Unknown. Final rule

52,616 words·~239 min read·/register/2007/02/14/07-680·

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

--- schema: federal-register doc_type: fedreg source_file: FR-2007-02-14.xml --- 72 30 Wednesday, February 14, 2007 Contents Administration Administration on Aging See Aging Administration Advisory Advisory Council on Historic Preservation See Historic Preservation, Advisory Council Aging Aging Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 7040-7041 E7-2545 Agriculture Agriculture Department See Federal Crop Insurance Corporation See Forest Service See Risk Management Agency Centers Centers for Disease Control and Prevention NOTICES Agency information collection activities; proposals, submissions, and approvals, 7041-7042 E7-2503 Meetings:

Childhood Lead Poisoning Prevention Advisory Committee, 7042 E7-2515 Coast Guard Coast Guard NOTICES Meetings: Merchant Marine Personnel Advisory Committee, 7057-7058 E7-2541 Commerce Commerce Department See International Trade Administration See National Oceanic and Atmospheric Administration See Patent and Trademark Office Commodity Commodity Futures Trading Commission RULES Commodity Exchange Act: Designated contract markets; conflicts of interest in self regulation and self-regulatory organizations; acceptable practices, 6936-6958 E7-2528 Comptroller Comptroller of the Currency NOTICES Agency information collection activities; proposals, submissions, and approvals, 7115-7128 07-639 07-677 Corporation Corporation for National and Community Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 7019-7020 E7-2529 Customs Customs and Border Protection Bureau NOTICES Automation program test:

Automated Commercial Environment— Truck carrier accounts; automated truck manifest data; deployment schedule, 7058-7059 E7-2567 Drug Drug Enforcement Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 7083-7084 E7-2551 Education Education Department NOTICES Agency information collection activities; proposals, submissions, and approvals, 7020-7021 E7-2535 Grants and cooperative agreements; availability, etc.: Special education and rehabilitative services— Disability and Rehabilitation Research Projects and Centers Program, 7288-7340 E7-2349 E7-2350 E7-2351 E7-2352 E7-2353 E7-2354 E7-2355 E7-2356 E7-2357 E7-2358 E7-2359 E7-2360 Employment Employment and Training Administration NOTICES Adjustment assistance; applications, determinations, etc.:

HRU, Inc., 7084 E7-2472 Kimberly-Clark Global Sales, Inc., 7084 E7-2475 Lear Corp. et al., 7084-7086 E7-2473 Northern Expediting Corp. et al., 7086-7088 E7-2474 United Healthcare Services, Inc., 7088 E7-2471 Energy Energy Department See Energy Efficiency and Renewable Energy Office See Federal Energy Regulatory Commission See Western Area Power Administration NOTICES Meetings: Environmental Management Site-Specific Advisory Board— Northern New Mexico, 7021 E7-2546 Energy Energy Efficiency and Renewable Energy Office NOTICES Meetings:

State Energy Advisory Board, 7022 E7-2548 EPA Environmental Protection Agency PROPOSED RULES Air quality implementation plans; approval and promulgation; various States; air quality planning purposes; designation of areas: California, 6986-6998 E7-2538 NOTICES Agency information collection activities; proposals, submissions, and approvals, 7027-7029 E7-2544 Meetings: Exposure modeling, 7029-7030 E7-2561 Executive Executive Office of the President See Presidential Documents FAA Federal Aviation Administration RULES Airworthiness directives:

Airbus, 6923-6925 E7-2412 BAE Systems (Operations) Ltd., 6919-6921 E7-2414 Bombardier, 6927-6928 E7-2411 CTRM Aviationi Sdn. Bhd., 6928-6931 E7-2319 Empresa Brasileira de Aeronautica S.A. (EMBRAER), 6933-6936 E7-2413 McDonnell Douglas, 6921-6922 E7-2416 Pacific Aerospace Corp. Ltd., 6931-6933 E7-2318 Turbomeca, 6925-6927 E7-2425 PROPOSED RULES Aircraft: Production and airworthiness approvals, parts marking, and miscellaneous proposals, 6968-6973 E7-2537 Airworthiness directives:

Airbus, 6977-6980 E7-2513 Boeing, 6980-6981 E7-2523 Latinoamericana de Aviacion S.A., 6982-6984 E7-2508 McDonnell Douglas, 6973-6977 E7-2524 E7-2525 NOTICES Exemption petitions; summary and disposition, 7111 E7-2547 FCC Federal Communications Commission RULES Common carrier services: Individuals with hearing and speech disabilities; telecommunications relay services and speech-to-speech services, 6960-6966 E7-2573 NOTICES Agency information collection activities; proposals, submissions, and approvals, 7030-7032 E7-2450 E7-2556 E7-2575 Rulemaking proceedings; petitions filed, granted, denied, etc., 7036 E7-2426 *Applications, hearings, determinations, etc.:* AAA Lincensing LLC et al., 7032-7035 E7-2424 Titus, David L., 7035-7036 E7-2449 Federal Crop Federal Crop Insurance Corporation NOTICES Agency information collection activities; proposals, submissions, and approvals, 7006-7007 E7-2558 FDIC Federal Deposit Insurance Corporation NOTICES Agency information collection activities; proposals, submissions, and approvals, 7115-7128 07-639 07-677 Federal Energy Federal Energy Regulatory Commission NOTICES Applications; exemptions, renewals, etc.

North Baja Pipeline, LLC, 7023-7024 E7-2483 Electric rate and corporate regulation combined filings, 7024-7025 E7-2539 Meetings: Columbia Gulf Transmission Co.; technical conference, 7025-7026 E7-2482 *Applications, hearings, determinations, etc.:* Blue Canyon Windpower, LLC, 7022 E7-2531 Iroquois Gas Transmission System, L.P., 7023 E7-2481 Federal Highway Federal Highway Administration RULES Planning assistance and standards: Statewide and metropolitan transportation planning, 7224-7286 07-493 Federal Housing Federal Housing Finance Board NOTICES Agency information collection activities; proposals, submissions, and approvals, 7036-7037 E7-2574 FMC Federal Maritime Commission NOTICES Agreements filed, etc., 7037 E7-2536 Ocean transportation intermediary licenses:

AAC Perishables Logistics, Inc., et al., 7037-7038 E7-2542 Abad Air, Inc., et al., 7038-7039 E7-2543 Infinite Logistics Service Corp. et al., 7039 E7-2533 Marcotransport Services, LLC; correction, 7039 E7-2534 Federal Motor Federal Motor Carrier Safety Administration NOTICES Driver qualifications; vision requirement exemptions, 7111-7113 07-654 Federal Reserve Federal Reserve System NOTICES Agency information collection activities; proposals, submissions, and approvals, 7039-7040, 7115-7128 E7-2484 07-639 07-677 Banks and bank holding companies:

Formations, acquisitions, and mergers, 7040 E7-2517 Federal Transit Federal Transit Administration RULES Planning assistance and standards: Statewide and metropolitan transportation planning, 7224-7286 07-493 Fish Fish and Wildlife Service PROPOSED RULES Endangered and threatened species: Findings on petitions, etc.— DeBeque milkvetch, 6998-7005 E7-2445 NOTICES Endangered and threatened species: Bighorn, etc.; 5-year review, 7064-7068 E7-2504 Environmental statements; availability, etc.:

Bear Butte National Wildlife Refuge, SD; comprehensive conservation plan; correction, 7068 E7-2514 Food Food and Drug Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 7042-7047 E7-2467 E7-2468 E7-2469 E7-2470 E7-2480 E7-2485 E7-2489 E7-2497 Foreign Foreign Assets Control Office NOTICES Sanctions; blocked persons, specially designated nationals, terrorists, narcotics traffickers, and foreign terrorist organizations Unblocking of specially designated narcotics traffickers; individuals and entities removed from list, 7128 E7-2568 Forest Forest Service NOTICES Environmental statements; notice of intent:

Lolo National Forest, MT, 7007-7008 07-672 Recreation fee areas: Shoshone National Forest, WY; cabins and fire lookout overnight rental fees, 7008 07-673 Health Health and Human Services Department See Aging Administration See Centers for Disease Control and Prevention See Food and Drug Administration See Health Resources and Services Administration See National Institutes of Health Health Health Resources and Services Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 7047-7048 E7-2553 Historic Historic Preservation, Advisory Council NOTICES Meetings:

Historic Preservation Advisory Council, 7006 07-683 Homeland Homeland Security Department See Coast Guard See Customs and Border Protection Bureau See Transportation Security Administration Housing Housing and Urban Development Department NOTICES Agency information collection activities; proposals, submissions, and approvals, 7059-7062 E7-2509 E7-2570 E7-2572 07-679 Organization, functions, and authority delegations: Chief Procurement Officer et al., 7062-7063 E7-2499 Freedom of Information Act processing functions; realignment, 7063 E7-2571 Procurement authority; revocation and redelegation, 7063-7064 E7-2500 Reports and guidance documents; availability, etc.:

National origin discrimination as it affects limited English proficient persons; prohibition; policy guidance to Federal financial assistance recipients Correction, 7134 C7-217 Indian Indian Affairs Bureau NOTICES Environmental statements; notice of intent: Hannahville Tribe of Potawatomi Indians, MI; hotel and casino project, 7068-7069 07-678 Interior Interior Department See Fish and Wildlife Service See Indian Affairs Bureau See Land Management Bureau See Minerals Management Service See National Park Service See Reclamation Bureau IRS Internal Revenue Service PROPOSED RULES Procedure and administration:

Lien or discharge of property release Correction, 6984 E7-2496 NOTICES Agency information collection activities; proposals, submissions, and approvals, 7128-7133 E7-2476 E7-2478 E7-2479 E7-2487 E7-2488 E7-2491 E7-2493 International International Trade Administration NOTICES Antidumping: Pasta from— Italy, 7011-7013 E7-2563 Wooden bedroom furniture from— China, 7013-7015 E7-2564 Antidumping and countervailing duties: Corrosion-resistant carbon steel flat products from— Germany and Korea, 7009-7010 E7-2565 Various countries, 7010-7011 E7-2566 Countervailing duties:

Dynamic random access memory semiconductors from— Korea, 7015-7016 E7-2562 Judicial Judicial Conference of the United States NOTICES Bankruptcy Reform Act of 1994: Automatic three-year adjustment; dollar amounts increase, 7082-7083 E7-2501 Justice Justice Department See Drug Enforcement Administration See Justice Programs Office Justice Justice Programs Office NOTICES Meetings: Body armor standards and testing; technical workshop, 7084 E7-2522 Labor Labor Department See Employment and Training Administration See Occupational Safety and Health Administration Land Land Management Bureau NOTICES Closure of public lands:

Utah, 7069-7070 E7-2415 Recreation management restrictions, etc: Lost Coast Headlands, Humboldt County, CA; temporary restrictions, 7070 E7-2420 Minerals Minerals Management Service NOTICES Environmental statements; notice of intent: Gulf of Mexico OCS— Oil and gas lease sales, 7070-7074 E7-2498 National Archives National Archives and Records Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 7088-7089 E7-2521 National Credit National Credit Union Administration NOTICES Meetings;

Sunshine Act, 7089 07-700 National Highway National Highway Traffic Safety Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 7113-7114 E7-2555 E7-2560 NIH National Institutes of Health NOTICES Inventions, Government-owned; availability for licensing, 7048-7050 E7-2486 E7-2494 E7-2495 Meetings: National Cancer Institute, 7051 07-649 National Human Genome Research Institute, 7051 07-646 National Institute of Biomedical Imaging and Bioengineering, 7051-7052 07-641 National Institute of Dental and Craniofacial Research, 7054 07-652 National Institute of Diabetes and Digestive and Kidney Diseases, 7052-7053 07-642 07-643 National Institute of General Medical Sciences, 7054 07-648 National Institute of Mental Health, 7053 07-644 National Institute of Neurological Disorders and Stroke, 7054 07-650 National Institute on Alcohol Abuse and Alcoholism, 7053 07-645 07-647 Scientific Review Center, 7055-7057 07-651 NOAA National Oceanic and Atmospheric Administration RULES Fishery conservation and management:

Atlantic highly migratory species— Small coastal shark, 6966-6967 07-680 NOTICES Environmental statements; notice of intent: Magnuson-Stevens Fishery Conservation and Management Reauthorization Act— Annual catch limits, accountability, and other overfishing provisions; National Standard 1 guidelines, 7016-7019 07-681 National Park National Park Service NOTICES Agency information collection activities; proposals, submissions, and approvals, 7074-7075 07-656 07-657 Concession contract negotiations:

Whiskeytown National Recreation Area, CA, 7075 07-669 Concession contracts and permits: Expiring contracts; extension, 7075-7080 07-658 07-659 07-660 07-661 07-662 07-663 07-664 07-665 07-666 07-667 07-668 Meetings: Golden Gate National Recreation Area, 7080 07-655 National Science National Science Foundation NOTICES Agency information collection activities; proposals, submissions, and approvals, 7089-7090 E7-2461 Meetings: U.S. Chief Financial Officer Council Grants Policy Committee, 7090 07-674 Nuclear Nuclear Regulatory Commission NOTICES Meetings;

Sunshine Act, 7090-7091 07-694 Occupational Occupational Safety and Health Administration RULES Occupational safety and health standards: Electrical installation standard, 7136-7221 E7-1360 Patent Patent and Trademark Office PROPOSED RULES Practice and procedure: Trademark cases; filing requests for reconsideration of final office actions; requirements, 6984-6986 E7-2519 Presidential Presidential Documents ADMINISTRATIVE ORDERS Government agencies and employees: Investigation, Federal Bureau of; designation of officers to act as Director (Memorandum of February 9, 2007), 7341-7344 07-714 Reclamation Reclamation Bureau NOTICES Central Valley Project Improvement Act:

Water management plans; district plans available for review, 7080-7081 E7-2502 Water management plans; refuge criteria development, 7081-7082 E7-2518 Risk Risk Management Agency NOTICES Agency information collection activities; proposals, submissions, and approvals, 7008-7009 E7-2557 SEC Securities and Exchange Commission NOTICES Securities: Suspension of trading— One Price Clothing Stores, Inc., 7091 07-696 Self-regulatory organizations; proposed rule changes: Chicago Board Options Exchange, Inc., 7091-7099 E7-2477 International Securities Exchange, LLC, 7099-7100 E7-2530 NASDAQ Stock Market LLC, 7100-7104 E7-2532 National Securities Clearing Corp., 7104 E7-2540 Philadelphia Stock Exchange, Inc., 7104-7107 E7-2549 E7-2550 Social Social Security Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 7107-7110 E7-2418 State State Department NOTICES Culturally significant object imported for exhibition:

Italian Women Artists from Renaissance to Baroque, 7110 E7-2559 Surface Surface Transportation Board NOTICES Railroad operation, acquisition, construction, etc.: Grems-Kirk Railway, LLC, 7115 E7-2315 E7-2322 Thrift Thrift Supervision Office NOTICES Agency information collection activities; proposals, submissions, and approvals, 7115-7128 07-639 07-677 Transportation Transportation Department See Federal Aviation Administration See Federal Highway Administration See Federal Motor Carrier Safety Administration See Federal Transit Administration See National Highway Traffic Safety Administration See Surface Transportation Board NOTICES Agency information collection activities; proposals, submissions, and approvals, 7110-7111 E7-2526 Transportation Transportation Security Administration NOTICES Agency information collection activities; proposals, submissions, and approvals, 7059 E7-2552 Treasury Treasury Department See Comptroller of the Currency See Foreign Assets Control Office See Internal Revenue Service See Thrift Supervision Office Veterans Veterans Affairs Department RULES Adjudication; pensions, compensation, dependency, etc.:

Home school programs; dependent entitlement to monetary benefits; definitions, 6958-6959 E7-2466 Grants to States for construction or acquisition of State homes, 6959-6960 E7-2465 NOTICES Meetings: Homeless Veterans Advisory Committee, 7133 07-640 Western Western Area Power Administration NOTICES Power rates: Boulder Canyon Project, 7026-7027 E7-2527 Separate Parts In This Issue Part II Labor Department, Occupational Safety and Health Administration, 7136-7221 E7-1360 Part III Transportation Department, Federal Highway Administration, Federal Transit Administration, 7224-7286 07-493 Part IV Education Department, 7288-7340 E7-2349 E7-2350 E7-2351 E7-2352 E7-2353 E7-2354 E7-2355 E7-2356 Part V Executive Office of the President, Presidential Documents, 7341-7344 07-714 Reader Aids Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws.

To subscribe to the Federal Register Table of Contents LISTSERV electronic mailing list, go to http://listserv.access.gpo.gov and select Online mailing list archives, FEDREGTOC-L, Join or leave the list (or change settings); then follow the instructions. 72 30 Wednesday, February 14, 2007 Rules and Regulations DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-25232; Directorate Identifier 2006-NM-106-AD; Amendment 39-14935; AD 2007-04-04] RIN 2120-AA64 Airworthiness Directives;

BAE Systems (Operations) Limited Model BAe 146 and Avro 146-RJ Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: The FAA is adopting a new airworthiness directive

(AD)for certain BAE Systems (Operations) Limited Model BAe 146 and Avro 146-RJ airplanes. This AD requires repetitive inspections of the wing top skin under the rib 0 joint strap, and related investigative and corrective actions if necessary. This AD results from a report of a significant crack in the wing top skin under the rib 0 joint strap. We are issuing this AD to detect and correct corrosion and cracking in that area, which could result in reduced structural integrity of the wing. DATES: This AD becomes effective March 21, 2007. The Director of the Federal Register approved the incorporation by reference of a certain publication listed in the AD as of March 21, 2007. ADDRESSES: You may examine the AD docket on the Internet at *http://dms.dot.gov* or in person at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC. Contact British Aerospace Regional Aircraft American Support, 13850 Mclearen Road, Herndon, Virginia 20171, for service information identified in this AD. FOR FURTHER INFORMATION CONTACT: Dan Rodina, Aerospace Engineer, International Branch, ANM-116, FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone

(425)227-2125; fax

(425)227-1149. SUPPLEMENTARY INFORMATION: Examining the Docket You may examine the airworthiness directive

(AD)docket on the Internet at *http://dms.dot.gov* or in person at the Docket Management Facility office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Management Facility office (telephone

(800)647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section. Discussion The FAA issued a notice of proposed rulemaking

(NPRM)to amend 14 CFR part 39 to include an AD that would apply to certain BAE Systems (Operations) Limited Model BAe 146 and Avro 146-RJ airplanes. That NPRM was published in the **Federal Register** on July 3, 2006 (71 FR 37868). That NPRM proposed to require repetitive inspections of the wing top skin under the rib 0 joint strap, and related investigative and corrective actions if necessary. Comments We provided the public the opportunity to participate in the development of this AD. We have considered the single comment received. Request for Posting of Service Information One commenter, the Modification and Replacement Parts Association (MARPA), requests that we revise our procedures for incorporation by reference

(IBR)of service information in ADs. MARPA states: “Typically airworthiness directives are based upon service information originating with the type certificate holder or its suppliers. Manufacturer service documents are privately authored instruments generally enjoying copyright protection against duplication and distribution. When a service document is incorporated by reference pursuant to 5 U.S.C. 552(a) and 1 CFR part 51 into a public document such as an airworthiness directive, it loses its private, protected status and becomes itself a public document. If a service document is used as a mandatory element of compliance it should not simply be referenced, but should be incorporated into the regulatory document. Public laws by definition must be public which means they cannot rely upon private writings. “Incorporated by reference service documents should be made available to the public by publication in the Docket Management System

(DMS)keyed to the action that incorporates them. The stated purpose of the **Federal Register** incorporation by reference method is brevity; to keep from expanding the **Federal Register** needlessly by publishing documents already in the hands of the affected individuals. Traditionally, “affected individuals” has meant aircraft owners and operators who are generally provided service information by the manufacturer. However, a new class of affected individuals has emerged since the majority of aircraft maintenance is now performed by specialty shops instead of aircraft owners and operators. This new class includes maintenance and repair organizations (MRO), component servicing and repair shops, parts purveyors and distributors and organizations manufacturing or servicing alternatively certified parts under 14 CFR 21.303 (PMA). Further, the concept of brevity is now nearly archaic as documents exist more frequently in electronic format than on paper. “We therefore request that the service documents deemed essential to the accomplishment of this proposed action be

(1)Incorporated by reference into the regulatory instrument, and

(2)published in the DMS.” We acknowledge MARPA's requests. The Office of the Federal Register

(1)Is not a “significant regulatory action” under Executive Order 12866;

(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3)Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD docket. See the ADDRESSES section for a location to examine the regulatory evaluation. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The Federal Aviation Administration

(FAA)amends § 39.13 by adding the following new airworthiness directive (AD): **2007-04-04 BAE Systems (Operations) Limited (Formerly British Aerospace Regional Aircraft):** Amendment 39-14935. Docket No. FAA-2006-25232; Directorate Identifier 2006-NM-106-AD. Effective Date

(a)This AD becomes effective March 21, 2007. Affected ADs

(b)None. Applicability

(c)This AD applies to BAE Systems (Operations) Limited Model BAE 146-100A, -200A, and -300A series airplanes; and Avro 146-RJ70A, 146-RJ85A, and 146-RJ100A airplanes; certificated in any category; as identified in BAE Systems (Operations) Limited Alert Inspection Service Bulletin ISB.57-a071, dated April 12, 2006. Unsafe Condition

(d)This AD results from a report of a significant crack in the wing top skin under the rib 0 joint strap. We are issuing this AD to detect and correct corrosion and cracking in that area, which could result in reduced structural integrity of the wing. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Inspection

(f)Inspect the airplane at the applicable time specified in paragraph 1.D. “Compliance” of BAE Systems (Operations) Limited Alert Inspection Service Bulletin ISB.57-a071, dated April 12, 2006, except, where the service bulletin specifies a compliance time after the date on the service bulletin, this AD requires compliance within the specified compliance time after the effective date of this AD. The inspection required by this paragraph involves an ultrasonic inspection for defects, including corrosion and cracking, of the wing top skin under the rib 0 joint strap at the outer row of fasteners, by doing all applicable actions specified in the Accomplishment Instructions of the service bulletin. Do all applicable related investigative and corrective actions before further flight in accordance with the service bulletin, except as required by paragraph

(g)of this AD. Repeat the inspection at intervals not to exceed 4,000 flight cycles or 24 months, whichever occurs first. Exceptions to Service Bulletin Specifications

(g)BAE Systems (Operations) Limited Alert Inspection Service Bulletin ISB.57-a071, dated April 12, 2006, specifies two provisions not specified in this AD.

(1)No inspection report is required by this AD.

(2)As an option, the service bulletin allows repairs specified in an approved BAE Systems repair scheme. This AD instead requires any repair using this option to be done in accordance with a method approved by either the Manager, International Branch, ANM-116, FAA; or the European Aviation Safety Agency (or its delegated agent). Alternative Methods of Compliance (AMOCs) (h)(1) The Manager, International Branch, ANM-116, FAA, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.

(2)Before using any AMOC approved in accordance with § 39.19 on any airplane to which the AMOC applies, notify the appropriate principal inspector in the FAA Flight Standards Certificate Holding District Office. Related Information

(i)The subject of this AD is also addressed in European Aviation Safety Agency emergency airworthiness directive 2006-0091-E, dated April 20, 2006. Material Incorporated by Reference

(j)You must use BAE Systems (Operations) Limited Alert Inspection Service Bulletin ISB.57-a071, dated April 12, 2006, to perform the actions that are required by this AD, unless the AD specifies otherwise. The Director of the Federal Register approved the incorporation by reference of this document in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact British Aerospace Regional Aircraft American Support, 13850 Mclearen Road, Herndon, Virginia 20171, for a copy of this service information. You may review copies at the FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal-register/cfr/ibr-locations.html.* Issued in Renton, Washington, on February 5, 2007. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-2414 Filed 2-13-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-26084; Directorate Identifier 2006-NM-063-AD; Amendment 39-14937; AD 2007-04-06] RIN 2120-AA64 Airworthiness Directives; McDonnell Douglas Model DC-8-62, DC-8-63, DC-8-62F, and DC-8-63F Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: The FAA is adopting a new airworthiness directive

(AD)for certain McDonnell Douglas Model DC-8-62, DC-8-63, DC-8-62F, and DC-8-63F airplanes. This AD requires revising the wiring for the engine thrust brake circuit and indicating circuit and other specified actions, or rerouting the wiring at plug P1-1762A on the electrical power center generator control panel, as necessary. This AD results from the determination that the thrust reverser systems on these airplanes do not adequately preclude inadvertent deployment of the thrust reversers. We are issuing this AD to prevent inadvertent deployment of the thrust reversers during takeoff or landing, which could result in loss of control of the airplane. DATES: This AD becomes effective March 21, 2007. The Director of the Federal Register approved the incorporation by reference of certain publications listed in the AD as of March 21, 2007. ADDRESSES: You may examine the AD docket on the Internet at *http://dms.dot.gov* or in person at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC. Contact Boeing Commercial Airplanes, Long Beach Division, 3855 Lakewood Boulevard, Long Beach, California 90846, Attention: Data and Service Management, Dept. C1-L5A (D800-0024), for service information identified in this AD. FOR FURTHER INFORMATION CONTACT: William Bond, Aerospace Engineer, Propulsion Branch, ANM-140L, FAA, Los Angeles Aircraft Certification Office, 3960 Paramount Boulevard, Lakewood, California 90712-4137; telephone

(562)627-5253; fax

(562)627-5210. SUPPLEMENTARY INFORMATION: Examining the Docket You may examine the airworthiness directive

(800)647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section. Discussion The FAA issued a notice of proposed rulemaking

(NPRM)to amend 14 CFR part 39 to include an AD that would apply to certain McDonnell Douglas Model DC-8-62, DC-8-63, DC-8-62F, and DC-8-63F airplanes. That NPRM was published in the **Federal Register** on October 19, 2006 (71 FR 61690). That NPRM proposed to require revising the wiring for the engine thrust brake circuit and indicating circuit and other specified actions, or rerouting the wiring at plug P1-1762A on the electrical power center generator control panel, as necessary. Comments We provided the public the opportunity to participate in the development of this AD. We received no comments on the NPRM or on the determination of the cost to the public. Conclusion We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed. Costs of Compliance There are about 70 airplanes of the affected design in the worldwide fleet. This AD affects about 45 airplanes of U.S. registry. The required actions take between 1 and 5 work hours per airplane, depending on airplane configuration, at an average labor rate of $80 per work hour. For a certain airplane configuration, required parts cost about $9 per airplane. For a certain other airplane configuration, required parts cost about $2,825 per airplane. Based on these figures, the estimated cost of this AD for U.S. operators is between $4,005 and $145,125, or between $89 and $3,225 per airplane. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD:

(1)Is not a “significant regulatory action” under Executive Order 12866;

(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(FAA)amends § 39.13 by adding the following new airworthiness directive (AD): **2007-04-06 McDonnell Douglas:** Amendment 39-14937. Docket No. FAA-2006-26084; Directorate Identifier 2006-NM-063-AD. Effective Date

(a)This AD becomes effective March 21, 2007. Affected ADs

(b)None. Applicability

(c)This AD applies to McDonnell Douglas Model DC-8-62 and DC-8-63 airplanes and Model DC-8-62F and DC-8-63F airplanes, certificated in any category; as identified in McDonnell Douglas DC-8 Service Bulletin 78-95, Revision 2, dated March 10, 1971. Unsafe Condition

(d)This AD results from the determination that the thrust reverser systems on McDonnell Douglas Model DC-8-62, DC-8-63, DC-8-62F, and DC-8-63F airplanes do not adequately preclude inadvertent deployment of the thrust reversers. We are issuing this AD to prevent inadvertent deployment of the thrust reversers during takeoff or landing, which could result in loss of control of the airplane. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Modification of Engine Thrust Brake Circuitry

(f)Within 27 months after the effective date of this AD, do the applicable action specified in paragraph (f)(1) or (f)(2) of this AD, by accomplishing all of the applicable actions specified in the Accomplishment Instructions of McDonnell Douglas DC-8 Service Bulletin 78-95, Revision 2, dated March 10, 1971; or Revision 1, dated December 29, 1970.

(1)Revise the wiring for the engine thrust brake circuit and indicating circuit, and do all other specified actions before further flight after revising the wiring.

(2)Reroute the wiring at plug P1-1762A on the electrical power center generator control panel. Alternative Methods of Compliance (AMOCs) (g)(1) The Manager, Los Angeles Aircraft Certification Office, FAA, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.

(h)You must use McDonnell Douglas DC-8 Service Bulletin 78-95, Revision 2, dated March 10, 1971; or McDonnell Douglas DC-8 Service Bulletin 78-95, Revision 1, dated December 29, 1970; to perform the actions that are required by this AD, unless the AD specifies otherwise. McDonnell Douglas DC-8 Service Bulletin 78-95, Revision 2, dated March 10, 1971, contains the following effective pages: Page number Revision level shown on page Date shown on page 1, 2, 16, 17 2 March 10, 1971. 3-15, 18-23 1 December 29, 1970. The Director of the Federal Register approved the incorporation by reference of these documents in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact Boeing Commercial Airplanes, Long Beach Division, 3855 Lakewood Boulevard, Long Beach, California 90846, Attention: Data and Service Management, Dept. C1-L5A (D800-0024), for a copy of this service information. You may review copies at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Room PL-401, Nassif Building, Washington, DC; on the Internet at *http://dms.dot.gov;* or at the National Archives and Records Administration (NARA). For information on the availability of this material at the NARA, call

(202)741-6030, or go to *http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html* . Issued in Renton, Washington, on February 2, 2007. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-2416 Filed 2-13-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-26045; Directorate Identifier 2006-NM-145-AD; Amendment 39-14936; AD 2007-04-05] RIN 2120-AA64 Airworthiness Directives; Airbus Model A300 Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: The FAA is superseding an existing airworthiness directive (AD), which applies to certain Airbus Model A300 B2 and B4 series airplanes. That AD currently requires modifying the wiring of the autopilot pitch torque limiter switch. This new AD adds repetitive operational tests of the autopilot disconnection upon pitch override, and related investigative/corrective actions if necessary. This AD results from the determination that such operational tests are necessary following the modification. We are issuing this AD to prevent possible trim loss when the flightcrew tries to override the autopilot pitch control, which could result in uncontrolled flight of the airplane. DATES: This AD becomes effective March 21, 2007. The Director of the Federal Register approved the incorporation by reference of certain publications listed in the AD as of March 21, 2007. On August 1, 2005 (70 FR 36833, June 27, 2005), the Director of the Federal Register approved the incorporation by reference of Airbus Service Bulletin A300-22-0117, dated September 7, 2004. ADDRESSES: You may examine the AD docket on the Internet at *http://dms.dot.gov* or in person at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC. Contact Airbus, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France, for service information identified in this AD. FOR FURTHER INFORMATION CONTACT: Thomas Stafford, Aerospace Engineer, International Branch, ANM-116, FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone

(425)227-1622; fax

(425)227-1149. SUPPLEMENTARY INFORMATION: Examining the Docket You may examine the airworthiness directive

(800)647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section. Discussion The FAA issued a notice of proposed rulemaking

(NPRM)to amend 14 CFR part 39 to include an AD that supersedes AD 2005-13-33, amendment 39-14170 (70 FR 36833, June 27, 2005). The existing AD applies to certain Airbus Model A300 B2 and B4 series airplanes. That NPRM was published in the **Federal Register** on October 12, 2006 (71 FR 60087). That NPRM proposed to continue to require modifying the wiring of the autopilot pitch torque limiter switch. That NPRM also proposed to require repetitive operational tests of the autopilot disconnection upon pitch override, and related investigative/corrective actions if necessary. Comments We provided the public the opportunity to participate in the development of this AD. We have considered the comments that have been received on the NPRM. Request To Publish/Incorporate by Reference in the NPRM The Modification and Replacement Parts Association (MARPA) states that, typically, ADs are based on service information originating with the type certificate holder or its suppliers. MARPA adds that manufacturer service documents are privately authored instruments generally having copyright protection against duplication and distribution. MARPA notes that when a service document is incorporated by reference into a public document, such as an AD, it loses its private, protected status and becomes a public document. MARPA adds that if a service document is used as a mandatory element of compliance, it should not simply be referenced, but should be incorporated into the regulatory document; by definition, public laws must be public, which means they cannot rely upon private writings. MARPA adds that incorporated by reference

(IBR)service documents should be made available to the public by publication in the Docket Management System (DMS), keyed to the action that incorporates them. MARPA notes that the stated purpose of the incorporation by reference method is brevity, to keep from expanding the **Federal Register** needlessly by publishing documents already in the hands of the affected individuals; traditionally, “affected individuals” means aircraft owners and operators, who are generally provided service information by the manufacturer. MARPA adds that a new class of affected individuals has emerged, since the majority of aircraft maintenance is now performed by specialty shops instead of aircraft owners and operators. MARPA notes that this new class includes maintenance and repair organizations, component servicing and repair shops, parts purveyors and distributors, and organizations manufacturing or servicing alternatively certified parts under section 21.303 (“Replacement and modification parts”) of the Federal Aviation Regulations (14 CFR 21.303). Therefore, MARPA asks that the service documents deemed essential to the accomplishment of the NPRM be incorporated by reference into the regulatory instrument and published in the DMS prior to the release of the final rule. We acknowledge MARPA's comment concerning IBR. The Office of the Federal Register

(1)Is not a “significant regulatory action” under Executive Order 12866;

(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(FAA)amends § 39.13 by removing amendment 39-14170 (70 FR 36833, June 27, 2005) and by adding the following new airworthiness directive (AD): **2007-04-05 Airbus:** Amendment 39-14936. Docket No. FAA-2006-26045; Directorate Identifier 2006-NM-145-AD. Effective Date

(a)This AD becomes effective March 21, 2007. Affected ADs

(b)This AD supersedes AD 2005-13-33. Applicability

(c)This AD applies to Airbus A300 airplanes, all certified models and all serial numbers, certificated in any category, except for:

(1)Airbus Model A300 B4-601, B4-603, B4-620, and B4-622 airplanes, Model A300 B4-605R and B4-622R airplanes, A300 F4-605R and F4-622R airplanes, and Model A300 C4-605R Variant F airplanes.

(2)Airbus Models A300 B4-220, A300 B4-203, and A300 B2-203 airplanes in forward facing crew cockpit certified configuration. Unsafe Condition

(d)This AD results from the determination that repetitive operational tests are necessary following incorporation of the wiring modification required by AD 2005-13-33. We are issuing this AD to prevent possible trim loss when the flightcrew tries to override the autopilot pitch control, which could result in uncontrolled flight of the airplane. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Restatement of Requirements of AD 2005-13-33 Modification

(f)Within 20 months after August 1, 2005 (the effective date of AD 2005-13-33), modify the wiring of the autopilot pitch torque limiter switch, by doing all of the applicable actions specified in the Accomplishment Instructions of Airbus Service Bulletin A300-22-0117, dated September 7, 2004; Revision 01, dated April 20, 2005; or Revision 02, dated September 14, 2005. After the effective date of this AD, only Revision 02 may be used. New Requirements of This AD Repetitive Operational Tests

(g)At the applicable time specified in paragraph (g)(1) or (g)(2) of this AD: Do an operational test of the autopilot disconnection upon pitch override, and do all applicable related investigative and corrective actions. Do the actions in accordance with the Accomplishment Instructions of Airbus Service Bulletin A300-22-0118, excluding Appendix 01, dated May 18, 2005; except that this AD does not require a report of the inspection results. Do all applicable related investigative and corrective actions before further flight. Repeat the test thereafter at intervals not to exceed 2,000 flight hours.

(1)For airplanes modified before the effective date of this AD in accordance with Airbus Service Bulletin A300-22-0117, dated September 7, 2004: Do the initial test within 2,000 flight hours after the effective date of this AD.

(2)For airplanes modified in accordance with Airbus Service Bulletin A300-22-0117, Revision 01, dated April 20, 2005; or Revision 02, dated September 14, 2005: Do the initial test within 2,000 flight hours after the modification required by paragraph

(f)of this AD, or within 2,000 flight hours after the effective date of this AD, whichever occurs later. Alternative Methods of Compliance (AMOCs) (h)(1) The Manager, International Branch, ANM-116, Transport Airplane Directorate, FAA, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.

(3)AMOCs approved previously in accordance with AD 2005-13-33 are not approved as AMOCs with this AD. Related Information

(i)French airworthiness directive F-2005-107, dated July 6, 2005, also addresses the subject of this AD. Material Incorporated by Reference

(j)You must use the service information identified in Table 1 of this AD to perform the actions that are required by this AD, unless the AD specifies otherwise. Table 1.—All Material Incorporated by Reference Airbus service bulletin Revision level Date A300-22-0117 Original September 7, 2004. A300-22-0117 01 April 20, 2005. A300-22-0117 02 September 14, 2005. A300-22-0118, excluding Appendix 01 Original May 18, 2005.

(1)The Director of the Federal Register approved the incorporation by reference of the documents identified in Table 2 of this AD in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Table 2.—New Material Incorporated by Reference Airbus service bulletin Revision level Date A300-22-0117 01 April 20, 2005. A300-22-0117 02 September 14, 2005. A300-22-0118, excluding Appendix 01 Original May 18, 2005.

(2)On August 1, 2005 (70 FR 36833, June 27, 2005), the Director of the Federal Register approved the incorporation by reference of Airbus Service Bulletin A300-22-0117, dated September 7, 2004.

(3)Contact Airbus, 1 Rond Point Maurice Bellonte, 31707 Blagnac Cedex, France, for a copy of this service information. You may review copies at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Room PL-401, Nassif Building, Washington, DC; on the Internet at *http://dms.dot.gov* ; or at the National Archives and Records Administration (NARA). For information on the availability of this material at the NARA, call

(202)741-6030, or go to *http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html* . Issued in Renton, Washington, on February 5, 2007. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-2412 Filed 2-13-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2005-22039; Directorate Identifier 2005-NE-33-AD; Amendment 39-14940; AD 2005-17-17R1] RIN 2120-AA64 Airworthiness Directives; Turbomeca S.A. Arrius 2F Turboshaft Engines AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: The FAA is revising an existing airworthiness directive

(AD)for Turbomeca S.A. Arrius 2F turboshaft engines. That AD currently requires replacing certain O-rings on the check valve piston in the lubrication unit, at repetitive intervals. This AD requires the same actions except it reduces the applicability from all Turbomeca S.A. Arrius 2F turboshaft engines, to Turbomeca S.A. Arrius 2F turboshaft engines that have not incorporated modification Tf75. This AD results from Turbomeca S.A. introducing a check valve piston design requiring no O-ring. We are issuing this AD to prevent an uncommanded in-flight shutdown of the engine, which could result in a forced autorotation landing and damage to the helicopter. DATES: This AD becomes effective March 21, 2007. The Director of the Federal Register approved the incorporation by reference of certain publications listed in the regulations as of March 21, 2007. ADDRESSES: You can get the service information identified in this AD from Turbomeca S.A., 40220 Tarnos, France; telephone 33 05 59 74 40 00, fax 33 05 59 74 45 15. You may examine the AD docket on the Internet at *http://dms.dot.gov* or in Room PL-401 on the plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC. FOR FURTHER INFORMATION CONTACT: Christopher Spinney, Aerospace Engineer, Engine Certification Office, FAA, Engine and Propeller Directorate, 12 New England Executive Park, Burlington, MA 01803, telephone

(781)238-7175; fax

(781)238-7199. SUPPLEMENTARY INFORMATION: The FAA proposed to amend 14 CFR part 39 with a proposed AD. The proposed AD applies to Turbomeca S.A. Arrius 2F turboshaft engines. We published the proposed AD in the **Federal Register** on November 8, 2006 (71 FR 65430). That action proposed to require replacing certain O-rings on the check valve piston in the lubrication unit, at repetitive intervals. This AD requires the same actions except it reduces the applicability from all Turbomeca S.A. Arrius 2F turboshaft engines, to Turbomeca S.A. Arrius 2F turboshaft engines that have not incorporated modification Tf75. Examining the AD Docket You may examine the docket that contains the AD, any comments received, and any final disposition in person at the Docket Management Facility Office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The Docket Office (telephone

(800)647-5227) is located on the plaza level of the Department of Transportation Nassif Building at the street address stated in ADDRESSES . Comments will be available in the AD docket shortly after the DMS receives them. Comments We provided the public the opportunity to participate in the development of this AD. We received no comments on the proposal or on the determination of the cost to the public. Conclusion We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed. Costs of Compliance We estimate that this AD will affect about 124 engines installed on airplanes of U.S. registry. We also estimate that it will take about 1 work-hour per engine to perform the actions, and that the average labor rate is $80 per work-hour. Required parts will cost about $100 per engine. Based on these figures, we estimate the cost of the AD on U.S. operators, for one O-ring replacement to be $22,320 for the fleet, or $180 per engine. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD:

(1)Is not a “significant regulatory action” under Executive Order 12866;

(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3)Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary at the address listed under ADDRESSES . List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration amends 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by removing Amendment 14238 (70 FR 50164, August 26, 2005), and by adding a new airworthiness directive, Amendment 39-14940, to read as follows: **2005-17-17R1 Turbomeca S.A.:** Amendment 39-14940; Docket No. FAA-2005-22039; Directorate Identifier 2005-NE-33-AD. Effective Date

(a)This airworthiness directive

(AD)becomes effective March 21, 2007. Affected ADs

(b)This AD revises AD 2005-17-17, Amendment 39-14238. Applicability

(c)This AD applies to Turbomeca S.A. Arrius 2F turboshaft engines that have not incorporated modification Tf75. These engines are installed on, but not limited to, Eurocopter EC120B helicopters. Unsafe Condition

(d)This AD results from Turbomeca S.A. introducing a check valve piston design requiring no O-ring. We are issuing this AD to prevent an uncommanded in-flight shutdown of the engine, which could result in a forced autorotation landing and damage to the helicopter. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified unless the actions have already been done. O-ring Replacement

(f)Replace the O-ring on the check valve piston in the lubrication unit at the intervals specified in Table 1 of this AD. Use the “Instructions to be Incorporated,” 2.A. through 2.C.

(2)of Turbomeca Alert Service Bulletin No. A319 79 4802, Update No. 1, dated April 3, 2006, to replace the O-ring. Table 1.—Compliance Times for O-ring Replacement If the class of oil is: Then replace the O-ring by the later of: Thereafter, replace the O-ring within:

(1)HTS or unknown 300 hours time-since-new

(TSN)or 50 hours after the effective date of this AD 300 hours time-since-last replacement (TSR).

(2)STD 450 hours TSN or 50 hours after the effective date of this AD 500 hours TSR. Alternative Methods of Compliance

(g)The Manager, Engine Certification Office, has the authority to approve alternative methods of compliance for this AD if requested using the procedures found in 14 CFR 39.19. Related Information

(h)Contact Christopher Spinney, Aerospace Engineer, Engine Certification Office, FAA, Engine and Propeller Directorate, 12 New England Executive Park, Burlington, MA 01803; telephone

(781)238-7175, fax

(781)238-7199; e-mail: *christopher.spinney@faa.gov* for more information about this AD. European Aviation Safety Agency AD No. 2006-0141, dated May 29, 2006, also addresses the subject of this AD. Material Incorporated by Reference

(i)You must use Turbomeca Alert Service Bulletin No. A319 79 4802, Update No. 1, dated April 3, 2006, to perform the replacements required by this AD. The Director of the Federal Register approved the incorporation by reference of this service bulletin in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact Turbomeca S.A., 40220 Tarnos, France; telephone 33 05 59 74 40 00, fax 33 05 59 74 45 15, for a copy of this service information. You may review copies at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal-register/cfr/ibr-locations.html.* Issued in Burlington, Massachusetts, on February 7, 2007. Peter A. White, Acting Manager, Engine and Propeller Directorate, Aircraft Certification Service. [FR Doc. E7-2425 Filed 2-13-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-26241; Directorate Identifier 2006-NM-155-AD; Amendment 39-14938; AD 2007-04-07] RIN 2120-AA64 Airworthiness Directives; Bombardier Model DHC-8-400 Series Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: The FAA is adopting a new airworthiness directive

(AD)for certain Bombardier Model DHC-8-400 series airplanes. This AD requires inspecting to determine the manufacturer's date of certain V-band clamps on the engine exhaust shroud assembly, and doing related investigative/corrective actions if necessary. This AD results from a report of a discrepancy found during a maintenance inspection on a V-band clamp located on the engine exhaust duct shroud. The clamp ends were touching (although the correct fastener torque had been applied), resulting in reduced clamp force on the flanges. We are issuing this AD to prevent vibration in the duct shroud and fretting of the V-band clamp and flanges, which could result in cracking of the flanges and consequent release of hot exhaust gases from the engine tailpipe and damage to adjacent structure. This situation could trigger the fire warning system and result in an in-flight emergency, such as the flightcrew shutting down the engine and activating the fire suppression system. DATES: This AD becomes effective March 21, 2007. The Director of the Federal Register approved the incorporation by reference of a certain publication listed in the AD as of March 21, 2007. ADDRESSES: You may examine the AD docket on the Internet at *http://dms.dot.gov* or in person at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC. Contact Bombardier, Inc., Bombardier Regional Aircraft Division, 123 Garratt Boulevard, Downsview, Ontario M3K 1Y5, Canada, for service information identified in this AD. FOR FURTHER INFORMATION CONTACT: Richard Fiesel, Aerospace Engineer, Airframe and Propulsion Branch, ANE-171, FAA, New York Aircraft Certification Office, 1600 Stewart Avenue, Suite 410, Westbury, New York 11590; telephone

(516)228-7304; fax

(516)794-5531. SUPPLEMENTARY INFORMATION: Examining the Docket You may examine the airworthiness directive

(800)647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section. Discussion The FAA issued a notice of proposed rulemaking

(NPRM)to amend 14 CFR part 39 to include an AD that would apply to certain Bombardier Model DHC-8-400 series airplanes. That NPRM was published in the **Federal Register** on November 3, 2006 (71 FR 64651). That NPRM proposed to require inspecting to determine the manufacturer's date of certain V-band clamps on the engine exhaust shroud assembly, and doing related investigative/corrective actions if necessary. Comments We provided the public the opportunity to participate in the development of this AD. We received no comments on the NPRM or on the determination of the cost to the public. Conclusion We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed. Costs of Compliance This AD affects about 21 airplanes of U.S. registry. The required actions take about 3 work hours per airplane, at an average labor rate of $80 per work hour. Required parts cost is minimal. Based on these figures, the estimated cost of this AD for U.S. operators is $5,040, or $240 per airplane. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD:

(1)Is not a “significant regulatory action” under Executive Order 12866;

(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(FAA)amends § 39.13 by adding the following new airworthiness directive (AD): **2007-04-07 Bombardier, Inc. (Formerly de Havilland, Inc.):** Amendment 39-14938. FAA-2006-26241; Directorate Identifier 2006-NM-155-AD. Effective Date

(a)This AD becomes effective March 21, 2007. Affected ADs

(b)None. Applicability

(c)This AD applies to Bombardier Model DHC-8-400 series airplanes, certificated in any category; as identified in Bombardier Service Bulletin 84-78-01, Revision ‘A,' dated September 15, 2005. Unsafe Condition

(d)This AD results from a report of a discrepancy found during a maintenance inspection on a V-band clamp located on the engine exhaust duct shroud. The clamp ends were touching (although the correct fastener torque had been applied), resulting in reduced clamp force on the flanges. We are issuing this AD to prevent vibration in the duct shroud and fretting of the V-band clamp and flanges, which could result in cracking of the flanges and consequent release of hot exhaust gases from the engine tailpipe and damage to adjacent structure. This situation could trigger the fire warning system and result in an in-flight emergency, such as the flightcrew shutting down the engine and activating the fire suppression system. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Inspection/Investigative and Corrective Actions

(f)Within 5,000 flight hours after the effective date of this AD: Inspect to determine the part number (P/N) of the V-band clamps on the engine exhaust duct shroud in accordance with the Accomplishment Instructions of Bombardier Service Bulletin 84-78-01, Revision ‘A,' dated September 15, 2005. For any V-band clamp having P/N VC1642A-2030-A or VC1642A-1875-A, before further flight, determine the manufacturer's date and do all applicable related investigative and corrective actions (including inspecting the flange of the shroud assemblies for discrepancies), by accomplishing all the actions specified in the Accomplishment Instructions of the service bulletin; except as provided by paragraph

(g)of this AD. Do all applicable related investigative and corrective actions before further flight.

(g)If, during the accomplishment of the corrective actions required by paragraph

(f)of this AD, the service bulletin specifies contacting the manufacturer for repair instructions, before further flight, repair in accordance with a method approved by either the Manager, New York Aircraft Certification Office (ACO), FAA; or Transport Canada Civil Aviation

(TCCA)(or its delegated agent). Actions Accomplished According to Previous Issue of Service Bulletin

(h)Actions accomplished before the effective date of this AD according to Bombardier Service Bulletin 84-78-01, dated March 22, 2005, are considered acceptable for compliance with the corresponding actions specified in paragraph

(f)of this AD. Parts Installation

(i)As of the effective date of this AD, no person may install a V-band clamp, P/N VC1642A-2030-A or VC1642A-1875-A, with a manufacturer batch stamp dated before “08-02,” on any airplane. Alternative Methods of Compliance (AMOCs) (j)(1) The Manager, New York ACO, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.

(k)Canadian airworthiness directive CF-2006-06, dated April 4, 2006, also addresses the subject of this AD. Material Incorporated by Reference

(l)You must use Bombardier Service Bulletin 84-78-01, Revision ‘A,' dated September 15, 2005, to perform the actions that are required by this AD, unless the AD specifies otherwise. The Director of the Federal Register approved the incorporation by reference of this document in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact Bombardier, Inc., Bombardier Regional Aircraft Division, 123 Garratt Boulevard, Downsview, Ontario M3K 1Y5, Canada, for a copy of this service information. You may review copies at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street SW., Room PL-401, Nassif Building, Washington, DC; on the Internet at *http://dms.dot.gov;* or at the National Archives and Records Administration (NARA). For information on the availability of this material at the NARA, call

(202)741-6030, or go to *http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.* Issued in Renton, Washington, on February 2, 2007. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-2411 Filed 2-13-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-23786; Directorate Identifier 2006-CE-11-AD; Amendment 39-14933; AD 2007-04-02] RIN 2120-AA64 Airworthiness Directives; CTRM Aviation Sdn. Bhd. (Formerly Eagle Aircraft (Malaysia) Sdn. Bhd.) Model Eagle 150B Airplanes AGENCY: Federal Aviation Administration (FAA), DOT. ACTION: Final rule. SUMMARY: The FAA is adopting a new airworthiness directive

(AD)to supersede AD 2004-11-04, which applies to all CTRM Aviation Sdn. Bhd. (Formerly Eagle Aircraft (Malaysia) Sdn. Bhd.) Model Eagle 150B airplanes. AD 2004-11-04 currently requires you to inspect certain canard inboard flap hinge support brackets (initially before further flight and repetitively before the first flight of each day) and perform any necessary follow-up action. This AD results from mandatory continuing airworthiness information

(MCAI)issued by the airworthiness authority for Malaysia to require the installation of improved design inboard flap hinge brackets as terminating action for the repetitive inspections. Consequently, this AD retains the requirement that you inspect certain canard inboard flap hinge support brackets (initially before further flight and repetitively before the first flight of each day) and then requires that you replace the parts with new design inboard flap hinge brackets as terminating action for the repetitive inspections or if cracks are found. We are issuing this AD to detect and correct cracks in the canard inboard flap hinge support brackets, which could result in loss of retention of controls and consequently, loss of airplane control. DATES: This AD becomes effective on March 21, 2007. As of March 21, 2007, the Director of the Federal Register approved the incorporation by reference of Eagle Aircraft Mandatory Service Bulletin SB 1120, Original, Effective Date June 3, 2005. On June 4, 2004 (69 FR 30189, May 27, 2004), the Director of the Federal Register previously approved the incorporation by reference of Eagle Aircraft Mandatory Service Bulletin SB 1109, Revision Original, Effective Date August 29, 2003. ADDRESSES: To get the service information identified in this AD, contact CTRM Aviation Sdn. Bhd. (formerly known as Eagle Aircraft (Malaysia) Sdn. Bhd.), Locked Bag 1028, Pejabat Pos Besar Melaka, 75150 Melaka, Malaysia; telephone: 06 317 1007; fax: 06 317 7023. To view the AD docket, go to the Docket Management Facility; U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC 20590-0001 or on the Internet at *http://dms.dot.gov.* The docket number is FAA-2006-23786; Directorate Identifier 2006-CE-11-AD. FOR FURTHER INFORMATION CONTACT: Karl Schletzbaum, Aerospace Engineer, ACE-112, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone: 816-329-4146; fax: 816-329-4090. SUPPLEMENTARY INFORMATION: Discussion On July 3, 2006, we issued a proposal to amend part 39 of the Federal Aviation Regulations (14 CFR part 39) to include an AD that would apply to all CTRM Aviation Sdn. Bhd. (Formerly Eagle Aircraft (Malaysia) Sdn. Bhd.) Model Eagle 150B airplanes. This proposal was published in the **Federal Register** as a notice of proposed rulemaking

(NPRM)on July 11, 2006 (71 FR 39020). The NPRM proposed to retain the requirement of AD 2004-11-04 that you inspect certain canard inboard flap hinge support brackets (initially before further flight and repetitively before the first flight of each day) and then replace the parts with new design inboard flap hinge brackets as terminating action for the repetitive inspections or if cracks are found. Comments We provided the public the opportunity to participate in developing this AD. The following presents the comment received on the proposal and FAA's response to the comment: Comment Issue: Service Documents and Parts Manufacturer Approval Jack Buster of the Modification and Replacement Parts Association (MARPA) requests the following be incorporated into the regulatory action: 1. Service documents deemed essential to the accomplishment of this proposed action be incorporated by reference and published in the Docket Management System (DMS); and 2. The issue of parts manufacturer approval

(PMA)be addressed in the proposed action and that all Directorates within the FAA treat the issue the same per Section 1, paragraph (b)(10) of Executive Order 12866. We agree that the service documents are essential and should be incorporated by reference. However, we do not incorporate by reference any document in a proposed AD action; instead we incorporate by reference the document in the final rule. Since we are issuing the proposal as a final rule AD action, the service information referenced in this action will be incorporated by reference. We are currently reviewing issues surrounding the posting of service bulletins in the Department of Transportation's DMS as part of the AD docket. Once we have thoroughly examined all aspects of this issue and have made a final determination, we will consider whether our current practice needs to be revised. On the PMA issue, Mr. Buster's comments are timely in that the FAA is currently reviewing this issue as it applies to all products: Transport airplanes, commuter airplanes, general aviation airplanes, engines and propellers, rotorcraft, and appliances. The FAA acknowledges that there are different ways of addressing this issue to ensure that unsafe PMA parts are identified and addressed. Once we have thoroughly examined all aspects of this issue including input from industry and have made a final determination, we will consider developing a standardized approach and standardized language on how to address PMA parts in airworthiness directives. We have determined that to delay this AD action would be inappropriate since an unsafe condition exists and that replacement of certain parts must be done to ensure continued safety. Therefore, we have made no change to the AD in this regard. Conclusion We have carefully reviewed the available data and determined that air safety and the public interest require adopting the AD as proposed except for minor editorial corrections. We have determined that these minor corrections: • Are consistent with the intent that was proposed in the NPRM for correcting the unsafe condition; and • Do not add any additional burden upon the public than was already proposed in the NPRM. Costs of Compliance We estimate that this AD affects 13 airplanes in the U.S. registry. We estimate the following costs to do each inspection: Labor cost Parts cost Total cost per airplane Total cost on U.S. operators 1 work-hour × $80 = $80 Not Applicable $80 $1,040 We estimate the following costs to do the replacements that would be required as a result of the inspection or the mandatory replacement: Labor cost Parts cost Total cost per airplane Total cost on U.S. operators 10 work-hours × $80 = $800 $1,700 $2,500 $32,500 Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority. We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this AD. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD: 1. Is not a “significant regulatory action” under Executive Order 12866; 2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and 3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a summary of the costs to comply with this AD (and other information as included in the Regulatory Evaluation) and placed it in the AD Docket. You may get a copy of this summary by sending a request to us at the address listed under ADDRESSES . Include “Docket No. FAA-2006-23786; Directorate Identifier 2006-CE-11-AD” in your request. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the Federal Aviation Administration amends part 39 of the Federal Aviation Regulations (14 CFR part 39) as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by removing Airworthiness Directive

(AD)AD 2004-11-04; Amendment 39-13649 (69 FR 30189, May 27, 2004), and adding the following new AD: **2007-04-02 CTRM Aviation Sdn. Bhd. (Formerly Eagle Aircraft (Malaysia) Sdn. Bhd.):** Amendment 39-14933; Docket No. FAA-2006-23786; Directorate Identifier 2006-CE-11-AD. Effective Date

(a)This AD becomes effective on March 21, 2007. Affected ADs

(b)This AD supersedes AD 2004-11-04; Amendment 39-13649. Applicability

(c)This AD affects Model Eagle 150B airplanes, all serial numbers, that are certificated in any category. Unsafe Condition

(d)This AD results from mandatory continuing airworthiness information

(MCAI)issued by the airworthiness authority for Malaysia. The actions specified in this AD are intended to detect and correct cracks in the canard inboard flap hinge support brackets, which could result in loss of retention of controls and consequently, loss of airplane control. Compliance

(e)To address this problem, you must do the following: Actions Compliance Procedures

(1)Inspect the gusset weld area of the canard inboard flap hinge support brackets, part number (P/N) 5731D01-05 and P/N 5731D01-02, for cracked, lifted, or missing paint in the area of the weld or suspected cracks. Initially inspect before the next flight after June 4, 2004 (the effective date of AD 2004-11-04). Repetitively inspect thereafter before the first flight of each day Follow Eagle Aircraft Mandatory Service Bulletin SB 1109, Revision Original, Effective Date August 29, 2003.

(2)If cracked, lifted, or missing paint in the area of the weld or suspected cracks are found during any inspection required in paragraph (e)(1) of this AD, inspect the affected bracket more fully as specified in the service bulletin. Before further flight after any inspection required by paragraph (e)(1) of this AD, where cracked, lifted, or missing paint in the area of the weld or suspected cracks are found Follow Eagle Aircraft Mandatory Service Bulletin SB 1109, Revision Original, Effective Date August 29, 2003.

(3)Replace any canard inboard flap hinge support brackets, P/N 5731D01-05 and P/N 5731D01-02, with new design inboard flap hinge brackets, P/N 5731D05-01 and P/N 5731D06-01. Before further flight after any inspection where cracks are found or within 6 months after March 21, 2007 (the effective date of this AD), whichever occurs first. This action terminates the repetitive inspections required in paragraph (e)(1) of this AD Follow Eagle Aircraft Mandatory Service Bulletin SB 1120, Original, Effective Date June 3, 2005.

(4)Do not install any canard inboard flap hinge support brackets, P/N 5731D01-05 and P/N 5731D01-02 As of March 21, 2007 (the effective date of this AD) Not Applicable.

(f)The Australian AD allows an appropriately trained pilot to perform the visual inspections of the canard inboard flap hinge support brackets. Although the Malaysian AD does not specifically state this, it does refer to the Australian AD. Regardless, the Federal Aviation Regulations (14 CFR 43.3) only allow the pilot to perform preventive maintenance as described in 14 CFR part 43, App. A, paragraph (c). These visual inspections are not considered preventive maintenance under 14 CFR part 43, App. A, paragraph (c). Therefore, an appropriately-rated mechanic must perform all actions of this AD. Special Flight Permit

(g)Special flight permits are not allowed for this AD. Part 39 of the Federal Aviation Regulations (14 CFR part 39) provides that FAA may issue special flight permits for ADs, unless otherwise specified in the individual AD. The FAA has determined that the safety issue is severe enough that failure of the canard inboard flap hinge support brackets must be prevented and cracks in this area must be detected before further operation. Alternative Methods of Compliance (AMOCs)

(h)The Manager, Standards Staff, FAA, ATTN: Karl Schletzbaum, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4146; fax:

(816)329-4090, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19.

(i)AMOCs approved for AD 2004-11-04 are approved for this AD. Related Information

(j)Malaysian AD No. CAM AD 001-01-2004 R1, dated December 23, 2005; and Australian AD No. CASA AD/X-TS/5, dated August 21, 2003, revised April 2, 2004, also address the subject of this AD. Material Incorporated by Reference

(k)You must use Eagle Aircraft Mandatory Service Bulletin SB 1120, Original, Effective Date June 3, 2005; and Eagle Aircraft Mandatory Service Bulletin SB 1109, Revision Original, Effective Date August 29, 2003 to do the actions required by this AD, unless the AD specifies otherwise.

(1)The Director of the Federal Register approved the incorporation by reference of Eagle Aircraft Mandatory Service Bulletin SB 1120, Original, Effective Date June 3, 2005, under 5 U.S.C. 552(a) and 1 CFR part 51.

(2)On June 4, 2004 (69 FR 30189, May 27, 2004), the Director of the Federal Register previously approved the incorporation by reference of Eagle Aircraft Mandatory Service Bulletin SB 1109, Revision Original, Effective Date August 29, 2003.

(3)For service information identified in this AD, contact CTRM Aviation Sdn. Bhd. (formerly known as Eagle Aircraft Sdn. Bhd.), Locked Bag 1028, Pejabat Pos Besar Melaka, 75150 Melaka, Malaysia; telephone: 06 317 1007; fax: 06 317 7023.

(3)You may review copies at the FAA, Central Region, Office of the Regional Counsel, 901 Locust, Kansas City, Missouri 64106; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html.* Issued in Kansas City, Missouri, on February 5, 2007. David R. Showers, Acting Manager, Small Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-2319 Filed 2-13-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-26285; Directorate Identifier 2006-CE-69-AD; Amendment 39-14932; AD 2007-04-01] RIN 2120-AA64 Airworthiness Directives; Pacific Aerospace Corporation Ltd Model 750XL Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: We are adopting a new airworthiness directive

(AD)for the products listed above. This AD results from mandatory continuing airworthiness information

(MCAI)issued by an aviation authority of another country to identify and correct an unsafe condition on an aviation product. The MCAI describes the unsafe condition as possible installation of undersize rivets in the fuselage roof at STN 180.85, BL 19.67, WL 86.2. We are issuing this AD to require actions to correct the unsafe condition on these products. DATES: This AD becomes effective March 21, 2007. The Director of the Federal Register approved the incorporation by reference of certain publications listed in this AD as of March 21, 2007. ADDRESSES: You may examine the AD docket on the Internet at *http://dms.dot.gov* or in person at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC. FOR FURTHER INFORMATION CONTACT: Karl Schletzbaum, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4146; fax:

(816)329-4090. SUPPLEMENTARY INFORMATION: Streamlined Issuance of AD The FAA is implementing a new process for streamlining the issuance of ADs related to MCAI. The streamlined process will allow us to adopt MCAI safety requirements in a more efficient manner and will reduce safety risks to the public. This process continues to follow all FAA AD issuance processes to meet legal, economic, Administrative Procedure Act, and **Federal Register** requirements. We also continue to meet our technical decision-making responsibilities to identify and correct unsafe conditions on U.S.-certificated products. This AD references the MCAI and related service information that we considered in forming the engineering basis to correct the unsafe condition. The AD contains text copied from the MCAI and for this reason might not follow our plain language principles. Discussion We issued a notice of proposed rulemaking

(NPRM)to amend 14 CFR part 39 to include an AD that would apply to the specified products. That NPRM was published in the **Federal Register** on December 11, 2006 (71 FR 71499). That NPRM proposed to require that you inspect the rivets in the fuselage roof at STN 180.85, BL 19.67, WL 86.2, and replace undersize rivets. Comments We gave the public the opportunity to participate in developing this AD. We received no comments on the NPRM or on the determination of the cost to the public. Differences Between This AD and the MCAI or Service Information We have reviewed the MCAI and related service information and, in general, agree with their substance. But we might have found it necessary to use different words from those in the MCAI to ensure the AD is clear for U.S. operators and is enforceable in a U.S. court of law. In making these changes, we do not intend to differ substantively from the information provided in the MCAI and related service information. We might also have required different actions in this AD from those in the MCAI in order to follow FAA policies. Any such differences are described in a separate paragraph of the AD. These requirements, if any, take precedence over the actions copied from the MCAI. Costs of Compliance We estimate that this AD will affect 7 products of U.S. registry. We also estimate that it will take about 16 work-hours per product to comply with this AD. The average labor rate is $80 per work-hour. Required parts will cost about $100 per product. Where the service information lists required parts costs that are covered under warranty, we have assumed that there will be no charge for these parts. As we do not control warranty coverage for affected parties, some parties may incur costs higher than estimated here. Based on these figures, we estimate the cost of this AD to the U.S. operators to be $9,660, or $1,380 per product. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. “Subtitle VII: Aviation Programs,” describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in “Subtitle VII, Part A, Subpart III, Section 44701: General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify this AD:

(1)Is not a “significant regulatory action” under Executive Order 12866;

(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(3)Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. We prepared a regulatory evaluation of the estimated costs to comply with this AD and placed it in the AD Docket. Examining the AD Docket You may examine the AD docket on the Internet at *http://dms.dot.gov;* or in person at the Docket Management Facility between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains the NPRM, the regulatory evaluation, any comments received, and other information. The street address for the Docket Office (telephone

(800)647-5227) is in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt. List of Subjects in 14 CFR Part 39 Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety. Adoption of the Amendment Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows: PART 39—AIRWORTHINESS DIRECTIVES 1. The authority citation for part 39 continues to read as follows: Authority: 49 U.S.C. 106(g), 40113, 44701. § 39.13 [Amended] 2. The FAA amends § 39.13 by adding the following new AD: *** * * Pacific Aerospace Corporation Ltd:** Amendment 39-14932; Docket No. FAA-2006-26285; Directorate Identifier 2006-CE-69-AD. Effective Date

(a)This airworthiness directive

(AD)becomes effective March 21, 2007. Affected ADs

(b)None. Applicability

(c)This AD applies to Model 750XL airplanes, serial numbers 102, 104 through 120, 122, and 125, certificated in any category. Reason

(d)The mandatory continuing airworthiness information

(MCAI)states the finding of the possible installation of undersize rivets in the fuselage roof at STN 180.85, BL 19.67, WL 86.2. Actions and Compliance

(e)Unless already done, within the next 150 hours time-in-service after the effective date of this AD, inspect the rivets in the fuselage roof at STN 180.85, BL 19.67, WL 86.2, and replace undersize rivets, following PAC Pacific Aerospace Corporation Mandatory Service Bulletin PACSB/XL/019, Date Issued: April 21, 2006. FAA AD Differences Note: This AD differs from the MCAI and/or service information as follows: No differences. Other FAA AD Provisions

(f)The following provisions also apply to this AD:

(1)*Alternative Methods of Compliance (AMOCs):* The Manager, Standards Staff, FAA, ATTN: Karl Schletzbaum, Aerospace Engineer, FAA, Small Airplane Directorate, 901 Locust, Room 301, Kansas City, Missouri 64106; telephone:

(816)329-4146; fax:

(816)329-4090, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19.

(2)*Airworthy Product:* For any requirement in this AD to obtain corrective actions from a manufacturer or other source, use these actions if they are FAA-approved. Corrective actions are considered FAA-approved if they are approved by the State of Design Authority (or their delegated agent). You are required to assure the product is airworthy before it is returned to service.

(3)*Reporting Requirements:* For any reporting requirement in this AD, under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et. seq.), the Office of Management and Budget

(OMB)has approved the information collection requirements and has assigned OMB Control Number 2120-0056. Related Information

(g)Refer to MCAI New Zealand Civil Aviation Authority AD DCA/750XL/8, Drafted: May 9, 2006; Effective Date: August 31, 2006; and PAC Pacific Aerospace Corporation Mandatory Service Bulletin PACSB/XL/019, Date Issued: April 21, 2006, for related information. Material Incorporated by Reference

(h)You must use PAC Pacific Aerospace Corporation Mandatory Service Bulletin PACSB/XL/019, Date Issued: April 21, 2006, to do the actions required by this AD, unless the AD specifies otherwise.

(1)The Director of the Federal Register approved the incorporation by reference of this service information under 5 U.S.C. 552(a) and 1 CFR part 51.

(2)For service information identified in this AD, contact Pacific Aerospace Corporation Ltd., Hamilton Airport, Private Bag HN 3027, Hamilton, New Zealand; telephone: 011 64 7 843 6144; fax: 011 64 7 843 6134.

(3)You may review copies at the FAA, Central Region, Office of the Regional Counsel, 901 Locust, Room 506, Kansas City, Missouri 64106; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal-register/cfr/ibr-locations.html.* Issued in Kansas City, Missouri, on February 5, 2007. David R. Showers, Acting Manager, Small Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-2318 Filed 2-13-07; 8:45 am] BILLING CODE 4910-13-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA-2006-25925; Directorate Identifier 2006-NM-167-AD; Amendment 39-14934; AD 2007-04-03] RIN 2120-AA64 Airworthiness Directives; Empresa Brasileira de Aeronautica S.A. (EMBRAER) Model EMB-135 Airplanes and Model EMB-145, -145ER, -145MR, -145LR, -145XR, -145MP, and -145EP Airplanes AGENCY: Federal Aviation Administration (FAA), Department of Transportation (DOT). ACTION: Final rule. SUMMARY: The FAA is superseding an existing airworthiness directive (AD), which applies to all EMBRAER Model EMB-135 airplanes and Model EMB-145, -145ER, -145MR, -145LR, -145XR, -145MP, and -145EP airplanes. That AD currently requires repetitive inspections of the pitot static heating relay K0057 and corrective actions if necessary. That AD also requires doing a terminating modification, which ends the repetitive inspections. This new AD removes the existing repetitive inspections and instead requires a one-time detailed inspection for damage of the relay, relay socket, and silicone gasket; applicable corrective actions; and a new action to modify and re-identify the relay socket. This AD also revises the existing terminating modification—replacing/rerouting the windowsill drain hoses—into two parts, each with a different, reduced compliance time. This AD results from a report of smoke in the cockpit. We are issuing this AD to prevent ignition of a windowsill drain hose by an overheated relay, which could cause fire and smoke in the cockpit. DATES: This AD becomes effective March 21, 2007. The Director of the Federal Register approved the incorporation by reference of certain publications listed in the AD as of March 21, 2007. ADDRESSES: You may examine the AD docket on the Internet at *http://dms.dot.gov* or in person at the Docket Management Facility, U.S. Department of Transportation, 400 Seventh Street, SW., Nassif Building, Room PL-401, Washington, DC. Contact Empresa Brasileira de Aeronautica S.A. (EMBRAER), P.O. Box 343-CEP 12.225, Sao Jose dos Campos-SP, Brazil, for service information identified in this AD. FOR FURTHER INFORMATION CONTACT: Dan Rodina, Aerospace Engineer, International Branch, ANM-116, FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington 98057-3356; telephone

(425)227-2125; fax

(425)227-1149. SUPPLEMENTARY INFORMATION: Examining the Docket You may examine the airworthiness directive

(800)647-5227) is located on the plaza level of the Nassif Building at the street address stated in the ADDRESSES section. Discussion The FAA issued a notice of proposed rulemaking

(NPRM)to amend 14 CFR part 39 to include an AD that supersedes AD 2006-04-02, amendment 39-14483 (71 FR 9434, February 24, 2006). The existing AD applies to all EMBRAER Model EMB-135 airplanes, and Model EMB-145, -145ER, -145MR, -145LR, -145XR, -145MP, and -145EP airplanes. That NPRM was published in the **Federal Register** on September 28, 2006 (71 FR 56900). That NPRM proposed to remove the existing repetitive inspections and instead to require a one-time detailed inspection for damage of the relay, relay socket, and silicone gasket; applicable corrective actions; and a new action to modify and re-identify the relay socket. That NPRM also proposed to revise the existing terminating modification—replacing/rerouting the windowsill drain hoses—into two parts, each with a different, reduced compliance time. Comments We provided the public the opportunity to participate in the development of this AD. We have considered the comments that have been received on the NPRM. Request To Allow Use of Existing Alternative Method of Compliance

(AMOC)One commenter, ExpressJet Inc., requests that we allow for termination of certain repetitive inspections described in the NPRM. The commenter states that it has received AMOC number ANM-116-06-244 to AD 2006-04-02, which allows ending the repetitive relay inspections described in EMBRAER Service Bulletin 145-30-0042 once EMBRAER Alert Service Bulletin 145-30-A050 is accomplished; and, further, that doing EMBRAER Service Bulletin 145-30-0041 also provides terminating action for the repetitive inspections. The commenter states that paragraph

(f)of the NPRM proposes to require repetitive inspections as described in EMBRAER Alert Service Bulletin 145-30-A050 until EMBRAER Service Bulletin 145-30-0041 is accomplished, and requests that we revise the NPRM to allow those inspections to be terminated if the modification described in either EMBRAER Alert Service Bulletin 145-30-A050 or EMBRAER Service Bulletin 145-30-0041 is accomplished in accordance with the AMOC. We find that clarification is necessary. This AD cancels the repetitive inspections required by AD 2006-04-02, which cites EMBRAER Service Bulletins 145LEG-30-0012 and 145-30-0042, both dated April 18, 2005, as the appropriate sources of service information for doing the repetitive inspections. EMBRAER Alert Service Bulletins 145LEG-30-A017 and 145-30-A050, both dated May 31, 2006, supersede Service Bulletins 145LEG-30-0012 and 145-30-0042, respectively, and replace the repetitive inspections with a one-time only inspection. Therefore, as of the effective date of this AD, the repetitive inspections are no longer required. No change is needed to the AD in this regard. Request To Change Incorporation of Certain Information One commenter, the Modification and Replacement Parts Association (MARPA), requests that we revise our procedures for incorporation by reference

(IBR)of service information in ADs. MARPA asserts that ADs are frequently derived from privately-authored, copyright-protected manufacturer service documents, but that when such a document is incorporated by reference into a public document like an AD, it loses its private, protected status and becomes itself a public document. MARPA continues that public laws by definition must be public and cannot rely for compliance upon private writings, and that unless such writings are incorporated by reference, a court of law will not consider them in interpreting the AD and might invalidate the AD. MARPA contends that IBR service documents should be published in the Docket Management System (DMS), keyed to the action that incorporates them. MARPA states that IBR was adopted to relieve the **Federal Register** from publishing documents already held by affected individuals, which traditionally meant aircraft owners and operators who received service information from manufacturers. However, MARPA contends that a new affected class of maintenance and repair organizations (MRO), component service and repair shops, parts purveyors and distributors, and organizations that manufacture or service alternatively certified parts under section 21.303 of the Federal Aviation Regulations (14 CFR 21.303), now perform a majority of aircraft maintenance. MARPA continues that service information distributed to owners and operators who are financing or leasing institutions may not reach this class, who may actually be responsible for accomplishing ADs. MARPA therefore requests that service documents deemed essential to accomplishing this proposed action be

(1)incorporated by reference into the regulatory instrument, and

(2)published in the DMS. We acknowledge the commenter's requests. The Office of the Federal Register

(OFR)requires that documents that are necessary to accomplish the requirements of the AD be incorporated by reference during the final rule phase of rulemaking. This final rule incorporates by reference the documents necessary for the accomplishment of the requirements mandated by this AD. Further, we point out that while documents that are incorporated by reference do become public information, they do not lose their copyright protection. For that reason, we advise the public to contact the manufacturer to obtain copies of the referenced service information. In regard to MARPA's request to post service bulletins on the Department of Transportation's DMS, we are currently in the process of reviewing issues surrounding the posting of service bulletins on the DMS as part of an AD docket. Once we have thoroughly examined all aspects of this issue and have made a final determination, we will consider whether our current practice needs to be revised. No change to the final rule is necessary in response to this comment. Request To Comply With Draft FAA Order 8040.2 MARPA asserts that the NPRM, as written, does not comply with proposed FAA Order 8040.2 which states, “Parts Manufacturer Approval (PMA). MCAI that require replacement or installation of certain parts could have replacement parts approved under 14 CFR 21.303 based on a finding of identicality. We have determined that any parts approved under this regulation and installed should be subject to the actions of our AD and included in the applicability of our AD.” MARPA contends that including certain language from proposed FAA Order 8040.2 to permit the use of any PMA part and including such parts in the applicability of the AD would resolve the issue of possibly defective PMA parts being installed and not affected by the proposed action. The NPRM did not address PMA parts, as provided in draft FAA Order 8040.2, because the Order was only a draft that was out for comment at the time. After issuance of the NPRM, the Order was revised and issued as FAA Order 8040.5 with an effective date of September 29, 2006. FAA Order 8040.5 does not address PMA parts in ADs; therefore we have not changed the AD in this regard. Request To Revise Specification of Replacement Parts MARPA requests that we revisit the manner in which PMA parts are addressed in the NPRM. MARPA asserts that type certificate holders, particularly foreign manufacturers, almost universally ignore any possible PMA parts while frequently specifying replacing a part with a part having a different part number as a corrective action in their service documents. MARPA contends that this “runs afoul of 14 CFR § 21.303,” which permits development, certification, and installation of PMA parts. MARPA expresses concern that parts having different part numbers will not be subject to the AD if part numbers are not specified, asserting that if a part number is used to designate defective parts, the AD must address any defective PMA parts that have different part numbers but the same defects. MARPA continues that mandating only one part is not generally favored and can prevent installing perfectly good parts while prohibiting development of new parts as permitted under 14 CFR 21.303. MARPA asserts that identifying specifically numbered parts for installation should be only one of several methods of addressing the problem. MARPA continues that another directorate has published ADs containing language permitting the use of “FAA-approved equivalent parts,” which differs markedly from the policies of the other directorates. Because of this difference, MARPA claims that the requirements of Executive Order 12866 for all agencies to act uniformly on a given issue are not being met. MARPA therefore requests that the NPRM be modified to consider possibly defective PMA parts and to permit the use of PMA parts meeting the “new and improved” criteria pursuant to existing laws and regulations and the issues set forth in the current proposed regulatory action. The FAA recognizes the need for standardization of this issue and is currently in the process of reviewing issues that address the use of PMAs in ADs at the national level. However, the Transport Airplane Directorate considers that to delay this particular AD action would be inappropriate, since we have determined that an unsafe condition exists and that replacement of certain parts must be accomplished to ensure continued safety. Therefore, no change has been made to the AD in this regard. Conclusion We have carefully reviewed the available data, including the comments that have been submitted, and determined that air safety and the public interest require adopting the AD as proposed. Costs of Compliance The following table provides the estimated costs for U.S. operators to comply with this AD, at an average labor rate of $80 per work hour. Estimated Costs Action/item Work hours Parts Cost per airplane Number of U.S.-registered airplanes Fleet cost Detailed inspection 1 None $80 651 $52,080 Modification/reidentification of relay socket 1 1 $10 90 651 58,590 Replacement of drain hoses 2 2 268 428 651 278,628 1 Operator-supplied parts. 2 Includes rerouting of drain hoses of cockpit horizontal linings, if applicable. Authority for This Rulemaking Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority. We are issuing this rulemaking under the authority described in subtitle VII, part A, subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action. Regulatory Findings We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. For the reasons discussed above, I certify that this AD:

(1)Is not a “significant regulatory action” under Executive Order 12866;

(2)Is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

(FAA)amends § 39.13 by removing amendment 39-14483 (71 FR 9434, February 24, 2006) and by adding the following new airworthiness directive (AD): **2007-04-03 Empresa Brasileira de Aeronautica S.A. (EMBRAER):** Amendment 39-14934. Docket No. FAA-2006-25925; Directorate Identifier 2006-NM-167-AD. Effective Date

(a)This AD becomes effective March 21, 2007. Affected ADs

(b)This AD supersedes AD 2006-04-02. Applicability

(c)This AD applies to all EMBRAER Model EMB-135BJ, -135ER, -135KE, -135KL, and -135LR airplanes; and Model EMB-145, -145ER, -145MR, -145LR, -145XR, -145MP, and -145EP airplanes; certificated in any category. Unsafe Condition

(d)This AD results from a report of smoke in the cockpit. We are issuing this AD to prevent ignition of a windowsill drain hose by an overheated relay, which could cause fire and smoke in the cockpit. Compliance

(e)You are responsible for having the actions required by this AD performed within the compliance times specified, unless the actions have already been done. Inspection and Modification of Relay/Relay Socket, and Corrective Actions

(f)Within 600 flight hours or 180 days after the effective date of this AD, whichever occurs first: Do a one-time detailed inspection for discrepancies of the pitot static heating relay K0057, relay socket XK0057, and silicone gasket; modify and re-identify the XK0057 relay socket; and do all applicable corrective actions; in accordance with the Accomplishment Instructions of EMBRAER Alert Service Bulletin 145LEG-30-A017, dated May 31, 2006 (for Model EMB-135BJ airplanes); or EMBRAER Alert Service Bulletin 145-30-A050, dated May 31, 2006 (for Model EMB-135ER, -135KE, -135KL, and -135LR airplanes; and Model EMB-145, -145ER, -145MR, -145LR, -145XR, -145MP, and -145EP airplanes); as applicable; except where the service bulletins specify to contact the manufacturer if damage to components for the relay support is found, this AD does not require that action. All applicable corrective actions must be done before further flight. Note 1: For the purposes of this AD, a detailed inspection is: “An intensive examination of a specific item, installation, or assembly to detect damage, failure, or irregularity. Available lighting is normally supplemented with a direct source of good lighting at an intensity deemed appropriate. Inspection aids such as mirror, magnifying lenses, etc., may be necessary. Surface cleaning and elaborate procedures may be required.” Replacement and Modification of Right-Hand Windowsill Drain Hoses

(g)Within 600 flight hours or 180 days after the effective date of this AD, whichever occurs first, do the actions required by paragraphs (g)(1), (g)(2), and (g)(3) of this AD, as applicable, in accordance with the Accomplishment Instructions of EMBRAER Service Bulletin 145LEG-30-0011, Revision 01, dated June 7, 2006 (for Model EMB-135BJ airplanes); or EMBRAER Service Bulletin 145-30-0041, Revision 01, dated June 5, 2006 (for Model EMB-135ER, -135KE, -135KL, and -135LR airplanes; and Model EMB-145, -145ER, -145MR, -145LR, -145XR, -145MP, and -145EP airplanes); as applicable.

(1)For all airplanes: Modify and re-identify the drain hose having part number (P/N) 123-15435-405, in accordance with Figure 1 of the applicable service bulletin.

(2)For all airplanes: Replace the right-hand windowsill drain hoses having P/N 123-15435-403 with new, improved hoses, P/N 145-13047-001 and 145-13044-005; and replace the tiedown straps with new tiedown straps, in accordance with Figure 1 of the applicable service bulletin.

(3)For Model EMB-135BJ airplanes: Reroute the drain hoses of the right cockpit horizontal linings, in accordance with Figure 2 of the applicable service bulletin. Replacement of Left-Hand Windowsill Drain Hoses

(h)Within 1,200 flight hours or 360 days after the effective date of this AD, whichever occurs first, do the actions required by paragraphs (h)(1) and (h)(2) of this AD, as applicable, in accordance with the Accomplishment Instructions of EMBRAER Service Bulletin 145LEG-30-0011, Revision 01, dated June 7, 2006 (for Model EMB-135BJ airplanes); or EMBRAER Service Bulletin 145-30-0041, Revision 01, dated June 5, 2006 (for Model EMB-135ER, -135KE, -135KL, and -135LR airplanes; and Model EMB-145, -145ER, -145MR, -145LR, -145XR, -145MP, and -145EP airplanes); as applicable.

(1)*For all airplanes:* Replace the left-hand windowsill drain hoses having P/N 123-15435-401 and -403 with new, improved hoses having P/N 145-13044-001 and P/N 145-13047-001, and replace the tiedown straps with new tiedown straps, in accordance with Figure 1 of the applicable service bulletin.

(2)*For Model EMB-135BJ airplanes:* Reroute the drain hoses of the left cockpit horizontal linings, in accordance with Figure 2 of the applicable service bulletin. Actions Accomplished According to Previous Issue of Service Bulletin

(i)Any replacement/rerouting of the drain hoses accomplished before the effective date of this AD in accordance with EMBRAER Service Bulletin 145-30-0041 or 145LEG-30-0011, both dated April 20, 2005, as applicable, is considered acceptable for compliance with the requirements of paragraphs

(g)and

(h)this AD. Alternative Methods of Compliance (AMOCs) (j)(1) The Manager, ANM-116, International Branch, Transport Airplane Directorate, FAA, has the authority to approve AMOCs for this AD, if requested in accordance with the procedures found in 14 CFR 39.19.

(k)Brazilian airworthiness directive 2005-08-04R1, effective July 27, 2006, also addresses the subject of this AD. Material Incorporated by Reference

(l)You must use the applicable EMBRAER service bulletins specified in Table 1 of this AD to perform the actions that are required by this AD, unless the AD specifies otherwise. The Director of the Federal Register approved the incorporation by reference of these documents in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Contact Empresa Brasileira de Aeronautica S.A. (EMBRAER), P.O. Box 343—CEP 12.225, Sao Jose dos Campos—SP, Brazil, for a copy of this service information. You may review copies at the FAA, Transport Airplane Directorate, 1601 Lind Avenue, SW., Renton, Washington; or at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, call 202-741-6030, or go to: *http://www.archives.gov/federal-register/cfr/ibr-locations.html* . Table 1.—Material Incorporated by Reference EMBRAER— Revision level— Date— Alert Service Bulletin 145-30-A050 Original May 31, 2006. Alert Service Bulletin 145LEG-30-A017 Original May 31, 2006. Service Bulletin 145-30-0041 01 June 5, 2006. Service Bulletin 145LEG-30-0011 01 June 7, 2006. Issued in Renton, Washington, on February 5, 2007. Ali Bahrami, Manager, Transport Airplane Directorate, Aircraft Certification Service. [FR Doc. E7-2413 Filed 2-13-07; 8:45 am] BILLING CODE 4910-13-P COMMODITY FUTURES TRADING COMMISSION 17 CFR Part 38 RIN 3038-AC28 Conflicts of Interest in Self-Regulation and Self-Regulatory Organizations (“SROs”) AGENCY: Commodity Futures Trading Commission. ACTION: Final rule. SUMMARY: The Commission hereby adopts final acceptable practices for minimizing conflicts of interest in decision making by designated contract markets (“DCMs” or “exchanges”), 1 pursuant to Section 5(d)(15) (“Core Principle 15”) 2 of the Commodity Exchange Act (“CEA” or “Act”). 3 The final acceptable practices are the first issued for Core Principle 15 and are applicable to all DCMs. 4 They focus upon structural conflicts of interest within modern self-regulation, and offer DCMs a “safe harbor” by which they may minimize such conflicts and comply with Core Principle 15. To receive safe harbor treatment, DCMs must implement the final acceptable practices in their entirety, including instituting boards of directors that are at least 35% public and establishing oversight of all regulatory functions through Regulatory Oversight Committees (“ROCs') consisting exclusively of public directors. 1 The acceptable practices for core principles reside in Appendix B to Part 38 of the Commission's Regulations, 17 CFR Part 38, App. B. 2 Core Principle 15 states: “CONFLICTS OF INTEREST—The board of trade shall establish and enforce rules to minimize conflicts of interest in the decision-making process of the contract market and establish a process for resolving such conflicts of interest.” CEA § 5(d)(15), 7 U.S.C. 7(d)(15). 3 The Act is codified at 7 U.S.C. 1 *et seq.* (2000). 4 Any board of trade that is registered with the Securities and Exchange Commission (“SEC”) as a national securities exchange, is a national securities association registered pursuant to section 15(A)(a) of the Securities Exchange Act of 1934, or is an alternative trading system, and that operates as a designated contract market in security futures products under Section 5f of the Act and Commission Regulation 41.31, is exempt from the core principles enumerated in Section 5 of the Act, and the acceptable practices thereunder, including those adopted herein. DATES: *Effective Date:* March 16, 2007. FOR FURTHER INFORMATION CONTACT: Rachel F. Berdansky, Acting Deputy Director for Market Compliance,

(202)418-5429, or Sebastian Pujol Schott, Special Counsel

(202)418-5641, Division of Market Oversight, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, Washington, DC 20581. SUPPLEMENTARY INFORMATION: Table of Contents I. Introduction A. Overview of the Acceptable Practices B. Background II. Procedural History III. Public Comments Received and the Commission's Response A. Legal Comments 1. Overview of Commission's Authority to Issue the Acceptable Practices 2. Specific Legal Issues Raised by Commenters B. Policy Comments 1. General Comments 2. Comments With Respect to the Board Composition Acceptable Practice 3. Comments With Respect to the Public Director Acceptable Practice 4. Comments With Respect to the ROC Acceptable Practice 5. Comments With Respect to the Disciplinary Committee Acceptable Practice IV. Specific Requests for Modifications and/or Clarifications that the Commission has Determined to Grant or Deny A. Phase-in Period for the New Acceptable Practices B. Selection of Public Directors C. Compensation of Public Directors D. Overlapping Public Directors E. Jurisdiction of Disciplinary Panels and Definition of “Public” for Persons Serving on Disciplinary Panels F. “No Material Relationship Test” G. Elimination of ROCs’ Periodic Reporting Requirement V. Related Matters VI. Text of Acceptable Practices for Core Principle 15 I. Introduction A. Overview of the Acceptable Practices The final acceptable practices recognize DCMs' unique public-interest responsibilities as self-regulatory organizations (“SROs”) in the U.S. futures industry. They address conflicts of interest that exist within DCMs as they operate in an increasingly competitive environment and transform from member-owned, not-for-profit entities into diverse enterprises with a variety of business models and ownership structures. While continuing to meet their regulatory responsibilities, DCMs must now compete effectively to generate profits, advance their commercial interests, maximize the value of their stock, and/or serve multiple membership, ownership, customer, and other constituencies. The presence of these potentially conflicting demands within a single entity—regulatory authority coupled with commercial incentives to misuse such authority—constitutes the new structural conflict of interest addressed by the acceptable practices adopted herein. The Commission has determined that the structural conflicts outlined above are appropriately addressed through reforms within DCMs themselves, including reforms of DCMs' governing bodies. Accordingly, the Commission offers the new acceptable practices for Core Principle 15 as an appropriate method for minimizing such conflicts. The Commission believes that additional public directors on governing bodies, greater independence at key levels of decision making, and careful insulation of regulatory functions and personnel from commercial pressures, are important elements in ensuring vigorous, effective, and impartial self-regulation now and in the future. The new acceptable practices incorporate and emphasize each of these elements, and offer all DCMs clear instruction as to how they may comply with Core Principle 15. Although DCMs are free to comply with Core Principle 15 by other means, the Commission stresses that they all must address structural conflicts of interest and adopt substantive measures to protect their regulatory decision making from improper commercial considerations. DCMs must ensure that regulatory decisions are made on their own merits, and that they are not compromised by the commercial interests of the DCMs or the interests of their numerous constituencies. Likewise, DCMs' regulatory operations and personnel must be insulated from improper influence and commercial considerations to ensure appropriate regulatory outcomes. The new acceptable practices are set forth in four component parts, and DCMs must meet all four to receive safe harbor treatment under Core Principle 15. Each component part is summarized as follows: First, the Board Composition Acceptable Practice calls upon all DCMs to minimize conflicts of interest in self-regulation by establishing boards of directors that contain at least 35% “public directors” (as defined by a separate Public Director Acceptable Practice discussed below). The Board Composition Acceptable Practice further requires that DCMs ensure that any executive committees (or similarly empowered bodies) also meet the 35% public director standard. This 35% standard in the new acceptable practices represents a modification from the 50% public director standard in the proposed acceptable practice. 5 5 Conflicts of Interest in Self-Regulation and Self-Regulatory Organizations (“Proposed Rule”), 71 FR 38740 (July 7, 2006). Second, the Regulatory Oversight Committee Acceptable Practice mandates that all DCMs establish Regulatory Oversight Committees, composed only of public directors, to oversee core regulatory functions and ensure that they remain free of improper influence. The Commission notes that ROCs are intended to insulate self-regulatory functions and personnel from improper influence. In fulfilling this role, however, ROCs are not expected to assume managerial responsibilities, or to isolate self-regulatory functions and personnel from others within the DCM. ROCs' oversight and insulation should be aided by their DCMs' chief regulatory officers (“CROs”). A full description of the responsibilities and authority of ROCs may be found in the text of the final acceptable practices. Third, the Disciplinary Panel Acceptable Practice states that DCM disciplinary panels should not be dominated by any group or class of DCM members or participants, and must include at least one “public person” on every panel. Under the Disciplinary Panel Acceptable Practice, disciplinary panels must keep thorough minutes of their meetings, including a full articulation of the rationale supporting their disciplinary decisions. Finally, the Public Director Acceptable Practice establishes specific definitions of “public” for DCM directors and for members of disciplinary panels. Public directors are persons who have no “material relationship” with their DCM, i.e., any relationship which could reasonably affect their independent judgment or decision making. In addition, public directors must meet a series of “bright-line tests” which identify specific circumstances and relationships which the Commission believes are clearly material. For members of disciplinary panels, the definition of “public” includes the bright-line tests, but not the materiality criterion. The final acceptable practices also include clarifications to the acceptable practices originally proposed by the Commission on July 7, 2006. For example, the final acceptable practices clarify that a DCM's public directors may also serve as public directors of its holding company under certain circumstances. These clarifications were made in response to public comments on the proposed acceptable practices. In addition, although the final acceptable practices are effective 30 days after publication in the **Federal Register** , the Commission will permit currently established DCMs to implement responsive measures over a phase-in period of two years or two regularly-scheduled board elections, whichever occurs sooner. 6 Responsive measures include implementing the final acceptable practices or otherwise fully complying with the requirements of Core Principle 15, including requirements to minimize the structural conflicts of interest discussed herein. The phase-in period and the modified public director requirements for boards and executive committees are the only significant changes between the proposed acceptable practices and those adopted today. 6 “Currently established” DCMs are those that are already designated at the time this release is published in the **Federal Register** . B. Background U.S. futures markets are a critical component of the U.S. and world economies, providing significant economic benefits to market participants and the public at large. They provide an important hedging vehicle to individuals and firms in myriad industries, resulting in more efficient production, lower costs for consumers, and other economic benefits. By offering a competitive marketplace and focal point where traders can freely interact based on their assessments of supply and demand, futures markets also provide a vital forum for discovering prices that are generally considered to be superior to administered prices or prices determined privately. For this reason, futures markets are widely utilized throughout the global economy. Participants in the markets include virtually all economic actors, and the prices discovered on a daily basis materially affect a wide range of businesses in the agricultural, energy, financial, and other sectors. For the reasons outlined above, DCMs are not just typical commercial enterprises, but are commercial enterprises affected with a significant national public interest. Actions that distort prices or otherwise undermine the integrity of the futures markets have broad, detrimental implications for the economy as a whole and the public in general. Congress recognized the importance of futures trading in the Act, when it explicitly stated that futures transactions “are entered into regularly in interstate and international commerce and are affected with a national public interest * * *.” 7 It defined the public interest to include “liquid, fair, and financially secure trading facilities.” 8 Congress also identified the purposes of the Act: “to deter and prevent price manipulation or any other disruptions to market integrity; to ensure the financial integrity of all transactions subject to this Act and the avoidance of systemic risk; and to protect all market participants from fraudulent or other abusive sales practices and misuses of customer assets.” 9 To accomplish these purposes, Congress established a statutory system of DCM self-regulation, combined with Commission oversight, to promote “responsible innovation and fair competition among boards of trade, other markets and market participants.” 10 Meeting these statutory obligations and purposes requires DCM self-regulation that is as vigorous, impartial, and effective as possible. 7 CEA § 3(a), 7 U.S.C. 5(a). 8 Id. 9 CEA § 3(b), 7 U.S.C. 5(b). 10 Id. All DCMs face unique and potentially conflicting regulatory obligations and commercial demands as they work to meet the statutory requirements outlined above. On the commercial side, they must attract trading to their markets, maximize the value of their stock, generate profits, satisfy the financial needs of their numerous stakeholders and constituencies, and/or meet the diverse business needs of their market participants. At the same time, as self-regulatory organizations, DCMs must exercise their authority judiciously, impartially, and in the public interest. As essential forums for the execution of futures transactions and for price discovery, DCMs must ensure fair and financially secure trading facilities. DCMs must also help to “serve” and “foster” the national public interest through self-regulatory responsibilities that include ensuring market integrity, financial integrity, and the strict protection of market participants. 11 11 Id. When DCMs were first entrusted with these extensive regulatory responsibilities, they were almost exclusively member-owned, not-for-profit exchanges facing little competition for customers or in their prominent contracts. Although conflicts of interest in self-regulation were a concern even then, such conflicts typically centered on individual exchange members policing one another. Today's DCMs, however, are vibrant commercial enterprises competing globally in an industry whose ownership structures, business models, trading practices, and products are evolving rapidly. As a result, DCMs now face potential conflicts of interest between their critical self-regulatory responsibilities and their powerful commercial imperatives. Specifically, DCMs must: defend and expand their markets against others offering similar products or services; generate returns for their owners; and provide liquid markets where their members and customers may profit. At the same time, they must continue to meet fundamental public interest responsibilities through vigorous and impartial self-regulation. To reconcile these obligations, DCMs must acknowledge and guard against conflicts between their regulatory responsibilities and their commercial interests, and take measures to prevent improper influence upon self-regulation by their numerous constituencies, including members, owners, customers, and others. As explained in the proposing release, rapid and ongoing changes in the futures industry have raised concerns as to whether existing self-regulatory structures are equipped to manage evolving conflicts of interest. Self-regulation's traditional conflict—that members will fail to police their peers with sufficient zeal—has been joined by the possibility that competing DCMs could abuse their regulatory authority to gain competitive advantage or satisfy commercial imperatives. Such conflicts of interest must be addressed promptly and proactively to prevent them from becoming real abuses, and to ensure continued public confidence in the integrity of the U.S. futures markets. After three-and-a-half years of careful study, the Commission has determined that the conflicts of interest identified above are inherent in any system of self-regulation conducted by competing DCMs, many of which operate under new ownership structures and business models, and all of which are possessed of strong commercial imperatives. The Commission has further determined that successfully addressing such conflicts, and complying with Core Principle 15, requires appropriate responses within DCMs. Only by reconciling the inherent tension between their self-regulatory responsibilities and their commercial interests, whether via the new acceptable practices or otherwise, can DCMs successfully minimize conflicts of interest in their decision-making processes and thereby ensure the integrity of self-regulation in the U.S. futures industry. The new acceptable practices for Core Principle 15 are a direct response to the industry changes outlined above. As required by the Act, they “promote responsible innovation and fair competition” among U.S. DCMs, and ensure that self-regulation remains compatible with the modern business practices of today's DCMs. 12 The new acceptable practices embody the Commission's firm belief that effective self-regulation in an increasingly competitive, publicly traded, for-profit environment requires independent decision making at key levels of DCMs' regulatory governance structures. The Commission further believes that the new acceptable practices constitute an ideal solution to emerging structural conflicts of interest in self-regulation. Both proactive and carefully targeted, the new acceptable practices for Core Principle 15 advance the public interest and ensure the continued strength and integrity of self-regulation in a rapidly evolving industry. 12 Id. The conflicts of interest described above require careful responses by all DCMs. The Commission believes that DCMs can comply with Core Principle 15 by minimizing conflicts of interest between their regulatory responsibilities and their commercial interests or those of their membership, ownership, management, customer, and other constituencies. However, whether DCMs choose to comply with Core Principle 15 via the acceptable practices adopted herein or by other means, the Commission recognizes that necessary measures may take time to implement. Accordingly, and at the request of public commenters, the Commission is adopting a phase-in period for full compliance with Core Principle 15. Within two years of this document's effective date, or two regularly-scheduled board elections, whichever occurs first, all DCMs must be in full compliance with Core Principle 15, either by availing themselves of the new acceptable practices or undertaking other effective measures to address the structural conflicts of interest identified herein. Commission staff will contact all DCMs in six months of the effective date of these final acceptable practices to learn of their plans for full compliance. Established DCMs must demonstrate substantial compliance with Core Principle 15, and plans for full compliance, well before the phase-in period's expiration. New candidates for designation as contract markets should be prepared to demonstrate compliance with Core Principle 15, or a plan for compliance, upon application. II. Procedural History The four acceptable practices for Core Principle 15 adopted today are the culmination of a comprehensive review of self-regulation in the U.S. futures industry (“SRO Review” or “Review”) launched by the Commission in May of 2003. Phase I of the Review explored the roles, responsibilities, and capabilities of SROs in the context of industry changes. Staff examined the designated self-regulatory organization system of financial surveillance, the treatment of confidential information, the composition of DCM disciplinary committees and panels, and other aspects of the self-regulatory process. Phase I of the Review also included staff interviews with over 100 persons including representatives of DCMs, clearing houses, futures commission merchants (“FCMs”), industry associations, and securities-industry entities, as well as current and retired industry executives, academics, and consultants. In June of 2004, the Commission initiated Phase II of the SRO Review and broadened its inquiry to explicitly address SRO governance and the interplay between DCMs' self-regulatory responsibilities and their commercial interests. In June of 2004, the Commission issued a **Federal Register** Request for Comments (“Request”) on the governance of futures industry SROs. 13 The Request sought input on the proper composition of DCM boards, optimal regulatory structures, the impact of different business and ownership models on self-regulation, the proper composition of DCM disciplinary committees and panels, and other issues. 13 Governance of Self-Regulatory Organizations, 69 FR 32326 (June 9, 2004). Comment letters received are available at: *http://www.cftc.gov/foia/comment04/foi04--005_1.htm* . In November of 2005, the Commission updated its previous findings through a second **Federal Register** Request for Comments (“Second Request”) that focused on the most recent industry developments. 14 The Second Request examined the board-level ROCs recently established at some SROs in the futures and securities industries. It also asked commenters to consider the impact of New York Stock Exchange (“NYSE”) listing standards on publicly traded futures exchanges; whether the standards were relevant to self-regulation; and how the standards might inform the Commission's own regulations. 15 14 Self-Regulation and Self-Regulatory Organizations in the Futures Industry, 70 FR 71090 (Nov. 25, 2005). Comment letters received are available at *http://www.cftc.gov/foia/comments05/foi05--007_1.htm* . 15 The NYSE's corporate governance listing standards require listed companies to: have a majority of independent directors; meet materiality and bright-line tests for independence; convene regularly scheduled executive sessions of the board without management present; institute nominating/governance, compensation, and audit committees consisting exclusively of public directors; etc. See NYSE Listed Company Manual, §§ 303A:00-14, available at: *http://www.nyse.com/regulation/listed/1101074746736.html* . The NASDAQ Stock Market has adopted corporate governance listing standards similar to the NYSE's. See the NASDAQ Stock Market Listing Standards and Fees, available at: *http://www.nasdaq.com/about/nasdaq_listing_req_fees.pdf* . DCMs whose parent companies are listed on the NYSE include the CBOT, CME, NYBOT, and NYMEX. Although these DCMs themselves are not required to comply with the listing standards, they may be in de facto compliance if they have chosen to name identical boards of directors for both the listed parent and the DCM. Phase II of the SRO Review concluded with a public Commission hearing on “Self-Regulation and Self-Regulatory Organizations in the U.S. Futures Industry” (“Hearing”). The day-long Hearing, held on February 15, 2006, included senior executives and compliance officials from a wide range of U.S. futures exchanges, representatives of small and large FCMs, academics and other outside experts, and an industry trade group. The Hearing afforded the Commission an opportunity to question panelists on four broad subject areas:

(1)Board composition;

(2)alternative regulatory structures, including ROCs and third-party regulatory service providers;

(3)transparency and disclosure; and

(4)disciplinary committees. 16 16 The Hearing Transcript is available at *http://www.cftc.gov/files/opa/opapublichearing021506.final.pdf* . Finally, in July of 2006, the Commission published the Proposed Rule and sought public comment on new acceptable practices for Core Principle 15. 17 The Commission proposed that at least 50% of the directors on DCM boards and executive committees (or similarly empowered bodies) be public directors. It also proposed that day-to-day regulatory operations be overseen and insulated through a CRO reporting directly to a board-level ROC consisting exclusively of public directors. The proposed acceptable practices also defined “public director” for persons serving on boards and ROCs, and defined “public person” for disciplinary panel members. To qualify as a public director under the proposal, the director in question would require an affirmative determination that he or she had no material relationship with the DCM. In addition, public directors and public persons would both have been required to meet a series of “bright-line” tests. The inability to satisfy both the material relationship and bright-line test requirements would automatically preclude them from serving as public directors or public disciplinary panel members. Finally, the proposed acceptable practices called for DCM disciplinary panels that were not dominated by any group or class of SRO participants, and that included at least one public person. 17 See supra note 5. The proposal's original 30-day comment period, scheduled to close on August 7, 2006, was extended by an additional 30 days, to September 7, 2006. The Commission received a total of 34 comment letters in response to the proposed acceptable practices for Core Principle 15, significant aspects of which are discussed below. 18 18 Comment letters in response to the Proposed Rules are available at: *http://www.cftc.gov/foia/comment06/foi06--004_1.htm* . III. Public Comments Received and the Commission's Response The 34 comment letters received in response to the proposed acceptable practices included responses from 10 industry associations and trade groups, nine individuals (including directors of exchanges writing separately), eight DCMs, six futures commission merchants (“FCMs”), one group of DCM public directors, one U.S. Senator, and one U.S. Congressman. 19 19 The commenters were: Bear Stearns; Citigroup; Morgan Stanley; the Chicago Mercantile Exchange (“CME”); the New York Mercantile Exchange (“NYMEX”); U.S. Sen. Pat Roberts and Congressman Jerry Moran; the National Grain Trade Council; Daniel L. Gibson; the National Grain and Feed Association; the New York Board of Trade (“NYBOT”); Public Members of the NYBOT; the Chicago Board of Trade (“CBOT”); Philip McBride Johnson; the CBOE Futures Exchange (“CFE”); Dennis M. Erwin; HedgeStreet; Colby Moss; Horizon Milling, LLC; John Legg; the National Futures Association; Robert J. Rixey; Michael Braude; Lehman Brothers; the Kansas City Board of Trade (“KCBT”); the Futures Industry Association (“FIA”); the Florida Citrus Producers Association; the National Cotton Council of America; Cargill Juice North America; Nickolas Neubauer; the American Cotton Shippers Association; Barry Bell; Fimat; J.P. Morgan Futures Inc.; and the Minneapolis Grain Exchange (“MGEX”). The Commission thoroughly reviewed and considered all comments received. In response to persuasive arguments by various commenters, the final acceptable practices include two significant modifications from those originally proposed. Specifically, the final acceptable practices include:

(1)a reduction in the required number of public directors on boards and executive committees, from at least 50% public to at least 35% public; and

(2)a phase-in period to implement the acceptable practices, or otherwise come into full compliance with Core Principle 15, of two years or two regularly scheduled board elections, whichever occurs sooner. In addition, in response to comments received, the Commission has made several clarifications and non-substantive revisions to the final acceptable practices. The Commission has also provided further discussion or elaboration in this preamble in order to provide further clarification on specific aspects of the acceptable practices, consistent with the Commission's original intent. Specifically, in the text of the final acceptable practices, the Commission has clarified: that a public director may serve on the boards of both a DCM and of its parent company; that public directors are allowed deferred compensation in excess of $100,000 under certain circumstances; and that public persons serving on disciplinary panels are subject only to the bright-line tests used to define public directors. The Commission has also clarified that the acceptable practices do not address the manner in which DCMs select their public directors, whether by election, appointment, or other means. Some commenters called for greater requirements than in the proposed acceptable practices, and others called for less requirements. The Commission carefully considered those comments, but decided not to make any changes other than those outlined above. As stated previously, the Commission believes that adopting the new acceptable practices strikes a careful balance between an appropriate approach to minimizing conflicts of interest in self-regulation, as required by Core Principle 15, and the overall flexibility offered by the core principle regime. Moreover, the Commission believes that the acceptable practices adopted herein are necessary and appropriate to fulfill the purposes of the Act and advance the public interest. The substantive comments received, and the Commission's responses thereto, are presented below. They are organized as follows: *Legal Comments:* comments questioning the Commission's authority to issue the proposed acceptable practices, including comments with respect to the meaning of Core Principle 15 and its interaction with other core principles; *Policy Comments:* comments requesting more or stricter guidance than that proposed by the Commission; comments requesting that the Commission issue no acceptable practices, or fewer or less detailed acceptable practices; and comments questioning the rationale behind the proposed acceptable practices, including: • General comments; • Comments with respect to board composition; • Comments with respect to the definition of public director; • Comments with respect to Regulatory Oversight Committees; • Comments with respect to disciplinary committees; *Comments Requesting Modifications and Clarifications, including:* • Phase-in period for the new acceptable practices; • Selection of public directors; • Compensation of public directors; • Overlapping public directors; • Jurisdiction of disciplinary panels and definition of “public” for persons serving on disciplinary panels; • “No material relationship” test for public directors; • elimination of ROCs' periodic reporting requirements. A. Legal Comments: Public Comments Received and the Commission's Response. 1. Overview of the Commission's Authority To Issue the Acceptable Practices The Commission's issuance of the acceptable practices for Core Principle 15 respects the letter and spirit of the Act. The Commission's authority to do so is firmly rooted in Core Principle 15's mandate to DCMs to minimize conflicts of interest in decision making. Core Principle 15 requires DCMs to maintain systems to minimize structural conflicts of interest inherent in self-regulation, as well as individual conflicts of interest faced by particular persons. 20 The acceptable practices are rationally related to the purposes of Core Principle 15. 20 71 FR 38740, 38743. The Board Composition Acceptable Practice recognizes that the governing board of a DCM is its ultimate decision maker and therefore the logical place to begin to address conflicts. Participation by public directors in board decision making is a widely accepted and effective means to reduce conflicts of interest. 21 By providing for significant public participation on the board, the seat of DCM governance and policymaking, the acceptable practice ensures that conflicts of interest are minimized at the highest level of decision making. 21 *See, e.g.* , NYSE Listed Company Manual, § 303A (commentary). The ROC Acceptable Practice recognizes the importance of insulating core regulatory functions from improper influences and pressures stemming from a DCM's commercial affairs. It operates to minimize conflicts of interest in decisions made in the ordinary course of business. Finally, the Disciplinary Panel Acceptable Practice, by mandating participation on most disciplinary panels of at least one person who meets the bright-line tests for public director, minimizes conflicts of interest that may undermine the fundamental fairness required of DCM disciplinary proceedings. In sum, these acceptable practices represent an effective means to implement Core Principle 15 and are fully consistent with its mandate that DCMs minimize conflicts of interest in all decision making. They therefore lie well within the Commission's authority. Congress has determined that there is a national public interest in risk management and price discovery. 22 The individual provisions of the Act operate in furtherance of those interests by instituting and enforcing a system of “effective self-regulation of trading facilities, clearing systems, market participants and market professionals under the oversight of the Commission.” 23 Core Principle 15 must be read in light of those public interests and purposes. 22 CEA Section 3(a), 7 U.S.C. 5(a). 23 CEA Section 3(b), 7 U.S.C. 5(a). The safe harbor created by the new acceptable practices removes the guesswork from compliance with Core Principle 15. Congress intentionally wrote the core principles to be broad and flexible, and to help DCMs and the Commission to adjust to changing circumstances. Flexibility, however, may give rise to uncertainty. In order to provide DCMs with greater certainty in the context of flexible core principles, Congress, in adopting the Commodity Futures Modernization Act (“CFMA”), 24 added Section 5c(a)(1) to the CEA, which specifically authorizes the Commission, consistent with the purposes of the CEA, to “issue interpretations, or approve interpretations submitted to the Commission * * * to describe what would constitute an acceptable business practice for Core Principles.” 25 As a general rule, the Commission believes that issuing acceptable practices and other guidance under the core principles is beneficial, given the CFMA's lack of legislative history that might otherwise have been a source of guidance. Safe harbors, such as those created by the acceptable practices being issued today, remove uncertainty while setting high standards consistent with the purposes of the CEA and the authority granted by Congress to the Commission to issue such acceptable practices. Nothing in these acceptable practices, as safe harbors, infringes upon the Congressional directive in Section 5c(a)(2) of the CEA that acceptable practices not be the “exclusive means for complying” with core principles, as DCMs remain free to demonstrate core principle compliance by other means. 26 24 The CFMA is published at Appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000). 25 7 U.S.C. 7a-2(a)(1). 26 7 U.S.C. 7a-2(a)(2). Pursuant to its duty under the CEA to consider the costs and benefits of its action in issuing the acceptable practices, as discussed separately below, the Commission believes that the acceptable practices will minimize conflicts of interest in DCM decision making and promote public confidence in the futures markets. These are significant benefits to the futures industry, market participants, and the public. While commenters alleged that compliance would be costly, none of them provided an estimate of those costs in response to the Commission's specific request for quantitative data. The Commission has no basis to conclude that compliance would not be a reasonable cost of doing business in an industry subject to federal oversight—a cost that may be phased in gradually over two years or two election cycles. Finally, the Board Composition Acceptable Practice operates without impeding the duties owed to shareholders by the directors of a public corporation. Demutualized DCMs typically have reorganized themselves as subsidiaries of parent holding companies. The acceptable practice applies to the board of a DCM itself—not to the parent. Accordingly, the Board Composition Acceptable Practice is unquestionably within the Commission's authority to issue acceptable practices under the core principles applicable to DCMs. The composition of a DCM governing board may be identical to that of its parent—that decision is a matter for the business judgment of the persons involved. Nevertheless, the boards are separate bodies, even if their memberships overlap. DCM directors have a fiduciary duty to stockholders, to be sure, but stockholders of a DCM own an entity that, as a matter of federal law, is required to minimize conflicts of interest under Core Principle 15 and that serves a public interest through its business activity. Stockholders are well served when the DCMs that they own comply with applicable laws and regulations. We now turn to the legal issues raised by the commenters with respect to the Commission's authority to issue the acceptable practices. 2. Specific Legal Issues Raised by Commenters FIA, five major FCMs, and one exchange, CFE, filed comments generally in favor of the proposed acceptable practices and endorsed the Commission's analysis of its authority to issue them. CME, CBOT, NYMEX, and other commenters, in opposition, challenged the Commission's interpretation of Core Principle 15 and the statutory authority under which the proposals were issued. As stated above, Core Principle 15 requires DCMs to establish and maintain systems that address conflicts of interest inherent in the structure of self-regulation, as well as personal conflicts faced by individuals. FIA endorsed this analysis, stating that the proposed acceptable practices are “well-grounded” in the Commission's statutory authority and “rationally related” to the purposes of Core Principle 15. 27 27 FIA Comment Letter (“CL”) 7 at 3-4. Commenters challenging the Commission's authority to promulgate the acceptable practices for Core Principle 15 contend that they:

(1)Conflict with Core Principle 16;

(2)are contrary to the text of the statute;

(3)are contrary to Congressional intent in enacting the CFMA;

(4)lack factual support;

(5)conflict with guidance for Core Principle 14; and

(6)impermissibly shift the burden to DCMs to demonstrate compliance with Core Principle 15. As discussed below, none of these contentions is persuasive. a. The Acceptable Practices For Core Principle 15 Do Not Conflict With Core Principle 16. CME challenged Core Principle 15's applicability to the acceptable practices, contending that because Core Principle 16 is the only core principle that mentions board composition, it is the only source of authority the Commission may use for this purpose, and that it is limited to mutually-owned DCMs. 28 Similarly, NYBOT and KCBT contended that as member-owned DCMs, they are subject to Core Principle 16's requirement to maintain governing boards that “reflect[ ] market participants,” and should not face any other board composition provision. 29 28 CME CL 29 at 4-5. Core Principle 16 states: “ COMPOSITION OF BOARDS OF MUTUALLY OWNED CONTRACT MARKETS.—In the case of a mutually owned contract market, the board of trade shall ensure that the composition of the governing board reflects market participants.” CEA § 5(d)(16), 7 U.S.C. 7(d)(16). 29 NYBOT CL 21 at 4; KCBT CL 8 at 3. Core Principle 16 requires a mutually owned board of trade to ensure that the composition of its governing board reflects market participants. Based on its plain language, Core Principle 16 is limited to that goal, 30 and has no bearing on the entirely separate goal of Core Principle 15 to “minimize conflicts of interest in the decision-making process of the contract market,” whether or not it is mutually owned. Core Principle 16 applies only to mutually owned contract markets and directs that their governing boards must fairly represent market participants. Core Principle 15 applies to all contract markets, no matter how organized, and directs them to minimize conflicts of interest. Conflicts may be structural as well as personal. Core Principle 15 embraces both and supports the public director membership requirement for boards of DCMs. Accordingly, Core Principle 16 does not limit the Commission's authority to issue acceptable practices to increase public director representation on DCM boards in order to minimize conflicts of interest under Core Principle 15. 30 There is no legislative history concerning Core Principle 16 other than the statutory language itself. b. The Acceptable Practices for Core Principle 15 Are Not Contrary to the CEA's Text. Other opposing comments based on the text of Core Principle 15 substitute the Commission's straightforward reading of the statute with targeted interpretations of individual words and phrases. The Commission believes that these comments do not rise to the stature of significant questions of statutory interpretation. For instance, various commenters contended that Core Principle 15 says “minimize” conflicts of interest, not “eliminate” them, as they argue the Commission seeks to do with the Board Composition Acceptable Practice. 31 However, if the Commission had sought to “eliminate” conflicts of interest, the Commission could have imposed a 100% public director requirement. Certainly any less-than-100% public director requirement may not eliminate all conflicts of interest. 31 *See, e.g.,* KCBT CL 8 at 2 and Roberts & Moran CL 27 at 1-2. Another such comment stated that Core Principle 15 applies to “rules” and “process,” but board composition is contained in DCM “bylaws” (not rules), and a change to board composition is not a “process.” 32 Contrary to this commenter's restrictive interpretation of the term, “rule” is defined broadly in Commission regulations to include by-laws. 33 Thus, the mere mention of “rules” in Core Principle 15 has no bearing on the Commission's authority. In addition, Core Principle 15 provides that a DCM shall establish and enforce rules to minimize conflicts of interest in the decision-making process of the contract market and establish a process for resolving such conflicts of interest. The two requirements are not mutually exclusive. 32 NYMEX CL 28 at 6. 33 *See* Commission Reg. 40.1(h), 17 CFR 40.1(h). Another commenter stated that Core Principle 15 provides that a DCM shall “enforce” rules, and thereby contemplates action against individuals rather than the DCM itself. 34 In fact, Core Principle 15 states “establish and enforce” rules. Use of the conjunctive belies any contention that Core Principle 15 was intended to be directed solely to individuals. 34 NYMEX CL 28 at 6. Numerous comments of this type were received, none of which constitutes a serious challenge to the Commission's legal authority and reasonable interpretation of Core Principle 15. c. The Acceptable Practices for Core Principle 15 Are Not Contrary to Congressional Intent in Enacting the CFMA. Several commenters, including NYMEX and CBOT, contended that the Board Composition Acceptable Practice is contrary to Congress' intent in enacting Core Principle 15 and the CFMA. Specifically, CBOT stated that prior to the CFMA's enactment, the CEA treated board composition and conflicts of interest in two distinct provisions of the statute. In passing the CFMA, Congress omitted the board composition provision and kept the conflicts of interest provision. CBOT interpreted this as evidence that Congress did not view board composition as a mechanism to minimize conflict of interests. 35 We believe that the legal import of silence as a statutory canon of construction in these circumstances is a weak indicator of Congressional intent. 36 Moreover, inclusion of public directors on company boards is a widely accepted means to reduce conflicts of interest. 37 Congress has in other contexts recognized the utility of public directors in controlling conflicts of interest. 38 Interpreting the CFMA as the CBOT advocates would require the Commission to infer that Congress was unaware of its own enactments, as well as the aforementioned wide acceptance of public directors for reducing conflicts, which the Commission is not prepared to do. 35 CBOT CL at 5-6. 36 *See, e.g.* , *U.S.* v. *Vonn* , 535 U.S. 55, 65 (2002); *Pauley* v. *Bethenergy Mines, Inc* ., 501 U.S. 680, 703

(1991)(internal citation omitted). 37 *See, e.g.* , NYSE Corporate Governance Rule 303A (commentary). 38 *See* Section 10(a) of the Investment Company Act of 1940, 7 U.S.C. 80a-10(a); *Burks* v. *Lasker* , 441 U.S. 471, 484 (1979). Similarly, NYMEX commented that when the CFMA was enacted there was a general understanding among DCMs, Commission staff, and legislators that Congress did not intend the Commission to establish board composition requirements for demutualized DCMs, which would instead be subject to corporate governance and NYSE listing standards. 39 A congressional comment letter stated that it does not “appear” that Congress intended the Commission to address board composition in the instance of small mutually-owned DCMs like KCBT. 40 39 NYMEX CL 28 at 5-6. 40 Roberts & Moran CL 27 at 1-2. No commenter, however, cited any legislative history supporting these views, and no rule of statutory or legal interpretation compels the Commission to adopt them. The Commission may interpret the CEA according to its reasoned discretion and agency expertise given the absence of any contrary indication of Congressional intent at the time the CFMA was enacted. Various commenters also asserted that the proposed acceptable practices in general are counter to the spirit of the CFMA, which transformed the Commission into an oversight agency. 41 They contended also that the 50% public board member requirement in the proposed Board Composition Acceptable Practice is stricter than the former statutory requirement that DCM boards have 20% independent directors. 42 This comment would apply equally to the minimum 35% requirement contained in the final acceptable practice. These commenters, however, overlook the essential fact that the acceptable practices—unlike the pre-CFMA 20% rule—are safe harbors, not statutory mandates. Persons taking this view appear to want the Commission to do nothing at all—neither issue rules nor announce nonbinding acceptable practices that embody high standards. 41 *See,* *e.g.* , NYMEX CL 28 at 9-10. 42 *See,* *e.g.* , CME CL 29 at 12. One commenter argued that the Commission did not subject DCMs to Commission Rule 1.64 (containing the board composition requirement for non-member representation) 43 when it adopted Commission Rule 38.2 44 shortly after the enactment of the CFMA, thus suggesting that the Commission's interpretation was that Core Principle 15 did not impose a board composition requirement. 45 43 17 CFR 1.64. 44 Commission Rule 38.2 contains an exemption for DCMs from all Commission regulations except those specifically enumerated. 17 CFR 38.2. 45 NYMEX CL 28 at 15. The Commission did not adopt acceptable practices for all of the core principles when it promulgated Commission Rule 38.2. Nor did the Commission permanently reserve from exemption all regulations that are reflected in core principles. Indeed, in January 2006, the Commission added Commission Rule 1.60 to the enumerated list of regulations to which DCMs are subject pursuant to Commission Rule 38.2. 46 Accordingly, the fact that Commission Rule 1.64 was not specifically exempted when Commission Rule 38.2 was promulgated is not a reliable indicator of the Commission's interpretation of Core Principle 15. Moreover, not long after Commission Rule 38.2 was issued, the Commission began the SRO Review to examine governance issues in order to determine whether action was warranted. Thus, even if the omission of Commission Rule 1.64 from the enumerated regulations in Commission Rule 38.2 were somehow indicative of a contemporaneous interpretation by the Commission of Core Principle 15, a matter that the Commission does not concede, the Commission's evolving views—based on the extensive record developed during the course of the SRO Review—support its current interpretation that Core Principle 15 authorizes it to adopt the Board Composition Acceptable Practice. 46 *See* 71 FR 1953 (Jan. 12, 2006). d. Acceptable Practices Are Justified As A Prophylactic Measure. Several commenters contended that the acceptable practices lack factual support demonstrating a need for their issuance. They argued that the Commission did not point to any specific event or documented self-regulatory failure or allegation of such failure in support of the acceptable practices. 47 Several commenters contended that the studies cited by the Commission in the proposing release applied only to the securities industry, and thus were inapposite to conditions in the futures industry. 48 47 *See* CME CL 29 at 9; NYMEX CL 28 at 11-12; NYBOT CL 22 at 4; CBOT CL 21 at 3. 48 *See,* *e.g.* , NYMEX CL 28 at 11-13; CME CL 29 at 9; NYBOT CL 22 at 2; Comment of Donald L. Gibson, CL 25 at 1. These comments are misplaced. Although the Commission did not specifically identify futures industry self-regulatory lapses in support of the acceptable practices, it identified significant trends in the futures industry, including increased competition and changing ownership structures, that justify the acceptable practices as a prophylactic measure to minimize conflicts in decision making and to promote public confidence in the futures markets in the altered, demutualized, and more competitive landscape. Commenters pointed to nothing in the CEA, nor has the Commission found anything, to suggest that Congress intended to restrict the authority of the Commission to make “precautionary or prophylactic responses to perceived risks,” that would render the Commission's action a violation of the CEA. 49 49 *Chamber of Commerce* v. *SEC* , 412 F.3d 133, 141 (D.C. Cir. 2005). e. Acceptable Practices for Core Principle 15 Do Not Conflict with Guidance to Core Principle 14. Another issue raised is whether the new acceptable practices for Core Principle 15 conflict with guidance issued for Core Principle 14. 50 One commenter asserted that guidance to Core Principle 14 suggests that directors of DCMs should, at a minimum, be market participants, contrary to the proposed “public director” definition. 51 This contention misreads the guidance for Core Principle 14. Minimum standards for directors provided in the guidance are derived from the bases for refusal to register persons under CEA Section 8a(2), 52 and from the types of serious disciplinary offenses that would disqualify persons from board and committee service under Commission Rule 1.63. 53 Nothing in the Application Guidance for Core Principle 14 requires directors to be market participants. Moreover, a significant number of DCMs currently have directors on their boards who are not market participants. 50 Core Principle 14 provides that a “Board of Trade shall establish and enforce appropriate fitness standards for directors [and others].” CEA § 5(d)(14), 7 U.S.C. 7(d)(14). 51 CME CL 29 at 9. 52 7 U.S.C. 12a(2). 53 17 CFR 1.63. See 17 CFR Part 38, Appendix B, Core Principle 14 (“ Application Guidance”). f. Acceptable Practices for Core Principle 15 Do Not Impermissibly Shift the Burden to DCMs for Demonstrating Compliance. Finally, CME, CBOT, and NYMEX contended that the Board Composition Acceptable Practice impermissibly shifts the burden of demonstrating a DCM's compliance with Core Principle 15 from the Commission to the DCM if a DCM elects not to comply with the acceptable practices. There is no burden shifting here. All DCMs are required to demonstrate to the Commission how they are complying with the core principles. Without such a factual demonstration, the Commission could not determine whether a contract market is in compliance with the core principles, and thus the Commission could not meet its obligations under the CEA. 54 Compliance with these acceptable practices merely eliminates the need for a DCM to demonstrate to the Commission that it is complying with certain aspects of Core Principle 15. It follows that a contract market that does not comply with the acceptable practices must demonstrate to the Commission that it is complying with Core Principle 15 by other means, as stated in the release. 54 See CEA § 5c(d), 7 U.S.C. 7a-2(d). B. Policy Comments: Public Comments Received and the Commission's Response 1. General Comments The Commission received a series of general comments, as discussed more fully below, both in support of and in opposition to the overall direction and findings of the proposed acceptable practices. a. The proposed acceptable practices are inflexible; DCMs should be free to determine their own methods of core principle compliance. Several commenters stated that, consistent with the CFMA, DCMs, and not the Commission, should determine the composition of their boards and committees, and should have the discretion to establish their own definition of “public director.” One commenter noted that the concept of membership has evolved as markets have become increasingly electronic and global, and now encompasses a growing number of new types of market participants (which consequently reduces the population of potential public directors). Commenters argued that DCMs should be permitted to tap these new types of members for service as directors, bringing market knowledge and differing perspectives to their boards, rather than adding public directors, who, as defined by the Commission, will lack experience and expertise. It was further argued that DCMs should be permitted to decide for themselves how to constitute their boards in order to obtain the necessary knowledge, experience, and expertise that will permit them to serve their economic functions and the public interest. With respect to the other committees and panels addressed in the proposal, commenters stated that each DCM should be permitted to determine the appropriate size and composition of its executive committee, and likewise should be permitted: To determine whether to establish an ROC; to determine the extent of an ROC's responsibilities; and to determine the most appropriate composition for such committee. Commenters also stated that each DCM should be permitted to determine the composition and the structure of its disciplinary committees in order to ensure that decisions are informed by knowledge and experience. Numerous commenters opined that the proposals are inflexible, arbitrary, or overly prescriptive. Among other things, commenters stated that the regulatory proposals: could stifle vital day-to-day market functions; Could swing the balance too far towards rigid, arbitrary requirements when there is no demonstrable need for such action; are contrary to the spirit and intent of the CFMA and the market-oriented, principle-based structure authorized by that legislation; unnecessarily micromanage the operations of DCMs; fail to recognize the changing definition and increasing breadth of the concept of DCM membership; inflexibly impose uniform requirements upon all DCMs without regard to the nature of a particular DCM or the products traded on that DCM; and should be presented not as a model for DCMs to adopt, but rather as examples of ways for DCMs to meet core principle requirements. Commenters also expressed concern that a bright-line test regarding the proper number of public directors will become the de facto requirement for all DCMs and will severely limit the ability of DCMs to undertake other approaches to achieving the general performance standard set by the core principles. Some commenters also contended that requiring a DCM that does not meet the proposed acceptable practices to demonstrate compliance with Core Principle 15 through other means impermissibly shifts the burden of proof to DCMs to justify departures from the acceptable practices, when the Act gives DCMs reasonable discretion in how they comply with the core principles. Another commenter noted that since the Commission has proposed absolute numerical standards as a means of avoiding conflicts of interest, there is no legitimate way to prove compliance by other means. b. Safeguards are already in place to protect against conflicts of interest at publicly traded, mutually-owned, and other DCMs. Numerous commenters opined that the proposals are not necessary because there are sufficient safeguards already in place to ensure that potential conflicts of interest are adequately identified and controlled and that self-regulation remains effective. Several commenters argued that small DCMs already have in place adequate controls to address potential conflicts of interest, and that the Commission conducts an independent review of each DCM's compliance department through its rule enforcement review (“RER”) program. 55 Several commenters noted that their board composition standards already require public directors (albeit at a level lower than the proposed 50% requirement). Those commenters opined that their existing procedures for avoiding conflicts and including public participation are sufficient and more effective than the proposed 50% public member requirement. 55 The Commission's Division of Market Oversight conducts periodic RERs at all DCMs to assess their compliance with particular core principles over a one-year target period. Staff's analyses, conclusions, and recommendations regarding any identified deficiency are included in a publicly available written report. Commenters also argued that fear of a possible conflict of interest between a demutualized DCM's regulatory responsibilities and the demands of a for-profit company is without foundation. These comments asserted that demutualization actually encourages rather than discourages effective self-regulation because market integrity is key to attracting and retaining business. Commenters stated that large, publicly traded DCMs already have numerous safeguards in place to ensure that they act in the best interest of their shareholders and do not act to the detriment of a particular group of shareholders. In addition, some commenters opined that corporate governance requirements currently applicable to publicly traded DCMs, combined with the reasonable exercise of discretion by DCMs pursuant to Core Principle 1, 56 provide sufficient assurance that conflicts of interest will be kept to a minimum in the decision-making process. One DCM commented that the proposed acceptable practices are unnecessary given, inter alia, the NYSE and NASDAQ listing standards to which some DCM parent companies are subject. In addition, it was observed that when a potential conflict does arise, DCMs have developed specific board governance procedures to ensure proper disclosure and to remove the potential conflict from the decision-making process. One commenter stated that the proposals are unnecessary because, if the Commission's general concern is that a DCM will adopt rules that will disadvantage members who are their competitors, it may address that concern through its review of self-certified rules to ensure that such rules comply with the Act and regulations. 56 Core Principle 1 states: “IN GENERAL—To maintain the designation of a board of trade as a contract market, the board of trade shall comply with the core principles specified in this subsection. The board of trade shall have reasonable discretion in establishing the manner in which it complies with the core principles.” CEA § 5(d)(1), 7 U.S.C. 7(d)(1). Several commenters argued that the proposals should not be applied to mutually-owned DCMs, as none of the factors cited by the Commission as justification for the proposed acceptable practices apply to them. These commenters further argued that applying the acceptable practices to mutually-owned DCMs to the same degree as large publicly traded DCMs would be burdensome in terms of cost, administration, and efficiency. 1a. The Commission's Response to the General Comments i. Proactive measures are justified to protect the integrity of self-regulation in the U.S. futures industry. The Commission's response to the comments summarized above is three-fold. First, the Commission believes that the argument that there are no specific regulatory failures justifying new acceptable practices for Core Principle 15 is misplaced. As discussed more fully in the cost-benefit analyses in Section V-A, the Commission did identify industry changes that it believes create new structural conflicts of interest within self-regulation, increase the risk of customer harm, could lead to an abuse of self-regulatory authority, and threaten the integrity of, and public confidence in, self-regulation in the U.S. futures industry. Increased competition, demutualization and other new ownership structures, for-profit business models, and other factors are highly relevant to the impartiality, vigor, and effectiveness with which DCMs exercise their self-regulatory responsibilities. The Commission strongly believes that credible threats to effective self-regulation must be dealt with promptly and proactively, and is confident that precautionary and prophylactic methods are fully justified and well within its authority. Second, the Commission firmly rejects commenters' implicit argument that its oversight authority may be exercised only in response to crises or failures in self-regulation. To the contrary, the Commission's mandate, given by the Congress, is affirmative and forward-looking, including promoting “responsible innovation” and “fair competition” in the U.S. futures industry. 57 As catalogued throughout the SRO Review, rapid innovation and increasing competition are powerful new realities for all DCMs. The Commission's statutory obligation is to ensure that these realities evolve as fairly and responsibly as possible, and always in a manner that serves the public interest. The Commission believes that the new acceptable practices for Core Principle 15 serve exactly those purposes by ensuring a strong public voice at key levels of SRO decision making, particularly as it effects self-regulation. 57 CEA § 3(b), 7 U.S.C. 5(b) . Finally, prior to adopting these acceptable practices, the Commission initiated an exhaustive, three-and-one-half year research program that resulted in a uniquely informed regulatory process. The Commission determined, as have many other regulatory and self-regulatory bodies, that “independent” directors can be of great benefit to the deliberations and decisions of corporate boards and their committees. The Commission further determined, as have others, that DCMs charged with self-regulatory responsibilities are distinct from typical corporations, and thereby require careful attention to how their independent directors are defined. Finally, the Commission determined, as have others, that DCMs' independent directors should be of a special type—“public” directors—and should meet higher standards, including non-membership in the DCM. All three decisions have ample precedent in exchange governance and self-regulation, both in the futures and the securities industries, are based on the extensive record amassed during the SRO Review and on the Commission's expertise and unique knowledge of the futures industry, and are well-grounded in the Commission's statutory authority to issue acceptable practices for core principle compliance. ** ii. Some comments do not stand up to factual scrutiny. Some general comments in opposition to the proposed acceptable practices do not stand up to factual scrutiny. For example, DCMs whose parent companies are publicly traded and subject to NYSE listing standards (50% “independent” board of directors and key committees that are 100% independent) argued that those standards are sufficient to ensure effective self-regulation. The argument fails on two grounds. First, by their very terms, the NYSE's listing standards are designed for shareholder protection, not the effective self-regulation of futures exchanges in the public interest. Second, DCM holding companies have determined that DCM members are independent under the NYSE's listing standards. 58 By doing so, they have demonstrated the inappropriateness of relying on the listing standards as a means of identifying public directors for effective self-regulation. Notably, the NYSE itself recognized this same point when reforming its own governance and self-regulatory structure, which is substantially more demanding than what it requires of its listed companies, or than what the Commission's new acceptable practices will require of DCMs. 59 58 See, e.g., CME's Categorical Independence Standards: “* * * the Board of Directors has determined that a director who acts as a floor broker, floor trader, employee or officer of a futures commission merchant, CME clearing member firm, or other similarly situation person that intermediates transactions in or otherwise uses CME products and services shall be presumed to be “independent,” if he or she otherwise satisfies all of the above categorical standards and the independence standards of the [NYSE] and The Nasdaq Stock Market, Inc. * * *” CME Holdings Inc., Definitive Proxy Statement (Form DEF 14A), App. A, (March 10 2006). Accord CBOT Holdings Inc., Definite Proxy Statement (Form DEF 14A), App. A, (March 29, 2006). Both holding companies are listed on the NYSE and subject to its listing standards. 59 NYSE Group's board of directors consists exclusively of directors who are independent both of member organizations and listed companies. In addition, NYSE Group and NASD recently announced plans to consolidate their member firm regulation into a single new SRO for all securities broker/dealers. Market regulation and listed company compliance will remain with NYSE Regulation, a not-for-profit subsidiary of NYSE Group. A majority of NYSE Regulation's directors must be independent of member organizations and listed companies, and unaffiliated with any other NYSE Group board. See *http://www.nyse.com/regulation/1089235621148.html* . The related argument that the proposed acceptable practices should not be applied to mutually-owned DCMs is also without merit. It ignores the futures industry's rapid and continuing evolution. When the SRO Review began in 2003, three of the four largest DCMs were member-owned. Now, all four are subsidiaries of public companies. 60 Only two member-owned futures exchanges remain in the United States, and one is actually structured as a Delaware for-profit stock corporation that has paid dividends for nine consecutive years, including $11,000 per share in 2006 and $7,000 per share in 2005. 61 More importantly, all DCMs, regardless of ownership structure, operate in an increasingly competitive environment where improper influence may be brought to bear upon regulatory functions, personnel, and decisions. 60 CME, CBOT, and NYMEX are wholly-owned subsidiaries of CME Holdings Inc., CBOT Holdings Inc., and NYMEX Holdings Inc., respectively. NYBOT is a wholly owned subsidiary of IntercontinentalExchange Inc. In each case, the DCMs are now subsidiaries of for-profit, publicly traded stock corporations listed on the NYSE. 61 The two mutually-owned exchanges are the Kansas City Board of Trade and the Minneapolis Grain Exchange. However, as noted above, KCBT is structured as a for-profit, dividend-paying, stock corporation. See *http://www.kcbt.com/news_2.asp?id=457* (KCBT press release announcing ninth consecutive annual dividend, including $11,000 per share in 2006) and *http://www.kcbt.com/news_2.asp?id=347* (KCBT press release announcing eighth consecutive annual dividend, including $7,000 per share in 2005). Another misplaced series of comments argued that existing Commission processes, such as RERs, provide sufficient safeguards to ensure the future integrity of self-regulation. RERs are in fact central to the Commission's oversight regime for DCMs, and constitute the primary method by which the Commission verifies core principle compliance. However, RERs are retrospective in nature (focusing on a target period in the past) and cannot guarantee future performance. When self-regulatory failures are discovered, they are typically corrected via recommendations made by the Commission's Division of Market Oversight and implemented by the relevant DCM on a forward-looking basis. In contrast, the objective of effective self-regulation and Commission oversight is to prevent such failures from ever occurring. The Commission does not believe that RERs should be a substitute for issuing acceptable practices for compliance with a particular core principle. The Commission has found that acceptable practices improve core principle compliance by providing all DCMs with greater clarity regarding the Commission's expectations, and a safe-harbor upon which they may fully rely. Neither RERs nor any other existing Commission process, such as the review of self-certified rules, is an adequate substitute for carefully tailored acceptable practices. 62 This is particularly true when the new acceptable practices concern a core principle that has no previous acceptable practices or respond to a rapidly changing area of the futures industry. 62 The argument that RERs make acceptable practices unnecessary is further misplaced as it ignores the beneficial interaction between the two oversight tools. For example, acceptable practices facilitate core principle compliance and advance the RER process by providing both DCMs and Commission staff with information as to the areas of concern which must be addressed under a particular core principle. The final acceptable practices for Core Principle 15 are no exception, as they highlight the type of structural conflicts of interest which all DCMs must address. iii. The Commission may implement detailed acceptable practices as safe-harbors for core principle compliance. Notwithstanding those comments generally opposed to the proposed acceptable practices for Core Principle 15, the Commission continues to strongly believe that the recent structural changes in the U.S. futures industry require an appropriate response within DCMs to ensure that self-regulation remains compatible with competitive, for-profit DCMs. Accordingly, the new acceptable practices for Core Principle 15 establish appropriate governance and self-regulatory structures, while preserving DCMs' flexibility to adopt alternate measures if necessary. Those commenters that opposed the new acceptable practices for their “inflexibility” misunderstand the nature of the core principle regime and the interaction between core principles and acceptable practices. The 18 core principles for DCMs establish standards of performance and grant DCMs discretion in how to meet those standards. However, compliance with the core principles is not static and does not exist in a vacuum; instead, core principles are broad precepts whose specific application is subject to change as DCMs and the futures industry evolve. Furthermore, as discussed in Section III, core principle compliance is an affirmative and continuing obligation for all DCMs, and it is incumbent upon them to demonstrate compliance to the Commission's satisfaction. 63 63 See 17 CFR Part 38, App. B, ¶ 1 (“This appendix provides guidance on complying with the core principles, both initially *and on an ongoing basis* to maintain designation under Section 5(d) of the Act and this part” (emphasis added)). The flexibility inherent in the core principles permits each DCM to comply in the manner most appropriate to it. At the same time, such flexibility provides both the Commission and the futures industry with the latitude to grow in their understanding of self-regulation and its requirements. One common example is the Commission's approach to the safe storage of trade data under Core Principle 10, 64 which evolved following the events of September 11, 2001. 65 Similarly, the Commission's expectations for the management of conflicts of interest under Core Principle 15 now include an understanding that in a highly competitive futures industry, where almost all DCMs are for-profit and many are subsidiaries of publicly traded companies, the conflicts that may arise are not purely personal or individual. Simply stated, whether or not DCMs choose to implement the new acceptable practices, the conflicts of interest which they must address to comply with Core Principle 15 now include structural conflicts between their self-regulatory responsibilities and their commercial interests. 64 Core Principle 10 states: “TRADE INFORMATION—The board of trade shall maintain rules and procedures to provide for the recording and safe storage of all identifying trade information in a manner that enables the contract market to use the information for purposes of assisting in the prevention of customer and market abuses and providing evidence of any violations of the rules of the contract market.” CEA § 5(d)(10), 7 U.S.C. 7(d)(10). 65 On September 11, 2001, the physical location of three DCMs was destroyed, and both the Commission and the industry recognized the importance of redundancy capabilities, including safe storage of trade information, that are sufficiently distant from primary locations. All acceptable practices, including those for Core Principle 15, are designed to assist DCMs by offering “pre-approved” roadmaps or safe-harbors for core principle compliance. Although it may be a preferred method of compliance, no acceptable practice is mandatory. Instead, as safe-harbors, acceptable practices provide all DCMs with valuable regulatory certainty upon which they may rely, should they choose to do so, when seeking initial designation, when subject to periodic RERs by the Division of Market Oversight, or at any other time in which the Commission requires a DCM to demonstrate core principle compliance. 66 66 The Commission has explained that “boards of trade that follow the specific practices outlined under [the acceptable practices] * * * will meet the applicable core principle.” 17 CFR 38, App. B, ¶ 2. Because they offer such broad and beneficial safe-harbors, acceptable practices are sometimes detailed and exact in their requirements. If the Commission effectively “pre-approves” a specific self-regulatory structure for minimizing conflicts of interests under Core Principle 15, as it is doing here, then it must be sufficiently specific in describing that structure and all of its components. In the alternative, the Commission would be offering not a safe-harbor upon which DCMs may fully rely, but only additional guidance, subject to varying interpretations, raising many questions, and providing few answers and even less certainty. That is not the intent of these acceptable practices. In addition, the Commission notes that the presence of “must,” “shall,” and similar words in the new acceptable practices indicates only that these things must be done to receive the benefits of the safe-harbor, not that the acceptable practices themselves are required. What is now required of all DCMs under Core Principle 15 is to demonstrate that they have effectively insulated their self-regulatory functions, personnel, and decisions from improper influence and commercial considerations, including those stemming from their numerous member, customer, owner, and other constituencies. If a DCM chooses not to implement the new acceptable practices for Core Principle 15, then the Commission will evaluate the DCM's alternative plan, either through RERs, the rule submission process, or other means. During any such review, the DCM will be required to present and demonstrate what procedures, arrangements, and methods it has adopted or will adopt to minimize structural conflicts of interest in self-regulation. The DCM will further be required to demonstrate that its approach is capable of responding effectively to conflicts that may arise in the future. 2. Comments With Respect to the Board Composition Acceptable Practice The proposed Board Composition Acceptable Practice calling for at least 50% public director representation on DCM boards and executive committees drew substantial comment, both for and against. In their comment letters, the FIA and five large FCMs strongly supported the 50% public director benchmark for DCM boards. The FIA particularly noted that the proposal provides DCMs with flexibility as to how they want to address the diversity of interest groups in that the proposal does not specify any fixed number of board members. The FIA also recommended that a subgroup of public directors should serve as a nominating committee to select new or re-nominate existing public directors. One exchange also generally supported the proposals, commenting that the proposed governance standards and ROCs will enhance DCM governance and serve to protect market participants and the public interest. Many commenters, however, opposed the proposed 50% public director composition requirement. Several commenters were concerned that the proposal would dilute the voices of trade, commodity, and farmer interests in DCM governance, as well as the voices of market users, members, shareholders, and other stakeholders in the DCM. Commenters were also concerned about the need for experience and expertise on DCM boards. 67 67 One commenter stated that filling governance positions with those totally devoid of any connection to the marketplace would necessarily lead to major decisions regarding the operation of futures markets being made by those with no expertise in such decision making and no vested interest in the long-term best interests of those markets. It was suggested that this will result in either grossly mismanaged DCMs or the appearance of conflicts of interest as public directors defer to the less diverse non-public directors and officers. Several commenters stated that, in order to meet the proposed 50% board composition requirement, either the board would have to be made unreasonably large, or a DCM would have to reduce the number of directors drawn from its commercial interest and other memberships. Commenters also contended that it would be difficult to attract a sufficient number of qualified public directors. 68 68 One mutually-owned DCM commented that payment of a stipend to directors will create additional financial burdens on smaller, non-profit DCMs and create the possibility of less qualified directors serving on the board. Another commenter noted that public directors with no industry experience might be less inclined to invest in the self-regulatory functions of the DCM. Many of the comments regarding executive committee composition raised the same points as comments regarding the board composition requirement. Such comments included the need for a diversity of representation on executive committees, the need for experience and expertise, and the difficulty of attracting qualified public directors. In addition, several commenters argued that members of an executive committee have a special need for expertise due to its unique involvement in day-to-day operational and managerial issues. 2a. The Commission's Response to Comments on the Board Composition Acceptable Practice After carefully reviewing the comments above, the Commission has decided to modify the proposed Board Composition Acceptable Practice, and reduce the required ratio of public directors on boards and executive committees from at least 50% to at least 35%. The Commission is confident that the new Board Composition Acceptable Practice, together with the other acceptable practices adopted herein, effectively accomplishes what Core Principle 15 requires—“minimiz[ing] conflicts of interest in the decision-making process of the contract market”—while simultaneously respecting the legitimate needs of efficiency and expertise in that process. Both the proposed and final Board Composition Acceptable Practices recognize the importance of DCM boards of directors in effective self-regulation. Boards of directors bear ultimate responsibility for all regulatory decisions, and must ensure that DCMs' unique statutory obligations are duly considered in their decision making. While exchange boards do have fiduciary obligations to their owners, they are also required by the Act to ensure effective self-regulation, to protect market participants from fraud and abuse, and to compete and innovate in a fair and responsible manner. To meet these obligations, boards of directors, and any committees to which they delegate authority, including executive committees, must make certain that DCMs' regulatory responsibilities are not displaced by their commercial interests or those of their numerous constituencies. The Commission strongly believes that DCMs are best able to meet their statutory obligations if their boards and executive committees include a sufficient number of public directors. 69 While determining a “sufficient” level of public representation is not an exact process, the Commission has concluded that the public interest will be furthered if the boards and executive committees of all DCMs are at least 35% public. Such boards and committees will gain an independent perspective that is best provided by directors with no current industry ties or other relationships which may pose a conflict of interest. These public directors, representing over one-third of their boards, will approach their responsibilities without the conflicting demands faced by industry insiders. They will be free to consider both the needs of the DCM and of its regulatory mission, and may best appreciate the manner in which vigorous, impartial, and effective self-regulation will serve the interests of the DCM and the public at large. Furthermore, boards of directors that are at least 35% public will help to promote widespread confidence in the integrity of U.S. futures markets and self-regulation. Public participation on such boards will enhance the independence and accountability of all self-regulatory actions. As regulatory authority flows from the board of directors to all decision-makers within a DCM, such independence should permeate every level of self-regulation and successfully minimize conflicts of interest as required by Core Principle 15. 69 As noted previously, some commenters made similar arguments with respect to executive committee composition and board composition. Those arguments are addressed jointly in this Section. Some commenters also argued that executive committees require a special degree of expertise due to their unique role in day-to-day operational and managerial issues. The Commission notes that this argument runs counter to commenters' opposition to the ROC Acceptable Practice on the grounds that directors and board committees should not take part in day-to-day operational and managerial issues. The Commission believes that executive committees' unique role stems from their authority to act in place of the full board of directors. Regardless of the decision being made, if a DCM decides that such decision is best made by a small group of directors to whom full board authority has been delegated, then the ratio of public directors in that group should be no less than the ratio on the full board. Anything less would deprive a key level of DCM decision making from the benefits attendant to sufficient public representation and independence, and diminish the effectiveness of the Board Composition Acceptable Practice. As stated above, the Commission is confident that boards of directors and executive committees that are at least 35% public will effectively protect the public interest; at the same time, the Commission believes that they are appropriately responsive to the comments. Under the new 35% standard, DCMs will have more latitude to include a broader diversity of non-public directors, such as commercial representatives and other highly experienced industry professionals, and to appoint more member directors and other emerging classes of trading privilege holders. There will also be sufficient room for stockholders and other outside investors, DCM officers, and persons representing affiliated entities or business partners. The Commission believes that a public director level of at least 35% will not require DCMs to increase the size of their boards or executive committees, nor will they lose the ability to convene boards and committees on short notice. Furthermore, at the 35% level, DCMs should find it easier to attract a sufficient number of qualified public directors to serve on their boards and executive committees, thereby substantially reducing any disproportionate burden on smaller or start-up DCMs. Finally, while this modification makes ROCs with 100% public representation all the more necessary, it also provides ROC directors with access to a larger pool of industry expertise from among their fellow board members, with whom they may freely consult whenever needed. At the same time, the Commission has determined that the 35% standard adopted in the final Board Composition Acceptable Practice is sufficient to ensure strong representation of the public interest in DCM decision making. While a DCM may determine that a 50% public director standard is more appropriate for its circumstances, 70 the Commission believes that the 35% standard for safe harbor purposes under Core Principle 15 will be effective while also responsive to reasonable concerns voiced in the public comments. 70 Certain DCMs, such as large exchange subsidiaries of publicly traded companies, may be better served by a higher ratio of public directors, and may be better able to attract them. Although the Commissions believes that the 35% standard adopted herein is an appropriate minimum standard for all DCMs, the core principle regime grants DCMs the flexibility to adopt higher ratios of public directors should they wish. The Commission has concluded that the most effective way to address DCM conflicts of interest, while still maintaining the self-regulatory model, is to place a sufficient number of public persons on DCM boards of directors, executive committees, and other decision-making bodies. Ultimately, however, the Commission's objective is not to engineer specific board-level decisions, but rather to encourage a process that ensures that every decision will be both well-informed by inside expertise and well-balanced by the public interest. Following implementation of the Board Composition and companion acceptable practices, the Commission will carefully monitor DCM decision making, and reserves the right to modify the required ratio of public directors as necessary. 3. Comments With Respect to the Public Director Acceptable Practice Many commenters addressed the proposed acceptable practices' definition of “public” for DCM directors and members of disciplinary panels. With respect to the definition generally, the FIA supported the Commission's definition but noted that it had proposed a more stringent public director standard of no involvement with the futures or derivatives business. Several commenters expressed the general concern that the Commission's definition of public would lead to a lack of experience and expertise among DCM directors and members of disciplinary panels. One commenter contended that the definition was not needed for NYSE-listed DCMs as the definition of independence contained in the NYSE listing requirements was sufficient to ensure the appropriate level of independence in a DCM's decision-making processes. With respect to the proposed definition's exclusion of persons having a material relationship with the contract market, one commenter asked that the Commission clarify that DCM boards may make material relationship determinations without any independent nominating committee involvement. That commenter also asked that the Commission clarify whether it would represent a material relationship with the futures exchange for an individual, who otherwise satisfied the proposed qualification criteria, to be a lessor member of a DCM affiliate with a de minimus equity percentage interest in the DCM affiliate. Another commenter questioned whether the material relationship test would prevent an otherwise qualified individual from becoming a public director if its family farming operation used the DCM's contracts as risk management tools. 71 71 The use of a DCM's contracts to hedge risks in commercial activities otherwise unrelated to futures trading does not automatically constitute a material relationship. However, a board of directors should consider all relevant factors carefully when making its materiality determination. For example, if the farm operator cited above conducted its hedging activities as an exchange member, as broadly defined herein, such membership would disqualify it and persons affiliated with it from serving as public directors. Likewise, if futures trading is a central economic activity for an individual or firm, rather than incidental to other commercial activity, then the board should consider whether such futures trading rises to the level of a material relationship that could affect a director's decision making. For example, a director voting on a proposed exchange rule that would facilitate or deter a particular trading strategy will have a material conflict if their personal or firm trading is likely to benefit or be harmed by such new rule. The proposed definition stated that a director will not be considered “public” if the director is a member of the contract market or a person employed by or affiliated with a member. In response, one commenter stated that such a restriction would be a mistake because it would exclude from the board people with both industry knowledge and substantial shareholdings, including persons who hold membership but who are retired or lease their membership to others, members that are marginally involved in trading, persons who are members at other DCMs, and holders of corporate memberships whose firms likely conduct business at multiple DCMs. One commenter stated that the proposal's definition of member does not take into account the various types of membership, some of which may raise greater potential for conflicts of interest, while others may raise very little potential. The proposed definition also stated that a director will not be considered “public” if the director is an officer or employee of the DCM or a director, officer, or employee of its affiliate. In response, one commenter argued against the disqualification of an otherwise public DCM because he or she is also serving as a director at an affiliate of the DCM. Another commenter requested that the Commission clarify that a director of a DCM would not be considered non-public because he or she was also a director of the DCM's holding company. Several comments addressed the proposed definition's determination that a director will not be considered “public” if the director receives more than $100,000 in payments, not including compensation for services as a director, from the DCM, any affiliate of the DCM or from a member or anyone affiliated with a member. The FIA argued that the Commission should adopt a “no-payment-from-contract-market” standard, noting that payment of up to $100,000 would result in at least some allegiance to DCM management. Additionally, the FIA commented that if the $100,000 compensation limit is retained, the Commission should clarify that it is an overall cap of permissible compensation from contract markets and their members. The FIA also opined that receipt of more than $100,000 by a potential director's firm (rather than by the director) from a DCM member constitutes indirect payment or compensation and should not prevent an otherwise qualified director from being considered public. By contrast, one DCM stated that the public director definition should be modified to eliminate the $100,000 compensation provision because it is an arbitrary level and may amount to de minimis compensation in the context of the person's total compensation. 72 Another exchange requested that the Commission clarify that pensions and other forms of deferred compensation for prior services that are not contingent on continued service would not automatically disqualify a person from serving as a public director. 72 This commenter stated that each DCM board should consider compensation from the DCM or its members as one factor in determining whether the person has a material relationship with the DCM. One commenter addressed the proposed definition's determination that a person will be precluded from serving as a public director if any of the relationships identified in the definition apply to a member of the director's immediate family. That commenter stated that an individual should not be prohibited from serving as a public director based on the affiliation of an immediate family member with a member firm unless the family member is an executive officer of the member firm. The same commenter further noted that the exclusion should not apply to family members who do not live in the same household as the director. The proposed definition also included a one-year look back provision with respect to the identified disqualifying circumstances. With respect to this provision, the FIA commented that a two-year look back would be more realistic and effective. In contrast, an exchange commented that the proposed one-year look back is more than sufficient and noted that that the longer the look back period, the less likely that individuals will plan to return to the industry. 3a. The Commission's Response to Comments on the Public Director Acceptable Practice The Commission carefully considered all of the comments with respect to the Public Director Acceptable Practice, and generally found that many of the discrete requests for clarification regarding the definition of “public” were reasonable. Accordingly, the Commission made appropriate responsive modifications to the final Public Director Acceptable Practice, as discussed in Section IV below. The Commission has determined, however, that a less stringent definition of public director, as requested by some, is contrary to the acceptable practices' stated objectives: minimizing conflicts of interest through independent decision making, encouraging a strong regard for the public interest, and insulating regulatory functions via public directors and persons who are not conflicted by industry ties. Furthermore, the Commission believes that a strict definition of public director is especially necessary now that it will apply to 35% of a DCM's directors, rather than the 50% originally proposed. More importantly, the Commission strongly believes that, rather than being a drawback, the most significant contribution made by public directors to the DCM decision-making process is precisely their outside, non-industry perspective. The Commission is confident that a board consisting of at least 35% public directors, as defined in the Public Director Acceptable Practice, is more than capable of reaching intelligent collective decisions, even on technical matters requiring detailed knowledge of futures trading, while at the same time exercising its regulatory authority in a manner consistent with the public interest. The Commission rejects the contention that it will be impossible to find a sufficient number of qualified public directors to serve on DCM boards. Similarly, it rejects the argument that the materiality and bright-line tests may result in inexperienced directors with limited knowledge of the futures industry. To the contrary, the Commission believes that DCMs are fully capable of finding a sufficient number of qualified directors to constitute at least 35% public boards. DCMs may draw from a large pool of talented candidates with relevant or related experience, including retired futures industry insiders; scholars whose research focuses on the futures markets and related disciplines; officers and executives of many sophisticated corporate entities; persons with expertise in the securities industry, which may translate well into futures; and other members of the legal, business, and regulatory communities. The Commission notes that a wide variety of DCMs—large and small, mutually-owned and publicly traded, for-profit and not-for-profit—already have boards of directors that are at least 20% non-member, as once required by Commission Regulation 1.64. One securities exchange that is the parent company of a DCM has a board that is at least 50% non-member, 73 and the NYSE's board of directors is 100% non-member. Accordingly, many exchanges have already demonstrated an ability to successfully recruit, retain, and thrive with significant numbers of public directors. 73 The board of directors of the Chicago Board Options Exchange, which owns CFE, is 50% public (independent non-member). It is noteworthy that the three largest-volume DCMs, all of which are subsidiaries of publicly traded companies, are already required to have boards that are at least 50% “independent,” as defined by the NYSE. In certain respects, the Commission's definition of “public director” overlaps with the NYSE's “independent directors” definition. Thus, these DCMs could potentially select at least some of their public directors from among their independent directors who do not have current ties to the futures industry. At the same time, the argument that the NYSE listing standards render the proposed Public Director Acceptable Practices unnecessary is misplaced. Despite the similarities between the acceptable practices and the NYSE's definition of independent, one overarching difference remains— the listing standards are designed to protect shareholders, through boards of directors that are sufficiently independent from management. 74 In contrast, the new acceptable practices for Core Principle 15, while recognizing that DCMs are commercial enterprises, serve the national public interest in vigorous, impartial, and effective self-regulation. 74 The NYSE's commentary to its listing standards emphasizes that “ *as the concern is independence from management,* the Exchange does not view ownership of even a significant amount of stock, by itself, as a bar to an independence finding.” NYSE Listed Company Manual, § 303A.02 (commentary) (emphasis added). The Commission agrees with many of the commenters that effective self-regulation is in the long-term interest of DCM owners, including shareholders. However, it is crucial for all DCMs and their owners to understand that DCMs have two responsibilities: a responsibility to their ownership and a responsibility to the public interest as defined in the Act. 75 Whereas the NYSE listing standards serve those with a direct fiduciary claim upon a company (shareholders (owners)), the new acceptable practices serve the public, whose claim upon DCMs is entirely independent of ownership, membership, or any other DCM affiliation. In short, through the new acceptable practices for Core Principle 15, the Commission seeks to ensure adequate representation of a public voice that otherwise is not guaranteed any formal standing within a DCM, and which receives no effective representation under any regulatory regime other than the Commission's. 75 CEA § 3(b), 7 U.S.C. 5(b). Some commenters argued that the proposed Public Director Acceptable Practice, and the bright-line tests in particular, do not take into account different types of DCM memberships and the different degrees of conflict which they may or may not engender. Although different commenters focused on different groups of industry participants, their underlying argument was the same: that industry participants should be permitted to serve as public directors to a lesser or greater extent. The Commission's response to this and similar comments summarized above is two-fold. First, if DCMs value the presence of industry insiders on their boards, they may place them among the 65% of directors who are not required to be public under the final acceptable practices. The Commission has facilitated this option by reducing the required ratio of public directors. Second, and as stated previously, the purpose of the Public Director Acceptable Practice is to ensure independent decision making and strong consideration of the public interest by DCM boards of directors. While all directors are required to consider DCMs' statutory obligations and public responsibilities, public directors are particularly meaningful because they have no fiduciary duty to lessees or lessors of trading seats, corporate members, persons who trade small amounts, or any other persons affiliated with the futures industry and inquired about in the comments. Allowing persons with current industry affiliation to serve as public directors would necessarily reintroduce into board deliberations and ROC oversight the very conflicts of interest that Core Principle 15 and the new acceptable practices seek to minimize. The Commission also notes that the most significant determination to be made under the Public Director Acceptable Practice is the board's finding that a potential public director has no material relationship with the DCM. The Commission has left this determination to the board's discretion, and offers the bright-line tests only as a beginning to the board's inquiry. The material relationship test requires a DCM's board to make an affirmative, on-the-record finding that a director has no material relationship with the DCM, and to disclose the basis for that determination. The bright-line tests simply facilitate the board's inquiry by noting obviously material relationships, and freeing the board to focus on other relationships that may be less apparent but that are equally detrimental to impartial representation of the public interest. As such, the bright-line tests, like any other acceptable practices, must be sufficiently detailed to merit the benefits accorded to a safe-harbor. Consistent with this approach, the Commission reaffirms the familial relationships excluded under the bright-line tests, the one-year look-back provision, and all other elements of the proposed Public Director Acceptable Practice, except for those specifically treated in Section IV. 76 76 In Section IV, the Commission makes clarifications with respect to, inter alia, the manner in which DCMs select their public directors, the compensation of public directors, and public directors serving on both a parent company and a subsidiary DCM (“overlapping public directors”). 4. Comments With Respect to the Regulatory Oversight Committee Acceptable Practice The proposed Regulatory Oversight Committee Acceptable Practice called upon DCMs to establish a board-level ROC, composed solely of public directors, to oversee regulatory functions. Many commenters focused on the composition of the proposed ROC, voicing many of the same concerns they had with respect to the proposed 50% public director board requirement. Two DCMs commented that each DCM should be permitted to determine whether to establish a ROC, the extent of the ROC's responsibilities, and the most appropriate composition thereof. One DCM argued that the level of public representation should be the same for ROCs and boards. A number of commenters expressed concern with the difficulty in recruiting qualified public directors (similar to the concerns expressed with respect to recruiting qualified directors for the board generally) to serve on ROCs, and noted the need for experience, expertise, and diversity on any such body. One DCM commented that an ROC should be able to include public representatives who are not public directors of the exchange, but who are otherwise qualified to be. The FIA and a large FCM supported the proposed Regulatory Oversight Committee Acceptable Practice. The FCM commented that adoption of the proposal will enhance the credibility and effectiveness of DCMs in their capacity as self-regulators. One DCM commented that while an ROC is an appropriate way to reinforce impartiality in DCM self-regulation, it may not be the best approach for all DCMs (particularly smaller ones) to charge the committee with managerial duties and overseeing daily market regulation functions. Another DCM commented that ROCs should not remove DCMs' chief regulatory officers from the appropriate direction and input of DCM management. Commenters also argued that ROCs' proposed duties could conflict with the responsibilities of the chief executive officer, the board, and DCM personnel, and could well undercut their authority. Many commenters addressed ROCs' stated responsibilities. Several of these commenters argued that the level of authority assigned to an ROC's public directors is contrary to commonly accepted corporate management best practices because management functions are removed from management and become directors' responsibilities. A number of commenters offered recommendations as to what should be the responsibilities of an ROC. One DCM requested that the Commission clarify that if an ROC were to have any authority with respect to overseeing budgets and the hiring and compensation of regulatory officers and staff, that such authority would supplement rather than replace these normal management and board responsibilities. It was further argued that the Commission should make clear that it is not the function of an ROC to plan or conduct trade practice investigations or market surveillance or to review the results of particular investigations or audits, but rather to serve an oversight role. It also was suggested that the Commission should remove language that states that an ROC shall supervise the DCM's CRO because it is inconsistent with the Commission's stated position that an ROC should not serve as a manager. Another DCM commented that ROCs should be granted unhindered access to regulatory staff along with the authority to ensure that regulatory staff has sufficient resources and that nothing interferes with staff's fulfillment of the regulatory program. In other comments addressing the proposed responsibilities of ROCs, a large FCM and the FIA contended that ROCs (or their chairmen) should approve the composition of DCM disciplinary panels. The FIA also recommended that ROCs be granted the power to hire, supervise, and determine the compensation of DCMs' CROs and set (or recommend to the board) DCMs' self-regulatory budgets. Further, in the interest of more transparency for DCM rulemakings, the FIA recommended that ROCs should consider and approve any new DCM rule or rule change or, if the Commission elects not to call for committee approval of all such rules and rule changes, than any new DCM rule or rule change that a DCM decides to self-certify to the Commission. 4a. The Commission's Response to Comments on the Regulatory Oversight Committee Acceptable Practice Criticisms of the proposed ROC Acceptable Practice often mirrored those leveled against the proposed Board Composition Acceptable Practice and the proposed acceptable practices in general. After careful consideration, the Commission has determined to implement the ROC Acceptable Practice for Core Principle 15 as proposed. 77 77 As stated in the proposing release, the Commission emphasizes that ROCs are expected to identify aspects of their DCMs' regulatory system that work well and those that need improvement, and to make any necessary recommendations to their boards for changes that will help to ensure vigorous, impartial, and effective self-regulation. ROCs should be given the opportunity to review, and, if they wish, present formal opinions to management and the board on any proposed rule or programmatic changes originating outside of the ROCs, but which they or their CROs believe may have a significant regulatory impact. DCMs should provide their ROCs and CROs with sufficient time to consider such proposals before acting on them. ROCs should prepare for their boards and the Commission an annual report assessing the effectiveness, sufficiency, and independence of the DCM's regulatory program, including any proposals to remedy unresolved regulatory deficiencies. ROCs should also keep thorough minutes and records of their meetings, deliberations, and analyses, and make these available to the Commission upon request. In the future, when reviewing DCMs' compliance with the core principles, the Commission will examine any recommendations made by ROCs to their boards and the boards' reactions thereto. The Commission stresses that ROCs are oversight bodies, and that the enumerated powers granted to them in the ROC Acceptable Practice merely complement normal board functions. ROCs are not intended to supplant their boards of directors, nor are they expected to assume managerial responsibilities or to perform direct compliance work. Under the acceptable practices for Core Principle 15, DCM self-regulation remains exactly that—self-regulation, but with a stronger and more defined voice for the public responsibilities inherent to all DCMs. Properly functioning ROCs should be robust oversight bodies capable of firmly representing the interests of vigorous, impartial, and effective self-regulation. ROCs should also represent the interests and needs of regulatory officers and staff; the resource needs of regulatory functions; and the independence of regulatory decisions. In this manner, ROCs will insulate DCM self-regulatory functions, decisions, and personnel from improper influence, both internal and external. Many of the comments in opposition to the ROC Acceptable Practice—for example, that whether to establish ROCs should be left at DCMs' discretion and that it will be difficult to find qualified public directors—have already been addressed, and the Commission's previous responses need only brief summarizing here. The Commission strongly believes that new structural conflicts of interest within self-regulation require an appropriate response within DCMs. The Commission further believes that ROCs, consisting exclusively of public directors, are a vital element of any such response. With respect to those public directors, the Commission is confident that DCMs can recruit a sufficient number of qualified persons, as they have done for their boards in the past. Finally, the Commission notes that while DCMs must respond to conflicts between their regulatory responsibilities and their commercial interests; the exact manner in which they do so remains at their discretion. A second line of comments with respect to the ROC Acceptable Practice argued that ROCs should include industry directors, and that the ratio of public directors on ROCs should be the same as on boards. The Commission believes that these comments ignore the very purpose of the ROC Acceptable Practice. As stated previously, the new acceptable practices ensure that DCMs' decision-making bodies include an appropriate number of persons who are not conflicted by industry ties. For ROCs—the overseers of DCMs' regulatory functions—the appropriate number is 100% public. The Commission believes that anything less invites into regulatory oversight operations precisely those directors whose industry affiliations lend themselves to conflicts of interest in decision making. What constitutes a “sufficient” number of public persons for DCM decision making depends upon the decision-making body in question and its responsibilities. Thus, DCM disciplinary panels are required to be diverse and have only one public person because their responsibility—expert and impartial adjudications—often requires a detailed knowledge of futures trading best provided by industry participants. At the same time, that expertise is balanced by the impartiality of at least one public panelist and a diversity of industry representatives. For boards of directors, however, with both regulatory responsibilities and commercial interests, the minimum 35% ratio properly recognizes boards' dual role as the ultimate regulatory and commercial authorities within DCMs. Industry directors on DCMs' boards are fully justified precisely because of the numerous commercial decisions that they must make. Within this construct, ROC's discrete regulatory responsibilities assume added significance. The sole purpose of ROCs is to insulate self-regulatory functions, personnel, and decisions from improper influence, and to advocate effectively on their behalf. ROCs make no direct commercial decisions, and therefore, have no need for industry directors as members. The public directors serving on ROCs are a buffer between self-regulation and those who could bring improper influence to bear upon it. The Commission notes that at least three DCMs—CME, NYBOT, and U.S. Futures Exchange—have already established board-level committees similar to the ROCs described in the ROC Acceptable Practice, and they consist exclusively of public directors. The same is true of the securities exchange parent company of one DCM that submitted comments. Commenters who requested greater industry participation on ROCs should recall that ROCs will be subject to the final authority of their boards of directors, which may include a sufficient number of industry directors. DCM boards, including industry directors, will have ample opportunity to consult with and advise ROC public directors, to interact with regulatory officers and personnel, and ultimately to enact any regulatory policies or decisions that they deem appropriate. As stated previously, ROCs are designed to insulate self-regulation, not isolate it. At the same time, under the ROC Acceptable Practice, ROCs have the absolute right to whatever resources and authority they may require to fulfill their responsibilities, including resources within their DCMs. More specifically, ROCs have the authority and resources necessary to conduct their own inquiries; consult directly with their regulatory officers and staffs; interview DCM employees, officers, members, and others; review relevant documents; retain independent legal counsel, consultants, and other professional service providers and industry experts; and otherwise exercise their independent analysis and judgment as needed to fulfill their regulatory responsibilities. 78 78 ROCs should not rely on outside professionals or firms that also provide services to the full board, other board committees, or other units or management of their DCMs. The related concern that ROCs will undercut the authority of DCM boards of directors is misplaced. ROCs should function as any other committee of the board, making recommendations which are afforded great weight and deference, and reaching final decisions if such power is delegated to it, but ultimately subject to the board's authority. The very text of the ROC Acceptable Practice calls for ROCs to “monitor,” “oversee,” and “review,” none of which implies binding authority or a usurpation of the full board of directors. At most, it implies a change in workflow. 79 Similarly, concerns that ROCs will become managerial bodies or interfere with established managerial relationships are equally misplaced. To be clear, the Commission expects ROCs to oversee DCMs' self-regulatory functions and personnel, not to manage them. ROCs' responsibilities, detailed in Section 3 of the final acceptable practices, include traditional oversight functions or functions that can easily be delegated to a DCM's CRO. 80 Some examples of traditional committee responsibilities that can easily be performed by an ROC without undue interference in managerial relationships include: recommending rule changes or going on the record as opposed to a rule change originating elsewhere within the DCM; determining an appropriate regulatory budget in conjunction with the CRO and then forwarding that determination for consideration by the full board; arriving at employment decisions with respect to senior regulatory personnel and then forwarding those determinations for consideration by the full board; annual review and reporting on regulatory performance to the full board, etc. 79 For example, whereas the compensation of senior DCM executives typically may be recommended to the board by a compensation committee, the compensation of the CRO will be recommended by the ROC. This provides insulation to the CRO and the regulatory personnel beneath him or her, but does not infringe upon the board's final decision-making authority. Similarly, a ROC, rather than a budget committee, should be the body that formally recommends the appropriate level of regulatory expenditures for the DCM. Again, the salutary effect is to insulate a crucial self-regulatory decision, but not to remove it from the ultimate purview of the full board of directors. In these and similar instances, the Commission will be in a position to evaluate how boards treat ROC recommendations, thus adding Commission review as an additional level of self-regulatory insulation. 80 The text of the final acceptable practices makes clear that ROCs' shall “supervise the contract market's chief regulatory officer, who will report directly to the ROC.” This two-way relationship—delegation of certain responsibilities from the ROC to the CRO combined with supervision of the CRO by the ROC—is a key element of the insulation and oversight provided by the ROC structure. It permits regulatory functions and personnel, including the CRO, to continue operating in an efficient manner while simultaneously protecting them from any improper influence which could otherwise be brought to bear upon them. The ROC Acceptable Practice identifies key levers of influence, including authority over the conduct of investigations, the size and allocation of the regulatory budget, and employment and compensation decisions with respect to regulatory personnel, among others, and then places them within the insulated ROC/CRO-regulatory personnel relationship. While in no way diminishing the ultimate authority of the board of directors, this three-part relationship is intended to protect regulatory functions and personnel, including the CRO, from improper influence in the daily conduct of regulatory activities and broader programmatic regulatory decisions. ROCs' most important responsibility will simply be to insulate self-regulatory functions and personnel from improper influence. Such insulation does not usurp established authority, but rather acts as a filter through which it must pass, and be cleansed of any efforts to exercise improper influence or drive regulatory decisions according to commercial interest. One facet of the insulation provided by an ROC clearly is the relationship between it and its CRO, and through him or her, all regulatory functions, personnel, and decisions. The Commission has endeavored to identify the levers of influence that may be used to pressure an individual, or an entire regulatory department, and to place ROCs alongside those levers. Matters such as the hiring, termination, and compensation of regulatory personnel, and size of regulatory budgets, are clearly areas where insulation from improper influences may be beneficial. The insulation provided by the ROC Acceptable Practice, however, need not interfere with the established relationships between management, staff, and others necessary to effective self-regulation. 5. Comments With Respect to the Disciplinary Committee Acceptable Practice Several commenters addressed the proposed Disciplinary Panel Acceptable Practice provision that all DCM disciplinary panels include at least one public participant and that no panel be dominated by any group or class of DCM members. The FIA and large FCMs that commented were generally supportive of the proposed Disciplinary Panel Acceptable Practice, with the FIA commenting that one public member of a DCM disciplinary panel should be a prerequisite for safe harbor relief, but that a 50% public independent member standard for such panels would be much more in keeping with the spirit of the proposed acceptable practices. One large FCM noted that the proposal's composition requirement would avoid the perception of conflict and lack of fairness and impartiality. Another large FCM commented that it supports the proposed provision that would require rules precluding any group or class of industry participants from dominating or exercising disproportionate influence on disciplinary panels. Although two large DCMs commented that it is not necessary for the Commission to prescribe diversity on disciplinary panels, most of the smaller DCMs that commented in this area were supportive of the proposed acceptable practice. One smaller DCM that hires hearing officers to determine whether to bring a disciplinary action, however, commented that this proposed acceptable practice is not necessary for that DCM as it did not have any widespread inadequacies. Two commenters addressed what should be the qualifications of the public person serving on disciplinary panels; one agreed that having a public person on disciplinary panels is a sound proposition, but recommended that such person need not be subject to the same qualifying criteria as public directors. Another requested that the Commission clarify that the proposed board determination and reporting requirements with respect to public directors generally are unnecessary for public persons serving on disciplinary panels. The same commenter also requested clarification that the Disciplinary Panel Acceptable Practice's exclusion of decorum or attire cases from the requirement that one public person serve on disciplinary panels also applies to cases limited to certain recordkeeping matters (e.g., the timely submission of accurate records required for clearing or verifying each day's transactions or other similar activities). 5a. The Commission's Response to Comments on the Disciplinary Panel Acceptable Practice After carefully reviewing these comments, the Commission is satisfied that the Disciplinary Panel Acceptable Practice should be implemented as proposed. The Commission believes that fair disciplinary procedures, with minimal conflicts of interest, require disciplinary bodies that represent a diversity of perspectives and experiences. The presence of at least one public person on disciplinary bodies also provides an outside voice and helps to ensure that the public's interests are represented and protected. This approach is consistent with the Commission's overall objective of ensuring an appropriate level of public representation at every level of DCM decision making, while simultaneously calibrating the required number of public persons to the nature and responsibility of the decision-making body in question. The Disciplinary Panel Acceptable Practice accomplishes these dual objectives of diversity and public representation, while also maintaining the expertise necessary to evaluate sometimes complex disciplinary matters. The Commission also is comfortable that its RER process is well-positioned to evaluate the performance of DCM disciplinary committees and panels, such that a substantially higher proportion of public representation or other ameliorative steps are not required. RERs typically examine all of a DCM's disciplinary cases during a target period in detail, including reviews of disciplinary committee and panel minutes, investigation reports, settlement offers, and sanctions imposed. The Commission also pays careful attention to the recommendations of DCM compliance staff, to disciplinary bodies' responses to those recommendations, and to the analysis and rationale offered by disciplinary bodies in support of their decisions. If disciplinary committees and panels are underperforming, the Commission will be able to recognize any shortcomings and take appropriate measures. The work of disciplinary panels requires more specialized knowledge of futures trading than almost any other governing arm of a DCM. Neither the strategic business decisions made by boards of directors, nor the oversight conducted by ROCs, for example, require as much technical futures trading expertise as disciplinary panel service. Accordingly, the Commission believes that increasing the proportion of public representatives on disciplinary panels to 50%, as suggested by one commenter, would eliminate too much expertise from the disciplinary process and is unwarranted. The Commission recognizes that a small number of DCMs may have unique disciplinary structures. However, the Commission strongly believes that diverse panels, including at least one public person, are appropriate for all DCMs. Should an individual DCM choose to comply with this element of Core Principle 15 by other means, the Commission will examine and monitor it to ensure full core principle compliance. Other specific requests for modifications and/or clarifications with respect to the Disciplinary Panel Acceptable Practice are treated separately in Section IV(E) below. IV. Specific Requests for Modifications and/or Clarifications That the Commission Has Determined To Grant or Deny Several commenters made specific requests for modifications and/or clarifications that the Commission has determined to grant in some instances and deny in others. The specific modifications and/or clarifications do not represent changes in the proposed acceptable practices, but rather implement the Commission's original intent. They are described below. A. Phase-in Period for the New Acceptable Practices Several commenters indicated concern that adoption of the proposed acceptable practices, particularly the requirement to restructure the board, would be burdensome, time consuming and costly. For instance, one large DCM commented that implementation of the acceptable practices would necessitate major changes and cause significant disruption for DCMs, virtually none of which currently meet the proposed 50% public director standard (or the minimum 35% standard adopted in this final release). Another large DCM commented that publicly held DCMs implementing the acceptable practices would have to amend their certificates of incorporation, by-laws, and various public disclosures and respond to any shareholder challenge. As a result of the perceived time requirement, several commenters requested that, if the proposals are adopted, the Commission should provide for an adequate phase-in period. The Commission hereby grants an appropriate phase-in period. The new acceptable practices for Core Principle 15 are effective 30 days after publication in the **Federal Register.** Under the phase-in period described below, DCMs may take up to two years or two regularly-scheduled board elections, whichever occurs first, to fully implement the new acceptable practices or otherwise demonstrate full compliance with Core Principle 15. The Commission expects that DCMs will begin making preparations and taking conforming steps early in the phase-in period. Accordingly, six months after publishing these acceptable practices in the **Federal Register,** the Commission will survey all DCMs to evaluate their plans for full compliance with Core Principle 15. The Commission also will monitor all DCMs throughout the phase-in period to evaluate their progress toward full compliance. Although DCMs are not required to implement the new acceptable practices, the Commission has determined that full compliance with Core Principle 15 requires all DCMs to address structural conflicts of interest between their regulatory responsibilities and their commercial interests or those of their numerous constituencies. Such measures must be present throughout DCMs' decision-making processes. DCMs choosing to adopt measures other than the final acceptable practices adopted herein should consider and address key areas of decision making that are subject to conflicts of interest. These may include decisions with respect to regulatory budgets, expenditures, and funding; employment, compensation, and similar decisions involving regulatory personnel; the constitution of disciplinary panels; the promulgation of rules with a potential regulatory impact; decision making with respect to the investigation, prosecution, and sanctioning of disciplinary offenses; and the chain of command in compliance programs (including trade practice surveillance, market surveillance, and financial surveillance) beyond regulatory officers. The Commission will consider all of these factors in evaluating compliance with Core Principle 15. B. Selection of Public Directors With respect to the placement of public directors on boards, one DCM commented that the proposing release calls upon DCMs to “elect” boards composed of at least 50% public members, but that at that particular DCM public governors are not elected but are identified and appointed by the board itself. Further, election of public members might discourage potential candidates because having to stand for election creates the potential for elected individuals to be beholden to their electing constituency, especially if the position is compensated. Another commenter noted that the proposing release suggests a role for nominating committees in the selection of public directors, and asked for clarification that nominating committees are not required to be involved. Conversely, the FIA recommended that a subgroup of public directors should serve as a nominating committee to select new or re-nominate existing public directors. The Commission hereby clarifies that DCMs may select their public directors in the manner most appropriate to them. Compliance with the new acceptable practices for Core Principle 15 does not require the use of nominating committees, the “election” of public directors, or the selection of public directors by any pre-specified means. DCMs are free to select their public directors by any process they choose, as long as their public directors meet the requirements set forth in the new acceptable practices. In addition, the Commission expects that the tenures and terms of public directors will be no less secure than that of other directors of the DCM. For example, if other directors can be removed only for cause, then that same protection should extend to public directors. Similarly, if other directors are selected for two-year terms, then public directors should be as well, etc. The Commission considered FIA's request for a special nominating committee for public directors. However, in promulgating these acceptable practices, the Commission has been careful to focus on outcomes—the insulation of regulatory functions, a pure public voice in board deliberations, and fair disciplinary proceedings-while providing only as much instruction as necessary to achieve the safe harbor. C. Compensation of Public Directors As summarized in Section III above, several commenters requested clarifications or amendments with respect to the compensation of public directors under the Public Director Acceptable Practice. Section (2)(B)(iii) of the proposed acceptable practices specified that a public director may not receive more than $100,000 in payments from the DCM (or any affiliate of the DCM, or from a member or anyone affiliated with a member) other than for services as a director. One commenter asked whether deferred compensation for prior services would count toward the $100,000 payment limit for public directors. It does not. The Commission hereby affirms that public directors may receive deferred compensation for prior services in excess of $100,000, and that such compensation will not count towards the $100,000 payment limit for public directors. To comply with the acceptable practices, DCMs must ensure that any such compensation is truly deferred compensation for prior services. Thus, the agreement by which the public director is being compensated should predate his or her selection as a public director. Furthermore, it should in no way be conditioned upon the directors' future performance, services, or behavior, and in no way be revocable by the compensating party. FIA requested clarification that the $100,000 payments cap for public directors, for services other than as a director, is a cumulative cap on compensation from DCMs and their membership. The Commission hereby confirms that FIA's understanding is correct. The $100,000 payment cap is an annual, cumulative cap on payments to the public director from all “relevant” sources (i.e., the DCM, any affiliate of the DCM, or any member or affiliate of a member of the DCM) combined. As explained previously, the $100,000 cap also includes indirect payments made by a DCM, its affiliates, and its members or affiliates of its members to the director. In addition, the $100,000 payment cap is an annual cap, as summarized above. Finally, FIA argued that the Commission should preclude public directors from receiving any compensation from the DCM, but that compensation received by a director's firm, rather than the director itself should not count towards any compensation cap. The Commission considered both comments carefully, but determined that neither is appropriate. The Public Director Acceptable Practice's compensation cap, higher than that requested by FIA, combined with its narrow limits on where such compensation may originate, strikes the proper balance between an effective but not overly restrictive definition of public director. The Commission strongly believes that significant compensation paid by a DCM or its affiliates to a firm could adversely impact the independence of a director affiliated with that firm. In the Commission's opinion, any such relationship between a DCM and a director, through the director's firm, clearly rises to the level of a “material relationship” that would preclude the director from serving as a public director. Accordingly, the Commission hereby clarifies that a director affiliated with a firm receiving over $100,000 in compensation from the DCM or an affiliate of the DCM may not qualify as a public director. D. Overlapping Public Directors At least one commenter requested clarification with respect to overlapping public directors at DCMs whose ownership structures include a parent-subsidiary relationship. In the proposed acceptable practices, Sections (2)(B)(i) and (2)(B)(v), when read together, suggested that the same person could not serve as a public director at both the parent company and its subsidiary DCM. The question is most likely to arise in the context of DCMs that are subsidiaries of publicly traded companies, and whose boards of directors overlap in whole or in part with those of their public parents. The Commission hereby clarifies that overlapping public directors are permitted. However, such directors must still meet the Commission's definition of public director, as set forth in the Public Director Acceptable Practice. In effect, overlapping public directors must carry the Commission's definition of “public” director from their DCMs to the holding companies’ boards of directors. Conforming language has been added to the final acceptable practices. E. Jurisdiction of Disciplinary Panels and Definition of “Public” for Persons Serving on Disciplinary Panels One commenter asked the Commission to confirm that DCM disciplinary panels considering cases involving the timely submission of accurate records required for clearing or verifying each day's transactions need not include a public person. The Commission included such language in the preamble to the proposed Disciplinary Panel Acceptable Practices, but neglected to include it in the text of the acceptable practices themselves. The Commission is correcting that oversight and modifying the final acceptable practices for Core Principle 15 to make clear that disciplinary panels considering cases involving the timely submission of accurate records required for clearing or verifying each day's transactions need not include a public member. The same commenter requested clarification that public members of DCM disciplinary panels need only meet the “bright-line” tests for public directors contained in Section (2)(B)(i-v) and (2)(C) of the proposed acceptable practices. That was, in fact, the Commission's intent. Public members of disciplinary panels are not subject to the broader “no material relationship” test of Section (2)(i), nor the disclosure requirements of Section (2)(v) in the final acceptable practices. The Commission is confident that the new bright-line tests, combined with DCMs' existing personal conflicts of interest provisions, are sufficient to ensure impartial public representatives on disciplinary panels. Furthermore, the Commission also believes that requiring DCMs to conduct and disclose a material relationship test for disciplinary panel members would constitute an unjustifiable burden at this time. Conforming changes have been made in the final acceptable practices. F. “No Material Relationship Test” Section (2)(B)(ii) of the proposed acceptable practices precludes a DCM director from being considered public if he or she is a member of the DCM, or employed by or affiliated with a member. A director is “affiliated with a member” if he or she is an officer or director of the member. The Commission hereby adds an additional element to that definition: a DCM director is affiliated with a member if he or she has any relationship with the member such that his impartiality could be called in question in matters concerning the member. The Commission believes that this additional element of “affiliated” is a natural outgrowth of its original proposal. In particular, the proposed acceptable practices already precluded a DCM's public directors from also serving as employees, officers, or directors of a member. Combined with the materiality test in Section (2)(A) of the proposed acceptable practices, the Commission's intent to capture a broad array of relationships is clear. Properly applied, the proposed Public Director Acceptable Practice already excluded from service as public directors persons whose relationship with a member firm could call their impartiality into question. Whether the relevant relationships are employment, or similar to employment—independent contracting, legal services, consulting, or other relationships—they are precluded by the Public Director Acceptable Practice. Conforming language has been added to the final acceptable practices. G. Elimination of ROCs' Periodic Reporting Requirements Finally, the Commission is removing certain language from Section 3(B)(v) of the proposed acceptable practices. Among other things, this section called for ROCs to “prepare periodic reports for the board of directors and an annual report assessing the contract market's self-regulatory program. * * *” While the annual reporting obligation remains in full effect, the Commission has determined that an explicit requirement to prepare periodic reports for the board is unnecessary at this time. DCM boards of directors are free to request reports, updates, and information from committees whenever they wish, and committees are free to provide them even if not requested. Nothing in the ROC Acceptable Practice is intended to change that dynamic. V. Related Matters A. Cost-Benefit Analysis Section 15(a) of the CEA, 81 as amended by Section 119 of the CFMA, requires the Commission to consider the costs and benefits of its action before issuing a new regulation or order under the CEA. By its terms, Section 15(a) does not require the Commission to quantify the costs and benefits of its action or to determine whether the benefits of the action outweigh its costs. Rather, Section 15(a) simply requires the Commission to “consider the costs and benefits” of the subject rule or order. 81 7 U.S.C. 19(a). Section 15(a) further specifies that the costs and benefits of the proposed rule or order shall be evaluated in light of five broad areas of market and public concern:

(1)Protection of market participants and the public;

(2)efficiency, competitiveness, and financial integrity of futures markets;

(3)price discovery;

(4)sound risk management practices; and

(5)other public interest considerations. The Commission may, in its discretion, give greater weight to any one of the five enumerated areas of concern and may, in its discretion, determine that, notwithstanding its costs, a particular rule or order is necessary or appropriate to protect the public interest or to effectuate any of the provisions or to accomplish any of the purposes of the CEA. 82 82 E.g, *Fishermen's Dock Co-op., Inc.* v. *Brown.* 75 F.3d 164 (4th Cir. Va. 1996); *Center for Auto Safety* v. *Peck,* 751 F.2d 1336 (D.C. Cir. 1985) (agency has discretion to weigh factors in undertaking costs-benefits analyses). In the proposing release, the Commission considered the costs and benefits of the acceptable practices, requested comment on the application of the criteria contained in Section 15(a) of the CEA, and invited commenters to submit any quantifiable data that they might have. DCM commenters asserted that the costs of compliance outweighed any benefit, particularly the costs of amending governing documents in the manner required by Delaware corporate law. A number of DCMs and individuals contended that the Board Composition Acceptable Practice (and the other proposed acceptable practices) is unnecessary and that the Commission's cost-benefit analysis is flawed. Commenters asserted that the acceptable practices present no or minimal benefit, since the Commission failed to demonstrate any problems in the futures industry to warrant issuance of any of the acceptable practices. 83 Several commenters distinguished between securities industry reforms, which followed public scandals, and the recent absence of such events in the futures industry. 84 83 See, e.g., CME CL 29 at 9; NYMEX CL 28 at 10-11; NYBOT CL 22 at 4; CBOT CL 21 at 3. 84 See, e.g., NYMEX CL 28 at 11-13; CME CL 29 at 9; NYBOT CL 22 at 2; Comment of Donald L. Gibson, CL 25 at 1. As noted above, however, the Commission identified significant futures industry trends, including increased competition and changing ownership structures, which justify the acceptable practices as a prophylactic measure to minimize conflicts of interest in DCM decision making and to promote public confidence in the futures markets in the altered landscape. Minimizing conflicts and promoting public confidence in the futures markets are significant benefits for the futures industry, market participants, and the national public interest served by the futures markets. KCBT and NYBOT commented that, as small, non-public DCMs, they do not present the types of conflicts the Commission sought to address in expanding public participation on DCM governing boards. 85 HedgeStreet, a small electronic DCM, expressed similar views. 86 The Commission sees no rational basis for the proposition that size insulates a DCM from conflicts of interest. The potential impact arising from an improperly managed conflict may well be less at a smaller DCM than at a large one. The magnitude of potential harm is not the appropriate standard for taking prophylactic measures. What matters is whether the means proposed will impact small DCMs disproportionately. Neither KCBT, NYBOT, nor HedgeStreet have identified a disproportionate burden. Nor have they shown how their status as non-public DCMs immunizes them from conflicts. As the Commission made clear in proposing the acceptable practices, DCMs that become public, stockholder-owned corporations face an additional, new layer of conflict. Conflicts are inherent in other forms of ownership as well. Such conflicts may be minimized at all sizes and forms of DCMs by an increase in the percentage of public directors. 85 KCBT at CL 8 at 2; NYBOT CL at 4. NYBOT has informed the Commission of its intent to be acquired by ICE and run as a for-profit subsidiary. Accordingly, its comment has little relevance to its own contemplated future circumstances. 86 See HedgeStreet CL 17. If any DCM faces a particular burden peculiar to its individual circumstances in complying with the acceptable practices, that DCM may, as a matter of statute, choose an alternative method of complying with Core Principle 15 that is responsive to its circumstances. However, such DCM must still demonstrate, to the Commission's satisfaction, that its alternative method effectively addresses conflicts of interest in decision making under Core Principle 15, including structural conflicts of interest. DCM commenters asserted that complying with the Board Composition Acceptable Practice will be an expensive undertaking requiring amendment of corporate charters and other documents, and that the Commission gave too little consideration to these costs. For example, NYMEX states: The process of preparing * * * bylaw changes requires a commitment of time both by in-house exchange staff as well as by specialized legal advisors. This process can be fairly time-intensive with regard to review by such professionals of various drafts of amendments and other material for shareholders in relation to the successive SEC filings. There are the obvious costs generated by numerous runs by the applicable print shop specializing in SEC filing productions as well as the not inconsiderable costs of overnight shipping of the shareholder materials to hundreds if not thousands of shareholders of record. 87 > 87 NYMEX CL at 20 n.32. Arguments such as these are not persuasive. NYMEX describes a process, and asserts that it entails a cost, but fails even to estimate that cost, or to place the cost in any kind of context that would allow the Commission to judge the level of burden. Other comments alleging burdensome costs are similarly flawed. The Commission has no basis to conclude that compliance is other than a reasonable cost of doing business in an industry subject to federal oversight. Moreover, the costs may be phased in over a period of time. In this final release, although the acceptable practices will be effective immediately, the Commission is adopting a phase-in period of two years or two board election cycles, whichever occurs first. The DCMs' contentions that any level of compliance is burdensome because they already are subject to other governance regimes miss the mark. CME, CBOT, and NYMEX essentially contended that the governance provisions of the Delaware General Corporation Law under which they are organized, and the NYSE Listing Standards, contain sufficient provisions to assure sound governance. 88 The member-owned DCMs, NYBOT, KCBT, and their supporters, state that the diversity standards of Core Principle 16 provide an adequate bulwark against conflicts of interest, and that the membership presence on their boards will be diluted if a large contingent of public directors is admitted. 89 These arguments overlook the overarching purpose of the Board Composition Acceptable Practice, which is expressly to minimize conflicts of interest by addressing the keystone of all corporate decision making—the board of directors. 88 CME CL 29 at 14; CBOT CL 21 at 6-7; NYMEX CL 28 at 5-6, 15. 89 NYBOT CL 22 at 3-4; KCBT CL 8 at 1-2; for their supporters, see, e.g., comment of Michael Braude, CL 10 at 1. CME stated that the responsibility imposed on public directors to act in the public interest actually conflicts with the duty owed to shareholders under Delaware corporate law and the NYSE Listing Standards. 90 The Commission's review of corporate law authority reveals no such conflict. These proposals are entirely consistent with bedrock corporate law principles: as Delaware corporations, they are run “by or under the Board of Directors.” 91 Directors act as fiduciaries of stockholders, to be sure, but that does not mean the performance of their duties is limited to serving the narrow interests of stockholders. Those affairs include complying with the various statutes to which the corporation is subject. Shareholders are well-served or ill-served by the quality of the directors' discharge of their statutory duties. 90 CME CL 29 at 8. 91 Del. Code Ann. tit. 8, § 141(a). Corporate law experts generally agree that outside directors benefit corporate governance generally. “[M]ost persons in academia and business agree that outside directors play an important role in the effective functioning of the board.” 92 The suggestion of some commenters that public directors have an inherent conflict between the public interest and their duty to shareholders is misplaced. The acceptable practices address DCM governing boards, not the boards of parent public holding companies. DCMs—and their governing bodies—are vested with a public interest duty under the plain text of the CEA. Moreover, the public interest duty applies to nonpublic as well as public directors. The Commission is aware of overlapping board memberships—i.e., that the members of a DCM governing board may be the same individuals as those who serve on the parent board. This is entirely permissible. When an individuals sits, deliberates and acts in respect of the governance of the registered entity, he or she must do so consistently with the public interest mandate of the CEA. 92 D. Pease, “Outside Directors: Their Importance to the Corporation and Protection from Liability,” 12 Del. J. Corp. L. 25, 31 *et seq.*

(1987)(citing extensive authority and noting the legal advantages of outside directors). A number of commenters who wrote in support of KCBT and NYBOT assumed that public directors will lack interest and experience, and add little to board deliberations. 93 These commenters, however, offered no empirical evidence to support their speculation. The Commission notes that many DCM boards already include public directors who have been deemed qualified and competent by the DCMs. As discussed previously, the boards of exchanges such as the KCBT, MGEX, NYMEX, NYBOT, and CME, are typically 20% or more non-member. Moreover, the acceptable practices do not preclude non-member producers, retired and former industry persons, academics, and others from being considered public directors, which should provide a significant pool of futures industry experience from which to draw. DCMs that fear adding public directors will expand their boards to an unwieldy size may comply with the acceptable practices by phasing in public directors into existing seats. 93 See, e.g., Comment of Dennis M. Erwin, CL 18 at 1; Comment of John Legg, CL 14 at 1; and Comment of Robert J. Rixey, CL 11 at 1. One commenter contended that in prior cost-benefit analyses, the Commission has addressed each of the five considerations under Section 15(a) separately, and that this approach would have facilitated public comment. 94 However, the Commission has not always addressed each consideration separately in its rulemakings, nor is it required by the statute to do so. Section 15(a) requires that costs and benefits be evaluated in terms of the five considerations, but the Commission may give greater weight to any one of them. The cost-benefit analysis in the proposed acceptable practices provided sufficient notice to the public regarding the considerations to which the Commission accorded the greatest weight. The same commenter asserted that the Commission should endeavor to apply the relevant factors separately to each major proposal. 95 Again, however, the statute does not require that the Commission apply the factors in this fashion, but allows it to consider the costs and benefits in light of the impact of its proposal as a whole. Finally, the commenter encouraged the Commission to consider regulatory alternatives in its cost-benefit analysis. 96 As noted above, however, the only alternative suggested by the commenters was that the Commission do nothing. They suggested no other alternative that would address the concerns cited by the Commission in proposing the acceptable practices. In the Commission's judgment, these acceptable practices serve to protect the public interest in a manner that minimizes the costs to the industry while demonstrating compliance with Core Principle 15. 94 NYMEX CL 32 at 20. 95 Id. 96 Id. As was discussed in the proposing release, the acceptable practices described herein are safe harbors for compliance with Core Principle 15's conflict of interest provisions. They offer DCMs the opportunity to meet the requirements of Core Principle 15 through a regulatory governance structure that insulates their regulatory functions from their commercial interests. The Board Composition Acceptable Practice provides that DCMs implement boards of directors and executive committees thereof that are at least 35% public. The ROC Acceptable Practice further provides that all DCMs place oversight of core regulatory functions in the hands of board-level ROCs composed exclusively of “public” directors. The Public Director Acceptable Practice offers guidance on what constitutes a “public” director. In addition, the Disciplinary Panel Acceptable Practice suggests minimum composition standards for DCM disciplinary committees. As noted above, although the acceptable practices will be effective immediately, the Commission is allowing a phase-in period for DCMs to implement them. The proposed acceptable practices are consistent with legislative and regulatory requirements, and voluntarily undertaken changes in governance practices in other financial sectors, such as the securities markets, and are intended to enhance protection of the public. The Commission has endeavored to establish the least intrusive safe harbors and regulatory requirements that reasonably can be expected to meet the requirements of Core Principle 15 of the CEA. These acceptable practices advance the Commission's mandate of assuring the continued existence of competitive and efficient markets and to protect the public interest in markets free of fraud and abuse. They nevertheless may be expected to entail some costs, including, among the most foreseeable, those attendant to recruiting and appointing additional directors, amending corporate documents, making necessary rule changes and certifying them to the Commission, and appointing a Chief Regulatory Officer. In light of the reduction of the percentage of public board members from 50% in the Board Composition Acceptable Practice as proposed to at least 35%, and the phase-in period, the Commission believes that these costs will not impose a significant burden and can be borne over time. After considering the costs and benefits of the acceptable practices, and considering the comments received in response to its proposal, the Commission has determined to issue the acceptable practices for Core Principle 15 with respect to DCMs. B. Paperwork Reduction Act of 1995 The acceptable practices contain information collection requirements. As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3504(h)), the Commission has submitted a copy of this section and the acceptable practices to the Office of Management and Budget (“OMB”) for its review. The revision of collection of information has been reviewed and approved by the Office of Management and Budget pursuant to the Paperwork Reduction Act, under control number 3038-0052. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. In the Notice of Proposed Acceptable Practices, the Commission estimated the paperwork burden that could be imposed by the acceptable practices and solicited comment thereon. 71 FR 38740, 38748 (July 7, 2006). No specific or sufficiently material comment was received. Copies of the information collection submission to OMB are available from the Commission Clearance Officer, Three Lafayette Centre, 1155 21st Street, NW., Washington DC 20581,

(202)418-5160. C. Regulatory Flexibility Act The Regulatory Flexibility Act, 5 U.S.C. 601 *et seq.* , requires federal agencies, in promulgating rules, to consider the impact of those rules on small entities. The final acceptable practices affect designated contract markets. The Commission has previously determined that designated contract markets are not small entities for purposes of the Regulatory Flexibility Act. 97 Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the final acceptable practices will not have a significant economic impact on a substantial number of small entities. 97 Policy Statement and Establishment of Definitions of “Small Entities” for Purposes of the Regulatory Flexibility Act, 47 FR 18618, 18619 (Apr. 30, 1982). VI. Text of Acceptable Practices for Core Principle 15 List of Subjects in 17 CFR Part 38 Commodity futures, Reporting and recordkeeping requirements. In light of the foregoing, and pursuant to the authority in the Act, and in particular, Sections 3, 5, 5c(a) and 8a(5) of the Act, the Commission hereby amends part 38 of title 17 of the Code of Federal Regulations as follows: PART 38—DESIGNATED CONTRACT MARKETS 1. The authority citation for part 38 is revised to read as follows: Authority: 7 U.S.C. 2, 5, 6, 6c, 7, 7a-2 and 12a, as amended by Appendix E of Pub. L. 106-554, 114 Stat. 2763A-365. 2. In Appendix B to Part 38 amend Core Principle 15 by adding paragraph

(b)“Acceptable Practices” to read as follows: Appendix B to Part 38—Guidance on, and Acceptable Practices in, Compliance With Core Principles. Core Principle 15 of section 5(d) of the Act: Conflicts of Interest

(b)*Acceptable Practices.* All designated contract markets (“DCMs” or “contract markets”) bear special responsibility to regulate effectively, impartially, and with due consideration of the public interest, as provided for in Section 3 of the Act. Under Core Principle 15, they are also required to minimize conflicts of interest in their decision-making processes. To comply with this Core Principle, contract markets should be particularly vigilant for such conflicts between and among any of their self-regulatory responsibilities, their commercial interests, and the several interests of their management, members, owners, customers and market participants, other industry participants, and other constituencies. Acceptable Practices for minimizing conflicts of interest shall include the following elements:

(1)*Board Composition for Contract Markets*

(i)At least thirty-five percent of the directors on a contract market's board of directors shall be public directors; and

(ii)The executive committees (or similarly empowered bodies) shall be at least thirty-five percent public.

(2)*Public Director*

(i)To qualify as a public director of a contract market, an individual must first be found, by the board of directors, on the record, to have no material relationship with the contract market. A “material relationship” is one that reasonably could affect the independent judgment or decision making of the director.

(ii)In addition, a director shall not be considered “public” if any of the following circumstances exist:

(A)The director is an officer or employee of the contract market or a director, officer or employee of its affiliate. In this context, “affiliate” includes parents or subsidiaries of the contract market or entities that share a common parent with the contract market;

(B)The director is a member of the contract market, or a person employed by or affiliated with a member. “Member” is defined according to Section 1a(24) of the Commodity Exchange Act and Commission Regulation 1.3(q). In this context, a person is “affiliated” with a member if he or she is an officer or director of the member, or if he or she has any other relationship with the member such that his or her impartiality could be called into question in matters concerning the member;

(C)The director, or a firm with which the director is affiliated, as defined above, receives more than $100,000 in combined annual payments from the contract market, any affiliate of the contract market, or from a member or any person or entity affiliated with a member of the contract market. Compensation for services as a director does not count toward the $100,000 payment limit, nor does deferred compensation for services prior to becoming a director, so long as such compensation is in no way contingent, conditioned, or revocable;

(D)Any of the relationships above apply to a member of the director's “immediate family,” i.e., spouse, parents, children, and siblings.

(iii)All of the disqualifying circumstances described in Subsection (2)(ii) shall be subject to a one-year look back.

(iv)A contract market's public directors may also serve as directors of the contract market's parent company if they otherwise meet the definition of public in this Section (2).

(v)A contract market shall disclose to the Commission which members of its board are public directors, and the basis for those determinations.

(3)*Regulatory Oversight Committee*

(i)A board of directors of any contract market shall establish a Regulatory Oversight Committee (“ROC”) as a standing committee, consisting of only public directors as defined in Section (2), to assist it in minimizing actual and potential conflicts of interest. The ROC shall oversee the contract market's regulatory program on behalf of the board. The board shall delegate sufficient authority, dedicate sufficient resources, and allow sufficient time for the ROC to fulfill its mandate.

(ii)The ROC shall:

(A)Monitor the contract market's regulatory program for sufficiency, effectiveness, and independence;

(B)Oversee all facets of the program, including trade practice and market surveillance; audits, examinations, and other regulatory responsibilities with respect to member firms (including ensuring compliance with financial integrity, financial reporting, sales practice, recordkeeping, and other requirements); and the conduct of investigations;

(C)Review the size and allocation of the regulatory budget and resources; and the number, hiring and termination, and compensation of regulatory personnel;

(D)Supervise the contract market's chief regulatory officer, who will report directly to the ROC;

(E)Prepare an annual report assessing the contract market's self-regulatory program for the board of directors and the Commission, which sets forth the regulatory program's expenses, describes its staffing and structure, catalogues disciplinary actions taken during the year, and reviews the performance of disciplinary committees and panels;

(F)Recommend changes that would ensure fair, vigorous, and effective regulation; and

(G)Review regulatory proposals and advise the board as to whether and how such changes may impact regulation.

(4)*Disciplinary Panels* All contract markets shall minimize conflicts of interest in their disciplinary processes through disciplinary panel composition rules that preclude any group or class of industry participants from dominating or exercising disproportionate influence on such panels. Contract markets can further minimize conflicts of interest by including in all disciplinary panels at least one person who would qualify as a public director, as defined in Subsections (2)(ii) and (2)(iii) above, except in cases limited to decorum, attire, or the timely submission of accurate records required for clearing or verifying each day's transactions. If contract market rules provide for appeal to the board of directors, or to a committee of the board, then that appellate body shall also include at least one person who would qualify as a public director as defined in Subsections (2)(ii) and (2)(iii) above. Issued in Washington, DC, on January 31, 2007 by the Commission. Eileen A. Donovan, Acting Secretary of the Commission. [FR Doc. E7-2528 Filed 2-13-07; 8:45 am] BILLING CODE 6351-01-P DEPARTMENT OF VETERANS AFFAIRS 38 CFR Part 3 RIN 2900-AM37 Home Schooling and Educational Institution AGENCY: Department of Veterans Affairs. ACTION: Final rule. SUMMARY: The Department of Veterans Affairs

(VA)is amending its adjudication regulation regarding the definition of a child for purposes of establishing entitlement to additional monetary benefits for a child who is home-schooled. VA defines educational institutions to include home-school programs that meet the legal requirements of the States (by complying with the compulsory attendance laws of the States) in which they are located. The proposed rule published in the **Federal Register** on July 13, 2006, is adopted as final, without change. DATES: *Effective Date:* March 16, 2007. FOR FURTHER INFORMATION CONTACT: Maya Ferrandino, Regulations Staff, Compensation and Pension Service, Veterans Benefits Administration, Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420,

(202)273-7210. SUPPLEMENTARY INFORMATION: In a document published in the **Federal Register** on July 13, 2006, (71 FR 39616), VA proposed to amend its regulations regarding the definition of a child for purposes of establishing entitlement to additional monetary benefits for a child who is home-schooled. VA defined educational institutions and included home-school programs that meet the legal requirements of the States (by complying with the compulsory attendance laws of the States) in which they are located. The 60-day public comment period ended on September 11, 2006. One comment was received from the Home School Legal Defense Association and it supported the rule change. Based on the rationale set forth in the proposed rule and the rationale contained in this document, we are adopting the provisions of the proposed rule as a final rule without change. Paperwork Reduction Act The collection of information under the Paperwork Reduction Act (44 U.S.C. 3501-3521) referenced in this final rule has an existing Office of Management and Budget

(OMB)approval as a form. The form is VA Form 21-674, Request for Approval of School Attendance, OMB approval number 2900-0049. No changes are made in this final rule to the collection of information. Regulatory Flexibility Act The Secretary hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. This final rule would not affect any small entities. Therefore, pursuant to 5 U.S.C. 605(b), this final rule is exempt from the initial and final regulatory flexibility analysis requirements of sections 603 and 604. Executive Order 12866 Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by OMB unless OMB waives such review, as any regulatory action that is likely to result in a rule that may:

(1)Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;

(2)Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3)Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4)Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. The economic, interagency, budgetary, legal, and policy implications of this final rule have been examined, and it has been determined to be a significant regulatory action under the Executive Order because it is likely to result in a rule that may raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. Unfunded Mandates The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This final rule would have no such effect on State, local, and tribal governments, or on the private sector. Catalog of Federal Domestic Assistance Numbers and Titles The Catalog of Federal Domestic Assistance program numbers and titles for this final rule are 64.104 Pension for Non-Service-Connected Disability for Veterans, 64.105 Pension to Veterans Surviving Spouses, and Children, 64.109 Veterans Compensation for Service-Connected Disability, and 64.110 Veterans Dependency and Indemnity Compensation for Service-Connected Death. List of Subjects in 38 CFR Part 3 Administrative practice and procedure, Claims, Disability benefits, Health care, Pensions, Radioactive materials, Veterans, Vietnam. Approved: January 4, 2007. R. James Nicholson, Secretary of Veterans Affairs. For the reasons set out in the preamble, VA amends 38 CFR part 3 as follows: PART 3—ADJUDICATION 1. The authority citation for part 3, subpart A continues to read as follows: Authority: 38 U.S.C. 501(a), unless otherwise noted. 2. Revise § 3.57(a)(1)(iii) to read as follows: § 3.57 Child.

(a)* * *

(1)* * *

(iii)Who, after reaching the age of 18 years and until completion of education or training (but not after reaching the age of 23 years) is pursuing a course of instruction at an educational institution approved by the Department of Veterans Affairs. For the purposes of this section and § 3.667, the term “educational institution” means a permanent organization that offers courses of instruction to a group of students who meet its enrollment criteria, including schools, colleges, academies, seminaries, technical institutes, and universities. The term also includes home schools that operate in compliance with the compulsory attendance laws of the States in which they are located, whether treated as private schools or home schools under State law. The term “home schools” is limited to courses of instruction for grades kindergarten through 12. (Authority: 38 U.S.C. 101(4)(A), 104(a)) [FR Doc. E7-2466 Filed 2-13-07; 8:45 am] BILLING CODE 8320-01-P DEPARTMENT OF VETERANS AFFAIRS 38 CFR Part 59 RIN 2900-AM42 Priority for Partial Grants to States for Construction or Acquisition of State Home Facilities AGENCY: Department of Veterans Affairs. ACTION: Final rule. SUMMARY: This document adopts as a final rule, without change, an interim final rule amending the Department of Veterans Affairs

(VA)regulations regarding grants to States for construction or acquisition of State homes. The amendment was necessary to ensure that projects designed to remedy conditions at an existing State home that have been cited as threatening to the lives or safety of the residents receive priority for receiving VA grants in the future (including in Fiscal Year 2007). DATES: *Effective Date:* February 14, 2007. FOR FURTHER INFORMATION CONTACT: Frank Salvas, Chief, State Home Construction Grant Program (114), Veterans Health Administration, Department of Veterans Affairs, 810 Vermont Ave., NW., Washington, DC 20420, 202-273-8534. SUPPLEMENTARY INFORMATION: An interim final rule amending VA's regulations regarding grants to States for construction or acquisition of State homes was published in the **Federal Register** on August 11, 2006 (71 FR 46103). We provided a 60-day comment period that ended on October 10, 2006. No comments were received. Based on the rationale set forth in the interim final rule, we now adopt the interim final rule as a final rule without change. Administrative Procedure Act This document, without change, affirms the amendment made by the interim final rule that is already in effect. The Secretary of Veterans Affairs concluded that, under 5 U.S.C. 553(b)(3)(B), there was good cause to dispense with the opportunity for prior comment with respect to this rule. The Secretary found that it was impracticable, unnecessary, and contrary to the public interest to delay this regulation for the purpose of soliciting prior public comment. Nevertheless, the Secretary invited public comment on the interim final rule but did not receive any comments. The amendment was consistent with the priorities established by Congress and was needed on an expedited basis because the prior version of the regulation may have precluded VA from funding life safety projects during Fiscal Year 2007. While it is important to give States receiving partial grants priority for continued funding, the regulations need to recognize the other priorities for awarding State home grants including the top priority for projects that protect the lives and safety of veterans residing in existing State homes. Unfunded Mandates The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in an expenditure by the State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any given year. This final rule will have no such effect on State, local, and tribal governments, or on the private sector. Executive Order 12866 Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity). The Executive Order classifies a “significant regulatory action,” requiring review by the Office of Management and Budget

(OMB)unless OMB waives such review, as any regulatory action that is likely to result in a rule that may:

(2)create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

(3)materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or

(4)raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. The economic, interagency, budgetary, legal, and policy implications of this final rule have been examined and it has been determined to be a significant regulatory action under the Executive Order because it is likely to result in a rule that may raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. Paperwork Reduction Act This document contains no provisions constituting a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). Regulatory Flexibility Act The Secretary hereby certifies that this regulatory amendment will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. The rule will affect grants to States and will not directly affect small entities. Therefore, pursuant to 5 U.S.C. 605(b), this final rule is exempt from the initial and final regulatory flexibility analyses requirements of sections 603 and 604. Catalog of Federal Domestic Assistance The Catalog of Federal Domestic Assistance program number and title for this rule are as follows: 64.005, Grants to States for Construction of State Home Facilities. List of Subjects in 38 CFR Part 59 Administrative practice and procedure, Alcohol abuse, Alcoholism, Claims, Day care, Dental health, Drug abuse, Foreign relations, Government contracts, Grant programs—health, Grant programs—veterans, Health care, Health facilities, Health professions, Health records, Homeless, Medical and dental schools, Medical devices, Medical research, Mental health programs, Nursing homes, Reporting and recordkeeping requirements, Travel and transportation expenses, Veterans. Approved: January 11, 2007. Gordon H. Mansfield, Deputy Secretary of Veterans Affairs. PART 59—GRANTS TO STATES FOR CONSTRUCTION OR ACQUISITION OF STATE HOMES Accordingly, the interim final rule amending 38 CFR part 59, which was published at 71 FR 46103 on August 11, 2006, is adopted as a final rule without change. [FR Doc. E7-2465 Filed 2-13-07; 8:45 am] BILLING CODE 8320-01-P FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 64 [CG Docket No. 03-123; FCC 06-182] Telecommunications Relay Services and Speech-to-Speech Services for Individuals With Hearing and Speech Disabilities; Internet-Based Captioned Telephone Service AGENCY: Federal Communications Commission. ACTION: Final rule; clarification. SUMMARY: In this document, the Commission grants a request for clarification that Internet Protocol

(IP)captioned telephone relay service (IP captioned telephone service or IP CTS) is a type of telecommunications relay service

(TRS)eligible for compensation from the Interstate TRS Fund

(Fund)when offered in compliance with the applicable TRS mandatory minimum standards. The Commission also grants the request that *all* IP CTS calls be compensated from the Fund until such time as it adopts jurisdiction separation of costs for this services. The Commission conditions its approval on Ultratec's representation that it will continue to license its captioned telephone technologies, including technologies relating to IP CTS, at reasonable rates. Also in this document, the Commission seeks approval from the Office of Management and Budget

(OMB)for any Paperwork Reduction Act

(PRA)burdens contained in this document that will modify OMB Control Number 3060-1053 to have TRS providers offering IP CTS file annual reports with the Commission. DATES: Effective April 16, 2007. Written comments on the PRA modified information collection requirements must be submitted by the general public, Office of Management and Budget (OMB), and other interested parties on or before April 16, 2007. ADDRESSES: You may submit PRA comments identified by [CG Docket No. 03-123 and/or OMB Control Number 3060-1053], by any of the following methods: • *Federal eRulemaking Portal: http://www.regulations.gov.* Follow the instructions for submitting comments. • *Federal Communications Commission's Web Site: http://www.fcc.gov/cgb/ecfs/.* Follow the instructions for submitting comments. • *E-mail:* Parties who choose to file by e-mail should submit their PRA comments to *PRA@fcc.gov* and to Allison E. Zaleski at *AllisonE.Zaleski@omb.eop.gov.* Please include the docket number 03-123 and/or OMB Control number 3060-1053 in the subject line of the message. • *Mail/Fax:* Parties who choose to file by paper should submit their PRA comments to Cathy Williams, Federal Communications Commission, Room 1-C823, 445 12th Street SW., Washington, DC 20554, and to Allison E. Zaleski, OMB Desk Officer, Room 10236 NEOB, 725 17th Street, NW., Washington, DC 20503 or via fax

(202)395-5167. • *People with Disabilities:* Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by e-mail: *FCC504@fcc.gov* or phone

(202)418-0539 or TTY:

(202)418-0432. FOR FURTHER INFORMATION CONTACT: Thomas Chandler, Consumer and Governmental Affairs Bureau at

(202)418-1475 (voice),

(202)418-0597 (TTY), or e-mail *Thomas.Chandler@fcc.gov.* For additional information concerning the PRA information collection requirements contained in the document, send an e-mail to *PRA@fc.gov* or contact Cathy Williams at

(202)418-2918. SUPPLEMENTARY INFORMATION: This document contains modified information collection requirements subject to the PRA of 1995, Public Law 104-13. These will be submitted to OMB for review under § 3507 of the PRA. OMB, the general public, and other Federal agencies are invited to comment on the modified information collection(s) contained in this proceeding. On July 19, 2005, the Commission released Telecommunications Relay Services and Speech-to-Speech Services for Individuals with Hearing and Speech Disabilities, Order ( *Two-Line Captioned Telephone Order* ), CG Docket No. 03-123, FCC 05-141, which was published in the **Federal Register** on September 14, 2005 (70 FR 54292), concluding that *two-line* captioned telephone service is a type of TRS eligible for compensation from the Fund, effective October 14, 2005. This is a summary of the Commission's document FCC 06-182, adopted December 20, 2006, released January 11, 2007. Document FCC 06-182 addresses issues arising from a *Petition for Rulemaking to Mandate Captioned Telephone Relay Service and Approve IP Captioned Telephone Relay Services (Petition),* filed October 31, 2005, by Self-Help for the Hard of Hearing (SHHH), the Alexander Graham Bell Association for the Deaf and Hard of Hearing (AG Bell), the American Academy of Audiology (AAA), the American Association of People with Disabilities (AAPD), the American Speech-Language-Hearing Association (ASHA), the Association of Late-Deafened Adults (ALDA), the Deaf and Hard of Hearing Consumer Advocacy Network (DHHCAN), the League for the Hard of Hearing (LHH), the National Association of the Deaf (NAD), the National Cued Speech Association (NCSA), Telecommunications for the Deaf and Hard of Hearing, Inc. (TDI), the California Association of the Deaf (CAD), and the California Coalition of Agencies Serving the Deaf and Hard of Hearing (CCASDHH) (Petitioners), a *Request for Expedited Clarification for the Provision of and Cost Recovery for Internet Protocol Captioned Telephone Relay Service (Ultratec Petition to Clarify),* filed January 17, 2006, by Ultratec, Inc. (Ultratec), and a *Request to Amend Petition for Rulemaking to Mandate Captioned Telephone Relay Service; Request for Expedited Clarification on the Provision (Petition to Amend),* filed January 19, 2006 by Petitioners. Copies of any subsequently filed documents in this matter will be available for public inspection and copying during regular business hours at the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. The full text of document FCC 06-182 and copies of any subsequently filed documents in this matter will be available for public inspection and copying during regular business hours at the FCC Reference Information Center, Portals II, 445 12th Street. SW., Room CY-A257, Washington, DC 20554. Document FCC 06-182 and copies of subsequently filed documents in this matter may also be purchased from the Commission's duplicating contractor at Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. Customers may contact the Commission's duplicating contractor at their Web site: *http://www.bcpiweb.com* or call 1-800-378-3160. To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an e-mail to *fcc504@fcc.gov* or call the Consumer and Governmental Affairs Bureau at

(202)418-0530 (voice),

(202)418-0432 (TTY). Document FCC 06-182 can also be downloaded in Word or Portable Document Format

(PDF)at: *http://www.fcc.gov/cgb/dro.* Paperwork Reduction Act Document FCC 06-182 contains modified information collection requirements. The Commission, as part of its continuing effort to reduce paperwork burdens, invites the general public to comment on the information collection requirements contained in document FCC 06-182 as required by the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. Public and agency comments are due April 16, 2007. In addition, the Commission notes that pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, *see* 44 U.S.C. 3506(c)(4), the Commission previously sought specific comment on how it might “further reduce the information collection burden for small business concerns with fewer than 25 employees.” In this present document, the Commission has assessed the effects of its determination that IP captioned telephone service is a type of TRS eligible for compensation from the Interstate TRS Fund, and finds that such action will not affect businesses with fewer than 25 employees. Synopsis The Petition Petitioners describe IP CTS as using the Internet to provide captioned telephone service. ( *See, e.g., Petition* at 19. Ultratec suggests, for example, that regardless of how the call is set up, IP captioned telephone service should be considered any relay service that “allows the user to simultaneously listen to, and read the text of, what the other party in a telephone conversation has said, where the connection carrying the captions between the service and the user is via an IP addressed and routed link.” Karen Peltz Strauss, Legal Consultant for Ultratec, Inc. *Ex Parte* Letter, July 19, 2006 (Ultratec *Ex Parte* ), Attachment at 1-2.) Petitioners ask the Commission to clarify that IP CTS is a form of TRS eligible for compensation from the Fund, and that all such calls be compensated from the Fund. ( *Petition* at 19-20.) Petitioners state that the Commission has already determined that both captioned telephone service and IP Relay service are forms of TRS, and assert that IP captioned telephone service is simply “an extension of these already-approved services.” ( *Petition to Amend* at 2.) Petitioners emphasize that there are multiple methods of using the Internet to provide captioned telephone service. ( *Petition* at 19 (“Petitioners have learned that multiple methods of using Internet transport to produce captioned telephone service have already been developed * * *, [which] will allow voice and text to be carried by IP or a combination of IP and circuits over the PSTN.”); *Ultratec Petition to Clarify* at 7 (“Ultratec has developed a number of methods for delivering captioned telephone service via IP connections that are ready for deployment upon the FCC's approval”; redacting from public filing a full description of various methods of how the service may be provided.)) The record also reflects that a consumer can use IP CTS with an existing voice telephone and a computer, and therefore, unlike with present captioned telephone service, no specialized equipment is required. ( *See, e.g.* , Ultratec *Ex Parte* .) For example, an IP captioned telephone call can be set up similar to a two-line captioned telephone call, except that the line from the user to the provider would be via the Internet, not a second PSTN line. The consumer would make a voice to voice call to the other party on a standard telephone and the PSTN; at the same time, the voice of the called party is directed from the consumer's telephone to a personal computer (or similar device) that routes it to the provider via the Internet. The provider, in turn, sends back to the consumer the text of what was spoken. As a result, the consumer can both hear (to the extent possible) what the called party is saying over the standard voice telephone headset, and read the text of what the called party said on the computer or similar device. ( *See, e.g., Ultratec Ex Parte,* Attachment at 4. Ultratec also notes that there are a number of ways in which IP captioned telephone calls can be set up and handled, and that no special software is required. *See, e.g., Ultratec Ex Parte* Attachment at 3-7.) Petitioners state that IP CTS benefits consumers by giving them the flexibility of using a computer, PDA, or wireless device to make such a call, without having to purchase special telephone equipment. ( *Petition* at 19.) In addition, they note that captions provided on a computer screen can accommodate a much wider group of individuals, including people with hearing disabilities who also have low vision, because they can take advantage of the large text, variable fonts, and variable colors that are available. ( *Petition* at 19.) Petitioners also note that employers are now routinely equipping their employee's workstations with computers and connections to the Internet, and migrating away from reliance on the PSTN. Petitioners state that captioned telephone users should not be excluded from being able to use Internet technologies to communicate. ( *Petition* at 19; *see also Ultratec Petition to Clarify* at 4-7 (addressing benefits of IP captioned telephone service)). Petitioners further assert that, like VRS and IP Relay, the Commission should permit all IP captioned telephone service calls to be compensated from the Interstate TRS Fund. ( *Petition* at 19-20; *see also Ultratec Petition to Clarify* at 6.) Petitioners note that under this arrangement, multiple national providers are able to compete for customers. ( *Petition* at 20; *see also Ultratec Petition to Clarify* at 6.) Petitioners also assert that IP CTS providers should be subject to the Commission certification procedures applicable to other Internet-based forms of TRS. ( *Petition* at 20.) Finally, Ultratec requests that the same waivers of the TRS mandatory minimum standards applicable to captioned telephone service and IP Relay also be made applicable to IP captioned telephone service. ( *Ultratec Petition to Clarify* at 7-8 (listing waivers)). The Comments The *Petition* was placed on Public Notice. ( *Petition for Rulemaking Filed Concerning Mandating Captioned Telephone Relay Service and Authorizing Internet Protocol

(IP)Captioned Telephone Relay Service,* CG Docket No. 03-123, Public Notice, 20 FCC Rcd 18028, (November 14, 2005); published at 70 FR 71849, November 30, 2005)). Five providers and governmental entities submitted comments and six entities submitted reply comments. (Comments were filed by the California Public Utilities Commission and the People of the State of California (CA PUC) (December 29, 2005); the Florida Public Service Commission

(FPSC)(December 21, 2005); Hamilton Relay, Inc. (Hamilton) (December 30, 2005); Sprint Nextel Corporation (Sprint) (December 30, 2005); and MCI, Inc. (now Verizon) (Verizon) (December 30, 2005). Reply comments were filed by Petitioners (January 17, 2006); CA PUC (January 17, 2006); Missouri Public Service Commission (MO PSC) (January 17, 2006); National Association of State Utility Commissioners (NASUCA) (January 17, 2006); Ultratec (January 17, 2006); and Verizon (January 17, 2006)). All of these commenters urge the Commission to recognize IP captioned telephone service as a type of TRS service. ( *See, e.g.* , FPSC Comments at 3; NASUCA Reply Comments at 2; Ultratec Reply Comments at 2, 21; *see also* Hamilton Comments at 2 (supporting IP CTS as a type of TRS but questioning its general availability at this time). No commenters oppose this request.)) Numerous individuals also submitted comments, all generally supporting of the Petition. (Individual comments can be found in Docket No. 03-123 at *http://gullfoss2.fcc.gov/prod/ecfs/comsrch_v2.cgi.* ) In addition, the Commission's Consumer Advisory Committee

(CAC)TRS Working Group has requested that the Commission recognize IP captioned telephone service as a TRS service eligible for compensation from the Fund. ( *See* Report of the TRS Working Group to the Federal Communications Commission Consumer Advisory Committee (November 2006) ( *CAC TRS Working Group Recommendation* .)) Commenters also support compensating all such calls from the Interstate TRS Fund. ( *See, e.g.* , Hamilton Comments at 2-3; Ultratec Reply Comments at 2, 21; FPSC Comments at 3-4. Although Petitioners assert that all calls should be compensated by the Fund so that multiple national providers could offer service and compete for customers, some commenters also assert that, like VRS and IP Relay, providers cannot determine which calls are intrastate and which are interstate. *See, e.g.* , Hamilton Comments at 2-3; FPSC Comments at 3-4; *cf.* NASUCA Reply Comments at 6-9 (suggesting that IP CTS calls can be separated into intrastate and interstate calls, but not objecting to having the Fund compensate all such calls on an interim basis). Verizon, however, suggests that the Fund should not pay for all IP CTS calls. Verizon Reply Comments at 4.) Further, Hamilton asserts that because IP CTS is similar to VRS and IP Relay ( *i.e.* , Internet-based), there should be federal certification of IP CTS providers so that the Commission can ensure the providers are offering service in compliance with the mandatory minimum standards. (Hamilton Comments at 4. No commenters oppose this request.) Discussion The Commission concludes that IP CTS is a type of TRS, and that all such calls may be compensated from the Interstate TRS Fund. The Commission also concludes that providers seeking to offer this service and to be compensated from the Fund may seek certification from the Commission pursuant to the recent certification rules adopted by the Commission. ( *See Telecommunications Relay Services, and Speech-to-Speech Services for Individuals with Hearing and Speech Disabilities,* CG Docket No. 03-123, Report and Order and Order on Reconsideration, 20 FCC Rcd 1719 (December 12, 2005); published at 70 FR 76208, December 23, 2005 ( *TRS Provider Certification Order* )). In addition, the Commission sets forth those TRS mandatory minimum standards inapplicable to the provision of this service. Finally, the Commission conditions its approval on Ultratec's representation that it will continue to license its captioned telephone technologies, including technologies relating to IP CTS, at reasonable rates. *IP Captioned Telephone Service and Compensation from the Fund.* The recognition of IP captioned telephone service as a type of TRS pursuant to Section 225 of the Communications Act follows from the nature of this service. The provision of TRS has evolved as new forms of technology have been developed and as consumers have identified the particularized needs of persons with hearing and speech disabilities. Since the adoption the TRS rules and the provision of TRS as a text-based service via TTYs and the PSTN, the Commission has recognized VRS and STS, IP Relay, and most recently, captioned telephone service. ( *See Telecommunications Relay Services and Speech-to-Speech Services for Individuals with Hearing and Speech Disabilities,* CG Docket No. 03-123, Order on Reconsideration, 20 FCC Rcd 13140 (July 19, 2005); published at 70 FR 51643, August 31, 2005 ( *ASL-to-Spanish VRS Order* ) (recognizing ASL-to-Spanish VRS service as a form of TRS); *Two-line Captioned Telephone Order* .) In so doing, the Commission has noted that: In enacting Section 225 of the Communications Act, Congress did not narrow its definition of TRS only to a specific category of services otherwise defined in the Communications Act, such as “telecommunications services.” Rather, Congress used the broad phrase “telephone transmission services” that is constrained only by the requirement that such service provide a specific functionality. The requisite functionality is that the service provides the ability for an individual who has a hearing or speech impairment to communicate by wire or radio with a hearing individual in a manner that is functionally equivalent to the ability of individuals without any such impairment to do so. Congress further provided that TRS includes “services that enable two-way communication between an individual who uses a TDD [ *i.e.* , TTY] or other nonvoice terminal device and an individual who does not use such a device.” In this context, the Commission has found that the phrase “telephone transmission service” used in Section 225 of the Communications Act, should be interpreted broadly to include any transmission service (involving telephonic equipment or devices) to the extent that such transmission provides the particular functionality that the definition specifies. ( *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16124, paragraph 8; published at 68 FR 55898, September 29, 2003.) The record reflects that IP captioned telephone service simply describes a new way that consumers with hearing disabilities can access the telephone system through TRS that will accommodate persons who wish to speak to the other party and simultaneously both listen to what the other party is saying and read captions of what is being said. As such, it is a service that borrows from both the IP Relay and captioned telephone services that the Commission has previously recognized as forms of TRS. Like IP Relay, the consumer is connected to the relay provider via the Internet, not the PSTN. Like captioned telephone service, the provider sends to the consumer the text of what the other party is saying. Therefore, the Commission finds that IP captioned telephone service is a type of TRS. The Commission emphasizes that such service may be initiated, set up, and provided in numerous ways, including using specific telephone equipment or IP-enabled devices, and various combinations of the PSTN and IP-enabled networks. ( *See* Ultratec *Ex Parte* , Attachment at 3-7 (setting forth various ways in which IP CTS calls can be offered); *CAC* *TRS Working Group Recommendation* at 3 (noting that “multiple methods of transport are now available for delivering captioned telephone relay service over the Internet” and that the “ability to make calls over one's own computer or IP-enabled device can * * * eliminate the significant costs that are associated with purchasing specially designed captioned telephone devices”); Gregg Vanderheiden, *Ex Parte* e-mail, CG Docket No. 03-123 (August 17, 2006) (stating that there is a “generic” way to do “captioned IP telephony” with any computer)). A service will be considered IP captioned telephone service as long as it allows the user to simultaneously listen to, and read the text of, what the other party in a telephone conversation has said, and the connection carrying the captions between the service and the user is via the Internet rather than the PSTN. ( *Cf. Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16127, paragraph 17 (“to avoid authorizing a particular proprietary technology, rather than a particular functionality or service, the Commission defines the captioned telephone * * * service that it recognize as TRS in the *Declaratory Ruling* as any service that uses a device that allows the user to simultaneously listen to, and read the text of, what the other party has said, on one standard telephone line. TRS providers, therefore, that may choose to offer captioned telephone * * * service are not bound to offer any particular company's service”). The Commission also notes that IP captioned telephone service may be offered as either a “one-line” or “two line” service, which gives consumers and providers flexibility in how they use or offer this service. *See generally* Ultratec *Ex Parte.* ) As a result, the Commission does not set forth in greater detail how this service must be provided, as long as it meets applicable TRS mandatory minimum standards (discussed below) and the captions are delivered via an IP network to the user fast enough so that they keep up with the speed of the other party's speech. (At this time, the Commission declines to adopt a quantitative measure for this service that is more stringent than the 60 words per minute

(wpm)standard applicable to text-based TRS services. *See Petition* at 22; 47 CFR 64.604(a)(1)(iii) of the Commission's rules. The Commission recognizes, however, that when the captions are generated by voice recognition technology, the captions are generated at a speed well above the 60 wpm standard. *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16134-35, paragraph 38 and note 106 (suggesting that with voice recognition technology captions are generated at approximately 140 wpm). Further, if captions are not keeping up with the speech (although a short delay is inevitable), at some point the provider is no longer offering relay service and the call is not compensable. Therefore, a provider offering this service has a strong incentive to ensure that the text is delivered promptly to the IP captioned telephone user.) The Commission expects, however, as with captioned telephone service, that the service will be provided in a way that is automated and invisible to both parties to the call. For example, presently with captioned telephone service the consumer does not communicate directly with a CA to set up the call; similarly, we expect that IP captioned telephone service should permit the consumer to directly dial the called party and then automatically connect the CA to the calling party to deliver the captions. The Commission does not, however, require that all captioned telephone calls be set up and handled in this manner. *Cf. Telecommunications Relay Services and Speech-to-Speech Services for Individuals with Hearing and Speech Disabilities,* CG Docket No. 03-123, Order, 21 FCC Rcd 9147, 9148, paragraph 2 (August 14, 2006); published at 71 FR 49380, August 23, 2006 ( *2006 Captioned Telephone Waiver Order* ) (noting that “as presently offered,” the consumer directly dials the number of the called party, not the number of the relay center). The Commission also notes that for calls initiated by a voice telephone user (inbound calls), the calling party dials an 800 number and then the number of the IP captioned telephone user. *See Petition* at 22.) Similarly, although the *Captioned Telephone Declaratory Ruling* explained that the captions were generated by voice recognition technology, and therefore no typing was involved, ( *See,* *e.g.* , *Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16122, paragraph 4, and 16127, paragraph 16), the Commission does not preclude providers of IP captioned telephone service from generating the captions in other ways ( *e.g.* , typing), as long as the captions are generated quickly enough to appear on the consumer's device nearly simultaneously with the speech. ( *See 2006 Captioned Telephone Waiver Order* at paragraph 4 (clarifying that certain requirements does not apply to this service if it is offered via voice recognition technology and not typed text)). The principle characteristic of any captioned telephone service is that the consumer nearly simultaneously receives both the actual voice of the other party to the call and text of what the party is saying, not that the captions are generated by voice recognition technology or any other particular way. ( *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16127, paragraph 17 (captioned telephone service is “any service that uses a device that allows the user to simultaneously listen to, and read the text of, what the other party has said”)). The Commission recognizes that because this service offers consumers additional features— *e.g.* , portability, lower cost and easier availability, greater accessibility for persons with multiple disabilities ( *see,* *e.g.* , *Ultratec Petition to Clarify at 4-7; CAC TRS Working Group Recommendation* at 3)—it represents an important step towards functional equivalency. ( *See CAC TRS Working Group Recommendation* at 3-4.) Moreover, the Commission expects that this will not be a service under the control of one vendor or provider. In this regard, the Commission conditions its approval on Ultratec's representation that it will continue to license its captioned telephone technologies, including technologies relating to IP CTS, at reasonable rates. ( *See* KPS Consulting, *Ex Parte* Letter, CG Docket No. 03-123 (November 27, 2006) (stating that Ultratec “has licensed its technologies at reasonable rates since captioned telephone service first became available * * * and will continue to license its technologies, including technologies relating to IP captioned telephone, going forward”)). The Commission also concludes that, on an interim basis, all IP CTS calls may be compensated from the Fund if provided in compliance with the Commission's rules. ( *See CAC TRS Working Group Recommendation* at 1 (urging that this service be compensated from the Fund)). This is consistent with the present treatment of VRS and IP Relay calls. (The *Declaratory Ruling* does not affect the compensation of captioned telephone calls recognized in the *Captioned Telephone Declaratory Ruling,* which are not Internet-based ( *i.e.* , are not calls where the connection carrying the captions between the service and the user is via the Internet). *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16128-29, paragraphs 19-22 (declining to permit all captioned telephone calls to be compensated from the Fund, noting that for such calls providers can determine if a particular call is interstate or intrastate)). The Commission believes this arrangement will be an incentive for multiple providers to offer this service on a nationwide basis. ( *See generally Ultratec Petition to Clarify* at 6.) The Commission notes that this is an interim measure and that we intend to revisit the cost recovery methodology for this service in the future, (as noted above, in the pending *2006 TRS Cost Recovery FNPRM,* the Commission has raised the issue of the appropriate cost recovery methodologies for all forms of TRS), including jurisdictional separation of costs. The Commission will also consider at a future date whether IP CTS and captioned telephone service should be mandatory forms of TRS.). In addition, the Commission notes that, presently, interstate captioned telephone calls are compensated at the same rate as traditional TRS calls, and IP Relay is compensated at a separate rate. (For the 2006-2007 Fund year, traditional TRS and captioned telephone service are compensated at the rate of $1.291 per minute, and IP Relay is compensated at the rate of $1.293 per minute. *See Telecommunications Relay Services, and Speech-to-Speech Services for Individuals with Hearing and Speech Disabilities,* Order, CG Docket No. 03-123, Order, 21 FCC Rcd 7018 (June 29, 2006); *Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16129, paragraph 22.) Because the Commission believes that, for cost recovery purposes, the provision of IP captioned telephone service more closely resembles IP Relay service, not captioned telephone service, IP captioned telephone calls shall be compensated at the same per-minute rate as IP Relay service. (In the *Captioned Telephone Declaratory Ruling,* the Commission concluded that although captioned telephone service would be compensated at the traditional TRS rate, because there was only one provider of the service, which used proprietary technology, the projected costs and minutes of use for captioned telephone service would not be included in determining the traditional TRS rate. *Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16129-30, paragraph 23. Because it is presently unclear how many providers may choose to offer IP CTS, and how it will be offered, the Commission similarly concludes that the projected costs and minutes of use for IP CTS shall not be included in determining the IP Relay compensation rate, which will apply to IP CTS. At the same time, the Commission directs providers of IP CTS to submit their cost and use data specific to this service to the Fund administrator so that we will be able to monitor and review the costs associated with this service.) *Federal Certification for IP CTS Providers.* In the *TRS Provider Certification Order,* the Commission adopted a means by which common carriers seeking to offer IP Relay or VRS may seek “certification” from the Commission as an eligible provider. ( *See TRS Provider Certification Order,* 20 FCC Rcd at 20586-90, paragraphs 17-26.) The Commission noted that the present eligibility criteria for compensation from the Interstate TRS Fund set forth in the Commission's rules do not reflect advances in the way that TRS is offered, particularly with respect to the Internet-based forms of TRS. ( *See* 47 CFR 64.604(c)(5)(iii)(F)(3) of the Commission's rules, setting forth three eligibility categories for TRS providers seeking compensation from the Fund. As the Commission has explained, these categories include being part of a certified state program, contracting with an entity that is part of a certified state program, or being a common carrier obligated to provide TRS in a state that does not have a certified state program. *TRS Provider Certification Order,* 20 FCC Rcd at 20586-87, paragraphs 18-19.) As a result, the Commission adopted a Commission certification alternative that would permit common carriers desiring to offer VRS and/or IP Relay, and not the other forms of TRS, to receive compensation from the Fund. ( *TRS Provider Certification Order,* 20 FCC Rcd at 20586, paragraph 17.) This process is described in that order and the Commission's rules. ( *TRS Provider Certification Order,* 20 FCC Rcd at 20587-90, paragraphs 22-26; 47 CFR 64.605 of the Commission's rules.) The Commission concludes that an entity desiring to provide IP captioned telephone service, like an IP Relay provider, may choose to seek certification from the Commission under these rules. (In a subsequent rulemaking, the Commission will add IP CTS to these certification rules. *See* 47 CFR 64.604(c)(5)(iii)(F)(4) and § 64.605 of the Commission's rules.) As a general matter, potential IP CTS providers may become eligible for compensation from the Fund by being accepted into a certified state TRS program or subcontracting with an entity that is part of a certified state program, or by seeking Commission certification. (If eligibility is via a certified state program, the Commission reminds the state programs that they must notify the Commission within 60 days of substantive changes in their program. *See* 47 CFR 64.605(f)(1) of the Commission's rule.) Present eligibility to receive compensation from the Fund for the provision of other forms of TRS (including captioned telephone service) does not confer eligibility with regard to the provision of the IP CTS recognized in the *Declaratory Ruling.* *Applicable Mandatory Minimum Standards.* The Commission does not mandate the provision of IP captioned telephone service at this time. (Presently VRS, IP Relay, and captioned telephone service are not mandatory TRS services). Because the Commission does not mandate IP captioned telephone service, this service need not be offered 24/7 at this time. *See* 47 CFR 64.604(b)(4) of the Commission's rules.) Nevertheless, to be eligible for compensation from the Fund, providers must offer service in compliance with all applicable TRS mandatory minimum standards. The Commission has waived or found to be inapplicable various mandatory minimum standards for the provision of captioned telephone service ( *see Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16130-39, paragraphs 24-54 (addressing mandatory minimum standards that are either inapplicable or waived for captioned telephone service); *Captioned Telephone Waiver Order* ) and IP Relay, ( *see generally 2004 TRS Report and Order,* 19 FCC Rcd at 12594 (summarizing waivers for IP Relay and VRS)), given the nature of these services. Because IP captioned telephone service shares characteristics with both of these services, the Commission sets forth herein those mandatory minimum standards either inapplicable or presently waived for IP CTS. Although, as noted above, the Commission recognizes that IP captioned telephone service can be provided in a variety of ways, its defining characteristics— *i.e.* , that the provider relays captions to the consumer via the Internet, and that the captions are delivered to the consumer in a way that is timely, automated and invisible—make certain mandatory minimum standards inapplicable to the provision of this service. Therefore, consistent with the Commission's treatment of various mandatory minimum standards in the context of captioned telephone service and IP Relay, the Commission concludes that providers of IP captioned telephone service need not, at this time, meet the following requirements:

(1)gender preference (the gender preference rule requires relay providers to accommodate a user's requested CA gender. *See* 47 CFR 64.604(a)(1)(vi) of the Commission's rules. This requirement does not apply to captioned telephone service. *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16137-38, paragraphs 47-48);

(2)handling calls in ASCII and Baudot formats (providers of traditional TRS ( *i.e.* , text-based TRS calls made via a TTY and the PSTN) must ensure that the TTY can communicate in either the ASCII or Baudot formats. *See* 47 CFR 64.601(3) and

(4)of the Commission's rules; 47 CFR 64.604(b)(1) of the Commission's rules. This requirement does not apply to captioned telephone service. *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16139, paragraphs 53-54);

(3)call release (call release is a TRS feature that allows the CA to drop from the call after the CA has set up a telephone call between two TTY users. *See* 47 CFR 64.601(5) of the Commission's rules. This requirement does not apply to captioned telephone service. *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16138-39, paragraphs 51-52. It is waived for IP Relay until January 1, 2008. *See 2004 TRS Report and Order,* 19 FCC Rcd at 12594);

(4)Speech-to-Speech

(STS)(captioned telephone service providers need not offer STS at this time. *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16131-32, paragraphs 28-31. STS service is waived for IP Relay until January 1, 2008. *See 2004 TRS Report and Order,* 19 FCC Rcd at 12594);

(5)Hearing Carry Over

(HCO)and VCO services (VCO permits a person with a hearing disability, but who is able to speak, to speak directly to the other party to the call (instead of typing text), but receive in return the called party's spoken words as text on the TTY. *See* 47 CFR 64.601(18) of the Commission's rules. HCO permits a person with a speech disability, but who is able to hear, to type text to the other party to the call (which is voiced by the CA), but listen in return to what the called party is saying. *See* 47 CFR 64.601(8) of the Commission's rules. HCO does not apply to captioned telephone service. *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16131-32, paragraphs 28-31. VCO and HCO services are waived for IP Relay until January 1, 2008. *See 2004 TRS Report and Order,* 19 FCC Rcd at 12594);

(6)outbound 711 calling (outbound 711 dialing permits a relay user to dial 711 to reach a relay provider. This requirement does not apply to captioned telephone service. *See Captioned Telephone Declaratory Ruling,* 18 FCC Rcd at 16131, paragraph 34);

(7)emergency call handling (emergency call handling requires relay providers to be able to automatically contact the appropriate Public Safety Answering Point when they receive an incoming emergency call. *See* 47 CFR 64.604(a)(4) of the Commission's rules. The Commission notes that this requirement is presently waived for other Internet-based forms of TRS (IP Relay and VRS) until January 1, 2008. *See 2004 TRS Report and Order,* 19 FCC Rcd at 12594; *Telecommunications Relay Services and Speech-to-Speech Services for Individuals with Hearing and Speech Disabilities* , ** CG Docket No. 03-123, Order, DA 06-2532 (released December 15, 2006) (extending VRS waiver until January 1, 2008). The Commission recognizes the importance of access to emergency services for all forms of TRS, however, and anticipates addressing access to 911 services for IP CTS when it addresses 911 access for the other Internet-based forms of TRS pursuant to the *2005 VRS/IP Relay 911 NPRM;* published at 71 FR 5221, February 1, 2006. *See* *also* Federal Communications Commission E9-1-1 Disability Access Summit, held November 15, 2006 (transcript filed in CG Docket No. 03-123));

(8)equal access to interexchange carriers (This requirement requires providers to relay long distance calls through the consumer's choice of interexchange carrier. *See* 47 CFR 64.604(b)(3) of the Commission rules. This requirement is waived permanently for IP Relay, provided that IP Relay providers offer free long distance service to their customers. *See 2004 TRS Report and Order,* 19 FCC Rcd at 12524-25, paragraphs 124-27, and 12594. Similarly, if an IP CTS provider does not offer interexchange carrier of choice, the provider must offer free long distance service to their customers);

(9)pay-per-call

(900)service (pay-per-call

(900)services are calls that include a charge billed to the calling party. *See* 47 CFR 64.604(a)(3)(iv) of the Commission rules. This requirement is waived for IP Relay until January 1, 2008. *See 2004 TRS Report and Order,* 19 FCC Rcd at 12594);

(10)three-way calling (three-way calling allows more than two parties to be on the telephone line with the CA. *See* 47 CFR 64.601(16) of the Commission's rules. This requirement is waived for IP Relay until January 1, 2008. *See 2004 TRS Report and Order,* 19 FCC Rcd at 12594);

(11)speed dialing (speed dialing allows a TRS user to place a call using a stored number maintained by the TRS provider. The TRS user gives the CA a “short-hand” name or number for the user's most frequently called telephone numbers. *See* 47 CFR 64.601(13) of the Commission's rules. This requirement is waived for IP Relay until January 1, 2008. *See 2004 TRS Report and Order,* 19 FCC Rcd at 12594); and

(12)certain rules applying to CAs. (The *Captioned Telephone Declaratory Ruling* waived certain requirements applying to the CAs, including that:

(1)CAs must be competent in interpreting typewritten American Sign Language (ASL);

(2)TRS providers must give CAs oral-to-type tests; and

(3)CAs may not refuse sequential calls. *See* *Captioned Telephone Declaratory Ruling* , 18 FCC Rcd at 16134-37, paragraphs 36-46. These waivers expired on August 1, 2006. In the *2006 Captioned Telephone Waiver Order,* the Commission clarified that these requirements do not apply to captioned telephone services where the user does not type the outbound message, the CA generates text for the user principally using voice recognition technologies (instead of typing), and the CA does not play a role in setting up a call. *See 2006 Captioned Telephone Waiver Order,* at paragraph 4. These requirements also do not apply to IP CTS in similar circumstances.) For those waivers presently contingent on annual reporting requirements, providers of IP CTS must also file such reports. (Consistent with the present treatment of waivers for IP Relay, IP CTS providers must file annual reports addressing the waivers for STS, emergency call handling, pay-per-call

(900)services, VCO and HCO, call release, three-way calling, and speed dialing. These reports must be filed by April 1 of each year, beginning April 1, 2008. *See 2004 TRS Report and Order,* 19 FCC Rcd at 12594; *see also 2004 TRS Report and Order* at 12520-21, paragraph 111 (detailing required contents of annual report)). The Commission recognizes that depending on how IP CTS is offered, providers may be able to offer some of the features and services noted above. The Commission encourages all IP CTS providers to offer consumers as many of these features as possible if it is technically feasible to do so, and expect that competition between providers will serve as an incentive for providers to do so. ( *See also CAC TRS Working Group Recommendation* at 3 (setting forth possible features of this service)). The Commission also again emphasizes that providers must offer service in compliance with all applicable non-waived mandatory minimum standards to be compensated from the Fund. Congressional Review Act The Commission will not send a copy of the *Declaratory Ruling* pursuant to the Congressional Review Act, *see* 5 U.S.C. 801(a)(1)(A) because the adopted rules are rules of particular applicability, granting a request for clarification that IP CTS is a type of TRS eligible for compensation from the Fund. Ordering Clauses Pursuant to the authority contained in Sections 1, 2, 4(i), 4(j), 218 and 225 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 154(j), 218 and 225, and Sections 1.2, 1.3, 64.604 and 64.605 of the Commission's rules, 47 CFR 1.2, 1.3, 64.604 and 64.605, the *Declaratory Ruling* hereby is *adopted.* *Petition to Amend* filed by Petitioners *is granted* to the extent indicated herein. *Ultratec Petition to Clarify is granted* to the extent indicated herein. *The Declaratory Ruling shall be effective* April 16, 2007. The Commission's Consumer and Governmental Affairs Bureau, Reference Information Center *shall send* a copy of the *Declaratory Ruling,* including the Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the U.S. Small Business Administration. Federal Communications Commission. Marlene H. Dortch, Secretary. [FR Doc. E7-2573 Filed 2-13-07; 8:45 am] BILLING CODE 6712-01-P DEPARTMENT OF COMMERCE National Oceanic and Atmospheric Administration 50 CFR Part 635 [I.D. 013107D] Atlantic Highly Migratory Species; Small Coastal Shark Fishery AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce. ACTION: Regional fishery closure. SUMMARY: NMFS is closing the commercial fishery for small coastal sharks conducted by persons aboard vessels issued a Federal Atlantic shark permit in the Gulf of Mexico region. This action is necessary because the quota for the first 2007 fishing season in the Gulf of Mexico season has likely been exceeded. The commercial small coastal shark fisheries in the South Atlantic and North Atlantic regions are allocated separate quotas and will remain open until further notice. DATES: The commercial small coastal shark fishery in the Gulf of Mexico region is closed effective from 11:30 p.m. local time February 23, 2007 to May 1, 2007. FOR FURTHER INFORMATION CONTACT: Karyl Brewster-Geisz, 301-713-2347; fax 301-713-1917. SUPPLEMENTARY INFORMATION: The Atlantic shark fisheries are managed under the Consolidated Atlantic Highly Migratory Species

(HMS)Fishery Management Plan

(FMP)and its implementing regulations found at 50 CFR part 635 issued under authority of the Magnuson-Stevens Fishery Conservation and Management Act (16 U.S.C. 1801 *et seq.* ). On December 14, 2006 (71 FR 75122), NMFS announced that the small coastal shark quota for the first fishing season of the 2007 fishing year in the Gulf of Mexico region would be 15.1 metric tons

(mt)dressed weight

(dw)(33,289 lb dw). As of January 26, 2007, preliminary reports from dealers indicate that approximately 6.6 mt dw (14,500 lb dw) were reported landed in the Gulf of Mexico region during the first fishing season of 2007. Under 50 CFR 635.5(b)(1), shark dealers are required to report every two weeks. Fish received by dealers between the 1 st and 15 th of any month are required to be reported by the 26 th of that month. Fish received by dealers between the 16 th and the end of any month are required to be reported by the 10 th of the following month. As such, these preliminary reports indicate that in the first reporting period of the fishing season approximately 43.7 percent of the available quota was taken. Assuming the same catch rates continued for the second reporting period in January and will continue for the first reporting period in February, NMFS estimates that approximately 131 percent of the available quota (19.8 mt dw) could be taken by the close of the first reporting period in February (February 15, 2007). NMFS will not have estimates of actual landings through the first reporting period in February until February 26, 2007. Under 50 CFR 635.28(b)(2), when the fishing season quota for small coastal sharks is reached for a particular region, NMFS will file for publication a notice of closure at least 14 days before the effective date. Accordingly, NMFS is closing the commercial small coastal shark fishery in the Gulf of Mexico region as of 11:30 p.m. local time February 23, 2007. During the closure, retention of small coastal sharks in the Gulf of Mexico region is prohibited for persons fishing aboard vessels issued a commercial shark limited access permit under 50 CFR 635.4, unless the vessel is permitted to operate as a charter vessel or headboat for HMS and is engaged in a for-hire trip, in which case the recreational retention limits for sharks and no sale provisions may apply (50 CFR 635.22(a) and (c)). The sale, purchase, trade, or barter or attempted sale, purchase, trade, or barter of carcasses and/or fins of small coastal sharks harvested by a person aboard a vessel in the Gulf of Mexico region that has been issued a commercial shark limited access permit under 50 CFR 635.4, is prohibited, except for those that were harvested, offloaded, and sold, traded, or bartered prior to the closure, and were held in storage by a dealer or processor. This closure does not affect the commercial small coastal shark fisheries in the South Atlantic or North Atlantic regions which remain open until further notice. In addition, the commercial pelagic shark fishery remains open until further notice. The large coastal shark fishery in the North Atlantic is currently open, and as was announced on December 14, 2006 (71 FR 75122), will close on April 30, 2007. As announced in that notice, the large coastal shark fishery in the South Atlantic and Gulf of Mexico regions is already closed. The recreational shark fishery is not affected by this closure. Classification Pursuant to 5 U.S.C. 553 (b)(B), the Assistant Administrator for Fisheries, NOAA (AA), finds that providing for prior notice and public comment for this action is impracticable and contrary to the public interest. Based on recent landings reports, it is likely that the available quota for SCS in the Gulf of Mexico region will be exceeded in early February. Thus, affording prior notice and opportunity for public comment on this action is impracticable because the fishery is currently underway, and any delay in this action would cause further overharvest of the quota and be inconsistent with management requirements and objectives. Similarly, affording prior notice and opportunity for public comment on this action is contrary to the public interest because if the quota is exceeded, the effected public is likely to experience reductions in the available quota and a lack of fishing opportunities in future seasons. Thus, for these reasons, the AA also finds good cause to waive the 30-day delay in effective date pursuant to 5 U.S.C. 553 (d)(3). This action is required under 50 CFR 635.28(b)(2) and is exempt from review under Executive Order 12866. Authority: 16 U.S.C. 1801 *et seq.* Dated: February 8, 2007. Alan D. Risenhoover, Director, Office of Sustainable Fisheries, National Marine Fisheries Service. [FR Doc. 07-680 Filed 2-9-07; 2:12 pm]

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