form 424, evaluations of the training and TA. discrimination on the basis of age under Application for Federal Assistance. (g) Tab 6—Implementation Plan. the Age Discrimination Act of 1975 (42 (c) Tab 2—Standard Form 424A, Applicants must submit a plan outlining U.S.C. 6101–07) and implementing Budget Information with attached the major activities of each task and regulations at 24 CFR part 146, and the program narrative. Applicants must describe how available resources will be prohibitions against discrimination provide a budget with detailed allocated. The plan must include an against persons with disabilities under justification for all costs, including the annotated organizational chart depicting section 504 of the Rehabilitation Act of basis for computation of these costs. The the roles and responsibilities of key 1973 (29 U.S.C. 794) and implementing program budget must be complete, organizational and functional regulations at 24 CFR part 8. reasonable, and cost-effective in relation components and a list of key personnel (h) Selection criteria. The Department to the proposed program. This responsible for managing and will review and rate proposals explanation must include the implementing the major elements of the according to the extent to which they applicant’s financial capability, i.e., the program. There must be a time-task plan meet the following criteria, and will Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38211 make an award to the applicant that best development of resident patrols, and and 5:30 p.m. weekdays at the Office of meets all of the below criteria and that will minimize revisions to the the Rules Docket Clerk, Room 10276, receives the highest score out of a budget, plan and timetable outlined in Department of Housing and Urban possible 100 points divided according to Task 2. The activities proposed by the Development, 451 Seventh Street, SW., the criteria listed below: grantee must evidence an understanding Washington, DC 20410. (1) Corporate/Organizational of the diversity of public housing staff Federalism Impact. The General Management Qualifications (20 points). and residents. (20 points). Counsel, as the Designated Official (i) Organizational Structure (10 (ii) Applicants must propose TA, under section 6(a) of Executive Order points). Applicants must concisely training and TA instruments that 12612, Federalism, has determined that describe how their organizational demonstrate maximum understanding the policies contained in this NOFA structure, staff size, financial reporting of the current needs of public housing will not have substantial direct effects capacity and internal controls will communities in the development of on States or their political subdivisions, maximize successful implementation of resident patrols, and which are cost- or the relationship between the Federal the tasks described in this notice. effective and state-of-the-art (20 points). government and the States, or on the (ii) Administrative Experience (10 (i) Review process. Applications distribution of power and points). Applicants must demonstrate submitted in response to this responsibilities among the various their experience in the successful competitive announcement will be levels of government and, therefore, the administration of programs of a similar reviewed by a panel of HUD provisions of this rule do not have budget and staff size. (10 points) representatives, which will make ‘‘federalism implications’’ within the (2) Staff Qualifications (20 points). recommendations to the Assistant meaning of the Order. The NOFA makes (i) Project Director (10 points). Secretary for Public and Indian funds available to help housing Applicants should provide a project Housing, Department of Housing and authorities organize and train tenant director with the experience and Urban Development. The panel will patrols. As such, it would help housing capacity to manage the budget and staff assign numerical values based on the authorities combat serious drug-related of the proposed grant, showing evidence weighted selection criteria. In the case crime problems in their developments, of the ability to successfully complete of a numerical tie, preference will be thereby strengthening their role as proposed activities on-time and within given to the applicant with the highest instrumentalities of the States. budget. The project director must also numerical score for the Quality of the Family Impact. The General Counsel, have demonstrated experience in Plan. The final award will be made by as the Designated Official for Executive working with the public housing and the Assistant Secretary for Public and Order 12606, The Family, has law enforcement communities. Indian Housing, Department of Housing determined that the provisions of this (ii) Project Staff (10 points). and Urban Development. Letters will be NOFA have the potential for a positive, Applicants should provide staff with the sent to all applicants notifying them that although indirect, impact on family experience and capacity to quickly and their proposal has been selected or the formation, maintenance and general efficiently organize and implement the reason(s) it was not selected. HUD will well-being within the meaning of the TA and training. Staff must have then negotiate specific terms of the Order. As such, this NOFA is intended demonstrable experience in working award with the selected applicant. to improve the quality of life of public with public housing staff and residents (j) Administrative requirements. and Indian housing development (including persons from diverse ethnic/ (1) Award Period. The Grant(s) will be residents, including families, by racial backgrounds and persons with cost-reimbursable and awarded for a 12 reducing the incidence of drug-related disabilities), especially in the to 24 month base period. HUD has the crime. option to extend the Agreement for an implementation of resident patrols. The Section 102 HUD Reform Act— additional year(s), subject to the applicant must demonstrate how such Documentation and Public Access grantee’s performance, and the staff experience will result in the ability Requirements; Applicant/Recipient availability of funding. to understand and resolve any issues Disclosures (including those issues identified (2) Cooperative Agreement. After the through the completion of Task 3) application has been approved and the Documentation and public access. arising from the implementation of grant awarded, HUD and the applicant HUD will ensure that documentation tenant patrols in public housing. shall enter into a Cooperative and other information regarding each (3) Project Experience (20 points). Agreement (Form HUD–1044) setting application submitted pursuant to this (i) Applicants must be able to forth the amount of the Cooperative NOFA are sufficient to indicate the basis demonstrate maximum knowledge and Agreement and its applicable terms, upon which assistance was provided or experience in developing and conditions, financial controls, payment denied. This material, including any implementing needs assessments with mechanism/schedule, and special letters of support, will be made public housing staff and residents, and conditions. available for public inspection for a five- law enforcement, showing previous (k) Other matters. year period beginning not less than 30 success in matching identified needs to Environmental Impact. A Finding of days after the award of the assistance. the type of TA and training provided (10 No Significant Impact (FONSI) with Material will be made available in points). respect to the environment has been accordance with the Freedom of (ii) Applicants must demonstrate made in accordance with the Information Act (5 U.S.C. 552) and experience with and understanding of Department’s regulations at 24 CFR part HUD’s implementing regulations at 24 the target population and of resident 50 which implement section 102(2)(C) CFR part 15. In addition, HUD will patrols. (10 points). of the National Environmental Policy include the recipients of assistance (4) Quality of the Plan (40 points). Act of 1969 (42 U.S.C. 4332). Since the pursuant to this NOFA in its Federal (i) Applicants must propose tasks, FY 1995 NOFA is substantially identical Register notice of all recipients of HUD timetable and staff assignments for the to the FY 1994 NOFA, the FY 1994 assistance awarded on a competitive proposed activities that reflect an FONSI is appropriately applicable to the basis. (See 24 CFR 12.14(a) and 12.16(b), understanding of the current needs of FY 1995 NOFA. This FONSI is available and the notice published in the Federal public housing communities in the for public inspection between 7:30 a.m. Register on January 16, 1992 (57 FR 38212 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 1942), for further information on these competitive advantage. Persons who Prohibition Against Lobbying Activities requirements.) apply for assistance in this competition Disclosures. HUD will make available should confine their inquiries to the The use of funds awarded under this to the public for five years all applicant subject areas permitted under 24 CFR Cooperative Agreement is subject to the disclosure reports (HUD Form 2880) part 4. disclosure requirements and prohibitions of section 319 of the submitted in connection with this Applicants who have questions NOFA. Update reports (also Form 2880) should contact the HUD Office of Ethics Department of Interior and Related will be made available along with the (202) 708–3815. (This is not a toll-free Agencies Appropriations Act for Fiscal applicant disclosure reports, but in no number.) The Office of Ethics can Year 1990 (31 U.S.C. 1352) (The ‘‘Byrd case for a period less than three years. provide information of a general nature Amendment’’) and the implementing All reports—both applicant disclosures to HUD employees, as well. regulations at 24 CFR part 87. These and updates—will be made available in authorities prohibit recipients of federal accordance with the Freedom of Section 112 HUD Reform Act contracts, grants, or loans from using Information Act (5 U.S.C. 552) and appropriated funds for lobbying the Section 13 of the Department of HUD’s implementing regulations at 24 Executive or Legislative branches of the Housing and Urban Development Act CFR part 15, subpart C, and the notice federal government in connection with contains two provisions dealing with published in the Federal Register on a specific contract, grant, or loan. The efforts to influence HUD’s decisions January 16, 1992 (57 FR 1942). prohibition also covers the awarding of with respect to financial assistance. The contracts, grants, cooperative Section 103 HUD Reform Act first imposes disclosure requirements on agreements, or loans unless the HUD’s regulation implementing those who are typically involved in these efforts—those who pay others to recipient has made an acceptable section 103 of the Department of certification regarding lobbying. Housing and Urban Development influence the award of assistance or the Reform Act of 1989 was published May taking of a management action by the Under 24 CFR part 87, applicants, 13, 1991 (56 FR 22088) and became Department and those who are paid to recipients, and subrecipients of effective on June 12, 1991. That provide the influence. The second assistance exceeding $100,000 must regulation, codified as 24 CFR part 4, restricts the payment of fees to those certify that no federal funds have been applies to the funding competition who are paid to influence the award of or will be spent on lobbying activities in announced today. The requirements of HUD assistance, if the fees are tied to connection with the assistance. the rule continue to apply until the the number of housing units received or Authority: Sec. 5127, Public Housing Drug announcement of the selection of are based on the amount of assistance Elimination Act of 1988 (42 U.S.C. 11901 et. successful applicants. received, or if they are contingent upon seq.); sec. 7(d), Department of Housing and HUD employees involved in the the receipt of assistance. Section 13 was Urban Development Act (42 U.S.C. 3535(d)). review of applications and in the implemented by final rule published in Dated: July 7, 1995. making of funding decisions are limited the Federal Register on May 17, 1991 by part 4 from providing advance (56 FR 22912). If readers are involved in Joseph Shuldiner, information to any person (other than an any efforts to influence the Department Assistant Secretary for Public and Indian authorized employee of HUD) in these ways, they are urged to read the Housing. concerning funding decisions, or from final rule, particularly the examples [FR Doc. 95–18125 Filed 7–24–95; 8:45 am] otherwise giving any applicant an unfair contained in Appendix A of the rule. BILLING CODE 4210±33±P federal register July 25,1995 Tuesday Notice Through EnvironmentalDesign(CPTED); Indian Housing(PIH)CrimePrevention Assistance andTrainingforPublic Funding AvailabilityforTechnical Public andIndianHousing Office oftheAssistantSecretaryfor Development Housing andUrban Department of Part VII 38213 38214 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices DEPARTMENT OF HOUSING AND Applications received by facsimile government officials, and other URBAN DEVELOPMENT machine will not be considered. community leaders. APPLICATION SUBMISSION: There is no (b) Authority. These grants are Office of the Assistant Secretary for application kit for this grant application authorized under Chapter 2, Subtitle C, Public and Indian Housing submission. All applications should be Title V of the Anti-Drug Abuse Act of submitted with the required tabs and 1988 (42 U.S.C. 11901 et seq.), as [Docket No. FR±3921±N±01] Federal forms. Copies of the forms are amended by section 581 of the National Notice of Funding Availability for available from the contact listed below. Affordable Housing Act of 1990 Technical Assistance and Training for An original and two copies of the (NAHA), approved November 28, 1990, Public and Indian Housing (PIH) Crime application must be sent to the Crime Pub. L. 101–625, and Section 161 of the Prevention Through Environmental Prevention and Security Division, Office Housing and Community Development Design (CPTED) of Community Relations and Act of 1992 (HCDA 1992) (Pub. L. 102– Involvement, Office of Public and 550, approved October 28, 1992). AGENCY: Office of the Assistant Indian Housing, Department of Housing The Departments of Veterans Affairs Secretary for Public and Indian and Urban Development, Room 4116, and Housing and Urban Development, Housing, HUD. 451 Seventh Street, SW., Washington, and Independent Agencies ACTION: Notice of Funding Availability DC 20410. Facsimile (‘‘FAX’’) Appropriations Act 1995, (approved (NOFA) for Training and Technical applications are not acceptable. September 28, 1994, Pub. L. 103–327), Assistance for Public and Indian FOR FURTHER INFORMATION, CONTACT: (95 App. Act) appropriated $290 million Housing CPTED. Elizabeth A. Cocke, Crime Prevention for the Drug Elimination Program of and Security Division, Office of which $10 million will be used for SUMMARY: This NOFA announces the Community Relations and Involvement, funding drug elimination technical availability of $500,000 for one or more Office of Public and Indian Housing, assistance and training. grant(s) to provide technical assistance Department of Housing and Urban (c) Award amounts. This NOFA and training to public and Indian Development, Room 4116, 451 Seventh makes up to $500,000 available for one housing authorities (HAs) in the Street, SW., Washington, DC 20410, or more cost-reimbursable grants. development and training of HA staff telephone (202) 708–1197. A (d) Objectives. The overall objectives and residents in the subject of crime telecommunications device for hearing of this grant are to: prevention through environmental or speech impaired persons (TDD) is (1) Build upon the Department’s past design (CPTED). The U.S. Department of available at (202) 708–0850. (These are successful CPTED TA and training. A Housing and Urban Development (HUD) not toll-free telephone numbers.) copy of the training curriculum for FY is seeking proposals for one or more 1994 will be available for review at SUPPLEMENTARY INFORMATION: grant(s) to be executed through a HUD’s Community Relations and Cooperative Agreement to provide Paperwork Reduction Act Statement Involvement Clearinghouse, telephone technical assistance and training for The information collection 1–800–578–3472. Public and Indian Housing CPTED. For requirements contained in this NOFA (2) Provide the TA and training in a purposes of this announcement, CPTED have been submitted to the Office of comprehensive context that is defined as the redesign, renovation, or Management and Budget (OMB) for acknowledges the role of other safety rehabilitation of existing environmental review under the Paperwork Reduction elements in public and Indian housing, conditions to improve the safety of staff Act of 1980 (44 U.S.C. 3501–3520) and including police and security services, and residents and eliminate conditions have been assigned OMB control lease enforcement, etc. which may contribute to instances of number 2577–0197. (3) Provide training and TA using crime. The purpose of these grants is to state-of-the-art techniques which are provide state-of-the-art CPTED training I. Purpose and Substantive Description easily transferable and replicable to and technical assistance to HA staff, (a) Purpose. The U.S. Department of assist housing authority staff and residents, Resident Councils (RC), Housing and Urban Development is residents in understanding and Resident Management Corporations seeking proposals for one or more implementing the contributing factors of (RMC), housing authority security grant(s) to provide state-of-the-art CPTED and to develop and implement directors, local law enforcement technical assistance (TA) and training to CPTED elements and plans for their officials, local government officials, public and Indian housing authorities developments. The media could architects, and other community (HAs) for crime prevention through include, but is not limited to, on-site leaders. environmental design (CPTED). For the visits, printed materials, ‘‘fact sheets’’, DATES: Proposals must be received at purposes of this announcement, CPTED ‘‘how-to’’ technical material, training HUD Headquarters on or before 3 p.m. is defined as the redesign, renovation, or material and training meetings, videos, Eastern Daylight Time, August 24, 1995. rehabilitation of existing environmental or other instruments. This application deadline is firm as to elements to improve the safety of (4) Design and develop a series of TA date and hour. In the interest of fairness residents and to eliminate conditions instruments based on the needs of to all competing applicants, the which may contribute to instances of housing authority staff and residents, Department will treat as ineligible for crime. The purpose of this grant is to and other staff who work on CPTED consideration any application that is build upon the Department’s past design and implementation in public received after the deadline. Applicants successful TA and training and continue and Indian housing. In determining the should take this practice into account to develop and provide state-of-the-art needs of staff and residents, grantees and make early submission of their CPTED training and technical assistance should take into account possible materials to avoid any risk of loss of to housing authority staff, residents, ethnic/racial sensitivities and the needs eligibility brought about by any Resident Councils (RC), Resident of persons with disabilities. unanticipated or delivery-related Management Corporations (RMC), and (5) Design and develop an impact/ problems. Applications received after where appropriate, architects, engineers, process evaluation methodology for HA the deadline will not be considered. local law enforcement officials, local staff and residents to use in measuring Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38215 their progress after implementing and a schedule for the accomplishment the benefits housing authorities and CPTED elements. of the grant work. HUD shall submit its residents have gained as a result of (6) Successfully complete all tasks comments and suggestions to the implementation of CPTED elements. within a 24 month period within grantee within one week from receipt of (5) Information on and case studies budget. the draft plan. A Final Management and illustrating the successful combination (e) Scope of work. Work Plan incorporating HUD’s of CPTED elements and other crime- (1) General Requirements. comments and suggestions shall be prevention activities in low-income (i) The grantee shall furnish all submitted by the end of the 5th week of neighborhoods such as resident patrols, necessary personnel, materials, services, the grant. community policing, etc. and equipment and shall otherwise do (6) Opportunities for TA recipients to all things necessary for, or incidental to TASK 3—Review of CPTED Elements meet one-on-one with expert advisors to the performance of the tasks set forth in Currently Used by or Under review and discuss specific plans and to this Statement of Work. Consideration by Housing Authorities obtain technical assistance on specific (ii) The work to be performed under The grantee shall use the bibliography design and implementation plans. this grant includes, but is not limited to: and resources developed under HUD’s (7) Impact/process evaluation taking the issues and needs identified CPTED TA and training grant in 1994, instruments to assist housing authorities by public and Indian housing and update them. This includes but is in tracking outcome measures for their participants during the 1994 PIH/ not limited to: CPTED strategies. CPTED grant and developing TA, (1) The evaluations of the 1994 TA TASK 4—Revision of TA and Training training, TA instruments and materials and training. to address them; preparation of CPTED (2) Published and unpublished pieces Plan TA and training instruments which on CPTED activities and programs, After review of the results of Task 3, address issues and strategies peculiar to especially in multi-family, high-density, the grantee and GTR will confer before public housing; delivery of CPTED TA urban, low-income environments. the grantee develops a revised plan for and training instruments to housing (3) A bibliography of printed producing technical assistance and TA authority staff, residents, Resident resources on the development and instruments based on the results of Task Councils, Resident Management implementation of a CPTED program. 3. The proposed TA and training plan Corporations, housing authority security (4) Conversations with HA staff and must include any elements proposed by directors, local law enforcement residents, law enforcement officers, the GTR, and the plan must be officials, local government officials, architects, engineers, membership submitted to the GTR for review and architects, and other community organizations and other parties approval before it can be implemented. leaders, and provision of TA to HA staff interested in the issue. The revision could require revision of and residents. In addition, the grantee The grantee shall work with these the budget and timetable. The grantee shall attend one or more meetings at organizations, including resident must submit any revised budget, plan HUD Headquarters for the purpose of councils, resident organizations, and timetable by Week 12 of the Grant. discussing HUD’s comments pertaining Resident Management Corporations, and The GTR will work with the grantee to to the grantee’s products. city government to identify key and approve a revised budget, plan and (2) Specific Requirements. The current issues that the HAs, resident timetable no later than Week 14 of the grantee shall perform the following groups and member organizations Grant. tasks in accordance with the objectives consider essential for implementing and general scope of the grant. elements of CPTED in public and Indian TASK 5—Choosing HAs for Targeted housing. The grantee shall develop a TA and Training TASK 1—Orientation short written report summarizing the The grantee will be responsible for Within the first week after the needs assessment and provide the identifying and contacting HAs and effective date of the grant Agreement, assessment in writing to the GTR for resident groups which have substantial the Project Director and other key review. funds set aside for or plans for personnel shall attend a meeting at HUD In the past, HUD has found the implementing elements of CPTED in Headquarters in Washington, DC, for the following elements to be of interest to their developments. This includes HAs purpose of establishing a common HA staff and residents: with substantial plans and funding from understanding and strategy with respect (1) Innovative TA and training which the Comprehensive Grant program, to the grant objectives, and the scope of moves beyond commonly known and HOPE VI program, Public Housing Drug work necessary to achieve the accepted practices of design and Elimination Program and others. From objectives, the time frame, methodology, construction. that list, the grantee will confer with the and deliverables. (2) Information on how to develop, GTR regarding developing a targeted TA fund, and implement CPTED in public TASK 2—Management and Work Plan and training strategy for some of the housing, addressing issues peculiar to identified HAs. Before providing TA, The grantee shall develop a draft public and Indian housing. the grantee will submit the final list of management and work plan that (3) TA instruments to assist HAs for targeted TA and training to the addresses all of the requirements participants in identifying certain types GTR for review and approval. contained in the approved grant strategy of public housing designs and and provide an updated and detailed environments which support criminal TASK 6—Develop and Administer work plan for the entire project. This activity, and those which can stem CPTED Workshops, TA and Training draft plan shall be submitted to the HUD criminal activity. These instruments Instruments Government Technical Representative should span the spectrum from general, The grantee will begin and complete (GTR) for review and comment by the inexpensive, and easily replicable to implementation of the plan as revised in end of the second week of the grant, those of a more complex, technical and Task 4 of this plan. setting forth the timing of all stages of specific nature. For any off-site training, the grantee, the project. The plan shall include a (4) Information on successful CPTED in consultation with HUD, will be detailed allocation of grant resources initiatives in public and Indian housing, responsible for making all arrangements 38216 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices for the training, including classroom (iv) Tab 3—Organizational plans to take into account any minor or space and sleeping rooms for Qualifications: major changes in the timetable that participants. Conference attendees will Applicants must fully describe their might result from the review in Task 3. be responsible for their own travel, organizational structure and staff size, (viii) Tab 7—Representations, lodging and per diem costs. The grantee and demonstrate that they are sufficient certifications, and other statements of will be responsible for all costs to implement effectively a project of this offerors or quoters. associated with facilities, materials and size and scope. Applicants should (A) HUD Form 2880—Applicant training staff costs of travel, lodging and outline a list of housing authorities Disclosure Report per diem at non-governmental rates. where similar activities were conducted, (B) SF–LLL Disclosure of Lobbying the dates and numbers of persons Activities. TASK 7—Evaluation involved, any current points of contact, (C) Certification Regarding Drug-Free The grantee will develop mechanisms and the results of any evaluations of the Workplace Requirements. for evaluating the effectiveness of each work. (h) Selection criteria. The Department of the TA and training instruments. The (v) Tab 4—Staff Qualifications: will review and rate proposals draft instruments shall be provided to Applicants must fully describe the according to the extent to which they the GTR for review and approval before capabilities and work experience of the meet the following criteria, and will the grantee uses them for any purpose. proposed director, and all key staff. make an award to the applicants that (f) Eligibility. Organizations that can Applicants must fully describe their best meet all of the below criteria and demonstrate experience with conference knowledge and experience with the receive the highest score, out of a planning and implementation, working proposed activities, preferably in public possible 100 points, according to the with public and Indian housing housing. Applicants must include a criteria listed below: authorities and resident groups, and in staffing plan to fulfill the requirements (1) Corporate/Organizational crime prevention programs in public of the statement of work, including staff Management Qualifications (20 points). (i) Organizational Structure (10 and Indian housing are eligible to apply. titles, related educational background, experience, and skills of the director points). Applicants must concisely (g) Application submission and the staff; and the time each will be describe how their organizational requirements. required to contribute to the project. structure, staff size, financial reporting (1) Applicants must submit a (vi) Tab 5—Project Experience. capacity and internal controls will completed Application for Federal Applicants must fully describe prior maximize the successful Assistance (Standard Form 424). The experience in designing and delivering implementation of the tasks described application must be no longer than 25 conference training programs. in this notice. pages, excluding attachments (e.g. Applicants must demonstrate that their (ii) Administrative Experience (10 resumes, certifications, etc.). All organization, staff size, and prior points). Applicants must demonstrate materials must be typewritten, single- experience is sufficient to effectively their experience in the successful spaced, with type no smaller than 10 implement a project of this size and administration of programs of a similar cpi, on 8.5’’ by 11’’ paper, with at least scope. Applicants should have budget and staff size, and how that will 1’’ margins on all sides and printed on successful experience in working with contribute to successful completion of one side only. The SF–424 is the face persons with disabilities and with all tasks on-time and within budget. sheet for the application. Applicants persons from diverse ethnic and racial (2) Staff Qualifications (20 points). must also submit a Standard Form 424A backgrounds. Applicants should also (i) Project Director (10 points). (Budget Information), including a outline a list of housing authorities or Applicants should provide a project program narrative, a detailed budget other sites where similar training was director with the experience and with budget narrative with supporting offered, the dates of the training, capacity to manage the budget and staff cost analysis and legal and accounting numbers of persons trained, any current of the proposed grant. The project services. points of contact, and the results of any director should have experience in (2) Application format requirements. evaluations of the training and TA. working with the public housing Each application must include the items (vii) Tab 6—Implementation Plan. officials, architects, engineers, and law listed in the following format: Applicants must submit a plan enforcement personnel and should also (i) Cover letter outlining the major activities of have experience in successfully (ii) Tab 1—Standard Form 424, implementation and describe how completing proposed activities on-time Application for Federal Assistance. available resources will be allocated. and within budget. (iii) Tab 2—Standard Form 424A, The plan must include an annotated (ii) Project Staff (10 points). Budget Information with attached organizational chart depicting the roles Applicants should provide staff with the program narrative. and responsibilities of key experience and capacity to quickly and Applicants must provide a budget organizational and functional efficiently organize and implement the with detailed justification for all costs, components and a list of key personnel TA and training. Staff should have including the basis for computation of responsible for managing and sufficient experience working with these costs. The program budget must be implementing the major elements of the public housing staff and residents complete, reasonable, and cost-effective program. There must be a time-task plan (including persons from diverse ethnic/ in relation to the proposed program. which clearly identifies the major racial backgrounds and persons with This explanation must include the milestones and products, organizational disabilities), especially on the issue of applicant’s financial capability, i.e., the responsibility, and schedule for the CPTED, and be able to demonstrate how fiscal controls and accounting completion of activities and products. that experience will maximize procedures which assure that Federal The plan must discuss how the understanding of the issues specific to funds will be accounted for properly. proposed activities reflect a knowledge public housing CPTED and minimize Applicant must demonstrate that they of the subject and the target populations any issues specific to implementing have the financial capability to (including persons from diverse ethnic/ activities in public housing. This effectively implement a project of this racial backgrounds and persons with includes those issues listed in Task 3. size and scope. disabilities), and how the applicant (3) Project Experience (20 points). Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 38217 Applicants should be able to Letters will be sent to all applicants (NEPA) in accordance with 24 CFR part demonstrate knowledge and experience notifying them that their proposal has 50.20(p). However, prior to an award of in developing and implementing needs been selected or the reason(s) it was not grant funds, HUD will perform an assessments with public housing staff selected. HUD will then negotiate environmental review to the extent and residents, architects, engineers and specific terms of the award with the required by HUD’s environmental law enforcement; showing previous selected applicant. regulations at 24 CFR part 50, including success in matching identified needs to (j) Administrative requirements. the applicable related authorities at 24 the type of TA and training provided, (1) Award Period. The grant(s) will be CFR 50.4. and to carrying out those plans. (10 cost reimbursable, and awarded for a 12 Federalism Impact. The General points). to 24 month base period. HUD has the Counsel, as the Designated Official (ii) Applicants must demonstrate option to extend the Agreement for an under section 6(a) of Executive Order maximum experience working on a additional year(s), subject to the 12612, Federalism, has determined that similar scale with a similar variety of Grantee’s performance, and the the policies contained in this notice will proposed tasks, especially in the availability of funding. not have substantial direct effects on proposed subjects and methods of TA (2) Cooperative Agreement. After the States or their political subdivisions, or and training; the applicant should show grant has been awarded, HUD and the the relationship between the Federal experience with similar teams of public applicant shall enter into a grant (Form government and the States, or on the housing staff, architects, engineers, HUD–1044) setting forth the amount of distribution of power and residents and law enforcement, and the grant and its applicable terms, responsibilities among the various successful completion of the projects conditions, financial controls, payment levels of government and, therefore, the on-time and within budget (10 points). mechanism/schedule, and special provisions of this notice do not have (4) Quality of the Plan (40 points). conditions. ‘‘federalism implications’’ within the Applicants should demonstrate that (3) Prior to award execution, a meaning of the Order. The notice only the proposed plan will accomplish the successful applicant must submit a makes available technical assistance for goals outlined above with the following certification that it will comply with: housing authorities to address the elements: (i) Section 3 of the Housing and problem of drug-related crime. (i) Applicants must propose tasks, Community Development Act of 1968, Family Impact. The General Counsel, timetable and staff assignments for the Economic Opportunities for Low and as the Designated Official for Executive proposed activities that demonstrate an Very-Low Income Persons (12 U.S.C. Order 12606, the Family, has understanding of the current needs of 1701u), and with implementing determined that the provisions of this public housing communities regarding regulations at 24 CFR part 135. Section notice have the potential for a positive, CPTED, that will maximize the benefits 3 requires, that to the greatest extent although indirect, impact on family to be gained by HA communities, and feasible, opportunities for training and formation, maintenance and general that will minimize revisions to the employment arising in connection with well-being within the meaning of the budget, plan and timetable outlined in housing rehabilitation, construction, or Order. This notice is intended to Task 4, and that will minimize any other public construction projects be provide funding for technical assistance other difficulties. The activities given to lower income residents within that will improve the quality of life of proposed by the grantee should the metropolitan area (or public and Indian housing development evidence an understanding of the nonmetropolitan county) and contracts residents, including families, by diversity of public housing staff and for work to be performed in connection reducing the incidence of drug-related residents. (20 points). with the housing rehabilitation, crime. (ii) Applicants must propose TA, construction, or other public training and TA instruments that Section 102 HUD Reform Act— construction project be awarded to Documentation and Public Access demonstrate maximum understanding eligible businesses that provide of the current needs and capacity of Requirements; Applicant/Recipient economic opportunities for low and Disclosures public housing communities in the very-low income persons residing design and implementation of CPTED within the metropolitan area (or non- Documentation and public access. elements, that will provide a broad metropolitan county) in which the HUD will ensure that documentation range of types of TA and training, that assistance is expended; and other information regarding each are cost-effective and state-of-the-art (20 (ii) Title VI of the Civil Rights Act of application submitted pursuant to this points). 1964 (42 U.S.C. 2000d-2000d-4) NOFA are sufficient to indicate the basis (i) Review process. Applications (Nondiscrimination in Federally upon which assistance was provided or submitted in response to this Assisted Programs) and implementing denied. This material, including any competitive announcement will be regulations issued at 24 CFR part 1; and letters of support, will be made reviewed by a panel of HUD (iii) The prohibitions against available for public inspection for a five- representatives, which will make discrimination on the basis of age under year period beginning not less than 30 recommendations to the Assistant the Age Discrimination Act of 1975 (42 days after the award of the assistance. Secretary for Public and Indian U.S.C. 6101–07) and implementing Material will be made available in Housing, Department of Housing and regulations at 24 CFR part 146, and the accordance with the Freedom of Urban Development. The panel will prohibitions against discrimination Information Act (5 U.S.C. 552) and assign numerical values based on the against persons with disabilities under HUD’s implementing regulations at 24 weighted selection criteria. In the case section 504 of the Rehabilitation Act of CFR part 15. In addition, HUD will of a numerical tie, preference will be 1973 (29 U.S.C. 794) and implementing include the recipients of assistance given to the applicant with the highest regulations at 24 CFR part 8. pursuant to this NOFA in its Federal numerical score for the Quality of the (k) Other matters. Register notice of all recipients of HUD Plan. The final award decision will be Environmental Review. Grants under assistance awarded on a competitive made by the Assistant Secretary for this program are categorically excluded basis. (See 24 CFR 12.14(a) and 12.16(b), Public and Indian Housing, Department from review under the National and the notice published in the Federal of Housing and Urban Development. Environmental Policy Act of 1969 Register on January 16, 1992 (57 FR 38218 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Notices 1942), for further information on these competitive advantage. Persons who Prohibition Against Lobbying Activities requirements.) apply for assistance in this competition Disclosures. HUD will make available should confine their inquiries to the The use of funds awarded under this to the public for five years all applicant subject areas permitted under 24 CFR grant is subject to the disclosure disclosure reports (HUD Form 2880) part 4. requirements and prohibitions of submitted in connection with this Applicants who have questions section 319 of the Department of Interior NOFA. Update reports (also Form 2880) should contact the HUD Office of Ethics and Related Agencies Appropriations will be made available along with the (202) 708–3815. (This is not a toll-free Act for Fiscal Year 1990 (31 U.S.C. applicant disclosure reports, but in no number.) The Office of Ethics can 1352) (The ‘‘Byrd Amendment’’) and the case for a period less than three years. provide information of a general nature implementing regulations at 24 CFR part All reports—both applicant disclosures to HUD employees, as well. 87. These authorities prohibit recipients and updates—will be made available in of federal contracts, grants, or loans accordance with the Freedom of Section 112 HUD Reform Act from using appropriated funds for Information Act (5 U.S.C. 552) and Section 13 of the Department of lobbying the Executive or Legislative HUD’s implementing regulations at 24 Housing and Urban Development Act branches of the federal government in CFR part 15, subpart C, and the notice connection with a specific contract, published in the Federal Register on contains two provisions dealing with grant, or loan. The prohibition also January 16, 1992 (57 FR 1942). efforts to influence HUD’s decisions with respect to financial assistance. The covers the awarding of contracts, grants, Section 103 HUD Reform Act first imposes disclosure requirements on cooperative agreements, or loans unless HUD’s regulation implementing those who are typically involved in the recipient has made an acceptable section 103 of the Department of these efforts—those who pay others to certification regarding lobbying. Housing and Urban Development influence the award of assistance or the Under 24 CFR part 87, applicants, taking of a management action by the Reform Act of 1989 was published May recipients, and subrecipients of Department and those who are paid to 13, 1991 (56 FR 22088) and became assistance exceeding $100,000 must effective on June 12, 1991. That provide the influence. The second restricts the payment of fees to those certify that no federal funds have been regulation, codified as 24 CFR part 4, or will be spent on lobbying activities in applies to the funding competition who are paid to influence the award of connection with the assistance. announced today. The requirements of HUD assistance, if the fees are tied to the rule continue to apply until the the number of housing units received or Authority: Sec. 5127, Public Housing Drug announcement of the selection of are based on the amount of assistance Elimination Act of 1988 (42 U.S.C. 11901 et. successful applicants. received, or if they are contingent upon seq.); sec. 7(d), Department of Housing and HUD employees involved in the the receipt of assistance. Section 13 was Urban Development Act (42 U.S.C. 3535(d)). review of applications and in the implemented by final rule published in Dated: July 7, 1995. making of funding decisions are limited the Federal Register on May 17, 1991 Joseph Shuldiner, by Part 4 from providing advance (56 FR 22912). If readers are involved in Assistant Secretary for Public and Indian information to any person (other than an any efforts to influence the Department Housing. authorized employee of HUD) in these ways, they are urged to read the concerning funding decisions, or from final rule, particularly the examples [FR Doc. 95–18126 Filed 7–24–95; 8:45 am] otherwise giving any applicant an unfair contained in Appendix A of the rule. BILLING CODE 4210±33±P federal register July 25,1995 Tuesday Nuclear Technology;ProposedRule Export Policy;DeterminingSensitive Nonproliferation; NuclearInformation Office ofArmsControland 10 CFRPart810 Energy Department of Part VIII 38219 38220 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules DEPARTMENT OF ENERGY important to the design, construction, such material removed from a reactor fabrication, operation or maintenance of shall be altered in form or content, 10 CFR Part 810 a uranium enrichment or nuclear fuel unless the prior approval of the United reprocessing facility or a facility for the States is obtained for such reprocessing Office of Arms Control and production of heavy water, but shall not or alteration. Nonproliferation Nuclear Information include Restricted Data. (6) No such sensitive nuclear Export Policy; Determining Sensitive ‘‘Sensitive nuclear technology’’ may technology shall be exported unless the Nuclear Technology only be exported subject to special foregoing conditions shall be applied to conditions to prevent dissemination of any nuclear material or equipment AGENCY: Department of Energy. information which could be exploited which is produced or constructed under ACTION: Advance notice of proposed for nuclear weapons-related purposes. the jurisdiction of the recipient nation rulemaking. Section 305 of the Nuclear Non- or group of nations by or through the Proliferation Act, which amended the SUMMARY: use of any such exported sensitive The Department of Energy Atomic Energy Act by adding section (Department) today begins a rulemaking nuclear technology. 127, imposes six requirements for 42 U.S.C. 2156 proceeding to codify and, if appropriate, exports of source material, special In addition, section 306 of the Nuclear modify its ‘‘Guidelines for the nuclear material, production or Non-Proliferation Act added section 128 Designation of Sensitive Nuclear utilization facilities, and SNT from the to the Atomic Energy Act which, subject Technology.’’ These guidelines have United States for peaceful nuclear uses. to an exception not relevant here, been used since 1986 to guide the These requirements are: Department’s staff in determining on a (1) IAEA (International Atomic Energy requires: case-by-case basis whether information Agency) safeguards as required by As a condition of continued United States proposed for export is ‘‘sensitive Article III(2) of the (Treaty on the Non- export of source material, special nuclear nuclear technology’’ under the Atomic Proliferation of Nuclear Weapons) will material, production or utilization facilities, Energy Act and the Nuclear Non- be applied with respect to any such and any sensitive nuclear technology to non- Proliferation Act. The Department has material or facilities proposed to be nuclear-weapon states, no such export shall be made unless IAEA safeguards are now decided to initiate this rulemaking exported, to any such material or to codify the guidelines in order to make maintained with respect to all peaceful facilities previously exported and nuclear activities in, under the jurisdiction them easily available to interested subject to the applicable agreement for of, or carried out under the control of such members of the public and to provide an cooperation, and to any special nuclear state at the time of the export. opportunity for public comments. material used in or produced through 42 U.S.C. 2157 DATES: Comments (3 copies) are due on the use thereof. or before August 24, 1995. (2) No such material, facilities, or It has been the Department’s experience that, as a practical matter, ADDRESSES: Comments must be sensitive nuclear technology proposed once information has been determined submitted to U.S. Department of Energy, to be exported or previously exported to be SNT, it has not been exported Office of Arms Control and and subject to the applicable agreement because foreign recipients were Nonproliferation, Export Control for cooperation, and no special nuclear unwilling to agree to U.S. consent rights Division, NN–43, SNT ANOPR, Docket material produced through the use of over nuclear activities within the No. [NN–RM–810], 1000 Independence such materials, facilities, or sensitive recipient nation’s borders. Avenue, SW., Washington, DC 20585. nuclear technology, will be used for any The Department exercises jurisdiction FAX comments will not be accepted. nuclear explosive device or for research over the transfer of SNT by entities The administrative record on file will be on or development of any nuclear other than the Department through its located in the Department’s Freedom of explosive device. regulations under 10 CFR part 810, Information Reading Room, Room 1E– (3) Adequate physical security which governs authorizations of nuclear 190, 1000 Independence Ave. SW., measures will be maintained with assistance to foreign atomic energy Washington, DC 20585. respect to such material or facilities proposed to be exported and to any activities and defines SNT in the same FOR FURTHER INFORMATION CONTACT: special nuclear material used in or manner as the Nuclear Non-Proliferation Zander Hollander, Export Control produced through the use thereof * * *. Act. In determining whether to grant or Operations Division, Office of Arms (4) No such materials, facilities, or deny a request for authorization for the Control and Nonproliferation, U.S. sensitive nuclear technology proposed export of any nuclear assistance, Department of Energy, 1000 to be exported, and no special nuclear including SNT, the Secretary of Energy Independence Avenue, SW., material produced through the use of must find that the proposed export ‘‘will Washington, DC 20585, (202) 586–2125, such material, will be retransferred to not be inimical to the interest of the or Robert Newton, Office of General the jurisdiction of any other nation or United States.’’ 42 U.S.C. 2077 (b). The Counsel, U.S. Department of Energy, group of nations unless the prior 10 CFR part 810 regulations require the 1000 Independence Avenue, SW., approval of the United States is Secretary to consider several factors in Washington, DC 20585, (202) 586–0806. obtained for such retransfer. In addition making this finding, including the SUPPLEMENTARY INFORMATION: to other requirements of law, the United recipient country’s nuclear States may approve such retransfer only nonproliferation credentials, the I. Background if the nation or group of nations country’s acceptance of international The Nuclear Non-Proliferation Act, 22 designated to receive such retransfer safeguards for all their nuclear projects, U.S.C. 3203(a)(6), describes ‘‘sensitive agrees that it shall be subject to the the availability of comparable assistance nuclear technology’’ (or SNT) as any conditions required by this section. from other sources and ‘‘any other information (including information (5) No such material proposed to be factors that may bear upon the political, incorporated in a production or exported and no special nuclear economic, or security interests of the utilization facility or important material produced through the use of United States.’’ 10 CFR 810.10 (b). In component part thereof) which is not such material will be reprocessed, and addition, authorizations for the export available to the public and which is no irradiated fuel elements containing of information which is not SNT, but Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38221 nevertheless may be proliferation II. Approach to Codifying the nuclear program, even if the same sensitive, contain the requirement that Guidelines information could be important to a the recipient nation guarantee that the Apart from some introductory recipient with a less advanced nuclear information will not be retransferred. narrative material, the guidelines, which capability. In other words, information While the Department itself is not are reprinted at the end of this notice, may be ‘‘important’’ to a facility in one subject to the part 810 regulations, its consist of a series of inquiries and forms country but not to an identical facility Office of Arms Control and for completion by the Department’s in another country, if the proposed Nonproliferation reviews the proposed staff. Most of the provisions of the recipient country did not independently export of Department-owned guidelines are self-explanatory. In this possess sufficient nuclear expertise to ‘‘design, construct, fabricate, operate or information in a manner consistent with rulemaking, the Department will maintain’’ the facility in the first case, 10 CFR part 810. consider whether to redraft the but did possess such expertise in the guidelines in a Regulatory format and After the Nuclear Non-Proliferation second case. Act became law, from 1979 to 1986 the style common to most Rules in the Code The Nuclear Non-Proliferation Act Department made its case-by-case of Federal Regulations, or to propose does not define ‘‘important’’ and there them in the form of narrative appendix determinations without the aid of any is no controlling guidance in its to 10 CFR part 810, which could be written guidance other than the terms of legislative history. Thus, it is the done without significant change in Department’s view that the word the statute, which are for the most part format and style. Whichever approach undefined. In a few cases, where there ‘‘important’’ could have a wide range of to format and style the Department meanings in the context of the Act. The was a determination that a proposed takes, the Department is eliciting public export could involve SNT, the Department view in 1986 was that the comment on whether any changes in the most rational approach was to make this applicants narrowed their requests to content of the guidelines and the avoid the areas that might involve SNT. determination as a function of all the Department’s approach to SNT particular relevant facts and Where the scope of work under part 810 determinations are warranted. circumstances, including the state of authorizations had the potential to III. Determining Importance indigenous nuclear technology in the involve SNT, the authorizations were recipient country. In making these specifically conditioned to exclude such The Department anticipates that one determinations on a case-by-case basis, technology. part of the guidelines may prove to be the Department has sought to make In 1986, the Department developed controversial with some members of the reasonable distinctions consistent with public. Some citizen organizations have the guidelines for the purpose of the underlying purposes of the Atomic taken issue with the portion of the promoting a more uniform approach to Energy Act. These purposes include guidelines the Department uses to aid in making SNT determinations on a case- promoting as well as controlling the use determining whether the information in by-case basis in light of prior decisions. of nuclear energy. 42 U.S.C. 2013. question is ‘‘important to the design, Likewise, the Nuclear Non-Proliferation They had the effect of formalizing the construction, fabrication, operation or Department’s prior experience and Act sought to assure other countries maintenance of a uranium enrichment dependent upon the United States for turning it into guidance for those or nuclear fuel reprocessing facility or a individuals involved in the review nuclear fuel and other nuclear exports facility for the production of heavy that the United States would be a process, thus ensuring that the water,’’ within the statutory definition ‘‘reliable trading partner,’’ while at the reviewers operated from a common of SNT. The guidelines provide that same time it tightened controls on those knowledge base. However, the three types of assessments are relevant exports. The Department believes that guidelines are not controlling with to determining importance: (1) A the interpretation reflected in the respect to such a decision, and the categorization of the information guidelines has been used to develop all Department has the discretion to depart proposed to be transferred, i.e., what relevant information necessary for from the determination suggested by the type of activity or equipment is balancing these competing purposes in guidelines if it appears warranted in proposed for transfer; (2) a technical a reasonable manner. particular cases. Specifically, the evaluation of the proposed transfer, i.e., The Department also believes that the Department has not used the guidelines a determination of its significance to interpretation of ‘‘important’’ contained as a definitive determinant of what design, construction, operation, or in the guidelines represents an constitutes SNT. An applicant for an maintenance of a facility covered by the allowable exercise of its statutory export license is always free to dispute statute; and (3) a judgment as to the authority. In the absence of clear, the merits of the Department’s technical significance of the information definitive direction from Congress, DOE interpretations and policies under the to the proposed recipient given the level applied its expertise to develop an law. of development of that country’s nuclear interpretation of SNT which it believes program and other case-specific to be both permissible and reasonable. The Department has now decided to considerations bearing on such things as At the same time, because the statute is initiate this rulemaking to codify the available intelligence regarding the silent on the issue, the Department has guidelines in order to make them easily proposed recipient, the proprietary the discretion to adopt a different available to interested members of the value of the information, prior treatment interpretation if it concludes that the public and to provide an opportunity for of similar export issues, and impact on nuclear nonproliferation objectives of public comment. This rulemaking will United States and international nuclear the United States are better served by not affect any decisions that have nonproliferation issues. doing so. That is, the Department could already been made. Any changes in In some cases, the Department has conclude, as a matter of policy, that the policy the Department may adopt in the concluded that certain kinds of definition of SNT needs to be applied course of this rulemaking would apply information may not be ‘‘important’’ differently in the future to address the prospectively, that is to say, with within the meaning of the statutory changing circumstances presented by respect to SNT decisions made after the language if the proposed recipient is proliferation threats in the post-Cold effective date of the rule. from a country with an advanced War world. 38222 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules The Department’s interpretation of the report and of the legal memorandum in management facility. The codified definition of SNT has been criticized by the administrative record on file in its guidelines would apply only to the certain citizen organizations which have Freedom of Information Reading Room export of technology, not facilities. argued that the Nuclear Non- where a copy of public comments in C. Public Comment Proliferation Act was intended to response to this notice will be available establish a purely objective technology- for public inspection. The Department Interested persons are invited to based test of what is ‘‘important’’ and has also placed in the administrative participate in this proceeding by therefore ‘‘importance’’ cannot lawfully record its analysis of the Greenpeace submitting 3 copies of their comments be a function of the ‘‘level of expertise legal memorandum, as well as a 1990 to the address indicated in the of the proposed recipient.’’ As the memorandum on the same subject ADDRESSES section of this notice. The Department interprets this view, the prepared by the Department’s Office of deadline for receipt of comments is ‘‘importance’’ of technology must be General Counsel. indicated in the DATES section of this judged solely on the contribution which notice. The Department reserves the it could make to a generic type of IV. Procedural Matters discretion to consider relevant late-filed facility, rather than on its contribution A. Review Under Executive Order 12866 comments to the extent that time allows to a specific facility of a particular such consideration. Comments should DOE has concluded that this is not a proposed recipient. Although the be identified on the outside of the significant regulatory action because it Department has concluded that the envelope and on the documents does not meet the criteria which define Nuclear Non-Proliferation Act does not themselves with the designation ‘‘SNT such actions under Executive Order dictate such a conclusion, it is ANOPR, DOCKET NO. [NN–RM–810].’’ 12866, 58 FR 51735, and is therefore interested in receiving comments on In the event that any person cannot exempt from regulatory review. whether such an approach would serve provide the required number of copies, Accordingly, no clearance of this action nuclear nonproliferation policy alternative arrangements can be made in by the Office of Management and objectives better than the approach advance with the Department by Budget is required. reflected in the existing guidelines. contacting the information contact Specifically, during this rulemaking, B. Environmental Review indicated in the FOR FURTHER the Department will examine the The Department has determined that INFORMATION CONTACT section at the question of whether the guidelines beginning of this notice. promote an adequate balance between this rulemaking is not a major Federal action significantly affecting the quality All written comments will be the need to cooperate with other available for public inspection as part of countries in the development of of the human environment within the meaning of the National Environmental the administrative record on file for this peaceful nuclear technologies and the rulemaking in the Department’s requirement to assure the national Policy Act of 1969 (42 U.S.C. 4321 et seq.), and therefore that neither an Freedom of Information Reading Room defense and security through the at the address provided at the beginning aggressive support of U.S. environmental assessment nor an environmental impact statement is of this notice. If informal meetings or nonproliferation policies. The other contacts occur during this Department specifically requests required. Two categorical exclusions contained in subpart D, appendix A of rulemaking, the Department may add a comment on whether circumstances memorandum to the administrative now exist that warrant a change in the the Department’s regulations implementing the National record on file summarizing what Department’s approach to the evaluation transpired. of the ‘‘importance’’ criterion. Environmental Policy Act (10 CFR part 1021) apply to this rulemaking. Pursuant to the provisions of 10 CFR One of the citizen organizations, 1004.11, any person submitting Greenpeace, Inc., that criticized the Categorical exclusion A6 applies to information which that person believes Department’s interpretation of the word rulemakings which are procedural in to be confidential and which may be ‘‘important’’ and the related provisions nature. This is a procedural rulemaking exempt by law from public disclosure of the guidelines has released a report that will codify a process for should submit one complete copy of the on the Department’s collaborative determining on a case-by-case basis document, as well as two copies from research with Japanese entities on whether technology which is proposed which the information claimed to be plutonium reprocessing and breeder to be exported constitutes SNT. confidential has been deleted. The reactor technology, entitled ‘‘The Categorical exclusion A9 applies to Department reserves the right to Unlawful Plutonium Alliance.’’ That information gathering and determine the confidential status of the report was accompanied by a legal dissemination. The codified guidelines memorandum setting forth the will be used to determine, again on a information and to treat it according to Greenpeace interpretation of the case-by-case basis, whether particular its determination. relevant statutory provisions. Although information is SNT, so that conditions V. The Current Guidelines the particular agreements with Japanese required by statute are properly The guidelines currently provide as entities are not the subject of this imposed on the dissemination—through follows: rulemaking and the Department does export—of that information. not agree with the legal arguments Any indirect environmental impacts Guidelines for the Designation of Greenpeace presented, the Greenpeace which may occur when the exported Sensitive Nuclear Technology study is relevant to the policy question technology is applied would occur I. Purpose of how the determination of importance beyond the borders of the United States. should be made and, in particular, Executive Order 12114, ‘‘Environmental The purpose of these guidelines is to whether it should take into account the Effects Abroad of Major Federal provide a systematic approach for DOE level of expertise of the proposed Actions,’’ excludes from environmental to use in its assessment of an recipient. It may be useful to interested review ‘‘actions relating to nuclear application under 10 CFR part 810 to members of the public to examine activities,’’ unless such activities determine whether the proposed scope Greenpeace’s report. Accordingly, the provide to a foreign nation a nuclear of work involves the transfer of sensitive Department has placed a copy of the production, utilization or waste nuclear technology (SNT). Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38223 II. Background III. Scope Guidelines. This paragraph indicates that information available to the public The Nuclear Non-Proliferation Act of Although the establishment of the category of SNT and the criteria for is that which is ‘‘for example, in 1978 (NNPA) created a new category of published books or periodicals, or that nuclear information, designated making an SNT determination as discussed below apply most frequently which has been made available ‘‘Sensitive Nuclear Technology,’’ the internationally without restrictions on export of which from the United States to private firms, the scope of their applicability is much broader. its further dissemination.’’ Data that is subject to certain conditions and have been made generally available to controls specified in the legislation. Section 127 of the AEA (introduced by section 305 of the NNPA) states: the public in any form, includes: Accordingly, the administration of these • Data distributed in documentary or controls requires, as a first step, a means ‘‘The United States adopts the following other physical form at open conferences, criteria which * * * will govern exports of identifying information proposed to lectures, trade shows, or other media be exported which falls into the ** * from the United States of * * * any sensitive nuclear technology.’’ open to the public; and category of SNT. • Publications that may be purchased Under section 4(a)(6) of the NNPA, The language above makes no without restrictions at a nominal cost, or SNT is confined to information in the distinction between exports by private obtained without costs, or are readily fields of uranium enrichment, nuclear firms, individual persons, or U.S. available at libraries accessible to the fuel reprocessing, and heavy water Government entities. Therefore, while public. The term ‘‘nominal cost’’ is production. This section also provides the DOE is exempt from section 57b and intended to reflect realistically only the additional broad criteria which the implementing regulation 10 CFR cost of preparing and distributing the delineate the information which is to be part 810, the NNPA provisions related publication and not the intrinsic value designated SNT. According to these to SNT apply equally to all agencies of of the technical data. criteria, SNT is to include any the government (including DOE) as well If, after consideration of all the information, and only that information as private firms and individuals. following factors, it is determined that which: Because of this, DOE participation in all of the information is available to the • Is not Restricted Data; foreign reprocessing, enrichment, or public, the case by definition does not • heavy water programs is reviewed by involve SNT. If, on the other hand, the Is not ‘‘available to the public;’’ and the Office of International Security • Is ‘‘important to the design, information is not available to the Affairs, the office with responsibility for public, then the determination must be construction, operation, or part 810 and related matters. maintenance’’ of a facility for uranium made if any of the information is SNT. enrichment, nuclear fuel reprocessing, IV. Methodology In determining the extent to which the information to be transferred is available or heavy water production. A part 810 application will be to the public, the following questions analyzed by careful consideration of The fields in which SNT may exist should be considered: each of the three criteria contained in constitute three of the four fields in A. Is any or all of the information the definition of SNT to determine if which unclassified information (other contained in U.S. Government information to be transferred than that ‘‘which is available to the documents that would be available public in published form’’) may not be • Does not include Restricted Data; • pursuant to a Freedom of Information transferred abroad without specific Is not ‘‘available to the public’’; or • Act (FOIA) request? authorization by DOE. The fourth area Is ‘‘important to the design, requiring specific authorization under construction, operation, or maintenance Note: In responding to this question it must part 810 is plutonium (i.e., mixed oxide) of a facility for uranium enrichment, be recognized that this goes beyond those nuclear fuel reprocessing, or heavy documents that are placed on sale or given fuel fabrication. Thus, while there is an routine distribution. obvious overlap between SNT and water production. unclassified information whose transfer The first step in the process, if the B. Is any or all of the information abroad requires part 810 authorization, application involves enrichment available, for not more than a nominal these two categories of information are technology, is to determine whether the fee, to the public in published not identical. This is so not only proposed transfer involves Restricted documents or data banks (other than because plutonium fuel fabrication is Data (the areas of reprocessing and Question A) including information not among the areas which may include heavy water production have been provided to the Nuclear Regulatory SNT but because the standard of declassified and no longer contain any Commission (NRC) without restrictions ‘‘important’’ is not applicable to Restricted Data). If Restricted Data is on further dissemination? involved, the analysis will end and no information which requires part 810 Note: This includes government and authorizations. Any information in the further consideration of the application nongovernment publications and all material designated fields which is not Restricted under part 810 will take place. The which has been placed in the NRC public Data and which is not available to the applicant will be advised and document room for public inspection. public in published form and assists appropriate action will be taken under other sections of the Atomic Energy Act. C. Has any or all of the information directly or indirectly in the production been distributed in physical form of special nuclear material requires The second step is a determination of whether the proposed information to be (documents, tapes, etc.) in an open specific authorization for transfer forum? abroad. transferred is available to the public. A decision on this point must take into Note: This includes meetings or It is important to note that: account paragraph (1) of Part B of conferences sponsored by nationally • Not all information whose export Annex A of the Nuclear Supplier’s recognized scientific or technical requires part 810 specific authorization Guidelines (INFCIRC/254), since the organizations. is SNT, but NNPA definition of SNT was drafted to D. Is any or all of the information • All information which is SNT be consistent with the NSG Guidelines, publicly available or available requires part 810 specific authorization and allow the U.S. Government to internationally without restriction on for export. implement its obligations under those further dissemination in forms other 38224 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules than those considered in Questions A recognized that the primary burden for indicate the type of activity and through C? proof of public availability rests with equipment covered by the information Note: This would include information the applicant. proposed to be transferred. There may distributed at education courses and facility If it is determined that the be part 810 cases where the activity or visits. This question is included for information proposed to be transferred equipment involved does not fit the completeness to ensure that all sources are is not publicly available, then the third matrix and in these cases a narrative explored. step is to determine if the information description should be made to describe In responding to these questions it is involves SNT. The SNT determination the information proposed to be essential to determine how the is divided into three parts as follows: transferred. The matrix that follows is information is to be transmitted. For for a reprocessing facility. A comparable Part 1: Categorization of the Information example, will it be accompanied by matrix and analysis (part 2), and Proposed To Be Transferred other information or services which may assessment (part 3) would be go beyond the actual content of the A matrix similar to the one that established for proposed assistance in available information? It should also be follows will be completed in order to enrichment or heavy water production. ANAYLSIS OF NUCLEAR TECHNOLOGY TRANSFER PROPOSALS FOR WHETHER SENSITIVE NUCLEAR TECHNOLOGY IS INVOLVED [Part 1: Categorization of information proposed to be transferred1] Prepare Concep- Prepare Fabrica- Prepare Activity design tual de- Design Detailed System purchase tion sup- construc- Quality Facility specs sign review design analysis specs port tion specs control startup Unit operations. Fuel receiving & storage. Fuel shear/dis- solver. Solvent extrac- tion. PU Purification & concentra- tion. PU storage & conversion. U purification & concentration. U storage & conversion. Waste process- ing. Solvent recov- ery. Process control & instrumen- tation. Process off-gas & building ventilation. Operational Maintenance Regulatory Technology Quality Management Activity support and repair Training support exchange control support Unit operations. Fuel receiving & stor- age. Fuel shear/dissolver. Solvent extraction. PU Purification & con- centration. PU storage & conver- sion. U purification & con- centration. U storage & conversion. Waste processing. Solvent recovery. Process control & in- strumentation. Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules 38225 Operational Maintenance Regulatory Technology Quality Management Activity support and repair Training support exchange control support Process off-gas & build- ing ventilation. XÐIndicates that information relevant to this area is proposed to be transferred. 1ÐExample used is for a reprocessing facility. GAS CENTRIFUGE ENRICHMENT FACILITY ANALYSIS OF NUCLEAR TECHNOLOGY TRANSFER PROPOSALS FOR WHETHER SENSITIVE NUCLEAR TECHNOLOGY IS INVOLVED [Part 1: Categorization of information proposed to be transferred] Process Prepare Concep- Prepare Fabrica- Prepare Construc- Activity develop- design tual Design Detailed System purchase tion sup- construc tion ment specs design review design analysis specs port specs support Unit operations or process building. Feed & with- drawal proc- ess. Process build- ing. Process equip- ment. Centrigue ma- chine. Recycle & as- sembly equip. Recycle & as- sembly equip. Maintenance facilities. Process con- trols. Utility systems. XÐIndicates that information relevant to this area is proposed to be transferred. Facility Operational Maintenance Regulatory Technology Quality Management Activity startup support and repair Training support exchange control support Unit operations or process building. Feed & withdrawal process. Process building. Process equipment. Centrigue machine. Recycle & assembly equip. Recycle & assembly equip. Maintenance facili- ties. Process controls. Utility systems. XÐIndicates that information relevant to this area is proposed to be transferred. Part 2: Significance of the Information Technical Evaluation the unit operation/activity, and to what Proposed To Be Transferred Will the transferred information: degree will the transferred information 1. Provide assistance of such contribute to its accomplishment? Category: (Row): (For each box that is significance that, without it the design, marked, (Column): On the matrix the 3. Solve or provide significant help in construction, operation, or maintenance following questions will be answered.) dealing with a key technical problem of a facility would not be possible? whose solution is critical to the ability Specific Information to be Transferred 2. Contribute significantly to the to obtain an operational capability? (Exclusive of information generally ability to carry out a facility unit available from industrial sources for operation (see examples on Part 1 chart) 4. Supplant or significantly reduce the non-nuclear applications): or key activity? If yes, how essential is need to carry out costly, technically 38226 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Proposed Rules difficult or lengthy R&D and/or test capabilities in the recipient’s country or condition of approval under part 810. If activities? available from other foreign sources). the application is found not to contain 5. Provide key information that is D. Benefit to the recipient of the SNT, the normal procedures for obtainable only from entities with information to be transferred. processing a part 810 application will be practical experience in the particular Factors to be considered include: followed. area on critical aspects of facility design —Whether the information proposed to VI. Implementation or operation optimization? be transferred represents a significant 6. Concern a key process, component net transfer of capabilities to the The DOE Export Control Working or subsystem that has been the subject recipient country Group (ECWG) is responsible for the of extensive R&D in the U.S. or which —Whether there would be a significant analysis, using these Guidelines, of has been a problem at U.S. or foreign impact (relative to strict reliance on specified requests for authorization or facilities? the recipient’s indigenous advisory opinions to determine whether 7. Contribute significantly to the capabilities) on the construction they involve SNT. Frequency of design, development or effective schedule or initial operational meetings is determined by the number operation of a safety feature that is capability or on the technical or of cases to be considered. The Working essential to facility operation? economic viability Group Secretary prepares and 8. Contribute significantly toward —Whether the specific information distributes an agenda prior to meetings. enabling an otherwise inoperable relates to a laboratory scale or small At the conclusion of each meeting the facility to operate at some level and scale pilot project Secretary of the ECWG documents the produce useable quantities of material? E. Any other case specific proceedings. 9. Significantly reduce the lead time considerations bearing on whether Membership on the Working Group is and/or costs involved in designing information of ‘‘key technical determined on the basis of the business constructing, operating, or maintaining significance’’ should or should not be to be conducted to ensure the highest a facility? designated ‘‘sensitive nuclear level of expertise. It normally consists Judgment as to the Technical technology.’’ of: Significance of the Information F. Supplemental information. In the • Director, PMSA (Chairman) Proposed to be Transferred preparation of an analysis for a • ECWG Secretary, PMSA • Part 3: Consideration of Other Factors particular case, useful insight can be Chief, Operations Branch, PMSA provided by an examination of previous • Appropriate Action Officer, The following factors shall be export matters and other factors related Operations Branch, PMSA considered as a further help in arriving to the application, such as the • A representative from the Office of at a determination as to whether the Part following: the General Counsel 810 activity under consideration 1. How does this case compare to • A representative from International involves the transfer of SNT. other cases where an SNT determination Programs, Office of Nuclear Energy A. Level of expertise of the was made? • A reprocessing, enrichment, or information recipient: 2. What Department of Commerce- heavy water expert from the Office of 1. At what stage of research or licensed items have been processed for Nuclear Energy development is the recipient’s overall this activity? • A representative from the Office of program? 3. Is the information to be transferred International Affairs and Energy 2. Does the country of the recipient considered to be proprietary by the Emergencies have an operating facility of this type? transferor? • Laboratory and contractor 3. Is the staff of the recipient facility 4. Is there any relevant intelligence consultants (as needed) or country experienced in this information available about the activity? The Director, PMSA is the final staff technology area? 5. What is known about any level authority for all SNT 4. Are there technical resources in the competing bids from foreign suppliers? determinations. recipient country already in possession When the preliminary review called of information of the kind proposed to V. Summary Assessment for in section 12a of the Executive be transferred? After a careful assessment of all the Branch Procedures is completed, ISA 5. Does the country of the recipient factors in Part IV (Parts 1, 2 and 3) is will transmit to the SNEC agencies the have adequate technical resources and/ made and documented, the entire application along with any conclusion or operating experience to be able to analysis will be examined to determine that SNT is involved. proceed independently of the whether any portion or the overall scope information to be transferred? of the proposed transfer involves SNT. Issued in Washington, DC, on July 18, B. Overall relative capability of the If the proposed application involves the 1995. transferor and the recipient. transfer of SNT, the conditions set forth Kenneth E. Baker, C. Probable reason for recipient’s in section 127 and 128 of the Atomic Acting Director, Office of Nonproliferation interest in assistance from U.S. industry Energy Act and those in the London and National Security. (if A and B lead to the view that there Nuclear Supplier’s Guidelines [FR Doc. 95–18236 Filed 7–24–95; 8:45 am] are substantially comparable (INFCIRC/254) must be met as a BILLING CODE 6450±01±P i Reader Aids Federal Register Vol. 60, No. 142 Tuesday, July 25, 1995 INFORMATION AND ASSISTANCE CFR PARTS AFFECTED DURING JULY Federal Register At the end of each month, the Office of the Federal Register Index, finding aids & general information 202±523±5227 publishes separately a List of CFR Sections Affected (LSA), which Public inspection announcement line 523±5215 lists parts and sections affected by documents published since the Corrections to published documents 523±5237 revision date of each title. Document drafting information 523±3187 Machine readable documents 523±4534 3 CFR 1210...... 37324 Administrative Orders: 1211...... 37324 Code of Federal Regulations 1212...... 37324 Memorandums: Index, finding aids & general information 523±5227 June 29, 1995...... 35113 1220...... 37324 Printing schedules 523±3419 1230...... 37324 Presidential Determinations: 1240...... 37324 Laws No. 95±27 of June 23, 1250...... 37324 1995 ...... 35461 1280...... 37324 Public Laws Update Service (numbers, dates, etc.) 523±6641 No. 95±28 of June 23, Additional information 523±5230 1290...... 37324 1995 ...... 35463 1446...... 35834 Presidential Documents No. 95±29 of June 28, 1718...... 36882 1995 ...... 35465 1955...... 34454 Executive orders and proclamations 523±5230 No. 95±31 of July 2, 2812...... 34456 Public Papers of the Presidents 523±5230 1995 ...... 35827 Weekly Compilation of Presidential Documents 523±5230 Proposed Rules: Executive Orders: 1...... 34474 12966...... 36949 The United States Government Manual 47...... 34474 February 1, 1886 319 ...... 34832, 35712, 35871 General information 523±5230 (Revoked in part by 1004...... 36239 Other Services PLO 7148)...... 36736 1138...... 37373 Proclamations: Data base and machine readable specifications 523±4534 1493...... 37025 6810...... 37321 Guide to Record Retention Requirements 523±3187 1710...... 36904 Legal staff 523±4534 4 CFR 1717...... 36904 Privacy Act Compilation 523±3187 1718...... 36904 Public Laws Update Service (PLUS) 523±6641 28...... 35115 29...... 35115 8 CFR TDD for the hearing impaired 523±5229 103...... 37327 5 CFR 244...... 37327 ELECTRONIC BULLETIN BOARD 213...... 35119 299...... 37327 Free Electronic Bulletin Board service for Public Law 316...... 35119 337...... 37803 numbers, Federal Register finding aids, and list of 532 ...... 35467, 36203, 36204 9 CFR documents on public inspection. 202±275±0920 575...... 35601 581...... 35468 Proposed Rules: FAX-ON-DEMAND 1601...... 36630 82...... 35343 You may access our Fax-On-Demand service. You only need a fax Ch. XXXIII...... 37555 50...... 37804 machine and there is no charge for the service except for long Proposed Rules: 101...... 36743 distance telephone charges the user may incur. The list of 532...... 36238 112...... 37936 documents on public inspection and the daily Federal Register’s 550...... 35342 113...... 36743 table of contents are available using this service. The document 145...... 35343 numbers are 7050-Public Inspection list and 7051-Table of 7 CFR 147...... 35343 Contents list. The public inspection list will be updated 29...... 36027 391...... 37328 immediately for documents filed on an emergency basis. 201...... 35829 10 CFR NOTE: YOU WILL ONLY GET A LISTING OF DOCUMENTS ON 273...... 37556 FILE AND NOT THE ACTUAL DOCUMENT. Documents on 360...... 35831 19...... 36038 public inspection may be viewed and copied in our office located 400...... 37323 20...... 36038 at 800 North Capitol Street, N.W., Suite 700. The Fax-On-Demand 401...... 37933 50...... 36953 telephone number is: 301±713±6905 457...... 35832, 37934 110...... 37556 868...... 36028, 36030 451...... 36959 515...... 35321 FEDERAL REGISTER PAGES AND DATES, JULY 920...... 36032 921...... 36204 1008...... 35835 945...... 36339 Proposed Rules: 34453±34842...... 3 36203±36338...... 14 953...... 37934 2...... 37374 34843±35112...... 5 36339±36634...... 17 956...... 34843 50...... 37374 958...... 34453 51...... 37374 35113±35320...... 6 36635±36950...... 18 989...... 36951 61...... 36744 35321±35460...... 7 36951±37322...... 19 998...... 36205, 36635 430 ...... 36745, 37388, 37603 35461±35690...... 10 37323±37554...... 20 1150...... 37324 437...... 37949 1160...... 37324 810...... 38220 35691±35828...... 11 37555±37802...... 21 1200...... 37324 35829±36026...... 12 37803±37932...... 24 1205...... 36033, 37324 11 CFR 36027±36202...... 13 37933±38226...... 25 1207...... 37324 100...... 35292 1208...... 37324 106...... 35292 1209...... 37324 109...... 35292 ii Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Reader Aids 114...... 35292 4...... 37746 645...... 34846 926...... 36998 236...... 37334 1204...... 36641 934...... 36213 12 CFR 1700...... 37710 935...... 36352, 37938 22...... 35286 Proposed Rules: 24 CFR 944...... 37002 30...... 35674 436...... 34485 92...... 36020 Proposed Rules: 208...... 35286, 35674 1500...... 34922 200...... 35691 Ch. II ...... 37417 225...... 35120 1507...... 34922 572...... 36016 920...... 36080 263...... 35674 791...... 35123 931...... 37622 303...... 35674 17 CFR 882...... 34660 935...... 37972 308...... 35674 1...... 38146 887...... 34660 944...... 35158 339...... 35286 4...... 38146 905...... 35691 948...... 34934 360...... 35487 30...... 34458, 38146 941...... 35691 364...... 35674 150...... 38146 950...... 36666 31 CFR 563...... 35286 231...... 35663 955...... 37335 321...... 35126 570...... 35674 Proposed Rules: 968...... 35691 550...... 37940 614...... 35286 210...... 35656 982...... 34660 32 CFR 760...... 35286 228 ...... 35604, 35633, 35656 983...... 34660 937...... 36966 229...... 35604, 35633 Proposed Rules: 90...... 37337 939...... 36966 230 ...... 35604, 35638, 35642, 92...... 36012 91...... 37337 Proposed Rules: 35645, 35648 950...... 37294 290...... 35699 3...... 38082 232...... 35648 990...... 37294 311...... 36050 20...... 34907 239...... 35604, 35656 341...... 35839 21...... 34476 240 ...... 35604, 35633, 35642 25 CFR 806b...... 36224 28...... 34907 249 ...... 35604, 35633, 35642, Proposed Rules: 855...... 37348 30...... 35688 35656 Ch. I ...... 34488 Proposed Rules: 34...... 35353 260...... 35642 Ch. VI...... 37416 57...... 36081 Ch. II ...... 38142 208 ...... 34481, 35688, 38082 18 CFR 26 CFR 33 CFR 211...... 34481 Proposed Rules: 1 ...... 36669, 36671, 36993, 100 ...... 35699, 36355, 36356 225...... 34481, 38082 35...... 36752 36995, 37568, 37578, 37589 117 ...... 36357, 36359, 37364, 309...... 35148 284...... 35522 18...... 37578 37365 325...... 38082 301...... 37589 162...... 35701 346...... 36074 19 CFR 602 ...... 36671, 36995, 37578 165...... 35702, 37941 364...... 35688 4...... 35837 Proposed Rules: Proposed Rules: 563...... 36366 10...... 37825 1 ...... 35882, 36755, 37621 117...... 37417 570...... 35688 141 to 199 ...... 35122 18...... 35882 165...... 36374 14 CFR 201...... 37335 301...... 36756, 37621 320...... 37280 326...... 37280 25...... 36967, 36969 Proposed Rules: 28 CFR 331...... 37280 39 ...... 34844, 35322, 35323, 102...... 35878 133...... 36249 0...... 35334, 36710 35324, 35326, 35328, 35452, 34 CFR 36971, 36972, 36974, 36976, 162...... 35881, 37856 29 CFR 200...... 34800 36981, 36983, 36984, 36986, 21 CFR 37500, 37810, 37811, 37813, 1915...... 36043 201...... 34800 37816, 37817, 37818, 37820, 5...... 36582 1926...... 36043 203...... 34800 37821, 37823, 37936 25...... 36582 1960...... 34851 205...... 34800 71 ...... 34845, 35330, 35331, 101...... 37502 2610...... 36208 212...... 34800 35332, 35333, 36340, 36341, 102...... 34459 2619...... 36210 263...... 35111 36342, 36343, 36344, 36345, 170...... 36582 2622...... 36208 Ch. XI...... 35798 36346, 36637, 37565, 37566, 171...... 36582 2627...... 36998 1100...... 35798 174...... 36582 2676...... 36210 37923 36 CFR 73 ...... 37329, 37331, 37938 510...... 35122, 35838 2644...... 36212 95...... 36637 522...... 35122, 35123 Proposed Rules: 5...... 35839 97 ...... 36346, 36349, 36350, 558...... 34460 9...... 36756 7...... 35839, 36224 37331, 37333 892...... 36639 2628...... 35308 68...... 35842 1204...... 37567 1301...... 36640 701...... 34852 30 CFR Proposed Rules: 1306...... 36640 Proposed Rules: Ch. I ...... 36746 1309...... 35264, 36334 18...... 35692 7...... 35887 25...... 36832 1313...... 35264, 36334 19...... 35692 13...... 36082 39 ...... 35873, 35877, 36078, 1316...... 35264, 36334 20...... 35692 215...... 36767 36748, 36749, 37037, 37038, Proposed Rules: 22...... 35692 217...... 36767 37607, 37608, 37966, 37968 74...... 37611 27...... 35692 219...... 36767 101...... 37507, 37616 28...... 35692 43...... 36926 37 CFR 71 ...... 36370, 36371, 36372, 133...... 37611 35...... 35692 36373, 36462, 36751, 37610, 201...... 37611 36...... 35692 1...... 36492 37969, 37970, 37971 314...... 34486 50...... 35692 3...... 36492 121...... 36932 820...... 37856 56...... 35692 Proposed Rules: 234...... 35158 872...... 35713 57...... 35692 201...... 35522 70...... 35692 202...... 35522 15 CFR 22 CFR 71...... 35692 799...... 36638 42...... 35838 74...... 35692 38 CFR 211...... 36990 77...... 35692 4...... 37012 16 CFR 705...... 37555 90...... 35692 1...... 37746 Ch. II ...... 36711 39 CFR 2...... 37746 23 CFR 913...... 35696, 35697 111...... 34854 3...... 37746 630...... 36991 925...... 36044 265...... 36711 Federal Register / Vol. 60, No. 142 / Tuesday, July 25, 1995 / Reader Aids iii Proposed Rules: 42 CFR 73 ...... 34959, 35369, 35372, 52...... 35454, 38196 111...... 36179, 36376 3...... 36072 35548, 36378, 36772, 37041, 206...... 34497 37042, 37622, 37623, 37981 40 CFR 6...... 36073 207...... 34497 50...... 35810 87...... 35166 225...... 34497 9...... 34582, 35452 51g...... 36072 90 ...... 35719, 36772, 37148 1552...... 35719 52 ...... 34856, 34859, 34867, 110...... 36072 94...... 36772 5446...... 35720 36051, 36060, 36063, 36065, 410...... 36733 5452...... 35720 36225, 36227, 36361, 36715, 48 CFR 413...... 37590 36722, 36723, 37013, 37015, Ch. 1...... 37292, 37772 414...... 35492, 36733 37366 1 ...... 34732, 34733, 34735 49 CFR 417...... 34885 60...... 35452 2 ...... 34732, 34735, 34741 433...... 35498 1...... 37371 63...... 37825 3 ...... 34732, 34741, 37773, Proposed Rules: 541...... 36231 70 ...... 35335, 36065, 36070 37774 571 ...... 35126, 36741, 37836, 80...... 35488 52b...... 35266 4 ...... 34732, 34735, 34741 405...... 35544 37844 81...... 34461, 34859 5 ...... 34732, 34735, 34741 573...... 35458 86...... 37945 43 CFR 6...... 34732, 34741 576...... 35458 90...... 34582 7 ...... 34732, 34735, 37777 577...... 35458 180 ...... 34868, 34869, 34871, Public Land Order: 8 ...... 34732, 34735, 34741 661...... 37930 34874, 34876, 35844, 36729, 7147...... 36736 9 ...... 34732, 34735, 34741 37019, 37020 7148...... 36736 11...... 37777 Proposed Rules: 40...... 38200 185...... 34876 44 CFR 12...... 34732, 34735 186...... 34876 13...... 34732, 34741 195...... 35549 260...... 35452 65 ...... 34888, 34889, 35276 14...... 34732, 34735 225...... 34498 262...... 35452 67...... 34891 15 ...... 34732, 34735, 34741 531...... 37861 264...... 35452, 35703 Proposed Rules: 16 ...... 34732, 34735, 34741, 571 ...... 35169, 35373, 35889, 265...... 35452, 35703 67...... 34947 37777 36253, 36378, 37042, 37864, 270...... 35452 1160...... 35162 19 ...... 34732, 34735, 34741, 37986 271 ...... 35452, 35703, 36731 45 CFR 37777 573...... 35459 281...... 34879 20 ...... 34732, 34735, 34741 575...... 34961, 36255 300...... 37827 94...... 35810 22...... 34732, 34741 576...... 35459 302...... 35492, 35991 96...... 36334 23...... 34732, 34741 577...... 35459 355...... 35991 Proposed Rules: 25 ...... 34732, 34735, 34741 436...... 35796 57a...... 36093 27...... 34732, 34741 50 CFR 704...... 34462 95...... 37858 28 ...... 34732, 34735, 34741 707...... 34462 17...... 36000 46 CFR 29...... 34741 712 ...... 34462, 34879, 37945 32 ...... 34732, 34735, 34741, 36...... 37308 716...... 34462, 34879 25...... 37419 37778 301...... 34472, 36364 720...... 34462 26...... 37419 33...... 34732 611...... 37848 721...... 34462 67...... 37923 36 ...... 34732, 34735, 34741, 630...... 35340, 35869 723...... 34462 68...... 37923 37777 644...... 35340 761...... 34462 150...... 37923 37...... 37778 645...... 35340 763...... 34462 162...... 37419 41 ...... 34732, 34741, 37777 650...... 35513 766...... 34462 47 CFR 42...... 34732, 34741 651...... 35513 790...... 34462 43...... 34732, 34741 653...... 35340 0...... 34901, 35503 795...... 34462 44...... 34732, 34741 661...... 37850 796...... 34462 1...... 34902, 36736 45 ...... 34732, 34735, 34741 663...... 34472, 37022 799...... 34462 2 ...... 35507, 37596, 37828 46...... 34732, 34741 669...... 35340 20...... 37786 Proposed Rules: 47...... 34732, 34741 672 ...... 35146, 35711, 35870, 52 ...... 34488, 34938, 35361, 21...... 36524, 36737 49 ...... 34732, 34741, 37773 24...... 37786 36236, 36237, 37600, 37601 35531, 35535, 36082, 36252, 52 ...... 34732, 34735, 34741, 675...... 34904, 37602 36377, 36768, 37040 63...... 35507 37773 677...... 34904 63...... 34938, 37858 64...... 35846 53 ...... 34732, 34735, 34741 678...... 35340, 37023 70 ...... 34488, 34493, 35538, 73 ...... 35338, 35339, 35340, 204...... 34467 36083 35512, 36230, 36231, 37371, 215...... 34467 Proposed Rules: 80...... 34940 37597, 37598, 37946, 37947, 217...... 34467 17 ...... 35374, 36380, 36382, 140...... 34940 37948 219...... 35668 37419, 37866, 37987, 37993 180 ...... 34943, 34945, 35365, 76...... 35854, 37830 225...... 34470, 34471 18...... 36382 36768 80...... 35507 243...... 34467 20...... 37314, 37754 260...... 37974 87...... 37828 252...... 34471, 35668 32...... 36196, 36200 261...... 36377 90...... 35507, 37152 253...... 35868 36...... 36093, 36576 264...... 35718, 37974 Proposed Rules: Ch. 3 ...... 36740 216...... 37043 265...... 35718, 37974 2...... 35166 1523...... 37982 227...... 38011 271...... 36377 15...... 35166 1552...... 37982 228...... 35891 300...... 35160, 36770 22...... 36772 1809...... 37983 229...... 37043 302...... 36377 25...... 35166 1825...... 37598 Ch. VI...... 37044 430...... 34938 32...... 35548 1830...... 37983 635...... 34965 439...... 35367 36...... 35548 1831...... 37983 638...... 36093 61...... 37980 Proposed Rules: 641...... 37624 41 CFR 63...... 37980 32...... 35454 654...... 37868 101±47...... 35706 64...... 35368, 37041 42...... 38196 661...... 37045