Notices. Proposed Consent Agreement
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/register/2008/07/23/08-1464A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
BILLING CODE 6570-01-P FEDERAL MARITIME COMMISSION Notice of Agreements Filed The Commission hereby gives notice of the filing of the following agreements under the Shipping Act of 1984. Interested parties may submit comments on agreements to the Secretary, Federal Maritime Commission, Washington, DC 20573, within ten days of the date this notice appears in the **Federal Register** . Copies of agreements are available through the Commission's Web site ( *http://www.fmc.gov* ) or contacting the Office of Agreements (202)-523-5793 or *tradeanalysis@fmc.gov* ). *Agreement No.:* 011117-046. *Title:* United States/Australasia Discussion Agreement. *Parties:* A.P.
Moller-Maersk A/S; ANL Singapore Pte Ltd.; CMA-CGM; Compagnie Maritime Marfret S.A.; Hamburg-Süd; Hapag-Lloyd AG; and Wallenius Wilhelmsen Logistics AS. *Filing Party:* Wayne R. Rohde, Esq.; Sher & Blackwell LLP; 1850 M Street, NW; Suite 900; Washington, DC 20036. *Synopsis:* The amendment updates Appendix B to the agreement. *Agreement No.:* 011275-025. *Title:* Australia and New Zealand/United States Discussion Agreement. *Parties:* A.P. Moller-Maersk A/S; ANL Singapore PTE LTD.;
Hamburg-Südamerikanische dampfschifffahrts-Gesellschaft KG; and Hapag-Lloyd AG. *Filing Party:* Wayne R. Rohde, Esq.; Sher & Blackwell LLP; 1850 M Street, NW; Suite 900; Washington, DC 20036. *Synopsis:* The amendment would add minimum service levels to be provided under the agreement. *Agreement No.:* 011733-025. *Title:* Common Ocean Carrier Platform Agreement. *Parties:* A.P. Moller-Maersk A/S; CMA CGM; Hamburg-Süd; Hapag-Lloyd AG; Mediterranean Shipping Company S.A.; and United Arab Shipping Company (S.A.G.) as shareholder parties, and Alianca Navegacao e Logistica Ltda.;
Compania Sud Americana de Vapores, S.A.; Companhia Libra de Navegacao; COSCO Container Lines Co., Ltd.; Emirates Shipping Lines; Gold Star Line, Ltd.; Hanjin Shipping Co., Ltd.; Hyundai Merchant Marine Co. Ltd; Kawasaki Kisen Kaisha, Ltd.; MISC Berhad; Mitsui O.S.K. lines Ltd.; Nippon Yusen Kaisha; Safmarine Container Lines N.V.; Senator Lines GmbH; Norasia Container Lines Limited; Tasman Orient Line C.V. and Zim Integrated Shipping as non-shareholder parties. *Filing Party:* Wayne R.
Rohde, Esq.; Sher & Blackwell LLP; 1850 M Street, NW; Suite 900; Washington, DC 20036. *Synopsis:* The amendment adds Gold Star Line, Ltd. as a non-shareholder party to the agreement. *Agreement No.:* 011953-005. *Title:* Florida Shipowners Group Agreement. *Parties:* The member lines of the Caribbean Shipowners Association and the Florida-Bahamas Shipowners and Operators Association. *Filing Party:* Wayne R. Rhode, Esq.; Sher & Blackwell, LLP; 1850 M Street, N.W. Suite 900; Washington, DC 20036. *Synopsis:* The amendment deletes Interline Connection, NV as a member of the Caribbean Shipowners Association Agreement. *Agreement No.:* 011961-003. *Title:* The Maritime Credit Agreement. *Parties:* Alianca Navegacao e Logistica Ltda. & Cia;
A.P. Moller-Maersk A/S; Atlantic Container Line AB; China Shipping Container Lines Co., Ltd.; CMA CGM, S.A.; Companhia Libra de Navegacao; Compania Libra de Navegacion Uruguay S.A.; Compania Sudamericana de Vapores, S.A.; COSCO Container Lines Company Limited; Dole Ocean Cargo Express; Hamburg-Süd; Hoegh Autoliners A/S; Independent Container Line Ltd.; Kawasaki Kisen Kaisha, Ltd.; Norasia Container Lines Limited; Safmarine Container Lines N.V.; Tropical Shipping & Construction Co., Ltd.;
United Arab Shipping Company (S.A.G.); Wallenius Wilhelmsen Logistics AS; and Zim Integrated Shipping Services, Ltd. *Filing Party:* Wayne R. Rohde, Esq.; Sher & Blackwell LLP; 1850 M Street, NW; Suite 900; Washington, DC 20036. *Synopsis:* The amendment deletes Hapag-Lloyd AG as a party to the Agreement. *Agreement No.:* 011962-005. *Title:* Consolidated Chassis Management Pool Agreement. *Parties:* The Ocean Carrier Equipment Management Association and its member lines; the Association's subsidiary Consolidated Chassis Management LLC and its affiliates;
China Shipping Container Lines Co., Ltd.; Companhia Libra de Navegacao; Compania Libra de Navegacion Uruguay; Matson Navigation Co.; Mediterranean Shipping Co., S.A.; Midwest Consolidated Chassis Pool LLC; Norasia Container Lines Limited; Westwood Shipping Lines; and Zim Integrated Shipping Services Ltd. *Filing Party:* Jeffrey F. Lawrence, Esq.; Sher & Blackwell LLP; 1850 M Street, NW; Suite 900; Washington, DC 20036. *Synopsis:* The amendment would add the Gulf Consolidated Chassis Pool to the scope of the agreement and makes clerical corrections in the list of pools under development, established, and/or operated under the agreement. *Agreement No.:* 201048-003. *Title:* Restated Lease and Operating Agreement between PRPA and DRS. *Parties:* Philadelphia Regional Port Authority and Delaware River Stevedores, Inc. *Filing Party:* Paul D.
Coleman, Esq.; Hoppel, Mayer & Coleman; 1050 Connecticut Avenue, NW Tenth Floor; Washington, DC 20036. *Synopsis:* The amendment extends the term of the lease, revises the rent, and sets dockage and wharfage guarantees. By order of the Federal Maritime Commission. Dated: July 17, 2008. Karen V. Gregory, Assistant Secretary. [FR Doc. E8-16797 Filed 7-22-08; 8:45 am] BILLING CODE 6730-01-P FEDERAL MARITIME COMMISSION Ocean Transportation Intermediary License Applicants Notice is hereby given that the following applicants have filed with the Federal Maritime Commission an application for license as a Non-Vessel Operating Common Carrier and Ocean Freight Forwarder—Ocean Transportation Intermediary pursuant to section 19 of the Shipping Act of 1984 as amended (46 U.S.C.
Chapter 409 and 46 CFR 515). Persons knowing of any reason why the following applicants should not receive a license are requested to contact the Office of Transportation Intermediaries, Federal Maritime Commission, Washington, DC 20573. Non-Vessel Operating Common Carrier Ocean Transportation Intermediary Applicants Confianca Moving, Inc. dba CWM Logistics, 3533 NW 58th Street, Miami, FL 33142, *Officers:* Jose Tarcisio de Oliveira, Director (Qualifying Individual), Maria Rosa Carsage, President, Henry's Lead's Inc.
Dba Henry's Ocean Freight, 7102 Drew Hill Lane, Chapel Hill, NC 27514, *Officers:* Qiang NMN Fu, President (Qualifying Individual), Lixin Bai, Vice President, Dsecargonet USA, Inc., 11099 S. La Cienega Blvd., Ste. 262, Los Angeles, CA 90045, *Officers:* Tae W. Park, Secretary (Qualifying Individual), Myung Ki Chai, President, West Atlantic Cargo Leasing & Services, LLC, 2807 N. Course Drive, Pompano Beach, FL 33069, *Officers:* Rafael E. Sanchez, Jr., Vice President (Qualifying Individual), Gustavo A.
Sanchez, President, Headwin Global Logistics (USA), Inc., 11222 S. La Cienega Blvd., Ste. 148, Inglewood, CA 90304, *Officers:* Joanne Gong, Secretary (Qualifying Individual) Bin Bill Liu, CEO, Reliable Shipping Inc., 14656 Valley Blvd., City of Industry, CA 91746, *Officer:* Ping Lu, President (Qualifying Individual), Aeropronto USA Cargo Service Corp., 8272 NW 66th Street, Miami, FL 33166, *Officers:* Persio D. Diaz, President (Qualifying Individual), Carmen P. Diaz, General Manager.
Non-Vessel Operating Common Carrier and Ocean Freight Forwarder Transportation Intermediary Applicants Alfa Logistics Corp., 6354 NW 99th Ave., Miami, FL 33178, *Officers:* Luz A. Varon, Director (Qualifying Individual), Jorge H. Ariviello, President, Consolidated Freight & Shipping, Inc., 10025 N.W. 116th Way, Ste. #14, Medley, FL 33178, *Officer:* Thomas Rahn, President (Qualifying Individual), Zust Bachmeier International, Inc., dba Z Lines dba Zust Bachmeier International, Inc.
(ZBI, Inc.), 6201 Rankin Road, Humble, TX 77396, *Officer:* Albert G. Wichterich, President (Qualifying Individual), Caronex Worldwide, Inc., 2052 Arnold Way, Fullerton, CA 92833, *Officer:* Joonsik Kang, CEO (Qualifying Individual), Amid Logistics, LLC, 2275 E. Hwy. 100, Bldg. 11H, Bunnell, FL 32110, Dmitrly Deych, Sole Proprietor, Covenant Global Logistics, Inc., 1803 Fan Tall Ct., Crosby, TX 77532, *Officers:* Mabel G. Gold, Vice President (Qualifying Individual), Ronald E.
Gold, President, UKO Logis, Inc., 879 W. 190th Street, #290, Gardena, CA 90248, *Officer:* Jae Kim, CFO (Qualifying Individual), Shipex, LLC, 3341 Rauch Street, Houston, TX 77029, *Officer:* Khaldoon A. Barakat, CEO (Qualifying Individual), UTC Overseas, Inc. dba Airport Clearance Service, Inc., 100 Lighting Way, Secucus, NJ 07094, *Officer:* Robert Schumann, COO (Qualifying Individual), All Transportdepot, Inc., 4224 Shackleford Road, Suite C, Norcross, GA 30093, *Officers:* Paul Dawa, CFO/Vice President (Qualifying Individual), Susan Seda, President, Wheelsky Logistics, Inc., 14515 E.
Don Julian Road, City of Industry, CA 91746, *Officers:* Shuai Yuan, Secretary (Qualifying Individual), Hui-Kuan D. Tsai, President, HTS, Inc. dba Harte-Hanks Logistics, 1525 NW 3rd Street, Deerfield Beach, FL 33442, *Officers:* Jorge E. Andino, V. Pres. Of Transportation, (Qualifying Individual) Robert J. Colucci, President, First Coast Gateway, Inc., 87164 Kipling Drive, Yulee, FL 32097, *Officer:* Mayra, Guilarte, President (Qualifying Individual), Continental Services & Carrier, Inc., 5579 NW 72nd Avenue, Miami, FL 33166, *Officer:* Rodolfo Luciani, Vice President (Qualifying Individual), G.S.
Logistics, Inc., 4892 Dove Cir., LaPalma, CA 90623, *Officers:* Kun C. Kim, President, (Qualifying Individual) Hwa Y. Yoon, CFO. Ocean Freight Forwarder—Ocean Transportation Intermediary Applicants Payless Shipping, Inc., 7721 W. Bellfort Street, #240, Houston, TX 77071, *Officers:* Simon O. Mozie, President (Qualifying Individual), Michuks P. Enwere, Secretary, Atom Freights and Travels Services, LLC, 2306 Oak Lane, Ste. 10-12, Grand Prairie, TX 75051, *Officers:* Olatubosun T.
Raymond, CEO, Lateef T. Omolaoye, General Manager (Qualifying Individuals), Scrap Freight, Inc., 801 S. Garfield Ave., Ste. 101, Alhambra, CA 91801, *Officer:* Stephen, Long, President (Qualifying Individual), Integrated Global Logistics, Inc., 850 Chautauqua Ave., Portsmouth, VA 23707, *Officers:* Jenanne L. Alexander, President (Qualifying Individual), Nicholas C. Palmer, Vice President, Clark Worldwide Transportation, Inc., 121 New York Ave., Trenton, NJ 08638, *Officers:* Philip Friend, Exec.
Vice President (Qualifying Individual), John J. Barry, President. Dated: July 17, 2008. Karen V. Gregory, Assistant Secretary. [FR Doc. E8-16795 Filed 7-22-08; 8:45 am] BILLING CODE 6730-01-P FEDERAL RESERVE SYSTEM Change in Bank Control Notices; Acquisition of Shares of Bank or Bank Holding Companies The notificants listed below have applied under the Change in Bank Control Act (12 U.S.C. 1817(j)) and § 225.41 of the Board’s Regulation Y (12 CFR 225.41) to acquire a bank or bank holding company.
The factors that are considered in acting on the notices are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)). The notices are available for immediate inspection at the Federal Reserve Bank indicated. The notices also will be available for inspection at the office of the Board of Governors. Interested persons may express their views in writing to the Reserve Bank indicated for that notice or to the offices of the Board of Governors. Comments must be received not later than August 7, 2008. **A.
Federal Reserve Bank of Cleveland** (Nadine Wallman, Vice President) 1455 East Sixth Street, Cleveland, Ohio 44101-2566: *1. Jay L. Dunlap* , Lincoln, Nebraska, to retain the power to vote shares of, and to acquire additional voting shares of, New Richmond Bancorporation, and thereby indirectly retain the power to vote shares of, and to acquire additional voting shares of RiverHills Bank, both of New Richmond, Ohio. In connection with this application, Samad Yaltaghian, Rushden, Northants, England, has applied to acquire voting shares of New Richmond Bancorporation, and thereby indirectly acquire voting shares of RiverHills Bank, both of New Richmond, Ohio; and New Richmond Voting Trust, Lincoln, Nebraska, a voting trust to be established by Jay L.
Dunlap, Lincoln, Nebraska; Samad Yaltaghian, Rushden, Northants, England; and Gregory P. Neisen, Cincinnati, Ohio, acting in concert, with Jay L. Dunlap as voting trustee, to control voting shares of New Richmond Bancorporation, and thereby indirectly control voting shares of RiverHills Bank, both of New Richmond, Ohio. **B. Federal Reserve Bank of Dallas** (W. Arthur Tribble, Vice President) 2200 North Pearl Street, Dallas, Texas 75201-2272: *1. The Vanco Trusts, the Vannie Cook Trusts, and James William Collins, as trustee* , all of McAllen, Texas, to acquire an voting shares of Medina Bankshares, Inc., Hondo, Texas, and indirectly acquire voting shares of D'Hanis State Bank, D'Hanis, Texas.
Board of Governors of the Federal Reserve System, July 18, 2008. Robert deV. Frierson, Deputy Secretary of the Board. [FR Doc. E8-16861 Filed 7-22-08; 8:45 am] BILLING CODE 6210-01-S FEDERAL TRADE COMMISSION [File No. 081 0119] Pernod Ricard S.A.; Analysis of Agreement Containing Consent Orders to Aid Public Comment AGENCY: Federal Trade Commission. ACTION: Proposed Consent Agreement. SUMMARY: The consent agreement in this matter settles alleged violations of federal law prohibiting unfair or deceptive acts or practices or unfair methods of competition.
The attached Analysis to Aid Public Comment describes both the allegations in the draft complaint and the terms of the consent order — embodied in the consent agreement — that would settle these allegations. DATES: Comments must be received on or before August 15, 2008. ADDRESSES: Interested parties are invited to submit written comments. Comments should refer to “Pernod Ricard, File No. 081 0119,” to facilitate the organization of comments. A comment filed in paper form should include this reference both in the text and on the envelope, and should be mailed or delivered to the following address:
Federal Trade Commission/Office of the Secretary, Room 135-H, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Comments containing confidential material must be filed in paper form, must be clearly labeled “Confidential,” and must comply with Commission Rule 4.9(c). 16 CFR 4.9(c) (2005). 1 The FTC is requesting that any comment filed in paper form be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.
Comments that do not contain any nonpublic information may instead be filed in electronic form by following the instructions on the web-based form at *http://secure.commentworks.com/ftc-Pernod* . To ensure that the Commission considers an electronic comment, you must file it on that web-based form. 1 The comment must be accompanied by an explicit request for confidential treatment, including the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record.
The request will be granted or denied by the Commission’s General Counsel, consistent with applicable law and the public interest. *See* Commission Rule 4.9(c), 16 CFR 4.9(c). The FTC Act and other laws the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. All timely and responsive public comments, whether filed in paper or electronic form, will be considered by the Commission, and will be available to the public on the FTC website, to the extent practicable, at *www.ftc.gov.* As a matter of discretion, the FTC makes every effort to remove home contact information for individuals from the public comments it receives before placing those comments on the FTC website.
More information, including routine uses permitted by the Privacy Act, may be found in the FTC's privacy policy, at ( *http://www.ftc.gov/ftc/privacy.shtm* ). FOR FURTHER INFORMATION CONTACT: Joseph S. Brownman, FTC Bureau of Competition, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580,
(202)326-2605. SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and § 2.34 of the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given that the above-captioned consent agreement containing a consent order to cease and desist, having been filed with and accepted, subject to final approval, by the Commission, has been placed on the public record for a period of thirty
(30)days. The following Analysis to Aid Public Comment describes the terms of the consent agreement, and the allegations in the complaint. An electronic copy of the full text of the consent agreement package can be obtained from the FTC Home Page (for July 17, 2008), on the World Wide Web, at ( *http://www.ftc.gov/os/2008/07/index.htm* ). A paper copy can be obtained from the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW, Washington, D.C. 20580, either in person or by calling
(202)326-2222. Public comments are invited, and may be filed with the Commission in either paper or electronic form. All comments should be filed as prescribed in the ADDRESSES section above, and must be received on or before the date specified in the DATES section. Analysis of Agreement Containing Consent Orders to Aid Public Comment I. Introduction The Federal Trade Commission (“Commission”) has accepted, subject to final approval, an Agreement Containing Consent Orders (“consent agreement”)from Respondent Pernod Ricard S.A. (“Pernod Ricard”) in connection with its proposed acquisition of V&S Vin & Sprit AB (Publ)(“V&S”) from The Kingdom of Sweden. Among other things, the consent agreement requires that Pernod Ricard, currently the distributor of Stolichnaya Vodka, as a condition to acquiring V&S and its Absolut Vodka brand, cease distributing Stolichnaya Vodka. Pernod Ricard obtained the rights to distribute the Stolichnaya Vodka brand from its owner, Spirits International BV (“SPI”), a corporation headquartered in Geneva, Switzerland, and organized and doing business under the laws of The Netherlands. Absolut Vodka and Stolichnaya Vodka are “super premium” vodkas and, for a substantial number of consumers, they are close price substitutes. Total annual United States retail sales of these two brands are about $1.9 billion. The Commission and Respondent Pernod Ricard also have agreed to entry of an Order To Hold Separate and Maintain Assets (“Hold Separate Order”). The Hold Separate Order requires Pernod Ricard to maintain the competitive viability of assets relating to the distribution of Stolichnaya Vodka during the six-month period that the consent agreement permits it to own Absolut Vodka while also distributing Stolichnaya. The Hold Separate Order further requires that Pernod Ricard refrain from exercising direction or control over the Stolichnaya Vodka distribution business. Pernod Ricard must nevertheless maintain all Stolichnaya Vodka operations in the regular and ordinary course in accordance with past practices. Compliance with the terms of the Hold Separate Order will be supervised by an interim monitor. The proposed consent agreement will also remedy information exchange concerns in four additional distilled spirits markets: Cognac, domestic cordials, coffee liqueur, and popular gin. The Commission’s concerns in these four markets arise because of an ongoing joint venture between V&S and Beam Global Spirits & Wine, Inc. (“Beam Global”), a Fortune Brands, Inc., subsidiary, for the joint management of all of their distilled spirits distribution businesses. After the acquisition, Pernod Ricard will assume the management function role held by V&S for the joint venture brands and have access to competitively sensitive information about Beam Global brands which compete with Pernod Ricard brands that are not in the joint venture. The consent agreement requires Pernod Ricard to set up strict procedures that limit the flow of information to its employees, both within the joint venture as well as within Pernod Ricard itself. Because neither party to the joint venture profits from actions by the joint venture in connection with the sale of products, the Commission does not believe that a structural remedy in the form of a required divestiture of Pernod Ricard’s brands that compete with the Beam Global brands in the joint venture is necessary. Total annual United States retail sales in the four markets combined are about $2.4 billion. II. Respondent Pernod Ricard Respondent Pernod Ricard is a corporation organized, existing and doing business under and by virtue of the laws of the French Republic, with its office and principal place of business located at 12, place des Etats-Unis, 75783 Paris Cedex 16, France. In the United States, Pernod Ricard operates through a wholly-owned subsidiary corporation, Pernod Ricard USA, Inc., with offices located at 100 Manhattanville Road, Purchase, New York 10577. Pernod Ricard’s United States revenues from all distilled spirits products in the year ending June 30, 2007, totaled about $2.5 billion. Pernod Ricard produces distilled spirits that it distributes, markets, and sells in the United States. Some of its more popular brand lines of distilled spirits are Martell Cognac, Hiram Walker Cordials, and Kahlua Coffee Liqueur. Pernod Ricard also produces, markets, distributes, and sells, Chivas Regal, Ballantine’s, The Glenlivet Scotches, Jameson Irish Whiskey, Beefeater Gin, and the line of Wild Turkey Bourbons. Pernod Ricard also markets, distributes, and sells, but does not produce or own, the line of Stolichnaya Vodkas. III. V&S (the acquired company) V&S is a corporation wholly-owned by The Kingdom of Sweden, and is organized, existing and doing business under and by virtue of the laws of The Kingdom of Sweden. Its office and principal place of business is located at Formansvagen 19, S-100 74, Stockholm, Sweden. In the United States, V&S operates its distilled spirits business through a wholly-owned subsidiary, The Absolut Spirits Company, Incorporated (“ASCI”). ASCI is a Delaware corporation with its office and principal place of business located at 401 Park Avenue South, New York, New York 10016. V&S produces and sells distilled spirits products from facilities that it owns and operates. The brands of V&S include the lines of Absolut Vodka, Level Vodka, Plymouth Gin, and Cruzan Rum. V&S’s United States revenues from all distilled spirits products in 2007 were about $800 million. IV. The Future Brands Joint Venture Future Brands LLC (“Future Brands”) is the joint venture corporation of ASCI and Beam Global. Future Brands is a Delaware corporation with its office and principal place of business located in the offices of Fortune Brands at 300 Tower Parkway, Lincolnshire, Illinois 60069. Future Brands distributes all of the distilled spirits products of ASCI and Beam Global in the United States. The Future Brands joint venture corporation was created in 2001 and under the terms of that agreement, is scheduled to end in 2012. Future Brands had total revenues, in 2007, of about $1.48 billion. The brands of Beam Global include: the lines of Courvoisier Cognac; DeKuyper Cordials; Starbucks Coffee Liqueur; Jim Beam, Knob Creek, Bakers, Basil Hayden, and Booker’s Bourbon; Laphroig and Teacher’s Scotch; and Gilbey’s Gin. Beam Global and ASCI sell distilled spirits that fall into different marketing and price point segments. The principal economic benefit to Beam Global and ASCI of their Future Brands joint venture is cost savings or efficiencies from the joint marketing, selling, and distribution of their products. The economic benefit from the actual sale of the products that are distributed by the Future Brands joint venture are maintained by Beam Global and ASCI, as brand owners, and not by Future Brands. V. The Transaction On March 30, 2008, Respondent Pernod Ricard and The Kingdom of Sweden entered into their Share Purchase Agreement Regarding the Shares in V&S. Under the terms of the acquisition agreement, Pernod Ricard will acquire all of the shares of V&S for a sum equal to a combination of euros, dollars, and interest payments totaling approximately $9 billion. VI. The Complaint and Competitive Effects A. The Stolichnaya - Absolut Overlap in the “Super Premium” Vodka Segment The Commission also made public a Complaint that it intends to issue. According to that Complaint, Pernod Ricard, with Stolichnaya Vodka, and V&S, with Absolut Vodka, are direct and significant competitors in the super-premium vodka segment. The Complaint further alleges that Stolichnaya Vodka and Absolut Vodka are vodka brands that are close substitutes for a substantial number of customers of these brands. The proposed acquisition raises competitive concerns because it would eliminate substantial competition between Pernod Ricard and V&S in connection with the distribution, marketing, and sale of Stolichnaya Vodka and Absolut Vodka. If Pernod Ricard owns Absolut Vodka while also being the distributor of Stolichnaya Vodka, it could profitably raise the price of either Absolut Vodka or Stolichnaya Vodka. Many consumers who would be unwilling to pay a higher price for the brand whose price was increased would switch to the other brand. In its Complaint, the Commission stated it has reason to believe that the proposed transaction would have anticompetitive effects and violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act. B. The Pernod Ricard-Beam Global Brand Overlaps and the Future Brands Joint Venture The Complaint also alleges that the proposed acquisition by Respondent Pernod Ricard of V&S may substantially lessen competition in four additional distilled spirits markets. In these markets—Cognac, domestic cordials, coffee liqueur, and popular gin—Pernod Ricard has brands that compete with the Beam Global brands that are distributed by Future Brands. Before its acquisition of V&S, Pernod Ricard had no business relationship with Future Brands. As a marketer, seller, and distributor of distilled spirits products similar to distilled spirits products, marketed, sold, and distributed by Beam Global and Future Brands, Pernod Ricard had been a direct and substantial competitor of Beam Global and Future Brands. After its acquisition of V&S, Pernod Ricard will step into the competitive shoes of V&S (and ASCI) and replace ASCI as a joint venture partner of Beam Global. Pernod Ricard, as a joint venture partner, will have access to competitively sensitive information about Beam Global brands that compete with Pernod Ricard brands that are not in the joint venture, as shown in the following chart: Market Pernod Ricard Brands Beam Global Brands Cognac Martell Courvoisier Domestic Cordials Hiram Walker DeKuyper Coffee Liqueur Kahlua and Tia Maria Starbucks Popular Gin Seagram’s Gilbey’s Each of these markets is highly concentrated and difficult to enter. Pernod Ricard and Beam Global are among the two largest suppliers of these spirits in the United States. These companies have spent significant sums of money to create and maintain distinct brand equities. Beam Global and Pernod Ricard, upon becoming joint venture partners after the acquisition, will share in the management of Future Brands. Under the terms of the joint venture agreement, Pernod Ricard will be required to designate three of its seven member Board of Managers. This will mean that Pernod Ricard employees, in connection with their responsibilities as managers of Future Brands, will have access to competitively sensitive information about all the Beam Global products in the joint venture. These are brands with which Pernod Ricard is now, and after the acquisition will be, in direct and substantial competition. The Commission in its Complaint stated it has reason to believe that if Pernod Ricard obtains competitively sensitive information about the Beam Global brands listed in the table above, the proposed transaction would have anticompetitive effects and would violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act. The principal anticompetitive effect is likely to be the ability of competitors in each of the four markets, including but not limited to Beam Global and Pernod Ricard, to raise prices by facilitating future potential coordinated interaction. VII. The Consent Agreement A. The Stolichnaya - Absolut Overlap in the “Super Premium” Vodka Segment Under the terms of the consent agreement, to remedy the competitive concerns associated with the Stolichnaya Vodka overlap, Pernod Ricard will not be permitted to have an ownership interest in Absolut Vodka and also keep its rights to distribute Stolichnaya Vodka. Pernod Ricard will therefore be required to divest its interest in distributing Stolichnaya Vodka within six
(6)months from the date it acquires V&S. That divestiture will revert back to brand owner SPI. In the event that Pernod Ricard fails to complete the required divestiture within six
(6)months, the Commission may appoint a divestiture trustee to sell the Absolut Vodka assets and business to a Commission-approved acquirer. The principal purpose of this alternative Absolut Vodka divestiture requirement is to give Pernod Ricard significant incentives to comply with the Stolichnaya Vodka divestiture requirements of the consent agreement. There is one exception to the requirement that Pernod Ricard divest the Absolut Vodka assets and business in the event it fails to comply with the Commission-ordered divestiture relating to Stolichnaya Vodka. If Pernod Ricard by court order is prohibited from divesting its distribution rights to Stolichnaya Vodka, instead of divesting the Absolut Vodka assets, Pernod Ricard would have the option of divesting either
(a)the future anticipated income stream from its sales of Absolut Vodka, or
(b)a stipulated amount of at least 20% of the gross sales revenue of Absolut Vodka. The reason for this exception relates to the ongoing litigation between SPI and others regarding ownership of the Stolichnaya trademark and related rights to sell vodka under that label. That litigation, which upon agreement with the parties pending their settlement discussions, has been stayed by court order. The Commission has no view on the merits of this private litigation but is concerned that a court possibly may require that the competitive status quo of the distribution of Stolichnaya Vodka be maintained beyond the six
(6)month period that the consent order would allow Pernod Ricard to own Absolut Vodka and distribute Stolichnaya Vodka. The income stream divestiture option (or the stipulated 20% or more of gross sales revenue) will be for the time period commencing twelve
(12)months after Pernod Ricard will have acquired V&S and continue until Pernod Ricard divests its rights to distribute Stolichnaya Vodka. The purpose of the income stream divestiture requirement is to remove potential incentives on the part of Pernod Ricard to impair the marketability of Stolichnaya Vodka, which because of its closeness to Absolut Vodka, will benefit sales of Absolut Vodka. Because a court order preventing Pernod Ricard from divesting its rights to distribute Stolichnaya Vodka would not have caused willful non-compliance with the divestiture requirements of the consent order, the purpose of the alternative divestiture requirements of the order was to prevent interim competitive harm, rather than incentives to divest Stolichnaya Vodka distribution rights. The Commission believes that the sale of the future income stream of Absolut Vodka under the circumstances of a court order preventing Pernod Ricard from divesting Stolichnaya Vodka distribution rights would eliminate significant incentives on the part of Pernod Ricard from impairing the marketability of Stolichnaya Vodka because Pernod Ricard would not benefit from any *increase* in the Absolut Vodka income stream during the period of its joint ownership of Absolut Vodka and distribution of Stolichnaya Vodka, having already sold (at a predetermined price) the future value of *all* income stream benefits. The consent agreement also requires that Pernod Ricard undertake certain activities to help ensure that the acquirer of the Stolichnaya Vodka assets and distribution business will be able to continue operations in a fully competitive manner. Those requirements include:
(a)providing key Stolichnaya Vodka business employees with financial incentives to remain with Pernod Ricard (in order that those employees might then be available for hire by the acquirer);
(b)providing lists of key employees to the acquirer;
(c)for up to six
(6)months, providing such reasonable technical assistance and training as the acquirer may request for the continued distribution of Stolichnaya Vodka; and
(d)for up to six
(6)months, providing the kinds of back office procedures to the acquirer that Pernod Ricard had already been undertaking for its own purposes. B. The Pernod Ricard - Fortune Brands Overlaps and the Future Brands Joint Venture Under the terms of the consent agreement, Pernod Ricard will be prohibited from acquiring any business information of the Future Brands joint venture. To ensure that this will not occur, Pernod Ricard has agreed to the following firewall procedures:
(a)the Pernod Ricard designees to the Future Brands Board of Managers cannot be officers or directors of Pernod Ricard;
(b)Pernod shall recommend to the Future Brands board that it implement database protocols limiting Pernod designated board member access to information about Beam Global brands; and
(c)Pernod will allow an interim monitor to supervise all of the firewall-related protections and requirements. C. The Hold Separate Order Accompanying the consent agreement is a Hold Separate Order. The purpose of this order, the terms of which Pernod Ricard has also agreed to undertake, is to prevent competitive harm pending the required divestiture of the Stolichnaya distribution agreement, and to ensure that the Stolichnaya Vodka assets required to be divested by Pernod Ricard will remain a competitively viable business. Under the terms of this agreement, Pernod Ricard will be required to
(a)hold the Stolichnaya Vodka business separate and apart form all other Pernod Ricard business activities;
(b)exercise no direction or control over the Stolichnaya Vodka business;
(c)maintain operations of the Stolichnaya Vodka business, including preserving business relationships, in accordance with past practice; and
(d)provide the Stolichnaya Vodka business with capital and other funds to operate at current levels and maintain the competitiveness of the business. The agreement also provides for the appointment of an interim monitor. Among other things, the monitor will be empowered to ensure that during the period of time that Pernod Ricard will own the Absolut Vodka line and also distribute Stolichnaya Vodka, that the Stolichnaya Vodka business will be separately managed from the other Pernod Ricard businesses. VIII. The Opportunity for Public Comment The Consent Agreement has been placed on the public record for thirty
(30)days for receipt of comments from interested persons. Comments received during this period will become part of the public record. After thirty
(30)days, the Commission will again review the proposed consent agreement and the comments received, and will decide whether it should withdraw from the consent agreement or make final the Decision and Order. By accepting the consent agreement subject to final approval, the Commission anticipates that the competitive problems alleged in the Complaint will be resolved. The purpose of this analysis is to invite and facilitate public comment concerning the consent agreement. It is not intended to constitute an official interpretation of the consent agreement, nor is it intended to modify the terms of the orders in any way. By direction of the Commission. Donald S. Clark Secretary [FR Doc. E8-16871 Filed 7-22-08: 8:45 am] BILLING CODE 6750-01-S DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Disease Control and Prevention [60Day-08-08BG) Proposed Data Collections Submitted for Public Comment and Recommendations In compliance with the requirement of section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 for opportunity for public comment on proposed data collection projects, the Centers for Disease Control and Prevention
(CDC)will publish periodic summaries of proposed projects. To request more information on the proposed projects or to obtain a copy of the data collection plans and instruments, call 404-639-5960 or send comments to Maryam Daneshvar, Ph.D., CDC Acting Reports Clearance Officer, 1600 Clifton Road, MS-D74, Atlanta, GA 30333 or send an e-mail to *omb@cdc.gov.* *Comments are invited on:*
(a)Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility;
(b)the accuracy of the agency's estimate of the burden of the proposed collection of information;
(c)ways to enhance the quality, utility, and clarity of the information to be collected; and
(d)ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Written comments should be received within 60 days of this notice. Proposed Project Survey of NIOSH Recommended Safety and Health Practices for Coal Mines—NEW—National Institute for Occupational Safety and Health (NIOSH), Centers for Disease Control and Prevention (CDC). Background and Brief Description Since its establishment in 1970 by the Occupational Safety and Health Act, the National Institute for Occupational Safety and Health (NIOSH) has been at the forefront of research and innovation on methods to help eliminate workplace injuries, illnesses and exposures. At Mine Safety and Health Research laboratories in Pittsburgh, Pennsylvania and Spokane, Washington, NIOSH employs engineers and scientists with experience and expertise in mine safety and health issues. These laboratories and their researchers have gained an international reputation for innovative solutions to many mining safety and health problems. Although the NIOSH Mining Program widely disseminates and publicizes research results, recommendations, techniques and products that emerge from the work of these laboratories, the agency has limited knowledge about the extent to which their innovations in mine safety and health have been implemented by individual mine operators. This is particularly true of methods and practices that are not mandated by formal regulations. The overarching goal of the proposed survey of NIOSH Recommended Safety and Health Practices for Coal Mines is to gather data from working coal mines on the adoption and implementation of NIOSH practices to mitigate safety and occupational hazards ( *e.g.* , explosions, falls of ground). The information with this survey will be used by NIOSH to evaluate the implementation of safety and health interventions (including best practices and barriers to implementation) in areas such as respirable coal dust control, explosion prevention, roof support, and emergency response planning and training. Survey results will provide NIOSH with knowledge about which recommended practices, tools and methods have been most widely embraced by the industry, which have not been adopted, and why. The survey results will provide needed insight from the perspective of mine operators on the practical barriers that may prevent wider adoption of NIOSH recommendations and practices designed to safeguard mine workers. In the spring of 2007, NIOSH conducted a pretest of the survey questionnaire with nine underground coal mine operators. The pretest instrument contained 81 questions, including five questions which measured the respondents' impressions of the clarity, burden level and relevance of the survey. The pretest served several important functions, including gaining feedback on the flow of items and their relevance to the respondents' experience, assessing the effectiveness of the questionnaire instructions, and obtaining recommendations for improving the questions. Data captured in the pretest were used to identify areas for questionnaire improvement and recommendations for maximizing the performance of the full survey. The proposed survey will be based upon a probability sample of approximately 300 of the 675 underground coal mines in the United States. A stratified random sample of mines will be drawn to ensure representativeness on important dimensions such as mine size and region of the country. Sampling a large proportion of the underground coal mines will ensure low rates of sampling error and increase confidence in the resulting survey estimates. Over-sampling some kinds of mines, such as those operating longwall sections, will be necessary to ensure enough cases are available to conduct meaningful analysis of these mine types. Allowing mine operators to complete the survey using the method they find convenient is expected to enhance the overall response rate. Therefore, both a Web-based and a print version of the questionnaire will be provided to sampled respondents. Mine operators unable to complete the survey through one of these two methods will be contacted and asked to complete the survey over the telephone. Using these multiple methods of administration, NIOSH expects to achieve an 80% rate of response to the survey. An additional method that will be used to reduce the overall burden on respondents will be to collect certain types of supplementary information ( *e.g.* , the mine's dates of operation, annual coal production) on each sampled mine from publicly-available data collected by the Mine Safety and Health Administration (MSHA). Once the study is completed, NIOSH will provide a copy of the final report to each sampled mining operation, and use the survey data to improve the adoption of important safety and health practices throughout the coal mine industry. NIOSH expects to complete data collection in the spring of 2009. There is no cost to respondents other than their time. Estimated Annualized Burden Table Respondents Number of respondents Number of responses per respondent Average burden per response (in hours) Total burden hours Responding eligible coal mine operators 240 1 30/60 120 Dated: July 10, 2008. Maryam Danneshvar, Acting Reports Clearance Officer, Office of the Chief Science Officer, Centers for Disease Control and Prevention. [FR Doc. E8-16862 Filed 7-22-08; 8:45 am] BILLING CODE 4163-18-P DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration [Docket No. FDA-2008-N-0362] Directory of State and Local Officials and State Food Safety Resource Survey Support Project AGENCY: Food and Drug Administration, HHS. ACTION: Notice. SUMMARY: The Food and Drug Administration (FDA), Office of Regulatory Affairs (ORA), Division of Federal-State Relations
(DFSR)is announcing the availability of a Sole Source to the Association of Food and Drug Officials
(AFDO)to provide funding for a 3-year cooperative agreement award to support a Special Project Cooperative Agreement program. No other applications are solicited. This cooperative agreement is intended to have AFDO update and maintain the FDA Directory of State and Local Officials and to update the AFDO document “State Food Safety Resource Survey (2000)” by providing funding for additional personnel, equipment, and supplies to support activities related to these projects. DATES: Receipt Date: Applications are due within 30 days after the publication of the funding opportunity in the **Federal Register** . FOR FURTHER INFORMATION CONTACT: *For issues regarding the administrative and financial management aspects of this notice* : Marc Pitts, Division of Acquisition Support and Grants, Food and Drug Administration, 5630 Fishers Lane, Rockville, MD 20857, 301-827-7162, e-mail: *Marc.Pitts@fda.hhs.gov* . *For issues regarding the programmatic or technical aspects of this notice* : Jennifer Gabb, Division of Federal-State Relations (HFC-150), Office of Regulatory Affairs, Food and Drug Administration, 5600 Fishers Lane, Rm. 12-07, Rockville, MD 20857, 301-827-2899, e-mail: *jennifer.gabb@fda.hhs.gov* . SUPPLEMENTARY INFORMATION: I. Funding Opportunity Description *Announcement Type* : New Cooperative Agreement
(U18)*Request for Applications
(RFA)Number* : FD-08-011 Sole Source *Catalog of Federal Domestic Assistance Number* : 93.103 In 2007 and 2008, the Food and Drug Administration Amendments Act of 2007 (FDAAA), the Food Protection Plan, and the Import Strategic Action Plan addressed FDA's relationship with the States in food protection activities. In addition, the Food Protection Plan lays out new goals specific to protecting the food supply and responding to incidents in a rapid and coordinated manner. A. Food Protection Plan 2007 In May 2007, the Secretary of Health and Human Services and the Commissioner of Food and Drugs charged FDA with developing a comprehensive and integrated Food Protection Plan to keep the nation's food supply safe from both unintentional and deliberate contamination. Driven by science and modern information technology, the Food Protection Plan aims to identify potential hazards and counter them before they can do harm. A cornerstone of this forward-thinking effort is an increased focus on prevention. B. Project Emphasis FDA's integrated approach within the Food Protection Plan encompasses three core elements: Prevention, intervention and response. Core Element 1: Prevention The prevention element involves promoting increased corporate responsibility so that food problems do not occur in the first place. By comprehensively reviewing food supply vulnerabilities and developing and implementing risk reduction measures with industry and other stakeholders, we can best address critical weaknesses. Core Element 2: Intervention The intervention element focuses on risk-based inspections, sampling, and surveillance at high-risk points in the food supply chain. These interventions must verify that the preventive measures are being implemented and implemented correctly. Core Element 3: Response The response element bolsters FDA's emergency response efforts by allowing for increased speed and efficiency. This element also includes the idea of better communication with other Federal, State, and local government agencies and industry during and after emergencies. Whether contamination is unintentional or deliberate, there is a need to respond quickly and to communicate clearly with consumers and other stakeholders. The communication should emphasize identifying products of concern as well as informing the public of what is safe to consume. C. Food and Drug Administration Amendments Act of 2007 Under the Food and Drug Administration Amendment Act of 2007 (FDAAA), FDA is required to work with the states to improve food safety. Section 1004 of the FDAAA states: “(a) IN GENERAL—The Secretary shall work with the States in undertaking activities and programs that assist in improving the safety of food, including fresh and processed produce, so that State food safety programs and activities conducted by the Secretary function in a coordinated and cost-effective manner. With the assistance provided under subsection (b), the Secretary shall encourage States to—
(1)establish, continue, or strengthen State food safety programs, especially with respect to the regulation of retail commercial food establishments; and
(2)establish procedures and requirements for ensuring that processed produce under the jurisdiction of State food safety programs is not unsafe for human consumption.” D. Import Safety Action Plan The Import Safety Action Plan
(ISAP)acknowledges the value of mutual leveraging of State and Federal resources and recommends consideration of cooperative agreements to increase information sharing. Specifically, the ISAP provides the following recommendations: **Federal-State Rapid Response** **Recommendation 12—Maximize Federal-State Collaboration** The roles of and the resources used by the Federal Government and the States in import safety are complementary. States possess legislative authority and resources to respond to unsafe imported products within their jurisdiction. The Federal Government can take steps to interdict unsafe imported goods at ports of entry. Should an unsafe product enter domestic commerce, federal departments and agencies often work with State authorities to track it down, seize it, notify the public if it has already been purchased by consumers, and impose appropriate penalties on domestic entities who violate U.S. law. Also, both the Federal Government and States may have access to information relevant to protecting consumers that the other does not possess. For example, Federal departments and agencies may have relevant information about the foreign source of the imported product and about the importer. This information can help State officials track down an unsafe imported product within their jurisdiction. On the other hand, State officials may identify an unsafe imported product during transport or at the point of sale, if the product does get into the country, and can tip off Federal officials to prevent future shipments from entering domestic commerce. Several Federal departments and agencies already collaborate closely with State authorities to protect consumers. For example, FDA has contracts and cooperative agreements with State Governments to share information, conduct joint inspections, and collaborate on laboratory analyses. Greater mutual leveraging of State and Federal resources can further enhance consumer protection. Recommendation 12.1 states: “Consider cooperative agreements between the federal inspection agencies and their state counterparts for greater information-sharing.” Such cooperative agreements would not infringe on the statutory authorities of Federal or State regulators and would encourage a coordinated effort that would result in a more rapid and effective response. Establishing clear procedures and points of contact for information sharing and joint enforcement efforts can further enhance the effectiveness of Federal-State actions to limit exposure and potential harm to consumers if an unsafe imported product enters domestic commerce. II. Award Information Mechanism of Support Support will be in the form of a Sole Source cooperative agreement U18 Mechanism. Substantive involvement by the awarding agency is inherent in the cooperative agreement award. Accordingly, FDA will have substantial involvement in the program activities of the project funded by the cooperative agreement. III. Eligibility Information A. Eligible Applicants ORA is offering this sole source cooperative agreement to AFDO to improve and update the Directory of State and Local Officials (current version is from 2004) to provide information for Rapid Response and information sharing. AFDO will also update the data in the AFDO State Food Safety Resource Survey including recall and foodborne illness investigation information to identify and to support Risk Management and information sharing. Assistance will be provided only to the AFDO. No other applications are solicited. B. Applicability AFDO is uniquely qualified for this cooperative agreement. AFDO ( *http://www.afdo.org/* ) conducted a nationwide survey of State and local food safety programs in 2000 and, with the National Center for Food Protection and Defense, has been an active partner in the FoodSHIELD project ( *http://www.afdo.org/afdo/upload/061025-FoodSHIELD%20Brochure.pdf* , *http://www.foodshield.org/* ), during which AFDO has collected contact information of State and local jurisdictions comparable to the FDA Directory of State and Local Officials ( *http://www.fda.gov/ora/fed_state/directorytable.htm* ). AFDO is the organization qualified for conducting this work because: • AFDO is the only national organization that represents the State and local food protection regulatory agencies. AFDO's principal purpose is to act as a leader and a resource to State and local regulatory agencies in developing strategies to resolve and promote public health and consumer protection related to the regulation of foods, drugs, medical devices, and consumer products. Regular members are officials of State and local regulatory agencies that administer these programs in conjunction and collaboration with FDA. • AFDO has always focused on the administration of the nation's food protection programs. Thus, unlike other organizations, AFDO has a unique perspective on the infrastructure, capacity, strengths, and needs of State and local food protection programs. • AFDO has successful experience in carrying out national efforts that focus on the needs of State and local regulatory agencies. FDA has used the data from the initial AFDO State Food Safety Resource Survey, AFDO model codes, and training programs such as the Seafood HACCP training program certified through AFDO. AFDO has also developed the AFDO Recall Manual and many other training programs and initiatives with the Centers for Disease Control, the U.S. Department of Agriculture, and others in meat and poultry processing at retail. AFDO also has industry associate members. C. Award Amount The total amount of funding available for fiscal years 2008 through 2010 is $250,000. This cooperative agreement will award up to $250,000 in total (direct plus indirect) costs for a 3-year cooperative agreement. D. Length of Support The length of support for this project will be 3 years. E. Cost Sharing or Matching Cost sharing is not required. IV. Application and Submission A. Application Information Applications must be prepared using the most current SF424 (Research and Related) (also referred to as the “SF424 (R&R)”, which is part of the Public Health Service, PHS 5161-1 form. Applications must have a Dun and Bradstreet Data Universal Numbering System
(DUNS)number as the universal identifier when applying for Federal grants or cooperative agreements. The DUNS number can be obtained by calling 866-705-5711 or through the Web site at *http://www.dnb.com/us/* . (FDA has verified the Web site addresses throughout this document, but we are not responsible for any subsequent changes to the Web sites after this document publishes in the **Federal Register** .) Applications must be prepared using the forms found in the SF424 R&R instructions for preparing a nonmodular research grant application. Submit a signed, typewritten original of the paper application, including the checklist, three signed photocopies, and appendix material in one package to: Marc Pitts (see FOR FURTHER INFORMATION CONTACT ). If you experience technical difficulties with your online submission, you should contact either Marc Pitts (see FOR FURTHER INFORMATION CONTACT ), or the Grants.gov Customer Support Center by e-mail at *support@grants.gov* or by phone at 1-800-518-4726. Information collection requirements requested on Form (SF-424) PHS 5161-1, expiration date of January 31, 2009, have been sent by the PHS to the Office of Management and Budget
(OMB)and have been approved and assigned OMB control number OS-4040-0004. B. Submission Dates and Times The application receipt date is 30 days after the publication of the funding opportunity in the **Federal Register** . Applications will be accepted from 8 a.m. to 4:30 p.m. e.s.t., Monday through Friday, until the established receipt date. Applications submitted electronically must be received by the close of business on the established receipt date. No addendum material will be accepted after the established receipt date. C. Intergovernmental Review The regulations issued under Executive Order 12372, Intergovernmental Review of Federal Programs (45 CFR part 100) apply. Applicants (other than federally recognized tribal governments) should contact the State's Single Point of Contact
(SPOC)as early as possible to alert the SPOC to the prospective application(s) and to receive any necessary instructions on the State's review process. A current listing of SPOCs is located at *http//www.whitehouse.gov/omb/grants/spoc.html* . The SPOC should send any State review process recommendations to the FDA administrative contact (see FOR FURTHER INFORMATION CONTACT ). The due date for the State process recommendations is no later than 60 days after the application receipt date. FDA does not guarantee accommodation or explanation of SPOC comments that are received after the 60-day cutoff. D. Funding Restrictions This cooperative agreement is not to fund annual, regional, or State meetings of AFDO, travel for other than project employees, equipment other than consumables or as outlined in the application, or any remodeling or capital improvement to office location or space. E. Central Contractor Registration Applicants must register with the Central Contractor Registration
(CCR)database. This database is a government-wide warehouse of commercial and financial information for all organizations conducting business with the Federal Government. Registration with CCR is a mandatory requirement and is consistent with the government-wide management reform to create a citizen-centered Web presence and to build e-gov infrastructures in and across agencies to establish a “single face to industry.” The preferred method for completing a registration is through the World Wide Web at *http://www.ccr.gov* . This Web site provides a CCR handbook with detailed information on data you will need prior to beginning the online preregistration, as well as steps to walk you through the registration process. You must have a DUNS number to begin your registration. The CCR registration process can also be found under the “Organization Registration” page of Grants.gov at *http://www.grants.gov/applicants/organization_registration.jsp.* F. Copyright Material Applicant and applicants' subgrantees and subcontractors must ensure that any projects developed in whole or in part with Federal funds may be made available to other State, territorial, local, and tribal regulatory agencies by FDA or its agents. Any copyrighted or copyrightable works shall be subject to a royalty-free, nonexclusive, and irrevocable license to the Federal Government to reproduce, publish, or otherwise use them, and to authorize others to do so for Federal Government purposes. Dated: July 15, 2008. Jeffrey Shuren, Associate Commissioner for Policy and Planning. [FR Doc. E8-16818 Filed 7-22-08; 8:45 am] BILLING CODE 4160-01-S DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration [Docket No. FDA-2008-N-0359] Food Safety and Security Monitoring Project AGENCY: Food and Drug Administration, HHS. ACTION: Notice. SUMMARY: The Food and Drug Administration (FDA), Office of Regulatory Affairs (ORA), Division of Federal-State Relations (DFSR), is announcing the availability of cooperative agreements for equipment, supplies, personnel, training, and facility upgrades to Food Emergency Response Laboratory Network
(FERN)chemistry laboratories of State, local, and tribal governments. The cooperative agreements are to enable the analyses of foods and food products in the event that redundancy and/or additional laboratory surge capacity is needed by FERN for analyses related to chemical terrorism. These grants are also intended to expand participation in networks to enhance Federal, State, local, and tribal food safety and security efforts. DATES: Receipt Date: Applications are due within 30 days after the publication of the funding opportunity in the **Federal Register** . FOR FURTHER INFORMATION CONTACT: *For issues regarding the administrative and financial management aspects of this notice* : Marc Pitts, Division of Acquisition Support and Grants, Food and Drug Administration, 5630 Fishers Lane, Rockville, MD 20857, 301-827-7162, e-mail: *Marc.Pitts@fda.hhs.gov;* *Regarding the programmatic aspects of this notice* : Jennifer Gabb, Division of Federal-State Relations, Food and Drug Administration (HFC-150), 5600 Fishers Lane, rm. 12-07, Rockville, MD 20857, 301-827-2899, e-mail: *jennifer.gabb@fda.hhs.gov* ; and *For technical aspects of this notice* : Dean Turco, Division of Field Science, Food and Drug Administration (HFC-140), 5600 Fishers Lane, rm. 12-41, Rockville, MD 20857, 301-827-4097, e-mail: *dean.turco@fda.gov* . SUPPLEMENTARY INFORMATION: I. Funding Opportunity Description *Announcement Type* : New Competing Cooperative Agreement
(U18)under a Limited Competition *Request for Applications
(RFA)Number* : RFA-FD-08-009 *Catalog of Federal Catalog of Federal Domestic Assistance Number* : 93.448 ORA is the primary inspection and analysis component of FDA and has approximately 1,600 investigators, inspectors, and analysts who cover the country's approximately 95,000 FDA-regulated businesses. These investigators inspect more that 15,000 facilities per year and ORA laboratories analyze several thousand samples per year. ORA conducts special investigations, conducts food inspection recall audits, performs consumer complaint inspections, and collects samples of regulated products. Increasingly, ORA has been called upon to expand the testing program addressing the increasing threat to food safety and security through intentional chemical terrorism events. Toward these ends, ORA has developed a suite of chemical screening and analysis methodologies that are used to evaluate foods and food products in such situations. However, in the event of a large-scale emergent incident, analytical sample capacity in ORA field laboratories has a finite limit. Information from ongoing relationships with State partners indicates limited redundancy in State food testing laboratories, both in terms of analytical capabilities and analytical sample capacity. Several State food testing laboratories lack the specialized equipment to perform the analyses and/or the specific methodological expertise in the types of analyses performed for screening foods and food products involving chemical terrorism events. The events of September 11, 2001, reinforced the need to enhance the security of the U.S. food supply. Congress responded by passing the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (the Bioterrorism Act) (Public Law 107-188), which President George W. Bush signed into law on June 12, 2002. The Bioterrorism Act is divided into the following five titles: Title I—National Preparedness for Bioterrorism and Other Public Health Emergencies, Title II—Enhancing Controls on Dangerous Biological Agents and Toxins, Title III—Protecting Safety and Security of Food and Drug Supply, Title IV—Drinking Water Security and Safety, and Title V—Additional Provisions. Subtitle A of the Bioterrorism Act, Protection of Food Supply, section 312—Surveillance and Information Grants and Authorities, amends part B of Title III of the Public Health Service Act to authorize the Secretary of Health and Human Services (the Secretary) to award grants to States and tribes to expand participation in networks to enhance Federal, State, and local food safety efforts. This may include meeting the costs of establishing and maintaining the food safety surveillance, technical, and laboratory capacity needed for such participation. Project Emphasis The goal of ORA's cooperative agreement program is to complement, develop, and improve State, local, and tribal food safety and security testing programs. This will be accomplished through the provision of equipment, supplies, personnel, facility upgrades, training in current food testing methodologies, participation in proficiency testing to establish additional reliable laboratory sample analysis capacity, analysis of surveillance samples, and in cooperation with FDA, participation in method enhancement activities designed to extend analytical capabilities. In the event of a large-scale chemical terrorism event affecting foods or food products, the recipient may be required to perform selected chemical analyses of domestic and imported food samples collected and supplied to the laboratory by FDA or other government agencies through FDA. These samples may consist of, but are not limited to, the following: Vegetables and fruits (fresh and packaged), juices (concentrate and diluted), grains and grain products, seafood and other fish products, milk and other dairy products, infant formula, baby foods, bottled water, condiments, and alcoholic products (beer, wine, scotch). II. Award Information Mechanism of Support All grant application projects that are developed at State, local, and tribal levels must have national implication or application that can enhance Federal food safety and security programs. At the discretion of FDA, successful project formats will be made available to interested Federal, State, local, and tribal government FERN laboratories. There are four key project areas identified for this effort that must be addressed: 1. The use of gas chromatography/mass spectrometry analysis for the screening and identification of poisons, toxic substances, and unknown compounds in foods; 2. The use of liquid chromatography/mass spectrometry analysis for the screening and identification of poisons, toxic substances, and unknown compounds in foods; 3. The use of inductively coupled plasma/mass spectrometry analysis for the screening and identification of heavy metals and toxic elements in foods; and 4. The use of enzyme-linked immunosorbent assay and other antibody-based analyses for the screening and identification of unknown toxins in foods. FDA will support the projects covered by this document under the authority of section 312 of the Bioterrorism Act. This program is described in the Catalog of Federal Domestic Assistance under number 93.448. Support will be in the form of a cooperative agreement. Substantive involvement by the awarding agency is inherent in the cooperative agreement award. Accordingly, FDA will have substantial involvement in the program activities of the project funded by the cooperative agreement. Substantive involvement includes, but is not limited to, the following:
(1)How often samples will be sent,
(2)directions on how tests should be executed,
(3)onsite monitoring,
(4)supply of equipment,
(5)FDA training on processes, and
(6)enhancement and extension of analytical methodology. FDA will provide specific procedures and protocols for the four project areas to be used for the analysis of toxic chemicals and toxins in food. FDA will provide guidance on the specific foods to be collected for analysis by the successful applicant. FDA will purchase and have all needed major equipment for the four project areas delivered to the awardee's laboratory. The equipment purchased will remain the property of FDA until such time as it is released as surplus property. Only proposed projects designed to address all four project areas will be considered for funding. Applicants may also apply for only facility upgrades, personnel, training, method extension, and surveillance sample analysis if they have the necessary equipment and it will be available for these projects. These grants are not to fund or conduct food inspections for food safety regulatory agencies. It should be emphasized that in all of the projects, there is a particular desire to promote a continuing, reliable capability and capacity for laboratory sample analyses of foods and food products for the rapid detection and identification of toxic chemicals or toxins. With this in mind, it is desirable that sample analyses will be completed no later than 2 weeks after receipt, and the results will be reported to FERN. The format and reporting media will be established by FERN. Shorter timeframes may be sought for special testing such as proficiency tests or special assignments. III. Eligibility Information A. Eligible Applicants This cooperative agreement program is only available to State, local, and tribal government FERN laboratories that currently are not funded under this cooperative agreement and is authorized by section 312 of the Bioterrorism Act. All grant application projects that are developed at State, local, and tribal levels must have national implication or application that can enhance Federal food safety and security programs. At the discretion of FDA, successful project formats will be made available to interested Federal, State, local, and tribal government FERN laboratories. B. Cost Sharing or Matching Cost sharing is not required. IV. Application and Submission A. Application Information In order to apply electronically, the applicant must complete the following steps: Step 1: Obtain a Dun & Bradstreet Number (DUNS Number) Same day. Your organization will need to obtain a DUNS Number. If your organization doesn't already have one, go to the Dun & Bradstreet Web site at *http://fedgov.dnb.com/webform* . Step 2: Register with the Central Contractor Registry
(CCR)Two days or up to 1 to 2 weeks. Ensure that your organization is registered with the CCR at *http://www.ccr.gov* . If your organization is not already registered, an authorizing official of your organization must register. You will not be able to move on to Step 3 until this step is completed. Step 3: Obtain Username and Password Same day. Create a username and password with Operational Research Consultants (ORC), the Grants.gov credential service provider. Use your organization's DUNS Number to access the ORC Website at *http://apply07.grants.gov/apply/OrcRegister* . Step 4: Grants.gov Registration Same day. Register with Grants.gov at *https://apply07.grants.gov/apply/GrantsgovRegister* to open an account using the username and password you received from ORC. Step 5: Authorized Organization Representative
(AOR)Authorization Time depends on responsiveness of your E-Business Point of Contact (E-Biz POC). The E-Biz POC at your organization must respond to the registration e-mail from Grants.gov and login at Grants.gov to authorize you as an AOR. Please note that there can be more than one AOR for your organization. In some cases the E-Biz POC is also the AOR for an organization. Step 6: Track AOR Status At any time, you can track your AOR status at the Applicant home page of Grants.gov in “Quick Links” by logging in with your username and password ( *https://apply07.grants.gov/apply/ApplicantLoginGetID* ). FDA is accepting new applications for this program electronically via Grants.gov. Applicants must apply electronically by visiting the Web site *http://www.grants.gov* and following instructions under “APPLY FOR GRANTS.” The required application SF424, which is part of the PHS 5161-1 form, can be completed and submitted online by selecting Step 1: “Download a Grant Application Package,” then by entering the funding opportunity number “RFA-FD-08-009.” The “Selected Grant Applications For Download” page will provide you with the Additional Resources downloads for Adobe Reader and PureEdge Viewer as well as the download to the “Instructions & Application” hyperlink. B. Content and Form of Application 1. Content of Application The SF424 PHS-5161 has several components. Some components are required, others are optional. The forms package associated with this request for application ( *http://www.Grants.gov/Apply* ) includes all applicable components. If you experience technical difficulties with your online submission you should contact either Marc Pitts (see FOR FURTHER INFORMATION CONTACT ) or the Grants.gov Customer Support Center by e-mail at *support@grants.gov* or by phone at 1-800-518-4726. 2. Format for Application All applications must be submitted electronically through Grants.gov. Paper applications will not be accepted. The application must be an SF424-PHS-5161. The narrative portion, excluding appendices, of the application may not exceed 100 pages in length and must be single-spaced in 12-point font. The appendices should also not exceed 100 pages in length (separate from the narrative portion of the application). Information collection requirements requested on Form (SF-424) PHS 5161-1, expiration date of January 31, 2009, have been sent by the Public Health Service
(PHS)to the Office of Management and Budget
(OMB)and have been approved and assigned OMB control number OS-4040-0004. C. Submission Dates and Times The application receipt date is 30 days after the publication of the funding opportunity in the **Federal Register** . Applications will be accepted from 8 a.m. to 4:30 p.m., Monday through Friday, until the receipt date. Applications submitted electronically must be received by close of business on the receipt date. No addendum material will be accepted after the receipt date. D. Intergovernmental Review The regulations issued under Executive Order 12372, Intergovernmental Review of Department of Health and Human Services Programs and Activities (45 CFR part 100), apply to the Food Safety and Security Monitoring Project. Applicants (other than federally recognized Indian tribal governments) should contact the State's Single Point of Contact
(SPOC)as early as possible to alert the SPOC to the prospective application(s) and to receive any necessary instructions on the State's review process. A current listing of SPOCs is included in the application kit or at *http://www.whitehouse.gov/omb/grants/spoc.html* . (FDA has verified the Web site address, but FDA is not responsible for subsequent changes to the Web site after this document publishes in the **Federal Register** .) The SPOC should send any State review process recommendations to the FDA administrative contact (see FOR FURTHER INFORMATION CONTACT ). The due date for the State process recommendations is no later than 60 days after the application receipt date. FDA does not guarantee accommodation or explaination of SPOC comments that are received after the 60-day cutoff. E. Funding Restrictions These grants are not to fund or conduct food inspections for food safety regulatory agencies. They may not be utilized for new building construction, however, remodeling of existing facilities is allowed, provided that remodeling costs do not exceed 25 percent of the grant award amount. Dated: July 7, 2008. Jeffrey Shuren, Associate Commissioner for Policy and Planning. [FR Doc. E8-16820 Filed 7-22-08; 8:45 am] BILLING CODE 4160-01-S DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration [Docket No. FDA-2008-N-0038] Peripheral and Central Nervous System Drugs Advisory Committee; Notice of Postponement of Meeting AGENCY: Food and Drug Administration, HHS. ACTION: Notice. SUMMARY: The Food and Drug Administration
(FDA)is postponing the meeting of the Peripheral and Central Nervous Drugs Advisory Committee scheduled for August 6 and 7, 2008. This meeting was announced in the **Federal Register** of July 8, 2008 (73 FR 39017). The postponement is due to difficulties in empanelling the necessary experts due to both scheduling conflicts and conflict-of-interest issues. FOR FURTHER INFORMATION CONTACT: Diem-Kieu Ngo, Center for Drug Evaluation and Research (HFD-21), Food and Drug Administration, 5600 Fishers Lane, Rockville, MD 20857, 301-827-7001, FAX: 301-827-6776, e-mail: *diem.ngo@fda.hhs.gov* , or FDA Advisory Committee Information Line, 1-800-741-8138 (301-443-0572 in the Washington, DC area), code 3014512543. Please call the Information Line for up-to-date information on this meeting. Dated: July 17, 2008. Randall W. Lutter, Deputy Commissioner for Policy. [FR Doc. E8-16814 Filed 7-22-08; 8:45 am] BILLING CODE 4160-01-S DEPARTMENT OF HEALTH AND HUMAN SERVICES National Institutes of Health National Institute of General Medical Sciences; Notice of Closed Meeting Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting. The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. *Name of Committee:* National Institute of General Medical Sciences, Special Emphasis Panel, Drug Docking and Screening Resource. *Date:* August 11, 2008. *Time:* 8 a.m. to 5 p.m. *Agenda:* To review and evaluate grant applications *Place:* National Institutes of Health, Natcher Building, 45 Center Drive 3AN12A, Bethesda, MD 20892. (Telephone Conference Call) *Contact Person:* Mona R. Trempe, PhD., Scientific Review Officer, Office of Scientific Review, National Institute of General Medical Sciences, National Institutes of Health, 45 Center Drive, Room 3AN12, Bethesda, MD 20892, 301-594-3998, *trempemo@mail.nih.gov* . (Catalogue of Federal Domestic Assistance Program Nos. 93.375, Minority Biomedical Research Support; 93.821, Cell Biology and Biophysics Research; 93.859, Pharmacology, Physiology, and Biological Chemistry Research; 93.862, Genetics and Developmental Biology Research; 93.88, Minority Access to Research Careers; 93.96, Special Minority Initiatives, National Institutes of Health, HHS) Dated: July 14, 2008. Jennifer Spaeth, Director, Office of Federal Advisory Committee Policy. [FR Doc. E8-16512 Filed 7-22-08; 8:45 am] BILLING CODE 4140-01-M DEPARTMENT OF HEALTH AND HUMAN SERVICES National Institutes of Health National Institute on Drug Abuse; Notice of Closed Meeting Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting. The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. *Name of Committee:* National Institute on Drug Abuse, Special Emphasis Panel, Mechanism for Time-Sensitive Research Opportunities. *Date:* August 5, 2008. *Time:* 1 p.m. to 2:30 p.m. *Agenda:* To review and evaluate grant applications. *Place:* National Institutes of Health, 6101 Executive Boulevard, Rockville, MD 20852. (Telephone Conference Call) *Contact Person:* Gerald L. McLaughlin, PhD, Scientific Review Administrator, Office of Extramural Affairs, National Institute on Drug Abuse, NIH, DHHS, Room 220, MSC 8401, 6101 Executive Blvd., Bethesda, MD 20892-8401, 301-402-6626, *gm145a@nih.gov* . This notice is being published less than 15 days prior to the meeting due to the timing limitations imposed by the review and funding cycle. (Catalogue of Federal Domestic Assistance Program Nos. 93279, Drug Abuse and Addiction Research Programs, National Institutes of Health, HHS) Dated: July 15, 2008. David Clary, Acting Director, Office of Federal Advisory Committee Policy. [FR Doc. E8-16619 Filed 7-22-08; 8:45 am] BILLING CODE 4140-01-M DEPARTMENT OF HEALTH AND HUMAN SERVICES National Institutes of Health National Institute on Drug Abuse; Notice of Closed Meeting Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting. The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. *Name of Committee:* National Institute on Drug Abuse, Special Emphasis Panel, Resource Core Transdisciplinary Prevention Research Centers. *Date:* July 29, 2008. *Time:* 10 a.m. to 2 p.m. *Agenda:* To review and evaluate grant applications. *Place:* National Institutes of Health, 6101 Executive Boulevard, Rockville, MD 20852. (Telephone Conference Call) *Contact Person:* Mark Swieter, PhD, Chief, Training and Special Projects Review Branch, Office of Extramural Affairs, National Institute on Drug Abuse, NIH, DHHS, 6101 Executive Boulevard, Suite 220, Bethesda, MD 20892-8401,
(301)435-1389, *ms80x@nih.gov.* This notice is being published less than 15 days prior to the meeting due to the timing limitations imposed by the review and funding cycle. (Catalogue of Federal Domestic Assistance Program Nos. 93.279, Drug Abuse and Addiction Research Programs, National Institutes of Health, HHS) Dated: July 15, 2008. David Clary, Acting Director, Office of Federal Advisory Committee Policy. [FR Doc. E8-16620 Filed 7-22-08; 8:45 am] BILLING CODE 4140-01-M DEPARTMENT OF HEALTH AND HUMAN SERVICES National Institutes of Health National Institute of General Medical Sciences; Notice of Closed Meeting Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. Appendix 2), notice is hereby given of the following meeting. The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. *Name of Committee:* National Institute of General Medical Sciences, Special Emphasis Panel, Minority Biomedical Research Support in Neurophysics. *Date:* August 5-6, 2008. *Time:* 9 a.m. to 5 p.m. *Agenda:* To review and evaluate grant applications. *Place:* National Institutes of Health, National Institute of General Medical Sciences, Office of Scientific Review, Building 45, Room 3AN18, Bethesda, MD 20892. (Virtual Meeting) *Contact Person:* Margaret J. Weidman, PhD, Scientific Review Officer, Office of Scientific Review, National Institute of General Medical Sciences, National Institutes of Health, 45 Center Drive, Room 3AN18B, Bethesda, MD 20892, 301-594-3663, *weidmanma@nigms.nih.gov* . This notice is being published less than 15 days prior to the meeting due to the timing limitations imposed by the review and funding cycle. (Catalogue of Federal Domestic Assistance Program Nos. 93.375, Minority Biomedical Research Support; 93.821, Cell Biology and Biophysics Research; 93.859, Pharmacology, Physiology, and Biological Chemistry Research; 93.862, Genetics and Developmental Biology Research; 93.88, Minority Access to Research Careers; 93.96, Special Minority Initiatives National Institutes of Health, HHS) Dated: July 15, 2008. David Clary, Acting Director, Office of Federal Advisory Committee Policy. [FR Doc. E8-16622 Filed 7-22-08; 8:45 am] BILLING CODE 4140-01-M DEPARTMENT OF HOMELAND SECURITY National Protection and Programs Directorate; Submission for Review: Infrastructure Protection Data Call 1670-NEW AGENCY: National Protection and Programs Directorate, Infrastructure Protection, DHS. ACTION: 60-Day Notice and request for comments. SUMMARY: The Department of Homeland Security
(DHS)invites the general public and other federal agencies the opportunity to comment on new information collection request 1670-NEW, Infrastructure Protection Data Call. As required by the Paperwork Reduction Act of 1995, (Pub. L. 104-13, 44 U.S.C. chapter 35) as amended by the Clinger-Cohen Act (Pub. L. 104-106), DHS is soliciting comments for this collection. DATES: Comments are encouraged and will be accepted until September 22, 2008. This process is conducted in accordance with 5 CFR 1320.1. ADDRESSES: Interested persons are invited to submit written comments on the proposed information collection to Ribkha Hailu, IP/IICD, Mail Stop 8595, 245 Murray Lane, SW., Building 410, Washington, DC 20528-8595, or e-mail *iicd@dhs.gov* . FOR FURTHER INFORMATION CONTACT: Ribkha Hailu, IP/IICD, Mail Stop 8595, 245 Murray Lane, SW., Building 410, Washington, DC 20528-8595, or e-mail *iicd@dhs.gov* . SUPPLEMENTARY INFORMATION: The Office of Management and Budget is particularly interested in comments that: 1. Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; 2. Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; 3. Enhance the quality, utility, and clarity of the information to be collected; and 4. Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, *e.g.* , permitting electronic submissions of responses. Analysis *Agency:* Department of Homeland Security, National Protection and Programs Directorate, Infrastructure Protection. *Title:* Infrastructure Protection Data Call. *OMB Number:* 1670-NEW. *Frequency:* Once. *Affected Public:* Federal, State, Local, Tribal. *Number of Respondents:* 138. *Estimated Time per Respondent:* 2 hours. *Total Burden Hours:* 276 hours. *Total Burden Cost (capital/startup):* None. *Total Burden Cost (operating/maintaining):* None. *Description:* The U.S. Department of Homeland Security
(DHS)is the lead coordinator in the national effort to identify and prioritize the country's critical infrastructure and key resources (CIKR). At DHS, this responsibility is managed by the Office of Infrastructure Protection
(IP)in the National Protection and Programs Directorate (NPPD). Beginning in FY2006, IP engaged in the annual development of a list of CIKR assets and systems to improve IP's CIKR prioritization efforts; this list is called the Critical Infrastructure List. The Critical Infrastructure List includes assets and systems that, if destroyed, damaged or otherwise compromised, could result in significant consequences on a regional or national scale. This list provides a common basis for DHS and its security partners during the undertaking of CIKR protective planning efforts to keep our Nation safe. Collection of this information is directed and supported by Public Law 110-53 “Implementing Recommendations of the 9/11 Commission Act of 2007,” August 3, 2007; and Homeland Security Presidential Directive
(HSPD)7, “Critical Infrastructure Identification, Prioritization, and Protection,” December 17, 2003. Dated: July 17, 2008. John Campbell, Acting Chief Information Officer, National Protection and Programs Directorate, Department of Homeland Security. [FR Doc. E8-16873 Filed 7-22-08; 8:45 am] BILLING CODE 4410-10-P DEPARTMENT OF HOMELAND SECURITY Federal Emergency Management Agency [FEMA-1777-DR] Michigan; Major Disaster and Related Determinations AGENCY: Federal Emergency Management Agency, DHS. ACTION: Notice. SUMMARY: This is a notice of the Presidential declaration of a major disaster for the State of Michigan (FEMA-1777-DR), dated July 14, 2008, and related determinations. DATES: *Effective Date:* July 14, 2008. FOR FURTHER INFORMATION CONTACT: Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472,
(202)646-3886. SUPPLEMENTARY INFORMATION: Notice is hereby given that, in a letter dated July 14, 2008, the President declared a major disaster under the authority of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5206 (the Stafford Act), as follows: I have determined that the damage in certain areas of the State of Michigan resulting from severe storms, tornadoes, and flooding during the period of June 6-13, 2008, is of sufficient severity and magnitude to warrant a major disaster declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207 (the Stafford Act). Therefore, I declare that such a major disaster exists in the State of Michigan. In order to provide Federal assistance, you are hereby authorized to allocate from funds available for these purposes such amounts as you find necessary for Federal disaster assistance and administrative expenses. You are authorized to provide Public Assistance in the designated areas, Hazard Mitigation throughout the State, and any other forms of assistance under the Stafford Act that you deem appropriate. Consistent with the requirement that Federal assistance be supplemental, any Federal funds provided under the Stafford Act for Hazard Mitigation will be limited to 75 percent of the total eligible costs. Federal funds provided under the Stafford Act for Public Assistance also will be limited to 75 percent of the total eligible costs, except for any particular projects that are eligible for a higher Federal cost-sharing percentage under the FEMA Public Assistance Pilot Program instituted pursuant to 6 U.S.C. 777. If Other Needs Assistance under Section 408 of the Stafford Act is later requested and warranted, Federal funding under that program also will be limited to 75 percent of the total eligible costs. Further, you are authorized to make changes to this declaration to the extent allowable under the Stafford Act. The Federal Emergency Management Agency
(FEMA)hereby gives notice that pursuant to the authority vested in the Administrator, under Executive Order 12148, as amended, W. Michael Moore, of FEMA is appointed to act as the Federal Coordinating Officer for this declared disaster. The following areas of the State of Michigan have been designated as adversely affected by this declared major disaster: Allegan, Barry, Eaton, Ingham, Lake, Manistee, Mason, Missaukee, Osceola, Ottawa, and Wexford Counties for Public Assistance. All counties within the State of Michigan are eligible to apply for assistance under the Hazard Mitigation Grant Program. (The following Catalog of Federal Domestic Assistance Numbers
(CFDA)are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households in Presidential Declared Disaster Areas; 97.049, Presidential Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidential Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.) R. David Paulison, Administrator, Federal Emergency Management Agency. [FR Doc. E8-16802 Filed 7-22-08; 8:45 am] BILLING CODE 9110-10-P DEPARTMENT OF HOMELAND SECURITY Federal Emergency Management Agency [FEMA-1771-DR] Illinois Amendment No. 4 to Notice of a Major Disaster Declaration AGENCY: Federal Emergency Management Agency, DHS. ACTION: Notice. SUMMARY: This notice amends the notice of a major disaster declaration for the State of Illinois (FEMA-1771-DR), dated June 24, 2008, and related determinations. DATES: *Effective Date:* July 16, 2008. FOR FURTHER INFORMATION CONTACT: Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472,
(202)646-3886. SUPPLEMENTARY INFORMATION: The notice of a major disaster declaration for the State of Illinois is hereby amended to include the following areas among those areas determined to have been adversely affected by the catastrophe declared a major disaster by the President in his declaration of June 24, 2008. Madison, Monroe, Randolph, and St. Clair Counties for Public Assistance. Lake County for Public Assistance (already designated for Individual Assistance.) Mercer and Rock Island Counties for Public Assistance (already designated for Individual Assistance and emergency protective measures [Category B], limited to direct Federal assistance, under the Public Assistance program.) (The following Catalog of Federal Domestic Assistance Numbers
(CFDA)are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households in Presidential Declared Disaster Areas; 97.049, Presidential Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidential Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.) R. David Paulison, Administrator, Federal Emergency Management Agency. [FR Doc. E8-16792 Filed 7-22-08; 8:45 am] BILLING CODE 9110-10-P DEPARTMENT OF HOMELAND SECURITY Federal Emergency Management Agency [FEMA-1772-DR] Minnesota Amendment No. 2 to Notice of a Major Disaster Declaration AGENCY: Federal Emergency Management Agency, DHS. ACTION: Notice. SUMMARY: This notice amends the notice of a major disaster declaration for the State of Minnesota (FEMA-1772-DR), dated June 25, 2008, and related determinations. DATES: *Effective Date:* July 16, 2008. FOR FURTHER INFORMATION CONTACT: Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472,
(202)646-3886. SUPPLEMENTARY INFORMATION: The notice of a major disaster declaration for the State of Minnesota is hereby amended to include the following area among those areas determined to have been adversely affected by the catastrophe declared a major disaster by the President in his declaration of June 25, 2008. Nobles County for Public Assistance. (The following Catalog of Federal Domestic Assistance Numbers
(CFDA)are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households in Presidential Declared Disaster Areas; 97.049, Presidential Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidential Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.) R. David Paulison, Administrator, Federal Emergency Management Agency. [FR Doc. E8-16804 Filed 7-22-08; 8:45 am] BILLING CODE 9110-10-P DEPARTMENT OF HOMELAND SECURITY Federal Emergency Management Agency [FEMA-1768-DR] Wisconsin; Amendment No. 12 to Notice of a Major Disaster Declaration AGENCY: Federal Emergency Management Agency, DHS. ACTION: Notice. SUMMARY: This notice amends the notice of a major disaster declaration for the State of Wisconsin (FEMA-1768-DR), dated June 14, 2008, and related determinations. DATES: *Effective Date:* July 11, 2008. FOR FURTHER INFORMATION CONTACT: Peggy Miller, Disaster Assistance Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington, DC 20472,
(202)646-3886. SUPPLEMENTARY INFORMATION: The notice of a major disaster declaration for the State of Wisconsin is hereby amended to include the following area among those areas determined to have been adversely affected by the catastrophe declared a major disaster by the President in his declaration of June 14, 2008. La Crosse County for Public Assistance (already designated for Individual Assistance.) (The following Catalog of Federal Domestic Assistance Numbers
(CFDA)are to be used for reporting and drawing funds: 97.030, Community Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling; 97.033, Disaster Legal Services; 97.034, Disaster Unemployment Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048, Disaster Housing Assistance to Individuals and Households in Presidential Declared Disaster Areas; 97.049, Presidential Declared Disaster Assistance—Disaster Housing Operations for Individuals and Households; 97.050, Presidential Declared Disaster Assistance to Individuals and Households—Other Needs; 97.036, Disaster Grants—Public Assistance (Presidentially Declared Disasters); 97.039, Hazard Mitigation Grant.) R. David Paulison, Administrator, Federal Emergency Management Agency. [FR Doc. E8-16791 Filed 7-22-08; 8:45 am] BILLING CODE 9110-10-P DEPARTMENT OF THE INTERIOR Fish and Wildlife Service [FWS-R4-R-2008-N0132; 40136-1265-0000-S3] Red River National Wildlife Refuge, Caddo, Bossier, DeSoto, Natchitoches, and Red River Parishes, LA AGENCY: Fish and Wildlife Service, Interior. ACTION: Notice of availability; final comprehensive conservation plan and finding of no significant impact. SUMMARY: We, the Fish and Wildlife Service (Service), announce the availability of our final comprehensive conservation plan
(CCP)and finding of no significant impact (FONSI) for Red River National Wildlife Refuge (NWR). In the final CCP, we describe how we will manage this refuge for the next 15 years. ADDRESSES: A copy of the CCP may be obtained by writing to: Red River NWR, 11372 Highway 143, Farmerville, LA 71241. The plan may also be accessed and downloaded from the Service's Web site: *http://southeast.fws.gov/planning.* FOR FURTHER INFORMATION CONTACT: Mr. George Chandler, Refuge Manager, North Louisiana National Wildlife Refuge Complex; *Telephone:* 318/726-4222; *fax:* 318/726-4667; *e-mail: george_chandler@fws.gov* . SUPPLEMENTARY INFORMATION: Introduction With this notice, we finalize the CCP process for Red River NWR. We started this process through a notice in the **Federal Register** on March 13, 2006 (71 FR 12710). For more about the process, see that notice. On October 13, 2000, House Resolution 4318, the Red River National Wildlife Refuge Act, was signed into law (Pub. L. 106-300). This legislation authorized the establishment of the Red River NWR to provide for the restoration and conservation of fish and wildlife habitats in the Red River Valley ecosystem in northwest Louisiana. Red River NWR is a unit of the North Louisiana National Wildlife Refuge Complex, which also includes D'Arbonne, Upper Ouachita, Black Bayou Lake, and Handy Brake Refuges, as well as the Louisiana Wetlands Management District. Each refuge has its own unique issues, requiring separate planning efforts and public involvement. The Red River NWR, stretching 120 miles along the Red River Valley from Colfax, Louisiana, near its southern boundary to the Arkansas state line, will play an important role regionally in fulfilling the goals of the National Wildlife Refuge System. According to legislation, the refuge shall consist of up to 50,000 acres from the Headquarters Unit and four focus units within a selection area covering 220,000 acres. Currently, the Service has acquired 9,788 acres and has 40,212 acres remaining to purchase. The lands within the five units (e.g., Headquarters, Wardview, Spanish Lake Lowlands, Bayou Pierre, and Lower Cane River focus areas) will be acquired through a combination of fee title purchases from willing sellers and through conservation easements, leases, and/or cooperative agreements from willing landowners. Currently, fee title lands have been purchased within portions of all the focus units except Wardview. Red River NWR's proximity to a major metropolitan center will afford the public the ability to participate in educational opportunities that promote wildlife stewardship. Currently, the five units of the refuge include 3,742 acres of reforested bottomland hardwood forest; 317 acres of bottomland forest; 261 acres of riparian habitat; 194 acres of cypress swamp; 600 acres of moist soils; 1,125 acres of agricultural fields; 124 acres in a pecan orchard; 64 acres dominated by groundsel-tree ( *Baccharis halimifolia* ); 217 acres of honey locust; and 153 acres of old field that was grazed and is currently invaded by wild plum and invasive species. In addition, about 443 acres of the refuge consist of oxbow lakes, Red River tributaries, borrow pits, and irrigation ditches. Currently, minimal public use occurs on the refuge besides hunting, fishing, and some wildlife observation. We announce our decision and the availability of the final CCP and FONSI for Red River NWR in accordance with the National Environmental Policy Act
(NEPA)(40 CFR 1506.6(b)) requirements. We completed a thorough analysis of impacts on the human environment, which we included in the draft comprehensive conservation plan and environmental assessment (Draft CCP/EA). The CCP will guide us in managing and administering Red River NWR for the next 15 years. Alternative C, as we described in the final CCP, is the foundation for the CCP. The compatibility determinations for
(1)wildlife observation and photography;
(2)environmental education and interpretation;
(3)big game hunting;
(4)small game hunting;
(5)migratory bird hunting;
(6)fishing;
(7)hiking, jogging, and walking;
(8)boating;
(9)all-terrain vehicles;
(10)berry/fruit picking;
(11)bicycling; and
(12)cooperative farming are also available within the final CCP. Background The National Wildlife Refuge System Improvement Act of 1997 (16 U.S.C. 668dd-668ee) (Improvement Act), which amended the National Wildlife Refuge System Administration Act of 1966, requires us to develop a CCP for each national wildlife refuge. The purpose for developing a CCP is to provide refuge managers with a 15-year plan for achieving refuge purposes and contributing toward the mission of the National Wildlife Refuge System, consistent with sound principles of fish and wildlife management, conservation, legal mandates, and our policies. In addition to outlining broad management direction on conserving wildlife and their habitats, CCPs identify wildlife-dependent recreational opportunities available to the public, including opportunities for hunting, fishing, wildlife observation, wildlife photography, and environmental education and interpretation. We will review and update the CCP at least every 15 years in accordance with the Improvement Act. Comments Approximately 150 copies of the Draft CCP/EA were made available for a 30-day public review period as announced in the **Federal Register** on April 14, 2008 (73 FR 20059). Five written comments were received from local citizens and the Louisiana Department of Wildlife and Fisheries. Selected Alternative After considering the comments we received, we have selected Alternative C for implementation. The primary focus under Alternative C will be to optimize the biological and visitor use programs. Land acquisition, reforestation, and resource protection at Red River NWR will be intensified from the level now maintained under the No Action Alternative. The refuge will expand the approved acquisition boundary to incorporate 1,413 acres in the Spanish Lake Lowlands Unit; 87 acres in the Headquarters Unit; and 1,938 acres in the Lower Cane Unit. Alternative C will provide a full-time law enforcement officer, an equipment operator, a maintenance worker, a wildlife biologist, an assistant manager, an administrative assistant, and an outdoor recreational specialist. Public use and environmental education will increase. Within three years of the date of the CCP, the refuge will develop a Visitor Services' Plan to be used in expanding public use facilities and opportunities. This step-down management plan will provide overall, long-term guidance and direction in developing and running a larger public use program. Federal funds are now available to construct a refuge headquarters/visitor center at the Headquarters Unit. The new visitor center will include a small auditorium for use in talks, meetings, films, videos, and other audiovisual presentations. Alternative C will also increase opportunities for visitors by adding facilities such as photo blinds, observation sites, and trails. Within five years of the date of the CCP, we will prepare a Fishing Plan that will outline and expand permissible fishing opportunities within the refuge. The refuge will also construct a fishing pier at the Headquarters Unit. Staff will investigate opportunities for expanding hunting possibilities. Alternative C is considered to be the most effective for meeting the purposes of the refuge by conserving, restoring, and managing the refuge's habitats and wildlife, while optimizing wildlife-dependent public uses. Alternative C will best achieve national, ecosystem, and refuge-specific goals and objectives and it positively addresses significant issues and concerns expressed by the public. Authority: This notice is published under the authority of the National Wildlife Refuge System Improvement Act of 1997, Public Law 105-57. Dated: May 27, 2008. Jon Andrew, Acting Regional Director. [FR Doc. E8-16822 Filed 7-22-08; 8:45 am] BILLING CODE 4310-55-P DEPARTMENT OF THE INTERIOR U.S. Geological Survey Agency Information Collection Activities: Submitted for Office of Management and Budget
(OMB)Review; Comment Request AGENCY: U.S. Geological Survey (USGS), Interior. ACTION: Notice of a revision of an information collection (1028-0062). SUMMARY: We (U.S. Geological Survey) have sent an Information Collection Request
(ICR)to OMB for review and approval. The ICR, which is summarized below, describes the nature of the collection and the estimated burden and cost. This ICR is scheduled to expire on July 31, 2008. We may not conduct or sponsor and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. However, under OMB regulations, we may continue to conduct or sponsor this information collection while it is pending at OMB. DATE: You must submit comments on or before August 22, 2008. ADDRESSES: Send your comments on this information collection directly to the Office of Management and Budget (OMB), Office of Information and Regulatory Affairs, Attention: Desk Officer for the Department of the Interior via e-mail: *OIRA_DOCKET@omb.eop.gov* ; or by fax
(202)395-6566; and identify your submission with #1028-0062. Please submit a copy of your comments to Phadrea Ponds, Information Collections, U.S. Geological Survey, 2150-C Center Avenue, Fort Collins, CO 80525 (mail);
(970)226-9230 (fax); or *pponds@usgs.gov* (e-mail). Use OMB Control Number 1028-0062 in the subject line. FOR FURTHER INFORMATION CONTACT: To request additional information about this ICR, contact Scott F. Sibley at
(703)648-4976. SUPPLEMENTARY INFORMATION: *OMB Control Number:* 1028-0062 *Title:* Industrial Minerals Surveys. *Form Number:* Various (38 forms). *Type of Request:* Revision of a currently approved collection. *Affected Public:* Private Sector; State, Local, and Tribal governments. *Respondent Obligation:* Voluntary. *Frequency of Collection:* Monthly, Quarterly, Semiannually, or Annually. Respondents are canvassed for one frequency period (e.g., monthly respondents are not canvassed annually). *Estimated Number and Description of Respondents:* Approximately 15,993 producers and consumers of industrial minerals. *Estimated Number of Responses:* 18,339. *Completion Time per Response:* We estimate that the public reporting burden averages 15 minutes to 5 hours per response. This includes the time for reviewing instructions, gathering and maintaining data, and completing and reviewing the information. *Annual burden hours:* 12,639 hours. *Abstract:* Respondents supply the U.S. Geological Survey with domestic production and consumption data for nonfuel mineral commodities. This information will be published as chapters in Minerals Yearbooks, monthly/quarterly Mineral Industry Surveys, annual Mineral Commodity Summaries, and special publications, for use by Government agencies, industry, education programs, and the general public. We will protect information from respondents considered proprietary under the Freedom of Information Act (5 U.S.C. 552) and implementing regulations (43 CFR part 2), and under regulations at 30 CFR 250.197, “Data and information to be made available to the public or for limited inspection.” Responses are voluntary. No questions of a “sensitive” nature are asked. We will release data collected on these forms only in a summary format that is not company-specific. *Comments:* To comply with the public consultation process, on April 16, 2008, we published a **Federal Register** notice (73 FR 20707) announcing our intent to submit this information collection to OMB for approval. In that notice we solicited public comments for 60 days, ending on June 16, 2008. We received one comment in response to the notice. In this comment, the Bureau of Economic Analysis
(BEA)stated that they support the USGS continuing to collect Industrial Minerals Surveys data because they are an important data source for key components of BEA's economic statistics. The BEA also requested that they be kept informed of any modifications to these forms. We did not make any changes to our information collection requirements as a result of this comment. We again invite comments concerning this information collection on:
(1)Whether or not the collection of information is necessary, including whether or not the information will have practical utility;
(2)The accuracy of our estimate of the burden for this collection of information;
(3)Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4)Ways to minimize the burden of the collection of information on respondents. Please note that the comments submitted in response to this notice are a matter of public record. Before including your address, phone number, e-mail address, or other personal identifying information in your comment, you should be aware that your entire comment, including your personal identifying information, may be made publicly available at any time. While you can ask OMB in your comment to withhold your personal identifying information from public review, we cannot guarantee that it will be done. *USGS Information Collection Clearance Contact:* Phadrea Ponds
(970)226-9445. Dated: July 17, 2008. John H. DeYoung, Jr., Chief Scientist, Minerals Information Team. [FR Doc. E8-16821 Filed 7-22-08; 8:45 am] BILLING CODE 4311-AM-P DEPARTMENT OF THE INTERIOR Bureau of Land Management [F-14864-A, F-14864-A2; AK-965-1410-KC-P] Alaska Native Claims Selection AGENCY: Bureau of Land Management, Interior. ACTION: Notice of decision approving lands for conveyance. SUMMARY: As required by 43 CFR 2650.7(d), notice is hereby given that an appealable decision approving the surface and subsurface estates in certain lands for conveyance pursuant to the Alaska Native Claims Settlement Act will be issued to Nunapiglluraq Corporation. The lands are in the vicinity of Hamilton, Alaska, and are located in: Seward Meridian, Alaska T. 32 N., R. 77 W., Secs. 6, 7 and 18. Containing approximately 1,596 acres. T. 33 N., R. 77 W., Secs. 19, 26, 27, 34, and 35; Containing approximately 2,208 acres. T. 30 N., R. 78 W., Secs. 4 and 9. Containing approximately 865 acres. T. 33 N., R. 78 W., Secs. 1 and 12. Containing approximately 1,207 acres. Aggregating approximately 5,876 acres. A portion of the subsurface estate in these lands will be conveyed to Calista Corporation when the surface estate is conveyed to Nunapiglluraq Corporation. The remaining lands lie within Clarence Rhode National Wildlife Range, established January 20, 1969. The subsurface estate in the refuge lands will be reserved to the United States at the time of conveyance. Notice of the decision will also be published four times in the Tundra Drums. DATES: The time limits for filing an appeal are: 1. Any party claiming a property interest which is adversely affected by the decision shall have until August 22, 2008 to file an appeal. 2. Parties receiving service of the decision by certified mail shall have 30 days from the date of receipt to file an appeal. Parties who do not file an appeal in accordance with the requirements of 43 CFR Part 4, Subpart E, shall be deemed to have waived their rights. ADDRESSES: A copy of the decision may be obtained from: Bureau of Land Management, Alaska State Office, 222 West Seventh Avenue, #13, Anchorage, Alaska 99513-7504. FOR FURTHER INFORMATION, CONTACT: The Bureau of Land Management by phone at 907-271-5960, or by e-mail at *ak.blm.conveyance@ak.blm.gov* . Persons who use a telecommunication device
(TTD)may call the Federal Information Relay Service
(FIRS)at 1-800-877-8330, 24 hours a day, seven days a week, to contact the Bureau of Land Management. Robert Childers, Land Law Examiner, Land Transfer Adjudication II. [FR Doc. E8-16879 Filed 7-22-08; 8:45 am] BILLING CODE 4310-JA-P DEPARTMENT OF THE INTERIOR Bureau of Land Management [F-14879-A, F-14879-A2; AK-965-1410-KC-P] Alaska Native Claims Selection AGENCY: Bureau of Land Management, Interior. ACTION: Notice of decision approving lands for conveyance. SUMMARY: As required by 43 CFR 2650.7(d), notice is hereby given that an appealable decision approving the surface and subsurface estates in certain lands for conveyance pursuant to the Alaska Native Claims Settlement Act will be issued to Kotlik Yupik Corporation. The lands are in the vicinity of Kotlik, Alaska, and are located in: Kateel River Meridian, Alaska T. 28 S., R. 23 W., Secs. 1, 2, 12, and 13; Secs. 23, 24, 26, and 27; Secs. 33, 34, and 35. Containing approximately 6,625 acres. T. 29 S., R. 23 W., Sec. 4. Containing approximately 562 acres. T. 26 S., R. 27 W., Secs. 18, 19, 30, and 31. Containing approximately 1,636 acres. T. 27 S., R. 27 W., Secs. 15, 22, and 27. Containing approximately 1,736 acres. T. 26 S., R. 28 W., Secs. 4 to 11, inclusive; Secs. 13 to 17, inclusive; Secs. 22 to 25, inclusive; Sec. 36. Containing approximately 7,829 acres. Aggregating approximately 8,388 acres. Seward Meridian, Alaska T. 33 N., R. 73 W., Sec. 6. Containing approximately 329 acres. T. 34 N., R. 73 W., Secs. 31, 32, and 33. Containing approximately 1,655 acres. Aggregating approximately 1,984 acres. Total aggregate of approximately 20,372 acres. A portion of the subsurface estate in these lands will be conveyed to Calista Corporation when the surface estate is conveyed to Kotlik Yupik Corporation. The remaining lands lie within Clarence Rhode National Wildlife Range, established January 20, 1969. The subsurface estate in the refuge lands will be reserved to the United States at the time of conveyance. Notice of the decision will also be published four times in the Tundra Drums. DATES: The time limits for filing an appeal are: 1. Any party claiming a property interest which is adversely affected by the decision shall have until August 22, 2008 to file an appeal. 2. Parties receiving service of the decision by certified mail shall have 30 days from the date of receipt to file an appeal. Parties who do not file an appeal in accordance with the requirements of 43 CFR Part 4, Subpart E, shall be deemed to have waived their rights. ADDRESSES: A copy of the decision may be obtained from: Bureau of Land Management, Alaska State Office, 222 West Seventh Avenue, #13, Anchorage, Alaska 99513-7504. FOR FURTHER INFORMATION, CONTACT: The Bureau of Land Management by phone at 907-271-5960, or by e-mail at *ak.blm.conveyance@ak.blm.gov.* Persons who use a telecommunication device
(TTD)may call the Federal Information Relay Service
(FIRS)at 1-800-877-8330, 24 hours a day, seven days a week, to contact the Bureau of Land Management. Robert Childers, Land Law Examiner, Land Transfer Adjudication II. [FR Doc. E8-16882 Filed 7-22-08; 8:45 am] BILLING CODE 4310-JA-P DEPARTMENT OF THE INTERIOR Bureau of Land Management [MT-020-1010-PO] Notice of Public Meeting, Eastern Montana Resource Advisory Council Meeting AGENCY: Bureau of Land Management, Interior, Montana, Billings and Miles City Field Offices. ACTION: Notice of public meeting. SUMMARY: In accordance with the Federal Land Policy and Management Act (FLPMA) and the Federal Advisory Committee Act of 1972 (FACA), the U.S. Department of the Interior, Bureau of Land Management
(BLM)Eastern Montana Resource Advisory Council (RAC), will meet as indicated below. DATES: The next two regular meetings of the Eastern Montana Resource Advisory Council will be held on August 26, 2008 in Miles City, MT and December 4, 2008 in Billings, MT. The meetings will start at 8 a.m. and adjourn at approximately 3:30 p.m. each day. When determined, the meeting location will be announced in a news release. FOR FURTHER INFORMATION CONTACT: Mark Jacobsen, Public Affairs Specialist, BLM Miles City Field Office, 111 Garryowen Road, Miles City, Montana, 59301. Telephone:
(406)233-2831. SUPPLEMENTARY INFORMATION: The 15-member Council advises the Secretary of the Interior through the Bureau of Land Management on a variety of planning and management issues associated with public land management in Montana. At these meetings, topics will include: Miles City and Billings Field Office manager updates, subcommittee briefings, work sessions and other issues that the council may raise. All meetings are open to the public and the public may present written comments to the Council. Each formal Council meeting will also have time allocated for hearing public comments. Depending on the number of persons wishing to comment and time available, the time for individual oral comments may be limited. Individuals who plan to attend and need special assistance, such as sign language interpretation, tour transportation or other reasonable accommodations should contact the BLM as provided above. Dated: July 15, 2008. M. Elaine Raper, Field Manager. [FR Doc. E8-16881 Filed 7-22-08; 8:45 am] BILLING CODE 4310-$$-P DEPARTMENT OF THE INTERIOR National Park Service Final Environmental Impact Statement/Mountain Lakes Fishery Management Plan; North Cascades National Park Service Complex; Chelan, Skagit and Whatcom Counties, WA; Notice of Availability SUMMARY: Pursuant to § 102(c) of the National Environmental Policy Act of 1969 (Pub. L. 91-190, as amended), the National Park Service in cooperation with the Washington State Department of Fish and Wildlife has prepared a Final Environmental Impact Statement
(FEIS)and Mountain Lakes Fishery Management Plan. The FEIS identifies and evaluates proposed plan and three alternatives for management of non-native fish in the natural mountain lakes within North Cascades National Park Service Complex and the Stephen Mather Wilderness. Appropriate mitigation strategies are assessed, and an “environmentally preferred” alternative is also identified. When approved, the Mountain Lakes Fishery Management Plan
(Plan)will govern all fishery management actions, including potential removal of self-sustaining populations of non-native fish and fish stocking. *Background:* The National Park Service
(NPS)manages North Cascades National Park, Lake Chelan National Recreation Area, and Ross Lake National Recreation Area collectively as the North Cascades National Park Service Complex (hereafter referred to as “North Cascades”). The rugged, wilderness landscape of North Cascades contains 245 natural mountain lakes which are naturally fishless due to impassable topographic barriers. Though naturally barren of fish, these lakes contain a rich array of native aquatic life including plankton, aquatic insects, frogs and salamanders. In the late 1800's, settlers began stocking lakes within the present-day boundaries of North Cascades with various species of non-native trout for food and recreation. By the 20th century, fish stocking was routinely undertaken by the U.S. Forest Service, various counties, and individuals. Then in 1933, the state of Washington assumed responsibility for stocking mountain lakes to create and maintain a recreational fishery. After North Cascades was established in 1968, a conflict over fish stocking emerged between the NPS and Washington state. This conflict derived from fundamental policy differences: NPS policies prohibited stocking so as to protect native ecosystems and Wilderness, whereas Washington policies encouraged stocking to enhance recreational opportunities. *Preferred Plan and Alternatives Considered:* As the proposed Mountain Lakes Fishery Management Plan, *Alternative B* (agency-preferred alternative) would allow continued stocking of select lakes with a history of fish stocking. To minimize ecological risks, only trout that are native to the watershed or functionally sterile would be stocked at low densities. Self-sustaining populations of trout would be removed from all lakes (where feasible) using various methods including gillnets, electrofishing, spawning habitat exclusion, and antimycin, a potent yet ephemeral pesticide. Management actions would be monitored and evaluated to enable adaptive management and minimize impacts to biological integrity. Implementation of this Alternative would require clarification from Congress regarding fish stocking in North Cascades and the Stephen Mather Wilderness. The “no action” alternative ( *Alternative A* ) would continue fishery management according to the terms and conditions of the 1988 Supplemental Agreement with the Washington Department of Fish and Wildlife (WDFW). This agreement provides for continued stocking of select lakes in North Cascades National Park. Implementation of this alternative would require clarification from Congress regarding fish stocking in the North Cascades and Stephen Mather Wilderness. *Alternative C* would include continued fish stocking in select lakes in Ross Lake National Recreation Area and Lake Chelan National Recreation Area; stocking would be discontinued in North Cascades National Park. Otherwise, the adaptive management framework for this alternative would be similar to *Alternative B.* Implementation of *Alternative C* would require clarification from Congress regarding continued fish stocking in the Stephen Mather Wilderness. *Alternative D* would discontinue fish stocking in all mountain lakes in North Cascades Complex. This alternative would implement a long-term goal of removing, wherever feasible, self-sustaining populations of non-native trout in up to 37 lakes using the removal methods described for *Alternative B.* *Public Involvement:* The public scoping phase formally began January 16, 2003, with the NPS publication of a Notice of Intent to prepare an EIS for a high mountain lakes fishery management plan. Extensive local and regional publicity and distribution of public scoping brochures occurred during February-March 2003. In late March 2003, the four public scoping meetings were hosted in the surrounding communities of Sedro-Woolley, Wenatchee, Bellevue and Seattle. The NPS received 248 comments during the public scoping phase; a public scoping report was prepared and posted on the project Web site (see below). The EPA's notice of filing of the Draft EIS was published in the **Federal Register** by the EPA on May 27, 2005; the park's notice of availability was published on May 31, 2005. The 90-day opportunity for public review and comment extended through August 26, 2005. Four public meetings were hosted in surrounding communities during the week of July 25-28, 2005. Ninety individuals and organizations provided 350 substantive comments both for and against continued stocking. SUPPLEMENTARY INFORMATION: Electronic copies of the final document will be available online at *http://parkplanning.nps.gov/noca.* Bound printed copies will be available for public review at the North Cascades Headquarters Office, 810 State Route 20, Sedro-Woolley, Washington 98284; and at the Seattle, Wenatchee, Chelan and Bellingham public libraries. For further information or to request copies of the document, contact Mr. Roy Zipp, Environmental Protection Specialist, 810 State Route 20, Sedro-Woolley, WA 98284;
(360)854-7313. *Decision Process:* Following careful consideration of all public and agency comments received on the Draft EIS/Plan, the NPS in cooperation with Washington Department of Fish and Wildlife has completed the Final Mountain Lakes Fishery Management Plan/Final Environmental Impact Statement. Not sooner than 30 days after notice of release of the Final EIS is published in the **Federal Register** by the U.S. Environmental Protection Agency, a Record of Decision will be prepared by the NPS. As a delegated EIS, the official responsible for the final decision is the Regional Director, Pacific West Region; subsequently, the official responsible for implementation will be the Superintendent, North Cascades National Park Service Complex. Dated: March 5, 2008. Patricia L. Neubacher, Acting Regional Director, Pacific West Region. Editorial Note: This document was received in the Office of the Federal Register on July 18, 2008. [FR Doc. E8-16887 Filed 7-22-08; 8:45 am] BILLING CODE 4312-HJ-P DEPARTMENT OF THE INTERIOR National Park Service Notice of Intent To Repatriate Cultural Items: U.S. Department of the Interior, National Park Service, Intermountain Region, Santa Fe, NM AGENCY: National Park Service, Interior. ACTION: Notice. Notice is here given in accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), 25 U.S.C. 3005, of the intent to repatriate cultural items in the possession of the U.S. Department of the Interior, National Park Service, Intermountain Region, Santa Fe, NM, that meet the definition of “sacred objects” under 25 U.S.C. 3001. This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA, 25 U.S.C. 3003(d)(3). The determinations in this notice are the sole responsibility of the NAGPRA coordinator, Intermountain Region. In 1994, the National Park Service assisted the Federal Bureau of Investigation and the United States Fish and Wildlife Service with the investigation of a Migratory Bird Treaty Act violation. The evidence included a collection of Native American objects confiscated from the East-West Trading Post in Santa Fe, NM. Preliminary subject matter expert review of the collection indicated that the objects were historically significant and potentially subject to NAGPRA. The collection was accessioned in 2002 into the Southwest Regional Office collections, now called the Intermountain Region Office. The three cultural items covered in this notice are one bundle with carved bird, shell, and eagle feather; one bundle with eagle feathers; and one carved bird with beads. Following adjudication of the case, a detailed assessment of the objects was made by Intermountain Region
(IMIR)NAGPRA program staff in close collaboration with the IMIR Museum Services program staff and in consultation with representatives of potentially affiliated tribes. During consultation, representatives of the Pueblo of Santa Ana, New Mexico, identified the cultural items as specific ceremonial objects needed by traditional Pueblo of Santa Ana religious leaders for the practice of a traditional Native American religion by their present-day adherents. Oral tradition evidence presented by representatives of the Pueblo of Santa Ana, New Mexico, and the written repatriation request received by the Intermountain Region further articulated the ceremonial significance of the cultural items to the Pueblo of Santa Ana, New Mexico. Based on anthropological information, court case documentation, oral tradition, museum records, consultation evidence, and expert opinion, there is a cultural affiliation between the Pueblo of Santa Ana, New Mexico, and the three sacred objects. Officials of the Intermountain Region have determined that, pursuant to 25 U.S.C. 3001(3)(C), the three cultural items described above are specific ceremonial objects needed by traditional Native American religious leaders for the practice of traditional Native American religions by their present-day adherents. Officials of the Intermountain Region also have determined that, pursuant to 25 U.S.C. 3001(2), there is a relationship of shared group identity that can be reasonably traced between the sacred objects and the Pueblo of Santa Ana, New Mexico. Representatives of any other Indian tribe that believes itself to be culturally affiliated with the sacred objects should contact Dave Ruppert, NAGPRA Coordinator, NPS Intermountain Region, 12795 West Alameda Parkway, Lakewood, CO 80228, telephone
(303)969-2879, before August 22, 2008. Repatriation of the sacred objects to the Pueblo of Santa Ana, New Mexico may proceed after that date if no additional claimants come forward. The Intermountain Region is responsible for notifying the Apache Tribe of Oklahoma; Fort Sill Apache Tribe of Oklahoma; Hopi Tribe of Arizona; Jicarilla Apache Nation, New Mexico; Mescalero Apache Tribe of the Mescalero Reservation, New Mexico; Navajo Nation, Arizona, New Mexico & Utah; Ohkay Owingeh, New Mexico (formerly the Pueblo of San Juan); Pueblo of Acoma, New Mexico; Pueblo of Cochiti, New Mexico; Pueblo of Jemez, New Mexico; Pueblo of Isleta, New Mexico; Pueblo of Laguna, New Mexico; Pueblo of Nambe, New Mexico; Pueblo of Picuris, New Mexico; Pueblo of Pojoaque, New Mexico; Pueblo of San Felipe, New Mexico; Pueblo of San Ildefonso, New Mexico; Pueblo of Sandia, New Mexico; Pueblo of Santa Ana, New Mexico; Pueblo of Santa Clara, New Mexico; Pueblo of Santo Domingo, New Mexico; Pueblo of Taos, New Mexico; Pueblo of Tesuque, New Mexico; Pueblo of Zia, New Mexico; San Carlos Apache Tribe of the San Carlos Reservation, Arizona; Tonto Apache Tribe of Arizona; Ute Mountain Tribe of the Ute Mountain Reservation, Colorado, New Mexico & Utah; White Mountain Apache Tribe of the Fort Apache Reservation, Arizona; Yavapai-Apache Nation of the Camp Verde Indian Reservation, Arizona; Ysleta Del Sur Pueblo of Texas; and Zuni Tribe of the Zuni Reservation, New Mexico that this notice has been published. Dated: June 24, 2008. Sherry Hutt, Manager, National NAGPRA Program. [FR Doc. E8-16732 Filed 7-22-08; 8:45 am] BILLING CODE 4312-50-M DEPARTMENT OF THE INTERIOR National Park Service National Register of Historic Places; Notification of Pending Nominations and Related Actions Nominations for the following properties being considered for listing or related actions in the National Register were received by the National Park Service before July 4, 2008. Pursuant to section 60.13 of 36 CFR part 60 written comments concerning the significance of these properties under the National Register criteria for evaluation may be forwarded by United States Postal Service, to the National Register of Historic Places, National Park Service, 1849 C St., NW., 2280, Washington, DC 20240; by all other carriers, National Register of Historic Places, National Park Service, 1201 Eye St., NW., 8th floor, Washington DC 20005; or by fax, 202-371-6447. Written or faxed comments should be submitted by August 7, 2008. J. Paul Loether, Chief, National Register of Historic Places/National Historic Landmarks Program. North Carolina Guilford County Carter, Wilbur and Martha, House, 1012 Country Club Dr., Greensboro, 08000777 Jackson County Monteith, Elias Brendle, House and Outbuildings, 111 Hometown Place Rd., Dillsboro, 08000778 Madison County Marshall High School, Blannahassett Island. W. side Bridge St., Marshall, 08000779 Pennsylvania Adams County Thomas Brothers Store, 4 S. Main St., Biglerville, 08000780 Allegheny County Century Building, 130 7th St., Pittsburgh, 08000781 Bucks County Nakashima, George, House, Studio and Workshop, 1847 and 1858 Aquetong Rd., Solebury, 08000782 Erie County Hornby School, 10,000 Station Rd., Greenfield, 08000783 Montgomery County Keefe-Mumbower Mill, NE. corner of Swedesford and Township Line Rds. jct., North Wales, 08000784 Philadelphia County Woman's Medical College of Pennsylvania, 3300 Henry Ave., Philadelphia, 08000785 Puerto Rico San Juan Municipality La Giralda, 651 Jose Marti St., San Juan, 08000786 Wisconsin Jefferson County Carcajou Point Site, Address Restricted, Sumner, 08000787 [FR Doc. E8-16806 Filed 7-22-08; 8:45 am] BILLING CODE 4310-70-P DEPARTMENT OF JUSTICE Notice of Public Comment Period for Proposed Modification to Consent Decree Under the Clean Air Act Under 28 CFR 50.7, notice is hereby given that, for a period of 30 days, the United States will receive public comments on a proposed Modification to Consent Decree in *United States* v. *Cargill, Incorporated* , (Civil Action No. 05-2037 JMR/FLN), which was lodged with the United States District Court for the District of Minnesota on July 11, 2008. This proposed Modification applies only to Cargill's Dayton, Ohio, corn mill facility. The Dayton facility is one of 27 ethanol, corn mill and oilseed extraction plants subject to the original Consent Decree which was entered by the Court on March 3, 2006. The settlement resolved claims against the Dayton facility, among others, pursuant to Sections 113(b) and 211(d) of the Clean Air Act (“CAA”), 42 U.S.C. 7413(b) & 7545(d). This proposed Modification allows for an 18-month extension of the deadline for installing air pollution controls for volatile organic compound (“VOC”) emissions at the integrated bran/feed drying process units, while accelerating the installation of nitrous oxide-reducing burners (“low-NO <sup>X</sup> burners”) on the process boiler. Overall, EPA estimates that the schedule change proposed in the Modification will result in a one-time net emission reduction of 147 tons from estimates based on the original Decree requirements. The Department of Justice will receive, for thirty
(30)days from the date of this publication, comments relating to the Modification. Comments should be addressed to the Assistant Attorney General, Environment and Natural Resources Division, and either e-mailed to *pubcomment-ees.enrd@usdoj.gov* or mailed to P.O. Box 7611, U.S. Department of Justice, Washington, DC 20044-7611. In either case, the comments should refer to *United States* v. *Cargill, Inc.,* D.J. Ref. 90-5-2-1-07481/1. During the public comment period, the Modification may be examined on the following Department of Justice Web site, *http://www.usdoj.gov/enrd/Consent_Decrees.html.* A copy of the Modification may also be obtained by mail from the Consent Decree Library, P.O. Box 7611, U.S. Department of Justice, Washington, DC 20044-7611, or by faxing or e-mailing a request to Tonia Fleetwood ( *tonia.fleetwood@usdoj.gov* ), fax no.
(202)514-0097, phone confirmation number
(202)514-1547. In requesting a copy from the Consent Decree Library, please enclose a check in the amount of $7.00 (25 cents per page reproduction cost) payable to the U.S. Treasury or, if by e-mail or fax, forward a check in that amount to the Consent Decree Library at the stated address. Robert E. Maher Jr., Assistant Section Chief, Environmental Enforcement Section, Environment and Natural Resources Division. [FR Doc. E8-16756 Filed 7-22-08; 8:45 am] BILLING CODE 4410-15-P DEPARTMENT OF LABOR Employee Benefits Security Administration [Application No. L-11407] Proposed Exemptions Involving; General Motors Corporation and Its Wholly-Owned Subsidiaries (Together GM) AGENCY: Employee Benefits Security Administration, Labor. ACTION: Notice of Proposed Exemption. SUMMARY: This document contains a notice of pendency before the Department of Labor (the Department) of proposed exemption from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). Written Comments and Hearing Requests All interested persons are invited to submit written comments or requests for a hearing on the pending exemption, unless otherwise stated in the Notice of Proposed Exemption, within 60 days from the date of publication of this **Federal Register** Notice. *Comments and requests for a hearing should state:*
(1)The name, address, and telephone number of the person making the comment or request, and
(2)the nature of the person's interest in the exemption and the manner in which the person would be adversely affected by the exemption. A request for a hearing must also state the issues to be addressed and include a general description of the evidence to be presented at the hearing. ADDRESSES: All written comments and requests for a hearing (at least three copies) should be sent to the Employee Benefits Security Administration (EBSA), Office of Exemption Determinations, Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 20210. *Attention:* Application No. L-11407, stated in the Notice of Proposed Exemption. Interested persons are also invited to submit comments and/or hearing requests to EBSA via E-mail or FAX. Any such comments or requests should be sent either by E-mail to: *GM-DCVEBA@dol.gov,* or by FAX to
(202)219-0204 by the end of the scheduled comment period. The application for exemption and the comments received will be available for public inspection in the Public Documents Room of the Employee Benefits Security Administration, U.S. Department of Labor, Room N-1513, 200 Constitution Avenue, NW., Washington, DC 20210. Notice to Interested Persons Notice of the proposed exemption will be provided to all interested persons in the manner agreed upon by the applicant and the Department within 30 days of the date of publication in the **Federal Register.** Such notice shall include a copy of the notice of proposed exemption as published in the **Federal Register** and shall inform interested persons of their right to comment and to request a hearing (where appropriate). SUPPLEMENTARY INFORMATION: The proposed exemption was requested in an application filed pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the Code, and in accordance with procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). Effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested to the Secretary of Labor. Therefore, this notice of proposed exemption is issued solely by the Department. The application contains representations with regard to the proposed exemption which is summarized below. Interested persons are referred to the application on file with the Department for a complete statement of the facts and representations. General Motors Corporation and Its Wholly-Owned Subsidiaries (Together, GM) Located in Detroit, MI [Application No. L-11407] Proposed Exemption The Department is considering granting an exemption under the authority of section 408(a) of the Act (or ERISA) and in accordance with the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 1 1 Because the Independent Health Care Trust for UAW Retirees of General Motors Corporation (the DC VEBA) is not qualified under section 401 of the Code, there is no jurisdiction under Title II of the Act pursuant to section 4975 of the Code. However, there is jurisdiction under Title I of the Act. Section I. Covered Transactions If the exemption is granted, the restrictions of sections 406(a)(1)(B), 406(a)(1)(D), and 406(b)(1) and (b)(2) of the Act shall not apply, effective December 16, 2005, to:
(1)Monthly cash advances to GM by the DC VEBA to reimburse GM for the estimated mitigation of certain health care expenses (the Mitigation) and for the payment of dental expenses incurred by participants in the DC VEBA; and
(2)an annual “true up” of the Mitigation payments and dental expenses against the actual expenses incurred, with the result that
(a)if GM has been underpaid by the DC VEBA, GM receives the balance outstanding from the DC VEBA with interest, or
(b)if the DC VEBA has overpaid GM, GM reimburses the DC VEBA for the amount overpaid, with interest. Section II. Conditions This proposed exemption is conditioned upon adherence to the material facts and representations described herein and upon satisfaction of the following conditions:
(a)A committee (the Committee), acting as a fiduciary independent of GM, has represented and will continue to represent the DC VEBA and its participants and beneficiaries for all purposes with respect to the Mitigation process.
(b)The Committee for the DC VEBA has discharged and will continue to discharge its duties consistent with the terms of the DC VEBA and the DC VEBA Settlement Agreement.
(c)The Committee and actuaries retained by the Committee have reviewed and approved and will continue to review and approve the estimation process involved in the Mitigation, which results in the monthly Mitigation amount paid to GM.
(d)Outside auditors retained by the Committee, along with an administrative company that is partly owned by the DC VEBA, will audit the calculation of the true up to determine whether there are any differences between the estimated Mitigation and actual Mitigation amounts and make such information available to GM.
(e)GM has provided and will continue to provide various reports and records to the Committee concerning the Mitigation and dental care reimbursements, which are and will continue to be subject to review and audit by the Committee.
(f)The terms of the transactions are no less favorable and will continue to be no less favorable to the DC VEBA than the terms negotiated at arm's length under similar circumstances between unrelated third parties.
(g)The interest rate applied to any true up payments is a reasonable rate, as set forth in the DC VEBA Settlement Agreement, and will continue to be a reasonable rate that runs from the beginning of the year being trued up and does and will continue to not present a windfall or detriment to either party.
(h)The DC VEBA has not incurred and will continue not to incur any fees, costs or other charges (other than those described in the DC VEBA and the DC VEBA Settlement Agreement) as a result of the covered transactions described herein.
(i)GM and the Committee have maintained and will continue to maintain for a period of six years from the date of any of the covered transactions, any and all records necessary to enable the persons described in paragraph
(j)below to determine whether conditions of this exemption have been and will continue to be met, except that
(1)a prohibited transaction will not be considered to have occurred if, due to circumstances beyond the control of GM or the Committee, the records are lost or destroyed prior to the end of the six-year period, and
(2)no party in interest other than GM or the Committee shall be subject to the civil penalty that may be assessed under section 502(i) of the Act if the records are not maintained, or are not available for examination as required by paragraph
(j)below. (j)(1) Except as provided in section
(2)of this paragraph and notwithstanding any provisions of subsections (a)(2) and
(b)of section 504 of the Act, the records referred to in paragraph
(i)above have been or will be unconditionally available at their customary location during normal business hours to:
(A)Any duly authorized employee representative of the Department;
(B)The UAW or any duly authorized representative of the UAW;
(C)GM or any duly authorized representative of GM; and
(D)Any participant or beneficiary of the DC VEBA, or any duly authorized representative of such participant or beneficiary.
(2)None of the persons described above in subparagraphs (1)(B) or
(D)of this paragraph
(j)is authorized to examine the trade secrets of GM, or commercial or financial information that is privileged or confidential. Section III. Definitions *For purposes of this proposed exemption, the term* —
(a)“GM” means General Motors Corporation and its wholly owned subsidiaries.
(b)“Affiliate” means:
(1)Any person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with such other person;
(2)Any officer, director, or partner, employee or relative (as defined in section 3(15) of the Act) of such other person; or
(3)Any corporation, partnership or other entity of which such other person is an officer, director or partner. (For purposes of this definition, the term “control” means the power to exercise a controlling influence over the management or policies of a person other than an individual.)
(c)“Class Members” mean all persons other than active employees who, as of the ratification date of the GM-UAW Memorandum of Understanding, November 11, 2005 (the Ratification Date) were
(1)GM/UAW hourly employees who had retired from GM with eligibility for the General Motors Health Care Program for Hourly Employees (the Original Plan) as in effect prior to the Ratification Date or
(2)the spouses, surviving spouses and dependents of GM/UAW hourly employees, who, as of the Ratification Date, were eligible for post-retirement or surviving spouse health care coverage under the Original Plan as a consequence of a GM/UAW hourly employee's retirement from GM or death prior to retirement.
(d)*“Committee” means the seven individuals, consisting of two classes:*
(1)the United Auto Workers Class
(UAW)with three members, and
(2)the Public Class with four members, who act as the named fiduciary and administrator of the DC VEBA.
(e)“Court” or “Michigan District Court” means the United States District Court for the Eastern District of Michigan.
(f)“DC VEBA” means the Independent Health Care Trust for UAW Retirees of General Motors Corporation.
(g)“DC VEBA Settlement Agreement” means the agreement, dated December 16, 2005, which was entered into between GM, the UAW, and Class Representatives, on behalf of a Class of plaintiffs in the *Henry* case (2006 WL 891151 (E.D. Mi. March 31, 2006)), aff'd 2007 WL 2239208, (6th Cir. August 7, 2007).
(h)“Mitigation” means the reduction of retirees’ monthly contributions, annual deductibles, and other retirees' out-of-pocket costs to the extent payments from the DC VEBA are made, as directed by the Committee, to GM and/or to providers, insurance carriers and other agreed-upon entities.
(i)“OPEB” means Other Post-Employment Benefits. The OPEB Valuation is an actuarially developed annual valuation of a company's post employment benefit obligations, other than for pension and other retirement income plans. The OPEB Valuation is based on a set of uniform financial reporting standards promulgated by the Financial Accounting Standards Board and embodied in Financial Accounting Standard 106, as revised from time to time. The types of benefits addressed in an OPEB Valuation typically are retiree healthcare (medical, dental, vision, hearing) life insurance, tuition assistance, day care, legal services, and the like.
(j)“Shares” or “Stock” refers to shares of common stock of reorganized GM, par value $.01 per share.
(k)“UAW” means the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America or the United Auto Workers, if shortened.
(l)“VEBA” means a voluntary employees’ beneficiary association. *Effective Date:* If granted, this proposed exemption will be effective as of December 16, 2005. Summary of Facts and Representations The Applicant 1. GM is primarily engaged in automotive production and marketing, and financing and insurance operations. GM designs, manufactures, and markets vehicles worldwide, and it has its largest operating presence in North America. As of June 30, 2007, GM had approximately 118,539 active employees in the United States, of whom approximately 81,689 are represented by the UAW and other unions. Approximately 717,432 retirees and dependents in the U.S. receive GM retiree health benefits in whole or in part. GM maintains its headquarters in Detroit, Michigan. As of December 31, 2006, GM had total assets on its consolidated balance sheet of $186.192 billion. The DC VEBA Settlement Agreement and GM's Negotiations 2. The DC VEBA Settlement Agreement, dated December 16, 2005, was entered into between GM, the UAW, and Class Representatives, on behalf of a Class of plaintiffs ( *i.e.* , the Class Members), in the *Henry* case (2006 WL 891151 (E.D. Mi. March 31, 2006)), aff'd 2007 WL 2239208, (6th Cir. August 7, 2007). The case was brought in a declaratory judgment motion to contest whether GM had the right to unilaterally modify hourly retiree welfare benefits under its existing GM retiree plans. The DC VEBA Settlement Agreement was approved by the Michigan District Court in an opinion dated March 31, 2006. 3. Throughout much of 2005, GM and the UAW engaged in extended discussions concerning the impact of rising health care costs on GM's financial condition. During these discussions, GM asserted that it had the right to unilaterally modify and/or terminate the health care benefits applicable to its hourly retirees and that, if no agreement was reached to address GM's health care burden, GM would act unilaterally. The UAW disagreed with GM's position and asserted that the benefits were vested and that GM did not have the right to modify or terminate such benefits. 4. The UAW, the Class Representatives and Class Counsel reviewed GM's current and projected financial condition and, as a result, concluded that, among other things, a significant reduction in GM's retiree health care costs under the existing plans would substantially improve its financial condition. Without such an improvement, the ability of GM to provide health care benefits over the long term to Class Members at or near the level provided by the DC VEBA Settlement Agreement would be placed in doubt. All parties believed that a settlement would be advantageous. The DC VEBA 5. The DC VEBA was created on December 16, 2005 as a result of the DC VEBA Settlement Agreement. Under its terms, GM is required to make certain contributions—both mandatory and contingent—to the DC VEBA, which is controlled by an independent seven member Committee. In April 2006, GM contributed $1 billion to the DC VEBA. The DC VEBA has been established through a trust agreement between State Street Bank and Trust Company (the Trustee) and GM. The DC VEBA does not replace any existing welfare plans that are sponsored by GM for the retirees. The DC VEBA also intends to qualify as a “voluntary employees’ beneficiary association” within the meaning of section 501(c)(9) of the Code. As of August 31, 2007, the DC VEBA had total assets of $1.74 billion. Fidelity Investments operates a call center, administers eligibility requirements, and handles certain other administrative tasks on behalf of the DC VEBA. 6. The objective of the DC VEBA is to mitigate the financial impact of certain modifications in health care benefits on the Class Members. If GM's financial condition and operating results improve, and as more fully described below, additional contributions to the DC VEBA that relate to appreciation of GM common stock, profit sharing payments and increases in GM's regular quarterly cash dividend will increase the DC VEBA funds available and thereby further lessen the adverse impact of these health care modifications on Class Members. The Committee 7. The DC VEBA is administered by the Committee, all of whose members are independent of GM. GM has no appointment power, and the Committee functions independently of GM. The Committee acts as the named fiduciary and administrator of the DC VEBA, and appoints the Trustee and all investment managers of the DC VEBA's assets. The Committee is comprised of seven individuals, consisting of two classes, the “UAW Class” with three members, and the “Public Class” with four members. Robert Naftaly, one of the members of the Public Class, serves as the Chair of the Committee. The Public Class members of the Committee were appointed by the Court when it approved the DC VEBA Settlement Agreement. The UAW Class members were appointed by the UAW. No member of the Committee may be an affiliate of GM, including a current or former officer, director or salaried employee of GM. No member of the Public Class may be an active employee or retiree of the UAW, nor may any member of the Public Class have any financial or institutional relationship with GM or the Committee that the Committee, in its sole discretion, determines to be material. 8. The members of the UAW Class serve at the discretion of the UAW and may be removed or replaced, and a successor designated, at any time by written notice by the President of the UAW to the members of the Committee. The members of the Public Class serve terms of four years. In the event of a vacancy in the Public Class, whether by expiration of a term, resignation, removal, incapacity, death or otherwise of a Public Class member, the Public Class will elect a new member of the Public Class by majority vote of the continuing Public Class members, excluding such member vacating his or her seat. A Public Class member can be removed by the affirmative vote of any five other members of the Committee at any time. The Committee Chair serves for a term of two years, and may be removed from office. Any successor Committee Chair will be elected by a majority vote of the Committee as a whole then in office. Mitigation 9. The DC VEBA will provide Mitigation for monthly contributions by retirees to health care, deductibles, out of pocket maximums, and some co-insurance required under GM's existing plans. The initial levels of Mitigation are set forth in the DC VEBA Settlement Agreement, and may be modified later by the Committee in accordance with the terms of the Settlement Agreement and the Trust Agreement for the DC VEBA. 10. The initial Mitigation levels provide for Mitigation of monthly retiree contributions to a maximum of $10 per individual and $21 per family. Initial Mitigation limits deductibles to an annual maximum of $150 per individual subject to an aggregate $300 per family. Initial Mitigation caps out-of-pocket costs at $250 per individual per year and $500 per family per year for in network services, and $500 per individual per year and $1,000 per family per year for out of network benefits. In effect, the Mitigation provides a significant benefit to retired GM participants of the DC VEBA who would otherwise be required to make these payments out of pocket. Mitigation Process 11. The Mitigation process involves GM initially providing payment for the health care services that the DC VEBA or the participants would otherwise be responsible for paying and then being reimbursed for the cost by the DC VEBA. The process operates as follows: No later than May 1 of the year prior to the year for which Mitigation is to be provided, the Committee will inform GM of the Mitigation levels for the following year. By September 1 of the prior year, GM will provide a preliminary estimate of the Mitigation amount and the basis for such estimate, along with supporting documentation to the Committee. The Committee then has until October 15 to notify GM that it agrees to the Mitigation level. In January of the following year, GM must provide the Committee with a preliminary estimate of monthly amounts owed by the DC VEBA for the year, which amounts will be paid monthly to GM, unless disputed by the Committee. After the OPEB valuation in January, but no later than February 1 of the Mitigation year, GM must provide a final estimated annual Mitigation amount for the Mitigation year, along with the basis for the estimate and supporting documentation. If this final estimate differs from the preliminary estimate by more than 5%, GM will update the monthly installment amounts. By September 1 of each Mitigation year, GM will provide the Committee with a report prepared by its actuaries containing the actual annual Mitigation amount paid by GM in the prior year, and the amount of any true up for the prior year. The prior year actual Mitigation will be developed consistent with the OPEB valuation process, and will represent incurred claims data with actuarially developed completion factors. Actual incurred claims and Mitigation will then be calculated. Any true up amounts owed to either party will be paid by October 1 of the year following the year in which Mitigation took place. If there is a dispute as to the amount of the true up payment, undisputed amounts will be paid and the parties will enter into a dispute procedure set forth in the DC VEBA Settlement Agreement involving independent parties, including outside auditors retained by the Committee along with an administrative company this is partially owned by the DC VEBA. Such information will be made available to GM. Interest for any late payments or any underpayments will be paid at the OPEB discount rate. 2 The interest rate will run from the beginning of the year being trued up. 3 In addition, GM is required to provide detailed quarterly reports to the Committee concerning the Mitigation process. 2 The OPEB Discount Rate is a rate used to discount projected future OPEB benefits payment cash flows to determine the present value of the OPEB obligation. The OPEB discount rate is established as of the annual valuation date, pursuant to FASB accounting guidelines. 3 Because interest is calculated at the beginning of the year, the principal on which the January interest is calculated would be 1/12 of the total true up for the year, for February, it would be 2/12 of the total true up for the year, for March, it would be 3/12 of the total true up for the year, until December, the last month of the year, where the time period fraction would be 12/12. If payment is not made by that date, interest is calculated for each additional month until payment is made based on 2/12 of the total true up amount for the year in question. The Mitigation process does not apply to dental care expenses. These costs have been handled differently. The DC VEBA Settlement Agreement contemplated that GM would continue to provide 100% of dental care to retirees until December 31, 2006 but that the costs of such dental care after the Effective Date would be paid in the form of monthly reimbursements to GM by the DC VEBA. In this regard, GM invoiced the Committee and the DC VEBA made monthly reimbursements to GM until December 31, 2006, at which time, such reimbursements ceased. Between June 30, 2006 and September 16, 2007, the DC VEBA made reimbursement payments to GM for both health care and dental expenses of approximately $355,334,463.50 and $100,258,523.56, 4 respectively. On October 1, 2007, GM made a true up payment to the DC VEBA in the amount of $17,934,072.46, plus $1,126,156.83 in interest ( *total:* $19,060,229.29). The DC VEBA has questioned GM's calculations with respect to a small portion of the actual Mitigation and if the DC VEBA prevails, GM will make an additional, small true up payment. 4 All dental reimbursements made by the DC VEBA to GM during 2007 represent GM's dental costs attributable to the period ending December 31, 2006. Funding Arrangements for the DC VEBA 12. In addition to the Mitigation process, GM is required to fund the DC VEBA. As noted above, in April 2006, GM contributed $1 billion to the DC VEBA. Also, GM is required to make cash contributions to the DC VEBA based on the increase in the notional value of eight
(8)million Shares of GM common stock. This Contribution Obligation is a means of measuring the amount GM must contribute to the DC VEBA. It is not a contract right that has been transferred to the DC VEBA. The contributions are staged over time, as determined by the Committee, and are based on the increase in trading price of a GM Share over the trading price on October 14, 2005 (or $26.75 per Share). The Contribution Obligation will ultimately be settled only in cash by its termination date in 2011. The Contribution Obligation will not carry voting or dividend rights and it is not transferable. Further, the Contribution Obligation will be adjusted upon the occurrence of certain “dilution events.” 5 Finally, the amount of cash payments under the Contribution Obligation will be readily determinable pursuant to a fixed formula. Therefore, no independent valuation will be required. The actual calculation will be made by the Committee. 5 A dilution event is any merger, reorganization, consolidation, exchange offer, asset spin-off, stock split, reverse stock split, extraordinary dividend, or other change in GM's corporate structure on or after the Ratification Date (November 11, 2005) that dilutes any class of GM stock. Administrative Exemptive Relief 13. *GM requests an administrative exemption from the Department with respect to:*
(a)Monthly cash advances to GM by the DC VEBA to reimburse GM for the estimated Mitigation of certain health care expenses and for the payment of dental expenses incurred by participants in the DC VEBA; and
(b)an annual “true up” of the Mitigation payments and dental expenses. In this regard, if GM has been underpaid by the DC VEBA, it would receive the balance outstanding from the DC VEBA, with interest. Conversely, if the DC VEBA has overpaid GM, GM would reimburse the DC VEBA for the amount overpaid, with interest. GM explains, and the Department concurs with GM's analysis, that the Mitigation and the payments made for dental expenses would violate sections 406(a)(1)(B), 406(a)(1)(D), and 406(b) of the Act because the reimbursements with interest could be deemed to constitute the lending of money or extension of credit between the DC VEBA and GM, a party in interest, in violation of section 406(a)(1)(B) of the Act, or could be viewed as the use by or for the benefit of a party in interest of plan assets in violation of section 406(a)(1)(D). In addition, the covered transactions would result in a prohibited act of self-dealing on the part of GM in violation of section 406(b)(1) and (b)(2) of the Act. If granted, the exemption would be effective as of December 16, 2005. The Department is not providing exemptive relief herein with respect to the Contribution Obligation because, in the view of the Department, the Contribution Obligation is merely a contractual provision evidenced in the DC VEBA Settlement Agreement which is designed to determine the amount of additional cash contributions that must be made to the DC VEBA. 6 6 The Department further believes that the Contribution obligation is not an ``employer security'' within the meaning of section 407(d)(1) of the Act. Since it appears that the Contribution Obligation does not result in the acquisition or holding by the DC VEBA of an ``employer security,'' the Department has not proposed separate exemptive relief herein with respect to such obligation. Rationale for Exemptive Relief 14. Without an administrative exemption, GM states that the DC VEBA would be required to establish a costly administrative scheme to reimburse participants in the DC VEBA. In this regard, GM retirees' would be charged the full costs of the contributions, co-pays and deductibles. These retirees would then have to apply for reimbursement payments, via a claim form, from the DC VEBA. 7 7 For example, the DC VEBA would need to have claims examiners ready to receive this claim, review it, request additional information if necessary, and finally pay the retiree the money (probably through a paper check). If the same retiree had additional medical services later in the year, more claims would be sent to the DC VEBA for additional reimbursement. In addition to claim examiners, the DC VEBA would need to have customer service representatives ready to answer questions regarding retiree claim submissions, filing deadlines, missing documentation or lost checks. The financial benefit of the Mitigation would be received by the retiree only if he or she filed a proper claim for reimbursement and would be delayed pending completion of the claim submission process. 15. Under the Mitigation process, the hourly medical carriers set up their claim systems to administer claims using the net value (after the DC VEBA offset) for all cost sharing elements of the Modified Plan, as applicable to retirees, and receive payment through the system set up for the Mitigation process. 8 8 For example, assume that a retiree's first medical service of the year had an associated reimbursement amount of $200. Since under the Mitigation process the medical careers have set up a $150 deductible in their claims system, and since the reimbursement associated with this medical service is $50 more than the deductible, GM would pay $50 (ignoring, for purposes of this example, the 10% co-payment applicable after the deductible) for this service, and the retiree would be required to pay the provider the remaining $150 owed. In this example, since the retiree payment of $150 equals the net deductible of $150, the DC VEBA does not owe the retiree anything related to this medical service. Nevertheless, since GM paid the incremental $50 owed for this service, the DC VEBA owes GM the incremental $50. Thus, there is no need for the DC VEBA to hire claims examiners or customer service representatives, as under the other alternative. The selected approach will reduce the administrative cost of providing reimbursement by the DC VEBA since the DC VEBA will only have to deal with GM to pay its health care reimbursement, instead of dealing directly with hundreds of thousands of retirees. The Mitigation process also makes it much more likely that Mitigation of all appropriate amounts will take place because it reduces the possibility that individual retirees will fail to file for reimbursement, fail to document legitimate health care expenses (due to lost paperwork, untimely filing, lost mail, etc.), or can not mentally or physically follow the administrative steps necessary to receive reimbursement directly from the DC VEBA. 16. Records relating to participants and beneficiaries will be retained by GM, its contractor, or Blue Cross Blue Shield Michigan (BCBSM). GM's contractor will reprocess, on an unmitigated basis, the claims that BCBSM processed on a mitigated basis on behalf of GM, and then GM or its contractor will determine the true up amount. Outside auditors retained by the Committee will audit the calculation and make their findings available to GM. However, all of the records will be maintained at GM, BCBSM or GM's contractor. Termination of the DC VEBA 17. Ultimately, the DC VEBA will be terminated and its assets transferred to a new VEBA (the New VEBA). However, several steps will occur before this happens. Currently, these steps are described in a Memorandum of Understanding on Post-Retirement Medical Care, agreed to by GM and the UAW (MOU, September 26, 2007) as part of recent collective bargaining that culminated in a new, 4-year national labor agreement. 9 The covered group (the Covered Group) under the new retiree health care plan and funded by the New VEBA will consist of
(a)all class members from the *Henry* case;
(b)all future retirees, as defined in the *Henry* settlement who are retired as of September 14, 2007;
(c)all active GM UAW-represented employees who are on the rolls and have attained seniority as of September 14, 2007 and who retire with eligibility for Retiree Medical Benefits pursuant to the eligibility provisions of the 2003 GM-UAW National Agreement;
(d)certain Delphi UAW retirees and active employees eligible to receive retiree medical benefits from GM; and
(e)certain UAW retirees and active employees of other GM closed or divested operations who are eligible to receive retiree medical benefits from GM; as well as
(f)eligible surviving spouses and dependents of those in the Covered Group. 9 Eventually, the terms of the MOU will be embodied in a settlement agreement for the New VEBA (the new VEBA Settlement Agreement). In the negotiations leading to the MOU, GM advised the UAW of its intent to terminate the DC VEBA Settlement Agreement in accordance with its terms in 2011 and exercise its right to terminate or modify retiree health coverage for all UAW retirees and their dependents, and the UAW reasserted its position that post-retirement medical coverage for current UAW retirees is vested and unalterable. 18. The MOU defines the “Implementation Date” (the beginning of coverage and operations) for the New VEBA. It is the later of January 1, 2010, or the date on which any appeals from, or challenges to, an order of the Michigan District Court approving settlement on a class-wide basis applicable to the Covered Group of any litigation arising over the terms of the MOU and the final settlement documentation, have been exhausted or when applicable periods during which such appeal or challenge must be brought have expired; if
(a)the Approval Order has not been disapproved or modified, and
(b)GM is reasonably satisfied by its discussions with the staff from the U.S. Securities and Exchange Commission that the desired accounting treatment with regard to OPEB will be obtained. 19. With regard to the DC VEBA, the MOU states that the New VEBA Settlement Agreement 10 will provide that the Approval Order will require that:
(a)The DC VEBA Committee shall amend the DC VEBA to permit the transfer of its assets to, and the assumption of its liabilities by, the New VEBA;
(b)the Committee shall instruct the DC VEBA Trustee to transfer the entire balance of its assets to the New VEBA; and
(c)the DC VEBA be terminated after its assets are transferred to the New VEBA. It also states that the Approval Order will provide that on the Implementation Date the New VEBA shall assume all GM responsibilities and liabilities for the provision of retiree medical benefits for the Covered Group for claims incurred on or after the Implementation Date, as well as all responsibilities and liabilities of the DC VEBA on that Date. Thus, GM's obligations under the DC VEBA Settlement Agreement will cease on the Implementation Date (although there may be one or more subsequent true ups). In addition, if the Implementation Date occurs before the date on which the “Third Contribution” is due to be made to the DC VEBA, the MOU provides that GM shall make that contribution to the New VEBA. Finally, the MOU provides that it is subject to satisfaction of several conditions 11 and shall terminate if those conditions are not satisfied by December 31, 2011 (or such later date as GM and the UAW may agree upon). 10 On October 26, 2007, the UAW and the *Henry* class filed a new class action (E.D. Mich. 2:07-cv-14074-RHC-VMM), in the Michigan District Court challenging GM's assertion that it will be free to terminate retiree health coverage for UAW retirees, at the latest, on and after September 14, 2011. In a Scheduling Order dated November 21, 2007, Judge Cleland scheduled a status call for January 31, 2008, the filing of a motion for provisional class certification by February 11, 2008, and a fairness hearing on a proposed settlement for June 3, 2008. 11 Chief among these conditions are that:
(a)The Approval Order has been issued and the time for an appeal from or a challenge to the Approval Order has expired; and
(b)GM is reasonably satisfied that it will obtain favorable accounting treatment on the OPEB issue. 20. In summary, GM represents that the transactions have satisfied and will continue to satisfy the statutory criteria for an exemption under section 408(a) of the Act because:
(a)The Committee has represented and will continue to represent the DC VEBA and its participants and beneficiaries for all purposes with respect to the Mitigation.
(b)The Committee for the DC VEBA has discharged and will continue to discharge its duties consistent with the terms of the DC VEBA and the DC VEBA Settlement Agreement.
(c)The Committee and actuaries retained by the Committee have reviewed and approved and will continue to review and approve the estimation process involved in the Mitigation, which results in the monthly Mitigation amount paid to GM.
(d)Outside auditors retained by the Committee, along with an administrative company that is partly owned by the DC VEBA, will audit the calculation of the true up to determine whether there is any difference between the estimated Mitigation and actual Mitigation amounts and make such information available to GM.
(e)GM has provided and will continue to provide various reports and records to the Committee concerning the Mitigation and dental care reimbursements, which are and will continue to be subject to review and audit by the Committee.
(f)The terms of the transactions have been no less favorable and will continue to be no less favorable to the DC VEBA than the terms negotiated at arm's length under similar circumstances between unrelated third parties.
(g)The interest rate applied to any true up payments will be a reasonable rate that runs from the beginning of the year being trued up and does not or will not present a windfall or detriment to either party.
(h)The DC VEBA has not incurred and will continue not to incur any fees, costs or other charges (other than those described in the DC VEBA and the DC VEBA Settlement Agreement) as a result of the transactions.
(i)GM and the Committee have maintained and will continue to maintain for a period of six years from the date of any of the covered transactions, the records necessary to enable certain persons, such as the UAW, DC VEBA participants, GM or any authorized employee or representative of the Department, to determine whether the terms and conditions of this exemption have been met. Notice To Interested Persons GM will provide notice of the proposed exemption to interested persons within 30 days of the publication of the notice of proposed exemption in the **Federal Register** . Such notice will be provided to interested persons by first-class mail and will include a copy of the notice of proposed exemption as published in the **Federal Register** as well as a supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2). The supplemental statement will inform interested persons of their right to comment on and/or to request a hearing. Comments and requests for a hearing with respect to the proposed exemption are due within 60 days of the publication of this pendency notice in the **Federal Register** . If you decide to submit written comments to the Department, your comments should be limited to the transactions described in the exemption proposed by the Department. However, if you have concerns about benefits or any other matter, you should contact the appropriate office at GM for further assistance. FOR FURTHER INFORMATION CONTACT: Mrs. Blessed Chuksorji-Keefe of the Department by E-mail at *GM-DCVEBA@dol.gov* or at telephone number
(202)693-8553. (This is not a toll-free number.) General Information *The attention of interested persons is directed to the following:*
(1)The fact that a transaction is the subject of an exemption under section 408(a) of the Act and/or section 4975(c)(2) of the Code does not relieve a fiduciary or other party in interest or disqualified person from certain other provisions of the Act and/or the Code, including any prohibited transaction provisions to which the exemption does not apply and the general fiduciary responsibility provisions of section 404 of the Act, which, among other things, require a fiduciary to discharge his duties respecting the plan solely in the interest of the participants and beneficiaries of the plan and in a prudent fashion in accordance with section 404(a)(1)(b) of the Act; nor does it affect the requirement of section 401(a) of the Code that the plan must operate for the exclusive benefit of the employees of the employer maintaining the plan and their beneficiaries;
(2)Before an exemption may be granted under section 408(a) of the Act and/or section 4975(c)(2) of the Code, the Department must find that the exemption is administratively feasible, in the interests of the plan and of its participants and beneficiaries, and protective of the rights of participants and beneficiaries of the plan;
(3)The proposed exemption, if granted, will be supplemental to, and not in derogation of, any other provisions of the Act and/or the Code, including statutory or administrative exemptions and transitional rules. Furthermore, the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of whether the transaction is in fact a prohibited transaction; and
(4)The proposed exemption, if granted, will be subject to the express condition that the material facts and representations contained in each application are true and complete, and that each application accurately describes all material terms of the transaction which is the subject of the exemption. Signed at Washington, DC, this 16th day of July, 2008. Ivan Strasfeld, Director of Exemption Determinations, Employee Benefits Security Administration, U.S. Department Of Labor. [FR Doc. E8-16713 Filed 7-22-08; 8:45 am] BILLING CODE 4510-29-P NUCLEAR REGULATORY COMMISSION Southern Nuclear Operating Company, Inc., Georgia Power Company, Oglethorpe Power Corporation, Municipal Electric Authority of Georgia; City of Dalton, GA [Docket Nos. 50-321 and 50-366 ] Notice of Consideration of Issuance of Amendment To Facility Operating License, Proposed No Significant Hazards Consideration Determination, and Opportunity for a Hearing The U.S. Nuclear Regulatory Commission (the Commission) is considering issuance of an amendment to Facility Operating License Nos. DPR-57 and NPF-5 issued to the licensee for operation of the Edwin I. Hatch Nuclear Plant, Unit Nos. 1 and 2,
(HNP)located in Appling County, Georgia. The proposed amendment includes two actions, as follows. First, the proposed amendment would respond to existing license condition 2.C(8), “Design Bases Accident Radiological Consequences Analyses,” by revising the licensing and design basis, including the Technical Specifications (TS), for four design basis accidents (DBAs): the loss-of-coolant, main steamline break, control rod drop and fuel handling accidents. The radiological consequences of these DBAs are reanalyzed using an alternative source term
(AST)methodology, pursuant to Title 10 of the *Code of Federal Regulations,* Section 50.67, “Accident Source Term,” (10 CFR 50.67) and allowing credit in the analyses for the function of certain systems such as the turbine building ventilation system, standby liquid control system, the main steam isolation valve alternate leakage treatment
(ALT)path, and residual heat removal drywell spray system. The licensee states that the AST analyses include determination of the on-site radiological doses, specifically the main control room, technical support center and off-site radiological doses resulting from the DBA analyses. The licensee states that the analyses demonstrate that, using AST methodologies, the post-accident onsite and offsite doses remain within regulatory acceptance limits. Notice of this action was previously published in the **Federal Register** on May 6, 2008 (73 FR 25046). This renoticing of this action is provided to include further supplements to the licensee's August 29, 2006 application, that are dated April 1, May 5, June 25 and July 14, 2008, that were submitted subsequent to the **Federal Register** Notice of May 6, 2008. This renotice replaces and supersedes the **Federal Register** Notice of May 6, 2008, in its entirety. The second action would be modification of license condition 2.C(8) to extend the implementation date of May 31, 2010 until May 31, 2012 for HNP unit 1 and until May 31, 2011 for HNP unit 2, as discussed in the licensee's letter of July 2, 2008. Before issuance of the proposed license amendment, the Commission will have made findings required by the Atomic Energy Act of 1954, as amended (the Act), and the Commission's regulations. The Commission has made a proposed determination that the amendment request involves no significant hazards consideration. Under the Commission's regulations in Title 10 of the CODE OF FEDERAL REGULATIONS (10 CFR), Section 50.92, this means that operation of the facility in accordance with the proposed amendment would not
(1)involve a significant increase in the probability or consequences of an accident previously evaluated; or
(2)create the possibility of a new or different kind of accident from any accident previously evaluated; or
(3)involve a significant reduction in a margin of safety. Based on the following information as provided in the licensee's submittals for the first action identified above, the Nuclear Regulatory Commission
(NRC)staff proposes to determine the following with respect to the three criteria above: 1. Does the proposed change involve a significant increase in the probability or consequences of an accident previously evaluated? Adoption of the AST methodology and allowing credit in the accident analyses for those plant systems affected by implementing AST are not expected to initiate DBAs. The revised accident source term is an input to the radiological consequence analyses. The implementation of the AST and changed TS have been incorporated in the analyses for the limiting DBAs at HNP. The structures, systems, and components affected by the proposed change are mitigative in nature and would be relied upon after an accident has been initiated. Based on the revised analyses, the proposed changes to the TS (including revised leakage limits) impose certain performance criteria on existing systems that do not increase accident initiation probability. The proposed changes do not involve a revision to the parameters or conditions that could contribute to the initiation of a DBA as discussed in Chapter 15 of the Unit 2 Final Safety Analysis Report. Therefore, the proposed change does not result in an increase in the probability of an accident previously identified. Plant specific AST radiological analyses have been performed and, based on the results of these analyses, the licensee has demonstrated that the dose consequences of the limiting events considered in the analyses are within the regulatory guidance provided by the NRC for use with the AST as provided in 10 CFR 50.67, Regulatory Guide 1.183, Alternative Radiological Source Terms for Evaluating Design Basis Accidents at Nuclear Power Reactors (ML003716792) and Standard Review Plan, Section 15.0.1. Therefore, the proposed changes do not result in a significant increase in the consequences of an accident previously evaluated. 2. Does the proposed change create the possibility of a new or different kind of accident from any previously evaluated? The use of AST methodology and the implementation of limited changes to structures, systems or components
(SSC)to support that methodology, does not alter or involve any design basis accident initiators. No major SSCs are added to or removed from the HNP design. The limited changes in the design of existing SSCs needed to enable crediting their function in currently postulated DBAs and the addition of further TS are intended to enhance the assurance that these SSCs will perform their mitigative function in the event of a DBA. Since the operation of the SSCs will not be significantly changed after the AST implementation, no new failure modes are created by this proposed change. Therefore, the proposed change does not create the possibility of a new or different kind of accident from any previously evaluated. 3. Does the proposed change involve a significant decrease in the margin of safety? The principal changes in the licensing and design bases for this amendment are associated with demonstrating that the radiological consequences of DBAs meet applicable NRC regulatory criteria, as discussed in criterion 1 above. The licensee states that the analyzed events have been carefully selected, and the analyses supporting these changes have been performed using approved methodologies and conservative inputs to ensure that analyzed events are bounding and safety margin has been retained. The licensee also states that the dose consequences of these limiting events are within the acceptance criteria presented in 10 CFR 50.67, Regulatory Guide 1.183, and Standard Review Plan 15.0.1 and that, because the proposed changes continue to result in dose consequences within the applicable regulatory limits, the changes are considered to not result in a significant reduction in the margin of safety. As required by 10 CFR 50.91(a), for the second issue identified above, the licensee has provided, in its letter dated July 2, 2008, its analysis of the issue of no significant hazards consideration, which is presented below: 1. Does the proposed change involve a significant increase in the probability or consequences of an accident previously evaluated? This proposed change will authorize SNC to credit [potassium iodide] KI for an extended period in the DBA radiological consequences analyses to address the impact of [main control room] MCR unfiltered inleakage. This proposed change does not result in any functional or operational change to any systems, structures, or components and has no impact on any assumed initiator of any analyzed accident. Therefore, the proposed change does not result in an increase in the probability of an accident previously evaluated. This proposed change does not introduce any additional method of mitigating the thyroid dose to MCR occupants in the event of a loss-of-coolant accident
(LOCA)since the existing license condition has already introduced this method as part of the licensing basis for an interim period of time. The updated LOCA MCR radiological dose, considering 110 [cubic feet per minute] cfm unfiltered inleakage and crediting KI, continues to meet GDC 19 acceptance limits. In the context of the current licensing basis with MCR unfiltered inleakage considered, LOCA continues to be the limiting event for radiological exposures to the operators in the MCR. Radiological doses to MCR occupants are within the regulatory limits of GDC 19 with MCR unfiltered inleakage up to 1000 cfm without the crediting of KI for the main steam line break accident (MSLB), control rod drop accident (CRDA), and fuel handling accident (FHA). Therefore, the proposed change does not result in a significant increase in the consequences of an accident previously evaluated. 2. Does the proposed change create the possibility of a new or different kind of accident from any previously evaluated? This proposed change will authorize SNC to credit KI for an extended period in the DBA radiological consequences analyses to address the impact of MCR unfiltered inleakage. This proposed change does not result in any functional or operational change to any systems, structures, or components. Therefore, the proposed change does not create the possibility of a new or different kind of accident from any previously evaluated. 3. Does the proposed change involve a significant decrease in the margin of safety? This proposed change will authorize SNC to credit KI for an extended period in the DBA radiological consequences analyses to address the impact of MCR unfiltered inleakage. This proposed change does not result in any functional or operational change to any systems, structures, or components. This proposed change extends the use of an additional method of mitigating the thyroid dose to MCR occupants in the event of a LOCA until May 31, 2012. The updated LOCA MCR radiological dose, considering 110 cfm unfiltered inleakage and crediting KI, continues to meet GDC 19 acceptance limits. In the context of the current licensing basis with MCR unfiltered inleakage considered, LOCA continues to be the limiting event for radiological exposures to the operators in the MCR. Radiological doses to MCR occupants are within the regulatory limits of GDC 19 with MCR unfiltered inleakage of up to 1000 cfm without the crediting of KI for the main steam line break accident (MSLB), control rod drop accident (CRDA), and fuel handling accident (FHA). Therefore, the proposed change does not involve a significant decrease in the margin of safety. The NRC staff finds that, on the basis discussed above, it appears that the three standards of 10 CFR 50.92(c) are satisfied. Therefore, the NRC staff proposes to determine that the amendment request involves no significant hazards consideration. The Commission is seeking public comments on this proposed determination. Any comments received within 30 days after the date of publication of this notice will be considered in making any final determination. Normally, the Commission will not issue the amendment until the expiration of 60 days after the date of publication of this notice. The Commission may issue the license amendment before expiration of the 60-day period provided that its final determination is that the amendment involves no significant hazards consideration. In addition, the Commission may issue the amendment prior to the expiration of the 30-day comment period should circumstances change during the 30-day comment period such that failure to act in a timely way would result, for example, in derating or shutdown of the facility. Should the Commission take action prior to the expiration of either the comment period or the notice period, it will publish in the **Federal Register** a notice of issuance. Should the Commission make a final No Significant Hazards Consideration Determination, any hearing will take place after issuance. The Commission expects that the need to take this action will occur very infrequently. Written comments may be submitted by mail to the Chief, Rulemaking, Directives and Editing Branch, Division of Administrative Services, Office of Administration, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, and should cite the publication date and page number of this **Federal Register** notice. Written comments may also be delivered to Room 6D59, Two White Flint North, 11545 Rockville Pike, Rockville, Maryland, from 7:30 a.m. to 4:15 p.m. Federal workdays. Documents may be examined, and/or copied for a fee, at the NRC's Public Document Room (PDR), located at One White Flint North, Public File Area O1 F21, 11555 Rockville Pike (first floor), Rockville, Maryland. The filing of requests for hearing and petitions for leave to intervene is discussed below. Within 60 days after the date of publication of this notice, the person(s) may file a request for a hearing with respect to issuance of the amendment to the subject facility operating license and any person(s) whose interest may be affected by this proceeding and who wishes to participate as a party in the proceeding must file a written request via electronic submission through the NRC E-filing system for a hearing and a petition for leave to intervene. Requests for a hearing and a petition for leave to intervene shall be filed in accordance with the Commission's “Rules of Practice for Domestic Licensing Proceedings” in 10 CFR Part 2. Interested person(s) should consult a current copy of 10 CFR 2.309, which is available at the Commission's PDR, located at One White Flint North, Public File Area O1F21, 11555 Rockville Pike (first floor), Rockville, Maryland. Publicly available records will be accessible from the Agencywide Documents Access and Management System's (ADAMS) Public Electronic Reading Room on the Internet at the NRC Web site, *http://www.nrc.gov/reading-rm/doc-collections/cfr/.* If a request for a hearing or petition for leave to intervene is filed by the above date, the Commission or a presiding officer designated by the Commission or by the Chief Administrative Judge of the Atomic Safety and Licensing Board Panel, will rule on the request and/or petition; and the Secretary or the Chief Administrative Judge of the Atomic Safety and Licensing Board will issue a notice of a hearing or an appropriate order. As required by 10 CFR 2.309, a petition for leave to intervene shall set forth with particularity the interest of the petitioner in the proceeding, and how that interest may be affected by the results of the proceeding. The petition should specifically explain the reasons why intervention should be permitted, with particular reference to the following general requirements:
(1)The name, address and telephone number of the requestor or petitioner;
(2)the nature of the requestor's/petitioner's right under the Act to be made a party to the proceeding;
(3)the nature and extent of the requestor's/petitioner's property, financial, or other interest in the proceeding; and
(4)the possible effect of any decision or order which may be entered in the proceeding on the requestor's/petitioner's interest. The petition must also identify the specific contentions which the petitioner/requestor seeks to have litigated at the proceeding. Each contention must consist of a specific statement of the issue of law or fact to be raised or controverted. In addition, the petitioner/requestor shall provide a brief explanation of the bases for the contention and a concise statement of the alleged facts or expert opinion which support the contention and on which the petitioner intends to rely in proving the contention at the hearing. The petitioner/requestor must also provide references to those specific sources and documents of which the petitioner is aware and on which the petitioner intends to rely to establish those facts or expert opinion. The petition must include sufficient information to show that a genuine dispute exists with the applicant on a material issue of law or fact. Contentions shall be limited to matters within the scope of the amendment under consideration. The contention must be one which, if proven, would entitle the petitioner to relief. A petitioner/requestor who fails to satisfy these requirements with respect to at least one contention will not be permitted to participate as a party. Those permitted to intervene become parties to the proceeding, subject to any limitations in the order granting leave to intervene, and have the opportunity to participate fully in the conduct of the hearing. If a hearing is requested, the Commission will make a final determination on the issue of no significant hazards consideration. The final determination will serve to decide when the hearing is held. If the final determination is that the amendment request involves no significant hazards consideration, the Commission may issue the amendment and make it immediately effective, notwithstanding the request for a hearing. Any hearing held would take place after issuance of the amendment. If the final determination is that the amendment request involves a significant hazards consideration, any hearing held would take place before the issuance of any amendment. A request for hearing or a petition for leave to intervene must be filed in accordance with the NRC E-Filing rule, which the NRC promulgated on August 28, 2007 (72 FR 49139). The E-Filing process requires participants to submit and serve documents over the internet or in some cases to mail copies on electronic storage media. Participants may not submit paper copies of their filings unless they seek a waiver in accordance with the procedures described below. To comply with the procedural requirements of E-Filing, at least ten
(10)days prior to the filing deadline, the petitioner/ requestor must contact the Office of the Secretary by e-mail at *HEARINGDOCKET@NRC.GOV,* or by calling
(301)415-1677, to request
(1)a digital ID certificate, which allows the participant (or its counsel or representative) to digitally sign documents and access the E-Submittal server for any proceeding in which it is participating; and/or
(2)creation of an electronic docket for the proceeding (even in instances in which the petitioner/requestor (or its counsel or representative) already holds an NRC-issued digital ID certificate). Each petitioner/requestor will need to download the Workplace Forms Viewer TM to access the Electronic Information Exchange (EIE), a component of the E-Filing system. The Workplace Forms Viewer TM is free and is available at *http://www.nrc.gov/site-help/e-submittals/install-viewer.html.* Information about applying for a digital ID certificate is available on NRC's public Web site at *http://www.nrc.gov/site-help/e-submittals/apply-certificates.html.* Once a petitioner/requestor has obtained a digital ID certificate, had a docket created, and downloaded the EIE viewer, it can then submit a request for hearing or petition for leave to intervene. Submissions should be in Portable Document Format
(PDF)in accordance with NRC guidance available on the NRC public Web site at *http://www.nrc.gov/site-help/e-submittals.html.* A filing is considered complete at the time the filer submits its documents through EIE. To be timely, an electronic filing must be submitted to the EIE system no later than 11:59 p.m. Eastern Time on the due date. Upon receipt of a transmission, the E-Filing system time-stamps the document and sends the submitter an e-mail notice confirming receipt of the document. The EIE system also distributes an e-mail notice that provides access to the document to the NRC Office of the General Counsel and any others who have advised the Office of the Secretary that they wish to participate in the proceeding, so that the filer need not serve the documents on those participants separately. Therefore, applicants and other participants (or their counsel or representative) must apply for and receive a digital ID certificate before a hearing request/petition to intervene is filed so that they can obtain access to the document via the E-Filing system. A person filing electronically may seek assistance through the “Contact Us” link located on the NRC Web site at *http://www.nrc.gov/site-help/e-submittals.html* or by calling the NRC technical help line, which is available between 8:30 a.m. and 4:15 p.m., Eastern Time, Monday through Friday. The help line number is
(800)397-4209 or locally,
(301)415-4737. Participants who believe that they have a good cause for not submitting documents electronically must file a motion, in accordance with 10 CFR 2.302(g), with their initial paper filing requesting authorization to continue to submit documents in paper format. Such filings must be submitted by:
(1)First class mail addressed to the Office of the Secretary of the Commission, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Attention: Rulemaking and Adjudications Staff; or
(2)courier, express mail, or expedited delivery service to the Office of the Secretary, Sixteenth Floor, One White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852, Attention: Rulemaking and Adjudications Staff. Participants filing a document in this manner are responsible for serving the document on all other participants. Filing is considered complete by first-class mail as of the time of deposit in the mail, or by courier, express mail, or expedited delivery service upon depositing the document with the provider of the service. Non-timely requests and/or petitions and contentions will not be entertained absent a determination by the Commission, the presiding officer, or the Atomic Safety and Licensing Board that the petition and/or request should be granted and/or the contentions should be admitted, based on a balancing of the factors specified in 10 CFR 2.309(c)(1)(i)-(viii). To be timely, filings must be submitted no later than 11:59 p.m. Eastern Time on the due date. Documents submitted in adjudicatory proceedings will appear in NRC's electronic hearing docket which is available to the public at *http://www.ehd.nrc.gov/EHD_Proceeding/home.asp* , unless excluded pursuant to an order of the Commission, an Atomic Safety and Licensing Board, or a Presiding Officer. Participants are requested not to include personal privacy information, such as social security numbers, home addresses, or home phone numbers in their filings. With respect to copyrighted works, except for limited excerpts that serve the purpose of the adjudicatory filings and would constitute a Fair Use application, Participants are requested not to include copyrighted materials in their submissions. For further details with respect to this license amendment application, see the application for amendment dated August 29, 2006, as supplemented November 6, November 27, 2006, January 30, June 22, July 16, August 13, October 18, December 11, 2007, January 24, February 4, February 25 (two letters, nos. 1389 and 0175), February 27, March 13, April 1, May 5, June 25, July 2, and July 14, 2008, which is available for public inspection at the Commission's PDR, located at One White Flint North, File Public Area O1 F21, 11555 Rockville Pike (first floor), Rockville, Maryland. Publicly available records will be accessible electronically from the Agencywide Documents Access and Management System's (ADAMS) Public Electronic Reading Room on the Internet at the NRC Web site, *http://www.nrc.gov/reading-rm/adams.html* . Persons who do not have access to ADAMS or who encounter problems in accessing the documents located in ADAMS, should contact the NRC PDR Reference staff by telephone at 1-800-397-4209, 301-415-4737, or by e-mail to *pdr@nrc.gov.* Dated at Rockville, Maryland, this 14th day of July 2008. For the Nuclear Regulatory Commission. R. E. Martin, Senior Project Manager, Plant Licensing Branch II-1, Division of Operating Reactor Licensing, Office of Nuclear Reactor Regulation. [FR Doc. E8-16908 Filed 7-22-08; 8:45 am] BILLING CODE 7590-01-P POSTAL SERVICE Board of Governors; Sunshine Act Meeting Time and Date: 5 p.m., Monday, July 28; and 8:30 a.m., Tuesday, July 29, 2008. Place: Washington, DC, at U.S. Postal Service Headquarters, 475 L'Enfant Plaza, SW. Status: Closed. Matters To Be Considered Monday, July 28 at 5 p.m. (Closed) 1. Financial Update. 2. Strategic Issues. 3. Financial Outlook. 4. Product Pricing. 5. Personnel Matters and Compensation Issues. 6. Governors' Executive Session—Discussion of prior agenda items and Board Governance. Tuesday, July 29 at 8:30 a.m. (Closed) 1. Continuation of Monday's closed session agenda. Contact Person for More Information: Julie S. Moore, Secretary of the Board, U.S. Postal Service, 475 L'Enfant Plaza, SW., Washington, DC 20260-1000, Telephone
(202)268-4800. Julie S. Moore, Secretary. [FR Doc. E8-16688 Filed 7-22-08; 8:45 am] BILLING CODE 7710-12-M SECURITIES AND EXCHANGE COMMISSION [Release No. 58190/July 18, 2008] Securities Exchange Act of 1934; Amendment to Emergency Order Pursuant to Section 12(K)(2) of the Securities Exchange Act of 1934 Taking Temporary Action To Respond to Market Developments Pursuant to Section 12(k)(2) of the Securities Exchange Act of 1934, 1 on July 15, 2008, the Securities and Exchange Commission (“Commission”) issued an Emergency Order (the “Order”) related to short selling securities of certain specified substantial financial firms. 2 The Order takes effect on July 21, 2008. The Commission delayed the effective date to create the opportunity to address, and to allow sufficient time for market participants to make, adjustments to their operations to implement the enhanced requirements. The anticipated operational accommodations necessary for implementation of the Order are addressed herein. 1 15 U.S.C. 78 *l* (k)(2). 2 *See* Securities Exchange Act Release No. 58166 (July 15, 2008) at *http://www.sec.gov/rules/other/2008/34-58166.pdf* A. Bona Fide Market Makers The borrow and arrangement-to-borrow requirement of the Order does not apply to certain bona fide market makers. (The settlement date delivery requirement of the Order applies to these market makers.) The purpose of this accommodation is to permit market makers to facilitate customer orders in a fast-moving market without possible delays associated with complying with the borrow and arrangement-to-borrow requirement of the Order. *It is therefore ordered that* , pursuant to our Section 12(k)(2) powers, the following entities are excepted from the requirement of the Order that any person effecting a short sale in the publicly traded securities of substantial financial firms, as identified in Appendix A to the Order (“Appendix A Securities”), 3 using the means or instrumentalities of interstate commerce, must borrow or arrange to borrow the security or otherwise have the security available to borrow in its inventory prior to effecting the short sale: Registered market makers, block positioners, or other market makers obligated to quote in the over-the-counter market, that are selling short as part of bona fide market making and hedging activities related directly to bona fide market making in:
(a)Appendix A Securities;
(b)derivative securities based on Appendix A Securities, including standardized options; and
(c)exchange traded funds of which Appendix A Securities are a component. 3 Appendix A incorrectly referenced “HSI” as a ticker symbol for HSBC Holdings PLC ADS. This reference to HSI is hereby removed from Appendix A. In addition, the reference to BNP Paribas Securities Corp. is hereby changed to BNP Paribas. *See* Appendix A attached as revised. B. Documentation Rule 203(b)(1)(iii) of Regulation SHO requires a broker or dealer to document its compliance with the “locate” requirement contained in Rule 203(b)(1)(i) of the regulation. 4 Brokers and dealers have developed processes and procedures to meet this documentation requirement. Because the borrow or arrangement-to-borrow requirement in the Order constitutes the Commission's “locate” requirement during the effectiveness of the Order, brokers and dealers need not change their processes and procedures used to document compliance. 4 Rule 203(b)(1) of Regulation SHO provides: “A broker or dealer may not accept a short sale order in an equity security from another person, or effect a short sale in an equity security for its own account, unless the broker or dealer has:
(1)Borrowed the security, or entered into a bona-fide arrangement to borrow the security; or
(2)Reasonable grounds to believe that the security can be borrowed so that it can be delivered on the date delivery is due; and
(3)Documented compliance with this paragraph (b)(1).” 17 CFR 242.203(b)(1). *It is therefore ordered* that, pursuant to our Section 12(k)(2) powers, brokers and dealers must document compliance with the borrow and arrangement-to-borrow requirement of the Order and may use the same processes and procedures to document compliance with the Order as used for compliance with Regulation SHO, provided such processes and procedures would comply with Rule 203(b)(1) of Regulation SHO. C. Sales of Restricted Securities The Order does not apply to short sales of Appendix A Securities effected pursuant to Rule 144 of the Securities Act of 1933. 5 This is consistent with Rule 203(b)(2)(ii) of Regulation SHO and will permit the orderly settlement of such sales without the risk of causing market disruption due to unnecessary purchasing activity to meet the settlement date delivery requirement of the Order. Such sales, however, remain subject to the requirements of Regulation SHO. 5 17 CFR 230.144. *It is therefore ordered* that, pursuant to our Section 12(k)(2) powers, the Order does not apply to any person that effects a short sale pursuant to Rule 144 of the Securities Act of 1933 (17 CFR 230.144) in an Appendix A Security. D. Syndicate Offerings The Order does not apply to short sales by underwriters, or members of a syndicate or group participating in distributions of Appendix A Securities in connection with an over-allotment of securities, or any lay-off sale by such person in connection with a distribution of Appendix A Securities through a rights or a standby underwriting commitment. It is not necessary for the Order to apply to such selling activity because it is addressed in Regulation M under the Securities Exchange Act of 1934, 6 an anti-manipulation rule, and does not raise the same concerns as “naked” short selling in secondary markets. 6 17 CFR 242.100 *et seq.* *It is therefore ordered* that, pursuant to our Section 12(k)(2) powers, the Order does not apply with regard to any sale by an underwriter, or any member of a syndicate or group participating in the distribution of an Appendix A Security, in connection with an over-allotment of securities, or any lay-off sale by such person in connection with a distribution of Appendix A Securities through a rights or a standby underwriting commitment. In addition, the Order does not apply with respect to a net syndicate short position created in connection with a distribution of an Appendix A Security that is part of a fail to deliver position at a registered clearing agency in Appendix A Securities if action is taken to close out the net syndicate short position no later than the 30th day after commencement of sales in the distribution. The Commission believes that these amendments are necessary in the public interest and for the protection of investors to maintain fair and orderly securities markets, and to prevent substantial disruption to securities markets. By the Commission. Florence E. Harmon, Acting Secretary. Appendix A Company Ticker symbol(s) BNP Paribas BNPQF or BNPQY. Bank of America Corporation BAC. Barclays PLC BCS. Citigroup Inc C. Credit Suisse Group CS. Daiwa Securities Group Inc DSECY. Deutsche Bank Group AG DB. Allianz SE AZ. Goldman, Sachs Group Inc GS. Royal Bank ADS RBS. HSBC Holdings PLC ADS HBC. J. P. Morgan Chase & Co JPM. Lehman Brothers Holdings Inc LEH. Merrill Lynch & Co., Inc MER. Mizuho Financial Group, Inc MFG. Morgan Stanley MS. UBS AG UBS. Freddie Mac FRE. Fannie Mae FNM. [FR Doc. E8-16863 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 28331; 812-13513] PIMCO Funds, et al. ; Notice of Application July 17, 2008. AGENCY: Securities and Exchange Commission (“Commission”). ACTION: Notice of an application under section 6(c) of the Investment Company Act of 1940 (“Act”) for an exemption from rule 12d1-2(a) under the Act. Summary of Application: Applicants request an order to permit funds of funds relying on rule 12d1-2 under the Act to invest in certain financial instruments. Applicants: PIMCO Funds, PIMCO Variable Insurance Trust (“PVIT”) (collectively, the “Trusts”), Allianz Global Investors Distributors LLC (“AGID”) and Pacific Investment Management Company LLC (“PIMCO”). Filing Dates: The application was filed on March 25, 2008, and amended on June 26, 2008. Applicants have agreed to file an amendment during the notice period, the substance of which is reflected in this notice. Hearing or Notification of Hearing: An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on August 11, 2008, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Commission's Secretary. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090; Applicants, c/o J. Stephen King, Jr., Pacific Investment Management Company LLC, 840 Newport Center Drive, Newport Beach, CA 92660. FOR FURTHER INFORMATION CONTACT: Steven I. Amchan, Attorney Adviser, at
(202)551-6826, or Marilyn Mann, Branch Chief, at
(202)551-6821 (Division of Investment Management, Office of Investment Company Regulation). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 100 F Street, NE., Washington, DC 20549-1520 (telephone
(202)551-5850). Applicants' Representations 1. PIMCO Funds is organized as a Massachusetts business trust and PVIT is organized as a Delaware statutory trust. The Trusts are registered under the Act as open-end management investment companies. Applicants request the exemption to the extent necessary to permit any existing or future registered open-end management investment company or series thereof advised by PIMCO or an entity controlling, controlled by, or under common control with PIMCO and which invests in other registered open-end management investment companies in reliance on section 12(d)(1)(G) of the Act, and which is also eligible to invest in securities (as defined in section 2(a)(36) of the Act) in reliance on rule 12d1-2 under the Act (together with the Trusts and their series, the “Applicant Funds”), to also invest, to the extent consistent with its investment objective, policies, strategies and limitations, in financial instruments that may not be securities within the meaning of section 2(a)(36) of the Act (“Other Investments”). 2. AGID provides distribution and marketing services for the Applicant Funds. AGID is organized as a Delaware limited liability company and is an indirect subsidiary of Allianz SE. AGID is a registered broker-dealer under the Securities Exchange Act of 1934, as amended (“Exchange Act”). PIMCO is the Trusts” investment adviser with overall responsibility for the day-to-day investment management of the Trusts and investing the assets of PIMCO Funds and PVIT. PIMCO is organized as a Delaware limited liability company and is an indirect subsidiary of Allianz SE. PIMCO is a registered investment adviser under the Investment Advisers Act of 1940. Allianz SE is a European based, multinational insurance and financial services holding company. 3. Consistent with its fiduciary obligations under the Act, each Applicant Fund's board of trustees will review the advisory fees charged by the Applicant Fund's investment adviser to ensure that they are based on services provided that are in addition to, rather than duplicative of, services provided pursuant to the advisory agreement of any investment company in which the Applicant Fund may invest. Applicants' Legal Analysis 1. Section 12(d)(1)(A) of the Act provides that no registered investment company (“acquiring company”) may acquire securities of another investment company (“acquired company”) if such securities represent more than 3% of the acquired company's outstanding voting stock or more than 5% of the acquiring company's total assets, or if such securities, together with the securities of other investment companies, represent more than 10% of the acquiring company's total assets. Section 12(d)(1)(B) of the Act provides that no registered open-end investment company may sell its securities to another investment company if the sale will cause the acquiring company to own more than 3% of the acquired company's voting stock, or cause more than 10% of the acquired company's voting stock to be owned by investment companies. 2. Section 12(d)(1)(G) of the Act provides that section 12(d)(1) will not apply to securities of an acquired company purchased by an acquiring company if:
(i)The acquiring company and acquired company are part of the same group of investment companies;
(ii)the acquiring company holds only securities of acquired companies that are part of the same group of investment companies, government securities, and short-term paper;
(iii)the aggregate sales loads and distribution-related fees of the acquiring company and the acquired company are not excessive under rules adopted pursuant to section 22(b) or section 22(c) of the Act by a securities association registered under section 15A of the Exchange Act or by the Commission; and
(iv)the acquired company has a policy that prohibits it from acquiring securities of registered open-end management investment companies or registered unit investment trusts in reliance on section 12(d)(1)(F) or
(G)of the Act. 3. Rule 12d1-2 under the Act permits a registered open-end investment company or a registered unit investment trust that relies on section 12(d)(1)(G) of the Act to acquire, in addition to securities issued by another registered investment company in the same group of investment companies, government securities, and short-term paper:
(1)Securities issued by an investment company that is not in the same group of investment companies, when the acquisition is in reliance on section 12(d)(1)(A) or 12(d)(1)(F) of the Act;
(2)securities (other than securities issued by an investment company); and
(3)securities issued by a money market fund, when the investment is in reliance on rule 12d1-1 under the Act. For the purposes of rule 12d1-2, “securities” means any security as defined in section 2(a)(36) of the Act. 4. Section 6(c) of the Act provides that the Commission may exempt any person, security, or transaction from any provision of the Act, or from any rule under the Act, if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policies and provisions of the Act. 5. Applicants state that the proposed arrangement would comply with the provisions of rule 12d1-2 under the Act, but for the fact that the Applicant Funds may invest a portion of their assets in Other Investments. Applicants request an order under section 6(c) of the Act for an exemption from rule 12d1-2(a) to allow the Applicant Funds to invest in Other Investments. Applicants assert that permitting the Applicant Funds to invest in Other Investments as described in the application would not raise any of the concerns that the requirements of section 12(d)(1) were designed to address. Applicants' Condition Applicants agree that the order granting the requested relief will be subject to the following condition: Applicants will comply with all provisions of rule 12d1-2 under the Act, except for paragraph (a)(2), to the extent that it restricts any Applicant Fund from investing in Other Investments as described in the application. For the Commission, by the Division of Investment Management, under delegated authority. Florence E. Harmon, Acting Secretary. [FR Doc. E8-16835 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94-409, that the Securities and Exchange Commission will hold a Closed Meeting on July 24, 2008 at 2 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), (8), (9)(B), and
(10)and 17 CFR 200.402(a)(3), (5), (7), (8), 9(ii) and
(10)permit consideration of the scheduled matters at the Closed Meeting. Commissioner Atkins, as duty officer, voted to consider the items listed for the Closed Meeting in closed session. The subject matter of the Closed Meeting scheduled for July 24, 2008 will be: Formal orders of investigation; Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings of an enforcement nature; Adjudicatory matters; A regulatory matter regarding a financial institution; A litigation matter; and Other matters related to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at
(202)551-5400. Dated: July 17, 2008. Florence E. Harmon, Acting Secretary. [FR Doc. E8-16762 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58172; File No. SR-ODD-2008-03] Canadian Derivatives Clearing Corporation; Order Approving Accelerated Distribution of an Amended Options Disclosure Document July 16, 2008. On July 14, 2008, the Canadian Derivatives Clearing Corporation (“CDCC”), on behalf of the Bourse de Montréal, Inc. (“Bourse de Montréal”), submitted to the Securities and Exchange Commission (“Commission”), pursuant to Rule 9b-1 under the Securities Exchange Act of 1934 (“Act”), 1 five definitive copies of an amended options disclosure document (“ODD”) that describes the risks and characteristics of options traded on the Bourse de Montréal. 2 The CDCC has revised the ODD to, among other things, reflect the CDCC's current automatic exercise parameters for equity and bond options, to update the discussion of the treatment of adjustments in the terms of equity options with respect to stock splits, stock dividends or other stock distributions, and to update the discussion of Canadian federal income tax considerations applicable to non-residents. 1 17 CFR 240.9b-1. 2 The Commission initially reviewed the ODD in 1984. *See* Securities Exchange Act Release No. 21365 (October 2, 1984), 49 FR 39400 (October 5, 1984) (File No. SR-ODD-84-1). Since then, the Commission has reviewed several amendments to the ODD. *See, e.g.* , Securities Exchange Act Release Nos. 51124 (February 2, 2005), 70 FR 6740 (February 8, 2005) (File No. SR-ODD-2004-03) (amending the ODD to reflect, among other things, the name change from the S&P/TSE 60 Index to the S&P/TSX 60 Index and to add an Annex to the ODD setting forth the holidays and early closings of the Bourse de Montréal); 44333 (May 21, 2001), 66 FR 29193 (May 29, 2001) (File No. SR-ODD-00-04) (amending the ODD to reflect, among other things, changes to the structure of the Canadian equity markets and to provide a discussion of Enhanced Capital Marketing); 37569 (August 14, 1996), 61 FR 43281 (August 21, 1996) (File No. SR-ODD-96-01) (amending the ODD to reflect, among other things, the name change from TCO to CDCC); 29033 (April 1, 1991), 56 FR 14407 (April 9, 1991) (File No. SR-ODD-91-1) (amending the ODD to include, among other things, references to Toronto Stock Exchange 35 Composite Index options); 24480 (May 19, 1987), 52 FR 20179 (May 29, 1987) (File No. SR-ODD-87-2) (amending the ODD to include, among other things, a discussion of Government of Canada Treasury Bill Price Index options); and 22349 (August 21, 1985), 50 FR 34956 (August 28, 1985) (File No. SR-ODD-85-1) (amending the ODD to include, among other things, a discussion of the risks and uses of stock index and bond options). Rule 9b-1 under the Act provides that an options market must file five preliminary copies of an amended ODD with the Commission at least 30 days prior to the date when definitive copies of the amended ODD are furnished to customers, unless the Commission determines otherwise, having due regard to the adequacy of the information disclosed and the public interest and protection of investors. 3 3 This provision is intended to permit the Commission either to accelerate or extend the time period in which definitive copies of a disclosure document may be distributed to the public. The Commission has reviewed the amended ODD and finds, having due regard to the adequacy of the information disclosed, that it is consistent with the protection of investors and in the public interest to allow the distribution of the amended ODD as of the date of this order. 4 4 Rule 9b-1 under the Act provides that the use of an ODD shall not be permitted unless the options class to which the document relates is the subject of an effective registration statement on Form S-20 under the Securities Act of 1933 or is exempt from such registration. On April 7, 2008, the Commission declared effective the CDCC's most recent Post-Effective Amendment to its Form S-20 registration statement. *See* File No. 002-69458. It is therefore ordered, pursuant to Rule 9b-1 under the Act, 5 that the distribution of the revised ODD (SR-ODD-2008-03) as of the date of this is order, is approved. 5 17 CFR 240.9b-1. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 6 6 17 CFR 200.30-3(a)(39)(i). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16761 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58171; File No. SR-CBOE-2008-31] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change To List and Trade CBOE S&P 500 Three-Month Realized Variance Options and CBOE S&P 500 Three-Month Realized Volatility Options July 16, 2008. On May 23, 2008, the Chicago Board Options Exchange, Incorporated (“Exchange” or “CBOE”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change to list and trade CBOE S&P 500 three-month realized variance options and CBOE S&P 500 three-month realized volatility options. The proposed rule change was published for comment in the **Federal Register** on June 11, 2008. 3 The Commission received no comment letters on the proposed rule change. This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 57913 (June 3, 2008), 73 FR 33128 (June 11, 2008). I. Description of the Proposed Rule Change The proposed rule change will permit the Exchange to list and trade cash-settled options having European-style exercise on two statistical measurements of market variability: realized variance and realized volatility of the S&P 500 Index. These statistical measurements are attributes of and based on a broad-based security index ( *i.e.* , S&P 500 Index). Three-month realized variance is a measure of the historical variability of the S&P 500 Index, based on actual prices that have been reported, or “realized,” historically looking back over a three-month period. The calculation uses daily returns for the three-month period relative to an average
(mean)daily price return of zero. Three-month realized volatility is the square root of three-month realized variance. The Exchange also proposed to make technical changes to some of the rules requiring amendment in order to list and trade realized variance and realized volatility options. Currently, the Exchange lists and trades options on the 30-day implied volatility of the S&P 500 Index (CBOE Volatility Index (“VIX”) options). 4 In its proposal, CBOE explained that realized variance and realized volatility options, will enable market participants to trade options that settle to the actual or realized volatility of the S&P 500 Index that has accrued over a three-month time period. CBOE further explained that realized variance and realized volatility options differ from VIX options in that they will allow market participants to take a position on what they anticipate the actual volatility of the S&P 500 Index will be at expiration. The Exchange also noted that realized variance contracts are a popular and successful product in the over-the-counter (“OTC”) market and that a listed and standardized market for realized variance and realized volatility options would attract investors who desire to trade options on realized variance and realized volatility but at the same time prefer the certainty and safeguards of a regulated and standardized marketplace. 4 The Exchange also calculates the CBOE S&P 500 Three-Month Volatility Index (“VXV”), which measures implied volatility, but the Exchange currently does not list VXV options. Calculation of Realized Variance and Realized Volatility The formula for three-month realized variance and three-month realized volatility uses continuously compounded daily returns for a three-month period assuming a mean daily price return of zero. The calculated realized variance is then annualized assuming 252 business days per year. 5 The exercise-settlement value for CBOE S&P 500 Three-Month Realized Variance options is 10,000 times the three-month realized variance of the S&P 500 Index, and the exercise-settlement value for CBOE S&P 500 Three-Month Realized Volatility options is 100 times the three-month realized volatility of the S&P 500 Index, both of which are calculated using the following standardized formula: *Realized Variance and Realized Volatility Formulas:* EN23JY08.000 Where: *R* i = ln (P i <sup>+1</sup> /P i )—Daily return of the S&P 500 Index from P i to P i <sup>+1</sup> . P i <sup>+1</sup> = The final value of the S&P 500 Index used to calculate the daily return. P i = The initial value of the S&P 500 Index used to calculate the daily return. N e = Number of expected S&P 500 Index values needed to calculate daily returns during the three-month period. The total number of daily returns expected during the three-month period is N e −1. N a = The actual number of S&P 500 Index values used to calculate daily returns during the three-month period. Generally, the actual number of S&P 500 Index values will equal the expected number of S&P 500 Index values (represented by Ne). However, if one or more “market disruption events” occurs during the three-month period, the actual number of S&P 500 Index values will be less than the expected number of S&P 500 Index values by an amount equal to the number of market disruption events that occurred during the three-month period. The total number of actual daily returns during the three-month period is N a −1. For purposes of calculating the respective exercise-settlement value to which the options will settle, realized variance and realized volatility are calculated from a series of values of the S&P 500 Index beginning with the Special Opening Quotation (“SOQ”) of the S&P 500 Index on the first day of the three-month period, and ending with the S&P 500 Index SOQ on the last day of the three-month period. 6 All other values in the series are closing values of the S&P 500 Index. 5 The annualization factor for realized volatility is the square root of 252. 6 The SOQ is calculated per normal index calculation procedures and uses the opening (first) reported sales price in the primary market of each component stock in the index on the last business day (usually a Friday) before the expiration date. If a stock in the index does not open on the day on which the exercise-settlement value is determined, the last reported sales price in the primary market is used to calculate the exercise-settlement value. CBOE noted that three-month realized variance and three-month realized volatility will be calculated using actual daily values of the S&P 500 Index, which is a broad-based security index. CBOE added that, by extension, products based on statistical measurements that are derived from S&P 500 Index values should similarly be treated as products based directly on S&P 500 Index values. CBOE represented that, for purposes of its rules, it would treat the indicative values for three-month realized variance and three-month realized volatility as indexes. CBOE represented that it calculates indicative values for implied and realized variance, and publishes those values daily after the close of trading. The CBOE S&P 500 Implied Variance indicator (“IUG”) is a measure of the market's expectation of future variance of the S&P 500 Index that is implied by the daily settlement price of the front-month CBOE S&P 500 Three-Month Variance futures contract. 7 The CBOE S&P 500 Realized Variance indicator (“RUG”) is a measure of the realized variance of the S&P 500 Index from the beginning of the three-month period to the current date. IUG and RUG are disseminated through the Options Price Reporting Authority (“OPRA”) and are publicly available through most price quote vendors. 8 7 CBOE Futures Exchange, LLC (“CFE”) currently lists CBOE S&P 500 Three-Month Realized Variance future contracts, which commenced trading on May 18, 2004. 8 These values can be accessed by typing in the ticker symbol (IUG or RUG) at the following Web page: *http://cfe.cboe.com/DelayedQuote/SSFQuote.aspx* . Options Trading Under the proposal, the exercise-settlement value for CBOE S&P 500 Three-Month Realized Variance options will be 10,000 times the three-month realized variance of the S&P 500 Index. Realized variance will be quoted in variance points and fractions and one point will equal $50. The minimum tick size for all series will be 0.10 point ($5.00) and the minimum strike price interval will be $5.00. 9 9 *See* Rules 5.5 and 24.9. The exercise-settlement value for CBOE S&P 500 Three-Month Realized Volatility options will be 100 times the three-month realized volatility of the S&P 500 Index. Realized volatility will be quoted in volatility points and fractions and one point will equal $100. The minimum tick size for series trading below 3.00 will be 0.05 point ($5.00) and the minimum tick for series trading at and above 3.00 will be 0.10 point ($10.00). The minimum strike price interval will be $1.00. The Exchange proposed to list series at $1 or greater strike price intervals on CBOE S&P 500 Three-Month Realized Volatility options. CBOE noted that traders will likely use the related CBOE S&P 500 Three-Month Variance futures contract price as a proxy for the “current index level,” because, according to CBOE, the futures contract price reflects:
(i)The realized variance of the S&P 500 Index experienced to date; and
(ii)the market's expectation of the future variance of the S&P 500 Index at expiration of the respective contract. 10 10 The Commission has approved the listing of options and LEAPS in $1 strike intervals, and the use of futures prices in setting those strike intervals, for all other implied volatility products approved for listing and trading on the Exchange. *See* Rule 24.9.01(e)(ii). *See also* Securities Exchange Act Release Nos. 54192 (July 21, 2006), 71 FR 43251 (July 31, 2006) (SR-CBOE-2006-27) ($1 strikes for VIX options); 55425 (March 8, 2007), 72 FR 12238 (March 15, 2007) (SR-CBOE-2006-73) ($1 strikes for RVX options); 56813 (November 19, 2007), 72 FR 66211 (November 27, 2007) (SR-CBOE-2007-52) ($1 strikes for VXD and VXN options and $1 strikes for RVX, VIX, VXD and VXN LEAPS). Under the proposal, the CBOE initially will list at least two strike prices above and two strike prices below the square root of the related CBOE S&P 500 Three-Month Variance futures contract price at or about the time a series is opened for trading on the Exchange. As part of this initial listing, the Exchange will list strike prices that are within 5 points from the square root of the related CBOE S&P 500 Three-Month Variance futures contract price on the preceding day. As for additional series, the Exchange will be permitted to add additional series when the Exchange deems it necessary to maintain an orderly market, to meet customer demand or when the square root of the related CBOE S&P 500 Three-Month Variance futures contract price moves substantially from the initial exercise price or prices. To the extent that any additional strike prices are listed by the Exchange, such additional strike prices shall be within thirty percent (30%) above or below the square root of the related CBOE S&P 500 Three-Month Variance futures contract price. The Exchange will also be permitted to open additional strike prices that are more than 30% above or below the square root of the related CBOE S&P 500 Three-Month Variance futures contract price, provided that demonstrated customer interest exists for such series, as expressed by institutional, corporate or individual customers or their brokers. Market-makers trading for their own account will not be considered when determining customer interest. In addition to the initial listed series, the Exchange proposed to list up to sixty
(60)additional series per expiration month for each series in CBOE S&P 500 Three-Month Realized Volatility options. Further, LEAPS on CBOE S&P 500 Three-Month Realized Volatility options will not be listed at intervals less than $1. The Exchange also proposed a delisting policy with respect to CBOE S&P 500 Three-Month Realized Volatility options. Specifically, the Exchange will, on a monthly basis, review series that are outside a range of five
(5)strikes above and five
(5)strikes below the square root of the related CBOE S&P 500 Three-Month Variance futures contract price and delist series with no open interest in both the put and the call series having a:
(i)Strike higher than the highest strike price with open interest in the put and/or call series for a given expiration month; and
(ii)strike lower than the lowest strike price with open interest in the put and/or call series for a given expiration month. Notwithstanding the proposed delisting policy, CBOE represented that it would grant customer requests to add strikes and/or maintain strikes in CBOE S&P 500 Three-Month Realized Volatility option series. The Exchange also proposed to add new Interpretation and Policy .11 to Rule 5.5, Series of Option Contracts Open for Trading, which will be an internal cross reference stating that the intervals between strike prices for CBOE S&P 500 Three-Month Realized Volatility options series will be determined in accordance with proposed new Interpretation and Policy .01(g) to Rule 24.9. Exercise and Settlement The proposed options will expire on the Saturday following the third Friday of the expiring month. Trading in the expiring contract month will normally cease at 3:15 p.m. Chicago time on the business day preceding the last day of trading (ordinarily the Thursday before expiration Saturday, unless there is an intervening holiday). When the last trading day is moved because of an Exchange holiday (such as when CBOE is closed on the Friday before expiration), the last trading day for expiring options will be Thursday. As described above, the exercise-settlement value will be calculated from a series of values of the S&P 500 Index beginning with the SOQ of the S&P 500 Index on the first day of the three-month period, and ending with the S&P 500 Index SOQ on the last day of the three-month period. All other values in the series are closing values of the S&P 500 Index. The exercise-settlement amount is equal to the difference between the exercise-settlement value and the exercise price of the option multiplied by $50 for CBOE S&P 500 Three-Month Realized Variance options and multiplied by $100 for CBOE S&P 500 Three-Month Realized Volatility options. Surveillance The Exchange represented that it would use the same surveillance procedures currently utilized for each of the Exchange's other index options to monitor trading in CBOE S&P 500 Three-Month Realized Variance options and CBOE S&P 500 Three-Month Realized Volatility options. The Exchange represents that these surveillance procedures are adequate to monitor trading in options on these option products. For surveillance purposes, the Exchange further represented that it would have complete access to information regarding trading activity in the pertinent underlying securities ( *i.e.* , S&P 500 Index component securities). Position Limits The Exchange did not propose any position limits for CBOE S&P 500 Three-Month Realized Variance options and CBOE S&P 500 Three-Month Realized Volatility options. Because realized variance and realized volatility are calculated using values of the S&P 500 Index, the Exchange argued that the position and exercise limits for these new products should be the same as those for broad-based index options ( *e.g.* , SPX, for which there are no position limits). According to CBOE, CBOE S&P 500 Three-Month Realized Variance options and CBOE S&P 500 Three-Month Realized Volatility options will be subject to the same reporting and other requirements triggered for other options dealt in on the Exchange. 11 11 *See* Rule 4.13, *Reports Related to Position Limits.* Exchange Rules Applicable As stated above, for purposes of CBOE's rules, the indicative values for three-month realized variance and three-month realized volatility will be treated as indexes. Except as modified by the proposal, the rules in Chapters I through XIX, XXIV, XXIVA, and XXIVB will equally apply to CBOE S&P 500 Three-Month Realized Variance options and CBOE S&P 500 Three-Month Realized Volatility options. CBOE S&P 500 Three-Month Realized Variance options and CBOE S&P 500 Three-Month Realized Volatility options will be margined as “broad-based index” options, and under CBOE rules, especially, Rule 12.3(c)(5)(A), the margin requirement for a short put or call shall be 100% of the current market value of the contract plus up to 15% of the respective underlying indicative value. Additional margin may be required pursuant to Exchange Rule 12.10. The Exchange proposed that CBOE S&P 500 Three-Month Realized Variance options and CBOE S&P 500 Three-Month Realized Volatility options be eligible for trading as Flexible Exchange Options as provided for in Chapters XXIVA (Flexible Exchange Options) and XXIVB (FLEX Hybrid Trading System). Capacity CBOE represented that it has analyzed its capacity and believes that it and the Options Price Reporting Authority have the necessary systems capacity to handle the additional traffic associated with the listing of new series that will result from the introduction of CBOE S&P 500 Three-Month Realized Variance options and CBOE S&P 500 Three-Month Realized Volatility options. Technical Changes The Exchange also proposed to make technical changes to Rules 24.4.03, 24.4.04, and 24.5, Exercise Limits by adding “VIX, VXN and VXD” to the rule text. 12 The Exchange proposed to make technical changes to Rules 24A.7(b), 24A.8(a), 24B.7(b), and 24B.8(a), by adding the parenthetical phrase, “including reduced-value option contracts” to the rule text. These FLEX rules already contemplate reduced-value option contracts, and the proposed changes are consistent with the treatment of non-FLEX reduced-value option contracts. 13 12 The Exchange inadvertently neglected to request the Commission's approval to add “VIX, VXN and VXD” to the respective rule text when the position limits for these products were eliminated. *See* Securities Exchange Act Release No. 54019 (June 20, 2006), 71 FR 36569 (June 27, 2006) (SR-CBOE-2006-55). 13 *See* Securities Exchange Act Release No. 56350 (September 4, 2007), 72 FR 51878 (September 11, 2007) (SR-CBOE-2007-79). II. Discussion After careful review, the Commission finds that CBOE's proposal to permit trading in CBOE S&P 500 three-month realized variance options and CBOE S&P 500 three-month realized volatility options is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, 14 and, in particular, the requirements of Section 6 of the Act 15 and the rules and regulations thereunder. The Commission finds that the CBOE's proposal gives options investors the ability to make an additional investment choice in a manner consistent with the requirements of Section 6(b)(5) of the Act. 16 14 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 15 15 U.S.C. 78f. 16 15 U.S.C. 78f(b)(5). The Commission notes that it has previously approved listing and trading of broad-based index options on similar statistical measurements, 17 and that permitting the listing and trading of options on CBOE S&P 500 three-month realized variance options and CBOE S&P 500 three-month realized volatility options will provide investors with an expanded choice of trading and hedging mechanisms. As CBOE has noted, unlike other broad-based options on statistical measurements, realized variance and realized volatility options will allow market participants to take a position on what they anticipate the actual volatility of the S&P 500 Index will be at expiration. 17 *See e.g.* , Securities Exchange Act Release No. 55425 (March 8, 2007), 72 FR 12238 (March 15, 2007) (order approving SR-CBOE-2006-73 to list and trade RVX and VXD options); Securities Exchange Act Release No. 49563 (April 14, 2004) 69 FR 21589 (April 21, 2004) (order approving SR-CBOE-2003-40 to list and trade VIX, VXN and VXD options). The Commission therefore finds that it is consistent with the Act for the CBOE to apply its rules for trading of broad-based index options, including its rules regarding position limits, exercise limits and margin requirements, to CBOE S&P 500 three-month realized variance options and CBOE S&P 500 three-month realized volatility options The Commission also finds that CBOE has adequate surveillance procedures in place to monitor for manipulation of the volatility index options. The Exchange states that it will use the same surveillance procedures currently utilized for each of the Exchange's other index options to monitor trading in options on each volatility index. The Exchange represents that these surveillance procedures are adequate to monitor the trading of options on this volatility index. For surveillance purposes, the Exchange will have complete access to information regarding trading activity in the pertinent underlying securities. The Commission also believes the CBOE's trading rules and other product specifications are appropriate, including the minimum tick size and strike price intervals for each product. In addition, the Commission notes that IUG and RUG are disseminated through OPRA. The Commission also notes CBOE's representation that it possesses the necessary systems capacity to support new series that will result from the introduction CBOE S&P 500 three-month realized variance options and CBOE S&P 500 three-month realized volatility options. *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-CBOE-2008-31) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 18 18 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16759 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58176; File No. SR-FINRA-2008-021] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto, Relating to the Adoption of NASD Rules 4000 Through 10000 Series and the 12000 Through 14000 Series as FINRA Rules in the New Consolidated FINRA Rulebook July 16, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“SEA” or “Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on May 23, 2008, Financial Industry Regulatory Authority, Inc. (“FINRA”) (f/k/a National Association of Securities Dealers, Inc. (“NASD”)), filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by FINRA. On July 11, 2008, FINRA filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change FINRA is proposing to adopt the following NASD rules (which are part of the existing FINRA rulebook) 3 as FINRA rules in the new consolidated FINRA rulebook: the 4000 through 10000 Series and the 12000 through 14000 Series. The text of the proposed rule change is available at FINRA, the Commission's Public Reference Room, and *http://www.finra.org.* 3 As further discussed herein, the FINRA rulebook currently consists of the NASD rules and certain incorporated NYSE rules. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Background On July 30, 2007, NASD and NYSE consolidated their member firm regulation operations into a combined organization, FINRA. 4 As part of the transaction, FINRA incorporated into its existing rulebook NYSE rules related to member firm conduct (“Incorporated NYSE Rules”). Thus, the current FINRA rulebook consists of two sets of rules:
(1)NASD rules; and
(2)the Incorporated NYSE Rules (together referred to as the “Transitional Rulebook”). 5 The Incorporated NYSE Rules apply only to Dual Members. 6 The new consolidated rulebook (“Consolidated FINRA Rulebook”) will consist only of FINRA rules and will apply to all FINRA members, unless such rules have a more limited application by their terms. 4 *See* Securities Exchange Act Release No. 56145 (July 26, 2007); 72 FR 42169 (August 1, 2007) (Order Approving SR-NASD-2007-023 (“Release No. 34-56145”)). 5 Pursuant to Rule 17d-2 under the Act, 17 CFR 240.17d-2, NASD, NYSE and NYSE Regulation entered into an agreement to reduce regulatory duplication for firms that are members of both FINRA and the NYSE (“Dual Members”) by allocating regulatory responsibilities for the Incorporated NYSE Rules to FINRA. FINRA has assumed examination, enforcement and surveillance responsibilities under the agreement relating to compliance by Dual Members to the extent such responsibilities involve member firm regulation. *See* Securities Exchange Act Release No. 56148 (July 26, 2007), 72 FR 42146 (August 1, 2007) (File No. 4-544). 6 The Incorporated NYSE Rules continue to apply to persons affiliated with Dual Members to the same extent and in the same manner as they did before the consolidation. In applying the Incorporated NYSE Rules to Dual Members and such affiliated persons, FINRA has incorporated the related interpretative positions set forth in the NYSE Rule Interpretations Handbook and NYSE Information Memos. The proposed rule change represents the first phase of the rulebook consolidation process. 7 During this process, FINRA members will be subject to both the Consolidated FINRA Rulebook, as it becomes populated with rules filed with and approved by the Commission, and the Transitional Rulebook. (The NYSE Incorporated Rules in the Transitional Rulebook will continue to apply only to Dual Members.) As the Consolidated FINRA Rulebook expands with SEC-approved final FINRA rules, the Transitional Rulebook will be reduced by the elimination of those rules, or sections thereof, that address the same subject matter of regulation. As a result, when the Consolidated FINRA Rulebook is completed, the Transitional Rulebook will have been eliminated in its entirety. 7 FINRA issued an *Information Notice* on March 12, 2008 that describes the rulebook consolidation process in greater detail. The proposed rule change would transfer from the Transitional Rulebook to the Consolidated FINRA Rulebook the NASD Rule 4000 through 14000 Series, with the exception of the Rule 11000 Series (Uniform Practice Code). As described in more detail below, the NASD Rule 4000 through 7000 Series generally involve regulatory requirements and fees for quoting, trading, reporting, clearing and comparing over-the-counter transactions. The NASD Rule 8000 Series involves investigations and sanctions. The NASD Rule 9000 Series involves disciplinary procedures. The NASD Rule 10000, 12000, 13000 and 14000 Series involve Dispute Resolution (arbitration and mediation) procedures. The proposed rule change would adopt these rule series in their entirety as FINRA rules as part of the Consolidated FINRA Rulebook, with certain non-material changes. The rules proposed to be transferred as part of the proposed rule change would occupy the Rule 6000 through 10000 Series and the Rule 12000 through 14000 Series in the Consolidated FINRA Rulebook as set forth in a Table of Contents attached as Exhibit 2 to the proposed rule change. The proposed rule change would reserve Rule Series 0100 through 5000 for future transfers and amendments to member conduct rules involving, among others, member application processes and associated person registration, transactions with customers, supervision, communications and disclosures, and financial responsibility. Additionally, and with the exception of the Arbitration Code, the Consolidated FINRA Rulebook will no longer contain Interpretive Materials (“IMs”); rather, the IMs either will become stand alone rules or will be integrated into existing rule text or moved to a “Supplementary Material” section at the end of a rule. The “Supplementary Material” will set forth the same type of legally binding guidance and additional information that IMs provide today and will be filed with the Commission. Rules To Be Transferred The proposed rule change would adopt in their entirety the following NASD rules as FINRA rules in the Consolidated FINRA Rulebook, save minor changes, including: Replacing references to NASD or the Association with FINRA; certain renumbering to effectuate a new organizational framework for the rulebook that groups and categorizes rules into more logical and related subject matter areas; and certain conforming changes to rule references, *e.g.* , the Exchange Act, SEA rules, the Securities Act of 1933 (“Securities Act”) and Securities Act rules. Marketplace Rules The NASD Rule 4000 through 7000 Series (Marketplace Rules) generally set forth the regulatory requirements and fees for quoting, trading, reporting, clearing and comparing, as applicable, over-the-counter transactions in NMS stocks, as defined in SEC Rule 600(b)(47) of Regulation NMS under the Act, OTC Equity Securities 8 and certain eligible debt securities. These rules would occupy the Rule 6000 Series (Quotation and Transaction Reporting Facilities) and Rule 7000 Series (Clearing, Transaction and Order Data Requirements, and Facility Charges) in the Consolidated FINRA Rulebook. 8 “OTC Equity Security” is defined in NASD Rule 6610 and generally encompasses those securities not traded on an exchange, including OTC Bulletin Board and Pink Sheets securities. The following rule series to be transferred cover reporting, clearing and comparison, as applicable, of transactions in NMS stocks effected otherwise than on an exchange through FINRA's Trade Reporting Facilities (“TRFs”): 9 the NASD Rule 4000 and 6100 Series (relating to the FINRA/Nasdaq TRF), renumbered as the Rule 6300A and 7200A Series, respectively; the NASD Rule 4000C and 6000C Series (relating to the FINRA/NSX TRF), renumbered as the Rule 6300B and 7200B Series, respectively; and the NASD Rule 4000E and 6000E Series (relating to the FINRA/NYSE TRF), renumbered as the Rule 6300C and 7200C Series, respectively. For the most part, these rule series are identical, with relatively minor differences reflecting distinctions in TRF functionality. Each TRF rule set currently contains two definition sections: NASD Rules 4200 and 4631 (relating to the FINRA/Nasdaq TRF), NASD Rules 4200C and 4631C (relating to the FINRA/NSX TRF) and NASD Rules 4200E and 4631E (relating to the FINRA/NYSE TRF). These definition sections would be combined for each TRF in Rules 6320A, 6320B, and 6320C, respectively, of the Consolidated FINRA Rulebook. 9 The three TRFs are: the FINRA/Nasdaq TRF, the FINRA/NSX TRF and the FINRA/NYSE TRF. The relevant formation documents have been amended to change the name of each TRF from “NASD” to “FINRA,” where necessary. The proposed rule change would reflect the name changes in the Consolidated FINRA Rulebook. The NASD Rule 4000A and 6100A Series, renumbered as the Rule 6200 and 7100 Series, respectively, cover quoting, reporting, clearing and comparison of transactions in NMS stocks effected otherwise than on an exchange through FINRA's Alternative Display Facility (“ADF”), which is both a trade reporting and quotation display and collection facility. The NASD Rule 5000 Series relates to trading in NMS stocks effected otherwise than on an exchange and applies uniformly to transactions reported to the TRFs and ADF. This series would be transferred to the Consolidated FINRA Rulebook and renumbered as the Rule 6100 Series and renamed “Quoting and Trading in NMS Stocks,” and certain rules relating to the TRFs and ADF would be combined and relocated to the Rule 6100 Series. Specifically, NASD Rules 4633, 4120A, 4633C, and 4633E relating to halts in over-the-counter trading in NMS stocks would be combined to form Rule 6120 (Trading Halts). In addition, NASD IM-4632, IM-4632C, and IM-4632E relating to timely transaction reporting would be combined to form Rule 6181 (Timely Transaction Reporting). Finally, NASD IM-6130, IM-6130C, and IM-6130E relating to the reporting of short sales would be combined to form Rule 6182 (Trade Reporting of Short Sales). NASD Rule 5000, renumbered as Rule 6110 (Trading Otherwise Than On An Exchange), requires members to report transactions in NMS stocks effected otherwise than on or through a national securities exchange to FINRA. This series also includes rules relating to initial public offering transactions (NASD Rule 5110, renumbered as Rule 6130), members' obligations to provide information to FINRA upon request (NASD Rule 5130, renumbered as Rule 6150), the use of multiple Market Participant Symbols (MPIDs) for TRF participants (NASD Rule 5140 and IM-5140, renumbered as Rule 6160 and Supplementary Material thereunder), and FINRA's authority to provide exemptive relief from certain Regulation NMS-related trade reporting requirements (NASD Rule 5150, renumbered as Rule 6183). In addition, NASD Rule 5120 relating to prohibited trading practices would be renumbered as Rule 6140 and paragraph
(i)of that rule would be amended to define “Stop Stock Transaction” and “Stop Stock Price.” (Currently, NASD Rule 5120 cross-references those definitions in NASD Rule 4200.) Finally, NASD Rule 4613A(b) and IM-4613A-1 relating to the ADF would be relocated to this series as Rule 6170 (Primary and Additional MPIDs for Alternative Display Facility Participants) and Supplementary Material thereunder. The NASD Rule 6000 Series comprises a number of more specific rule series, as described herein. As noted above, the NASD Rule 6100 Series covers reporting, clearing and comparison of over-the-counter transactions in NMS stocks through the FINRA/Nasdaq TRF. This rule series also covers reporting, clearing and comparison of transactions in OTC Equity Securities through FINRA's OTC Reporting Facility (“ORF”). A single rule series would no longer apply to these two facilities. Rather, the NASD Rule 6100 Series would be amended, as necessary, to form the Rule 7200A Series, applicable only to the FINRA/Nasdaq TRF ( *i.e.* , the references to the ORF, OTC Equity Securities and Direct Participation Program (“DPP”) securities would be deleted). The NASD Rule 6100 Series also would be amended, as necessary, to form the Rule 7300 Series, applicable only to the ORF ( *i.e.* , the references to the FINRA/Nasdaq TRF and “designated securities,” as well as the provisions relating to the transaction fee transfer mechanism, which is only supported by the FINRA/Nasdaq TRF, would be deleted). Finally, the references to NASD Rule 6410 and the ITS/CAES System would be deleted, as those references inadvertently were not deleted from NASD Rule 6110 as part of a prior rule filing approved by the Commission. 10 10 *See* Securities Exchange Act Release No. 54537 (September 28, 2006), 71 FR 59173 (October 6, 2006) (Order Approving File No. SR-NASD-2006-091). The NASD Rule 6200 Series, renumbered as the Rule 6700 Series, covers the reporting and dissemination, as applicable, of over-the-counter secondary market transactions in eligible debt securities to FINRA's Trade Reporting and Compliance Engine (“TRACE”). The NASD Rule 6500 Series covers the operation and use of FINRA's OTC Bulletin Board (“OTCBB”) service, which is an electronic quotation medium for members to display quotations in OTCBB-eligible securities. This series will remain as the Rule 6500 Series in the Consolidated FINRA Rulebook. The NASD Rule 6600 Series, renumbered as the Rule 6400 Series and renamed “Quoting and Trading in OTC Equity Securities,” sets forth the recording and reporting requirements applicable to certain quotations and unpriced indications of interest displayed on inter-dealer quotation systems and the requirements applicable to reporting transactions in OTC Equity Securities to the ORF. NASD Rule 6620, which sets forth the reporting requirements applicable to transactions in OTC Equity Securities, would be renumbered as Rule 6622 and included in a separate series, the Rule 6600 Series (OTC Reporting Facility). The Rule 6600 Series would comprise all rules applicable to trade reporting to the ORF, including the NASD Rule 6700 and 6900 Series, discussed below. New Rule 6610 would explain that members that report transactions in OTC Equity Securities and DPP securities to the ORF also must comply with the 7300 Series, as well as all other applicable rules and regulations. Additionally, new Rule 6621 would cross-reference the definitions set forth in Rule 6420, which are applicable to trading and quoting in OTC Equity Securities. NASD IM-4632, which is cross-referenced in NASD Rule 6620, would form Rule 6623 (Timely Transaction Reporting), and NASD IM-6130 would form Rule 6624 (Trade Reporting of Short Sales). The NASD Rule 6700 Series, renumbered as the Rule 6630 Series, covers trade reporting to the ORF of debt and equity transactions in PORTAL securities, which are foreign and domestic securities that are eligible for resale under Securities Act Rule 144A. NASD Rule 6732, renumbered as Rule 6633, would be amended to delete from paragraph (a)(1) the reference to “paragraph (d).” That reference inadvertently was not deleted as part of a prior rule filing approved by the Commission. 11 11 *See* Securities Exchange Act Release No. 54084 (June 30, 2006), 71 FR 38935 (July 10, 2006) (Order Approving File No. SR-NASD-2005-087). The NASD Rule 6900 Series, renumbered as the Rule 6640 Series, covers trade reporting to the ORF of secondary market transactions in DPP securities other than transactions executed on a national securities exchange. The definition of “OTC Reporting Facility” in Rule 6642 would be amended to clarify that the comparison function is not available for DPPs that are not eligible for clearance and settlement through the National Securities Clearing Corporation (which mirrors this term's definition in NASD Rule 6610(k)). The NASD Rule 6950 Series, renumbered as the Rule 7400 Series, sets forth member obligations to record and report to FINRA's Order Audit Trail System certain information with respect to orders in equity securities listed on the Nasdaq Stock Market and OTC equity securities. NASD Rule 6957 (Effective Date) would be deleted, as all requirements of the Order Audit Trail System are now effective. The NASD Rule 7000 Series, renumbered as the Rule 7700 Series, covers applicable fees for use of the ORF, OTCBB and TRACE services. The Rule 7000A Series, renumbered as the Rule 7500 Series, covers charges for ADF services and equipment. The following rule series cover fees and market data revenue rebates for trade reporting, clearing and comparison, as applicable, through the TRFs: The NASD Rule 7000B Series, renumbered as the Rule 7600A Series (relating to the FINRA/Nasdaq TRF); the NASD Rule 7000C Series, renumbered as the Rule 7600B Series (relating to the FINRA/NSX TRF); and the NASD Rule 7000E Series, renumbered as the Rule 7600C Series (relating to the FINRA/NYSE TRF). Investigations and Sanctions Rules The NASD Rule 8000 Series generally covers investigations and sanctions and would be transferred substantively unchanged to the Consolidated FINRA Rulebook. It comprises several more specific rule series, as described herein. The NASD Rule 8100 Series has a definitional section and requirements regarding the availability of the manual. 12 The NASD Rule 8200 Series permits FINRA to inspect members' books and records and requires members to provide information in connection with FINRA investigations, examinations or proceedings. The NASD Rule 8200 Series also provides for automated submission of certain trading data. The NASD Rule 8300 Series provides FINRA with authority to sanction members and their associated persons for violations of FINRA's rules, federal securities laws, and Municipal Securities Rulemaking Board's rules. NASD IM-8310-1 addresses the effect of a bar or suspension, revocation or cancellation of a person's registration. In addition, NASD IM-8310-2 and IM-8310-3 govern FINRA's release of certain information regarding members and their associated persons through FINRA BrokerCheck, as well as FINRA's release of certain disciplinary complaints, decisions and other information. These IMs would be renumbered in the Consolidated FINRA Rulebook as Rules 8311, 8312 and 8313. Code of Procedure The NASD Rule 9000 Series generally provides procedures for initiating and adjudicating various types of actions, including disciplinary, eligibility, expedited, and cease and desist proceedings. The NASD Rule 9100 Series, for instance, sets forth rules of general applicability to disciplinary and other proceedings that FINRA initiates against members and their associated persons. This rule series includes a definitional section, provisions for service, filing and notice of papers, rules relating to the conduct of parties, counsel and adjudicators, and the allowance of motions practice. 13 The NASD Rule 9200 Series delineates specific procedures for disciplinary proceedings. It includes provisions for filing complaints and answers, requesting and holding hearings, settlement procedures and issuing decisions. NASD IM-9216 sets forth violations eligible for disposition under the Minor Rule Violation Plan (“MRVP”) and would be renumbered as Rule 9217 in the Consolidated FINRA Rulebook—the only rule to be renumbered in the Rule 9000 Series. 14 The NASD Rule 9300 Series sets forth the procedures for disciplinary matters that are appealed to or called for review by the National Adjudicatory Council or called for review by the Board of Governors. The NASD Rule 9520 Series covers eligibility proceedings. 15 The proposed rule change would delete the NASD Rule 9530 Series—a change that should have been effectuated in a previous rule filing. 16 The NASD Rule 9550 Series sets forth standards and procedures for expedited proceedings, which cover various situations, ranging from members' failing to pay arbitration awards to members' experiencing financial or operations difficulties. 17 The NASD Rule 9600 Series provides procedures for exemptions, while the NASD Rule 9700 Series sets forth procedures for grievances concerning automated systems. The Rule NASD 9800 Series governs temporary cease and desist orders. 12 NASD Rule 8110 currently requires that members keep and maintain a copy of the manual in a readily accessible place and make it available to customers upon request. The proposed rule change would further clarify that members may comply with Rule 8110 by maintaining electronic access to the manual and providing customers with such access upon request. *See also* Securities Exchange Act Release No. 39470 (December 19, 1997), 62 FR 67927 (December 30, 1997) (Order Approving File No. SR-NASD-97-81) (seeking to, among other things, simplify NASD Rule 8110 to allow members to maintain an electronic version of the NASD manual as their required copy of the manual). 13 NASD Rule 9144(b) (Separation of Adjudicators) would be amended to conform to changes made to the FINRA By-Laws as a result of the consolidation transaction to reflect that the Chair of the National Adjudicatory Council will no longer automatically occupy a seat on the Board of Governors. *See* Release No. 34-56145, *supra* note 4. 14 NASD IM-9216 also would be amended to reflect that FINRA members may now be subject to a minor rule violation for a violation of a FINRA rule, in addition to addressing violations of the FINRA By-Laws, Schedules to the By-Laws, NASD rules, Incorporated NYSE Rules, SEA Rules and Municipal Securities Rulemaking Board (“MSRB”) rules. In this regard, FINRA notes that it is filing a separate rule change addressing the application of the FINRA rules to those members subject to NASD IM-1013 (Membership Waive-In Process for Certain NYSE Member Organizations) (commonly referred to as the “waive-in firms”). The proposed rule change also would reorganize IM-9216 to group by type the provisions and rules specified therein ( *i.e.* , By-Law provisions, FINRA rules, NASD rules, SEA rules, MSRB rules and Incorporated NYSE Rules), and to present them in numerical order within each group. The proposed rule change would not add new substantive rules to the MRVP. 15 NASD Rule 9526(d) (Call for Review) would be amended to conform to changes made to the FINRA By-Laws as a result of the consolidation transaction by eliminating reference to the Non-Industry classification of Governor. *See* Release No. 34-56145, *supra* note 4. 16 As part of a 2004 rule proposal approved by the Commission, FINRA moved the hearing provisions of the NASD Rule 9530 Series to NASD Rule 9559 and the remaining provisions to NASD Rule 9553. *See* Securities Exchange Act Release No. 49380 (March 9, 2004), 69 FR 12386 (March 16, 2004) (Order Approving File No. SR-NASD-2003-110). However, the corresponding rule text inadvertently was not deleted as part of that filing and remained in the NASD Manual. FINRA is thus proposing to delete the NASD Rule 9530 Series. 17 As part of the rulebook consolidation process, FINRA is considering changes relating to FINRA's rules governing financial responsibility, including NASD Rules 9557 and 9559, which provide the notice and procedural framework applicable when a member is experiencing financial or operational difficulties. *See Regulatory Notice* 08-23 (May 14, 2008) (Proposed Consolidated FINRA Rules Governing Financial Responsibility). For administrative ease, the proposed rule change transfers NASD Rules 9557 and 9559 without substantive change to the Consolidated FINRA Rulebook. However, FINRA anticipates proposing changes to Rules 9557 and 9559 as part of a future filing governing the financial responsibility rules. FINRA is amending Rules 8313(b)(1) and (c)(1), 9556(a), 9558(a), 9810(a) and 9860, respectively, to change references from “NASD Chairman and CEO” or “President of NASD Regulatory Policy and Oversight” to “FINRA's Chief Executive Officer” to reflect FINRA's new organizational structure. Mary L. Schapiro now serves as FINRA's Chief Executive Officer. The proposed rule change also would permit FINRA's Chief Executive Officer to delegate his or her authority to such other senior officers as he or she may designate. Certain rules previously granted alternative authority to NASD's Senior Executive Vice President for Regulatory Policy and Programs. In light of FINRA's new organizational structure, FINRA believes it appropriate to permit the CEO to delegate his or her authority to other senior officers of FINRA. Code of Arbitration Procedure The NASD Rule 10000 Series sets forth the Code of Arbitration Procedure, including rules governing arbitration and mediation matters filed prior to April 16, 2007. This Code continues to be relevant to those matters, until they are closed by award, settlement or otherwise. The NASD Rule 12000 through 14000 Series contains the revised Code of Arbitration Procedure, which is organized into three sections: the Customer, Industry and Mediation Codes. These three Codes apply to matters filed on or after April 16, 2007. The Rule 12000 Series contains the Code of Arbitration Procedure for Customer Disputes. The Rule 13000 Series contains the Code of Arbitration Procedure for Industry Disputes. The Rule 14000 Series contains the Code of Mediation Procedure. Rules of General Applicability FINRA notes that certain rules in the Transitional Rulebook have general application to the entirety of rules that govern FINRA members. For example, NASD Rule 0115 states that all rules apply to both members and their associated persons and that associated persons have the same duties and obligations as the member. And the definitions in NASD Rule 0120 apply to all rules, unless the context otherwise requires. Those rules of general applicability would apply equally to both the Transitional Rulebook and the Consolidated FINRA Rulebook. Rule References Because the Consolidated FINRA Rulebook will be populated over the course of multiple rule filings, certain remaining rules in the Transitional Rulebook will refer to NASD rules or Incorporated NYSE Rules that have been transferred to, or otherwise incorporated into, the Consolidated FINRA Rulebook under the proposed rule change or future filings. In those instances, FINRA intends for the reference to NASD rules or Incorporated NYSE Rules to be treated as a reference to the corresponding rules in the Consolidated FINRA Rulebook. Thus, for example, NASD IM-1013-1 states that firms admitted to FINRA membership pursuant to the IM are subject to, among others, the NASD Rule 8000 and 9000 Series. Upon Commission approval and effectiveness of the proposed rule change, those members would remain subject to the 8000 and 9000 Series in the Consolidated FINRA Rulebook. 18 In the event that the referenced NASD Rule has been renumbered in the Consolidated FINRA Rulebook, members need to be cognizant of the rule's new number to ensure they are cross-referencing the correct rule in the Consolidated FINRA Rulebook. FINRA will be preparing a conversion chart that will map the eliminated legacy NASD and Incorporated NYSE Rules to the final FINRA rules. 18 *See also supra* note 14 discussing application of the FINRA rules to the waive-in firms. Similarly, certain rules that would be transferred to the Consolidated FINRA Rulebook under the proposed rule change refer to remaining rules in the Transitional Rulebook. For the time being, the remaining rules in the Transitional Rulebook will be identified as “NASD Rules” or “NYSE Rules,” as the case may be, in the Consolidated FINRA Rulebook and references to Consolidated FINRA Rulebook rules will not be qualified. Thus, for example, rules in the Consolidated FINRA Rulebook that refer to NASD Rule 2110 will specifically identify that rule as “NASD” Rule 2110 until such time as that rule is transferred to the Consolidated FINRA Rulebook. As noted in Item 2 of this filing, FINRA will announce the implementation date(s) of the proposed rule change in a *Regulatory Notice* to be published no later than 60 days following Commission approval. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act, 19 which requires, among other things; that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest; and Section 15A(b)(5) of the Act, 20 which requires, among other things, that FINRA rules provide for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility or system that FINRA operates or controls. The proposed rule change makes non-material changes to rules that have proven effective in meeting statutory mandates. 19 15 U.S.C. 78 *o* -3(b)(6). 20 15 U.S.C. 78 *o* -3(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which FINRA consents, the Commission will: A. By order approve such proposed rule change; or B. Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-FINRA-2008-021 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-FINRA-2008-021. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of FINRA. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-FINRA-2008-021 and should be submitted on or before August 13, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 21 21 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16826 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58182; File No. SR-NASDAQ-2008-062] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Clarify the Application of Nasdaq Rules When a Listed Company Combines With a non-Nasdaq Entity July 17, 2008. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 10, 2008, The NASDAQ Stock Market LLC (“Nasdaq”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Nasdaq proposes to clarify the application of Nasdaq rules when a listed company combines with a non-Nasdaq entity. Nasdaq will implement the proposed rule upon approval. The text of the proposed rule change is below. Proposed new language is in italics; proposed deletions are in brackets. 3 3 Changes are marked to the rule text that appears in the electronic manual of Nasdaq found at *http://www.complinet.com/nasdaq* . 4340. Application for Re-Listing by Listed Issuers
(a)[Reverse Mergers] *Business Combinations With non-Nasdaq Entities Resulting in a Change of Control* . An issuer must apply for initial listing in connection with a transaction whereby the issuer combines with a non-Nasdaq entity, resulting in a change of control of the issuer and potentially allowing the non-Nasdaq entity to obtain a Nasdaq Listing [(for purposes of this rule, such a transaction is referred to as a “Reverse Merger”)]. In determining whether a [Reverse Merger] *change of control* has occurred, Nasdaq shall consider all relevant factors including, but not limited to, changes in the management, board of directors, voting power, ownership, and financial structure of the issuer. Nasdaq shall also consider the nature of the businesses and the relative size of the Nasdaq issuer and non-Nasdaq entity. The issuer must submit an application for the post-transaction entity with sufficient time to allow Nasdaq to complete its review before the transaction is completed. If the issuer's application for initial listing has not been approved prior to consummation of the transaction, Nasdaq will issue a Staff Determination Letter as set forth in Rule 4804 and begin delisting proceedings pursuant to the Rule 4800 Series.
(b)Bankruptcy. No change. IM-4350-1. Interpretive Material Regarding Future Priced Securities Summary No change. How the Rules Apply Shareholder Approval No change. Voting Rights No change. The Bid Price Requirement No change. Listing of Additional Shares No change. Public Interest Concerns No change. [Reverse Merger] *Business Combinations With non-Nasdaq Entities Resulting in a Change of Control* Rule 4340(a) provides: An issuer must apply for initial listing in connection with a transaction whereby the issuer combines with a non-Nasdaq entity, resulting in a change of control of the issuer and potentially allowing the non-Nasdaq entity to obtain a Nasdaq Listing [(for purposes of this rule, such a transaction is referred to as a “Reverse Merger”)]. In determining whether a [Reverse Merger] *change of control* has occurred, Nasdaq shall consider all relevant factors including, but not limited to, changes in the management, board of directors, voting power, ownership, and financial structure of the issuer. Nasdaq shall also consider the nature of the businesses and the relative size of the Nasdaq issuer and non-Nasdaq entity. The issuer must submit an application for the post-transaction entity with sufficient time to allow Nasdaq to complete its review before the transaction is completed. If the issuer's application for initial listing has not been approved prior to consummation of the transaction, Nasdaq will issue a Staff Determination Letter as set forth in Rule 4804 and begin delisting proceedings pursuant to the Rule 4800 Series. This provision, which applies regardless of whether the issuer obtains shareholder approval for the transaction, requires issuers to qualify under the initial listing standards in connection with a [Reverse Merger] *combination that results in a change of control.* [4] It is important for issuers to realize that in certain instances, the conversion of a Future Priced Security may implicate this provision. For example, if there is no limit on the number of common shares issuable upon conversion, or if the limit is set high enough, the exercise of conversion rights under a Future Priced Security could result in [a Reverse Merger with] the holders of the Future Priced Securities *obtaining control of the listed company* . In such event, an issuer may be required to re-apply for initial listing and satisfy all initial listing requirements. Footnotes to IM-4350-1: 1-3 No change. [ 4 This provision is designed to address situations where a company attempts to obtain a “backdoor listing” on Nasdaq by merging with a Nasdaq issuer with minimal assets and/or operations.] II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Marketplace Rule 4340(a) requires that an issuer must apply for initial listing following a transaction whereby the issuer combines with a non-Nasdaq entity, resulting in a change of control of the issuer and potentially allowing the non-Nasdaq entity to obtain a Nasdaq listing. This rule was originally adopted in 1993 to address concerns associated with non-Nasdaq entities seeking a “backdoor listing” on Nasdaq through a business combination involving a Nasdaq issuer. 4 In these combinations, a non-Nasdaq entity purchased a Nasdaq issuer in a transaction that resulted in the non-Nasdaq entity obtaining a Nasdaq listing without qualifying for initial listing or being subject to the background checks and scrutiny normally applied to issuers seeking initial listing. The rule was amended in 2001 to define “Reverse Merger” and to provide clarification regarding the factors used by Staff to determine if a transaction should be considered a Reverse Merger. 5 In 2006, Nasdaq amended the rule to clarify the timing of the application of the rule. 6 4 Securities Exchange Act Release No. 32264 (May 4, 1993), 58 FR 27760 (May 11, 1993) (approving SR-NASD-93-07). 5 Securities Exchange Act Release No. 44067 (March 13, 2001), 66 FR 15515 (March 19, 2001) (approving SR-NASD-01-01). 6 Securities Exchange Act Release No. 55052 (January 5, 2007), 72 FR 1569 (January 12, 2007) (approving SR-NASDAQ-2006-047). While this Rule was originally focused on companies seeking a “backdoor listing” by acquiring a listed shell company, its language is not limited in that regard, and Nasdaq has applied the rule to any transaction where there is a change of control potentially allowing a non-Nasdaq entity to obtain a Nasdaq listing. As such, Nasdaq has applied the rule to mergers involving operating companies in substantially similar businesses and, in appropriate cases, to mergers of “equals,” where the companies are approximately the same size. 7 This allows Nasdaq staff to review the post-transaction entity, including any new officers, directors and control persons, before the transaction is consummated, thereby allowing staff to confirm that the post-transaction entity will meet all initial listing criteria and that there are no public interest concerns. Nonetheless, given the use of the term “Reverse Merger” within Rule 4340(a), and the existence of a footnote in IM-4350-1 speaking of “backdoor listings,” companies have expressed confusion as to the scope of the rule. As such, Nasdaq proposes to remove these references from Rule 4340(a) and IM-4350-1. 8 As revised, Nasdaq believes the rule will more clearly reflect that a company must satisfy the initial listing requirements whenever it enters into a transaction with a non-Nasdaq entity, resulting in a change of control of the listed company and potentially allowing the non-Nasdaq entity to obtain a Nasdaq listing. 7 *See, e.g.* , Decision 2002/2003-9 of the Nasdaq Listing and Hearing Review Council (December 2002), available at: *http://www.nasdaq.com/about/NLHRCDecisions20022003.pdf* . 8 Nasdaq has confirmed that the rule would still, of course, apply to “backdoor listings” or “reverse mergers,” and that this proposed change is intended to clarify that the rule also applies to a broader category of business combinations that result in a change of control of the issuer. *See* Telephone conversation between Arnold Golub, Associate General Counsel, Nasdaq, and Sara Gillis, Special Counsel, Division of Trading and Markets, Commission, on July 15, 2008. 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of section 6 of the Act, 9 in general and with sections 6(b)(5) of the Act, 10 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The proposed rule change would clarify Nasdaq's listing requirements related to change of control transactions, and thereby provide additional transparency to the rules. This proposed clarification is designed to protect investors and the public interest by allowing Nasdaq to confirm that the post-transaction entity will meet all initial listing criteria and that there are no public interest concerns associated with individuals or entities newly joining the company. 9 15 U.S.C. 78f. 10 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the Exchange consents, the Commission will:
(A)By order approve such proposed rule change, or
(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-NASDAQ-2008-062 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NASDAQ-2008-062. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of Nasdaq. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASDAQ-2008-062 and should be submitted on or before August 13, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16827 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58183; File No. SR-NASDAQ-2008-035] Self-Regulatory Organizations; The NASDAQ Stock Market, LLC; Order Approving a Proposed Rule Change, as Modified by Amendment No. 1, To Amend the By-Laws of the NASDAQ OMX Group, Inc. in Connection With the Acquisitions of Boston Stock Exchange, Incorporated and Philadelphia Stock Exchange, Inc. July 17, 2008. I. Introduction On April 21, 2008, The NASDAQ Stock Market, LLC (“Nasdaq”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change (“NASDAQ OMX By-Law Proposal”) to amend the by-laws (“NASDAQ OMX By-Laws”) of its parent corporation, The NASDAQ OMX Group, Inc. (“NASDAQ OMX”). The NASDAQ OMX By-Law Proposal was published for comment in the **Federal Register** on May 8, 2008. 3 The Commission received no comment letters regarding the NASDAQ OMX By-Law Proposal. On July 3, 2008, Nasdaq filed Amendment No. 1 to the NASDAQ OMX By-Law Proposal. 4 This order approves the NASDAQ OMX By-Law Proposal, as modified by Amendment No. 1. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 57761 (May 1, 2008), 73 FR 26182 (SR-NASDAQ-2008-035) (“NASDAQ OMX By-Law Proposal Notice”). 4 In Amendment No. 1, Nasdaq proposes to correct typographical errors in the proposed amendments to NASDAQ OMX By-Laws Sections 11.3 and 12.5. Because Amendment No. 1 is technical in nature, the Commission is not publishing it for comment. II. Discussion and Commission Findings NASDAQ OMX and the Boston Stock Exchange, Incorporated (“BSE”), a national securities exchange, have entered into an agreement pursuant to which NASDAQ OMX would acquire all of the outstanding membership interests in BSE (“BSE Acquisition”). 5 Also, NASDAQ OMX and the Philadelphia Stock Exchange, Inc., (“Phlx”), a national securities exchange, have entered into an agreement pursuant to which NASDAQ OMX would acquire all of the outstanding capital stock of Phlx (“Phlx Acquisition,” together with the BSE Acquisition, the “Acquisitions”). Today, the Commission approved proposed rule changes by Phlx in connection with the Phlx Acquisition, that include, among other things, the same amended NASDAQ OMX By-Laws that are the subject of this proposal by Nasdaq. 6 5 NASDAQ OMX would not acquire BSE's interest in Boston Options Exchange Group, LLC, the operator of BSE's options trading facility, the Boston Options Exchange (“BOX”). 6 *See* Securities Exchange Act Release No. 58179 (July 17, 2008) (SR-Phlx-2008-31) (order approving proposed changes relating to the acquisition of Phlx by NASDAQ OMX) (“Phlx Order”) at sections III.B and III.C.1. Following the Acquisitions, Nasdaq would maintain its current registration as a national securities exchange, and would maintain rules, membership rosters, and listings that would be separate and distinct from the rules, membership rosters, and listings of BSE and Phlx. 7 As a result of the Acquisitions, NASDAQ OMX also would acquire BSE's wholly-owned subsidiary, the Boston Stock Exchange Clearing Corporation (“BSECC”), and Phlx's wholly-owned subsidiary, the Stock Clearing Corporation of Philadelphia (“SCCP”), both registered clearing agencies. 8 Following the closing of the Acquisitions, NASDAQ OMX would be the sole owner of five self-regulatory organizations (“SROs”): Nasdaq, BSE, BSECC, Phlx, and SCCP (collectively, “SRO Subsidiaries”). 7 *See* NASDAQ OMX By-Law Proposal Notice, *supra* note 3, at 26183. 8 *See* NASDAQ OMX By-Laws Proposal Notice, *supra* note 3, at 26182-26183. After the Acquisitions, Phlx would continue to operate SCCP and BSE would continue to operate BSECC. *See* Phlx Order, *supra* note 6, and Securities Exchange Act Release No. 57757 (May 1, 2008), 73 FR 26159 (May 8, 2008) (SR-BSE-2008-23) (notice proposing, among other things, changes to BSE's governing documents and rules in connection with NASDAQ OMX's acquisition of BSE). Although NASDAQ OMX is not itself an SRO, its activities with respect to the operations of its SRO Subsidiaries must be consistent with, and must not interfere with, the self-regulatory obligations of the SRO Subsidiaries. Further, certain provisions of NASDAQ OMX's Certificate of Incorporation and By-Laws are rules of an exchange if they are stated policies, practices, or interpretations, as defined in Rule 19b-4 under the Act, of the self-regulatory organization, and must be filed with the Commission pursuant to Section 19(b) of the Act and Rule 19b-4 thereunder. 9 Accordingly, Nasdaq has filed with the Commission proposed changes to the NASDAQ OMX By-Laws. 9 15 U.S.C. 78s(b) and 17 CFR 240.19b-4, respectively. The changes to NASDAQ OMX By-Laws filed by Nasdaq would expand the application of certain provisions of NASDAQ OMX's Restated Certificate of Incorporation and NASDAQ OMX's By-Laws to include each of NASDAQ OMX's SRO Subsidiaries. These provisions of NASDAQ OMX's governing documents currently apply only to Nasdaq and are designed to maintain the independence of each SRO Subsidiary's self-regulatory function; enable each SRO Subsidiary to operate in a manner that complies with the federal securities laws; and facilitate the ability of each SRO Subsidiary and the Commission to fulfill their regulatory and oversight obligations under the Act. After careful review and for the reasons discussed more fully below, the Commission finds that the NASDAQ OMX By-Law Proposal is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 10 Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(1) of the Act, 11 which requires, among other things, that a national securities exchange be so organized and have the capacity to carry out the purposes of the Act, and to comply and enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulations thereunder, and the rules of the exchange. 10 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 11 15 U.S.C. 78f(b)(1). A. Self-Regulatory Function of the SRO Subsidiaries; Relationship Between NASDAQ OMX and the SRO Subsidiaries; Jurisdiction Over NASDAQ OMX Although NASDAQ OMX does not itself carry out regulatory functions for Nasdaq and will not carry out regulatory functions for its other SRO Subsidiaries, its activities with respect to the operation of its SRO Subsidiaries, including Nasdaq, must be consistent and not interfere with their respective self-regulatory obligations. The NASDAQ OMX Certificate and the NASDAQ OMX By-Laws include certain provisions, approved by the Commission in the context of Nasdaq's registration as a national securities exchange, 12 that are designed to maintain the independence of Nasdaq's self-regulatory function from NASDAQ OMX, enable Nasdaq to operate in a manner that complies with the federal securities laws, including the objectives of Sections 6(b) and 19(g) of the Act, 13 and facilitate the ability of Nasdaq and the Commission to fulfill their regulatory and oversight obligations under the Act. 14 Nasdaq's proposed rule change would make these provisions applicable to all of NASDAQ OMX's SRO Subsidiaries. 15 12 *See* Securities Exchange Act Release No. 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (“Nasdaq Exchange Registration Approval Order”) at notes 27-34 and accompanying text. 13 15 U.S.C. 78f(b) and 15 U.S.C. 78s(g). 14 *See* Sections 11.3 and 12.1-12.5, NASDAQ OMX By-Laws. 15 Nasdaq proposes to add a definition of “Self-Regulatory Subsidiary” that includes each SRO Subsidiary. Self-Regulatory Subsidiary would mean each of
(i)Nasdaq;
(ii)upon the closing of their acquisition by NASDAQ OMX, BSE and BSECC; and
(iii)upon the closing of their acquisition by NASDAQ OMX, Phlx and SCCP. *See* proposed Article I(o), NASDAQ OMX By-Laws. The proposed rule change would expand the applicability of the Section 11.3 and each section of Article XII of the NASDAQ OMX By-Laws, currently applicable only to Nasdaq, to also include BSE, BSECC, Phlx and SCCP. In particular, as amended, the By-Laws of NASDAQ OMX specify that NASDAQ OMX and its officers, directors, employees, and agents irrevocably submit to the jurisdiction of the United States federal courts, the Commission, and each self-regulatory subsidiary of NASDAQ OMX for the purposes of any suit, action or proceeding pursuant to the United States federal securities laws, and the rules and regulations thereunder, arising out of, or relating to, the activities of any self-regulatory subsidiary. 16 Further, NASDAQ OMX agreed to provide the Commission with access to its books and records. 17 NASDAQ OMX also agreed to keep confidential non-public information relating to the self-regulatory function 18 of each SRO Subsidiary, including Nasdaq, and not to use such information for any non-regulatory purpose. In addition, the board of directors of NASDAQ OMX (“NASDAQ OMX Board”), as well as NASDAQ OMX's officers, employees, and agents, are required to give due regard to the preservation of the independence of each SRO Subsidiary's, including Nasdaq's, self-regulatory function. 19 Similarly, the NASDAQ OMX Board, when evaluating any issue, would be required to take into account the potential impact on the integrity, continuity, and stability of the SRO Subsidiaries. 20 Finally, the NASDAQ OMX By-Laws require that any changes to the NASDAQ OMX Certificate and By-Laws be submitted to the Board of Directors of each of its SRO Subsidiaries, including Nasdaq, and, if such amendment is required to be filed with the Commission pursuant to Section 19(b) of the Act, such change shall not be effective until filed with, or filed with and approved by, the Commission. 21 16 *See* proposed Section 12.3, NASDAQ OMX By-Laws. 17 *See* proposed Section 12.1(c), NASDAQ OMX By-Laws. To the extent that they relate to the activities of Nasdaq, all books, records, premises, officers, directors, and employees of NASDAQ OMX would be deemed to be those of the Nasdaq. *See id.* 18 This requirement to keep confidential non-public information relating to the self-regulatory function shall not limit the Commission's ability to access and examine such information or limit the ability of directors, officers, or employees of the NASDAQ OMX from disclosing such information to the Commission. *See* proposed Section 12.1(b), NASDAQ OMX By-Laws. Other holding companies with SRO subsidiaries have undertaken similar commitments. *See* , *e.g.* , Securities Exchange Act Release No. 56955 (December 13, 2007), 72 FR 71979, 71983 (December 19, 2007) (SR-ISE-2007-101) (order approving the acquisition of International Securities Exchange, LLC's parent, International Securities Exchange Holdings, Inc., by Eurex Frankfurt AG). 19 *See* Section 12.1(a), NASDAQ OMX By-Laws. Also, NASDAQ OMX's officers, directors, agents and employees agree to cooperate with the Commission and each SRO Subsidiary in respect of their respective regulatory responsibilities. *See* proposed Section 12.2, NASDAQ OMX By-Laws. Further, pursuant to proposed Section 12.4 of the NASDAQ OMX By-Laws, NASDAQ OMX agreed to take such action as is necessary to insure that its officers, directors, employees and agents consent in writing to the applicability of Sections 12.1, 12.2 and 12.3 of the NASDAQ OMX By-Laws with respect to activities related to each SRO Subsidiary. 20 *See* proposed Section 12.7, NASDAQ OMX By-Laws. 21 *See* proposed Sections 11.3 and 12.6, NASDAQ OMX By-Laws. The Commission believes that the NASDAQ OMX By-Laws, as amended to accommodate the Acquisitions, are designed to continue to facilitate Nasdaq's ability to fulfill its self-regulatory obligations and are, therefore, consistent with the Act. In particular, the Commission believes these changes are consistent with Section 6(b)(1) of the Act, 22 which requires, among other things, that a national securities exchange be so organized and have the capacity to carry out the purposes of the Act, and to comply and enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulations thereunder, and the rules of the exchange. 22 15 U.S.C. 78f(b)(1). The Commission also believes that under Section 20(a) of the Act 23 any person with a controlling interest in NASDAQ OMX would be jointly and severally liable with and to the same extent that NASDAQ OMX is liable under any provision of the Act, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. In addition, Section 20(e) of the Act 24 creates aiding and abetting liability for any person who knowingly provides substantial assistance to another person in violation of any provision of the Act or rule thereunder. Further, Section 21C of the Act 25 authorizes the Commission to enter a cease-and-desist order against any person who has been “a cause of” a violation of any provision of the Act through an act or omission that the person knew or should have known would contribute to the violation. 23 15 U.S.C. 78t(a). 24 15 U.S.C. 78t(e). 25 15 U.S.C. 78u-3. B. Exemptions From Voting Limitations The NASDAQ OMX Certificate imposes limits on direct and indirect changes in control, which are designed to prevent any shareholder from exercising undue control over the operation of Nasdaq and to ensure that Nasdaq and the Commission are able to carry out their regulatory obligations under the Act. 26 Specifically, no person who beneficially owns shares of common stock, preferred stock, or notes of NASDAQ OMX in excess of 5% of the securities generally entitled to vote may vote the shares in excess of 5%. 27 No changes to these limitations are proposed. 26 *See* Nasdaq Exchange Registration Approval Order, *supra* note 12, at 3552. 27 *See* Article Fourth.C, NASDAQ OMX Certificate. The NASDAQ OMX Board may approve exemptions from the 5% voting limitations for any person that is not a broker-dealer, an affiliate of a broker-dealer, or a person subject to a statutory disqualification under Section 3(a)(39) of the Act, 28 so long as the NASDAQ OMX Board also determines that granting such exemption would be consistent with the self-regulatory obligations of Nasdaq. 29 Further, any such exemption from the 5% voting limitations would not be effective until approved by the Commission pursuant to Section 19 of the Act. 30 Nasdaq's proposed rule change reflects an amendment to the NASDAQ OMX By-Laws to require the NASDAQ OMX Board, prior to approving any exemption from the 5% voting limitations, to determine that granting such exemption would be consistent with the self-regulatory obligations of each SRO Subsidiary, including Nasdaq. 31 Therefore, there is no change in the application of this provision to Nasdaq. 28 15 U.S.C. 78c(a)(39). *See* Article Fourth.C.6, NASDAQ OMX Certificate. 29 Specifically, the NASDAQ OMX Board must determine that granting such exemption would
(1)not reasonably be expected to diminish the quality of, or public confidence in, NASDAQ OMX or the other operations of NASDAQ OMX, on the ability to prevent fraudulent and manipulative acts and practices and on investors and the public, and
(2)promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to and facilitating transactions in securities or assist in the removal of impediments to or perfection of the mechanisms for a free and open market and a national market system. *See* Article Fourth.C.6, NASDAQ OMX Certificate. 30 *See* Section 12.5, NASDAQ OMX By-Laws. 31 *See* proposed Section 12.5, NASDAQ OMX By-Laws. These provisions would apply for so long as NASDAQ OMX controls, directly or indirectly, any SRO Subsidiary. *Id. See also supra* note 20 and accompanying text. The Commission finds that the foregoing change to the NASDAQ OMX By-Laws to reflect NASDAQ OMX's ownership of multiple SRO Subsidiaries is consistent with the Act. III. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 32 that the NASDAQ OMX By-Law Proposal (SR-NASDAQ-2008-035), as modified by Amendment No. 1 thereto, be, and hereby is, approved. 33 32 15 U.S.C. 78s(b)(2). 33 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. Florence E. Harmon, Acting Secretary. [FR Doc. E8-16828 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58184; File No. SR-NYSE-2008-46] Self-Regulatory Organizations; New York Stock Exchange, LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Create a New NYSE Market Model, With Certain Components To Operate as a One-Year Pilot That Will Provide Market Participants With Additional Abilities To Post Hidden Liquidity, Phase Out Specialists by Creating a Designated Market Maker, and Enhance the Speed of Execution Through Technological Enhancements July 17, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on June 12, 2008, the New York Stock Exchange, LLC (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On July 15, 2008, the Exchange filed Amendment No. 1 to the proposed rule change. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to establish a new market model (“New Model”) to:
(i)Provide market participants with additional abilities to post hidden liquidity on Exchange systems;
(ii)create a Designated Market Maker (“DMM”), and phase out the NYSE specialist; and
(iii)enhance the speed of execution through technological enhancements and a reduction in message traffic between Exchange systems and its DMMs. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NYSE included statements concerning the purpose of, and basis for, the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose With this rule filing, the Exchange is proposing to transform its market structure and create the premier venue for price discovery, liquidity, competitive quotes and price improvement. The instant proposal is the core filing of a series of rule amendments 3 submitted by the Exchange designed to move its market structure forward in a very dynamic and competitive marketplace. For example, in April 2008, the Exchange expanded to all market participants the ability to enter both displayed and non-displayed (reserve) trading interest in NYSE's Display Book® (“Display Book”). Another important aspect of the New Model will be enhancements to technology that will greatly increase the speed of execution. The key elements of this filing are:
(1)The Redefinition of the Role of the Specialist and
(2)Priority and Parity. 3 *See* SR-NYSE-2008-45, filed with the Commission on June 11, 2008 (proposal to amend NYSE Rule 98 to redefine Specialist Operations at the NYSE); *see* *also* e-mail from Deanna G.W. Logan, Associate General Counsel, NYSE to David Liu, Assistant Director, Division of Trading and Markets (“Division”), Commission, dated July 17, 2008 (making clarifying edits) (“July 17th e-mail”). Historically, the specialist was responsible for execution of all orders coming into the Exchange, conducting auctions on the Floor, and for maintaining an orderly market in assigned securities. To assist in this function, the specialist had an order-by-order advance “look” at activity in the Display Book. When the Exchange implemented its NYSE HYBRID MARKET SM (“Hybrid Market”), 4 Exchange systems assumed the function of matching and executing orders entered electronically, although the specialist retained a first “look” at incoming orders. The proposed rules redesign the role of the specialist to reflect more accurately the market making function in the Hybrid Market environment by creating a new category of market participant, DMM, and to eliminate the “specialist” category. 4 *See* Securities Exchange Act Release No. 53539 (March 22, 2006), 71 FR 16353 (March 31, 2006) (SR-NYSE-2004-05). In the New Model, DMMs will no longer function (as the specialist did) as the “broker-dealer of record” for every order. The DMM will not “hold” orders. Like specialists today, DMMs will be able to generate orders through a DMM algorithm that interacts directly with the Display Book. However, in the New Model, DMMs will be able to commit additional liquidity in advance to fill incoming orders (“Capital Commitment Schedule” or “CCS”). The CCS will create a liquidity schedule at various price points where the DMM is willing to interact with interest and provide price improvement to orders in the Exchange's system. The DMM will have affirmative responsibilities to the Exchange's marketplace (including an obligation to provide quotes at the National Best Bid and Offer (“NBBO”)). Balancing that equation of increased market-making capabilities against affirmative responsibilities, the DMM will be given more freedom to manage trading risks associated with their responsibilities to the NYSE market. As part of the redesign of its market, the NYSE proposes to amend the logic related to share distribution among market participants having trading interest at a price point upon execution of incoming orders to create a model that rewards displayed orders that establish the NYSE's best bid or Exchange best offer (collectively “Exchange BBO” 5 ). In the proposed New Model, orders or portions thereof that establish priority, as more fully described below, will retain that priority until the portion of the order that established priority is exhausted. Where no one order has established priority, shares will be distributed among all market participants on parity. 5 The term “Exchange BBO” refers to the best bid or the best offer on the NYSE. It should not be confused with the defined terms “national best bid” and “national best offer” as defined in Rule 600(b)(42) of Regulation NMS Rule 242.600(b)(42) under the Act. In this filing, the Exchange first describes the market model as it currently exists and then describes the rules which implement the New Model and any other required conforming rule amendments. The NYSE intends to implement these changes in a phased approach during third and fourth quarters of 2008. Current Exchange Market
(a)Overview and Background On March 22, 2006, the Commission approved amendments to Exchange rules to establish the Hybrid Market. The Hybrid Market integrates in one marketplace the best of both auction market and electronic trading. The goal of the Hybrid Market was to combine the benefits of specialist and Floor broker expertise with the speed, certainty, and anonymity of electronic execution. It was designed to offer maximum choice to customers in how to execute orders, while preserving traditional trading procedures that historically served to provide stable, liquid, and less volatile markets. The Exchange continually reviews the operation of its market, changes in the behavior of market participants and the general environment of the securities markets in order to find ways to improve the quality and competitiveness of its market. As a result of this review, the Exchange introduced a number of enhancements to its Hybrid Market aimed at improving the trading experience for market participants. 6 6 *See* *generally* Securities Exchange Act Release Nos. 56599 (October 2, 2007), 72 FR 57622 (October 10, 2007) (SR-NYSE-2007-93) (amending NYSE Rules 70 and 104 to reduce the requirement that a Floor broker and specialist post 1,000 shares of displayed liquidity at the Exchange best bid or offer in order to use the reserve function); 56711 (October 26, 2007), 72 FR 62504 (November 5, 2007) (SR-NYSE-2007-83) (amendment to NYSE Rule 104.10 to extend the duration of the pilot program applicable to Conditional Transactions as defined in Rule 104.10 to March 31, 2008 and to remove the active securities limitation on Conditional Transactions); 56551 (September 27, 2007), 72 FR 56415 (October 3, 2007) (SR-NYSE-2007-82) (amendments to NYSE Rule 124 to change the way in which the Exchange prices and executes odd-lot order); 56370 (September 6, 2007), 72 FR 52188 (September 12, 2007) (SR-NYSE-2007-81) (amendment to NYSE Rule 104 to remove required price parameters for a specialist to provide price improvement to an incoming order); 56209 (August 6, 2007), 72 FR 45290 (August 13, 2007) (SR-NYSE-2007-65) (amendment to NYSE Rule 79A.30 to remove the requirement to obtain Floor Official approval before trading more than one or two dollars away from the last sale); 56088 (July 18, 2007), 72 FR 40351 (SR-NYSE-2007-63) (July 24, 2007) (amendment to NYSE Rule 92 to permit specialists to trade between the hours of 6 p.m. and 9:15 a.m. in any security in which the specialist is registered, notwithstanding any open customer orders on the Display Book); 55908 (June 14, 2007), 72 FR 34056 (June 20, 2007) (SR-NYSE-2007-54) (amendments to NYSE Rules 54 and 70 to allow member organizations to operate booth premises on the Exchange Floor similar to Upstairs offices); 54820 (November 27, 2006), 71 FR 70824 (December 6, 2006) (SR-NYSE-2006-65) (amendment to clarify certain definitions and systematic processing of certain orders in the HybridMarket); and 54086 (June 30, 2006), 71 FR 38953 (July 10, 2006) (SR-NYSE-2006-24) (amendment to NYSE Rule 104(d)(i) to conform the minimum display requirements for reserve interest for specialists and Floor brokers such that specialists, like Floor brokers, only be required to provide at least 1,000 shares displayed interest at the bid and offer in order to have reserve interest on that side of the quote). Today on the Exchange, customers who want execution speed and certainty, with anonymity, can enter a variety of order types into Exchange systems that will result in immediate and automatic executions and/or price improvement for some or all of the order. Alternatively, customers who value Floor broker expertise in the handling of their orders can submit orders for execution in the traditional auction process and/or participate electronically in automatic executions through Floor broker agency interest files (“e-Quotes”). Specialists on the Floor, meanwhile, have been given tools with which to offer additional opportunities for price improvement; these tools include various targeted quoting or trading messages based on the state of the specialist's book and the market, including the ability to match better prices of away market centers. In this way, a customer sending his or her order to the Exchange today benefits from an expanded experience of execution opportunities.
(b)Exchange Systems All orders entered into Exchange systems are maintained in the Display Book. Autoquote is a part of the Display Book that immediately displays customer limit orders received on the Exchange. 7 Autoquote immediately updates the Exchange BBO when a new order improves the Exchange quote. 8 In addition, Autoquote updates the Exchange BBO when an execution occurs to reflect a new Exchange BBO based on the orders contained in the Display Book. Pursuant to Exchange Rule 60, Autoquote is suspended when:
(1)The specialist manually reports a block size transaction that involves orders in the Display Book system;
(2)the specialist gaps the quote; 9 or
(3)when a Liquidity Replenishment Point (“LRP”) is reached. 10 When Autoquote is suspended due to a manual report of a block trade that involves orders in the Display Book, 11 Autoquote resumes when the manual reporting is concluded. 12 When Autoquote is suspended following a gap quote, Autoquote resumes upon the report of a manual transaction or the publication of a non-gapped quotation. 13 When Autoquote is suspended because an LRP has been reached, it resumes in no more than five seconds after the LRP is reached. 14 If the order that triggers the LRP is capable of trading at a price beyond the LRP price, and would not create a locked or crossed market if quoted, then Autoquote resumes upon the report of a manual transaction or the publication of a new quote by the specialist, but in any event in no more than ten seconds. 15 Finally, if the order is capable of trading at a price beyond the LRP price but would create a locked or crossed market if quoted, then Autoquote would resume upon a manual transaction or the publication of a new quote by the specialist. 16 7 This system was developed to facilitate specialists' compliance with the Commission's Limit Order Display Rule. *See* 17 CFR 242.604. 8 *See* NYSE Rule 60(e). 9 A specialist could cause a non-auto-executable quote by gapping the quotation due to an order imbalance in accordance with the policies and procedures of the Exchange. Gap quotes are used to signal an imbalance so as to attract contra-side liquidity in an attempt to mitigate volatility. The size of an imbalance suitable for gapped quoting is at least 10,000 shares or a quantity of stock having a value of $200,000 or more, although depending on the trading characteristics of the security, the appropriate conditions for gapped quoting could be higher. *See* NYSE Information Memo 04-27 (June 9, 2004). When the quotation is gapped, automatic executions and Autoquote would be suspended, and the NYSE quote would be identified as non-firm. Incoming orders and cancellations update the Book electronically. Once a trade occurs or a non-gapped quote is published, Autoquote and automatic execution resume. 10 LRPs are pre-determined price points that function as “speed bumps” to moderate volatility in a particular security, improve price continuity, and foster market quality by temporarily converting the electronic market to an auction market and permitting new orders, the Crowd, or the specialist, to add liquidity. *See* *also* NYSE Rules 60(e)(i) and 1000(a)(iv). 11 *See* NYSE Rule 1000(a)(v). 12 *See* NYSE Rule 60(e)(ii)(B). 13 *See* NYSE Rule 60(e)(ii)(A). 14 *See* NYSE Rule 60(e)(ii)(C). 15 *See id.* 16 *See id.* During the brief moment it takes a specialist to manually report a transaction in a security, Autoquoting of the highest bid/lowest offer is suspended in that stock. 17 In addition, during that same period of time, automatic executions against the interest that is published in the NYSE quote at the Exchange BBO (“displayed”) are not available. 18 After the specialist has completed the report of the transaction, Autoquote will resume immediately, 19 and the NYSE quotation will similarly again be available for automatic executions. 20 17 *See* NYSE Rule 60(e)(i)(B). 18 *See* NYSE Rule 1000(a)(v). 19 *See* NYSE Rule 60(e)(ii)(B). 20 *See* NYSE Rule 1000(b). Currently all orders, except orders entered in securities that the Exchange has designated as manually traded securities, entered into Exchange systems 21 are eligible for automatic and immediate execution. The maximum order size eligible for automatic execution is one million shares. 21 There still remain certain securities traded on the Exchange that are not designated to participate in automatic execution pursuant to NYSE Rule. The Display Book is the Exchange's order execution system for round lot orders 22 entered on the Exchange by participants. Display Book maintains a separate volume category for Floor broker's interest, Off-Floor participant's (“Off-Floor”) interest and specialist's interest. 22 Currently, odd-lot orders do not enter the Exchange's auction market but are executed systemically by Exchange systems designated solely for odd-lot orders (the “odd-lot System”). The odd-lot System executes all odd-lot orders against the specialist as the contra party. *See* NYSE Rule 124. Incoming marketable limit orders and market orders automatically execute to the extent possible at the NBBO and then, if there is insufficient liquidity available at the bid or offer, the remainder of the order will execute automatically against available liquidity at each price point ( *i.e.* , below the bid in the case of an order to sell or above the offer in the case of an order to buy) in one continuous transaction (“sweep”). The sweep ends when the order has reached its total cumulative quantity, its limit price or when it hits an intervening LRP. Posted liquidity, reserve liquidity, convert and parity (“CAP”) liquidity, and specialist liquidity at each price point are all liquidity available to execute against an order during a sweep.
(c)Market Participants
(1)Specialists A NYSE specialist is a market professional who manages the two-way auction market trading in the specific securities he or she has been assigned. He or she works for a specialist unit, which is an independent company in the business of trading listed securities. The specialist serves as the “responsible broker or dealer” on the Exchange as that term is defined in Rule 600 of Regulation National Market System (“Reg. NMS”). 23 Pursuant to section (a)(2) of Rule 602, 24 when NYSE Rule 60 was adopted, the specialist responsible for each security available for quotation on the Exchange was designated as the responsible broker or dealer. 25 The specialist as designated responsible broker or dealer is responsible, with respect to each reported security, to collect all bids and offers, determine the highest bid and lowest offer and quote and otherwise communicate to the quotation vendors the same along with the quotation size for each security. 26 23 *See* 17 CFR 242.600(a)(65)(i), which states that responsible broker or dealer means, “when used with respect to bid or offers communicated on a national securities exchange, any member on such national securities exchange who communicates to another member on such national securities exchange, at the location (or locations) or through the facility or facilities designated by such national securities exchange for trading in an NMS security a bid or offer for such NMS security, as either principal or agent; provided, however, that, in the event two or more members of a national securities exchange have communicated on or through such national securities exchange bid or offers for an NMS security at the same price, each such member shall be considered a responsible broker or dealer for that bid or offer, subject to the rules of priority and precedence then in effect on that national securities exchange; and further provided, that for a bid or offer which is transmitted from one member of a national securities exchange to another member who undertakes to represent such bid or offer on such national securities exchange as agent, only the last member who undertakes to represent such bid or offer as agent shall be considered the responsible broker or dealer for that bid or offer. * * *” *See also* NYSE Rule 60. 24 *See* 17 CFR 242.602(a)(2). 25 *See* NYSE Rule 60(a)(2), which provides that the “term ‘responsible broker or dealer' shall mean, with respect to any bid or offer for any reported security made available by the Exchange to quotation vendors, the specialist in such reported security, who shall be the responsible broker or dealer to the extent of the quotation size he specifies.” 26 *See* NYSE Rule 60(c) and 17 CFR 242.602(b)(1). Today, these functions are done by the Exchange Autoquote system. In addition to being the responsible broker dealer, NYSE Rule 104 governs specialist dealings in the market. Specialists' transactions for their own account are subject to specific expectations of performance. These include a specialist's affirmative and negative obligations. Pursuant to these obligations, specialists have a duty to ensure that their principal transactions are designed to contribute to the maintenance of price continuity with reasonable depth. The affirmative obligation requires a registered specialist to maintain adequate minimum capital based on his or her registered securities and use said capital to engage in a course of dealings for his or her own account to assist in the maintenance, so far as practicable, of a fair and orderly market. 27 Thus pursuant to the affirmative obligations, registered dealers on primary exchanges are required to commit the dealer's capital in their registered securities in order to maintain a fair and orderly market. 27 *See* 17 CFR 240.11b-1. The negative obligation, which is part of NYSE Rule 104, requires that specialists allow public orders to be executed against each other without undue dealer intervention and that specialists not deal in a manner that is inconsistent with the overall objective of maintaining a fair and orderly market. Specifically, NYSE Rule 104(a) provides: No specialist shall effect on the Exchange purchases or sales of any security in which such specialist is registered, for any account in which he, his member organization or any other member, allied member, or approved person, (unless an exemption with respect to such approved person is in effect pursuant to Rule 98) in such organization or officer or employee thereof is directly or indirectly interested, unless such dealings are reasonably necessary to permit such specialist to maintain a fair and orderly market, or to act as an odd-lot dealer in such security. To assist specialists in meeting their obligations, they have the ability to manually and systematically place in a separate file (“specialist interest file” or “s-Quotes”) within the Display Book system their dealer interest at prices at or outside the Exchange BBO. 28 Specialists further have the ability to maintain reserve interest on behalf of their dealer accounts at the Exchange BBO, provided that they display at least one round lot at that price on the same side of the market as the reserve. 29 After an execution against a specialist's displayed bid (offer), if the specialist has reserve interest remaining at that bid (offer), the amount of displayed interest is automatically replenished from the specialist's reserve interest, if any, so that at least one round lot of specialist interest is displayed. 30 Specialist interest at the Exchange BBO is included in the Exchange quote; displayable specialist interest away from the Exchange BBO is currently included in NYSE OpenBook® (“OpenBook”). 31 28 *See* NYSE Rules 104(b)(i) and 104(c)(viii). 29 *See* NYSE Rule 104(d)(i). When discussed herein, the term “displayable” shall mean that portion of non-marketable interest that would be published as, or as part of, the Exchange BBO. The term “displayed interest” includes that part of an order that is published as, or as part of, the Exchange BBO. 30 *See* NYSE Rule 104(d)(ii). 31 OpenBook is a compilation of limit order data for all NYSE traded securities that the Exchange provides to market data vendors, broker-dealers, private network providers, and other entities through a data feed. *See* Securities Exchange Act Release No. 44138 (December 7, 2001), 66 FR 64895 (December 14, 2001) (SR-NYSE-2001-42). *See* also July 17th e-mail, *supra* note 3. Further, in their capacity as dealer for their assigned securities, specialists maintain systems that use proprietary algorithms, based on predetermined parameters, to electronically participate in the Exchange electronic market (“Specialist Algorithm”). The Specialist Algorithm communicates with the Display Book system via an Exchange-owned external application programming interface (“API”). The Specialist Algorithm is intended to replicate electronically some of the activities specialists are permitted to engage in on the Floor in the auction market, and to facilitate specialists' ability to fulfill their obligations to maintain a fair and orderly market. The Specialist Algorithm receives information via the API, including information about orders entering NYSE systems, before that information is available to other market participants. 32 NYSE systems enforce the proper sequencing of incoming orders and algorithmically-generated messages. 33 The Specialist Algorithm and the specialists on the Floor do not have the ability to affect the arrival of orders at the Display Book system, or the sequence in which orders and algorithmically-generated messages are processed by the Display Book system. 34 The Specialist Algorithm, however, is able to generate certain specified quoting and trading messages based on the information it receives through the API. Once an algorithmic message has been generated, it cannot be stopped, changed, or cancelled on its way to the Display Book system. 32 *The Specialist Algorithm has access to the following information:*
(1)Specialist dealer position;
(2)quotes;
(3)information about orders in the Display Book system such as limit orders, percentage orders (“state of the book”);
(4)any publicly available information the specialist firm chooses to supply to the algorithm, such as the Consolidated Quote stream; and
(5)incoming orders as they are entering NYSE systems. *The Specialist Algorithm does not have access to:*
(1)Information identifying the firms entering orders, customer information, or an order's clearing broker;
(2)floor broker agency interest files or aggregate floor broker agency interest available at each price; or
(3)order cancellations, except for cancel and replace orders. *See* NYSE Rule 104(c)(ii). 33 *See* NYSE Rule 104(b)(iii)(A). 34 *See* NYSE Rule 104(b)(iii)(B). The Display Book system does not accept algorithmically-generated messages from the Specialist Algorithm when automatic executions are unavailable, except in certain specified situations. 35 Specifically, when automatic executions are suspended, but Autoquote is active, the Display Book system accepts algorithmically-generated messages from the Specialist Algorithm to generate a bid or offer that improves the Exchange BBO or supplements the size of the existing BBO. 36 35 *See* NYSE Rule 104(c)(vi). 36 *See* NYSE Rule 104(c)(vi)(i). *In addition, when Autoquote and automatic executions are suspended, the Display Book system:*
(1)Processes algorithmically-generated messages to layer specialist interest outside the published Exchange quotation; and
(2)permits specialists to manually layer specialist interest at prices within a previously established locking or crossing quotation. 37 37 *See* NYSE Rule 104(c)(vi)(ii). Display Book does not process algorithmically-generated messages from the Specialist Algorithm during the time a block size transaction involving orders in the Display Book system is being manually reported. 38 Algorithmically-generated messages are systemically blocked from creating a locked or crossed market 39 and would have to comply with all Commission and NYSE rules, policies and procedures governing specialist proprietary trading. 40 38 *See* NYSE Rule 104(c)(v). 39 *See* NYSE Rule 104(c)(iv). 40 *See* NYSE Rule 104(c)(iii). In general, specialists can generate two categories of messages: quoting messages and trading messages. *Quoting messages allow the Specialist Algorithm to:*
(1)Supplement the size of the existing Exchange BBO;
(2)place within the Display Book system specialist reserve interest at the Exchange BBO; 41
(3)layer within the Display Book system specialist interest at varying prices outside the Exchange BBO;
(4)establish the Exchange BBO; and
(5)withdraw previously established specialist interest at the Exchange BBO. 42 Quoting messages do not interact with the order that preceded it. In addition, specialists are systemically blocked from generating a quoting message that moves their quote away from the inside market only until after the order it is reacting to is processed. 41 *See* NYSE Rule 104(d). 42 *See* NYSE Rule 104(b)(i)(A)-(E). *Trading messages allow the specialist to:*
(1)Provide “additional specialist volume” to partially or completely fill an order at the Exchange BBO or at a sweep price;
(2)match better bids and offers published by other market centers where automatic executions are immediately available;
(3)provide price improvement to an order, subject to the conditions outlined below; and
(4)trade with the Exchange published quotation—that is, “hit bids” or “take offers.” 43 Trading messages generated in response to an incoming order do not guarantee that the specialist interacts with that order or that the specialist has priority in trading with that order. 44 Specialist interest may not trade with the order identified by the algorithmic message because the specialist's message did not arrive at the Display Book in time or the specialist has to yield to off-Floor orders in Display Book which cancels the specialist interest. 45 Moreover, even when the specialist sets the NBBO and no off-Floor interest is present, a specialist may still not receive priority because of an intervening Floor clearing event which causes the specialist to lose priority. 46 43 *See* NYSE Rule 104(b)(i)(F)-(I). 44 *See* NYSE Rule 104(c)(i)(C). 45 *See* NYSE Rule 104(c)(i)(D). 46 A Floor clearing event is any intervening transaction or an update of the NYSE quote. The Specialist Algorithm further allows the specialists, on behalf of their dealer accounts, to electronically provide price improvement to all or part of a marketable incoming order provided the specialist is represented in a “meaningful amount” 47 in the bid with respect to price improvement provided to an incoming sell order, or in the offer with respect to price improvement provided to an incoming buy order. Price improvement by the specialist benefits the incoming order and CAP-DI orders 48 entered on the Exchange because marketable CAP-DI orders are systemically converted to allow these orders to participate on parity with the specialist when the specialist is price improving an incoming order. 49 47 *See* NYSE Rule 104(e)(ii) which provides that “meaningful amount” shall constitute at least ten round-lots for the 100 most active securities on the Exchange, based on average daily volume, and at least five round-lots for all other securities on the Exchange. A list of the 100 most active securities on the Exchange is disseminated quarterly, or more frequently, as determined by the Exchange. Specialists cannot provide price improvement to an incoming order that is not marketable ( *i.e.,* those orders that would establish a new best bid or best offer), and the specialist cannot trade with such an order until the new bid or offer is publicly disseminated. 48 This type of CAP order provides that the elected or converted portion of the percentage order that is convertible on a destabilizing tick and designated immediate execution or cancel election. *See* NYSE Rules 13 and 123A.30(a). 49 *See* NYSE Rule 123A.30(a)(iii). Specialists' messages to trade with the Exchange published quote must include information that indicates the quote has been publicly disseminated. 50 In addition, to ensure that a specialist's algorithmic message to trade with the Exchange published quotation does not possess any speed advantage in reaching the Display Book system, Exchange systems process such messages in a manner that gives specialists and other market participants a similar opportunity to trade with the Exchange's published quotation, by delaying the processing of this type of trading message from the Specialist Algorithm. 51 50 *See* NYSE Rule 104(c)(i)(A). 51 *See* NYSE Rule 104(b)(iii)(B). Based upon the average transit time from the Common Message Switch (“CMS”) system to the Display Book system, the Exchange determines the appropriate amount of time to delay the processing of algorithmic messages to trade with the Exchange published quotation. The delay parameter is adjusted periodically to account for changes to the average transit time resulting from capacity and other upgrades to Exchange systems. In addition to systemic restraints on the specialist's ability to trade with the published bid and offer, the specialist is required pursuant to NYSE Rule 104 to re-enter liquidity on the opposite side of the market when he or she effects a transaction for their own account to establish or increase a position and reaches across the market to trade as the contra-side to the Exchange published bid or offer (“Conditional Transaction”). Conditional Transactions may have additional re-entry obligations pursuant to the rule. Specifically, pursuant to NYSE Rule 104.10(6)(iii), “appropriate” re-entry means “re-entry on the opposite side of the market at or before the price participation point or the ‘PPP.’ ” 52 Depending on the type of Conditional Transaction, a specialist's obligation to re-enter may be immediate or subject to the same re-entry conditions of Non-Conditional Transactions. 53 52 NSYE Rule 104.10(6)(iii)(a) provides that the PPP identifies the price at or before which a specialist is expected to re-enter the market after effecting a Conditional Transaction. PPPs are only minimum guidelines and compliance with them does not guarantee that a specialist is meeting its obligations. 53 *NYSE Rule 104.10(6)(iii)(c) requires immediate re-entry following a Conditional Transaction that is:*
(I)A purchase that
(1)reaches across the market to trade with an Exchange published offer that is above the last differently priced trade on the Exchange and above the last differently priced published offer on the Exchange,
(2)is 10,000 shares or more or has a market value of $200,000 or more, and
(3)exceeds 50% of the published offer size.
(II)A sale that
(1)reaches across the market to trade with an Exchange published bid that is below the last differently priced trade on the Exchange and below the last differently priced published bid on the Exchange,
(2)is 10,000 shares or more or has a market value of $200,000 or more, and
(3)exceeds 50% of the published bid size.
(III)Each trade at a separate price in a Sweep is viewed as a transaction with the published bid or offer for the purpose of subparagraphs (6)(iii)(c)(I) and (6)(iii)(c)(II) above. *Pursuant to current NYSE Rule 104.10(6)(iv) Conditional Transactions that involve:*
(a)A specialist's purchase from the Exchange published offer that is priced above the last differently-priced trade on the Exchange or above the last differently-priced published offer on the Exchange; and
(b)A specialist's sale to the Exchange published bid that is priced below the last differently-priced trade on the Exchange or below the last differently-priced published bid on the Exchange.
(c)Re-entry obligations following transactions defined in subparagraphs (6)(iv)(a) and (6)(iv)(b) above are the same as for Non-Conditional Transactions pursuant to subparagraph (5)(i)(a)(II)(c) above. *NYSE Rule 104.10 (5)(i)(a)(II)(c) provides:* Re-entry Obligation Following Non-Conditional Transactions—The specialist's obligation to maintain a fair and orderly market may require re-entry on the opposite side of the market trend after effecting one or more Non-Conditional Transactions. Such re-entry transactions should be commensurate with the size of the Non-Conditional Transactions and the immediate and anticipated needs of the market.
(2)Floor Brokers Floor brokers are individuals that execute orders to buy or sell securities on behalf of a customer pursuant to instructions provided by the customer. Sometimes a Floor broker may represent his or her firm's proprietary account. 54 54 NYSE Rule 112, entitled “Orders initiated ‘Off the Floor’ ” is one of the Exchange rules codifying the provisions of Section 11(a) of the Act and Commission Rule 11a-1 promulgated thereunder. In substance, these rules provide that no member or member organization, while on “the Floor” of the Exchange, may initiate a transaction in any security admitted to trading on the Exchange for an account in which they have a beneficial interest or over which they are entitled to exercise discretion, unless subject to an exception. The purpose of this rule and the securities laws upon which it is based is to eliminate the advantage at the point of sale that member organizations traditionally have been deemed to have possessed by virtue of their presence on the trading floor and adjacent surroundings. *See also* Exchange Rules 90 and 108.
(A)Floor Broker Interest Floor brokers are permitted to represent electronically the orders they hold by including these orders in a separate file (“Floor broker agency interest file,” also referred to as “e-Quotes SM ”) within the Display Book system at multiple price points on either side of the market. 55 e-Quotes enable Floor brokers' customer interest to participate in automatic executions at the Exchange BBO and in sweeps. Floor brokers are permitted to place liquidity electronically at or outside the Exchange BBO. Floor brokers are not permitted to enter in the Floor broker agency interest files any interest that restricts the specialist's ability to trade on parity with the Floor broker agency interest file. 56 55 *See* NYSE Rule 70.20(a)(i). 56 *See* NYSE Rule 70.20(a)(i) and NYSE Rule 108(a). Parity describes an equal allotment, so far as practicable, of shares among the participants eligible to participate in an execution. Floor broker agency interest placed in the Display Book becomes part of the quotation when the price point is at or becomes the Exchange BBO. All floor broker agency interest files in the Display Book system at the same price and on the same side of the market are on parity. However, an e-Quote that establishes the Exchange BBO is entitled to priority. 57 No Floor broker agency interest placed within files in the Display Book system is entitled to precedence based on size. 58 Floor broker agency interest within the Display Book can be automatically executed pursuant to Exchange Rules 1000-1004. 59 57 *See* NYSE Rule 70.20(b). Priority describes the entitlement to receive an allotment of shares before other executable interest at the price point for one trade because the bid (offer) established the Exchange BBO. A specialist bid or offer entitled to priority must yield to Off-Floor participant limit orders on the Display Book at the same price. In manual executions, an order may also be entitled to receive an allotment of shares when that order is for a number of shares greater than all other interest eligible to be executed at the price. In those instances, the order has precedence and may be executed before other executable interest at the price point. *See* NYSE Rule 72(d). 58 *Id.* 59 *See* NYSE Rule 70.20(c)(i). Floor brokers also maintain non-displayed interest (reserve) at the Exchange BBO provided that a minimum of one round lot 60 of the Floor broker's agency interest is displayed at that price. 61 If an execution at the Exchange BBO does not completely execute the Floor broker's interest at that price, the displayed interest is automatically replenished from the Floor broker's reserve interest, if any, so that at least one round lot is displayed. 62 The Floor broker reserve interest is not included in the NYSE quote. Floor broker agency interest away from the BBO is not displayed in Open Book or other Exchange data distribution channels. In order for Floor brokers' reserve interest not to be visible to the specialists, a Floor broker must designate his or her reserve interest as “Do Not Display” (“DND”) interest. 60 Generally, one round lot is 100 shares; however, there are securities on the Exchange that have units of trading of less than 100 shares. 61 *See* NYSE Rule 70.20(c)(ii). 62 *See* NYSE Rule 70.20(c)(iii). An incoming automatically-executing order will trade first with the displayed bid (offer). Where there is insufficient displayed volume to fill the order, it will trade next with a Reserve Order and Floor broker reserve interest, if any, and then any specialist reserve interest as more fully discussed below. 63 63 *See* NYSE Rule 70.20(c)(iv). Floor broker agency interest participates in the opening and closing trades subject to Exchange rules. 64 Specialists are able to see the aggregate number of shares of all Floor broker agency interest files at each price. 65 A Floor broker may exclude all of his or her Floor broker agency interest from the aggregate information available to the specialist. 66 64 *See* NYSE Rule 70.20(j)(i) and (ii). 65 *See* NYSE Rule 70.20(g). 66 *See id* . Floor broker agency interest excluded from the aggregated Floor broker agency interest information available to the specialist participates in automatic and manual executions. 67 Exchange systems include such excluded interest in the aggregated agency interest displayed to the specialist only during the execution of a manual trade. This information is maintained in the template used by a specialist to execute trades in the Display Book. As such, aggregate Floor broker agency interest visible to the specialist will include agency interest designated to be excluded from the aggregate Floor broker agency interest file. Consequently, NYSE Rule 70.20 68 prohibits specialists, trading assistants and anyone acting on their behalf from using the Display Book to access information about Floor broker agency interest excluded from the aggregated agency interest other than in situations where there is a reasonable expectation on the part of such specialist, trading assistant or other person acting on their behalf that a transaction will take place imminently for which such agency interest information is necessary to effect such transaction. 69 67 *See* NYSE Rule 70.20(h). 68 *See* NYSE Rule 70.20(h)(ii). 69 A pattern and practice of specialists' accessing reserve order information without trading may constitute a violation of NYSE Rule 70.20. Floor brokers may also provide discretionary instructions for e-Quotes related to price and size ( *i.e.* , the number of shares to which the discretionary price instructions apply) (“discretionary e-Quotes” or “d-Quotes”). The discretion is used, as necessary, to initiate or participate in a trade with an incoming order capable of trading at a price within the discretionary range. 70 70 *See* NYSE Rule 70.25(a)(i). Discretionary instructions are applicable only to automatic executions; they cannot be utilized in manual transactions and they are not applicable to opening and closing transactions. 71 Discretionary instructions may be entered for all e-Quotes; however, these instructions are active only when the e-Quote is at or would establish the BBO. 72 Discretionary instructions will be applied only if all d-Quoting prerequisites are met. Otherwise, the d-Quote will be handled as a regular e-Quote, notwithstanding the fact that the Floor broker has designated the e-Quote as a d-Quote. 73 Discretionary instructions apply to displayed and reserve size, including reserve interest that is excluded from the aggregate volume visible to the specialist on the Floor. 74 The specialist on the Floor and the specialist system employing algorithms are both unable to access the discretionary instructions entered by Floor brokers with respect to their d-Quotes. 75 71 *See* NYSE Rule 70.25(a)(iii). 72 *See* NYSE Rule 70.25(a)(ii). 73 *See* NYSE Rule 70.25 (a)(iv). 74 *See* NYSE Rule 70.25(a)(vii). 75 *See* NYSE Rule 70.25(a)(viii).
(B)Price Discretion Discretionary instructions as to price allow Floor brokers to set a price range 76 within which the Floor broker is willing to initiate or participate in a trade. The price range must be included on any d-Quote. Therefore, if the price discretion is set for only a portion of the d-Quote, the residual will be treated as an e-Quote. 77 Executions of d-Quotes employing price discretion trade first from reserve volume, if any, and then from displayed volume. 78 76 *See* NYSE Rule 70.25(b)(i). The minimum price range for a d-Quote is the minimum price variation set forth in NYSE Rule 62. 77 *See* NYSE Rule 70.25(b)(iii). 78 *See* NYSE Rule 70.25(b)(iv).
(C)Size Discretion Floor brokers may designate the amount of the e-Quote volume to which price discretion applies. 79 For example, a Floor broker may specify that only 20,000 shares of a 50,000-share e-Quote employ price discretion. The remaining 30,000-shares are handled as a regular e-Quote, *i.e.* , one without discretionary price instructions. This allows for more specific order management. 79 *See* NYSE Rule 70.25(c)(i). A Floor broker may set a minimum and/or maximum size limit with respect to the size of the contra-side interest with which it is willing to trade using price discretion. 80 Exchange systems will review NYSE published or quoted contra-side volume only in considering whether the volume is within the d-Quote's discretionary volume range. This prevents the d-Quote from trading with opposite side interest that the Floor broker has judged to be too little or too great in the context of the order or orders he or she is managing. Reserve and other interest at the possible execution price is not considered by Exchange systems. 81 Interest displayed by other market centers at the price at which a d-Quote may trade is not considered when determining whether the minimum volume range is met, unless the Floor broker electronically designates that such away volume should be included in the determination. 82 An increase or reduction in the size associated with a particular price that brings the contra-side volume within a d-Quote's minimum or maximum discretionary size parameter, will trigger an execution of that d-Quote. 83 Once the total amount of a Floor broker's discretionary volume has been executed, the remainder of the e-Quote may not employ price discretion when trading. 84 80 *See* NYSE Rule 70.25(c)(ii). 81 *See* NYSE Rule 70.25(c)(iii). 82 *See* NYSE Rule 70.25(c)(iv). 83 *See* NYSE Rule 70.25(c)(v). 84 *See* NYSE Rule 70.25(c)(vi).
(D)Discretionary Executions The goal of discretionary instructions for e-Quotes is to secure the largest execution for the d-Quote, using the least amount of price discretion. Thus, d-Quotes may often improve the execution price of incoming orders. Conversely, if no discretion is necessary to accomplish a trade, none will be used. 85 d-Quotes automatically execute against an incoming contra-side order if the order's price is within the discretionary price range and meets any size requirements that have been set for the d-Quote. 86 85 *See* NYSE Rule 70.25(d)(i). 86 *See* NYSE Rule 70.25(d)(i)(A)(ii). All d-Quotes from different Floor brokers on the same side of the market with the same price instructions trade on parity after interest entitled to priority is executed. 87 Multiple same-side d-Quotes from different Floor brokers compete for an execution with the most aggressive price range ( *e.g.* three cents vs. two cents) establishing the execution price. If the incoming order remains unfilled at that price, executions within the less aggressive price range may occur. 88 d-Quotes also compete with same-side specialist algorithmic trading messages targeting incoming orders. If the price of d-Quotes and specialist trading messages are the same, the d-Quotes and the specialist messages trade on parity. 89 87 *See* NYSE Rule 70.25(d)(i)(A)(iii). 88 *See* NYSE Rule 70.25(d)(i)(A)(iv). 89 *See* NYSE Rule 70.25(d)(i)(A)(v). d-Quotes from Floor brokers on opposite sides of the market may trade with each other. The d-Quote that arrives at the Display Book last will use the most discretion necessary to effect a trade, subject to NYSE rules and Rule 611 of Reg. NMS. 90 d-Quotes may provide price improvement to and trade with an incoming contra-side specialist algorithmic trading message to “hit bid/take offer,” just as they can with any other marketable incoming interest. 91 90 *See* NYSE Rule 70.25(d)(i)(A)(vi) and 17 CFR 242.611. 91 *See* NYSE Rule 70.25(d)(i)(A)(viii). d-Quotes may initiate sweeps in accordance with and to the extent provided by NYSE Rules, but only to the extent of their price and volume discretion. 92 d-Quotes may participate in sweeps initiated by other orders but, in such cases, their discretionary instructions are not active. d-Quotes will not trade at a price that would trigger an LRP. Thus a sweep involving a d-Quote will always stop at least one cent before an LRP price. 93 92 *See* NYSE Rules 1000-1004. *See also* NYSE Rule 70.25(d)(i)(A)(ix). 93 *See* NYSE Rule 70.25(d)(ix)(A). Floor brokers further possess a “pegging function” for e-Quotes and d-Quotes, which allows the Floor broker to keep his or her interest in the quote, even as the quote moves. Pegging is a separate type of discretionary instruction and may occur with e-Quotes and/or with d-Quotes using discretionary price instructions. Pegging e-Quotes and d-Quotes peg only to other non-pegging interest within the pegging range selected by the Floor broker. This functionality is only available when auto-quoting is on. Pegging functionality is reactive and does not establish a new BBO price. It will not generally serve as the BBO price when there is no other interest at that price. Pegging will occur only at prices within the pegging price range designated by the Floor broker. 94 Pegging functionality allows the Floor broker interest to be included in the Exchange BBO as it is systemically updated subject to the price that the Floor broker designated as the lowest or highest price he or she is willing to trade. The Floor broker's interest will move with the Exchange BBO within the designated range and any discretionary instructions associated with that interest will continue to be applied as long as it is within the Floor broker's designated price range. Buy side e-Quotes will peg to the best bid, and sell side e-Quotes will peg to the best offer. 94 *See* NYSE Rule 70.26(vii). A Floor broker using pegging e-Quotes and d-Quotes may set a minimum and/or maximum size of same-side volume to which his or her e-Quote or d-Quote will peg. Pegging instructions apply to the entire e-Quote/d-Quote volume. An e-Quote may have either or both discretionary trading and pegging instructions. Pegging and discretionary instructions are known only to the Floor broker. Specialists do not have access to a Floor broker's pegging and discretionary instructions.
(E)CAP-DI Order Pursuant to NYSE Rule 13, Floor brokers are permitted to submit CAP liquidity to the Display Book in order to have customer orders trade along with the market and with the specialist proprietary transactions. The type of CAP order used by the Floor broker is the CAP-DI order. NYSE Rule 123A.30(a) provides that a CAP-DI order is the elected or converted portion of a percentage order that is convertible on a destabilizing tick and designated immediate execution or cancel election. A CAP-DI order may be automatically executed and may participate in a sweep. Marketable CAP-DI orders are automatically converted and trade along with specialist proprietary executions. CAP-DI orders participate in sweeps. Specifically, when an automatically executing order is sweeping the Display Book on the same side as the CAP-DI orders, such CAP-DI orders will be elected at each execution price that is part of the sweep. To the extent that the order sweeping the book has additional volume, the elected same-side CAP-DI orders will not participate in a transaction at the executing price; rather, Exchange Systems will automatically and systemically un-elect the CAP-DI orders in accordance with its terms. If at the last execution price that is part of the sweep, the sweeping order is filled or unable to continue executing, and there is volume remaining on the Display Book or from contra-side elected CAP-DI orders, then the same-side CAP-DI orders may participate in the final transaction. CAP-DI orders on the contra-side of an automatically executing order sweeping the Display Book are also elected at each execution price that is part of the sweep and participate at each of the execution prices if there is volume available on the Display Book or from CAP-DI orders on the same side of the market as the sweeping order.
(3)Off-Floor Participants Off-Floor participants may submit any valid order type as defined in Exchange Rules. Orders entered on the Exchange by Off-Floor participants are maintained on the Display Book in a separate file from Floor broker agency interest, passively converted CAP orders and specialist interest. These orders are aggregated at each price point and sequenced in time priority of receipt. Off-Floor participants have the ability to submit Reserve Orders pursuant to NYSE Rule 13. Interest represented through Reserve Orders trade according to Exchange rules governing priority and parity. 95 A Reserve Order must include the specific amount of shares that is designated for display when the order is eligible to be quoted ( *i.e.* , the “displayable” portion). A Reserve Order must display a minimum of one round lot. Reserve Orders have the ability to automatically replenish the displayable amount of interest at the Exchange BBO when trades reduce or exhaust such displayable interest. This provides Exchange customers the flexibility to replenish liquidity that is in keeping with the market need at the specific time and at that price point. When the displayable size of a Reserve Order is replenished from reserve, the replenished displayable quantity is assigned a time sequence based on the time it is replenished. The remaining original displayed quantity, if any, retains its original time sequence. 95 Reserve Orders will also be subject to Federal securities regulations, including the order entry requirements of Section 11(a) of the Act. As with reserve interest in a Floor broker's agency interest file not designated DND, information on Reserve Orders entered directly into Exchange systems is made available to the specialist only in the aggregate at each price point for the express purpose of the specialist effecting a manual execution. The reserve interest is not distinguished from other interest available to be executed at a specific price point. Rather, Exchange systems display to the specialist the total number of shares available for execution at the price point and include reserve interest in the total number. In this manner such reserve interest is available for trades that take place on the Floor of the Exchange that will not be conducted automatically. Such trades take place at the opening and close of the Exchange, during the trading day in situations involving auction market transactions that are not automatic trades, and in certain specific trading situations, such as trades conducted when a LRP is reached after an automatic execution or in a “gap” quote situation. Off-Floor participants’ interest that is not designated as reserve interest is included in the Exchange quote. Off-Floor participants' interest away from the Exchange BBO not designated as reserve interest is automatically disseminated via OpenBook and other Exchange data distribution channels.
(4)Execution of Bids and Offers Exchange executions are governed by its rules of priority, parity, and precedence. 96 These rules dictate which order or quote is able to execute against an incoming order and the allotment of shares, if more than one order or quote is at the BBO. Generally, the first bid (offer) at the BBO has priority to execute against the next incoming order. 97 Once a trade occurs with the bid (offer) that has priority, other bids (offers) at that price (including any remaining interest from the bid (offer) that had priority) generally trade on parity, meaning they split evenly with the remainder of the incoming order, up to the size of their own order. 98 A specialist must always yield priority to the Off-Floor participant orders entered on the Display Book. 99 The allotment of shares is also dependent on whether execution is at the BBO or if it is outside the BBO. 96 *See* NYSE Rules 72, 104, and 108. 97 *See* NYSE Rule 72 I(a). A bid (offer) that establishes the Exchange BBO is entitled to priority at that price for one trade, except a specialist bid or offer entitled to priority must yield to limit orders on the Book at the same price. 98 *See* NYSE Rule 72 III. When bid (offers) are on parity, Exchange rules dictate that in certain circumstances, a particular participant is guaranteed a portion of an order based on the size of its bid (offer), *i.e.* , precedence based on size. *See* NYSE Rule 72 I(c). 99 *See* NYSE Rule 92. Under current Exchange rules, the first bid or offer made at a particular price is entitled to priority at that price. 100 Once a trade occurs with a bid or offer that has priority, other bids or offers at that price representing Off-Floor Participant orders (DOT orders) and Floor broker agency interest files ( *i.e.* , e-Quotes and d-Quotes) trade on parity. Specialist interest (s-Quotes) yields to DOT orders; once DOT orders are satisfied, s-Quotes trade on parity with e-Quotes and d-Quotes. 100 *See* NYSE Rule 72 I(a) through (g). While a priority bid or offer may be established it is usually broken by a “Floor clearing” event. “Floor clearing” events include a trade or an update of the NYSE quote. After such an event, all bid and offers at the price are on parity. For example, assume that immediately following a Floor clearing event, the bid on the Exchange is $20.05 for 1,000 shares, consisting of a DOT order of 300 shares, Floor broker agency interest file (e-Quote) volume of 400 shares representing interest of two Floor brokers for 200 shares each, and specialist interest of 300 shares. This is all displayed interest, *i.e.* , there is no reserve interest involved. There is no priority as all bids were reentered following the Floor clearing event. An incoming market order to sell 400 shares is executed against the DOT bid and the e-Quotes since the specialist interest (s-Quote) must yield to DOT interest. If the incoming order had been for 800 shares, the DOT orders and Floor broker interest would be executed in full and the specialist would receive 100 shares. The displayable portion of the Reserve Order interest is executed first in accordance with the above rules governing priority and parity. Once all displayable interest, including DOT orders, e-Quotes, d-Quotes and s-Quotes that are quoted at the Exchange BBO has been traded, any remainder of an incoming order is executed against any reserve, *i.e.* , non-displayable interest at the Exchange BBO. Such non-displayable interest trades on parity except that specialist reserve interest at the Exchange BBO yields to all Reserve Orders and CAP orders. Outside the Exchange BBO, e-Quotes and d-Quotes trades with all interest represented by DOT orders, including DOT Reserve Orders, both displayable ( *i.e.* , the interest that will be published if such interest becomes the Exchange best bid or offer) and non-displayable, on parity. Reserve interest represented by s-Quotes outside the Exchange BBO yields to reserve interest represented by Reserve Orders and CAP orders. Within DOT orders, interest that would be displayable is allocated on a time priority basis. After displayable DOT order interest is completely executed, any remaining shares are allocated to eligible non-displayable Reserve Order interest in time priority. Interest represented by a Floor broker is allocated equally among the Floor broker's customers without regard to whether that interest was displayable or non-displayable. To illustrate how this works for a trade at the quote, assume the same scenario as above, but in addition to the displayed interest of 1,000 shares, there is reserve interest for the DOT order of 600 shares, 400 for each Floor broker (total of 800 shares) and 700 shares for the specialist for a total of 2,100 shares in reserve. An incoming order to sell 2,500 shares would be executed as follows: 1,000 shares trade with the displayed bid and is allocated 300 shares to the DOT order, 200 shares to each Floor broker (400 shares total), and 300 shares to the specialist, leaving 1,500 shares to be executed. The 1,500 remaining shares execute against the reserve portion of the DOT Reserve Order (600 shares), and 400 shares of reserve interest for each of the Floor brokers and 100 shares for the specialist. When the amount of shares contained in an incoming order are greater than the shares at the Exchange BBO and trigger a sweep to execute the order, orders on the Display Book outside the Exchange BBO at each price point trade on parity at each successive price during the sweep. Specialist interest may participate in the sweep at each successive price point provided such interest participates after Off-Floor participant limit orders on the Display Book are satisfied at each successive price point. Specialist interest participating in the sweep trades on parity with any remaining Floor broker agency interest at each successive price point. A trade outside the quote will occur when the displayed and reserve interest volume at the Exchange BBO is not sufficient to completely fill the incoming contra side order. Assume the bid on the Exchange is $20.05 for 1,000 shares, consisting of a DOT order of 300 shares, Floor broker agency interest file (e-Quote) volume of 400 shares representing interest of two Floor brokers for 200 shares each, and specialist interest of 300 shares. In addition to the displayed interest of 1,000 shares, there is reserve interest for the DOT order of 600 shares, 400 for each Floor broker (total of 800 shares) and 700 shares for the specialist for a total of 2,100 shares in reserve. The incoming order to sell is for 4,800 shares, thus out-sizing the displayed and non-displayed interest at the bid by 1,700 shares. At the next bid price of 20.03, there are 400 shares of a DOT Reserve Order, of which 100 shares are displayable, three Floor brokers using the reserve function bidding for 400 shares each, with 100 shares displayable and 300 shares in reserve and 1,000 shares of specialist interest, 100 shares displayable and 900 shares in reserve. After the execution at the bid price of 20.05, the execution of the remaining 1,700 shares at 20.03 would be as follows: 400 shares each to the DOT Reserve Order and the Floor brokers, since they trade on parity with each other outside the Exchange best bid (offer) for a total of 1,600 shares; 100 shares to the specialist, since the DOT Reserve Order was executed in full. If there had been additional volume in the DOT Reserve Order of 100 shares, the specialist would not have traded at all. Proposed New Market Model
(a)Overview and Background The Exchange believes that in order to adapt to the current equities market environment, its trading model must be modified to allow all participants the ability to compete efficiently consistent with the participant's respective responsibilities to the market. As the Hybrid Market has evolved, the more electronic market has fundamentally altered the NYSE's traditional trading environment, in which price discovery took place largely and almost exclusively on the Floor of the Exchange in the form of face-to-face interactions among brokers and specialists. As these interactions have diminished, the perceived time and place advantage of the Floor has diminished as well. In particular, information that once was exclusive to the Floor—in particular, the most up-to- date quotes, available interest and last sale prices—is now widely available off the Floor through electronic means. At the same time, increasingly fragmented trading in NYSE-listed securities—a byproduct of sophisticated algorithmic trading and Regulation NMS—has lessened the importance to traders of so-called “market color” from the Floor; in an era where no one trading venue can claim dominance of market share and mostly automated trading, specialists and Floor broker no longer glean a heightened sense of the market in a particular security based on the “open outcry” of participants at the point of sale on the Floor or based on the observation over the course of a day or days of the activity at the particular post where a security trades. Competition from other market centers and growth of alternative trading systems, coupled with increased internalization by broker-dealers, has challenged the dominance of the trading post as the centralized locus of orders in a particular security. Among other things, the rapid dissemination of consolidated quote and trade information and real-time updates of the Exchange limit order book has increased exponentially the amount and accuracy of available information and the speed with which it is disseminated. The immense increase in electronic executions on the Exchange and the general explosion of the use of smart routing engines by market participants of all types, especially “upstairs” traders, also has had a huge impact on the perceived informational advantages once enjoyed by Floor brokers and specialists. Automatic executions and quote updates occur without audible notice and with such rapidity that even those present at the trading post are virtually unable to process the information manually. Indeed, it could be argued that the informational advantage has shifted “upstairs” where orders are now first “shopped” within a firm and then to others before being sent to the Floor for execution and, even then, is likely to be sent in pieces to multiple markets. These trends have also been influenced by the reduction of displayed interest across equity market centers resulting from the reduction of quote increments to pennies and in some instances sub-pennies (for securities that trade below a dollar). Further compounding the trends is the ever increasing proliferation of competing electronic trading venues. In the face of these challenges, the NYSE is proposing to adopt its New Model, which will provide a more robust trading model on the Floor while preserving the existing framework for trading and some of the key responsibilities of its market participants that make the NYSE unique. In so doing, the Exchange seeks to strike a balance among market participants that retains a role for liquidity providers responsible for maintaining fair and orderly markets, agents on the Floor, and Off-Floor participants. The Exchange believes that the proposed changes will improve market quality in the form of tighter spreads, greater liquidity and opportunities for price improvement.
(b)Changes to Exchange Systems One of the key changes in the New Model will be enhancing the Exchange's technology. Among other things, the Exchange proposes to enhance its Display Book to incorporate the majority of execution logic and to assume primary responsibility for tracking the liquidity available at each specified price point. In the New Model, incoming orders to buy and sell will continue to be available for automatic quoting and immediate and automatic execution. Unlike today, however, NYSE systems will also automatically review the liquidity available on the Display Book for execution and then access the necessary liquidity to consummate trades. To do this, the Exchange is proposing to replace its specialists with a new participant—the DMM—who will make available a pre-determined pool of liquidity that Exchange systems can access to execute orders. In so doing, the Exchange expects to increase the speed of automatic executions. It is also anticipated that modifications to the Exchange systems will further speed executions by reducing the number of trading messages, which should ultimately reduce latency within Exchange systems.
(c)Updating the Roles of the Various Exchange Market Participants As it updates its technology to reflect the New Model's mode of trading, the Exchange is also changing the roles of the various market participant groups who use that technology to reflect new patterns of trading and new obligations. The most significant change will be the phasing out of the NYSE's specialist system and the adoption of a designated market maker structure. But in addition, the Exchange is also making changes to the role of, and tools available to, the Floor broker, and is also giving new tools to Off-Floor participants that will enable them to participate in the market more directly. These changes are described in more detail below.
(1)Designated Market Makers
(A)Overview The Exchange believes that its new market model requires a new market maker 101 with the ability (and affirmative obligation) to contribute liquidity in a security by trading competitively for its dealer account. The Exchange therefore proposes to phase out the existing specialist system and to establish in place of the specialists Designated Market Makers who will be employees of Designated Market Maker Units (“DMM Units”). 102 101 The term “market maker” shall have the same meaning as that term in section (3)(a)(38) of the Act. *See* e-mail from Deanna G. W. Logan, Associate General Counsel, NYSE to David Liu, Assistant Director, Division, Commission, dated July 16, 2008 (making clarifying edits) (“July 16th e-mail”). 102 As of October 15, 2008, pursuant to proposed Rule 104(f)(iv) DMMs will be designated as “market makers” on the Exchange for purposes of the Act. *See* July 16th e-mail, *supra* note 101. Although the specialist system has served a central role in equities trading at the NYSE for well over a century, specialist trading is, by nature, well-suited to manual trading, and less suitable for electronic trading. As a result, although specialists were able to provide a strong stabilizing influence when all or most trading was manual, that influence has waned as the markets have evolved toward mostly or fully automatic trading. And while the Exchange continues to believe that there is value to having a designated person assigned to maintain an orderly market in its listed securities, the Exchange nevertheless recognizes that the existing scheme of rules and obligations governing specialists can unduly hamstring them in an electronic market and prevent them from easily fulfilling their appointed role. To address this new reality, DMM Units will be given tools and opportunities that are not available to specialists currently, but that are more commensurate with trading in electronic markets. At the same time, the Exchange will preserve several aspects of the specialist system that are beneficial to the market and the investing public. For example, like the specialist system, and in contrast to the competitive market maker structure, each NYSE-listed security will be assigned to a single DMM Unit, but unlike the specialist system, each DMM will have a minimum quoting requirement in its assigned securities, and DMM Units who do not meet the minimum quoting requirement will be ineligible to participate in the process to receive additional securities. Through this combination of carrot (exclusivity) and stick (minimum quoting requirement), the Exchange believes that it can ensure greater depth and liquidity, and consequently, better prices for customers, in its listed securities. Current NYSE Rule 104 will be amended and renamed 104T as described further below and will be operative and effective until October 14, 2008. Thereafter, the Exchange proposes a new Rule 104 that will be effective October 15, 2008.
(B)DMMs and DMM Units Approved by the Exchange The Exchange intends to require, in new Rule 103, that member organizations who want to operate a DMM Unit file an application in writing and be approved by the Exchange prior to operating a DMM Unit. Accordingly, the Exchange is proposing to amend NYSE Rule 2 to include definitions of “Designated Market Maker” (“DMM”) and “Designated Market Maker Unit.” The application and approval requirement would be waived for existing NYSE specialist firms that decide to create a DMM Unit. 103 103 *See* Proposed NYSE Rule 103(b)(ii). In deciding whether to approve an application, the Exchange will consider, among other things, the member organization's market making ability, the capital that the member is willing or able to make available for market making and such other factors as the Exchange deems appropriate. 104 104 *See* Proposed NYSE Rule 103(a). DMMs employed by DMM Units to work on the Floor of the Exchange will be required to be approved and registered with the Exchange. In order to obtain such approval, applicants will need to submit an application to NYSE Regulation, Inc., which will assess an applicant's regulatory fitness, and successfully complete a qualifications examination prescribed by the Exchange. Once approved and registered as a DMM, such individual may conduct business only on behalf of the DMM Unit in which he or she is employed. A DMM Unit may also employ individuals who may be called upon to act as a Relief DMM. A Relief DMM may be called upon to act as a DMM in one of its securities for an entire business day. 105 In such instances the Relief DMM is required to have net liquid assets of $150,000. 106 A Relief DMM that is called upon to act as a Relief DMM for less than the entire business day, usually for lunch periods, etc. has no such requirement; however, dealings effected by such Relief DMM while relieving the regular DMM must be made for the account of the regular DMM whom he or she is relieving. 107 105 *See* Proposed NYSE Rule 103(f). 106 *See* Proposed NYSE Rules 104T.24 and 103.21. 107 *Id.* As with existing specialist firms, individuals who are currently employed by specialist member organizations as specialists and relief specialists will be automatically approved and registered as DMMs and Relief DMMs. 108 108 *See* Proposed NYSE Rules 103(c)(ii) and (f)(iii). In addition, pursuant to proposed NYSE Rule104(j), a Floor Governor will have the ability to designate an individual to be a Temporary DMM. In the event of an emergency, such as the absence of the DMM, or when the volume of business in the particular stock or stocks is so great that it cannot be handled by the DMMs without assistance, a Floor Governor may authorize a member of the Exchange who is not registered as a DMM in such stock or stocks, to act as Temporary DMM for that day only. A Temporary DMM that substitutes for a DMM when no DMM is present, is expected to assume the obligations and responsibilities of a DMM for the maintenance of the market. A member who acts as a temporary DMM by such authority is required to file a report showing
(a)the name of the stock or stocks in which he or she so acted,
(b)the name of the regular DMM,
(c)the time of day when he or she so acted, and
(d)the name of the Floor Governor who authorized the arrangement with Division of Market Surveillance of NYSE Regulation, Inc., at the end of the day. Pursuant to proposed NYSE Rule 104(j), a Floor Governor will not give such authority for the purpose of permitting a member not registered as DMM habitually to relieve another DMM at lunch periods, etc.
(C)DMMs Not Responsible Broker-Dealer for All Orders The Exchange proposes to amend the provision in Exchange rules that makes specialists the “responsible broker-dealer” for purposes of Limit Order Display and other obligations under both the Act and regulations promulgated thereunder. Under NYSE Rule 60, specialists are currently solely responsible for quoting the highest bids and lowest offers on the Exchange for all reported securities. This rule is appropriate in a manual trading environment, where the specialist post was the primary locus for trading in securities and where the specialist oversaw the reporting of all executions. Because of automation, the rule makes less sense today. Among other things, market participants who are not specialists post their interest electronically in the form of DOT orders and/or e-Quotes (broker agency interest files), and Exchange systems process and publish that interest automatically. When there is an execution against the published quote, Exchange systems report the execution, and allocate the executed shares to the various participants automatically. In a manual market, the specialist was solely responsible for quoting the highest bids and lowest offers on the Exchange for all reported securities. The Exchange's quote today now includes the Floor broker's agency interest, specialist interest and electronically entered interest of off-Floor Participants. More importantly, all interest in Exchange systems and included in the quote is identifiable by the Exchange's systems. Given this change from how interest was processed in a manual environment, the notion that the specialist (or the new DMM) is the sole responsible broker-dealer is obsolete, but not harmlessly so. In particular, because various obligations either attach or do not attach based on whether a participant is designated as the responsible broker-dealer, designating the specialist (or DMM) as the “responsible broker dealer” can lead to unintentionally placing an obligation on a nominal participant while relieving the logically responsible participant of that same obligation. To address these limitations, the NYSE is proposing to amend NYSE Rule 60 to reflect that the member or member organization entering a bid or offer in a security is the “responsible broker-dealer” to the extent of such bid or offer. 109 The Exchange also proposes to eliminate the phrase “on the Floor” which refers to a “responsible broker or dealer” for the purposes of meeting obligations under Reg. NMS, since the Exchange believes all broker-dealer members and member organizations bear these responsibilities. In addition, the Exchange proposes to amend the rule to reflect that the Exchange rather than the specialist or DMM disseminates quotations to vendors. 109 *See* 17 CFR 240.11Ac1-1. For ease of reference, relevant text of Section 11A(c)(1) of the Act and Rule 11Ac1-1 thereunder was included as part of the rule text preceding NYSE Rule 60. Similarly, the text of Section 11(a)(1) of the Act and Rules 11a-1 through 11a2-2 was also included as text preceding Exchange Rule 90. Insofar as it is not the general practice of the Exchange to include federal securities laws and rules in its rule book, the Exchange proposes to delete them from its rule book. Moreover, since the federal securities laws and rules are now readily available through any number of sources, the Exchange has determined that it is no longer necessary to include the aforementioned text as part of NYSE Rule 60 and NYSE Rule 90. The Exchange also proposes to remove subsection (a)(iv) from Exchange Rule 1001, which provides that “the specialist shall be the contra party to any automatic execution where interest reflected in the published quotation against which the automatically executing order was executed is no longer available.” This rule was adopted to address an anomaly of the Exchange's systems that no longer exists. Specifically, at the time the rule was adopted, Exchange systems were programmed such that where the identity of the interest for an automatically executing order was unknown, the specialist would automatically be assigned as the contra party for that trade, even where interest from other market participants was reflected in the published quotation. Since the Exchange systems are now capable of accurately identifying each participant whose interest is reflected in the published quote and who should be held responsible to be the contra party for the automatically executing order, the Exchange believes it is no longer necessary that the market maker in the security shoulder the burden of being the contra party to un-reconciled executions. Similarly, NYSE Rule 123B(b)(2)(B) is proposed for deletion reflecting the fact that reports of executions are handled by Exchange systems and are no longer sent by specialists, and will not be sent by DMMs.
(D)DMMs Retain the Specialists' Affirmative Obligation As noted above, although the Exchange does not intend to impose undue obligations on DMMs as responsible broker-dealers, the Exchange intends to preserve the requirement that a DMM has an affirmative obligation to the quality of the markets in securities assigned to it. The function of a member acting as a DMM on the Floor of the Exchange includes the maintenance, in so far as reasonably practicable, of a fair and orderly market on the Exchange in the stocks in which he or she is so acting. 110 The maintenance of a fair and orderly market implies the maintenance of price continuity with reasonable depth, to the extent possible consistent with the ability of participants to use reserve orders, and the minimizing of the effects of temporary disparity between supply and demand. 111 In connection with the maintenance of a fair and orderly market, it is commonly desirable that a member acting as DMM engage to a reasonable degree under existing circumstances in dealings for the DMM's own account when lack of price continuity, lack of depth, or disparity between supply and demand exists or is reasonably to be anticipated. 112 110 *See* Proposed NYSE Rule 104(f)(ii). 111 *Id.* 112 *Id.* In addition, DMM Units will be required to maintain adequate minimum capital 113 based on its registered securities, and will be required to use their capital to engage in a course of dealings for their own accounts to assist in the maintenance, so far as practicable, of a fair and orderly market. Transactions on the Exchange by a DMM for the DMM Unit's account are to be effected in a reasonable and orderly manner in relation to the condition of the general market and the market in the particular stock. 114 To support this requirement, the Exchange will continue to provide depth guidelines 115 for each security. 113 Capital requirements are identical to the current capital requirements computed in accordance with Rule 15c3-1 and current NYSE Rule 104. In this filing the Exchange seeks to move the placement of these requirements into proposed NYSE Rule 103. 114 *See* Proposed NYSE Rule 104(g)(i). 115 Currently, the Exchange provides each security with a daily depth guideline and depth sequence size that reflects its individual trading characteristics including intra-day price volatility. Depth sequence sizes over which depth is calculated and the depth guidelines against which the calculated depth movements are compared are dynamically updated each day for each symbol based on the symbol's recent trading characteristics. These characteristics include: Its previous NYSE closing price; its NYSE adjusted volume; and its intra-day consolidated high/low range. Systemic calculations of these values occur each day and are used in the creation of a formulaic individualized depth guideline and depth sequence size that is unique for each security. The Exchange proposes to provide DMMs with the same information pursuant to proposed NYSE Rule 104(f)(iii). DMMs will further be required to maintain displayed bids and offers at the NBBO for a certain percentage of the trading day in assigned securities. Specifically, with respect to maintaining a continuous two-sided quote with reasonable size, DMMs must maintain a bid or offer at the National Best Bid and National Best Offer (“inside”) for securities in which the DMM is registered at a prescribed level based on the average daily volume of the security. 116 Securities that have a consolidated average daily volume of less than one million shares per calendar month are defined as Less Active Securities and securities that have a consolidated average daily volume of equal to or greater than one million shares per calendar month are defined as More Active Securities. 117 116 The Exchange intends to formally file with the Commission a proposal to modify the method by which the Exchange allocates and reallocates securities to specialist units; *see* July 17th e-mail, *supra* note 3. 117 *See* Proposed NYSE Rule 104(a)(1)(A). For Less Active Securities, a DMM Unit must maintain a bid or an offer at the NBBO for at least 10% of the trading day during a calendar month. For More Active Securities, a DMM Unit must maintain a bid or an offer at the NBBO for at least 5% or more of the trading day during a calendar month. DMM Units will be expected to satisfy the quoting requirement for both volume categories in their assigned securities. Time at the inside is calculated as the average of the percentage of time the DMM has a bid or offer at the inside. For example, if a DMM maintains a quote at the National Best Bid for 6% of the trading day and a quote at the National Best Offer for 4% of the trading day, then the average of these times is 5%. *The Exchange will determine whether a DMM Unit has met its quoting requirements on a month-by-month basis by calculating:*
(1)The “Daily NBB Quoting Percentage” by determining the percentage of time a DMM Unit has at least one round lot of displayed interest in an Exchange bid at the National Best Bid during each Trading Day for a calendar month;
(2)the “Daily NBO Quoting Percentage” by determining the percentage of time a DMM unit has at least one round lot of displayed interest in an Exchange offer at the National Best Offer during each Trading Day for a calendar month;
(3)the “Average Daily NBBO Quoting Percentage” for each Trading Day by summing the “Daily NBB Quoting Percentage” and the “Daily NBO Quoting Percentage” then dividing such sum by two;
(4)the “Monthly Average NBBO Quoting Percentage” for each security by summing the security's “Average Daily NBBO Quoting Percentages” for each Trading Day in a calendar month then dividing the resulting sum by the total number of Trading Days in such calendar month; and
(5)for the total Less Active Securities (More Active Securities) assigned to a DMM unit, the Exchange will determine the “Aggregate Monthly Average NBBO Quoting Percentage” by summing the Monthly Average NBBO Quoting Percentages for each Less Active Security (More Active Security) assigned to a DMM unit, then dividing such sum by the total number of Less Active Securities (More Active Securities) assigned to such DMM Unit. Below is an example of a quoting requirement calculation. For purposes of this example, it is assumed that DMM Unit 1 has two assigned securities, A and B, and that there were 5 trading days in the selected calendar month. The Average Daily NBBO for a DMM Unit is calculated for each security by summing the daily NBB and NBO of each security for that day and dividing that number by two: Trading days NBB NBO Calculation average daily NBBO for DMM Unit 1 Average daily NBBO Security A T1 4% 6% 4% + 6% = 10% divided by 2 = 5% 5% T2 3% 5% 3% + 5% = 8% divided by 2 = 4% 4% T3 4% 4% 4% + 4% = 8% divided by 2 = 4% 4% T4 6% 8% 6% + 8% = 14% divided by 2 = 7% 7% T5 5% 5% 5% + 5% = 10% divided by 2 = 5% 5% Security B T1 5% 7% 5% + 7% = 12% divided by 2 = 6% 6% T2 4% 6% 4% + 6% = 10% divided by 2 = 5% 5% T3 6% 8% 6% + 8% = 14% divided by 2 = 7% 7% T4 7% 9% 7% + 9% = 16% divided by 2 = 8% 8% T5 9% 9% 9% + 9% = 18% divided by 2 = 9% 9% The monthly average NBBO quoting percentage for a DMM Unit for each security is then calculated by summing the security's average Daily NBBO Quoting Percentages for all the Trading Days of the calendar month and then dividing the resulting total by the number of Trading Days in the calendar month (in this instance 5). Average daily NBBO T1 T2 T3 T4 T5 Calculation monthly average NBBO for DMM Unit 1 Monthly Average NBBO Security A 5% 4% 4% 7% 5% 5% + 4% + 4% + 7% + 5% = 25% divided by 5 = 5% 5% Security B 6% 5% 7% 8% 9% 6% + 5% + 7% + 8% + 9% = 35% divided by 5 = 7% 7% The Aggregate Monthly Average NBBO Quoting Percentage for a DMM Unit is determined by summing the Monthly Average NBBO for each security and then dividing such sum by the total number of securities. Aggregate Monthly Average for Specialist Unit 1 Monthly Average NBBO Security A + Monthly Average NBBO Security B divided by 2 5% + 7% = 12% divided by 2 = 6% Aggregate Monthly Average Reserve or other hidden orders entered by the DMM will not be included in the inside quote calculations. 118 118 *See* July 17th e-mail, *supra* note 3. The Exchange further proposes that DMMs retain the re-entry requirements currently imposed on specialists contained in NYSE Rule104. As such, DMMs effecting Neutral, Non-Conditional and Conditional transactions will still be required to re-enter liquidity on the opposite side of the market depending on the type of transaction executed by the DMM. 119 119 *See supra* notes 52 and 53. DMMs will be subject to the same requirements currently imposed on specialists pursuant to proposed NYSE Rule 104(g)(i)(A). Currently Conditional Transactions operate as a separate pilot, through this filing the Exchange seeks to incorporate those provisions into the New Model pilot through proposed NYSE Rule 104(g)(i)(A); *see* July 17th e-mail, *supra* note 3.
(E)DMMs Will Not See Public Customer Order Information Before Other Market Participants In a significant departure from the existing specialist system, DMMs will be required to meet all of the above requirements without the benefit of access to order by order information. The Exchange proposes to gradually decrease the orders provided to the DMM over time as the Exchange completes the required modifications to technology. 120 Upon completion of the modifications to Exchange technology, the DMM will no longer receive any order by order information. The decrease in the flow of order information to the specialists will begin in July 2008, with the DMM no longer receiving order by order information by October 15, 2008. 120 The Exchange will propose in a separate filing to the Commission to reduce the order by order information sent to the DMM prior to the implementation of the changes sought herein. Pursuant to the proposal to be filed, the specialist's system employing algorithms will only have access to orders entering NYSE systems that are market orders or are limit orders that are priced at the current NYSE quote, in between the current NYSE quote or are at a price that goes through the opposite sid of the current NYSE quote. The DMM Unit's system employing algorithms will have access to information with respect to orders entered on the Exchange, Floor Broker agency interest files or reserve interest, to the extent such information is made publicly available. DMM unit algorithms will receive the same information with respect to orders entered on the Exchange, Floor Broker agency interest files or reserve interest as is disseminated to the public by the Exchange and shall receive such information no sooner than it is available to other market participants. Although the DMM will no longer receive order by order information, there will continue to be certain times when human interaction is essential to market quality and maintaining a fair and orderly market. Specifically, the Exchange contemplates human interaction during opening and re-opening transactions, closing transactions, block transactions, gap quote situations and when trading reaches LRPs that would lock or cross the market, and thus requires a market maker. 121 DMMs will be responsible for choosing the price 122 and the executions of the orders at that price during those specific situations. 121 *See* Proposed NYSE Rule 104(a)(2)-(5). 122 In an opening and reopening trade, Display Book will verify that all interest that must be executed in the opening or reopening can be executed at the price chosen by the DMM. If all the interest that must be executed in the transaction cannot be executed at that price, the Display Book will block the execution. In addition, when executing blocks (10,000 shares or more or value of $200,000 or more), trading out of a gap quote situation or an LRP that locks or crossed the market, the Display Book may adjust the execution price if there is enough interest on the Display Book to complete the transaction at a better price.
(F)DMMs Will Not Retain the Specialists' Negative Obligation Given that after October 15, 2008, DMMs will not have access to information on an order by order basis the Exchange further proposes that DMMs not be subject to the negative obligation that currently applies to specialists. The U.S. equities markets have entered a uniquely competitive phase that involves many players—upstairs liquidity providers, multiple OTC dealers, crossing networks and Alternative Trading Systems, and even other national and regional exchanges, which compete through Unlisted Trading Privileges (“UTP”) and dual listings. Generally, the Exchange favors this kind of robust competition, which is exactly the type of competitive landscape that Congress envisioned when it overhauled financial market regulation in 1975 and gave the Commission the flexibility to define dealer obligations. 123 However, at the same time, the Exchange believes strongly that the changing market environment requires participants and regulators to re-examine and discard outmoded ways of thinking about trading and the markets. In particular, as the market has evolved, the Exchange has consistently argued that these changes in the marketplace warrant changes in the scope of the dealer obligation. The increased use of computer application and communication technology makes it difficult, if not impossible for any one market participant to have a time-and-place advantage over any other market participants. At the same time, the fragmentation of liquidity among multiple markets—and the algorithmic tools available to process and manage order flow across multiple markets—often means that the direction and extent of movements in Exchange-listed securities is influenced not by the market maker in the primary market, but by the increases in the average daily trading volume off the Floor, and by trading decisions made away from the Floor. 123 In 1975, Congress eliminated the negative obligation clause from Section 11(b) in connection with the 1975 amendments to the Act. *See* Securities Acts Amendments of 1975 (“1975 Amendments”), Public Law No. 94-29, 89 Stat. 97. At that time Congress gave the Commission the flexibility to define dealer obligations for both exchange members and over-the-counter market makers. In making the changes, Congress noted that changes in the marketplace might warrant changes in the scope of the dealer obligation: It might well be that with active competition among market makers and the elimination of trading advantages specialists now enjoy, such a restriction on specialists' dealings would become unnecessary. Because trading patterns and market making behavior in the context of a national market system cannot now be predicted, it appears appropriate to expand the Commission's rulemaking authority in this area so that the Commission may define responsibilities and restrict activities of specialists in response to changing market conditions S. Rep. No. 94-75, at 100 (1975). The transformation of the equities markets in the United States have led the Exchange to conclude that the so-called negative obligation no longer makes sense, and should finally be eliminated entirely. It is an outmoded vestige of trading in a wholly different market environment and is unnecessary. Among other things, the negative obligation arose as a check on specialists, who were, as noted above, at the center of substantially all of the activity in a given security. In that environment, it made sense to require the specialist not to trade for his or her own account unless reasonably necessary to maintain depth of market or continuity of prices. By contrast, a hallmark of modern markets has been the increased dissemination of market information. The result has been a radical increase in market transparency, which gives all market participants, both on and off the Floor, a greater ability to see and react to market changes. Given the market environment and the elimination of the control of order information by the proposed DMM, the Exchange believes that the imposition of a negative obligation on DMMs is unnecessary. Accordingly, the Exchange is proposing that beginning October 15, 2008, DMMs no longer be deemed to be the agent for orders on the Display Book. Given that there would no longer be an agency function for the DMM, the Exchange is further proposing to rescind NYSE Rule 92(d)(6) (specialist after hours trading when there are unexecuted orders on the Display Book) as being inconsistent with the proposed responsibilities of the DMM. Moreover, the provisions of NYSE Rule 92 no longer apply to the DMM in general as DMMs will not be members that have knowledge of unexecuted customer orders. 124 124 It is for this reason that the Exchange further proposes to delete NYSE Rule 104.10(5)(c)(II)(ii) and 104.10(5)(c)(II)(iii) that restrict the specialist's ability to effect principal purchases of a specialty security in another market center based on the concept of the specialist as a “holder” of orders. The Exchange further proposes to delete the last sentence of NYSE Rule 127(d)(3) because it too restricts trading based on the premise that the specialist is the “holder” of orders. DMMs will no longer serve this function and thus the Exchange proposes to delete the sentence from NYSE Rule 127(d)(3) that reads as follows: As provided in Rule 92, the specialist may not retain any stock for his or her own account obtained at a price at which he or she holds executable, but unfilled, orders. The Exchange further proposes to rescind NYSE Rule 92.15 because DMM algorithms will no longer receive order by order information before the order is posted to the Display Book and therefore will be incapable of generating quoting or trading messages based on knowledge of an incoming order. As such this provision of NYSE Rule 92 is unnecessary as it relates to DMM trading. The Exchange notes that the DMM algorithm will receive “Book State” information, which is the same information that is available to other market participants that subscribe to NYSE market data feeds, and shows aggregated displayed interest at various price points. Notwithstanding that DMMs will not be agents for orders in Display Book, DMMs will continue to facilitate manual transactions on the Exchange. When DMMs are facilitating manual transactions, Exchange systems will provide DMMs the total volume of all orders eligible to participate ( *i.e.* , not including Non-displayed Reserve Orders and aggregated Floor broker agency interest designated DND) in the transaction. Those orders will be aggregated by the Exchange system and shown to DMMs as available interest eligible to participate in the manual execution. With this tool, DMMs will have the necessary information to appropriately price the opening (re-opening) transaction, the closing transaction and trade out of GAP quote and LRP locking and crossing the market situations. DMMs will not have access to such information on an order by order basis as Exchange specialists do today.
(G)DMMs Interest for Quoting and Trading Although DMMs will no longer be restricted by a negative obligation, DMMs will be responsible to commit capital in order to add liquidity to the market when there is little or no liquidity, bridging the gap between supply/demand by purchasing when no one else is buying or selling when no one else is selling as part of their responsibility to maintain a fair and orderly market. To assist DMMs in meeting their market making responsibilities, DMMs will be permitted to maintain systems that employ algorithms to make trading and quoting decisions (“DMM Interest”) on behalf of each DMM. *DMM Interest will be permitted to:*
(i)Supplement the size of the existing Exchange BBO;
(ii)maintain displayed and non-displayed DMM Interest, as described more fully below;
(iii)layer interest at varying prices outside the Exchange BBO;
(iv)partially or completely fill an order at the Exchange BBO or at a sweep price;
(v)trade at and through the Exchange BBO;
(vi)trade in a sweep transaction;
(vii)provide price improvement; and
(viii)match better bids and offers published by other market centers where automatic executions are immediately available. Exchange systems will prevent DMM Interest from executing against itself, *i.e.* , executing wash trades. The Display Book will ignore any DMM Interest on the opposite side of the arriving marketable DMM Interest and exclude such DMM Interest from the trade. Further, to prevent the excluded DMM Interest from rebidding through the last sale, Exchange systems will cancel the DMM Interest that was excluded in the execution. DMM Interest will be capable of trading at and through the Exchange BBO in a sweep trade. In those instances where arriving DMM Interest will be priced and sized such that it is able to trade at and then through the Exchange BBO and the *only* interest represented in the Exchange BBO is DMM Interest, the arriving DMM Interest is incapable of trading because that would constitute a wash sale. In those instances, Exchange systems will once again exclude the DMM Interest at the Exchange BBO and proceed to sweep the Display Book at prices through the excluded DMM Interest. Exchange systems will then cancel the DMM Interest that was excluded and re-quote the new best interest.
(H)DMMs Capital Commitment Schedule In addition to DMM Interest, DMMs will be permitted to transmit to the Display Book additional liquidity that the DMM is committed to provide at specific price points. This liquidity, known as the DMM Capital Commitment Schedule (“CCS”), will provide the Display Book with the amount of shares that the DMM is willing to trade at price points outside, at and inside the Exchange BBO. CCS is separate and distinct from the DMM Interest. DMM algorithms will be enabled to send the Exchange this schedule of additional non-displayed trading interest. The Exchange anticipates that this will create increased opportunities for price improvement on the Exchange. CCS interest can be accessed by the Exchange's systems in two ways, depending on whether an incoming order is between the spread, or at the NYSE BBO. When an order is entered, the Exchange's system will review all the liquidity available on the Display Book including CCS interest and will determine the price at which the full size of the order can be satisfied (the “completion price”). Exchange systems determine the completion price by calculating the unfilled volume of the contra side order ( *i.e.* , the volume of the contra side order that exceeds the volume available to execute against it that is then present in the Exchange bid or offer) and reviewing the additional displayed and non-displayed interest available in the Display Book, which may be at more than one price point, including the CCS interest submitted by the DMM unit that is available at the completion price if the CCS interest were to participate at the completion price, and any protected bids or offers on markets other than the Exchange (“away interest”) to determine the price at which the remaining volume of the contra side order can be executed in full. Exchange systems will then review the amount of liquidity offered by the CCS to determine if the number of shares provided via the DMM's CCS at the completion price is less than the number of CCS shares provided at the next different price that has interest that is one minimum price variation (“MPV”) (as that term is defined in Exchange Rule 62 125 ) or more higher (in the case of an order to sell) or at the next different price that has interest that is one MPV or more lower (in the case of an order to buy) (hereinafter collectively referred to as “better price”). If the volume of CCS interest that would be accessed is the same at the completion price and the better price, the CCS interest will participate at the completion price with CCS interest yielding to any other interest in Exchange systems at the completion price. 125 Pursuant to NYSE Rule 62, the minimum price variation is currently one cent ($0.01) except that with respect to equity securities trading on the Exchange at a price of $100,000 or greater, the minimum price variation shall be ten cents ($0.10). If the number of shares that would be allocated to the DMM CCS interest at the better price is more than the number of shares that would be allocated to the DMM's CCS interest at the completion price, then the order will be executed at the better price with CCS interest yielding to any other interest in Exchange systems at the better price. Any remaining balance of the incoming order will be executed at the completion price against displayable and non-displayable interest pursuant to NYSE Rule 72. A DMM's CCS interest may only participate once in the execution of an incoming order. As such, CCS interest that may exist at the completion price is ineligible to trade with any remaining balance of the incoming order if the DMM's CCS interest was included in the execution of any portion of such order at the better price. Any DMM interest included in the displayed quantity and non-displayed quantity will be executed pursuant to NYSE Rule 72. For example, an order to sell 100,000 at the market is entered into Exchange systems. The bid price is $50.02. The Display Book has the following available interest: Price Displayable interest Reserve interest 126 CCS $50.02 5,000 10,000 10,000 $50.01 5,000 20,000 15,000 $49.99 10,000 10,000 25,000 $49.98 5,000 20,000 15,000 The system has determined that the completion price based on the available liquidity 127 will be $49.98. At the completion price of $49.98 the DMM's CCS interest is 15,000 shares; however, at the better price of $49.99 the DMM's CCS interest is 25,000 shares. Exchange systems will therefore, execute 15,000 shares of the sell order at the bid price of $50.02, representing the 5,000 shares available from displayable interest and 10,000 shares available from reserve interest. The displayable and reserve interest totaling 25,000 will be executed the price of $50.01. At the price of $49.99 Exchange systems will execute the 20,000 shares of the displayable and reserve interest and the 25,000 shares of CCS interest. The remaining 15,000 will be executed at the completion price of $49.98, representing 5,000 shares from the displayable interest and 10,000 shares from the reserve interest. In allowing CCS to participate in this manner, the incoming buy order receives price improvement on 25,000 shares of its order by executing that amount at the better price of $49.99. 126 These quantities assume there is no DMM interest represented in the aggregate reserve quantity available on the Display Book. If there were such DMM interest, that interest would be able to trade irrespective of where the DMM's CCS interest trades. The example further assumes that there is no better priced interest at another market center. In the event there is interest available at other market centers that is a “protected quotation” as provided in Reg. NMS, Exchange systems will ship orders to satisfy the Exchange's obligations with respect to such protected quotations. *See generally,* Rule 611 of Reg. NMS. 127 The available liquidity is determined by adding the sum of 15,000 shares of displayed and non-displayed interest at the price point of $50.02, the sum of the 25,000 shares of displayed and non-displayed interest at the price point of $50.01, the sum of the 20,000 shares of displayed and non-displayed at the price point of $49.99 and the sum of the 25,000 shares of displayed and non-displayed at the price point of $49.98 and the CCS interest at $49.98 for a total of 100,000 shares. In the event the number of shares to be allocated to the DMM's CCS Interest at the better price is less than the number of shares to be allocated to the DMM's CCS Interest at the completion price, then the DMM CCS Interest will participate at the completion price with CCS interest yielding to any other interest in Exchange systems at the completion price. For example, an order to sell 100,000 shares at the market is entered into Exchange systems. The bid price is $50.02. The available liquidity on the Display Book however, is now as fo llows: 128 These quantities assume there is no DMM interest represented in the aggregate reserve quantity available on the Display Book. If there were such DMM interest, that interest would be able to trade irrespective of where the DMM's CCS interest trades. Price Displayable interest Reserve interest 128 CCS $50.02 5,000 10,000 10,000 $50.01 5,000 10,000 15,000 $49.99 10,000 10,000 15,000 $49.98 5,000 20,000 25,000 In this example, the CCS Interest will be executed at the completion price of $49.98 because it is greater than the CCS interest available at $49.99. Exchange systems will execute 15,000 shares of the order at the bid price of $50.02 (5,000 shares displayable interest and 10,000 shares reserve interest). An additional 15,000 shares will be executed at $50.01 (5,000 shares displayable interest and 10,000 shares reserve interest). The 20,000 shares of displayable and reserve interest will be executed at $49.99. The remaining portion of the sell order (50,000 shares) will be executed against the 50,000 shares (5,000 shares displayable interest, 20,000 shares reserve interest and 25,000 CCS interest) available at the price of $49.98. In this case, the CCS model allows the incoming sell order to be filled at the price of $49.98 through the available CCS interest at that price, whereas, without CCS interest, part of the order would have received a price inferior to $49.98. A DMM's CCS interest inside the Exchange BBO will be accessed by Exchange systems to provide price improvement to incoming orders and to match better-priced bids and offers if available on away market centers. DMMs will not be required to be represented in the bid or the offer in order to provide price improvement interest. *Pursuant to proposed NYSE Rule 1000(e), CCS interest may trade inside the Exchange BBO with interest arriving in the Exchange market that:*
(i)Will be eligible to trade at or through the Exchange BBO;
(ii)will be eligible to trade at the price of interest in Exchange systems representing non displayable reserve interest of Reserve Orders and Floor broker agency interest files reserve interest (“hidden interest”); or
(iii)will be eligible to route to away market interest for execution if the total volume of CCS interest, plus d-Quote interest in Floor broker agency interest files, plus any interest represented by hidden interest would be sufficient to fully complete the arriving interest at a price inside the Exchange BBO. The Display Book will determine the price point inside the Exchange BBO at which the maximum volume of CCS interest will trade, taking into account the volume, if any, available from d-Quotes and hidden interest. The arriving interest will then be executed at that price, with all interest (CCS, d-Quote, non-displayed reserve interest) trading on parity. 129 Any reserve interest of the DMM that is also eligible to trade at the price inside the Exchange BBO at which the CCS interest will participate will be aggregated with the DMM's CCS interest at that price when the trade execution is allocated. 130 In this manner, an incoming order may be executed at multiple price points in between the quote against d-quotes, Non-Displayed Reserve interest of all participants and CCS interest. However, CCS interest may only participate once if more than one execution is required to fill the order. 129 An explanation of how the parity allocation of executions will be accomplished is provided in the text of subsection (d)(2) of Proposed New Market Model Section. 130 *See* July 16th e-mail, *supra* note 101.
(2)*Floor Brokers* Along with rules addressed to DMMs, the Exchange is proposing changes to existing rules that apply to Floor brokers.
(A)Elimination of Percentage Orders The Exchange proposes to amend NYSE Rule 13 and to delete NYSE Rules 70.25(d)(i)(A), 123A.30 and 1000(d)(2)(D) to rescind percentage orders as an acceptable order type on the Exchange. As a result of these proposed amendments, Floor brokers will no longer be permitted to enter CAP-DI orders. In place of this order type, the Exchange intends to provide Floor brokers access to algorithmic technology that will replicate the trading strategy achieved by the use of CAP-DI orders through the Floor broker's handheld electronic device. The Exchange believes that this change is necessary to improve the efficiency of the Display Book. The current processing of CAP-DI orders impedes the efficiency of the Display Book for a number of reasons. Among other things, CAP-DI orders require the system to monitor and calculate many variables including when the CAP-DI order is eligible for conversion and execution; for each individual execution the system must calculate the number of shares the CAP-DI order is entitled to act dynamically update the remaining quantity of the order until the CAP-DI order is executed in full. Moreover, because CAP-DI orders are now executed in tandem with executions for the specialist account the system is also required to monitor and calculate this information for additional executions. In addition, system efficiency is affected by the fact that CAP-DI orders may be passively converted. The process of passively converting CAP-DI orders impedes the specialist's ability to function efficiently in an automated market because the specialist must manually complete the passive conversion. The increase in the speed of trading and the delay inherent in requiring the DMM to manually passively convert CAP-DI orders is inconsistent with the Exchange's proposed more electronic model.
(B)d-Quote Trading with Non-Marketable IOC Orders and at the Open and Close The Exchange further proposes to amend NYSE Rule 70 to enhance the functionality of the Floor broker d-Quote to increase the liquidity available for executions on the Exchange. Specifically, the Exchange proposes to allow d-Quotes to partially or completely fill a non-marketable immediate or cancel order (“IOC”) which includes NYSE IOC, Reg. NMS IOC and an Inter-market Sweep Order (“ISO”) 131 that are within the d-Quotes discretionary range. 132 131 *See* NYSE Rule 13. By their definition, these order types are never quoted but must be automatically executed. Any remaining unfilled portion is immediately and automatically cancelled. Non-marketable IOC orders are immediately and automatically cancelled. 132 *See* Proposed NYSE Rule 70.25(d)(ix). In allowing the d-Quote to interact with a non-marketable IOC, the Exchange seeks to provide the IOC an opportunity to receive a partial or complete execution. In instances where the d-Quote only partially completes the order, the remaining portion of the non-marketable IOC will be automatically and immediately cancelled. To further increase the liquidity available at the opening and closing transaction, the Exchange additionally proposes to amend NYSE Rule 70.25(a)(ii) to allow d-Quotes to be active in the opening and closing transactions which will allow a d-Quote to execute up to its maximum amount of discretion.
(C)Floor Broker Interest Published to OpenBook The Exchange proposes to have Floor broker interest not designated DND published to OpenBook system at every price point. The displayable portions of Floor broker interest designated DND will only be included in OpenBook when such interest is at the Exchange BBO. Floor broker agency interest employing Non-Displayed Reserve functionality, as described further below, will not be included in OpenBook. The Exchange believes that including this interest in OpenBook will benefit customers by providing its customers with a fuller view of the liquidity available on the Exchange.
(d)Changes to NYSE Order Types and Order Processing
(1)Additional Undisplayed Liquidity Floor brokers, Off-Floor participants and DMMs will continue to have the ability to maintain reserve liquidity on the Exchange; however, the NYSE proposes to modify each participant's ability to provide reserve interest. As a threshold matter, the Exchange intends to amend NYSE Rule 13 to refer to all undisplayed Off-Floor interest as “Reserve Orders.” Within that broad category, the Exchange proposes to create two types of reserve interest, “Minimum Display” and “Non-Displayed Reserve.” 133 133 Through this filing, the Exchange proposes to make permanent NYSE Rule 13 governing Reserve Orders. The Exchange further proposes conforming amendments in proposed NYSE Rules 70(e) and 104 to provide Floor brokers and DMMs with equivalent functionality.
(A)Minimum Display Orders “Minimum Display Order” would require that a portion of the shares in the order, a minimum of one round lot, be designated for display and the Exchange would provide Floor brokers and DMMs with equivalent functionality (collectively “Minimum Display Interest”). Each time a Minimum Display Reserve Order is replenished from reserve interest, a new time-stamp is created for the replenished portion of that Minimum Display Reserve Order, while the remaining reserve interest retains the time-stamp of its original entry. Minimum Display Interest will participate in manual executions. Exchange systems will include all Minimum Display interest in the aggregate order information available for execution at a price point when the DMM facilitates a manual transaction. The Minimum Display Interest will not be identifiable but will be included, where eligible, in any resulting execution. The Exchange further proposes that the aggregate interest of Minimum Display Interest be included in the aggregate interest available to be seen by the DMM in order to provide information about orders available in Exchange systems for response to a Floor broker's market probe request pursuant to NYSE Rule 115. Currently, during a manual execution, Floor broker DND reserve interest that has a displayed quantity and Reserve Orders pursuant to NYSE Rule 13 are included in the aggregated order information displayed to the specialist only during manual executions ( *e.g.* , the opening and closing trade on the Exchange, resuming trades after a LRP is reached, or during a gap quote situation). Pursuant to Exchange Rule 70.20(h), 134 access to the Display Book system for information on reserve interest is only for the purpose of effecting transactions that are reasonably imminent. The Exchange proposes to amend NYSE Rules 13, 70.20 and 115 to include as eligible information a DMM may provide, all Minimum Display Order Interest in response to a Floor broker's market probe request. Specifically, the Exchange proposes to amend NYSE Rules 13 and 115 to specifically state that the aggregate interest of the proposed “Minimum Display Order” will be included in the information disseminated pursuant to NYSE Rule 115. 134 NYSE Rule 70.20(h)(ii) provides, “Specialists, trading assistant and anyone acting on their behalf are prohibited from using the Display Book system to access information about Floor broker agency interest excluded from the aggregated agency interest other than for the purpose of effecting transactions that are reasonably imminent where such Floor broker agency interest information is necessary to effect such transaction.” Pursuant to NYSE Rule 115(iii) a specialist may provide information about orders contained in the Display Book, referred to also as a market probe, “* * * to provide information about buying or selling interest in the market, including aggregated buying or selling interest contained in Floor broker agency interest files other than interest the broker has chosen to exclude from the aggregated buying and selling interest in response to an inquiry from a member conducting a market probe in the normal course of business.” The Exchange further proposes to amend NYSE Rule 70.20(h)(ii) to remove the prohibition against specialist's ability to provide information about Floor broker reserve interest. The Exchange proposes that all Floor broker interest not designated DND be included in the information eligible for dissemination pursuant to NYSE Rule 115.
(B)Non-Displayed Reserve Orders In addition to Minimum Display Interest, the Exchange further proposes to provide all market participants with the ability to maintain completely non-displayed interest. This proposed type of reserve interest for all market participants will not have any of the order designated for display. The Exchange proposes to create the “Non-Displayed Reserve Order” for Off-Floor participants and provide Floor brokers and DMMs with equivalent functionality. Non-Displayed Reserve Orders will not be included in the information available to the DMM for manual execution. Floor brokers may also utilize Non-Display Reserve functionality to enter reserve interest. If the Floor broker uses this functionality, there is no interest displayed in the published quotation, but the interest will be eligible for manual executions because the DMM has the ability to view the Floor broker agency interest in the aggregate. Floor broker agency interest file reserve interest may also be designated as “Do Not Display” (“DND”), meaning such interest will not be available to the DMM for manual executions. As such, Non-Displayed Reserve Order and Floor broker Non-Display functionality designated DND will not participate at the open or the close, during a gap quote situation or when a manual execution is required to trade out of an LRP that locks or crosses the market. Therefore, these types of interest may be executed at an inferior price, and will not be protected in any manual trade—at the choice of the customer. DMM interest employing Non-Displayed Reserve functionality will, however, be eligible to participate in a manual transaction. Off-Floor participants that want to have non-displayed liquidity participate in a manual transaction will be required to send a Minimum Display Order. Similarly, Floor brokers that choose to have non-displayed liquidity participate in a manual transactions must not designate such interest DND.
(2)Execution of Bids and Offers The Exchange believes that the changes proposed herein create a market model where all participants have the ability to compete. As such, the Exchange proposes to amend NYSE Rule 72 to provide to all market participants the ability to receive executions on an equal basis (“parity”) with other interest available at that price. 135 Individual Floor brokers and the DMM registered in the security shall each constitute a single market participant. All Off-Floor orders entered in Exchange systems at the Exchange BBO shall together constitute a single market participant (“Off-Floor Participant”) for the purpose of share allocation. Specifically, unlike the current specialists, who must yield to all off Floor interest, DMM Interest at any price point will no longer be restricted in its ability to receive shares during an execution and no longer would be required to yield to any Off-Floor interest. 135 The amendments proposed herein apply only to round-lot executions. Odd-lot executions will continue to be executed in the Odd-lot system and priced pursuant NYSE Rule 124. The DMM will act as the contra to all odd-lot executions as specialists do currently. The Exchange also proposes to delete NYSE Rule 123A.22 as it is no longer applicable because odd-lot orders are automatically executed in the Odd-lot system. In addition, conforming amendments are proposed to NYSE Rule 70.20
(a)to remove text pertaining to restrictions on a specialist's ability to trade on parity. In addition, the Exchange proposes to remove text in NYSE Rule 70.20(b) that refers to precedence based on size. The Exchange also proposes conforming amendments to NYSE Rule 108 subparagraphs
(a)and
(b)to remove language that discusses restrictions to parity and precedence based on size.
(A)Priority and Parity for Setting Interest Proposed NYSE Rule 72 would modify the concept of priority to provide that where there is more than one bidder (offerer) participating in an execution and one of the bids (offers) was established as the first made at a particular price and such bid or offer is the only interest when such price is or becomes the best bid or offer published by the Exchange (the “Setting Interest”), that the displayed portion of such Setting Interest is entitled to priority. In order to qualify as Setting Interest, it must have been the *only* 136 interest quoted at a price. Only the *quoted* ( *i.e.* , displayed) portion of the Setting Interest is entitled to priority (“Priority Interest”). 136 If, at the time of quoting, Non-Displayed Reserve Orders or Floor broker and DMM interest employing Non-Displayed Reserve Functionality exist at the price point along with a single order or quote that has a published quantity, the single order will be deemed to be a setting order even if the Hiden Reserve Orders and Floor broker and DMM interest employing Hiden Reserve Functionality arrived first. In addition, if prior to quoting, there are two orders at the price point and one of those orders cancels, the remaining order that is the only interest quoted at the price is conspired the Setting Interest. *see* Proposed Rule 72(a)(ii); *see* also July 17th e-mail, *supra* note 3. Exchange systems will be responsible for share allocation and thus will create interest files for each market participant. Exchange systems will allocate the first 15% of any execution (a minimum of one round lot) 137 at that price to the Priority Interest. For the remainder of that execution, Setting Interest will receive executions on parity with other interest available at that price. Exchange systems will repeat the allocation logic for the Setting Interest until the Priority Interest is completely executed. Any remaining non Priority Interest of the Setting Interest will be executed on parity. 137 All allocations will be done on a round lot basis. If 15% would result in the Priority Interest receiving a mixed lot, Exchange systems will round up to the nearest round lot. The Exchange proposes to have Priority Interest retain its standing even if the Exchange BBO moves away from the price point. For example, assume that the DMM is established as the Setting Interest at $30.05 bid. A sell order is executed against the DMM's Priority Interest at $30.05 that does not completely execute the DMM's Priority Interest. The Exchange best bid then moves to $30.07. If the Exchange best bid again becomes $30.05 on that day, the remaining portion of the DMM's Priority Interest will again receive the first 15% of any subsequent execution at the $30.05 bid until the DMM's Priority Interest is executed or cancelled, trading in the stock is halted or the trading session ends. Partial cancellations will count first against the non Priority interest of any Setting Interest. All allocations to the Setting Interest will be decremented from the Priority Interest first whether the allocation is based on priority or parity. Setting Interest may be executed on parity with no priority allocation if the quote moves to a better price point and thereafter an incoming order exceeds the shares available for execution at the newly established Exchange BBO. In those instances, the Setting Interest will be executed on parity and the Priority Interest will be decremented first. For, example, assume that Customer X is established as the Setting Interest at a bid of $30.05. A sell order is executed against Customer X's Priority Interest at $30.05 that does not completely execute Customer X's Priority Interest. The Exchange best bid then moves to $30.07. A subsequent sell order is entered into Exchange systems to execute against the $30.07 bid that exceeds the number of shares available for execution at the $30.07 bid. There is bid interest at the price of $30.06. In order to complete the execution of the sell order, Exchange systems will execute the remainder of the order against all the available interest at the bid prices of $30.06 and $30.05. Customer X's Priority Interest will be executed with all other available interest at $30.05 on parity as if there was no Setting Interest. Where there is more than one bidder (offerer) participating in an execution and none of the bids (offers) was established as the Setting Interest at a particular price, the shares will be allocated on parity.
(B)Priority and Parity in the Absence of Setting Interest Where there is no Setting Interest, Exchange systems will divide the size of the executing order by the number of participants. The total number of shares to be allocated to each participant will be distributed equally among the participants where possible. Within the single Off-Floor Participant, shares executed will be allocated in order of time priority of receipt of Off-Floor Participant Interest into Exchange systems. Executions will be allocated in round-lots. In the event the number of shares to be executed at the price point is insufficient to allocate round lots to all the participants eligible to receive an execution at the price point, the Exchange systems will create an allocation wheel of the eligible participants at the price point and the available shares will be distributed to the participants in turn. On each trading day, the allocation wheel for each security is set to begin with the participant whose interest is entered or retained first on a time basis. Thereafter, participants are added to the wheel as their interest joins existing interest at a particular price point. If a participant cancels his, her or its interest and then rejoins, that participant joins as the last position on the wheel at that time. Thus, if Display Book has displayed two bids from Off-Floor Participants for a total volume of 200 shares, the DMM and three Floor brokers are bidding at the same time for 100 shares each, Exchange systems will divide an execution among the participants as explained below. Order #1 100 shares & Order #2 100 shares Book participant DMM 100 shares Participant A. Floor Broker 1 100 shares Participant B. Floor Broker 2 100 shares Participant C. Floor Broker 3 100 shares Participant D. In instances where the shares to be executed are insufficient to split among Participants, the distribution of shares will be executed serially. For example, a market order for 300 shares to sell entered in Exchange systems will allocate 100 shares to Book Participant Order #1, Participant A and Participant B. Subsequently, another order to sell 300 shares at the same price is received by Exchange systems. Those shares will be allocated to Participant C, Participant D, and Order #2 Book Participant. Non-Displayed Interest at price points between the Exchange BBO will also trade on parity. Thus non-marketable orders that are priced in between the Exchange BBO will be eligible to be executed against all non-displayed interest in Exchange systems at those price points. The total number of shares to be allocated will be distributed based on parity. The Exchange further proposes to change its overall allocation logic to require that for all executions, at the Exchange BBO or outside the Exchange BBO, the displayable bids (offers) shall trade first with orders to sell (buy). In the event that all displayable interest is completely executed at the price point and there is non-displayable interest available for execution at that price point, the remainder of the incoming order will be executed against the non-displayable bids (offers) at the price point. The non-displayable bids (offers) will trade on parity with the orders to sell
(buy)at the price point.
(e)Additional Amendments In addition to the substantive amendments discussed above, the Exchange proposes to make certain conforming amendments. Where applicable, the word “specialist” is proposed to be changed to “DMM,” “specialty stock” changed to “registered security” and related conforming changes throughout the NYSE Rulebook. The Exchange further proposes to amend NYSE Rule 7 to delete the term “Exchange Ticket” and define the Exchange BBO as the best bid and offer disseminated by the Exchange to the Consolidated Quotation System. Conforming amendments are proposed to NYSE Rule 35 in order to remove rule text that refers to “tickets” for entrance on the Floor and clarify that such entrance is subject to Exchange approval. In NYSE Rule 46A “Executive Floor Governors” the Exchange proposes to change the word “consist” to “comprise” in order to provide greater clarity in the rule. The Exchange further proposes to amend the rule to allow supervising DMMs to serve in the capacity of an Executive Floor Governor. Conforming amendments are proposed for NYSE Rule 52 in order to clarify that pre-opening indications are disseminated pursuant to NYSE Rule 15 (“Pre-Opening Indications”). The Exchange proposes to amend NYSE Rule 60 (“Dissemination of Quotations”) to include the appropriate names for the divisions of the Exchange, include modified vocabulary, remove language relating to “liquidity bid” and “liquidity “offer” from paragraphs
(d)and (e), and reflect the accurate citations for the federal securities laws referenced therein. For example, the Exchange proposes to amend references to “reported security” to use the term “NMS security.” In addition, references to Rule 11Ac1-1 will be amended to refer to Rule 602 under Reg. NMS. A reference to the Exchange's Market Surveillance Division is proposed to be amended to refer to NYSE Regulation, Inc. 138 In addition, the Exchange proposes to make clear the role of Initiating Officials in the review of market conditions when a security is in “non-firm mode.” 139 Further, NYSE Rule 60 clarifies the role of Initiating Officials when the Exchange quotation is not available for automatic execution. 138 The Exchange has proposed similar conforming amendments to NYSE Rules 36 and 460. 139 *See* July 17th e-mail, *supra* note 3. NYSE Rule 79A.15(6) is proposed for deletion as “all or none” orders are no longer valid order types on the Exchange. Similarly, NYSE Rule 104A.20 (Specialists exchanging names) and 104A.30 (Specialists “stopping” stock on book) are proposed for deletion. These provisions relate to practices that were utilized when the Exchange had a system of competing specialists. Neither of these practices currently occurs on the Exchange. The Exchange further proposes to amend NYSE Rules 61, 118.30, 122, 123B, 123C, 902, 904 and 906 to reflect that orders are entered on the Exchange or transmitted to the Display Book rather than presented to the specialist. NYSE Rule 63.10 will be amended to remove the phrase “in the hands of the specialist and odd-lot dealers,” as that phrase no longer accurately reflects the Exchanges current more electronic trading environment. Similarly, NYSE Rule 79A.15 (“Miscellaneous Requirements on Stock Market Procedures”) will be amended to substitute the phrase “Exchange BBO” for “specialist's bid or offer” and to make conforming changes. The Exchange further proposes to delete the procedures described in NYSE Rule 79A.20, as the procedure described is no longer used. The Exchange proposes to amend current NYSE Rule 70 (“Bids and Offers”) to have the title more accurately reflect the subject matter of the rule. As such, it is proposed that NYSE Rule 70 be titled “Execution of Floor Broker Interest.” The Exchange further proposed to move the first two paragraphs of NYSE Rule 70 and Rule 70.10 to NYSE Rule 71 (“Precedence of Highest Bid and Lowest Offer”) as the Exchange believes the subject matter in those paragraphs (establishing bids and offers) is more properly addressed in that rule. NYSE Rule 85 “Cabinet Securities” is proposed for deletion as the Exchange no longer has securities dealings by means of cabinets. Conforming changes are proposed to NYSE Rule 123A.71 to change the word “specialist” to “members.” NYSE Rule 123A.72 is proposed for deletion because that rule served only to make NYSE Rule 123A.71 applicable to Floor brokers and the proposed amendment to NYSE Rule 123A.71 makes it unnecessary. The Exchange further proposes to delete Supplementary Material .22 of NYSE Rule 123A as there are no longer odd-lot brokers operating on the Exchange. NYSE Rule 123A.25 (“Standard Machine Order Forms”) is also proposed for deletion as it is no longer applicable in the current automated trading environment. Moreover, NYSE Rules 123D subparagraph
(1)and 299A subparagraph
(2)are also proposed for deletion because DMMs will, similar to current specialists, not be allowed to “stop” stock. 140 140 *See* July 16th e-mail, *supra* note 101. The Exchange further proposes to amend NYSE Rule 91 (“Taking or Supplying Securities Named In Order”) to delete Supplementary Material .20, because the Exchange will no longer have specialists. NYSE Rule 91.20 under Supplementary Material provides for the executions as principal of orders for accounts carried or serviced by specialist organizations. The Exchange does not propose to allow DMM units to carry or service customer accounts and therefore this portion of the rule is proposed for deletion. In addition to designating current Rule 104 as Rule 104T and making conforming changes, the Exchange proposes a number of clarifications to describe changes to the text of the Rule. In Rule 104(b)(iii)(B), the exchange proposes to replace “published best bid or offer” with the defined term “BBO,” when referring to the Exchange published best bid or offer. Similarly, the Exchange proposes to replace “best bid and offer” with “BBO” in Rule 104(c)(viii). In NYSE Rule 104T (b)(i) and (d)(i), the Exchange proposes to clarify that DMMs may have reserve interest at the Exchange best bid or offer by substituting the word “or” for “and” in the phrase “Exchange best bid and offer.” Conforming amendments to sections
(a)and
(b)of Rule 440G (Transactions in Stocks and Warrants for the Accounts of Members, Allied Members and Member Organizations) are proposed. Conforming amendments are proposed to NYSE Rule 1000 in order to reflect that the order size eligibility, on the Exchange is up to a maximum of 6,500,000 shares.
(f)Implementation Schedule The proposed amendments herein require the Exchange to make significant modifications to Exchange systems. Such modifications must be done over time. The Exchange therefore proposes that amendments approved herein be implemented over time pursuant to the schedule outlined below.
(1)Non-Pilot Rules The Exchange proposes that upon Commission approval of the instant filing, that the amendments to NYSE Rules 13 be permanent rules of the Exchange. Specifically, the establishment of Reserve Order types on the Exchange and the rescission of CAP orders as viable order types on the Exchange would be approved established as permanent changes to the NYSE rulebook. Similarly, all conforming changes to other Exchange rules to all Floor brokers and DMMs to use equivalent reserve order functionality are established as permanent changes to the NYSE rulebook. In addition, the Exchange proposes that amendments to NYSE Rules 2 and 103 establishing the DMMs and DMM units be also approved as permanent changes to the NYSE rulebook. The Exchange further proposes that upon Commission approval of the instant filing that amendments to NYSE Rule 70 that:
(i)Allow for the publication of Floor broker interest to Open Book;
(ii)provide for the availability for additional liquidity on the Exchange by allowing d-Quote instructions to be active during the open and close; and
(iii)offer additional opportunities for price improvement by allowing d-Quotes to trade with non-marketable IOC orders be approved as a permanent change to the NYSE rulebook.
(2)Pilot Rules The Exchange further proposes to commence the New Model Pilot, subject to Commission approval, at which time, proposed NYSE Rule 72 and proposed NYSE Rule 104T will become effective. 141 The New Model Pilot will operate for a period of approximately one year and will be scheduled to end on September 1, 2009 or such earlier time as the Commission may determine to make the New Model Pilot rules permanent. 141 Proposed NYSE Rule 104T will operate until October 14, 2008. During the operation of the New Model Pilot, all market participants will have the ability to receive executions on an equal basis (“parity”) 142 with other interest available at that price. It is anticipated that until October 14, 2008, DMMs will still receive order information about orders that are at or between the Exchange quote. DMMs must abide by their affirmative obligations, meeting his or her requirements to maintain displayed bids and offers at the NBBO and re-enter liquidity pursuant to NYSE Rule 104T. Beginning October 15, 2008, DMMs will no longer be subject to a negative obligation. 142 ``Parity'' refers to the allocation of shares in an execution on an equal basis among all participants to a transaction. A fuller description of parity is included in subsection (d)(2) of Proposed New Market Model. Commencing on October 15, 2008, NYSE Rule 104T will cease operation and new NYSE Rule 104 will supersede it. As of October 15, 2008 the DMM will no longer receive any order by order information. DMMs will then be permitted to transmit CCS interest to the Display Book to trade at price points outside, at, and inside the Exchange BBO. The new Rule 104 and the portions of Rule 1000 relating to CCS interest of DMMs are subject to the Pilot that is scheduled to run until September 1, 2009. During the operation of the New Model Pilot, the Exchange is committed to providing the Commission's Division of Trading and Markets and the Office of Economic Analysis with statistics related to market quality, trading activity, and sample statistics as requested by the Commission.
(g)Conclusion The Exchange believes that the New Model will allow the Exchange to further enhance the speed of execution currently enjoyed by Exchange customers in the current more electronic trading environment on the Floor while providing the additional anonymity of execution sought by market participants. The Exchange believes that the proposed modifications will provide a trading environment where market participants are competing on more equal footing relative to their responsibilities to the market. In providing certain functionality to one market participant and not another the Exchange acknowledges the reality that a level playing field is not created by treating unlike participants the same. DMMs, Floor brokers and Off-Floor participants do not have the same responsibilities to the market. A DMM's ability to trade is constrained by his or her responsibility to cushion market volatility and to replenish liquidity when the DMM trades for his or her own account to establish or increase a position by reaching across the market to trade with the Exchange's published bid or offer. Similarly the Floor broker is constrained in his or her ability to trade for his or her account at the point of sale pursuant SEC Rule 11(a) described above. None of these responsibilities is imposed on the Off-Floor participant. Off-Floor participants are therefore able to trade unfettered by the constraints of market responsibilities. However, DMMs, Floor brokers and Off-Floor participants have access to the same market information, although in certain instances Off-Floor participants may be privy to information available about an order that is being “shopped” off the Floor. Moreover, armed with equal information, in certain instances more than DMMs and Floor brokers, the Off-Floor participant uses a computer program for entering orders that employs an algorithm to decide the venue, timing, price, or even the final quantity of the orders to be sent to the market center for execution. In this manner, Off-Floor participants are able to break up a large trade into several smaller trades to manage their risk by having little to no market impact. The Exchange submits that a significant portion of executions on equities markets are the result of the use of algorithms. The Exchange further submits that the proposed New Model will allow the Exchange to continue to provide a quality market that maintains a competitive market maker responsible for providing liquidity to the market when there is a recognized need for additional liquidity. DMMs will bridge the gap between supply/demand by purchasing when no one else is buying or selling when no one else is selling and by overall maintaining a fair and orderly market. The New Model will allow the Exchange to maintain the element of human judgment that is particularly valuable in less liquid securities, at openings (re-openings), closings, and in order to trade out of Gap quote and LRP situations that would lock and cross the market. The Exchange further believes that the New Model will allow the Exchange to continue to make quality markets in securities during times of uncertainty, such as when an earnings surprise, news, or an outside event leads to market volatility and/or instability. In these situations, DMMs will act as a liquidity provider to reduce volatility, thus stabilizing prices, and maintaining a fair and orderly market that is the hallmark of the NYSE. 2. Statutory Basis NYSE believes that the proposed rule change is consistent with Section 6(b) of the Act 143 in general, and the requirement in Section 6(b)(5) of the Act, 144 in particular, that the rules of an exchange be, among other things, designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange believes the proposed rule change is consistent with these principles in that it seeks to assure economically efficient execution of securities transactions, make it practicable for brokers to execute investors' orders in the best market and provide an opportunity for investors' orders to be executed without the participation of a dealer. The Exchange further believes that the proposed New Model will increase the speed and efficiency of automatic execution on the NYSE and create a trading environment where market participants compete more equally. 143 15 U.S.C 78f(b). 144 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The proposed amendments reflect significant changes to the structure of the Exchange's market. As such, there have been numerous valuable discussions with Exchange customers, members, and member organizations concerning the concepts underlying these proposals. Specifically, there have been discussions concerning the structure and functioning of the new market model received from various constituencies of the Exchange. For example, current specialists and specialist member organizations commented on the nature of the duties and responsibilities of the DMM in the new model through a review of the current duties and responsibilities of today's specialists. This resulted in several suggestions that were made part of proposed Rules 104 with respect to duties and obligations of DMMs, Rule 72 with respect to parity allocation of executions and amendments to Rule 1000 with respect to the functioning of the Capital Commitment Schedule interest to be entered by DMMs. Customers of the Exchange provided input on the proposed revisions to the Reserve Orders (Rule 13) and parity allocation of executions. In certain instances, member organizations have provided written comment to draft rule text. Where necessary, those comments have been addressed in modifications to the original proposal. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding, or
(ii)as to which NYSE consents, the Commission will:
(A)By order approve such proposed rule change; or
(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form *(http://www.sec.gov/rules/sro.shtml);* or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-NYSE-2008-46 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSE-2008-46. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site *(http://www.sec.gov/rules/sro.shtml).* Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2008-46 and should be submitted on or before August 13, 2008. 145 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 145 Florence E. Harmon, Acting Secretary. [FR Doc. E8-16823 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58175; File No. SR-Phlx-2008-12] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Order Granting Approval to a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to an Exemption From Examination Requirements for Off-Floor Traders July 16, 2008. On April 14, 2008, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend Phlx Rule 604(e)(iii) to modify the category of persons who are exempt from the requirement that Off-Floor Traders 3 complete the Series 7 General Securities Registered Representative Examination (“Series 7”). On May 30, 2008, Phlx filed Amendment No. 1 to the proposed rule change. 4 The proposal was published for comment in the **Federal Register** on June 12, 2008. 5 The Commission received no comments on the proposal. This order approves the proposed rule change, as modified by Amendment No. 1. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Phlx Rule 604(e)(i) defines an off-floor trader as a “person who is compensated directly or indirectly by a member or participant organization for which the Exchange is the DEA [Designated Examining Authority], or any other associated person of such member or participant organization, and who executes, makes trading decisions with respect to, or otherwise engages in proprietary or agency trading of securities, including, but not limited to, equities, preferred securities, convertible debt securities or options off the floor of the Exchange.” 4 Amendment No. 1 replaced and superseded the original filing in its entirety. 5 *See* Securities Exchange Act Release No. 57923 (June 4, 2008), 73 FR 33479 (June 12, 2008). Phlx states that the Series 7 exemption meant to apply to persons who traded on its equity trading floor and were associated with either a specialist organization or a floor brokerage organization that executed orders on an agency basis (“Former Floor Participants”). When Phlx replaced its equity trading floor with XLE, an electronic trading system, certain persons became Off-Floor Traders by definition, and consequently subject to the requirement to pass the Series 7. Phlx did not intend for this category of persons to be subject to the Series 7 requirement. Therefore, Phlx proposed to exempt these persons from the Series 7 by expanding the exemption in Rule 604 to include Market Maker Authorized Traders (MMATs) and Off-Floor Traders who only handle and/or make trading decisions regarding agency orders and any bona fide errors related to those agency orders. Phlx believes the proposed rule change will make the administration of the Series 7 requirements for Off-Floor Traders more efficient, because under the current rule, the exemption applies to persons “primarily engaged” in submitting orders to XLE or making trading decisions with respect to XLE, which requires the Former Floor Participant and the Exchange's enforcement staff to make a judgment call. Under the proposed rule, however, an XLE participant needs to register with the Exchange in order to be an MMAT, so the determination of MMAT status is straightforward. In addition, Phlx staff can examine what type of orders (agency or proprietary) Off-Floor Traders handle for net capital purposes and could identify whether Off-Floor Traders would qualify for the proposed exemption. Finally for the same reasons, the proposed rule change should improve Phlx's enforcement efforts, because Phlx and its members will be able to more easily determine which persons are subject to the Series 7 requirement. After careful review of the proposal, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 6 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act, 7 which requires, among other things, that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission believes that this proposed rule change will better capture the floor-based activities of Former Floor Participants by focusing on the status of, or type of, activity performed by those persons. In addition, it should provide a clearer standard that should allow Exchange staff, as well as members and individuals, to better determine who is subject to the Series 7 requirement. This should make the administration, as well as compliance and enforcement, of the Series 7 requirement more efficient. 6 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 7 15 U.S.C. 78f(b)(5). *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 8 that the proposed rule change (SR-Phlx-2008-12), as modified by Amendment No. 1, be, and hereby is, approved. 8 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 9 9 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16758 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58179; File No. SR-Phlx-2008-31] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval to a Proposed Rule Change, as Modified by Amendments No. 1 and 2 Thereto, Relating to Changes to Phlx's Governing Documents in Connection With the Acquisition of Phlx by The NASDAQ OMX Group, Inc. July 17, 2008. I. Introduction On April 21, 2008, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change in connection with the acquisition of the Exchange by The Nasdaq Stock Market, Inc., now known as The NASDAQ OMX Group, Inc. (“NASDAQ OMX”). On April 29, 2008, the proposed rule change was published for comment in the **Federal Register** . 3 The Exchange filed Amendment Nos. 1 and 2 to the proposed rule change on May 30, 2008 and July 2, 2008, respectively. 4 The Commission received no comments on the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 57703 (April 23, 2008), 73 FR 23293 (“Notice”). 4 In Amendment No. 1, Phlx represented that, on May 6, 2008, the Exchange obtained shareholder approval of the proposed rule change, as required by Delaware General Corporation Law, and that no further action by the Exchange in connection with the proposed rule change is required. *See also* General Instruction E to Form 19b-4 (concerning completion of action by a self-regulatory organization on a proposed rule change). Phlx also clarified that routing by NASDAQ Execution Services, LLC (“NES”) to Phlx, on behalf of The NASDAQ Stock Market LLC (“NASDAQ Exchange”), takes two forms. Amendment No. 1 is technical in nature, and therefore is not subject to notice and comment. In Amendment No. 2, Phlx filed the complete Certificate of Incorporation and amended By-Laws of NASDAQ OMX in order to propose their adoption as rules of Phlx. The By-Laws contained minor amendments to terminology to apply to Phlx all of the same provisions that are currently specifically applicable to the NASDAQ Exchange. The amended By-Laws were published for comment in a separate NASDAQ Exchange filing. *See* Securities Exchange Act Release No. 57761 (May 1, 2008), 73 FR 26182 (May 8, 2008) (notice of SR-NASDAQ-2008-035) (“Nasdaq Stock Market Proposal”). This order provides notice of filing of Amendment No. 2 to the proposed rule change, and grants accelerated approval to the proposed rule change, as modified by Amendments Nos. 1 and 2. II. Background On November 7, 2007, NASDAQ OMX announced that it had entered into an agreement with the Exchange, pursuant to which NASDAQ OMX would acquire all of the common stock of the Exchange. 5 Phlx shareholders would receive cash consideration for their common stock and would not retain any ownership interest in the Exchange. 5 The Exchange demutualized in 2004, though it is not publicly traded. *See* Securities Exchange Act Release No. 49098 (January 16, 2004), 69 FR 3974 (January 27, 2004) (SR-PHLX-2003-73) (approval order). The proposed acquisition would be effected through the merger of Pinnacle Merger Corporation, Inc. (“Merger Subsidiary”), a Delaware corporation and wholly-owned subsidiary of NASDAQ OMX, with and into the Exchange, with the Exchange surviving the merger (the “Merger”). 6 The members of the board of directors of Merger Subsidiary would be selected by NASDAQ OMX from among the current Governors of the Exchange and would become the Board of Governors of Phlx (“Board”) immediately after the effective time of the Merger. 7 The Exchange represents that the directors of Merger Subsidiary, and therefore the new Board, would satisfy the compositional requirements of the new Board, discussed below. 8 6 *See* proposed Section 1-1(ii) of the By-Laws (defining “NASDAQ OMX Merger”). 7 *See* proposed Section 4-3(b) of the By-Laws and Notice, *supra* note 3, 73 FR at 23295. 8 *See infra* notes 61-69 and accompanying text (discussing proposed compositional requirements of the Board). After the Merger, the Exchange would be a wholly-owned subsidiary of NASDAQ OMX. 9 NASDAQ OMX would operate the Exchange as a separate self-regulatory organization (“SRO”). Accordingly, Phlx would maintain its current registration as a national securities exchange, and maintain separate rules, membership rosters, and listings that would be distinct from the rules, membership rosters, and listings of NASDAQ OMX's other national securities exchanges. Additionally, after the Merger, the Exchange would continue to operate the Stock Clearing Corporation of Philadelphia (“SCCP”), 10 its wholly-owned clearing agency, and The Philadelphia Board of Trade (“PBOT”), its wholly-owned futures exchange subsidiary. Separately, NASDAQ OMX also entered into an agreement with the Boston Stock Exchange, Inc. (“BSE”), pursuant to which NASDAQ OMX would acquire all of the outstanding membership interests in BSE (“BSE Acquisition”). 11 Following the closing of the BSE Acquisition and the Merger, NASDAQ OMX will be the sole owner of five SROs: NASDAQ Exchange, BSE, the Boston Stock Exchange Clearing Corporation (“BSECC”), Phlx, and SCCP (collectively, “SRO Subsidiaries”). 9 The Exchange would have a single class of common stock, all of which would be held by NASDAQ OMX. 10 *See* Securities Exchange Act Release No. 58180 (July 17, 2008) (SR-SCCP-2008-01) (approving changes to SCCP's articles of incorporation, including language clarifying that all of the authorized shares of SCCP common stock are issued and outstanding and are held by Phlx). 11 *See* Securities Exchange Act Release No. 57757 (May 1, 2008), 73 FR 26159 (SR-BSE-2008-23) (notice of proposed rule change related to BSE Acquisition); Securities Exchange Act Release No. 57782 (May 6, 2008), 73 FR 27583 (May 13, 2008) (SR-BSECC-2008-01) (notice of proposal to amend the articles of organization and by-laws of the BSECC to reflect its proposed acquisition by NASDAQ OMX). In the present filing, the Exchange has proposed to amend its certificate of incorporation (“Certificate”), by-laws (“By-Laws”), and certain rules (“Rules”) to reflect NASDAQ OMX's proposed ownership of the Exchange. In general, the proposed changes are designed to address the Exchange's proposed new ownership structure and conform Phlx's governance provisions to those that are currently applicable to the NASDAQ Exchange. The Exchange is also using this opportunity to make several other changes to its governing documents to update certain language and make other minor changes that are not directly related to the proposed Merger. 12 12 For example, as discussed in Section III.E.6, *infra,* the language relating to how the Exchange's Weekly Bulletin is distributed would be updated to not restrict its distribution to mail, but rather to permit distribution by e-mail and posting on the Exchange's Web site. *See* Section 12-5(d) of the By-Laws. In addition, NASDAQ OMX has amended its By-Laws to make applicable to all of NASDAQ OMX's SRO subsidiaries, including Phlx and SCCP (after the Merger), certain provisions of NASDAQ OMX's Restated Certificate of Incorporation and NASDAQ OMX's By-Laws. These provisions of NASDAQ OMX's governing documents are designed to maintain the independence of each SRO subsidiary's self-regulatory function, enable each SRO subsidiary to operate in a manner that complies with the federal securities laws, and facilitate the ability of each SRO subsidiary and the Commission to fulfill their regulatory and oversight obligations under the Act. 13 13 *See* Amendment No. 2, *supra* note 4 (including the amended By-Laws of NASDAQ OMX to the Phlx's proposal). III. Discussion After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 14 In particular, the Commission finds that the proposed rule change is consistent with:
(1)Section 6(b)(1) of the Act, 15 which requires a national securities exchange to be so organized and have the capacity to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act;
(2)Section 6(b)(3) of the Act, 16 which requires that the rules of a national securities exchange assure the fair representation of its members in the selection of its directors and administration of its affairs, and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer (the “fair representation requirement”); and
(3)Section 6(b)(5) of the Act, 17 in that it is designed, among other things, to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to remove impediments to and perfect the mechanism of a free and open market and a national market system; and, in general, to protect investors and the public interest. 14 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 15 15 U.S.C. 78f(b)(1). 16 15 U.S.C. 78f(b)(3). 17 15 U.S.C. 78f(b)(5). As noted above, the Merger would result in NASDAQ OMX owning two additional SROs (Phlx and SCCP). The Commission believes that the ownership of Phlx and SCCP by the same public holding company that owns the NASDAQ Exchange would not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. 18 Further, the Commission does not believe that the ownership by one holding company of two exchanges and one clearing agency presents any adverse competitive implications in the current marketplace. The Commission notes that it has previously approved proposals in which a holding company owns multiple SROs. 19 The Commission continues to monitor such entities and notes that its experience to date with the issues raised by this ownership structure has not presented any concerns that have not been addressed, for example by the protections afforded at the holding company level. 18 15 U.S.C. 78f(b)(8) and 15 U.S.C. 78q-1(b)(3)(I). 19 *See, e.g.* , Securities Exchange Act Release No. 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (approving the combination of the New York Stock Exchange, Inc. and Archipelago Holdings, Inc.). In particular, as discussed below, though NASDAQ OMX is not itself an SRO, its activities with respect to the operation of Phlx and SCCP must be consistent with, and must not interfere with, the self-regulatory obligations of Phlx and SCCP. 20 Further, certain provisions of NASDAQ OMX's Certificate of Incorporation and By-Laws are rules of an exchange if they are stated policies, practice, or interpretations, as defined in Rule 19b-4 under the Act, of the exchange, and must be filed with the Commission pursuant to Section 19(b) of the Act and Rule 19b-4 thereunder. 21 Accordingly, Phlx has filed with the Commission the Certificate and amended By-Laws of NASDAQ OMX. Notably, NASDAQ OMX's amended By-Laws would make applicable to all of NASDAQ OMX's SRO subsidiaries, including Phlx and SCCP (after the Merger), certain provisions of NASDAQ OMX's Restated Certificate of Incorporation and NASDAQ OMX's By-Laws that are designed to maintain the independence of each of its SRO subsidiaries' self-regulatory function. These provisions facilitate the ability of each SRO subsidiary and the Commission to fulfill their regulatory and oversight obligations under the Act. 20 *See infra* Section III.C.1 (discussing the relationship between NASDAQ OMX and Phlx). 21 15 U.S.C. 78s(b) and 17 CFR 240.19b-4, respectively. Furthermore, the Commission believes that there is robust competition among market centers, as exchanges face increasing competition from non-exchange entities that trade the same or similar financial instruments, such as alternative trading systems. 22 In addition, despite consolidation among exchanges, other entities have recently applied for exchange registration, which evidences the continued ability of entities to enter the marketplace and further increase competition among SROs. 23 Accordingly, as described above, the Commission does not believe that ownership by a single holding company of multiple SROs presents any burden on competition in violation of the Act. 24 Nevertheless, the Commission will continue to monitor SROs, including those that are under common ownership, for compliance with the Act and the rules and regulations thereunder, as well as the SROs' own rules. 22 *See, e.g.* , Securities Exchange Act Release No. 58092 (July 3, 2008), 73 FR 40144, 40144 (July 11, 2008) (where the Commission recognized that “[n]ational securities exchanges registered under Section 6(a) of the Exchange Act face increased competitive pressures from entities that trade the same or similar financial instruments * * *”). 23 *See, e.g.* , Securities Exchange Act Release No. 57322 (February 13, 2008), 73 FR 9370 (February 20, 2008) (File No. 10-182) (notice of filing of application and Amendment No. 1 thereto by BATS Exchange, Inc. for registration as a national securities exchange). 24 The Commission notes that NASDAQ OMX also entered into an agreement with the BSE, pursuant to which NASDAQ OMX would acquire all of the outstanding membership interests in BSE. *See* Securities Exchange Act Release Nos. 57757 (May 1, 2008), 73 FR 26159 (May 8, 2008) (SR-BSE-2008-23) (notice of proposed rule change related to BSE Acquisition); and 57782 (May 6, 2008), 73 FR 27583 (May 13, 2008) (SR-BSECC-2008-01) (notice of proposal to amend the articles of organization and by-laws of the BSECC to reflect its proposed acquisition by NASDAQ OMX). If the Commission also were to approve the BSE Acquisition, NASDAQ OMX would be the sole owner of five SROs: NASDAQ Exchange, Phlx, SCCP, BSE, and the BSECC. The Commission will consider the implications of those proposed acquisitions when it reviews that proposal. A. Capital Stock The proposed Merger would result in NASDAQ OMX owning all of the issued, authorized, and outstanding common stock of the Exchange. 25 Accordingly, the Exchange proposes to amend the Certificate to reduce the amount of common and preferred stock, and to explicitly state that NASDAQ OMX will hold all of the common stock of the Exchange. Specifically, the Exchange proposes to:
(1)Reduce the amount of common stock that the Exchange has authority to issue from one million to 100 shares; 26
(2)state that all authorized shares of common stock shall be issued, outstanding, and held by NASDAQ OMX; 27
(3)eliminate the designation of Class A and Class B common stock; 28
(4)reduce the amount of preferred stock that the Exchange has authority to issue from 100,000 to 100 shares; 29 and
(5)state that only one share of preferred stock, the single share of Series A Preferred Stock, 30 is outstanding. 31 In addition, the Exchange proposes to delete or amend several provisions applicable to the Exchange's common stock that would become obsolete after the Merger because NASDAQ OMX would control 100% of the common stock. 32 These changes are necessary to reflect the change in ownership of the Exchange after the Merger, and the Commission finds them to be consistent with the Act. 25 *See* proposed Article FOURTH(c)(iv) of the Certificate and proposed Section 29-4(c) of the By-Laws. 26 *See* proposed Article FOURTH of the Certificate. 27 *See* proposed Article FOURTH(c)(iv) of the Certificate. 28 *See, e.g.* , proposed Article FOURTH of the Certificate and proposed Section 1-1(d) of the By-Laws. For example, Article FOURTH(b)(ii) sets forth the different dividend priority of holders of Class A common stock and Class B common stock in the event of a Liquidity Event (as defined in that subparagraph). This provision would be obsolete once only one class of common stock is authorized and outstanding. Correspondingly, the Exchange proposes to eliminate that language. Similarly, the Exchange proposes to eliminate Article FOURTH(c)(vi) of the Certificate, which governs the automatic conversion of Class A common stock, and language in Article FOURTH(c)(iii) of the Certificate that distinguishes between the voting rights of holders of Class A and Class B common stock. On January 20, 2007, all Class A common stock converted to Class B common stock shares. *See* Phlx Annual Report 2006 at 42. Upon conversion to Class B, the eligibility of holders of Class A shares for a contingent dividend terminated. *See id.* The former holders of the Class A shares otherwise continued to have the same rights and privileges, including voting, as the Class B holders. *See id.* 29 *See* proposed Article FOURTH of the Certificate. 30 The share of Series A Preferred Stock, which is currently issued and outstanding, is held by the Trust pursuant to the Trust Agreement. *See* Section 1-1(mm) of the By-Laws (defining “Trust”) and Section 1-1(ee) of the By-Laws (defining “Trust Agreement”). The Trustee of the Trust is required, under Section 4.1 of the Trust Agreement, to vote the share as directed by the vote of the Member Organization Representatives of Member Organizations entitled to vote. This voting arrangement is designed to give Members a voice in the management of the Exchange and is necessary because, under Delaware law, only stockholders can elect the directors of a Delaware corporation. *See* Securities Exchange Act Release No. 49098, *supra* note 5, 69 FR at 3979. The Merger would not result in a transfer of ownership of the Series A Preferred Stock. 31 *See* proposed Article FOURTH(b)(iv) of the Certificate. 32 For example, Phlx proposes to amend the dividend rights of common stock ( *see* proposed Article FOURTH(c)(ii) of the Certificate) and eliminate provisions governing common stock incentive compensation. *See infra* note 146 and accompanying text (discussing the proposal to eliminate incentive compensation). B. Ownership Concentration Limitations and Voting Limits Phlx proposes to amend the Certificate to replace the current ownership concentration limitations and voting limitations with new restrictions that would recognize that, following the Merger, NASDAQ OMX would own all of the common stock of the Exchange. As discussed below, the Exchange proposes to delete language in Article FOURTH of the Certificate, which limits the amount of common stock of the Exchange that any person may own or vote, directly or indirectly, without prior Commission approval. In place of this restriction, Phlx proposes to amend its Certificate and By-Laws to prohibit Phlx from transferring or assigning its common stock without prior Commission approval and from issuing, transferring, or assigning its preferred stock without prior Commission approval. 33 33 *See* proposed Article FOURTH(c)(iv) of the Certificate (restriction on transferring or assigning common stock). This subparagraph also provides that all authorized shares of common stock of the Exchange (100 shares) be issued and outstanding and reflects that all of the common stock would be held by NASDAQ OMX. The Commission notes that any proposed issuance of common stock would constitute an amendment to that provision, which would be subject to the filing of a proposed rule change with the Commission. *See also* proposed Section 29-4(c) of the By-Laws. *See* proposed Article FOURTH(a) and (b)(v) of the Certificate and proposed Section 29-4(d) of the By-Laws (restriction on issuing, transferring, or assigning preferred stock). *See also infra* note 43 (restrictions on the issuance of preferred stock). The current Certificate imposes limits on direct and indirect changes in control of Phlx through voting and ownership limits applicable to holders of its common stock. These provisions enable the Commission, as well as the Exchange, to monitor potential changes in control of the Exchange, and thereby assist both the Commission and the Exchange in carrying out their regulatory responsibilities under the Act. 34 In particular, the Certificate currently provides that, unless approved by the Board and by the Commission under Section 19(b) of the Act, no Person (either alone or together with its Related Persons) may own (of record or beneficially), whether directly or indirectly, more than 40% of the then-outstanding shares of Phlx common stock. To the extent that such Person (or its Related Persons) purports to own more than 40% of the then outstanding shares of common stock of the Exchange, the Person (and its Related Persons) is not entitled to exercise any rights and privileges incident to ownership of shares in excess of the 40% limit. 35 The Certificate also provides that no Member (either alone or together with its Related Persons) may own, of record or beneficially, whether directly or indirectly, more than 20% of the then outstanding shares of common stock of the Exchange. 36 Moreover, unless approved by the Board and by the Commission under Section 19(b) of the Act, no Person, either alone or together with its Related Persons, has any right to vote, or to give any consent or proxy with respect to, more than 20% of the then outstanding shares of common stock of the Exchange. 37 34 *See* Securities Exchange Act Release No. 49098, *supra* note 5, 69 FR at 3985. 35 *See* Article FOURTH(b)(v)(A) of the Certificate. 36 *See* Article FOURTH(b)(v)(B) of the Certificate. 37 *See* Article FOURTH(b)(iii)(B) of the Certificate. Currently, the Board would need to approve an amendment to the By-Laws to permit any Person, together with its Related Persons, to exercise voting rights with respect to the shares in excess of the 20% voting limit or to own more than 40% of the outstanding shares of common stock. 38 Such amendment would need to be filed with the Commission pursuant to Section 19(b) of the Act, 39 which allows the Commission an opportunity to determine, among other things, whether any additional measures may be necessary to provide sufficient regulatory jurisdiction over the proposed controlling persons. 40 38 The Board cannot approve such amendment with respect to Members. 39 *See* Article FOURTH(b)(iii)(B)(1) and FOURTH(b)(v)(A)(1) of the Certificate. 40 *See* Securities Exchange Act Release No. 49098, * supra* note 5, 69 FR at 3985. The Commission notes that this proposed rule change satisfies the requirements in existing Article FOURTH(b)(v)(A) and (b)(iii)(B) of the Certificate and that the Commission's approval will allow NASDAQ OMX to exceed the existing ownership and voting limits in existing Article FOURTH. The proposed rule change will become operative upon consummation of the Merger. As proposed, NASDAQ OMX would acquire all of the common stock of the Exchange. To reflect such ownership by one entity, the Exchange proposes to eliminate the 40% ownership and 20% voting limits. Phlx also proposes to eliminate the prohibition on any Member, either alone or together with its Related Persons, from owning (of record or beneficially) more than 20% of its outstanding common stock of the Exchange. 41 41 *See* Article FOURTH(c)(v)(B) of the Certificate. In place of these restrictions, Phlx proposes to adopt new restrictions on the transfer or assignment of common stock. Specifically, proposed Article FOURTH(c)(iv) of the Certificate would be revised to state that:
(1)All 100 authorized shares of common stock of the Exchange shall be issued and outstanding, and shall be held by NASDAQ OMX; and
(2)NASDAQ OMX may not transfer or assign any shares of Phlx common stock to any entity, unless such transaction is approved by the Commission. 42 The Exchange also proposes to adopt a restriction on the issuance of preferred stock, as well as similar restrictions on the transfer or assignment of preferred stock. 43 42 *See also* proposed Section 29-4(c) of the By-Laws. 43 *See* proposed Section 29-4(d) of the By-Laws. The Exchange would have authority to issue 100 shares of preferred stock, of which one share would be designated Series A Preferred. *See* proposed Article FOURTH of the Certificate. Phlx has not issued, and does not currently intend to issue, any preferred stock other than the Series A Preferred Stock. *See* Notice, *supra* note 3, 73 FR at 23293. The restrictions on transfer or assignment would also apply to the Series A Preferred Stock. See proposed Article FOURTH(a) of the Certificate; *see also* proposed Article FOURTH(b)(v) of the Certificate. The proposed Merger would not impact the ownership of the one outstanding share of Series A Preferred Stock, which will continue to be held by the Trust pursuant to the Trust Agreement. In addition, the NASDAQ OMX Certificate of Incorporation imposes limits on direct and indirect changes in control, which are designed to prevent any shareholder from exercising undue control over the operation of its SRO subsidiaries and to ensure that its SRO subsidiaries and the Commission are able to carry out their regulatory obligations under the Act. Specifically, no person who beneficially owns shares of common stock, preferred stock, or notes of NASDAQ OMX in excess of 5% of the securities generally entitled to vote may vote the shares in excess of 5%. 44 This limitation would mitigate the potential for any NASDAQ OMX shareholder to exercise undue control over the operations of Phlx, and it facilitates Phlx's and the Commission's ability to carry out their regulatory obligations under the Act. 44 *See* Article Fourth.C, NASDAQ OMX Certificate. The NASDAQ OMX Board may approve exemptions from the 5% voting limitation for any person that is not a broker-dealer, an affiliate of a broker-dealer, or a person subject to a statutory disqualification under Section 3(a)(39) of the Act, 45 provided that the NASDAQ OMX Board also determines that granting such exemption would be consistent with the self-regulatory obligations of its SRO subsidiary. 46 Further, any such exemption from the 5% voting limitation would not be effective until approved by the Commission pursuant to Section 19 of the Act. 47 Phlx's proposed rule change reflects an amendment to the NASDAQ OMX By-Laws to require the NASDAQ OMX Board, prior to approving any exemption from the 5% voting limitation, to determine that granting such exemption would also be consistent with Phlx's self-regulatory obligations. 48 45 15 U.S.C. 78c(a)(39). *See* Article Fourth.C.6, NASDAQ OMX Certificate. 46 Specifically, the NASDAQ OMX Board must determine that granting such exemption would
(1)not reasonably be expected to diminish the quality of, or public confidence in, NASDAQ OMX or the other operations of NASDAQ OMX, on the ability to prevent fraudulent and manipulative acts and practices and on investors and the public, and
(2)promote just and equitable principles of trade, foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to an facilitating transactions in securities or assist in the removal of impediments to or perfection of the mechanisms for a free and open market and a national market system. *See* Article Fourth.C.6, NASDAQ OMX Certificate. 47 *See* Section 12.5, NASDAQ OMX By-Laws. 48 *See* proposed Section 12.5, NASDAQ OMX By-Laws. The Commission approved the existing limits in Phlx's Certificate to enable the Exchange to carry out its self-regulatory responsibilities, and to enable the Commission to fulfill its responsibilities under the Act. 49 After the Merger, these goals would be achieved by the proposed new restrictions on the transfer or assignment of Phlx capital stock and on the issuance of preferred stock, together with the ownership and voting restrictions on NASDAQ OMX shareholders. In particular, the simplified provisions of Phlx's Certificate and By-Laws are tailored to an exchange whose common stock is wholly-owned by one company. By explicitly stating that NASDAQ OMX would be the owner of 100% of the Exchange's issued and outstanding common stock, and that no preferred stock has been issued other than the Series A Preferred Stock held by the Trust, any purported issuance, transfer, or assignment of any capital stock would constitute an amendment to the Certificate and By-Laws and therefore be subject to a filing with the Commission under Section 19 of the Act. Moreover, the NASDAQ OMX Certificate currently includes restrictions on any person voting shares in excess of 5%. The changes to the NASDAQ OMX By-Laws would require the NASDAQ OMX Board, prior to approving an exemption from the 5% voting limitation, to determine that granting such exemption would be consistent with Phlx's self-regulatory obligations. 49 *See supra* note 34 and accompanying text. Accordingly, the Commission finds that the elimination of the current ownership and voting limits and the adoption of new controls on the issuance, transfer, and assignment of Phlx capital stock, together with the ownership and voting limitations in NASDAQ OMX's Certificate and By-Laws, are designed to prevent any shareholder from exercising undue control over the operation of Phlx and to ensure that Phlx and the Commission are able to carry out their regulatory obligations under the Act and thereby should minimize the potential that a person could improperly interfere with or restrict the ability of the Commission or Phlx to effectively carry out their respective regulatory oversight responsibilities under the Act. C. Management of the Exchange 1. Relationship between NASDAQ OMX and Phlx After the merger, Phlx would become a subsidiary of NASDAQ OMX. Although NASDAQ OMX is not an SRO and, therefore, will not itself carry out regulatory functions, its activities with respect to the operation of Phlx must be consistent with, and not interfere with, Phlx's self-regulatory obligations. Proposed changes to NASDAQ OMX's By-Laws would make applicable to all of NASDAQ OMX's SRO subsidiaries, including Phlx (after the Merger), certain provisions of NASDAQ OMX's Restated Certificate of Incorporation and NASDAQ OMX's By-Laws that are designed to maintain the independence of each of its SRO subsidiaries' self-regulatory function, enable each SRO subsidiary to operate in a manner that complies with the federal securities laws, and facilitate the ability of each SRO subsidiary and the Commission to fulfill their regulatory and oversight obligations under the Act. 50 50 *See* Amendment No. 2, *supra* note 4 (including the amended By-Laws of NASDAQ OMX to the Phlx's proposal). Although NASDAQ OMX will not itself carry out regulatory functions, its activities with respect to the operation of its SRO subsidiaries, including Phlx and SCCP, must be consistent with, and not interfere with, those subsidiaries' self-regulatory obligations. The By-Laws of NASDAQ OMX include certain provisions to address this concern. In particular, the By-Laws of NASDAQ OMX specify that NASDAQ OMX and its officers, directors, employees, and agents irrevocably submit to the jurisdiction of the United States federal courts, the Commission, and each self-regulatory subsidiary of NASDAQ OMX for the purposes of any suit, action or proceeding pursuant to the United States federal securities laws, and the rules and regulations thereunder, arising out of, or relating to, the activities of any self-regulatory subsidiary. 51 Further, NASDAQ OMX agreed to provide the Commission with access to its books and records. 52 NASDAQ OMX also agreed to keep confidential non-public information relating to the self-regulatory function 53 of the Exchange and not to use such information for any non-regulatory purpose. In addition, the NASDAQ OMX Board, as well as its officers, employees, and agents are required to give due regard to the preservation of the independence of Phlx's self-regulatory function. 54 Similarly, the NASDAQ OMX Board, when evaluating any issue, would be required to take into account the potential impact on the integrity, continuity, and stability of the its SRO subsidiaries. 55 Finally, the NASDAQ OMX By-Laws require that any changes to the NASDAQ OMX Certificate and By-Laws be submitted to the Board of Directors of each of its SRO subsidiaries, including the Exchange, and, if such amendment is required to be filed with the Commission pursuant to Section 19(b) of the Act, such change shall not be effective until filed with, or filed with and approved by, the Commission. 51 *See* proposed Section 12.3, NASDAQ OMX By-Laws. 52 *See* proposed Section 12.1(c), NASDAQ OMX By-Laws. To the extent that they relate to the activities of Phlx, all books, records, premises, officers, directors, and employees of NASDAQ OMX would be deemed to be those of the Phlx. *See id.* 53 This requirement to keep confidential non-public information relating to the self-regulatory function shall not limit the Commission's ability to access and examine such information or limit the ability of directors, officers, or employees of the Nasdaq Holding Company from disclosing such information to the Commission. *See* proposed Section 12.1(b), NASDAQ OMX By-Laws. Holding companies with SRO subsidiaries have undertaken similar commitments. *See, e.g.* , Securities Exchange Act Release No. 56955 (December 13, 2007), 72 FR 71979, 71983 (December 19, 2007) (SR-ISE-2007-101) (order approving the acquisition of International Securities Exchange, LLC's parent, International Securities Exchange Holdings, Inc., by Eurex Frankfurt AG). 54 *See* Section 12.1(a), NASDAQ OMX By-Laws. 55 *See* proposed Section 12.7, NASDAQ OMX By-Laws. The Commission believes that the NASDAQ OMX By-Laws, as amended to accommodate the Merger, are designed to facilitate the Phlx's ability to fulfill its self-regulatory obligations and are, therefore, consistent with the Act. In particular, the Commission believes these changes are consistent with Section 6(b)(1) of the Act, 56 which requires, among other things, that a national securities exchange be so organized and have the capacity to carry out the purposes of the Act, and to comply and enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulations thereunder, and the rules of the exchange. 56 15 U.S.C. 78f(b)(1). The Commission also believes that under Section 20(a) of the Act 57 any person with a controlling interest in NASDAQ OMX would be jointly and severally liable with and to the same extent that NASDAQ OMX is liable under any provision of the Act, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. In addition, Section 20(e) of the Act 58 creates aiding and abetting liability for any person who knowingly provides substantial assistance to another person in violation of any provision of the Act or rule thereunder. Further, Section 21C of the Act 59 authorizes the Commission to enter a cease-and-desist order against any person who has been “a cause of” a violation of any provision of the Act through an act or omission that the person knew or should have known would contribute to the violation. 57 15 U.S.C. 78t(a). 58 15 U.S.C. 78t(e). 59 15 U.S.C. 78u-3. 2. Composition and Term of Board The Exchange proposes to give its Board discretion to determine its size from time to time, 60 and after the Merger the Board would likely be reduced in size from its current slate of 23 Governors. Specifically, the Board would include one Governor who is the CEO, one Governor who is the Vice-Chair of the Board, 61 one PBOT Governor, 62 one Member Governor, 63 one Stockholder Governor, 64 and a number of Independent Governors determined by the Board, 65 including the Designated Independent Governors. “Designated Independent Governors” would continue to be defined as those Independent Governors who are voted for by Members, and who are then elected to the Board by the Holder of the Series A Preferred Stock according to the vote of the Members. 66 60 *See* proposed Article SIXTH(a) of the Certificate and proposed Section 4-1 of the By-Laws. 61 The Vice-Chair would continue to be an individual who, anytime within the prior three years, has been a Member primarily engaged in business on the Exchange's equity market or equity options market or who is a general partner, executive officer (vice-president or above) or a Member associated with a Member Organization primarily engaged in business on the Exchange's equity market or equity options market. *See* Section 5-3 of the By-Laws. The term “Member Organization” is defined in Section 1-1(v) of the By-Laws. 62 A PBOT Governor would continue to be defined as a Governor who is a member of PBOT and is duly elected to fill the one vacancy on the Board allocated to the PBOT Governor. *See* Section 1-1(aa) of the By-Laws. 63 A Member Governor would continue to be defined as a Governor who is a Member or a general partner or an executive officer (vice-president and above) of a Member Organization and is duly elected to fill the vacancy on the Board allocated to the Member Governor. *See* Section 1-1(u) of the By-Laws. Phlx proposes to amend its Certificate and By-Laws to reflect its proposal that the new Board consist of only one Member Governor. *See* proposed Article SIXTH(a)(ii) of the Certificate and proposed Sections 1-1(e), 1-1(u) and 4-1 of the By-Laws. 64 *See* proposed Section 4-1 of the By-Laws and proposed Article SIXTH(a)(iii) of the Certificate. A Stockholder Governor would be defined as a Governor who is an officer, director (or a person in a similar position in business entities that are not corporations), designee or an employee of a holder of common stock or any affiliate or subsidiary of such holder of common stock and is duly elected to fill the vacancy on the Board allocated to the Stockholder Governor. *See* proposed Section 1-1(hh) of the By-Laws; *see also* proposed Article SIXTH(a)(ix) of the Certificate. 65 As discussed below, Independent Governors would continue to constitute a majority of the Board, and Designated Independent Governors, would, together with the Member Governor and the PBOT Governor, equal at least 20% of the total number of Governors. *See* Section 4-1 of the By-Laws. 66 *See* Section 1-1(f) of the By-Laws and Article FOURTH(a)(iii) of the Certificate, which Phlx proposes to renumber ( *see* proposed Article FOURTH(b)(iii)). Though it may be reduced in size, the Board would be composed, as it currently is, of a majority of Independent Governors, who, by definition, would have no Material Relationship with the Exchange, any affiliate of the Exchange, any Member of the Exchange, any Member affiliate, or any issuer of securities that are listed or traded on the Exchange or a facility of the Exchange. 67 Notably, the new Board would select its Chair from among its members that are Independent Governors, instead of the current arrangement where the CEO also serves as the Chairman of the Board. 68 67 *See* proposed Section 4-1 of the By-Laws (the Board shall be composed of a majority of Independent Governors); proposed Article SIXTH(a)(vii) of the Certificate (defining “Independent Governor”). The terms “Independent,” “Material Relationship,” and “Member” are defined in Sections 1-1(o), 1-1(s), and 1-1(t) of the By-Laws, respectively. 68 *See* proposed Section 5-2 of the By-Laws. Currently, the Chairman of the Board is the CEO. *See* Article SIXTH(a)(v) of the Certificate and Sections 4-1 and 5-1 of the By-Laws (all providing that the Chairman of the Board shall be the individual then holding the office of CEO). The Commission finds that the proposed changes regarding the composition of the Board are consistent with the Act, including Section 6(b)(1) of the Act, 69 which requires, among other things, that a national securities exchange be organized to carry out the purposes of the Act and comply with the requirements of the Act. 69 15 U.S.C. 78f(b)(1). Phlx proposes to set forth in detail the powers and duties of the Chair and Vice-Chair. 70 This provision is intended to be generally consistent with current NASDAQ Exchange By-Law Article VII, and the Commission finds it consistent with the Act. 70 *See* Article V of the By-Laws. The Exchange also proposes to change the term of office for all Governors from three years to one year 71 and eliminate term limits for Governors. 72 The Commission finds this consistent with the Act and notes that establishing one-year terms for directors is consistent with other proposals previously approved by the Commission. 73 Further, the Commission notes that neither Phlx's proposed parent company, NASDAQ OMX, nor NASDAQ Exchange have term limits for their respective boards. 74 71 *See* proposed Section 4-3(a) of the By-Laws. That section currently provides that the Stockholder Governors, Independent Governors (including the Designated Independent Governors), Member Governors, and the PBOT Governor serve for three-year terms, which are staggered. 72 *See* proposed Section 4-3(a) of the By-Laws. That section currently prohibits Governors, except for the Chairman of the Board and the Vice-Chairman of the Board, from serving for more than two consecutive full terms. 73 *See, e.g.* , Securities Exchange Act Release No. 55293 (February 14, 2007), 72 FR 8033 (February 22, 2007) (SR-NYSE-2006-120) (approving one-year terms for NYSE Euronext directors). Additionally, the Restated Certificate of Incorporation of the NASDAQ Stock Market, Inc. also provides for one-year terms for directors other than Preferred Stock Directors. 74 *See* Article IV of the NASDAQ OMX By-Laws and Article III of the NASDAQ Exchange By-Laws. In addition, Phlx proposes that, in the event of a vacancy in the office of Vice-Chair, the Nominating, Elections and Governance Committee would select a replacement to serve the remainder of the unexpired term, subject to approval by the Board. 75 This provision is intended to be generally consistent with current NASDAQ Exchange By-Law Article IV. Section 4-19 of the By-Laws designates, with specificity, when a Governor's term begins, and provides that a Governor's term ends only when his or her successor is elected and qualifies, or when the Governor resigns or is removed. The Exchange proposes to modify this provision to eliminate the reference to a Governor's term beginning at a particular time and provides that a Governor's term will end when a successor is elected or upon their earlier resignation, removal, or death. The Commission finds these changes consistent with the Act and believes that they should provide additional clarity and, therefore, would facilitate orderly successions of Governors. 76 75 *See* proposed Section 5-3 of the By-Laws. 76 This proposed change is identical to a proposal by another national securities exchange recently approved by the Commission. *See* Securities Exchange Act Release No. 56955 (December 13, 2007), 72 FR 71979 (SR-ISE-2007-101) (approving proposed Section 3.2 of the by-laws of the International Securities Exchange, LLC). 3. Nomination, Election, and Removal of Non-Designated Governors The Exchange proposes changes to the nomination and election process for non-Designated Governors ( *i.e.* , Independent Governors, the Vice-Chair, the CEO, and the Shareholder Governor). These changes are primarily designed to simplify the process to accommodate a single Stockholder. Currently, the non-Designated Governors are nominated through different mechanisms, including:
(1)The Nominating, Elections and Governance Committee nominates the individual then holding the office of CEO as Chairman of the Board for election by the Stockholders;
(2)the Chairman recommends a Vice-Chairman candidate to the Nominating, Elections and Governance Committee for election by Stockholders; and
(3)the Nominating, Elections and Governance Committee review the qualifications of nominees, including independent nominees, for the Stockholder Governors and Independent Governors (excluding the Designated Independent Governors). 77 Phlx now proposes that the holder of its common stock present for nomination to the Nominating, Elections and Governance Committee the candidates for Vice-Chair, Stockholder Governor, and Independent Governors. 78 These candidates would be placed on the ballot and elected by the holder of common stock at the annual meeting of Shareholders. Thus, NASDAQ OMX, as sole holder of common stock of the Exchange, would nominate and elect all of the non-Designated Governors. This approach is consistent with the NASDAQ Exchange's processes for nomination of non-Member Representative Directors by a nominating committee that may seek the input and recommendations of NASDAQ OMX as the owner of the NASDAQ Exchange. 79 77 *See* Section 28-3 of the By-Laws. 78 *See* proposed Section 28-3 of the By-Laws. As proposed, Section 28-3 has no provision for the nomination or election of the Chair of the Board because the Board would appoint its Chair from among the members of the Board who are Independent Governors. *See* proposed Section 5-2 of the By-Laws. 79 *See* NASDAQ Exchange By-Law Article III, Section 6. The Exchange also proposes to change the process for removing non-Designated Governors. Currently, non-Designated Governors may be removed only for cause, except that upon a recommendation by the Board to Stockholders such Governors may be removed without cause. An affirmative vote of two-thirds of the total number of Stockholders entitled to vote thereon is required to remove a non-Designated Governor. The proposed change would more explicitly permit the removal of non-Designated Governors with or without cause, and to allow removal of such Governors by the affirmative vote of a majority of the voting power entitled to vote for their election ( *i.e.* , NASDAQ OMX). 80 This change would reflect the Exchange's proposed status as a wholly-owned subsidiary of NASDAQ OMX. The Board would continue to have the ability to recommend to the Stockholder that a Governor be removed for any reason deemed sufficient by the Board, 81 but such recommendation would no longer be a prerequisite for removal. 80 *See* proposed Article SIXTH (b)(i) of the Certificate. The Exchange also proposes to allow any action required or permitted to be taken at any annual or special meeting of Stockholders to be taken by Stockholders ( *i.e.* , NASDAQ OMX) without a meeting, unless otherwise specified in the Certificate. *See* proposed Article SEVENTH of the Certificate and proposed Section 28-13 of the By-Laws. In light NASDAQ OMX's ownership of all of the common stock of the Exchange, the Commission finds this change to be consistent with the Act. 81 *See* proposed Section 4-4 of the By-Laws. The Commission finds that the proposed changes to the nomination, election, and removal processes for non-Designated Governors are consistent with Section 6(b)(1) of the Act, which requires an exchange to be organized in a manner that allows it to carry out the purposes of the Act. The proposed changes appropriately streamline the nomination, election, and removal processes for non-Designated Governors in light of NASDAQ OMX's ownership of all of the common stock of the Exchange. Fair Representation Section 6(b)(3) of the Act requires that the rules of an exchange assure fair representation of its members in the selection of its directors and administration of its affairs. 82 As discussed above, the Exchange proposes to give its Board discretion to determine its size. 83 Members would, nevertheless, continue to select at least 20% of the Board after the Merger, including the Member Governor, the PBOT Governor, 84 and the Designated Independent Governors (collectively, the “Designated Governors”). 85 These Designated Governors would continue to be elected by the Holder of Series A Preferred Stock ( *i.e.* , the Trust 86 ), and therefore they would continue to be elected indirectly by the Members. Phlx proposes to change Section 3-7(a) of the By-Laws, which prohibits a Member Organization from endorsing more than one nominee for Governor, to clarify that Member Organizations are prohibited from endorsing more than one nominee *per vacancy* . This proposed change is designed to clarify the rights of Members in the independent nomination process by eliminating any ambiguity that each Member Organization may endorse one independent nominee per Designated Governor vacancy, not one independent nominee per election. 82 15 U.S.C. 78f(b)(3). 83 *See supra* note 60 and accompanying text. 84 A PBOT Governor would continue to be defined as a Governor who is a member of PBOT and is duly elected to fill the one vacancy on the Board allocated to the PBOT Governor. *See* Section 1-1(aa) of the By-Laws; *see also* proposed Article SIXTH(a)(i) of the Certificate. 85 The nominations process for Designated Governors ( *i.e.* , the Designated Independent Governors, the Member Governor, and the PBOT Governor) is described in Section 3-7 of the By-Laws. 86 *See supra* note 30 (discussing the purpose and operation of the Trust). Designated Governors currently may be removed only for cause, unless the Board recommends that they be removed without cause. In either case, removal of a Designated Governor requires a vote by Member Organization Representatives at an annual or special meeting. 87 Phlx proposes to simplify the process to provide that Designated Governors may be removed, with or without cause, only by vote of Member Organization Representatives at an annual or special meeting. 88 The Board would continue to have the ability to recommend to the Members that a Designated Governor be removed for any reason deemed sufficient by the Board, 89 but such recommendation would no longer be a prerequisite for removal. Importantly, the Commission notes that the Designated Governors, which are selected by a vote of the Members, may only be removed upon the affirmative vote of Members. While the Board may recommend to the Members that a Designated Governor be removed, the Board may not unilaterally remove a Designated Governor. 87 *See* Article SIXTH(b)(iii) of the Certificate. 88 *See* proposed Section 3-3 of the By-Laws. A special meeting of the Members could be called either by Members, the Board, or the Chair of the Board. *See* Section 3-2(b) of the By-Laws. Such Governors could be removed by the holder of the Series A Preferred Stock following a vote of the Member Organization Representatives. *See* proposed Article SIXTH (b)(ii) of the Certificate. 89 *See* proposed Section 4-4 of the By-Laws. In addition, Members will be represented on key Standing Committees. Specifically, under the By-Laws, at least half of the Admissions Committee and the Foreign Currency Options Committee will continue to be required to be permit holders or participants or be associated with a Member Organization or participant organization, 90 and at least half of the Options Committee will continue to be required to be permit holders or be associated with a Member Organization. 91 Further, the By-Laws will continue to require that the Business Conduct Committee share jurisdiction over the revocation of permits and foreign currency options participations in connection with disciplinary matters with the Admissions Committee. 92 90 *See* Sections 10-6(a) and 10-17 of the By-Laws. 91 *See* Section 10-20 of the By-Laws. 92 *See* Section 10-6(b) of the By-Laws. Several Standing Committees also may review proposed rule changes before such proposals are presented to the Executive Committee or the Board for approval for filing with the Commission. These committees on which Members serve would continue to perform this function after the Merger. For example, the Business Conduct Committee may review proposed changes to the disciplinary provisions that are set forth in Rule 960 before such proposals are presented to the Executive Committee or the Board. 93 Further, the Options Committee makes or recommends for adoption such rules as it deems necessary for the convenient and orderly transaction of business upon the equity and index options trading floor, as well as makes and enforces rules and regulations relating to order, decorum, health, safety and welfare on the equity and index options trading floor and the immediately adjacent premises of the Exchange. 94 Additionally, the Exchange proposes to ensure Member representation on the Quality of Markets Committee. 95 Finally, Designated Governors, which are selected by Members, would compose at least 20% of the Executive Committee. 96 93 The Business Conduct Committee is composed of nine members as follows: three Independent Governors; one Member or person associated with a Member Organization who conducts business on XLE; one Member who conducts options business at the Exchange; and four persons who are Members or persons associated with a Member Organization. *See* Section 10-11 of the By-Laws. 94 *See* Section 10-20 of the By-Laws. 95 *See infra* notes 133-134 and accompanying text (discussing Member representation on the Quality of Markets Committee). 96 *See infra* text accompanying note 110 (discussing the composition of the Executive Committee). The Commission finds that the selection of at least 20% of Governors of the Board, 97 the manner in which such Designated Governors will be nominated and elected, 98 the process for removing Designated Governors, 99 together with the representation of Members on key Standing Committees, satisfy the fair representation requirements of Section 6(b)(3) of the Act, 100 which requires that an exchange assure a fair representation of its members in the selection of its directors and administration of its affairs. The Commission also notes that these provisions are consistent with previous proposals approved by the Commission. 101 97 *See* proposed Article SIXTH(a)(iv) of the Certificate and proposed Section 4-1 of the By-Laws. 98 *See supra* Section III.C.2 and *infra* Section III.C.4, respectively. 99 *See supra* Section III.C.3. 100 15 U.S.C. 78f(b)(3). 101 *See* , *e.g.* , Securities Exchange Act Release Nos. 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (approving the application of the NASDAQ Exchange for registration as a national securities exchange) and 49098, *supra* note 5. 4. Special Committee of the Board Phlx proposes to delete references to a “special committee of the Board of Governors” that hears appeals from determinations of the Nominating, Elections and Governance Committee on appeals concerning eligibility for election to the Board. 102 The special committee had been composed of Governors who were not then standing for re-election. However, because the Exchange proposes to eliminate the staggering of the Board and require all Governors to be elected annually, it would not be possible to form such a special committee. Instead, the Exchange proposes that the full Board preside over such appeals. 103 102 *See* proposed Section 11-1(b) of the By-Laws. 103 *See id.* The Commission finds that this proposal is consistent with Sections 6(b)(1) and 6(b)(3) of the Act. 104 In particular, the Commission notes that Designated Governors selected by the Members will constitute at least 20% of the Board, and therefore Members will be represented when the Board acts as an adjudicative body to hear appeals concerning eligibility for election to the Board. 104 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(3). 5. Standing Committees of the Board The Exchange proposes several changes to its Standing Committees, which reflect incremental modifications to the structure and scope of its current committees. As discussed below, the Commission finds these changes to be consistent with the Act, including Section 6(b)(1) of the Act, 105 which requires that a national securities exchange be organized in such a manner as to allow the exchange to carry out the purposes of the Act, comply with the requirements of the Act, and enforce compliance with the Act by its members and persons associated with its members. 105 15 U.S.C. 78f(b)(1). *Automation Committee and the Marketing Committee.* The Exchange proposes to eliminate two Standing Committees: the Automation Committee 106 and the Marketing Committee. 107 According to the Exchange, these committees are no longer necessary because, after the NASDAQ OMX Merger, these functions would be guided and handled at the parent company level. 108 The Commission believes that the elimination of these Exchange committees, combined with Phlx's reliance on NASDAQ OMX to perform the functions of those committees, is consistent with Section 6(b)(1) of the Act, which requires a national securities exchange to be so organized and have the capacity to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act. The Commission notes that, as the Exchange contemplates future changes to its automated trading systems, the Exchange would be required to file any changes to its rules with the Commission pursuant to Section 19(b) of the Act and Rule 19b-4 thereunder. 109 106 *See* Section 10-10 of the By-Laws. The Automation Committee currently is charged with periodically reviewing and approving automation plans affecting the trading floors, subsidiaries and the Exchange's administrative areas. 107 *See* Section 10-18 of the By-Laws. The Marketing Committee currently acts in an advisory capacity to the officers of the Exchange in marketing the services of the Exchange. 108 *See* Notice, *supra* note 3, 73 FR at 23295. 109 15 U.S.C. 78s(b) and 17 CFR 240.19b-4, respectively. *Executive Committee.* In addition, the Exchange proposes to change the composition of the Executive Committee and limit its authority. Currently, Section 10-14(a) provides that the Executive Committee be composed of the following nine members: the Chairman of the Board, who serves as Chair of the Committee; the Vice-Chairman of the Board; the Chairman of the Finance Committee; the Chairmen of two floor committees; two Stockholder Governors; and two Independent Governors. Phlx proposes to amend this provision to allow the Board to determine the size of the committee, except that the Committee must include: the Chair of the Board, who would be the Chair of the Committee; the Vice-Chair of the Board; the Stockholder Governor; and a number of Designated Governors equal to at least 20% of the total number of Governors on the committee. 110 110 *See supra* text accompanying note 96 (discussing the representation of Designated Governors on the Executive Committee). The Executive Committee currently appoints, subject to approval by the Board, all members (except the Chairmen) of the Standing Committees, excluding the Nominating, Elections and Governance Committee and the Executive Committee. 111 The Exchange now proposes to instead provide that the Board, instead of the Executive Committee, select all members of Standing Committees, 112 including most Standing Committee Chairs. 113 This change would conform the Exchange's practice to how NASDAQ OMX currently operates. 114 The Commission finds that these changes are consistent with Sections 6(b)(1) and 6(b)(3) of the Act. 115 111 *See* Sections 10-1(b), 10-4, and 10-14(c) of the By-Laws. Chairmen of the Standing Committees are selected, subject to Board approval, by the Nominating, Elections and Governance Committee. *See* Section 10-19(d) of the By-Laws. 112 *See* proposed Sections 10-1(b) and 10-4 of the By-Laws. Correspondingly, the Exchange proposes to delete Sections 10-14(c) and 10-19(d) of the By-Laws which provide, respectively, that the Executive Committee shall appoint members of the Standing Committees (excluding their Chairmen), subject to Board approval, and that the Nominating, Elections and Governance Committee shall select all Standing Committee Chairmen, subject to approval by the Board. 113 As amended, the By-Laws would specifically provide that:
(1)The Chair of the Board is the Chair of the Executive Committee;
(2)the Chair of the Board is the Chair of the Finance Committee; and
(3)the Nominating, Elections and Governance Committee select its own Chair from among the members of such Committee who are Independent Governors. *See* proposed Sections 10-14(a), 10-15 and 10-19(a) of the By-Laws, respectively. 114 *See* NASDAQ OMX By-Law Article IV, Section 4.13. 115 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(3). *Audit Committee.* Phlx proposes to modify the responsibilities of the Audit Committee to conform to similar responsibilities and processes of the Audit Committees of NASDAQ OMX and the NASDAQ Exchange. 116 Specifically, Phlx proposes to replace the enumerated duties of the committee with respect to external auditors with a more general charge to select, evaluate and, where appropriate, replace the Exchange's independent auditors (or nominate the independent auditors to be proposed for ratification by the Stockholders). 117 Phlx would also confer to the committee more specific responsibilities with respect to the Exchange's Internal Audit Department (“IAD”), including authority to hire or terminate the head of the IAD and determine the IAD's budget. Further, Phlx proposes to eliminate the requirement that the committee review all legal matters that may materially impact the Exchange's financial statements and all regulatory examination, inspection, and other reports. The Commission finds these changes consistent with Section 6(b)(1) of the Act, and notes that such changes are based on the Audit Committees of NASDAQ OMX and the NASDAQ Exchange. 116 *See* NASDAQ OMX Audit Committee Charter approved April 18, 2007 and NASDAQ Exchange By-Law Article III. 117 *Compare* Section 10-9(b) of the By-Laws *with* proposed Section 10-9 of the By-Laws. *Finance Committee.* The Exchange proposes to change the composition of the Finance Committee and update the description of the committee's responsibilities. 118 Currently, the committee is composed of the following nine members: the Chairman of the Board; the Vice-Chairman of the Board; one Stockholder Governor; four Independent Governors, and two Members or persons associated with a Member Organization, one of whom conducts business primarily on XLE or on the equity options floor. Phlx proposes that following the Merger, the Finance Committee would be composed of: the Chair of the Board; the Vice-Chair of the Board; a number of Designated Independent Governors equal to at least 20% of the total number of voting members on the Finance Committee; two Members or persons associated with a Member Organization who may be Governors one of whom conducts business on XLE or on the equity options floor; 119 and such other Governors as the Board may appoint. 120 Phlx states that the elimination of the requirement that one of the committee members “primarily” conduct business on XLE or the equities option floor would allow a greater pool of candidates to be eligible to serve on the Finance Committee and is consistent with a recent change to Section 10-11 of the By-Laws. 121 118 *See* proposed Section 10-15 of the By-Laws. The Exchange proposed to delete the Supplementary Material in Section 10-15, which sets forth a series of directives issued by the Board that were specifically applicable to the Finance Committee. These proposed changes are not directly related to the Merger. 119 Under the proposal, these committee members need not be Governors, but any non-Governor would serve in a non-voting capacity. *See* proposed Section 10-15 of the By-Laws. 120 *See* proposed Section 10-15 of the By-Laws. 121 *See* Notice, *supra* note 3, 73 FR at 23296. The Commission notes that this change is similar to a recently-approved change to a different By-Law. *See* Securities Exchange Act Release No. 57023 (December 20, 2007), 72 FR 74398 (December 31, 2007) (SR-Phlx-2007-83) (approving a proposal to similarly expand the type of business that may be conducted to qualify as a Business Conduct Committee member). The Exchange also would eliminate the current restriction that prohibits the Chair of the Board from creating tie votes of the Finance Committee, and would designate the Chair of the Board as the Finance Committee Chair. 122 Finally, the Exchange proposes to delete the Supplementary Material that sets forth a series of directives issued by the Board that are specifically applicable to the Finance Committee. 123 Elimination of the Supplementary Material is designed to allow the Board flexibility in establishing capital expenditure policies, which may include delegation to Board committees and/or officers. The Exchange states that this more flexible approach is consistent with NASDAQ OMX's processes. 124 The Commission finds that this proposal is consistent with Section 6(b)(1) of the Act, and notes that Phlx's obligation to adequately fund its regulatory oversight program 125 is unaffected by the proposed elimination of the Supplementary Material to Section 10-15 of the By-Laws. 122 Under the current provision, the Chair of the Committee must be either the Vice-Chair, Stockholder Governor, or Member Governor. 123 Currently, the supplementary material relates to directives that are applicable to the Finance Committee in the exercise of its duties, powers and authority under the By-Laws. For example, the supplementary material states that the Finance Committee may authorize certain expenditures of any budgeted line items; may delegate to the staff of the Exchange so much of its authority to make expenditures as it deems appropriate; and shall perform its functions and act with the same powers and limitations for the Exchange and all subsidiaries of the Exchange. *See* Supplementary Material to Section 10-15 of the By-Laws. 124 *See* Notice, *supra* note 3, 73 FR at 23296. 125 15 U.S.C. 78s(g). *Nominating, Elections and Governance Committee.* The Exchange also proposes certain changes to the composition of the Nominating, Elections and Governance Committee. Currently, the committee is composed of three Independent Governors, at least one of which is a Designated Independent Governor, one Stockholder Governor, and one Member Governor. As proposed, the committee would be composed of four Independent Governors and one Member Governor. 126 The Exchange also proposes to delete the term limit applicable to this committee and delete the prohibition against members of this committee standing for re-election to the Board. These proposals are designed, according to the Exchange, to increase the pool of candidates eligible to serve on the Committee and the Board. 127 The Commission finds that these changes are consistent with Section 6(b)(1) of the Act. The Commission notes that it recently approved a similar Phlx proposal to increase the pool of candidates eligible to serve on one of Phlx's Standing Committees. 128 126 *See* proposed Section 10-19(a) of the By-Laws. 127 *See* Notice, *supra* note 3, 73 FR at 23296. 128 *See* Securities Exchange Act Release No. 57023, *supra* note 121. *Quality of Markets Committee.* Phlx proposes to clarify the requirement that the Quality of Markets Committee include at least as many Independent members 129 as it does the “combined number” of Stockholder-chosen members and members who are Members of the Exchange. 130 The addition of the language “combined number” makes clear that the number of Stockholder-chosen committee members 131 are added to the number of Members serving on the committee 132 and that total is then compared to the number of “Independent” committee members, who do not have to be Governors. 129 “Independent” committee members would be “Independent” within the meaning of Section 1-1(o) of the By-Laws. 130 *See* proposed Section 10-21 of the By-Laws. 131 NASDAQ OMX, as Stockholder, would select the Stockholder member(s) of this committee. *See* Notice, *supra* note 3, 73 FR 23296. 132 The Board would select the Member(s) serving on the committee pursuant to Section 10-1(b) of the By-Laws. Additionally, the Exchange proposes to adopt a new requirement that at least 20% of the total number of committee members be Members. 133 This is designed to provide fair representation of Phlx members on this committee and harmonize the role of the committee with that of the NASDAQ Exchange's Quality of Markets Committee. 134 133 *See* proposed Section 10-21 of the By-Laws. 134 *See* NASDAQ Exchange By-Law Article III, Section 6. *See supra* text accompanying notes 95 and 97-100. 6. Officers of the Exchange The Exchange proposes various changes with respect to officers of the Exchange. First, the Exchange proposes to separate the roles of Chairman of the Board and CEO. The CEO would be ineligible to serve as Chair of the Board, 135 and the By-Laws would be amended to describe separately the responsibilities of the Chair of the Board and the CEO. 136 135 The Board would select its Chair from among the Independent Governors. *See* proposed Section 5-2 of the By-Laws. 136 *See* proposed Sections 5-2 and 5-4 of the By-Laws. Under the current By-Laws, only the responsibilities of the Chairman of the Board are described (in Section 5-1 of the By-Laws). Second, under the proposed rule change, the Board, instead of the CEO/Chairman, would appoint all officers of the Exchange, and would fix their duties, responsibilities, and terms of appointment. 137 137 *See* proposed Sections 5-1, 5-4, 5-5, 5-8, 5-9 and 5-10 of the By-Laws. Third, Phlx proposes to set forth in detail the powers and duties relating to the Chair, Vice-Chair, and officers of the Exchange. 138 138 *See* Article V of the By-Laws. These provisions are intended to be generally consistent with current NASDAQ OMX By-Law Article VII, and NASDAQ Exchange By-Law Article IV. Fourth, the Exchange proposes to create an office of the President who would, in the absence of the Chair of the Board and the CEO, preside at all meetings of the Board at which the President is present. Additionally, the President would have all powers and duties usually incident to the office of the President, except as specifically limited by the Board, and would be charged with general supervision of Exchange operations. 139 The Exchange also proposes to delete current Section 5-5 of the By-Laws, which addresses contingencies in the event the Chairman of the Board is unable to serve. The elimination of this provision reflects the changes to the role of the Chair of the Board and the creation of a separate CEO position, as well as the new position of President. 139 *See* proposed Section 5-5 of the By-Laws. The Commission finds that these proposed changes are consistent with the Act, including Section 6(b)(1) of the Act, which requires, among other things, that a national securities exchange be organized to carry out the purposes of the Act and comply with the requirements of the Act. Under these circumstances, the Commission believes that the creation of an independent Chair of the Board should foster a greater degree of independent decision-making by the governing body of the Exchange and mitigate the conflict between an SRO's regulatory functions on the one hand, and its business operations on the other. D. Interpretations of and Amendments to the By-Laws The Exchange proposes to clarify the process governing By-Law interpretations and amendments. With respect to interpretations, Section 4-17 of the By-Laws grants to the Board power to interpret the By-Laws and rules adopted pursuant thereto, and provides that any such interpretations are final, binding, and conclusive. Phlx proposes to clarify that the Board must determine affirmatively whether such interpretations must be filed with the Commission as proposed rule changes, and, if so, provides that any such interpretation not become effective until filed with, or filed with and approved by, the Commission. 140 140 *See* proposed Section 4-17 of the By-Laws. With respect to amendments, Section 22-1 currently allows the By-Laws to be amended by either:
(1)An affirmative vote of a majority of the entire Board at any regular or special meeting of the Board; or
(2)the affirmative vote of the holders of a majority of the shares of common stock of the Exchange then issued and outstanding at any regular or special meeting of the Stockholders. The Exchange proposes to amend this provision to state affirmatively that By-Law amendments must be filed with, or filed with and approved by, the Commission. The Exchange also proposes to require that both the Board and the holder of common stock of the Exchange approve proposed By-Law amendments. 141 141 *See* proposed Section 22-1 of the By-Laws. Under the current provision, By-Law amendments must be approved by either the Board *or* the holders of a majority of common stock of the Exchange. The Commission notes that Stockholder approval could be obtained outside of a regular or special meeting of the Stockholders by unanimous written consent pursuant to proposed Section 28-13 of the By-Laws. The Commission finds that proposed Sections 4-17 and 22-1 of the By-Laws are consistent with Section 6(b)(1) of the Act, 142 because they reflect the obligation of the Board to ensure compliance with the rule filing requirements under the Act. Additionally, the Commission finds these changes to be consistent with Section 19(b)(1) of the Act and Rule 19b-4 under the Act, which require that an SRO file with the Commission all proposed rules, as well as all proposed changes in, additions to, and deletions of its existing rules. These provisions clarify that certain By-Law interpretations and all By-Law amendments constitute proposed rule changes within the meaning of Section 19(b)(2) of the Act and Rule 19b-4 under the Act, 143 and obligate the Exchange's Board to affirmatively make those determinations. 142 15 U.S.C. 78f(b)(1). 143 *See* Section 3(a)(27) of the Act (defining proposed rule change). E. Other Changes 1. Provisions Applicable to Common Stock Phlx proposes a number of changes that reflect the proposed ownership by NASDAQ OMX of all the common stock of the Exchange. For example, Phlx proposes to delete the following provisions:
(1)Article FOURTH(b)(iv) of the Certificate, which requires written notice to the Board of intention to acquire more than 5% of the Exchange's outstanding common stock;
(2)Section 29-1 of the By-Laws, which requires that sales, transfers, and other dispositions of common stock be in blocks of 100 shares;
(3)Section 29-2 of the By-Laws, governing lockups;
(4)Section 29-5 of the By-Laws, regarding reimbursement for expenses incurred in connection with any transfer of capital stock;
(5)Section 30-1 of the By-Laws, regarding stock certificates;
(6)Section 30-2 of the By-Laws, concerning closing of the transfer books and determination of record dates; and
(7)Article FOURTH(c)(v)(C) of the Certificate and Sections 29-4 and 30-3 of the By-Laws, which allow the Exchange to not register any transfer of capital stock of the Exchange that violates certain provisions of the Certificate or By-Laws. Additionally, existing provisions in Article XXIX of the By-Laws that contemplate a possible public offering of the Exchange's stock would be deleted and replaced with restrictions on stock transfer discussed above. 144 Because these provisions are applicable to non-public companies with several stockholders, the Exchange does not believe these provisions would be applicable following the Merger. In addition, the Exchange proposes to delete provisions that govern the use of common stock and/or common stock option incentive compensation that may be awarded to Governors and officers of the Exchange, 145 because such compensation would no longer be feasible if NASDAQ OMX owned 100% of the common stock of the Exchange. 146 The Commission finds that the elimination of these obsolete provisions are consistent with the Act and do not raise any novel regulatory issues. 144 *See supra* notes 33-43 and accompanying text (discussing the proposed limits on issuing, transferring, and assigning Phlx capital stock). 145 *See* Section 6-1 of the By-Laws. 146 The Exchange notes that, in the future, potential equity stock compensation would likely consist of NASDAQ OMX stock. *See* Notice, *supra* note 3, 73 FR at 23295. 2. Specified Board Votes Sections 13-5, 147 13-7, 148 17-4, 149 and 18-3 150 of the By-Laws reference an affirmative vote of either 14 or 15 Governors, which used to represent a supermajority of the Board. The Exchange proposes to modify these provisions to remove the numerical reference and instead require an affirmative vote of a majority of all Governors. This change is consistent with the governing documents of Phlx's proposed parent company, NASDAQ OMX, where a supermajority vote is required only when the voting power of the then-outstanding stock entitled to vote is implicated. 151 The Commission finds that these changes maintain the requirement of a minimum majority Board vote and are consistent with Section 6 of the Act. 147 Section 13-5 of the By-Laws (Liability of Officers, Directors and Substantial Stockholders) imposes personal liability on officers, directors, and substantial stockholders of a Member Organization that is an Exchange Member when that corporation violates the By-Laws or the Rules. The Board, however, may vote to relieve the person of such personal liability. 148 Section 13-7 of the By-Laws (Violation of Terms of Registration) provides the Board may vote to terminate the registration of a Member Organization for violating or failing to meet of the terms and conditions of its registration. 149 Section 17-4 of the by-Laws (Time for Settlement of Insolvent Member or Participant) allows for the termination of a permit or participation when a Member or foreign currency options participant whose permit or rights and privileges have been suspended fails to settle with his creditors and apply for reinstatement within six months from the time of such suspension (or within such further time as the Board of Governors grants) or fails to obtain reinstatement. The Board, however, may vote to grant to extend the time for settlement. 150 Section 18-3 of the By-Laws (Responsibility of Member or Participant for Acts of His Organization) imposes personal liability on a Member or foreign currency options participant that is a general partner in a Member Organization or participant organization for violations of the By-Laws or Rules by the partnership. The Board, however, may vote to relieve the general partner of such personal liability or reduce the amount of such liability. 151 *See, e.g.* , Section 4.6 of the NASDAQ OMX By-Laws. 3. Capital Stock The Exchange proposes to eliminate the current provisions of Article XXIX of the By-Laws that govern restrictions on transfers of capital stock of the Exchange. The proposed new provisions of Article XXIX include but are not limited to transfer restrictions on the capital stock of the Exchange. 152 In particular, proposed Sections 29-1, -2, -3, -5, -6, and -7 address stock certificates, stock ledgers, transfers of stock, and record date, respectively. The Exchange states that these are standard provisions for a Delaware stock corporation and contemplate ownership of all common stock of the Exchange by NASDAQ OMX. 153 The Commission notes that these new provisions are based on NASDAQ OMX By-Law Article IX, Capital Stock, Sections 9.1 through 9.7. The Commission finds that these changes are consistent with Section 6 of the Act and do not raise any novel regulatory issues. 152 The proposed restrictions on Phlx capital stock are discussed *supra* notes 33, 43, and accompanying text. 153 *See* Notice, *supra* note 3, 73 FR at 23297. 4. Payment of Dividends Proposed Section 29-8 of the By-Laws, which is similar to Section 15 of the LLC Agreement of the NASDAQ Exchange, would prohibit the Exchange from using Regulatory Funds to pay dividends. 154 The Commission finds that the prohibition on the use of regulatory fines, fees, or penalties to fund dividends is consistent with Section 6(b)(1) of the Act because it will further Phlx's ability to effectively comply with its statutory obligations and is designed to ensure that the regulatory authority of the Exchange is not improperly used. 155 This restriction on the use of regulatory funds is intended to preclude Phlx from using its authority to raise regulatory funds for the purpose of benefiting its shareholders, or for other non-regulatory purposes, such as to fund executive compensation. 154 Proposed Section 1-1(kk) of the By-Laws defines “Regulatory Funds” as fees, fines, or penalties derived from the regulatory operations of the Exchange. However, Regulatory Funds do not include revenues derived from listing fees, market data revenues, transaction revenues, or any other aspect of the commercial operations of the Exchange even if a portion of such revenues are used to pay costs associated with the regulatory operations of the Exchange. *See id* . 155 *See, e.g.* , Securities Exchange Act Release No. 51029 (January 12, 2005), 70 FR 3233, 3241 (January 21, 2005) (SR-ISE-2004-29) (approving an International Securities Exchange, LLC rule interpretation that requires that revenues received from regulatory fees or regulatory penalties be segregated and applied to fund the legal, regulatory, and surveillance operations of the Exchange and not used to pay dividends to the holders of Class A Common Stock). 5. Special Meetings Current Section 4-14 of the By-Laws empowers only the Chairman of the Board or, in certain, circumstances, the Vice-Chairman of the Board, to call special meetings of the Board. The Exchange proposes to broaden this provision to also allow the interim Chair of the Board to call special meetings of the Board, under certain circumstances. The Commission finds that this proposal is consistent with Section 6(b)(1) of the Act, which requires a national securities exchange to be organized in such a way so as to be capable of carrying out the purposes of the Act. In particular, the Commission believes that this change will provide additional flexibility where appropriate to the Board to convene special meetings to conduct the business of the Exchange. 6. Annual Report and Weekly Bulletin Section 4-21 of the By-Laws requires the distribution of an annual, independently-audited financial report of the Exchange to Stockholders, Members, participants, Member Organizations, and participant organizations. Phlx proposes to delete this requirement and instead require that annual financial reports be kept on file at the Exchange and made available for inspection upon request to any Stockholder, Member, participant, Member Organization, or participant organization. The Exchange states that financial information on the Exchange also would be reflected in the public consolidated financial statements of NASDAQ OMX once the Merger is complete, and the Commission notes that this proposal does not affect the requirement that Phlx comply with Rule 6a-2 under the Act to amend its Form 1. 156 Further, Phlx proposes to change how its Weekly Bulletin is distributed. Section 12-5(d) of the By-Laws provides that it must be mailed, and the Exchange proposes to update this provision to permit distribution by e-mail and posting on the Exchange's Web site. The Commission finds that these changes are consistent with Section 6 of the Act and do not raise any novel regulatory issues. 156 17 CFR 249.1. 7. Stock Exchange Fund and Gratuity Fund The Exchange proposes to eliminate Sections 9-1 through 9-6 of the By-Laws relating to the Stock Exchange Fund. 157 The purpose of the Stock Exchange Fund is to appoint trustees to manage the investment of certain funds of the Exchange and collect interest, dividends, and income from the funds for the Exchange. The Exchange believes these provisions are unnecessary because, after the Merger, the financial management of the Exchange will be overseen directly by the Board and subject to public company financial controls established by NASDAQ OMX. Similarly, the Exchange proposes to delete a provision in Section 4-4 of the By-Laws relating to the gratuity fund. This provision is obsolete, as the Exchange states that the fund no longer exists. 158 157 Correspondingly, the Exchange proposes to delete references to the Stock Exchange Fund in Section 4-4 of the By-Laws. 158 *See* Notice, *supra* note 3, 73 FR at 23295, n.31. 8. Miscellaneous Changes Additionally, the Exchange proposes to make the following changes to the Certificate and By-Laws to correct typographical errors, effect stylistic changes, move text, and/or update the language to more accurately reflect current practices. The Exchange proposes to: • Change the title of the Certificate; • Update the address of its registered office in Delaware; 159 159 *See* proposed Article SECOND of the Certificate. • Correct an error by changing the term “Board of Directors” to “Board of Governors;” 160 160 *See* Article FOURTH of the Certificate. • Update cross-references; 161 161 *See* proposed Article FOURTH(b)(iii) of the Certificate and proposed Sections 1-1(w) of the By-Laws. • Add new definitions to its By-Laws and Rules; 162 162 For example, the Exchange proposes to add a definition of the terms: “Commission;” “NASDAQ OMX Merger” (Phlx also proposes to define the term “NASDAQ OMX Merger” in its proposed Rule 1(qq)); “Regulatory Funds;” “Preferred Stock;” and “Trust,” and update the definition of the term “Trust Agreement.” Additionally, Phlx would eliminate the defined term “Class A Common Stock” and modify the term “Common Stock,” in accordance with its proposal to issue only one class of common stock. The Exchange also proposes to modify the definitions of “Member Governor” and “Stockholder Governor” to correspond with its proposal to decrease the number of Member Governors from two to one, and the number of Stockholder Governors from six to one. • Eliminate certain language from the Certificate that is also in the By-Laws; 163 163 The language in Article SIXTH(b)(i)-(ii) of the Certificate, which Phlx proposes to eliminate, is also in Section 4-4(b)(ix)-(x) of the By-Laws. • Replace the term “Chairman” with “Chair” in referencing the head of the Board 164 and the heads of Board committees; 165 164 *See, e.g.,* proposed Section 4-11 of the By-Laws. 165 *See, e.g.,* proposed Section 8-1 of the By-Laws. • Replace the term “Vice-Chairman” with “Vice-Chair;” 166 166 *See, e.g.,* proposed Section 4-14 of the By-Laws. • Replace references to the “director” of either the Membership Services or Examinations Departments in Sections 17-1 and 17-3 of the By-Laws with more general references to the departments; 167 167 Under the proposed rule, notices would still be required to be sent to these departments, but not necessarily to the director. • Replace the terms “Stockholder” and “Stockholders” with stockholder and stockholders, respectively; 168 168 *See, e.g.,* Article TENTH of the Certificate. The term “Stockholder Governor” would remain, although the term “Stockholder Governors” would be made singular ( *i.e.* , “Stockholder Governor”) to reflect the Exchange's proposal to reduce the number of such Governors from six to one. • Replace “without” with “outside of” in Article TWELFTH of the Certificate; • Use the defined term “Member” (instead of “member”) in the definition of “non-member;” 169 169 *See* proposed Sections 1-1(o), 1-1(y), 3-12(a), 10-14(d), 12-7, 13-1, 13-5, 13-8, 14-11, 16-1, and 20-3 of the By-Laws. • Use the term “Member Organization” instead of “member organization;” 170 170 *See* proposed Sections 4-6(b), 10-14(d), 10-17, and 17-2 (adding both Member Organization and participant organization) of the By-Laws. • Update the definition of “Trust Agreement;” 171 and 171 *See* proposed Section 1-1(ee) of the By-Laws. • Correct typographical errors in Section 4-4 of the By-Laws ( *i.e.* , add “the” to (b)(i), add “a” to (b)(vi), and replace “also” with “and.” The Commission finds these changes to be consistent with Section 6 of the Act generally, including Section 6(b)(1). The proposed minor changes update the Exchange's governing documents and make them more internally consistent, and thereby facilitate Members' understanding of their obligations and the Exchange's ability to administer its rules. F. Changes to Exchange Rules The Exchange proposes to amend Rule 98 (Emergency Committee) to provide the Board with discretion concerning the composition of the Emergency Committee. Currently, the composition of the Emergency Committee is fixed to consist of the Chairman of the Board, the On-Floor Vice-Chairman of the Exchange, the Off-Floor Vice-Chairman of the Exchange, 172 and the Chairmen of the Options and Foreign Currency Options Committees. The Commission notes that other exchanges also have an emergency committee whose composition is determined by the board of the exchange. 173 The Commission believes that the proposed changes to Rule 98 (Emergency Committee) should provide the Board with greater flexibility to manage the affairs of the Exchange in an emergency and are consistent with Sections 6(b)(1) of the Act, 174 which requires, among other things, a national securities exchange to be so organized and have the capacity to carry out the purposes of the Act. 172 The Exchange states that the position of Off-Floor Vice-Chairman of the Exchange no longer exists and reference to this position remained in Rule 98 inadvertently. *See* Notice, *supra* note 3, 73 FR at 23297. 173 *See, e.g.* , American Stock Exchange LLC Constitution, Article XII, Emergency Committee. 174 15 U.S.C. 78f(b)(1). The Exchange also proposes to amend Rule 164 (Trading Halts) to provide the Board with discretion in designating the officers of the Exchange responsible for declaring any trading halts when in their opinion such suspension would be in the public interest. Currently, only the Chairman and Chief Executive Officer or his designee has the authority to suspend trading pursuant to Rule 164. The Commission believes that the proposed change to Rule 164 (Trading Halts) is consistent with the Act, and in particular with Sections 6(b)(1) and 6(b)(5) of the Act, 175 which require, among other things, that an exchange be organized and have the capacity to carry out the purposes of the Act and have rules designed to prevent fraudulent and manipulative acts and practices, promote just and equitable principles of trade, remove impediments and to perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest, because it will continue to allow the Exchange to respond in a timely manner, consistent with the Exchange's rules, to a situation where suspension of trading would be in the public interest. Currently, the Chairman and Chief Executive Officer 176 is authorized to suspend trading pursuant to Rule 164 or to delegate that power to another individual. 177 The Commission believes that, by making the Board responsible for trading suspension decisions, or alternatively for deciding to which Exchange officers that authority should be delegated, the proposal strengthens Board oversight of decisions to halt trading and makes Rule 164 less susceptible to any potential abuse of discretion. 175 15 U.S.C. 78f(b)(1) and 15 U.S.C. 78f(b)(5), respectively. 176 Under the proposed rule change, there would no longer be one position entitled “Chairman and Chief Executive Officer.” *See supra* Section III.C.7 and more specifically note 136 and accompanying text (explaining the proposal to separate the roles of Chairman and Chief Executive Officer). 177 *See* Securities Exchange Act Release No. 54538 (September 28, 2006), 71 FR 59184, 59188 (October 6, 2006) (SR-Phlx-2006-43) (approving current Rule 164). Finally, the Exchange proposes to add to Rule 1 (Definitions) a definition of the NASDAQ OMX Merger. 178 The Exchange also proposes to amend Rule 972 (Continuation of Status After the NASDAQ OMX Merger) to reflect that current members, inactive nominees, member organizations, foreign currency options participants, foreign currency options participant organizations, as well as approved lessors of foreign currency options participations holding such status prior to the Merger would continue to hold such status following the Merger. 179 This change clarifies that current members and participants would continue in their current status following the Merger and would continue to have uninterrupted access to the Exchange. 180 178 *See* proposed Rule 1(qq). 179 This provision was adopted in connection with, and currently refers to, the Exchange's 2004 demutualization. 180 This provision was adopted in connection with, and currently refers to, the Exchange's 2004 demutualization. G. Additional Reporting Requirements for Listing Affiliated Securities The Exchange proposes to adopt new Rule 990, which is based on NASDAQ Exchange Rule 4370. 181 Rule 990 would impose heightened requirements on Phlx if it lists a security of NASDAQ OMX or any of its affiliates (“Nasdaq Affiliates”). In the event that a Nasdaq Affiliate lists a security (the “Affiliate Security”) on Phlx, the proposed rule would require Phlx to file a report with the Commission on a quarterly basis detailing Phlx's monitoring of:
(1)The Nasdaq Affiliate's compliance with the provisions of the Rule 800 Series; and
(2)the trading of the Affiliate Security, including summaries of all related surveillance alerts, complaints, regulatory referrals, trades cancelled or adjusted pursuant to Rule 163, investigations, examinations, formal and informal disciplinary actions, exception reports and trading data. 181 *See* NASDAQ Exchange Rule 4370. *See also* NYSE Rule 497, Additional Requirements for Listed Securities Issued by NYSE Euronext or its Affiliates. The Exchange also would be required to notify the Commission at the same time it notifies the Nasdaq Affiliate if the Exchange determines that the Nasdaq Affiliate was not in compliance with any of its listing standards. Phlx would be required to notify the Commission within five business days of its receipt of a plan of compliance from the Nasdaq Affiliate and advise the Commission on whether the plan of compliance was accepted by Phlx or what other action was taken with respect to the plan, and the time period provided to regain compliance with the Rule 800 Series, if any. In addition, the Exchange would be required to commission an annual review and report by an independent accounting firm of the compliance of the Affiliate Security with the Rule 800 Series. The Exchange would be required to furnish promptly a copy of the report to the Commission. The listing of an Affiliate Security on Phlx could potentially create a conflict of interest between the Phlx's regulatory responsibilities to vigorously oversee the listing and trading of an Affiliate Security on Phlx, and its own commercial or economic interests. Such listing may raise questions as to the Phlx's ability to independently and effectively enforce the Commission's and the Exchange's rules against a Nasdaq Affiliate. Proposed Rule 990 is designed to address this concern. The Commission finds that that proposed Rule 990 is consistent with Sections 6(b)(1) and 6(b)(5) of the Act 182 because it requires heightened reporting by Phlx to the Commission with respect to oversight of the listing and trading on Phlx of an Affiliate Security and will assist Phlx in effectively enforcing its Rules with respect to the listing and trading of these securities. In addition, the requirement that an independent accounting firm review such issuer's compliance with Phlx's listing standards adds a degree of independent oversight to Phlx's regulation of the listing of these securities, which may mitigate any potential or actual conflicts of interest and should help ensure thorough oversight of the Affiliate Security on the same basis as any other listed security. 182 15 U.S.C 78f(b)(1) and 15 U.S.C. 78f(b)(5), respectively. H. Restriction on Affiliation with NASDAQ OMX 1. Limitation on Phlx Members' Ownership of NASDAQ OMX The Exchange proposes to adopt new Rule 985(a) to prohibit Members 183 and persons associated with Members from beneficially owning more than 20% of the then-outstanding voting securities of NASDAQ OMX. 184 Members that trade on an exchange traditionally had ownership interests in such exchange. As the Commission has noted in the past, however, a member's interest in an exchange could become so large as to cast doubt on whether the exchange can fairly and objectively exercise its self-regulatory responsibilities with respect to that member. 185 A member that is a controlling shareholder of an exchange or an exchange's holding company might be tempted to exercise that controlling influence by pressuring or directing the exchange to refrain from, or the exchange otherwise may hesitate to, diligently monitor and surveil the member's conduct or diligently enforce its rules and the federal securities laws with respect to conduct by the member that violates such provisions. 186 183 The Rules use the term “members” to refer to members of the Exchange (previously defined as “Members”). 184 *See* proposed Rule 985(a). The Commission also notes that NASDAQ OMX's Restated Certificate of Incorporation imposes limits on direct and indirect changes in control that are designed to prevent any shareholder from exercising undue control over the operation of the exchange and to ensure that the exchange and the Commission are able to carry out their regulatory obligations under the Act. Specifically, no person, which would include any Member, who beneficially owns shares of common stock, preferred stock, or notes in excess of five percent of the securities generally entitled to vote may vote the shares in excess of five percent. *See* NASDAQ OMX Certificate of Incorporation Article Fourth.C. 185 *See* Securities Exchange Act Release Nos. 57478 (March 12, 2008), 73 FR 14521, 14523 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080); 55389 (March 2, 2007) 72 FR 10575, 10578 (March 8, 2007) (SR-CBOE-2006-110); 55293 (February 14, 2007), 72 FR 8033, 8037 (February 22, 2007) (SR-NYSE-2006-120); 53382 (February 27, 2006), 71 FR 11251, 11257 (March 6, 2006) (SR-NYSE-2005-77); 53128 (January 13, 2006), 71 FR 3550 (January 23, 2006) (File No. 10-131); 51149 (February 8, 2005), 70 FR 7531, 7538 (February 14, 2005) (SR-CHX-2004-26); 49718 (May 17, 2004), 69 FR 29611, 29624 (May 24, 2004) (SR-PCX-2004-08); 49098, *supra* note 5 at 3986; and 49067 (January 13, 2004), 69 FR 2761, 2767 (January 20, 2004) (SR-BSE-2003-19). 186 *See, e.g.* , Securities Exchange Act Release No. 49718, *supra* note 185 at 29624. The Commission finds that the ownership restriction in proposed Rule 985(a), combined with the voting limitations in NASDAQ OMX's Certificate of Incorporation Article Fourth.C and By-Law 12.5, 187 is consistent with the Act, including Sections 6(b)(1) and 6(b)(5) of the Act. These limitations should minimize the potential that a Phlx member could improperly interfere with or restrict the ability of the Commission or the Exchange to effectively carry out their regulatory oversight responsibilities under the Act. 187 *See supra* Section III.B (discussing the voting limits applicable to NASDAQ OMX securities). 2. Limitations on Affiliation between Phlx and Its Members Proposed Rule 985(b) would prohibit Phlx or an entity with which it is affiliated from acquiring or maintaining an ownership interest in, or engaging in a business venture 188 with, a Phlx member or an affiliate of a Phlx member in the absence of an effective filing with the Commission under Section 19(b) of the Act. 189 Further, the rule would prohibit a Phlx member from becoming an affiliate of Phlx or an affiliate of an entity affiliated 190 with Phlx in the absence of an effective filing under Section 19(b) of the Act. However, Rule 985(b) would exclude from this restriction two types of affiliations. 188 Phlx would define a “business venture” as an arrangement under which
(A)Phlx or an entity with which it is affiliated and
(B)a Member or an affiliate of a Member, engage in joint activities with the expectation of shared profit and a risk of shared loss from common entrepreneurial efforts. *See* proposed Rule 985(b)(i). 189 15 U.S.C. 78s(b). 190 Phlx defines the term “affiliate” under proposed Rule 985(b) as having the meaning specified in Rule 12b-2 under the Act; provided, however, that for purposes of Rule 985(b), one entity shall not be deemed to be an affiliate of another entity solely by reason of having a common director. First, a Phlx member or an affiliate of a Phlx member could acquire or hold an equity interest in NASDAQ OMX that is permitted pursuant to proposed Rule 985(a) ( *i.e.* , less than 20% of the outstanding voting securities) without the need for the Exchange to file such acquisition or holding under Section 19(b) of the Act. 191 Second, Phlx or an entity affiliated with Phlx could acquire or maintain an ownership interest in, or engage in a business venture with, an affiliate of a Phlx member without the need for the Exchange to file such affiliation under Section 19(b) of the Act, if there were information barriers between the member and Phlx and its facilities. These information barriers would have to prevent the member from having an “informational advantage” concerning the operation of Phlx or its facilities or “knowledge in advance of other Phlx members” of any proposed changes to the operations of Phlx or its trading systems. Further, Phlx may only notify an affiliated member of any proposed changes to its operations or trading systems in the same manner as it notifies non-affiliated members. Additionally, Phlx and its affiliated member may not share employees, office space, or data bases. Finally, the Board must certify, annually, that Phlx has taken all reasonable steps to implement, and comply with, the rule. 191 As discussed above, proposed Rule 985(a) provides that “[n]o member or person associated with a member shall be the beneficial owner of greater than twenty percent (20%) of the then-outstanding voting securities of The NASDAQ OMX Group Inc.” Proposed Rule 985 is based on the rules of Nasdaq, which the Commission previously found consistent with the Act. 192 The Commission similarly finds that proposed Rule 985 is consistent with the requirements of Section 6(b)(5) of the Act, which requires that an exchange have rules designed, among other things, to promote just and equitable principles of trade, to remove impediments and to perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest. 193 192 *See* Nasdaq Rule 2130 and Securities Exchange Act Release No. 53128, *supra* note 101. *See also* Nasdaq Rule 2140 and Securities Exchange Act Release No. 54170 (July 18, 2006), 71 FR 42149 (July 25, 2006) (SR-NASDAQ-2006-006) (order approving Nasdaq's proposal to adopt Nasdaq Rule 2140, restricting affiliations between Nasdaq and its members). 193 15 U.S.C. 78f(b)(5). The Commission is concerned about the potential for unfair competition and conflicts of interest between an exchange's self-regulatory obligations and its commercial interests that could exist if an exchange were to otherwise become affiliated with one of its members, as well as the potential for unfair competitive advantage that the affiliated member could have by virtue of informational or operational advantages, or the ability to receive preferential treatment. 194 The Commission believes that Phlx's proposed rule is designed to mitigate these concerns by requiring that Phlx file a proposed rule change in connection with proposed affiliations between Phlx and Members unless such affiliation is due to a Member's interest in NASDAQ OMX permitted under proposed Rule 985(a) or conforms to the specified information barrier requirements. 194 *See* Securities Exchange Act Release No. 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (SR-NYSE-2005-77) (order approving the New York Stock Exchange, Inc.'s merger with Archipelago Holdings, Inc.). *See also* Securities Exchange Act Release No. 54170 supra note 192 (order approving Nasdaq's proposal to adopt a similar rule, Nasdaq Rule 2140, restricting affiliations between Nasdaq and its members). If Phlx entered into an affiliation with a member (or any other party) that resulted in a change to a Rule or the need to establish new Rules, as defined under the Act, then such affiliation would be subject to the requirements of Section 19(b) of the Act and Rule 19b-4 thereunder. Proposed Rule 985(b) would not affect this statutory rule filing requirement. 3. Exceptions to Limitations on Affiliation Between Phlx and Its Members NASDAQ OMX currently owns two broker-dealers: NES and NASDAQ Options Services, LLC (“NOS”). NES and NOS are members of Phlx. Absent relief, after the closing of NASDAQ OMX's acquisition of Phlx, NASDAQ OMX's ownership of NES and NOS would cause NES and NOS to violate the provision in proposed Rule 985(b) prohibiting Members from being affiliated with the Exchange. Phlx has proposed that NES and NOS be permitted to become affiliates of the Exchange, subject to certain conditions and limitations. First, Phlx proposes that NES and NOS would only route orders to Phlx that first attempt to access liquidity on the NASDAQ Exchange. 195 Second, NES and NOS will remain facilities of the NASDAQ Exchange. Under NASDAQ Exchange rules, NES operates as a facility 196 of NASDAQ Exchange and routes orders to other market centers as directed by NASDAQ Exchange. Similarly, NOS is operated and regulated as a facility of NASDAQ Exchange with respect to its routing of System Securities (“NOS facility function”), and, consequently, the operation of NOS in this capacity will be subject to Exchange oversight, as well as Commission oversight. 197 NASDAQ Exchange is responsible for ensuring that NES and NOS, each a facility of the NASDAQ Exchange, are operated consistent with Section 6 of the Act and NASDAQ Exchange's rules. In addition, NASDAQ Exchange must file with the Commission rule changes and fees relating to NES and NOS. Third, use of NES's and NOS's routing function by NASDAQ Exchange members will continue to be optional. Parties that do not desire to use NES may enter orders into the NASDAQ Exchange as immediate-or-cancel orders or any other order-type available through the NASDAQ Exchange that is ineligible for routing. 198 Similarly, NOM participants are not required to use NOS to route orders, and a NOM participant may route its orders through any available router it selects. 199 In addition, the Commission notes that NES and NOS are members of an SRO unaffiliated with the NASDAQ Exchange, which serves as their designated examining authority under Rule 17d-1. 200 195 NES currently provides to NASDAQ Exchange members optional routing services to other market centers, including Phlx, as set forth in NASDAQ Exchange's rules. *See* NASDAQ Exchange Rules 4751, 4755, and 4758. NOS provides to NASDAQ Exchange members that are Nasdaq Options Market (“NOM”) participants routing services to other market centers. Pursuant to NASDAQ Exchange's rules, NOS:
(1)routes orders in options currently trading on NOM, referred to as “System Securities;” and
(2)routes orders in options that are not currently trading on NOM (“Non-System Securities”). *See* NOM Rules, Chapter VI Sections 1(b) and 11. *See also* Securities Exchange Act Release No. 57478 (March 12, 2008), 73 FR 14521 (March 18, 2008) (SR-NASDAQ-2007-004 and SR-NASDAQ-2007-080) (“NOM Approval Order”). With respect to System Securities, NOM participants may designate orders to be routed to another market center when trading interest is not available on NOM or to execute only on NOM. *See* NOM Rules, Chapter VI, Section 11. *See also* NOM Approval Order, 73 FR at 14532-14533. 196 *See* NASDAQ Exchange Rule 4758(b)(3). *See also* Securities Exchange Act Release No. 56708 (October 26, 2007), 72 FR 61925 (November 1, 2007) (SR-NASDAQ-2007-078) (“NES Routing Release”). As a facility of NASDAQ Exchange, NASDAQ Exchange Rule 4758(b) acknowledges that NASDAQ Exchange is responsible for filing with the Commission rule changes related to the operation of, and fees for services provided by, NES and that NES is subject to exchange non-discrimination requirements. 197 *See* NOM Rules, Chapter 11(e). *See also* NOM Approval Order, *supra* note 195, 73 FR at 14533. 198 *See* NASDAQ Exchange Rule 4758(b)(7). 199 *See* NOM Rules, Chapter VI, Section 11(a) (allowing Participants to designate orders as available for routing or not available for routing). *See also* NOM Approval Order, *supra* note 195, 73 FR at 14533, n.91 and accompanying text. 200 *See* NASDAQ Exchange Rule 4758(b)(4), and NOM Rules, Chapter 11(e). *See* NES Routing Release, *supra* note 196; and NOM Approval Order, *supra* note 195, 73 FR at 14533, n.189 and accompanying text. In the past, the Commission has expressed concern that the affiliation of an exchange with one of its members raises potential conflicts of interest, and the potential for unfair competitive advantage. 201 Although the Commission continues to be concerned about potential unfair competition and conflict of interest between an exchange's self-regulatory obligations and its commercial interest when the exchange is affiliated with one of its members, the Commission believes that it is appropriate and consistent with the Act to permit NES and NOS to become affiliates of Phlx for the limited purpose of providing routing services for NASDAQ Exchange for orders that first attempt to access liquidity on NASDAQ Exchange's systems before routing to Phlx, and in light of the protections afforded by the other conditions described above. 201 *See supra* note 194 and accompanying text. III. Accelerated Approval The Commission finds good cause, pursuant to Section 19(b)(2) of the Act, 202 for approving the proposal, as modified by Amendment Nos. 1 and 2, prior to the thirtieth day after the date of publication of notice of filing of Amendment No. 2 in the **Federal Register** . 203 In Amendment No. 2, Phlx proposed to adopt as rules of the Exchange the Certificate of Incorporation and By-Laws of NASDAQ OMX. The Certificate of Incorporation, as filed by the Exchange, was previously approved by the Commission as rules of Nasdaq. 204 The NASDAQ OMX By-Laws were similarly approved by the Commission. 205 As filed by the Exchange, the NASDAQ OMX By-Laws include certain new terminology to reflect the acquisition of Phlx by NASDAQ OMX. These changes were filed by NASDAQ Exchange as a proposed rule change, and were published for comment. 206 The Commission received no comments on the proposed changes to the NASDAQ OMX By-Laws. 202 15 U.S.C. 78s(b)(2). 203 Pursuant to Section 19(b)(2) of the Act, 15 U.S.C. 78s(b)(2), the Commission may not approve any proposed rule change, or amendment thereto, prior to the thirtieth day after the date of publication of the notice thereof, unless the Commission finds good cause for so doing. 204 *See* Securities Exchange Act Release No. 51328, *supra* note 101. 205 *See id.* 206 *See* Securities Exchange Act Release No. 57761, *supra* note 4. As discussed more fully above and in the NASDAQ Stock Market Proposal, certain provisions of NASDAQ OMX's Certificate and By-Laws are designed to facilitate the ability of NASDAQ OMX's SRO Subsidiaries, including Phlx, to maintain the independence of each of the SRO Subsidiaries' self-regulatory function, enable each SRO Subsidiary to operate in a manner that complies with the federal securities laws, and facilitate the ability of each SRO subsidiary and the Commission to fulfill their regulatory and oversight obligations under the Act. 207 As stated above, the Commission finds that such provisions are consistent with the Act. 208 Notably, the NASDAQ OMX Certificate and By-Laws are rules of NASDAQ Exchange that have been approved previously by the Commission, as noted above, and the changes to the NASDAQ OMX By-Laws were published for notice and comment, as noted above, and the Commission did not receive any comments thereon. Accordingly, the Commission finds good cause for approving the Phlx's proposal, as modified by Amendment Nos. 1 and 2, on an accelerated basis, pursuant to Section 19(b)(2) of the Act. 207 *See supra* Section III.C.1 (discussing, for example the duty of the board, officers, employees and agents NASDAQ OMX to give due regard to the preservation of the independence of the Phlx's self-regulatory function). 208 *See supra* note 56 and accompanying text. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 2, including whether Amendment No. 2 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-Phlx-2008-31 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Phlx-2008-31. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2008-31 and should be submitted on or before August 13, 2008. V. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange. *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 209 that the proposed rule change (SR-Phlx-2008-31), as modified by Amendment Nos. 1 and 2 thereto, be and hereby is approved on an accelerated basis. 209 15 U.S.C. 78s(b)(2). By the Commission. Florence E. Harmon, Acting Secretary. [FR Doc. E8-16760 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58185; File No. SR-Phlx-2008-54] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Participation Guarantees for Crossing and Facilitation Orders July 17, 2008. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 14, 2008, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Phlx. The Phlx has submitted the proposed rule change as a “non-controversial” proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder. 4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to amend Exchange Rule 1064, “Crossing, Facilitation and Solicited Orders,” to provide that the percentage of the order which a Floor Broker is entitled to cross in equity, index and U.S. dollar-settled foreign currency options, after all public customer orders that were
(1)on the limit order book and then
(2)represented in the trading crowd at the time the market was established have been satisfied, is 40% of the remaining contracts in the order if the order is traded at or between the best bid or offer given by the crowd in response to the Floor Broker's initial request for a market. The text of the proposed rule change is available at the Exchange, the Commission's Public Reference Room, and *http://www.phlx.com/regulatory/reg_rulefilings.aspx* . II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Phlx included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Phlx has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to enhance the Exchange's ability to compete for order flow in all options traded on the Exchange by establishing uniform participation guarantee rules. Exchange Rule 1064, Commentary .02 currently guarantees a participation percentage to Floor Brokers representing crossing and facilitation orders in open outcry. The percentage of the order which a Floor Broker is entitled to cross, after all public customer orders that were
(1)on the limit order book and then
(2)represented in the trading crowd at the time the market was established have been satisfied, is currently 40% of the remaining contracts in the order respecting equity options, and 20% of the remaining contracts in the order respecting index options and U.S. dollar-settled foreign currency options. Under the proposal, the participation guarantee would be the same for all options traded on the Exchange. Specifically, Rule 1064, Commentary .02
(iii)would continue to allow a participation guarantee to Floor Brokers of 40% for equity options (including options overlying Exchange Traded Fund shares), and would increase the participation guarantee to Floor Brokers representing crossing and facilitation orders in index options and U.S. dollar-settled foreign currency options from the current 20% to 40%. Thus, the participation guarantee for all options traded on the Exchange would be 40%. The proposed rule change would have an effect on the Enhanced Specialist Participation 5 respecting index options and U.S. dollar-settled foreign currency options. Rule 1064, Commentary .02(vi)(A) currently states that, respecting orders for index options and U.S. dollar-settled foreign currency options, the Enhanced Specialist Participation may only be 20% of the original order after customer orders have been executed for orders crossed pursuant to paragraph
(vi)unless the Floor Broker has chosen to cross less than its 20% entitlement, in which case the Enhanced Specialist Participation will be a percentage that combined with the percentage the firm crossed is no more than 40% of the original order. The proposed rule change would increase the “20% entitlement” specified in the rule to 40%. Thus, the Enhanced Specialist Participation will apply only to the extent that the Floor Broker elects not to cross his or her entire 40% entitlement. 5 The “Enhanced Specialist Participation” entitles the specialist to a greater than equal share of the portion of an executed order that is divided among the specialist and any non-customer accounts that were bidding or offering at the same execution price. *See* Exchange Rule 1014(g). For purposes of simplicity, the Exchange proposes to amend Commentary .02(vi)(B) to state that the specialist shall not be entitled to receive the Enhanced Specialist Participation in equity, index and U.S. dollar-settled foreign currency options unless the Floor Broker has chosen to cross less than its 40% entitlement, and to incorporate this text into one single paragraph (A), since it would no longer be necessary to differentiate index options and U.S. dollar-settled foreign currency options from all other options traded on the Exchange for purposes of the crossing and facilitation participation guarantee. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act, 6 in general, and furthers the objectives of Section 6(b)(5) of the Act, 7 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general to protect investors and the public interest, by enabling the Exchange to better compete for order flow through an increase to the participation guarantee for crossing and facilitation orders in index options and U.S. dollar-settled foreign currency options. 6 15 U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 8 and subparagraph (f)(6) of Rule 19b-4 thereunder. 9 Because the Phlx has designated the proposed rule change as one that:
(1)Does not significantly affect the protection of investors or the public interest;
(2)does not impose any significant burden on competition; and
(3)does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) hereunder. As required under Rule 19b-4(f)(6)(iii), the Exchange provided the Commission with written notice of its intent to file the proposed rule change at least five business days prior to filing the proposal with the Commission. 8 15 U.S.C. 78s(b)(3)(A). 9 17 CFR 240.19b-4(f)(6). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate the rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-Phlx-2008-54 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Phlx-2008-54. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2008-54 and should be submitted on or before August 13, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 10 10 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16837 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58180; File No. SR-SCCP-2008-01] Self-Regulatory Organizations; Stock Clearing Corporation of Philadelphia; Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval to a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend and Restate Its Articles of Incorporation July 17, 2008. I. Introduction On April 24, 2008, Stock Clearing Corporation of Philadelphia (“SCCP”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). 1 Notice of the proposal was published in the **Federal Register** on May 20, 2008. 2 SCCP filed Amendment No. 1 to the proposed rule change on July 2, 2008. 3 The Commission received no comments on the proposed rule change. This order provides notice of filing of Amendment No. 1 to the proposed rule change, and grants accelerated approval to the proposed rule change, as modified by Amendment No. 1. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 57817 (May 14, 2008), 73 FR 29171. 3 In Amendment No. 1, SCCP filed the complete Certificate of Incorporation and amended By-Laws of The NASDAQ OMX Group, Inc. (“NASDAQ OMX”) in order to propose their adoption as rules of SCCP. The By-Laws contained minor amendments to terminology to apply to SCCP and SCCP's parent corporation, the Philadelphia Stock Exchange, Inc. (“Phlx”), all of the same provisions that are currently specifically applicable to The NASDAQ Stock Market LLC (“NASDAQ”). Such amendments are being made in connection with the NASDAQ OMX Merger, as defined in footnote 6 below. The amended By-Laws were published for comment in a separate filing by NASDAQ. *See* Securities Exchange Act Release No. 57761 (May 1, 2008), 73 FR 26182 (May 8, 2008) (notice of SR-NASDAQ-2008-035) (“NASDAQ Stock Market Proposal”). II. Description SCCP is amending its current Articles of Incorporation (“Articles”) to more clearly state that all of the authorized shares of common stock of SCCP are issued and outstanding and are held by Phlx. In addition, SCCP is adding language to its Articles relating to transfers and assignments of SCCP shares of stock. SCCP is restating its Articles to consolidate previous amendments and make other technical amendments, which according to SCCP will modernize the existing language in the Articles. 4 4 The specific amendments proposed for SCCP's Articles can be viewed at *http://www.phlx.com/SCCP/sccp_rules/SR-SCCP-2008-01.pdf* . The purpose of the amendment and restatement of the Articles is to ensure that any future change in ownership of SCCP stock, whether transferred or assigned, in whole or in part, would be filed with the Commission under Section 19 of the Act and the rules promulgated thereunder. This language is consistent with language recently approved by the Commission in connection with the amending by Phlx of its Certificate of Incorporation and By-Laws 5 as a result of the proposed acquisition of Phlx by NASDAQ OMX. 6 5 Securities Exchange Act Release No. 58179 (July 17, 2008) [File No. SR-Phlx-2008-31] (order approving proposed rule change relating to NASDAQ OMX's acquisition of Phlx). 6 On November 7, 2007, NASDAQ OMX announced that it had entered into an agreement with Phlx pursuant to which NASDAQ OMX would acquire all of the outstanding capital stock of Phlx. In connection with this acquisition, Pinnacle Merger Corp., a Delaware corporation and wholly owned subsidiary of NASDAQ OMX, would be merged with and into Phlx with Phlx surviving the merger (“NASDAQ OMX Merger”). As a result of the NASDAQ OMX Merger, all of Phlx's common stock would be owned by NASDAQ OMX. Thereafter, NASDAQ OMX would operate Phlx as a wholly-owned subsidiary and SCCP as an indirect wholly-owned subsidiary. Phlx and SCCP would continue to be separate self-regulatory organizations. III. Discussion The Commission finds that the rule change is consistent with the requirements of the Act and the rules and regulations thereunder and particularly with the requirements of Section 17A(b)(3)(C) of the Act. 7 The proposed rule change would amend SCCP's Articles to reflect the proposed NASDAQ OMX Merger. The Commission notes that the proposed rule change does not amend SCCP's rules or procedures with respect to the clearance and settlement of securities transactions or the safeguarding of securities and funds which are in SCCP's control or for which it is responsible. Section 17A(b)(3)(C) of the Act requires that a clearing agency's rules assure the fair representation of its shareholders and participants in the selection of its directors and administration of its affairs. SCCP would remain a wholly-owned subsidiary of Phlx following the NASDAQ OMX Merger and the SCCP By-Laws relating to the selection, composition, powers, and duties of the SCCP board of directors, committees, and officers would remain unchanged. Accordingly, the Commission finds that SCCP's rules would continue to assure the fair representation of its shareholders and participants in the section of SCCP's directors and the administration of SCCP's affairs as required by Section 17A(b)(3)(C). 7 15 U.S.C. 78q-1(b)(3)(C). IV. Accelerated Approval The Commission finds good cause, pursuant to Section 19(b)(2) of the Act, 8 for approving the proposal, as modified by Amendment No. 1, prior to the thirtieth day after the date of publication of notice of filing of Amendment No. 1 in the **Federal Register** . 9 In Amendment No. 1, SCCP proposed to adopt as rules of SCCP the Certificate of Incorporation and By-Laws of NASDAQ OMX. The Certificate of Incorporation, as filed by the SCCP, was previously approved by the Commission as rules of the NASDAQ. 10 The NASDAQ OMX By-Laws were similarly approved by the Commission. 11 As filed by the SCCP, the NASDAQ OMX By-Laws include certain new terminology to reflect the acquisition of Phlx and SCCP by NASDAQ OMX. These changes were filed by NASDAQ Exchange as a proposed rule change, and were published for comment. 12 The Commission received no comments on the proposed changes to the NASDAQ OMX By-Laws. 8 15 U.S.C. 78s(b)(2). 9 Pursuant to Section 19(b)(2) of the Act, 15 U.S.C. 78s(b)(2), the Commission may not approve any proposed rule change, or amendment thereto, prior to the thirtieth day after the date of publication of the notice thereof, unless the Commission finds good cause for so doing. 10 *See* Securities Exchange Act Release No. 51328 (January 13, 2006), 71 FR 3550 (January 23, 2006) (order approving the application of NASDAQ for registration as a national securities exchange). 11 *See id* . 12 *See* Securities Exchange Act Release No. 57761, *supra* note 3. As discussed more fully in the NASDAQ Stock Market Proposal, certain provisions of NASDAQ OMX's Certificate and By-Laws are designed to facilitate the ability of NASDAQ OMX's SRO subsidiaries, including SCCP, to maintain the independence of each of the SRO subsidiaries' self-regulatory function, enable each SRO subsidiary to operate in a manner that complies with the federal securities laws, and facilitate the ability of each SRO subsidiary and the Commission to fulfill their regulatory and oversight obligations under the Act. 13 As stated above, the Commission finds that such provisions are consistent with the Act. 14 Notably, the NASDAQ OMX Certificate of Incorporation and By-Laws are rules of NASDAQ that have been approved previously by the Commission, as noted above, and the changes to the NASDAQ OMX By-Laws were published for notice and comment, as noted above, and the Commission did not receive any comments thereon. Accordingly, the Commission finds good cause for approving SCCP's proposal, as modified by Amendment No. 1, on an accelerated basis, pursuant to Section 19(b)(2) of the Act. 13 In addition to the NASDAQ OMX Merger, NASDAQ OMX entered into an agreement with the Boston Stock Exchange (“BSE”), pursuant to which NASDAQ OMX would acquire all of the outstanding membership interests in BSE (“BSE Acquisition”). *See* Securities Exchange Act Release Nos. 57757 (May 1, 2008), 73 FR 26159 (SR-BSE-2008-23) (notice of proposed rule change related to BSE Acquisition) and 57782 (May 6, 2008), 73 FR 27583 (May 13, 2008) (SR-BSECC-2008-01) (notice of proposal to amend the articles of organization and by-laws of the Boston Stock Exchange Clearing Corporation to reflect its proposed acquisition by NASDAQ OMX). 14 *See supra* note 7 and accompanying text. V. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 1, including whether Amendment No. 1 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-SCCP-2008-01 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-SCCP-2008-01. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of SCCP. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-SCCP-2008-01 and should be submitted on or before August 13, 2008. VI. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular Section 17A of the Act and the rules and regulations thereunder. 15 15 In approving the proposed rule change, the Commission considered the proposal's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). *See* Securities Exchange Act Release No. 58179, *supra* note 5. *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 16 that the proposed rule change (SR-SCCP-2008-01), as modified by Amendment No. 1 thereto, be and hereby is approved on an accelerated basis. 16 15 U.S.C. 78s(b)(2). For the Commission by the Division of Trading and Markets, pursuant to delegated authority. 17 17 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16824 Filed 7-22-08; 8:45 am] BILLING CODE 8010-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration Approval of Noise Compatibility Program; Orlando Executive Airport, Orlando, FL AGENCY: Federal Aviation Administration, DOT. ACTION: Notice. SUMMARY: The Federal Aviation Administration
(FAA)announces its findings on the Noise Compatibility Program submitted by the Greater Orlando Aviation Authority under the provisions of 49 U.S.C. (the Aviation Safety and Noise Abatement Act, hereinafter referred to as “the Act”) and 14 CFR Part 150. These findings are made in recognition of the description of Federal and nonfederal responsibilities in Senate Report No. 96-52 (1980). On December 31, 2007, the FAA determined that the noise exposure maps submitted by the Greater Orlando Aviation Authority under Part 150 were in compliance with applicable requirements. On June 23, 2008, the FAA approved the Orlando Executive Airport noise compatibility program. All of the recommendations of the program were approved. DATES: *Effective Date:* The effective date of the FAA's approval of the Orlando Executive Airport Noise Compatibility Program is June 23, 2008. FOR FURTHER INFORMATION CONTACT: Ms. Lindy McDowell, Federal Aviation Administration, Orlando Airports District Office, 5950 Hazeltine National Drive, Orlando, Florida 32822, phone number: 407-812-6331. Documents reflecting this FAA action may be reviewed at this same location. SUPPLEMENTARY INFORMATION: This notice announces that the FAA has given its overall approval to the Noise Compatibility Program for Orlando Executive Airport, effective June 23, 2008. Under Section 47504 of the Act, an airport operator who has previously submitted a Noise Exposure Map may submit to the FAA a Noise Compatibility Program which sets forth the measures taken or proposed by the airport operator for the reduction of existing non-compatible land uses and prevention of additional non-compatible land uses within the area covered by the Noise Exposure Maps. The Act requires such programs to be developed in consultation with interested and affected parties including local communities, government agencies, airport users, and FAA personnel. Each airport noise compatibility program developed in accordance with Federal Aviation Regulations
(FAR)Part 150 is a local program, not a Federal Program. The FAA does not substitute its judgment for that of the airport operator with respect to which measure should be recommended for action. The FM's approval or disapproval of FAR Part 150 program recommendations is measured according to the standards expressed in FAR Part 150 and the Act, and is limited to the following determinations: a. The Noise Compatibility Program was developed in accordance with the provisions and procedures of FAR Part 150; b. Program measures are reasonably consistent with achieving the goals of reducing existing non-compatible land uses around the airport and preventing the introduction of additional non-compatible land uses; c. Program measures would not create an undue burden on interstate or foreign commerce, unjustly discriminate against types or classes of aeronautical uses, violate the terms of airport grant agreements, or intrude into areas preempted by the Federal government; and d. Program measures relating to the use of flight procedures can be implemented within the period covered by the program without derogating safety, adversely affecting the efficient use and management of the navigable airspace and air traffic control systems, or adversely affecting other powers and responsibilities of the Administrator prescribed by law. Specific limitations with respect to FAA's approval of an airport Noise Compatibility Program are delineated in FAR Part 150, Section 150.5. Approval is not a determination concerning the acceptability of land uses under Federal, state, or local law. Approval does not by itself constitute an FAA implementing action. A request for Federal action or approval to implement specific noise compatibility measures may be required, and an FAA decision on the request may require an environmental assessment of the proposed action. Approval does not constitute a commitment by the FAA to financially assist in the implementation of the program nor a determination that all measures covered by the program are eligible for grant-in-aid funding from the FAA. Where Federal funding is sought, requests for project grants must be submitted to the FAA Airports District Office in Orlando, Florida. Greater Orlando Aviation Authority submitted to the FAA on December 18, 2007, the Noise Exposure Maps, descriptions, and other documentation produced during the noise compatibility planning study conducted from November, 2003, through December, 2006. The Orlando Executive Airport Noise Exposure Maps were determined by FAA to be in compliance with applicable requirements on December 31, 2007. Notice of this determination was published in the **Federal Register** on December 31, 2007. The Orlando Executive Airport study contains a proposed Noise Compatibility Program comprised of actions designed for phased implementation by airport management and adjacent jurisdictions from the year 2007 to the year 2012. It was requested that FAA evaluate and approve this material as a Noise Compatibility Program as described in Section 47504 of the Act. The FM began its review of the Program on December 31, 2007, and was required by a provision of the Act to approve or disapprove the program within 180 days (other than the use of new or modified flight procedures for noise control). Failure to approve or disapprove such program within the 180-day period shall be deemed to be an approval of such program. The submitted program contained four
(4)proposed actions for noise mitigation on and off the airport. The FAA completed its review and determined that the procedural and substantive requirements of the Act and FAR Part 150 have been satisfied. The overall program, therefore, was approved by the FAA effective June 23, 2008. Outright approval was granted for all of the specific program elements. Mitigation measures approved include: Operational Measure 1. Modification of the Current Helicopter Flight Track to and From the North Currently the helicopter flight corridor north of the Airport passes over residential areas north of Fashion Square Mall. To avoid these residential areas, it is recommended that nonemergency rotorcraft operations to and from the north fly to Colonial Drive (SR 50) then west to I-4 and then turn northbound along the Interstate. All other rotorcraft tracks are recommended to remain in effect with no changes. (NCP, pages 10-2, 13-1; Exhibits D, 11-1; and Tables 10-1A., 13-1, 13-2) *FAA Action:* Approved as voluntary measure, subject to traffic, weather, and airspace safety and efficiency. Land Use Measure 1. Property Acquisition Program The development of a voluntary acquisition program that allows non-compatible land uses to be removed from high noise exposure areas. It is recommended that residences located within the 2006 baseline 70 DNL and greater contour be considered for voluntary property acquisition through the use of FAA noise funding. (NCP, pages 10-3, 12-1, 12-3; Exhibits F, 12-1; and Tables 13-2) *FAA Action:* Approved. Acquisitions are limited to existing non-compatible land uses located within the 65 DNL noise contour of the approved NEMs, and are consistent with FAA's 1998 remedial mitigation policy (63 FR 16409). The specific identification of structures recommended for inclusion in the program and specific definition of the scope of the program will be required prior to approval for Federal funding. Program Management Measure 1. Additional Noise Monitoring Equipment It is recommended that five
(5)additional noise monitors be acquired. Potential sites that have been identified for three of the new monitors include three schools located southwest of OEA along the Runway 7 extended centerline. The remaining two new monitors will be used to replace existing outdated monitors. It is also recommended that an Air to Ground Monitoring Tower be acquired to aid in communications. This system provides a scanner which is interfaced into a digital recording server and processed via a software application. (NCP, pages 10-3, 10-6, 13-1; Exhibits 10-2; and Tables 10-1B, 13-1) *FAA Action:* Approved. Eligibility for Federal funding of five noise monitors and Air to Ground Monitoring Tower will be determined at the time of application. Fixed noise monitoring equipment is ineligible where the Part 150 noise exposure maps (existing and forecast) show no non-compatible land uses, For purposes of aviation safety, this approval does not extend to the use of monitoring equipment for enforcement purposes by in-situ measurement of any preset noise thresholds and shall not be used for mandatory enforcement of any voluntary measure. 2. Pilot Brochure Develop a “Pilot Handout” to identify noise abatement procedures associated with OEA. The handout would be provided to FBOs, pilots and others using the facility. The intent of the handout is to make pilots aware of the existing and future voluntary noise mitigation procedures in effect at the Airport. (NCP, pages 10-3, 13-1; and Tables 10-10,13-1, 13-2) *FAA Action:* Approved. Inserts or other information must not be construed as mandatory air traffic procedures. Prior to release, language in the brochure should be reviewed for wording and content by the appropriate FAA office. The content of the brochure is subject to specific approval by appropriate FAA officials outside of the FAR Part 150 process and is not approved in advance by this determination. These determinations are set forth in detail in a Record of Approval signed by the FAA on June 23, 2008. The Record of Approval, as well as other evaluation materials and the documents comprising the submittal, are available for review at the FAA office listed above and at the administrative office of the Greater Orlando Aviation Authority. The Record of Approval also will be available on-line at: *http://www.faa.gov/airports_airtraffic/airports/environmental/airport_noise/part_150/states/* . Issued in Orlando, Florida on July 10, 2008. W. Dean Stringer, Manager, Orlando Airports District Office. [FR Doc. E8-16509 Filed 7-22-08; 8:45 am] BILLING CODE 4910-13-M DEPARTMENT OF TRANSPORTATION Federal Highway Administration America's Byways Public Awareness Initiative AGENCY: Federal Highway Administration (FHWA), DOT. ACTION: Notice; Request for Statement of Interest. SUMMARY: The Federal Highway Administration (FHWA), cooperatively with the America's Byways Resource Center
(ABRC)in Duluth, Minnesota, invites statements of interest about participating in a domestic, multi-year America's Byways® Partnership Marketing Campaign. As part of this marketing campaign, the ABRC would like to partner with interested parties to establish a national Public Awareness Initiative to elevate the awareness, understanding, and appreciation of the America's Byways collection. This initiative offers an ideal environment for national partners with brand profiles consistent with the National Scenic Byways Program to spotlight their products while raising the awareness of America's Byways. This notice seeks Statements of Interest from parties, such as corporations, associations, nonprofit organizations, and public authorities, who are interested in working with ABRC and FHWA in the Partnership Marketing Campaign. DATES: Statements of interest should be received on or before September 22, 2008. However, statements received after this date may still be considered depending on available resources. ADDRESSES: Mail or hand deliver statements of interest to the America's Byways Resource Center, 394 Lake Avenue South, Suite 600, Duluth, MN 55802, or submit via e-mail to *partnerships@byways.org* or fax to
(218)625-3333. FOR FURTHER INFORMATION CONTACT: Henry Hanka,
(218)625-3306, Special Projects Manager, America's Byways Resource Center, 394 Lake Avenue South, Suite 600, Duluth, MN 55802, or Gary Jensen,
(202)366-2048, Office of Planning, Environment & Realty, HEP-2, Federal Highway Administration, Department of Transportation, 1200 New Jersey Avenue, SE., Washington, DC 20590, between 7:30 a.m. to 4:30 p.m., Monday through Friday, except Federal holidays. SUPPLEMENTARY INFORMATION: *Electronic Access:* An electronic copy of this document may be downloaded by accessing the Office of the Federal Register's home page at *http://www.archives.gov* and from the Government Printing Office's Web page at *http://www.gpoaccess.gov/nara.* *Background:* The National Scenic Byways Program was established under the Intermodal Surface Transportation Efficiency Act of 1991, and was reauthorized and amended most recently in 2005 under the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). It is codified at Title 23, United States Code, section 162. Under the program, the Secretary of Transportation recognizes certain roads as National Scenic Byways or All-American Roads based on their intrinsic qualities—archaeological, cultural, historic, natural, recreational, and scenic qualities. There are 126 such designated byways in 44 States which the FHWA promotes collectively as America's Byways®. It is a program that recognizes and supports outstanding roads while providing resources to help manage the intrinsic qualities within the broader byway corridor. The vision of the FHWA's National Scenic Byways Program is to create a distinctive collection of American roads, their stories and treasured places. The program's mission is to provide resources to the byway community in creating a unique travel experience and enhanced local quality of life through efforts to preserve, protect, interpret, and promote the intrinsic qualities of designated byways. *Partnership Marketing Campaign:* In 2005, Congress authorized ABRC to carry out public awareness activities for America's Byways. As a result, the ABRC developed a Partnership Marketing Campaign. Under this Campaign, the ABRC intends to partner with interested parties to establish the strategic and creative framework for a national communications effort. The core objectives of this campaign are as follows: • Increase awareness for America's Byways at the community, regional and national level among the general public and special interest groups. • Build a greater understanding and appreciation for the America's Byways experience. • Increase visitation and usage across the America's Byways Collection. • Generate economic impact for the individual byway communities. The Campaign is designed to combine the shared commitment of the FHWA and ABRC with the expertise and resources of a broader range of public and private partners to integrate resources, execute a more extensive communications effort, and enter more markets with greater exposure. As part of this partnership, private and public sector partners may have opportunities to position their brands and products with the America's Byways® brand in a joint marketing and communication environment. Such partners could include, but are not limited to, entities in the following areas: Automotive; hospitality/hotels/rental cars; food service; retail; and outdoor recreation. Partner benefits may also include exposure through strategic partnerships that may reach a broader audience, while promoting protection and sustainability of the environment; and being seen as a leader in a national domestic tourism campaign. The FHWA and ABRC are considering various options for this initiative, but consistent with the direction from Longwoods Travel USA® research, would look to start with national partners whose businesses especially link with the tourism categories of Touring/Special Events and Outdoor Adventure. See: *http://www.bywaysresourcecenter.org/resources/specialprojects/partnershipmarketing.* Longwoods Travel USA® concludes that these segments represent over 51 percent of trips by car, RV or motorcycle overnight travelers. The research also showed that the potential for new byway customers is great, with the number one item of importance in attracting new visitors is that more information and publicity is needed. *Statements of Interest:* This notice seeks interest from parties, such as corporations, associations, nonprofit organizations, and public authorities, who can, together with FHWA and ABRC, promote America's Byways. Statements of interest should include a basic business profile of the interested party, products offered, and a brief summary of current national communications and marketing scope. Based on responses to this notice and other information, the FHWA and the ABRC will work with selected interested parties to integrate their ideas into the national marketing strategy. The statements of interest will be used by FHWA and ABRC to evaluate which potential partners can assist us in attracting new visitors and gain more publicity consistent with our research. There is a level of uncertainty associated with planning against an unknown investment of funding and resources from potential partners. The FHWA and the ABRC are considering various options for this initiative, but would look to start with national partners whose businesses especially complement the America's Byways tourism categories of Touring/Special Events and Outdoor Adventure. Upon receipt of a statement of interest, the ABRC, in cooperation with FHWA, will confirm receipt of the statements of interest. Those parties determined by the ABRC, in cooperation with FHWA, to have the greatest potential to assist us in attracting new visitors and gain more publicity for America's Byways will then be contacted to discuss further their level of interest, available resources, existing and future communications efforts, and to discuss next steps. Issued on: July 15, 2008. James D. Ray, Acting Federal Highway Administrator. [FR Doc. E8-16886 Filed 7-22-08; 8:45 am] BILLING CODE 4910-22-P DEPARTMENT OF TRANSPORTATION Federal Highway Administration Buy America Waiver Notification AGENCY: Federal Highway Administration (FHWA), DOT. ACTION: Notice. SUMMARY: This notice provides information regarding the FHWA's finding that a Buy America waiver is appropriate for certain steel products used in Federal-aid construction projects in Florida and Illinois. DATES: The effective date of the waiver is July 24, 2008. FOR FURTHER INFORMATION CONTACT: For questions about this notice, please contact Mr. Gerald Yakowenko, FHWA Office of Program Administration,
(202)366-1562, or via e-mail at *gerald.yakowenko@dot.gov* . For legal questions, please contact Mr. Michael Harkins, FHWA Office of the Chief Counsel,
(202)366-4928, or via e-mail at *michael.harkins@dot.gov* . Office hours for the FHWA are from 7:45 a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal holidays. SUPPLEMENTARY INFORMATION: Electronic Access An electronic copy of this document may be downloaded from the **Federal Register** 's home page at: *http://www.archives.gov* and the Government Printing Office's database at: *http://www.access.gpo.gov/nara* . Background The FHWA's Buy America policy in 23 CFR 635.410 requires a domestic manufacturing process for any steel or iron products (including protective coatings) that are permanently incorporated in a Federal-aid construction project. The regulation also provides for a waiver of the Buy America requirements when the application would be inconsistent with the public interest or when satisfactory quality domestic steel and iron products are not sufficiently available. This notice provides information regarding the FHWA's finding that a Buy America waiver is appropriate for two specific cases. In accordance with Division K, section 130, of the “Consolidated Appropriations Act, 2008” (Pub. L. 110-161), the FHWA published a notice of intent to issue a waiver on its Web site on May 28, 2008, for motor brakes and machinery brakes for a Federal-aid project in Florida ( *http://www.fhwa.dot.gov/construction/contracts/waivers.cfm?id=11* ). In addition, the FHWA published a notice of intent to issue a waiver on its Web site on June 5, 2008, for guard bars, manganese castings, turnout braces, and weld kits associated with a Federal-aid railroad project in Illinois ( *http://www.fhwa.dot.gov/construction/contracts/waivers.cfm?id=12* ). No comments were received in response to either of these notices; therefore, the FHWA concludes that there are no domestic manufacturers for these products and a Buy America waiver is appropriate as provided by 23 CFR 635.410(c)(1). In accordance with the provisions of section 117 of the “SAFETEA-LU Technical Corrections Act of 2008” (Pub. L. 110-244, 122 Stat.1572), the FHWA is providing this notice as its finding that a waiver of Buy America requirements is appropriate. The FHWA invites public comment on this finding for an additional 15 days following the effective date of the waiver. Comments may be submitted to the FHWA's Web site via the links above to the Florida and Illinois waiver pages noted above. (Authority: 23 U.S.C. 313; Pub. L. 110-161, 23 CFR 635.410) Issued on: July 15, 2008. James D. Ray, Acting Administrator, Federal Highway Administration. [FR Doc. E8-16885 Filed 7-22-08; 8:45 am] BILLING CODE 4910-22-P DEPARTMENT OF TRANSPORTATION Federal Highway Administration Uniform Relocation and Real Property Acquisition for Federal and Federally Assisted Programs; Fixed Payment for Moving Expenses; Residential Moves AGENCY: Federal Highway Administration (FHWA), DOT. ACTION: Notice. SUMMARY: The purpose of this notice is to publish changes in the Fixed Residential Moving Cost Schedule for the States and Territories of Alabama, Alaska, Arizona, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Idaho, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Utah, Virgin Islands, Virginia, and Wyoming as provided for by section 4622(b) of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended. The schedule amounts for the States and Territories not listed above remain unchanged. The Uniform Act applies to all programs or projects undertaken by Federal agencies or with Federal financial assistance that cause the displacement of any person. DATES: The provisions of this notice are effective August 22, 2008, or on such earlier date as an agency elects to begin operating under this schedule. FOR FURTHER INFORMATION CONTACT: Carolyn Winborne James, Office of Real Estate Services,
(202)493-0353, *Carolyn.James@dot.gov* ; Federal Highway Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590. Office hours are from 7:45 a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal holidays. SUPPLEMENTARY INFORMATION: Electronic Access An electronic copy of this notice may be downloaded from the Office of the Federal Register's home page at: *http://www.archives.gov/* and the Government Printing Office's database at: *http://www.access.gpo.gov/* . Background The Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970, as amended, 42 U.S.C. 4601-4655 (Uniform Act), established a program, which includes the payment of moving and related expenses, to assist persons who are displaced because of Federal or federally assisted projects. The FHWA is the lead agency for implementing the provisions of the Uniform Act and has issued governmentwide implementing regulations at 49 CFR part 24. The following 17 Federal departments and agencies have, by cross-reference, adopted the governmentwide regulations: Department of Agriculture; Department of Commerce; Department of Defense; Department of Education; Department of Energy; Department of Homeland Security; Environmental Protection Agency; Federal Emergency Management Agency; General Services Administration; Department of Health and Human Services; Department of Housing and Urban Development; Department of the Interior; Department of Justice; Department of Labor; Department of Veterans Affairs; National Aeronautics and Space Administration; Tennessee Valley Authority. Section 4622(b) of the Uniform Act provides that, as an alternative to being paid for actual residential moving and related expenses, a displaced individual or family may elect payment for moving expenses on the basis of a moving expense schedule established by the head of the lead agency. The governmentwide regulations at 49 CFR 24.302 provide that the FHWA will develop, approve, maintain, and update this schedule, as appropriate. The purpose of this notice is to update the schedule published on May 16, 2005 (70 FR 25875). The schedule is being updated to reflect the increased costs associated with moving personal property and was developed from data provided by State highway agencies. This update increases the schedule amounts in the States and Territories of Alabama, Alaska, Arizona, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Idaho, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, South Dakota, Utah, Virgin Islands, Virginia, and Wyoming. The schedule amounts for the States and Territories not listed above remain unchanged. The payments listed in the table below apply on a State-by-State basis. Two exceptions and limitations apply to all States and Territories. Payment is limited to $100.00 if either of the following conditions applies:
(a)A person has minimal possessions and occupies a dormitory style room, or
(b)A person's residential move is performed by an agency at no cost to the person. The schedule continues to be based on the “number of rooms of furniture” owned by a displaced individual or family. In the interest of fairness and accuracy, and to encourage the use of the schedule (and thereby simplify the computation and payment of moving expenses), an agency should increase the room count for the purpose of applying the schedule if the amount of possessions in a single room or space actually constitutes more than the normal contents of one room of furniture or other personal property. For example, a basement may count as two rooms if the equivalent of two rooms worth of possessions is located in the basement. In addition, an agency may elect to pay for items stored outside the dwelling unit by adding the appropriate number of rooms. Authority: 42 U.S.C. 4622(b) and 4633(b); 49 CFR 1.48 and 24.302. Issued on: July 16, 2008. James D. Ray, Acting Federal Highway Administrator. BILLING CODE 4910-22-P EN23JY08.003 EN23JY08.004 [FR Doc. E8-16893 Filed 7-22-08; 8:45 am] BILLING CODE 4910-22-C DEPARTMENT OF TRANSPORTATION Federal Transit Administration [Docket No. FTA-2007-29126] Program Guidance for Metropolitan Planning Program and State Planning and Research Program Grants: Final Circular AGENCY: Federal Transit Administration (FTA), DOT. ACTION: Notice of Availability of Final Circular. SUMMARY: The Federal Transit Administration
(FTA)has placed in the docket and on its Web site final guidance in the form of a circular on Metropolitan Planning and State Planning and Research Program Grants. The final circular revises and combines into one document the contents of previous Circular 8100.1B for the Metropolitan Planning Program
(MPP)and previous Circular 8200.1 the State Planning and Research Program (SPRP). The final circular also provides information on Consolidated Planning Grants
(CPG)between FTA and the Federal Highway Administration (FHWA). DATES: *Effective Date:* September 1, 2008. FOR FURTHER INFORMATION CONTACT: Victor Austin, Office of Planning and Environment (TPE), Federal Transit Administration, 1200 New Jersey Avenue, SE., Washington, DC 20590, phone: 202-366-2996, or e-mail *victor.austin@dot.gov.* Legal questions may be addressed to Christopher Van Wyk, Office of Chief Counsel (TCC), Federal Transit Administration, U.S. Department of Transportation, 1200 New Jersey Avenue, SE., Washington, DC 20590, phone: 202-366-1733, or e-mail, *christopher.vanwyk@dot.gov.* SUPPLEMENTARY INFORMATION: Availability of Final Circular You may download the circular from the Federal government's electronic docket at *http://www.regulations.gov.* You may also download an electronic copy of the circular from FTA's Web site at *http://www.fta.dot.gov.* Paper copies of the circular may be obtained by calling FTA's Administrative Services Help Desk at 202-366-4865. Table of Contents I. Overview II. Summary of and Response to Comments A. Chapter I—Introduction and Background B. Chapter II—Metropolitan Planning Program C. Chapter III—State Planning and Research Program D. Chapter IV—Consolidated Planning Grants
(CPG)E. Chapter V—Application Instructions F. Appendices I. Overview The Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) (Pub. L. 109-59, Aug. 10, 2005) updated Chapter 53 of Title 49 of the U.S. Code with new requirements for metropolitan and statewide planning (49 U.S.C. 5303, 5304). On February 14, 2007, FTA and FHWA jointly published a final rule, “Statewide Transportation Planning; Metropolitan Transportation Planning,” updating 23 CFR parts 450 and 500 and 49 CFR part 613 to reflect the new provisions enacted by SAFETEA-LU (72 FR 7224, Feb. 14, 2007). The new regulations govern the work performed under the Metropolitan Planning Program
(MPP)(23 CFR part 450) and the State Planning and Research Program
(SPRP)(23 CFR part 420). The rulemaking process included extensive public outreach conducted jointly by FTA and FHWA. This involved publication of a Notice of Proposed Rulemaking in the **Federal Register** and a 90-day comment period during which over 150 comments were submitted to the docket. This effort was supported by six public outreach sessions, two national telecasts on the Internet, and a series of informational sessions in conjunction with various transportation stakeholder association events, including the Association of State Highway and Transportation Officials (AASHTO), American Public Transportation Association (APTA), the National Association of Regional Councils (NARC), the Association of Metropolitan Planning Organizations
(AMPO)and State DOTs. Although SAFETEA-LU made several changes to the planning process, the legislation did not make substantive changes to the eligibility for and processes of the MPP. SAFETEA-LU did change the funding eligibility of the SPRP to include only funds from 49 U.S.C. 5305, 5315, and 5322. Thus, funding activities under Sections 5312 and 5317, allowable under the previous legislation for SPRP, are no longer eligible activities. SAFETEA-LU also unified the MPP and SPRP programs under the same section in 49 U.S.C. 5305. Prior to SAFETEA-LU, program eligibility and criteria for the MPP could be found in 49 U.S.C. 5303(g), but program eligibility and criteria for the SPRP was found in 49 U.S.C. 5313(b). In addition, SAFETEA-LU restricts the use of planning funds under both the MPP and SPRP to the States, the District of Columbia, and Puerto Rico and places responsibilities for the funds to these entities. The final circular adds information on the Consolidated Planning Grants (CPG), a program administered by FTA and FHWA. FTA reserves the right to update this circular due to changes in other revised or new guidance and regulations that undergo notice and comment, without further notice and comment on this circular. II. Summary of and Response to Comments The FTA circulars that previously covered Metropolitan Planning (Circular 8100.1B) and State Planning and Research Programs (Circular 8200.1) were last updated in 1996 and 2001, respectively. Although SAFETEA-LU did not make substantive changes to the eligibilities and procedures for funding under the Metropolitan Planning and State Planning and Research Program, FTA believes it is necessary to update the circulars that apply to the above programs so that they reflect the new and revised planning provisions in law and subsequent regulations. A. Chapter I—Introduction and Background This introductory chapter is a general overview of what FTA plans to include in all the new and revised program circulars for the orientation of readers new to FTA programs. Chapter I also includes definitions and a history of FTA's planning programs. One commenter suggested that there be further public notice and comment if FTA amends or updates this circular due to changes in other circulars or regulations that undergo notice and comment. FTA disagrees. When the revision of a circular or regulation requires an opportunity for notice and comment, there is no need to satisfy that requirement again just to update a reference to that revised document in this circular. FTA has clarified that statement, however, in the text of this notice and in the final circular itself. Another comment stated that FTA should adopt the Bureau of Census abbreviation of Urbanized Area and use the abbreviation “UA” rather than “UZA.” Upon careful consideration, FTA has determined that this change should not be made in order to preserve consistency with references made in other FTA circulars and documents. B. Chapter II—Metropolitan Planning Program This chapter replaces the former Chapter II—“Eligibility,” in previous Circular 8100.1A and consolidates it with Chapter I—“General Overview,” Chapter II—“Eligibility,” Chapter III—“Metropolitan Planning and Assistance: Formula and Notification,” Chapter IV—“Unified Planning Work Program,” Chapter V—“Application Instructions,” Chapter VII—“Grant Agreement,” and Chapter VIII—“State Management,” of the previous Circular 8100.1A, with minor updates. This new consolidated chapter provides an overview of the entire MPP program with regard to its statutory authority and program goals. It defines the role of the individual States, metropolitan planning organizations (MPOs), and FTA, and it explains the program's relationship to other FTA-funded programs. The chapter also provides information on eligible planning activities, steps required in developing a Unified Planning Work Program (UPWP), the MPP assistance formula and notification, the grant agreement, and the administration of MPP grants. One commenter asked that the words “engineer” and “design” be eliminated from the Program Overview section where the circular discusses the program and projects available for grant assistance. Because FTA's use of these terms is taken from statutory language in 49 U.S.C. 5305, it is appropriate for FTA to reference them here. FTA noticed that through an oversight that it removed language from the previous circulars on Project Task Budget, Local Share, and Cost Allocation Plan/Indirect Costs. FTA has added this language back into the final circular. One comment asked that the circular address the relationship of the MPO and transit operators when there are several designated recipients (DRs). Because the focus of this circular is on the MPP and SPRP funding programs, only brief mention is made of the role of the DR under FTA's Section 5307 program relative to the role of the MPO in preparing the Transportation Improvement Program (TIP). More detailed discussion of the roles and responsibilities of DRs under the Section 5307 program is more appropriately provided in FTA Circular 9030.1C, which focuses on the Section 5307 program. FTA Circular 9030.1C is undergoing review, and FTA will consider the above comment in that effort. Another comment suggested that FTA clarify that UZAs with a population over 200,000 are designated as Transportation Management Areas
(TMAs)in the section “Relationship to Other DOT Programs under Urbanized Area Formula Program.” FTA agrees with this comment and will add the abbreviation “TMAs” in the above referenced section. One commenter suggested that there should be a system in place to better define which MPO or agency has responsibility for a particular metropolitan planning area
(MPA)in situations where geographic boundaries of MPAs cross State lines. FTA notes the planning regulations already address this issue at 23 CFR 450.312 (“Metropolitan planning area boundaries”). Thus, there is no need to provide resolution of this issue in the circular. One commenter stated that MPOs should not be responsible for conducting any of the system planning and corridor-level alternative analyses for specific transit projects. FTA has addressed this issue by regulation at 23 CFR 450.318. That regulatory section allows, but does not require, MPOs, States, or public transportation operators to undertake a multimodal, system-level corridor or subarea planning study as part of the metropolitan transportation planning process. Planning within an MPA is a collaborative, coordinated process. Determinations of individual agency responsibilities in conducting systems planning and alternative analysis studies are local decisions within the bounds of the statutory and regulatory provisions on planning. One commenter stated that MPOs should not be directly responsible for safety, security, and emergency transportation and evacuation planning. This comment is outside the scope of this circular, which only makes these types of planning activities eligible for Federal financial assistance, rather than setting forth the MPOs' responsibilities in these areas. FTA has delineated the role of MPOs in safety and security planning in FTA's planning regulations at 23 CFR part 450. Pursuant to those regulations, MPOs are required to address safety and security through the metropolitan transportation planning process. One commenter stated that the information required for a UPWP and Simplified Statement of Work
(SOW)should be consistent and should contain some detailed information about costs, timeframes, and objectives of the proposed projects. The requirements for the UPWP for TMAs and optional SOWs in non-TMAs are already described in the regulations at 23 CFR Part 450, but for purposes of clarity, FTA has expanded the description in the circular to incorporate language taken directly from the regulations. To lessen reporting the burden, one commenter stated that the sentence, “Additionally, the UPWP should list the accomplishments from the previous fiscal year,” should be deleted from the UPWP section of the circular. FTA supports the suggestion and has deleted that sentence because progress reports already are required under terms of the grant agreement for receiving MPP funds, per FTA Circular 5010.1C, as referenced in Section 7, Administration of MPP Grants. FTA received six comments on MPP Assistance Formula and Notification. In general, three of the comments asked for more information and clarification on the formula allocation for MPP assistance. In response, FTA refers these three commenters to FTA' annual **Federal Register** notice, “Apportionments and Allocations,” which reports the apportionment of both basic and supplemental MPP funding among the States. FTA's most recent notice, “FTA Fiscal Year 2008 Apportionments and Allocations and Program Information; Notice” (73 FR 4958, Jan. 28, 2008) describes Fiscal Year 2008 funding. The apportionment formula is further addressed by 49 U.S.C. 5305. FTA will add the following clarification to the section in the circular on supplemental MPP assistance: “FTA has determined that only States that have one or more UZAs with a population greater than one million in each are eligible to receive supplemental MPP assistance.” The responsibility for sub-allocating the entire amount of MPP funds is placed at the local level. Section 5305(d)(2) of Title 49, U.S. Code states that each State must allocate its MPP assistance consistent with the formula developed by the State in cooperation with its MPOs and approved by FTA. More information may be obtained from the State representatives in the State(s) of interest. The fourth comment on the MPP asked that the sentence in the section on MPP “Authorization” be expanded to add the phrase: “and 17.28 percent for statewide planning” to include the formula for the SPRP in the same section as the as the MPP. To this, the commenter is referred to the statutory formula mentioned in Chapter III on SPRP. The focus of Chapter III is on the SPRP, and it appropriately addresses the formula allocation (17.28 percent) for this program; Chapter II focuses primarily on the MPP. The fifth comment on the MPP asked that the circular clarify that the State is the grantee and that the MPO is the subrecipient. FTA agrees, and the language has been revised to refer to the State as both DR and grantee for the MPP and SPRP. The sixth comment on the MPP stated that a sentence in the section on third party contracts was unclear. FTA agrees with the commenter and, in response, has rewritten the sentence in question exactly as suggested by the commenter: “In the case of the MPP, the procurement, execution, audit and closing of third party contracts are both MPO and State responsibilities.” One comment on the administration of MPP grants stated that the planning grants should not be closed out solely due to the amount of time a project is inactive, but rather should also consider factors that may have stalled progress. FTA does not agree that the current process for closing out planning grants is based solely on the amount of time a project is inactive. The guidelines established by FTA for grant close-out does provide flexibility for the MPO to complete the planning work elements and activities in a reasonable timeframe. The final circular continues this flexibility by allowing the State and MPO to specify a reasonable amount of time to complete planning work elements and activities. Finally, as a result of continuing internal staff review and discussion that took place during the comment period, FTA has decided to include an explicit provision enacted in SAFETEA-LU that requires States to allocate MPP “Basic Assistance” to MPOs within 30 days of apportionment. The statutory language has been included verbatim. C. Chapter III—Statewide Planning and Research Program
(SPRP)This chapter replaces Chapter III—“Metropolitan Planning and Assistance: Formula and Notification,” in previous Circular 8100.1A. This new chapter consists of information found in Chapter II—“State Planning and Research: Formula and Notification,” Chapter IV—“State Planning,” Chapter V—“Training Activities,” and Chapter VII—“Human Resource Activities” of previous Circular 8200.1, with some minor updates. The new chapter provides an overview of the SPRP program in terms of its statutory authority and program goals, and it explains the program's relationship to and coordination with other FTA-funded programs. The chapter also defines the role of the individual States and FTA, and provides information on eligible grant activities, SPRP assistance formula and notification, and State planning activities. One commenter stated that it is unclear whether a change in the Governor of a State would also result in the change of the State recipient of SPRP funds. The final circular keeps the same language from the previous circular, which states, “The Governor of each State must designate a State recipient for its SPRP funds.” FTA believes the above language is clear and that the authority of the Governor to designate a State recipient carries forward to newly installed Governors when they take office. One comment suggested that FTA add a definition for “youth” in the section “Relationship to the Locally Developed Coordinated Public Transit Human Services Transportation Plan.” FTA has slightly revised this section to more closely track the applicable statutory provisions; as a result, the word “youth” is no longer used in this section. D. Chapter IV—Consolidated Planning Grants
(CPG)This new chapter, which provides information on the CPG, a program administered by FTA and FHWA, replaces the former Chapter IV—“Unified Planning Work Program,” in previous Circular 8100.1B. The CPG program allows FTA and FHWA funding that supports metropolitan and statewide transportation planning to be combined into a single consolidated grant. This program fosters a cooperative effort between the Federal agencies and the participating States to streamline the delivery of their planning programs by providing the flexibility to transfer the planning funds to either FTA or FHWA for processing. States electing to use the CPG programs must consolidate grants for administration under either FTA or FHWA. There was one comment that stated that the consolidation process of the CPG program might be infeasible and difficult to manage for transit or highway-only UPWP tasks. The comment also requested further clarification on the CPG process. FTA notices that the CPG has been offered for the past 11 years to States and MPOs as an optional program for combining FTA and FHWA planning funds. Since 1996, the CPG Program has been listed in the **Federal Register** notice, “Apportionments and Allocations and Program Information” (73 FR 4958, Jan. 28, 2008). The FHWA's July 19, 2007, Memorandum, “Information: Fund Transfers to Other Agencies and Among Title 23 Programs,” available at *http://www.fhwa.dot.gov/legsregs/directives/policy/fundtrans20070719.htm,* outlines provisions to consolidate processes and procedures for transfers between FHWA and FTA. One comment sought clarification on the length of time required for participation in the CPG program. FTA's response is that there is no required timeframe for participation in the CPG program. Another comment asked whether all MPOs in a State must participate in the CPG program and whether MPOs can go back to separate grants at a later time. FTA wants to clarify that participation by MPOs in the CPG program is voluntary. Furthermore, MPOs can go back to a separate grant system if they later decide that they no longer want to participate in the CPG program. One comment asked for clarification on what activities are eligible and whether transit projects are eligible if FTA funds are consolidated in FHWA. To clarify, any project eligible under the UPWP would remain eligible if funds are consolidated in FHWA, including any transit projects listed in the UPWP. Another comment asked whether FHWA would administer the entire CPG program and asked what role FTA would play. The CPG program is a cooperative effort between FTA and FHWA to streamline the delivery of their planning programs' resources. The intent is not to have FHWA or FTA as the sole manager of the CPG program. The designated “lead agency” will have day-to-day responsibility for grant administration (e.g., work program changes, allowable cost determination, and audit processing), but the lead agency will coordinate with and solicit input from the other agency on all matters of policy and program significance, such as work program approval, progress reporting, and satisfaction of work commitments for grant closeout. One commenter stated that the benefits of the CPG program are unclear. The commenter wanted to know who makes the decision to consolidate planning funds. The benefits and explanation of the CPG program are detailed in Chapter IV—“Benefits of the CPG to States and MPOs.” States and MPOs decide together whether planning funds will be consolidated and administered either by FTA or FHWA. One comment on the CPG program stated that no matter which agency the funds are consolidated under, there should be no restrictions on the use of the consolidated funds as long as they are applied toward projects in the UPWP. FTA does not support including a blanket prohibition against restrictions on the use of the consolidated planning funds. Importantly, the multimodal context and project eligibilities associated with FTA's MPP and SPRP programs and FHWA's metropolitan planning
(PL)and statewide planning and research
(SPR)programs do not change when those funds are combined under a CPG. Another comment stated that the benefits of the CPG program would streamline the planning process for certain tasks and added that neither transit nor highway projects should be granted preferential treatment when being considered for funding and that all analyses be conducted on equal terms. FTA agrees with this comment and further notes that the metropolitan and statewide planning work programs developed through a cooperative planning process will be accepted as the grant application for both FTA and FHWA planning funds under the CPG program. FTA received one comment on the inequity that might occur given the long lead time and extra scrutiny that occur when funds are flexed to transit agencies. This commenter appears to be referring to the flexible funding programs Surface Transportation Program and Congestion Mitigation and Air Quality Improvement Program, which are separate programs from the CPG and have their own particular requirements. The CPG program allows the States and MPOs to combine FTA metropolitan or statewide planning funds with FHWA planning funds. Comments on the flexible funding programs are outside the scope of this circular. E. Chapter V—Application Instructions This chapter updates Chapter V—“Application Instructions,” and Chapter VI—“Certifications and Assurances,” in previous Circular 8100.1A and merges them into one chapter. While providing minor updates to information on the MPP program, this chapter also incorporates information, with minor updates, from Chapter III—“Application Instructions,” of previous Circular 8200.1. This section details the application process of MPOs and States that apply for and receive funds from MPP and SPRP grants. This section also discusses the certifications and assurances and their location within the FTA's Transportation Electronic Award and Management
(TEAM)system, a streamlined electronic interface between grant applicants, recipients, and FTA that allows complete electronic grant application submission, review, approval, and management. FTA received one comment on the inconsistency in submitting an application through TEAM and the requirement for original signatures. FTA agrees with this comment and has revised this section to reflect the electronic submittal of applications, deleting the requirement for original signatures. One comment stated that certifications pursuant to 49 U.S.C. Section 5333(b) (commonly referred to as Section 13(c)) are not required for planning grants and that discussion of the Department of Labor certifications and participation should be deleted. FTA agrees with this comment and has deleted the reference to Section 13(c) certifications and DOL participation. F. Appendices Appendices A through C of Circular 8100.1A have been relabeled and reorganized. FTA is also adding an index of common terms used throughout the circular following Appendix D. The new Appendix A contains an outline of a UPWP document and replaces the former “Definitions” section, which has been moved to Chapter I. Appendix B is a revised “MPP Sample Project Budget,” which was formerly located in Appendix B of previous Circular 8100.1B, as well as a revised “SPRP Sample Project Budget,” which was formerly located in Appendix B of previous Circular 8200.1. Appendix C contains references to other sources that are relevant to the planning programs. Appendix D contains FTA regional and metropolitan contact information. Issued in Washington, DC, this 17th day of July, 2008. James S. Simpson, Administrator. [FR Doc. E8-16825 Filed 7-22-08; 8:45 am] BILLING CODE 4910-57-P DEPARTMENT OF TRANSPORTATION Pipeline and Hazardous Materials Safety Administration Office of Hazardous Materials Safety; Notice of Applications for Modification of Special Permit AGENCY: Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT. ACTION: List of Applications for Modification of Special Permit. SUMMARY: In accordance with the procedures governing the application for, and the processing of, special permits from the Department of Transportation's Hazardous Material Regulations (49 CFR Part 107, Subpart B), notice is hereby given that the Office of Hazardous Materials Safety has received the application described herein. This notice is abbreviated to expedite docketing and public notice. Because the sections affected, modes of transportation, and the nature of application have been shown in earlier **Federal Register** publications, they are not repeated here. Request of modifications of special permits (e.g. to provide for additional hazardous materials, packaging design changes, additional mode of transportation, etc.) are described in footnotes to the application number. Application numbers with the suffix “M” denote a modification request. Their applications have been separated from the new application for special permits to facilitate processing. DATES: Comments must be received on or before August 7, 2008. *Address Comments to:* Record Center, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, Washington, DC 20590. Comments should refer to the application number and be submitted in triplicate. If confirmation of receipt of comments is desired, include a self-addressed stamped postcard showing the special permit number. FOR FURTHER INFORMATION CONTACT: Copies of the applications are available for inspection in the Records Center, East Building, PHH-30, 1200 New Jersey Avenue SE., Washington, DC or at *http://dms.dot.gov* . This notice of receipt of applications for modification of special permits is published in accordance with Part 107 of the Federal hazardous materials transportation law (49 U.S.C. 5117(b); 49 CFR 1.53(b)). Issued in Washington, DC, on July 10, 2008. Delmer F. Billings, Director, Office of Hazardous Materials, Special Permits and Approvals. Modification Special Permits Application number Docket number Applicant Regulation(s) affected Nature of special permit thereof 9266-M Eurotainer SA 92817 Puteaux Cedex 49 CFR 173.315; 178.245 To modify the special permit to authorize the transportation in commerce of an additional Division 2.2 hazardous material. 11834-M RSPA-97-2131 Ashland, Inc. Columbus, OH 49 CFR 173.173; 173.202 To modify the special permit to authorize the transportation in commerce of additional Class 3 and Division 5.2 materials. 12116-M RSPA-98-4243 Proserv UK Limited (Former Grantee: Proserv (North Sea), Ltd.) Aberdeen, Scotland 49 CFR 178.36 To modify the special permit to authorize a ceramic coating to be applied to certain cylinders. 12844-M RSPA-01-10753 Delphi Corporation Vandalia, OH 49 CFR 173.301(a)(1); 173.302a(a)(1);175.3 To modify the special permit to allow failures in endcaps in units that are built specifically for hydroburst testing. 13133-M RSPA-02-13796 Department of Energy Albuquerque, NM 49 CFR 172.320; 173.54(a); 173.56(b); 173.57; 173.58; 173.62 To modify the special permit to remove the sample limitation. 14488-M Sanofi Pasteur Swiftwater, PA 49 CFR 173.24(b)(1) To reissue the special permit originally issued on an emergency basis for the transportation in commerce of an influenza vaccine in a custom stainless steel batch reactor and to allow for renewal. 14632-M PHMSA-08-003 1 Kalitta Charters II, LLC Ypsilanti, MI 49 CFR 172.101 Column (9B); 172.204(c)(3); 173.27(b)(2)(3); 175.30 To reissue the special permit originally issued on an emergency basis for the transportation in commerce by cargo only aircraft of Class 1 explosives which are forbidden or exceed quantities presently authorized. 14656-M PurePak Technology Corporation Chandler, AZ 49 CFR 173.158(f)(3) To modify the special permit to authorize a smaller outer packaging. [FR Doc. E8-16443 Filed 7-22-08; 8:45 am] BILLING CODE 4909-60-M DEPARTMENT OF TRANSPORTATION Pipeline and Hazardous Materials Safety Administration Office of Hazardous Materials Safety; Notice of Application for Special Permits AGENCY: Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT. ACTION: List of applications for special permits. SUMMARY: In accordance with the procedures governing the application for, and the processing of, special permits from the Department of Transportation's Hazardous Material Regulations (49 CFR Part 107, Subpart B), notice is hereby given that the Office of Hazardous Materials Safety has received the application described herein. Each mode of transportation for which a particular special permit is requested is indicated by a number in the “Nature of Application” portion of the table below as follows: 1—Motor vehicle, 2—Rail freight, 3—Cargo vessel, 4—Cargo aircraft only, 5—Passenger-carrying aircraft. DATES: Comments must be received on or before August 22, 2008. ADDRESS COMMENTS TO: Record Center, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, Washington, DC 20590. Comments should refer to the application number and be submitted in triplicate. If confirmation of receipt of comments is desired, include a self-addressed stamped postcard showing the special permit number. FOR FURTHER INFORMATION CONTACT: Copies of the applications are available for inspection in the Records Center, East Building, PHH-30, 1200 New Jersey Avenue, SE., Washington, DC or at *http://dms.dot.gov.* This notice of receipt of applications for special permit is published in accordance with Part 107 of the Federal hazardous materials transportation law (49 U.S.C. 5117(b); 49 CFR 1.53(b)). Issued in Washington, DC, on July 10, 2008. Delmar F. Billings, Director, Office of Hazardous Materials, Special Permits and Approvals. New Special Permits Application No. Docket No. Applicant Regulation(s) affected Nature of special permits thereof 14721-N Pacific Bio-Material Management, Inc. dba Pacific Scientific Transport Fresno, CA 49 CFR 173.196, 178.609 To authorize the one-way transportation in commerce of certain Category infectious substances by motor vehicle in alternative packaging. (mode 1). 14722-N Centronic LLC 49 CFR 173.302a, 173.306(b)(4) and 175.3 To authorize the manufacture, marking, sale and use of non-DOT specification containers described as hermetically-sealed electron tube devices for the transportation of certain non-flammable compressed gases. (modes 1, 2, 3, 4, 5). 14723-N American Spray-tech, North Branch, NJ 49 CFR I 73.306(a)(3)(v) To authorize the transportation in commerce of certain aerosols containing a Division 2.2 compressed gas in certain non-refillable aerosol containers which are not subject to the hot water bath test. (mode 1). 14724-N Formulated Solutions, Clearwater, FL 49 CFR 173.306(a)(3)(v) To authorize the manufacture, marking, sale and use of a bag-on-valve container for the transportation of non-flammable aerosols which have been tested by an alternative method in lieu of the hot water bath test. (modes 1, 3, 4, 5). 14726-N Thermo King Corporation, Minneapolis, MN 49 CFR 177.834(1) To authorize the transportation in commerce of certain hazardous materials in a motor vehicle equipped with a cargo heater. (mode 1). 14728-N International Isotopes Inc., Idaho Falls, ID 49 CFR 173.416(c) To authorize the transportation in commerce of existing Type B packagings contructed to DOT-Specification 6M, 20 WC or 21 WC for the transportation of radioactive material by motor vehicle. (mode 1). 14733-N GTM Technologies, Inc., San Francisco, CA 49 CFR 173.301, 173.302a, 173.304a, 173.312 and 178.75 To authorize the manufacture, marking, sale and use of a steel freight container mounted with non-DOT Specification cylinders for transportation of helium and methane. (mode 1). 14734-N Chlor Alkai, Olin Corporation, Cleveland, TN 49 CFR 172.203(a), 173.26 and 179.13 To authorize the transportation in commerce of Sodium hypochlorite in DOT specification 111A100W5 tank car tanks that exceed the maximum allowable gross weight on rail (263,000 lbs.). (mode 2). [FR Doc. E8-16437 Filed 7-22-08; 8:45 am] BILLING CODE 4909-60-M DEPARTMENT OF TRANSPORTATION Pipeline and Hazardous Materials Safety Administration Office of Hazardous Materials Safety; Notice of Delays in Processing of Special Permits Applications AGENCY: Pipeline and Hazardous Materials Safety Administration (PHMSA), DOT. ACTION: List of Applications Delayed more than 180 days. SUMMARY: In accordance with the requirements of 49 U.S.C. 5117(c), PHMSA is publishing the following list of special permit applications that have been in process for 180 days or more. The reason(s) for delay and the expected completion date for action on each application is provided in association with each identified application. FOR FURTHER INFORMATION CONTACT: Delmer F. Billings, Director, Office of Hazardous Materials Special Permits and Approvals, Pipeline and Hazardous Materials Safety Administration, U.S. Department of Transportation, East Building, PHH-30, 1200 New Jersey Avenue, SE., Washington, DC 20590-0001,
(202)366-4535. Key to “Reason for Delay” 1. Awaiting additional information from applicant. 2. Extensive public comment under review. 3. Application is technically complex and is of significant impact or precedent-setting and requires extensive analysis. 4. Staff review delayed by other priority issues or volume of special permit applications. Meaning of Application Number Suffixes N—New application. M—Modification request. PM—Party to application with modification request. Issued in Washington, DC, on July 16, 2008. Delmer F. Billings, Director, Office of Hazardous Materials, Special Permits and Approvals. Application No. Applicant Reason for delay Estimated date of completion Modification to Special Permits 11579-M Austin Powder Company, Cleveland, OH 3, 4 07-31-2008 14167-M Trinityrail, Dallas, TX 4 07-31-2008 8723-M Alaska Pacific Powder Company, Anchorage, AK 1 07-31-2008 12440-M Luxfer Gas Cylinders, Riverside, CA 4 09-30-2008 New Special Permit Applications 14621-N Beijing Tianhai, Industry Co., Ltd., Beijing, China 1 07-31-2008 14616 N Chlorine Service Company, Kingwood, TX 3 08-31-2008 14622-N Occidental Chemical Corporation, Dallas, TX 4 07-31-2008 [FR Doc. E8-16689 Filed 7-22-08; 8:45 am] BILLING CODE 4910-60-M DEPARTMENT OF THE TREASURY Bureau of the Public Debt Privacy Act of 1974; Systems of Records AGENCY: Bureau of the Public Debt, Treasury. ACTION: Notice of systems of records. SUMMARY: In accordance with the requirements of the Privacy Act of 1974, as amended, 5 U.S.C. 552a, the Bureau of the Public Debt, Treasury, is publishing its inventory of Privacy Act systems of records. SUPPLEMENTARY INFORMATION: Pursuant to the Privacy Act of 1974 (5 U.S.C. 552a) and the Office of Management and Budget (OMB), Circular No. A-130, the Bureau of the Public Debt
(BPD)has completed a review of its Privacy Act systems of records notices to identify changes that will more accurately describe these records. The systems of records were last published in their entirety on June 10, 2005, at 70 FR 33939-33955. On May 22, 2007, the Office of Management and Budget
(OMB)issued Memorandum M-07-16 entitled “Safeguarding Against and Responding to the Breach of Personally Identifiable Information.” It required agencies to publish the routine use recommended by the President's Identity Theft Task Force. As part of that effort, the Department published the notice of the proposed routine use on October 3, 2007, at 72 FR 56434, and it was effective on November 13, 2007. The new routine use has been added to each BPD system of records below. Other changes throughout the document are editorial in nature and consist principally of revising address information, minor editorial changes and editing of headings for consistency. Department of the Treasury regulations require the Department to publish the existence and character of all systems of records every three years (31 CFR 1.23(a)(1)). BPD has leveraged this requirement to incorporate the review of its current holding of personally identifiable information required by M-07-16. With respect to its inventory of Privacy Act systems of records, BPD has determined that the information contained in its systems of records is accurate, timely, relevant, complete, and is the minimum necessary to maintain the proper performance of a documented agency function. Systems Covered by this Notice This notice covers all systems of records adopted by the Bureau of the Public Debt up to January 1, 2008. The systems notices are reprinted in their entirety following the Table of Contents. Dated: July 11, 2008. Elizabeth Cuffe, Deputy Assistant Secretary for Privacy and Treasury Records. Table of Contents Bureau of the Public Debt BPD.001—Human Resources and Administrative Records BPD.002—United States Savings-Type Securities BPD.003—United States Securities (Other than Savings-Type Securities) BPD.004—Controlled Access Security System BPD.005—Employee Assistance Records BPD.006—Health Service Program Records BPD.007—Gifts to Reduce the Public Debt BPD.008—Retail Treasury Securities Access Application BPD.009—U.S. Treasury Securities Fraud Information System TREASURY/BPD.001 System Name: Human Resources and Administrative Records—Treasury/BPD. System Location: Records are maintained at the following Bureau of the Public Debt locations: 200 Third Street, Parkersburg, WV; 320 Avery Street, Parkersburg, WV; Second and Avery Streets, Parkersburg, WV; and 799 9th Street, NW., Washington, DC. Copies of some documents have been duplicated for maintenance by supervisors for employees or programs under their supervision. These duplicates are also covered by this system of records. Categories of Individuals Covered by the System: Records cover present and former employees, applicants for employment, contractors, vendors, and visitors. Categories of Records in the System: This system of records is limited to those records the Bureau of the Public Debt needs to function in an efficient manner and does not cover those records reported under another system of records notice.
(A)*Human Resources Records:* These records relate to categories such as disciplinary and adverse actions; leave and hours of duty; alternate work schedules, standards of conduct and ethics programs; indebtedness; employee suitability and security determinations; grievances; performance problems; bargaining unit matters; Federal labor relations issues; relocation notices; outside employment; recruitment; placement; merit promotion; special hiring programs, including Summer Employment, Veterans Readjustment, Career Development for Lower Level Employees (CADE), Student Employment Programs; position classification and management; special areas of pay administration, including grade and pay retention, premium pay, scheduling of work, performance management and recognition; training and employee development programs; incentive awards; benefits and retirement programs; personnel and payroll actions; insurance; worker's and unemployment compensation; employee orientation; retirement; accident reports; and consolidation of personnel/program efforts among offices.
(B)*Equal Employment Opportunity Records:* These are records of informal EEO complaints and discussions that have not reached the level of formal complaints. After 30 days these records are destroyed or incorporated in a formal complaint file. Formal complaints are handled by the Treasury Department's Regional Complaints Center. Copies of formal complaint documents are sometimes maintained by the Bureau of the Public Debt's EEO Office.
(C)*Administrative Services Records:* These records relate to administrative support functions including motor vehicle operation, safety and security, access to exterior and interior areas, contract guard records, offense/incident reports, accident reports, and security determinations.
(D)*Procurement Records:* These records relate to contractors/vendors if they are individuals; purchase card holders, including the name, social security number and credit card number for employees who hold Government-use cards; procurement integrity certificates, containing certifications by procurement officials that they are familiar with the Federal Procurement Policy Act.
(E)*Financial Management Records:* These records relate to government travel, vendor accounts, other employee reimbursements, interagency transactions, employee pay records, vendor registration data, purchase card accounts and transactions, and program payment agreements.
(F)*Retiree Mailing Records:* These records contain the name and address furnished by Bureau of the Public Debt retirees requesting mailings of newsletters and other special mailings. Authority for Maintenance of the System: 5 U.S.C. 301; 31 U.S.C. 321. Purpose(s): These records are collected and maintained to document various aspects of a person's employment with the Bureau of the Public Debt and to assure the orderly processing of administrative actions within the Bureau. Routine Uses of Records Maintained in the System, Including Categories of Users and the Purposes of Such Uses: These records may be disclosed to:
(1)The Office of Personnel Management, the Merit Systems Protection Board, the Equal Employment Opportunity Commission, and the Federal Labor Relations Authority upon authorized request;
(2)Other Federal, State, or local agencies, such as a State employment compensation board or housing administration agency, so that the agency may adjudicate an individual's eligibility for a benefit, or liability in such matters as child support;
(3)Creditors, potential creditors, landlords, and potential landlords when they request employment data or salary information for purposes of processing the employee's loan, mortgage, or apartment rental application (when information is requested by telephone, only verification of information supplied by the caller will be provided);
(4)Next-of-kin, voluntary guardians, and other representative or successor in interest of a deceased or incapacitated employee or former employee;
(5)Unions recognized as exclusive bargaining representatives under 5 U.S.C. chapter 71, arbitrators, and other parties responsible for the administration of the Federal labor-management program if needed in the performance of their authorized duties;
(6)Private creditors for the purpose of garnishing wages of an employee if a debt has been reduced to a judgment;
(7)Authorized Federal and non-Federal entities for use in approved computer matching efforts, limited to those data elements considered necessary in making a determination of eligibility under particular benefit programs administered by those agencies or entities, to improve program integrity, and to collect debts and other monies owed to those agencies or entities or to the Bureau of the Public Debt;
(8)Contractors of the Bureau of the Public Debt for the purpose of processing personnel and administrative records;
(9)Other Federal, State, or local agencies in connection with the hiring or retention of an individual, the issuance of a security clearance, the conducting of a security or suitability investigation of an individual, the issuance of a license, contract, grant, or other benefit;
(10)Congressional offices in response to an inquiry made at the request of the individual to whom the record pertains;
(11)Other Federal agencies to effect salary or administrative offset for the purpose of collecting a debt, except that addresses obtained from the Internal Revenue Service shall not be disclosed to other agencies;
(12)Consumer reporting agencies, including mailing addresses obtained from the Internal Revenue Service to obtain credit reports;
(13)Debt collection agencies, including mailing addresses obtained from the Internal Revenue Service, for debt collection services;
(14)Appropriate Federal, State, local, or foreign agencies responsible for investigating or prosecuting the violations of, or for enforcing or implementing a statute, rule, regulation, order, or license, where the disclosing agency becomes aware of an indication of a violation or potential violation of civil or criminal law or regulation;
(15)A court, magistrate, or administrative tribunal in the course of presenting evidence, including disclosures to opposing counsel or witnesses in the course of civil discovery, litigation, or settlement negotiations or in connection with criminal law proceedings or in response to a subpoena;
(16)Third parties during the course of an investigation to the extent necessary to obtain information pertinent to the investigation; and
(17)To appropriate agencies, entities, and persons when
(a)the Department suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised;
(b)the Department has determined that as a result of the suspected or confirmed compromise there is a risk of harm to economic or property interests, identity theft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the compromised information; and
(c)the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. Disclosure to Consumer Reporting Agencies: In accordance with the Privacy Act (5 U.S.C. 552a(b)(12)), disclosures may be made from this system of records to “consumer reporting agencies” as defined in 31 U.S.C. 3701(a)(3). The purpose of the disclosure is to aid in the collection of outstanding debts owed to the Federal Government. After the prerequisites of 31 U.S.C. 3711 have been followed, the Bureau of the Public Debt may disclose information necessary to establish the identity of the individual responsible for the claim, including name, address, and taxpayer identification number; the amount, status, and history of the claim; and the agency or program under which the claim arose. Policies and Practices for Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Records in this system are stored on paper, microform, or in electronic media. Retrievability: By name, social security number, or other assigned identifier. Safeguards: These records are maintained in controlled access areas. Identification cards are verified to ensure that only authorized personnel are present. Electronic records are protected by restricted access procedures, including the use of passwords and sign-on protocols that are periodically changed. Only employees whose official duties require access are allowed to view, administer, and control these records. Copies of records maintained on computer have the same limited access as paper records. Retention and Disposal: Records are maintained in accordance with National Archives and Records Administration retention schedules. Paper and microform records ready for disposal are destroyed by shredding or maceration. Records in electronic media are electronically erased using accepted techniques. System Manager and Address:
(A)*Human Resources Records:* Assistant Commissioner, Office of Management Services, Human Resources Division, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312 and Executive Director, Administrative Resource Center, Human Resources Operations Division, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312.
(B)*Equal Employment Opportunity Records:* Assistant Commissioner, Office of Management Services, Equal Employment Opportunity, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312.
(C)*Administrative Services Records:* Assistant Commissioner, Office of Management Services, Administrative Services Division, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312.
(D)*Procurement Records:* Executive Director, Administrative Resource Center, Division of Procurement, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312.
(E)*Financial Management Records:* Executive Director, Administrative Resource Center, Accounting Services Division, 200 Third Street, Parkersburg, WV 26106-5312.
(F)*Retiree Mailing Records:* Executive Director, Administrative Resource Center, Division of Support Services, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312.
(G)*Travel Records:* Executive Director, Administrative Resource Center, Travel Services Division, 200 Third Street, Parkersburg, WV 26106-5312. Notification Procedure: Individuals may submit their requests for determination of whether the system contains records about them or for access to records as provided under “Records Access Procedures.” Requests must be made in compliance with the applicable regulations (31 CFR part 1, subpart C). Requests that do not comply fully with these procedures may result in noncompliance with the request, but will be answered to the extent possible. Record Access Procedures:
(1)A request for access to records must be in writing, signed by the individual concerned, identify the system of records, and clearly indicate that the request is made pursuant to the Privacy Act of 1974. If the individual is seeking access in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is seeking access by mail, identity may be established by presenting a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must state whether the requester wishes to be notified that the record exists or desires to inspect or obtain a copy of the record. If a copy of the record is desired, the requester must agree to pay the fees for copying the documents in accordance with 31 CFR 1.26(d)(2)(ii). Contesting Record Procedures: *Initial amendment requests:*
(1)A request by an individual contesting the content of records or for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that the request is made pursuant to the Privacy Act of 1974. If the request is made in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but instead showing a name and signature. If the request is made by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must specify:
(a)The dates of records in question,
(b)The specific records alleged to be incorrect,
(c)The correction requested, and
(d)The reasons.
(4)The request must include available evidence in support of the request. Appeals from an initial denial of a request for correction of records:
(1)An appeal from an initial denial of a request for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that it is made pursuant to the Privacy Act of 1974. If the individual is making an appeal in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is making an appeal by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Appellate determinations will be made by the Commissioner of the Bureau of the Public Debt or the delegate of such officer. Appeals must be mailed or delivered personally to: Chief Counsel, Bureau of the Public Debt, 799 9th Street, NW., Washington, DC 20239-0001 (or as otherwise provided for in the applicable appendix to 31 CFR part 1, subpart C), within 35 days of the individual's receipt of the initial denial of the requested correction.
(3)An appeal must be marked “Privacy Act Amendment Appeal” and specify:
(a)The records to which the appeal relates,
(b)The date of the initial request made for correction of the records, and
(c)The date the initial denial of the request for correction was received.
(4)An appeal must also specify the reasons for the requester's disagreement with the initial denial of correction and must include any applicable supporting evidence. Record Source Categories: Information in this system of records is provided by the subject of the record, authorized representatives, supervisor, employers, medical personnel, other employees, other Federal, State, or local agencies, and commercial entities. Exemptions Claimed For The System: None. TREASURY/BPD.002 System Name: United States Savings-Type Securities—Treasury/BPD. System Location: Bureau of the Public Debt, 200 Third Street, Parkersburg, WV; Bureau of the Public Debt, 799 9th Street, NW., Washington, DC; and Federal Reserve Banks and Branches in Minneapolis, MN and Pittsburgh, PA. Categories of Individuals Covered by the System: Present and former owners of, claimants to, persons entitled to, and inquirers concerning United States savings-type securities and interest on securities, including without limitation United States Savings Bonds, Savings Notes, Retirement Plan Bonds, and Individual Retirement Bonds. Categories of Records in the System:
(1)*Issuance:* Records relating to registration, issuance, and correspondence in connection with issuance of savings-type securities. This category includes records of current income savings bonds processed under an automated system that will permit access by selected Federal Reserve Banks and Branches.
(2)*Holdings:* Records documenting ownership, status, payments by date and account numbers, and inscription information; interest activity; correspondence in connection with notice of change of name and address; non-receipt or over- or underpayments of interest and principal; and numerical registers of ownership. Such records include information relating to savings-type securities held in safekeeping in conjunction with the Department's program to deliver such securities to the owners or persons entitled. This category includes records of current income savings bonds processed under an automated system that will permit access by selected Federal Reserve Banks and Branches.
(3)*Transactions (redemptions, payments, and reissues):* Records, which include securities transaction requests; interest activity; legal papers supporting transactions; applications for disposition or payment of securities and/or interest thereon of deceased or incapacitated owners; records of retired securities; and payment records. This category includes records of current income savings bonds processed under an automated system that will permit access by selected Federal Reserve Banks and Branches.
(4)*Claims:* Records including correspondence concerning lost, stolen, destroyed, or mutilated savings-type securities; bonds of indemnity; legal documents supporting claims for relief; and records of caveats entered.
(5)*Inquiries:* Records of correspondence with individuals who have requested information concerning savings-type securities and/or interest thereon. Authority for Maintenance of the System: 5 U.S.C. 301; 31 U.S.C. 3101, *et seq.* Purposes: Information in this system of records is collected and maintained to enable the Bureau of the Public Debt and its agents to issue savings bonds, to process transactions, to make payments, and to identify owners and their accounts. Routine Uses of Records Maintained in the System, Including Categories of Users and the Purposes of Such Uses: These records may be disclosed to:
(1)Agents or contractors of the Department for the purpose of administering the public debt of the United States;
(2)Next-of-kin, voluntary guardian, legal representative or successor in interest of a deceased or incapacitated owner of securities and others entitled to the reissue, distribution, or payment for the purpose of assuring equitable and lawful disposition of securities and interest;
(3)Either co-owner for bonds registered in that form or to the beneficiary for bonds registered in that form, provided that acceptable proof of death of the owner is submitted;
(4)The Internal Revenue Service for the purpose of facilitating collection of the tax revenues of the United States;
(5)The Department of Justice when seeking legal advice or when
(a)The Department of the Treasury (agency) or
(b)The Bureau of the Public Debt, or
(c)Any employee of the agency in his or her official capacity, or
(d)Any employee of the agency in his or her individual capacity where the Department of Justice has agreed to represent the employee, or
(e)The United States, where the agency determines that litigation is likely to affect the agency or the Bureau of the Public Debt, is a party to litigation or has an interest in such litigation, and the use of such records by the Department of Justice is deemed by the agency to be relevant and necessary to the litigation;
(6)The Department of Veterans Affairs and selected veterans' publications for the purpose of locating owners or other persons entitled to undeliverable bonds held in safekeeping by the Department;
(7)Other Federal agencies to effect salary or administrative offset for the purpose of collecting debts;
(8)A consumer reporting agency, including mailing addresses obtained from the Internal Revenue Service, to obtain credit reports;
(9)A debt collection agency, including mailing addresses obtained from the Internal Revenue Service, for debt collection services;
(10)Contractors conducting Treasury-sponsored surveys, polls, or statistical analyses relating to the marketing or administration of the public debt of the United States;
(11)Appropriate Federal, State, local, or foreign agencies responsible for investigating or prosecuting the violations of, or for enforcing or implementing, a statute, rule, regulation, order, or license;
(12)A court, magistrate, or administrative tribunal in the course of presenting evidence, including disclosures to opposing counsel or witnesses in the course of civil discovery, litigation, or settlement negotiations or in connection with criminal law proceedings or in response to a subpoena;
(13)A Congressional office in response to an inquiry made at the request of the individual to whom the record pertains;
(14)Disclose through computer matching information on individuals owing debts to the Bureau of the Public Debt to other Federal agencies for the purpose of determining whether the debtor is a Federal employee or retiree receiving payments that may be used to collect the debt through administrative or salary offset;
(15)Disclose through computer matching information on holdings of savings-type securities to requesting Federal agencies under approved agreements limiting the information to that which is relevant in making a determination of eligibility for Federal benefits administered by those agencies;
(16)Disclose through computer matching, information on individuals with whom the Bureau of the Public Debt has lost contact, to other Federal agencies for the purpose of utilizing letter forwarding services to advise these individuals that they should contact the Bureau about returned payments and/or matured, unredeemed securities; and
(17)To appropriate agencies, entities, and persons when
(a)the Department suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised;
(b)the Department has determined that as a result of the suspected or confirmed compromise there is a risk of harm to economic or property interests, identity theft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the compromised information; and
(c)the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. Disclosure to Consumer Reporting Agencies: In accordance with the Privacy Act (5 U.S.C. 552a(b)(12)), disclosures may be made from this system of records to “consumer reporting agencies” as defined in 31 U.S.C. 3701(a)(3). The purpose of the disclosure is to aid in the collection of outstanding debts owed to the Federal Government. After the prerequisites of 31 U.S.C. 3711 have been followed, the Bureau of the Public Debt may disclose information necessary to establish the identity of the individual responsible for the claim, including name, address, and taxpayer identification number; the amount, status, and history of the claim; and the agency or program under which the claim arose. Policies and Practices for Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Records in this system are stored on paper, microform, or in electronic media. Retrievability: Information can be retrieved alphabetically by name, address, and period of time the security was issued, by bond serial numbers, other assigned identifier, or, in some cases, numerically by social security number. In the case of securities, except Series G savings bonds, registered in more than one name, information relating to those securities can be retrieved only by the names, or, in some cases, the social security number of the registrants, primarily the registered owners or first-named co-owners. In the case of gift bonds inscribed with the social security number of the purchaser, bonds are retrieved under that number, or by bond serial number. Safeguards: Information is contained in secure buildings or in areas which are occupied either by officers and responsible employees of the Bureau of the Public Debt who are subject to personnel screening procedures and to the Treasury Department Code of Conduct or by agents of the Bureau of the Public Debt who are required to maintain proper control over records while in their custody. Additionally, since in most cases, numerous steps are involved in the retrieval process, unauthorized persons would be unable to retrieve information in meaningful form. Information stored in electronic media is safeguarded by automatic data processing security procedures in addition to physical security measures. Additionally, for those categories of records stored in computers with online terminal access, the information cannot be accessed without proper passwords and preauthorized functional capability. Retention and Disposal: Records of holdings, forms, documents, and other legal papers which constitute the basis for transactions subsequent to original issue are maintained for such time as is necessary to protect the legal rights and interests of the United States Government and the persons affected, or otherwise until they are no longer historically significant. Other records are disposed of at varying intervals in accordance with records retention schedules reviewed and approved by the National Archives and Records Administration (NARA). Paper and microform records ready for disposal are destroyed by shredding or maceration. Records in electronic media are electronically erased using accepted techniques. System Manager and Address: Assistant Commissioner, Office of Retail Securities, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Notification Procedure: Individuals may submit their requests for determination of whether the system contains records about them or for access to records as provided under “Records Access Procedures.” Requests must be made in compliance with the applicable regulations (31 CFR part 1, subpart C). Requests that do not comply fully with these procedures may result in noncompliance with the request, but will be answered to the extent possible. Record Access Procedures:
(1)A request for access to records must be in writing, signed by the individual concerned, identify the system of records, and clearly indicate that the request is made pursuant to the Privacy Act of 1974. If the individual is seeking access in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is seeking access by mail, identity may be established by presenting a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)The request must state whether the requester wishes to be notified that the record exists or desires to inspect or obtain a copy of the record. If a copy of the record is desired, the requester must agree to pay the fees for copying the documents in accordance with 31 CFR 1.26(d)(2)(ii).
(3)Requests by individuals about securities they own:
(a)For current income savings bonds: Individuals may contact the nearest Treasury Retail Securities Site as listed in the Appendix to this system of records or the Office of Retail Securities, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. If the Treasury Retail Securities Site cannot access the particular record, the individual will be advised to contact Retail Securities at the Bureau of the Public Debt. Individuals must provide sufficient information, including their address and social security number, to identify themselves as owner or co-owner of the securities. They should provide the complete bond serial numbers, including alphabetic prefixes and suffixes, if known. Otherwise, the series, approximate date, form of registration, and, except for Series G Savings Bonds registered in co-ownership form, the names and social security numbers of all persons named in the registration should be provided. If a Case Identification Number is known, that should be provided.
(b)For all other types of securities covered by this system of records: Individuals should contact the following: Office of Retail Securities, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Individuals should provide sufficient information, including their address and social security number, to identify themselves as owner or co-owner of the securities. Individuals must provide sufficient information to identify the securities, such as type or series of security, approximate date of issue, serial number, form of registration, and the name and social security number of the first-named co-owner, or in the case of gift bonds the social security number of the purchaser if that number was used.
(4)Requests by anyone other than individuals named on securities must contain sufficient information to identify the securities; this would include type or series of securities, approximate date of issue, serial number, and form of registration. These requests will be honored only if the identity and right of the requester to the information have been established. Send requests to the addresses shown in (3)(a) or (3)(b) above, depending on the type of security involved.
(a)Requests by a beneficiary for information concerning securities registered in beneficiary form must be accompanied by the name and social security number of the owner and by proof of death of the registered owner.
(b)Requests for records of holdings or other information concerning a deceased or incapacitated individual must be accompanied either by evidence of the requester's appointment as legal representative of the estate of the individual or by a statement attesting that no such representative has been appointed and giving the nature of the relationship between the requester and the individual. Contesting Record Procedures: *Initial amendment requests:*
(1)A request by an individual contesting the content of records or for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that the request is made pursuant to the Privacy Act of 1974. If the request is made in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but instead showing a name and signature. If the request is made by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must specify:
(a)The dates of records in question,
(b)The specific records alleged to be incorrect,
(c)The correction requested, and
(d)The reasons.
(4)The request must include available evidence in support of the request. Appeals from an initial denial of a request for correction of records:
(1)An appeal from an initial denial of a request for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that it is made pursuant to the Privacy Act of 1974. If the individual is making an appeal in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is making an appeal by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Appellate determinations will be made by the Commissioner of the Public Debt or the delegate of such officer. Appeals must be mailed or delivered personally to: Chief Counsel, Bureau of the Public Debt, 799 9th Street, NW., Washington, DC 20239-0001 (or as otherwise provided for in the applicable appendix to 31 CFR part 1, subpart C), within 35 days of the individual's receipt of the initial denial of the requested correction.
(3)An appeal must be marked “Privacy Act Amendment Appeal” and specify:
(a)The records to which the appeal relates,
(b)The date of the initial request made for correction of the records, and
(c)The date the initial denial of the request for correction was received.
(4)An appeal must also specify the reasons for the requester's disagreement with the initial denial of correction and must include any applicable supporting evidence. Record Source Categories: Information on records in this system is furnished by the individuals or their authorized representatives as listed in “Categories of Individuals” and issuing agents for securities or is generated within the system itself. Exemptions Claimed For The System: None. Appendix of Treasury Retail Securities Sites This appendix provides individuals contact information for inquiring about their securities. Federal Reserve Bank, Pittsburgh Branch, P.O. Box 299, Pittsburgh, PA 15230-0299; Telephone 1-800-245-2804. Federal Reserve Bank, Minneapolis Branch, P.O. Box 214, Minneapolis, MN 55480-0214; Telephone 1-800-553-2663. Bureau of the Public Debt, Retail Securities, Parkersburg, WV 26106-5312. TREASURY/BPD.003 System Name: United States Securities (Other than Savings-Type Securities)-Treasury/BPD. System Location: Bureau of the Public Debt, 200 Third Street, Parkersburg, WV; Bureau of the Public Debt, 799 9th Street, NW., Washington, DC; and Federal Reserve Banks and Branches in Chicago, IL; Kansas City, MO; Minneapolis, MN; New York, NY; Philadelphia, PA; and Pittsburgh, PA. Categories of Individuals Covered by the System: Present and former owners of, subscribers to, claimants to, persons entitled to, and inquirers concerning United States Treasury securities (except savings-type securities) and interest on securities and such securities for which the Treasury acts as agents, including without limitation, Treasury Bonds, Notes, and Bills; Adjusted Service Bonds; Armed Forces Leave Bonds; and Federal Housing Administration Debentures. Categories of Records in the System:
(1)*Issuance:* Records relating to tenders, bids, subscriptions, advices of shipment, requests (applications) for original issue, and correspondence concerning erroneous issue and nonreceipt of securities.
(2)*Holdings:* Records of ownership and interest activity on registered or recorded United States securities (other than savings-type securities); records about fees for TreasuryDirect accounts exceeding a stipulated amount; change of name and address notices; correspondence concerning errors in registration or recordation; nonreceipt or over- and underpayments of interest and principal; records of interest activity; records of unclaimed accounts; and letters concerning the New York State tax exemption for veterans of World War I.
(3)*Transactions (redemptions, payments, reissues, transfers, and exchanges):* Records which include securities transaction requests; records about fees for definitive securities issued; legal papers supporting transactions; applications for transfer, disposition, or payment of securities of deceased or incompetent owners; records of Federal estate tax transactions; certificates of ownership covering paid overdue bearer securities; records of erroneous redemption transactions; records of retired securities; and payment records.
(4)*Claims:* Records including correspondence concerning lost, stolen, destroyed, or mutilated United States securities (other than savings-type securities) or securities for which the Treasury acts as agent and interest coupons thereon; bonds of indemnity; legal documents supporting claims for relief; and records of caveats entered.
(5)*Inquiries:* Records of correspondence with individuals who have requested information concerning United States Treasury securities (other than savings-type securities) or securities for which the Treasury acts as agent.
(6)All of the above categories of records except “(4) Claims” include records of Treasury bills, notes, and bonds in the TreasuryDirect Book-entry Securities System. Authority for Maintenance of the System: 5 U.S.C. 301; 31 U.S.C. 3101 *et seq.* Purpose(s): Information in this system of records is collected and maintained to enable the Bureau of the Public Debt and its agents to issue United States securities (other than savings-type securities), to process transactions, to make payments, and to identify owners and their accounts. Routine Uses of Records Maintained in the System, Including Categories of Users and the Purposes of Such Uses: These records may be disclosed to:
(1)Agents or contractors of the Department for the purpose of administering the public debt of the United States;
(2)Next-of-kin, voluntary guardian, legal representative or successor in interest of a deceased or incapacitated owner of securities and others entitled upon transfer, exchange, distribution, or payment for the purpose of assuring equitable and lawful disposition of securities and interest;
(3)Any of the owners if the related securities are registered or recorded in the names of two or more owners;
(4)The Internal Revenue Service for the purpose of facilitating the collection of the tax revenues of the United States;
(5)The Department of Justice when seeking legal advice or when
(a)The Department of the Treasury (agency) or
(b)The Bureau of the Public Debt, or
(c)Any employee of the agency in his or her official capacity, or
(d)Any employee of the agency in his or her individual capacity where the Department of Justice has agreed to represent the employee, or
(e)The United States, where the agency determines that litigation is likely to affect the agency or the Bureau of the Public Debt, is a party to litigation or has an interest in such litigation, and the use of such records by the Department of Justice is deemed by the agency to be relevant and necessary to the litigation;
(6)The Department of Veterans Affairs when it relates to the holdings of Armed Forces Leave Bonds to facilitate the redemption or disposition of these securities;
(7)Other Federal agencies to effect salary or administrative offset for the purpose of collecting debts;
(8)A consumer reporting agency, including mailing addresses obtained from the Internal Revenue Service, to obtain credit reports;
(9)A debt collection agency, including mailing addresses obtained from the Internal Revenue Service, for debt collection services;
(10)Contractors conducting Treasury-sponsored surveys, polls, or statistical analyses relating to marketing or administration of the public debt of the United States;
(11)Appropriate Federal, State, local, or foreign agencies responsible for investigating or prosecuting the violations of, or for enforcing or implementing, a statute, rule, regulation, order, or license;
(12)A court, magistrate, or administrative tribunal in the course of presenting evidence, including disclosures to opposing counsel or witnesses in the course of civil discovery, litigation, or settlement negotiations or in connection with criminal law proceedings or in response to a subpoena;
(13)A Congressional office in response to an inquiry made at the request of the individual to whom the record pertains;
(14)Disclose through computer matching information on individuals owing debts to the Bureau of the Public Debt to other Federal agencies for the purpose of determining whether the debtor is a Federal employee or retiree receiving payments that may be used to collect the debt through administrative or salary offset;
(15)Disclose through computer matching information on holdings of Treasury securities to requesting Federal agencies under approved agreements limiting the information to that which is relevant in making a determination of eligibility for Federal benefits administered by those agencies;
(16)Disclose through computer matching, information on individuals with whom the Bureau of the Public Debt has lost contact, to other Federal agencies for the purpose of utilizing letter-forwarding services to advise these individuals that they should contact the Bureau about returned payments and/or matured unredeemed securities; and
(17)To appropriate agencies, entities, and persons when
(a)the Department suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised;
(b)the Department has determined that as a result of the suspected or confirmed compromise there is a risk of harm to economic or property interests, identity theft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the compromised information; and
(c)the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. Disclosure to Consumer Reporting Agencies: In accordance with the Privacy Act (5 U.S.C. 552a(b)(12)), disclosures may be made from this system of records to “consumer reporting agencies” as defined in 31 U.S.C. 3701(a)(3). The purpose of the disclosure is to aid in the collection of outstanding debts owed to the Federal Government. After the prerequisites of 31 U.S.C. 3711 have been followed, the Bureau of the Public Debt may disclose information necessary to establish the identity of the individual responsible for the claim, including name, address, and taxpayer identification number; the amount, status, and history of the claim; and the agency or program under which the claim arose. Policies and Practices for Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Records in this system are stored on paper, microform, or in electronic media. Retrievability: Information can be retrieved by social security account number, other assigned identifier, or, in some cases, alphabetically by name or numerically by security serial number. In the case of securities registered in more than one name, information relating to those securities generally can be retrieved only by social security number or by the name of the first-named owner. Safeguards: Information is contained in secure buildings, Federal Records Centers, or in areas which are occupied either by officers and responsible employees of the Department who are subject to personnel screening procedures and to the Executive Branch and Treasury Department Standards of Conduct or by agents of the Department who are required by the Department to maintain proper control over records while in their custody. Additionally, since in most cases, numerous steps are involved in the retrieval process, unauthorized persons would be unable to retrieve information in a meaningful form. Information stored in electronic media is safeguarded by automatic data processing security procedures in addition to physical security measures. Additionally, for those categories of records stored in computers with terminal access, the information cannot be obtained or modified without proper passwords and preauthorized functional capability. Retention and Disposal: Records of holdings, forms, documents, and other legal papers which constitute the basis for transactions subsequent to original issue are maintained for such time as is necessary to protect the legal rights and interests of the U.S. Government and the persons affected, or otherwise until they are no longer historically significant. Other records are disposed of at varying intervals in accordance with records retention schedules reviewed and approved by the National Archives and Records Administration (NARA). Paper and microform records ready for disposal are destroyed by shredding or maceration. Records in electronic media are electronically erased using accepted techniques. System Manager and Address: Assistant Commissioner, Office of Retail Securities, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Notification Procedure: Individuals may submit their requests for determination of whether the system contains records about them or for access to records as provided under “Records Access Procedures.” Requests must be made in compliance with the applicable regulations (31 CFR part 1, subpart C). Requests that do not comply fully with these procedures may result in noncompliance with the request, but will be answered to the extent possible. Record Access Procedures:
(1)A request for access to records must be in writing, signed by the individual concerned, identify the system of records, and clearly indicate that the request is made pursuant to the Privacy Act of 1974. If the individual is seeking access in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is seeking access by mail, identity may be established by presenting a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)The request must state whether the requester wishes to be notified that the record exists or desires to inspect or obtain a copy of the record. If a copy of the record is desired, the requester must agree to pay the fees for copying the documents in accordance with 31 CFR 1.26(d)(2)(ii).
(3)Requests by individuals about securities they own:
(a)For Treasury bills, notes, or bonds held in the Legacy Treasury Direct Book-entry Securities System: Individuals may contact the nearest Treasury Retail Securities Site listed in the Appendix to this system of records or contact Office of Retail Securities, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Individuals should provide sufficient information, including their social security number, to identify themselves as owners of securities and sufficient information, including account number, to identify their TreasuryDirect account.
(b)*For all other categories of records in this system of records: Individual owners should contact:* Office of Retail Securities, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Requests must contain information to identify themselves including name, address, and social security number; the type of security involved such as a registered note or bond, an Armed Forces Leave Bond, etc.; and, to the extent possible specify the loan, issue date, denomination, exact form of registration, and other information about the securities.
(4)Requests by individuals who are representatives of owners or their estates require appropriate authority papers. Write to: Office of Retail Securities, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312, to obtain information on these requirements.
(5)*In all cases:* The request for information will be honored only if the identity and right of the requester to the information have been established. Contesting Record Procedures: *Initial amendment requests:*
(1)A request by an individual contesting the content of records or for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that the request is made pursuant to the Privacy Act of 1974. If the request is made in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but instead showing a name and signature. If the request is made by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must specify:
(a)The dates of records in question,
(b)The specific records alleged to be incorrect,
(c)The correction requested, and
(d)The reasons.
(4)The request must include available evidence in support of the request. Appeals from an initial denial of a request for correction of records:
(1)An appeal from an initial denial of a request for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that it is made pursuant to the Privacy Act of 1974. If the individual is making an appeal in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is making an appeal by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Appellate determinations will be made by the Commissioner of the Public Debt or the delegate of such officer. Appeals must be mailed to or delivered personally to: Chief Counsel, Bureau of the Public Debt, 799 9th Street, NW., Washington, DC 20239-0001 (or as otherwise provided for in the applicable appendix to 31 CFR part 1, subpart C), within 35 days of the individual's receipt of the initial denial of the requested correction.
(3)An appeal must be marked “Privacy Act Amendment Appeal” and specify:
(a)The records to which the appeal relates,
(b)The date of the initial request made for correction of the records, and
(c)The date the initial denial of the request for correction was received.
(4)An appeal must also specify the reasons for the requester's disagreement with the initial denial of correction and must include any applicable supporting evidence. Record Source Categories: Information contained in records in the system is furnished by the individuals or their authorized representatives as listed in “Categories of Individuals,” or is generated within the system itself. Exemptions Claimed For The System: None. Appendix of Treasury Direct Contacts This appendix lists the mailing addresses and telephone number of the places that individuals may contact to inquire about their securities accounts maintained in Legacy Treasury Direct. The toll-free telephone number 1-800-722-2678 is used to reach all the locations. Office of Retail Securities, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Treasury Retail Securities Site, P.O. Box 567, Pittsburgh, PA 15230-0567. Treasury Retail Securities Site, P.O. Box 9150, Minneapolis, MN 55480-9150. TREASURY/BPD.004 System Name: Controlled Access Security System—Treasury/BPD. System Location: Bureau of the Public Debt, Parkersburg, WV. Categories of Individuals Covered by the System: Bureau of the Public Debt employees, employees of contractors or service companies, and official visitors. Categories of Records in the System: A record is created for each access to designated areas and contains the individual's name; card number; work shift; access level; time, date, and location of each use of the access card at a card reader. Authority for Maintenance of the System: 31 U.S.C. Sec. 321; 41 CFR 101-20.103. Purpose(s): Information in this system of records is collected and maintained to allow the Bureau of the Public Debt to control and verify access to all Parkersburg, West Virginia Public Debt facilities. Routine Uses of Records Maintained in the System, Including Categories of Users and the Purposes of Such Uses: These records may be disclosed to:
(1)Appropriate Federal, State, local, or foreign agencies responsible for investigating or prosecuting the violations of, or for enforcing or implementing a statute, rule, regulation, order, or license;
(2)A Federal, State, or local agency maintaining civil, criminal, or other relevant enforcement information or other pertinent information, which has requested information relevant to or necessary to the requesting agency's or the bureau's hiring or retention of an individual, or issuance of a security clearance, license, contract, grant, or other benefit;
(3)A court, magistrate, or administrative tribunal in the course of presenting evidence, including disclosures to opposing counsel or witnesses in the course of civil discovery, litigation, or settlement negotiations, or in connection with criminal law proceedings, or in response to a subpoena;
(4)A Congressional office in response to an inquiry made at the request of the individual to whom the record pertains;
(5)Unions recognized as exclusive bargaining representatives under the Civil Service Reform Act of 1978, 5 U.S.C. 7111 and 7114, arbitrators and other parties responsible for the administration of the Federal labor-management program if needed in the performance of their authorized duties; and
(6)To appropriate agencies, entities, and persons when
(a)the Department suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised;
(b)the Department has determined that as a result of the suspected or confirmed compromise there is a risk of harm to economic or property interests, identity theft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the compromised information; and
(c)the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. Policies and Practices for Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Records in this system are stored on paper, microform, or in electronic media. Retrievability: Information on individuals can be retrieved by name or card number or other assigned identifier. Safeguards: Both the central system and the peripheral system will have limited accessibility. Paper records and magnetic disks are maintained in locked file cabinets with access limited to those personnel whose official duties require access, such as the systems manager, Bureau security officials, and employee relations specialists. Access to terminals is limited through the use of passwords to those personnel whose official duties require access, as for paper records. Retention and Disposal: The retention period is for five years. Paper and microform records ready for disposal are destroyed by shredding or maceration. Records in electronic media are electronically erased using accepted techniques. System Manager and Address: Assistant Commissioner, Office of Management Services, Division of Security and Emergency Preparedness, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Notification Procedure: Individuals may submit their requests for determination of whether the system contains records about them or for access to records as provided under “Records Access Procedures.” Requests must be made in compliance with the applicable regulations (31 CFR part 1, subpart C). Requests that do not comply fully with these procedures may result in noncompliance with the request, but will be answered to the extent possible. Record Access Procedures:
(1)A request for access to records must be in writing, signed by the individual concerned, identify the system of records, and clearly indicate that the request is made pursuant to the Privacy Act of 1974. If the individual is seeking access in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is seeking access by mail, identity may be established by presenting a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must state whether the requester wishes to be notified that the record exists or desires to inspect or obtain a copy of the record. If a copy of the record is desired, the requester must agree to pay the fees for copying the documents in accordance with 31 CFR 1.26(d)(2)(ii). Contesting Record Procedures: Initial amendment requests:
(1)A request by an individual contesting the content of records or for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that the request is made pursuant to the Privacy Act of 1974. If the request is made in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but instead showing a name and signature. If the request is made by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must specify:
(a)The dates of records in question,
(b)The specific records alleged to be incorrect,
(c)The correction requested, and
(d)The reasons.
(4)The request must include available evidence in support of the request. Appeals from an initial denial of a request for correction of records:
(1)An appeal from an initial denial of a request for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that it is made pursuant to the Privacy Act of 1974. If the individual is making an appeal in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is making an appeal by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Appellate determinations will be made by the Commissioner of the Bureau of the Public Debt or the delegate of such officer. Appeals must be mailed to or delivered personally to: Chief Counsel, Bureau of the Public Debt, 799 9th Street, NW., Washington, DC 20239-0001 (or as otherwise provided for in the applicable appendix to 31 CFR part 1, subpart C), within 35 days of the individual's receipt of the initial denial of the requested correction.
(3)An appeal must be marked “Privacy Act Amendment Appeal” and specify:
(a)The records to which the appeal relates,
(b)The date of the initial request made for correction of the records, and
(c)The date the initial denial of the request for correction was received.
(4)An appeal must also specify the reasons for the requester's disagreement with the initial denial of correction and must include any applicable supporting evidence. Record Source Categories: The individual concerned, his/her supervisor, or an official of the individual's firm or agency. Exemptions Claimed For The System: None. TREASURY/BPD.005 System Name: Employee Assistance Records—Treasury/BPD. System Location: This system covers Bureau of the Public Debt employee assistance records that are maintained by another Federal, State, or local government, or contractor under an agreement with the Bureau of the Public Debt directly or through another entity to provide the Employee Assistance Program
(EAP)functions. The address of the other agency or contractor may be obtained from the system manager below. Categories of Individuals Covered by the System: Bureau of the Public Debt employees and former employees who will be or have been counseled, either by self-referral or supervisory-referral regarding drug abuse, alcohol, emotional health, or other personal problems. Where applicable, this system also covers family members of these employees when the family member utilizes the services of the EAP as part of the employee's counseling or treatment process. Categories of Records in the System: This system contains records of each employee and, in some cases, family members of the employee who have utilized the Employee Assistance Program for a drug, alcohol, emotional, or personal problem. Examples of information which may be found in each record are the individual's name, social security number, date of birth, grade, job title, home address, telephone numbers, supervisor's name and telephone number, assessment of problem, and referrals to treatment facilities and outcomes. Authority for Maintenance of the System: 5 U.S.C. 301, 7361, 7362, 7904; 44 U.S.C. 3101. Purpose(s): To provide a history and record of the employee counseling session. Routine Uses of Records Maintained in the System, Including Categories of Users and the Purposes of Such Uses: These records may be disclosed to:
(1)An entity under contract with the Bureau of the Public Debt for the purpose of providing the EAP function;
(2)Medical personnel to the extent necessary to meet a bona fide medical emergency in accordance with the Confidentiality of Alcohol and Drug Abuse Patient Records regulations (42 CFR part 2);
(3)Qualified personnel for the purpose of conducting scientific research, management audits, financial audits, or program evaluation, provided individual identifiers are not disclosed in any manner, in accordance with the Confidentiality of Alcohol and Drug Abuse Patient Records regulations (42 CFR part 2);
(4)A third party upon authorization by an appropriate order of a court of competent jurisdiction granted after application showing good cause therefore, in accordance with the Confidentiality of Alcohol and Drug Abuse Patient Records regulations (42 CFR part 2);
(5)The Department of Justice or other appropriate Federal agency in defending claims against the United States when the records are not covered by the Confidentiality of Alcohol and Drug Abuse Patient Records regulations at 42 CFR part 2; and
(6)To appropriate agencies, entities, and persons when
(a)the Department suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised;
(b)the Department has determined that as a result of the suspected or confirmed compromise there is a risk of harm to economic or property interests, identity theft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the compromised information; and
(c)the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. Policies and Practices for Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Records in this system are stored on paper, microform, or in electronic media. Retrievability: These records are retrieved by the name and social security number or other assigned identifier of the individual on whom they are maintained. Safeguards: Records are maintained in a secure room in a locked file cabinet, safe, or similar container when not in use. Automated records are protected by restricted access procedures. Access to records is strictly limited to agency or contractor officials with a bona fide need for the records. When the Bureau of the Public Debt contracts with an entity for the purpose of providing the EAP functions, the contractor shall be required to maintain Privacy Act safeguards with respect to such records. Retention and Disposal: The retention period is three years after termination of counseling or until any litigation is resolved, after which the records are destroyed. System Manager and Address: Executive Director, Administrative Resource Center, Human Resources Division, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Notification Procedure: Individuals may submit their requests for determination of whether the system contains records about them or for access to records as provided under “Records Access Procedures.” Requests must be made in compliance with the applicable regulations (31 CFR part 1, subpart C). Requests that do not comply fully with these procedures may result in noncompliance with the request, but will be answered to the extent possible. Record Access Procedures: After you contact the contractor, following are the steps that will be required:
(1)Submit requests to the contractor. For information about how to contact the contractor, write to the appropriate office as shown under “System Manager and Address” above.
(2)A request for access to records must be in writing, signed by the individual concerned, identify the system of records, and clearly indicate that the request is made pursuant to the Privacy Act of 1974. If the individual is seeking access in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is seeking access by mail, identity may be established by presenting a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The contractor reserves the right to require additional verification of an individual's identity.
(3)The request must state whether the requester wishes to be notified that the record exists or desires to inspect or obtain a copy of the record. If a copy of the record is desired, the requester must agree to pay the fees for copying the documents in accordance with 31 CFR 1.26(d)(2)(ii). Contesting Record Procedures: Initial amendment requests: After you contact the contractor, following are the steps that will be required:
(1)A request by an individual contesting the content of records or for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that the request is made pursuant to the Privacy Act of 1974. If the request is made in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but instead showing a name and signature. If the request is made by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The contractor reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the contractor. For information about how to contact the contractor, write to the appropriate office as shown under “System Manager and Address” above.
(3)The request must specify:
(a)The dates of records in question,
(b)The specific records alleged to be incorrect,
(c)The correction requested, and
(d)The reasons.
(4)The request must include available evidence in support of the request. Appeals from an initial denial of a request for correction of records:
(1)An appeal from an initial denial of a request for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that it is made pursuant to the Privacy Act of 1974. If the individual is making an appeal in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is making an appeal by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Appellate determinations will be made by the Commissioner of the Bureau of the Public Debt or the delegate of such officer. Appeals must be mailed to or delivered personally to: Chief Counsel, Bureau of the Public Debt, 799 9th Street, NW., Washington, DC 20239-0001 (or as otherwise provided for in the applicable appendix to 31 CFR part 1, subpart C), within 35 days of the individual's receipt of the initial denial of the requested correction.
(3)An appeal must be marked “Privacy Act Amendment Appeal” and specify:
(a)The records to which the appeal relates,
(b)The date of the initial request made for correction of the records, and
(c)The date the initial denial of the request for correction was received.
(4)An appeal must also specify the reasons for the requester's disagreement with the initial denial of correction and must include any applicable supporting evidence. Record Source Categories: Information in this system of records comes from the individual to whom it applies, the supervisor of the individual if the individual was referred by a supervisor, or the contractor's staff member who records the counseling session. Exemptions Claimed For The System: None. TREASURY/BPD.006 System Name: Health Service Program Records—Treasury/BPD. System Location: Bureau of the Public Debt locations at 200 Third Street, Parkersburg, WV; and Avery Street Building, 320 Avery Street, Parkersburg, WV. Categories of Individuals Covered by the System:
(1)Bureau of the Public Debt employees who receive services under the Federal Employee Health Services Program from the Bureau of the Public Debt Health Unit in Parkersburg, West Virginia.
(2)Federal employees of other organizations in the Parkersburg, West Virginia vicinity who receive services under the Federal Employee Health Services Program from the Bureau of the Public Debt Health Unit in Parkersburg, West Virginia.
(3)Non-Federal individuals working in or visiting the buildings, who may receive emergency treatment from the Bureau of the Public Debt Health Unit in Parkersburg, West Virginia. Categories of Records in the System: This system is comprised of records developed as a result of an individual's utilization of services provided under the Federal Government's Health Service Program. These records contain information such as: Examination, diagnostic, assessment and treatment data; laboratory findings; nutrition and dietetic files; nursing notes; immunization records; blood donor records; CPR training; First Aider; names, social security number, date of birth, handicap code, addresses, and telephone numbers of individual; name, address, and telephone number of individual's physician; name, address, and telephone number of hospital; name, address, and telephone number of emergency contact; and information obtained from the individual's physician; and record of requested accesses by any Bureau of the Public Debt employee (other than Health Unit personnel) who has an official need for the information. Note: This system does not cover records related to counseling for drug, alcohol, or other problems covered by System No. Treasury/BPD.005-Employee Assistance Records. Medical records relating to a condition of employment or an on-the-job occurrence are covered by the Office of Personnel Management's System of Records No. OPM/GOVT-10-Employee Medical File System Records. authority for maintenance of the system: 5 U.S.C. 7901. Purpose(s): These records document an individual's utilization on a voluntary basis of health services provided under the Federal Government's Health Service Program at the Health Unit at the Bureau of the Public Debt in Parkersburg, West Virginia. Data is necessary to ensure proper evaluation, diagnosis, treatment, and referral to maintain continuity of care; a medical history of care received by the individual; planning for further care of the individual; a means of communication among health care members who contribute to the individual's care; a legal document of health care rendered; a tool for evaluating the quality of health care rendered. Routine Uses of Records Maintained in the System, Including Categories of Users and the Purposes of Such Uses: These records may be disclosed to:
(1)Medical personnel under a contract agreement with the Bureau of the Public Debt;
(2)A Federal, State, or local public health service agency as required by applicable law, concerning individuals who have contracted certain communicable diseases or conditions. Such information is used to prevent further outbreak of the disease or condition;
(3)Appropriate Federal, State, or local agencies responsible for investigation of an accident, disease, medical condition, or injury as required by pertinent legal authority;
(4)The Department of Justice when seeking legal advice or when
(a)The Department of the Treasury (agency) or
(b)The Bureau of the Public Debt, or
(c)Any employee of the agency in his or her official capacity, or
(d)Any employee of the agency in his or her individual capacity where the Department of Justice has agreed to represent the employee, or
(e)The United States, where the agency determines that litigation is likely to affect the agency or the Bureau of the Public Debt, is a party to litigation or has an interest in such litigation, and the use of such records by the Department of Justice is deemed by the agency to be relevant and necessary to the litigation;
(5)A Federal agency responsible for administering benefits programs in connection with a claim for benefits filed by an employee;
(6)A Congressional office from the record of an individual in response to an inquiry from the Congressional office made at the request of that individual;
(7)A court, magistrate, or administrative tribunal in the course of presenting evidence, including disclosures to opposing counsel or witnesses in the course of civil discovery, litigation, or settlement negotiations, or in response to a subpoena or in connection with criminal law proceedings; and
(8)To appropriate agencies, entities, and persons when
(a)the Department suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised;
(b)the Department has determined that as a result of the suspected or confirmed compromise there is a risk of harm to economic or property interests, identity theft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the compromised information; and
(c)the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. Policies and Practices for Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Records in this system are stored on paper, or in electronic media. Retrievability: These records are retrieved by the name or other assigned identifier of the individual to whom they pertain. Safeguards: These records are maintained in a secured room with access limited to Health Unit personnel whose duties require access. Medical personnel under a contract agreement who have access to these records are required to maintain adequate safeguards with respect to such records. Retention and Disposal: Records are maintained in accordance with National Archives and Records Administration retention schedules. Paper and microform records ready for disposal are destroyed by shredding or maceration. Records in electronic media are electronically erased using accepted techniques. System Manager and Address: Assistant Commissioner, Office of Management Services, Division of Administrative Services, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Notification Procedure: Individuals may submit their requests for determination of whether the system contains records about them or for access to records as provided under “Records Access Procedures.” Requests must be made in compliance with the applicable regulations (31 CFR part 1, subpart C). Requests that do not comply fully with these procedures may result in noncompliance with the request, but will be answered to the extent possible. Record Access Procedures:
(1)A request for access to records must be in writing, signed by the individual concerned, identify the system of records, and clearly indicate that the request is made pursuant to the Privacy Act of 1974. If the individual is seeking access in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is seeking access by mail, identity may be established by presenting a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must state whether the requester wishes to be notified that the record exists or desires to inspect or obtain a copy of the record. If a copy of the record is desired, the requester must agree to pay the fees for copying the documents in accordance with 31 CFR 1.26(d)(2)(ii). An individual who requests access to a Health Service Program Record shall, at the time the request is made, designate in writing the name of a responsible representative who will be willing to review the record and inform the subject individual of its content. This does not permit the representative to withhold the records from the requester. Rather, the representative is expected to provide access to the records while explaining sensitive or complex information contained in the records. Contesting Record Procedures: Initial amendment requests:
(1)A request by an individual contesting the content of records or for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that the request is made pursuant to the Privacy Act of 1974. If the request is made in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but instead showing a name and signature. If the request is made by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must specify:
(a)The dates of records in question,
(b)The specific records alleged to be incorrect,
(c)The correction requested, and
(d)The reasons.
(4)The request must include available evidence in support of the request. Appeals from an initial denial of a request for correction of records:
(1)An appeal from an initial denial of a request for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that it is made pursuant to the Privacy Act of 1974. If the individual is making an appeal in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is making an appeal by mail, identity may be established by the presentation of signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Appellate determinations will be made by the Commissioner of the Bureau of the Public Debt or the delegate of such officer. Appeals must be mailed to or delivered personally to: Chief Counsel, Bureau of the Public Debt, 799 9th Street, NW., Washington, DC 20239-0001 (or as otherwise provided for in the applicable appendix to 31 CFR part 1, subpart C), within 35 days of the individual's receipt of the initial denial of the requested correction.
(3)An appeal must be marked “Privacy Act Amendment Appeal” and specify:
(a)The records to which the appeal relates,
(b)The date of the initial request made for correction of the records, and
(c)The date the initial denial of the request for correction was received.
(4)An appeal must also specify the reasons for the requester's disagreement with the initial denial of correction and must include any applicable supporting evidence. Record Source Categories: Information in this system of records comes from the individual to whom it applies; laboratory reports and test results; Health Unit physicians, nurses, and other medical technicians who have examined, tested, or treated the individual; the individual's personal physician; other Federal employee health units; and other Federal agencies. Exemptions Claimed For The System: None. TREASURY/BPD.007 System Name: Gifts to Reduce the Public Debt—Treasury/BPD. System Location: Bureau of the Public Debt, 200 Third Street, Parkersburg, WV. Categories of Individuals Covered by the System: Donors of gifts to reduce the public debt. Categories of Records in the System: Correspondence; copies of checks, money orders, or other payments; copies of wills and other legal documents; and other material related to gifts to reduce the public debt, received on or after October 1, 1984, by the Bureau of the Public Debt either directly from the donor through the donor's Congressional or other representative. Note: This system does not cover gifts to reduce the public debt received prior to October 1, 1984, when the Financial Management Service handled this function. This system of records does not cover gifts sent to other agencies, such as gifts sent with one's Federal income tax return to the Internal Revenue Service. This system does not include any other gifts to the United States. Authority for Maintenance of the System: 31 U.S.C. 3113. Purpose(s): These records document the receipt from donors of gifts to reduce the public debt. They provide a record of correspondence acknowledging receipt, information concerning any legal matters, and a record of depositing the gift and accounting for it. Routine Uses of Records Maintained in the System, Including Categories of Users and the Purposes of Such Uses: These records may be used to:
(1)Disclose pertinent information to appropriate Federal, State, local, or foreign agencies responsible for investigating or prosecuting the violations of, or for enforcing or implementing a statute, rule, regulation, order, or license;
(2)Disclose information to a court, magistrate, or administrative tribunal in the course of presenting evidence including disclosures to opposing counsel or witnesses in the course of civil discovery, litigation, or settlement negotiations, or in response to a subpoena, or in connection with criminal law proceedings;
(3)Provide information to a Congressional office in response to an inquiry made at the request of the individual to whom the record pertains;
(4)Disclose information to agents or contractors of the Department for the purpose of administering the public debt of the United States;
(5)Disclose information to a legal representative of a deceased donor for the purpose of properly administering the estate of the deceased;
(6)Disclose information to the Internal Revenue Service for the purpose of confirming whether a tax-deductible event has occurred;
(7)The Department of Justice when seeking legal advice or when
(a)The Department of the Treasury (agency) or
(b)The Bureau of the Public Debt, or
(c)Any employee of the agency in his or her official capacity, or
(d)Any employee of the agency in his or her individual capacity where the Department of Justice has agreed to represent the employee, or
(e)The United States, where the agency determines that litigation is likely to affect the agency or the Bureau of the Public Debt, is a party to litigation or has an interest in such litigation, and the use of such records by the Department of Justice is deemed by the agency to be relevant and necessary to the litigation;
(8)To appropriate agencies, entities, and persons when
(a)the Department suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised;
(b)the Department has determined that as a result of the suspected or confirmed compromise there is a risk of harm to economic or property interests, identity theft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the compromised information; and
(c)the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. Policies and Practices for Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Records in this system are stored on paper, microform, or in electronic media. Retrievability: These records are retrieved by the name of the donor; amount of gift; type of gift; date of gift; social security number of donor, if provided; control number; check number; State code; or other assigned identifier. Safeguards: These records are maintained in controlled access areas. Automated records are protected by restricted access procedures. Checks and other payments are stored in locked safes with access limited to personnel whose duties require access. Retention and Disposal: Records of gifts to reduce the public debt are maintained in accordance with National Archives and Records Administration retention schedules. Paper and microform records ready for disposal are destroyed by shredding or maceration. Records in electronic media are electronically erased using accepted techniques. System Manager and Address:
(A)Customer Service Records: Assistant Commissioner, Office of Retail Securities, Division of Accounting and Risk Management, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312.
(B)Accounting Records: Assistant Commissioner, Office of Public Debt Accounting, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312. Notification Procedure: Individuals may submit their requests for determination of whether the system contains records about them or for access to records as provided under “Records Access Procedures.” Requests must be made in compliance with the applicable regulations (31 CFR part 1, subpart C). Requests that do not comply fully with these procedures may result in noncompliance with the request, but will be answered to the extent possible. Record Access Procedures:
(1)A request for access to records must be in writing, signed by the individual concerned, identify the system of records, and clearly indicate that the request is made pursuant to the Privacy Act of 1974. If the individual is seeking access in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is seeking access by mail, identity may be established by presenting a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must state whether the requester wishes to be notified that the record exists or desires to inspect or obtain a copy of the record. If a copy of the record is desired, the requester must agree to pay the fees for copying the documents in accordance with 31 CFR 1.26(d)(2)(ii). Contesting Record Procedures: Initial amendment requests:
(1)A request by an individual contesting the content of records or for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that the request is made pursuant to the Privacy Act of 1974. If the request is made in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but instead showing a name and signature. If the request is made by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must specify:
(a)The dates of records in question,
(b)The specific records alleged to be incorrect,
(c)The correction requested, and
(d)The reasons.
(4)The request must include available evidence in support of the request. Appeals from an initial denial of a request for correction of records:
(1)An appeal from an initial denial of a request for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that it is made pursuant to the Privacy Act of 1974. If the individual is making an appeal in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is making an appeal by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Appellate determinations will be made by the Commissioner of the Bureau of the Public Debt or the delegate of such officer. Appeals must be mailed to or delivered personally to: Chief Counsel, Bureau of the Public Debt, 799 9th Street, NW., Washington, DC 20239-0001 (or as otherwise provided for in the applicable appendix to 31 CFR part 1, subpart C), within 35 days of the individual's receipt of the initial denial of the requested correction.
(3)An appeal must be marked “Privacy Act Amendment Appeal” and specify:
(a)The records to which the appeal relates,
(b)The date of the initial request made for correction of the records, and
(c)The date the initial denial of the request for correction was received.
(4)An appeal must also specify the reasons for the requester's disagreement with the initial denial of correction and must include any applicable supporting evidence. Record Source Categories: Information in this system of records comes from the individual to whom it applies, executors, administrators, and other involved persons. Exemptions Claimed For The System: None. TREASURY/BPD.008 System Name: Retail Treasury Securities Access Application—Treasury/BPD. System Location: Bureau of the Public Debt locations at 200 Third Street, Parkersburg, WV; Second and Avery Streets, Parkersburg, WV; 320 Avery Street, Parkersburg, WV; and 799 9th Street, NW., Washington, DC. Categories of Individuals Covered by the System: Records cover those individuals who provide information to create an account in TreasuryDirect for the purchase of United States Treasury securities through the Internet. Categories of Records in the System: This system collects and uses personal information to ensure the accurate identification of individuals who have an account in TreasuryDirect or to provide personalized service to these individuals. The types of personal information presently include or potentially could include the following:
(a)Personal identifiers (name, including previous name used; social security number; physical and electronic addresses; telephone, fax, and pager numbers);
(b)Authentication aids (personal identification number, password, account number, shared-secret identifier, digitized signature, or other unique identifier);
(c)Customer demographics (age, gender, marital status, income, number in household, etc.); and
(d)Customer preferences (favorite color, hobby, magazine, etc.; preferred sources for information, such as television, newspaper, Internet, etc.; or dates of importance to the customer, such as birth, anniversary, etc.). Authority for Maintenance of the System: 5 U.S.C. 301; 31 U.S.C. 3101, *et seq.* Purpose(s): Information in this system of records is collected and maintained to identify the individuals doing electronic business with the Bureau of the Public Debt. The information is required for individuals who invest in Treasury securities by using the Internet to purchase securities and conduct related transactions. The records are also used to improve service to those individuals. Routine Uses of Records Maintained in the System, Including Categories of Users and the Purposes of Such Uses: These records may be disclosed to:
(1)Appropriate Federal, State, local, or foreign agencies or other public authority responsible for investigating or prosecuting the violations of, or for enforcing or implementing a statute, rule, regulation, order or license where the disclosing agency becomes aware of an indication of a violation or potential violation of civil or criminal law or regulation;
(2)A court, magistrate, or administrative tribunal in the course of presenting evidence, including disclosures to opposing counsel or witnesses in the course of civil discovery, litigation, or settlement negotiations, or in response to a court-ordered subpoena, or in connection with criminal law proceedings where relevant or potentially relevant to a proceeding;
(3)A Congressional office in response to an inquiry made at the request of the individual to whom the record pertains;
(4)Agents or contractors who have been engaged to assist the Bureau of the Public Debt in the performance of a service related to this system of records and who need to have access to the records in order to perform the activity;
(5)The Department of Justice when seeking legal advice or when
(a)The Department of the Treasury (agency) or
(b)The Bureau of the Public Debt, or
(c)Any employee of the agency in his or her official capacity, or
(d)Any employee of the agency in his or her individual capacity where the Department of Justice has agreed to represent the employee, or
(e)The United States, where the agency determines that litigation is likely to affect the agency or the Bureau of the Public Debt, is a party to litigation or has an interest in such litigation, and the use of such records by the Department of Justice is deemed by the agency to be relevant and necessary to the litigation; and
(6)To appropriate agencies, entities, and persons when
(a)the Department suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised;
(b)the Department has determined that as a result of the suspected or confirmed compromise there is a risk of harm to economic or property interests, identity theft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the compromised information; and
(c)the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. Policies and Practices for Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Records are maintained on electronic media, multiple client-server platforms that are backed up to magnetic tape, microform, or other storage media, and/or hard copy. Retrievability: Records may be retrieved by name, alias names, social security number, account number, or other unique identifier. Safeguards: The Bureau of the Public Debt has sophisticated Internet firewall security via hardware and software configurations as well as specific monitoring tools. Records are maintained in controlled access areas. Identification cards are verified to ensure that only authorized personnel are present. Electronic records are protected by restricted access procedures, including the use of passwords, sign-on protocols, and user authentication that are periodically changed. Only employees whose official duties require access are allowed to view, administer, and control these records. Retention and Disposal: Records are disposed of at varying intervals in accordance with records retention schedules reviewed and approved by the National Archives and Records Administration (NARA). Paper and microform records ready for disposal are destroyed by shredding or maceration. Records in electronic media are electronically erased using accepted techniques. System Manager and Address: Assistant Commissioner and Chief Information Officer, Office of Information Technology, 200 Third Street, Parkersburg, WV 26106-5312. Notification Procedure: Individuals may submit their requests for determination of whether the system contains records about them or for access to records as provided under “Records Access Procedures.” Requests must be made in compliance with the applicable regulations (31 CFR part 1, subpart C). Requests that do not comply fully with these procedures may result in noncompliance with the request, but will be answered to the extent possible. Record Access Procedures:
(1)A request for access to records must be in writing, signed by the individual concerned, identify the system of records, and clearly indicate that the request is made pursuant to the Privacy Act of 1974. If the individual is seeking access in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is seeking access by mail, identity may be established by presenting a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must state whether the requester wishes to be notified that the record exists or desires to inspect or obtain a copy of the record. If a copy of the record is desired, the requester must agree to pay the fees for copying the documents in accordance with 31 CFR 1.26(d)(2)(ii). Contesting Record Procedures: Initial amendment requests:
(1)A request by an individual contesting the content of records or for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that the request is made pursuant to the Privacy Act of 1974. If the request is made in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but instead showing a name and signature. If the request is made by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Submit requests to the appropriate office as shown under “System Manager and Address” above.
(3)The request must specify:
(a)The dates of records in question,
(b)The specific records alleged to be incorrect,
(c)The correction requested, and
(d)The reasons.
(4)The request must include available evidence in support of the request. Appeals from an initial denial of a request for correction of records:
(1)An appeal from an initial denial of a request for correction of records must be in writing, signed by the individual involved, identify the system of records, and clearly state that it is made pursuant to the Privacy Act of 1974. If the individual is making an appeal in person, identity may be established by the presentation of a single official document bearing the individual's photograph or by the presentation of two items of identification without the photograph but showing a name and signature. If the individual is making an appeal by mail, identity may be established by the presentation of a signature, address, and one other identifier such as a photocopy of an official document bearing the individual's signature. The Bureau of the Public Debt reserves the right to require additional verification of an individual's identity.
(2)Appellate determinations will be made by the Commissioner of the Bureau of the Public Debt or the delegate of such officer. Appeals must be mailed to or delivered personally to: Chief Counsel, Bureau of the Public Debt, 799 9th Street, NW., Washington, DC 20239-0001 (or as otherwise provided for in the applicable appendix to 31 CFR part 1, subpart C), within 35 days of the individual's receipt of the initial denial of the requested correction.
(3)An appeal must be marked “Privacy Act Amendment Appeal” and specify:
(a)The records to which the appeal relates,
(b)The date of the initial request made for correction of the records, and
(c)The date the initial denial of the request for correction was received.
(4)An appeal must also specify the reasons for the requester's disagreement with the initial denial of correction and must include any applicable supporting evidence. Record Source Categories: Information is provided by the individual covered by this system of records or, with their authorization, is derived from other systems of records. Exemptions Claimed For The System: None. TREASURY/BPD.009 System Name: U.S. Treasury Securities Fraud Information System—Treasury/BPD. System Location: The system of records is located at the Bureau of the Public Debt in Parkersburg, WV and Washington, DC as well as the Federal Reserve Banks of Chicago, Philadelphia, Pittsburgh, and Minneapolis. This system also covers the Bureau of the Public Debt records that are maintained by contractor(s) under agreement. The system manager(s) maintain(s) the system location of these records. The address(es) of the contractor(s) may be obtained from the system manager(s) below. Categories of Individuals Covered by the System: Individuals under investigation or who make inquiries or report fraudulent or suspicious activities related to Treasury securities and other U.S. obligations. Categories of Records in the System: The types of personal information collected/used by this system are necessary to ensure the accurate identification of individuals who report or make fraudulent transactions involving Treasury securities and other U.S. obligations. The types of personal information potentially could include the following:
(1)Personal identifiers (name, including previous name used, and aliases; Social Security number; Tax Identification Number; physical and electronic addresses; telephone, fax, and pager numbers), and;
(2)Authentication aids (personal identification number, password, account number, credit card number, shared-secret identifier, digitized signature, or other unique identifier). Supporting records may contain correspondence between the Bureau of the Public Debt and the entity or individual submitting a complaint or inquiry, correspondence between the Bureau of the Public Debt and the Department of Treasury, or correspondence between the Bureau of the Public Debt and law enforcement, regulatory bodies, or other third parties. Authority for Maintenance of the System: 31 U.S.C. 321(a)(5), 31 U.S.C. 333, 31 U.S.C. 3101, *et seq.* 31 U.S.C. 5318, and 5 U.S.C. 301. Purpose(s): Records in this system are used to:
(1)Identify and monitor fraudulent and suspicious activity related to Treasury securities and other U.S. obligations;
(2)ensure that the Bureau of the Public Debt provides a timely and appropriate notification of a possible violation of law to law enforcement and regulatory agencies;
(3)protect the Government and individuals from fraud and loss;
(4)prevent the misuse of Treasury names and symbols on fraudulent instruments; and,
(5)compile summary reports, that conform with the spirit of the USA Patriot Act's anti-terrorism financing provisions and the Bank Secrecy Act's anti-money laundering provisions, and submit the reports to the Financial Crimes Enforcement Network (FinCEN). Routine Uses of Records Maintained in the System, Including Categories of Users and the Purposes of Such Uses: These records may be disclosed to:
(1)Congressional offices in response to an inquiry made at the request of the individual to whom the record pertains;
(2)Appropriate Federal, State, local, or foreign agencies responsible for investigating or prosecuting the violations of, or for enforcing or implementing a statute, rule, regulation, order, or license;
(3)A court, magistrate, or administrative tribunal in the course of presenting evidence, including disclosures to opposing counsel or witnesses in the course of civil discovery, litigation, or settlement negotiations or in connection with criminal law proceedings or in response to a subpoena;
(4)Third parties during the course of an investigation to the extent necessary to obtain information pertinent to the investigation;
(5)Agents or contractors who have been engaged to assist the Bureau of the Public Debt in the performance of a service related to this system of records and who need to have access to the records in order to perform the activity;
(6)The Department of Justice when seeking legal advice or when
(a)The Department of the Treasury (agency) or
(b)The Bureau of the Public Debt, or
(c)Any employee of the agency in his or her official capacity, or
(d)Any employee of the agency in his or her individual capacity where the Department of Justice has agreed to represent the employee, or
(e)The United States, where the agency determines that litigation is likely to affect the agency or the Bureau of the Public Debt, is a party to litigation or has an interest in such litigation, and the use of such records by the Department of Justice is deemed by the agency to be relevant and necessary to the litigation; and
(7)To appropriate agencies, entities, and persons when
(a)the Department suspects or has confirmed that the security or confidentiality of information in the system of records has been compromised;
(b)the Department has determined that as a result of the suspected or confirmed compromise there is a risk of harm to economic or property interests, identity theft or fraud, or harm to the security or integrity of this system or other systems or programs (whether maintained by the Department or another agency or entity) that rely upon the compromised information; and
(c)the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Department's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm. Policies and Practices for Storing, Retrieving, Accessing, Retaining, and Disposing of Records in the System: Storage: Records are maintained on electronic media, multiple client-server platforms that are backed-up to magnetic tape or other storage media, and/or hard copy. Retrievability: Records may be retrieved by (name, alias name, Social Security number, Tax Identification Number, account number, or other unique identifier). Safeguards: These records are maintained in controlled access areas. Identification cards are verified to ensure that only authorized personnel are present. Electronic records are protected by restricted access procedures, including the use of passwords and sign-on protocols that are periodically changed. Only employees whose official duties require access are allowed to view, administer, and control these records. Copies of records maintained on computer have the same limited access as paper records. Retention and Disposal: Records are maintained in accordance with National Archives and Records Administration retention schedules. Paper and microform records ready for disposal are destroyed by shredding or maceration. Records in electronic media are electronically erased using accepted techniques. System Manager and Address:
(1)Assistant Commissioner, Office of Information Technology, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312
(2)Assistant Commissioner, Office of Retail Securities, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312
(3)Office of the Chief Counsel, Bureau of the Public Debt, 200 Third Street, Parkersburg, WV 26106-5312 Notification Procedure: This system of records is exempt from the Privacy Act provision on notification procedures. (See “Exemptions Claimed for the System,” below.) An individual wishing to be notified if he or she is named in non-exempt records maintained in this system must submit a written request to the Disclosure Officer. See 31 CFR part 1, Subpart C, appendix I. *Identification Requirements:* An individual seeking notification through the mail must establish his or her identity by providing a signature and an address as well as one other identifier bearing the individual's name and signature (such as a photocopy of a driver's license or other official document). An individual seeking notification in person must establish his or her identity by providing proof in the form of a single official document bearing a photograph (such as a passport or identification badge) or two items of identification that bear both a name and signature. Alternatively, identity may be established by providing a notarized statement, swearing or affirming to an individual's identity, and to the fact that the individual understands the penalties provided in 5 U.S.C. 552a(i)(3) for requesting or obtaining information under false pretenses. Additional documentation establishing identity or qualification for notification may be required, such as in an instance where a legal guardian or representative seeks notification on behalf of another individual. Record Access Procedures: This system of records is exempt from the Privacy Act provision on record access procedures. (See “Notification Procedure” above.) Contesting Record Procedures: This system of records is exempt from the Privacy Act provision on contesting record procedures. (See “Notification Procedure” above.) Record Source Categories: This system of records is exempt from the Privacy Act provision that requires that record source categories be reported. (See “Exemptions Claimed for the System,” below.) Exemptions Claimed for the System: Records maintained in this system have been designated as exempt from 5 U.S.C. 552a(c)(3), (d)(1), (2), (3), and (4), (e)(1), (e)(4)(G), (H), and (I), and
(f)of the Privacy Act pursuant to 5 U.S.C. 552a(k)(2). See 31 CFR 1.36. [FR Doc. E8-16794 Filed 7-22-08; 8:45 am] BILLING CODE 4810-39-P DEPARTMENT OF VETERANS AFFAIRS [OMB Control No. 2900-New (10-21087)] Agency Information Collection Activities (Deployment Risk and Resilience Inventory (DRRI)) Under OMB Review AGENCY: Veterans Health Administration, Department of Veterans Affairs. ACTION: Notice. SUMMARY: In compliance with the Paperwork Reduction Act
(PRA)of 1995 (44 U.S.C. 3501-3521), this notice announces that the Veterans Health Administration (VHA), Department of Veterans Affairs, has submitted the collection of information abstracted below to the Office of Management and Budget
(OMB)for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden and includes the actual data collection instrument. DATES: Comments must be submitted on or before August 22, 2008. ADDRESSES: Submit written comments on the collection of information through *http://www.Regulations.gov* ; or to VA's OMB Desk Officer, OMB Human Resources and Housing Branch, New Executive Office Building, Room 10235, Washington, DC 20503
(202)395-7316. Please refer to “OMB Control No. 2900-New (10-21087)” in any correspondence. FOR FURTHER INFORMATION CONTACT: Denise McLamb, Records Management Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420,
(202)461-7485, fax
(202)273-0443 or e-mail *denise.mclamb@mail.va.gov* . Please refer to “OMB Control No. 2900-New (10-21087).” SUPPLEMENTARY INFORMATION: *Title:* Deployment Risk and Resilience Inventory (DRRI), VA Form 10-21087. *OMB Control Number:* 2900-New (10-21087). *Type of Review:* New collection. *Abstract:* The primary goal of the DRRI project is to provide a suite of scales that will be useful to researchers and clinicians to study factors that increase or reduce risk for Post Traumatic Stress Disorder
(PTSD)and other health problems that Operation Enduring Freedom/Operation Iraqi Freedom veterans experienced before, during, and after deployment. 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 OMB control number. The **Federal Register** notice with a 60-day comment period soliciting comments on this collection of information was published on May 14, 2008 at pages 27896-27897. *Affected Public:* Individuals or households. *Estimated Annual Burden:* 1,383. *Estimated Average Burden per Respondent:* 50 minutes. *Frequency of Response:* On occasion. *Estimated Number of Respondents:* 2,000. Dated: July 15, 2008. By direction of the Secretary. Denise McLamb, Program Analyst, Records Management Service. [FR Doc. E8-16798 Filed 7-22-08; 8:45 am] BILLING CODE 8320-01-P DEPARTMENT OF VETERANS AFFAIRS [OMB Control No. 2900-New (VA Form 4939)] Agency Information Collection (Complaint of Employment Discrimination) Activities Under OMB Review AGENCY: Office of Human Resources and Administration, Department of Veterans Affairs. ACTION: Notice. SUMMARY: In compliance with the Paperwork Reduction Act
(PRA)of 1995 (44 U.S.C. 3501-21), this notice announces that the Office of Human Resources and Administration (OHR&A), Department of Veterans Affairs, has submitted the collection of information abstracted below to the Office of Management and Budget
(OMB)for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden; it includes the actual data collection instrument. DATES: Comments must be submitted on or before *August 22, 2008* . ADDRESSES: Submit written comments on the collection of information through *http://www.Regulations.gov* ; or to VA's OMB Desk Officer, OMB Human Resources and Housing Branch, New Executive Office Building, Room 10235, Washington, DC 20503
(202)395-7316. Please refer to “OMB Control No. 2900-New (VA Form 4939)” in any correspondence. FOR FURTHER INFORMATION OR A COPY OF THE SUBMISSION CONTACT: Denise McLamb, Records Management Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420,
(202)461-7485, FAX
(202)273-0443 or e-mail: *denise.mclamb@mail.va.gov* . Please refer to “OMB Control No. 2900-New (VA Form 4939).” SUPPLEMENTARY INFORMATION: *Title:* Complaint of Employment Discrimination, VA Form 4939. *OMB Control Number:* 2900-New (VA Form 4939). *Type of Review:* Existing collection in use without an OMB control number. *Abstract:* VA employees, former employees and applicants for employment who believe they were denied employment based on race, color, religion, gender, national origin, age, physical or mental disability and/ or reprisal for prior Equal Employment Opportunity activity complete VA Form 4939 to file complaint of discrimination. 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 OMB control number. The **Federal Register** Notice with a 60-day comment period soliciting comments on this collection of information was published on May 14, 2008, at page 27896. *Affected Public:* Individuals or households. *Estimated Annual Burden:* 162 hours. *Estimated Average Burden per Respondent:* 30 minutes. *Frequency of Response:* One time. *Estimated Number of Respondents:* 324. Dated: July 15, 2008. By direction of the Secretary. Denise McLamb, Records Management Service. [FR Doc. E8-16801 Filed 7-22-08; 8:45 am] BILLING CODE 8320-01-P DEPARTMENT OF VETERANS AFFAIRS [OMB Control No. 2900-0545] Agency Information Collection (Report of Medical, Legal, and Other Expenses Incident to Recovery for Injury or Death) Activities Under OMB Review AGENCY: Veterans Benefits Administration, Department of Veterans Affairs. ACTION: Notice. SUMMARY: In compliance with the Paperwork Reduction Act
(PRA)of 1995 (44 U.S.C. 3501-3521), this notice announces that the Veterans Benefits Administration (VBA), Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget
(OMB)for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden; it includes the actual data collection instrument. DATES: Comments must be submitted on or before August 22, 2008. ADDRESSES: Submit written comments on the collection of information through *http://www.Regulations.gov* or to VA's OMB Desk Officer, OMB Human Resources and Housing Branch, New Executive Office Building, Room 10235, Washington, DC 20503
(202)395-7316. Please refer to “OMB Control No. 2900-0545” in any correspondence. FOR FURTHER INFORMATION CONTACT: Denise McLamb, Records Management Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420,
(202)461-7485, FAX
(202)273-0443 or e-mail *denise.mclamb@mail.va.gov* . Please refer to “OMB Control No. 2900-0545.” SUPPLEMENTARY INFORMATION: *Title:* Report of Medical, Legal, and Other Expenses Incident to Recovery for Injury or Death, VA Form 21-8416b. *OMB Control Number:* 2900-0545. *Type of Review:* Extension of a currently approved collection. *Abstract:* Claimants complete VA Form 21-8416b to report compensation awarded by another entity or government agency for personal injury or death. Such award is considered as countable income; however, medical, legal or other expenses incident to the injury or death, or incident to the collection or recovery of the compensation may be deducted from the amount awarded or settled. The information collected is used to determine the claimant's eligibility for income based benefits and the rate payable. 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 OMB control number. The **Federal Register** Notice with a 60-day comment period soliciting comments on this collection of information was published on May 14, 2008, at pages 27895-27896. *Affected Public:* Individuals or households. *Estimated Annual Burden:* 1,125 hours. *Estimated Average Burden per Respondent:* 45 minutes. *Frequency of Response:* One time. *Estimated Number of Respondents:* 1,500. Dated: July 15, 2008. By direction of the Secretary. Denise McLamb, Program Analyst, Records Management Service. [FR Doc. E8-16803 Filed 7-22-08; 8:45 am] BILLING CODE 8320-01-P DEPARTMENT OF VETERANS AFFAIRS [OMB Control No. 2900-New (21-2680)] Proposed Information Collection (Exam for Housebound Status or Permanent Need for Regular Aid and Attendance) Activity; Comment Request AGENCY: Veterans Benefits Administration, Department of Veterans Affairs. ACTION: Notice. SUMMARY: The Veterans Benefits Administration (VBA), Department of Veterans Affairs (VA), is announcing an opportunity for public comment on the proposed collection of certain information by the agency. Under the Paperwork Reduction Act
(PRA)of 1995, Federal agencies are required to publish notice in the **Federal Register** concerning each proposed collection of information, including each proposed new collection, and allow 60 days for public comment in response to the notice. This notice solicits comment on information needed to determine eligibility for aid and attendance and/or housebound benefits. DATES: Written comments and recommendations on the proposed collection of information should be received on or before September 22, 2008. ADDRESSES: Submit written comments on the collection of information through *http://www.Regulations.gov* ; or to Nancy J. Kessinger, Veterans Benefits Administration (20M35), Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420 or e-mail: *nancy.kessinger@va.gov* . Please refer to “OMB Control No. 2900-New (21-2680)” in any correspondence. During the comment period, comments may be viewed online through the Federal Docket Management System
(FDMS)at *http://www.Regulations.gov* . FOR FURTHER INFORMATION CONTACT: Nancy J. Kessinger at
(202)461-9769 or FAX
(202)275-5947. SUPPLEMENTARY INFORMATION: Under the PRA of 1995 (Pub. L. 104-13; 44 U.S.C. 3501-3521), Federal agencies must obtain approval from the Office of Management and Budget
(OMB)for each collection of information they conduct or sponsor. This request for comment is being made pursuant to Section 3506(c)(2)(A) of the PRA. With respect to the following collection of information, VBA invites comments on:
(1)Whether the proposed collection of information is necessary for the proper performance of VBA's functions, including whether the information will have practical utility;
(2)the accuracy of VBA's estimate of the burden of the proposed collection of information;
(3)ways to enhance the quality, utility, and clarity of the information to be collected; and
(4)ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or the use of other forms of information technology. *Title:* Exam for Housebound Status or Permanent Need for Regular Aid and Attendance, VA Form 21-2680. *OMB Control Number:* 2900-New (21-2680). *Type of Review:* New collection. *Abstract:* VA will use VA Form 21-2680 to gather medical information that is necessary to determine beneficiaries or claimants receiving treatment from private doctors or physicians, eligibility for aid and attendance or housebound benefit. *Affected Public:* Business or other for-profit. *Estimated Annual Burden:* 7,000 hours. *Estimated Average Burden per Respondent:* 30 minutes. *Frequency of Response:* One time. *Estimated Number of Respondents:* 14,000. Dated: July 15, 2008. By direction of the Secretary. Denise McLamb, Program Analyst, Records Management Service. [FR Doc. E8-16805 Filed 7-22-08; 8:45 am] BILLING CODE 8320-01-P DEPARTMENT OF VETERANS AFFAIRS [OMB Control No. 2900-0108] Agency Information Collection (Report of Income From Property or Business) Activities Under OMB Review AGENCY: Veterans Benefits Administration, Department of Veterans Affairs. ACTION: Notice. SUMMARY: In compliance with the Paperwork Reduction Act
(PRA)of 1995 (44 U.S.C. 3501-3521), this notice announces that the Veterans Benefits Administration (VBA), Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget
(OMB)for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden; it includes the actual data collection instrument. DATES: Comments must be submitted on or before August 22, 2008. ADDRESSES: Submit written comments on the collection of information through *http://www.Regulations.gov* or to VA's OMB Desk Officer, OMB Human Resources and Housing Branch, New Executive Office Building, Room 10235, Washington, DC 20503,
(202)395-7316. Please refer to “OMB Control No. 2900-0108” in any correspondence. FOR FURTHER INFORMATION CONTACT: Denise McLamb, Records Management Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420,
(202)461-7485, FAX
(202)273-0443 or e-mail *denise.mclamb@mail.va.gov* . Please refer to “OMB Control No. 2900-0108.” SUPPLEMENTARY INFORMATION: *Title:* Report of Income from Property or Business, VA Form 21-4185. *OMB Control Number:* 2900-0108. *Type of Review:* Extension of a currently approved collection. *Abstract:* Claimants complete VA Form 21-4185 to report income and expenses that derived from rental property and/or operation of a business. VA uses the information to determine whether the claimant is eligible for VA benefits and, if eligibility exists, the proper rate of payment. 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 OMB control number. The **Federal Register** Notice with a 60-day comment period soliciting comments on this collection of information was published on May 14, 2008, at pages 27894-27895. *Affected Public:* Individuals or households. *Estimated Annual Burden:* 3,500 hours. *Estimated Average Burden per Respondent:* 30 minutes. *Frequency of Response:* On occasion. *Estimated Number of Respondents:* 2,700. Dated: July 15, 2008. By direction of the Secretary. Denise McLamb, Program Analyst, Records Management Service. [FR Doc. E8-16807 Filed 7-22-08; 8:45 am] BILLING CODE 8320-01-P DEPARTMENT OF VETERANS AFFAIRS [OMB Control No. 2900-0556] Agency Information Collection (Living Will and Durable Power of Attorney for Health Care) Activities Under OMB Review AGENCY: Veterans Health Administration, Department of Veterans Affairs. ACTION: Notice. SUMMARY: In compliance with the Paperwork Reduction Act
(PRA)of 1995 (44 U.S.C. 3501-3521), this notice announces that the Veterans Health Administration (VHA), Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget
(OMB)for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden and includes the actual data collection instrument. DATES: Comments must be submitted on or before August 22, 2008. ADDRESSES: Submit written comments on the collection of information through *http://www.Regulations.gov* ; or to VA's OMB Desk Officer, OMB Human Resources and Housing Branch, New Executive Office Building, Room 10235, Washington, DC 20503,
(202)395-7316. Please refer to “OMB Control No. 2900-0556” in any correspondence. FOR FURTHER INFORMATION CONTACT: Denise McLamb, Records Management Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue, NW., Washington, DC 20420,
(202)461-7485, fax
(202)273-0443 or e-mail *denise.mclamb@mail.va.gov* . Please refer to “OMB Control No. 2900-0556.” SUPPLEMENTARY INFORMATION: *Title:* VA Advance Directive: Living Will and Durable Power of Attorney for Health Care, VA Form 10-0137. *OMB Control Number:* 2900-0556. *Abstract:* Claimants admitted to a VA medical facility complete VA Form 10-0137 to appoint a health care agent to make decisions about his or her medical treatment and to record specific instructions about their treatment preferences in the event they no longer can express their preferred treatment. VA's health care professionals use the data to carry out the claimant's wish. 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 OMB control number. The **Federal Register** Notice with a 60-day comment period soliciting comments on this collection of information was published on May 14, 2008 at page 27894. *Affected Public:* Individuals or households. *Estimated Total Annual Burden:* 171,811 hours. *Estimated Average Burden per Respondent:* 30 minutes. *Frequency of Response:* One time. *Estimated Number of Respondents:* 343,622. Dated: July 15, 2008. By direction of the Secretary. Denise McLamb, Program Analyst, Records Management Service. [FR Doc. E8-16809 Filed 7-22-08; 8:45 am] BILLING CODE 8320-01-P DEPARTMENT OF VETERANS AFFAIRS Special Medical Advisory Group; Notice of Meeting The Department of Veterans Affairs
(VA)gives notice under Public Law 92-463 (Federal Advisory Committee Act) that the Special Medical Advisory Group will meet on September 23, 2008, in Room 830, from 8:30 a.m. to 2:30 p.m., at VA Central Office, 810 Vermont Avenue, NW., Washington, DC. The meeting is open to the public. The purpose of the Group is to advise the Secretary of Veterans Affairs and the Under Secretary for Health on the care and treatment of disabled veterans, and other matters pertinent to the Department's Veterans Health Administration (VHA). The agenda for the meeting will include discussions of the evolving relationship between VA and the Department of Defense, an update on mental health services, academic affiliations, safety/quality initiatives, the political climate, and VHA's public relations campaign. Any member of the public wishing to attend should contact Juanita Leslie, Committee Manager, Office of Administrative Operations (10B2), Veterans Health Administration, Department of Veterans Affairs at
(202)461-7019. No time will be set aside at this meeting for receiving oral presentations from the public. Statements, in written form, may be submitted to Juanita Leslie before the meeting or within 10 days after the meeting. Dated: July 16, 2008. By direction of the Secretary. E. Philip Riggin, Committee Management Officer. [FR Doc. E8-16932 Filed 7-22-08; 8:45 am] BILLING CODE 8320-01-P 73 142 Wednesday, July 23, 2008 Proposed Rules Part II Department of the Interior Bureau of Land Management 43 CFR Parts 3900, 3910, 3920 et al. Oil Shale Management—General; Proposed Rule DEPARTMENT OF THE INTERIOR Bureau of Land Management 43 CFR Parts 3900, 3910, 3920, and 3930 [WO-320-1310-OSHL] RIN 1004-AD90 Oil Shale Management—General AGENCY: Bureau of Land Management, Interior. ACTION: Proposed rule. SUMMARY: The Bureau of Land Management
(BLM)is proposing regulations to set out the policies and procedures for the implementation of a commercial leasing program for the management of federally-owned oil shale and any associated minerals located on Federal lands. The Energy Policy Act of 2005 (EP Act) directs the Secretary of the Interior to: Make public lands available for conducting oil shale research and development activities; complete a Programmatic Environmental Impact Statement
(PEIS)for a commercial leasing program for both oil shale and tar sands resources on the BLM administered lands in Colorado, Utah, and Wyoming; and issue regulations establishing a commercial oil shale leasing program. These proposed regulations would incorporate specific provisions of the Mineral Leasing Act of 1920
(MLA)and the EP Act relating to: Maximum oil shale lease size; maximum acreage limitations; rental; and lease diligence. These proposed regulations would also address the diligent development requirements of the EP Act by establishing work requirements and milestones to ensure diligent development of leases. The proposed rule would also provide for other standard components of a BLM mineral leasing program, including lease administration and operations. DATES: Send your comments to reach the BLM on or before September 22, 2008. The BLM will not necessarily consider any comments received after the above date during its decision on the proposed rule. ADDRESSES: *Mail* : U.S. Department of the Interior, Director (630), Bureau of Land Management, Mail Stop 401 LS, 1849 C St., NW., *Attention:* 1004-AD90, Washington, DC 20240. Personal or messenger delivery: 1620 L Street, NW., Room 401, Washington, DC 20036. *Federal eRulemaking Portal: http://www.regulations.gov* . Follow the instructions at this Web site. You may also send comments on the information collection aspects of this proposed rule directly to: Interior Desk Officer (1004-AD90), Office of Information and Regulatory Affairs, Office of Management and Budget (OMB),
(202)395-6566 (facsimile); *e-mail: oira_docket@omb.eop.gov* . Please also send a copy to the BLM. FOR FURTHER INFORMATION CONTACT: Mitchell Leverette, Chief, Division of Solid Minerals at
(202)452-5088 for issues related to the BLM's commercial oil shale leasing program or Kelly Odom at
(202)452-5028 for regulatory process issues. Persons who use a telecommunications device for the deaf
(TDD)may call the Federal Information Relay Service
(FIRS)at 1-800-877-8339, 24 hours a day, 7 days a week, to leave a message or question with the above individuals. You will receive a reply during normal business hours. SUPPLEMENTARY INFORMATION: I. Public Comment Procedures II. Background III. Discussion of the Proposed Rule IV. Procedural Matters I. Public Comment Procedures A. How do I comment on the proposed rule? If you wish to comment, you may submit your comments by any one of several methods: • You may mail comments to U.S. Department of the Interior, Director (630), Bureau of Land Management, Mail Stop 401 LS, 1849 C St., NW., *Attention* : 1004-AD90, Washington, DC 20240. • You may deliver comments to Room 401, 1620 L Street, NW., Washington, DC 20036. • You may access and comment on the proposed rules at the Federal eRulemaking Portal by following the instructions at that site (see ADDRESSES ). Please make your comments on the proposed rule as specific as possible, confine them to issues pertinent to the proposed rule, and explain the reason for any changes you recommend. Where possible, your comments should reference the specific section or paragraph of the proposal that you are addressing. The BLM may not necessarily consider or include in the Administrative Record for the final rule comments that we receive after the close of the comment period (see DATES ) or comments delivered to an address other than those listed above (see ADDRESSES ). B. May I review comments submitted by others? Comments, including names and street addresses of respondents, will be available for public review at the address listed under ADDRESSES : Personal or messenger delivery during regular hours (7:45 a.m. to 4:15 p.m.), Monday through Friday, except holidays. The comments are also available for public review on *http://www.regulations.gov* . Before including your address, telephone number, e-mail address, or other personal identifying information in your comment, be advised that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold from public review your personal identifying information, we cannot guarantee that we will be able to do so. II. Background The BLM is proposing these regulations to implement the EP Act (42 U.S.C. 15927), which became law on August 8, 2005. Section 369 of the EP Act addresses oil shale development and authorizes the Secretary of the Interior to establish regulations for a commercial leasing program. The MLA of 1920 (30 U.S.C. 241(a)) provides the authority for the BLM to allow for the exploration, development, and utilization of oil shale resources on the BLM-managed public lands. Additional statutory authorities for these proposed regulations are:
(1)The Mineral Leasing Act for Acquired Lands of 1947 (30 U.S.C. 351-359); and
(2)The Federal Land Policy and Management Act (FLPMA) of 1976 (43 U.S.C. 1701 *et seq.* , including 43 U.S.C. 1732). Oil shale is a fine-grained sedimentary rock containing organic matter from which shale oil may be produced. Oil shale is a marlstone and contains no oil; rather, it contains un-decayed algae called kerogen (not oil). In fact, the word kerogen is a Greek word interpreted to mean “to produce wax”—“kero” (wax), “gen” to produce. The waxy substance produced from oil shale rock is not the same as conventional crude oil. The kerogen only has a market value as an energy source after it has been refined and converted to synthetic crude oil. Oil shale is a solid rock and must be mined or treated in place to release the kerogen oil from the rock. Energy companies and petroleum researchers have, over the past 60 years, developed and tested a variety of technologies on a small scale for recovering shale oil from oil shale and processing it to produce fuels and byproducts. Both surface processing and in-situ technologies have been examined. Generally, surface processing consists of three major steps:
(1)Oil shale mining and ore preparation;
(2)pyrolysis of oil shale to produce kerogen oil; and
(3)processing kerogen oil to produce refinery feedstock and high-value chemicals. This sequence is illustrated below. Conversion of Oil Shale to Products (Surface Process) Resource—>Ore Mining—>Retorting—>Oil Upgrading—>Fuel and Chemical Markets For deeper, thicker deposits, not as amenable to surface- or deep-mining methods, the shale oil can be produced by in-situ technology. In-situ processes minimize or, in the case of true in-situ, eliminate the need for mining and surface pyrolysis by heating the resource in its natural depositional setting. This sequence is illustrated below. Conversion of Oil Shale to Products (True In-Situ Process) Resource—>In-Situ Pyrolysis—>Oil Upgrading—>Fuel and Chemical Markets The American Association of Petroleum Geologists estimates that the total world oil shale resources contain the equivalent of 2.6 trillion barrels of oil. According to estimates by the U.S. Geological Survey, the United States holds more than 50 percent of the world's oil shale resources. The largest known deposits of oil shale in the world are located in a 16,000 square mile area in the Green River formation in Colorado, Utah, and Wyoming (underlying the Piceance, Uinta, Green River, and Washakie Basins), which is estimated to contain the equivalent of between 1.5 and 1.8 trillion barrels of oil. Federal lands comprise 72 percent of the total surface of oil shale acreage and 82 percent of the oil shale resources in the Green River formation. As stated in the June 9, 2005 call for nominations for the research, development, and demonstration (R, D and D) (70 FR 33753) leases, the BLM opted for a staged oil shale leasing program. The first stage is the research and development program followed by these proposed commercial leasing regulations. BLM oil shale initiatives since 1983. In 1973, four leases were issued in the oil shale prototype leasing program. During the 1973-74 oil shale prototype program, there were expectations of an economic boom in western Colorado which never materialized. The oil shale industry collapsed on May 2, 1982, commonly referred to as Black Sunday. In 1983, the BLM established an Oil Shale Task Force to address:
(1)Access to unconventional energy resources (such as oil shale) on public lands;
(2)Impediments to oil shale development on public lands;
(3)Industry interest in research and development and commercial opportunities on public lands; and
(4)Secretarial options to capitalize on these opportunities. On February 11, 1983, the BLM published a proposed rule for an oil shale leasing program (48 FR 6510). Due to apparent lack of interest in the development of oil shale, the BLM withdrew the proposed rule, effective September 25, 1985 (50 FR 38867). In order to be better able to expand and diversify domestic energy production, on November 22, 2004, the BLM published a notice in the **Federal Register** (69 FR 67935) requesting public comments on the potential for oil shale development within the Piceance Creek Basin in Colorado, the Uinta Basin in Utah, and the Green River and Washakie Basins in Wyoming. The **Federal Register** notice also requested comments on a proposed draft oil shale R, D and D lease form. Comments received were incorporated, as appropriate, into the final R, D and D lease form. On June 9, 2005, the BLM published a notice in the **Federal Register** (70 FR 33753) which initiated a R, D and D leasing program by soliciting nominations of 160-acre parcels of public land to be leased in Colorado, Utah, and Wyoming for conducting oil shale recovery technologies. In response to the 19 nominations of parcels that the BLM received, the BLM issued 6 R, D and D leases—5 in Colorado that were effective January 1, 2007, and an additional R, D and D lease in Utah that was effective on July 1, 2007. Each of the R, D and D leases contains a preference right for conversion to a commercial lease of additional acreage upon demonstration of a successful method of producing oil from shale rock. One of the purposes of the R, D and D leases, as stated in the notice was to provide the BLM, state and local governments, and the public with important information that could be utilized as the BLM works with communities, states, and other Federal agencies to develop strategies for managing the environmental effects of production. The R, D and D lease form was published as an attachment (Appendix A) to the June 9, 2005, **Federal Register** notice. The PEIS and National Environmental Policy Act
(NEPA)Compliance On December 13, 2005, the BLM published in the **Federal Register** a notice of intent
(NOI)to prepare a PEIS (70 FR 73791) for oil shale and tar sands resources leasing on lands administered by the BLM in Colorado, Utah, and Wyoming. The NOI alerted the public that the BLM was intending to amend several resource management plans
(RMPs)to open lands for oil shale and tar sands resources leasing in Colorado, Utah, and Wyoming. The NOI also informed the public of the development of the oil shale regulations required by Section 369(d)(2) of the EP Act. The RMPs are BLM planning documents prepared under Section 202 of the FLPMA that present guidelines for making resource management decisions. The draft PEIS evaluates the following RMPs for possible amendment:
(1)*Wyoming* : Green River, Great Divide, and Kemmerer;
(2)*Utah* : Price River, San Juan, San Rafael, Henry Mountain, Book Cliffs, and Diamond Mountain; and
(3)*Colorado* : Grand Junction, White River, and Glenwood Springs. Although the PEIS covers planning for tar sands, these proposed regulations do not address tar sands leasing since the BLM has regulations in place that address tar sands leasing (see 43 CFR part 3140). On December 21, 2007, the BLM published the notice of availability for the draft PEIS and has made the draft PEIS available for public comment (72 FR 72751). The BLM intends to finalize the PEIS before these regulations are final. The PEIS is primarily intended to analyze the impacts of land use allocation and not site specific oil shale leasing. Advance Notice of Proposed Rulemaking The BLM recognizes that the creation of the rules governing the development of oil shale would need to address different possible technologies that have different associated impacts and costs. Therefore, to increase public participation and to aid in the development of oil shale regulations, the BLM published in the **Federal Register** an advance notice of proposed rulemaking
(ANPR)(71 FR 50378) on August 25, 2006. The ANPR requested public comments on the following five key components of the proposed regulations:
(1)What should be the royalty rate and point of royalty determination?
(2)Should the regulations establish a process for bid adequacy evaluation,i.e., Fair Market Value
(FMV)determination, or should the regulations establish a minimum acceptable lease bonus bid?
(3)How should diligent development be determined?
(4)What should be the minimum production requirement?
(5)Should there be provisions for small tract leasing? On September 26, 2006, the BLM published a **Federal Register** notice reopening the comment period for the ANPR and extending the comment period until October 25, 2006 (71 FR 56085). In response to the ANPR, the BLM received 48 comments. Comments were received from individuals, public interest groups, and industry representatives. Although the ANPR focused on the 5 areas previously identified, commenters addressed a variety of topics, including whether or not they were supportive of a commercial oil shale leasing program. Below is a discussion of the ANPR organized by topic. Public comments BLM received on the ANPR are discussed in this preamble at the appropriate section of this rule. Royalty Rate and Point of Royalty Determination—Section 369(o) of the EP Act does not prescribe a royalty rate, but does provide that the royalty rate for oil shale should encourage development of the resource and should ensure a fair return to the United States. The ANPR comments received were extremely varied and recommended a wide range of royalty rates. Discussion of the ANPR royalty comments can be found in the discussion of section 3903.52 of this rule. Bid Adequacy Evaluation (Fair Market Value)—It is the policy of the United States, stated in Section 102(a) of FLPMA (43 U.S.C. 1701(a)(9)) and Section 369(o)(2) of the EP Act, that the United States receive FMV for the issuance of Federal mineral leases. The BLM's purpose for requesting comments on the FMV it should receive for lease tracts was to solicit ideas on how FMV would be determined for a resource that has little or no history of comparable sales. The public comments received on the ANPR are discussed in section 3924.10 of this rule. Diligent Development—Section 369(f) of the EP Act requires that the BLM establish work requirements and milestones to ensure diligent development of Federal oil shale leases. The BLM requested public comment on diligent development to assist us in determining lease diligence requirements for an industry that has yet to be successfully established. A discussion of the ANPR comments we received on diligence can be found in section 3927.50 of this proposed rule. Minimum Production Requirement—The BLM specifically asked in the ANPR for suggestions from the public about what the minimum production requirement should be to assist us in determining lease production requirements for an industry that has yet to be successfully established. A discussion of the public comments we received on minimum production requirements can be found in section 3903.51 of this proposed rule. Small Tract Leasing—In the ANPR the BLM requested comments on whether there should be small tract leasing or leasing small acreages of land for oil shale development. A discussion of the public comments we received on small tract leasing can be found in section 3927.20 of this proposed rule. We also received several comments unrelated to the five questions in the ANPR. Those comments are discussed in the respective section discussions for the rule. Listening Sessions With Governor's Representatives From Colorado, Utah, and Wyoming The BLM, in coordination with the Minerals Management Service (MMS), held three “listening sessions” with representatives of the governors of the States of Colorado, Utah, and Wyoming. The BLM and the MMS met with these representatives in Denver, Colorado (December 14, 2006), Salt Lake City, Utah (April 26, 2007), and Cheyenne, Wyoming (August 8, 2007). The purpose of the listening sessions was to provide the governors' representatives the opportunity to share their ideas, issues, and concerns relating to the proposed commercial oil shale leasing regulations. Section 369(e) of the EP Act requires the Department of the Interior to consult with the governors of Colorado, Utah, and Wyoming, representatives of local governments, interested Indian tribes, and the public to determine the level of support for conducting oil shale lease sales. The BLM plans to consult with the affected states prior to conducting the first oil shale lease sale, and following publication of the final rule. Consolidated Appropriations Act of 2008 A provision in section 433 of the Consolidated Appropriations Act of 2008 (Pub. L. 110-161) prohibits the use of funds for the preparation or publication of final oil shale regulations, but does not apply to a proposed rule. Therefore, the BLM is publishing this proposed rule and will analyze comments received on the proposed rule, but will not prepare or publish a final rule using fiscal year 2008 funds as provided by this Congressional directive. III. Discussion of the Proposed Rule Part 3900—Oil Shale Management—General This part would contain regulations on the general management of the oil shale program, including discussions of the descriptions and acreage in oil shale leases, qualifications requirements, fees, rentals, royalties, bonds and trust funds, and lease exchanges. Subpart 3900—Oil Shale Management—Introduction This subpart would establish competitive oil shale leasing administrative procedures for implementing a long-term commercial oil shale leasing program. The proposed rule would contain specific provisions required by Section 369 of the EP Act. Many of the sections of the proposed rule contain regulatory requirements similar to the regulations in the BLM's existing mineral programs namely, coal, non-energy leasable minerals, and oil and gas. In creating a regulatory framework for this proposed oil shale commercial leasing program, the BLM proposes to adopt certain basic components and processes common to the BLM's leasing programs. Most of the BLM's leasing programs are governed by the MLA. The regulations governing those programs and this program would include the following types of provisions: Pre-lease exploration; leasing processes; bonding; operations (including plan of development); reclamation; and inspection and enforcement. Section 3900.2 would contain the definitions and terms used in these proposed regulations. Many of the terms and definitions found in this section would be similar to terms and definitions in the regulations of other BLM mineral leasing programs. Because most of the terms and concepts in this section are well-established, this section of the preamble does not address each of the definitions, but focuses only on definitions for certain terms that directly affect the reader's understanding of the regulatory framework of the oil shale leasing program or that are unique to these regulations. The term “commercial quantities” means production of shale oil quantities in accordance with the approved Plan of Development for the proposed project through the research, development, and demonstration activities conducted on the lease, based on and at the conclusion of which a reasonable expectation exists that the expanded operation would provide a positive return after all costs of production have been met, including the amortized costs of the capital investment. The term “infrastructure” means all support structures necessary for the production or development of shale oil. The definition lists examples of the different types of support structures that the BLM would consider to be infrastructure. This term is defined in these proposed regulations because it is critical to the BLM's review of lease applications. Infrastructure impacts are a key component of the plan of operations that the BLM will review when undertaking various analyses such as those required by NEPA. Furthermore, the BLM believes that a detailed itemization of examples is necessary since installation of infrastructure is one of the proposed diligent development milestones. The term “oil shale” means a fine-grained sedimentary rock containing:
(1)Organic matter which was derived chiefly from aquatic organisms or waxy spores or pollen grains, which is only slightly soluble in ordinary petroleum solvents, and of which a large proportion is distillable into synthetic petroleum; and
(2)Inorganic matter, which may contain other minerals. This term is applicable to any argillaceous, carbonate, or siliceous sedimentary rock which, through destructive distillation, will yield synthetic petroleum. The BLM defined the term “production” to acknowledge the various technologies associated with operations for extraction of shale oil, shale gas, or shale oil by-products. Section 3900.5 would leave a place holder for the information collection requirements in parts 3900-3930 under 44 U.S.C. 3501 et seq. The BLM will add the OMB form number once we receive OMB's approval for information collection in the final regulations. The table in paragraph
(d)of this section lists the subparts in the rule requiring the information and its title and summarizes the reasons for collecting the information and how the BLM would use the information. Section 3900.10 would identify which lands would be subject to leasing under parts 3900 through 3930. Section 21 of the MLA authorizes the issuance of oil shale leases (30 U.S.C. 241(a)). Section 3900.20 would address the right to appeal the BLM decisions issued under these regulations to the Interior Board of Land Appeals under 43 CFR part 4. This section would adopt standard appeals language found in the regulations of other BLM mineral programs. Section 3900.30 would contain standard language providing that documents (i.e., applications, statements of qualification, plans of development and supporting information, etc.) required by these proposed regulations be filed in the proper BLM office with the required fees. The term “proper BLM office” is defined in the definitions section of this rule. Section 3900.40 would address the multiple use mandate of FLPMA, by providing that the BLM's issuance of an exploration license or lease for the development or production of oil shale would not preclude the issuance of other exploration licenses or leases on the same lands for deposits of other minerals or other resource uses. This provision is similar to regulatory provisions in the BLM's other leasing programs, which also promote multiple use of the public lands. Section 3900.50 would clarify the relationship of land use plans and NEPA to the BLM's proposed commercial oil shale leasing program. This section would provide that any lease or exploration license issued under these regulations would be issued under the decisions, terms, and conditions of a comprehensive land use plan. The land use planning process is the key tool used by the BLM to protect resources and designate uses for BLM-administered lands. Compliance with NEPA and land use planning is required prior to the BLM's issuing a lease or exploration license. Section 3900.61 would address the procedures the BLM would follow concerning consent and consultation where the surface of public land is administered by other Federal agencies outside of the Department of the Interior and procedures for particular situations where the U.S. has conveyed title to or transferred control of the surface. Paragraphs
(a)and
(b)would address those procedures the BLM would follow concerning consent and consultation where the surface of public lands is administered by other agencies outside of the Department of the Interior. Paragraph
(c)would provide procedures an applicant may pursue in challenging a decision issued by a particular agency outside of the Department of the Interior relating to special stipulations or refusal of consent. Paragraph
(d)would not allow the BLM to issue a lease or license on National Forest Service lands without the consent of the Forest Service. Under paragraph (d), the BLM's decision whether to issue the lease or license is based on a determination as to whether the interests of the United States would best be served by issuing the lease or license. The provisions of this section closely mirror BLM regulations for oil and gas, coal, and non-energy leasable minerals. Paragraph
(e)would provide that the BLM make the final decision as to whether to issue a lease or license in those cases not involving a Federal agency, where the United States has conveyed title to any state or political subdivision or agency, including a college or any other educational corporation or association, to a charitable or religious corporation or association, or to a private entity. Section 3900.62 would address situations where the BLM may require lease or exploration license stipulations to protect lands and resources. Stipulations are site specific provisions that the BLM may add to standard lease or license terms prior to issuance for the purpose of protecting Federal resource values and mitigating impacts to other values identified in a NEPA document. Stipulations frequently restrict operations on the lease or permit by limiting surface disturbance for the purpose of protecting the environment. This includes the protection of wildlife, plants, and cultural or other resources. This provision is similar to those found in the BLM's other mineral leasing programs. Subpart 3901—Land Descriptions and Acreage Section 3901.10 would contain the BLM's requirements for land descriptions in applications or documents submitted to the BLM. This section is similar to the regulatory provisions addressing land descriptions found in other BLM leasing programs and would establish consistent standards for land descriptions in applications submitted to the BLM. Sections 3901.20 and 3901.30 would incorporate the provisions of Section 369(j)(2) of the EP Act that 50,000 acres would be the maximum acreage of oil shale leases on public lands that any entity may hold in any one state and that the oil shale lease acreage would not count toward acreage limitations associated with oil and gas leases. Another 50,000 acres may be held on acquired lands. Since the provisions in this section relating to maximum acreage holdings are statutory, the BLM does not have the authority to revise the requirements in this section. Subpart 3902—Qualification Requirements Sections under this subpart would detail the various statutory requirements under Section 27 of the MLA relating to who can hold Federal oil shale leases and interests. These proposed regulations would mirror many of the qualification provisions of the BLM's other mineral leasing regulations, namely oil and gas (43 CFR subpart 3102), geothermal (43 CFR subpart 3202), coal (43 CFR subpart 3425), and non-energy leasable minerals (43 CFR subpart 3502). Section 3902.10 would enumerate the requirements of the MLA relating to who is authorized to hold leases or interests in leases (30 U.S.C. 181, 352). These requirements have a longstanding statutory and regulatory history and are found in the regulations for the BLM's mineral leasing programs. Sections 3902.21 and 3902.22 would explain the filing procedures for qualification documents, including when and where to file documents. Section 3902.21 would also require that all documentation submitted to the BLM as evidence of qualifications be current, accurate, and complete. Sections 3902.23 through 3902.29 would detail the type of qualifications documentation that the BLM would require from:
(1)Individuals (section 3902.23);
(2)Associations, including partnerships (section 3902.24);
(3)Corporations (section 3902.25);
(4)Guardians or trustees (section 3902.26);
(5)Heirs and devisees (section 3902.27);
(6)Attorneys-in-fact (section 3902.28); and
(7)Other parties in interest (section 3902.29). The requirements proposed in these sections are similar to the standard requirements of other BLM regulations to show evidence of qualifications to hold a lease under the MLA. Subpart 3903—Fees, Rentals, and Royalties For payments of required rental and royalties, sections 3903.20 and 3903.30 would address the acceptable forms of payment (section 3903.20) and where to submit payment for processing or filing fees, rentals, bonus payments, and royalties (section 3903.30). The acceptable forms of payment listed in section 3903.20 would mirror the forms of payment accepted in the BLM's other mineral leasing regulations. Section 3903.40 would incorporate the requirement of Section 369(j) of the EP Act that the annual rental rate for an oil shale lease would be $2.00 per acre. Since the statute sets the rental rate, the BLM has no discretion to revise it. Section 3903.51 would address the minimal annual production requirement that would apply to every lease. It also would discuss payments in lieu of production beginning with the 10th lease year. The BLM would determine the payment in lieu of annual production, but in no case would it be less than $4 per acre. Payments in lieu of production are not unique to this proposed rule. They are a requirement of other BLM mineral leasing regulations and the BLM believes they provide an incentive to maintain production. Setting the payment in lieu of production at no less than $4 per acre should be an adequate payment to the Federal government to justify allowing the lessee to continue holding a lease absent production, but should not be high enough to cause the lessee to relinquish the lease. A payment in lieu of production of $4 per acre for the maximum lease size of 5,760 acres equals a payment of $23,040 per year. In response to the ANPR, the BLM received comments expressing various ideas concerning minimum production amounts and requirements. The comments are summarized as follows:
(1)Minimum production should be 1,000 barrels a day;
(2)Minimum production should be based on the viability of the operation;
(3)Minimum production levels should be based on resource potential and production levels identified in the plan of development;
(4)Minimum royalties should be assessed at the end of the primary term;
(5)Minimum production should be based on a percentage of the projected resource base; and
(6)There should not be a minimum production requirement. We agree with several of the commenter's suggestions. The suggestions to base minimum production on the approved plan of development and the specifics of the operation were incorporated into proposed sections 3930.30(c) and 3930.30(d). The suggestions related to defining the minimum production on a percentage of the resource base were not incorporated into the proposed rule because of the difficulties associated with defining the recoverable resource, the variables associated with the different development technologies, and the differing kerogen content of the shales. We consider the suggestion that identified 1,000 barrels a day as the correct minimum production requirement too inflexible a standard because it does not allow for differences in shale quality and differences in extraction technology. Section 3903.52—Royalty Rates on Oil Shale Production Section 3903.52 would establish a royalty rate for all products that are sold from or transported off of the lease area. The BLM recognizes that encouraging oil shale development presents some unique challenges compared to BLM's traditional role in managing conventional oil and gas operations. We received a wide range of comments presenting alternative royalty approaches as part of the ANPR process, and we address those comments below. However, while we have narrowed the range of options based on the ANPR comments, we have not yet settled on a single royalty rate for this proposed rule. Instead, we are presenting two royalty rate alternatives in the proposed rule (as outlined later in this section), and requesting public comment on those specific alternatives. In addition, we are considering a third alternative, a sliding scale royalty rate (also outlined in this preamble), and we are seeking public comment on the appropriate parameters for the sliding scale royalty rate should the BLM choose to adopt this alternative. We anticipate adopting one of these alternatives, or variations on one of these alternatives, at the final rule stage. EP Act (Section 369(o)) directs the agency to establish royalties and other payments for oil shale leases that “shall—
(1)Encourage development of the oil shale and tar sands resources; and
(2)Ensure a fair return to the United States.” The market demand for oil shale resources based on the price of competing sources (e.g., crude oil) of similar end products is expected to provide the primary incentive for future oil shale development. Additional encouragement for development may be provided through the royalty terms employed for oil shale relative to conventional oil and gas royalty terms, but we recognize that such incentives must be balanced against the objective of providing a fair return to taxpayers for the sale of these resources. Through the ANPR process, the BLM initially examined a wide range of royalty options, including:
(1)12.5 percent royalty rate on the first marketable product;
(2)12.5 percent royalty rate on the value of the mined oil shale rock, as proposed in 1983;
(3)8 percent royalty rate on products sold for 10 years with optional increases of 1 percent per year up to a maximum of 12.5 percent, similar to the rates established by the State of Utah in 1980;
(4)Initial 2 percent royalty to encourage production and a 5 percent maximum upon establishment of infrastructure;
(5)Sliding scale royalty rate tied to timeframes up to a maximum of 12.5 percent;
(6)Sliding scale royalty rate tied to production amounts up to a maximum of 12.5 percent;
(7)Sliding scale royalty rate with royalty rates tied to the price of crude oil;
(8)Royalty rate of 1 percent of gross profit before payout and royalty rate of 25 percent net profit after payout—(Canadian oil sands model);
(9)Royalty based on cents per ton as proposed in the 1973 oil shale prototype program; and
(10)Royalty based on British Thermal Unit
(Btu)content as compared to crude oil. In evaluating an appropriate royalty rate system for oil shale that would meet the dual EP Act objectives of encouraging development and ensuring a fair return to the government, the BLM also reviewed other Federal royalty rates for Federal minerals set by statute and under existing regulations administered by Department of the Interior bureaus, and royalty rates applied to oil shale production in other countries. The royalty rates for other Federal energy minerals vary. Specifically, current royalty rates for Federal energy minerals under Department of the Interior leasing programs include:
(1)Onshore oil and gas (12.5 percent);
(2)Offshore oil and gas (16.67 percent), Gulf of Mexico Region (18.75 percent);
(3)Underground coal (8 percent);
(4)Surface coal (12.5 percent) and
(5)Geothermal (for new leases: 1.75 percent for the first 10 years and 3.5 percent thereafter. For leases issued prior to the EP Act, 10 percent on net proceeds after deductions). Many of these programs allow for royalty rate relief under certain circumstances. The BLM also looked at royalty applications for oil shale and similar unconventional fuels in other countries, including:
(1)For oil sands, Canada applies a royalty rate of 1 percent of the gross revenue before payout (before companies have recouped investment costs) with a 25 percent net profit royalty rate applied after payout;
(2)Australia has a 10 percent gross royalty on the value of the shale oil produced;
(3)Brazil applies a 3 percent gross royalty rate;
(4)Estonia does not have a royalty; and
(5)No information on a royalty rate for shale oil produced in China was available. It should be noted that Canada produces oil from oil sands, not oil shale. The oil in the sands is the same as crude oil, but dispersed in sand. Extraction and processing is more expensive than for conventional crude oil production, but less expensive than is anticipated for oil shale. Canadian operators have never reached the payout point due to the continued capital expenditures in new equipment, so to date, Canada has received a 1 percent royalty on oil sands production. Australian operations are using the Alberta Taciuk Process, which is the same type of technology currently used by the Oil Shale Exploration Company
(OSEC)in Utah. Despite their 10 percent royalty rate, the Australian oil shale project (the Stuart Project) was heavily subsidized by the Australian government through other means (tax incentives). Even the government subsidies could not sustain oil shale operations in Australia. The last three operators went into bankruptcy after brief operations. Suncor, the founder of the Stuart Project and a successful developer of the Canadian tar sands, exited the Australian oil shale business after losing approximately one hundred million dollars. 1 For its Utah demonstration project, OSEC is also expected to test the Petrosix horizontal retort process, which is currently being used by Petrobras, Brazil, for oil shale operations. 1 Environmental News Service, July 22, 2005, *http://www.ens-newswire.com.* Australia and Brazil are the only other known countries that are producing or have produced oil shale using the same technologies as in the U.S. Oil shale developmental efforts in China and Estonia are owned by their respective governments. Because no other country has yet achieved successful commercial oil shale operations and because of the wide variety of oversight and revenue structures employed in each country, the BLM's review of these systems did not identify a useful model for a royalty system to be used for oil shale development on Federal lands in the U.S. In the ANPR, the BLM solicited public input on the royalty rate and point of royalty determination. The BLM's purpose for requesting comments was to solicit ideas on these royalty issues for a resource that has little or no history of commercial development. There were approximately thirty-one entities that provided comments through the ANPR process that were specific to royalty rate and royalty point of determination. The comments suggested royalty rates that ranged from a royalty rate of zero to a royalty rate of 12.5 percent. Of the royalty-related comments, three suggested that the royalty be set at 12.5 percent, the same rate as in BLM's oil and gas program, while some comments described a 12.5 percent royalty rate as unreasonable. It is contemplated that the primary products produced from oil shale will compete directly with those from onshore oil and gas production, which has a 12.5 percent royalty rate. However, the BLM recognizes that the nature of potential oil shale operations differs from that of conventional oil and gas operations and that these differences may suggest the need for a royalty system other than the traditional flat rate of 12.5 percent used for conventional onshore oil and gas operations. In determining the royalty rate for oil shale, it should be noted that there is a significant difference between oil shale mineral deposits and a conventional crude oil reservoir. As discussed in the Background section of this preamble, oil shale is a marlstone that contains no oil, but kerogen, that needs to be refined and converted to synthetic crude oil. Currently, proposed processes to extract kerogen from an oil shale deposit are also considerably different, as well as labor and capital intensive. Oil shale is a solid rock that must be mined or treated in place to release the kerogen. Two of these processes are discussed in the Background section of this preamble. Seven of the comments recommended that a “very low royalty rate” be established until after companies have recouped the costs of their investments (debt service and capital investment). Many among the seven recommended that a 1 percent royalty rate be the starting point, and they used the Canadian oil sands royalty scheme as an example. As discussed above, the BLM looked at royalty applications for oil shale and similar unconventional fuels in other countries. The Canadian tar sand model presents two challenges. First, because of the continual infusion of capital to acquire new equipment the payout point is never being reached. Secondly, because of the complexity of determining when payout may occur, such a royalty scheme is subject to easy manipulation and higher administrative costs. Therefore, the BLM considered the investment payout scheme as inconsistent with the premise of “a fair return” to the taxpayers as mandated in EP Act. Three of the ANPR comments recommended that “royalties must be high enough” to support local communities and infrastructure; however, these comments did not provide specific royalty rates. Oil shale royalties are not designated for community and infrastructure support, but by statute are required to be split between the Federal Treasury and the states (30 U.S.C. 191). Presumably states could choose to direct a portion of the royalty revenues they receive to local community and infrastructure support, but that would be a state choice, and for the purposes of this rulemaking, these comments were not considered because they assume a use of royalty revenues not available under current law. Three comments suggested that royalties should not be charged on hydrocarbons unavoidably lost or used on the lease for the benefit of the lease, but did not directly address the royalty rate issue. One comment suggested the royalty be “based on the material as it exists naturally in the land, and as it is removed from the land.” This comment seems to suggest that royalty should be based on mined raw shale. While the BLM acknowledges the inherent differences between an oil shale deposit and other deposits from which similar products can be produced, this suggestion was not considered because there is no known value for raw oil shale since there is no oil shale industry or an established market for raw oil shale. However, it should be noted that in 1983 the BLM proposed a rule to establish a royalty rate equivalent to 12.5 percent of the value of oil shale after mining or resource extraction and before processing, as determined by the BLM. The 1983 proposed rule was published on February 11, 1983 (48 FR 6510). The 1983 proposed rule provided that “the derivation methodology for this value shall be announced prior to the solicitation of bids.” The proposed rule further stated that “the royalty rate shall, to the extent practicable, not be levied on any value added by the production process after the point of resource extraction.” It would be unreasonable to adopt such a proposal today, due to the changes in extraction methodology (in situ versus ex situ). It would also be challenging to develop a fair and transparent process to calculate the royalty equivalent in today's economic environment, and no values were assigned to the mined or unprocessed rock and tonnage in the 1983 proposed rule. As noted, the 1983 proposed rule deferred the determination of those parameters to a later date. In addition to ANPR comments received on royalty rates, the BLM looked at an initial 2 percent royalty to encourage production and a maximum 5 percent rate upon establishment of infrastructure. This method recognizes the high costs involved in producing shale oil. However, we dismissed this approach because of the difficulty involved in determining when necessary infrastructure is in place. The BLM also considered the 8 percent royalty rate established by the State of Utah for state oil shale leases. It was determined that this rate represents the historic base royalty rate for solid fuel minerals on the State of Utah School and Institutional Trust Lands Administration lands—including asphaltic sands, uranium, and coal. To date, none of the state leases in Utah have been developed. Based on these facts, the BLM determined that there is not currently a sufficient basis for simply adopting the State of Utah's royalty rate for oil shale on Federal lands. After examining the basis for setting rates, as suggested in the ANPR comments, the BLM determined that a flat 12.5 percent royalty rate for all future production may not allow oil shale to become competitive with traditional oil and gas development and therefore could be viewed as inconsistent with the requirements of EP Act. The BLM has decided to consider other alternatives in this proposed rule that may provide some additional incentive beyond that of a flat 12.5 percent royalty rate while also meeting the EP Act objective of providing a fair return to taxpayers. Royalty Rate Alternatives Proposed for Further Consideration As noted previously, we are not proposing a single royalty system in the proposed rule. Based on the information the BLM has reviewed to date and considering the unique challenge of trying to set a royalty rate on oil shale production in light of the many uncertainties regarding the economics and technology of a potential future oil shale industry, we are instead presenting two different royalty rate alternatives in the proposed rule text: 1. A flat 5 percent royalty rate; and 2. A 5 percent royalty rate on a specific volume of initial production beginning within a prescribed timeframe, with a 12.5 percent rate applied thereafter. In addition, we are seeking comment on the appropriate parameters for a third option: A two-three tiered sliding scale royalty based on the market price of competing products (e.g., crude oil and natural gas). A further explanation of each of these proposals is presented below. We are requesting the public to comment on these specific options. Option 1. Flat 5 Percent Royalty Although mitigated somewhat by the much greater geographic concentration of oil shale resources, there is a significant difference between the energy value of oil shale and crude oil. On a per-pound basis, very high quality oil shale rock generates 4,300 Btu, coal generates an average of 10,600 Btu, while crude oil generates 19,000 Btu. Even wood has more heating capacity than oil shale rock, generating an average of 6,500 Btu. Applying the relative Btu value of oil shale to crude oil would result in a 2.6 percent royalty for oil shale. Using the same comparison to the royalty rate for underground coal would result in a 3.2 percent royalty rate for oil shale. In other words, it would require almost 5 times as much oil shale to produce the Btu value of crude oil and more than 2 times as much oil shale to produce the equivalent Btu value of coal. The BLM looked at royalty rates on leases issued under Interior's 1973 Prototype Leasing Program. The prototype leases provided for royalties of $.12 per ton for oil shale with a quality of 30 gallons of oil per ton (30 g/t) with the addition of $.01 for every increase in gallon per ton of oil shale. In 1973, the average price of a barrel of oil was $3.89. At $.24 per ton of 42 g/t or one barrel/ton of oil shale, the royalty per barrel of oil would have been 5 percent. This rate is similar to the rate derived by comparing production costs to royalty rates as recommended by these proposed regulations. The BLM also estimated what royalty rates for shale oil might be, based on comparisons of production costs for similar products. The cost of removing oil from shale rock is currently estimated to be two to three times higher than the current cost of producing conventional crude oil from onshore operations. The current estimated production cost for shale oil ranges from about $37.75-$65.21 a barrel. The production cost for conventional onshore crude is approximately $19.50 a barrel. 2 The table below compares the estimated cost of shale oil production for different technologies with the estimated cost of current onshore U.S. conventional oil production. The table also estimates what royalty rates for oil shale production might be, for the different production methods, compared to a 12.5 percent royalty rate for conventional oil production, if the higher anticipated production costs for oil shale are taken into account. 2 Energy Information Administration, Crude Oil Production, dated July 3, 2008. *http://www.eia.doe.gov/neic/infosheets/crudeproduction.html* and *http://www.eia.doe.gov/emeu/perfpro/tab_12.htm* . The production cost at the time of analysis was approximately $18 per barrel. Technology Estimated shale oil production costs per barrel Royalty calculation based on difference in production cost of a barrel of conventional oil versus shale oil Adjusted royalty for shale oil (percent) Surface mining $44.24 $19.50/$44.24 = 44.07% × 12.5% = 5.51% 5.5 Underground mining 54.00 $19.50/$54 = 36.11% × 12.5% = 4.51% 4.5 Fracturing and heating in place 65.21 $19.50/$65.21 = 29.90% × 12.5% = 3.74% 3.75 Heating only in place 37.75 $19.50/$37.75 = 51.65% × 12.5% = 6.46% 6.5 Adjusting royalty rates based on higher anticipated production cost for oil from oil shale is not a new concept and is similar to the situation in the coal program where underground coal operations compete with surface coal operations, which have lower production costs. Congress addressed this disparity in production costs by allowing for different royalty rates for coal mined underground versus coal mined at the surface. Please specifically comment on whether or not the anticipated costs of producing oil shale should be considered in establishing the royalty rate for all oil shale products and whether the BLM has chosen appropriate reference points for this production cost comparison. Therefore, one alternative that considers the decreased energy content and increased production costs, while encouraging production and ensuring an appropriate return to the government is to set a flat royalty rate of 5%. This alternative assumes that oil shale will continue to be more expensive to produce for many years when compared to new conventional oil. Option 2. A 5 Percent Royalty on Initial Production, With 12.5 Percent Thereafter This alternative would provide a reduced royalty rate of 5% as a temporary incentive for early production of oil shale (similar to royalty incentives offered to spur initial Outer Continental Shelf
(OCS)deepwater production), but with the standard 12.5% onshore oil and gas royalty rate applying to all oil shale production after a set timeframe and a set amount of production has taken place. Like the other royalty options, this option would require oil shale lessees to pay royalties on the amount or value of all products of oil shale that are sold from or transported off of the lease. This section would explain that the standard royalty rate for the products of oil shale is 12.5 percent of the amount or value of production. However, under this option, for leases that begin production of oil shale within 12 years of the issuance of the first oil shale commercial lease, the royalty rate would be 5 percent of the amount or value of production on the first 30 million barrels of oil equivalent produced. The advantage of this alternative over a flat 5% royalty (Option 1) is that it provides a better return to taxpayers on later production if oil prices remain high and oil shale production becomes competitive with new conventional oil projects. At $60/barrel, this would amount to roughly $1.8 billion in production allowed per lease at the lower 5% royalty rate, providing roughly a $135 million in savings per lease compared to using the standard onshore oil and gas royalty rate of 12.5%. One potential downside to this alternative is that offering royalty incentives without regard to oil prices increases the likelihood that, if oil prices remain high, the government will sacrifice revenue without affecting actual oil shale development. For example, at $120/barrel, the savings would be worth $270 million, even though oil shale operations would be more profitable than at oil prices of $60/barrel. Therefore, we are also requesting comment on whether, if this proposal were adopted in the final rule, the temporary 5% royalty on initial production should also be conditioned on crude oil and natural gas prices (similar to OCS deepwater royalty incentives) and if so, what oil and gas price level would trigger payment at the higher 12.5% rate if prices exceeded the threshold. We would also like comments on the 12 year timeframe for reduced royalty. Option 3. Sliding Scale Royalty Based on the Market Price of Oil Two comments suggested a sliding scale royalty format. One comment specifically suggested a sliding scale royalty scheme based on a royalty schedule that varies with the price of conventional crude, as follows: At $10 per barrel of conventional crude, the royalty rate should be zero; At $15 per barrel, royalty should be 0.25 percent and should increase by 0.25 percent for every $5 per barrel increase up to $35 per barrel; At $40 per barrel, the royalty rate should be 2 percent and should increase by 0.5 percent for every $5 per barrel increase in the price of conventional crude oil until the price of conventional crude reaches $100 per barrel; and At $100 per barrel, royalty rate should be 8 percent and should remain at 8 percent at prices above $100 per barrel. Another comment suggested two approaches to calculating royalty. The first part of the comment suggested that a simple way to accomplish royalty rates would be to index the value of barrels of oil equivalent to some percentage of NYMEX futures (say, 30 day average front month) prices. The commenter suggested that the index should be some fraction of the price, such as 50 to 65 percent. In the second part of the comment, the commenter suggested that, as an alternative to indexing, the BLM use a sliding royalty rate that is calculated on the difference between product price and the highest-cost production in the industry. The commenter cautioned that “there need to be provisions that deferred portions of the royalty do not reduce mineral lease payments to the States, if an escalating royalty rate is used.” The BLM, in consultation with the MMS, evaluated these variable royalty options, but decided that as presented, they would be highly complex, and therefore, cumbersome to administer. With price volatility in the crude oil market, an intricate sliding scale royalty scheme could make enforcing compliance very difficult for the MMS. In addition, there is uncertainty about the types of products that would be derived from oil shale refining. Royalties based on oil shale quality would also be difficult for the BLM to administer when attempting to verify production quantities. For instance, if oil shale is extracted in an underground heating system, it would be extremely difficult for the BLM to determine how much oil or other product came from a particular volume or area of in-place oil shale. While the BLM and MMS are concerned about the complexity of administering some of the proposed sliding scale royalty proposals, we recognize that there is some merit to the sliding scale concept, and in a simpler form, a sliding scale royalty may prove useful in meeting the dual goals of encouraging production and ensuring a fair return to taxpayers from future oil shale development. One of the concerns that has been expressed regarding oil shale development is that potential oil shale developers may be reluctant to make the large upfront investments required for commercial operations if they believe there is a chance that crude oil prices might drop in the future below the point at which oil shale production would be profitable (i.e., competitive with new conventional oil production). A sliding scale royalty system could allow the government to at least partially mitigate this development risk by providing for a lower royalty rate if crude oil prices fall below a certain price threshold. The basic concept is that in return for the government accepting a greater share of the price risk that an operator faces when prices are low (in the form of a lower royalty), the government would receive a greater share of the rewards (through a higher royalty) when prices are high. The BLM has not decided on the specific parameters of a sliding scale royalty system, but is considering a simplified, two- or three-tiered system based on the current royalty rates already in effect for conventional fuel minerals and with a 5 percent royalty rate (Option 1) representing the first tier. The applicable royalty rate would be determined based on market prices of competing products (e.g., crude oil and natural gas) over a certain time period. If prices remain below a certain point during the applicable period, the royalty rate on oil shale products would be 5 percent for that period. If prices are above that range for the period, a higher royalty would be charged. In a three-tiered system, a third royalty rate would apply if prices rise above a second price threshold during the applicable period. The BLM seeks comment on the specific parameters that could be applied to a sliding scale royalty system, should the BLM choose to adopt such a system in the final rule. More specifically, the BLM would like feedback on the following questions: 1. Should a sliding scale system include two or three tiers? Assuming a 5 percent royalty for the first tier, what would be appropriate royalty rates for the second and/or third tiers? 2. What are appropriate price thresholds to apply to each tier? Should the thresholds be fixed (in real dollar terms), or should they float relative to a published index? 3. Should the sliding scale apply to all products, or should nonfuel products pay a traditional flat rate? 4. Are there other ways to simplify a sliding scale royalty to reduce the administrative costs for BLM, MMS, and producers? Under a sliding scale system, if prices fall below the lower range, producers would have a “safety net” in the form of the lower 5% royalty rate. Whether or not the lower royalty kicks in at some point, simply having it in place provides some added certainty for investors that would help encourage oil shale production. In return for this “safety net” that conventional oil and gas producers do not enjoy, oil shale producers would be required to pay a higher royalty rate(s) when crude oil and/or natural gas prices are high (and where oil shale is expected to be substantially more profitable). There are a couple of advantages of this alternative. It reduces the risk for oil shale operators that oil prices might fall below the point that continued oil shale production would be economic. However, it also ensures an improved return to the government if prices remain within one of the higher expected ranges at which oil shale may be profitable. One disadvantage is that taxpayers accept a greater risk of lower returns if prices fall and remain well below the lowest threshold. However, with the lowest royalty rate step set at 5 percent, this risk is no greater than under a flat 5 percent royalty system (Option #1). Other Royalty Issues The BLM also received 5 comments specific to the royalty point of determination. Two of the comments suggested that royalty should be determined “at the point at which the oil product exits a process facility in a marketable state.” One comment suggested that “the point of royalty determination be at the earliest point of liquid or gaseous product marketability.” Another comment suggested that “the oil produced should be measured at the point at which the oil product exits a processing facility in a marketable state.” The last comment did not provide a specific suggestion; rather, it stated that the BLM “must set the royalty rate and point of royalty determination with reference to the economic cost of emissions that would be created from developing, and then burning, the oil shale resource.” After a careful evaluation of these comments and consultation with the MMS, under the proposed rule the royalty would be assessed on all products of oil shale that are sold from or transported off of the lease. This proposed point of royalty determination is similar to points of royalty determination for other Interior Department minerals programs. The BLM received three ANPR comments relating to the oil shale research, development, and demonstration (R, D and D) program. One comment encouraged the BLM to “continue the existing BLM R, D and D leasing program for access to oil shale for companies wishing to test unproven technologies.” Another comment suggested that the BLM “should let several ‘boutique’ small companies with large R, D and D budgets to develop a small number of sites,” on the condition that those companies “would have to agree to allow their findings to be shared.” The last comment specifically requested that the “commercial leasing regulations make clear that the BLM will not hold a commercial lease sale for Federal oil shale resources until successful technologies have been developed and demonstrated on R, D and D leases.” These proposed regulations do not address the first comment. The Secretary has discretion under the EP Act to offer additional tracts for R, D and D leasing. These regulations do not decide whether additional R, D and D leasing is necessary. Although the BLM could require that proprietary information be made public as a condition of further R, D and D leasing, we believe that the industry would not be interested in leasing under such conditions. Furthermore, as previously explained, these regulations do not address any new R, D and D leases. The BLM could not incorporate the third comment, because it suggested a limitation that is inconsistent with the terms of the EP Act. Sections 369(c) and 369(e) of the EP Act authorize the commercial leasing of oil shale following promulgation of regulations and consultation with interested parties without the limitations sought by the comment. Finally, it is important to note that the proposed rule allows the Federal Government to readjust royalty rates on leases after the first 20-year term. Currently, there is no oil shale industry and the oil shale extractive technology is still in its rudimentary stages; as such, commercial oil shale production does not exist anywhere in the world. As research and development of oil shale technology progresses, the BLM will have adequate time to reexamine and readjust royalty rates for oil shale production, either up or down. Please specifically comment on the time necessary to develop an oil shale industry. The BLM is proposing alternatives for the royalty rate and the products on which the royalties will be collected. The BLM anticipates selecting one of these alternatives, or based on public comment and further analysis, variations on these alternatives in the final rule in order to provide predictability for the industry and ease of administration both for the United States and for payers. However, the Department is not proposing corresponding MMS valuation regulations at this time. Because the oil shale industry is still in the research and development phase, it would be speculative to predict whether the industry as it matures would predominantly sell from its leases mined solid oil shale, shale oil, synthetic petroleum, shale gas, natural gas, or products in several different forms or stages of processing. It is also difficult to predict whether or when multi-buyer/multi-seller markets would develop that would provide FMV pricing for products of oil shale. Therefore, the MMS will promulgate royalty valuation regulations before oil shale leases are required to begin paying production royalties under this rule. To the extent possible, the MMS will ensure that any oil shale valuation regulation is consistent with other valuation regulations and will incorporate principles of simplicity, early certainty, and reduced administrative costs in the oil shale valuation regulations it promulgates. For example, the MMS could promulgate regulations similar to the current Federal oil valuation regulation to value crude oil produced from oil shale. Under this regulation, the value of oil sold at arm's-length would be based on gross proceeds less allowable costs of transporting oil to the point of sale. The value of oil not sold at arm's-length would be based on a market index price or the affiliate's arm's-length resale price. In both arm's-length and non-arm's-length situations, the regulations provide for adjustments for location, quality, and transportation allowances. Further, lessees also can petition for alternate valuation agreements that are situation specific when regulatory provisions do not apply. Royalties would not be payable on potentially valuable minerals or inorganic matter that are not sold or transported off the lease for commercial purposes. Those materials would be considered waste, and would be subject to management and reclamation requirements as provided in the lease or in an approved plan of development. The Department seeks comments on what future royalty valuation regulations need to contain. In particular, the Department is seeking comments on the potential types of oil shale products, the most equitable and practical point and method to determine the value on which to apply the royalty rate, and whether there are or should be opportunities to determine value by market proxy or indices. The Department also seeks comments on alternative approaches to valuation and royalty rates. In the economic analysis for this rule, the BLM analyzed the royalty implications of a range of royalty rates. Specifically, the BLM conducted a simulation-based analysis to estimate the revenue, profit, and royalty implication of a production scenario 3 using three discount rates (7 percent, 3 percent, and 20 percent), three world crude oil price projections (EIA's 2007 reference, high, and low price projections 4 ), and six different royalty rates (1 percent, 3 percent, 5 percent, 7 percent, 9 percent, and 12.5 percent). The likelihood of a company, in the face of numerous technological challenges, having the incentive to develop Federal oil shale reserves and experiencing economic success will depend on a number of factors. However, because the simulated scenario analysis is based on a given production scenario and set production costs, the analysis did not assist in determining the project(s) economic viability due to the royalty rate applied. The analysis did, however, clearly identify world oil price as a critical variable determining a project's economic viability. Under EIA's 2007 low oil price projection all operations are assumed to be uneconomic based on the set production costs used in the analysis of the rule. 3 America's Strategic Unconventional Fuels Resources, Volume III Resource and Technology Profiles, Task Force on Strategic Unconventional Fuels, September 2007, page III-17, Table III-4. Potential Oil Shale Development Schedule—Base Case, ( *http://www.unconventionalfuels.org* ). 4 Department of Energy, Energy Information Administration, Annual Energy Outlook 2007, Report #: DOE/EIA-0383(2007), February 2007. Section 3903.53 would require the filing of documentation of all overriding royalties associated with a lease and would require that the filing must occur within 90 days of the date of execution of the assignment. This section is similar to that of the BLM's other mineral leasing programs. Section 3903.54 would contain the requirements for filing an application for waiver, suspension, or reduction of rental or payment in lieu of production, or a reduction in royalty, or waiver of royalty in the first 5 years of the lease. As with the BLM's other mineral leasing programs, this section is intended to encourage the maximum ultimate recovery of the mineral(s) under lease. This section is similar to the BLM's coal leasing regulations and similarly includes a case-by-case processing fee under 43 CFR 3000.11. Section 3903.60 would provide that late payments or underpayment charges would be assessed under MMS regulations at 30 CFR 218.202. Subpart 3904—Bonds and Trust Funds Sections in this subpart would address the requirements associated with bonding and trust funds, including the:
(1)Types of bonds the BLM requires and when bonds would be required (section 3904.10);
(2)When and where bonds would be filed (sections 3904.11 and 3904.12);
(3)Acceptable types collateral for personal bonds (section 3904.13);
(4)Individual lease, exploration license, and reclamation bonds (section 3904.14);
(5)Amount of bond coverage (section 3904.15);
(6)Default (section 3904.20); and
(7)Long-term water treatment trust funds (section 3904.40). Since all of the BLM's mineral leasing programs require bonds, the requirements in subpart 3904 would be similar to the regulatory provisions in the BLM's other mineral leasing programs. The bonding requirements in this rule are consistent with the bonding requirements under the BLM's mining law program. Both programs require that bonds cover the full cost of reclamation. Both programs also allow for the use of long-term trust funds as a mechanism to address potential long-term water issues. Bonding ensures performance at a cost up to the bond amount in the event of default by a lessee or licensee. Sections of this subpart would establish that the BLM would require two types of bonds; a lease or exploration license bond and a reclamation bond. This subpart would also explain that reclamation bonds would be required to be in an amount sufficient to cover the entire cost of reclamation of the disturbed areas as if they were to be performed by a contracted third party. Section 3904.10 would provide that prior to lease or an exploration license issuance, the BLM would require a lease or exploration license bond for each lease or exploration license to cover all liabilities on a lease, except reclamation, and all liabilities on a license. The bond would be required to cover all record title owners, operating rights owners, operators, and any person who conducts operations on or is responsible for making payments under a lease or license. This section would also require the lessee or operator to file a reclamation bond to cover all costs the BLM estimates would be necessary to cover reclamation on a lease. This is similar to the requirement found in other BLM mineral regulations. Section 3904.11 would require the lessee or operator to file a lease bond prior to issuance of a lease, file a reclamation bond prior to approval of a plan of development, and file an exploration bond prior to exploration license issuance. This section is similar to other BLM bonding regulations as it would require the filing of a bond before liabilities may accrue. Section 3904.12 would require that a copy of the bond with original signatures be filed in the proper BLM office and section 3904.13 would describe the different types of bonds that the BLM would accept. These sections are similar to the bonding regulations in other BLM mineral leasing programs. Section 3904.13 would address the types of personal and surety bonds the BLM would accept. Personal bonds would be limited to pledges of cash, cashier's check, certified check, or U.S. Treasury bond. The BLM state offices would list qualified sureties for bonds. Section 3904.14 would provide that the BLM will establish bond amounts on a case-by-case basis. These regulations would set the minimum lease bond amount at $25,000. Although the minimum lease bond amount is greater than that required in other BLM mineral leasing programs, the BLM believes that it is justified because the potential liability may be greater and there are still some unknowns. Reclamation and exploration bond amounts would be established to cover the costs of reclamation as if it were to be performed by a contracted third party. Past oil shale operations have required extensive reclamation, and this has demonstrated the need to have a reclamation bond that covers the full cost of reclamation. By requiring that the bond equal the estimated costs of having a third party perform the reclamation, the BLM anticipates that the cost of reclamation would be covered. This section would provide that the BLM may enter into agreements with states to accept a state-approved reclamation bond to satisfy the BLM's reclamation requirements and protect the BLM to the extent the bond is adequate to cover all the operator's liabilities on Federal, state, and private lands. This would avoid duplicate procedures and the inconvenience and cost of filing separate bonds with both the state and the BLM. Such agreements were recommended by state representatives at the BLM listening sessions and are also addressed in regulatory provisions of other BLM mineral leasing programs. Section 3904.15 would explain that under this proposed rule the BLM may increase or decrease the bond amount if it determines that a change in coverage is warranted to cover the costs and obligations of complying with the requirements of the lease or license and these proposed regulations. This section would also explain that the BLM would not decrease the bond amount below the minimum established in section 3904.14(a). This section would require the lessee or operator to submit a revised cost estimate of the reclamation costs to the BLM every three years after reclamation bond approval. If the current bond would not cover the revised estimate of the reclamation costs, the lessee or operator would be required to increase the reclamation bond amount to meet or exceed the revised cost estimate. This section is consistent with the bonding regulations that currently exist for other BLM minerals programs. Section 3904.20 would describe what actions the BLM would take in the event of a default payment from a lease, exploration, or reclamation bond to cover nonpayment of any obligations that were not met. It also would require the bond to be restored to the pre-default level. This section is similar to sections in the other BLM mineral regulations regarding default. Section 3904.21 would allow the termination of the period of liability of a bond. The BLM will not consent to the termination of the period of liability under a bond unless an acceptable replacement bond has been filed or until all of the terms and conditions of the license or lease have been fulfilled. Termination of the period of liability of a bond would end the period during which obligations continue to accrue, but would not relieve the surety of the responsibility for obligations that accrued during the period of liability. Section 3904.40 would establish trust funds or other funding mechanisms to ensure the continuation of long-term treatment to achieve water quality standards and for other long-term, post-mining maintenance requirements. Experience in other mineral programs has shown the need for a mechanism to ensure the long-term treatment of water. This provision is similar to regulations in the BLM's mining law program under 43 CFR 3809.552 and is designed to address similar long-term water protection issues. In determining whether a trust fund will be required, the BLM will consider the following factors:
(1)The anticipated post-mining obligations
(PMO)that are identified in the environmental document and/or approved plan of development;
(2)Whether there is a reasonable degree of certainty that the treatment will be required based on accepted scientific evidence and/or models;
(3)The determination that the financial responsibility for those obligations rests with the operator; and
(4)Whether it is feasible, practical, or desirable to require separate or expanded reclamation bonds for those anticipated long-term PMOs. The determination that a trust fund is needed and the amount needed in the fund may be made during review of the proposed plan of development or later as a result of further inspections or reviews of the operations. Subpart 3905—Lease Exchanges This subpart would allow the BLM to approve oil shale lease exchanges. Section 3905.10 would explain that the BLM would approve a lease exchange if it would facilitate the recovery of oil shale and it would consolidate mineral interests into manageable areas. It also states that oil shale lease exchanges would be governed by the regulations under 43 CFR part 2200. Section 206 of FLPMA authorizes land exchanges of interests in Federal lands for non-Federal lands (43 U.S.C. 1716). Part 3910—Oil Shale Exploration Licenses The regulations proposed under this part would address exploration licenses. An exploration license would allow a licensee to enter the Federal land covered by an exploration license and explore for minerals, but it would not authorize the licensee to extract any minerals, except for experimental or demonstration purposes. Since regulatory provisions for the issuance and approval of exploration licenses are common to the BLM mineral leasing programs, this part would contain similar regulatory provisions, particularly with respect to:
(1)Lands that are subject to exploration (section 3910.21);
(2)Lands managed by agencies other than the BLM (section 3910.22);
(3)Requirements for conducting exploration activities (section 3910.23);
(4)Application procedures (section 3910.31);
(5)Environmental analysis (section 3910.32);
(6)License requirements (section 3910.40);
(7)Issuance, modification, relinquishment, termination, and cancellation (section 3910.41);
(8)Limitations on exploration licenses (section 3910.42);
(9)Collection and submission of data (section 3910.44); and
(10)Surface use (section 3910.50). Section 3910.21 would authorize the issuance of oil shale exploration licenses on all Federal lands subject to leasing under section 3900.10, except lands within an existing oil shale lease or in preference right lease areas under the R, D and D program. This type of limitation on which lands the BLM may issue an exploration license is consistent with that of other BLM minerals exploration regulations. Section 3910.22 would make it clear that the consent and consultation procedures under section 3900.61 that apply to leases also apply to exploration licenses. The BLM would issue these licenses under the terms and conditions prescribed by the surface managing agency concerning the use and protection of the nonmineral interests in those lands. Section 3910.22 is similar to regulations for BLM's other mineral leasing regulations requiring consent and consultation for exploration licenses. Section 3910.23 would require the operator to have a lease or license before conducting any exploration activities on Federal lands. This section would also allow that under an exploration license small amounts of material may be removed for testing purposes only; however, any material removed cannot be sold. This is similar to regulations in other BLM mineral programs that recognize that some removal of material is necessary for testing purposes. Section 3910.31 would identify specific requirements for filing an application for an exploration license. Application requirements under this section would include:
(1)Submission of a nonrefundable filing fee;
(2)Description of lands covered by the application;
(3)An exploration plan;
(4)Compliance with maximum acreage limitations for an exploration license; and
(5)Submission of information to prepare a notice of invitation for other parties to participate in exploration. Mirroring the coal regulations, this section would establish an acreage limit of 25,000 acres as the maximum size allowable for an exploration license. As is the case for other BLM leasing programs which provide for exploration licenses, there would be no required application form. The $295 filing fee for an exploration license is based on the current filing fee for a coal exploration license. The BLM anticipates that the time required to process an oil shale exploration license would be similar to that for a coal exploration license, and therefore believes the same filing fee is justified. Section 3910.32 would require the BLM to perform the appropriate NEPA analysis before issuing an exploration license. The section also explains that the BLM would include in an exploration license terms and conditions to mitigate impacts to the environment analyzed in a NEPA document and to protect Federal resource values of the area and to ensure reclamation of the lands disturbed by exploration activities. Section 3910.40 would provide that a licensee must comply with all applicable Federal laws and regulations and the terms and conditions of the license and approved exploration plan as well as applicable state and local laws not otherwise preempted by Federal laws, such as FLPMA. Section 3910.41 would explain provisions relating to the administration of the exploration license, including the license term, the effective date of an exploration license, conditions for approval, and provisions relating to the modification, relinquishment, and cancellation of an exploration license. Like exploration licenses for other BLM mineral leasing programs, the term of an exploration license would be 2 years. The requirements proposed here for oil shale exploration licenses are similar to existing requirements in regulations relating to exploration licenses in other BLM minerals programs, particularly coal. Section 3910.42 would provide that issuance of an exploration license would not preclude the issuance of a Federal oil shale lease for the same area. This section would also make it clear that if an oil shale lease is issued for an area covered by an exploration license, the BLM would cancel the exploration license effective the date of lease issuance. Section 3910.44 would address collection and submission of data relating to an exploration license and would include provisions relating to confidentiality of data. This section is similar to provisions in other BLM minerals programs. Section 3910.50 would address the issue of surface damage resulting from exploration operations and would require that exploration activities not unreasonably interfere with or endanger any other lawful activity on the same lands or damage any surface improvements on the lands. This is similar to other BLM minerals regulations that address surface use. Part 3920—Oil Shale Leasing The foundation for the proposed oil shale leasing program would be a competitive leasing process similar to the BLM's coal leasing program. Prior to making areas available for consideration for leasing through a competitive lease sale, the BLM is proposing a 2-step process that would begin with a call for expressions of leasing interest (section 3921.30), to be followed by a call for applications (section 3921.60) if the BLM determines that there is interest in a competitive lease sale. In addition to contributing to the orderly development of the resource, this process would facilitate compliance with NEPA by focusing the analysis on areas in which there is active interest in obtaining a lease. Subpart 3921—Pre-Sale Activities The sections under this subpart would contain regulatory provisions relating to pre-leasing activities. Many of the sections would be similar to existing provisions of other BLM mineral leasing programs, particularly coal. Section 3921.10 would explain that a BLM State Director may announce in the **Federal Register** a call for expressions of interest for those areas identified in the land use plan as available for oil shale leasing. Section 3921.20 clarifies that the appropriate NEPA analysis must be prepared for the proposed leasing area under the Council on Environmental Quality's regulations at 40 CFR parts 1500 through 1508 and Department of the Interior methods and procedures developed pursuant to NEPA. Section 3921.30 would provide that the notice announcing calls for expressions of leasing interest would be published in the **Federal Register** and in at least 1 newspaper of general circulation in the affected state. The notice would allow a minimum of 30 days to submit expressions of leasing interest, including a legal land description and other specified information. Section 3921.40 would require that the BLM notify the appropriate state governor's office, local governments, and interested Indian tribes of their opportunity, after the BLM receives responses to the call for expression of leasing interest, to provide comments regarding the responses and other issues related to oil shale leasing. The BLM included this requirement in the proposed rule in response to discussion at the three listening sessions with the governors' representatives. Section 3921.50 would explain that after analyzing expressions of leasing interest, the BLM would determine a geographic area for receiving applications to lease. This section would also explain that the BLM may add lands to those areas identified by the public in the expressions of leasing interest. Under proposed section 3921.60, the BLM's call for applications would be published in the **Federal Register** and would identify the geographic area available for application under proposed subpart 3922. Under this section, the public would have at least 90 days to submit applications for lease. Subpart 3922—Application Processing The sections under this subpart would contain regulatory provisions relating to application requirements, including:
(1)A nonrefundable case-by-case processing fee (section 3922.10);
(2)Content of application (section 3922.20);
(3)Additional information (section 3922.30); and
(4)Tract delineation (section 3922.40). These provisions are similar to existing regulations of other BLM mineral leasing programs. Section 3922.10 would require an applicant nominating a tract for competitive leasing to pay a cost recovery or processing fee that the BLM will determine on a case-by-case basis as described in 43 CFR 3000.11 and as modified by provisions of section 3922.10. The section would provide that the applicant who nominates a tract will pay to the BLM the processing costs that the BLM incurs up to the publication of the competitive lease sale notice. That fee amount would be included in the sale notice. If the applicant is the successful bidder, the applicant would then also pay all processing costs the BLM incurs after the date of the sale notice. Payment of all cost recovery fees is required prior to lease issuance. If the successful bidder is someone other than the original applicant, the successful bidder would be required to submit an application under section 3922.20 within 30 days after the lease sale and would be responsible for paying to the BLM the fee amount included in the sale notice. In such circumstances, the BLM will refund the fees the original applicant paid to the BLM. The successful bidder would also be responsible for any processing costs the BLM incurs after the date of the sale notice. If there is no successful bidder, the applicant would be responsible for processing costs, and there would be no refund. With respect to costs incurred relating to the NEPA analysis to support a competitive lease sale, the BLM processing fees noted in the sale notice would include, if applicable, the BLM's costs associated with preparation of the NEPA analysis, which may include BLM costs incurred in contracting with a third party to perform the NEPA analysis. In cases where there are several applications that have been filed for the same area, it is likely that the BLM would prepare a single NEPA analysis, which would address issues related to environmental impacts identified in all applications that were filed in response to the call for applications. In the case where the successful bidder for a tract is not the original applicant, the successful bidder would be responsible for paying the fee noted in the sale notice and any additional BLM processing costs, including any additional NEPA analysis. For example, in the case where a successful high bidder is not the original applicant and the technology that the successful bidder proposes to use was not previously analyzed in the NEPA analysis, the successful bidder would be responsible for paying for the cost of that NEPA analysis and any additional NEPA analysis that would be necessary. It should be noted that an applicant would not be reimbursed for moneys the applicant (and not the BLM) may pay directly to third persons to perform studies, including any required analyses under NEPA. Under section 3922.10, the BLM is proposing adopting case-by-case processing fees for applications that would mirror case-by-case fee requirements applicable to the leasing of coal and non-energy leasable minerals offered through competitive lease sales. The BLM's minerals material sales regulations also contain case-by-case processing fees. Case-by-case fees would allow the BLM to recoup its processing costs by charging an applicant the reasonable costs the BLM incurs in processing a particular application. Cost recovery is authorized under the Independent Offices Appropriation Act of 1952, as amended, 31 U.S.C. 9701, which states that Federal agencies should be “self-sustaining to the extent possible” and authorizes agency heads to “prescribe regulations establishing the charge for a service or thing of value provided by the agency.” The BLM also has specific authority to charge fees for processing applications and other documents relating to public lands, including Environmental Impact Statements (EISs), under Section 304(b) of FLPMA (43 U.S.C. 1734(b)). Cost recovery policies are explained in Office of Management and Budget Circular A-25 (Revised), entitled “User Charges.” The general Federal policy stated in Circular A-25 (Revised) is that a charge will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public. Additionally, this section states that the BLM will not issue a lease offered by competitive sale without having first received an application from the successful bidder under section 3922.20. Under section 3922.10(b)(5) a successful bidder at a competitive lease sale who was not an applicant must file an application within 30 calendar days after the lease sale. Section 3922.20 would identify specific information that an applicant would be required to include in a lease application to enable the BLM to have sufficient information to prepare the appropriate NEPA analysis to evaluate the impacts of proposed leasing. The amount of information requested as part of an oil shale lease application differs from other mineral leasing programs because the methodology for recovering oil shale is not as standardized as it is for more conventional fuels. The NEPA compliance documents at this stage in the leasing process are necessary because the PEIS addresses land use planning decisions and not leasing decisions and was unable to anticipate with any certainty the effects of oil shale leasing development due to the newness of the industry. The possible oil shale development technologies are very different from conventional mining methods associated with other BLM minerals programs, as are the impacts associated with each. The technologies are yet to be proven, or commercially viable and their associated impacts are unknown. Because the BLM is presently uncertain of the mining methods (and associated impacts) that may be used for oil shale development, additional NEPA analysis will be performed during the application and leasing process. When required by applicable law, the BLM will conduct site-specific NEPA analysis, including a period of public review, to evaluate the impacts on known resource values on the lands in any application. Although no specific form is required, information the applicant would be required to provide includes, but is not limited to:
(1)Proposed extraction method (including personnel requirements, production levels, and transportation methods) and estimate of the maximum surface area to be disturbed at any one time;
(2)Sources and quantities of water to be used and treatment and disposal methods necessary to meet applicable water quality standards;
(3)Air emissions;
(4)Anticipated noise levels from proposed development;
(5)How proposed lease development would comply with all applicable statutes and regulations governing management of chemicals and disposal of waste;
(6)Reasonably foreseeable social, economic, and infrastructure impacts of the proposed development on the surrounding communities and on state and local governments;
(7)Mitigation of impacts on species and habitats; and
(8)Proposed reclamation methods. Section 3922.30 would provide that the BLM could request additional information from the applicant, and explain that failure to provide the best available and most accurate information might result in suspension or termination of processing of the application or in a decision to reject the application. The BLM's ability to obtain additional information at this stage is essential to the NEPA analysis to support leasing. Failure to provide the needed information would have a direct impact on the adequacy of the NEPA analysis and therefore could greatly impact the BLM's decision to proceed with a lease sale. Section 3922.40 would make it clear that the purpose of tract delineation for a competitive lease sale is to provide for the orderly development of the oil shale resource. This section would also clarify that in addition to adding or deleting lands from an area covered by an application, where lands covered by applications overlap, the BLM may delineate those lands that overlap as separate tracts. The BLM may delineate tracts in any area acceptable for further consideration for leasing, regardless of whether it received expressions of interest or applications for those areas. The need to delineate tracts for adequate development of the mineral resource is recognized in all the BLM mineral leasing programs, and provisions similar to this are contained in the other BLM mineral leasing regulations. Subpart 3923—Minimum Bid Section 3923.10 would implement the policy of the United States under Section 102(a) of FLPMA (43 U.S.C. 1701(a)(9)) that the Federal government should receive a FMV for leasing its minerals. Also, Section 369(o) of the EP Act which requires that payments for leases under that section must ensure a fair return to the United States. Under section 3924.10 of the proposed rule, the BLM sales panel would determine if the high bid reflects the FMV of the tract, which we equate to fair return. We anticipate that the sales panel will analyze the bids and make a determination, taking into account, among other things, the geology, market conditions, mining methods, and industry economics. The BLM recognizes the difficulty in determining a value for a resource (oil shale) that has tremendous potential, but has not yet been proven to be economic to develop. The risk of setting pre-sale FMVs that are too high and would discourage development of a commercial leasing program is very real. The BLM is also aware that the oil shale industry is presently in the research and development stage and comparable lease sales might be rare or unavailable when leasing first occurs under these regulations, but this will not always be the case. Competitive lease sales of Federal oil shale leases in the 1970s resulted in bids of $10,000 per acre, or higher, indicating that even though development risks are high, the potential reward is also high. Both the economic and the technological circumstances have changed since the 1970s, but the vast quantities of oil shale within the Federal acreage weigh in favor of high minimum bid amounts. For comparison purposes, the coal program has a minimum bid amount of $100 per acre and the oil and gas program has a minimum bid amount of $2 per acre. This section would set a minimum bid of $1,000 per acre, but the BLM invites comments supporting reasonable alternative minimum bid amounts. Subpart 3924—Lease Sale Procedures Provisions of this subpart would identify the process by which tracts of land would be made available for competitive lease sale. The BLM proposes to lease oil shale through a competitive bidding leasing procedure that would mirror competitive lease sales procedures currently in place for other solid minerals leasing programs, particularly coal. Section 3924.5 would detail the contents of the sale notice that the BLM would publish in the **Federal Register** and newspapers of general circulation in the area of the proposed lease. The purpose of the notice is to alert the public that the BLM will be holding an oil shale lease sale and to provide enough of the details about the proposed lease terms and conditions, lease area, and leasing limitations for the public to make an informed decision whether to participate in the lease sale. This section would be similar to other BLM mineral leasing regulations that require notification of the lease sale and is a necessary part of the oil shale leasing program. Section 3924.10 would detail competitive lease sale procedures, including receipt and opening of sealed bids, submission of the one-fifth of the amount of the bonus bid, requirements for future submission of remaining installments of the bonus bid, and post-sale procedures for determining the successful bidder. This section would also address the actions of the sale panel in determining whether or not to accept the high bid, including a FMV determination. This section is similar to the BLM's competitive leasing regulations for coal and non-energy leasable minerals. The BLM is proposing to adopt this process because it has been successful in these other mineral leasing programs and because we believe this process is appropriate for oil shale leasing. The BLM will rely on the appraisal process to estimate the fair market value
(FMV)for commercial oil shale leases under the proposed regulations. An appraisal is an unbiased estimate of the value of property. The appraisal process is a systematic approach to property valuation. It consists of defining data requirements, assembling the best available data, and applying an appropriate appraisal method. The principles of property valuation are presented in the Uniform Appraisal Standards for Federal Land Acquisitions and in The Appraisal of Real Estate. The term “fair market value” is defined in the Uniform Appraisal Standards for Federal Land Acquisitions as the amount in cash, or on terms reasonably equivalent to cash, for which in all probability the property would be sold by a knowledgeable owner willing, but not obligated, to sell to a knowledgeable purchaser who desired, but is not obligated, to buy. In ascertaining that figure, consideration should be given to all matters that might be brought forward and substantial weight given in bargaining by persons of ordinary prudence. Factors that will affect the market value of an oil shale lease include the lease terms which encompass rental and royalty obligations. The bonus bid for the lease must be equal or greater than the lease FMV. There are three methodologies generally used in appraising real property: the comparable sales approach, income approach, and replacement cost approach. Normally, the replacement cost approach is not applied to appraisals involving property such as mineral leases. In the comparable sales approach, the value of a property is estimated from prior sales of comparable properties. The basis for estimation is that the market would impute value to the subject property in the same manner that it determines value of comparable competitive properties. When reliable comparable sales data are available, it generally is assumed that the comparable sales approach will provide the best indication of value. In the income approach, the value assigned to the property is derived from the present worth of future net income benefits. If sufficiently similar sales are not available, the FMV determination will generally rely on the income approach. The FMV determination follows a pre-existing valuation standard, which utilizes the circumstances of place, time, the existence of comparable precedents, and the evaluation principles of each involved party. In determining the FMV under this rule, our determination would be based on comparison with identical or similar past, actual, or expected services and goods relating to oil shale. It is the policy of the United States, stated in Section 102(a) of FLPMA (43 U.S.C. 1701(a)(9)) and Section 369(o)(2) of the EP Act, that the United States receive FMV for the issuance of Federal mineral leases. In the ANPR, the BLM solicited public input on the process for bid adequacy evaluation and minimum acceptable lease bonus bid. The BLM's purpose for requesting comments on the FMV it should receive for lease tracts was to solicit ideas on how FMV would be determined for a resource that has little or no history of comparable sales. The public comments received were primarily concerned with the need to receive an appropriate value for the lease. The BLM received comments from 6 entities related to this question, specifically mentioning that: a FMV determination needs to reflect private sector valuations; competitive bidding should establish a lease's FMV; the process for establishing FMV should be modeled after the Federal coal leasing program; bonus payments are needed to stop speculation; and sealed bidding ensures the most competitive bonus bid. The comments also posed arguments for and against using a minimum acceptable bonus bid. In addition, the BLM received comments that bonus bids should be high and suggested that the 1974 bonus bid amounts pertaining to 4 oil shale leases that were offered in Colorado and Utah, with bonus bids that ranged from $74 million to $210 million, were indicative of expected bonus bid amounts. In response to the ANPR comments and other considerations, the BLM proposes to establish oil shale lease FMV using a process similar to that used in the Federal coal leasing program. This proposed process relies on the appraisal process in an attempt to estimate the market value for those leases. As such, the proposed process relies on many of the procedures used in private sector valuations, and where available, will rely on private sector transactions to establish the market value for Federal oil shale leases. The Federal coal leasing program and this proposed rule, utilize competitive bidding, specifically sealed bidding, for determining who receives the lease. In the rule, the BLM is proposing to establish a minimum acceptable bonus bid for Federal oil shale leases. The amount is not a reflection of FMV, but is intended to establish a floor value to limit or dissuade nuisance bids. The proposed rule requires a minimum acceptable bonus bid of $1,000 per acre. The assumption is that such an amount will not exceed FMV or be a deterrent to companies interested in bidding for the lease tracts. At the same time, the BLM has requested further comments on the value proposed. As per comments on specific values, the proposed rule does not attempt to establish actual FMV for future Federal oil shale leases. Values received in the 1970's may not be an accurate indicator for future values. Subpart 3925—Award of Lease Section 3925.10 would provide that the lease would ordinarily be awarded to the qualified bidder submitting the highest bid which exceeds the minimum bid amount. It also contains requirements for the submission of the necessary lease bond, the first year's rental, any unpaid cost recovery fees, including costs associated with the NEPA analysis, and the bidder's proportionate share of the cost of publication of the sale notice. The provisions in this section are similar to regulations in the BLM's competitive leasing regulations for coal and non-energy leasable minerals. Subpart 3926—Conversion of Preference Right for Research, Demonstration, and Development Leases Section 3926.10 would provide application procedures or requirements to convert R, D and D leases and preference rights acreages to commercial leases. Under this section, a lessee of any of the R, D and D lease would be required to apply for conversion to a commercial lease no later than 90 days after the BLM determines that commencement of production in commercial quantities had occurred. As stated in Section 23 of the R, D and D leases (issued in response to the BLM's call for nominations of parcels for R, D and D leasing (70 FR 33753 and 33754, June 9, 2005) R, D and D lessees can acquire contiguous acreage of the remaining preference right lease area up to a total of 5,120 acres. In order to acquire the contiguous acreage and convert to a commercial lease, the lessee would be required to demonstrate to the BLM that the technology tested in the original lease would have the ability to produce shale oil in commercial quantities. In addition, the lessee, as required in R, D and D leases, would be required to submit to the BLM:
(1)Documentation that there have been commercial quantities of oil shale produced from the lease, including the narrative required by Section 23 of R, D and D leases;
(2)Documentation that the lessee consulted with state and local officials to develop a plan for mitigating the socioeconomic impacts of commercial development on communities and infrastructure;
(3)A bid payment no less than that specified in section 3923.10 and equal to the FMV of the lease; and
(4)Bonding as required by section 3904.14. The BLM would approve the conversion application, in whole or in part, if it determined that:
(1)There have been commercial quantities produced from the lease;
(2)The bid payment for the lease met or exceeded FMV;
(3)The lessee consulted with state and local officials to develop a plan for mitigating the socioeconomic impacts of commercial development on communities and infrastructure;
(4)The bond provided is consistent with section 3904.14; and
(5)Commercial scale operations can be conducted, subject to mitigation measures to be specified in stipulations or regulations, without unacceptable environmental consequences. Subpart 3927—Lease Terms Sections in this subpart would address lease form, lease size, lease duration, dating of leases, diligent development, and production. Section 3927.10 would provide that the BLM would issue oil shale leases on a standard form approved by the BLM Director. This section mirrors similar requirements in other BLM mineral leasing regulations. Section 3927.20 would set the maximum oil shale lease size at 5,760 acres, which is the maximum size authorized under Section 369(j) of the EP Act. Several comments received in response to the BLM's ANPR included lease size recommendations varying from 500 acres to 10 square miles as the appropriate maximum lease size. Of those comments, one commenter supported a maximum lease size of 5,760 acres, which is consistent with the EP Act. One commenter stated that “Leases need to be large enough to encourage development yet not outlandishly large to allow for speculation.” The maximum lease size contained in this section is not discretionary since it was established by statute (see Section 369(j) of the EP Act). Although the EP Act does not establish a minimum lease size, in keeping with the size restrictions of the oil shale R, D and D leases, section 3927.20 would also establish 160 acres as the minimum size of an oil shale lease. The BLM received several comments relating to whether the BLM's commercial oil shale leasing regulations should include provisions for small tract leasing, all of which generally were in favor of making small lease tracts available. One comment suggested that smaller tracts would be particularly appropriate in the early years of the commercial leasing program in light of new technologies, and it recommended a minimum tract size of 1,280 acres. Recommendations relating to a minimum tract size stated in other comments ranged from over 320 acres to one square mile. Two comments suggested that there should be restrictions for small tract leasing. Of those comments, one commenter stated that small tract leasing should not be a mechanism to thwart potential development. Another commenter recommended that small tracts should only be allowed in cases where “the tracts have been orphaned, in between larger leases, basin edge or other fee-owned lands.” Although section 3927.20 would not formally establish small tract leasing, the 160-acre minimum lease size set by this section would provide a lessee the opportunity to develop a relatively small-scale leasehold, identical to the lease size authorized under the BLM's oil shale R, D and D program. Thus, rather than the BLM incorporating small tract leasing as a separate component of the commercial oil shale leasing program, establishing a minimum lease size of 160 acres provides an opportunity for a lessee to utilize a preferred technology on a relatively small tract that is consistent with the size of existing R, D and D leases. For this reason, the BLM did not adopt ANPR comments that recommended a larger minimum lease size. With respect to the comment expressing concern that small tract leasing could thwart potential development and the comment recommending that small tract leasing should be allowed only in limited situations as stated above, it is the policy of the BLM, when delineating tracts to be offered through competitive lease sale, to make efforts to ensure that the configuration of any small acreage tracts would likely promote development of oil shale. The BLM believes that configuration of tracts in this manner would not impede development on any existing oil shale leases located in the vicinity of smaller tracts. As is the case in other BLM mineral leasing programs, the tract delineation process for a competitive lease sale includes the gathering of detailed information on tracts and conducting various analyses. Because the steps customarily included in the tract delineation process are designed to promote or encourage development of mineral resources, the BLM maintains that establishing a minimum lease size of 160 acres will not thwart potential development of oil shale resources. Likewise, the competitive leasing process and the required minimum bonus bids would discourage speculation. One comment endorsing small tract leasing also recommended that a small tract lease should include a preference right for additional adjoining acreage. The BLM is not adopting this recommendation since it maintains that the concept of a preference right for the future leasing of additional acreage—a key component of the R, D and D leasing program—is not a necessary provision in a commercial leasing program in light of lease modification provisions under proposed subpart 3932. In the event that a lessee of a small tract has interest in obtaining additional acreage adjacent to its lease, under the proposed rule the lessee could apply for a lease modification to include Federal lands adjacent to the lease, but not to exceed the maximum lease size (see section 3932.10). Two comments received in response to the ANPR contained recommendations relating to consolidation of leases into larger development units. One of the comments suggested that oil shale commercial leasing regulations should include a provision to allow for consolidation of multiple contiguous leases for individual leaseholders as long as there remains one operator. The BLM interprets these comments as a recommendation to establish a mechanism similar to a logical mining unit that exists in BLM's coal leasing program. As defined in the coal leasing regulations at 43 CFR 3480(a)(19), “Logical mining unit
(LMU)means an area of land in which the recoverable coal reserves can be developed in an efficient, economical, and orderly manner as a unit with due regard to conservation of recoverable coal reserves and other resources.” Due to the fact that the commercial oil shale leasing regulations proposed here today are aimed at establishing a new mineral leasing program; a program that does not have any history of oil shale development in the U.S., does not require any standardized extraction methods, and also adopts different diligence requirements than those of the coal leasing program, it is the BLM's position that establishing a mechanism similar to a LMU is not warranted at this time. After the promulgation of final regulations and after the oil shale industry is more well-established, if the BLM determines that the creation of a mechanism similar to an LMU is warranted, then the BLM would pursue rulemaking to adopt this recommendation. Please specifically comment on whether or not the final rule should include provisions for the establishment of LMUs for oil shale leases. Section 3927.30 would provide that an oil shale lease will be for a period of 20 years and so long thereafter as the condition of annual minimum production is met. Section 21 of the MLA (30 U.S.C. 241(a)(3)) authorizes issuance of oil shale leases for “indeterminate periods.” The BLM chose a 20-year period for the original lease term for ease of administration because Section 21 of the MLA (30 U.S.C. 241(a)(4)) specifies that leases should be subject to readjustment at the end of each 20-year period. Lease readjustment is common to other BLM mineral leasing programs, including coal and certain non-energy leasable minerals. Section 3927.40 would identify the effective date of the lease and the process used to determine the effective date of the lease. This section is similar to regulations on the effective dating of leases under the BLM's coal program. Diligent development is a component of other mineral leasing programs such as coal and oil and gas and is required under Section 369(f) of the EP Act. Section 3927.50 would require lessees to meet diligent development milestones and annual minimum production requirements. The BLM considers continued minimum annual production a necessary part of diligent development of the lease. This requires that a company continue to produce the minimum annual requirement or make payments in lieu of production in order to hold the lease. Part 3930—Management of Oil Shale Exploration Licenses and Leases Sections in this part would address the requirements for exploration and leases, including general performance standards, operations, diligent development milestones, plans of development and exploration plans, lease modifications and readjustments, assignments and subleases, relinquishments, cancellations and terminations, post-mining and development hazards, production and sale records, and inspection and enforcement. Sections 3930.10 through 3930.13 would explain the performance standards for exploration, development, production, and the preparation and the handling of oil shale under Federal leases and licenses. Additional standards may be required at the time of lease issuance and as operations proceed. The BLM used the coal program as basis of many of the performance standards for these sections because of the similarity of the mining and exploration methods and the possible impacts associated with those methods. The performance standards for in situ operations were derived from aspects of the standards used for exploration and standards applicable to the BLM's oil and gas program. Section 3930.20 would establish the various standard operating requirements associated with development of an oil shale lease, including requirements concerning the maximum economic recovery
(MER)of the resource, how to report new geologic information, and compliance with Federal laws. The section would also address disposal and treatment of solid wastes. This section provides operational requirements that are common to other BLM mineral leasing programs. The BLM received 6 comments regarding diligent development in response to the ANPR. The comments received primarily expressed the view that diligent development requirements are necessary to prevent speculation, but that they should not be so onerous as to prevent investment in oil shale development. Most of the comments concerning the diligence provisions were related to either plan of development requirements or production requirements and requiring payment of a minimum royalty in lieu of production. The comments received suggested:
(1)Making diligence a requirement of operations;
(2)Not starting the diligence requirement until after the needed infrastructure is in place;
(3)Requiring submittal of a plan of development;
(4)Staging the permitting process to essentially define diligence as accomplishing necessary sequential steps in the development process;
(5)Escalating minimum royalty;
(6)Requiring minimum production levels; and
(7)Requiring production of a percentage of the resource base. The BLM incorporated the following commenter's suggestions into the proposed rule:
(1)Diligent development and staged development requirements (section 3930.30 (a));
(2)Requirements for a plan of development (section 3930.30(a)(1)); and
(3)Requirements for minimum production (section 3930.30(d)). The BLM's proposed diligent development requirements are based on fulfilling tasks necessary to reach production, such as applying for permits, submitting plans of development, and installing needed infrastructure within specified timeframes. Comments related to basing diligence on production of a percentage of the reserve base were considered, but rejected based on the difficulty of administering such a scheme with varying technologies, recovery rates, and shale characteristics. The comment regarding infrastructure was incorporated into the proposed rule as a diligence development step towards production. Section 3930.30 would list the milestones for diligent development of an oil shale lease. The requirement for establishing milestones is in Section 369(f) of the EP Act. The BLM considered many options when determining how to establish milestones that would ensure diligent development of the lease. The BLM considered requiring production based on a percentage of the resource similar to coal and requirements for minimum dollar expenditures per year similar to the BLM's geothermal program. Because the oil shale mining technology that is being tested is new, and there is little experience to rely on, it would be difficult to base milestones on production or monetary expenditures. Ultimately, the BLM determined that the milestones should be the series of steps necessary for the development of the oil shale. Defining milestones this way is logical because the steps are necessary to begin production and the BLM believes the requirement would encourage development. This section would require a lessee to meet the following five diligent development milestones:
(1)Within 2 years of lease issuance, submit to the BLM a proposed plan of development which would meet the requirements of subpart 3931;
(2)Within 3 years of lease issuance, submit a final plan of development;
(3)Within 2 years after the BLM approves the plan of development, apply for all required permits and licenses;
(4)Before the end of the 7th lease year, begin infrastructure installation, as described by the BLM approved plan of development; and
(5)Begin production by the end of the 10th lease year. Each of the milestones in this section would be an opportunity for the lessee or operator to fulfill the statutory requirements and would provide evidence of its commitment to diligent development of the resource. The requirement to maintain production under an approved plan of development is also in this section. Although it is not a milestone, the BLM would require yearly production as part of the diligent development of the lease. This section also would allow payments in lieu of production to meet the requirement of yearly production. Minimum annual production is required starting the 10th year of the lease. Payment in lieu of production in year 10 of the lease satisfies the milestone requiring production by the end of the 10th year of the lease. Section 3930.40 would identify the penalties for not achieving the required milestones. The BLM views these penalties as incentives for maintaining development of the resource and prevent speculation. Under this proposed rule, the BLM would assess a penalty of $50 per acre for each missed diligence milestone for each year until the operator or lessee complies with the diligence milestone. The BLM believes that this penalty process would provide operators incentive for diligent development of the resource, and also that the dollar amount of the penalties is high enough to be a deterrent to speculation. Subpart 3931—Plans of Development and Exploration Plans Sections in this subpart would provide requirements for submission of a plan of development (section 3931.10), required contents of a plan of development (section 3931.11), reclamation of all disturbed areas (section 3931.20), suspending operations and production on a lease (section 3931.30), exploration on a lease prior to plan of development approval (section 3931.40), information to be included in the exploration plan (section 3931.41), modification of exploration or development plans (section 3931.50), maps of underground and surface mining workings and in situ surface operations (3931.60), production reporting (section 3931.70), geologic information (section 3931.80), and boundary pillars (section 3931.100). Section 3931.10 would require submission of a plan of development that details all aspects of development of the resource and protection of the environment, including reclamation. It would also identify the need for a similar plan for exploration activities. The plan of development is a key document that would detail the specifics of all activities associated with developing or exploring the lease. Section 3931.11 would list and describe the contents of a plan of development. Some of the contents include a general description of geologic conditions and mineral resources, maps or aerial photography, proposed methods of operation and development, public protection, well completion reports, quantity and quality of the oil shale resources, environmental aspects, reclamation plan, and the method of abandonment of operations. The information in the plan of development is necessary so that the BLM can review the plan and ensure that operations, production, and reclamation will occur consistent with Federal law and regulation and to ensure the protection of the resource and the environment. Section 3931.20 would describe the requirements for reclamation of all disturbed areas under a lease or exploration license. This section is similar to requirements in other BLM mineral program regulations requiring prompt reclamation of disturbed areas. Section 3931.30 would detail the requirements for suspending operations and production on a lease. Under this section, if the BLM determined it was in the interest of conservation, it may order or agree to a suspension of operations and production. If the BLM approved the suspension, the lessee or operator would be relieved of the obligation to pay rental, to meet upcoming diligent development milestones, or to meet minimum annual production, including payments in lieu of production. The term of the lease would be extended by the amount of time the lease is suspended. The need to suspend operations is well established and similar provisions are found in other BLM mineral leasing regulations. Section 3931.40 would provide the requirements necessary for the BLM to authorize exploration on an exploration license or on a lease prior to plan of development approval. Often, exploration is necessary after lease issuance to acquire the geologic information necessary to prepare a plan of development. Section 3931.41 would list the information required for an exploration plan. The information required is similar to that required in other BLM mineral regulations and is necessary to adequately evaluate the proposed exploration activities and the measures to protect or limit environmental impacts in accordance with applicable laws. Section 3931.50 would explain how the operator or lessee may apply for a modification of exploration or development plans to address changing conditions and situations that might develop during the course of normal exploration activities or to correct an oversight. This section would also explain that the BLM may, on its own initiative, require modification of a plan. Finally, this section would explain that the BLM may approve a partial exploration plan or plan of development in circumstances where operations are dependent on factors that would not be known until exploration or development progresses. These modification provisions are similar to those in other BLM minerals programs. Section 3931.60 would contain information relating to the format and certification of required maps of underground and surface mining workings and in situ surface operations. These maps are necessary for the BLM to properly assess the potential impacts associated with exploration and mining. Section 3931.70 would explain the requirements for production reporting, the associated maps and surveys for mining operations, and maps showing the measurement systems for in situ operations. This section would require accurate maps and production reports and would explain the requirements for production reporting. These are necessary requirements for the Federal government to track lease production accurately. Section 3931.80 would address requirements for handling geologic information resulting from exploration activities. Additional requirements related to abandonment operations, well conversions, and blow-out prevention equipment would also be addressed in this section. This section contains requirements similar to those in the BLM's oil and gas operations regulations. Section 3931.100 would detail the standards for boundary pillars and provisions to protect adjacent lands. This section would allow for the recovery of the pillars if the operator provided evidence to the BLM that the recovery activities would not damage the Federal resource or those of the adjacent lands. These provisions are similar to those in the BLM's coal program. Subpart 3932—Lease Modifications and Readjustments Sections in this subpart would provide requirements for lease size modification, (section 3932.10), availability of lands for a lease modification (section 3932.20), terms and conditions of a modified lease (section 3932.30), and the readjustment of lease terms (section 3932.40). Section 3932.10 would provide the requirements for lease size modifications and is similar to sections in the other BLM mineral program regulations. This section would explain that the lands in the modified lease must not exceed the acreage limitation in section 3927.20. The section also would explain what items are necessary for a complete application, including the filing fee and qualifications statements. Section 3932.20 would provide the land availability criteria for lease modifications. The language in this section is similar to language used in other BLM mineral program regulations and is necessary to facilitate effective development of the resource. This section would explain the conditions under which the BLM would grant a lease modification, and that the BLM may approve the modification (adding lands to the lease) if there is no competitive interest in the lands. This section would explain that before the BLM will approve a modification application, the applicant must pay the FMV for the interest to be conveyed. This section would also make it clear that the BLM will not approve a lease modification prior to conducting the appropriate NEPA analysis and receipt of the processing costs. Section 3932.30 would provide that the terms and conditions of any modified lease will be adjusted so that they are consistent with law, regulations, and land use plans applicable at the time the lands are added by the modification. Under this proposed section, the royalty rate of the modified lease would be the same as that in the original lease. Bonding and lessee acceptance requirements would also be addressed in this section. This section is similar to those in other BLM minerals program regulations. Section 3932.40 would provide that all oil shale leases are subject to readjustment of lease terms, conditions, and stipulations, except royalty rates, at the end of the first 20-year period (the primary term of the lease) and at the end of each 10-year period thereafter. Royalty rates would be subject to readjustment at the end of the primary term and every 20 years thereafter. The procedures for the readjustment of the lease would be detailed in this section. Under this section, the BLM would provide the lessee with written notification of the readjustment. This section would also allow lessees to appeal the readjustment of lease terms. Subpart 3933—Assignments and Subleases Sections in this subpart would address various requirements related to assignments or subleases of record title (section 3933.31) and overriding royalty interests (section 3933.32). This subpart would also address requirements for:
(1)Assigning or subleasing leases in whole or part (section 3933.10);
(2)Filing fees (section 3933.20);
(3)Lease account status and assumption of liability (section 3933.40);
(4)Bonding (sections 3933.51);
(5)Continuing responsibility (section 3933.52);
(6)Effective date (section 3933.60); and
(7)Extensions (section 3933.70). The sections in this subpart would be similar to the regulatory requirements of BLM's other mineral leasing programs. Section 3933.10 would provide that all leases may be assigned or subleased in whole or in part to any person, association, or corporation as long as the qualification requirements are met. Section 30 of the MLA requires an assignee to obtain BLM approval for an assignment. Section 3933.20 would require payment of a $60 non-refundable filing fee for processing an assignment, sublease of record title, or overriding royalty. The filing fee would be the same fee required by the coal regulations for filing an assignment. The BLM anticipates that lease assignment, sublease of record title, or overriding royalty activities associated with an oil shale lease would be similar to the same activities in the BLM's coal program, and therefore believes the same filing fee is justified. Section 3933.31 would require that assignment applications be filed with the BLM within 90 days of the date of final execution of the assignment, and would list what must be included in the assignment application, including the filing fee. This section also explains that the assignment of all interests in a specific portion of a lease would create a separate lease. Section 3933.32 would explain that overriding royalty interests do not have to be approved by the BLM, but would be required to be filed with the BLM. The filing of overriding royalty interests provides a more complete record of the financial transaction affecting the Federal lease. The BLM has found this information to be useful in other mineral leasing programs, especially in making rent and royalty reduction determinations. Section 3933.40 would require that the lease account be in good standing before the BLM would process a lease assignment. Section 3933.51 would require that assignees have sufficient bond coverage before the BLM will approve the assignment. This is a necessary component of the bonding program and is similar to requirements of other BLM solid mineral leasing programs. Section 3933.52 would address the responsibilities, obligations, and liabilities of the assignor and assignee. In addition to stating expressly that an assignor is responsible after an assignment for accrued obligations, this section addresses joint and several liabilities of the lessee and operating rights owner. After the effective date of the sublease, the sublessor and sublessee are jointly and severally liable for the performance of all lease obligations, notwithstanding any term in the sublease to the contrary. Section 3933.60 would explain that the effective date of an assignment and sublease would be the first day of the month following the BLM's final approval, or if the assignee requested it in advance, the first day of the month of the approval. This is the customary effective date for an assignment in other BLM leasing programs. Consistent with other BLM mineral leasing programs, section 3933.70 would provide that the BLM's approval of an assignment or sublease does not extend the readjustment period of the lease. Subpart 3934—Relinquishments, Cancellations, and Terminations Sections in this subpart would contain requirements for relinquishments (section 3934.10), termination of leases and cancellation and/or termination of exploration licenses (section 3934.30), written notice of cancellation (section 3934.21), cause and procedures for lease cancellations (section 3934.22), payments due (section 3934.40), and bona fide purchasers (section 3934.50). Sections in this subpart are similar to sections found in regulations for other BLM mineral leasing programs. Section 3934.10 would provide that the record title holder of a lease may relinquish all or part of the lease if the requirements in this section are met. This section would also contain provisions for the relinquishment of an exploration license. Prior to relinquishment, the licensee must give any other parties participating in the exploration license an opportunity to take over operations under the exploration license. Section 3934.21 would require the BLM to notify the lessee or licensee in writing of any default, breach, or cause of forfeiture, and the corrective actions that could be taken to avoid defaulting on the lease terms and lease cancellation. Section 3934.22 would explain the procedure for the BLM to cancel a lease. Section 31 of the MLA requires that lease cancellation take place in the United States District Court for the district in which all or part of the lands covered by the lease are located. Section 3934.30 would provide the reasons that the BLM may cancel a license, including:
(1)The BLM issued it in violation of law or regulation;
(2)The licensee is in default of the terms and conditions of the license; and
(3)The licensee has not complied with the exploration plan. Unlike leases, the BLM may cancel an exploration license administratively. Section 3934.40 would provide that if a lease is canceled or relinquished for any reason, all bonus, rentals, royalties, or minimum royalties paid would be forfeited and any amounts not paid would be immediately payable to the United States. Section 3934.50 would address the rights of bona fide purchasers and provide that the BLM would not immediately cancel a lease or an interest in a lease if, at the time of purchase, the purchaser could not reasonably have been aware of a violation of the regulations, legislation, or lease terms. Subpart 3935—Production and Sale Records Section 3935.10 would address books of account. Operators and lessees must maintain accurate records. This section would explain what records must be maintained, and that the records must be made available to the BLM during normal business hours. Subpart 3936—Inspection and Enforcement Like other BLM minerals inspection and enforcement (I and E) programs, the objective of BLM's oil shale I and E program would be to:
(1)Ensure the protection of the resource;
(2)Ensure that Federal oil shale resources are properly developed in a manner that would maximize recovery while minimizing waste; and
(3)Ensure the proper verification of production reported from Federal lands. The BLM would also be responsible for lease inspections to determine compliance with applicable statutes, regulations, orders, notices to lessees, plans of development, and lease terms and conditions. These terms and conditions would include those related to drilling, production, and other requirements related to lease administration. This subpart would address inspection of underground and surface operations and facilities (section 3936.10), issuance of notices of noncompliance and orders (section 3936.20), enforcement of notices of noncompliance and orders (section 3936.30), and appeals (section 3936.40). Section 3936.10 would require operators or lessees to allow the BLM to inspect underground or surface mining and exploration operations at any time both to determine compliance with the plan of development and to verify oil shale production. Section 3936.20 would advise the operator, licensee, or lessee of the procedures the BLM would follow when issuing orders and notices of noncompliance. The section would also address delivery of notices and verbal orders. Section 3936.30 would explain the procedures the BLM would follow when enforcing notices of noncompliance. This section explains the action the BLM may take in cases of noncompliance, including orders to cease operations and the initiation of lease or license cancellation or termination procedures. An example of the type of non-compliance that might warrant the BLM issuing a cease operations order would be noncompliance with the BLM approved plan of development and refusal to comply with the notice of noncompliance. Section 3936.40 would allow a lessee or operator to appeal BLM decisions under 43 CFR part 4. This section would also provide that the BLM decisions and orders remain in full force and effect pending appeal, unless the BLM or the Interior Board of Lands Appeals decides otherwise. Appeals language in this section mirrors regulatory provisions in other BLM minerals programs. IV. Procedural Matters Executive Order 12866, Regulatory Planning and Review This document is a significant rule and the Office of Management and Budget has reviewed this rule under Executive Order 12866. We have made the assessments required by E.O. 12866 and the results are available by writing to the address in the ADDRESSES section.
(1)This rule will have an effect of $100 million or more on the economy. It will not adversely affect in a material way the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities. Please see the discussion below.
(2)This rule will not create a serious inconsistency or otherwise interfere with an action taken or planned by another agency. The rule addresses the issuance and administration of Federal oil shale leases, which by statute is under the jurisdiction of the Department of the Interior. The BLM worked closely with the MMS in drafting the royalty provisions of this rule, but the rule should have no effect on other agencies.
(3)This rule does not alter the budgetary effects of entitlements, grants, user fees, or loan programs or the rights or obligations of their recipients. The rule would not impact any of these except that the rule institutes certain fees (discussed earlier in the preamble to this rule and in the economic and threshold analyses for the rule) in a manner that is consistent with BLM and Departmental policy.
(4)This rule does not raise novel legal or policy issues. As stated earlier in this preamble, the legal and policy issues addressed by this rule are already dealt with in a similar manner in other BLM regulations currently in effect, therefore they are not novel. Executive Order 12866 requires agencies to assess, where practical, the anticipated costs and benefits of proposed regulatory actions to determine if the regulation is significant. As has been noted above, there is no domestic oil shale industry to help substantiate or form the basis for the projections and assumptions concerning what the future might hold for the leasing and development of oil shale resources on Federal lands. In addition, the assumption is that any significant production of shale oil is not likely to occur for a number of years. The potential events described, if they occur at all, may be in the distant future. As such, future costs and benefits must be discounted. The OMB's Circular A-94 states that a real discount rate of 7 percent should be used as a base-case for regulatory analysis. In addition to analyzing the potential future costs and benefits using a 7 percent discount rate, the BLM also used a discount rate of 20 percent to reflect these substantial risks and associated uncertainties in the opportunity costs that would not be reflected in the historic industry average of 7 percent. We also analyzed the future costs and benefits using a 3 percent discount rate. The proposed regulations have the potential to generate net economic benefits to the Nation by allowing for the development of our vast domestic oil shale resources, though there is substantial uncertainty about the magnitude and timing of these benefits. The most significant direct benefit of this regulatory action is to provide a vehicle for the leasing and development of Federal oil shale resources. Operators will have the opportunity to obtain leases with the right to develop the oil shale and ultimately produce shale oil in an environmentally sound manner. Companies' willingness to take advantage of the leasing and development opportunities provided by this rule would determine the level of production of shale oil, exploration, development and production costs incurred, and conceivably the profits (or losses) to be enjoyed. The lack of a domestic oil shale industry makes it speculative to project the demand for oil shale leases, the technical capability to develop the resource, and the economics of producing shale oil. Projections that have been prepared vary significantly in not only the potential volume of shale oil that could be produced, but also the assumptions used to generate those projections. The recent report prepared by the Strategic Unconventional Fuels Task Force (Task Force) provided shale oil production projections under three scenarios. For our simulation-based analysis, we focused on the Task Forces' base case as a plausible scenario. This scenario presents a future without any subsidies in the form of tax credits or cost-sharing. The base case production of 0.5 million barrels per day is approximately 182.50 million barrels per year, all from true in-situ projects. The Task Force's base case scenario assumes production commencing in 2015, with full production reached by 2020. Please comment on the uncertainty surrounding the quantity and quality of recoverable oil shale, specifically as it relates to potential production of shale oil. The Task Force estimates that resulting production could reduce the cost of oil imports by $0.41 billion per year in 2015 to $4.21 billion per year in 2035. This estimate is based on EIA's 2006 oil price projection. In their report, the Task Force also provides estimates of oil shale development's contribution to Gross Domestic Product (GDP). In the base case, annual direct contributions to GDP for the oil shale industry activity rises from $0.65 billion per year in the early years, to $5.72 billion per year in 2035. We estimated the revenue, profit, and royalty implication of the Task Force's base case production scenario using three discount rates (7 percent, 3 percent, and 20 percent), three world crude oil price projections (EIA's 2007 reference, high, and low price projections) and 6 different royalty rates (1 percent, 3 percent, 5 percent, 7 percent, 9 percent, and 12.5 percent). The following summarizes the findings based on the 7 percent discount rate and a 5 percent royalty rate. The full range of calculations is presented in the Economic Analysis. We estimate the value of the forecasted production, using EIA's 2007 reference case assumptions, could be approximately $9.5 billion for 2020, up to $11 billion by 2035. The gross present value, using a 7 percent discount rate, of all shale oil produced for the period of analysis (2007 to 2035) is estimated at about $50 billion. The gross present value of production for the year 2020 is estimated at about $3.9 billion using a 7 percent discount rate. The gross present value of the shale oil produced in 2035 would be approximately $1.7 billion with a 7 percent discount rate. Oil shale development is characterized by high capital investment and long periods of time between expenditure of capital and the realization of production revenues and return on investment. The Task Force estimated the breakeven price for true in-situ operations at $37.75 per barrel. Using the base case production projection, the cost to produce 182.50 million barrels annually would be almost $6.9 billion. The present value of the production costs for 2020 would be about $2.9 billion using a 7 percent discount rate. For production occurring in 2035, the present value of those production costs would be about $1 billion. For the period of analysis (2007 to 2035), the present value of all production costs is estimated at about $34 billion using a 7 percent discount rate. Please specifically comment on the state of technology necessary to recover or produce oil from shale and the associated production costs. With the opportunity to lease and ultimately develop Federal oil shale resources, companies would be expected to generate profits from their commercial activities. Using the base case production scenario, cost projection assumptions, and EIA's reference oil price, by the year 2020 lessees/operators could see profits from oil shale development of over $2.6 billion per year, with a net present value of $1 billion with a 7 percent discount rate. For 2035, we estimate the present value of the potential profit could be approximately $670 million using a 7 percent discount rate. The net present value of shale oil produced in the period of analysis (2007 to 2035) is estimated at approximately $16.2 billion. Using EIA's high crude oil price scenario, calculated profits were substantially high. Total undiscounted profits for the period of analysis were $187 billion, with a present value of $50.6 billion using a 7 percent discount rate. For EIA's low oil price projection all operations are uneconomic regardless of the discount rate and/or royalty rate applied. In addition to these monetary costs and benefits associated with potential oil shale development, there could be significant environmental and socioeconomic costs and benefits. These potential costs and benefits could affect a wide range of resources, including groundwater quality and quantity, air quality, cultural resources, wildlife habitat, competing land uses, and local employment and infrastructure. Impacts on livestock grazing activities are generally the result of activities that affect forage levels, of the ability to construct range improvements, and of human disturbance or harassment of livestock within grazing allotments. Using the Task Force's base case scenario of three in-situ operations, with total maximum lease acreage of 17,280, and some fairly significant simplifying assumptions, there could be a loss of approximately 5,700 animal unit months (AUMs). Recreational use of BLM-administered lands within the three-state study area (Colorado, Utah, and Wyoming) is varied and dispersed. Impacts on recreation would be considered significant if potential oil shale development results in long-term elimination or reduction of recreation opportunities, activities, or experience, or they compromise public health and safety. As such, the significant of potential impacts from oil shale development could have on recreational opportunities will depend on the location of potential development. In addition to oil shale, the study area contains a wide range of energy and mineral resources. Mineral resource development conflicts may occur with oil shale development. The issuance of oil shale exploration licenses and leases does not preclude the BLM from issuing licenses and leases for other minerals. However, the BLM generally attempts to avoid issuing conflicting authorizations on the same lands. Many multiple use outputs from BLM land are not traded in markets and might not have measurable onsite expenditures associated with them. The absence of market price does not, however, mean an absence of value to society. Please specifically comment on the uses that oil shale production may displace under the base case scenario and the associated value of the displaced uses. In addition to land use conflicts, water consumption is a major concern in the arid intermountain region. Certain types of oil shale development are anticipated to consume significant quantities of water. Increasing the demand for water resources in the arid West must be considered a major opportunity cost to society associated with oil shale development and fully analyzed before commercial development is allowed to proceed. Demand for reliable, long-term water supplies to support oil shale development could lead to the conversion of water rights from current uses. While it is not presently known how much surface water will be needed to support future development of an oil shale industry, or the role that groundwater would play in future development, it is likely that additional agricultural water rights could be acquired. Depending on the locations and magnitude of such acquisitions, there could be a noticeable reduction in local agricultural production and use. Prospective oil shale developers would need to employ appropriate control technologies to reduce potential air emissions which otherwise could result from construction and operation of surface facilities. In addition to the emissions associated with the operations themselves, extraction of oil from shale could consume immense quantities of electricity. This would necessitate the building of new power plants, which could further contribute air emissions. Impacts on air quality would be limited by applicable local, state, Tribal, and Federal regulations, standards, and implementation plans established under the Clean Air Act and administered by the applicable air quality regulatory agency, with EPA oversight. Using the assumption of 3 in-situ projects, solid waste generated would be the drill cuttings and those would be handled as they are for oil and gas, which is to bury them on-site, in compliance with the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act and the Hazardous Solid Waste Amendments of 1984 (42 U.S.C. 6901 *et seq.* ). Aquatic habitats include perennial and intermittent streams, springs, and flat-water (lakes and reservoirs) that support fish or other aquatic organisms through at least a portion of the year. The wildlife species that may be associated with any particular project would depend on the specific location of the project and on the plant communities and habitats present at the site. A total of 210 plant and animal species are either federally (U.S. Fish and Wildlife Service (USFWS) and BLM) or state-listed (Colorado, Utah, and Wyoming) and occurs or could occur in counties within oil shale basins. In the study areas, 32 species are listed or candidates for listing by the USFWS under the Endangered Species Act (ESA); 78 species are listed as sensitive by the BLM; 24 are listed by the State of Colorado; 33 are listed by the State of Utah; and 121 are listed by the State of Wyoming. Species listed by the USFWS under the ESA have the potential to occur in all oil shale basins. The likelihood of occurrence in study areas cannot be fully determined at this time because actual project locations and footprints will not be determined until some later date. A complete evaluation of listed species in the study areas will be made at that time, before project activities begin. Project-specific NEPA assessments, ESA consultations, and coordination with state natural resource agencies will address project specific impacts more thoroughly. These assessments and consultations will result in required actions to avoid or mitigate impacts on protected species. Oil shale development, initially in the western states of Colorado, Wyoming, and Utah, requires infrastructure to support industry development and operation, including refining capacity, pipelines, and sources of natural gas and electricity. The socioeconomic environment potentially affected by the development of oil shale resources includes a region of influence in each state (Colorado, Utah, and Wyoming), consisting of the counties and communities most likely impacted by development of oil shale resources. Construction and operation of oil shale facilities could have a major affect on the local communities, impacting the economy and the social and demographic make-up of the affected communities. For example, oil shale industry development could result in the addition of thousands of new, high-value, long-term jobs in the construction, manufacturing, mining, production, and refining sectors of the domestic economy. Construction and operations could result in a direct loss of recreation employment in the recreation sectors and indirect effects such as declining recreation employee wage and salary spending and expenditures by the recreation section on materials equipment and services. The Task Force provided employment projections for their production scenarios, including their base case. Direct employment could range from 120 to 9,700 personnel in the base case. The total number of petroleum sector jobs (including indirect employment), estimated by the Task Force, ranges from 2,930 employees in 2015 to 20,830 in 2035 for their base case. A resource commitment is considered irreversible when direct and indirect impacts from its use limit future use options. Irreversible and irretrievable commitments of resources could occur as a result of future commercial oil shale projects that are authorized, constructed, and operated. The nature and magnitude of these commitments would depend on the specific location of the project development as well as its specific design and operational requirements. The construction of future commercial oil shale projects could result in the consumption of sands, gravels, and other geologic resources, as well as fuel, structural steel, and other materials. Water resources could also be consumed during construction, although water use would be temporary and largely limited to on-site concrete mixing and dust abatement activities. In general, the impact on biological resources from future project construction and operation would not constitute an irreversible and irretrievable commitment of resources. During project construction and operation, individual animals would be impacted. The potential effects of developing the oil shale resources are likely to be quite significant; however, at this point, with the significant unknowns as to what may be developed and how it may be developed, plus where and when development may occur, there is no practical way to quantify the potential environmental and socioeconomic consequences, much less put a monetary value on them. Before oil shale development could occur, additional project-specific NEPA analyses would be performed at two points in time:
(1)Prior to leasing; and
(2)Prior to plan of development approval. These analyses would address environmental impacts of oil shale production including impacts to livestock grazing, recreation uses, energy and mineral resources, water use, air, aquatic habitat, and wildlife and would be subject to public and agency review and comment. The Act requires the Secretary to establish royalties, fees, rentals, bonus, or other payments for oil shale leases that encourage development of the resource, but also ensuring a fair return to the government. As a result of any leasing and development, the Federal and state governments will benefit from the revenue generated through the bonuses, rents, and eventually royalties. These bid, rental, and royalty payments are revenue to the public, but a cost to the lessee/operator of obtaining, holding, and producing from the Federal leases. Monetary payments, such as rents, royalties, and bonus bids, from the lessee to the government, do not affect total resources available to society and in the context of a benefit-cost analysis are considered transfer payments. The bonus is the amount paid by the successful high bidder when a parcel is offered for lease. By statute the parcel must be leased for fair market value. At this juncture there is no practical way to generate a meaningful estimate of the potential bonus bids or fair market values for potential lease parcels. Until the operation starts paying a production royalty, the lessee is required to pay the government a rental. The proposed regulations include a rental rate of $2 per acre. Maximum lease acreage is 5,760 acres for a maximum annual rental payment per lease of $11,520 (constant-dollars) per year until an operation commences shale oil production. Based on the Task Force's base case of three in-situ operations, with total maximum lease acres of 17,280 acres, those three leases could generate a rental income of $34,560 per year. Producing leases will be required to pay a production royalty. One alternative in the proposed regulations calls for a production royalty of 5 percent on all products of oil shale that are sold from or transported off of the lease. Using the production projections and other assumptions presented in the economic analysis, royalty payments for the period of analysis (2007 to 2035) could be almost $9.1 billion, with a net present value of $2.5 billion (7 percent discount rate). We also analyzed the Federal revenue implications of alternative royalty rates given constant production and production cost assumptions. These alternative royalty revenue calculations are presented in the economic analysis. Beginning in the 10th lease year, for leases that have not commenced production, the lessee is subject to a payment in lieu of production of no less than $4 per acre. For an operation with 5,760 acres under lease and no production by the end of the eleventh lease year, the payment in lieu of production would be $23,040 (constant-dollars) per year. Based on the Task Force's base case of three in-situ operations, with total maximum lease acres of 17,280 acres, should operations on those three leases not commence production, the payment in lieu of production could generate payments to the Federal Government of $69,120 per year. The proposed regulations require license and lease bonds for exploration licenses and oil shale leases. These bonds are intended to guarantee payments (rents, royalties, and deferred bonuses) the lessee may owe the government. The bond amount will be determined on a case-by-case basis. The minimum lease bond is proposed at $25,000. The operator is also obligated to provide the BLM with a reclamation bond. The amount of these bonds will be based on the estimated cost for the government to contract with a third party to reclaim the operation should the operator be unable or unwilling to fulfill their reclamation obligations. The amounts of these reclamation bonds are likely to be quite significant; however, at this point there is no practical way to estimate the amount of these reclamation bonds. There will be increases in BLM administrative costs associated with the issuance of leases and licenses and review and approval of operational plans. Most of these costs are relatively minor and will be subject to cost recovery that will be paid for by the benefiting party. There will be some BLM actions that will not be subject to cost recovery, including increased costs associated with ongoing inspection and enforcement responsibilities. Above are various costs and benefits associated with the proposed rule. Some effects are directly tied to the provisions found in the proposed regulations, such as royalty rates of 5 or 12.5% percent of the value of the amount or value of production removed or sold from the lease. Other costs and benefits are tied to companies' ability and willingness to take advantage of the opportunities provided by the leasing regulations. The most significant of these costs and benefits include the value of shale oil that may be produced, the cost to produce the shale oil, and the environmental and socioeconomic consequences of resource development. The present values of the quantified monetary effects are expected to be in excess of the $100 million annual threshold. We estimate the net present value of the potential monetary costs and benefits considered in this analysis to be approximately $13.6 billion using a 7 percent discount rate, $28.5 billion using a 3 percent discount rate, and $1.8 billion using a 20 percent discount rate. This conclusion is based on the calculated present value of the profit from shale oil produced from our analysis period (2007 to 2035) using EIA's reference oil price. This conclusion includes one significant caveat. The socioeconomic and environmental costs and benefits associated with oil shale development are likely to be quite large. As has been noted above, we have no reasonable way to generate meaningful scenarios to quantify the potential impacts for an industry that does not exist or technologies that have not been deployed. As such, the net present value of the benefits of the proposed rule may be significantly larger or smaller than the estimates presented in this analysis. Clarity of the Regulations Executive Order 12866 requires each agency to write regulations that are simple and easy to understand. We invite your comments on how to make these proposed regulations easier to understand, including answers to questions such as the following:
(1)Are the requirements in the proposed regulations clearly stated?
(2)Do the proposed regulations contain technical language or jargon that interferes with their clarity?
(3)Does the format of the proposed regulations (grouping and order of sections, use of headings, paragraphing, etc.) aid or reduce their clarity?
(4)Would the regulations be easier to understand if they were divided into more (but shorter) sections? (A “section” appears in bold type and is preceded by the symbol “§ ” and a numbered heading, for example (§ 3902.24 Associations, including partnerships.)
(5)Is the description of the proposed regulations in the SUPPLEMENTARY INFORMATION section of this preamble helpful in understanding the proposed regulations? How could this description be more helpful in making the proposed regulations easier to understand? Please send any comments you have on the clarity of the regulations to the address specified in the ADDRESSES section. Small Business Regulatory Enforcement Fairness Act (SBREFA). This rule is a major rule under 5 U.S.C. 804(2), the Small Business Regulatory Enforcement Fairness Act. This rule:
(1)Has an annual effect on the economy of $100 million or more. Please see the discussion of Executive Order 12866, above.
(2)Will not cause a major increase in costs or prices for consumers, individual industries, Federal, state, or local government agencies, or geographic regions. Should production from Federal oil shale resources occur, it is anticipated that if there is any impact to costs or prices as a result of additional production entering the market, it would be to decrease them.
(3)Does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises. The issuance of Federal oil shale leases and production of oil shale resources from those Federal leases would not lead to adverse effect on any of the above because an increase in products from oil shale would tend to lead to a decrease in prices and potentially lead to increased competition, employment, investment, productivity, and innovation and the ability of U.S.-based enterprises to compete with foreign-based enterprises. National Environmental Policy Act The BLM has prepared an environmental assessment
(EA)and has found that the proposed rule would not constitute a major Federal action significantly affecting the quality of the human environment under Section 102(2)(C) of the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4332(2)(C). A detailed statement under NEPA is not required. The BLM has placed the EA on file in the BLM Administrative Record at the address specified in the ADDRESSES section. The BLM invites the public to review these documents and suggests that anyone wishing to submit comments in response to the EA do so in accordance with the Public Comment Procedures section above. Regulatory Flexibility Act Congress enacted the Regulatory Flexibility Act of 1980 (RFA), as amended, 5 U.S.C. 601-612, to ensure that Government regulations do not unnecessarily or disproportionately burden small entities. The RFA requires a regulatory flexibility analysis if a rule would have a significant economic impact, either detrimental or beneficial, on a substantial number of small entities. The RFA establishes an analytical process for determining how public policy goals can best be achieved without erecting barriers to competition, stifling innovation, or imposing undue burdens on small entities. Executive Order 13272 reinforces executive intent that agencies give serious attention to impacts on small entities and develop regulatory alternatives to reduce the regulatory burden on small entities. To meet these requirements, the agency must either conduct a regulatory flexibility analysis or certify that the final rule will not have “a significant economic impact on a substantial number of small entities.” Section 369 of the EP Act requires the Department of the Interior to establish regulations for a commercial oil shale leasing program. Although this rule would only affect entities that choose to explore and develop oil shale resources from land administered by the BLM, there is no way to determine which firms would hold exploration licenses or leases or operate on Federal lands in the future. The extent to which the proposed rule would have an actual impact on any firm depends on whether the firm would hold exploration licenses or leases or would operate on Federal lands. Currently, active oil shale research and development on Federal lands is limited to a few firms. Chevron, EGL Resources, Oil Shale Exploration Company, and Shell Oil Company hold R, D and D leases and are the only companies currently conducting operations on Federal oil shale leases. Of the four companies holding R, D and D leases, two are major oil companies and two are small research and development firms. With implementation of these regulations, technological advances, and favorable market conditions that would support oil shale development, the BLM anticipates an increase in the number of firms involved in oil shale development. However, the number of firms, large or small, involved in oil shale development on Federal lands would likely remain quite limited. Given the likely size of the industry that may eventually be involved in the leasing and development of Federal oil shale resources, it is reasonable to conclude that this rule would not significantly impact a “substantial number of small entities.” This rule would provide for the leasing and management of oil shale resources on Federal lands. Provisions covered in this proposed rule include exploration license and competitive leasing procedures, requirements and terms, and plan of development and operational requirements. To explore on Federal lands, the operator would have to have an exploration license or an oil shale lease. The proposed process to obtain an exploration license would be relatively straightforward and would not entail significant fees, e.g., $295 nonrefundable filing fee. As proposed, commercial oil shale leases would primarily rely on a process of leasing parcels nominated by industry. The BLM may also choose to offer certain lands for lease. All leases would be offered competitively. The BLM would not collect an application or nomination fee; however, the successful high bidder would be required to pay certain costs associated with the BLM offering the tract for lease, in addition to the bonus bid. At the time of lease sale, the high bidder would be required to submit a payment of one fifth of the amount of the bonus bid. Leases would also be subject to a $2.00 per acre rental. The proposed terms and conditions for operating under an exploration license or commercial lease are those needed to protect the environment and resource values of the area and to ensure reclamation of the lands disturbed by the activities. Exploration and development plans must be submitted to the BLM for approval. All operations, whether under an exploration license or a commercial oil shale lease, are required to provide the BLM with a license or lease bond. In addition, operators are required to provide the government with a bond to cover the cost of site reclamation and closure. Production from commercial oil shale leases will be subject to a Federal royalty. A royalty on the amount or value of production removed or sold from the lease would apply to commercial production from these leases. The ability to obtain an exploration license and/or to compete for a commercial oil shale lease is not affected by the size of the company. Exploration licenses require a nominal filing fee ($295 per filing) and have no minimum acreage. Leases have minimum tract acreage of 160 acres; lease processing costs are paid by the successful bidder; and bonus bids may be deferred over a 5-year period. These aspects of the proposed licensing and leasing procedures allow small entities to better compete for Federal oil shale licenses and leases with larger, well capitalized companies. As required by the EP Act, all royalties, rentals, bonus bids, and other payments proposed in this rule are to encourage development of the oil shale resources while ensuring a fair return to the government. The proposed regulatory provisions, including filing fees, rentals, and production royalties, will not have a significant economic impact on lessees or operators, regardless of the firm's size. Therefore, the BLM has determined that under the RFA this proposed rule would not have a significant economic impact on a substantial number of small entities. Unfunded Mandates Reform Act In accordance with the Unfunded Mandates Reform Act (2 U.S.C. 1501 *et seq.* ) the proposed rule would not impose an unfunded mandate on state, local, or tribal governments or the private sector, in the aggregate, of $100 million or more per year; nor would this rule have a significant or unique effect on state, local, or tribal governments. The rule would impose no requirements on any of those entities. Therefore, the BLM is not required to prepare a statement containing the information required by the Unfunded Mandates Reform Act. Executive Order 12630, Governmental Actions and Interference With Constitutionally Protected Property Rights (Takings) The proposed rule is a not a government action capable of interfering with constitutionally protected property rights. A takings implication assessment is not required. The proposed rule does not authorize any specific activities that would result in any effects on private property. Therefore, the Department of the Interior has determined that the rule would not cause a taking of private property or require further discussion of takings implications under this Executive Order. Executive Order 13132, Federalism The proposed rule 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 levels of government. It would not apply to states or local governments or state or local governmental entities. The management of Federal oil shale leases is the responsibility of the Secretary of the Interior and the BLM. This rule does not alter any lease management or revenue sharing provisions with the states, nor does it impose any costs on the states. Therefore, in accordance with Executive Order 13132, the BLM has determined that this proposed rule does not have sufficient Federalism implications to warrant preparation of a Federalism Assessment. Executive Order 12988, Civil Justice Reform Under Executive Order 12988, the BLM determined that this proposed rule would not unduly burden the judicial system and that it meets the requirements of sections 3(a) and 3(b)(2) of the Order. Executive Order 13175, Consultation and Coordination With Indian Tribal Governments In accordance with Executive Order 13175, we have found that this rule may include policies that have Tribal implications. The proposed rule would make changes in the Federal oil shale leasing and management program, which does not apply on Indian Tribal lands. At present, there are no oil shale leases or agreements on Tribal or allotted Indian lands. If tribes or allottees should ever enter into any leases or agreements with the approval of the Bureau of Indian Affairs, the BLM would then likely be responsible for the approval of any proposed operations on Indian oil shale leases and agreements. In light of this possibility, and because Tribal interests could be implicated in oil shale leasing on Federal lands, the BLM has begun consultation with potentially affected Tribes on the proposed oil shale regulations, and will continue to consult with Tribes during the comment period on the proposed rule. Information Quality Act In developing this proposed rule, we did not conduct or use a study, experiment or survey requiring peer review under the Information Quality Act (Section 515 of Pub. L. 106-554). Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use In accordance with Executive Order 13211, the BLM has determined that the proposed rule is not likely to have a substantial direct effect on the supply, distribution, or use of energy. Executive Order 13211 requires an agency to prepare a Statement of Energy Effects for a proposed rule that is: A significant regulatory action under Executive Order 12866 or any successor order; and Likely to have a significant adverse effect on the supply, distribution, or use of energy. As discussed earlier in this preamble, the BLM believes that the rule will likely increase energy production and would not have an adverse effect on the supply, distribution, or use of energy, and therefore has determined that the preparation of a Statement of Energy Effects is not required. Executive Order 13352, Facilitation of Cooperative Conservation In accordance with Executive Order 13352, the BLM has determined that this proposed rule would not impede facilitating cooperative conservation; would take appropriate account of and consider the interests of persons with ownership or other legally recognized interest in the land or other natural resources; properly accommodates local participation in the Federal decision-making process; and provide that the programs, projects, and activities are consistent with protecting public health and safety. State and local governments were cooperating agencies in the preparation of the PEIS. The BLM, in coordination with the MMS, held three “listening sessions” with representatives of the governors of the states of Colorado, Utah, and Wyoming. The purpose of the “listening sessions” was to provide the governor's representatives the opportunity to share their ideas, issues, and concerns relating to the proposed commercial oil shale leasing regulations. Section 369(e) of the EP Act requires that not later than 180 days after the publication of the final regulations, the Secretary (as delegated to the BLM), is to consult with the governors of the states with significant oil shale and tar sands resources on public lands, representatives of local governments in such states, interested Indian tribes, and other interested persons to determine the level of support and interest in the states in the development of oil shale resources. In addition, the proposed regulations contain a section providing for comments from state governors, local governments, and interested Indian tribes prior to offering lands for lease for oil shale. The comment period would occur prior to the BLM's publication of a call for nominations. Paperwork Reduction Act of 1995
(PRA)This proposed rule would contain new information collection requirements. As required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the BLM has submitted a copy of the proposed regulations to the OMB for review. The BLM will not require collection of this information until OMB has given its approval. As part of our continuing effort to reduce paperwork and respondent burden, we invite the public and other Federal agencies to comment on any aspect of the reporting burden through the information collection process. Submit written comments by either fax
(202)395-6566 or e-mail ( *OIRA_Docket@omb.eop.gov* ) directly to the Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for the Department of the Interior [OMB Control Number ICR 1004-New, as it relates to the proposed Oil Shale Management rule]. The title of the new information collection request
(ICR)is “Parts 3900-3930—Oil Shale Management—General.” The intent of this proposed rulemaking is to establish regulations for a commercial leasing program. The BLM will collect information from individuals, corporations, and associations in order to:
(1)Learn the extent and qualities of the public oil shale resource;
(2)Evaluate the environmental impacts of oil shale leasing and development;
(3)Determine the qualifications of prospective lessees to acquire and hold Federal oil shale leases;
(4)Administer statutes applicable to oil shale mining, production, resource recovery and protection, operations under oil shale leases, and exploration under leases and licenses;
(5)Ensure lessee compliance with applicable statutes, regulations, and lease terms and conditions; and
(6)Ensure that accurate records are kept of all Federal oil shale produced. Prospectively estimating the annual burden hours for the commercial oil shale program is difficult because the oil shale industry is at the research and development stage where there is a lack of available information and the future technology to be used is uncertain. The burden hour estimates in the following charts were derived from a previous ICR completed for the Federal coal program, as the information collection associated with that program is somewhat similar to the proposed oil shale leasing program. The coal burden hour estimates were adjusted to reflect differences in the two processes. It is also difficult to make a prospective estimate of the number of annual responses; therefore, the BLM has used one response for each activity as a starting point, except for the number of applications received. We anticipate that we could receive several applications after these regulations are promulgated. The BLM estimates that this ICR for the oil shale management program will result in 22 responses totaling 1,784 burden hours at a total annual burden cost of $86,492 (Table 1). This estimate is based on the number of actions multiplied by the estimated burden hours per action multiplied by a $48.48 wage per hour (Table 2). Additionally, the BLM estimates that there will be processing/cost recovery fees in the amount of $526,592 (Table 3). See the following tables for burden hours and processing/cost recovery fees by CFR citation: Table 1.—Burden Breakdown Parts 3900-3930 burden activity Information collected Hour burden Average number of annual responses Average annual burden hours Total annual burden cost Subpart 3904—Bonds and Trust Funds A lessee or licensee must furnish a bond before a lease or exploration license may be issued or transferred or a plan of development approved. The BLM will review the bond and, if adequate as to amount and execution, will accept it in order to indemnify the United States against default on payments due or other performance obligations. The BLM may also adjust the bond amount to reflect changed conditions. The BLM will cancel the bond when all requirements are satisfied *Section 3904.12.* —File one copy of the bond form with original signatures in the proper BLM state office. Bonds must be filed on an approved BLM form. The obligor of a personal bond must sign the form. Surety bonds must have the lessee's and the acceptable surety's signature 1 1 1 $48 *Section 3904.14(c)(1).* —Prior to the approval of a plan of development, in those instances where a state bond will be used to cover all of the BLM's reclamation requirements, evidence verifying that the existing state bond will satisfy all the BLM reclamation bonding requirements must be filed in the proper BLM office. The BLM will use no specific form to collect this information 1 1 1 48 Part 3910—Oil Shale Exploration Licenses For those lands where no exploration data is available, the lease applicant may apply for an exploration license to conduct exploration on unleased public lands to determine the extent and specific characteristics of the Federal oil shale resource. The BLM will use the information in the application to:
(1)Locate the proposed exploration site;
(2)Determine if the lands are subject to entry for exploration;
(3)Prepare a notice of invitation to other parties to participate in the exploration; and
(4)Ensure the exploration plan is adequate to safeguard resource values, and public and worker health and safety *Section 3910.31.* —The BLM will use no specific form to collect the information. The applicant will be required to submit the following information:
(1)Name and address of applicant(s);
(2)A nonrefundable filing fee of $295;
(3)A general description of the area to be drilled described by legal land description; and
(4)3 copies of an exploration plan that includes the exact location of the affected lands, the name, address, and telephone number of the party conducting the exploration activities, a description of the proposed methods and extent of exploration, and reclamation 24 1 24 1,164 The BLM will use this information from a licensee to determine if it will offer the land area for lease *Section 3910.44.* —Upon the BLM's request, the licensee must provide copies of all data obtained under the exploration license in the format requested by the BLM. The BLM will consider the data confidential and proprietary until the BLM determines that public access to the data will not damage the competitive position of the licensee or the lands involved have been leased, whichever comes first. Submit all data obtained under the exploration license to the proper BLM office 8 1 8 388 Subpart 3921—Pre-Sale Activities Corporations, associations, and individuals may submit expressions of leasing interest for specific areas to assist the applicable BLM State Director in determining whether or not to lease oil shale. The information provided will be used in the consultation with the governor of the affected state and in setting a geographic area for which a call for applications will be requested *Section 3921.30.* —The BLM will request this information through the publication of a notice in the **Federal Register** and will use no specific form to collect the information. The expression of leasing interest will contain specific information consisting of name and address and area of interest described by legal land description 4 1 4 194 Subpart 3922—Application Processing Entities interested in leasing the Federal oil shale resource must file an application in a geographic area for which the BLM has issued a “Call for Applications.” The information provided by the applicant will be used to evaluate the impacts of issuing a proposed lease on the human environment. Failure to provide the requested additional information may result in suspension or termination of processing of the application or in a decision to deny the application *Section 3922.20 and 3922.30.* —Lease applications must be filed in the proper BLM state office. No specific form of application is required, but the application must include information necessary to evaluate the impacts of issuing the proposed lease on the human environment, including, but not limited to, the following:
(1)Name, address, telephone number of applicant, and a qualification statement, as required by subpart 3902;
(2)A delineation of the proposed lease area or areas, the surface ownership (if other than the United States) of those areas, a description of the quality, thickness, and depth of the oil shale and of any other resources the applicant proposes to extract, and environmental data necessary to assess impacts from the proposed development;
(3)A description of the proposed extraction method, including personnel requirements, production levels, and transportation methods including:
(a)A description of the mining, retorting, or in situ mining or processing technology that the operator would use and whether the proposed development technology is substantially identical to a technology or method currently in use to produce marketable commodities from oil shale deposits;
(b)An estimate of the maximum surface area of the lease area that will be disturbed or undergoing reclamation at any one time;
(c)A description of the source and quantities of water to be used and of the water treatment and disposal methods necessary to meet applicable water quality standards;
(d)A description of the air quality emissions;
(e)A description of the anticipated noise levels from the proposed development;
(f)A description of how the proposed lease development would comply with all applicable statutes and regulations governing management of chemicals and disposal of solid waste. If the proposed lease development would include disposal of wastes on the lease site, include a description of measures to be used to prevent the contamination of soil and of surface and ground water;
(g)A description of how the proposed lease development would avoid, or, to the extent practicable, mitigate impacts to species or habitats protected by applicable state or Federal law or regulations, and impacts to wildlife habitat management;
(h)A description of reasonably foreseeable social, economic, and infrastructure impacts to the surrounding communities, and to state and local governments from the proposed development;
(i)A description of the known historical, cultural, or archeological resources within the lease area;
(j)A description of infrastructure that would likely be required for the proposed development and alternative locations of those facilities, if applicable;
(k)A discussion of proposed measures to mitigate any adverse impacts to the environment and to nearby communities;
(l)A brief description of the reclamation methods that will be used;
(m)Any other information that shows that the application meets the requirements of this subpart or that the applicant believes would assist the BLM in analyzing the impacts of the proposed development; and
(n)A map, or maps, showing:
(i)The topography, physical features, and natural drainage patterns;
(ii)Existing roads, vehicular trails, and utility systems;
(iii)The location of any proposed exploration operations, including seismic lines and drill holes;
(iv)To the extent known, the location of any proposed mining operations and facilities, trenches, access roads, or trails, and supporting facilities including the approximate location and extent of the areas to be used for pits, overburden, and tailings; and
(v)The location of water sources or other resources that may be used in the proposed operations and facilities. At any time during processing of the application, or the environmental or similar assessments of the application, the BLM may request additional information from the applicant 308 3 924 44,796 Subpart 3924—Lease Sale Procedures Prospective lessees will be required to submit a bid at a competitive sale in order to be issued a lease *Section 3924.10.* —The BLM will request the following bid information via the notice of oil shale lease sale:
(1)A certified check, cashier's check, bank draft, money order, personal check, or cash for one-fifth of the amount of the bonus; and
(2)A qualifications statement signed by the bidder as described in subpart 3902 8 1 8 388 Subpart 3926—Conversion of Preference Right for Research, Demonstration, and Development (R, D and D) Leases The lessee of an R, D and D lease may apply for conversion of the R, D and D lease to a commercial lease *Section 3926.10(c).* —A lessee of an R, D and D lease identified in subpart 3926 must apply for the conversion of the R, D and D lease to a commercial lease no later than 90 days after the commencement of production in commercial quantities. No specific form of application is required. The application for conversion must be filed in the BLM state office that issued the R, D and D lease. The conversion application must include:
(1)Documentation that there has been commercial quantities of oil shale produced from the lease, including the narrative required by section 23 of R, D and D leases; and
(2)Documentation that the lessee consulted with state and local officials to develop a plan for mitigating the socioeconomic impacts of commercial development on communities and infrastructure.
(3)A bonus payment equal to the FMV of the lease; and
(4)Bonding to cover all costs associated with reclamation 308 1 308 14,932 Subpart 3930—Management of Oil Shale Exploration and Leases The records, logs, and samples provide information necessary to determine the nature and extent of oil shale resources on Federal lands and to monitor and adjust the extent of the oil shale reserve *Section 3930.11(b).* —The operator/lessee must retain for one year all drill and geophysical logs. The operator must also make such logs available for inspection or analysis by the BLM. The BLM may require the operator/lessee to retain representative samples of drill cores for 1 year. The BLM uses no specific form to collect the information 19 1 19 921 *Section 3930.20(b).* —The operator must record any new geologic information obtained during mining or in situ development operations regarding any mineral deposits on the lease. The operator must report this new information in a BLM-approved format to the proper BLM office within 90 days of obtaining the information 19 1 19 921 Subpart 3931—Plans of Development and Exploration Plans The plan of development must provide for reasonable protection and reclamation of the environment and the protection and diligent development of the oil shale resources in the lease *Section 3931.11.* —The plan of development must contain, at a minimum, the following:
(a)Names, addresses, and telephone numbers of those responsible for operations to be conducted under the approved plan and to whom notices and orders are to be delivered, names and addresses of Federal oil shale lessees and corresponding Federal lease serial numbers, and names and addresses of surface and mineral owners of record, if other than the United States;
(b)A general description of geologic conditions and mineral resources within the area where mining is to be conducted, including appropriate maps;
(c)A copy of a suitable map or aerial photograph showing the topography, the area covered by each lease, the name and location of major topographic and cultural features;
(d)A statement of proposed methods of operation and development, including the following items as appropriate:
(1)A description detailing the extraction technology to be used;
(2)The equipment to be used in development and extraction;
(3)The proposed access roads;
(4)The size, location, and schematics of all structures, facilities, and lined or unlined pits to be built;
(5)The stripping ratios, development sequence, and schedule;
(6)The number of acres in the Federal lease(s) or license(s) to be affected;
(7)Comprehensive well design and procedure for drilling, casing, cementing, testing, stimulation, clean-up, completion, and production, for all drilled well types, including those used for heating, freezing, and disposal;
(8)A description of the methods and means of protecting and monitoring all aquifers;
(9)Surveyed well location plats or project-wide well location plats;
(10)A description of the measurement and handling of produced fluids, including the anticipated production rates and estimated recovery factors; and
(11)A description/discussion of the controls that the operator will use to protect the public, including identification of:
(i)Essential operations, personnel, and health and safety precautions;
(ii)Programs and plans for noxious gas control (hydrogen sulfide, ammonia, etc.);
(iii)Well control procedures;
(iv)Temporary abandonment procedures; and
(v)Plans to address spills, leaks, venting, and flaring;
(e)An estimate of the quantity and quality of the oil shale resources;
(f)An explanation of how MER of the resource will be achieved for each Federal lease; and
(g)Appropriate maps and cross sections showing:
(1)Federal lease boundaries and serial numbers;
(2)Surface ownership and boundaries;
(3)Locations of any existing and abandoned mines and existing oil and gas well (including well bore trajectories) and water well locations, including well bore trajectories;
(4)Typical geological structure cross sections;
(5)Location of shafts or mining entries, strip pits, waste dumps, retort facilities, and surface facilities;
(6)Typical mining or in situ development sequence, with appropriate time-frames;
(h)A narrative addressing the environmental aspects of the proposed mine or in situ operation, including at a minimum, the following:
(1)An estimate of the quantity of water to be used and pollutants that may enter any receiving waters;
(2)A design for the necessary impoundment, treatment, control, or injection of all produced water, runoff water, and drainage from workings; and
(3)A description of measures to be taken to prevent or control fire, soil erosion, subsidence, pollution of surface and ground water, pollution of air, damage to fish or wildlife or other natural resources, and hazards to public health and safety;
(i)A reclamation plan and schedule for all Federal lease(s) or exploration license(s) that details all reclamation activities necessary to fulfill the requirements of § 3931.20;
(j)The method of abandonment of operations on Federal lease(s) and exploration license(s) proposed to protect the unmined recoverable reserves and other resources, including:
(1)The method proposed to fill in, fence, or close all surface openings that are hazardous to people or animals; and
(2)For in situ operations, a description of the method and materials to be used to plug all abandoned development or production wells; and
(k)Any additional information that the BLM determines is necessary for analysis or approval of the plan of development 308 1 308 14,932 The BLM may, in the interest of conservation, order or agree to a suspension of operations and production *Section 3931.30.* —An application by a lessee for suspension of operations and production must be filed in duplicate in the proper BLM office and must set forth why it is in the interest of conservation to suspend operations and production. The BLM will use no specific form to collect this information 24 1 24 1,164 Except for casual use, before conducting any exploration operations on federally-leased or federally-licensed lands, the lessee must submit an exploration plan to the BLM for approval *Section 3931.41.* —The BLM will use no specific form to collect this information. Exploration plans must contain the following information:
(1)The name, address, and telephone number of the applicant, and, if applicable, that of the operator or lessee of record;
(2)The name, address, and telephone number of the representative of the applicant who will be present during, and responsible for, conducting exploration;
(3)A description of the proposed exploration area, cross-referenced to the map required under section 3931.41, including:
(a)Applicable Federal lease and exploration license serial numbers;
(b)Surface topography;
(c)Geologic, surface water, and other physical features;
(d)Vegetative cover;
(e)Endangered or threatened species listed under the Endangered Species Act of 1973 (16 U.S.C. 1531 *et seq.* ) that may be affected by exploration operations;
(f)Districts, sites, buildings, structures, or objects listed on, or eligible for listing on, the National Register of Historic Places that may be present in the lease area; and
(g)Known cultural or archaeological resources located within the proposed exploration area;
(4)A description of the methods to be used to conduct oil shale exploration, reclamation, and abandonment of operations, including, but not limited to:
(a)The types, sizes, numbers, capacity, and uses of equipment for drilling and blasting and road or other access route construction;
(b)Excavated earth-disposal or debris-disposal activities;
(c)The proposed method for plugging drill holes; and
(d)The estimated size and depth of drill holes, trenches, and test pits;
(5)An estimated timetable for conducting and completing each phase of the exploration, drilling, and reclamation;
(6)The estimated amounts of oil shale or oil shale products to be removed during exploration, a description of the method to be used to determine those amounts, and the proposed use of the oil shale removed;
(7)A description of the measures to be used during exploration for Federal oil shale to comply with the performance standards for exploration (43 CFR 3930.10) and applicable requirements of an approved state program;
(8)A map at a scale of 1:24,000 or larger showing the areas of land to be affected by the proposed exploration and reclamation. The map must show:
(a)Existing roads, occupied dwellings, and pipelines;
(b)The proposed location of trenches, roads, and other access routes and structures to be constructed;
(c)Applicable Federal lease and exploration license boundaries;
(d)The location of land excavations to be conducted;
(e)Oil shale exploratory holes to be drilled or altered;
(f)Earth-disposal or debris-disposal areas;
(g)Existing bodies of surface water; and
(h)Topographic and drainage features; and
(9)The name and address of the owner of record of the surface land, if other than the United States. If the surface is owned by a person other than the applicant or if the Federal oil shale is leased to a person other than the applicant, a description of the basis upon which the applicant claims the right to enter that land for the purpose of conducting exploration and reclamation 24 1 24 1,164 Approved exploration, mining and in situ development plans may be modified by the operator or lessee to adjust to changed conditions or to correct an oversight *Section 3931.50.* —The BLM will use no specific form to collect this information. The operator or lessee may apply in writing to the BLM for modification of the approved exploration plan or plan of development to adjust to changed conditions or to correct an oversight. To obtain approval of an exploration plan or plan of development modification, the operator or lessee must submit to the proper BLM office a written statement of the proposed modification and the justification for such modification 24 1 24 1,164 Production of all oil shale products or byproducts must be reported to the BLM on a monthly basis *Section 3931.70.* —(1) Report production of all oil shale products or by-products to the BLM on a monthly basis.
(2)Report all production and royalty information to the MMS under 30 CFR parts 210 and 216.
(3)Submit production maps to the proper BLM office at the end of each royalty reporting period or on a schedule determined by the BLM. Show all excavations in each separate bed or deposit on the maps so that the production of minerals for any period can be accurately ascertained. Production maps must also show surface boundaries, lease boundaries, topography, and subsidence resulting from mining activities.
(4)For in situ development operations, the lessee or operator must submit a map showing all surface installations including pipelines, meter locations, or other points of measurement necessary for production verification as part of the plan of development. All maps must be modified as necessary to adequately represent existing operations.
(5)Within 30 days after well completion, the lessee or operator must submit to the proper BLM office 2 copies of a completed Form 3160-4, Well Completion or Recompletion Report and Log, limited to information that is applicable to oil shale operations. Well logs may be submitted electronically using a BLM approved electronic format. Describe surface and bottom-hole locations in latitude and longitude 16 1 16 776 Within 30 days after drilling completion the operator or lessee must submit to the BLM a signed copy of records of all core or test holes made on the lands covered by the lease or exploration license *Section 3931.80.* —Within 30 days after drilling completion, the operator or lessee must submit to the proper BLM office a signed copy of records of all core or test holes made on the lands covered by the lease or exploration license. The records must show the position and direction of the holes on a map. The records must include a log of all strata penetrated and conditions encountered, such as water, gas, or unusual conditions, and copies of analysis of all samples. Provide this information to the proper BLM office in either paper copy or in a BLM-approved electronic format. Within 30 days after creation, the operator or lessee must also submit to the proper BLM office a detailed lithologic log of each test hole and all other in-hole surveys or other logs produced. Upon the BLM's request, the operator or lessee must provide to the BLM splits of core samples and drill cuttings 16 1 16 776 Subpart 3932—Lease Modifications and Readjustments A lessee may apply for a modification of a lease to include additional Federal lands adjoining those in the lease *Section 3932.10(b) and Section 3932.30(c).* —The BLM will use no specific form to collect this information. An application for modification of the lease size must:
(1)Be filed with the proper BLM office;
(2)Contain a legal description of the additional lands involved;
(3)Contain a justification for the modification;
(4)Explain why the modification would be in the best interest of the United States;
(5)Include a nonrefundable processing fee that the BLM will determine under 43 CFR 3000.11; and
(6)Include a signed qualifications statement consistent with subpart 3902. Before the BLM will approve a lease modification, the lessee must file a written acceptance of the conditions in the modified lease and a written consent of the surety under the bond covering the original lease as modified. The lessee must also submit evidence that the bond has been amended to cover the modified lease 12 1 12 582 Subpart 3933—Assignments and Subleases Any lease may be assigned or subleased in whole or in part to any person, association, or corporation that meets the qualification requirements at subpart 3902 *Section 3933.31.* —(1) The BLM will use no specific form to collect this information. File in triplicate at the proper BLM office a separate instrument of assignment for each lease assignment. File the assignment application within 90 days of the date of final execution of the assignment instrument and with it include:
(a)Name and current address of assignee;
(b)Interest held by assignor and interest to be assigned;
(c)The serial number of the affected lease and a description of the lands to be assigned as described in the lease;
(d)Percentage of overriding royalties retained; and
(e)Date and signature of assignor.
(2)The assignee must provide a single copy of the request for approval of assignment which must contain a:
(a)Statement of qualifications and holdings as required by subpart 3902;
(b)Date and signature of assignee; and
(c)Nonrefundable filing fee of $60 10 1 10 485 Subpart 3934—Relinquishments, Cancellations, and Terminations A lease or exploration license may be surrendered in whole or in part *Section 3934.10.* —The BLM will use no specific form to collect this information. The record title holder must file a written relinquishment, in triplicate, in the BLM state office having jurisdiction over the lands covered by the relinquishment 18 1 18 873 Subpart 3935—Production and Sale Records Operators or lessees must maintain production and sale records which must be available for the BLM's examination during regular business hours *Section 3935.10.* —Operators or lessees must maintain accurate records:
(1)Oil shale mined;
(2)Oil shale put through the processing plant and retort;
(3)Mineral products produced and sold;
(4)Shale oil products, shale gas, and shale oil by-products sold;
(5)Relevant quality analyses of oil shale mined or processed and of synthetic petroleum, shale oil or shale oil by-products sold; and
(6)Shale oil products and by-products that are consumed on lease for the beneficial use of the lease 16 1 16 776 Totals 22 1,784 86,492 Table 2 Job category BLS occupational code Mean hourly wage* 40% for benefits Hourly rate Weight (%) Weighted value per hour Attorney 23-1011 $56.29 $22.52 $78.81 10 $7.88 Managerial 11-0000 45.53 18.21 63.74 20 12.75 Technical/Professional 17-2151 38.44 15.38 53.82 40 21.53 Clerical 43-0000 15.04 6.02 21.06 30 6.32 Total Weighted Value per Hour 100 48.48 *Derived from Bureau of Labor Statistics: May 2006 National Occupational Employment and Wage Estimates, ( *http://stats.bls.gov/oes/current/oes_nat.htm#b00-0000* ); and revised to reflect a 3.0 percent increase from the 2nd quarter of 2006 to the 2nd quarter of 2007 as reported in the Bureau of Labor Statistics Civilian Employer Costs for Employee Compensation ( *http://data.bls.gov/cgi-bin/surveymost?cm* ). Based on an average number of actions, we estimate the processing and cost recovery fees as follows: Table 3 Estimated collections from processing and cost recovery case-by-case fees Estimated number of actions Processing fee per action Estimated case-by-case cost recovery fee per action Total estimated annual collection Part 3910—Oil Shale Exploration Licenses 1 $295 ( 1 ) $295 Subpart 3922—Application Processing 3 ( 1 ) $172,323 516,969 The case-by-case processing fee does not include any required studies or analyses that are completed by third party contractors and funded by the applicant. The regulations at 43 CFR 3000.11 provide the regulatory framework for determining the cost recovery value. Subpart 3925—Award of Lease 1 60 ( 1 ) 60 The successful bidder must submit the necessary lease bond (see subpart 3904), the first year's rental, and the bidder's proportionate share of the cost of publication of the sale notice. Subpart 3932—Lease Size Modification 1 ( 1 ) 9,208 9,208 Subpart 3933—Assignments and Subleases 1 60 ( 1 ) 60 Totals 7 526,592 1 Not applicable. The BLM will consider comments by the public on this proposed collection of information to:
(1)Evaluate whether the proposed collection of information is necessary for the agency to perform its duties, including whether the information is useful;
(2)Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information;
(3)Enhance the quality, usefulness, and clarity of the information to be collected; and
(4)Minimize the burden on the respondents, including the use of automated collection techniques or other forms of information technology. The OMB is required to make a decision concerning the collection of information contained in these proposed regulations between 30 and 60 days after publication of this document in the **Federal Register** . Therefore, a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication. This does not affect the deadline for the public to comment to BLM on the proposed regulations. Authors The principal authors of this proposed rule are Charlie Beecham, II, and Mary Linda Ponticelli, Division of Solid Minerals (Washington Office); assisted by Mavis Love, BLM Wyoming State Office; James Kohler, Sr., BLM Utah State Office; Hank Szymanski, BLM Colorado State Office; Paul McNutt, Division of Solid Minerals (Washington Office); Kelly Odom, Division of Regulatory Affairs (Washington Office); and Richard McNeer, Department of the Interior, Office of the Solicitor. List of Subjects 43 CFR Part 3900 Administrative practice and procedure, Environmental protection, Intergovernmental relations, Mineral royalties, Oil shale reserves, Public lands-mineral resources, Reporting and recordkeeping requirements, Surety bonds. 43 CFR Part 3910 Environmental protection, Exploration licenses, Intergovernmental relations, Oil shale reserves, Public lands-mineral resources, Reporting and recordkeeping requirements. 43 CFR Part 3920 Administrative practice and procedure, Environmental protection, Intergovernmental relations, Oil shale reserves, public lands-mineral resources, Reporting and recordkeeping requirements. 43 CFR Part 3930 Administrative practice and procedure, Environmental protection, Mineral royalties, Oil shale reserves, Public lands-mineral resources, Reporting and recordkeeping requirements, Surety bonds. Accordingly, for the reasons stated in the preamble and under the authorities stated below, the BLM proposes to amend 43 CFR subtitle B Chapter II as follows: C. Stephen Allred, Assistant Secretary, Land and Minerals Management. 1. Add part 3900 to subchapter C to read as follows: PART 3900—OIL SHALE MANAGEMENT—GENERAL Subpart 3900—Oil Shale Management—Introduction Sec. 3900.2 Definitions. 3900.5 Information collection. 3900.10 Lands subject to leasing. 3900.20 Appealing the BLM's decision. 3900.30 Filing documents. 3900.40 Multiple use development of leased or licensed lands. 3900.50 Land use plans and environmental considerations. 3900.61 Federal minerals where the surface is owned or administered by other Federal agencies, by state agencies or charitable organizations, or by private entities. 3900.62 Special requirements to protect the lands and resources. Subpart 3901—Land Descriptions and Acreage 3901.10 Land descriptions. 3901.20 Acreage limitations. 3901.30 Computing acreage holdings. Subpart 3902—Qualification Requirements 3902.10 Who may hold leases. 3902.21 Filing of qualification evidence. 3902.22 Where to file. 3902.23 Individuals. 3902.24 Associations, including partnerships. 3902.25 Corporations. 3902.26 Guardians or trustees. 3902.27 Heirs and devisees. 3902.28 Attorneys-in-fact. 3902.29 Other parties in interest. Subpart 3903—Fees, Rentals, and Royalties 3903.20 Forms of payment. 3903.30 Where to submit payments. 3903.40 Rentals. 3903.51 Minimum production and payments in lieu of production. 3903.52 Production royalties. 3903.53 Overriding royalties. 3903.54 Waiver, suspension, or reduction of rental or payments in lieu of production, or reduction of royalty, or waiver of royalty in the first 5 years of the lease. 3903.60 Late payment or underpayment charges. Subpart 3904—Bonds and Trust Funds 3904.10 Bonding requirements. 3904.11 When to file bonds. 3904.12 Where to file bonds. 3904.13 Acceptable forms of bonds. 3904.14 Individual lease, exploration license, and reclamation bonds. 3904.15 Amount of bond. 3904.20 Default. 3904.21 Termination of the period of liability. 3904.40 Long-term water treatment trust funds. Subpart 3905—Lease Exchanges 3905.10 Oil shale lease exchanges. Authority: 30 U.S.C. 189, 359, and 241(a), 42 U.S.C. 15927, 43 U.S.C. 1732(b) and 1740. Subpart 3900—Oil Shale Management—Introduction § 3900.2 Definitions. As used in this part and parts 3910 through 3930 of this chapter, the term: *Acquired lands* means lands which the United States obtained through purchase, gift, or condemnation, and mineral estates that are not public domain lands, including mineral estates associated with lands previously disposed of under the public land laws, including the mining laws. *Act* means the Mineral Leasing Act of 1920, as amended and supplemented (30 U.S.C. 181 *et seq.* ). *BLM* means the Bureau of Land Management and includes the individual employed by the Bureau of Land Management authorized to perform the duties set forth in this part and parts 3910 through 3930. *Commercial quantities* means production of shale oil quantities in accordance with the approved Plan of Development for the proposed project through the research, development, and demonstration activities conducted on the lease, based on, and at the conclusion of which, there is a reasonable expectation that the expanded operation would provide a positive return after all costs of production have been met, including the amortized costs of the capital investment. *Department* means the Department of the Interior. *Diligent development* means achieving or completing the prescribed milestones listed in § 3930.30 of this chapter. *Director* means the Director, Bureau of Land Management. *Entity* means a person, association, or corporation, or any subsidiary, affiliate, corporation, or association controlled by or under common control with such person, association, or corporation. *Exploration* means drilling, excavating, and geological, geophysical or geochemical surveying operations designed to obtain detailed data on the physical and chemical characteristics of Federal oil shale and its environment including:
(1)The strata below the Federal oil shale;
(2)The overburden;
(3)The strata immediately above the Federal oil shale; and
(4)The hydrologic conditions associated with the Federal oil shale. *Exploration license* means a license issued by the BLM that allows the licensee to explore unleased oil shale deposits to obtain geologic, environmental, and other pertinent data concerning the deposits. *Exploration plan* means a plan prepared in sufficient detail to show the:
(1)Location and type of exploration to be conducted;
(2)Environmental protection procedures to be taken;
(3)Present and proposed roads, if any; and
(4)Reclamation and abandonment procedures to be followed upon completion of operations. *Fair market value (FMV)* means the monetary amount for which the oil shale deposit would be leased by a knowledgeable owner willing, but not obligated, to lease to a knowledgeable purchaser who desires, but is not obligated, to lease the oil shale deposit. *Federal lands* means any lands or interests in lands, including oil shale interests underlying non-Federal surface, owned by the United States, without reference to how the lands were acquired or what Federal agency administers the lands. *Infrastructure* means all support structures necessary for the production or development of shale oil, including, but not limited to:
(1)Offices;
(2)Shops;
(3)Maintenance facilities;
(4)Pipelines;
(5)Roads;
(6)Electrical transmission lines;
(7)Well bores;
(8)Storage tanks;
(9)Ponds;
(10)Monitoring stations;
(11)Processing facilities—retorts; and
(12)Production facilities. *In situ operation* means the processing of oil shale in place. *Interest in a lease, application, or bid* means any:
(1)Record title interest;
(2)Overriding royalty interest;
(3)Working interest;
(4)Operating rights or option or any agreement covering such an interest; or
(5)Participation or any defined or undefined share in any increments, issues, or profits that may be derived from or that may accrue in any manner from a lease based on or under any agreement or understanding existing when an application was filed or entered into while the lease application or bid is pending. *Kerogen* means the solid, organic substance in sedimentary rock that yields oil when it undergoes destructive distillation. *Lease* means a Federal lease issued under the mineral leasing laws, which grants the exclusive right to explore for and extract a designated mineral. *Lease bond* means the bond or equivalent security given to the Department to assure performance of all obligations associated with all lease terms and conditions. *Maximum economic recovery* means that, based on standard industry operating practices, all profitable portions of a leased Federal oil shale deposit must be mined. This requirement does not restrict the authority of the BLM to ensure the conservation of the oil shale reserves and other resources and to prevent the wasting of oil shale. *MMS* means the Minerals Management Service. *Oil shale* means a fine-grained sedimentary rock containing:
(1)Organic matter which was derived chiefly from aquatic organisms or waxy spores or pollen grains, which is only slightly soluble in ordinary petroleum solvents, and of which a large proportion is distillable into synthetic petroleum; and
(2)Inorganic matter, which may contain other minerals. This term is applicable to any argillaceous, carbonate, or siliceous sedimentary rock which, through destructive distillation, will yield synthetic petroleum. *Permit* means any of the required approvals that are issued by Federal, state, or local agencies. *Plan of development* means the plan created for oil shale operations that complies with the requirements of the Act and that details the plans, equipment, methods, and schedules to be used in oil shale development. *Production* means:
(1)The extraction of shale oil, shale gas, or shale oil by-products through surface retorting or in situ recovery methods; or
(2)The severing of oil shale rock through surface or underground mining methods. *Proper BLM office* means the Bureau of Land Management office having jurisdiction over the lands under application or covered by a lease or exploration license and subject to the regulations in this part and in parts 3910 through 3930 of this chapter (see subpart 1821 of part 1820 of this chapter for a list of BLM state offices). *Public domain lands* means lands, including mineral estates, which:
(1)Never left the ownership of the United States;
(2)Were obtained by the United States in exchange for public domain lands;
(3)Have reverted to the ownership of the United States; or
(4)Were specifically identified by Congress as part of the public domain. *Reclamation* means the measures undertaken to bring about the necessary reconditioning or restoration of lands or waters affected by exploration, mining, in situ operations, onsite processing operations or waste disposal in a manner which will meet the requirements imposed by the BLM under applicable law. *Reclamation bond* means the bond or equivalent security given to the BLM to assure performance of all obligations relating to reclamation of disturbed areas under an exploration license or lease. *Secretary* means the Secretary of the Interior. *Shale gas* means the gaseous hydrocarbon-bearing products of surface retorting of oil shale or of in situ extraction that is not liquefied into shale oil. In addition to hydrocarbons, shale gas might include other gases such as carbon dioxide, nitrogen, helium, sulfur, other residual or specialty gases, and entrained hydrocarbon liquids. *Shale oil* means synthetic petroleum derived from the destructive distillation of oil shale. *Sole party in interest* means a party who alone is or will be vested with all legal and equitable rights and responsibilities under a lease, bid, or application for a lease. *Surface management agency* means the Federal agency with jurisdiction over the surface of federally-owned lands containing oil shale deposits. *State Director* means an employee of the Bureau of Land Management designated as the chief administrative officer of one of the BLM's 12 administrative areas designated as states. *Surface retort* means the above-ground facility used for the extraction of kerogen by heating mined shale. *Surface retort operation* means the extraction of kerogen by heating mined shale in an above-ground facility. *Synthetic petroleum* means synthetic crude oil manufactured from shale oil and suitable for use as a refinery feedstock and for petrochemical production. § 3900.5 Information collection.
(a)OMB has approved the information collection requirements in parts 3900 through 3930 of this chapter under 44 U.S.C. 3501 *et seq.* The table in paragraph
(d)of this section lists the subpart in the rule requiring the information and its title, provides the OMB control number, and summarizes the reasons for collecting the information and how the BLM uses the information.
(b)Respondents are oil shale lessees and operators. The requirement to respond to the information collections in these parts are mandated under the EP Act, (42 U.S.C. 15927), the Mineral Leasing Act for Acquired Lands of 1947 (30 U.S.C. 351-359), and the Federal Land Policy and Management Act (FLPMA) of 1976 (43 U.S.C. 1701 *et seq.* , including 43 U.S.C. 1732).
(c)The Paperwork Reduction Act of 1995 requires us to inform the public that an agency may not conduct or sponsor, and you are not required to respond to, a collection of information unless it displays a currently valid OMB control number.
(d)The BLM is collecting this information for the reasons given in the following table: 43 CFR parts 3900-3930, general (1004-XXXX) Reasons for collecting information and how used Sections 3904.12, 3904.14(c)(1) A lessee or licensee must furnish a bond before a lease or exploration license may be issued or transferred or a plan of development approved. The BLM will review the bond and, if adequate as to amount and execution, will accept it in order to indemnify the United States against default on payments due or other performance obligations. The BLM may also adjust the bond amount to reflect changed conditions. The BLM will cancel the bond when all requirements are satisfied. Sections 3910.31, 3910.44 For those lands where no exploration data is available, the lease applicant may apply for an exploration license to conduct exploration on unleased public lands to determine the extent and specific characteristics of the Federal oil shale resource. The BLM will use the information in the application to:
(1)Locate the proposed exploration site;
(2)Determine if the lands are subject to entry for exploration;
(3)Prepare a notice of invitation to other parties to participate in the exploration; and
(4)Ensure the exploration plan is adequate to safeguard resource values, and public and worker health and safety. The BLM will use this information from a licensee to determine if it will offer the land area for lease. Section 3921.30 Corporations, associations, and individuals may submit expressions of leasing interest for specific areas to assist the applicable BLM State Director in determining whether or not to lease oil shale. The information provided will be used in the consultation with the governor of the affected state and in setting a geographic area for which a call for applications will be requested. Sections 3922.20 and 3922.30 Entities interested in leasing the Federal oil shale resource must file an application in a geographic area for which the BLM has issued a “Call for Applications.” The information provided by the applicant will be used to evaluate the impacts of issuing a proposed lease on the human environment. Failure to provide the requested additional information may result in suspension or termination of processing of the application or in a decision to deny the application. Section 3924.10 Prospective lessees will be required to submit a bid at a competitive sale in order to be issued a lease. Section 3926.10(c) The lessee of an R, D and D lease may apply for conversion of the R, D and D lease to a commercial lease. Section 3930.11(b), 3930.20(b) The records, logs, and samples provide information necessary to determine the nature and extent of oil shale resources on Federal lands and to monitor and adjust the extent of the oil shale reserve. Section 3931.11 The plan of development must provide for reasonable protection and reclamation of the environment and the protection and diligent development of the oil shale resources in the lease. Section 3931.30 The BLM may, in the interest of conservation, order or agree to a suspension of operations and production. Section 3931.41 Except for casual use, before conducting any exploration operations on federally-leased or federally-licensed lands, the lessee must submit an exploration plan to the BLM for approval. Section 3931.50 Approved exploration, mining and in situ development plans may be modified by the operator or lessee to adjust to changed conditions or to correct an oversight. Section 3931.70 Production of all oil shale products or byproducts must be reported to the BLM on a monthly basis. Section 3931.80 Within 30 days after drilling completion the operator or lessee must submit to the BLM a signed copy of records of all core or test holes made on the lands covered by the lease or exploration license. Sections 3932.10(b) and 3932.30(c) A lessee may apply for a modification of a lease to include additional Federal lands adjoining those in the lease. Section 3933.31 Any lease may be assigned or subleased in whole or in part to any person, association, or corporation that meets the qualification requirements at subpart 3902. Section 3934.10 A lease or exploration license may be surrendered in whole or in part. Section 3935.10 Operators or lessees must maintain production and sale records which must be available for the BLM's examination during regular business hours. § 3900.10 Lands subject to leasing. The BLM may issue oil shale leases under this part on all Federal lands except:
(a)Those lands specifically excluded from leasing by the Act; and
(b)Any other lands withdrawn from leasing. § 3900.20 Appealing the BLM's decision. Any party adversely affected by a BLM decision made under this part or parts 3910 through 3930 of this chapter may appeal the decision under part 4 of this title. All decisions and orders by the BLM under these parts remain effective pending appeal unless the BLM decides otherwise. A petition for the stay of a decision may be filed with the Interior Board of Land Appeals. § 3900.30 Filing documents.
(a)All necessary documents must be filed in the proper BLM office. A document is considered filed when the proper BLM office receives it with any required fee.
(b)All information submitted to the BLM under the regulations in this part or parts 3910 through 3930 will be available to the public unless exempt from disclosure under the Freedom of Information Act (5 U.S.C. 552), under part 2 of this title, or unless otherwise provided for by law. § 3900.40 Multiple use development of leased or licensed lands.
(a)The granting of an exploration license or lease for the exploration, development, or production of deposits of oil shale does not preclude the BLM from issuing other exploration licenses or leases for the same lands for deposits of other minerals. Each exploration license or lease reserves the right to allow any other uses or to allow disposal of the leased lands if it does not unreasonably interfere with the exploration and mining operations of the lessee. The lessee or the licensee must make all reasonable efforts to avoid interference with other such authorized uses.
(b)Subsequent lessee or licensee will be required to conduct operations in a manner that will not interfere with the established rights of existing lessees or licensees.
(c)When the BLM issues an oil shale lease, it will cancel all oil shale exploration licenses for the leased lands. § 3900.50 Land use plans and environmental considerations.
(a)Any lease or exploration license issued under this part or parts 3910 through 3930 of this chapter will be issued in conformance with the decisions, terms, and conditions of a comprehensive land use plan developed under part 1600 of this chapter.
(b)Before a lease or exploration license is issued, the BLM, or the appropriate surface management agency, must comply with the requirements of the National Environmental Policy Act of 1969 (NEPA).
(c)Before the BLM approves a plan of development, the BLM must comply with NEPA, in cooperation with the surface management agency when possible, if the surface is managed by another Federal agency. § 3900.61 Federal minerals where the surface is owned or administered by other Federal agencies, by state agencies or charitable organizations, or by private entities.
(a)*Public domain lands.* Unless consent is required by law, the BLM will issue a lease or exploration license only after the BLM has consulted with the surface management agency on public domain lands where the surface is administered by an agency outside of the Department. The BLM will not issue a lease or an exploration license on lands to which the surface managing agency withholds consent required by statute.
(b)*Acquired lands.* The BLM will issue a lease on acquired lands only after receiving written consent from an appropriate official of the surface management agency.
(c)*Lands covered by lease or license.* If a Federal surface management agency outside of the Department has required special stipulations in the lease or license or has refused consent to issue the lease or license, an applicant may pursue the administrative remedies to challenge that decision offered by that particular surface management agency, if any. If the applicant notifies the BLM within 30 calendar days after receiving the BLM's decision that the applicant has requested the surface management agency to review or reconsider its decision, the time for filing an appeal to the Interior Board of Land Appeals under part 4 of this title is suspended until a decision is reached by such agency.
(d)The BLM will not issue a lease or exploration license on National Forest System Lands without the consent of the Forest Service.
(e)State's, charitable organization's, or private entity's ownership of surface overlying Federal Minerals. Where the United States has conveyed title to, or otherwise transferred the control of the surface of lands to any state or political subdivision, agency, or instrumentality thereof, other than another Federal agency, but including a college or any other educational corporation or association, to a charitable or religious corporation or association, or to a private entity, the BLM will send such parties written notification by certified mail of the application for exploration license or lease. In the written notification, the BLM will give the parties a reasonable time, not to exceed 90 calendar days, within which to suggest any lease stipulations necessary for the protection of existing surface improvements or uses and to set forth the facts supporting the necessity of the stipulations or file any objections it may have to the issuance of the lease or license. The BLM makes the final decision as to whether to issue the lease or license and on what terms based on a determination as to whether the interests of the United States would best be served by issuing the lease or license with the particular stipulations. This is true even in cases where the party controlling the surface opposes the issuance of a lease or license or wishes to place restrictive stipulations on the lease. § 3900.62 Special requirements to protect the lands and resources. The BLM will specify stipulations in a lease or exploration license to protect the lands and their resources. This may include stipulations required by the surface management agency or recommended by the surface management agency or non-Federal surface owner and accepted by the BLM. Subpart 3901—Land Descriptions and Acreage § 3901.10 Land descriptions.
(a)All lands in an oil shale lease must be described by the legal subdivisions of the public land survey system or if the lands are unsurveyed, the legal description by metes and bounds.
(b)Unsurveyed lands will be surveyed, at the cost of the lease applicant, by a surveyor approved or employed by the BLM. § 3901.20 Acreage limitations. No entity may hold more than 50,000 acres of Federal oil shale leases in any one state. Oil shale lease acreage does not count toward acreage limitations associated with leases for other minerals. § 3901.30 Computing acreage holdings. The maximum acreage in any one state refers to the acres an entity may hold under a Federal lease on either public domain lands or acquired lands. Acquired lands and public domain lands are counted separately, so an entity may hold up to the maximum acreage of each at the same time. Subpart 3902—Qualification Requirements § 3902.10 Who may hold leases.
(a)The following entities may hold leases or interests therein:
(1)Citizens of the United States;
(2)Associations (including partnerships and trusts) of such citizens; and
(3)Corporations organized under the laws of the United States or of any state or territory thereof.
(b)Citizens of a foreign country may only hold interest in leases through stock ownership, stock holding, or stock control in such domestic corporations. Foreign citizens may hold stock in United States corporations that hold leases if the Secretary has not determined that laws, customs, or regulations of their country deny similar privileges to citizens or corporations of the United States.
(c)A minor may not hold a lease. A legal guardian or trustee of a minor may hold a lease.
(d)An entity must be in compliance with Section 2(a)(2)(A) of the Act in order to hold a lease. If the BLM erroneously issues a lease to an entity that is in violation of Section 2(a)(2)(A) of the Act, the BLM will void the lease. § 3902.21 Filing of qualification evidence. Applicants must file with the BLM a statement and evidence that the qualification requirements in this subpart are met. These may be filed separately from the lease application, but must be filed in the same office as the application. After the BLM accepts the applicant's qualifications, any additional information may be provided to the same BLM office by referring to the serial number of the record in which the evidence is filed. All changes to the qualifications statement must be in writing. The evidence provided must be current, accurate, and complete. § 3902.22 Where to file. The lease application and qualification evidence must be filed in the proper BLM office (see subpart 1821 of part 1820 of this chapter). § 3902.23 Individuals. Individuals who are applicants must provide to the BLM a signed statement showing:
(a)U.S. citizenship; and
(b)That acreage holdings do not exceed the limits in § 3901.20 of this chapter. This includes holdings through a corporation, association, or partnership in which the individual is the beneficial owner of more than 10 percent of the stock or other instruments of control. § 3902.24 Associations, including partnerships. Associations that are applicants must provide to the BLM:
(a)A signed statement that:
(1)Lists the names, addresses, and citizenship of all members of the association who own or control 10 percent or more of the association or partnership, and certifies that the statement is true;
(2)Lists the names of the members authorized to act on behalf of the association; and
(3)Certifies that the association or partnership's acreage holdings and those of any member under paragraph (a)(1) of this section do not exceed the acreage limits in § 3901.20 of this chapter; and
(b)A copy of the articles of association or the partnership agreement. § 3902.25 Corporations. Corporate officers or authorized attorneys-in-fact who represent applicants must provide to the BLM a signed statement that:
(a)Names the state or territory of incorporation;
(b)Lists the name and citizenship of, and percentage of stock owned, held, or controlled by, any stockholder owning, holding, or controlling more than 10 percent of the stock of the corporation, and certifies that the statement is true;
(c)Lists the names of the officers authorized to act on behalf of the corporation; and
(d)Certifies that the corporation's acreage holdings, and those of any stockholder identified under paragraph
(b)of this section, do not exceed the acreage limits in § 3901.20 of this chapter. § 3902.26 Guardians or trustees. Guardians or trustees for a trust, holding on behalf of a beneficiary, who are applicants must provide to the BLM:
(a)A signed statement that:
(1)Provides the beneficiary's citizenship;
(2)Provides the guardian's or trustee's citizenship;
(3)Provides the grantor's citizenship, if the trust is revocable; and
(4)Certifies the acreage holdings of the beneficiary, the guardian, trustee, or grantor, if the trust is revocable, do not exceed the aggregate acreage limitations in § 3901.20 of this chapter; and
(b)A copy of the court order or other document authorizing or creating the trust or guardianship. § 3902.27 Heirs and devisees. If an applicant or successful bidder for a lease dies before the lease is issued:
(a)The BLM will issue the lease to the heirs or devisees, or their guardian, if probate of the estate has been completed or is not required. Before the BLM will recognize the heirs or devisees or their guardian as the record title holders of the lease, they must provide to the proper BLM office:
(1)A certified copy of the will or decree of distribution, or if no will or decree exists, a statement signed by the heirs that they are the only heirs and citing the provisions of the law of the deceased's last domicile showing that no probate is required; and
(2)A statement signed by each of the heirs or devisees with reference to citizenship and holdings as required by § 3902.23 of this chapter. If the heir or devisee is a minor, the guardian or trustee must sign the statement; and
(b)The BLM will issue the lease to the executor or administrator of the estate, if probate is required, but is not completed. In this case, the BLM considers the executor or administrator to be the record title holder of the lease. Before the BLM will issue the lease to the executor or administrator, the executor or administrator must provide to the proper BLM office:
(1)Evidence that the person who, as executor or administrator, submits lease and bond forms has authority to act in that capacity and to sign those forms;
(2)A certified list of the heirs or devisees of the deceased; and
(3)A statement signed by each heir or devisee concerning citizenship and holdings, as required by § 3902.23 of this chapter. § 3902.28 Attorneys-in-fact. Attorneys-in-fact must provide to the proper BLM office evidence of the authority to act on behalf of the applicant and a statement of the applicant's qualifications and acreage holdings if it is also empowered to make this statement. Otherwise, the applicant must provide the BLM this information separately. § 3902.29 Other parties in interest. If there is more than one party in interest in an application for a lease, include with the application the names of all other parties who hold or will hold any interest in the application or in the lease. All interested parties who wish to hold an interest in a lease must provide to the BLM the information required by this subpart to qualify to hold a lease interest. Subpart 3903—Fees, Rentals, and Royalties § 3903.20 Forms of payment. All payments must be by U.S. postal money order or negotiable instrument payable in U.S. currency. In the case of payments made to the MMS, such payments may also be made by electronic funds transfer (see 30 CFR part 218 for the MMS's payment procedures). § 3903.30 Where to submit payments.
(a)All filing and processing fees, all first-year rentals, and all bonuses for leases issued under this part or parts 3910 through 3930 of this chapter must be paid to the BLM state office that manages the lands covered by the application, lease, or exploration license, unless the BLM designates a different state office. The first one-fifth bonus installment is paid to the appropriate BLM state office. All remaining bonus installment payments are paid to the MMS.
(b)All second-year and subsequent rentals and all other payments for leases are paid to the MMS.
(c)All royalties on producing leases and all payments under leases in their minimum production period are paid to the MMS. § 3903.40 Rentals.
(a)The rental rate for oil shale leases is $2.00 per acre, or fraction thereof, payable in advance of the lease year. Rentals paid for any 1 year are credited against any production royalties accruing for that year.
(b)The BLM will send a notice demanding payment of late rentals within 30 calendar days after receipt of the notification. Failure to provide payment within 30 calendar days after notification will result in the BLM taking action to cancel the lease (see § 3934.30 of this chapter). § 3903.51 Minimum production and payments in lieu of production.
(a)Each lease must have a minimum annual production amount of shale oil or make a payment in lieu of production for any particular lease year, beginning with the 10th lease year.
(b)The payment in lieu of annual production is established in the lease and will not be less than $4 per acre or fraction thereof per year, payable in advance. Production royalty payments will be credited to payments in lieu of annual production for that year only. Option 1 § 3903.52 Production royalties.
(a)The lessee must pay royalties on all products of oil shale that are sold from or transported off of the lease.
(b)The royalty rate for the products of oil shale is 5 percent of the amount or value of production. Option 2 § 3903.52 Production royalties.
(a)The lessee must pay royalties on the amount or value of all products of oil shale that are sold from or transported off of the lease.
(b)The standard royalty rate for the products of oil shale is 12.5 percent of the amount or value of production.
(c)For any lease that begins production of oil shale within 12 years of issuance of the first commercial oil shale lease issued under subpart 3925 or subpart 3926, the royalty rate is 5 percent of the amount or value of production on the first 30 million barrels of oil equivalent produced from that oil shale lease. § 3903.53 Overriding royalties. The lessee must file documentation of all overriding royalties associated with the lease in the proper BLM office within 90 calendar days after execution of the assignment of the overriding royalties. § 3903.54 Waiver, suspension, or reduction of rental or payments in lieu of production, or reduction of royalty, or waiver of royalty in the first 5 years of the lease.
(a)In order to encourage the maximum economic recovery
(MER)of the leased mineral(s), and in the interest of conservation, whenever the BLM determines it is necessary to promote development or finds that leases cannot be successfully operated under the lease terms, the BLM may waive, suspend, or reduce the rental or payment in lieu of production, reduce the rate of royalty, or in the first 5 years of the lease, waive the royalty.
(b)Applications for waivers, suspension or reduction of rentals or payment in lieu of production, reduction in royalty, or waiver of royalty for the first 5 years of the lease must contain the serial number of the lease, the name of the record title holder, the operator or sub-lessee, a description of the lands by legal subdivision, and the following information:
(1)The location of each oil shale mine or operation, and include:
(i)A map showing the extent of the mining or development operations;
(ii)A tabulated statement of the minerals mined and subject to royalty for each month covering a period of not less than 12 months immediately preceding the date of filing of the application; and
(iii)The average production per day mined for each month, and complete information as to why the minimum production was not attained;
(2)Each application must contain:
(i)A detailed statement of expenses and costs of operating the entire lease;
(ii)The income from the sale of any leased products;
(iii)All facts showing whether the mines can be successfully operated under the royalty or rental fixed in the lease; and
(iv)Where the application is for a reduction in royalty, information as to whether royalties or payments out of production are paid to anyone other than the United States, the amounts so paid, and efforts made to reduce those payments;
(3)Any overriding royalties cannot be greater in aggregate than one-half the royalties paid to the United States.
(c)Contact the proper BLM office for detailed information on submitting copies of these applications electronically. § 3903.60 Late payment or underpayment charges. Late payment or underpayment charges will be assessed under MMS regulations at 30 CFR 218.202. Subpart 3904—Bonds and Trust Funds § 3904.10 Bonding requirements.
(a)Prior to issuing a lease or exploration license, the BLM requires exploration license or lease bonds for each lease or exploration license that covers all liabilities, other than reclamation, that may arise under the lease or license. The bond must cover all record title owners, operating rights owners, operators, and any person who conducts operations or is responsible for payments under a lease or license.
(b)Before the BLM will approve a plan of development, the lessee must provide to the proper BLM office a reclamation bond to cover all costs the BLM estimates will be necessary to cover reclamation. § 3904.11 When to file bonds. File the lease bond prior to lease issuance, file the reclamation bond prior to the plan of development approval, and file the exploration bond prior to exploration license issuance. § 3904.12 Where to file bonds. File one copy of the bond form with original signatures in the proper BLM state office. Bonds must be filed on an approved BLM form. The obligor of a personal bond must sign the form. Surety bonds must have the lessee's and the acceptable surety's signature. § 3904.13 Acceptable forms of bonds.
(a)The BLM will accept either a personal bond or a surety bond. Personal bonds are pledges of any of the following:
(1)Cash;
(2)Cashier's check;
(3)Certified check; or
(4)Negotiable U.S. Treasury bonds equal in value to the bond amount. Treasury bonds must give the Secretary authority to sell the securities in the case of failure to comply with the conditions and obligations of the exploration license or lease.
(b)Surety bonds must be issued by qualified surety companies approved by the Department of the Treasury. A list of qualified sureties is available at any BLM state office. § 3904.14 Individual lease, exploration license, and reclamation bonds.
(a)The BLM will determine individual lease bond amounts on a case-by-case basis. The minimum lease bond amount is $25,000.
(b)The BLM will determine reclamation bond and exploration license bond amounts on a case-by-case basis when it approves a plan of development or exploration plan. The reclamation or exploration license bond must be sufficient to cover the estimated cost of site reclamation.
(c)The BLM may enter into agreements with states to accept a state reclamation bond to cover the BLM's reclamation bonding requirements. The BLM may request additional information from the lessee or operator to determine whether the state bond will cover all of the BLM's reclamation requirements.
(1)If a state bond is to be used to satisfy the BLM bonding requirements, evidence verifying that the existing state bond will satisfy all the BLM reclamation bonding requirements must be filed in the proper BLM office.
(2)The BLM will require an additional bond if the BLM determines that the state bond does not cover all of the BLM bonding requirements. § 3904.15 Amount of bond.
(a)The BLM may increase or decrease the required bond amount if it determines that a change in amount is appropriate to cover the costs and obligations of complying with the requirements of the lease or license and these regulations. The BLM will not decrease the bond amount below the minimum (see § 3904.14(a) of this chapter).
(b)The lessee or operator must submit to the BLM every three years after reclamation bond approval a revised cost estimate of the reclamation costs. If the current bond does not cover the revised estimate of reclamation costs, the lessee or operator must increase the reclamation bond amount to meet or exceed the revised cost estimate. § 3904.20 Default.
(a)The BLM will demand payment from the lease bond to cover nonpayment of any rental or royalty owed or the reclamation or exploration license bond for any reclamation obligations that are not met. The BLM will reduce the bond amount by the amount of the payment made to cover the default.
(b)After any default, the BLM will provide notification of the amount required to restore the bond to the required level. A new bond or an increase in the existing bond to its pre-default level must be provided to the proper BLM office within 6 months of the BLM's written notification that the bond is below its required level. The BLM may accept separate or substitute bonds for each exploration license or lease. The BLM may take action to cancel the lease or exploration license covered by the bond if a replacement bond is not provided within the time period stated in the notification. § 3904.21 Termination of the period of liability.
(a)The BLM will not consent to termination of the period of liability under a bond unless an acceptable replacement bond has been filed or until all of the terms and conditions of the license or lease have been fulfilled.
(b)Terminating the period of liability of a bond ends the period during which obligations continue to accrue, but does not relieve the surety of the responsibility for obligations that accrued during the period of liability. § 3904.40 Long-term water treatment trust funds.
(a)The BLM may require the operator or lessee to establish a trust fund or other funding mechanism to ensure the continuation of long-term treatment to achieve water quality standards and for other long-term, post-mining maintenance requirements. The funding must be adequate to provide for the construction, long-term operation, maintenance, or replacement of any treatment facilities and infrastructure, for as long as the treatment and facilities are needed after mine closure. The BLM may identify the need for a trust fund or other funding mechanism during plan review or later.
(b)In determining whether a trust fund will be required, the BLM will consider the following factors:
(1)The anticipated post-mining obligations
(PMO)that are identified in the environmental document or approved plan of development;
(2)Whether there is a reasonable degree of certainty that the treatment will be required based on accepted scientific evidence or models;
(3)The determination that the financial responsibility for those obligations rests with the operator; and
(4)Whether it is feasible, practical, or desirable to require separate or expanded reclamation bonds for those anticipated long-term PMOs. Subpart 3905—Lease Exchanges § 3905.10 Oil shale lease exchanges. To facilitate the recovery of oil shale, the BLM may consider land exchanges where appropriate and feasible to consolidate land ownership and mineral interest into manageable areas. Exchanges are covered under part 2200 of this chapter. 2. Add part 3910 to subchapter C to read as follows: PART 3910—OIL SHALE EXPLORATION LICENSES Subpart 3910—Exploration Licenses Sec. 3910.21 Lands subject to exploration. 3910.22 Lands managed by agencies other than the BLM. 3910.23 Requirements for conducting exploration activities. 3910.31 Filing of an application for an exploration license. 3910.32 Environmental analysis. 3910.40 Exploration license requirements. 3910.41 Issuance, modification, relinquishment, and cancellation. 3910.42 Limitations on exploration licenses. 3910.44 Collection and submission of data. 3910.50 Surface use. Authority: 25 U.S.C. 396(d) and 2107, 30 U.S.C. 241(a), 42 U.S.C. 15927, 43 U.S.C. 1732(b) and 1740. Subpart 3910—Exploration Licenses § 3910.21 Lands subject to exploration. The BLM may issue oil shale exploration licenses for all Federal lands subject to leasing under § 3900.10 of this chapter, except lands that are in an existing oil shale lease or in preference right leasing areas under the research, development, and demonstration (R, D and D) program. The BLM may issue exploration licenses for lands in preference right lease areas only to the R, D and D lessee. § 3910.22 Lands managed by agencies other than the BLM.
(a)The consent and consultation procedures required by § 3900.61 of this chapter also apply to exploration license applications.
(b)If exploration activities could affect the adjacent lands under the surface management of a Federal agency other than the BLM, the BLM will consult with that agency before issuing an exploration license. § 3910.23 Requirements for conducting exploration activities. Exploration activities on Federal lands must be conducted under an exploration license or oil shale lease and an approved exploration plan under § 3904.41 of this chapter. The licensee may not remove any oil shale for sale, but may remove a reasonable amount of oil shale for analysis and study. § 3910.31 Filing of an application for an exploration license.
(a)Applications for exploration licenses must be submitted to the proper BLM office.
(b)No specific form is required. Applications must include:
(1)The name and address of the applicant(s);
(2)A nonrefundable filing fee of $295;
(3)A description of the lands covered by the application according to section, township and range in accordance with the public lands survey system or, if the lands are unsurveyed lands, the legal description by metes and bounds; and
(4)An acceptable electronic format or 3 paper copies of an exploration plan that complies with the requirements of § 3931.41 of this chapter. Contact the proper BLM office for detailed information on submitting copies electronically.
(c)An exploration license application may cover no more than 25,000 acres in a reasonably compact area and entirely within one state. An application for an exploration license covering more than 25,000 acres must include justification for an exception to the normal acreage limitation.
(d)Applicants for exploration licenses are required to invite other parties to participate in exploration under the license on a pro rata cost share basis.
(e)Using information supplied by the applicant, the BLM will prepare a notice of invitation and post the notice in the proper BLM office for 30 calendar days. The applicant will publish the BLM-approved notice once a week for 2 consecutive weeks in at least 1 newspaper of general circulation in the area where the lands covered by the exploration license application are situated. The notification must invite the public to participate in the exploration under the license and contain the name and location of the BLM office in which the application is available for inspection.
(f)If any person wants to participate in the exploration program, the applicant and the BLM must receive written notice from that person within 30 calendar days after the end of the 30-day posting period. A person who wants to participate in the exploration program must:
(1)State in their notification that they are willing to share in the cost of the exploration on a pro-rata share basis; and
(2)Describe any modifications to the exploration program that the BLM should consider.
(g)To avoid duplication of exploration activities in an area, the BLM may:
(1)Require modification of the original exploration plan to accommodate the exploration needs of those seeking to participate; or
(2)Notify those seeking to participate that they should file a separate application for an exploration license. § 3910.32 Environmental analysis.
(a)Before the BLM will issue an exploration license, the BLM, in consultation with any affected surface management agency, will perform the appropriate NEPA analysis of the application.
(b)For each exploration license, the BLM will include terms and conditions needed to protect the environment and resource values of the area and to ensure reclamation of the lands disturbed by the exploration activities. § 3910.40 Exploration license requirements. The licensee must comply with all applicable Federal, state, and local laws and regulations, the terms and conditions of the license, and the approved exploration plan. § 3910.41 Issuance, modification, relinquishment, and cancellation.
(a)The BLM may:
(1)Issue an exploration license, or
(2)Reject an application for an exploration license based on, but not limited to:
(i)The need for resource information;
(ii)The environmental analysis;
(iii)The completeness of the application; or
(iv)Any combination of these factors.
(b)An exploration license is effective on the date the BLM specifies, which is also the date when exploration activities may begin. An exploration license is valid for a period of up to 2 years as specified in the lease after the effective date of the license.
(c)The BLM-approved exploration plan will be attached and made a part of each exploration license (see subpart 3931 of part 3930 of this chapter).
(d)After consultation with the surface management agency, the BLM may approve modification of the exploration license proposed by the licensee in writing if geologic or other conditions warrant. The BLM will not add lands to the license once it has been issued.
(e)Subject to the continued obligation of the licensee and the surety to comply with the terms and conditions of the exploration license, the exploration plan, and these regulations, a licensee may relinquish an exploration license for any or all of the lands covered by it. A relinquishment must be filed in the BLM state office in which the original application was filed.
(f)The BLM may cancel an exploration license for noncompliance with its terms and conditions and parts 3900 through 3930 of this chapter after the BLM provides the licensee with reasonable notice and an opportunity to correct the noncompliance. § 3910.42 Limitations on exploration licenses.
(a)The issuance of an exploration license for an area will not preclude the BLM's approval of an exploration license or issuance of a Federal oil shale lease for the same lands.
(b)If an oil shale lease is issued for an area covered by an exploration license, the BLM will cancel the exploration license effective the date of the lease for those lands that are common to both. § 3910.44 Collection and submission of data. Upon the BLM's request, the licensee must provide copies of all data obtained under the exploration license in the format requested by the BLM. As authorized by the Freedom of Information Act, the BLM will consider the data confidential and proprietary until the BLM determines that public access to the data will not damage the competitive position of the licensee or the lands involved have been leased, whichever comes first. Submit all data obtained under the exploration license to the proper BLM office. § 3910.50 Surface use. Operations conducted under an exploration license must:
(a)Not unreasonably interfere with or endanger any other lawful activity on the same lands;
(b)Not damage any improvements on the lands; and
(c)Comply with all applicable Federal, state, and local laws and regulations. 3. Add part 3920 to subchapter C to read as follows: PART 3920—OIL SHALE LEASING Subpart 3921—Pre-Sale Activities Sec. 3921.10 Special requirements related to land use planning. 3921.20 Compliance with the National Environmental Policy Act. 3921.30 Call for expression of leasing interest. 3921.40 Comments from governors, local governments, and interested Indian tribes. 3921.50 Determining the geographic area for receiving applications to lease. 3921.60 Call for applications. Subpart 3922—Application Processing 3922.10 Application processing fee. 3922.20 Application contents. 3922.30 Application—Additional information. 3922.40 Tract delineation. Subpart 3923—Minimum Bid 3923.10 Minimum bid. Subpart 3924—Lease Sale Procedures 3924.5 Notice of sale. 3924.10 Lease sale procedures and receipt of bids. Subpart 3925—Award of Lease 3925.10 Award of lease. Subpart 3926—Conversion of Preference Right for Research, Demonstration, and Development (R, D and D) Leases 3926.10 Conversion of an R, D and D lease to a commercial lease. Subpart 3927—Lease Terms 3927.10 Lease form. 3927.20 Lease size. 3927.30 Lease duration. 3927.40 Effective date of leases. 3927.50 Diligent development. Authority: 30 U.S.C. 241(a), 42 U.S.C. 15927, 43 U.S.C. 1732(b) and 1740. Subpart 3921—Pre-Sale Activities § 3921.10 Special requirements related to land use planning. The BLM State Director may announce a call for expressions of leasing interest as described in § 3921.30 of this chapter after areas available for leasing have been identified in a land use plan completed under part 1600 of this chapter. § 3921.20 Compliance with the National Environmental Policy Act. Before the BLM will offer a tract for competitive lease sale under subpart 3924 of this chapter, the BLM must prepare a NEPA analysis of the proposed lease area under 40 CFR parts 1500 through 1508 either separately or in conjunction with a land use planning action. § 3921.30 Call for expression of leasing interest. The BLM State Director may implement the provisions of §§ 3921.40 through 3921.60 of this subpart after review of any responses received as a result of a call for expression of leasing interest. The BLM notice announcing a call for expressions of leasing interest will:
(a)Be published in the **Federal Register** and in at least 1 newspaper of general circulation in each affected state for 2 consecutive weeks;
(b)Allow no less than 30 calendar days to submit expressions of interest;
(c)Request specific information including the name and address of the respondent and the legal land description of the area of interest;
(d)State that all information submitted under this subpart must be available for public inspection; and
(e)Include a statement indicating that data which is considered proprietary must not be submitted as part of an expression of leasing interest. § 3921.40 Comments from governors, local governments, and interested Indian tribes. After the BLM receives responses to the call for expression of leasing interest, the BLM will notify the appropriate state governor's office, local governments, and interested Indian tribes and allow them an opportunity to provide comments regarding the responses and other issues related to oil shale leasing. The BLM will only consider those comments it receives within 60 calendar days after the notification requesting comments. § 3921.50 Determining the geographic area for receiving applications to lease. After analyzing expressions of leasing interest received under § 3921.30 of this chapter and complying with the procedures at § 3921.40 of this chapter, the BLM State Director may determine a geographic area for receiving applications to lease. The BLM may also include additional geographic areas available for lease in addition to lands identified in expressions of interest to lease. § 3921.60 Call for applications. If as a result of the analysis of the expression of leasing interest the BLM State Director determines that there is interest in having a competitive sale, the BLM State Director may publish a notice in the **Federal Register** announcing a call for applications to lease. The notice will:
(a)Describe the geographic area the BLM determined is available for application under § 3921.50 of this chapter;
(b)Allow no less than 90 calendar days for interested parties to submit applications to the proper BLM office; and
(c)Provide that applications submitted to the BLM must meet the requirements at subpart 3922 of this part. Subpart 3922—Application Processing § 3922.10 Application processing fee.
(a)An applicant nominating or applying for a tract for competitive leasing must pay a cost recovery or processing fee that the BLM will determine on a case-by-case basis as described in § 3000.11 of this chapter and as modified by the following provisions.
(b)The cost recovery process for a competitive oil shale lease is as follows:
(1)The applicant nominating the tract for competitive leasing must pay the fee before the BLM will process the application and publish a notice of competitive lease sale;
(2)The BLM will publish a sale notice no later than 30 days before the proposed sale. The BLM will include in the sale notice a statement of the total cost recovery fee paid to the BLM by the applicant, up to 30 calendar days before the sale;
(3)Before the lease is issued:
(i)The successful bidder, if someone other than the applicant, must pay to the BLM the cost recovery amount specified in the sale notice, including the cost of the NEPA analysis; and
(ii)The successful bidder must pay all processing costs the BLM incurs after the date of the sale notice;
(4)If the successful bidder is someone other than the applicant, the BLM will refund to the applicant the amount paid under paragraph (b)(1) of this section;
(5)If there is no successful bidder, the applicant is responsible for all processing fees; and
(6)If the successful bidder is someone other than the applicant, within 30 calendar days after the lease sale, the successful bidder must file an application in accordance with § 3922.20 of this chapter. § 3922.20 Application contents. A lease application must be filed by any party seeking to obtain a lease. Lease applications must be filed in the proper BLM state office. No specific form of application is required, but the application must include information necessary to evaluate the impacts of issuing the proposed lease or leases on the human environment. Except as otherwise requested by the BLM, the application must include, but is not limited to, the following:
(a)Name, address, and telephone number of applicant, and a qualification statement, as required by subpart 3902 of part 3900 of this chapter;
(b)A delineation of the proposed lease area or areas, the surface ownership (if other than the United States) of those areas, a description of the quality, thickness, and depth of the oil shale and of any other resources the applicant proposes to extract, and environmental data necessary to assess impacts from the proposed development; and
(c)A description of the proposed extraction method, including personnel requirements, production levels, and transportation methods, including:
(1)A description of the mining, retorting, or in situ mining or processing technology that the operator would use and whether the proposed development technology is substantially identical to a technology or method currently in use to produce marketable commodities from oil shale deposits;
(2)An estimate of the maximum surface area of the lease area that will be disturbed or be undergoing reclamation at any one time;
(3)A description of the source and quantities of water to be used and of the water treatment and disposal methods necessary to meet applicable water quality standards;
(4)A description of the regulated air emissions;
(5)A description of the anticipated noise levels from the proposed development;
(6)A description of how the proposed lease development would comply with all applicable statutes and regulations governing management of chemicals and disposal of solid waste. If the proposed lease development would include disposal of wastes on the lease site, include a description of measures to be used to prevent the contamination of soil and of surface and ground water;
(7)A description of how the proposed lease development would avoid, or, to the extent practicable, mitigate impacts on species or habitats protected by applicable state or Federal law or regulations, and impacts on wildlife habitat management;
(8)A description of reasonably foreseeable social, economic, and infrastructure impacts on the surrounding communities, and on state and local governments from the proposed development;
(9)A description of the known historical, cultural, or archaeological resources within the lease area;
(10)A description of infrastructure that would likely be required for the proposed development and alternative locations of those facilities, if applicable;
(11)A discussion of proposed measures to mitigate any adverse impacts to the environment and to nearby communities;
(12)A brief description of the reclamation methods that will be used;
(13)Any other information that shows that the application meets the requirements of this subpart or that the applicant believes would assist the BLM in analyzing the impacts of the proposed development; and
(14)A map, or maps, showing:
(i)The topography, physical features, and natural drainage patterns;
(ii)Existing roads, vehicular trails, and utility systems;
(iii)The location of any proposed exploration operations, including seismic lines and drill holes;
(iv)To the extent known, the location of any proposed mining operations and facilities, trenches, access roads, or trails, and supporting facilities including the approximate location and extent of the areas to be used for pits, overburden, and tailings; and
(v)The location of water sources or other resources that may be used in the proposed operations and facilities. § 3922.30 Application—Additional information. At any time during processing of the application, or the environmental or similar assessments of the application, the BLM may request additional information from the applicant. Failure to provide the best available and most accurate information may result in suspension or termination of processing of the application, or in a decision to deny the application. § 3922.40 Tract delineation.
(a)The BLM will delineate tracts for competitive sale to provide for the orderly development of the oil shale resource.
(b)The BLM may delineate more or less lands than were covered by an application for any reason the BLM determines to be in the public interest.
(c)The BLM may delineate tracts in any area acceptable for further consideration for leasing, whether or not expression of leasing interest or applications have been received for those areas.
(d)Where the BLM receives more than 1 application covering the same lands, the BLM may delineate the lands that overlap as a separate tract. Subpart 3923—Minimum Bid § 3923.10 Minimum bid. The BLM will not accept any bid that is less than the FMV. In no case may the minimum bid be less than $1,000 per acre. Subpart 3924—Lease Sale Procedures § 3924.5 Notice of sale.
(a)After the BLM complies with § 3921.20 of this chapter, the BLM may publish a notice of the lease sale in the **Federal Register** containing all information required by paragraph
(b)of this section. The BLM will also publish a similar notice of lease sale that complies with this section once a week for 3 consecutive weeks, or such other time deemed appropriate by the BLM, in 1 or more newspapers of general circulation in the county or counties in which the oil shale lands are situated.
(b)The notice of the sale will:
(1)List the time and place of sale, the bidding method, and the legal land descriptions of the tracts being offered;
(2)Specify where a detailed statement of lease terms, conditions, and stipulations may be obtained;
(3)Specify the royalty rate and the amount of the annual rental;
(4)Specify that, prior to lease issuance, the successful bidder for a particular lease must pay the identified cost recovery amount, including the bidder's proportionate share of the total cost of the NEPA analysis and of publication of the notice; and
(5)Contain such other information as the BLM deems appropriate.
(c)The detailed statement of lease terms, conditions, and stipulations will, at a minimum, contain:
(1)A complete copy of each lease and all lease stipulations to the lease; and
(2)Resource information relevant to the tracts being offered for lease and the minimum production requirement. § 3924.10 Lease sale procedures and receipt of bids.
(a)The BLM will accept sealed bids only as specified in the notice of sale and will return to the bidder any sealed bid submitted after the time and date specified in the sale notice. Each sealed bid must include:
(1)A certified check, cashier's check, bank draft, money order, personal check, or cash for one-fifth of the amount of the bonus; and
(2)A qualifications statement signed by the bidder as described in subpart 3902 of part 3900 of this chapter.
(b)At the time specified in the sale notice, the BLM will open and read all bids and announce the highest bid. The BLM will make a record of all bids.
(c)No decision to accept or reject the high bid will be made at the time of sale.
(d)After the sale, the BLM will convene a sale panel to determine:
(1)If the high bid was submitted in compliance with the terms of the notice of sale and these regulations;
(2)If the high bid reflects the FMV of the tract; and
(3)Whether the high bidder is qualified to hold the lease.
(e)The BLM may reject any or all bids regardless of the amount offered, and will not accept any bid that is less than the FMV. The BLM will notify in writing the high bidder whose bid has been rejected and include a statement of reasons for the rejection.
(f)The BLM may offer the lease to the next highest qualified bidder if the successful bidder fails to execute the lease or for any reason is disqualified from receiving the lease.
(g)The balance of the bonus bid is due and payable to the MMS in 4 equal annual installments on each of the first 4 anniversary dates of the lease, unless otherwise specified in the lease. Subpart 3925—Award of Lease § 3925.10 Award of lease.
(a)The lease will be awarded to the highest qualified bidder whose bid exceeds the minimum bid, except as provided in § 3924.10 of this chapter. The BLM will provide the successful bidder 3 copies of the oil shale lease form for execution.
(b)Within 60 calendar days after receipt of the lease forms, the successful bidder must sign all copies and return them to the proper BLM office. The successful bidder must also submit the necessary lease bond (see subpart 3904 of this chapter), the first year's rental, any unpaid cost recovery fees, including costs associated with the NEPA analysis, and the bidder's proportionate share of the cost of publication of the sale notice. The BLM may, upon written request, grant an extension of time to submit the items under this paragraph.
(c)If the successful bidder does not comply with this section, the BLM will not issue the lease and the bidder forfeits the one-fifth bonus payment submitted with the bid.
(d)If the lease cannot be awarded for reasons determined by the BLM to be beyond the control of the successful bidder, the BLM will refund the deposit submitted with the bid.
(e)If the successful bidder was not an applicant under § 3922.20 of this chapter, the successful bidder must submit an application and the BLM may require additional NEPA analysis of the successful bidder's proposed operations. Subpart 3926—Conversion of Preference Right for Research, Demonstration, and Development (R, D and D) Leases § 3926.10 Conversion of an R, D and D lease to a commercial lease.
(a)Applications to convert R, D and D leases, including preference right areas, into commercial leases, are subject to the regulations at parts 3900 and 3910, this part, and part 3930, except for lease sale procedures at subparts 3921 and 3924 and § 3922.40.
(b)A lessee of an R, D and D lease must apply for the conversion of the R, D and D lease to a commercial lease no later than 90 calendar days after the commencement of production in commercial quantities. No specific form of application is required. The application for conversion must be filed in the BLM state office that issued the R, D and D lease. The conversion application must include:
(1)Documentation that there has been commercial quantities of oil shale produced from the lease, including the narrative required by the R, D and D leases;
(2)Documentation that the lessee consulted with state and local officials to develop a plan for mitigating the socioeconomic impacts of commercial development on communities and infrastructure;
(3)A bid payment no less than specified in § 3923.10 of this chapter and equal to the FMV of the lease; and
(4)Bonding as required by § 3904.14 of this chapter.
(c)The lessee of an R, D and D lease has the exclusive right to acquire any and all portions of the preference right area designated in the R, D and D lease up to a total of 5,120 acres in the lease. The BLM will approve the conversion application, in whole or in part, if it determines that:
(1)There have been commercial quantities of shale oil produced from the lease;
(2)The bid payment for the lease met or exceeded FMV;
(3)The lessee consulted with state and local officials to develop a plan for mitigating the socioeconomic impacts of commercial development on communities and infrastructure;
(4)The bond is consistent with § 3904.14 of this chapter; and
(5)Commercial scale operations can be conducted, subject to mitigation measures to be specified in stipulations or regulations, without unacceptable environmental consequences.
(d)The commercial lease must contain terms consistent with the regulations in parts 3900 and 3910, this part, and part 3930 and stipulations developed through appropriate NEPA analysis. Subpart 3927—Lease Terms § 3927.10 Lease form. Leases are issued on a BLM approved standard form. The BLM may modify those provisions of the standard form that are not required by statute or regulations and may add such additional stipulations and conditions, as appropriate, with notice to bidders in the notice of sale. § 3927.20 Lease size. The maximum size of an oil shale lease is 5,760 acres and the minimum size of an oil shale lease is 160 acres. § 3927.30 Lease duration. Leases issue for a period of 20 years and continue as long as there is annual minimum production or as long as there are payments in lieu of production (see § 3903.51 of this chapter). The BLM may initiate procedures to cancel a lease under subpart 3934 of part 3930 of this chapter for not maintaining annual minimum production, for not making the payment in lieu of production, or for not complying with the lease terms, including the diligent development milestones (see § 3930.30 of this chapter). § 3927.40 Effective date of leases. Leases are dated and effective the first day of the month following the date the BLM signs it. However, upon receiving a prior written request, the BLM may make the effective date of the lease the first day of the month in which the BLM signs it. § 3927.50 Diligent development. Oil shale lessees must meet:
(a)Diligent development milestones;
(b)Annual minimum production requirements or payments in lieu of production starting the 10th lease year, except when the BLM determines that operations under the lease are interrupted by strikes, the elements, or causes not attributable to the lessee. Market conditions are not considered a valid reason to waive or suspend the requirements for annual minimum production. The BLM will determine the annual production requirements based on the extraction technology to be used and on the BLM's estimate of the recoverable resources on the lease, expected life of the operation, and other factors. 4. Add part 3930 to subchapter C to read as follows: PART 3930—MANAGEMENT OF OIL SHALE EXPLORATION AND LEASES Subpart 3930—Management of Oil Shale Exploration Licenses and Leases Sec. 3930.10 General performance standards. 3930.11 Performance standards for exploration and in situ operations. 3930.12 Performance standards for underground mining. 3930.13 Performance standards for surface mines. 3930.20 Operations. 3930.30 Diligent development milestones. 3930.40 Penalties for missing diligence milestones. Subpart 3931—Plans of Development and Exploration Plans 3931.10 Exploration plans and plans of development for mining and in situ operations. 3931.11 Content of plan of development. 3931.20 Reclamation. 3931.30 Suspension of operations and production. 3931.40 Exploration. 3931.41 Content of exploration plan. 3931.50 Exploration plan and plan of development modifications. 3931.60 Maps of underground and surface mine workings and in situ surface operations. 3931.70 Production maps and production reports. 3931.80 Core or test hole samples and cuttings. 3931.100 Boundary pillars. Subpart 3932—Lease Modifications and Readjustments 3932.10 Lease size modification. 3932.20 Lease modification land availability criteria. 3932.30 Terms and conditions of a modified lease. 3932.40 Readjustment of lease terms. Subpart 3933—Assignments and Subleases 3933.10 Leases subject to assignment or sublease. 3933.20 Filing fees. 3933.31 Record title assignments. 3933.32 Overriding royalty interests. 3933.40 Lease account status. 3933.51 Bond coverage. 3933.52 Continuing responsibility under assignment and sublease. 3933.60 Effective date. 3933.70 Extensions. Subpart 3934—Relinquishment, Cancellations, and Terminations 3934.10 Relinquishments. 3934.21 Written notice of cancellation. 3934.22 Causes and procedures for lease cancellation. 3934.30 License terminations. 3934.40 Payments due. 3934.50 Bona fide purchasers. Subpart 3935—Production and Sale Records 3935.10 Accounting records. Subpart 3936—Inspection and Enforcement 3936.10 Inspection of underground and surface operations and facilities. 3936.20 Issuance of notices of noncompliance and orders. 3936.30 Enforcement of notices of noncompliance and orders. 3936.40 Appeals. Authority: 25 U.S.C. 396d and 2107, 30 U.S.C. 241(a), 42 U.S.C. 15927, 43 U.S.C. 1732(b), 1733, and 1740. Subpart 3930—Management of Oil Shale Exploration Licenses and Leases § 3930.10 General performance standards. The operator/lessee must comply with the following performance standards concerning exploration, development, and production:
(a)All operations must be conducted to achieve Maximum Economic Recovery;
(b)Operations must be conducted under an approved plan of development or exploration plan;
(c)The operator/lessee must diligently develop the lease and must comply with the diligence development milestones and production requirements at § 3930.30 of this chapter;
(d)The operator/lessee must notify the BLM promptly if operations encounter unexpected wells or drill holes that could adversely affect the recovery of shale oil or other minerals producible under an oil shale lease during mining operations, and must not take any action that would disturb such wells or drill holes without the BLM's prior approval;
(e)The operator/lessee must conduct operations to:
(1)Prevent waste and conserve the recoverable oil shale reserves and other resources;
(2)Prevent damage to or degradation of oil shale formations;
(3)Ensure that other resources are protected upon abandonment of operations; and
(f)The operator must save topsoil for use in final reclamation after the reshaping of disturbed areas has been completed. § 3930.11 Performance standards for exploration and in situ operations. The operator/lessee must adhere to the following standards for all exploration and in situ drilling operations:
(a)At the end of exploration operations, all drill holes must be capped with at least 5 feet of cement and plugged with a permanent plugging material that is unaffected by water and hydrocarbon gases and will prevent the migration of gases and water in the drill hole under normal hole pressures. For holes drilled deeper than stripping limits, the operator/lessee, using cement or other suitable plugging material the BLM approves in advance, must plug the hole through the thickness of the oil shale bed(s) or mineral deposit(s) and through aquifers for a distance of at least 50 feet above and below the oil shale bed(s) or mineral deposit(s) and aquifers, or to the bottom of the drill hole. The BLM may approve a lesser cap or plug. Capping and plugging must be managed to prevent water pollution and the mixing of ground and surface waters and to ensure the safety of people, livestock, and wildlife;
(b)The operator/lessee must retain for 1 year all drill and geophysical logs. The operator must also make such logs available for inspection or analysis by the BLM. The BLM may require the operator/lessee to retain representative samples of drill cores for 1 year;
(c)The operator/lessee may, after the BLM's written approval, use drill holes as surveillance wells for the purpose of monitoring the effects of subsequent operations on the quantity, quality, or pressure of ground water or mine gases; and
(d)The operator/lessee may, after written approval from the BLM and the surface owner, convert drill holes to water wells. When granting such approvals, the BLM will include a transfer to the surface owner of responsibility for any liability, including eventual plugging, reclamation, and abandonment. § 3930.12 Performance standards for underground mining.
(a)Underground mining operations must be conducted in a manner to prevent the waste of oil shale, to conserve recoverable oil shale reserves, and to protect other resources. The BLM must approve in writing permanent abandonment and operations that render oil shale inaccessible.
(b)The operator/lessee must adopt mining methods that ensure the proper recovery of recoverable oil shale reserves.
(c)Operators/lessees must adopt measures consistent with known technology to prevent or, where the mining method used requires subsidence, control subsidence, maximize mine stability, and maintain the value and use of surface lands. If the plan of development indicates that pillars will not be removed and controlled subsidence is not part of the plan of development, the POD must show that pillars of adequate dimensions will be left for surface stability, considering the thickness and strength of the oil shale beds and the strata above and immediately below the mined interval.
(d)The lessee/operator must have the BLM's approval to temporarily abandon a mine or portions thereof.
(e)The operator/lessee must have the BLM's prior approval to mine any recoverable oil shale reserves or drive any underground workings within 50 feet of any of the outer boundary lines of the federally-leased or federally-licensed land. The BLM may approve operations closer to the boundary after taking into consideration state and Federal environmental laws and regulations.
(f)The lessee/operator must have the BLM's prior approval before drilling any lateral holes within 50 feet of any outside boundary.
(g)Either the operator/lessee or the BLM may initiate the proposal to mine oil shale in a barrier pillar if the oil shale in adjoining lands has been mined out. The lessee/operator of the Federal oil shale must enter into an agreement with the owner of the oil shale in those adjacent lands prior to mining the oil shale remaining in the Federal barrier pillars (which otherwise may be lost).
(h)The BLM must approve final abandonment of a mining area. § 3930.13 Performance standards for surface mines.
(a)Pit widths for each oil shale seam must be engineered and designed to eliminate or minimize the amount of oil shale fender to be left as a permanent pillar on the spoil side of the pit.
(b)Considering mine economics and oil shale quality, the amount of oil shale wasted in each pit must be minimal.
(c)The BLM must approve the final abandonment of a mining area.
(d)The BLM must approve the conditions under which surface mines, or portions thereof, will be temporarily abandoned, under the regulations in this part.
(e)The operator/lessee may, in the interest of conservation, mine oil shale up to the Federal lease or license boundary line, provided that the mining:
(1)Complies with existing state and Federal mining, environmental, reclamation, and safety laws and rules; and
(2)Does not conflict with the rights of adjacent surface owners.
(f)The operator must save topsoil for final application after the reshaping of disturbed areas has been completed. § 3930.20 Operations.
(a)*Maximum Economic Recovery (MER).* All mining and in situ development and production operations must be conducted in a manner to yield the MER of the oil shale deposits, consistent with the protection and use of other natural resources, the protection and preservation of the environment, including, land, water, and air, and with due regard for the safety of miners and the public. All shafts, main exits, and passageways, and overlying beds or mineral deposits that at a future date may be of economic importance must be protected by adequate pillars in the deposit being worked or by such other means as the BLM approves.
(b)*New geologic information.* The operator must record any new geologic information obtained during mining or in situ development operations regarding any mineral deposits on the lease. The operator must report this new information in a BLM-approved format to the proper BLM office within 90 calendar days after obtaining the information.
(c)*Statutory compliance.* Operators must comply with applicable Federal and state law, including, but not limited to the following:
(1)Clean Air Act (42 U.S.C. 1857 *et seq.* );
(2)Federal Water Pollution Control Act, as amended (30 U.S.C. 1151 *et seq.* );
(3)Solid Waste Disposal Act as amended by the Resource Conservation and Recovery Act (42 U.S.C. 6901 *et seq.* );
(4)National Historic Preservation Act, as amended (16 U.S.C. 470 *et seq.* );
(5)Archaeological and Historical Preservation Act, as amended (16 U.S.C. 469 *et seq.* );
(6)Archaeological Resources Protection Act, as amended (16 U.S.C. 470aa *et seq.* ); and
(7)Native American Graves Protection and Repatriation Act, as amended (25 U.S.C. 3001 *et seq.* ).
(d)Resource protection. The following additional resource protection provisions apply to oil shale operations:
(1)Operators must comply with applicable Federal and state standards for the disposal and treatment of solid wastes. All garbage, refuse, or waste must either be removed from the affected lands or disposed of or treated to minimize, so far as is practicable, their impact on the lands water, air, and biological resources;
(2)Operators must conduct operations in a manner to prevent adverse impacts to threatened or endangered species and any of their habitat that may be affected by operations.
(3)If the operator encounters any scientifically important paleontological remains or any historical or archaeological site, structure, building, or object on Federal lands, it must immediately notify the BLM. Operators must not, without prior BLM approval, knowingly disturb, alter, damage, or destroy any scientifically important paleontological remains or any historical or archaeological site, structure, building, or object on Federal lands. § 3930.30 Diligent development milestones.
(a)Operators must diligently develop the oil shale resources consistent with the terms and conditions of the lease, plan of development, and these regulations. If the operator does not maintain or comply with diligent development milestones, the BLM may initiate lease cancellation. In order to be considered diligently developing the lease, the lessee/operator must comply with the following diligence milestones:
(1)Milestone 1. Within 2 years of the lease issuance date, submit to the proper BLM office an initial plan of development that meets the requirements of subpart 3931. The operator must revise the plan of development following subpart 3931 of this part, if the BLM determines that the initial plan of development is unacceptable;
(2)Milestone 2. Within 3 years of the lease issuance date, submit a final plan of development. The BLM may, based on circumstances beyond the control of the lessee or operator, or on the complexity of the plan of development, grant a 1 year extension to the lessee or operator to submit a complete plan of development;
(3)Milestone 3. Within 2 years after the BLM approves the final plan of development, apply for all required Federal and state permits and licenses;
(4)Milestone 4. Before the end of the 7th year after lease issuance, begin infrastructure installation, as required by the BLM approved plan of development; and
(5)Milestone 5. Before the end of the 10th year after lease issuance, begin oil shale production.
(b)Operators may apply for additional time to complete a milestone. The BLM may grant additional time for completing a milestone if the operator provides documentation that shows to the BLM's satisfaction that achieving the milestone by the deadline is not possible for reasons that are beyond the control of the operator.
(c)Operators must maintain minimum annual production every year after the 10th lease year or pay in lieu of production according to the lease terms.
(d)Each lease will provide for minimum production. The minimum production requirement stated in the lease must be met by the end of the 10th lease year and will be based on the BLM's estimate of the extraction technology to be used, the recoverable resources on the lease, expected life of the operation, and other factors the BLM considers.
(e)Each lease will provide for payment in lieu of the minimum production for any particular year starting the 10th lease year. Payments in lieu of production in year 10 of the lease satisfies Milestone 5 in paragraph (a)(5) of this section. § 3930.40 Penalties for missing diligence milestones. The BLM will assess a penalty of $50 for each acre in the lease for each missed diligence milestone each year until the operator or lessee complies with § 3930.30(a) of this chapter. For example: If the operator does not submit the required plan of development within 2 years of lease issuance (the first milestone), the BLM will assess the operator an additional $50 per acre penalty each year until the milestone is met. If the operator does not meet the second milestone (apply for all required permits and licenses by 2 years after the BLM approves the plan of development), the BLM will assess the operator $50 per acre penalty per year resulting in a total penalty of $100 per acre, per year. If the operator does not begin production by the end of the initial lease term, or make payments in lieu thereof, the BLM may initiate lease cancellation procedures (see §§ 3934.21 and 3934.22 of this part). Subpart 3931—Plans of Development and Exploration Plans § 3931.10 Exploration plans and plans of development for mining and in situ operations.
(a)The plan of development must provide for reasonable protection and reclamation of the environment and the protection and diligent development of the oil shale resources in the lease.
(b)The operator must submit to the proper BLM office an exploration plan or plan of development describing in detail the proposed exploration, testing, development, or mining operations to be conducted. Exploration plans or plans of development must be consistent with the requirements of the lease or exploration license and protect nonmineral resources and provide for the reclamation of the lands affected by the operations on Federal lease(s) or exploration license(s). All plans of development and exploration plans must be submitted to the proper BLM office.
(c)The lessee or operator must submit 3 copies of the plan of development to the proper BLM office or submit it in an acceptable electronic format. Contact the proper BLM office for detailed information on submitting copies electronically (see § 3931.40 for submission of exploration plans).
(d)The BLM will consult with any other Federal, state, or local agencies involved and review the plan. If the BLM denies the plan, it will indicate what additional information is necessary to complete the application.
(e)All development and exploration activities must comply with the BLM-approved plan of development or exploration plan.
(f)Activities under § 3931.40 of this subpart, other than casual use, may not begin until the BLM approves an exploration plan or plan of development. § 3931.11 Content of plan of development. The plan of development must contain, at a minimum, the following:
(a)Names, addresses, and telephone numbers of those responsible for operations to be conducted under the approved plan and to whom notices and orders are to be delivered, names and addresses of Federal oil shale lessees and corresponding Federal lease serial numbers, and names and addresses of surface and mineral owners of record, if other than the United States;
(b)A general description of geologic conditions and mineral resources within the area where mining is to be conducted, including appropriate maps;
(c)A copy of a suitable map or aerial photograph showing the topography, the area covered by each lease, the name and location of major topographic and cultural features;
(d)A statement of proposed methods of operation and development, including the following items as appropriate:
(1)A description detailing the extraction technology to be used;
(2)The equipment to be used in development and extraction;
(3)The proposed access roads;
(4)The size, location, and schematics of all structures, facilities, and lined or unlined pits to be built;
(5)The stripping ratios, development sequence, and schedule;
(6)The number of acres in the Federal lease(s) or license(s) to be affected;
(7)Comprehensive well design and procedure for drilling, casing, cementing, testing, stimulation, clean-up, completion, and production, for all drilled well types, including those used for heating, freezing, and disposal;
(8)A description of the methods and means to protect and monitor all aquifers;
(9)Surveyed well location plats or project-wide well location plats;
(10)A description of the measurement and handling of produced fluids, including the anticipated production rates and estimated recovery factors; and
(11)A description/discussion of the controls that the operator will use to protect the public, including identification of:
(i)Essential operations, personnel, and health and safety precautions;
(ii)Programs and plans for noxious gas control (hydrogen sulfide, ammonia, etc.);
(iii)Well control procedures;
(iv)Temporary abandonment procedures; and
(v)Plans to address spills, leaks, venting, and flaring;
(e)An estimate of the quantity and quality of the oil shale resources;
(f)An explanation of how MER of the resource will be achieved for each Federal lease;
(g)Appropriate maps and cross sections showing:
(1)Federal lease boundaries and serial numbers;
(2)Surface ownership and boundaries;
(3)Locations of any existing and abandoned mines and existing oil and gas well (including well bore trajectories) and water well locations, including well bore trajectories;
(4)Typical geological structure cross sections;
(5)Location of shafts or mining entries, strip pits, waste dumps, retort facilities, and surface facilities;
(6)Typical mining or in situ development sequence, with appropriate time-frames;
(h)A narrative addressing the environmental aspects of the proposed mine or in situ operation, including at a minimum, the following:
(1)An estimate of the quantity of water to be used and pollutants that may enter any receiving waters;
(2)A design for the necessary impoundment, treatment, control, or injection of all produced water, runoff water, and drainage from workings; and
(3)A description of measures to be taken to prevent or control fire, soil erosion, subsidence, pollution of surface and ground water, pollution of air, damage to fish or wildlife or other natural resources, and hazards to public health and safety;
(i)A reclamation plan and schedule for all Federal lease(s) or exploration license(s) that details all reclamation activities necessary to fulfill the requirements of § 3931.20;
(j)The method of abandonment of operations on Federal lease(s) and exploration license(s) proposed to protect the unmined recoverable reserves and other resources, including:
(1)The method proposed to fill in, fence, or close all surface openings that are hazardous to people or animals; and
(2)For in situ operations, a description of the method and materials to be used to plug all abandoned development or production wells; and
(k)Any additional information that the BLM determines is necessary for analysis or approval of the plan of development. § 3931.20 Reclamation.
(a)The operator or lessee must restore the disturbed lands to their pre-mining or pre-exploration use or to a BLM-determined higher use.
(b)The operator must reclaim the area disturbed by taking reasonable measures to prevent or control onsite and offsite damage to lands and resources.
(c)Reclamation includes, but is not limited to:
(1)Measures to control erosion, landslides, and water runoff;
(2)Measures to isolate, remove, or control toxic materials;
(3)Reshaping the area disturbed, application of the topsoil, and re-vegetation of disturbed areas, where reasonably practicable; and
(4)Rehabilitation of fisheries and wildlife habitat.
(d)The operator or lessee must substantially fill in, fence, protect, or close all surface openings, subsidence holes, surface excavations, or workings which are a hazard to people or animals. These protected areas must be maintained in a secure condition during the term of the lease or exploration license. During reclamation, but before abandonment of operations, all openings, including water discharge points, must be closed to the BLM's satisfaction. For in situ operations, all drilled holes must be plugged and abandoned, as required by the approved plan.
(e)The operator or lessee must reclaim or protect surface areas no longer needed for operations as contemporaneously as possible as required by the approved plan. § 3931.30 Suspension of operations and production.
(a)The BLM may, in the interest of conservation, agree to a suspension of lease operations and production. Applications by lessees for suspensions of operations and production must be filed in duplicate in the proper BLM office and must explain why it is in the interest of conservation to suspend operations and production.
(b)The BLM may order a suspension of operations and production if the suspension is necessary to protect the resource or the environment:
(1)While the BLM performs necessary environmental studies or analysis;
(2)To ensure that necessary environmental remediation or cleanup is being performed as a result of activity or inactivity on the part of the operator; or
(3)While necessary environmental remediation or cleanup is being performed as a result of unwarranted or unexpected actions.
(c)The term of any lease will be extended by adding thereto any period of suspension of operations and production during such term.
(d)A suspension will take effect on the date the BLM specifies. Rental, upcoming diligent development milestones, and minimum annual production will be suspended:
(1)During any period of suspension of operations and production beginning with the first day of the lease month on which the suspension of operations and production is effective; or
(2)If the suspension of operations and production is effective on any date other than the first day of a lease month, beginning with the first day of the lease month following such effective date.
(e)The suspension of rental and minimum annual production will end on the first day of the lease month in which the suspension ends.
(f)The minimum annual production requirements of a lease will be proportionately reduced for that portion of a lease year for which a suspension of operations and production is directed or granted by the BLM, as would any payments in lieu of production. § 3931.40 Exploration. To conduct exploration operations under an exploration license or on a lease after lease issuance, but prior to approval of the plan of development, the following rules apply:
(a)Except for casual use, before conducting any exploration operations on federally-leased or federally-licensed lands, the operator or lessee must submit to the proper BLM office for approval 5 copies of the exploration plan or a copy of the plan in an acceptable electronic format. Contact the proper BLM office for detailed information on submitting copies electronically. As used in this paragraph, casual use means activities that do not cause appreciable surface disturbance or damage to lands or other resources and improvements. Casual use does not include use of heavy equipment, explosives, or vehicular movement off established roads and trails.
(b)The exploration activities must be consistent with the requirements of the underlying Federal lease or exploration license, and address protection of recoverable oil shale reserves and other resources and reclamation of the surface of the lands affected by the exploration operations. The exploration plan must meet the requirements of § 3931.20 and must show how reclamation will be an integral part of the proposed operations and that reclamation will progress as contemporaneously as practicable with operations. § 3931.41 Content of exploration plan. Exploration plans must contain the following:
(a)The name, address, and telephone number of the applicant, and, if applicable, that of the operator or lessee of record;
(b)The name, address, and telephone number of the representative of the applicant who will be present during, and responsible for, conducting exploration;
(c)A description of the proposed exploration area, cross-referenced to the map required under paragraph
(h)of this section, including:
(1)Applicable Federal lease and exploration license serial numbers;
(2)Surface topography;
(3)Geologic, surface water, and other physical features;
(4)Vegetative cover;
(5)Endangered or threatened species listed under the Endangered Species Act of 1973 (16 U.S.C. 1531 *et seq.* ) that may be affected by exploration operations;
(6)Districts, sites, buildings, structures, or objects listed on, or eligible for listing on, the National Register of Historic Places that may be present in the lease area; and
(7)Known cultural or archaeological resources located within the proposed exploration area;
(d)A description of the methods to be used to conduct oil shale exploration, reclamation, and abandonment of operations including, but not limited to:
(1)The types, sizes, numbers, capacity, and uses of equipment for drilling and blasting, and road or other access route construction;
(2)Excavated earth-disposal or debris-disposal activities;
(3)The proposed method for plugging drill holes; and
(4)The estimated size and depth of drill holes, trenches, and test pits;
(e)An estimated timetable for conducting and completing each phase of the exploration, drilling, and reclamation;
(f)The estimated amounts of oil shale or oil shale products to be removed during exploration, a description of the method to be used to determine those amounts, and the proposed use of the oil shale or oil shale products removed;
(g)A description of the measures to be used during exploration for Federal oil shale to comply with the performance standards for exploration (§ 3930.10);
(h)A map at a scale of 1:24,000 or larger showing the areas of land to be affected by the proposed exploration and reclamation. The map must show:
(1)Existing roads, occupied dwellings, and pipelines;
(2)The proposed location of trenches, roads, and other access routes and structures to be constructed;
(3)Applicable Federal lease and exploration license boundaries;
(4)The location of land excavations to be conducted;
(5)Oil shale exploratory holes to be drilled or altered;
(6)Earth-disposal or debris-disposal areas;
(7)Existing bodies of surface water; and
(8)Topographic and drainage features; and
(i)The name and address of the owner of record of the surface land, if other than the United States. If the surface is owned by a person other than the applicant or if the Federal oil shale is leased to a person other than the applicant, include evidence of authority to enter that land for the purpose of conducting exploration and reclamation. § 3931.50 Exploration plan and plan of development modifications.
(a)The operator or lessee may apply in writing to the BLM for modification of the approved exploration plan or plan of development to adjust to changed conditions or to correct an oversight. To obtain approval of an exploration plan or plan of development modification, the operator or lessee must submit to the proper BLM office a written statement of the proposed modification and the justification for such modification.
(b)The BLM may require a modification of the approved exploration plan or plan of development.
(c)The BLM may approve a partial exploration plan or plan of development, if circumstances warrant, or if development of an exploration or plan of development for the entire operation is dependent upon unknown factors that cannot or will not be determined until operations progress. The operator or lessee must not, however, perform any operation not covered in a BLM-approved plan. § 3931.60 Maps of underground and surface mine workings and in situ surface operations. Maps of underground workings and surface operations must be to a scale of 1:24,000 or larger if the BLM requests it. All maps must be appropriately marked with reference to government land marks or lines and elevations with reference to sea level. When required by the BLM, include vertical projections and cross sections in plan views. Maps must be based on accurate surveys and certified by a professional engineer, professional land surveyor, or other professionally qualified person. Accurate copies of such maps must be furnished by the operator to the BLM when and as required. All maps submitted must be in a format acceptable to the BLM. Contact the proper BLM office for information on what is the acceptable format to submit maps. § 3931.70 Production maps and production reports.
(a)Report production of all oil shale products or by-products to the BLM on a monthly basis.
(b)Report all production and royalty information to the MMS under 30 CFR parts 210 and 216.
(c)Submit production maps to the proper BLM office at the end of each royalty reporting period or on a schedule determined by the BLM. Show all excavations in each separate bed or deposit on the maps so that the production of minerals for any period can be accurately ascertained. Production maps must also show surface boundaries, lease boundaries, topography, and subsidence resulting from mining activities.
(d)If the lessee or operator does not provide the BLM the maps required by this section, the BLM will employ a licensed mine surveyor to make a survey and maps of the mine, and the cost will be charged to the operator or lessee.
(e)If the BLM believes any map submitted by an operator or lessee is incorrect, the BLM may have a survey performed, and if the survey shows the map submitted by the operator or lessee to be substantially incorrect in whole or in part, the cost of performing the survey and preparing the map will be charged to the operator or lessee.
(f)For in situ development operations, the lessee or operator must submit a map showing all surface installations, including pipelines, meter locations, or other points of measurement necessary for production verification as part of your plan of development. All maps must be modified as necessary for adequate representation of existing operations.
(g)Within 30 calendar days after well completion, the lessee or operator must submit to the proper BLM office 2 copies of a completed Form 3160-4, Well Completion or Recompletion Report and Log, limited to information that is applicable to oil shale operations. Well logs may be submitted electronically using a BLM-approved electronic format. Describe surface and bottom-hole locations in latitude and longitude. § 3931.80 Core or test hole samples and cuttings.
(a)Within 30 calendar days after drilling completion, the operator or lessee must submit to the proper BLM office a signed copy of records of all core or test holes made on the lands covered by the lease or exploration license. The records must show the position and direction of the holes on a map. The records must include a log of all strata penetrated and conditions encountered, such as water, gas, or unusual conditions, and copies of analysis of all samples. Provide this information to the proper BLM office in either paper copy or in a BLM-approved electronic format. Contact the proper BLM office for information on submitting copies electronically. Within 30 calendar days after creation, the operator or lessee must also submit to the proper BLM office a detailed lithologic log of each test hole and all other in-hole surveys or other logs produced. Upon the BLM's request, the operator or lessee must provide to the BLM splits of core samples and drill cuttings.
(b)The lessee or operator must abandon surface exploration drill holes for development or holes for exploration to the BLM's satisfaction by cementing or casing or by other methods approved in advance by the BLM. Abandonment must be conducted in a manner to protect the surface and not endanger any present or future underground or surface operation or any deposit of oil, gas, other mineral substances, or ground water.
(c)Operators may convert drill holes to surveillance wells for the purpose of determining the effect of subsequent operations upon the quantity, quality, or pressure of ground water or mine gases. The BLM may require such conversion or the operator may request that the BLM approve such conversion. Prior to lease or exploration license termination, all surveillance wells must be plugged and abandoned and reclaimed, unless the surface owner assumes responsibility for reclamation of such surveillance wells. The transfer of liability for reclamation will not be considered complete until the BLM approves it in writing.
(d)Drilling equipment must be equipped with blowout control devices suitable for the pressures encountered and acceptable to the BLM. § 3931.100 Boundary pillars.
(a)All boundary pillars must be at least 50 feet thick, unless otherwise specified in writing by the BLM. Boundary and other main pillars may be mined only with the BLM's prior written consent or on the BLM's order.
(b)If the oil shale on adjacent Federal lands has been worked out beyond any boundary pillar and no hazards exist, the operator or lessee must, on the BLM's written order, mine out and remove all available oil shale in such boundary pillar, both in the lands covered by the lease and in the adjacent Federal lands, when the BLM determines that such oil shale can be mined safely without undue hardship to the operator or lessee.
(c)If the mining rights in adjacent lands are privately owned or controlled, the lessee must have an agreement with the owners of such interests for the extraction of the oil shale in the boundary pillars. Subpart 3932—Lease Modifications and Readjustments § 3932.10 Lease size modification.
(a)A lessee may apply for a modification of a lease to include Federal lands adjacent to those in the lease. The total area of the lease, including the acreage in the modification application and any previously authorized modification, must not exceed the maximum lease size (see § 3927.20 of this chapter).
(b)An application for modification of the lease size must:
(1)Be filed with the proper BLM office;
(2)Contain a legal land description of the additional lands involved;
(3)Contain an explanation of how the modification would meet the criteria in § 3932.20(a) which qualifies the lease for modification;
(4)Explain why the modification would be in the best interest of the United States;
(5)Include a nonrefundable processing fee that the BLM will determine under § 3000.11 of this chapter; and
(6)Include a signed qualifications statement consistent with subpart 3902 of part 3900 of this chapter. § 3932.20 Lease modification land availability criteria.
(a)The BLM may grant a lease modification if:
(1)There is no competitive interest in the lands covered by the modification application;
(2)The lands covered by the modification application cannot be reasonably developed as part of another independent federally-approved operation;
(3)The modification would be in the public interest; and
(4)The modification does not cause a violation of lease size limitations under § 3927.20 of this chapter or acreage limitations under § 3901.20 of this chapter.
(b)The BLM may approve adding lands covered by the modification application to the existing lease without competitive bidding, but before the BLM will approve adding lands to the lease, the applicant must pay in advance the FMV for the interests to be conveyed.
(c)Before modifying a lease, the BLM will prepare any necessary NEPA analysis covering the proposed lease area under 40 CFR parts 1500 through 1508 and recover the cost of such analysis from the applicant. § 3932.30 Terms and conditions of a modified lease.
(a)The terms and conditions of a lease modified under this subpart will be made consistent with the laws, regulations, and land use plans applicable at the time the lands are added by the modification.
(b)The royalty rate for the lands in the modification is the same as for the original lease.
(c)Before the BLM will approve a lease modification, the lessee must file a written acceptance of the conditions in the modified lease and a written consent of the surety under the bond covering the original lease as modified. The lessee must also submit evidence that the bond has been amended to cover the modified lease and pay BLM processing costs. § 3932.40 Readjustment of lease terms.
(a)All leases are subject to readjustment of lease terms, conditions, and stipulations at the end of the first 20-year period (the primary term of the lease) and at the end of each 10-year period thereafter.
(b)Royalty rates will be subject to readjustment at the end of the primary term and every 20 years thereafter.
(c)At least 30 days prior to the expiration of the readjustment period, the BLM will notify the lessee by written decision if any readjustment is to be made and of the proposed readjusted lease terms, including any revised royalty rate.
(d)Readjustments may be appealed. In the case of an appeal, unless the readjustment is stayed by the Interior Board of Land Appeals or the courts, the lessee must comply with the revised lease terms, including any revised royalty rate, pending the outcome of the appeal. Subpart 3933—Assignments and Subleases § 3933.10 Leases subject to assignment or sublease. Any lease may be assigned or subleased in whole or in part to any person, association, or corporation that meets the qualification requirements in subpart 3902 of part 3900 of this chapter to hold such lease. The BLM may approve or disapprove assignments and subleases. § 3933.20 Filing fees. Each application for assignment or sublease of record title or overriding royalty must include a nonrefundable filing fee of $60. The BLM will not accept any assignment that does not include the filing fee. § 3933.31 Record title assignments.
(a)File in triplicate at the proper BLM office a separate instrument of assignment for each lease assignment. File the assignment application within 90 calendar days after the date of final execution of the assignment instrument and with it include the:
(1)Name and current address of assignee;
(2)Interest held by assignor and interest to be assigned;
(3)Serial number of the affected lease and a description of the lands to be assigned as described in the lease;
(4)Percentage of overriding royalties retained; and
(5)Dated signature of assignor.
(b)The assignee must provide a single copy of the request for approval of assignment which must contain a:
(1)Statement of qualifications and holdings as required by subpart 3902 of part 3900 of this chapter;
(2)Date and the signature of the assignee; and
(3)Nonrefundable filing fee of $60.
(c)The approval of an assignment of all interests in a specific portion of the lands in a lease will create a separate lease, which will be given a new serial number. § 3933.32 Overriding royalty interests. File at the proper BLM office, for record purposes only, all overriding royalty interest assignments within 90 calendar days after the date of execution of the assignment. § 3933.40 Lease account status. The BLM will not approve an assignment of a lease unless the lease account is in good standing. § 3933.51 Bond coverage. Before the BLM will approve an assignment, the assignee must submit to the proper BLM office a new bond in an amount to be determined by the BLM, or, in lieu thereof, documentation of consent of the surety on the present bond to the substitution of the assignee as principal (see subpart 3904 of part 3900 of this chapter). § 3933.52 Continuing responsibility under assignment and sublease.
(a)The assignor and its surety are responsible for the performance of any obligation under the lease that accrues prior to the effective date of the BLM's approval of the assignment. After the effective date of the BLM's approval of the assignment, the assignee and its surety are responsible for the performance of all lease obligations that accrue after the effective date of the BLM's approval of the assignment of the lease, notwithstanding any terms in the assignment to the contrary. If the BLM does not approve the assignment, the assignor's obligation to the United States continues as though no assignment had been filed.
(b)After the effective date of approval of a sublease, the sublessor and sublessee are jointly and severally liable for the performance of all lease obligations, notwithstanding any terms in the sublease to the contrary. § 3933.60 Effective date. An assignment or sublease takes effect, so far as the United States as lessor is concerned, on the first day of the month following the BLM's final approval, or if the assignee requests it in advance, the first day of the month of the approval. § 3933.70 Extensions. The BLM's approval of an assignment or sublease does not extend the readjustment period of the lease. Subpart 3934—Relinquishments, Cancellations, and Terminations § 3934.10 Relinquishments.
(a)A lease or exploration license or any legal subdivision thereof may be surrendered by the record title holder by filing a written relinquishment, in triplicate, in the BLM state office having jurisdiction of the lands covered by the relinquishment.
(b)To be relinquished, the lease account must be in good standing and the relinquishment must be considered to be in the public interest.
(c)A relinquishment will take effect on the date the BLM approves it, subject to the:
(1)Continued obligation of the lessee or licensee and surety to make payments of all accrued rentals and royalties;
(2)The proper rehabilitation of the lands to be relinquished to a condition acceptable to the BLM under these regulations;
(3)Terms of the lease or license; and
(4)Approved exploration plan or development plan.
(d)Prior to relinquishment of an exploration license, the licensee must give any other parties participating in activities under the exploration license the opportunity to take over operations under the exploration license. The licensee must provide to the BLM written evidence that the offer was made to all other parties participating in the exploration license. § 3934.21 Written notice of cancellation. The BLM will provide the lessee or licensee written notice of any default, breach, or cause of forfeiture, and provide a time period of 30 calendar days to correct the default, to request an extension of time in which to correct the default, or to submit evidence showing why the BLM is in error and why the lease or exploration license should not be canceled. § 3934.22 Causes and procedures for lease cancellation.
(a)The BLM will take appropriate steps in a United States District Court of competent jurisdiction to institute proceedings for the cancellation of the lease if the lessee:
(1)Does not comply with the provisions of the Act as amended and other relevant statutes;
(2)Does not comply with any applicable regulations; or
(3)Defaults in the performance of any of the terms, covenants, and stipulations of the lease, and the BLM does not formally waive the default, breach, or cause of forfeiture.
(b)A waiver of any particular default, breach, or cause of forfeiture will not prevent the cancellation and forfeiture of the lease for any other default, breach, or cause of forfeiture, or for the same cause occurring at any other time. § 3934.30 License terminations. The BLM may terminate an exploration license if:
(a)The BLM issued it in violation of any law or regulation, or if there are substantive factual errors, such as a lack of title;
(b)The licensee does not comply with the terms and conditions of the exploration license; or
(c)The licensee does not comply with the approved exploration plan. § 3934.40 Payments due. If a lease is canceled or relinquished for any reason, all bonus, rentals, royalties, and minimum royalties paid will be forfeited, and any amounts not paid will be immediately payable to the United States. § 3934.50 Bona fide purchasers. The BLM will not cancel a lease or an interest in a lease of a purchaser if at the time of purchase the purchaser was not aware and could not have reasonably determined from the BLM records the existence of a violation of any of the following:
(a)Federal regulatory requirements;
(b)The Act, as amended; or
(c)Lease terms and conditions. Subpart 3935—Production and Sale Records § 3935.10 Accounting records.
(a)Operators or lessees must maintain records that provide an accurate account of, or include all:
(1)Oil shale mined;
(2)Oil shale put through the processing plant and retort;
(3)Mineral products produced and sold;
(4)Shale oil products, shale gas, and shale oil by-products sold; and
(5)Shale oil products and by-products that are consumed on-lease for the beneficial use of the lease.
(b)The records must include relevant quality analyses of oil shale mined or processed and of all products including synthetic petroleum, shale oil, shale gas, and shale oil by-products sold.
(c)Production and sale records must be made available for the BLM's examination during regular business hours. Subpart 3936—Inspection and Enforcement § 3936.10 Inspection of underground and surface operations and facilities. Operators, licensees, or lessees must allow the BLM, at any time, either day or night, to inspect or investigate underground and surface mining or exploration operations to determine compliance with lease or license terms and conditions, compliance with the approved exploration or development plan, and to verify production. § 3936.20 Issuance of notices of noncompliance and orders.
(a)If the BLM determines that an operator, licensee, or lessee has not complied with established requirements, the BLM will issue to the operator, licensee, or lessee a notice of noncompliance.
(b)If operations threaten immediate, serious, or irreparable damage to the environment, the mine or deposit being mined, or other valuable mineral deposits or other resources, the BLM will order the cessation of operations and will require the operator, licensee, or lessee to revise the plan of development or exploration plan.
(c)The operator, licensee, or lessee will be considered to have received all orders or notices of noncompliance and orders that the operator, licensee, or lessee receives by personal delivery or certified mail. The BLM will consider service of any notice of noncompliance or order to have occurred 7 business days after the date the notice or order is mailed. Verbal orders and notices may be given to officials at the mine or exploration site, but the BLM will confirm them in writing within 10 business days. The operator or lessee must notify the BLM of any change of address or operator or lessee name. § 3936.30 Enforcement of notices of noncompliance and orders.
(a)If the operator, licensee, or lessee does not take action in accordance with the notice of noncompliance, the BLM may issue an order to cease operations or initiate legal proceedings to cancel or terminate the lease or license under subpart 3934 of this chapter.
(1)A notice of noncompliance will state how the operator, licensee, or lessee has not complied with established requirements, and will specify the action which must be taken to correct the noncompliance and the time limits within which such action must be taken. The operator, licensee, or lessee must notify the BLM when noncompliance items have been corrected.
(2)If the operator, licensee, or lessee does not comply with the notice of noncompliance or order within the specified time frame, the operator, licensee, or lessee must pay a fine of $500 per day until the noncompliance is corrected to the BLM's satisfaction.
(3)Noncompliance with the approved exploration or development plan that results in wasted resource may result in the lessee or licensee being assessed royalty at the market value, in addition to the noncompliance fine.
(b)If the BLM determines that the failure to comply with the exploration or development plan threatens health or human safety or immediate, serious, or irreparable damage to the environment, the mine or the deposit being mined or explored, or other valuable mineral deposits or other resources, the BLM may, either in writing or verbally followed with written confirmation within 5 business days, order the cessation of operations or exploration without prior notice. § 3936.40 Appeals. Notices of noncompliance and orders or decisions issued under the regulations in this part may be appealed as provided in part 4 of this title. All decisions and orders by the BLM under this part remain effective pending appeal unless the BLM decides otherwise. A petition for the stay of a decision may be filed with the Interior Board of Land Appeals. [FR Doc. E8-16275 Filed 7-22-08; 8:45 am] BILLING CODE 4310-84-P 73 142 Wednesday, July 23, 2008 Rules and Regulations Part III Environmental Protection Agency 40 CFR Part 63 National Emission Standards for Hazardous Air Pollutants: Area Source Standards for Nine Metal Fabrication and Finishing Source Categories; Final Rule ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 63 [EPA-HQ-OAR-2006-0306; FRL-8683-3] RIN 2060-AO27 National Emission Standards for Hazardous Air Pollutants: Area Source Standards for Nine Metal Fabrication and Finishing Source Categories AGENCY: Environmental Protection Agency (EPA). ACTION: Final rule. SUMMARY: EPA is issuing national emission standards for control of hazardous air pollutants for nine metal fabrication and finishing area source categories (identified in section I.A. below). This final rule establishes emission standards in the form of management practices and equipment standards for new and existing operations of dry abrasive blasting, machining, dry grinding and dry polishing with machines, spray painting and other spray coating, and welding operations. These standards reflect EPA's determination regarding the generally achievable control technology and/or management practices for the nine area source categories. DATES: This final rule is effective on July 23, 2008. The incorporation by reference of certain publications listed in this final rule is approved by the Director of the **Federal Register** as of July 23, 2008. ADDRESSES: EPA has established a docket for this action under Docket ID No. EPA-HQ-OAR-2006-0306. All documents in the docket are listed in the Federal Docket Management System index at *http://www.regulations.gov index.* Although listed in the index, some information is not publicly available, *e.g.* , CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically through *http://www.regulations.gov* or in hard copy at the National Emission Standards for Hazardous Air Pollutants for Nine Metal Fabrication and Finishing Area Source Categories Docket, at the EPA Docket and Information Center, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is
(202)566-1744, and the telephone number for the Air Docket is
(202)566-1742. FOR FURTHER INFORMATION CONTACT: Dr. Donna Lee Jones, Sector Policies and Programs Division, Office of Air Quality Planning and Standards (D243-02), Environmental Protection Agency, Research Triangle Park, North Carolina 27711, telephone number:
(919)541-5251; fax number:
(919)541-3207; e-mail address: *jones.donnalee@epa.gov.* SUPPLEMENTARY INFORMATION: *Outline.* The information in this preamble is organized as follows: I. General Information A. Does this action apply to me? B. Where can I get a copy of this document? C. Judicial Review II. Background Information for This Final Rule III. Summary of Major Changes Since Proposal A. Applicability B. Compliance Dates C. Standards and Compliance Requirements D. Reporting and Recordkeeping Requirements E. Definitions F. Other IV. Summary of Final Standards A. Do the final standards apply to my source? B. When must I comply with these standards? C. What processes does this final rule address? D. What are the emissions control requirements? E. What are the initial compliance requirements? F. What are the continuous compliance requirements? G. What are the notification, recordkeeping, and reporting requirements? V. Summary of Comments and Responses A. Applicability B. Compliance Dates C. Scope of Rule D. Impacts of Rule E. Management Practices F. Monitoring VI. Impacts of the Final Standards A. What are the air impacts? B. What are the cost impacts? C. What are the economic impacts? D. What are the non-air health, environmental, and energy impacts? VII. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use I. National Technology Transfer Advancement Act J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations K. Congressional Review Act I. General Information A. Does this action apply to me? The regulated categories and entities potentially affected by this final action are shown in Table 1 below. This final rule applies to area sources a where the primary activity of their facilities is in one of the following nine source categories:
(1)Electrical and Electronic Equipment Finishing Operations;
(2)Fabricated Metal Products;
(3)Fabricated Plate Work (Boiler Shops);
(4)Fabricated Structural Metal Manufacturing;
(5)Heating Equipment, except Electric;
(6)Industrial Machinery and Equipment Finishing Operations;
(7)Iron and Steel Forging;
(8)Primary Metal Products Manufacturing; and
(9)Valves and Pipe Fittings. More specifically, this rule applies to area sources in these nine source categories that use or have the potential to emit compounds of cadmium, chromium, lead, manganese, or nickel from metal fabrication or finishing operations. Facilities affected by this final rule are not subject to the miscellaneous coating requirements in 40 CFR part 63, subpart HHHHHH, “National Emission Standards for Hazardous Air Pollutants: Paint Stripping and Miscellaneous Surface Coating Operations at Area Sources,” for their affected source(s) that are subject to the requirements of this final rule. There potentially may be other operations at the area sources that are not subject to the requirements of this final rule, but are instead subject to subpart HHHHHH of this part. a Section 112(a) of the Clean Air Act defines an area source as any stationary source of HAP that is not a major source. A major source is defined as any stationary source or group of stationary sources located within a contiguous area and under common control that emits, or has the potential to emit, considering controls, in the aggregate, 10 tons per year
(tpy)or more of any single HAP or 25 tpy or more of any combination of HAP. Table 1.—Regulated Categories and Entities Potentially Affected Metal fabrication and finishing category NAICS codes 1 Examples of regulated entities Electrical and Electronics Equipment Finishing Operations 335999, 335312 Establishments primarily engaged in manufacturing motors and generators; and electrical machinery, equipment, and supplies, not elsewhere classified. The electrical machinery equipment and supplies industry sector of this source category includes facilities primarily engaged in high energy particle acceleration systems and equipment, electronic simulators, appliance and extension cords, bells and chimes, insect traps, and other electrical equipment and supplies, not elsewhere classified. The Motors and Generators Manufacturing industry sector of this source category includes those establishments primarily engaged in manufacturing electric motors (except engine starting motors) and power generators; motor generator sets; railway motors and control equipment; and motors, generators and control equipment for gasoline, electric, and oil-electric buses and trucks. Fabricated Metal Products 332117, 332999 Establishments primarily engaged in manufacturing fabricated metal products, such as fire or burglary resistive steel safes and vaults and similar fire or burglary resistive products; and collapsible tubes of thin flexible metal. Also included are establishments primarily engaged in manufacturing powder metallurgy products, metal boxes; metal ladders; metal household articles, such as ice cream freezers and ironing boards; and other fabricated metal products not elsewhere classified. Fabricated Plate Work (Boiler Shops) 332313, 332410, 332420 Establishments primarily engaged in manufacturing power and marine boilers, pressure and nonpressure tanks, processing and storage vessels, heat exchangers, weldments and similar products. Fabricated Structural Metal Manufacturing 332312 Establishments primarily engaged in fabricating iron and steel or other metal for structural purposes, such as bridges, buildings, and sections for ships, boats, and barges. Heating Equipments, except Electric 333414 Establishments primarily engaged in manufacturing heating equipment, except electric and warm air furnaces, including gas, oil, and stoker coal fired equipment for the automatic utilization of gaseous, liquid, and solid fuels. Typical products produced in this source category include low-pressure heating (steam or hot water) boilers, fireplace inserts, domestic (steam or hot water) furnaces, domestic gas burners, gas room heaters, gas infrared heating units, combination gas-oil burners, oil or gas swimming pool heaters, heating apparatus (except electric or warm air), kerosene space heaters, gas fireplace logs, domestic and industrial oil burners, radiators (except electric), galvanized iron nonferrous metal range boilers, room heaters (except electric), coke and gas burning salamanders, liquid or gas solar energy collectors, solar heaters, space heaters (except electric), mechanical (domestic and industrial) stokers, wood and coal-burning stoves, domestic unit heaters (except electric), and wall heaters (except electric). Industrial Machinery and Equipment Finishing Operations 333120, 333132, 333911 Establishments primarily engaged in construction machinery manufacturing; oil and gas field machinery manufacturing; and pumps and pumping equipment manufacturing. The construction machinery manufacturing industry sector of this source category includes establishments primarily engaged in manufacturing heavy machinery and equipment of types used primarily by the construction industries, such as bulldozers; concrete mixers; cranes, except industrial plan overhead and truck-type cranes; dredging machinery; pavers; and power shovels. Also included in this industry are establishments primarily engaged in manufacturing forestry equipment and certain specialized equipment, not elsewhere classified, similar to that used by the construction industries, such as elevating platforms, ship cranes and capstans, aerial work platforms, and automobile wrecker hoists. The oil and gas filed machinery manufacturing industry sector of this source category includes establishments primarily engaged in manufacturing machinery and equipment for use in oil and gas fields or for drilling water wells, including portable drilling rigs. The pumps and pumping equipment industry sector of this source category includes establishments primarily engaged in manufacturing pumps and pumping equipment for general industrial, commercial, or household use, except fluid power pumps and motors. This category includes establishments primarily engaged in manufacturing domestic water and sump pumps. Iron and Steel Forging 33211 Establishments primarily engaged in the forging manufacturing process, where purchased iron and steel metal is pressed, pounded or squeezed under great pressure into high strength parts known as forgings. The process is usually performed hot by preheating the metal to a desired temperature before it is worked. The forging process is different from the casting and foundry processes, as metal used to make forged parts is never melted and poured. Primary Metals Products Manufacturing 332618 Establishments primarily engaged in manufacturing products such as fabricated wire products (except springs) made from purchased wire. These facilities also manufacture steel balls; nonferrous metal brads and nails; nonferrous metal spikes, staples, and tacks; and other primary metals products not elsewhere classified. Valves and Pipe Fittings 332919 Establishments primarily engaged in manufacturing metal valves and pipe fittings; flanges; unions, with the exception of purchased pipes; and other valves and pipe fittings not elsewhere classified. 1 North American Industry Classification System. This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be effected by this action. For descriptions of the North American Industry Classification System (NAICS) codes, you can view information on the U.S. Census site at *http://www.census.gov/epcd/ec97brdg.* To determine whether your facility would be regulated by this action you should examine the applicability criteria in the final rule (40 CFR 63.11514, “Am I subject to this subpart?”). If you have any questions regarding the applicability of this action to a particular entity, consult either the air permit authority for the entity or your EPA regional representative as listed in 40 CFR 63.13 of subpart A (General Provisions). B. Where can I get a copy of this document? In addition to being available in the docket, an electronic copy of this final action will also be available on the Worldwide Web
(WWW)through EPA's Technology Transfer Network (TTN). Following signature, a copy of this final action will be posted on the TTN's policy and guidance page for newly proposed or promulgated rules at the following address: *http://www.epa.gov/ttn/oarpg/.* The TTN provides information and technology exchange in various areas of air pollution control. C. Judicial Review Under section 307(b)(1) of the Clean Air Act (CAA), judicial review of this final rule is available only by filing a petition for review in the United States Court of Appeals for the District of Columbia Circuit by September 22, 2008. Under section 307(b)(2) of the CAA, the requirements established by this final rule may not be challenged separately in any civil or criminal proceedings brought by EPA to enforce these requirements. Section 307(d)(7)(B) of the CAA further provides that “[o]nly an objection to a rule or procedure which was raised with reasonable specificity during the period for public comment (including any public hearing) may be raised during judicial review.” This section also provides a mechanism for EPA to convene a proceeding for reconsideration, “[i]f the person raising an objection can demonstrate to EPA that it was impracticable to raise such objection within [the period for public comment] or if the grounds for such objection arose after the period for public comment (but within the time specified for judicial review) and if such objection is of central relevance to the outcome of the rule.” Any person seeking to make such a demonstration to us should submit a Petition for Reconsideration to the Office of the Administrator, U.S. EPA, Room 3000, Ariel Rios Building, 1200 Pennsylvania Ave., NW., Washington, DC 20460, with a copy to both the person(s) listed in the preceding FOR FURTHER INFORMATION CONTACT section, and the Associate General Counsel for the Air and Radiation Law Office, Office of General Counsel (Mail Code 2344A), U.S. EPA, 1200 Pennsylvania Ave., NW., Washington, DC 20460. II. Background Information for This Final Rule Section 112(d) of the CAA requires us to establish national emission standards for hazardous air pollutants (NESHAP) for both major and area sources of hazardous air pollutants
(HAP)that are listed for regulation under CAA section 112(c). A major source emits or has the potential to emit 10 tons per year
(tpy)or more of any single HAP or 25 tpy or more of any combination of HAP. An area source is a stationary source that is not a major source. Section 112(k)(3)(B) of the CAA calls for EPA to identify at least 30 HAP which, as the result of emissions from area sources, pose the greatest threat to public health in the largest number of urban areas. EPA implemented this provision in 1999 in the Integrated Urban Air Toxics Strategy, (64 FR 38715, July 19, 1999). Specifically, in the Strategy, EPA identified 30 HAP that pose the greatest potential health threat in urban areas, and these HAP are referred to as the “30 urban HAP.” Section 112(c)(3) requires EPA to list sufficient categories or subcategories of area sources to ensure that area sources representing 90 percent of the emissions of the 30 urban HAP are subject to regulation. We selected these nine source categories for regulation based on these required analyses. We then implemented these requirements through the Integrated Urban Air Toxics Strategy (64 FR 38715, July 19, 1999) and subsequent updates to the source category list. Under CAA section 112(d)(5), we may elect to promulgate standards or requirements for area sources “which provide for the use of generally available control technologies or management practices by such sources to reduce emissions of hazardous air pollutants.” As explained in the preamble to the proposed NESHAP, we are issuing standards based on generally available control technology (GACT). We are issuing these final national emission standards in response to a court-ordered deadline that requires EPA to issue standards for 11 source categories listed pursuant to section 112(c)(3) and
(k)by June 15, 2008 (Sierra Club v. Johnson, no. 01-1537, D.D.C., March 2006). We have already issued regulations addressing one of the 11 area source categories. See regulations for Wood Preserving (72 FR 38864, July 16, 2007.) Other rulemakings will include standards for the remaining source categories that are due in June 2008. III. Summary of Major Changes Since Proposal A. Applicability In response to comments, we made several changes to clarify the applicability of this final rule. Specifically, we have revised the definition of metal fabrication and finishing HAP (MFHAP) to mean any compound of cadmium, chromium, lead, manganese, and nickel. We also clarified throughout this final rule that this final rule applies only to area sources in the nine source categories that use or have the potential to emit MFHAP. b In addition, we have revised the definition of MFHAP to clarify that material that “contains” MFHAP means a material containing one or more MFHAP as shown in formulation data provided by the manufacturer or supplier, such as the Material Safety Data Sheet for the material. Any material that does not contain cadmium, chromium, lead, or nickel in amounts greater than or equal to 0.1 percent by weight (as the metal), and does not contain manganese in amounts greater than or equal to 1.0 percent by weight (as the metal), is not considered to be a material containing MFHAP. We have also added language clarifying that the rule does not apply to military installations, NASA and National Nuclear Security facilities, and aerospace facilities. b Note that the control devices and management practices that control and/or reduce emissions of MFHAP in this rule also control and/or reduce emissions of all HAP (including the additional metal HAP of arsenic, cobalt, and selenium, for example) that have the potential to be emitted, as those HAP are included in, or adsorbed or condensed onto, the PM. All potential metal HAP emissions are thereby controlled because the equipment standards and management practices in this rule control particulate matter
(PM)as a surrogate for MFHAP and any other metal HAP (as listed above), that have the potential to be emitted, via these PM controls. B. Compliance Dates We made changes to the compliance dates of this final rule. Specifically, we have extended the two-year compliance period to three years for existing affected sources. We have also corrected errors in the compliance dates for new sources. C. Standards and Compliance Requirements In response to comments, we have made several changes to the standards for operations at the nine metal fabrication and finishing source categories, and more specific changes to the standards for abrasive blasting, painting, and welding. For all operations where the proposed rule required regularly scheduled sweeping, we have changed the requirement to take measures necessary to minimize excess dust. For abrasive blasting, we have revised the rule text to clarify the requirements for objects greater than 8 feet in any dimension. These objects are allowed to be abrasive blasted without control devices, but sources must still comply with all applicable management practices for such operations and conduct visible emissions monitoring. We have also changed the requirements for outdoor abrasive blasting to remove the prohibition on blasting during wind events and on substrates with coatings containing lead. For painting operations, in response to comments we have removed the VOHAP coating limit requirements. Also, we have revised the provisions regulating MFHAP emissions from painting so that sources in the Fabricated Structural Metal Manufacturing source category (Standard Industrial Classification
(SIC)3441, NAICS 332312) are only subject to the spray painting management practices (i.e., use of HVLP paint guns, painter training and certification, and spray gun cleaning requirements). For welding, we have revised the rule to clarify that the management practices are to be implemented “as practicable,” and in accordance with sound welding engineering principles, while maintaining required weld quality. We have also removed the requirement for specific control efficiency for welding fume control systems. We have also changed the process by which facilities seek approval to use an alternative equipment standard other than those specifically listed in this final rule. In the proposal we indicated that facilities that would like to use equipment other than those listed must seek approval to do so pursuant to the procedures in § 63.6(g) of the General Provisions to part 63. We did not receive any comments on this part of the proposal, nor did any commenters identify any alternative equipment standards that are equivalent to those specified in this final rule. We believe that facilities should be able to request approval to use an alternative equipment standard, and therefore, we have identified two different options available to facilities that would like to use alternative equipment that achieves at least equivalent MFHAP emission reductions as the controls specified in this final rule:
(1)Facilities may petition the Agency to amend this final rule pursuant to section 553(e) of the Administrative Procedure Act, or
(2)facilities may work with state permitting authorities pursuant to EPA's regulations at 40 CFR subpart E (“Approval of State Programs and Delegation of Federal Authorities”). Subpart E implements section 112(l) of the CAA, which authorizes EPA to approve alternative state/local/tribal HAP standards or programs when such requirements are demonstrated to be no less stringent than EPA promulgated standards. We believe that these options are more appropriate mechanisms for area sources subject to section 112(d)(5) rules to obtain approval of alternative equipment standards. In response to comments, we have also made several changes to the compliance requirements. We eliminated the visual determination of fugitive emissions requirements for dry abrasive blasting performed in vented chambers, dry grinding and dry polishing with machines, and machining. We have maintained the visual determination of fugitive emissions requirement for abrasive blasting of objects greater than 8 feet in any dimension performed without the use of a control device. We have changed the graduated schedule for visible emissions testing to allow for quarterly testing after three months of successful monthly tests (i.e., tests where no visible emissions are detected). We have also removed the visual emissions determination requirements for smaller welding operations that annually use less than 2,000 pounds of welding rod containing one or more MFHAP. D. Reporting and Recordkeeping Requirements We have revised § 63.11519, “What are my notification, reporting, and recordkeeping requirements?” of this final rule to add a requirement for submittal of annual certification and compliance reports (which were already required to be prepared and maintained on-site.) We have also corrected the submittal dates for the Initial Notification and Compliance of Notification Status reports. E. Definitions We have made several changes to the definitions in § 63.11522, “What definitions apply to this subpart?”, of this final rule and have added definitions for other terms used in this final rule. We added definitions for control device, filtration control device, material containing MFHAP, military munitions, and quality control activities. We have revised the definitions of dry grinding and polishing with machines, facility maintenance, and MFHAP. F. Other We also corrected some typographical errors that appeared in various sections of the proposed rule. IV. Summary of Final Standards A. Do the final standards apply to my source? This final rule (subpart XXXXXX) applies to new or existing affected metal fabrication and finishing area sources in one of the following nine source categories (listed alphabetically) that use or emit MFHAP:
(1)Electrical and Electronic Equipment Finishing Operations;
(2)Fabricated Metal Products;
(3)Fabricated Plate Work (Boiler Shops);
(4)Fabricated Structural Metal Manufacturing;
(5)Heating Equipment, Except Electric;
(6)Industrial Machinery and Equipment Finishing Operations;
(7)Iron and Steel Forging;
(8)Primary Metal Products Manufacturing; and
(9)Valves and Pipe Fittings. A more detailed description of these source categories can be found in section II.B, above. If you have any questions regarding the applicability of this action to a particular entity, consult either the air permit authority for the entity or your EPA regional representative as listed in 40 CFR 63.13 of subpart A (General Provisions). Source categories affected by this final rule are not subject to the miscellaneous coating requirements in 40 CFR part 63, subpart HHHHHH, “National Emission Standards for Hazardous Air Pollutants: Paint Stripping and Miscellaneous Surface Coating Operations at Area Sources,” for their operations subject to the requirements of this final rule. There potentially may be other operations at the facility not subject to the requirements of this final rule that are instead subject to subpart HHHHHH of this part. B. When must I comply with these standards? All existing area source facilities subject to this final rule will be required to comply with the rule requirements no later than July 25, 2011. New sources must comply with the requirements of this final rule by July 23, 2008 or start-up; whichever is later. C. What processes does this final rule address? There are five general production operations common to the nine metal fabrication and finishing source categories that can emit MFHAP. These five production operations are:
(1)Dry abrasive blasting;
(2)dry grinding and dry polishing with machines;
(3)machining;
(4)spray painting; and
(5)welding, which we have further differentiated into nine distinct metal fabrication and finishing processes. For dry abrasive blasting operations, this final rule addresses three distinct types of blasting operations:
(1)Those performed in completely enclosed chambers that do not allow any air or emissions to escape,
(2)those performed in vented enclosures, and
(3)those performed on objects greater than 8 feet in any dimension that are not performed in vented enclosures. We identified three distinct types of spray painting operations that emit MFHAP:
(1)Operations that spray paint objects less than or equal to 15 feet in any dimension where paint spray booths or spray rooms are commonly used;
(2)operations that spray paint objects greater than 15 feet in any dimension for which paint spray booths or spray rooms are not used; and
(3)spray painting operations in the Fabricated Structural Metal Manufacturing source category, which also do not use paint spray booths or spray rooms. The latter two types of processes that do not use spray booths or spray rooms were combined for applicability of this final rule. Therefore this final rule addresses:
(1)Spray painting of objects, in general, and
(2)spray painting of objects greater than 15 feet in any dimension or spray painting operations in the Fabricated Structural Metal Manufacturing source category. For dry grinding and dry polishing with machines, machining, and welding, we did not observe any distinct differences that would warrant further distinguishing the operations into separate processes. Therefore, these three processes, combined with the three for dry abrasive blasting and the two for painting described above, results in eight total processes addressed by this final rule, as follows:
(1)Dry abrasive blasting performed in completely enclosed and unvented blast chambers;
(2)dry abrasive blasting performed in vented enclosures;
(3)dry abrasive blasting of objects greater than 8 feet in any dimension that are not performed in vented enclosures;
(4)dry grinding and dry polishing with machines;
(5)machining;
(6)control of MFHAP in the spray painting of objects in paint spray booths or spray rooms;
(7)control of MFHAP in the spray painting of objects greater than 15 feet in any dimension, or spray painting operations in the Fabricated Structural Metal Manufacturing source category; and
(8)welding. D. What are the emissions control requirements? The following is a description of the control requirements for the eight metal fabrication and finishing processes described above in section III.C of this preamble. The control requirements only apply when an operation is being performed that uses materials that contain or have the potential to emit MFHAP. c The definition of “containing” MFHAP is identical to the Occupational Safety and Health Administration
(OSHA)definitions specified in 29 CFR 1910.1200(d)(4), where carcinogens are contained in quantities of 0.1 percent by mass or more, and 1.0 percent by mass or more for noncarcinogens, as shown in formulation data provided by the manufacturer or supplier, such as the Material Safety Data Sheet for the material. For MFHAP, this corresponds to materials that contain cadmium, chromium, lead, or nickel in amounts greater than or equal to 0.1 percent by weight (as the metal), and manganese in amounts greater than or equal to 1.0 percent by weight (as the metal). c See footnote
(b)above that discusses the co-control of all HAP via control of MFHAP with the PM controls of this rule. 1. Standards for Dry Abrasive Blasting Performed in Completely Enclosed and Unvented Blast Chambers Completely enclosed and unvented blast chambers are generally small “glove box” type dry abrasive blasting operations. Because there are no vents or openings in the enclosures, there are no emissions directly from the operation itself. This final rule requires owners or operators of completely enclosed and unvented blast chambers to comply with the following two management and pollution prevention practices:
(1)Minimize dust generation during emptying of the enclosure; and
(2)operate all equipment used in the blasting operation according to manufacturer's instructions. 2. Standards for Dry Abrasive Blasting Performed in Vented Enclosures This final rule requires owners or operators of affected new and existing dry abrasive blasting operations performed in vented enclosures to perform blasting with a control system that includes an enclosure as a capture device, and a cartridge, fabric, or HEPA filter as a control device to control particulate matter
(PM)emissions, as a surrogate for MFHAP, from the process. An enclosure is defined to be any structure that includes a roof and at least two complete walls, with side curtains and ventilation as needed to ensure that no air or PM exits the chamber while blasting is performed. Apertures or slots may be present in the roof or walls to allow for transport of the blasted objects using overhead cranes, or cable and cord entry into the blasting chamber. This final rule also requires owners or operators of all affected new and existing dry abrasive blasting operations performed in vented enclosures to comply with the following three management and pollution prevention practices:
(1)As practicable, take measures necessary to minimize excess dust in the surrounding area to reduce MFHAP emissions;
(2)enclose abrasive material storage areas and holding bins, seal chutes and conveyors transporting abrasive materials; and
(3)operate all equipment according to manufacturer's instructions. 3. Standards for Dry Abrasive Blasting of Objects Greater Than 8 Feet in Any Dimension This final rule requires owners or operators of affected new and existing dry abrasive blasting operations that perform abrasive blasting on substrates greater than 8 feet in any dimension without control systems to comply with the following four management and pollution prevention practices to minimize MFHAP emissions from the processes:
(1)Switch from high PM-emitting blast media (e.g., sand) to low PM-emitting blast media (e.g., crushed glass, specular hematite, steel shot, aluminum oxide), whenever practicable;
(2)do not re-use the blast media unless contaminants (i.e., any material other than the base metal, such as paint residue) have been removed by filtration or screening so that the abrasive material conforms to its original size and makeup;
(3)enclose abrasive material storage areas and holding bins, seal chutes and conveyors transporting abrasive materials; and
(4)operate all equipment according to manufacturer's instructions. This final rule also requires that visible emissions monitoring be performed. 4. Standards for Dry Grinding and Dry Polishing With Machines Dry grinding and dry polishing with machines operations often emit significant PM, which is a surrogate for MFHAP. Dry grinding and dry polishing with machines operations do not include dry grinding and dry polishing operations performed with hand-held or bench-scale devices. This final rule requires owners or operators of affected new and existing dry grinding and dry polishing with machines operations to capture PM emissions, as a surrogate for MFHAP, and vent the exhaust to a cartridge, fabric, or HEPA filter. This final rule also requires owners or operators of affected new and existing dry grinding and dry polishing with machines operations to comply with the following two management and pollution prevention practices:
(1)As practicable, take measures necessary to minimize excess dust in the surrounding area to reduce PM emissions; and
(2)operate all equipment used in dry grinding and dry polishing with machines according to manufacturer's instructions. 5. Standards for Machining The majority of the PM released by machining operations consists of large particles or metal shavings that fall immediately to the floor. Any MFHAP that is released would originate from the part or product being machined. Machining is totally enclosed and/or uses lubricants or liquid coolants that do not allow small particles to escape. This final rule requires owners or operators of affected new and existing machining operations to comply with the following two management and pollution prevention practices to minimize dust generation in the workplace:
(1)As practicable, take measures necessary to minimize excess dust in the surrounding area to reduce PM emissions; and
(2)operate equipment used in machining operations according to manufacturer's instructions. 6. Standards for Control of MFHAP From Spray Painting This final rule requires new and existing spray painting affected sources to comply with two equipment standards:
(1)Use of spray booths or spray rooms equipped with PM filters and
(2)the use of low-emitting and pollution preventing spray gun technology. This final rule also requires two management practices associated with the spray gun technology:
(1)Spray painter training; and
(2)spray gun cleaning. The requirement for PM filters does not apply to spray painting of objects greater than 15 feet in any dimension and spray painting at Fabricated Structural Metal Manufacturing facilities not performed in spray booths, which are discussed separately in IV.D.7, below. The following painting activities are not covered in this final rule:
(1)Paints applied from a hand-held device with a paint cup capacity that is less than 3.0 fluid ounces (89 cubic centimeters);
(2)Surface coating application using powder coating, hand-held, non-refillable aerosol containers, or non-atomizing application technology, including, but not limited to, paint brushes, rollers, hand wiping, flow coating, dip coating, electrodeposition coating, web coating, coil coating, touch-up markers, or marking pens;
(3)Any painting or coating that normally requires the use of an airbrush or an extension on the spray gun to properly reach limited access spaces; or the application of paints or coatings that contain fillers that adversely affect atomization with HVLP or equivalent spray guns, and the application of coatings that normally have a dried film thickness of less than 0.0013 centimeter (0.0005 in.). Spray painting also does not include thermal spray operations, also known as metallizing, flame spray, plasma arc spray, and electric arc spray, among other names, in which solid metallic or non-metallic material is heated to a molten or semi-molten state and propelled to the work piece or substrate by compressed air or other gas, where a bond is produced upon impact. Thermal spraying operations at area sources are subject to the Plating and Polishing Area Source NESHAP, subpart WWWWWW of this part. *Spray Booth PM Control Requirement.* This final rule requires the spray booths or spray rooms d of affected new and existing facilities to be fitted with fiberglass or polyester fiber filters or other comparable filter technology that has been demonstrated to achieve at least 98 percent control efficiency of paint overspray (also referred to as “arrestance”). As an alternate compliance option, spray booths or spray rooms can be equipped with a water curtain, called a “waterwash” or “waterspray” booth. d The spray booth roof may contain narrow slots for connecting the parts and products to overhead cranes, or for cord or cable entry into the spray booth. *98 Percent PM Control Filter* —For spray booths or spray rooms equipped with a PM filter, the procedure used to demonstrate filter efficiency must be consistent with the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Method 52.1, “Gravimetric and Dust-Spot Procedures for Testing Air-Cleaning Devices Used in General Ventilation for Removing Particulate Matter, June 4, 1992” (incorporated by reference, see § 63.14). The Director of the **Federal Register** approves this incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. You may obtain a copy from the ASHRAE at 1791 Tullie Circle, NE. Atlanta, GA 30329 or by electronic mail at orders@ashrae.org. You may inspect a copy at the 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.* Compliance with the filter efficiency standard also can be demonstrated through data provided by the filter manufacturer. The test paint for measuring filter efficiency must be a high-solids bake enamel delivered at a rate of at least 135 grams per minute from a conventional (non-HVLP) air-atomized spray gun operating at 40 pounds per square inch air pressure (psi); the air flow rate across the filter shall be 150 feet per minute. Affected facilities may use published filter efficiency data provided by filter vendors to demonstrate compliance with the 98 percent efficiency requirement and would not be required to perform this measurement. *Waterwash spray booths or spray rooms* —As an alternative compliance option, spray booths or spray rooms may be equipped with a water curtain that achieves at least 98 percent control of MFHAP. The waterwash or “waterspray” spray booths or spray rooms must be required to operated and maintained according to the manufacturer's specifications. *Spray Gun Technology Requirements.* This final rule requires all affected new and existing facilities using spray-applied paints to use HVLP spray guns, electrostatic application, or airless spray techniques. If you would like to use paint spray equipment that you believe is equivalent to HVLP spray guns, you must seek the appropriate approval, as explained above in section III.C. The method that you use to show the equivalency of the alternate spray equipment must conform with the California South Coast Air Quality Management District's “Spray Equipment Transfer Efficiency Test Procedure for Equipment User, May 24, 1989” and “Guidelines for Demonstrating Equivalency with District Approved Transfer Efficient Spray Guns, September 26, 2002” (incorporated by reference, see § 63.14). The Director of the **Federal Register** approves this incorporation by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. You may obtain a copy from the California South Coast Air Quality Management District Web site at *http://www.aqmd.gov/permit/docspdf/TransferEfficiencyTestingGuidelinesforHVLPEquivalency.pdf* and *http://www.aqmd.gov/permit/docspdf/Spray-Eqpt-Trfr-Efficiency.pdf.* You may inspect a copy 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* . The requirements of this paragraph do not apply to painting performed by students and instructors at paint training centers. *Spray Painting Training Requirements.* This final rule requires all workers that perform spray painting at affected new and existing facilities to be trained, with certification made available that this training has occurred. The painters must be certified as having completed classroom or hands-on training in the proper selection, mixing, and application of paints. Refresher training must be repeated at least once every 5 years. These requirements do not apply to operators of robotic or automated surface painting operations. The initial and refresher training must address the following topics to reduce paint overspray, which has a direct effect on emissions reductions, as follows: • Spray gun equipment selection, set up, and operation, including measuring paint viscosity, selecting the proper fluid tip or nozzle, and achieving the proper spray pattern, air pressure and volume, and fluid delivery rate. • Spray technique for different types of paints to improve transfer efficiency and minimize paint usage and overspray, including maintaining the correct spray gun distance and angle to the part, using proper banding and overlap, and reducing lead and lag spraying at the beginning and end of each stroke. • Routine spray booth and filter maintenance, including filter selection and installation. For the purposes of the training requirements, the facility owner or operator may certify that their employees have completed training during “in-house” training programs. Also, facilities that can show by documentation or certification that a painter's work experience and/or training has resulted in training equivalent to the training described above are not required to provide the initial training required for these painters. Spray painters at existing sources must be trained by the compliance date, or 180 days after hiring, whichever is later. Spray painters at new sources must be trained and certified no later than January 20, 2009, 180 days after startup, or 180 days after hiring, whichever is later. These training requirements do not apply to the students of an accredited surface painting training program who are under the direct supervision of an instructor who meets the requirements of this paragraph. The training and certification for this rule is valid for a period not to exceed 5 years after the date the training is completed. *Spray Gun Cleaning Requirements.* This final rule requires all paint spray gun cleaning operations at affected new and existing facilities to be done with either non-HAP gun cleaning solvents, or in such a manner that an atomized mist or spray of spray gun cleaning solvent and paint residue is not created outside of a container that collects used gun cleaning solvent. Spray gun cleaning may be done, for example, by hand cleaning of parts of the disassembled gun in a container of solvent, by flushing solvent through the gun without atomizing the solvent and paint residue, or by using a fully enclosed spray gun washer. A combination of these non-atomizing methods above may also be used. 7. Standards for Control of MFHAP From Spray Painting of Objects Greater Than 15 Feet in Any Dimension and Spray Painting at Fabricated Structural Metal Manufacturing Facilities Not Performed in Spray Booths This final rule requires owners or operators of new and existing spray painting affected sources which paint objects greater than 15 feet in any dimension and owners or operators of new and existing spray painting affected sources in the Fabricated Structural Metal Manufacturing source category, that are not performed in spray booths, to comply with an equipment standard, the use of low-emitting and pollution preventing spray gun technology. This final rule also requires two management practices:
(1)Spray painter training and
(2)spray gun cleaning. Paint operations that comply with these requirements do not need to comply with the PM filter requirements listed above for spray painting of objects in spray booths. Sources subject to the MFHAP requirements from spray painting objects greater than 15 feet in any dimension must also meet the same requirements for spray gun technology standards, spray painting training requirements, and spray gun cleaning requirements as those specified above in IV.D.6 for the spray painting of objects in paint spray booths or rooms. 8. Standards for Welding This final rule requires owners or operators of affected new and existing welding operations to minimize emissions of MFHAP by implementing one or more of the following management practices to be used as practicable, while concurrently maintaining the required welding quality through the application of sound welding engineering judgment:
(A)Use of welding processes with reduced fume generation capabilities (e.g., gas metal arc welding (GMAW)—also called metal inert gas welding (MIG));
(B)Use of welding process variations (e.g., pulsed GMAW), which can reduce fume generation rates;
(C)Use of welding filler metals, shielding gases, carrier gases, or other process materials which are capable of reduced welding fume generation;
(D)Optimize welding process variables (e.g., electrode diameter, voltage, amperage, welding angle, shield gas flow rate, travel speed) to reduce the amount of welding fume generated; and
(E)Use of a welding fume capture and control system, operated according to the manufacturer's specifications. E. What are the initial compliance requirements? To demonstrate initial compliance with this final rule, owners or operators of affected new and existing sources with dry abrasive blasting, machining, dry grinding and dry polishing with machines, spray painting, and welding operations must certify that they have implemented all required management and pollution prevention practices. In addition, owners or operators of new and existing affected sources with spray painting operations that use or have the potential to emit MFHAP must also certify that they are in compliance with the following requirements: use of PM filters in spray booths or spray rooms; use of approved spray delivery and cleaning systems; and proper training of workers in spray painting application techniques. F. What are the continuous compliance requirements? There are continuous requirements for all affected processes in metal fabrication and finishing sources. There are also additional continuous compliance requirements for specific processes or groups of processes, as follows: visual emissions testing for dry abrasive blasting of objects greater than 8 feet in any dimension; PM control efficiency rating of filters used in spray painting objects in spray booths or spray rooms for MFHAP control; and visual emissions testing for welding at facilities that use 2,000 pounds or more per year of MFHAP-containing welding rod (on a rolling 12-month average basis). These requirements are discussed in more detail below. 1. Continuous Compliance Requirements for All Sources This final rule requires owners or operators of all affected new and existing sources to demonstrate continuous compliance by adhering to the management practices specified in this final rule and maintaining the appropriate records to document this compliance. Owners or operators that comply with this final rule by operating capture and control systems must operate and maintain each capture system and control device according to the manufacturer's specifications. They also must maintain records to document conformance with this requirement and keep the manufacturer's instruction manual available at the facility at all times. 2. Visual Emissions Testing for Dry Abrasive Blasting of Objects Greater Than 8 Feet in Any Dimension To Determine Continuous Compliance *Visible Emissions Testing.* For new and existing affected sources of dry abrasive blasting operations of objects greater than 8 feet in any dimension who comply with the provisions of § 63.11516(a)(3), “What are my standards and management practices?”, this final rule requires visible emissions testing to demonstrate continuous compliance with management and pollution prevention practices intended to reduce emissions of PM, as a surrogate for MFHAP. The affected sources of dry abrasive blasting of objects greater than 8 feet in any dimension must perform visual determinations of fugitive emissions, according to the graduated schedule described below, using EPA Method 22 (40 CFR part 60, appendix A-7) for a period of 15 continuous minutes at the fence line or property border nearest to the outdoor abrasive blasting operation, or at the primary vent, stack, exit, or opening from the building for indoor blasting operations. The presence of visible emissions must be noted if any emissions are observed for more than a total of 6 minutes during the 15-minute period. In case of failure in any Method 22 test, immediate corrective action is required to reduce or eliminate the visible emissions. The affected source is then required to perform more frequent visible emissions testing, as described in the graduated schedule below. *Graduated Testing Schedule.* The graduated schedule for continuous compliance with visible emissions testing for this rule, which progresses from daily to weekly to monthly to quarterly testing, is as follows. Affected sources of dry abrasive blasting of objects greater than 8 feet in any dimension are required to be tested daily for visible emissions with Method 22 for 10 consecutive days that the source is in operation. If visible emissions are not observed during these 10 days, the affected source can be tested once every 5 consecutive days (weekly) that the source is in operation. If no visible emissions are observed during these four consecutive weekly Method 22 tests, the affected source can be tested once per consecutive 21 days (month) of operation. If no visible emissions are observed during three consecutive monthly Method 22 tests, the affected source can be tested once per consecutive three months of operation (quarterly). If any visible emissions are observed during the weekly, monthly, or quarterly testing, the affected source must resume visible emissions testing on the more frequent schedule, *i.e.* , weekly visible emissions testing is increased to daily, monthly testing is increased to weekly, and quarterly testing is increased to monthly. 3. Tests for Spray Painting for MFHAP Control To Determine Continuous Compliance Affected new and existing facilities that perform spray painting must ensure and certify that:
(1)All new and existing personnel, including contract personnel, who spray-apply surface paints with MFHAP are trained in the proper application of surface paints;
(2)all spray-applied paints with MFHAP are applied with a HVLP spray gun, electrostatic application, airless spray gun, or equivalent;
(3)emissions of MFHAP are minimized during mixing, storage, and transfer of paints; and
(4)paint and solvent lids are kept closed when not in use. In addition, for spray painting objects less than or equal to 15 feet in any dimension (except for spray painting affected sources in the Fabricated Structural Metal Manufacturing source category), owners or operators of affected processes must ensure and certify that paint spray booths or spray rooms are fitted with fiberglass or polyester fiber filters or other comparable filter or waterspray technology that can be demonstrated to achieve at least 98 percent control efficiency of the MFHAP in the paint. 4. Visual Emissions Testing for Welding To Determine Continuous Compliance For new and existing affected sources with welding operations that use 2,000 pounds or more per year of MFHAP-containing welding rod (on a rolling 12-month average basis), this final rule requires visible emissions testing from a vent, stack, exit, or opening from the building containing the welding metal fabrication and finishing operations to demonstrate continuous compliance with the emissions standards in this rule, which are expressed as management practices and equipment standards. This testing has a three-tier compliance structure. *Tier 1.* The first tier for welding compliance requires visual determinations of fugitive emissions using EPA Method 22 and allows the same graduated testing schedule described above in section III.F.2 for dry abrasive blasting of objects 8 feet or more in any dimension, which includes provisions for reducing the frequency of the Method 22 tests when no visible emissions are observed in consecutive time periods of operation. If no visible emissions are found, no corrective action is required. If visible emissions are present during any Method 22 test, immediate corrective action will be required that includes inspection of all fume sources and control methods in operation, and documentation of the visual emissions test results. In this instance, the graduated schedule requires the affected source to resume visible emissions testing in the previous, more frequent schedule, i.e., weekly visible emissions testing is increased to daily, monthly testing is increased to weekly, and quarterly testing is increased to monthly. *Tier 2.* The second tier for welding compliance must be implemented if visible emissions are detected for the second time in any consecutive 12-month period. The second tier requires corrective action and documentation of the detection of visible emissions and the corrective action taken. Corrective action must take place immediately after the failed Method 22 test. In addition, the second tier for welding compliance requires a facility to perform a visual determination of emissions opacity using EPA Method 9 (40 CFR part 60, appendix A-4) within 24 hours of the failed Method 22 test. In EPA Method 9, the average of 24 15-second intervals of opacity observation is determined, producing a total of 360 seconds or 6 minutes of opacity observation or 6-minute average opacity. If in the second tier tests using Method 9 the average of the 6-minute opacities is determined to be 20 percent or less, implementation of Method 9 testing is required with a graduated schedule of reduced frequency like that used for the Method 22 tests, described above in section III.F.2, from daily to weekly to monthly to quarterly for consecutive successful tests. If opacity continues to be less than or equal to 20 percent and, pursuant to the graduated schedule the Method 9 testing for the welding processes is able to be reduced to once a month, the facility would have the choice of switching back to performing Method 22 tests on a monthly basis. Alternatively, the facility could choose to continue performing monthly Method 9 tests. With either test method, the facility can reduce to quarterly testing if there are no exceedences in three consecutive monthly tests. If the average of the 6-minute opacities is determined to be greater than 20 percent in the Method 9 tests in the second tier, the third tier of welding compliance requirements is required, as described below. *Tier 3.* The third tier for welding compliance includes the development and implementation of a Site-specific Welding Emissions Management Plan
(SWMP)within 30 days and submittal of the SWMP to the delegated authority. The SWMP must be kept at the facility in a readily accessible location for inspector review. Also, the facility must report any exceedence of the 20 percent opacity limit on an annual basis along with their annual certification and compliance report. The purpose of the SWMP is to ensure that no visible emissions occur in the future from this process, as determined by EPA Method 22 tests or 20 percent opacity or less by EPA Method 9. Application of the SWMP may involve more effective implementation of the management and pollution prevention practices, beyond the levels already in place at the facility, or, as a final option, the use of capture equipment and control devices. During the development of the SWMP, daily Method 9 tests are required to continue to be performed, according to the graduated schedule. The SWMP must be updated after any failures to meet 20 percent or less opacity as determined by Method 9. If opacity continues to be 20 percent or less and Method 9 testing of the welding processes at the facility falls to once a month, according to the graduated testing schedule, the facility will have a choice of changing to monthly Method 22 tests or remaining with monthly Method 9, as above. The SWMP must be updated annually and include revisions to reflect any changes in welding operations or controls at the facility. The SWMP must address the following: the type(s) of welding operation(s) currently used at the facility; the measures used to minimize welding fume at each of type of welding operation or each welding station; and procedures used by the facility to ensure that these measures are being implemented. No outside consultants or professional engineer certification is required or necessary to prepare the SWMP. G. What are the notification, recordkeeping, and reporting requirements? The affected new and existing sources are required to comply with certain requirements of the General Provisions (40 CFR part 63, subpart A), which are identified in Table 2 of this final rule. Each new source is required to submit an Initial Notification no later than 120 days after initial startup or November 20, 2008, whichever is later. Existing affected sources must submit the Initial Notification no later than July 25, 2011. Notification of Compliance Status reports are required to be submitted according to the requirements in 40 CFR 63.9 in the General Provisions no later than 120 days after the applicable compliance date. The affected source is required to prepare and submit an annual certification and compliance status report. If there are any exceedences during the year, the facility must submit this annual certification and compliance report with any exceedence reports prepared during the year. The exceedence reports must describe the circumstance of the exceedence and the corrective action taken. Facilities also are required to maintain all records that demonstrate initial and continuous compliance with this final rule, including records of all required notifications and reports, with supporting documentation; and records showing compliance with management and pollution prevention practices. Owners and operators must also maintain records of the following, if applicable: date and results of all visual determinations of fugitive emissions, including any follow-up tests and corrective actions taken; date and results of all visual determinations of emissions opacity, and corrective actions taken; and a copy of the SWMP, if it is required. V. Summary of Comments and Responses We received a total of 24 comments on the proposed NESHAP from industry representatives, trade associations, federal and state agencies, and the general public during the public comment period. Sections V.A through V.F of this preamble provide responses to the significant public comments received on the proposed NESHAP. A. Applicability *Comment:* Several commenters expressed concern regarding potential overlap between the applicability of this subpart (XXXXXX) and other part 63 NESHAP. One commenter said that EPA should clarify that the proposed rule does not apply to “dry grinding and dry polishing with machines” affected sources that are also subject to the proposed area source standards for plating and polishing operations, subpart WWWWWW. Commenters also indicated that there appeared to be overlap with Paint Stripping and Miscellaneous Surface Coating NESHAP, subpart HHHHHH, as there was overlap in the potentially applicable NAICS codes provided in the preambles. The commenter said that EPA should clarify that the rule does not apply to metal fabrication and finishing operations that are subject to a major source NESHAP, in particular the Aerospace Manufacturing NESHAP (subpart GG). *Response:* Operations at a facility in one of the nine area source categories specifically listed in § 63.11514, “Am I subject to this subpart?”, specifically paragraphs (a)(1) through (9), are subject to this final rule. Each of these area source categories is characterized by the descriptions provided in Table 1 in section I.A of this preamble. The miscellaneous surface coating requirements in subpart HHHHHH are more generic regulations that apply to processes at many different types of facilities. The specificity regarding the applicability of this final rule overrides the more generic miscellaneous coating regulation in subpart HHHHHH, mainly because it is specified as such in subpart HHHHHH. In other words, if a facility is in one of the nine area source categories included under this final rule, it is not subject to any other area source regulation for the operations regulated by this final rule: abrasive blasting, dry grinding and dry polishing with machines, machining, spray painting, and welding. On the other hand, operations addressed by the Plating and Polishing NESHAP (subpart WWWWWW), such as dry mechanical polishing operations performed after plating to complete the plating processes, and thermal spraying are subject to subpart WWWWWW. Therefore, any area source facilities that conduct polishing after plating or thermal spraying would be subject to subpart WWWWWW for their plating and polishing operations. However, the MFHAP control requirements for dry polishing with machines are identical between subpart WWWWWW for “dry mechanical polishing,” and this final rule for “dry polishing with machines.” The recordkeeping and reporting requirements are also the same between the two rules for polishing operations. At the time of this final rule, we were not aware of any overlap of facilities between these two area source rules, but since there may be sources in the future where there is an overlap, we leave open the possibility of the applicability of both rules. With regard to the comment related to the major sources subject to the Aerospace NESHAP, we would point out that
(1)Aerospace facilities would not be included under any of the nine source categories subject to this final rule, and
(2)major sources are not subject to this final rule, as this final rule applies only to area sources. *Comment:* Other commenters more specifically addressed the potential overlap between the Nine Metal Fabrication and Finishing Area Source Category rule and subpart HHHHHH, Paint Stripping and Miscellaneous Surface Coating Operations at Area Sources NESHAP. The commenters noted that the proposed rule indicated that facilities covered by the proposed rule would be exempt from subpart HHHHHH. However, they said since subpart HHHHHH is already final, permitting authorities cannot exempt facilities from it merely on the basis of a subsequent proposed regulation, such as the metal fabrication NESHAP. One commenter recommended that EPA reverse the applicability and state that facilities subject to and complying with the requirements of subpart HHHHHH would be considered in compliance with the MFHAP provisions for painting operations under this metal fabrication NESHAP. The commenter said that facilities would still be required to comply with other provisions that are not covered under subpart HHHHHH. *Response:* While we understand the potential confusion between the applicability of these two area source regulations, coating operations at a facility in one of the nine source categories specifically listed in § 63.11514, “Am I subject to this subpart?”, specifically paragraphs (a)(1) through (9), are subject to this final rule and not subpart HHHHHH (the Paint Stripping and Miscellaneous Surface Coating Operations Sources NESHAP). We believe that the simplicity of having all affected sources at a single facility in one of these nine metal fabrication and finishing area source categories subject to a single subpart is better in the long term. Further, subpart HHHHHH was promulgated on January 9, 2008, and its compliance date for existing sources is not until January 10, 2011. We believe that any short term permitting complexities that have arisen in the five or six months between promulgation of the final Paint Stripping and Miscellaneous Surface Coating NESHAP and the Nine Metal Fabrication and Finishing Area Source Category NESHAP can be addressed in the two and one-half years before their compliances dates. Therefore, we did not make changes in accordance with the commenter's recommendation. *Comment:* One commenter requested clarification of potential overlap of the metal fabrication rule and subpart HHHHHH. They note that the applicability section of the proposed rule states that if a facility is “subject to” the provisions of this final rule, it is not subject to subpart HHHHHH, the Miscellaneous Surface Coating Operations Rule. The commenter interprets this to mean that if a facility is in one of the nine source categories covered by this final rule, it is “subject to” this final rule, even though an exception in the rule may exempt it from one or more of the rule's requirements. Thus, according to the commenter, if the facility is not required to comply with the standards for spray painting under this final rule, it is also not subject to subpart HHHHHH. *Response:* We agree with the commenter's analysis. As noted above, facilities in one of the nine area source categories subject to this final rule are not subject to the miscellaneous coating requirements of the Paint Stripping and Miscellaneous Surface Coating Operations Sources NESHAP (subpart HHHHHH) because it is stated as such in the subpart HHHHHH rule. In addition, if facilities in one of the nine area source categories subject to this final rule use paints that do not contain MFHAP, they are not subject to the painting requirements in this final rule. The fact that subpart HHHHHH also has the same MFHAP criteria for determining applicability of that rule's painting requirements is not relevant to the applicability question. *Comment:* One commenter stated that the mass balance necessary to determine the amount of PM emissions from forging operations which escape the building is not feasible. They suggested that the forging industry should not be included in the standard as a result. *Response:* For forging operations, the only emissions measurement necessary is for determination of area source status for the facility as a whole, which is in terms of HAP emissions and not PM. Further, no mass balances are required for PM or MFHAP emissions from any affected sources covered by the rule, including forging facilities. *Comment:* Several commenters requested that maintenance activities, and research and development operations be excluded from the rule. Specifically, two commenters recommended welding and machining/grinding performed for maintenance should be excluded, and stick welding performed for maintenance was specifically mentioned in another instance. Another commenter requested that the fabrication of unique pieces of process equipment or materials handling equipment be excluded. One of the commenters also requested an exemption for research and development operations. Another requested an exemption for quality assurance/quality control operations and training centers. Alternatively, they requested that training centers be added to the definition of research and laboratory activities. They claimed that this exemption is necessary to cover trade schools and other academic centers of learning, as well as industrial training facilities, many of which will have to intensify their operations solely as a result of this rule's training requirements. Related to these comments, two commenters requested changes to the definition of “facility maintenance”. One commenter requested that the definition from the Paint Stripping and Miscellaneous Surface Coating Operations NESHAP be used, specifically that the following phrase: “Facility maintenance includes the application of coatings to stationary structures or their appurtenances at the site of installation, to portable buildings at the site of installation, to pavements, or to curbs.” Another commenter proposed that EPA revise the definition of “facility maintenance” to clarify that infrastructure includes process and control equipment. *Response:* Research and laboratory facilities, equipment repair operations, and facility maintenance were excluded from the proposed rule because emissions from these activities were not part of the 1990 inventory. Specifically, § 63.11514(e) of § 63.11514, “Am I subject to this subpart?”, states: “This subpart does not apply to research or laboratory facilities, as defined in section 112(c)(7) of the CAA.” Additionally, § 63.11514(f) states: “This subpart does not apply to tool or equipment repair operations, or facility maintenance as defined in § 63.11522, “What definitions apply to this subpart?”. We received no adverse comment regarding whether the nine listed area source categories included these activities, and we therefore did not make changes to this final rule. We agree with the commenter that it is appropriate to also exclude quality control activities since, based on reasonable assumptions, we believe that emissions from these activities were not part of the 1990 inventory. Therefore this final rule clarifies that the emission control requirements do not apply to these activities. We have also added a definition of quality control activities that is based on the definition in the Paint Stripping and Miscellaneous Surface Coating Operations Sources NESHAP (subpart HHHHHH). With regard to the definition of facility maintenance, the language regarding stationary structures or appurtenances was already in the proposed rule. We did clarify that facility maintenance includes work on process and control equipment. Finally, we did not add an exclusion for training centers as the commenter suggested, nor did we add “training center” into the definition of research and development activities. While the commenter is correct that the requirements of this rule will result in increased training needs, the examples that they provided (trade schools, academic centers of learning, industrial training facilities) would not be subject to this rule as they are not in one of the nine area source categories covered, since their primary business is not in the fabrication or finishing of metal products. *Comment:* Two commenters recommended the addition of language that EPA has included in several other rules to prevent surface coating operations on military installations from being subject to multiple rules. *Response:* While the operations covered by the rule may be performed at military installations, the applicability of the rule is specific to the nine metal fabrication area source categories, as specified in § 63.11514, “Am I subject to this subpart?”. In order to make this clear with regard to military operations, paragraphs have been added to § 63.11514 that specify that this subpart does not apply to military operations or the production of military munitions. In addition, consistent with subpart HHHHHH, we have also clarified that these provisions do not apply to NASA and National Nuclear Security facilities. *Comment:* Two commenters requested clarification that although their facilities may perform some metal fabrication and finishing operations, since their facilities are not primarily engaged in any of the nine source categories identified in the rule, they are not subject to the provisions of the rule. *Response:* The commenter is correct. If the primary activities of their facilities do not place them in one of the identified source categories, they are not subject to the rule. To clarify this issue, we have added a definition to the rule for “primarily engaged”, as follows: “Primarily engaged means the manufacturing, fabricating, or forging of one or more products listed in one of the nine metal fabrication and finishing source categories described in Table 1, “Description of Source Categories Affected by this Subpart,” represents at least 50 percent of the production at a facility, where production quantities are established by the volume, linear foot, square foot, or other value suited to the specific industry.” This definition is consistent with the descriptions provided above in section I.A, “Does this action apply to me?”. It is also consistent with the basis of the listing of the source categories in the 1990 air toxics inventory. *Comment:* Several commenters opposed the requirements in the proposed rule because they felt these requirements were not justified by the environmental benefits. One commenter questioned the justification for the rule, stating that the imposition of significant costs for additional control, monitoring, recordkeeping and reporting obligations, with no corresponding environmental benefit is unwarranted and unduly burdensome. Similarly, another commenter stated that the proposed NESHAP creates an unjustifiable administrative burden for many manufacturers, disproportionately burdening smaller operations that would have *de minimis* emissions. According to the commenters, small businesses which have never before been subject to a NESHAP would be required to submit notifications, reports, and keep records needed to demonstrate compliance with the rule. These commenters believe that EPA should not require small businesses to comply with such administrative requirements because of the negligible risk they believe are posed by these small businesses with marginal emissions. Still another commenter opposed the proposed rule because they believed it would further undermine the climate of business certainty necessary for manufacturers to comply with rational federal regulations that balance economic growth and environmental protection. The commenter said that EPA seeks to impose a real compliance burden that will achieve no clear environmental objective. Several commenters recommended that EPA consider *de minimis* exemptions or thresholds for small operations or operations emitting very small amounts of MFHAP which would be heavily impacted by the rule, but result in only small emissions reductions. Two commenters specifically requested exclusions of machining and grinding operations, and operations which are already controlled. *Response:* These nine metal fabrication and finishing area source categories are area source categories that are needed to meet the CAA section 112(c)(3) requirement that we subject to regulation the area source categories representing 90 percent of the emissions of cadmium, chromium, lead, manganese and nickel. See section 112(c)(3). We recognize that these nine metal fabrication and finishing area source categories are comprised of a large number of relatively small facilities. Although area sources individually may be considered low-emitting sources, collectively, they are not. The commenters' suggestions do not take into account our requirement under section 112(c)(3). As discussed above, we previously determined that we need these nine area source categories to fulfill EPA's obligation under this requirement, which provides that EPA regulate area sources accounting for 90 percent of the emissions of the 30 urban HAP. However, in developing this final rule, we attempted to further reduce the burden, especially on small facilities, while ensuring that this final rule includes sufficient requirements for ensuring compliance. We have incorporated the following changes in this final rule to reduce the burden: Reducing the number of operations that are required to do monitoring from five to two operations (if present); further reducing the requirement for monitoring by excluding from the monitoring requirement any facility with welding operations that use less than 2,000 pounds per year of welding rod containing MFHAP; reducing the frequency of monitoring to quarterly for affected operations that do not have visible emissions or opacity exceedences; specifying that this final rule does not apply to material that contains MFHAP in quantities less than 0.1 percent for carcinogens (which includes cadmium, chromium, nickel, and lead), or less than 1.0 percent for carcinogens (which includes manganese). In addition, we are planning various outreach activities specifically for this industry to help affected facilities comply with this final rule to further reduce the overall burden. *Comment:* The criteria in § 63.11514, “Am I subject to this subpart?”, specifically paragraph § 63.11514(a), states that you are subject to this subpart “if you own or operate an area source of MFHAP.” The commenter indicated that this implies that facilities within the scope of the proposed rule could have emissions other than MFHAP. Since there is no limitation on the size of sources subject to the proposed rule, the proposed language leaves open the possibility that a major source of HAP, but not of MFHAP, could be subject to the rule if the MFHAP emissions do not exceed the major source threshold. *Response:* We acknowledge the awkward wording referred to by the commenter and have made changes to make it clear that the regulation applies to sources that are area sources for HAP. *Comment:* One commenter suggested that in determining the applicability of the proposed rule, a source should only be considered to be engaged in metal fabrication or finishing operations if it manufactures a finished and assembled product. They suggested that rather than simply referencing applicable source categories and included NAICS codes, “metal fabrication or finishing source categories” should be unambiguously defined as “operations described in Table 1 to this subpart that are assembly operations that purchase cast metal parts (no casting on site), perform various finishing operations, and then assemble their products, with the exception of iron and steel forging.” *Response:* While we appreciate the commenter's attempt to further clarify the applicability provisions of the rule, we do not believe that this language captures the basis of the listing of the source categories in the 1990 inventory as do the descriptions in Table 1 of the proposed and final rules. Therefore, we have declined to incorporate the commenter's suggested language in our definitions. While some of the activities described in Table 1 do produce a finished and assembled product, some of them do not. However, as a result of other comments, we have revised the description of affected sources to only include facilities that are “primarily engaged” in the indicated activities, as discussed above. We believe that this change should sufficiently clarify the applicability of this final rule. *Comment:* One commenter stated that his organization, which represents a subset of the Fabricated Structural Metal Manufacturing source category, namely, “Structural Steel Fabricators in Non-urban, Non-stainless, Non-galvanizing Fully-enclosed Shop (NAICS 332312),” should be excluded from this rule because their products are covered by permit under the Architectural Surface Coating rule under the CAA. Also, the spray paint booths or spray rooms required by this final rule are infeasible and cost-prohibitive, and the VOHAP calculations are inapplicable and unmanageable compared to previous EPA approaches to calculating VOHAP content of paints. In addition, the commenter stated that this subset of the source category is not like the other categories, because facilities in NAICS 332312 only do some of the operations regulated in the proposed rule and some operations do not use or emit the MFHAP. Therefore, this source category should be separately regulated and not included with the other eight source categories in this rule. *Response:* In regard to the conflict of this rule alleged by the commenter with EPA's National VOC Emission Standards for Architectural Coatings (40 CFR part 59, subpart D), we clarify for the commenter that subpart D controls VOC emissions, as per CAA section 183(e), and only affects manufacturers, distributors, and importers of architectural coatings; users of the architectural coating products, therefore, are not regulated entities under CAA section 183(e). Subpart D also covers coatings intended for field application rather than coatings intended for shop or factory application. Therefore, the commenter is incorrect that this rule is in conflict with subpart D. Since this final rule removes the standards for VOHAP from spray painting operations, the issues raised with regard to VOHAP calculations are no longer relevant. To address this and other commenters' concerns regarding the burden of compliance, we have revised this final rule so that if facilities do not emit or use materials containing MFHAP above specified levels, i.e., greater than or equal to 0.1 percent cadmium, chromium, lead, or nickel by weight (of the metal), or 1 percent manganese by weight (of the metal), then the requirements of this final rule do not apply. We have also reduced the monitoring requirement in this final rule so that only two types of operations will need to do monitoring, as compared to the previous five operations in the proposed rule:
(1)Abrasive blasting with MFHAP performed on objects greater than 8 feet, and
(2)welding operations performed with annual use of welding rod with MFHAP greater than or equal to 2,000 pounds. Under this final rule, affected facilities with annual use of welding rod with MFHAP less than 2,000 pounds are not subject to the visible emissions monitoring requirements. In addition, we found through other comments we received that there is a unique feature of the facilities in the Fabricated Structural Metal Manufacturing source category (NAICS 332312), as the commenter has also noted, in regard to spray painting small objects less than or equal to 15 feet along with large objects greater than 15 feet in open areas and not enclosed in spray booths or spray rooms, as discussed below (under section V.E.4, Management Practices for MFHAP Control for Painting). Therefore, we have revised this rule to accommodate this process difference and removed the spray booth requirement. Finally, based on our research for this rule that included site visits, surveys, and contacts with industry representatives, we believe that the operations in all the nine metal fabrication and finishing source categories are sufficiently similar to justify including all nine source categories in one rule, if the above-cited exception that accommodates the one significant difference is included. B. Compliance Dates *Comment:* Four commenters disagreed with the two-year compliance timeframe. They suggested that because of the large number of sources that state or local permitting agencies will need to identify and contact (many of whom are small businesses), and the potential need for sources to train painters and install necessary equipment, that three years is more typical and more appropriate. *Response:* We agree with the commenters' reasoning, and have adjusted the compliance date accordingly. *Comment:* One commenter from a regulatory assistance organization noted that the scheduling of the promulgation and compliance dates of this rule will make it difficult for them to provide outreach while commenting on the other EPA area source rules proposed or in development. They recommended adjusting the notification dates and other dates in this rule to avoid this conflict. *Response:* While we appreciate the difficulty the commenter has in managing these various activities, we have little latitude in shifting the promulgation date of this final rule since it is mandated by a court order. The notification and other dates in this rule are guided by the part 63 General Provisions. We have extended the compliance period to three years in this final rule to provide sufficient opportunity for facilities and organizations to prepare for compliance. We expect that this additional time will provide some relief to the commenter in their needs as well. *Comment:* One commenter suggested that because of the necessity of arranging training, it will be very difficult for small facilities with painting operations to meet the compliance deadlines. *Response:* The proposed rule would have required that, for existing sources, training would be completed by September 3, 2008. Upon reconsideration, we believe that having this training completed in advance of the compliance date is not necessary. Therefore, this final rule requires that training be complete by the compliance date. This will give facilities three full years to schedule and complete the training. *Comment:* One commenter stated that new affected sources should be allowed 180 days after startup to demonstrate compliance, rather than 120 days, as proposed, to be consistent with other major and area source rules. *Response:* The commenter is correct in that the notification of compliance status report is sometimes required by some 40 CFR part 63 major and area source rules to be submitted 180 days after the startup of new affected sources. However, there are also examples where these rules require this compliance notification 120 days after startup. Since there are no source tests that are required for this rule, we do not feel that an additional 60 days is necessary. *Comment:* One commenter stated that there was no compliance deadline included in the proposed rule for a new affected source that starts up prior to the publication of this final rule. *Response:* The commenter is incorrect. The proposed compliance dates at § 63.11515 “What are my compliance dates?”, states: “[i]f you start up a new affected source after the date of publication of this final rule in the **Federal Register** , you must achieve compliance with the provisions in this subpart upon startup of your affected source.” However, this text was incomplete and should have required new sources to comply with the requirements of this final rule by the date of publication of this final rule in the **Federal Register** , or upon start-up, whichever is later. This language has been corrected in this final rule. C. Scope of Rule *Comment:* Several comments were received expressing concern about how the proposed rule applied to the use of MFHAP. First, one commenter pointed out that the definition of MFHAP in the proposed rule is not consistent with definition in the proposal preamble. The preamble referred to MFHAP compounds, while the definition of MFHAP in the rule only lists the elements. The comments suggested adding “compounds of” to the definition. Two commenters requested clarification that, for spray painting affected sources, EPA only intended to require the use of a spray booth and other work practices when the paint being sprayed contains MFHAP. If a fabricator uses paints containing MFHAP even once, the language of the regulation might require it to apply the management practices even when spraying non-MFHAP paints. Two commenters recommended establishing threshold amounts for MFHAP in the same manner that the proposed rule did for VOHAP in paints. Specifically, they stated, for paints, the proposed rule required that you count each VOHAP that is measured to be present at 0.1 percent by mass or more for OSHA-defined carcinogens, as specified in 29 CFR 1910.1200(d)(4), and 1.0 percent by mass or more for other compounds. *Response:* With regard to the definition of MFHAP, it was our intent that the rule apply to compounds containing these five metals, as noted by the commenter. Therefore, we have revised the definition of MFHAP in this final rule to include “any compound of the following metals: cadmium, chromium, lead, manganese, or nickel, or any of these metals in the elemental form, with the exception of lead,” consistent with the HAP definitions in the CAA (section 112 (b)). The proposed rule, in § 63.11514(a), “Am I subject to this subpart?”, states that “(y)ou are subject to this subpart if you own or operate an area source that emits metal fabrication or finishing metal HAP (MFHAP), defined to be the compounds of cadmium, chromium, lead, manganese, and nickel, or an area source that emits VOHAP from spray painting operations, which performs metal fabrication or finishing operations in one of the nine source categories listed in paragraphs (a)(1) through
(9)of this section.” As discussed above, we have removed the requirements related to VOHAP. Therefore, the affected sources are equipment and activities necessary to perform the designated operations (abrasive blasting, machining, dry grinding and polishing, spray painting, and welding) which use or have the potential to emit MFHAP. It is our intent that any of these operations that ever use materials containing MFHAP, or that have the potential to ever emit MFHAP, are affected sources. However, we have made a modification to the affected source definition in § 63.11514(b), “Am I subject to this subpart?”, to add the concept of the use of “materials containing MFHAP”, as opposed to just “MFHAP.” We agree with the recommendation that OSHA-based thresholds are appropriate for defining whether a material “contains” MFHAP, since we believe that materials that contain MFHAP below these thresholds contain such very small amounts of HAP that they were not included in the 1990 inventory. For example, § 63.11514(b)(2) of this final rule states: “A machining affected source is the collection of all equipment and activities necessary to perform machining operations that uses materials containing MFHAP* * *,” where “material containing MFHAP” is defined in § 63.11522, “What definitions apply to this subpart?”, to be: “material that contains cadmium, chromium, lead, or nickel in amounts greater than or equal to 0.1 percent by weight (as the metal), or contains manganese in amounts greater than or equal to 1.0 percent by weight (as the metal), as shown in formulation data provided by the manufacturer or supplier, such as the Material Safety Data Sheet for the material.” In addition, when operations are occurring at an affected source that does not use any materials containing MFHAP, we do not believe that the management practices to minimize MFHAP emissions need to be followed. While the commenter only raised this issue with respect to painting, we believe that it should be universally applicable to all types of affected sources. Therefore, we have made changes in § 63.11516, “What are my standards and management practices,” of this final rule to make it clear that these requirements apply only when materials containing MFHAP are being used. For example, § 63.11516(a) of this final rule states the following: “Dry abrasive blasting standards. If you own or operate a new or existing dry abrasive blasting affected source you must comply with the requirements in paragraphs (a)(1) through
(3)of this section, as applicable, for each dry abrasive blasting operation that uses materials that *contain MFHAP* or have the potential to emit MFHAP. These requirements do not apply when abrasive blasting operations are being performed that do not use any materials containing MFHAP and do not have the potential to emit MFHAP.” *Comment:* One commenter recommended that EPA specify hexavalent chromium instead of using the general term “chromium.” The general term “chromium” includes trivalent chromium, which is an important material used in small quantities for achieving certain metallic and pearlescent finishes; it has a relatively benign nature as compared to hexavalent chromium. Also, EPA used hexavalent chromium in their Urban HAP analysis in the Integrated Urban Air Toxics Strategy instead of total chromium. *Response:* The CAA specifically lists “chromium compounds” as a hazardous air pollutant. In our original listing for the Urban Air Toxics Strategy (64 FR 38706, July 19, 1999), we listed “chromium compounds” as one of the Urban HAP targeted for the Integrated Urban Air Toxics Strategy. CAA section 112(c)(3) requires us to list source categories accounting for 90 percent of the emissions of each of the listed urban HAP, including chromium compounds. As explained above, we need the nine source categories at issue here to reach the 90 percent requirement in CAA section 112(c)(3) for chromium compounds. The commenter is correct that trivalent chromium is relatively benign as compared to hexavalent chromium. The reason why we used hexavalent chromium in the Urban HAP analysis in the Integrated Urban Air Toxics Strategy was to prioritize and rank the sources of Urban HAP area source categories for regulation, for the exact reason that the commenter states. However, we always intended to use chromium compounds as the regulated pollutant since the listing of the categories was based on emissions of chromium compounds, not hexavalent chromium. Many of our control strategies for chromium and other metal HAP involve the use of PM as a surrogate for chromium and other metal HAP. These PM control strategies control all chromium compounds along with PM and other metal HAP, therefore the form of chromium would not change the type of PM control strategy we choose. The coating control strategies in this rule either control PM and other metal HAP along with chromium (for the case of PM paint booth filters required for spray painting) or reduce the total amount of coating used (and therefore the amount of PM and other metal HAP), through the use of HVLP spray technology, training, and management practices. In summary, although we recognize the differences in the health effects of hexavalent and trivalent chromium, we are required to regulate chromium compounds from the nine source categories at issue in this rule. *Comment:* Two commenters questioned whether the HAP reduction warrants the regulation. One commenter stated that MFHAP are present only in small amounts at the facilities it represents. Little PM leaves the building perimeters, and an even smaller percentage is MFHAP. *Response:* As noted in the preamble to the proposed rule and reiterated above, section 112(k)(3)(B) of the CAA requires EPA to identify at least 30 HAP which, as the result of emissions from area sources, pose the greatest threat to public health in urban areas. Section 112(c)(3) requires EPA to list sufficient categories or subcategories of area sources to ensure that area sources representing 90 percent of the emissions of the 30 urban HAP are subject to regulation. We determined that these nine metal fabrication and finishing area source categories are among the area source categories that we need to meet the section 112(c)(3) requirement to regulate area source categories representing 90 percent of the emissions of cadmium, chromium, lead, manganese and nickel. See section 112(c)(3). We recognize that these metal fabrication area source categories are comprised of a large number of relatively small facilities. Although area sources individually may be considered low-emitting sources, collectively, they are not; therefore, we are issuing regulations for these source categories. However, as discussed above, we have attempted to minimize the burden on the affected facilities, especially small businesses, and have revised the requirements further in this final rule to further reduce the burden to small facilities. We disagree with the commenter's statement that this rule will result in no environmental benefit. This final rule will help to ensure that future emissions will be limited to the same levels currently achieved. If the source categories were not regulated, as suggested by the commenter, there would be no such limit of future emissions from new facilities in the nine metal fabrication and finishing area source categories. *Comment:* One commenter noted that in § 63.11514(b)(4), “Am I subject to this subpart?”, the paragraph defining a spray painting operation includes those using paints containing VOHAP or MFHAP. The commenter stated that the standards outlined in § 63.11516(d) and (e), “What are my standards and management practices?”, apply to all spray painting affected sources and thus do not specifically apply to sources that only emit MFHAP or VOHAP. The commenter recommended that the standards be rephrased so that paragraph
(d)specifically states that it applies to sources of MFHAP and paragraph
(e)to sources of VOHAP. Another commenter noted an error wherein § 63.11516(d) states: “If you own or operate a new or existing spray painting affected source as defined in § 63.11522, “What definitions apply to this subpart?”. However, the definition of “spray painting affected source” is in § 63.11514(b)(4), “Am I subject to this subpart?”, not in the “Definitions” section (§ 63.11522). *Response:* The commenters are correct, in that the provisions in § 63.11516(d) and (e), “What are my standards and management practices?”, are intended to apply only to operations using paints containing MFHAP. The rule text has been revised to reflect this. The standards for VOHAP from spray painting operations have been removed from this final rule. D. Impacts of Rule *Comment:* Two commenters suggested that the proposed rule will potentially affect many more small facilities than estimated by EPA. One commenter noted that “InfoUSA” ( *http://www.infousa.com* ) reports over 37,000 facilities with fewer than 100 employees and over 17,000 with fewer than 10 employees in the SIC codes corresponding to the Nine Metal Fabrication and Finishing Area Source Categories, versus the 5,800 facilities estimated in the proposal preamble. Another commenter stated that there are over 4,000 metal fabrication sources in Texas alone. *Response:* Our estimate of the total number of affected facilities, and the number of small businesses, was based on the most recently available U.S. Economic Census (2002). We were able to obtain similar facility numbers using the cited web site, but have no explanation for the discrepancy between these two respected sources of information. However, we stand by the Census, which has the sole purpose of providing U.S. economic information, to obtain an estimate of the number of facilities in these source categories. *Comment:* One commenter notes that the preamble states that 5,800 sources will be regulated by this rule, of which 90 percent are small businesses. They say this is inequitable and places a considerable burden on small businesses. *Response:* As explained above, we need to regulate these nine metal fabrication and finishing area source categories to meet the 90 percent requirement in section 112(c)(3) for emissions of cadmium, chromium, lead, manganese, and nickel. In developing the proposed rule, we attempted to minimize the burden on small businesses, while ensuring that the rule includes sufficient requirements for ensuring compliance. This final rule imposes no testing requirements, and we have eliminated the requirement to conduct visual emissions monitoring for some types of sources from that which was required in the proposed rule. With respect to recordkeeping, our understanding is that the required records are already maintained at most facilities as part of routine procedures. Therefore, the recordkeeping requirements do not represent any significant burden on these facilities. *Comment:* Seven commenters stated that the estimated costs of the proposed rule are underestimated, and that $1,120 initially and $735 annually is not reflective of the actual cost to small businesses. They argue that the total number of labor hours is also not reflective of the time needed by small businesses to comply. According to the commenters, the number of hours needed to comply with the paperwork, training, monitoring and installation of upgraded equipment will exceed 80 hours the first year. They stated their belief that cost estimates using EPA's initial cost and hours pro-rated, will be over $3,700 per facility. According to the commenters, this does not include any capital costs needed to comply with the NESHAP and no consideration has been given to non-fiscal resources. The commenters argued that most companies will require outside consulting assistance to meet compliance, training, and record-keeping requirements. One commenter specifically mentioned the costs of obtaining Method 9 certification (and annual re-certification) for employees. *Response:* We based those reporting and recordkeeping estimates of the burden on past experience with similar rules, and believe that they are reasonable. As noted in response to other comments, we have made several changes to this final rule to decrease the burden on all affected facilities. For example, we have eliminated the requirement to conduct visual emission observations from all sources except large welding operations and uncontrolled blasting operations on objects greater than 8 feet in any dimension. No capital costs are incurred as a result of this rule since all facilities are currently using the MFHAP control methods that the rule requires. Also, Method 9 is only required if an exceedence of Method 22 occurs twice and we do not expect this to occur for most facilities. E. Management Practices 1. General *Comment:* The management practices in the proposed rule for abrasive blasting, machining, and dry grinding and polishing included the requirement that affected sources “must keep work areas free of excess MFHAP material by sweeping or vacuuming dust once per day, once per shift, or once per operation, as needed depending on the severity of dust generation.” Several commenters disagreed with these requirements. One commenter suggested that leaving dust on the floor may produce less airborne dust than frequent sweeping, which renders the dust airborne again. They also suggested that there may be worker safety issues related to sweeping in unsafe areas. Another commenter stated that the proposed rule would overlap with existing Federal and state programs and with jurisdiction of OSHA. They stated that by proposing to mandate that manufacturers “keep work areas free of excess dust by regular sweeping or vacuuming to control the accumulation of dust and other particles,” and further giving a regulatory definition for what constitutes “regular vacuuming,” EPA complicates manufacturers' efforts to comply with various federal and state worker safety regulations, but also mandates practices that most business owners either already undertake pursuant to existing law, and/or to maximize the health of their works. They stated their belief that this increases or duplicates regulatory burdens and best practices and hampers operational efficiency within manufacturing facilities. Further, this commenter said that mandating the frequency with which metal operations must sweep the floor of their factories will not help EPA fulfill its mandate to protect environmental and public health, since manufacturers already comply with these practices. While these comments are related to the sweeping requirements for all sources, other commenters had more specific criticisms of these requirements as applied to outdoor blasting. These commenters noted that the requirements for sweeping and enclosure of storage areas and conveyors for outdoor abrasive blasting seem inappropriate for outdoor operations which are not themselves enclosed, and where the abrasive falls to the ground under the work pieces. They stated that making outdoor blasting operations “clear and enclose as you go” would be cost prohibitive. These commenters provided a variety of suggestions. Some commenters requested removal of these requirements. Another commenter suggested that the term “if possible” be added to the management practice of sweeping outdoor areas, as they pointed out that an affected source may not be able to sweep or vacuum over unpaved surfaces or rock. One commenter said that EPA should reexamine the proposal and attempt to pinpoint real, potential gaps that may exist under existing regulatory programs rather than issue regulations that will cause overlaps and potential confusion, thereby undermining environmental compliance and industrial productivity. Finally, a commenter suggested a requirement for sweeping on a frequency determined by facility managers considering safety and emissions. *Response:* The primary purpose of the management practices described by the commenters is to minimize the potential for fugitive emissions that occur due to the “stirring up” of MFHAP dust in the work area. We recognize that these practices would likely have a larger beneficial effect on the ambient air inside the facility than for outside the plant boundaries. We also recognize that these practices are commonly employed at these facilities to reduce worker exposure to these dusts, hence the inclusion of these practices as “generally available control technology.” Our intention was to have these requirements work in concert with established plant practices and OSHA requirements. However, we understand how conflicts could result from the very prescriptive proposed requirements. We also recognize there could be situations where a requirement to sweep at least once per day could be more detrimental than beneficial. We do, however, continue to believe that it is important that owners and operators of these operations perform routine practices to reduce the possibility of fugitive MFHAP emissions due to accumulated dust in these work areas. Therefore, we did not take the one commenter's suggestion to completely eliminate these requirements. Rather, we have incorporated the recommendation of another commenter to make these sweeping/vacuuming requirements at the discretion of the owner or operator of the affected source. Specifically, this final rule requires that affected sources “must take measures necessary to minimize excess dust to reduce emissions.” This general requirement also applies to blasting that is conducted outdoors or indoors. 2. Abrasive Blasting *Comment:* One commenter suggested that EPA revise § 63.11516(a), “What are my standards and management practices?”, to take into account all possible abrasive blasting activities. They indicated that the proposed paragraph § 63.11516(a)(1) applied to dry blasting objects less than or equal to 8 feet in totally enclosed and unvented blast chambers, paragraph § 63.11516(a)(2) applied to dry blasting objects less than or equal to 8 feet in vented enclosures, and paragraph § 63.11516(a)(3) applied to dry blasting objects greater than 8 feet. They concluded that it appeared that EPA meant to draft this section so that paragraph (a)(3) applied to any size objects dry blasted outdoors. Also, they pointed out that there were no regulations that applied to dry blasting objects greater than 8 feet indoors. In this regard, the commenter stated that there appeared to be a typographical error in the second sentence of paragraph (a)(2). They indicated that it should be re-written to the following: “As an alternative, dry abrasive blasting operations for which the items to be blasted are equal to or less than 8 feet (2.4 meters) in any dimension, may be performed outdoors, subject to the requirements in paragraph (a)(3) of this section.” *Response:* Paragraph § 63.11516(a)(1), “What are my standards and management practices?”, is specific to dry blasting of objects in totally enclosed and unvented blast chambers. While we would not expect that large objects would ever be blasted in a totally enclosed and unvented blast chamber, these provisions are applicable to any situation where an object is blasted in such a blast chamber. Therefore, we have corrected the title of the section in this final rule to state: “Standards for dry abrasive blasting performed in enclosed and unvented blast chambers.” The proposed standard in § 63.11516(a)(2), “What are my standards and management practices?”, applied to blasting operations which have vents allowing any air or blast material to escape. This provision of the proposed rule was intended to encompass all blasting performed in vented blasting chambers, regardless of the size of the object being blasted. Therefore, the size of the material blasted has been removed from the title of the provision in this final rule so that the rule applies to objects of any size, as long as the objects are blasted in chambers vented to a filtration control device. The only blasting operations (excluding those in enclosed *unvented* chambers) that may not be subject to the revised provisions of § 63.11516(a)(2), “What are my standards and management practices?” in this final rule, are operations where objects greater than 8 feet are being blasted. These operations may be performed indoors or outdoors, without a filtration control device. These operations are subject to the management practices in paragraph § 63.11516(a)(3). They are also subject to visual emissions testing requirements. In other words, we consider that the differences in the type of the process where large ( *i.e.* , greater than 8 feet) objects are being blasted to warrant separate requirements for situations where blast chambers, vented or unvented, cannot be used. Therefore, in this final rule, the title of paragraph § 63.11516(a)(1), “What are my standards and management practices?”, has been changed to “Standards for dry abrasive blasting performed in totally enclosed and unvented blast chambers.” Also, the title of paragraph § 63.11516(a)(2) has been changed to “Standards for dry abrasive blasting performed in vented enclosures”. Paragraph § 63.11516(a)(3), “Standards for dry abrasive blasting of objects greater than 8 feet in any one dimension” has been amended to address blasting of objects greater than 8 feet in any one dimension, either indoors or outdoors, with operations performed in both blasting locations required to perform management practices and visible emissions monitoring. *Comment:* One commenter questioned the mention of silica sand in the rule as an acceptable abrasive, noting OSHA regulations related to worker exposure to silicon dioxide (SiO <sup>2</sup> ) and dangers of silicosis. *Response:* The commenter is mistaken that we recommend the use of sand or silica. The intent of this portion of the proposed rule was explicitly to limit emission of MFHAP by minimizing the use of high-PM generating blast media, such as sand. In this final rule, in § 63.11516 (a)(3)(i)(E), “What are my standards and management practices?”, we say in this regard: “Whenever practicable, you must switch from high PM-emitting blast media ( *e.g.* , sand) to low PM-emitting blast media ( *e.g.* , crushed glass, specular hematite, steel shot, aluminum oxide), where PM is a surrogate for MFHAP.” *Comment:* One commenter asked that the proposed rule text be clarified to specify that the requirement in § 63.11516(a)(2)(ii)(B), “What are my standards and management practices?”, for enclosure of conveyors only applies to conveyors used to transport blast media and debris, not those carrying the material to be blasted. Other commenters noted that the requirements for enclosure of storage areas and conveyors for outdoor abrasive blasting seemed inappropriate for outdoor operations which are not themselves enclosed, and they requested removal of these requirements. *Response:* We agree with these comments and have revised the requirements in this final rule accordingly. *Comment:* One commenter noted that § 63.11516(a)(3)(i)(E), “What are my standards and management practices?”, states that no dry abrasive blasting shall be performed on substrates having paints containing greater than 0.1 percent lead. However, no test method is specified in the rule. Another commenter asked whether the prohibition of blasting of lead bearing paints only applies to outdoor activities or if it applies to indoor blasting as well. *Response:* We have removed this requirement. We agree with the commenter that testing for lead in all painted substrates would impose an impractical burden. We believe that the required work practices will address emissions of lead and other MFHAP through reduction of PM emissions. *Comment:* One commenter objected to the absolute prohibition of outdoor dry blasting during a wind event. They have several facilities in locations where these wind events are very common. If no visible emissions are detected at the facility fence line or property border or border, there should be no absolute prohibition of blasting during a wind event. *Response:* We agree with the commenter. This final rule retains the provisions that require the determination of visible emissions at the fence line or property border. Therefore, we believe that the owner or operator of an abrasive blasting affected source can use their judgment whether a windy event would impact the visible emissions at the fence line or property border. Therefore, this prohibition of outdoor blasting during a wind event has been removed. 3. Dry Grinding and Polishing With Machines *Comment:* Two commenters requested clarification that the grinding requirements do not apply to hand-held grinding equipment; one commenter requested that bench-scale equipment also not be included in the requirement since capture and control devices are not used in this situation. *Response:* As evidenced by the name of the affected source ( *i.e.,* dry grinding and dry polishing with machines), our intention was not to cover hand-held grinding or polishing, or bench-scale equipment. To make this clear, we have revised the definition of dry grinding and dry polishing with machines as follows: “Dry grinding and dry polishing with machine means grinding or polishing without the use of lubricating oils or fluids in fixed or stationary machines. Hand grinding and hand polishing, and bench-scale grinding and polishing are not included under this definition.” 4. Painting for MFHAP Control *Comment:* Two commenters stated that the requirement for spray booths or spray rooms for painting objects under 15 feet is excessively burdensome for facilities in the Fabricated Structural Metal Manufacturing source category (SIC 3441 and NAICS 332312). They indicated that custom paint work performed in this source category differs greatly from other industries, which they claim use assembly lines to manufacture and paint standard products with a minimum of variation. The commenters reported that these shops deal with large and small pieces, and the specifications often change with each job. They cited numerous significant logistical difficulties with implementation of paint booths or spray rooms, including issues associated with material movement, drying/curing time, shop size, and costs (production and equipment costs). Specifically, they noted:
(1)Regardless of their size, the structural metal objects being painted are very heavy and typically must be moved with cranes;
(2)there is a two to eight hour curing time for the paint to dry, during which the objects must be turned over to paint the other side;
(3)moving the work pieces into and out of paint booths might add 25 percent to the cost;
(4)the use of paint booths for some objects (regardless of the exact size cut-off) would require adding an entirely new process line incorporating the booths, which would take up large amounts of scarce space on the factory floor. One of the commenters also offered several reasons that the enclosure requirement is unlikely to have a significant positive impact on emissions from facilities in this SIC/NAICS code:
(1)The paints used by facilities in the Fabricated Structural Metal Manufacturing source category do not contain high levels of metal HAP;
(2)the facilities will be using spray guns meeting the standards of the proposed regulation; and
(3)only a small percentage of the work pieces are under 15 feet. The commenter states that the minor emission reductions do not justify the high cost of creating an alternate paint process to comply, if such an alternate is feasible at all. In conclusion, these commenters recommended that the paint booth requirement for objects less than 15 feet be removed in its entirety. Another commenter stated that the proposed requirement to conduct painting of parts less than or equal to 15 feet in any dimension within enclosed, filtered spray booths or spray rooms was incompatible with the requirements of aerospace manufacturing, and is not required by existing EPA or OSHA regulations. One of their points was that in its recent hexavalent chromium standard, OSHA recognized that some aerospace parts are so large that they must be painted in “oversized workspaces.” *Response:* We did not accept the recommendation to delete the paint booth requirements entirely, as was suggested by the commenter. We determined that the use of spray booth equipped with filters was generally available for most painting operations present at the source categories addressed by this rulemaking. However, we did recognize that there were circumstances where booths or spray rooms were not feasible. Based on our information gathering efforts prior to proposal (which included site visits and other information gathering for the Fabricated Structural Metal Manufacturing source category), we believed that these situations could be adequately characterized based on object size, and we selected 15 feet as the cutoff that represented these situations. However, based on the information provided by these commenters, we now recognize the uniqueness of this industry with regard to the type of process and their ability to install and operate paint booths or spray rooms with filters to reduce MFHAP emissions for spray painting operations. Therefore, we have revised this final rule to remove that requirement for spray painting affected sources in the Fabricated Structural Metal Manufacturing source category, which is comprised solely of facilities in NAICS 332312, to comply with the requirements for paint booths or spray rooms with filters to reduce MFHAP emissions as set out in § 63.11516(d)(1), “What are my standards and management practices?”. However, these affected sources will be subject to the management practices in § 63.11516(d)(2) through (9). With regard to the aerospace manufacturing comment, we would first point out that aerospace manufacturing facilities are not among the area source categories covered under this subpart (XXXXXX). As discussed earlier, specific language has been added to the applicability provisions to make this clear. However, we also reiterate that we believe that the provisions in the proposed rule (which were retained in this final rule) where objects greater than 15 feet need not comply with the spray booth PM filter requirement is a valid difference in the final rule requirements. We believe differentiation is consistent with the “oversized workspaces” concept recognized by OSHA. *Comment:* One commenter suggested that surface coating operations that do not utilize coatings containing HAP or at the minimum MFHAP should be exempted from the regulation. Although the proposed rule includes a pollution prevention regulation for these operations (3.0 pounds
(lb)VOHAP per gallon
(gal)paint solids), the commenter believes that EPA should provide additional incentive by including an exemption for coating operations that utilize non-HAP coatings. *Response:* As described in more detail above (in section V.C., Scope of Rule) the spray painting provisions only apply to spray painting operations which use paints that contain MFHAP. *Comment:* One commenter said that there is a new ASHRAE method (52.2) procedure to demonstrate filter efficiency that was similar to ASHRAE 52.1 that was required in the proposed rule. The commenter stated that this new ASHRAE method has the additional benefit of considering particle size and is also very similar to proposed EPA Method 319 that was referenced in the NESHAP for Aerospace Manufacturing and Rework Facilities (40 CFR, part 63 subpart GG). *Response:* This final rules states that: “* * * the procedure used to demonstrate filter efficiency must be consistent with the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Method 52.1, ‘Gravimetric and Dust-Spot Procedures for Testing Air-Cleaning Devices Used in General Ventilation for Removing Particulate Matter, June 4, 1992’ (incorporated by reference, see § 63.14).” Therefore, another method can be used if it is “consistent” with ASHRAE 52.1. We believe that the new method, ASHRAE 52.2, is very likely to be consistent with ASHRAE 52.1. Since EPA Method 319 is only proposed at this time, it would be premature for EPA to include the new method by ASHRAE that relies on the proposed EPA method. We do not believe that requiring ASHRAE 52.1 in this final rule will be a hardship for the commenter since we believe that the commenter will be able to demonstrate, through the process described above, that the new ASHRAE 52.2 is “consistent” with ASHRAE 52.1. Therefore, we have not revised this final rule requirement to determine filter equivalency to include this new ASHRAE method. 5. Painting—VOHAP *Comment:* One commenter indicated that EPA has not satisfied the statutory prerequisites to regulate VOHAP emissions from spray painting operations in this rulemaking. According to the commenter, none of the nine categories were listed for VOHAP, and none of the VOHAP are on EPA's list of 30 urban air toxics. The commenter stated that EPA cited CAA section 112(k)(3)(C) as providing the discretion to regulate these HAP in order to reduce the public health risk posed by the release of any HAP, but the commenter says that this passage is plainly not an independent grant of authority to EPA. The commenter further stated that this CAA section is only a directive to EPA as to the level of cancer risk reduction to be achieved by EPA and the states through the applicable rulemaking provision in the CAA. The commenter further noted that even if CAA section 112(k)(3)(C) could be interpreted as a general grant of discretionary regulatory authority, it cannot be interpreted to override the specific provisions of CAA section 112(k) regarding area sources, including CAA sections 112(c)(3) and 112(k)(3)(B), and 112(f)(1) and (2). The commenter argued that specific terms must be controlling over general terms. The commenter requested that all references to VOHAP be eliminated, and that the spray paint provisions apply only when coatings containing MFHAP are being spray applied. *Response:* We proposed to set GACT for VOHAP emissions from spray painting because we found that VOHAP emissions from painting were over 60 percent of the total HAP emissions from the metal fabrication and finishing area source categories in the 2002 EPA National Emission Inventory. We also found that some facilities currently have state permits that allow them to emit high levels of VOHAP from their metal fabrication and finishing painting processes, although their actual emissions are currently lower. CAA section 112(c)(3) provides EPA with the authority to regulate any of the section 112(b) listed HAP upon certain findings being made. Nonetheless, given the interest in this issue as expressed by the commenter, we have decided not to regulate VOHAP as part of this final rule. Accordingly, we have revised this final rule to remove the VOHAP control requirements. 6. Welding *Comment:* Several commenters stated that the proposed welding standard is vague with respect to the need to comply with some or all of the management practices. They emphasized the relationship between emissions and other weld procedure inputs such as quality and safety in the selection of process variables. They suggest that the rule be revised to make it more explicit that weld quality need not be compromised in an attempt to reduce fume. The commenters emphasized that for many welding applications weld quality can be an issue of public safety. One commenter also suggested that the proposed rule could be interpreted to require that each of the individual welding management practices in § 63.11516(f)(2), “What are my standards and management practices?”, be implemented. Another objected to the use of the language “whenever possible.” Several commenters questioned the use of the word “practicable” in the proposed welding rule text, saying that it invites differing interpretations of what is practicable, in particular the importance of considering welding codes and standards. Finally, a commenter noted that the requirement to “minimize” emissions of MFHAP is impractical, and that the word “reduce” would be more proper. They pointed out that changes implemented solely to minimize fume generation rates may have unintended consequences on product quality. *Response:* We understand the commenter's concerns and did not intend for the welding provisions to adversely impact product quality, or that the facility be required to implement *all* of the management practices. The inclusion of the phrase “as practicable” was intended to convey this. However, to avoid any potential confusion, we have amended the language as follows: “implement one or more of the management practices... to minimize emissions of MFHAP as practicable, while concurrently maintaining the required welding quality through the application of sound welding engineering judgment.” Finally, we believe that the use of the word “minimize” is appropriate. We believe that replacement of “minimize” with “reduce” would imply that affected facilities that are already implementing management practices and pollution prevention techniques would be required to implement additional measures to further “reduce” their MFHAP emissions. Further, we believe that the combination of “minimize” and “as practicable” makes the balance between weld quality, sound welding engineering principles, and emission reductions clear. *Comment:* One commenter described several highly technical issues with the specific welding management practices proposed, including use of shielding gases, use of “low fume welding processes”, inert carrier gases, 90° welding angles, and electrode diameter. They summed up by stating that welding is a complex science with many competing objectives, which may also be inconsistent. This commenter provided alternative management practices that incorporate the emission reduction concepts in the proposed rule in a more general manner. Their proposed management practices included:
(1)Utilization of welding processes with reduced fume generation capabilities;
(2)utilization of welding process variations, if available, such as pulsed GMAW, which can reduce fume generation rates;
(3)utilization of welding filler metals and shielding gases which are capable of reduced welding fume generation; and
(4)utilization of welding procedures (electrode diameter, voltage, amperage, travel speed, etc.) that reduce the amount of welding fume generated. The commenter stated that their proposed alternative management practices capture all the technically justified items from the proposed list of eleven items, and present the items in a manner consistent with how a manufacturing or welding engineer would approach such a task. According to the commenter, the alternative method will more effectively achieve the intended results. The commenter stated that only by considering each individual welding situation can the appropriate engineering controls be implemented. Finally, the commenter noted that the format of their list highlights the importance that weld quality not be compromised, reducing the likelihood of the unintended negative consequences that could result. *Response:* While we do not necessarily agree with the commenter's technical criticisms of the 11 proposed welding management practices, we believe that their suggested approach improves the flexibility of the rule without changing the requirement to identify and implement emission minimization practices. We also believe that it will be beneficial in the future, as it provides the necessary flexibility to include emerging technologies that may not be necessarily included in the more explicit practices in the proposed rule. Therefore, we have revised this final rule accordingly. *Comment:* Two commenters questioned whether the 85 percent capture requirement for welding fume specified in the proposal is possible, and requested that it be removed. One commenter suggested that it may be more difficult to capture a high percentage of the fume with some welding processes, but the amount of fume released with these welding types could be less compared to other types of welding, even considering a lower capture percentage. They also noted the possibility of capture systems interfering with shielding gases. One commenter noted that use of fume control systems, both area-wide and localized, is not always possible for the types of operations covered by the rule, for various logistical reasons. They added that local systems have a limited range of coverage and may be too big to reach smaller spaces. *Response:* We understand the commenter's objection, and have removed the requirement for a specific numeric efficiency for fume capture and control systems. Our original determination was that such systems represented one of the generally available measures available to reduce MFHAP emissions from welding operations. Accordingly, we have revised the welding provisions of this final rule to make the use of a fume capture and control system one of the list of management practices that may be used to minimize MFHAP emissions, as practicable, as long as the capture and control devices are operated according to the manufacturer's specifications and the specifications are kept on-site, nearby the equipment and readily available for inspector review. However, if the facility uses 2,000 pounds or more of MFHAP-containing welding rod annually, on a rolling 12-month basis, they must also conduct visible emissions tests. If the facility has a problem meeting the requirement of no visible emissions and they are operating a control device, the capture and/or control efficiency of the control systems may need to be improved so that they can meet the visible emissions requirement. *Comment:* One commenter stated that it would be desirable to require application of welding controls only after determination of HAP in the fume, but as a compromise, they proposed application of controls only after determination of visible fugitive emissions. *Response:* We believe that the requirement to apply welding management practices or controls to minimize emissions from welding “as practicable” allows significant flexibility to welding affected sources. If measures are being implemented that do not result in any visible emissions, we believe that sufficient welding management practices or controls are already in effect. *Comment:* One commenter noted that sometimes, although rarely, facilities may perform a small amount of welding on a component after its construction is finalized and has been moved outdoors. According to the commenter, the large size of some components could make it difficult, if not impossible, to move them back inside to perform the welding. For this reason, the commenter proposed that EPA revise the regulation to allow a limited amount of welding, 30 minutes per month, to occur outdoors. Another commenter noted that at large facilities, with complex manufacturing processes, spot welding may be performed along an assembly line; they suggested that the rule should allow for this. *Response:* We believe that the flexibility provided by the language described above (“as practicable, while maintaining required weld quality and using sound welding engineering principles”) allows for the operations the commenters describe. Note that the rule contains no prohibition against outdoor welding or welding along an assembly line, it just requires that you must implement management practices to minimize emissions of MFHAP as practicable. F. Monitoring *Comment:* Several commenters objected to the requirements that affected sources demonstrate that the applicable management practices are being implemented through the visual determination of fugitive emissions using Method 22 and, for some welding affected sources, Method 9. These commenters' objections were based on the opinion that these requirements would be overly burdensome and unnecessary, especially if EPA is correct in its assumption that no additional emissions reductions will take place. One commenter indicated that facilities which have previously not been permitted will not have capabilities to perform visible emissions determinations. They added that if permitted sources are not required to use these methods, it is unreasonable to require it of area sources. Another commenter indicated that these daily monitoring requirements would be very burdensome, particularly for welding, where Method 9 may also be required. They indicated that the training required to perform these determinations may be burdensome, particularly for small businesses. One commenter suggested that these requirements be removed for all types of affected sources. Another commenter was more specific to machining metal fabrication and finishing affected sources, as they noted that EPA indicated that HAP emissions from machining are minimal because of use of enclosures and cutting liquids. *Response:* The proposed rule required visual determinations of fugitive emissions using Method 22 from all types of dry abrasive blasting operations, all machining operations, all grinding and polishing operations, and all welding operations. These determinations were initially required to be performed daily, and then could be reduced to less frequent intervals (weekly, monthly) if no visual emissions were present. For welding sources, there were additional requirements to conduct opacity measurements using Method 9 in situations where visible emissions were identified using Method 22. The purpose of these visual determination requirements was to demonstrate that the specified management practices were being implemented to minimize fugitive MFHAP emissions. These management practices consist of three basic types:
(1)Requirements to operate equipment properly (e.g., in accordance with manufacturer's specifications);
(2)practices or operating procedures to minimize emissions (e.g., keep work areas free of excess MFHAP material); and
(3)requirements to capture emissions and vent them to a filtration control device. Upon consideration of these comments, we have determined that it is not necessary to perform visual determinations of fugitive emissions from operations that are required to capture emissions and vent them to a filtration control device. This final rule requires capture/filtration control for dry abrasive blasting performed in vented chambers and dry grinding and dry polishing with machines. Therefore, we eliminated the visual determination of fugitive emissions requirements for these operations. In addition, we agree with the commenter that visual determinations for machining operations is not necessary because the metal waste produced by the machining process is composed of relatively large pieces which immediately fall to the floor, and because the majority of machining operations are performed under cutting oils or lubricants, which entrain any metal waste. We have therefore removed these visual determination requirements for those affected sources. Fugitive emissions from abrasive blasting operations that are not performed in vented chambers are not required to be captured and vented to a filtration control device. We continue to believe that it is important that visual determinations be conducted to ensure that fugitive MFHAP emissions are minimized via the management practices. Therefore, this final rule maintains the requirement to conduct visual determinations of fugitive emissions using Method 22 for these sources. Fugitive MFHAP emissions from welding operations are not subject to the capture/filtration control requirements. Therefore, we believe it is important that the proposed visual determinations be conducted to ensure that fugitive MFHAP emissions are being minimized. However, due to our concern with the impact that these requirements could have on small businesses, we have removed the visual determination requirements for smaller welding operations that emit less MFHAP. Specifically, this final rule requires that welding operations that annually use 2,000 pounds or more of welding rod containing one or more MFHAP perform visual determinations. Welding operations that use less than this amount of welding rod are subject only to the GACT management practices. VI. Impacts of the Final Standards A. What are the air impacts? Since 1990, facilities in these nine metal fabrication and finishing source categories have reduced their air impacts by voluntary controls that were likely motivated by concerns for worker safety. These controls would have reduced approximately 122 tons of the MFHAP (cadmium, chromium, lead, manganese, and nickel) attributed to this industry in the 1990 urban HAP inventory. Although there are no additional air emission reductions as a result of this final rule, we believe that this final rule will assure that the emission reductions made by the industry since 1990 will be maintained. Along with the HAP described above, there is an undetermined amount of VOHAP, VOC, PM, and other HAP that have been co-controlled in the metal fabrication and finishing processes that contributed to criteria pollutant emissions in 1990. B. What are the cost impacts? For all metal fabrication and finishing processes except painting, all facilities are expected to be achieving the level of control required by the final standard. Therefore, no additional air pollution control devices or systems would be required. No capital costs are associated with this final rule, and no operational and maintenance costs are expected because facilities are already following the manufacturer's instructions for operation and maintenance of pollution control devices and systems. Many of the management practices required by this final rule are pollution prevention and have the co-benefit to provide a cost savings for facilities. The annual cost of monitoring, reporting, and recordkeeping for this final rule is estimated at approximately $569 per facility per year after the first year with an additional $384 per facility for one-time costs in the first year. While most of these facilities are small, the costs are expected to be less than 0.01 percent of revenues. This cost estimate includes an estimate of 10 hours per year per facility, on the average, for labor to perform the visible emissions or opacity tests required by the rule for up to two affected operations. This estimate includes performance of the visible emissions or opacity test as well as documentation of the results. The labor estimate also includes 16 hours for preparation of a Site-specific Welding Management Plan
(SWMP)by the approximately 60 facilities estimated to require the SWMP in any one year of compliance. C. What are the economic impacts? The only measurable costs attributable to these final standards are associated with the monitoring, recordkeeping, and reporting requirements. These final standards are estimated to impact a total of 5,800 area source facilities. We estimate that over 5,300 of these facilities are small entities. Our analysis indicates that this final rule would not impose a significant adverse impact on any facilities, large or small since these costs are approximately 0.01 percent of revenues. D. What are the non-air health, environmental, and energy impacts? No detrimental secondary impacts are expected to occur from the non-painting sources because all facilities are currently achieving the GACT level of control. No facilities would be required to install and operate new or additional control devices or systems, or install and operate monitoring devices or systems. No additional solid waste would be generated as a result of the PM emissions collected and there are no additional energy impacts associated with operation of control devices or monitoring systems for the non-painting sources. We expect no increase in generation of wastewater or other water quality impacts. None of the control measures considered for this final rule generates a wastewater stream. The installation of spray booths or spray rooms and enclosed gun washers, and increased worker training in the proper use and handling of coating materials should reduce worker exposure to harmful chemicals in the workplace. This should have a positive benefit on worker health, but this benefit cannot be quantified in the scope of this rulemaking. VII. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review This action is not a “significant regulatory action” under the terms of Executive Order 12866 (58 FR 51735, October 4, 1993) and is therefore not subject to review under the Executive Order. B. Paperwork Reduction Act The information collection requirements in this rule have been submitted for approval to the Office of Management and Budget
(OMB)under the *Paperwork Reduction Act* , 44 U.S.C. 3501 *et seq* . The information collection requirements are not enforceable until OMB approves them. The recordkeeping and reporting requirements in this final rule are based on the requirements in EPA's NESHAP General Provisions (40 CFR part 63, subpart A). The recordkeeping and reporting requirements in the General Provisions are mandatory pursuant to section 114 of the CAA (42 U.S.C. 7414). All information other than emissions data submitted to EPA pursuant to the information collection requirements for which a claim of confidentiality is made is safeguarded according to CAA section 114(c) and the Agency's implementing regulations at 40 CFR part 2, subpart B. This final NESHAP will require area sources in the nine metal fabrication and finishing source categories to submit an Initial Notification and a Notification of Compliance Status according to the requirements in 40 CFR 63.9 of the General Provisions (subpart A). Records will be required to demonstrate compliance with operation and maintenance of capture and control devices, and other management practices. The owner or operator of a metal fabrication and finishing facility also is subject to notification and recordkeeping requirements in 40 CFR 63.9 and 63.10 of the General Provisions (subpart A). Annual certification and compliance and annual exceedence reports will be required instead of the semiannual excess emissions reports required by the NESHAP General Provisions. The annual burden for this information collection averaged over the first three years of this ICR is estimated to be a total of 20,566 labor hours per year at a cost of $655,501 or approximately $339 per facility. The average annual reporting burden is 11 hours per response, with one response per facility for 1,933 respondents. The only costs attributable to these final standards are associated with the monitoring, recordkeeping, and reporting requirements. There are no capital, operating, maintenance, or purchase of services costs expected as a result of this final rule. Although it is possible that some facilities would initially be required by this final rule to record the results of daily visual emissions or opacity testing, the graduated compliance test schedule of this final rule allows for decrease in frequency to quarterly if emissions are not found. Also, the requirement for preparation of a SWMP is expected to result in a maximum of three exceedences from one percent
(58)of the facilities because of the pollution prevention focus of the SWMP. Burden is defined at 5 CFR 1320.3(b). 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 OMB control number. The OMB control numbers for EPA's regulations in 40 CFR part 63 are listed in 40 CFR part 9. When this ICR is approved by OMB, the Agency will publish a technical amendment to 40 CFR part 9 in the **Federal Register** to display the OMB control number for the approved information collection requirements contained in this final rule. C. Regulatory Flexibility Act The Regulatory Flexibility Act generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule would not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small not-for-profit enterprises, and small governmental jurisdictions. For the purposes of assessing the impacts of this final rule on small entities, small entity is defined as:
(1)A small business that meets the Small Business Administration size standards for small businesses, as defined by the Small Business Administration's
(SBA)regulations at 13 CFR 121.201;
(2)a small governmental jurisdiction that is a government of a city, county, town, school district, or special district with a population of less than 50,000; and
(3)a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. After considering the economic impacts of this final rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. This final rule is estimated to impact a total of 5,800 area source metal fabrication and finishing facilities; over 5,300 of these facilities are estimated to be small entities. We have determined that small entity compliance costs, as assessed by the facilities' cost-to-sales ratio, are expected to be less than 0.01 percent. The analysis also shows that none of the small entities would incur economic impacts exceeding three percent of its revenue. Although this final rule contains requirements for new area sources, we are not aware of any new area sources being constructed now or planned in the next 3 years, and consequently, we did not estimate any impacts for new sources. Although this final rule will not have a significant economic impact on a substantial number of small entities, EPA nonetheless has tried to reduce the impact of this final rule on small entities. The standards represent practices and controls that are common throughout the sources engaged in metal fabrication and finishing. The standards also require minimal amount of recordkeeping and reporting needed to demonstrate and verify compliance. These standards were developed based on information obtained from small businesses in our surveys, consultation with small business representatives on the state and national level, and industry representatives that are affiliated with small businesses. D. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective, or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective, or least burdensome alternative if the Administrator publishes with this final rule an explanation why that alternative was not adopted. Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements. This final rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for state, local, or tribal governments or of the private sector. This final rule is not expected to impact state, local, or tribal governments. Thus, this final rule is not subject to the requirements of sections 202 and 205 of the UMRA. EPA has determined that this final rule contains no regulatory requirements that might significantly or uniquely affect small governments. This final rule contains no requirements that apply to such governments, and impose no obligations upon them. Therefore, this final rule is not subject to section 203 of the UMRA. E. Executive Order 13132: Federalism Executive Order 13132 (64 FR 43255, August 10, 1999) requires EPA to develop an accountable process to ensure “meaningful and timely input by state and local officials in the development of regulatory policies that have federalism implications.” “Policies that have federalism implications” is defined in the Executive Order to include regulations that have “substantial direct effects 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.” This final rule does not have federalism implications. It will not have substantial direct effects 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, as specified in Executive Order 13132. This final rule does not impose any requirements on state and local governments. Thus, Executive Order 13132 does not apply to this final rule. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and state and local governments, EPA specifically solicited comment on the proposed rule from state and local officials. F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments Executive Order 13175 (65 FR 67249, November 6, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” This final rule does not have tribal implications, as specified in Executive Order 13175. This final rule imposes no requirements on tribal governments. Thus, Executive Order 13175 does not apply to this rule G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks EPA interprets Executive Order 13045 (62 FR 19885, April 23, 1997) as applying to those regulatory actions that concern health or safety risks, such that the analysis required under section 5-501 of the Order has the potential to influence the regulation. This action is not subject to Executive Order 13045 because it is based solely on technology performance. H. Executive Order 13211: Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use This final rule is not subject to Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) because it is not a significant regulatory action under Executive Order 12866. I. National Technology Transfer Advancement Act Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law No. 104-113 (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards
(VCS)in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This action involves technical standards. The Agency conducted a search to identify potentially applicable VCS. No VCS were identified. Therefore, we are citing ASHRAE Method 52.1, “Gravimetric and Dust-Spot Procedures for Testing Air-Cleaning Devices Used in General Ventilation for Removing Particulate Matter, June 4, 1992,” to measure paint booth filter efficiency and to measure the control efficiency of paint overspray arrestors with spray-applied paintings. This method will enable owner/operators to determine their facility's compliance with the spray booth filter requirement of this rule. We are also using two methods from the California South Coast Air Quality Management District: “Spray Equipment Transfer Efficiency Test Procedure for Equipment User, May 24, 1989,” and “Guidelines for Demonstrating Equivalency with District Approved Transfer Efficient Spray Guns, September 26, 2002,” as methods to demonstrate the equivalency of spray gun transfer efficiency for spray guns that do not meet the definition of HVLP, airless spray, or electrostatic spray. These methods will enable owner/operators to determine their facility's compliance with the HVLP requirement of this rule. Under § 63.7(f) and § 63.8(f) of subpart A of the General Provisions, a source may apply to EPA for permission to use alternative test methods or alternative monitoring requirements in place of any required testing methods, performance specifications, or procedures. J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations Executive Order 12898 (59 FR 7629, February 16, 1994) establishes Federal executive policy on environmental justice. Its main provision directs Federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. EPA has determined that this final rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it increases the level of environmental protection for all affected populations without having any disproportionately high and adverse human health or environmental effects on any population, including any minority or low-income population. This final rule establishes national standards for nine area source categories. K. Congressional Review Act The Congressional Review Act, 5 U.S.C. 801, *et seq.,* as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of Congress and to the Comptroller General of the United States. EPA will submit a report containing this final rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of this final rule in the **Federal Register** . A major rule cannot take effect until 60 days after it is published in the **Federal Register** . This action is not a ”major rule” as defined by 5 U.S.C. 804(2). This final rule will be effective on July 23, 2008. List of Subjects in 40 CFR Part 63 Environmental protection, Air pollution control, Hazardous substances, Incorporations by reference, Reporting and recordkeeping requirements. Dated: June 13, 2008. Stephen L. Johnson, Administrator. For the reasons stated in the preamble, title 40, chapter I of the Code of Federal Regulations is amended as follows: PART 63—[AMENDED] 1. The authority citation for part 63 continues to read as follows: Authority: 42 U.S.C. 7401, *et seq* . Subpart A—[Amended] 2. Section 63.14 is amended as follows: a. By removing the heading in paragraph
(d)introductory text. b. By revising paragraphs (d)(7) and (8). c. By revising paragraph (l)(1) § 63.14 Incorporations by reference.
(d)* * *
(7)California South Coast Air Quality Management District's “Spray Equipment Transfer Efficiency Test Procedure for Equipment User, May 24, 1989,” IBR approved for § 63.11173(e) and § 63.11516(d).
(8)California South Coast Air Quality Management District's “Guidelines for Demonstrating Equivalency with District Approved Transfer Efficient Spray Guns, September 26, 2002,” Revision 0, IBR approved for §§ 63.11173(e) and 63.11516(d).
(l)* * *
(1)American Society of Heating, Refrigerating, and Air Conditioning Engineers Method 52.1, “Gravimetric and Dust-Spot Procedures for Testing Air-Cleaning Devices Used in General Ventilation for Removing Particulate Matter, June 4, 1992,” IBR approved for §§ 63.11173(e) and 63.11516(d). 3. Part 63 is amended by adding subpart XXXXXX consisting of §§ 63.11514 through 63.11523 and tables 1 through 2 to read as follows: Subpart XXXXXX—National Emission Standards for Hazardous Air Pollutants Area Source Standards for Nine Metal Fabrication and Finishing Source Categories Applicability and Compliance Dates 63.11514 Am I subject to this subpart? 63.11515 What are my compliance dates? Standards and Compliance Requirements 63.11516 What are my standards and management practices? 63.11517 What are my monitoring requirements? 63.11518 [Reserved] 63.11519 What are my notification, recordkeeping, and reporting requirements? 63.11520 [Reserved] Other Requirements and Information 63.11521 Who implements and enforces this subpart? 63.11522 What definitions apply to this subpart? 63.11523 What General Provisions apply to this subpart? Table 1 to Subpart XXXXXX of Part 63—Description of Source Categories Affected by this Subpart Table 2 to Subpart XXXXXX of Part 63—Applicability of General Provisions to Metal Fabrication or Finishing Area Sources Subpart XXXXXX—National Emission Standards for Hazardous Air Pollutants Area Source Standards for Nine Metal Fabrication and Finishing Source Categories Applicability and Compliance Dates § 63.11514 Am I subject to this subpart?
(a)You are subject to this subpart if you own or operate an area source that is primarily engaged in the operations in one of the nine source categories listed in paragraphs (a)(1) through
(9)of this section. Descriptions of these source categories are shown in Table 1 of this subpart. “Primarily engaged” is defined in § 63.11522, “What definitions apply to this subpart?”
(1)Electrical and Electronic Equipment Finishing Operations;
(2)Fabricated Metal Products;
(3)Fabricated Plate Work (Boiler Shops);
(4)Fabricated Structural Metal Manufacturing;
(5)Heating Equipment, except Electric;
(6)Industrial Machinery and Equipment Finishing Operations;
(7)Iron and Steel Forging;
(8)Primary Metal Products Manufacturing; and
(9)Valves and Pipe Fittings.
(b)The provisions of this subpart apply to each new and existing affected source listed and defined in paragraphs (b)(1) through
(5)of this section if you use materials that contain or have the potential to emit metal fabrication or finishing metal HAP (MFHAP), defined to be the compounds of cadmium, chromium, lead, manganese, and nickel, or any of these metals in the elemental form with the exception of lead. Materials that contain MFHAP are defined to be materials that contain greater than 0.1 percent for carcinogens, as defined by OSHA at 29 CFR 1910.1200(d)(4), and greater than 1.0 percent for noncarcinogens. For the MFHAP, this corresponds to materials that contain cadmium, chromium, lead, or nickel in amounts greater than or equal to 0.1 percent by weight (of the metal), and materials that contain manganese in amounts greater than or equal to 1.0 percent by weight (of the metal), as shown in formulation data provided by the manufacturer or supplier, such as the Material Safety Data Sheet for the material.
(1)A dry abrasive blasting affected source is the collection of all equipment and activities necessary to perform dry abrasive blasting operations which use materials that contain MFHAP or that have the potential to emit MFHAP.
(2)A machining affected source is the collection of all equipment and activities necessary to perform machining operations which use materials that contain MFHAP, as defined in § 63.11522, “What definitions apply to this subpart?”, or that have the potential to emit MFHAP.
(3)A dry grinding and dry polishing with machines affected source is the collection of all equipment and activities necessary to perform dry grinding and dry polishing with machines operations which use materials that contain MFHAP, as defined in § 63.11522, “What definitions apply to this subpart?”, or have the potential to emit MFHAP.
(4)A spray painting affected source is the collection of all equipment and activities necessary to perform spray-applied painting operations using paints which contain MFHAP. A spray painting affected source includes all equipment used to apply cleaning materials to a substrate to prepare it for paint application (surface preparation) or to remove dried paint; to apply a paint to a substrate (paint application) and to dry or cure the paint after application; or to clean paint operation equipment (equipment cleaning). Affected source(s) subject to the requirements of this paragraph are not subject to the miscellaneous surface coating provisions of subpart HHHHHH of this part, “National Emission Standards for Hazardous Air Pollutants: Paint Stripping and Miscellaneous Surface Coating Operations at Area Sources.”
(5)A welding affected source is the collection of all equipment and activities necessary to perform welding operations which use materials that contain MFHAP, as defined in § 63.11522, “What definitions apply to this subpart?”, or have the potential to emit MFHAP.
(c)An affected source is existing if you commenced construction or reconstruction of the affected source, as defined in § 63.2, “General Provisions” to part 63, before April 3, 2008.
(d)An affected source is new if you commenced construction or reconstruction of the affected source, as defined in § 63.2, “General Provisions” to part 63, on or after April 3, 2008.
(e)This subpart does not apply to research or laboratory facilities, as defined in section 112(c)(7) of the Clean Air Act (CAA).
(f)This subpart does not apply to tool or equipment repair operations, facility maintenance, or quality control activities as defined in § 63.11522, “What definitions apply to this subpart?”
(g)This subpart does not apply to operations performed on site at installations owned or operated by the Armed Forces of the United States (including the Coast Guard and the National Guard of any such state), the National Aeronautics and Space Administration, or the National Nuclear Security Administration.
(h)This subpart does not apply to operations that produce military munitions, as defined in § 63.11522, “What definitions apply to this subpart?”, manufactured by or for the Armed Forces of the United States (including the Coast Guard and the National Guard of any such state), or equipment directly and exclusively used for the purposes of transporting military munitions.
(i)You are exempt from the obligation to obtain a permit under 40 CFR part 70 or 40 CFR part 71, provided you are not otherwise required by law to obtain a permit under 40 CFR 70.3(a) or 40 CFR 71.3(a). Notwithstanding the previous sentence, you must continue to comply with the provisions of this subpart. § 63.11515 What are my compliance dates?
(a)If you own or operate an existing affected source, you must achieve compliance with the applicable provisions in this subpart by July 25, 2011.
(b)If you own or operate a new affected source, you must achieve compliance with the applicable provisions in this subpart by July 23, 2008, or upon startup of your affected source, whichever is later. Standards and Compliance Requirements § 63.11516 What are my standards and management practices?
(a)*Dry abrasive blasting standards.* If you own or operate a new or existing dry abrasive blasting affected source, you must comply with the requirements in paragraphs (a)(1) through
(3)of this section, as applicable, for each dry abrasive blasting operation that uses materials that contain MFHAP, as defined in § 63.11522, “What definitions apply to this subpart?”, or has the potential to emit MFHAP. These requirements do not apply when abrasive blasting operations are being performed that do not use any materials containing MFHAP or do not have the potential to emit MFHAP.
(1)*Standards for dry abrasive blasting of objects performed in totally enclosed and unvented blast chambers.* If you own or operate a new or existing dry abrasive blasting affected source which consists of an abrasive blasting chamber that is totally enclosed and unvented, as defined in § 63.11522, “What definitions apply to this subpart?”, you must implement management practices to minimize emissions of MFHAP. These management practices are the practices specified in paragraph (a)(1)(i) and
(ii)of this section.
(i)You must minimize dust generation during emptying of abrasive blasting enclosures; and
(ii)You must operate all equipment associated with dry abrasive blasting operations according to the manufacturer's instructions.
(2)*Standards for dry abrasive blasting of objects performed in vented enclosures.* If you own or operate a new or existing dry abrasive blasting affected source which consists of a dry abrasive blasting operation which has a vent allowing any air or blast material to escape, you must comply with the requirements in paragraphs (a)(2)(i) and
(ii)of this section. Dry abrasive blasting operations for which the items to be blasted exceed 8 feet (2.4 meters) in any dimension, may be performed subject to the requirements in paragraph (a)(3) of this section.
(i)You must capture emissions and vent them to a filtration control device. You must operate the filtration control device according to manufacturer's instructions, and you must demonstrate compliance with this requirement by maintaining a record of the manufacturer's specifications for the filtration control devices, as specified by the requirements in § 63.11519(c)(4), “What are my notification, recordkeeping, and reporting requirements?”
(ii)You must implement the management practices to minimize emissions of MFHAP as specified in paragraphs (a)(2)(ii)(A) through
(C)of this section.
(A)You must take measures necessary to minimize excess dust in the surrounding area to reduce MFHAP emissions, as practicable; and
(B)You must enclose dusty abrasive material storage areas and holding bins, seal chutes and conveyors that transport abrasive materials; and
(C)You must operate all equipment associated with dry abrasive blasting operations according to manufacturer's instructions.
(3)*Standards for dry abrasive blasting of objects greater than 8 feet (2.4 meters) in any one dimension.* If you own or operate a new or existing dry abrasive blasting affected source which consists of a dry abrasive blasting operation which is performed on objects greater than 8 feet (2.4 meters) in any one dimension, you may implement management practices to minimize emissions of MFHAP as specified in paragraph (a)(3)(i) of this section instead of the practices required by paragraph (a)(2) of this section. You must demonstrate that management practices are being implemented by complying with the requirements in paragraphs (a)(3)(ii) through
(iv)of this section.
(i)Management practices for dry abrasive blasting of objects greater than 8 feet (2.4 meters) in any one dimension are specified in paragraphs (a)(3)(i)(A) through
(E)of this section.
(A)You must take measures necessary to minimize excess dust in the surrounding area to reduce MFHAP emissions, as practicable; and
(B)You must enclose abrasive material storage areas and holding bins, seal chutes and conveyors that transport abrasive material; and
(C)You must operate all equipment associated with dry abrasive blasting operations according to manufacturer's instructions; and
(D)You must not re-use dry abrasive blasting media unless contaminants (i.e., any material other than the base metal, such as paint residue) have been removed by filtration or screening, and the abrasive material conforms to its original size; and
(E)Whenever practicable, you must switch from high particulate matter (PM)-emitting blast media (e.g., sand) to low PM-emitting blast media (e.g., crushed glass, specular hematite, steel shot, aluminum oxide), where PM is a surrogate for MFHAP.
(ii)You must perform visual determinations of fugitive emissions, as specified in § 63.11517(b), “What are my monitoring requirements?”, according to paragraphs (a)(3)(ii)(A) or
(B)of this section, as applicable.
(A)For abrasive blasting of objects greater than 8 feet (2.4 meters) in any one dimension that is performed outdoors, you must perform visual determinations of fugitive emissions at the fenceline or property border nearest to the outdoor dry abrasive blasting operation.
(B)For abrasive blasting of objects greater than 8 feet (2.4 meters) in any one dimension that is performed indoors, you must perform visual determinations of fugitive emissions at the primary vent, stack, exit, or opening from the building containing the abrasive blasting operations.
(iii)You must keep a record of all visual determinations of fugitive emissions along with any corrective action taken in accordance with the requirements in § 63.11519(c)(2), “What are my notification, recordkeeping, and reporting requirements?”
(iv)If visible fugitive emissions are detected, you must perform corrective actions until the visible fugitive emissions are eliminated, at which time you must comply with the requirements in paragraphs (a)(3)(iv)(A) and
(B)of this section.
(A)You must perform a follow-up inspection for visible fugitive emissions in accordance with § 63.11517(a), “Monitoring Requirements.”
(B)You must report all instances where visible emissions are detected, along with any corrective action taken and the results of subsequent follow-up inspections for visible emissions, with your annual certification and compliance report as required by § 63.11519(b)(5), “Notification, recordkeeping, and reporting requirements.”
(b)*Standards for machining.* If you own or operate a new or existing machining affected source, you must implement management practices to minimize emissions of MFHAP as specified in paragraph (b)(1) and
(2)of this section for each machining operation that uses materials that contain MFHAP, as defined in § 63.11522, “What definitions apply to this subpart?”, or has the potential to emit MFHAP. These requirements do not apply when machining operations are being performed that do not use any materials containing MFHAP and do not have the potential to emit MFHAP.
(1)You must take measures necessary to minimize excess dust in the surrounding area to reduce MFHAP emissions, as practicable; and
(2)You must operate all equipment associated with machining according to manufacturer's instructions.
(c)*Standards for dry grinding and dry polishing with machines.* If you own or operate a new or existing dry grinding and dry polishing with machines affected source, you must comply with the requirements of paragraphs (c)(1) and
(2)of this section for each dry grinding and dry polishing with machines operation that uses materials that contain MFHAP, as defined in § 63.11522, “What definitions apply to this subpart?”, or has the potential to emit MFHAP. These requirements do not apply when dry grinding and dry polishing operations are being performed that do not use any materials containing MFHAP and do not have the potential to emit MFHAP.
(1)You must capture emissions and vent them to a filtration control device. You must demonstrate compliance with this requirement by maintaining a record of the manufacturer's specifications for the filtration control devices, as specified by the requirements in § 63.11519(c)(4), “Notification, recordkeeping, and reporting Requirements.”
(2)You must implement management practices to minimize emissions of MFHAP as specified in paragraphs (c)(2)(i) and
(ii)of this section.
(i)You must take measures necessary to minimize excess dust in the surrounding area to reduce MFHAP emissions, as practicable;
(ii)You must operate all equipment associated with the operation of dry grinding and dry polishing with machines, including the filtration control device, according to manufacturer's instructions.
(d)*Standards for control of MFHAP in spray painting.* If you own or operate a new or existing spray painting affected source, as defined in § 63.11514 (b)(4), “Am I subject to this subpart?,” you must implement the management practices in paragraphs (d)(1) through
(9)of this section when a spray-applied paint that contains MFHAP is being applied. These requirements do not apply when spray-applied paints that do not contain MFHAP are being applied.
(1)*Standards for spray painting for MFHAP control.* All spray-applied painting of objects must meet the requirements of paragraphs (d)(1)(i) through
(iii)of this section. These requirements do not apply to affected sources located at Fabricated Structural Metal Manufacturing facilities, as described in Table 1, “Description of Source Categories Affected by this Subpart,” or affected sources that spray paint objects greater than 15 feet (4.57 meters), that are not spray painted in spray booths or spray rooms.
(i)Spray booths or spray rooms must have a full roof, at least two complete walls, and one or two complete side curtains or other barrier material so that all four sides are covered. The spray booths or spray rooms must be ventilated so that air is drawn into the booth and leaves only though the filter. The roof may contain narrow slots for connecting fabricated products to overhead cranes, and/or for cords or cables.
(ii)All spray booths or spray rooms must be fitted with a type of filter technology that is demonstrated to achieve at least 98 percent capture of MFHAP. The procedure used to demonstrate filter efficiency must be consistent with the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE) Method 52.1, “Gravimetric and Dust-Spot Procedures for Testing Air-Cleaning Devices Used in General Ventilation for Removing Particulate Matter, June 4, 1992” (incorporated by reference, see § 63.14). The test coating for measuring filter efficiency shall be a high-solids bake enamel delivered at a rate of at least 135 grams per minute from a conventional (non-High Volume Low Pressure) air-atomized spray gun operating at 40 psi air pressure; the air flow rate across the filter shall be 150 feet per minute. Owners and operators may use published filter efficiency data provided by filter vendors to demonstrate compliance with this requirement and are not required to perform this measurement.
(iii)You must perform regular inspection and replacement of the filters in all spray booths or spray rooms according to manufacturer's instructions, and maintain documentation of these activities, as detailed in § 63.11519(c)(5), “Notification, recordkeeping, and reporting requirements.”
(iv)As an alternative compliance requirement, spray booths or spray rooms equipped with a water curtain, called “waterwash” or “waterspray” booths or spray rooms that are operated and maintained according to the manufacturer's specifications and that achieve at least 98 percent control of MFHAP, may be used in lieu of the spray booths or spray rooms requirements of paragraphs (d)(1)(i) through
(iii)of this section.
(2)*Standards for spray painting application equipment of all objects painted for MFHAP control.* All paints applied via spray-applied painting must be applied with a high-volume, low-pressure
(HVLP)spray gun, electrostatic application, airless spray gun, air-assisted airless spray gun, or an equivalent technology that is demonstrated to achieve transfer efficiency comparable to one of these spray gun technologies for a comparable operation, and for which written approval has been obtained from the Administrator. The procedure used to demonstrate that spray gun transfer efficiency is equivalent to that of an HVLP spray gun must be equivalent to the California South Coast Air Quality Management District's “Spray Equipment Transfer Efficiency Test Procedure for Equipment User, May 24, 1989” and “Guidelines for Demonstrating Equivalency with District Approved Transfer Efficient Spray Guns, September 26, 2002”, Revision 0 (incorporated by reference, see § 63.14).
(3)*Spray system recordkeeping.* You must maintain documentation of the HVLP or other high transfer efficiency spray paint delivery methods, as detailed in § 63.11519(c)(7), “Notification, recordkeeping, and reporting requirements.”
(4)*Spray gun cleaning.* All cleaning of paint spray guns must be done with either non-HAP gun cleaning solvents, or in such a manner that an atomized mist of spray of gun cleaning solvent and paint residue is not created outside of a container that collects the used gun cleaning solvent. Spray gun cleaning may be done with, for example, by hand cleaning of parts of the disassembled gun in a container of solvent, by flushing solvent through the gun without atomizing the solvent and paint residue, or by using a fully enclosed spray gun washer. A combination of these non-atomizing methods may also be used.
(5)*Spray painting worker certification.* All workers performing painting must be certified that they have completed training in the proper spray application of paints and the proper setup and maintenance of spray equipment. The minimum requirements for training and certification are described in paragraph (d)(6) of this section. The spray application of paint is prohibited by persons who are not certified as having completed the training described in paragraph (d)(6) of this section. The requirements of this paragraph do not apply to the students of an accredited painting training program who are under the direct supervision of an instructor who meets the requirements of this paragraph. The requirements of this paragraph do not apply to operators of robotic or automated painting operations.
(6)*Spray painting training program content.* Each owner or operator of an affected spray painting affected source must ensure and certify that all new and existing personnel, including contract personnel, who spray apply paints are trained in the proper application of paints as required by paragraph (d)(5) of this section. The training program must include, at a minimum, the items listed in paragraphs (d)(6)(i) through
(iii)of this section.
(i)A list of all current personnel by name and job description who are required to be trained;
(ii)Hands-on, or in-house or external classroom instruction that addresses, at a minimum, initial and refresher training in the topics listed in paragraphs (d)(6)(ii)(A) through
(D)of this section.
(A)Spray gun equipment selection, set up, and operation, including measuring paint viscosity, selecting the proper fluid tip or nozzle, and achieving the proper spray pattern, air pressure and volume, and fluid delivery rate.
(B)Spray technique for different types of paints to improve transfer efficiency and minimize paint usage and overspray, including maintaining the correct spray gun distance and angle to the part, using proper banding and overlap, and reducing lead and lag spraying at the beginning and end of each stroke.
(C)Routine spray booth and filter maintenance, including filter selection and installation.
(D)Environmental compliance with the requirements of this subpart.
(iii)A description of the methods to be used at the completion of initial or refresher training to demonstrate, document, and provide certification of successful completion of the required training. Alternatively, owners and operators who can show by documentation or certification that a painter's work experience and/or training has resulted in training equivalent to the training required in paragraph (d)(6)(ii) of this section are not required to provide the initial training required by that paragraph to these painters.
(7)*Records of spray painting training.* You must maintain records of employee training certification for use of HVLP or other high transfer efficiency spray paint delivery methods as detailed in § 63.11519(c)(8), “Notification, recordkeeping, and reporting requirements.”
(8)*Spray painting training dates.* As required by paragraph (d)(5) of this section, all new and existing personnel at an affected spray painting affected source, including contract personnel, who spray apply paints must be trained by the dates specified in paragraphs (d)(8)(i) and
(ii)of this section.
(i)If your source is a new source, all personnel must be trained and certified no later than January 20, 2009, 180 days after startup, or 180 days after hiring, whichever is later. Training that was completed within 5 years prior to the date training is required, and that meets the requirements specified in paragraph (d)(6)(ii) of this section satisfies this requirement and is valid for a period not to exceed 5 years after the date the training is completed.
(ii)If your source is an existing source, all personnel must be trained and certified no later than July 25, 2011, or 180 days after hiring, whichever is later. Worker training that was completed within 5 years prior to the date training is required, and that meets the requirements specified in paragraph (d)(6)(ii) of this section, satisfies this requirement and is valid for a period not to exceed 5 years after the date the training is completed.
(9)*Duration of training validity.* Training and certification will be valid for a period not to exceed 5 years after the date the training is completed. All personnel must receive refresher training that meets the requirements of this section and be re-certified every 5 years.
(e)[Reserved]
(f)*Standards for welding.* If you own or operate a new or existing welding affected source, you must comply with the requirements in paragraphs (f)(1) and
(2)of this section for each welding operation that uses materials that contain MFHAP, as defined in § 63.11522, “What definitions apply to this subpart?”, or has the potential to emit MFHAP. If your welding affected source uses 2,000 pounds or more per year of welding rod containing one or more MFHAP (calculated on a rolling 12-month basis), you must demonstrate that management practices or fume control measures are being implemented by complying with the requirements in paragraphs (f)(3) through
(8)of this section. The requirements in paragraphs (f)(1) through
(8)of this section do not apply when welding operations are being performed that do not use any materials containing MFHAP or do not have the potential to emit MFHAP.
(1)You must operate all equipment, capture, and control devices associated with welding operations according to manufacturer's instructions. You must demonstrate compliance with this requirement by maintaining a record of the manufacturer's specifications for the capture and control devices, as specified by the requirements in § 63.11519(c)(4), “Notification, recordkeeping, and reporting requirements.”
(2)You must implement one or more of the management practices specified in paragraphs (f)(2)(i) through
(v)of this section to minimize emissions of MFHAP, as practicable, while maintaining the required welding quality through the application of sound engineering judgment.
(i)Use welding processes with reduced fume generation capabilities (e.g., gas metal arc welding (GMAW)—also called metal inert gas welding (MIG));
(ii)Use welding process variations (e.g., pulsed current GMAW), which can reduce fume generation rates;
(iii)Use welding filler metals, shielding gases, carrier gases, or other process materials which are capable of reduced welding fume generation;
(iv)Optimize welding process variables (e.g., electrode diameter, voltage, amperage, welding angle, shield gas flow rate, travel speed) to reduce the amount of welding fume generated; and
(v)Use a welding fume capture and control system, operated according to the manufacturer's specifications.
(3)*Tier 1 compliance requirements for welding.* You must perform visual determinations of welding fugitive emissions as specified in § 63.11517(b), “Monitoring requirements,” at the primary vent, stack, exit, or opening from the building containing the welding operations. You must keep a record of all visual determinations of fugitive emissions along with any corrective action taken in accordance with the requirements in § 63.11519(c)(2), “Notification, recordkeeping, and reporting requirements.”
(4)*Requirements upon initial detection of visible emissions from welding.* If visible fugitive emissions are detected during any visual determination required in paragraph (f)(3) of this section, you must comply with the requirements in paragraphs (f)(4)(i) and
(ii)of this section.
(i)Perform corrective actions that include, but are not limited to, inspection of welding fume sources, and evaluation of the proper operation and effectiveness of the management practices or fume control measures implemented in accordance with paragraph (f)(2) of this section. After completing such corrective actions, you must perform a follow-up inspection for visible fugitive emissions in accordance with § 63.11517(a), “Monitoring Requirements,” at the primary vent, stack, exit, or opening from the building containing the welding operations.
(ii)Report all instances where visible emissions are detected, along with any corrective action taken and the results of subsequent follow-up inspections for visible emissions, and submit with your annual certification and compliance report as required by § 63.11519(b)(5), “Notification, recordkeeping, and reporting requirements.”
(5)*Tier 2 requirements upon subsequent detection of visible emissions.* If visible fugitive emissions are detected more than once during any consecutive 12 month period (notwithstanding the results of any follow-up inspections), you must comply with paragraphs (f)(5)(i) through
(iv)of this section.
(i)Within 24 hours of the end of the visual determination of fugitive emissions in which visible fugitive emissions were detected, you must conduct a visual determination of emissions opacity, as specified in § 63.11517(c), “Monitoring requirements,” at the primary vent, stack, exit, or opening from the building containing the welding operations.
(ii)In lieu of the requirement of paragraph (f)(3) of this section to perform visual determinations of fugitive emissions with EPA Method 22, you must perform visual determinations of emissions opacity in accordance with § 63.11517(d), “Monitoring Requirements,” using EPA Method 9, at the primary vent, stack, exit, or opening from the building containing the welding operations.
(iii)You must keep a record of each visual determination of emissions opacity performed in accordance with paragraphs (f)(5)(i) or
(ii)of this section, along with any subsequent corrective action taken, in accordance with the requirements in § 63.11519(c)(3), “Notification, recordkeeping, and reporting requirements.”
(iv)You must report the results of all visual determinations of emissions opacity performed in accordance with paragraphs (f)(5)(i) or
(ii)of this section, along with any subsequent corrective action taken, and submit with your annual certification and compliance report as required by § 63.11519(b)(6), “Notification, recordkeeping, and reporting requirements.”
(6)*Requirements for opacities less than or equal to 20 percent but greater than zero.* For each visual determination of emissions opacity performed in accordance with paragraph (f)(5) of this section for which the average of the six-minute average opacities recorded is 20 percent or less but greater than zero, you must perform corrective actions, including inspection of all welding fume sources, and evaluation of the proper operation and effectiveness of the management practices or fume control measures implemented in accordance with paragraph (f)(2) of this section.
(7)*Tier 3 requirements for opacities exceeding 20 percent.* For each visual determination of emissions opacity performed in accordance with paragraph (f)(5) of this section for which the average of the six-minute average opacities recorded exceeds 20 percent, you must comply with the requirements in paragraphs (f)(7)(i) through
(v)of this section.
(i)You must submit a report of exceedence of 20 percent opacity, along with your annual certification and compliance report, as specified in § 63.11519(b)(8), “Notification, recordkeeping, and reporting requirements,” and according to the requirements of § 63.11519(b)(1), “Notification, recordkeeping, and reporting requirements.”
(ii)Within 30 days of the opacity exceedence, you must prepare and implement a Site-Specific Welding Emissions Management Plan, as specified in paragraph (f)(8) of this section. If you have already prepared a Site-Specific Welding Emissions Management Plan in accordance with this paragraph, you must prepare and implement a revised Site-Specific Welding Emissions Management Plan within 30 days.
(iii)During the preparation (or revision) of the Site-Specific Welding Emissions Management Plan, you must continue to perform visual determinations of emissions opacity, beginning on a daily schedule as specified in § 63.11517(d), “Monitoring Requirements,” using EPA Method 9, at the primary vent, stack, exit, or opening from the building containing the welding operations.
(iv)You must maintain records of daily visual determinations of emissions opacity performed in accordance with paragraph (f)(7)(iii) of this section, during preparation of the Site-Specific Welding Emissions Management Plan, in accordance with the requirements in § 63.11519(b)(9), “Notification, recordkeeping, and reporting requirements.”
(v)You must include these records in your annual certification and compliance report, according to the requirements of § 63.11519(b)(1), “Notification, recordkeeping, and reporting requirements.”
(8)*Site-Specific Welding Emissions Management Plan.* The Site-Specific Welding Emissions Management Plan must comply with the requirements in paragraphs (f)(8)(i) through
(iii)of this section.
(i)Site-Specific Welding Emissions Management Plan must contain the information in paragraphs (f)(8)(i)(A) through
(F)of this section.
(A)Company name and address;
(B)A list and description of all welding operations which currently comprise the welding affected source;
(C)A description of all management practices and/or fume control methods in place at the time of the opacity exceedence;
(D)A list and description of all management practices and/or fume control methods currently employed for the welding affected source;
(E)A description of additional management practices and/or fume control methods to be implemented pursuant to paragraph (f)(7)(ii) of this section, and the projected date of implementation; and
(F)Any revisions to a Site-Specific Welding Emissions Management Plan must contain copies of all previous plan entries, pursuant to paragraphs (f)(8)(i)(D) and
(E)of this section.
(ii)The Site-Specific Welding Emissions Management Plan must be updated annually to contain current information, as required by paragraphs (f)(8)(i)(A) through
(C)of this section, and submitted with your annual certification and compliance report, according to the requirements of § 63.11519(b)(1), “Notification, recordkeeping, and reporting requirements.”
(iii)You must maintain a copy of the current Site-Specific Welding Emissions Management Plan in your records in a readily-accessible location for inspector review, in accordance with the requirements in § 63.11519(c)(12), “Notification, recordkeeping, and reporting requirements.” § 63.11517 What are my monitoring requirements?
(a)*Visual determination of fugitive emissions, general.* Visual determination of fugitive emissions must be performed according to the procedures of EPA Method 22, of 40 CFR part 60, Appendix A-7. You must conduct the EPA Method 22 test while the affected source is operating under normal conditions. The duration of each EPA Method 22 test must be at least 15 minutes, and visible emissions will be considered to be present if they are detected for more than six minutes of the fifteen minute period.
(b)*Visual determination of fugitive emissions, graduated schedule.* Visual determinations of fugitive emissions must be performed in accordance with paragraph
(a)of this section and according to the schedule in paragraphs (b)(1) through
(4)of this section.
(1)*Daily Method 22 Testing.* Perform visual determination of fugitive emissions once per day, on each day the process is in operation, during operation of the process.
(2)*Weekly Method 22 Testing.* If no visible fugitive emissions are detected in consecutive daily EPA Method 22 tests, performed in accordance with paragraph (b)(1) of this section for 10 days of work day operation of the process, you may decrease the frequency of EPA Method 22 testing to once every five days of operation of the process (one calendar week). If visible fugitive emissions are detected during these tests, you must resume EPA Method 22 testing of that operation once per day during each day that the process is in operation, in accordance with paragraph (b)(1) of this section.
(3)*Monthly Method 22 Testing.* If no visible fugitive emissions are detected in four consecutive weekly EPA Method 22 tests performed in accordance with paragraph (b)(2) of this section, you may decrease the frequency of EPA Method 22 testing to once per 21 days of operation of the process (one calendar month). If visible fugitive emissions are detected during these tests, you must resume weekly EPA Method 22 in accordance with paragraph (b)(2) of this section.
(4)*Quarterly Method 22 Testing.* If no visible fugitive emissions are detected in three consecutive monthly EPA Method 22 tests performed in accordance with paragraph (b)(3) of this section, you may decrease the frequency of EPA Method 22 testing to once per 60 days of operation of the process (3 calendar months). If visible fugitive emissions are detected during these tests, you must resume monthly EPA Method 22 in accordance with paragraph (b)(3) of this section.
(c)*Visual determination of emissions opacity for welding Tier 2 or 3, general.* Visual determination of emissions opacity must be performed in accordance with the procedures of EPA Method 9, of 40 CFR part 60, Appendix A-4, and while the affected source is operating under normal conditions. The duration of the EPA Method 9 test shall be thirty minutes.
(d)*Visual determination of emissions opacity for welding Tier 2 or 3, graduated schedule.* You must perform visual determination of emissions opacity in accordance with paragraph
(c)of this section and according to the schedule in paragraphs (d)(1) through
(5)of this section.
(1)*Daily Method 9 testing for welding, Tier 2 or 3.* Perform visual determination of emissions opacity once per day during each day that the process is in operation.
(2)*Weekly Method 9 testing for welding, Tier 2 or 3.* If the average of the six minute opacities recorded during any of the daily consecutive EPA Method 9 tests performed in accordance with paragraph (d)(1) of this section does not exceed 20 percent for 10 days of operation of the process, you may decrease the frequency of EPA Method 9 testing to once per five days of consecutive work day operation. If opacity greater than 20 percent is detected during any of these tests, you must resume testing every day of operation of the process according to the requirements of paragraph (d)(1) of this section.
(3)*Monthly Method 9 testing for welding Tier 2 or 3.* If the average of the six minute opacities recorded during any of the consecutive weekly EPA Method 9 tests performed in accordance with paragraph (d)(2) of this section does not exceed 20 percent for four consecutive weekly tests, you may decrease the frequency of EPA Method 9 testing to once per every 21 days of operation of the process. If visible emissions opacity greater than 20 percent is detected during any monthly test, you must resume testing every five days of operation of the process according to the requirements of paragraph (d)(2) of this section.
(4)*Quarterly Method 9 testing for welding Tier 2 or 3.* If the average of the six minute opacities recorded during any of the consecutive weekly EPA Method 9 tests performed in accordance with paragraph (d)(3) of this section does not exceed 20 percent for three consecutive monthly tests, you may decrease the frequency of EPA Method 9 testing to once per every 120 days of operation of the process. If visible emissions opacity greater than 20 percent is detected during any quarterly test, you must resume testing every 21 days (month) of operation of the process according to the requirements of paragraph (d)(3) of this section.
(5)*Return to Method 22 testing for welding, Tier 2 or 3.* If, after two consecutive months of testing, the average of the six minute opacities recorded during any of the monthly EPA Method 9 tests performed in accordance with paragraph (d)(3) of this section does not exceed 20 percent, you may resume EPA Method 22 testing as in paragraphs (b)(3) and
(4)of this section. In lieu of this, you may elect to continue performing EPA Method 9 tests in accordance with paragraphs (d)(3)and
(4)of this section. § 63.11518 [Reserved] § 63.11519 What are my notification, recordkeeping, and reporting requirements?
(a)*What notifications must I submit?*
(1)*Initial Notification.* If you are the owner or operator of an area source in one of the nine metal fabrication and finishing source categories, as defined in § 63.11514 “Am I subject to this subpart?,” you must submit the Initial Notification required by § 63.9(b) “General Provisions,” for a new affected source no later than 120 days after initial startup or November 20, 2008, whichever is later. For an existing affected source, you must submit the Initial Notification no later than July 25, 2011. Your Initial Notification must provide the information specified in paragraphs (a)(1)(i) through
(iv)of this section.
(i)The name, address, phone number and e-mail address of the owner and operator;
(ii)The address (physical location) of the affected source;
(iii)An identification of the relevant standard (i.e., this subpart); and
(iv)A brief description of the type of operation. For example, a brief characterization of the types of products (e.g., aerospace components, sports equipment, etc.), the number and type of processes, and the number of workers usually employed.
(2)*Notification of compliance status.* If you are the owner or operator of an existing affected source, you must submit a notification of compliance status on or before November 22, 2011. If you are the owner or operator of a new affected source, you must submit a notification of compliance status within 120 days after initial startup, or by November 20, 2008, whichever is later. You are required to submit the information specified in paragraphs (a)(2)(i) through
(iv)of this section with your notification of compliance status:
(i)Your company's name and address;
(ii)A statement by a responsible official with that official's name, title, phone number, e-mail address and signature, certifying the truth, accuracy, and completeness of the notification and a statement of whether the source has complied with all the relevant standards and other requirements of this subpart;
(iii)If you operate any spray painting affected sources, the information required by § 63.11516(e)(3)(vi)(C), “Compliance demonstration,” or § 63.11516(e)(4)(ix)(C), “Compliance demonstration,” as applicable; and
(iv)The date of the notification of compliance status.
(b)*What reports must I prepare or submit?*
(1)*Annual certification and compliance reports.* You must prepare and submit annual certification and compliance reports for each affected source according to the requirements of paragraphs (b)(2) through
(7)of this section. The annual certification and compliance reporting requirements may be satisfied by reports required under other parts of the CAA, as specified in paragraph (b)(3) of this section.
(2)*Dates.* Unless the Administrator has approved or agreed to a different schedule for submission of reports under § 63.10(a), “General Provisions,” you must prepare and submit each annual certification and compliance report according to the dates specified in paragraphs (b)(2)(i) through
(iii)of this section. Note that the information reported for each of the months in the reporting period will be based on the last 12 months of data prior to the date of each monthly calculation.
(i)The first annual certification and compliance report must cover the first annual reporting period which begins the day after the compliance date and ends on December 31.
(ii)Each subsequent annual certification and compliance report must cover the subsequent semiannual reporting period from January 1 through December 31.
(iii)Each annual certification and compliance report must be prepared and submitted no later than January 31 and kept in a readily-accessible location for inspector review. If an exceedence has occurred during the year, each annual certification and compliance report must be submitted along with the exceedence reports, and postmarked or delivered no later than January 31.
(3)*Alternate dates.* For each affected source that is subject to permitting regulations pursuant to 40 CFR part 70 or 40 CFR part 71, “Title V.”
(i)If the permitting authority has established dates for submitting annual reports pursuant to 40 CFR 70.6(a)(3)(iii)(A) or 40 CFR 71.6(a)(3)(iii)(A), “Title V,” you may prepare or submit, if required, the first and subsequent compliance reports according to the dates the permitting authority has established instead of according to the date specified in paragraph (b)(2)(iii) of this section.
(ii)If an affected source prepares or submits an annual certification and compliance report pursuant to this section along with, or as part of, the monitoring report required by 40 CFR 70.6(a)(3)(iii)(A) or 40 CFR 71.6(a)(3)(iii)(A), “Title V,” and the compliance report includes all required information concerning exceedences of any limitation in this subpart, its submission will be deemed to satisfy any obligation to report the same exceedences in the annual monitoring report. However, submission of an annual certification and compliance report shall not otherwise affect any obligation the affected source may have to report deviations from permit requirements to the permitting authority.
(4)*General requirements.* The annual certification and compliance report must contain the information specified in paragraphs (b)(4)(i) through
(iii)of this section, and the information specified in paragraphs (b)(5) through
(7)of this section that is applicable to each affected source.
(i)Company name and address;
(ii)Statement by a responsible official with that official's name, title, and signature, certifying the truth, accuracy, and completeness of the content of the report; and
(iii)Date of report and beginning and ending dates of the reporting period. The reporting period is the 12-month period ending on December 31. Note that the information reported for the 12 months in the reporting period will be based on the last 12 months of data prior to the date of each monthly calculation.
(5)*Visual determination of fugitive emissions requirements.* The annual certification and compliance report must contain the information specified in paragraphs (b)(5)(i) through
(iii)of this section for each affected source which performs visual determination of fugitive emissions in accordance with § 63.11517(a), “Monitoring requirements.”
(i)The date of every visual determination of fugitive emissions which resulted in detection of visible emissions;
(ii)A description of the corrective actions taken subsequent to the test; and
(iii)The date and results of the follow-up visual determination of fugitive emissions performed after the corrective actions.
(6)*Visual determination of emissions opacity requirements.* The annual certification and compliance report must contain the information specified in paragraphs (b)(6)(i) through
(iii)of this section for each affected source which performs visual determination of emissions opacity in accordance with § 63.11517(c), “Monitoring requirements.”
(i)The date of every visual determination of emissions opacity;
(ii)The average of the six-minute opacities measured by the test; and
(iii)A description of any corrective action taken subsequent to the test.
(7)[Reserved]
(8)*Exceedences of 20 percent opacity for welding affected sources.* As required by § 63.11516(f)(7)(i), “Requirements for opacities exceeding 20 percent,” you must prepare an exceedence report whenever the average of the six-minute average opacities recorded during a visual determination of emissions opacity exceeds 20 percent. This report must be submitted along with your annual certification and compliance report according to the requirements in paragraph (b)(1) of this section, and must contain the information in paragraphs (b)(8)(iii)(A) and
(B)of this section.
(A)The date on which the exceedence occurred; and
(B)The average of the six-minute average opacities recorded during the visual determination of emissions opacity.
(9)*Site-specific Welding Emissions Management Plan reporting.* You must submit a copy of the records of daily visual determinations of emissions recorded in accordance with § 63.11516(f)(7)(iv), “Tier 3 requirements for opacities exceeding 20 percent,” and a copy of your Site-Specific Welding Emissions Management Plan and any subsequent revisions to the plan pursuant to § 63.11516(f)(8), “Site-specific Welding Emission Management Plan,” along with your annual certification and compliance report, according to the requirements in paragraph (b)(1) of this section.
(c)*What records must I keep?* You must collect and keep records of the data and information specified in paragraphs (c)(1) through
(13)of this section, according to the requirements in paragraph (c)(14) of this section.
(1)*General compliance and applicability records.* Maintain information specified in paragraphs (c)(1)(i) through
(ii)of this section for each affected source.
(i)Each notification and report that you submitted to comply with this subpart, and the documentation supporting each notification and report.
(ii)Records of the applicability determinations as in § 63.11514(b)(1) through (5), “Am I subject to this subpart,” listing equipment included in its affected source, as well as any changes to that and on what date they occurred, must be maintained for 5 years and be made available for inspector review at any time.
(2)*Visual determination of fugitive emissions records.* Maintain a record of the information specified in paragraphs (c)(2)(i) through
(iii)of this section for each affected source which performs visual determination of fugitive emissions in accordance with § 63.11517(a), “Monitoring requirements.”
(i)The date and results of every visual determination of fugitive emissions;
(ii)A description of any corrective action taken subsequent to the test; and
(iii)The date and results of any follow-up visual determination of fugitive emissions performed after the corrective actions.
(3)*Visual determination of emissions opacity records.* Maintain a record of the information specified in paragraphs (c)(3)(i) through
(iii)of this section for each affected source which performs visual determination of emissions opacity in accordance with § 63.11517(c), “Monitoring requirements.”
(i)The date of every visual determination of emissions opacity; and
(ii)The average of the six-minute opacities measured by the test; and
(iii)A description of any corrective action taken subsequent to the test.
(4)Maintain a record of the manufacturer's specifications for the control devices used to comply with § 63.11516, “What are my standards and management practices?”
(5)*Spray paint booth filter records.* Maintain a record of the filter efficiency demonstrations and spray paint booth filter maintenance activities, performed in accordance with § 63.11516(d)(1)(ii) and (iii), “Requirements for spray painting objects in spray booths or spray rooms.”
(6)Waterspray booth or water curtain efficiency tests. Maintain a record of the water curtain efficiency demonstrations performed in accordance with § 63.11516(d)(1)(ii), “Requirements for spray painting objects in spray booths or spray rooms.”
(7)*HVLP or other high transfer efficiency spray delivery system documentation records.* Maintain documentation of HVLP or other high transfer efficiency spray paint delivery systems, in compliance with § 63.11516(d)(3), “Requirements for spray painting of all objects.” This documentation must include the manufacturer's specifications for the equipment and any manufacturer's operation instructions. If you have obtained written approval for an alternative spray application system in accordance with § 63.11516(d)(2), “Spray painting of all objects,” you must maintain a record of that approval along with documentation of the demonstration of equivalency.
(8)*HVLP or other high transfer efficiency spray delivery system employee training documentation records.* Maintain certification that each worker performing spray painting operations has completed the training specified in § 63.11516(d)(6), “Requirements for spray painting of all objects,” with the date the initial training and the most recent refresher training was completed.
(9)[Reserved]
(10)[Reserved]
(11)*Visual determination of emissions opacity performed during the preparation (or revision) of the Site-Specific Welding Emissions Management Plan.* You must maintain a record of each visual determination of emissions opacity performed during the preparation (or revision) of a Site-Specific Welding Emissions Management Plan, in accordance with § 63.11516(f)(7)(iii), “Requirements for opacities exceeding 20 percent.”
(12)*Site-Specific Welding Emissions Management Plan.* If you have been required to prepare a plan in accordance with § 63.11516(f)(7)(iii), “Site-Specific Welding Emissions Management Plan,” you must maintain a copy of your current Site-Specific Welding Emissions Management Plan in your records and it must be readily available for inspector review.
(13)*Manufacturer's instructions.* If you comply with this subpart by operating any equipment according to manufacturer's instruction, you must keep these instructions readily available for inspector review.
(14)Welding Rod usage. If you operate a new or existing welding affected source which is not required to comply with the requirements of § 63.11516(f)(3) through
(8)because it uses less than 2,000 pounds per year of welding rod (on a rolling 12-month basis), you must maintain records demonstrating your welding rod usage on a rolling 12-month basis.
(15)Your records must be maintained according to the requirements in paragraphs (c)(14)(i) through
(iii)of this section.
(i)Your records must be in a form suitable and readily available for expeditious review, according to § 63.10(b)(1), “General Provisions.” Where appropriate, the records may be maintained as electronic spreadsheets or as a database.
(ii)As specified in § 63.10(b)(1), “General Provisions,” you must keep each record for 5 years following the date of each occurrence, measurement, corrective action, report, or record.
(iii)You must keep each record on-site for at least 2 years after the date of each occurrence, measurement, corrective action, report, or record according to § 63.10(b)(1), “General Provisions.” You may keep the records off-site for the remaining 3 years. § 63.11520 [Reserved] Other Requirements and Information § 63.11521 Who implements and enforces this subpart?
(a)This subpart can be implemented and enforced by EPA or a delegated authority such as your state, local, or tribal agency. If the EPA Administrator has delegated authority to your state, local, or tribal agency, then that agency, in addition to EPA, has the authority to implement and enforce this subpart. You should contact your EPA Regional Office to find out if implementation and enforcement of this subpart is delegated to your state, local, or tribal agency.
(b)In delegating implementation and enforcement authority of this subpart to a state, local, or tribal agency under 40 CFR part 63, subpart E, the authorities contained in paragraph
(c)of this section are retained by the EPA Administrator and are not transferred to the state, local, or tribal agency.
(c)The authorities that cannot be delegated to state, local, or tribal agencies are specified in paragraphs (c)(1) through
(5)of this section.
(1)Approval of an alternative non-opacity emissions standard under § 63.6(g), of the General Provisions of this part.
(2)Approval of an alternative opacity emissions standard under § 63.6(h)(9), of the General Provisions of this part.
(3)Approval of a major change to test methods under § 63.7(e)(2)(ii) and (f), of the General Provisions of this part. A “major change to test method” is defined in § 63.90.
(4)Approval of a major change to monitoring under § 63.8(f), of the General Provisions of this part. A “major change to monitoring” under is defined in § 63.90.
(5)Approval of a major change to recordkeeping and reporting under § 63.10(f), of the General Provisions of this part. A “major change to recordkeeping/reporting” is defined in § 63.90. § 63.11522 What definitions apply to this subpart? The terms used in this subpart are defined in the CAA; and in this section as follows: *Adequate emission capture methods* are hoods, enclosures, or any other duct intake devices with ductwork, dampers, manifolds, plenums, or fans designed to draw greater than 85 percent of the airborne dust generated from the process into the control device. *Capture system* means the collection of components used to capture gases and fumes released from one or more emissions points and then convey the captured gas stream to a control device or to the atmosphere. A capture system may include, but is not limited to, the following components as applicable to a given capture system design: duct intake devices, hoods, enclosures, ductwork, dampers, manifolds, plenums, and fans. *Cartridge collector* means a type of control device that uses perforated metal cartridges containing a pleated paper or non-woven fibrous filter media to remove PM from a gas stream by sieving and other mechanisms. Cartridge collectors can be designed with single use cartridges, which are removed and disposed after reaching capacity, or continuous use cartridges, which typically are cleaned by means of a pulse-jet mechanism. *Confined abrasive blasting enclosure* means an enclosure that includes a roof and at least two complete walls, with side curtains and ventilation as needed to insure that no air or PM exits the enclosure while dry abrasive blasting is performed. Apertures or slots may be present in the roof or walls to allow for mechanized transport of the blasted objects with overhead cranes, or cable and cord entry into the dry abrasive blasting chamber. *Control device* means equipment installed on a process vent or exhaust system that reduces the quantity of a pollutant that is emitted to the air. *Dry abrasive blasting* means cleaning, polishing, conditioning, removing or preparing a surface by propelling a stream of abrasive material with compressed air against the surface. Hydroblasting, wet abrasive blasting, or other abrasive blasting operations which employ liquids to reduce emissions are not dry abrasive blasting. *Dry grinding and dry polishing with machines* means grinding or polishing without the use of lubricating oils or fluids in fixed or stationary machines. Hand grinding, hand polishing, and bench top dry grinding and dry polishing are not included under this definition. *Fabric filter* means a type of control device used for collecting PM by filtering a process exhaust stream through a filter or filter media; a fabric filter is also known as a baghouse. *Facility maintenance* means operations performed as part of the routine repair or renovation of process equipment, machinery, control equipment, and structures that comprise the infrastructure of the affected facility and that are necessary for the facility to function in its intended capacity. Facility maintenance also includes operations associated with the installation of new equipment or structures, and any processes as part of janitorial activities. Facility maintenance includes operations on stationary structures or their appurtenances at the site of installation, to portable buildings at the site of installation, to pavements, or to curbs. Facility maintenance also includes operations performed on mobile equipment, such as fork trucks, that are used in a manufacturing facility and which are maintained in that same facility. Facility maintenance does not include spray-applied coating of motor vehicles, mobile equipment, or items that routinely leave and return to the facility, such as delivery trucks, rental equipment, or containers used to transport, deliver, distribute, or dispense commercial products to customers, such as compressed gas canisters. *Filtration control device* means a control device that utilizes a filter to reduce the emissions of MFHAP and other PM. *Grinding* means a process performed on a workpiece to remove undesirable material from the surface or to remove burrs or sharp edges. Grinding is done using belts, disks, or wheels consisting of or covered with various abrasives. *Machining* means dry metal turning, milling, drilling, boring, tapping, planing, broaching, sawing, cutting, shaving, shearing, threading, reaming, shaping, slotting, hobbing, and chamfering with machines. Shearing operations cut materials into a desired shape and size, while forming operations bend or conform materials into specific shapes. Cutting and shearing operations include punching, piercing, blanking, cutoff, parting, shearing and trimming. Forming operations include bending, forming, extruding, drawing, rolling, spinning, coining, and forging the metal. Processes specifically excluded are hand-held devices and any process employing fluids for lubrication or cooling. *Material containing MFHAP* means a material containing one or more MFHAP. Any material that contains cadmium, chromium, lead, or nickel in amounts greater than or equal to 0.1 percent by weight (as the metal), and contains manganese in amounts greater than or equal to 1.0 percent by weight (as the metal), as shown in formulation data provided by the manufacturer or supplier, such as the Material Safety Data Sheet for the material, is considered to be a material containing MFHAP. *Metal fabrication and finishing HAP (MFHAP)* means any compound of the following metals: Cadmium, chromium, lead, manganese, or nickel, or any of these metals in the elemental form, with the exception of lead. *Metal fabrication and finishing source categories* are limited to the nine metal fabrication and finishing source categories with the activities described in Table 1, “Description of Source Categories Affected by this Subpart.” Metal fabrication or finishing operations means dry abrasive blasting, machining, spray painting, or welding in any one of the nine metal fabrication and finishing area source categories listed in Table 1, “Description of Source Categories Affected by this Subpart.” *Military munitions* means all ammunition products and components produced or used by or for the U.S. Department of Defense
(DoD)or for the U.S. Armed Services for national defense and security, including military munitions under the control of the DoD, the U.S. Coast Guard, the National Nuclear Security Administration (NNSA), U.S. Department of Energy (DOE), and National Guard personnel. The term military munitions includes: Confined gaseous, liquid, and solid propellants, explosives, pyrotechnics, chemical and riot control agents, smokes, and incendiaries used by DoD components, including bulk explosives and chemical warfare agents, chemical munitions, biological weapons, rockets, guided and ballistic missiles, bombs, warheads, small arms ammunition, grenades, mines, torpedoes, depth charges, cluster munitions and dispensers, demolition charges, nonnuclear components of nuclear weapons, wholly inert ammunition products, and all devices and components of any items listed in this definition. *Paint* means a material applied to a substrate for decorative, protective, or functional purposes. Such materials include, but are not limited to, paints, coatings, sealants, liquid plastic coatings, caulks, inks, adhesives, and maskants. Decorative, protective, or functional materials that consist only of protective oils for metal, acids, bases, or any combination of these substances, or paper film or plastic film which may be pre-coated with an adhesive by the film manufacturer, are not considered paints for the purposes of this subpart. *Polishing with machines* means an operation which removes fine excess metal from a surface to prepare the surface for more refined finishing procedures prior to plating or other processes. Polishing may also be employed to remove burrs on castings or stampings. Polishing is performed using hard-faced wheels constructed of muslin, canvas, felt or leather, and typically employs natural or artificial abrasives. Polishing performed by hand without machines or in bench top operations are not considered polishing with machines for the purposes of this subpart. *Primarily engaged* means the manufacturing, fabricating, or forging of one or more products listed in one of the nine metal fabrication and finishing source category descriptions in Table 1, “Description of Source Categories Affected by this Subpart,” where this production represents at least 50 percent of the production at a facility, and where production quantities are established by the volume, linear foot, square foot, or other value suited to the specific industry. The period used to determine production should be the previous continuous 12 months of operation. Facilities must document and retain their rationale for the determination that their facility is not “primarily engaged” pursuant to § 63.10(b)(3) of the General Provisions. *Quality control activities* means operations that meet all of the following criteria:
(1)The activities are intended to detect and correct defects in the final product by selecting a limited number of samples from the operation, and comparing the samples against specific performance criteria.
(2)The activities do not include the production of an intermediate or final product for sale or exchange for commercial profit; for example, parts that are not sold and do not leave the facility.
(3)The activities are not a normal part of the operation;
(4)The activities do not involve fabrication of tools, equipment, machinery, and structures that comprise the infrastructure of the facility and that are necessary for the facility to function in its intended capacity; that is, the activities are not facility maintenance. *Responsible official* means responsible official as defined in 40 CFR 70.2. *Spray-applied painting* means application of paints using a hand-held device that creates an atomized mist of paint and deposits the paint on a substrate. For the purposes of this subpart, spray-applied painting does not include the following materials or activities:
(1)Paints applied from a hand-held device with a paint cup capacity that is less than 3.0 fluid ounces (89 cubic centimeters).
(2)Surface coating application using powder coating, hand-held, non-refillable aerosol containers, or non-atomizing application technology, including, but not limited to, paint brushes, rollers, hand wiping, flow coating, dip coating, electrodeposition coating, web coating, coil coating, touch-up markers, or marking pens.
(3)Painting operations that normally require the use of an airbrush or an extension on the spray gun to properly reach limited access spaces; the application of paints that contain fillers that adversely affect atomization with HVLP spray guns, and the application of paints that normally have a dried film thickness of less than 0.0013 centimeter (0.0005 in.).
(4)Thermal spray operations (also known as metallizing, flame spray, plasma arc spray, and electric arc spray, among other names) in which solid metallic or non-metallic material is heated to a molten or semi-molten state and propelled to the work piece or substrate by compressed air or other gas, where a bond is produced upon impact. *Spray booth or spray room* means an enclosure with four sides and a roof where spray paint is prevented from leaving the booth during spraying by the enclosure. The roof of the spray booth or spray room may contain narrow slots for connecting the parts and products to overhead cranes, or for cord or cable entry into the spray booth or spray room. *Tool or equipment repair* means equipment and devices used to repair or maintain process equipment or to prepare molds, dies, or other changeable elements of process equipment. *Totally enclosed and unvented* means enclosed so that no air enters or leaves during operation. *Totally enclosed and unvented dry abrasive blasting chamber* means a dry abrasive blasting enclosure which has no vents to the atmosphere, thus no emissions. A typical example of this sort of abrasive blasting enclosure is a small “glove box” enclosure, where the worker places their hands in openings or gloves that extend into the box and enable the worker to hold the objects as they are being blasted without allowing air and blast material to escape the box. *Vented dry abrasive blasting* means dry abrasive blasting where the blast material is moved by air flow from within the chamber to outside the chamber into the atmosphere or into a control device. *Welding* means a process which joins two metal parts by melting the parts at the joint and filling the space with molten metal. *Welding rod containing MFHAP* means a welding rod that contains cadmium, chromium, lead, or nickel in amounts greater than or equal to 0.1 percent by weight (as the metal), or that contains manganese in amounts greater than or equal to 1.0 percent by weight (as the metal), as shown in formulation data provided by the manufacturer or supplier, such as the Material Safety Data Sheet for the welding rod. § 63.11523 What General Provisions apply to this subpart? The provisions in 40 CFR part 63, subpart A, applicable to sources subject to § 63.11514(a) are specified in Table 2 of this subpart. Table 1 to Subpart XXXXXX of Part 63—Description of Source Categories Affected by this Subpart Metal fabrication and finishing source category Description Electrical and Electronic Equipment Finishing Operations Establishments primarily engaged in manufacturing motors and generators; and electrical machinery, equipment, and supplies, not elsewhere classified. The electrical machinery equipment and supplies industry sector of this source category includes establishments primarily engaged in high energy particle acceleration systems and equipment, electronic simulators, appliance and extension cords, bells and chimes, insect traps, and other electrical equipment and supplies not elsewhere classified. The motors and generators sector of this source category includes establishments primarily engaged in manufacturing electric motors (except engine starting motors) and power generators; motor generator sets; railway motors and control equipment; and motors, generators and control equipment for gasoline, electric, and oil-electric buses and trucks. Fabricated Metal Products Establishments primarily engaged in manufacturing fabricated metal products, such as fire or burglary resistive steel safes and vaults and similar fire or burglary resistive products; and collapsible tubes of thin flexible metal. Also, establishments primarily engaged in manufacturing powder metallurgy products, metal boxes; metal ladders; metal household articles, such as ice cream freezers and ironing boards; and other fabricated metal products not elsewhere classified. Fabricated Plate Work (Boiler Shops) Establishments primarily engaged in manufacturing power marine boilers, pressure and nonpressure tanks, processing and storage vessels, heat exchangers, weldments and similar products. Fabricated Structural Metal Manufacturing Establishments primarily engaged in fabricating iron and steel or other metal for structural purposes, such as bridges, buildings, and sections for ships, boats, and barges. Heating Equipment, except Electric Establishments primarily engaged in manufacturing heating equipment, except electric and warm air furnaces, including gas, oil, and stoker coal fired equipment for the automatic utilization of gaseous, liquid, and solid fuels. Products produced in this source category include low-pressure heating (steam or hot water) boilers, fireplace inserts, domestic (steam or hot water) furnaces, domestic gas burners, gas room heaters, gas infrared heating units, combination gas-oil burners, oil or gas swimming pool heaters, heating apparatus (except electric or warm air), kerosene space heaters, gas fireplace logs, domestic and industrial oil burners, radiators (except electric), galvanized iron nonferrous metal range boilers, room heaters (except electric), coke and gas burning salamanders, liquid or gas solar energy collectors, solar heaters, space heaters (except electric), mechanical (domestic and industrial) stokers, wood and coal-burning stoves, domestic unit heaters (except electric), and wall heaters (except electric). Industrial Machinery and Equipment Finishing Operations Establishments primarily engaged in construction machinery manufacturing; oil and gas field machinery manufacturing; and pumps and pumping equipment manufacturing. The construction machinery manufacturing industry sector of this source category includes establishments primarily engaged in manufacturing heavy machinery and equipment of types used primarily by the construction industries, such as bulldozers; concrete mixers; cranes, except industrial plant overhead and truck-type cranes; dredging machinery; pavers; and power shovels. Also establishments primarily engaged in manufacturing forestry equipment and certain specialized equipment, not elsewhere classified, similar to that used by the construction industries, such as elevating platforms, ship cranes, and capstans, aerial work platforms, and automobile wrecker hoists. The oil and gas field machinery manufacturing industry sector of this source category includes establishments primarily engaged in manufacturing machinery and equipment for use in oil and gas fields or for drilling water wells, including portable drilling rigs. The pumps and pumping equipment manufacturing sector of this source category includes establishments primarily engaged in manufacturing pumps and pumping equipment for general industrial, commercial, or household use, except fluid power pumps and motors. This category includes establishments primarily engaged in manufacturing domestic water and sump pumps. Iron and Steel Forging Establishments primarily engaged in the forging manufacturing process, where purchased iron and steel metal is pressed, pounded or squeezed under great pressure into high strength parts known as forgings. The forging process is different from the casting and foundry processes, as metal used to make forged parts is never melted and poured. Primary Metals Products Manufacturing Establishments primarily engaged in manufacturing products such as fabricated wire products (except springs) made from purchased wire. These facilities also manufacture steel balls; nonferrous metal brads and nails; nonferrous metal spikes, staples, and tacks; and other primary metals products not elsewhere classified. Valves and Pipe Fittings Establishments primarily engaged in manufacturing metal valves and pipe fittings; flanges; unions, with the exception of purchased pipes; and other valves and pipe fittings not elsewhere classified. *Instructions for Table 2* —As required in § 63.11523, “General Provisions Requirements,” you must meet each requirement in the following table that applies to you. Table 2—to Subpart XXXXXX of Part 63—Applicability of General Provisions to Metal Fabrication or Finishing Area Sources Citation Subject 63.1 1 Applicability. 63.2 Definitions. 63.3 Units and abbreviations. 63.4 Prohibited activities. 63.5 Construction/reconstruction. 63.6(a), (b)(1)-(b)(5), (c)(1), (c)(2), (c)(5), (g), (i),
(j)Compliance with standards and maintenance requirements. 63.9(a)-(d) Notification requirements. 63.10(a),
(b)except for (b)(2), (d)(1), (d)(4) Recordkeeping and reporting. 63.12 State authority and delegations. 63.13 Addresses of State air pollution control agencies and EPA regional offices. 63.14 Incorporation by reference. 63.15 Availability of information and confidentiality. 63.16 Performance track provisions. 1 § 63.11514(g), “Am I subject to this subpart?” exempts affected sources from the obligation to obtain title V operating permits. [FR Doc. E8-16263 Filed 7-22-08; 8:45 am] BILLING CODE 6560-50-P 73 142 Wednesday, July 23, 2008 Proposed Rules Part IV Department of Labor Employee Benefits Security Administration 29 CFR Part 2550 Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans; Proposed Rule DEPARTMENT OF LABOR Employee Benefits Security Administration 29 CFR Part 2550 RIN 1210-AB07 Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans AGENCY: Employee Benefits Security Administration. ACTION: Proposed regulation. SUMMARY: This document contains a proposed regulation under the Employee Retirement Income Security Act of 1974 (ERISA) that, upon adoption, would require the disclosure of certain plan and investment-related information, including fee and expense information, to participants and beneficiaries in participant-directed individual account plans (e.g., 401(k) plans). This proposal is intended to ensure that all participants and beneficiaries in participant-directed individual account plans have the information they need to make informed decisions about the management of their individual accounts and the investment of their retirement savings. This document also contains proposed conforming changes to the regulations applicable to ERISA section 404(c) plans (29 CFR 2550.404c-1). Upon adoption, these proposals will affect plan sponsors, fiduciaries, participants and beneficiaries of participant-directed individual account plans, as well as providers of services to such plans. DATES: Written comments on the proposed regulation should be received by the Department of Labor on or before September 8, 2008. ADDRESSES: To facilitate the receipt and processing of comment letters, the Employee Benefits Security Administration
(EBSA)encourages interested persons to submit their comments electronically by e-mail to *e-ORI@dol.gov* (enter into subject line: Participant Fee Disclosure Project) or by using the Federal eRulemaking portal at *http://www.regulations.gov.* Persons submitting comments electronically are encouraged not to submit paper copies. Persons interested in submitting paper copies should send or deliver their comments to the Office of Regulations and Interpretations, Employee Benefits Security Administration, Attn: Participant Fee Disclosure Project, Room N-5655, U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 20210. All comments will be available to the public, without charge, online at *http://www.regulations.gov* and *http://www.dol.gov/ebsa* and at the Public Disclosure Room, N-1513, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 20210. FOR FURTHER INFORMATION CONTACT: Susan M. Halliday or Kristen L. Zarenko, Office of Regulations and Interpretations, Employee Benefits Security Administration,
(202)693-8510. This is not a toll-free number. SUPPLEMENTARY INFORMATION: A. Background According to the Department's most recent data, there are an estimated 437,000 participant-directed individual account plans, covering an estimated 65 million participants, and holding almost $2.3 trillion in assets. 1 With the proliferation of these plans, which afford participants and beneficiaries the opportunity to direct the investment of all or a portion of the assets held in their individual plan accounts, participants and beneficiaries are increasingly responsible for making their own retirement savings decisions. This increased responsibility has led to a growing concern that participants and beneficiaries may not have access to, or if accessible, may not be considering information critical to making informed decisions about the management of their accounts, particularly information on investment choices, including attendant fees and expenses. 1 2005 Form 5500 Data, U.S. Department of Labor. The estimated 437,000 plans include plans that permit participants to direct the investment of all or a portion of their individual accounts. Under ERISA, the investment of plan assets is a fiduciary act governed by the fiduciary standards in ERISA section 404(a)(1)(A) and (B), which require fiduciaries to act prudently and solely in the interest of the plan's participants and beneficiaries. Where a plan assigns investment responsibilities to the plan's participants and beneficiaries, it is the view of the Department that plan fiduciaries must take steps to ensure that participants and beneficiaries are made aware of their rights and responsibilities with respect to managing their individual plan accounts and are provided sufficient information regarding the plan, including its fees and expenses, and designated investment alternatives, including fees and expenses attendant thereto, to make informed decisions about the management of their individual accounts. To some extent, such disclosures are already required by plans that elect to comply with the requirements of section 404(c) (see § 2550.404c-1(b)(2)(i)(B)). However, compliance with section 404(c)'s disclosure requirements is voluntary and does not extend to participants and beneficiaries in all participant-directed individual account plans. The Department believes that all participants and beneficiaries with the right to direct the investment of assets held in their individual plan accounts should have access to basic plan and investment information. For this reason, the Department is issuing this proposed regulation under section 404(a), with conforming amendments to the regulations under section 404(c). These proposals would establish uniform, basic disclosures for such participants and beneficiaries, without regard to whether the plan in which they participate is a section 404(c) plan. In addition, the proposal would require participants and beneficiaries to be provided investment-related information in a form that encourages and facilitates a comparative review among investment options. To facilitate the development of a proposed regulation, the Department published, on April 25, 2007, a Request for Information
(RFI)in the **Federal Register** 2 requesting suggestions, comments and views from interested persons on a variety of issues relating to the disclosure of plan and investment-related fee and expense and other information to participants and beneficiaries in participant-directed individual account plans. The Department received and reviewed 106 comment letters on these important issues. Copies of these letters are posted on the Department's Web site at *http://www.dol.gov/ebsa/regs/cmt-feedisclosures.html.* 2 72 FR 20457 (April 25, 2007). The RFI encouraged persons preparing comments to consider a 2004 report and recommendations of a working group of the ERISA Advisory Council. The Employee Welfare and Pension Benefit Plans' Working Group on Fee and Related Disclosures to Participants reviewed the disclosure requirements applicable to participant-directed individual account plans. The Working Group assessed the adequacy and usefulness of such requirements and recommended changes to the requirements to help participants more effectively manage their retirement savings. 3 3 This report may be accessed at *http://www.dol.gov/ebsa/publications/AC_111704_report.html* . Additionally, the RFI encouraged commenters to consider the Government Accountability Office's
(GAO)2006 report and recommendations contained in “Private Pensions: Changes Needed to Provide 401(k) Plan Participants and the Department of Labor Better Information on Fees.” 4 Also relevant to the Department's consideration was the work of the Securities and Exchange Commission (Commission). The Commission has proposed, among other matters, the use of a summary prospectus with additional information provided on an Internet Web site. The proposal is intended to improve mutual fund disclosure by providing investors with key information in plain English in a clear and concise format, while enhancing the means of delivering more detailed information to investors. 5 Following consultation with the Commission, the Department's proposal is coordinated with the Commission's summary prospectus approach where feasible. As ERISA plan investment options include many products not subject to the Commission's disclosure requirements, the Department seeks comments addressing the application of this proposed regulation to funds and investment products not subject to the securities laws. 4 The GAO report, GAO-07-21, referenced above may be accessed at *http://www.gao.gov/htext/d0721.html.* 5 72 FR 67790 (November 30, 2007). B. Overview of Proposal § 2550.404a-5 1. General Paragraph
(a)of proposed § 2550.404a-5 sets forth the general principle that, where documents and instruments governing an individual account plan provide for the allocation of investment responsibilities to participants and beneficiaries, plan fiduciaries, consistent with ERISA section 404(a)(1)(A) and (B), must take steps to ensure that such participants and beneficiaries, on a regular and periodic basis, are made aware of their rights and responsibilities with respect to the investment of assets held in, or contributed to, their accounts and are provided sufficient information regarding the plan, including plan fees and expenses, and regarding designated investment alternatives available under the plan, including fees and expenses attendant thereto, to make informed decisions with regard to the management of their individual accounts. As discussed below, the proposal addresses the information that must be provided participants and beneficiaries, as well as timeframes for providing that information. Paragraph
(b)of the proposal addresses the disclosure requirements that must be met by plan fiduciaries for plan years beginning on or after January 1, 2009. Under this paragraph, plan fiduciaries must comply with the requirements of paragraph (c), dealing with plan-related information, and paragraph (d), dealing with investment-related information. Paragraph
(e)describes the form in which the required information may be disclosed, such as via the plan's summary plan description, a quarterly benefit statement, or the use of the provided model, depending on the specific information. Paragraph
(e)merely recognizes various acceptable means of disclosure; it does not preclude other means for satisfying disclosure duties under the proposed regulation. Fiduciaries that meet the requirements of paragraphs
(c)and
(d)will have satisfied the duty to make the regular and periodic disclosures described in paragraph
(a)of this section. The Department believes, as an interpretive matter, that ERISA section 404(a)(1)(A) and
(B)impose on fiduciaries of all participant-directed individual account plans a duty to furnish participants and beneficiaries information necessary to carry out their account management and investment responsibilities in an informed manner. In the case of plans that elected to comply with section 404(c) before finalization of this proposal, the requirements of section 404(a)(1)(A) and
(B)typically would have been satisfied by compliance with the disclosure requirements set forth at 29 CFR § 2550.404c-1(b)(2)(i)(B). However, the Department expresses no view with respect to plans that did not comply with section 404(c) and the regulations thereunder as to the specific information that should have been furnished to participants and beneficiaries in any time period before this regulation is finalized. 2. Plan-Related Information In general, paragraph
(c)of the proposal sets forth what is characterized as “plan-related” information. This information falls into three categories—general plan information, administrative expense information and individual expense information. Paragraph
(c)also describes when this information must be provided to participants and beneficiaries and requires that it be based on the latest information available to the plan. First, paragraph (c)(1) of the proposal provides for the disclosure of general plan information regarding: How participants and beneficiaries may give investment instructions; any specified limitations on such instructions, including any restrictions on transfer to or from a designated investment alternative; the exercise of voting, tender and similar rights appurtenant to an investment in a designated investment alternative as well as any restrictions on such rights; the specific designated investment alternatives offered under the plan; and any designated investment managers to whom participants and beneficiaries may give investment directions. Under the proposal, this information is required to be furnished to an individual on or before the date he or she becomes eligible to be a participant or beneficiary under the plan and at least annually thereafter. In addition, the proposal requires that participants and beneficiaries be furnished a description of any material changes to the required information not later than 30 days after the date of adoption of such changes. The Department believes that, by referencing the “date of adoption,” the regulation will increase the likelihood that participants and beneficiaries will be provided notification of material changes in advance of the changes becoming effective, thereby putting them in a better position to consider such changes (e.g., changes in designated investment alternatives) in managing their accounts. Paragraph (e)(1) of the proposal provides that the disclosures required by this paragraph (c)(1) may be made as part of the plan's summary plan description, provided that the applicable timing requirements are satisfied. Second, paragraph (c)(2)(i) sets out the required disclosures for administrative expenses. Specifically, it provides that, on or before the date of an individual's eligibility to become a participant or beneficiary under the plan, and at least annually thereafter, participants and beneficiaries must be furnished an explanation of any fees and expenses for plan administrative services (e.g., legal, accounting, recordkeeping) that, to the extent not included in investment-related fees and expenses, may be charged against the individual accounts of participants or beneficiaries and the basis on which such charges will be allocated to, or affect the balance of, each individual account (e.g., pro rata, per capita). This requirement is intended to ensure that the plan fiduciary informs all participants and beneficiaries about the plan's day-to-day operational expenses that will be charged against their accounts. Because of its general nature, the information described in paragraph (c)(2)(i) may, pursuant to paragraph (e)(1) of the proposal, be disclosed as part of the plan's summary plan description, provided that the applicable timing requirements are met. In addition to the general disclosures concerning plan administrative expenses, paragraph (c)(2)(ii) of the proposal requires that, at least quarterly, participants and beneficiaries be furnished statements of the dollar amounts actually charged during the preceding quarter to the participants' or beneficiaries' accounts for administrative services, and general descriptions of the services to which the charges relate. The statements should be sufficiently specific to inform the participants or beneficiaries of the actual charge(s) to their accounts and enable them to distinguish the administrative services from other charges and services that may be assessed against their accounts. An identification of the total administrative fees and expenses assessed during the quarter, with, for example, an indication that the charges for plan administrative expenses include legal, accounting, and recordkeeping costs to the plan, would be sufficient. The Department does not believe that it is necessary, or particularly useful, for participants to have administrative charges broken out and listed on a service-by-service basis. Commenters on the Department's RFI argued that an overly detailed breakdown of administrative fees may overwhelm participants and that meaningful information would not be conveyed by such a breakdown. Many commenters explicitly supported the disclosure of “aggregate” or summary fees. The requirement to furnish the information described in paragraph (c)(2)(ii) of the proposal may be satisfied by including the information as part of a quarterly benefit statement furnished pursuant to ERISA section 105(a)(1)(A)(i). See paragraph (e)(2) of the proposal. Third, paragraph (c)(3) describes the required disclosures for individual expenses. This is identical to paragraph (c)(2) except that it focuses on the disclosure of information relating to individual expenses, i.e., expenses that are assessed on an individual-by-individual, rather than plan-wide, basis. Such expenses might be attendant to a qualified domestic relations order, a participant loan, or investment advice services. Paragraph (c)(3)(i) requires the disclosure of information concerning what expenses might be assessed and paragraph (c)(3)(ii) requires the disclosure of amounts actually assessed and identification of the service to which an expense relates. Also, like paragraph (c)(2), information described in paragraph (c)(3)(i) may be disclosed in the plan's summary plan description and the information described in paragraph (c)(3)(ii) may be included in a quarterly benefit statement. The Department invites comments on the type of information required to be disclosed, the timing of the information required to be disclosed and the form in which the information may be disclosed. 3. Investment-Related Information Paragraph
(d)of the proposal sets forth the investment-related information required to be furnished or made accessible to participants and beneficiaries in participant-directed individual account plans. Paragraph (d)(1) sets forth the investment-related information required to be automatically furnished to each participant and beneficiary. Paragraph (d)(2) addresses the format of the required information. Paragraph (d)(3) addresses the furnishing of post-investment information. And paragraph (d)(4) sets forth information required to be furnished only upon the request of a participant or beneficiary. Paragraph (d)(1) provides that, on or before the date of eligibility and at least annually thereafter, participants and beneficiaries must be furnished certain basic information with respect to each designated investment alternative offered under the plan. For purposes of the proposal, paragraph (h)(1) defines the term “designated investment alternative” to mean any investment alternative designated by the plan into which participants and beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts. The term “designated investment alternative” does not include “brokerage windows,” “self-directed brokerage accounts,” or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan. For purposes of identifying the information essential for participants and beneficiaries to consider in evaluating their investment choices under the plan, the Department carefully reviewed the many comments received in response to the RFI, as well as the Commission's proposal for a summary prospectus. The majority of RFI commenters believe that, in addition to basic fee and expense information, participants and beneficiaries need additional disclosure to put fee-related information into context and to educate them about a plan's investment alternatives. On the basis of its review, the Department concluded that fee and expense information, although important, is only one of the factors to be considered in making informed investment decisions along with investment performance and other information relating to a designated investment alternative. Also, the Department is persuaded by RFI commenters that most participants and beneficiaries will probably not review large amounts of detailed investment information. Information that is too detailed may overwhelm participants, and commenters are concerned that the costs associated with providing overly detailed information, which ultimately will be borne by participants, significantly outweigh any possible benefits. However, the Department also is persuaded that the form in which information is required to be presented should serve to encourage and facilitate its review by participants and beneficiaries. Many commenters on the RFI, for example, supported the disclosure of fee information in a format that would facilitate comparison across a plan's investment alternatives. For this reason, paragraph (d)(2) of the proposal, as discussed later, requires the investment-related information set forth in paragraph (d)(1) to be presented in a comparative format. Specifically, paragraph (d)(1) requires the following disclosures with respect to each designated investment alternative under the plan: Paragraph (d)(1)(i) requires, among other items, the name and category (e.g., money market mutual fund, balanced fund, index fund, and whether the investment alternative is actively or passively managed) of the designated investment alternative and an Internet Web site address that is sufficiently specific to lead participants and beneficiaries to supplemental information regarding the investment alternative, including its principal strategies, risks, performance and costs. For example, such information may be contained in a Commission-required prospectus (or other document) made available at a Web site address. The Department believes that ready access to such information via the Internet alleviates the need to automatically furnish otherwise important, detailed investment-related information directly to every participant and beneficiary. This accommodates different levels of participant interest in such information. The Department recognizes that, while many investment fund providers do maintain Web sites to inform interested investors concerning specific investment funds, other providers of investment funds and products may not. The Department specifically invites comments on what, if any, challenges this proposed requirement may present for service providers and employers, such as in the case of in-house managed funds that might be offered as a designated investment alternative under a plan. The Department also is interested in comments on whether this proposed requirement raises any issues under the Department's rules on the use of electronic media (29 CFR 2520.104b-1(c)), given that plan fiduciaries may, in some cases, have to provide paper copies of the supplemental information listed in this requirement (i.e., information that would otherwise be accessible through the Internet Web site address) to participants who fail to affirmatively consent to receiving such information electronically. Paragraph (d)(1)(ii) of the proposal requires the disclosure of specified performance data for each of the plan's designated investment alternatives. For designated investment alternatives with respect to which the return is not fixed, e.g., an equity index fund, the fiduciary (or designee) must provide the average annual total return (expressed as a percentage) of the investment for the following periods, if available: 1-year, 5-year, and 10-year, measured as of the end of the applicable calendar year; as well as a statement indicating that an investment's past performance is not necessarily an indication of how the investment will perform in the future. For this purpose, the term “if available” is intended merely to reflect that some plan investments may not have been in existence for 1, 5, or 10 years. In such cases, plans are expected to explain that the data is not available for this reason (e.g., “not applicable” or “not available”). In the case of designated investment alternatives for which the return is fixed for the term of the investment, e.g., a guaranteed investment contract, the fiduciary (or designee) must provide both the fixed rate of return and the term of the investment. For purposes of paragraph (d)(1)(ii), the term “average annual total return” is defined in section (h)(2) of the proposal by reference to standards applicable to open-end management investment companies registered under the Investment Company Act of 1940 (the 1940 Act). The Department specifically invites comments on what, if any, problems the proposed definition presents for investment funds and products that are not subject to the 1940 Act and, if problematic, suggestions for alternative definitions or approaches. As a corollary to the disclosure of performance data, paragraph (d)(1)(iii) requires disclosure of performance data for an appropriate broad-based benchmark over time periods that are comparable to the performance data periods required under paragraph (d)(1)(ii). As structured, the proposal provides flexibility in identifying an appropriate benchmark. In general, the Department expects that most plans will simply identify the performance benchmark already being used for the investment option pursuant to the Commission's prospectus requirements, if applicable. The Department seeks comments on whether and how the proposed requirement may need to be modified to include a more narrowly based index that reflects the financial market sector for ERISA plan investment options that are not subject to the securities laws. Paragraph (d)(1)(iv) specifically addresses the disclosure of fees and expenses attendant to the purchase, holding and sale of each of the plan's designated investment alternatives. For designated investment alternatives with respect to which the return is not fixed, the fiduciary (or designee) must provide:
(A)The amount and a description of each shareholder-type fee (i.e., fees charged directly against a participant's or beneficiary's investment), such as sales loads, sales charges, deferred sales charges, redemption fees, surrender charges, exchange fees, account fees, purchase fees, and mortality and expense fees;
(B)the total annual operating expenses of the investment expressed as a percentage (e.g., expense ratio); and
(C)a statement indicating that fees and expenses are only one of several factors that participants and beneficiaries should consider when making investment decisions. In the case of designated investment alternatives with respect to which the return is fixed for the term of the investment, the fiduciary (or designee) must provide the amount and a description of any shareholder-type fees that may be applicable to a purchase, transfer or withdrawal of the investment in whole or in part. The description of each shareholder-type fee must include the amount on which the charge is applied, e.g., 4% of amount invested. For purposes of paragraph (d)(1)(iv), the term “total annual operating expenses” is defined in paragraph (h)(3) of the proposal by reference to standards applicable to open-end management investment companies registered under the 1940 Act. The Department specifically invites comments on what, if any, problems the proposed definition presents for investment funds and products that are not subject to the 1940 Act and, any suggestions for alternative definitions or approaches. The Department has differentiated the fee and expense disclosures required for designated investment alternatives with returns that vary over time from alternatives with fixed returns based on the financial nature of each of these investment types. While the disclosure requirements for investments with respect to which the return is not fixed are more comprehensive, the Department decided that the most essential information for participants who choose to invest in fixed investment alternatives is the contractual interest rate paid to their accounts and the term of the investment during which their monies are shielded from market price fluctuations and reinvestment risks. Any fees assessed, of course, are factored into determining the contractual interest rate and RFI commentary suggested that there would be little benefit to participants to disclosing such fees for investments with fixed returns. Paragraph (d)(1)(v) provides that, for purposes of the requirement that participants be provided information on or before the date they are eligible to be covered under the plan, plan fiduciaries may provide such participants the most recent annual disclosure furnished to participants and beneficiaries pursuant to paragraph (d)(1), in addition to any material changes to the information described in paragraph (c)(1)(i). This provision ensures that new participants receive at least the same information that has been furnished to other plan participants and beneficiaries with respect to the designated investment alternatives under the plan. It also avoids the possible burdens and costs of a requirement that fiduciaries update the required disclosures for each new plan participant, which could result in a daily updating requirement for many plans. Paragraph (d)(2) of the proposal requires the fiduciary to furnish the information required by paragraph (d)(1) in a chart or similar format that will permit straightforward comparison of the plan's designated investment alternatives by participants and beneficiaries. Many commenters on the RFI supported this requirement and agreed that any required disclosure should enable participants and beneficiaries to easily compare data across a plan's menu of designated investment alternatives. Further, GAO indicated in its 2006 report that plan sponsors should be required to disclose fee information on each 401(k) investment option in a way that facilitates comparison among the options. 6 The fiduciary's name and contact information must also be provided so that participants and beneficiaries may request the additional information listed in paragraph (d)(4). The chart or similar document also must include a statement informing participants and beneficiaries that more current information about a designated investment alternative, including performance and cost updates, may be available on the Web site for the investment alternative. 6 *See supra* note 4. In response to commenters on the RFI, the Department has developed a model disclosure form that can be used for purposes of satisfying the disclosure requirements of paragraph (d)(2) of the proposal. The model appears in the Appendix to this regulation. Paragraph (e)(3) of the proposal specifically provides that a fiduciary that uses and accurately completes the model format set forth in the Appendix will be deemed to have satisfied the requirements of paragraph (d)(2) relating to the disclosure of the information in paragraph (d)(1) in a comparative form. 7 The Department notes that the proposal would not mandate use of the model as the exclusive means for satisfying the requirement to provide a chart or similar format that facilitates comparison. This proposal provides fiduciaries with the flexibility to create a chart or comparative format of their own design, provided the required information is displayed in a manner facilitating comparisons. 7 The Department notes that the model set forth in the Appendix includes information and statements that are merely illustrative of the type of information that might appear in the required disclosure. It is the responsibility of each plan fiduciary to assure itself that the information contained in its disclosure statement is complete and accurate. However, such fiduciaries shall not be liable for their reasonable and good faith reliance on information furnished by their service providers with respect to those disclosures required by paragraph (d)(1). Paragraph (d)(3) of the proposal requires that when a plan provides for the pass-through of voting, tender and similar rights, the fiduciary must furnish participants and beneficiaries who have invested in a designated investment alternative with these features any materials about such rights that have been provided to the plan. This requirement is similar to the requirement currently applicable to section 404(c) plans. See § 2550.404c-1(b)(2)(i)(B)( *1* )( *ix* ). Paragraph (d)(4) of the proposal requires a fiduciary to furnish certain identified information either automatically or upon request by participants and beneficiaries, based on the latest information available to the plan. This provision is modeled on the requirements currently applicable to section 404(c) plans with respect to information to be furnished upon request of a participant or beneficiary. See § 2550.404c-1(b)(2)(i)(B)( *2* ). 4. Timing of Disclosures As discussed above, each of the various disclosures must be made within specific timeframes. The plan-related information concerning certain administrative procedures and expenses required by subparagraphs (c)(1)(i), (c)(2)(i), (c)(3)(i), and the investment-related information required by subparagraph (d)(1) must be provided to each participant or beneficiary “on or before the date of plan eligibility” and “at least annually thereafter.” The proposal defines “at least annually thereafter” in paragraph (h)(4) to mean at least once in any 12-month period, without regard to whether the plan operates on a calendar or fiscal year basis. The proposal also requires that certain information be provided to participants and beneficiaries on a more frequent basis. Specifically, the actual dollar amounts charged to an individual's account during the preceding quarter for administrative and individual services must be disclosed in a statement to participants and beneficiaries “at least quarterly” pursuant to subparagraphs (c)(2)(ii) and (c)(3)(ii) of the proposal. The proposal defines “at least quarterly” in paragraph (h)(5) to mean at least once in any 3-month period. 5. Other Fiduciary Duties Paragraph
(f)makes clear that nothing in the regulation would relieve a fiduciary of its responsibilities to prudently select and monitor service providers to the plan and the investments made available under the plan (i.e., designated investment alternatives). 8 8 Also, with regard to ERISA's general fiduciary standards, it should be noted that there may be extraordinary situations when fiduciaries will have a disclosure obligation beyond those addressed by this regulation. For example, if a plan fiduciary knew that, due to a fraud, information contained in a public financial report would mislead investors concerning the value of a designated investment alternative, the fiduciary would have an obligation to take appropriate steps to protect the plan's participants, such as disclosing the information or preventing additional investments in that alternative by plan participants until the relevant information is made public. *See also Varity Corp.* v. *Howe,* 516 U.S. 489
(1996)(plan fiduciary has a duty not to misrepresent to participants and beneficiaries material information relating to a plan). C. Proposed Amendments to § 2550.404c-1 Also included in this notice are proposed amendments to the regulation under section 404(c) of ERISA, 29 CFR § 2550.404c-1. The proposed amendments to section 2550.404c-1(b),
(c)and
(f)would integrate the disclosure requirements in the section 404(c) regulation with the new proposed section 2550.404a-5 disclosure requirements and thereby avoid having different disclosure rules for plans intending to comply with the section 404(c) requirements. In brief, the proposed amendments to the section 404(c) regulation eliminate references to disclosures encompassed in the new § 2550.404a-5 proposal and incorporate cross-references to the new proposal, thereby establishing a uniform disclosure framework for all participant-directed individual account plans. The Department also is taking this opportunity to reiterate its long held position that the relief afforded by section 404(c) and the regulation thereunder does not extend to a fiduciary's duty to prudently select and monitor designated investment managers and designated investment alternatives under the plan. Accordingly, it is the Department's view that a fiduciary breach or an investment loss in connection with the plan's selection of a designated investment alternative is not afforded relief under section 404(c) because it is not the result of a participant's or beneficiary's exercise of control. 9 The Department is proposing to amend paragraph (d)(2) (entitled “Limitation on liability of plan fiduciaries”) of § 2550.404c-1 to add a new subparagraph
(iv)providing that, “[P]aragraph (d)(2)(i) does not relieve a fiduciary from the duty to prudently select and monitor any designated investment manager or designated investment alternative offered under the plan.” 9 See 57 FR 46906, 46924, n.27 (preamble to § 2550.404c-1) (October 13, 1992). D. Effective Date The Department proposes that the regulations and amendments contained in this notice be effective for plan years beginning on or after January 1, 2009. The Department specifically invites comments on the earliest date on which the proposed regulation and amendments can or should be effective, addressing any administrative or programming costs or other issues that should be considered in establishing an effective date. E. Regulatory Impact Analysis As discussed in the preceding sections, the proposed regulation would establish a uniform basic disclosure regime for participant-directed plans. Many of the disclosures contained in the proposed regulation are similar to those required for participant-directed individual account plans that currently comply with section 404(c) and the Department's regulations issued thereunder. For other participant-directed plans which choose not to be section 404(c) compliant there is some uncertainty as to what information is provided to participants; accordingly, the Department is assuming for purposes of this analysis that for some of the plans that choose not to be 404(c) compliant the proposal's disclosure requirements are new. Given the foregoing assumptions, the average incremental costs and benefits for participants in plans that provide section 404(c) compliant or similar disclosures will be smaller than for those in plans that do not provide this information. Participants in section 404(c) compliant plans or in plans that provide similar information will not receive as large an added benefit from the proposal's new disclosure requirements because they are already receiving some of the information that would be required under the proposed regulation. Executive Order 12866 Statement Under Executive Order 12866, the Department must determine whether a regulatory action is “significant” and therefore subject to the requirements of the Executive Order and subject to review by the Office of Management and Budget (OMB). Under section 3(f) of the Executive Order, a “significant regulatory action” is an action that is likely to result in a rule
(1)having an effect on the economy of $100 million or more in any one year, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as “economically significant”);
(2)creating serious inconsistency or otherwise interfering with an action taken or planned by another agency;
(3)materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
(4)raising novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. The Department has determined that this action is “significant” under section 3(f)(1) because it is likely to have an effect on the economy of more than $100 million in any one year. Accordingly, the Department has undertaken, as described below, an analysis of the costs and benefits of the proposed regulation in satisfaction of the requirements of the Executive Order and OMB Circular A-4. The Department believes that the proposed regulation's benefits justify its costs. The present value of the benefits over the ten year period is expected to be about $6.9 billion. The present value of the costs over the same time period is expected to be $759 million. Overall, the Department estimates that the proposed regulation will generate a net present value (or net present benefit) of almost $6.1 billion over the time period 2009-2018, as is shown in Table 1. Table 1.—Summary of Discounted Benefits and Costs Year Benefits ($millions/year) Costs ($millions/year) 1 2009 914.9 127.3 2 2010 855.0 90.7 3 2011 799.1 84.7 4 2012 746.8 79.2 5 2013 698.0 74.0 6 2014 652.3 69.2 7 2015 609.6 64.7 8 2016 569.8 60.4 9 2017 532.5 56.5 10 2018 497.6 52.8 Total with 7% Discounting 6875.6 759.4 Net Present Value 7% Discounting 6,116 Net Present Value 3% Discounting 7,158 Need for Regulatory Action A growing number of workers are preparing for retirement by participating in ERISA governed retirement plans that allow for participant direction of investments. How well plan participants are prepared for retirement is partly determined by how well they have invested their retirement savings. Among the key determinants of the return on an investment are fees and expenses. A one percentage point difference in fees can result in an 18 percent difference in savings. 10 10 The Commission reported that a $10,000 investment with an expense ratio of 1.5% invested for 20 years and having an annual return of 10% before fees will return roughly $49,725, while a similar investment with lower fees of 0.5% will return $60,858—an 18% difference. Invest Wisely: An Introduction to Mutual Funds, *http://www.sec.gov/investor/pubs/inwsmf.htm* . In developing this proposed regulation, the Department considered why the market alone does not provide transparent fee disclosure to participants comparable to that prescribed by this regulation. In general, the market delivers products that are deemed valuable by consumers. The lack of transparent fee disclosure in this market suggests to the Department that individuals may underestimate the impact that fees and expenses can have on their account balances, and thus undervalue transparent fee disclosure. The Department believes that this causes individuals to make uninformed investment decisions that result in inferior outcomes to those that would result from making investment decisions based on full information. Retirement plan characteristics, including disclosure practices, are shaped in significant measure by labor market forces. Employers want to attract and retain productive employees and minimize cost. If employees undervalue disclosure, plans sponsors might under-provide it. Sub-optimal levels of disclosure translate into inefficiencies in participant's choices of investment products and services. Evidence for this undervaluation includes a wide dispersion of fees paid in 401(k) plans. As supported by a report of the Investment Company Institute, 11 the fees that plans pay vary over a wide range. According to their study, 23% of 401(k) stock mutual fund assets are in funds with an expense ratio of less than 50 basis points, while an equal amount of assets are in funds with an expense ratio of over 100 basis points. Some of this variation could be explained by the varying amount of assets in plans and their accompanying economies of scale. In addition, some plans might offer more, or more expensive, plan features. The Department believes, however, that a significant portion of the variation in plan fees is due to market inefficiencies. 11 Investment Company Institute, “The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2006,” *http://www.ici.org/pdf/fm-v16n4.pdf* . Understanding and comparing investment options available in a 401(k) plan can be complicated and confusing for many participants. The magnitude of complexity and confusion may be defined by reference to the number of available investment options and the materials utilized for communicating investment-related information. For example, in plans that offer a large number of investment options, for which the primary communication is a full prospectus-like disclosure, understanding and comparing investment options may be challenging for the less financially savvy or less interested plan participants. 12 Moreover, the process of gathering and comparing information may itself be time consuming. 12 For example, the ERISA Advisory Council Working group reported that “The Working Group questions the utility of the prospectus as a source of investment information. While its delivery is required under SEC rules for investment, it lacks any marginal utility to a plan participant in terms of making an investment decision,” Report of the Working Group on Prudent Investment Process, 2006, *http://www.dol.gov/ebsa/publications/AC_1106A_report.html* . The Department also received similar comments in response to its Request of Information regarding Fee Disclosures to 401(k) Plan Participants from service providers and trade organizations. These comments can be accessed at *http://www.dol.gov/ebsa/regs/cmt-feedisclosures.html* . The proposed regulation will help a large number of plan participants by placing investment-related information in a format that facilitates comparison of investment alternatives. This simplified format will make it easier and less time consuming for participants to find and compare the needed information. As a result, plan participants may make better investment decisions and may be better financially prepared for retirement. Benefits The proposed regulation's disclosure requirements will provide important benefits to society. The provision of investment-related information in a comparative format is a new requirement for all participant directed individual account plans, including section 404(c) compliant plans, and is anticipated to be especially beneficial to plan participants. The Department believes that such information will enable participants to make better decisions on how to structure their investments on a prospective basis. These benefits with respect to the provision of investment-related information are quantified in more detail below.
(a)Reduction in Fees A review of the relevant literature suggests that plan participants on average pay fees that are higher than necessary by 11.3 basis points per year. 13 The proposal's required disclosure of fees and expenses is expected to result in the payment of lower fees for many participants, assuming that participants will more consistently pick the lower cost comparable investment alternatives under their plans. 14 Selection of the lower cost comparable investment alternatives will, in turn, result in increased plan participant account investment returns. In addition, the required disclosure could lead to reduced fees 15 in the investment alternatives market as more fee transparency fosters more price competition in the market. Furthermore, the fee disclosure requirements may lead plan fiduciaries to give additional scrutiny to fees, and consequently to select less expensive comparable investment alternatives. 13 “Higher than necessary” here means that the participant could have obtained equal value without incurring the expense. This calculation, based on fees paid in 401(k) plans, assumes that participants on average pay 11 or more basis points in unnecessary fees and expenses, in the form of expense ratios or loads. This assumption is conservative in light of evidence on the distribution of investor expense levels presented in: Brad M. Barber, Terrance Odean and Lu Zheng, “Out of Sight, Out of Mind, The Effects of Expenses on Mutual Fund Flows,” Journal of Business Vol. 79, No. 6 p. 2095-2119 (2005); James J. Choi, David I. Laibson, and Brigitte C. Madrian, “Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds,” NBER Working Paper No. W12261 (May 2006); Report, Deloitte Financial Advisory Services LLP. “Fees and Revenue Sharing in Defined Contribution Retirement Plans,” (December 6, 2007) (on file with the Department); Edwin J. Elton, Martin J. Gruber, and Jeffrey A. Busse, “Are Investors Rational? Choices Among Index Funds,” NYU Working Paper, Social Science Research Network Abstract 340482 (June 2002); Sarah Holden and Michael Hadley, Investment Company Institute, “The Economics of Providing 401(k) Plans: Services, Fees and Expenses 2006,” 16 Research Fundamentals, No. 4. (September 2007). This estimate of excess expense does not take into account less visible expenses such as mutual funds' internal transaction costs (including explicit brokerage commissions and implicit trading costs), which are sometimes larger than funds' expense ratios. Deloitte, supra; Jason Karceski, Miles Livingston, and Edward O'Neal, “Portfolio Transactions Costs at U.S. Equity Mutual Funds,” University of Florida Working Paper
(2004)at *http://thefloat.typepad.com/the_float/files/2004_zag_study_on_mutual_fund_trading_costs.pdf* . 14 While increased disclosure to plan participants is expected to reduce fees, it is not clear by how much. Some participants may not make optimal use of the disclosed information to reduce fees when making investment decisions. Also, the proposal's disclosures are limited to plan's designated investment alternatives chosen by plan fiduciaries rather than by plan participants. 15 In their mutual fund experiment, Choi et al. found that presenting the participants with a comparison fee chart, and not just a prospectus, reduced the fees paid by 12% to 49% depending on the group studied. James J. Choi, David I. Laibson, and Brigitte C. Madrian. May 2006. “Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds.” NBER Working Paper No. W12261. Although participants in section 404(c) compliant plans already receive much of the information that would be required under the proposed regulation, they are expected to receive a substantial incremental benefit. Participants in section 404(c) compliant plans, as well as many participants in plans that are not choosing to be section 404(c) compliant, who invest in mutual funds that are designated investment alternatives under the plan already receive the fee information in the related funds' prospectuses. The proposal's required disclosure of a summary of fee and performance information in a comparable format may nevertheless be beneficial in assisting plan participants to make better investment decisions. Thus, the Department assumes that participants in plans that are not providing disclosures similar to that required under section 404(c) receive a larger added benefit from the proposal's disclosures than plan participants that receive section 404(c) compliant or similar disclosures. 16 16 The Department assumes that plan participants that already receive the section 404(c) required information will receive a benefit from the proposal that is two-thirds of that received by participants that do not already receive this information. In addition, the Department assumes that at least 80% of participants in plans that choose not to be 404(c) compliant, nevertheless, receive similar disclosures to participants in section 404(c) compliant plans. The Department specifically requests comments on the percentage of participants that already receive this information and the additional benefits that plan participants will receive due to the proposed regulation. The Department estimates that there will be assets of about $2.6 trillion in participant-directed individual account plans in 2009 17 and that about $3.0 billion in higher than necessary fees are being paid by plan participants. Assuming the proposal's fee disclosures will reduce the amount of higher than necessary fees paid on average
(a)by 10% (11.3 basis points*10%=1.13 basis points) 18 for participants in section 404(c) compliant plans or plans that provide similar information, and
(b)by 15% (11.3 basis points*15%=1.70 basis points) for participants in plans that do not receive section 404(c) compliant or similar information, the Department believes that the proposal's fee disclosures will result in $307 million in fee savings for plan participants in 2009 as shown in Table 2. 17 The Department estimates, using 2005 Form 5500 data, that in 2005 $2.3 trillion in assets were held in participant directed accounts. To arrive at a 2009 dollar estimate, this number is then adjusted for inflation. This estimate does not include growth due to new participants or contributions and it also ignores increases or decreases due to the returns on the assets. Overall, the Department believes it under estimates the total amount of assets in 2009. 18 Choi et al.
(2006)found that providing comparative fee information to the treatment groups reduced fees by 12% to 49%. While this estimate originated from an experiment using young educated subjects, the Department believes that the assumptions made here are reasonable as they were selected from the lower range of values. Table 2.—Benefits Due to Reduction in Fees
(2009)Type of plan Total amount of assets in plans (in millions of 2009 dollars) Basis points of higher than necessary fees Percent correction due to disclosure Benefits from reduction in fees (percent)
(C)(A * B * C) 404(c) Plans and Plans with Similar Information 2,500,000 0.11 10 $282,754,000 Non-404(c) Plans without Similar Information 144,000 0.11 15 24,487,000 Total Undiscounted Benefits 307,241,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. There is some question as to whether some reductions in fees might represent transfers (such as consumer surpluses being recaptured by participants from investment managers) rather than efficiency gains. The Department believes that fee reductions attributable to this proposed regulation will mostly reflect efficiency gains, especially in the longer run. Downward pressure on fees will favor more efficient means of producing investment and other plan services. It will also reflect a diminution of the market for services whose costs exceeds their benefits (such as movement from more active to more passive investment management in cases where the latter is more efficient). However, it is possible that some fraction of reduced fees could reflect a transfer. 19 The Department invites comments on this possibility. Since a purpose of the proposed regulation is to help plan participants increase their retirement savings, and because the expected fee reduction furthers this goal, the Department's motivation is the same irrespective of whether fee savings reflect transfers or efficiency gains. In the absence of information of what portion of fee savings might reflect transfers, for purposes of this assessment all such savings is counted as benefits. 19 Fees vary due to the number and type of investment alternatives selected by the plan fiduciary. Nevertheless, plan participants can still influence the amount of fees they pay. Participants can choose among, on average almost 19 alternatives (Vanguard. “How America Saves 2006.”) in the plan and select lower cost investment options or change their allocation percentages. Participants can also ask the plan fiduciaries to offer lower cost alternatives.
(b)Reduction in Participant Search Time The proposed regulation will benefit plan participants by reducing the time they spend searching for and compiling fee and expense information. Although it is possible that all of these 65 million participants in participant directed individual account plans could benefit from increased disclosure, only a subset will choose to act on the disclosed information. The Department estimates that about at least 29 percent of plan participants will spend time researching their plans' designated investment alternatives fee and expense information and are, therefore, likely to benefit from reduced search time and corresponding reduced costs. This estimate is based on an EBRI survey 20 which found that 29 percent of the respondents that received educational materials from their plans read the materials and made a change in their retirement plan investments. This assumption results in nearly 19 million plan participants that could benefit from reduced search costs. The Department seeks comments on the extent to which this proposal may increase the percentage of plan participants who will spend time researching their plans. 20 Employee Benefit Research Institute Issue Brief #292, April, 2006. The same EBRI study found that respondents spent 19 hours per year on average planning for retirement. Of these 19 hours, the Department assumes that one-and-a-half hours could be saved on average for participants that are not receiving information like that required in section 404(c) and one hour for participants that are receiving section 404(c) compliant or similar disclosures based on the proposal's increased fee disclosure information. This assumption results in approximately 19 million hours being saved by affected plan participants as a result of the proposed regulation. The Department seeks comments on this assumption. In order to convert the time-savings into a dollar estimate, the Department estimated how much the average participants would value the time saved. Since the search time is assumed to be spent during leisure time and in order to adjust for the difference that plan participants attribute to leisure time versus work time, an average total wage rate for private sector workers participating in a pension plan with individual accounts was reduced by 10 percent to derive at an average value rate of leisure time. 21 Using a wage rate of a little less than $35 22 for private sector workers participating in a pension plan with individual accounts results in an average value of an hour of leisure time of $31 for 2009. Thus, the benefits from reduced search time for plan participants are estimated at $608 million for 2009 as shown in Table 3 below. 21 Feather and Shaw (1999), using an econometric model, found that the opportunity cost of leisure time is 10 percent less than observed wages for employed workers. See Feather, P. and Shaw, W.D., “Estimating the Cost of Leisure Time for Recreation Demand Models,” *Journal of Environmental Economics and Management,* Volume 38, Issue 1, July 1999, Pages 49-65. 22 This wage rate estimate is based on hourly wages from Panel 7 of the 2001 wave from the Survey of Income Program Participation
(SIPP)and on wage growth data for private-sector workers that participate in a pension plan with individual accounts from the Bureau of Labor Statistics (BLS). Table 3.—Benefits from Reduced Participant Search Time
(2009)Type of plan Number of (affected) participants in participant-directed Accounts Percentage of participants predicted to make a change in allocation to lower fee investments Number of search hours saved by participant Average hourly value of participants' leisure time (in 2009 Dollars) Total benefits from reduced participant search time
(D)(A * B * C * D) 404(c) Plans and Plans with Similar Information 62,058,000 29 1.0 $31.33 $563,884,000 Non-404(c) Plans without Similar Information 3,211,000 29 1.5 $31.33 43,770,000 Total Undiscounted Benefits 607,654,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.
(c)Summary of Benefits The quantified benefits of the proposed regulation consist of benefits from the reduction in fees and from the reductions in search time for participants seeking information on fees, which will occur primarily as a result of the comparative disclosure of investment-related information, and secondarily due to the disclosure of non-investment-related fee and expense disclosures. Estimates of these total benefits due to prospective fee disclosure are presented in Table 4 and amount to a total net present value of $6.9 billion over the 10-year period. Table 4.—Total Discounted Benefits of the Proposal Year Benefits from reduction in fees Benefits from reduced participant search time Total benefits
(B)(A + B) 2009 $307,241,000 $607,654,000 $914,895,000 2010 287,141,000 567,901,000 855,042,000 2011 268,356,000 530,748,000 799,105,000 2012 250,800,000 496,027,000 746,827,000 2013 234,393,000 463,576,000 697,969,000 2014 219,059,000 433,249,000 652,308,000 2015 204,728,000 404,905,000 609,633,000 2016 191,334,000 378,416,000 569,751,000 2017 178,817,000 353,660,000 532,477,000 2018 167,119,000 330,523,000 497,642,000 Total with 7% Discounting 6,875,649,000 Total with 3% Discounting 8,038,368,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. In addition to the benefits that will derive from the disclosure of investment-related information in a comparative format, which are quantified above, participants also will benefit from a retrospective disclosure of plan administrative fees actually charged to their accounts in the prior quarter. The Department believes that participants who are trying to plan for retirement are entitled to a comprehensive disclosure that includes not only information about fees and expenses that may occur depending on investment options selected, but also information on other fees that were actually assessed against their accounts in the previous quarter. RFI commentary indicates that participant advocates, plan sponsors and service providers, support such a disclosure requirement. 23 Information about actual charges to participants' accounts may, among other things, help participants understand their current reported account balance, help detect errors in prior charges by the plan, help them in relation to their general household budgeting and retirement planning, and help insure the reasonableness of the charges. The Department seeks comments that would help quantify the benefits of the retrospective disclosure. 23 These comments can be found under *http://www.dol.gov/ebsa/regs/cmt-feedisclosures.html.* Costs The regulation may result in increased administrative burdens and costs for plans (or plan sponsors).
(a)Increased Administrative Burden Costs Due to Upfront Review and Updating of Plan Documents Plans are likely to incur administrative burdens and costs in order to comply with the requirements of the regulation. The proposed regulation will require each plan to incur an upfront cost to have the regulation reviewed by professionals, such as lawyers. This cost will be incurred by all participant-directed individual account plans. The Department assumes it will require a professional to spend one half hour to perform the review. 24 Using in-house labor rates for a legal professional of nearly $113, 25 the up-front legal review cost is estimated at $24.6 million. In addition, the Department estimates that each plan will spend one-half hour of clerical time at an (in-house) hourly rate of $26 preparing the disclosures. This would result in a cost of $5.7 million for 2009. The costs of reviewing and preparing plan related information are summarized in Table 5. The Department seeks comments on its assumptions regarding hourly rates and number of hours in the table below. 24 This estimate reflects that plans may employ service providers for making disclosures and that these service providers are likely to spread fixed and start-up costs across many plan clients. 25 EBSA wage estimates are based on the National Occupational Employment Survey (May 2006, Bureau of Labor Statistics) and the Employment Cost Index (March, 2007, Bureau of Labor Statistics), unless otherwise noted. Table 5.—Review and Prepare Plan Related Information,
(2009)Year Number of participant-directed plans Legal professional hours required to review each plan Hourly labor cost for legal professional (in 2009 dollars) Clerical professional hours required to prepare plan documents Hourly labor cost for clerical professional (in 2009 dollars) Review cost
(E)(A*B*C) + (A*D*E) 2009 436,862 0.5 $113 0.5 $26 $30,322,591 Total Undiscounted Costs 30,322,591 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Based on the 2005 Form 5500 data, the Department estimates that approximately 59,000 new participant-directed individual account plans would be required to disclose general plan information each year. The Department assumes that writing a new disclosure notice for these plans would require, on average, one-half hour of legal professional time and one-half hour of clerical time per plan leading to a cost estimate of $4 million annually. The Department estimates that about 378,000 existing plans will require one-quarter hour of legal professional time and one-quarter hour of clerical staff time to update plan documents to take into account plan changes, such as new investment alternatives, in subsequent years. This results in a cost of approximately $13 million as summarized in Table 6. The Department seeks comments on the assumptions used to develop this figure. Table 6.—Review and Update Plan Related Information, (Subsequent Years) Type of plan Number of participant-directed plans Legal professional hours required to review each plan Hourly labor cost for legal professional (in 2009 dollars) Clerical professional hours required to prepare plan documents Hourly labor cost for clerical professional (in 2009 dollars) Review cost
(E)(A*B*C) + (A*D*E) Existing Plans 378,000 0.25 $113 0.25 $26 $13,107,000 New Plans 59,000 0.50 113 0.50 26 4,109,000 Total undiscounted costs 17,216,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Costs Due to Production of Quarterly Dollar Amount Disclosures The proposed regulation will require plan administrators to send out disclosures about administrative charges—on a plan-wide as well as a participant-specific basis—to participants' accounts and engage in record keeping. The increase in administrative costs resulting from disclosing actual dollar fee and expense disclosure is derived from a GAO report that measures the cost of the disclosures of the actual dollar amount of mutual fund investment expenses on a participant level. 26 The GAO report estimates the initial cost to generate these disclosures in 2001 at $1 per account, 27 and the annual cost of continued compliance at $0.35 per account. 28 The cost to plans to calculate administrative fees for purposes of this proposed regulation is expected to be less, because most of the expense information to be disclosed under the regulation is already tracked. The Department assumes it will cost both section 404(c) compliant and non-section 404(c) compliant plans one-third of the costs of disclosure of investment costs by mutual funds to disclose actual dollars charged, leading to cost estimates of about $0.41 per plan participant in the first year and $0.14 thereafter. 29 Thus, the cost to produce the actual dollar disclosure is estimated at $26.5 million for 2009 as shown in Table 7. 30 The Department invites comments on the cost to plans to produce actual dollar disclosures of the required fees, including the extent to which the costs differ for plans that are already making actual dollar disclosures and plans that are not. 26 GAO-03-551T, “Mutual Funds: Information on Trends in Fees and Their Related Disclosure,” March 12, 2003, p. 14. 27 As a reference, Investment Management Consultants
(IMC)has indicated that the cost to plan sponsors of producing an Internet report to comply with PPA ranges from $0.50 per participant per year for the largest plans to $3.00 per participant per year for the smallest plans. This cost, representing what IMC charges plan sponsors for industry-wide information on fees, is based on their data set containing 15,000 plans through September 2007, but does not include costs associated with printing reports, such as postage, stationary, and envelopes. 28 The GAO report estimates that implementing specific dollar disclosures of fees would cost $1.00 per participant in the initial year (in 2001 dollars). In subsequent years this would annually cost about $0.35 (in 2001 dollars). This cost estimate includes the cost to enhance the current data processing systems, modify investor communication systems and media, develop new policies and procedures and implement employee training and customer support programs. This estimate does not include the reportedly significant costs that would be borne by third party financial institutions that maintain accounts on behalf of individual mutual fund shareholders. 29 The Department used
(a)historical CPI data to inflate the $1.00 estimate to $1.19 (in 2007 dollars) and the $0.35 estimate to $0.42 (in 2007 dollars) and
(b)the projected inflation rate from the November 2007 President's Economic Forecast for 2008 (2.1 percent) to inflate the $1.19 value to $1.22 and the $0.42 value to $0.43 (in 2009 dollars). The President's Economic Forecast can be found at: *http://www.whitehouse.gov/cea/econ-outlook20071129.html.* 30 The Department did not account for additional paper costs, given that no additional pages need be added as long as this information is included as part of the quarterly benefit statement. Table 7.—Cost of Additional Record Keeping and of Producing Actual Dollar Disclosures Year Number of (affected) participants in participant-directed accounts Per participant cost from GAO report Percent of cost for calculating administrative fees Cost of record keeping and of producing actual dollar disclosures
(C)(A * B * C) 2009 65,269,000 $1.22 33 $26,543,000 Subsequent year 65,269,000 0.43 33 9,355,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Costs Due to Consolidation of Fee Information Additional administrative burdens and costs are likely to arise because of the need for plans to consolidate information from more than one source to prepare the required comparative chart. The Department estimates that it takes a staff person with some financial background about one hour per plan to consolidate the information from multiple sources for the comparative chart. Using a wage rate of about $60 for such an employee, results in estimated costs for the consolidation of fee information from multiple sources of approximately $26 million for 2009 as shown in Table 8. Table 8.—Cost of Consolidation of Fee Information Year Number of participant-directed plans Average plan staff time (hours) required to consolidate fee information from multiple sources for comparative format Accountant hourly labor cost (in 2009 dollars) Cost of consolidation of fee information for comparative format
(C)(A * B * C) 2009 437,000 1 $60 $26,290,000 Total Undiscounted Costs 26,290,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Costs of Distribution and Materials Due to the Disclosure of Plan and Fee Information These disclosures must be sent to plan participants on an annual or quarterly basis. 31 The Department assumes that it takes clerical staff two additional minutes to assemble and send out disclosures. The Department also assumes that 38% of disclosures will be sent electronically and therefore require only a *de minimis* amount of time to prepare. With wage rates of about $26 for clerical personnel, these dissemination labor costs are estimated at $35.1 million in 2009, as shown in Table 9. 31 This section does not include distribution or material costs for the disclosures of administrative fees charged to participants' accounts as the Department assumes that this information can be included as part of the quarterly benefit statement. Following a participant's investment in an investment alternative, the plan must provide any materials it receives regarding voting, tender or similar rights in the alternative (“pass-through materials”) (29 CFR 2550.404a-5(d)(3)). This information is already required for 404(c) compliant plans and by the Department's Qualified Default Investment Alternative regulation. In addition, a large majority of plans voluntarily provide this information to its participants. As a result only an estimated number of 699,000 participants will be receiving this information for the first time because of the proposed regulation. The Department assumes that clerical staff will prepare and send the required materials. It may take the clerical staff on average one and one-half minutes to prepare and mail the post-investment materials. The Department assumes that this information will be sent annually resulting in nearly 699,000 disclosures. The Department expects that 38 percent of the disclosures will be sent electronically. Table 9 reports the cost of $283,000 to prepare and send the required post-investment information. Table 9.—Cost of Distributing Disclosures Type of disclosure Number of disclosures to be sent Percentage of disclosures not transmitted via e-mail Hourly labor cost (in 2009 dollars) Hours per disclosure Materials costs for distribution of disclosures
(D)(A * B * C * D) Annual Disclosures 65,269,000 62 $26.07 0.033 $35,166,000 Pass-Though Materials 699,000 62 26.07 0.025 283,000 Total Undiscounted Costs 35,448,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. In addition to labor costs associated with the disclosure, plans will also bear materials and postage costs. The annual disclosure is assumed to include 13 pages for plans that are not already providing disclosures similar to section 404(c) disclosures. Plans already providing section 404(c) compliant or similar disclosures are assumed to already be making annual disclosure of information and are therefore assumed to need to add only three pages of additional information to what they are already disclosing to participants. 32 The pass-through information is assumed to be ten pages and sent on an annual basis to plan participants as described above. Paper and printing costs are assumed to be $0.05 a page and mailing costs to be $0.42. 33 It is further assumed that 38 percent of statements will be available electronically. In total, this leads to an estimate for materials and postage of $8.2 million in 2009 for the annual disclosures as shown in Table 10 and $473,000 for the post-investment pass-through information as shown in Table 11. 32 The proposed regulation would amend the regulation under ERISA section 404(c), 29 CFR 2550.404c-1, to make the disclosure requirements for section 404(c) compliant plans consistent with those that would apply to participant directed individual account plans generally. The Department assumes for purposes of the economic and paperwork analysis that the disclosure costs of 404(c) compliant plans under the amended regulation would be similar to those absent the proposed regulation. 33 The postage rate for First-Class Mail is increasing to $0.42 as of May 12, 2008 ( *http://pe.usps.com/2008_RateCase/RateCharts/R08_Rate_Charts.htm* ). Table 10.—Annual Disclosures Materials and Postage Costs
(2009)Type of plan Number of (affected) participants in participant-directed accounts Percentage of disclosures not transmitted via e-mail Number of pages for annual disclosure Paper and printing cost per page Mailing costs Materials costs for distribution of disclosures
(E)(A * B) * (C * D + E) 404(c) Plans and Plans with Similar Information 62,058,000 62 3 $0.05 $0.00 $5,771,000 Non-404(c) Plans without Similar Information 3,211,000 62 13 0.05 0.59 2,468,000 Total Undiscounted Costs 8,240,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Table 11.—Pass-Through Materials and Postage Costs
(2009)Number of disclosures to be sent Percentage of disclosures not transmitted via e-mail Number of pages for annual disclosure Paper and printing cost per page Mailing costs Materials costs for distribution of disclosures
(E)(A * B) * (C * D + E) 699,000 62 10 $0.05 $0.59 $473,000 Total Undiscounted Costs 473,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. In total, the Department estimates that in 2009 participant-directed plans incur increased administrative costs of approximately $127 million.
(b)Discouragement of Some Employers From Sponsoring a Retirement Plan Increased administrative burdens may discourage some employers, particularly small employers, from sponsoring a retirement plan. For small plan sponsors, the administrative burden is felt disproportionately because of their limited resources. Small business owners who do not have the resources to analyze plan fees or to hire an analyst may be discouraged from offering a plan at all. Regulatory burden is one among many reasons for small businesses not to sponsor a retirement plan. According to the 2000, 2001, and 2002 Employee Benefit Research Institute (EBRI)'s Small Employer Retirement Surveys, about 2.7 percent of small employers cited “too many government regulations” as the most important reason for not offering a retirement plan. 34 Due to very limited data in this area, the Department is not able to quantitatively estimate this impact. The Department seeks comments on the extent to which this proposal discourages small employers from offering retirement plans. 34 The survey defines small employers as those having up to 100 full-time workers. Other reasons small employers do not offer a retirement plan are that workers prefer wages or other benefits, that a large portion of employees are seasonal, part-time, or high turnover, and that revenue is too low or uncertain. See *http://www.ebri.org/surveys/sers* for more detail.
(c)Summary of Costs The quantified total costs of the proposed regulation include costs due to the increased administrative burden. Columns
(A)and
(B)of Table 12 below show the estimated costs of up-front review of the regulation and updating of plan documents. Column
(C)shows the costs of producing quarterly Dollar amounts for administrative fees charged to participant accounts. The largest cost of the regulation, though, results from the disclosure of the administrative expenses and investment-related fees that may be charged to participants' accounts—the consolidation of fee information costs, and the distribution and material costs as can be seen in columns (D), (E), and (F). Table 12 reports that the total present value of these costs is estimated at $759 million over the ten-year period. Table 12.—Total Discounted Costs of Proposal Year Up-front review cost Update plan documents Consolidation of fee information Production of quarterly dollar amount disclosures Distribution materials costs Staff cost to distribute disclosures Total costs
(F)(A + B + C + D + E + F) 2009 $30,323,000 0 $26,290,000 $26,543,000 $8,713,000 $35,448,000 $127,317,000 2010 3,840,000 $12,250,000 24,570,000 8,743,000 8,143,000 33,129,000 90,675,000 2011 3,589,000 11,448,000 22,963,000 8,171,000 7,610,000 30,962,000 84,743,000 2012 3,353,000 10,699,000 21,461,000 7,637,000 7,112,000 28,936,000 79,199,000 2013 3,134,000 9,999,000 20,057,000 7,137,000 6,647,000 27,043,000 74,018,000 2014 2,929,000 9,345,000 18,745,000 6,670,000 6,212,000 25,274,000 69,176,000 2015 2,738,000 8,734,000 17,518,000 6,234,000 5,806,000 23,621,000 64,650,000 2016 2,559,000 8,162,000 16,372,000 5,826,000 5,426,000 22,075,000 60,421,000 2017 2,391,000 7,628,000 15,301,000 5,445,000 5,071,000 20,631,000 56,468,000 2018 2,234,000 7,129,000 14,300,000 5,089,000 4,739,000 19,281,000 52,774,000 Total with 7% Discounting 759,440,000 Total with 3% Discounting 880,339,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Summary As shown in Table 1 above, the Department concludes that the estimated benefits ($6.9 billion) of the proposed regulation outweigh its estimated costs ($759 million) by almost $6.1 billion over the ten-year period. Uncertainty Although the Department sought to anchor its analysis on empirical evidence, there are a number of variables that are subject to uncertainty. While the Department is confident that increased fee disclosures can induce changes in participant behavior and reductions in plan fees, it is uncertain about the exact magnitude of these changes. The variables with the most uncertainty in the analysis are: • The percentage of plan fees that could be saved, • The percentage of participants that would save search time for fee information, • The amount of search time saved per participant, • The time required for legal professionals, clerical professionals 35 and accountants to perform their tasks, 35 The clerical time to distribute disclosures remains unchanged in this sensitivity analysis. • And the cost to obtain the actual dollar amounts of participant's plan and administrative expenses. To estimate the influence of these variables on the analysis, the Department re-estimated the costs and benefits of the proposed regulation under different assumptions for these uncertain variables. Table 13 presents the effects of changing the variables of interest. The first two variables on the list were decreased, while the remaining variables were increased. Changing the variables of concern by 25 percent still resulted in a net present value of $5.1 billion. Changing the variables by 50 percent still resulted in a net present value of $3.6 billion. Even after changing the key variables by 75 percent the net present value of the proposed regulation was $1.5 billion. The Department, however, does not believe that a change of 75% in these variables is a very likely scenario. Table 13.—Sensitivity of Benefits and Costs to Key Variables Percent change in variables Benefits ($millions/year) Costs ($millions/year) Net present value ($millions/year) 25 6,013 866 5,147 50 4,579 973 3,606 75 2,575 1,080 1,495 Note: The displayed numbers are rounded to the nearest million. Regulatory Alternatives Executive Order 12866 directs Federal Agencies promulgating regulations to evaluate regulatory alternatives. The Department considered the following alternatives to the proposed regulation, and will also briefly discuss the status quo baseline: • Extending the existing section 404(c) regulation disclosure requirements to all participant-directed individual account plans; • Establishing a general, nonspecific disclosure requirement; or • Requiring more extensive and detailed disclosures. These alternatives, and the status quo baseline, are described further below: • Keeping the status quo OMB Circular A-4 recommends that “benefits and costs are defined in comparison with a clearly stated alternative. This normally will be a 'no action' baseline: what the world will be like if the proposed rule is not adopted.” The Department followed this recommendation, and weighed the option of keeping the status quo and relying on the current regulatory framework. By definition, as the regulatory baseline, this “alternative” would have zero costs and benefits; however, the Department feels it is useful to briefly describe the status quo, and the reasons for rejecting it in favor of a regulation, before we discuss regulatory alternatives. As stated above, regulations already exist specifying the information that must be provided to participants of 404(c) compliant plans in order to relieve plan fiduciaries of responsibility for participant investment decisions (see § 2550.404c-1(b)(2)(i)(B)). Many of the proposal's disclosures are identical or similar to the required disclosures of section 404(c) and the regulations issued thereunder. However, compliance with section 404(c) is elective and according to 2005 Form 5500 data only about 275,000 plans covering 49 million participants and beneficiaries make this election. About 16 million participants and beneficiaries are participating in 49,000 participant-directed individual account plans that are choosing not to be section 404(c) compliant and a significant number of these individuals may not receive disclosures in compliance with section 404(c), and, therefore, may not receive the information the Department believes they need to make informed account management and investment decisions. 36 More importantly, the section 404(c) disclosure of investment-related information is not required to be in a comparative format that encourages and facilitates review by plan participants and beneficiaries. Neither does such a requirement exist for any other type of participant-directed individual account plan. 36 However, the Department recognizes that many plan participants in participant-directed individual account plans that choose not to comply with all of the section 404(c) requirements are receiving similar information to what they would receive if the plans had chosen to comply with all requirements of section 404(c). • Extending the existing 404(c) disclosure requirements to all participant-directed individual account plans The Department considered requiring all participant-directed individual account plans to comply with section 404(c) and the regulations issued thereunder. This would not have required any additional disclosures to participants in existing section 404(c) compliant plans, and, therefore, may have required less extensive effort by such plans, such as review of the proposed regulation and development of materials in order to come into compliance. Participants and Beneficiaries, however, would also not have had the benefit of receiving critical information in a comparative chart. 37 37 Under the proposal, plans would be required to disclose specified identifying information, past performance data, comparable benchmark returns, and fee and expense information for each investment alternative. Under the existing 404(c) rule, plans only have to provide past performance data and operating expense information directly or upon request and benchmark returns do not have to be provided. Compared to the status quo, only participants in participant-directed individual account plans that do not receive similar information to the required 404(c) disclosures would experience additional benefits by extending the existing 404(c) disclosures. As noted above, the Department assumes that only 20% of the participants of plans that are presently not choosing to be section 404(c) compliant are not receiving similar information. These participants would experience benefits from a reduction in fees (5% of 0.113% of their assets, as shown in Table 14 below) and from a reduction in their search time (0.5 hour for 29% of the affected participants, as shown in Table 15 below). This would lead to annual benefits of approximately $8.1 million due to the reduction in fees and of about $14.6 million for the reduction in participant search time. In total, benefits add up to about $22.8 million, a much smaller amount than the expected benefits of the proposal. Table 14.—Annual Benefits Due to Mandatory 404(c) Compliance, Reduction in Fees Type of plan Total amount of assets in affected plans (in millions of 2009 dollars) Basis points of higher than necessary fees Percent correction due to 404(c) disclosure Benefits from reduction in fees due to 404(c) disclosures
(C)(A * B * C) Non-404(c) Plans without Similar Information 144,000 0.11% 5% $8,162,000 Total Undiscounted Benefits 8,162,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Table 15.—Annual Benefits Due to Mandatory 404(c) Compliance, Reduced Participant Search Time Type of plan Number of (affected) participants in participant-directed accounts Percentage of participants predicted to make a change in allocation to lower fee investments Number of search hours saved by participant Average hourly value of participants' leisure time (in 2009 dollars) Total benefits from reduced participant search time due to 404(c) disclosures
(D)(A * B * C * D) Non-404(c) Plans without Similar Information 3,211,000 29% 0.5 $31.33 $14,590,000 Total Undiscounted Benefits 14,590,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Additional costs for review, update and preparation of related information, as compared to the status quo, would fall on all participant-directed individual account plans that are presently not choosing to comply with section 404(c). 38 The Department estimates that these costs would amount to about $11.3 million in the first year and would fall to $9.0 million in subsequent years, as shown in Table 16 below. 38 In subsequent years, these costs fall on newly created 404(c) plans and reduced costs for updates are expected for existing 404(c) plans. Table 16.—Annual Costs Due to Additional Review, Update, and Preparation of Plan Related Information Type of plan Number of affected participant-directed plans Legal professional hours required to review each plan Hourly labor cost for legal professional (in 2009 dollars) Clerical professional hours required to prepare plan documents Hourly labor cost for clerical professional (in 2009 dollars) Review cost
(E)(A * B * C) + (A * D * E) First Year
(2009)Existing and New Plans 162,000 0.5 $113 0.5 $26 $11,250,000 Total Undiscounted Costs First Year 11,250,000 Subsequent Years, Annually Existing Plans 140,000 0.25 $113 0.25 $26 $4,863,000 New Plans 59,000 0.5 113 0.5 26 4,109,000 Total Undiscounted Costs Subsequent Years 8,971,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. In addition to costs for review, updating, and preparation of information, plans would also incur material and postage costs and labor costs for sending out the required disclosures to participants that presently are not receiving similar information and would receive the disclosures by mail, rather than via electronic means. As shown in Table 17 and Table 18 below, the Department estimates postage and material costs of about $2.6 million and labor costs of about $2 million. Table 17.—Annual Costs for Annual Additional Disclosures Materials and Postage and Pass-Through Materials Type of plan Number of (affected) participants in participant-directed accounts Percentage of disclosures not transmitted via e-mail (percent) Number of pages for annual disclosure Paper and printing cost per page Mailing costs Materials costs for distribution of disclosures
(E)(A * B) * (C * D + E) Annual Disclosures 3,211,000 62 10 $0.05 $0.59 $2,170,000 Pass Through Material 699,000 62 10 0.05 0.59 473,000 Total Undiscounted Costs 2,643,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Table 18.—Annual Costs of Additional Distributing Disclosures Type of disclosure Number of disclosures to be sent Percentage of disclosures not transmitted via e-mail (percent) Hourly labor cost (in 2009 dollars) Hours per disclosure Materials costs for distribution of disclosures
(D)(A * B * C * D) Annual Disclosures 3,211,000 62 $26 0.033 $1,730,000 Pass-Though Materials 699,000 62 26 0.025 283,000 Total Undiscounted Costs 2,013,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Table 19 below shows the annual costs and benefits and Table 20 below presents the net present benefit. The Department estimates that extending the existing 404(c) requirements would have resulted in ten-year costs of about $105 million and benefits of approximately $171 million. The ten-year net present value would have been about $66 million (in 2009 dollars). Table 19.—Additional Benefits and Costs of Mandatory 404(c) Compliance for all Participant-Directed Individual Account Plans 2009 Annual 2010-2018 Annual Benefits Fee Reduction $8,162,000 $8,162,000 Reduction in Participant Search Time 14,590,000 14,590,000 Total Benefits 22,752,000 22,752,000 Costs Review, Update, and Preparation of Documents 11,250,000 8,971,000 Annual Disclosures and Pass-Through Information 2,643,000 2,643,000 Distribution 2,013,000 2,013,000 Total Costs 15,905,000 13,627,000 Net Benefits in 2009 6,847,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Table 20.—Total (Additional) Discounted Benefits of the Alternative Year Additional benefits from extending 404(c), 7% discounting Additional costs from extending 404(c), 7% discounting Additional net benefits, 7% discounting
(B)(A−B) 2009 $22,752,000 $15,905,000 $6,847,000 2010 21,264,000 12,736,000 8,528,000 2011 19,873,000 11,902,000 7,970,000 2012 18,573,000 11,124,000 7,449,000 2013 17,358,000 10,396,000 6,962,000 2014 16,222,000 9,716,000 6,506,000 2015 15,161,000 9,080,000 6,081,000 2016 14,169,000 8,486,000 5,683,000 2017 13,242,000 7,931,000 5,311,000 2018 12,376,000 7,412,000 4,964,000 Total with 7% Discounting 170,989,000 104,689,000 66,301,000 Total with 3% Discounting 199,905,000 122,007,000 77,898,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. • Establishing a general non-specific disclosure requirement The Department considered establishing a general, non-specific disclosure rule requiring that plan fiduciaries take steps to ensure that participants and beneficiaries of participant-directed individual account plans are provided sufficient information to make informed decisions about the management of their individual accounts without further specifying what information would have to be disclosed. This alternative would have provided fiduciaries with more flexibility in providing disclosures to participants and beneficiaries, but may have also created uncertainty as to the scope of the required disclosures. It is possible that the costs to fiduciaries, and consequently plans, would be lower than the costs under the proposed regulation, but not all participants and beneficiaries may have received the critical information required under the proposed regulation. This approach also may have had the negative effect of having fiduciaries err on the side of being conservative and providing more, but not necessarily useful or meaningful, information to plan participants, creating a disincentive for participants and beneficiaries to review the furnished material. • Requiring more extensive and detailed disclosures The Department considered requiring more extensive and detailed prospectus-like disclosure of investment-related information to participants and beneficiaries. However, based on a review of RFI comments and the Commission's summary prospectus initiative, the Department concluded that a user-friendly summary of key information would be more beneficial than more extensive and detailed disclosures. In this regard, the Department attempted to define the most essential information about available investment options that should be automatically furnished in a comparative format to participants and beneficiaries, and included that information in the proposal. That information includes historical and benchmark performance, and fees and expenses. In addition, the Department considered including information on risk, but believes that risk information is not easily translated into a simple uniform comparative format that can be described in a regulatory standard. The Department notes that in most cases more detailed information, including information on risk is readily available to participants and beneficiaries through Internet Web sites, should they decide to review such information in assessing the various investment options available under their plan. Importantly, under the proposed regulation participants and beneficiaries will be advised that risks exist, and will be directed and encouraged to review more detailed information prior to making decisions concerning the investment options most appropriate for them. The Department invites comments on any additional information that should be required. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* )
(RFA)imposes certain requirements with respect to Federal rules that are subject to the notice and comment requirements of section 553(b) of the Administrative Procedure Act (5 U.S.C. 551 *et seq.* ) and that are likely to have a significant economic impact on a substantial number of small entities. Unless an agency certifies that a proposed rule will not, if promulgated, have a significant economic impact on a substantial number of small entities, section 603 of the RFA requires that the agency present an initial regulatory flexibility analysis at the time of the publication of the notice of proposed rulemaking describing the impact of the rule on small entities and seeking public comment on such impact. Small entities include small businesses, organizations, and governmental jurisdictions. For purposes of analysis under the RFA, EBSA proposes to continue to consider a small entity to be an employee benefit plan with fewer than 100 participants. The basis of this definition is found in section 104(a)(2) of ERISA, which permits the Secretary to prescribe simplified annual reports for pension plans that cover fewer than 100 participants. 39 39 Under ERISA section 104(a)(3), the Secretary may also provide exemptions or simplified reporting and disclosure requirements for welfare benefit plans. Pursuant to the authority of ERISA section 104(a)(3), the Department has previously issued at 29 CFR 2520.104-20, 2520.104-21, 2520.104-41, 2520.104-46, and 2520.104b-10 certain simplified reporting provisions and limited exemptions from reporting and disclosure requirements for small plans, including unfunded or insured welfare plans, that cover fewer than 100 participants and satisfy certain other requirements. Further, while some large employers may have small plans, in general small employers maintain most small plans. Thus, EBSA believes that assessing the impact of these proposed rules on small plans is an appropriate substitute for evaluating the effect on small entities. The definition of small entity considered appropriate for this purpose differs, however, from a definition of small business that is based on size standards promulgated by the Small Business Administration
(SBA)(13 CFR 121.201) pursuant to the Small Business Act (15 U.S.C. 631 *et seq.* ). EBSA therefore requests comments on the appropriateness of the size standard used in evaluating the impact of these proposed rules on small entities. EBSA has consulted with the SBA Office of Advocacy concerning use of this participant count standard for RFA purposes. See 13 CFR 121.902(b)(4). The Department prepared an initial RFA of the proposal because, although the Department considers it unlikely that the rule will have a significant effect on a substantial number of small plans, the Department does not have enough information to certify to that effect. The following subsections address specific requirements of the RFA.
(a)Reasons for and Objectives of the Proposal A growing number of workers are preparing for retirement by participating in participant-directed plans that are governed by ERISA. Key determinants of the return on an investment include the fees and expenses paid. This proposal is intended to improve the information that is available to participants in participant-directed individual account plans and thereby enable participants to make good investment decisions. The reasons for and objectives of this proposed regulation are discussed in detail in Section A of this preamble, “Background,” and in section “Need for Regulatory Action” of the Regulatory Impact analysis
(RIA)above. The legal basis for the proposal is set forth in the “Authority” section of this preamble, below.
(b)Estimating Compliance Requirements for Small Entities/Plans The Department believes that the effects of this proposed regulation will be to increase retirement savings by reducing investment fees paid by participants. The Department also believes that small plans will benefit from the proposal, because it will clarify what information must be disclosed to plan participants. While small and large plans will incur administrative costs due to the proposed regulation, these costs are reasonable compared to the benefits and will probably be borne by the participants who will also receive the benefits of the proposed regulation. From industry comments, the Department inferred that participants in larger plans more often than participants in smaller plans have access to needed investment information. The Department believes that participants in small plans need as much information about their plan investments as participants in larger plans. Some expenses, like the legal review of the proposal that plans may incur due to the disclosure requirements of the regulation do not increase proportionally with plan size. Nonetheless, it is possible that small plans incur smaller costs per participant than larger plans. In general, small plans offer fewer and less complex plan investment options than large plans. Less complex plan investments require less extensive disclosures and make disclosures less expensive. Thus, it is possible that smaller plans will experience lower per-participant disclosure costs than larger plans. The Department invites comments on the validity of this hypothesis. Assuming that the plan incurs the average costs for all disclosure activities that are considered in the RIA section above, the following calculation illustrates how large the costs of the disclosures would be for a very small plan (one-participant plan). As can be seen in Table 21, the total cost of compliance for a one-participant plan amounts to less than $134 in the first year and less than that amount in the subsequent years. The costs in 2009 include a review cost of about $69 per plan (one-half hour of a legal professional's time plus one-half hour of a clerical professional's time), labor costs of $60 for consolidating the information for the comparative chart (one hour), costs of on average $0.40 per participant for record keeping and disclosure of information, additional annual labor cost for distribution of $0.90 in section 404(c) compliant plans or plans that already provide similar information ($1.50 in plans that do not already provide section 404(c) compliant or similar information), and material and postage costs of $0.15 in 404(c) compliant plans or plans that already provide similar information ($2.30 in plans that do not already provide section 404(c) compliant or similar information). Table 21.—Costs for One-Participant Plan (Undiscounted) Type of cost 404(c) plans and plans with similar information Initial year Subsequent year Non-404(c) plans without similar information Initial year Subsequent year Plan Review $69.00 $35.00 $69.00 $35.00 Consolidation of Information 60.00 60.00 60.00 60.00 Actual Dollar Disclosure 0.40 0.15 0.40 0.15 Labor Cost for Distribution 0.90 0.90 1.50 1.50 Material Cost 0.15 0.15 2.30 2.30 Total 131.00 96.00 134.00 99.00 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.
(c)Considered Alternatives The Department considered several alternatives that would have required broader or narrower disclosures and which in turn would have increased or decreased the burden on plans. Exempting small plans from the disclosure requirements or limiting the disclosures from small plans would have reduced the costs small plans may incur, but would have also failed to ensure that participants in small plans receive the information that they need to make good investment decisions.
(d)Duplicative, Overlapping, and Conflicting Rules ERISA section 404(c) and the regulations thereunder contain disclosure requirements for plan fiduciaries of certain participant-directed account plans that are to some extent similar to the ones that are contained in the proposed regulation. As explained in more detail in section “A. Background” of this preamble the Department amended the regulations under section 404(c) in order to establish a uniform set of basic disclosure requirements and to ensure that all participants and beneficiaries in participant-directed individual account plans have access to the same investment-related information. In addition, the Department has consulted the Securities and Exchange Commission to avoid duplicative, overlapping, or conflicting requirements. The Department is unaware of any additional relevant federal rules for small plans that duplicate, overlap, or conflict with these proposed regulations.
(e)Comments The Department invites interested persons to submit comments regarding the impact on small plans of the proposed regulation and on the Department's assessment thereof. The Department also requests comments on the alternatives considered and its conclusions regarding those alternatives; on any additional alternatives it should have considered; on what, if any, special problems small plans might encounter if the proposal were to be adopted; and what changes, if any, could be made to minimize those problems. Paperwork Reduction Act As part of its continuing effort to reduce paperwork and respondent burden, the Department of Labor conducts a pre-clearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA 95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that the public understands the Department's collection instructions; respondents can provide the requested data in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the Department can properly assess the impact of collection requirements on respondents. Currently, the Department is soliciting comments concerning the proposed information collection request
(ICR)included in the proposed regulation. A copy of the ICR may be obtained by contacting the PRA addressee shown below or at *http://www.RegInfo.gov.* The Department has submitted a copy of the proposed regulation to OMB in accordance with 44 U.S.C. 3507(d) for review of its information collections. The Department and OMB are particularly interested in comments that: • Evaluate whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; • Evaluate the accuracy of the agency's estimate of the burden of the collection of information, including the validity of the methodology and assumptions used; • Enhance the quality, utility, and clarity of the information to be collected; and • Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology, e.g., permitting electronic submission of responses. Comments should be sent to the Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10235, New Executive Office Building, Washington, DC 20503; Attention: Desk Officer for the Employee Benefits Security Administration. OMB requests that comments be received within 30 days of publication of the Notice of Proposed Rulemaking to ensure their consideration. Please note that comments submitted to OMB are a matter of public record. *PRA Addressee:* Gerald B. Lindrew, Office of Policy and Research, U.S. Department of Labor, Employee Benefits Security Administration, 200 Constitution Avenue, NW., Room N-5718, Washington, DC 20210. Telephone
(202)693-8410; Fax:
(202)219-4745. These are not toll-free numbers. In connection with publication of this proposed rule, the Department has submitted an ICR to OMB for its request of a revised information collection under OMB Control number 1210-0090. This is the control number for the Department's existing regulation under ERISA section 404(c), which would be amended by the proposal. 40 The public is advised that 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 OMB control number. The Department will include a notice announcing OMB's action at the final rule stage. 40 See 29 CFR 2550.404c-1. The information collection provisions of the NPRM impose new hour and cost burdens on all participant directed individual account plans, and the Department intends to include the burden imposed by the proposal on 404(c) and not-404(c) compliant participant directed individual account plans under one control number. The proposed regulation on Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans would require the disclosure of plan and investment-related fee and expense information to participants and beneficiaries in participant-directed individual account plans. This ICR pertains to two categories of information that is required to be disclosed: “plan-related” and “investment-related” information. The information collection provisions of the proposal are intended to ensure that fiduciaries provide participants and beneficiaries with sufficient information regarding plan fees and expenses and designated investment alternatives to make informed decisions regarding the management of their individual accounts. The estimates of respondents and responses are derived primarily from the Form 5500 Series filings for the 2005 plan year, which is the most recent reliable data available to the Department. The burden for the preparation and distribution of the disclosures is treated as an hour burden. Additional cost burden derives from materials and postage and costs to track and report required information. It is assumed that electronic means of communication will be used in 38 percent of the responses pertaining to annual notices and that such communications will make use of existing systems that comply with the Department's electronic media disclosure guidance (29 CFR 2520.104b-1(c)). Accordingly, no cost has been attributed to the electronic distribution of the information. The Department estimates that approximately 437,000 participant directed individual account plans 41 covering 65,269,000 participants would be affected by the proposed regulation. Of these plans, 275,000 plans, covering 49,212,000 participants and beneficiaries are reported to comply with ERISA section 404(c), and the remaining 162,000 plans covering 16,057,000 participants and beneficiaries are not. The Department's estimates of the number of plans and participants are summarized in Table 22 below. 41 All numbers stated in this document have been rounded to the nearest 1,000. Any apparent discrepancy in the calculations described here is due to this rounding. Table 22.—Number of Plans and Participants Type of plan Plans Participants 404(c) 275,000 49,212,000 Non-404(c) 162,000 16,057,000 Total 437,000 65,269,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. *Plan-related Information—29 CFR 2550.404a-5(c).* The proposal requires three subcategories of Plan-related information to be provided to participants and beneficiaries. The first sub-category is General Plan Information, which provides: how participants and beneficiaries may give investment instructions; any specified limitations on such instructions, including any restrictions on transfer to or from a designated investment alternative; the exercise of voting, tender and similar rights appurtenant to an investment in a designated investment alternative as well as any restrictions on such rights; the specific designated investment alternatives offered under the plan; and any designated investment managers to whom participants and beneficiaries may give investment directions. (§ 2550.404a-5(c)(1)(i)). This information must be provided on or before the date a participant becomes eligible to participate in the plan, and afterwards at least annually. Material changes to this information must be disclosed not more than 30 days after adoption. Plans may make these disclosures in the summary plan description. The second subcategory of Plan-related Information is Administrative Expense Information, which refers to an explanation of any fees and expenses for plan administrative services (e.g., legal, accounting, recordkeeping) that, to the extent not included in investment-related fees and expenses, may be charged against the individual accounts of participants or beneficiaries and the basis on which such charges will be allocated to, or affect the balance of, each individual account (e.g., pro rata, per capita). (§ 2550.404a-5(c)(2)). This information must be provided on or before the date a participant becomes eligible to participate in the plan, and afterwards at least annually. At least quarterly, plans must furnish statements of the aggregate dollar amount charged to each participant's account for these services. Plans may make the initial and annual disclosures in the summary plan description or the quarterly benefit statement, and the quarterly information may be included in the plan's quarterly benefit statements. The third subcategory of Plan-related Information is Individual Expense Information, which describes expenses charged to individual accounts based on the actions taken by individual participants or beneficiaries. This would include charges for processing participant loans and qualified domestic relations orders. (§ 2550.404a-5(c)(3)). Information describing these charges must be furnished on or before the date a participant's eligibility and annually thereafter. Plans must provide quarterly statements identifying and showing the dollar amounts of each expense actually charged to an account. Plans may make the initial and annual disclosures in the summary plan description or the quarterly benefit statement, and the quarterly information may be included in the plan's quarterly benefit statements. First Year *Annual Disclosure:* The Department assumes that in the year of implementation, all 437,000 affected plans will conduct a legal review to verify their compliance with the proposed regulation and prepare the required disclosures. The Department estimates that the review would, on average, take one-half hour of a legal professional's time at an (in-house) hourly rate 42 of $113 resulting in a total aggregate estimate of approximately 218,000 legal hours at an equivalent cost of approximately $24,628,000. In addition, the Department estimates that each plan will spend one-half hour of clerical time at an (in-house) hourly rate of $26 preparing the disclosures. This would result in an hour burden of about 218,000 clerical burden hours with an equivalent cost of approximately $5,694,000. These estimates are summarized in Table 23 below. 42 The hourly wage estimates used in this analysis are estimates for 2009 and are based on data from the Bureau of Labor Statistics National Occupational Employment Survey (May 2005) and the Bureau of Labor Statistics Employment Cost Index (Sept. 2006). Table 23.—Plan-Related Information, General Information, First Year Type of plan Number of affected plans Professional hours Clerical hours Total professional hours Total clerical hours Equivalent cost—professional Equivalent cost—clerical 404(c) 275,000 0.5 0.5 137,000 137,000 $15,491,000 $3,582,000 Non-404(c) 162,000 0.5 0.5 81,000 81,000 91,370,200 2,112,000 Total 437,000 218,000 218,000 24,628,000 5,694,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. The Department assumes that plans will send 65,269,000 copies of the required plan information 43 to plan participants and beneficiaries, which will contain an average of 10 pages. Paper and printing costs are expected to be 5 cents per page and mailing costs are expected to be 76 cents per mailed disclosure. It is assumed that 38 percent of the disclosures will be delivered electronically. This results in a cost burden of $50,988,000, as shown in Table 24. 43 While plans are allowed to provide the disclosure in the SPD or quarterly benefit statement, the paperwork analysis assumes that plans would provide the required disclosures in a separate mailing to reduce costs as they otherwise are not required to send the SPD every year. Table 24.—Plan-Related Information, Annual, Cost Burden Type of plan Number of disclosures Percent sent by mail Number of pages Paper and printing cost per page Mailing cost Cost burden 404(c) 49,212,000 62% 10 $0.05 $0.76 $38,444,000 Non-404(c) 16,057,000 62% 10 0.05 0.76 12,544,000 Total 65,269,000 50,988,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. *Quarterly Disclosure:* Plans will also have to determine the administrative and individual fees that will be charged directly against participants' accounts on a quarterly basis. 44 The Department estimates a cost burden of approximately $26,543,000 in the first year to establish new information systems or accounting practices that will collect, track and report the actual dollar amounts charged to the individual accounts. This cost is shown in Table 25. 45 44 It is assumed that the inclusion of the actual dollar disclosure will add a minimal burden that has not been quantified. 45 The increase in administrative costs resulting from disclosing actual dollar fee and expense disclosure is derived from a GAO report (GAO-03-551T, “Mutual Funds: Information on Trends in Fees and Their Related Disclosure,” March 12, 2003, p. 14), which measures the cost of the disclosures of the actual dollar amount of mutual fund investment expenses on a participant level. The GAO report estimates the initial cost to generate these disclosures in 2001 at $1 per account, and the annual cost of continued compliance at $0.35 per account. The cost to plans to calculate administrative fees for purposes of the NPRM is expected to be less, because most of the expense information to be disclosed under the regulation is already tracked. The Department assumes it may cost plans one-third less to provide these administrative disclosures than it does for mutual funds to disclose investment costs, leading to cost estimates in 2009 dollars of about 41 cents per plan participant in the first year and 14 cents thereafter. Table 25.—Plan-Related Information, Cost Burden, First Year Type of plan Number of disclosures Per participant cost from GAO report Fraction of cost for calculating administrative fees Cost burden 404(c) 49,212,000 $1.22 1/3 $20,013,000 Non-404(c) 16,057,000 1.22 1/3 6,530,000 Total 65,269,000 26,543,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Subsequent Years *Annual Disclosure:* Based on the 2005 Form 5500 data the Department estimates that approximately 74,000 new participant-directed individual account plans would be required to disclose general plan information each year. 46 The Department assumes that on average writing a new disclosure notice for these plans would require one-half hour of legal professional time and one-half hour of clerical time per plan. 46 The 74,000 new plans include newly created participant directed account plans as well as some existing participant directed account plans that newly elect to be 404(c) compliant in subsequent years. Plans that newly elect to be 404(c) compliant in subsequent years had to previously comply with the new requirements and therefore might need to spend slightly less time on the review of the 404(c) requirements than the time indicated in Table 19. This results in an hour burden of nearly 37,000 hours for legal professional work and 37,000 hours of clerical work. The hour burden has an equivalent cost of approximately $4,168,000 for legal professional time at $113 per hour and $964,000 for clerical time at $26 per hour. These estimates are summarized in Table 26 below. Table 26.—Plan-Related Information, General Information, New Plans, Annual, Subsequent Years Type of new plans Number of new plans Professional hours Clerical hours Total professional hours Total clerical hours Equivalent cost—professional Equivalent cost—clerical 404(c) 46,000 0.5 0.5 23,000 23,000 $2,621,000 $606,000 Non-404(c) 27,000 0.5 0.5 14,000 14,000 1,546,000 3,578,000 Total 74,000 37,000 37,000 4,168,000 964,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. The Department also estimates that 363,000 existing plans will require one-quarter hour of legal professional time and one-quarter hour of clerical staff time to update plan documents to take into account plan changes, such as new investment alternatives, in subsequent years. This results in an hour burden of approximately 91,000 hours for professional time and 91,000 hours for clerical time with an equivalent cost of approximately $10,230,000 for professional time and $2,365,000 for clerical time as summarized in Table 27 below. Table 27.—Plan-Related Information, General Information, Existing Plans, Annual, Subsequent Years Existing plans Number of revised disclosures Professional hours Clerical hours Total professional hours Total clerical hours Equivalent cost—professional Equivalent cost—clerical 404(c) 228,000 0.25 0.25 57,000 57,000 $6,435,000 $1,488,000 Non-404(c) 135,000 0.25 0.25 34,000 34,000 3,795,000 878,000 Total 363,000 91,000 91,000 10,230,000 2,365,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. As with the first year, the Department assumes that plans will send 65,269,000 copies of the required plan information to plan participants and beneficiaries in all subsequent years, resulting in a cost burden of $50,988,000. *Quarterly Disclosures:* In subsequent years, plans will also have to determine the administrative and individual fees that will be charged directly against participants' accounts on a quarterly basis. The Department estimates a cost burden of approximately $9,355,000 in the subsequent years to maintain the information systems or accounting practices that will collect, track and report the actual dollar amounts charged to the individual accounts. This cost is shown in Table 28. Table 28.—Plan-Related Information, Cost Burden, Annual, Subsequent Years Type of plan Number of disclosures Per participant cost from GAO report Fraction of cost for calculating administrative fees Cost burden 404(c) 49,212,000 $0.43 1/3 $7,054,000 Non-404(c) 16,057,000 0.43 1/3 2,302,000 Total 65,269,000 9,355,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. *Investment-related Information* —29 CFR 2550.404a-5(d). The proposal requires three sub-categories of Investment-related Information to be disclosed, which relates to the plans designated investment alternatives. Sub-Category 1: Information to be Provided Automatically The first subcategory is information to be provided automatically. (§ 2550.404a-5(d)(1)). For each designated investment alternative, the plan, based on the latest information available, must disclose specified identifying information, past performance data, comparable benchmark returns, and fee and expense information. This information must be furnished on or before the date of a participant's eligibility and annually thereafter. This information must be furnished in a chart or similar format designed to help participants compare the plan's investment alternatives. (§ 2550.404a-5(d)(2)). To facilitate compliance, the proposal includes a model disclosure form that may be used by plan fiduciaries. *Preparation:* The Department assumes that the preparation of a comparative chart containing specified identifying information, past performance data, comparable benchmark returns, and fee and expense information will require one hour of accountant or financial professional time at an hourly rate of $60, which would result in an hour burden of approximately 437,000 hours at an equivalent cost of about $26,290,000. These estimates are summarized in Table 29 below. Table 29.—Investment-Related Information, Information Provided Automatically, Preparation Type of plan Number of plans Professional hours Total professional hours Equivalent cost—professional Non-404(c) 275,000 1 275,000 $16,537,000 Non-404(c) 162,000 1 162,000 9,754,000 Total 437,000 437,000 26,290,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. *Distribution:* The comparative chart needs to be sent to all participants (65.3 million). Given that 38 percent (24.8 million) of all disclosures are made electronically, only 62 percent will be sent by mail (40.5 million). The Department assumes that clerical staff could spend, on average, two minutes per disclosure to copy and mail this information. This burden is shown in Table 30. Table 30.—Investment-Related Information, Information Provided Automatically, Annual, Distribution Type of plan Total number of participants Disclosures by mail (percent) Number of disclosures Clerical hours per disclosure Total clerical hours Equivalent cost—clerical 404(c) 49,212,000 62 30,511,000 0.033 1,017,000 $26,514,000 Non-404(c) 16,057,000 62 9,955,000 0.033 332,000 8,651,000 Total 65,269,000 40,467,000 1,349,000 35,166,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. It is assumed this disclosure will be three pages. As this information is required to be sent on an annual basis, the Department assumes it will be sent with the plan-related information required pursuant to § 2550.404a-5(c). Mailing costs are already accounted for in the calculation of the cost burden for delivery of the plan-related information. Table 31 shows the resulting annual cost burden of $6,070,000. Table 31.—Investment-Related Information, Information Provided Automatically, Cost Burden Type of plan Number of disclosures Percent sent by mail Number of pages Paper and printing cost per page Cost burden 404(c) 49,212,000 62 3 $0.05 $4,577,000 Non-404(c) 16,057,000 62 3 0.05 1,493,000 Total 65,269,000 6,070,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Sub-Category 2: Post-Investment Information The second sub-category is post-investment information. The proposal requires that when a plan provides for the pass-through of voting, tender and similar rights, the fiduciary must furnish participants and beneficiaries who have invested in a designated investment alternative with these features any materials about such rights that have been provided to the plan. See § 2550.404a-5(d)(3). This requirement is similar to the requirement currently applicable to section 404(c) plans (“pass-through materials”). *Distribution:* The Department assumes that clerical staff will prepare and send the required materials. It may take the clerical staff on average one and one-half minutes to prepare and mail the post-investment materials. It is further assumed that this disclosure will be sent to about 15,153,000 plan participants in plans that have assets invested in employer securities. This number was reduced to reflect that some participants already receive this information pursuant to the Department's Qualified Default Investment Alternative regulation
(QDIA)47 and the burden is counted under OMB Control Number 1210-0132. The Department expects 38 percent of the disclosures will be sent electronically resulting in no burden. This results in an hour burden of approximately 235,000 hours of clerical staff time, with an equivalent cost of $6,123,000. Table 32 reports the estimates of the burden. 47 29 CFR 2550.404c-5 (Oct. 24, 2007). Table 32.—Investment-Related Information, Post-Investment Information, Distribution Type of plan Number of disclosures Clerical hours Total clerical hours Equivalent cost—clerical 404(c) 11,656,000 0.025 181,000 $4,710,000 Non-404(c) 3,497,000 0.025 54,000 1,413,000 Total 15,153,000 235,000 6,123,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. The required post-investment information is assumed to be, on average, ten pages long, with mailing costs of $0.59 per disclosure. As Table 33 shows, this results in an annual cost burden of $10,240,000. Table 33.—Investment-Related Information, Post-Investment Information, Cost Burden Type of plan Number of disclosures Percent sent by mail Number of pages Paper and printing cost per page Mailing cost Cost burden 404(c) 11,656,000 62 10 $0.05 $0.59 $7,877,000 Non-404(c) 3,497,000 62 10 0.05 0.59 2,363,000 Total 15,153,000 10,240,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Sub-Category 3: Information To Be Provided Upon Request The third subcategory is information to be provided upon request. (§ 2550.404a-5(d)(4)). Participants may request the plan to provide prospectuses, financial reports, as well as statements of valuation and of assets held by an investment alternative. *Preparation:* Plans must be prepared to provide the required information on request. The Department expects all plans to receive, on average, one request per year for the information. The Department estimates that plans will need to devote, on average, one clerical staff hour to comply with this requirement. Paperwork burden for this requirement is divided between § 2550.404c-5 (Fiduciary relief for investments in qualified default investment alternatives), which was accounted for previously under OMB Control Number 1210-0132 (QDIA regulation), and § 2550.404c-1 (ERISA section 404(c) plans), which is reflected in Table 34 below. Table 34.—Investment-Related Information, Information on Request, Annual, Preparation Type of plan Number of disclosures Clerical hours Total clerical hours Equivalent cost—clerical 404(c) 275,000 1 275,000 $7,164,000 Non-404(c) 0 1 0 0 Total 275,000 275,000 7,164,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. *Distribution:* The Department estimates that in total, plans will respond to approximately 275,000 requests for information annually. It is assumed that 38 percent of the disclosures will be delivered electronically. For the remaining 62 percent of disclosures (170,000 requests annually), the Department has assumed that these disclosures will be sent by mail and estimates that reproduction and distribution of these disclosures will take 2 minutes of clerical time per request. Plans will therefore have an additional annual hour burden of 5,700 hours (170,000 requests notices × 0.033 hours). The equivalent cost of these hours is $148,000. Table 35 contains the estimates of the burden. Table 35.—Investment-Related Information, Information on Request, Annual, Distribution Type of plan Number of disclosures by mail Clerical hours Total clerical hours Equivalent cost—clerical 404(c) 170,000 0.033 6,000 $148,000 Non-404(c) Total 170,000 6,000 148,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. As some of these disclosures are accounted for under the QDIA regulation, the cost burden for the remainder is estimated at approximately $271,000 based on an average page length of 20 pages and mailing costs of $0.59 as shown in Table 36, below. Table 36.—Investment-Related Information, Information on Request, Annual, Cost Burden Type of plan Number of disclosures Percent sent by mail Number of pages Paper and printing cost per page Mailing cost Cost burden 404(c) 275,000 62 20 $0.05 $0.59 $271,000 Non-404(c) 0 62 20 0.05 0.59 0 Total 275,000 271,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Summary The Department has estimated the hour burden in the first year to be 2,732,000 hours with an equivalent cost of $105,065,000, as shown in Table 37. The hour burden in the subsequent years is estimated to be 2,551,000 hours with an equivalent cost of $92,470,000, as shown in Table 38. Table 37.—Hour Burden for First Year Type of plan Professional hour burden Clerical hour burden Total hours Equivalent cost—professional Equivalent cost—clerical Total equivalent cost 404(c) 412,000 1,610,000 2,022,000 $32,028,000 $41,970,000 $73,998,000 Non-404(c) 243,000 467,000 710,000 18,891,000 12,177,000 31,068,000 Total 655,000 2,077,000 2,732,000 50,918,000 54,147,000 105,065,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. Table 38.—Hour Burden for Years Two and Three Type of plan Professional hour burden Clerical hour burden Total hours Equivalent cost—professional Equivalent cost—clerical Total equivalent cost 404(c) 355,000 1,553,000 1,908,000 $25,593,000 $40,482,000 $66,075,000 Non-404(c) 209,000 433,000 643,000 15,095,000 11,299,000 26,395,000 Total 565,000 1,986,000 2,551,000 40,688,000 51,781,000 92,470,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. The Department has estimated the cost burden in the first year to be $94,112,000; and $76,925,000 in the subsequent years. These estimates are shown in Table 39. Table 39.—Total Cost Burden Type of plan First year—total cost burden Subsequent years—total cost burden 404(c ) $71,182,000 $58,223,000 Non-404(c) 22,930,000 18,702,000 Total 94,112,000 76,925,000 Note: The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals. *Type of Review:* Revised collection. *Agency:* Employee Benefits Security Administration, Department of Labor. *Title:* Fiduciary Requirements for Disclosure in Participant-Directed Individual Account Plans *OMB Number:* 1210-0090. *Affected Public:* Business or other for-profit; not-for-profit institutions. *Respondents:* 437,000 *Responses:* 407,042,000 *Frequency of Response:* Annually; quarterly. *Estimated Annual Burden Hours:* 2,732,000 hours in the first year; 2,551,000 hours in each subsequent year. *Estimated Annual Burden Cost:* $94,112,000 in the first year; $76,925,000 in each subsequent year. Congressional Review Act Statement This notice of proposed rulemaking is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 *et seq.* ) and, if finalized, will be transmitted to the Congress and the Comptroller General for review. Unfunded Mandates Reform Act Statement For purposes of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), as well as Executive Order 12875, the notice of proposed rulemaking does not include any federal mandate that will result in expenditures by state, local, or tribal governments in the aggregate of more than $100 million, adjusted for inflation, or increase expenditures by the private sector of more than $100 million, adjusted for inflation. Federalism Statement Executive Order 13132 (August 4, 1999) outlines fundamental principles of federalism and requires the adherence to specific criteria by Federal agencies in the process of their formulation and implementation of policies that have substantial direct effects on the States, the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. The proposed regulations would not have federalism implications because they have no 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. Section 514 of ERISA provides, with certain exceptions specifically enumerated that are not pertinent here, that the provisions of Titles I and IV of ERISA supersede State laws that relate to any employee benefit plan covered by ERISA. The requirements implemented in the proposed regulations do not alter the fundamental provisions of the statute with respect to employee benefit plans, and as such would have no implications for the States or the relationship or distribution of power between the national government and the States. List of Subjects in 29 CFR Part 2550 Employee benefit plans, Fiduciaries, Investments, Pensions, Disclosure, Reporting and recordkeeping requirements, and Securities. For the reasons set forth in the preamble, the Department proposes to amend Subchapter F, Part 2550 of Title 29 of the Code of Federal Regulations as follows: Subchapter F—Fiduciary Responsibility Under the Employee Retirement Income Security Act of 1974 PART 2550—RULES AND REGULATIONS FOR FIDUCIARY RESPONSIBILITY 1. The authority citation for part 2550 continues to read as follows: Authority: 29 U.S.C. 1135; sec. 657, Pub. L. 107-16, 115 Stat.38; and Secretary of Labor's Order No. 1-2003, 68 FR 5374 (Feb. 3, 2003). Sec. 2550.401b-1 also issued under sec. 102, Reorganization Plan No. 4 of 1978, 43 FR 47713 (Oct. 17, 1978), 3 CFR, 1978 Comp. 332, effective Dec. 31, 1978, 44 FR 1065 (Jan. 3, 1978), 3 CFR, 1978 Comp. 332. Sec. 2550.401c-1 also issued under 29 U.S.C. 1101. Sections 2550.404c-1 and 2550.404c-5 also issued under 29 U.S.C. 1104. Sec. 2550.407c-3 also issued under 29 U.S.C. 1107. Sec. 2550.408b-1 also issued under 29 U.S.C. 1108(b)(1) and sec. 102, Reorganization Plan No. 4 of 1978, 3 CFR, 1978 Comp. p. 332, effective Dec. 31, 1978, 44 FR 1065 (Jan. 3, 1978), and 3 CFR, 1978 Comp. 332. Sec. 2550.412-1 also issued under 29 U.S.C. 1112. 2. Add § 2550.404a-5 to read as follows: § 2550.404a-5 Fiduciary requirements for disclosure in participant-directed individual account plans.
(a)*General.* The investment of plan assets is a fiduciary act governed by the fiduciary standards of section 404(a)(1)(A) and
(B)of the Employee Retirement Income Security Act of 1974, as amended (ERISA), 29 U.S.C. 1001 *et seq.* (all section references herein are references to ERISA unless otherwise indicated). Pursuant to section 404(a)(1)(A) and (B), fiduciaries must discharge their duties with respect to the plan prudently and solely in the interest of participants and beneficiaries. Where the documents and instruments governing an individual account plan, as defined in section (3)(34), provide for the allocation of investment responsibilities to participants or beneficiaries, fiduciaries, consistent with section 404(a)(1)(A) and (B), must take steps to ensure that such participants and beneficiaries, on a regular and periodic basis, are made aware of their rights and responsibilities with respect to the investment of assets held in, or contributed to, their accounts and are provided sufficient information regarding the plan, including fees and expenses, and regarding designated investment alternatives, including fees and expenses attendant thereto, to make informed decisions with regard to the management of their individual accounts.
(b)*Satisfaction of duty to disclose.* For plan years beginning on or after January 1, 2009, the fiduciary (or fiduciaries) of an individual account plan must comply with the disclosure requirements set forth in paragraphs
(c)and
(d)of this section with respect to each participant or beneficiary that, pursuant to the terms of the plan, has the right to direct the investment of assets held in, or contributed to, his or her individual account. Compliance with paragraphs
(c)and
(d)of this section will satisfy the duty to make the regular and periodic disclosures described in paragraph
(a)of this section.
(c)*Disclosure of plan-related information.* A fiduciary (or a person or persons designated by the fiduciary to act on its behalf) shall provide to each participant or beneficiary the plan-related information described in paragraphs (c)(1) through
(3)of this section, based on the latest information available to the plan.
(1)*General.*
(i)On or before the date of plan eligibility and at least annually thereafter:
(A)An explanation of the circumstances under which participants and beneficiaries may give investment instructions;
(B)An explanation of any specified limitations on such instructions under the terms of the plan, including any restrictions on transfer to or from a designated investment alternative;
(C)A description of or reference to plan provisions relating to the exercise of voting, tender and similar rights appurtenant to an investment in a designated investment alternative as well as any restrictions on such rights;
(D)An identification of any designated investment alternatives offered under the plan; and
(E)An identification of any designated investment managers; and
(ii)Not later than 30 days after the date of adoption of any material change to the information described in paragraph (c)(1)(i) of this section, each participant and beneficiary shall be furnished a description of such change.
(2)*Administrative expenses.*
(i)On or before the date of plan eligibility and at least annually thereafter, an explanation of any fees and expenses for plan administrative services (e.g., legal, accounting, recordkeeping) that, to the extent not otherwise included in investment-related fees and expenses, may be charged to the plan and the basis on which such charges will be allocated (e.g., pro rata, per capita) to, or affect the balance of, each individual account, and
(ii)At least quarterly, a statement that includes:
(A)The dollar amount actually charged during the preceding quarter to the participant's or beneficiary's account for administrative services, and
(B)A description of the services provided to the participant or beneficiary for such amount (e.g., recordkeeping).
(3)*Individual expenses* .
(i)On or before the date of plan eligibility and at least annually thereafter, an explanation of any fees and expenses that may be charged against the individual account of a participant or beneficiary for services provided on an individual, rather than plan, basis (e.g., fees attendant to processing plan loans or qualified domestic relations orders, fees for investment advice or similar services charged on an individual basis), and
(ii)At least quarterly, a statement that includes:
(A)The dollar amount actually charged during the preceding quarter to the participant's or beneficiary's account for individual services, and
(B)A description of the services provided to the participant or beneficiary for such amount (e.g., fees attendant to processing plan loans).
(d)*Disclosure of investment-related information* . A fiduciary (or a person or persons designated by the fiduciary to act on its behalf), based on the latest information available to the plan, shall:
(1)*Information to be provided automatically* . Provide to each participant or beneficiary, on or before the date of plan eligibility and at least annually thereafter, the following information with respect to each designated investment alternative offered under the plan—
(i)*Identifying information* . Such information shall include:
(A)The name of the designated investment alternative;
(B)An Internet Web site address that is sufficiently specific to lead participants and beneficiaries to supplemental information regarding the designated investment alternative, including the name of the investment's issuer or provider, the investment's principal strategies and attendant risks, the assets comprising the investment's portfolio, the investment's portfolio turnover, the investment's performance and related fees and expenses;
(C)The type or category of the investment (e.g., money market fund, balanced (stocks and bonds) fund, large-cap fund); and,
(D)The type of management utilized by the investment (e.g., actively managed, passively managed);
(ii)*Performance data* . For designated investment alternatives with respect to which the return is not fixed, the average annual total return (percentage) of the investment for the following periods, if available: 1-year, 5-year, and 10-year, measured as of the end of the applicable calendar year; as well as a statement indicating that an investment's past performance is not necessarily an indication of how the investment will perform in the future. In the case of designated investment alternatives with respect to which the return is fixed for the term of the investment, both the fixed rate of return and the term of the investment;
(iii)*Benchmarks* . For designated investment alternatives with respect to which the return is not fixed, the name and returns of an appropriate broad-based securities market index over the 1-year, 5-year, and 10-year periods comparable to the performance data periods provided under paragraph (d)(1)(ii) of this section, and which is not administered by an affiliate of the investment provider, its investment adviser, or a principal underwriter, unless the index is widely recognized and used;
(iv)*Fee and expense information* . For designated investment alternatives with respect to which the return is not fixed:
(A)The amount and a description of each shareholder-type fee (i.e., fees charged directly against a participant's or beneficiary's investment), such as sales loads, sales charges, deferred sales charges, redemption fees, surrender charges, exchange fees, account fees, purchase fees, and mortality and expense fees;
(B)The total annual operating expenses of the investment expressed as a percentage (e.g., expense ratio); and
(C)A statement indicating that fees and expenses are only one of several factors that participants and beneficiaries should consider when making investment decisions. In the case of designated investment alternatives with respect to which the return is fixed for the term of the investment, the amount and a description of any shareholder-type fees that may be applicable to a purchase, transfer or withdrawal of the investment in whole or in part;
(v)*Disclosure on or before date of plan eligibility* . The requirement in paragraph (d)(1) of this section to provide information to a participant on or before the date of plan eligibility may be satisfied by furnishing to the participant the most recent annual disclosure furnished to participants and beneficiaries pursuant to paragraph (d)(1) of this section and any material changes to the information furnished to participants and beneficiaries pursuant to paragraph (c)(1)(ii) of this section.
(2)*Comparative format* . Furnish the information described in paragraph (d)(1) of this section in a chart or similar format that is designed to facilitate a comparison of such information for each designated investment alternative available under the plan; as well as:
(i)a statement indicating the name, address, and telephone number of the fiduciary (or a person or persons designated by the fiduciary to act on its behalf) to contact for the provision of the information required by paragraph (d)(4) of this section, and
(ii)A statement that more current investment-related information (e.g., fee and expense and performance information) may be available at the listed Internet Web site addresses (see paragraph (d)(1)(i)(B) of this section). Nothing herein, however, shall preclude a fiduciary from including additional information that the fiduciary determines appropriate for such comparisons, provided such information is not inaccurate or misleading;
(3)*Information to be provided subsequent to investment* . Provide to each investing participant or beneficiary, subsequent to an investment in a designated investment alternative, any materials provided to the plan relating to the exercise of voting, tender and similar rights appurtenant to the investment, to the extent that such rights are passed through to such participant or beneficiary under the terms of the plan;
(4)*Information to be provided upon request* . Provide to each participant or beneficiary, either at the times specified in paragraph (d)(1), or upon request, the following information relating to designated investment alternatives—
(i)Copies of prospectuses (or any short-form or summary prospectus, the form of which has been approved by the Securities and Exchange Commission) for the disclosure of information to investors by entities registered under either the Securities Act of 1933 or the Investment Company Act of 1940, or similar documents relating to designated investment alternatives that are provided by entities that are not registered under either of these Acts.
(ii)Copies of any financial statements or reports, such as statements of additional information and shareholder reports, and of any other similar materials relating to the plan's designated investment alternatives, to the extent such materials are provided to the plan;
(iii)A statement of the value of a share or unit of each designated investment alternative as well as the date of the valuation; and
(iv)A list of the assets comprising the portfolio of each designated investment alternative which constitute plan assets within the meaning of 29 CFR 2510.3-101 and the value of each such asset (or the proportion of the investment which it comprises);
(e)*Form of disclosure* .
(1)The information required to be disclosed pursuant to paragraphs (c)(1), (c)(2)(i), and (c)(3)(i) of this section may be provided as part of the plan's summary plan description furnished pursuant to ERISA section 102 or as part of a pension benefit statement furnished pursuant to ERISA section 105(a)(1)(A)(i), if such summary plan description or pension benefit statement is furnished at a frequency that comports with paragraph (c)(1) of this section.
(2)The information required to be disclosed pursuant to paragraphs (c)(2)(ii) and (c)(3)(ii) of this section may be included as part of a pension benefit statement furnished pursuant to ERISA section 105(a)(1)(A)(i).
(3)A fiduciary that uses and accurately completes the model format set forth in the Appendix will be deemed to have satisfied the requirements of paragraph (d)(2) of this section.
(4)Except with respect to the dollar amounts required to be included under paragraphs (c)(2)(ii)(A) and (c)(3)(ii)(A) of this section, fees and expenses may be expressed in terms of a monetary amount, formula, percentage of assets, or per capita charge.
(5)The information required to be prepared by the fiduciary for disclosure under this section shall be written in a manner calculated to be understood by the average plan participant.
(f)*Selection and monitoring* . Nothing herein is intended to relieve a fiduciary from its duty to prudently select and monitor providers of services to the plan or designated investment alternatives offered under the plan.
(g)*Manner of furnishing* . Disclosures under this section shall be furnished in any manner consistent with the requirements of 29 CFR 2520.104b-1 of this chapter, including paragraph
(c)of that section relating to the use of electronic media.
(h)*Definitions* . For purposes of this section, the term—
(1)*Designated investment alternative* means any investment alternative designated by the plan into which participants and beneficiaries may direct the investment of assets held in, or contributed to, their individual accounts. The term “designated investment alternative” shall not include “brokerage windows,” “self-directed brokerage accounts,” or similar plan arrangements that enable participants and beneficiaries to select investments beyond those designated by the plan.
(2)*Average annual total return* means the average annual profit or loss realized by a designated investment alternative at the end of a specified period, calculated in the same manner as average annual total return is calculated under Item 21 of Securities and Exchange Commission Form N-1A with respect to an open-end management investment company registered under the Investment Company Act of 1940.
(3)*Total annual operating expenses* means annual operating expenses of the designated investment alternative ( *e.g.* , investment management fees, distribution, service, and administrative expenses) that reduce the rate of return to participants and beneficiaries, expressed as a percentage, calculated in the same manner as total annual operating expenses is calculated under Instruction 3 to Item 3 of Securities and Exchange Commission Form N-1A with respect to an open-end management investment company registered under the Investment Company Act of 1940.
(4)*At least annually thereafter* means at least once in any 12-month period, without regard to whether the plan operates on a calendar or fiscal year basis.
(5)*At least quarterly* means at least once in any 3-month period, without regard to whether the plan operates on a calendar or fiscal year basis. BILLING CODE 4510-29-P EP23JY08.001 EP23JY08.002 BILLING CODE 4510-29-C 3. In § 2550.404c-1 revise (b)(2)(i)(B), (c)(1)(ii), and (f)(1), and add (d)(2)(iv) to read as follows: § 2550.404c-1 ERISA section 404(c) plans.
(b)* * *
(2)* * *
(i)* * *
(B)The participant or beneficiary is provided or has the opportunity to obtain sufficient information to make informed investment decisions with regard to investment alternatives available under the plan, and incidents of ownership appurtenant to such investments. For purposes of this subparagraph, a participant or beneficiary will be considered to have sufficient information if the participant or beneficiary is provided by an identified plan fiduciary (or a person or persons designated by the plan fiduciary to act on his behalf): ( *1* ) An explanation that the plan is intended to constitute a plan described in section 404(c) of the Employee Retirement Income Security Act, and 29 CFR 2550.404c-1, and that the fiduciaries of the plan may be relieved of liability for any losses which are the direct and necessary result of investment instructions given by such participant or beneficiary; ( *2* ) Identification of any designated investment managers; ( *3* ) The information required pursuant to 29 CFR 2550.404a-5; and ( *4* ) In the case of plans which offer an investment alternative which is designed to permit a participant or beneficiary to directly or indirectly acquire or sell any employer security (employer security alternative), a description of the procedures established to provide for the confidentiality of information relating to the purchase, holding and sale of employer securities, and the exercise of voting, tender and similar rights, by participants and beneficiaries, and the name, address and phone number of the plan fiduciary responsible for monitoring compliance with the procedures (see paragraphs (d)(2)(ii)(E)(4)(vii),
(viii)and
(ix)of this section).
(c)* * *
(1)* * *
(ii)For purposes of sections 404(c)(1) and 404(c)(2) of the Act and paragraphs
(a)and
(d)of this section, a participant or beneficiary will be deemed to have exercised control with respect to voting, tender or similar rights appurtenant to the participant's or beneficiary's ownership interest in an investment alternative, provided that the participant's or beneficiary's investment in the investment alternative was itself the result of an exercise of control; the participant or beneficiary was provided a reasonable opportunity to give instruction with respect to such incidents of ownership, including the provision of the information described in 29 CFR 2550.404a-5(d)(3); and the participant or beneficiary has not failed to exercise control by reason of the circumstances described in paragraph (c)(2) of this section with respect to such incidents of ownership.
(d)* * *
(2)* * *
(iv)Paragraph (d)(2)(i) of this section does not serve to relieve a fiduciary from its duty to prudently select and monitor any designated investment manager or designated investment alternative offered under the plan.
(f)* * *
(1)A plan is an individual account plan described in section 3(34) of the Act. The plan states that a plan participant or beneficiary may direct the plan administrator to invest any portion of his individual account in a particular diversified equity fund managed by an entity which is not affiliated with the plan sponsor, or any other asset administratively feasible for the plan to hold. However, the plan provides that the plan administrator will not implement certain listed instructions for which plan fiduciaries would not be relieved of liability under section 404(c) (see paragraph (d)(2)(ii) of this section). Plan participants and beneficiaries are permitted to give investment instructions during the first week of each month with respect to the equity fund and at any time with respect to other investments. The plan provides for the pass-through of voting, tender and similar rights incidental to the holding in the account of a participant or beneficiary of an ownership interest in the equity fund or any other investment alternative available under the plan. The plan administrator of Plan A provides each participant and beneficiary with the information described in paragraph (b)(2)(i)(B) of this section upon their entry into the plan (including the information that must be provided on or before plan eligibility pursuant to 29 CFR 2550.404a-5), and provides updated information in the event of any material change in the information provided. Subsequent to any investment by a participant or beneficiary, the plan administrator forwards to the investing participant or beneficiary any materials provided to the plan relating to the exercise of voting, tender or similar rights attendant to ownership of an interest in such investment (see paragraph (b)(2)(i)(B)( *3* ) of this section and 29 CFR 2550.404a-5(d)(3)). Upon request, the plan administrator provides each participant or beneficiary with copies of any prospectuses (or similar documents relating to designated investment alternatives that are provided by entities that are not registered under the Securities Act of 1933 or the Investment Company Act of 1940), financial statements and reports, and any other materials relating to the designated investment alternatives available under the plan in accordance with 29 CFR 2550.404a-5(d)(4)(i) and (ii). Also upon request, the plan administrator provides each participant and beneficiary with other information required by 29 CFR 2550.404a-5(d)(4) with respect to the equity fund, which is a designated investment alternative, including information concerning the latest available value of the participant's or beneficiary's interest in the equity fund. Plan A meets the requirements of paragraph (b)(2)(i)(B) of this section regarding the provision of investment information. Note: The regulation imposes no additional obligation on the administrator to furnish or make available materials relating to the companies in which the equity fund invests (e.g., prospectuses, proxies, etc.). Signed at Washington, DC, this 15th day of July 2008. Bradford P. Campbell, Assistant Secretary, Employee Benefits Security Administration, Department of Labor. [FR Doc. E8-16541 Filed 7-22-08; 8:45 am] BILLING CODE 4510-29-P 73 142 Wednesday, July 23, 2008 Rules and Regulations Part V Postal Regulatory Commission 39 CFR Part 3020 Administrative Practices and Procedure; Postal Service; Final Rule POSTAL REGULATORY COMMISSION 39 CFR Part 3020 [Docket Nos. CP2008-8, CP2008-9, and CP2008-10; Order No. 85] Administrative Practice and Procedure; Postal Service AGENCY: Postal Regulatory Commission. ACTION: Direct final rule. SUMMARY: The Commission is adding the Postal Service's negotiated agreement with Global Plus to the competitive product list. This action is consistent with changes in a recent law governing postal operations. Re-publication of the lists of market dominant and competitive products is also consistent with new requirements in the law. DATES: Effective June 23, 2008. FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 202-789-6820 or *stephen.sharfman@prc.gov* . SUPPLEMENTARY INFORMATION: *Regulatory History* , 73 FR 33465 (June 12, 2008). I. Background On June 2, 2008, the Postal Service filed three notices, which have been assigned to Docket Nos. CP2008-8, CP2008-9 and CP2008-10, announcing prices and classification changes for competitive products not of general applicability. The notice in Docket No. CP2008-8 indicates that “the Governors have established prices and classifications for competitive products not of general applicability for Global Plus Contracts.” 1 The Postal Service attached a proposed revision of the draft Mail Classification Schedule
(MCS)(section 2610.5) concerning Global Plus contracts to the Notice. 2 Docket No. CP2008-8 has been filed pursuant to 39 U.S.C. 3632(b)(3) and 39 CFR 3015.5 and 3020.90. In support of this docket, the Postal Service has also filed materials under seal, including the Governors' decision. The Postal Service claims that “[c]ontract prices are highly confidential in the business world * * * [and that its] ability * * * to negotiate individual contracts would be severely compromised if prices for these types of agreements were publicly disclosed.” *Id* . at 1-2. 1 Notice of United States Postal Service of Governors' Decision Establishing Prices and Classifications for Global Plus Contracts, June 2, 2008, at 1 (Notice). 2 The draft MCS remains under review. The Commission anticipates providing interested persons an opportunity to comment on the draft MCS in the near future. Modifications to the MCS, such as proposed in Docket No. CP2008-8, should, in the future, be filed in the dockets designated by the “MC” prefix. Contracts executed pursuant to those requested classifications are appropriately filed as “CP” dockets. The notices in Docket Nos. CP2008-9 and CP2008-10 announce individual negotiated service agreements; namely, specific Global Plus contracts that the Postal Service has entered into with individual mailers. 3 In support of these dockets, the Postal Service has also filed materials, including the contracts and supporting materials, under seal. The Postal Service asserts that “[t]he names of customers who enter into respective contracts and the related contract prices are highly confidential business information.” Docket No. CP2008-9 Pricing Notice at 1; Docket No. CP2008-10 Pricing Notice at 1. 3 Docket No. CP2008-9, Notice of United States Postal Service of Filing a Global Plus Contract, June 2, 2008 (Docket No. CP2008-9 Pricing Notice); Docket No. CP2008-10, Notice of United States Postal Service of Filing a Global Plus Contract, June 2, 2008 (Docket No. CP2008-10 Pricing Notice). In Order No. 81, the Commission gave notice of the three dockets, requested the Postal Service to address certain issues, appointed a Public Representative, and provided the public with an opportunity to comment. 4 4 PRC Order No. 81, Notice and Order Concerning Prices Under Global Plus Negotiated Service Agreements, June 6, 2008 (Order No. 81). II. Postal Service Supplemental Filing In response to Order No. 81, the Postal Service filed a pleading, 5 which
(1)stated that the Postal Service intended that the Docket No. CP2008-8 shell classification would be the template product, and that the agreements submitted in Docket Nos. CP2008-9 and CP2008-10 would be functionally equivalent agreements within the Docket No. CP2008-8 product;
(2)provided additional supporting materials under part 3020, subpart B of the Commission's rules in support of adding Global Plus as the shell classification to the competitive products list; *see id.* , Attachment A;
(3)stated that there are no existing Global Plus contracts that fail to fit within the revised Global Plus proposed MCS language;
(4)indicated that the Postal Service believes that the expiration dates of Global Plus contracts could be made publicly available;
(5)filed a redacted version of the Governors' decision with respect to Docket No. CP2008-8; 6 and
(6)discussed why the Postal Service believes that certain provisions in the Docket Nos. CP2008-9 and CP2008-10 agreements which provide for price incentives prior to regulatory approval for such rates are appropriate. 5 United States Postal Service Response to Order No. 81 and Notice of Filing Information Responsive to Part 3020 of the Commission's Rules of Practice and Procedure, June 13, 2008; United States Postal Service Notice of Erratum to Response to Order No. 81 and Notice of Filing Information Responsive to Part 3020 of the Commission's Rules of Practice and Procedure, June 16, 2008 (collectively, Postal Service Response). 6 United States Postal Service Notice of Filing Redacted Copy of Governors' Decision No. 08-8, June 16, 2008. III. Comments Comments were filed by United Parcel Service (UPS), the Public Representative, Parcel Shippers Association (PSA), and International Mailers' Advisory Group (IMAG). 7 7 Docket No. CP2008-8, Comments of United Parcel Service in Response to Order Concerning Prices Under Global Plus Negotiated Service Agreements; Docket No. CP2008-9, Comments of United Parcel Service in Response to Order Concerning Prices Under Global Plus Negotiated Service Agreements, Docket No. CP2008-10, Comments of United Parcel Service in Response to Order Concerning Prices Under Global Plus Negotiated Service Agreements (collectively UPS Comments); Public Representative Comments in Response to United States Postal Service Notice of Global Plus Services Contracts (Public Representative Comments); Comments of Parcel Shippers Association in Response to Order No. 81 Concerning Prices Under Global Plus Negotiated Service Agreements (PSA Comments); Comments of International Mailers' Advisory Group Pertaining to Competitive Product Prices—Global Plus Negotiated Service Agreements, PRC Docket No. CP2008-10 (IMAG Comments), all filed on June 19, 2008. UPS urges the Commission to require public disclosure of the proposed contracts subject to adequate safeguards to allow meaningful public insight. It also suggests that the Commission resist any “presumption” that markets for international services are perfectly competitive markets since private carriers face more burdensome customs and brokerage requirements than postal administrations. UPS Comments at 1-2. The Public Representative comments on several aspects of the Postal Service's filings in these cases:
(1)Confidentiality;
(2)compliance with part 3020, subpart B of the Commission's rules;
(3)the Governors' decision with respect to the shell classification;
(4)the specific agreements; and
(5)the retroactivity provisions. With respect to confidentiality, the Public Representative argues that the Postal Service should justify the limits of all confidentiality requests to comport with the spirit of Federal Rules of Civil Procedure 26(c). Public Representative Comments at 3. With respect to the Postal Service's filings under part 3020, subpart B, the Public Representative believes that the Postal Service should provide as much information as possible to assist the Commission in performing its statutory functions. *Id* . at 3-4. The Public Representative submits that the formula proposed in the Governors' decision comports with the provisions of title 39. *Id* . at 5. With respect to the specific agreements, the Public Representative recognizes that the agreements in Dockets Nos. CP2008-9 and CP2008-10 are not identical, but does not take a position as to whether they should be classified as separate products. The Public Representative does contend, however, that the agreements satisfy the requirements of title 39. *Id* . at 6. With respect to retroactivity, the Public Representative believes that the Postal Service should be provided with the same authority as competitors in their customary business practices. *Id* . at 7. PSA addresses three points. It endorses the Postal Service's suggestion that the Global Plus contracts under the shell classification be treated as one “product.” PSA Comments at 2-3. It argues that confidentiality is extremely important and disclosure would keep the Postal Service from successfully competing in competitive markets. *Id* . at 3. Lastly, PSA contends that the level playing field envisioned by the Postal Accountability and Enhancement Act
(PAEA)of 2006 requires the Commission, not Postal Service competitors, to review and examine the terms of the contracts to ensure there is no cross-subsidization. *Id* . IMAG focuses on
(1)the need to afford the Postal Service maximum flexibility for competitive contract rates not of general applicability through expedited and predictable Commission proceedings;
(2)the importance of protecting the confidentiality of commercially sensitive information; and
(3)the justification for the retroactive pricing provisions. IMAG Comments at 1-4. IV. Commission Analysis A. Part 3020, Subpart B Requirements The Postal Service appears to argue that filing under 39 CFR part 3020, subpart B is unnecessary in this instance because the Commission has already listed all negotiated service agreements concerning outbound international mail as competitive products on the product list. Therefore, the Postal Service contends, a determination by the Commission under section 3642(b) is unnecessary. Postal Service Response at 4-5. Under the PAEA, the term “product” is defined as “a postal service with a distinct cost or market characteristic for which a rate or rates are, or may reasonably be applied.” 39 U.S.C. 102(6). The Commission noted in Order No. 43 that “each negotiated service agreement
(NSA)is a separate product,” but may, “upon proper showing, be grouped as one product.” Order No. 43, paras. 1003, 2177-78. Additionally, for the classification of each product, the Commission must consider the impact on the private sector, the views of those that use the product, and the likely impact on small business concerns. 39 U.S.C. 3642(b)(3). The Commission must take these factors into consideration when evaluating new rate or classification proposals. Therefore, until the Postal Service makes an adequate showing under the statutory definition and section 3642, including subsection (b)(3), that separate negotiated service agreements should be grouped together as one product, each negotiated service agreement will be treated as a separate product and will be assigned to the product list in accordance with section 3642. With respect to the Global Plus contracts, the Postal Service has filed the Governors' decision and a statement of Frank Cebello in support of its proposal to add the Docket No. CP2008-8 shell classification to the competitive product list. The Postal Service contends that adding the shell classification as a competitive product will improve the Postal Service's competitive posture, while allowing verification that each agreement covers attributable costs and satisfying applicable statutory requirements. Postal Service Response, Attachment A, at 2. The draft MCS includes a provision requiring each agreement to cover its own attributable costs. *See* Notice, proposed MCS language § 2610.5. Alternatively, adding the individual agreements as separate products will also improve the competitive posture of the Postal Service, but to a lesser degree. Postal Service Response, Attachment A, at 2. In the alternative, the Postal Service sought to add the contracts filed in Docket Nos. CP2008-9 and CP2008-10 to the competitive product list. *Id.* at 1-2. The Commission has reviewed this supplemental information as well as the materials filed by the Postal Service and commenters in Docket Nos. CP2008-9 and CP2008-10, including that submitted under seal. These contracts provide services that, under the criteria of section 3642(b), are properly classified as competitive. B. Functionally Equivalent Agreements Whether the shell or the actual agreements should be added to the competitive product list is a fundamental issue in these cases. The Commission seeks to strike an appropriate balance between the Postal Service's need for flexibility with the need for adequate regulatory oversight. Consideration of a shell classification as a product may work in instances where the shell narrowly defines the particular product. With respect to these cases in particular, the Commission has concerns with the breadth of the proposed Global Plus MCS language (concerning a variety of different services), and that it does not identify principal contract provisions as prerequisites for functional equivalency. Thus, the Commission does not believe that the Docket No. CP2008-8 shell classification, on its own, provides enough specificity to be categorized as a product at this time. 8 8 The Governors' decision in Docket No. CP2008-8, however, may properly authorize more than one Global Plus contract type. An examination of the contracts, however, reveals that they are functionally equivalent in all pertinent respects, notwithstanding different revenue thresholds. As a consequence, the Commission concludes that it is appropriate to group these contracts as one product, which for purposes of the Mail Classification Schedule, will be listed on the competitive product list and grouped under the Global Plus classification as “Global Plus 1”. Revisions to the competitive product list are shown below the signature line of this order and shall become effective upon publication in the **Federal Register** . Any future Global Plus contracts having substantially the same terms and conditions as the Global Plus 1 contracts may be filed under section 3015.5 of the Commission's rules. Global Plus contracts not having substantially the same terms and conditions as the Global Plus 1 contracts must be filed under part 3020, subpart B of the Commission's rules. 9 The Commission will process such contracts as expeditiously as practicable consistent with the requirements of title 39. 10 9 Future Global Plus contracts having different terms and conditions from Global Plus 1 contracts but functionally equivalent with one another would be grouped similarly, *e.g.* , as “Global Plus 2”. The Postal Service may request such treatment when it files such agreements with the Commission. It should support any such request with a statement justifying that approach. 10 In the future, if and when the Postal Service files a Governors' decision under seal, it shall also file a redacted copy of that decision. In addition, the Postal Service shall notify the Commission no later than the termination date of each Global Plus contract if such contract is terminated pursuant to an early termination clause. Under section 3015.5 of the Commission's rules, the explanation and justification for the rate or class not of general applicability must also include the contract. When filing a new (or changed) Global Plus contract that it seeks to have classified as functionally equivalent with an existing product, *e.g.* , Global Plus 1, the Postal Service shall identify all significant differences between the new contract and the pre-existing product group. Such differences would include terms and conditions that impose new obligations or new requirements on any party to the agreement. The Global Plus classification language submitted by the Postal Service includes the requirement that each agreement executed pursuant to that shell classification (and the accompanying Governors' decision) cover its attributable costs. This is a key provision and the classification language adopted for all competitive negotiated service agreements will include the same provision. 11 11 The Postal Service filing included proposed classification language governing Global Plus contracts. The MCS remains in draft form. The language filed by the Postal Service will be deemed illustrative until such time as the MCS is finalized. The Commission reviews competitive product filings for compliance with section 3633 of title 39 and the Commission's implementing regulations which require each product to recover its attributable costs, bar cross-subsidization by market dominant products, and require competitive products collectively to recover an appropriate share of the Postal Service's total institutional costs. The Commission has reviewed the materials filed by the Postal Service under seal, including the Governors' decision, the contracts submitted in Docket Nos. CP2008-9 and CP2008-10, and the financial analysis accompanying the contracts, and finds, based on the filed materials, that the Docket Nos. CP2008-9 and CP2008-10 agreements should cover their attributable costs, should not lead to the subsidization of competitive products by market dominant products, and should contribute to the recovery of an appropriate share of institutional costs by competitive products collectively. C. Retroactive Contract Provisions In Order No. 81, the Commission directed the Postal Service to provide statutory justification for allowing customers to receive certain price incentives prior to regulatory approval of such rates, subsequent to collection of the difference in the full price if regulatory approval is not obtained. 12 The Postal Service contends that “[t]he retroactivity provisions are not inconsistent with any statutory or regulatory authority.” Postal Service Response at 8. In support of this, the Postal Service argues that
(1)pragmatic factors justify the arrangement and that, in any event, weigh strongly against construing the statute to forestall the reimbursement provisions, and
(2)the mailer remains responsible for payment of the published rates if the contracts are not approved. 12 PRC Order No. 81, Notice and Order Concerning Prices Under Global Plus Negotiated Service Agreements, June 6, 2008, at 4 (Order No. 81). Section 3642(e) of title 39 states that “no product that involves the physical delivery of letters, printed matter, or packages may be offered by the Postal Service unless it has been assigned to the market-dominant or competitive category of mail * * *”. This provision means that new products, such as a new negotiated service agreement or product group not listed in the MCS, may not be offered by the Postal Service until such time as the Commission assigns the proposed product to the appropriate product list. Additionally, even if the rate or class involves a pre-existing product, Commission rule 3015.5, which implements section 3632(b)(3) of title 39, requires that notice be filed “at least 15 days before the effective date of the change.” Effectively, this means that any new (or revised) contract must be filed prior to the date that the new (or revised) rates become effective. The Commission understands the Postal Service's pragmatic concerns and the need to maintain the status quo. As experience is gained with the filing requirements under the PAEA, the parties should be better equipped to address such exigencies. If and when such situations arise, the Commission stands ready to act quickly on requests for temporary relief based on extenuating circumstances. V. Ordering Paragraphs *It is Ordered:* 1. The contracts submitted in Docket Nos. CP2008-9 and CP2008-10 will be added to the competitive product list as one product under Negotiated Service Agreements, Outbound International as Global Plus Contracts, Global Plus 1 (CP2008-9 and CP2008-10). 2. The Secretary shall arrange for publication of the amended product list in the **Federal Register** . By the Commission. Issued: June 27, 2008. Steven W. Williams, Secretary. List of Subjects in 39 CFR Part 3020 Administrative practice and procedure; Postal Service. For the reasons stated in the preamble, under the authority at 39 U.S.C. 503, the Postal Regulatory Commission amends 39 CFR part 3020 as follows: 1. The authority citation for part 3020 continues to read as follows: Authority: 39 U.S.C. 503; 3622; 3631; 3642; 3682. 2. In Appendix A to subpart A of part 3020—Mail Classification Schedule revise part B, Competitive Products, section 2000 to read as follows: PART B—COMPETITIVE PRODUCTS 2000 Competitive Product List Express Mail: Express Mail Outbound International Expedited Services Inbound International Expedited Services International Expedited Services 1 (CP2008-7) Priority Mail: Priority Mail Outbound Priority Mail International Inbound Air Parcel Post Parcel Select: Parcel Return Service: International: International Priority Airlift
(IPA)International Surface Airlift
(ISAL)International Direct Sacks—M—Bags Global Customized Shipping Services Inbound Surface Parcel Post (at non-UPU rates) International Money Transfer Service International Ancillary Services Negotiated Service Agreements: Domestic Outbound International Global Plus Contracts Global Plus 1 (CP2008-9 and CP2008-10) [FR Doc. E8-16904 Filed 7-22-08; 8:45 am] BILLING CODE 7710-FW-P 73 142 Wednesday, July 23, 2008 Presidential Documents Part VI The President Proclamation 8274—Captive Nations Week, 2008 Title 3— The President Proclamation 8274 of July 18, 2008 Captive Nations Week, 2008 By the President of the United States of America A Proclamation Freedom is the longing of every soul and the birthright of all mankind. During Captive Nations Week, we underscore our commitment to advancing democracy, defending liberty, and protecting human rights around the world. It is in our Nation's interest to help those who are suffering under oppressive regimes defeat the ideologues of hate with an ideology of hope. Advancing the cause of liberty advances the cause of peace. A free society upholds justice and defends human dignity. Over the years, many have underestimated the power of freedom to overcome tyranny, but history has shown us that freedom will prevail. In the 20th century, the evils of Soviet communism and Nazi fascism were defeated and freedom spread around the world as new democracies emerged. Today, our Nation faces new struggles with adversaries who murder the innocent and seek to subject millions to their violent, totalitarian rule. Still, we remain confident that the light of liberty will again overcome this darkness. To bring that day about, we must support young democracies in places like Afghanistan and Iraq. In countries like Belarus, Burma, Cuba, Iran, North Korea, Sudan, Syria, and Zimbabwe, people continue to live under oppressive regimes, and we will work for the day when all these nations are free. By opposing these despots and helping young democracies grow, we will lay the foundation of peace and prosperity for generations to come. Throughout Captive Nations Week, we renew our pledge that as people across the world find their own paths to freedom, they will also find a friend in the United States of America. The Congress, by Joint Resolution approved July 17, 1959 (73 Stat. 212), has authorized and requested the President to issue a proclamation designating the third week in July of each year as “Captive Nations Week.” NOW, THEREFORE, I, GEORGE W. BUSH, President of the United States of America, by virtue of the authority vested in me by the Constitution and laws of the United States, do hereby proclaim July 20 through July 26, 2008, as Captive Nations Week. I call upon the people of the United States to reaffirm our commitment to all those seeking liberty, justice, and self-determination. IN WITNESS WHEREOF, I have hereunto set my hand this eighteenth day of July, in the year of our Lord two thousand eight, and of the Independence of the United States of America the two hundred and thirty-third. GWBOLD.EPS [FR Doc. 08-1464 Filed 07-22-08; 8:45 am]
Connectionstraces to 120
Traces to 120 documents
U.S. Code
- Assessments§ 1817
- Additional powers of Commission§ 46
- Public assistance pilot program§ 777
- Public information; agency rules, opinions, orders, records, and proceedings§ 552
- Repatriation§ 3005
- Definitions§ 3001
- Inventory for human remains and associated funerary objects§ 3003
- Federal enforcement§ 7413
- Open meetings§ 552b
- Registration, responsibilities, and oversight of self-regulatory organizations§ 78s
- Definitions and application§ 78c
- National securities exchanges§ 78f
- Liability of controlling persons and persons who aid and abet violations§ 78t
- Cease-and-desist proceedings§ 78u–3
- National system for clearance and settlement of securities transactions§ 78q–1
- Buy America§ 313
- Moving and related expenses§ 4622
- Metropolitan transportation planning§ 5303
- Planning programs§ 5305
- Repealed. Pub. L. 114–94, div. A, title III, § 3030(b), Dec. 4, 2015, 129 Stat. 1496]§ 5313
- Labor standards§ 5333
- Special permits and exclusions§ 5117
- Records maintained on individuals§ 552a
- Departmental regulations§ 301
- General authority of the Secretary§ 321
- Definitions and application§ 3701
- Collection and compromise§ 3711
- Public debt limit§ 3101
- Exclusive recognition of labor organizations§ 7111
- Records management by agency heads; general duties§ 3101
- Health service programs§ 7901
- Accepting gifts§ 3113
- Prohibition of misuse of Department of the Treasury names, symbols, etc.§ 333
- Compliance, exemptions, and summons authority§ 5318
- Oil shale, tar sands, and other strategic unconventional fuels§ 15927
- Leases of lands§ 241
- Congressional declaration of policy§ 1701
- Management of use, occupancy, and development of public lands§ 1732
- Purposes§ 3501
- Lands subject to disposition; persons entitled to benefits; reciprocal privileges; helium rights reserved§ 181
- Disposition of moneys received§ 191
- Exchanges of public lands or interests therein within the National Forest System§ 1716
- SHORT TITLE.§ 9701
- Fees, charges, and commissions§ 1734
- Congressional findings§ 6901
- EXPEDITED PROCESSING OF REQUESTS FOR JAPANESE IMPERIAL GOVERNMENT RECORDS.§ 804
- Cooperation of agencies; reports; availability of information; recommendations; international and national coordination of efforts§ 4332
- Purposes§ 1501
- Public information collection activities; submission to Director; approval and delegation§ 3507
- Congressional findings and declaration of purposes and policy§ 1531
- Rules and regulations; boundary lines; State rights unaffected; taxation§ 189
- Leases of allotted lands for mining purposes§ 396
- Rules and regulations governing operations; limitations on oil or gas leases§ 396d
- Transferred or Omitted§ 470
- Omitted§ 469
- Congressional findings and declaration of purpose§ 470aa
- Recordkeeping, inspections, monitoring, and entry§ 7414
- Establishment, functions, and activities§ 272
- SHORT TITLE.§ 801
- Congressional findings and declaration of purpose§ 7401
- Definitions§ 601
- Definitions§ 551
- Declaration of policy§ 631
- Federal agency responsibilities§ 3506
- Regulations§ 1135
- Coverage§ 1101
- Fiduciary duties§ 1104
- Limitation with respect to acquisition and holding of employer securities and employer real property by certain plans§ 1107
- Exemptions from prohibited transactions§ 1108
- Bonding§ 1112
- Congressional findings and declaration of policy§ 1001
- Action of the Governors§ 3632
- Definitions§ 102
- New products and transfers of products between the market-dominant and competitive categories of mail§ 3642
- Rules; regulations; procedures§ 503
CFR
- Transactions requiring prior notice.§ 225.41
- The public record.§ 4.9
- Disposition.§ 2.34
- Data and information to be made available to the public or for limited inspection.§ 250.197
- Consent judgments in actions to enjoin discharges of pollutants.§ 50.7
- Notification of interested persons by applicant.§ 2570.43
- Accident source term.§ 50.67
- Notice for public comment; State consultation.§ 50.91
- Issuance of amendment.§ 50.92
- Hearing requests, petitions to intervene, requirements for standing, and contentions.§ 2.309
- Filing of documents.§ 2.302
- Borrowing and delivery requirements.§ 242.203
- Persons deemed not to be engaged in a distribution and therefore not underwriters.§ 230.144
- Preliminary note; definitions.§ 242.100
- Closed meetings.§ 200.402
- Delegation of authority to Director of Division of Trading and Markets.§ 200.30-3
- Display of customer limit orders.§ 242.604
- NMS security designation and definitions.§ 242.600
- Dissemination of quotations in NMS securities.§ 242.602
- Order protection rule.§ 242.611
- Form 1, for application for, and amendments to applications for, registration as a national securities exchange or exemption from registration pursuant to Section 5 of the Exchange Act.§ 249.1
- Buy America requirements.§ 635.410
- Metropolitan Planning Area boundaries.§ 450.312
- Transportation planning studies and project development.§ 450.318
- Publication in the Federal Register---Notices of systems of records, general exemptions, specific exemptions, review of all systems.§ 1.23
- Procedures for notification and access to records pertaining to individuals---Format and fees for request for access.§ 1.26
- Addresses of State air pollution control agencies and EPA Regional Offices.§ 63.13
- Hazard communication.§ 1910.1200
- Notification requirements.§ 63.9
- What size standards has SBA identified by North American Industry Classification System codes?§ 121.201
- Limited exemption for certain small welfare plans.§ 2520.104-20
- What size standards are applicable to programs of other agencies?§ 121.902
- Definition of "plan assets"---plan investments.§ 2510.3-101
register
- Notice of intentNotices
- NoticeNotices
- Temporary final ruleNotices
- /register/2002/08/16/02-21056Notices
- Temporary final ruleNotices
- Temporary final ruleProposed Rules
- Temporary final ruleNotices
- Final ruleNotices
- Final ruleProposed Rules
- DEPARTMENT OF COMMERCENotices
- Direct final rule; request for commentsRules and Regulations
statutes-at-large
107 references not yet in our index
- 46 CFR 515
- 38 Stat. 721
- 45 CFR 100
- Pub. L. 107-188
- Pub. L. 104-13
- Pub. L. 104-106
- 5 CFR 1320.1
- Pub. L. 110-53
- 42 USC 5121-5206
- 42 USC 5121-5207
- Pub. L. 106-300
- 40 CFR 1506.6(b)
- 16 USC 668dd-668ee
- Pub. L. 105-57
- 43 CFR 2
- 43 CFR 2650.7(d)
- 43 CFR 4
- Pub. L. 91-190
- 36 CFR 60
- 29 CFR 2570
- 10 CFR 2
- 15 USC 78
- Pub. L. 94-409
- 17 CFR 240.9
- 17 CFR 240.19
- 17 CFR 240.17
- 17 CFR 240.11
- Pub. L. 94-29
- 89 Stat. 97
- 14 CFR 150
- Pub. L. 110-161
- Pub. L. 110-244
- 122 Stat. 1572
- 42 USC 4601-4655
- 49 CFR 24
- 49 CFR 24.302
- 49 CFR 1.48
- Pub. L. 109-59
- 49 CFR 613
- 23 CFR 450
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Proposed Consent Agreement
SCOTUS516 U.S. 489
Cite46 CFR 515
Stat.38 Stat. 721
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