[Federal Register Volume 77, Number 238 (Tuesday, December 11, 2012)]
[Proposed Rules]
[Pages 73570-73575]
[FR Doc No: 2012-29896]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R02-OAR-2012-0840, FRL-9761-7]

Approval and Promulgation of Implementation Plans; New Jersey and
New York Ozone Attainment Demonstrations

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: The Environmental Protection Agency (EPA) is proposing action
on the ozone attainment demonstration portion of comprehensive State
Implementation Plan revisions submitted by New Jersey and New York to
meet Clean Air Act requirements for attaining the 1997 8-hour ozone
national ambient air quality standard. EPA is proposing to approve New
Jersey's and New York's demonstration of attainment of the 1997 8-hour
ozone standard as they relate to their portions of three moderate
nonattainment areas; the New York-Northern New Jersey-Long Island, NY-
NJ-CT area, the Philadelphia-

Wilmington-Atlantic City, PA-NJ-MD-DE area, and the Poughkeepsie area.

DATES: Comments must be received on or before January 10, 2013.

ADDRESSES: Submit your comments, identified by Docket ID number EPA-
R02-OAR-2012-0840, by one of the following methods:
     www.regulations.gov: Follow the on-line instructions for
submitting comments.
     Email<EMAIL_ADDRESS>     Fax:<PHONE_NUMBER>.
     Mail: Raymond Werner, Chief, Air Programs Branch,
Environmental Protection Agency, Region 2 Office, 290 Broadway, 25th
Floor, New York, New York 10007-1866.
     Hand Delivery: Raymond Werner, Chief, Air Programs Branch,
Environmental Protection Agency, Region 2 Office, 290 Broadway, 25th
Floor, New York, New York 10007-1866. Such deliveries are only accepted
during the Regional Office's normal hours of operation. The Regional
Office's official hours of business are Monday through Friday, 8:30 to
4:30 excluding Federal holidays.
    Instructions: Direct your comments to Docket ID No. EPA-R02-OAR-
2012-0840. EPA's policy is that all comments received will be included
in the public docket without change and may be made available online at
www.regulations.gov, including any personal information provided,
unless the comment includes information claimed to be Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. Do not submit information that you consider to
be CBI or otherwise protected through www.regulations.gov or email. The
www.regulations.gov Web site is an ``anonymous access'' system, which
means EPA will not know your identity or contact information unless you
provide it in the body of your comment. If you send an email comment
directly to EPA without going through www.regulations.gov your email
address will be automatically captured and included as part of the
comment that is placed in the public docket and made available on the
Internet. If you submit an electronic comment, EPA recommends that you
include your name and other contact information in the body of your
comment and with any disk or CD-ROM you submit. If EPA cannot read your
comment due to technical difficulties and cannot contact you for
clarification, EPA may not be able to consider your comment. Electronic
files should avoid the use of special characters, any form of
encryption, and be free of any defects or viruses. For additional
information about EPA's public docket visit the EPA Docket Center
homepage at http://www.epa.gov/epahome/dockets.htm.
    Docket: All documents in the docket are listed in the 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, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in http://www.regulations.gov or in hard copy at the Environmental
Protection Agency, Region 2 Office, Air Programs Branch, 290 Broadway,
25th Floor, New York, New York 10007-1866. EPA requests, if at all
possible, that you contact the individual listed in the FOR FURTHER
INFORMATION CONTACT section to view the hard copy of the docket. You
may view the hard copy of the docket Monday through Friday, 8:30 a.m.
to 4:30 p.m., excluding Federal holidays.

FOR FURTHER INFORMATION CONTACT: Robert F. Kelly, Air Programs Branch,
Environmental Protection Agency, 290 Broadway, 25th Floor, New York,
New York 10007-1866. The telephone number is<PHONE_NUMBER>. Mr. Kelly
can also be reached via electronic mail at<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Throughout this document, wherever
``Agency,'' ``we,'' ``us,'' or ``our'' is used, we mean the EPA.

Table of Contents

I. What action is EPA proposing?
II. What is the background for EPA's proposed action?
    A. History and Time Frame of New Jersey and New York Attainment
Demonstration SIPs
    B. Moderate Area Requirements
III. What was included in New Jersey's and New York's proposed SIP
submittals?
    A. New Jersey's SIP Submittal and EPA's Actions
    B. New York's SIP Submittal and EPA's Actions
IV. What is EPA's basis for proposing to approve the attainment
demonstrations?
    A. Air Quality Data and Attainment Determinations
    B. Components of the Modeled Attainment Demonstration
    C. EPA's Evaluation
V. What is EPA's conclusion?
VI. Statutory and Executive Order Reviews

I. What action is EPA proposing?

    The Environmental Protection Agency (EPA) is proposing action on
the ozone attainment demonstration portion of comprehensive State
Implementation Plan (SIP) revisions submitted by New Jersey and New
York to meet Clean Air Act (Act or CAA) requirements for attaining the
0.08 parts per million (ppm) 8-hour ozone national ambient air quality
standards (NAAQS or standard).\1\ EPA is proposing to approve New
Jersey's and New York's SIP revisions which demonstrate attainment of
the 1997 8-hour ozone standard as they relate to their portions of
three moderate nonattainment areas:
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    \1\ Unless otherwise specifically noted in the action,
references to the 8-hour ozone standard are to the 0.08 ppm ozone
standard promulgated in 1997.
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     The New York-Northern New Jersey-Long Island, NY-NJ-CT
area, also called the New York City Metropolitan area,
     The Philadelphia-Wilmington-Atlantic City, PA-NJ-MD-DE
area, also called the Philadelphia area, and
     The Poughkeepsie area.
    The EPA is proposing to approve New Jersey's and New York's 8-hour
ozone attainment demonstration SIP revisions because the EPA has
determined that the New York City Metropolitan, Philadelphia, and
Poughkeepsie moderate nonattainment areas have attained the ozone NAAQS
by their respective attainment deadlines. This proposed determination
is based on complete quality assured and certified ambient air
monitoring data from 2007 to 2011 that show the area has monitored
attainment of the 1997 8-hour ozone NAAQS during this monitoring
period.

II. What is the background for EPA's proposed action?

A. History and Time Frame of New Jersey and New York Attainment
Demonstration SIPs

    In 1997, EPA revised the health-based NAAQS for ozone, setting it
at 0.08 ppm averaged over an 8-hour time frame. EPA set the 8-hour
ozone standard based on scientific evidence demonstrating that ozone
causes adverse health effects at lower ozone concentrations and over
longer periods of time than was understood when the pre-existing 1-hour
ozone standard was set. EPA determined that the 8-hour standard would
be more protective of human health, especially with regard to children
and adults who are active outdoors, and individuals with a pre-existing
respiratory disease, such as asthma.
    On April 30, 2004 (69 FR 23858), EPA finalized its attainment/
nonattainment designations for areas across the country with respect to
the 8-hour ozone standard. These actions became effective on June 15,
2004. Among those

nonattainment areas are the New York City Metropolitan area, the
Philadelphia Area and the Poughkeepsie area. The New York City
Metropolitan nonattainment area is composed of: the Bergen, Essex,
Hudson, Hunterdon, Middlesex, Monmouth, Morris, Passaic, Somerset,
Sussex, Union, and Warren Counties in New Jersey; the Bronx, Kings,
Nassau, New York, Queens, Richmond, Rockland, Suffolk, and Westchester
Counties in New York; and the Fairfield, Middlesex and New Haven
Counties in Connecticut. The Philadelphia Area includes the entire
State of Delaware; Cecil County in Maryland; Atlantic, Burlington,
Camden, Cape May, Cumberland, Gloucester, Mercer, Ocean, and Salem
Counties in New Jersey; and Bucks, Chester, Delaware, Montgomery, and
Philadelphia Counties in Pennsylvania. The Poughkeepsie nonattainment
area includes Dutchess, Orange and Putnam Counties in New York. See 40
CFR 81.307, 81.308, 81.321, 81.331, 81.333, and 81.339.
    Also, on April 30, 2004 (69 FR 23951), EPA promulgated the Phase 1
8-hour ozone Implementation Rule which provided how areas designated
nonattainment for the 1997 8-hour ozone standard would be classified.
These designations triggered the Act's requirements under section
182(b) for moderate nonattainment areas, including a requirement to
submit an attainment demonstration. EPA's Phase 2 8-hour ozone
implementation rule, published on November 29, 2005 (70 FR 71612)
(Phase 2 Rule) specifies that states must submit attainment
demonstrations for their nonattainment areas to the EPA by no later
than three years from the effective date of designation, that is, by
June 15, 2007. 40 CFR 51.908(a).
    Although the focus of this proposed rulemaking action is on the
attainment demonstrations for the 1997 8-hour ozone standard, we note
that EPA has subsequently revised the ozone standard. On March 12,
2008, EPA revised both the primary and secondary NAAQS for ozone to a
level of 0.075 ppm (annual fourth-highest daily maximum 8-hour average
concentration, averaged over 3 years) to provide increased protection
of public health and the environment.\2\ The 2008 ozone NAAQS retain
the same general form and averaging time as the 0.08 ppm NAAQS set in
1997, but are set at a more protective level. State emission reduction
efforts already underway to meet the 1997 8-hour ozone standard will
continue with implementation of the 2008 ozone NAAQS.
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    \2\ See 73 FR 16436; March 27, 2008. For a detailed explanation
of the calculation of the 3-year 8-hour average, see 40 CFR part 50,
Appendix I.
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B. Moderate Area Requirements

    EPA's November 29, 2005 Phase 2 Rule addresses, among other things,
the control obligations that apply to areas designated nonattainment
for the 1997 8-hour NAAQS. The Phase 1 and Phase 2 Rules outline the
SIP requirements and deadlines for various requirements in areas
designated as moderate nonattainment. For such areas, modeling and
attainment demonstrations with projection year emission inventories
were due by June 15, 2007, along with reasonable further progress
plans, reasonably available control technology (RACT), reasonably
available control measures (RACM), motor vehicle emissions budgets and
contingency measures (40 CFR 51.908(a), and (c) 59.910, 59.912). This
proposed action addresses New Jersey's and New York's demonstration of
attainment of the 1997 8-hour ozone standard. Moderate areas are
required to attain the 1997 8-hour ozone NAAQS by no later than six
years after designation, or June 15, 2010. See 40 CFR 51.903. In order
to demonstrate attainment by June 2010, the area must adopt and
implement all controls necessary for attainment by the beginning of the
2009 ozone season and demonstrate that the level of the standard will
be met during the 2009 ozone season. The Philadelphia Area qualified
for a one-year extension of its attainment date, based on the complete,
certified ambient air quality data for the 2009 ozone season. On
January 21, 2011, EPA approved a one-year extension of the Philadelphia
Area's attainment date, from June 15, 2010 to June 15, 2011. See 76 FR
3838 and 76 FR 3840.

III. What was included in New Jersey's and New York's proposed SIP
submittals?

A. New Jersey's SIP Submittal and EPA's Actions

    After completing the appropriate public notice and comment
procedures, New Jersey made a series of submittals in order to address
the Act's 8-hour ozone attainment requirements. On August 1, 2007, New
Jersey submitted its RACT rules, which included a determination that
many of the RACT rules currently contained in its SIP meet the RACT
obligation for the 8-hour standard, and also included commitments to
adopt revisions to several regulations where the State identified more
stringent emission limitations that it believed should be considered
RACT. On October 29, 2007, New Jersey submitted to EPA a comprehensive
8-hour ozone SIP to address the Act's 8-hour ozone attainment
requirements for the New Jersey portions of the New York City
Metropolitan and the Philadelphia nonattainment areas. New Jersey's
proposed SIP included, among other elements, attainment demonstrations,
reasonable further progress (RFP) plans for 2008 and 2009, reasonably
available control measures analyses for both areas, contingency
measures, on-road motor vehicle emission budgets, and general
conformity emission budgets. Finally, as part of the RACT evaluation,
on December 14, 2007, New Jersey submitted to EPA an assessment of how
it planned to address EPA's revised Control Technique Guidelines. New
Jersey's attainment demonstration SIP revisions are the only subject of
this proposed rulemaking.
    EPA has taken several actions on New Jersey's SIP revisions to
address the requirements of the 1997 8-hour ozone standard:
     On July 17, 2008 (73 FR 41068), EPA made a finding that
the motor vehicle emissions budgets for the New Jersey portions of the
New York City Metropolitan area and the Philadelphia area associated
with the respective reasonable further progress and attainment
demonstrations are adequate for transportation conformity purposes.
     On May 15, 2009 (74 FR 22837), EPA approved the RFP plans,
RFP contingency measures, and RACM analyses from New Jersey.
     On August 3, 2010 (75 FR 45483) and on December 22, 2010
(75 FR 80340), EPA approved SIP revisions for numerous statewide RACT
rules to control emissions from sources of volatile organic compounds,
nitrogen oxides, particulate matter and sulfur dioxide to address the
RACT requirements for the 1997 8-hour ozone standard.
    New Jersey has submitted all required SIP revisions to address the
1997 8-hour ozone standard, and has implemented all of the emission
control measures, including contingency measures, contained in these
SIP revisions. EPA's approval of these SIP revisions, in combination
with this proposed rulemaking action to approve the attainment
demonstrations will serve to completely address New Jersey's
requirements under the 1997 8-hour ozone standard.

B. New York's SIP Submittal and EPA's Actions

    After completing the appropriate public notice and comment
procedures,

New York made a series of submittals in order to address the Act's 8-
hour ozone attainment requirements. On September 1, 2006, New York
submitted its state-wide 8-hour ozone RACT SIP, which included a
determination that many of the RACT rules currently contained in its
SIP meet the RACT obligation for the 8-hour standard and also included
commitments to adopt revisions to several regulations where the State
identified more stringent emission limitations that it believed should
now be considered RACT. On February 8, 2008, New York submitted two
comprehensive 8-hour ozone SIPs--one for the New York City Metropolitan
area, entitled, ``New York SIP for Ozone--Attainment Demonstration for
New York Metro Area'' and one for the Poughkeepsie nonattainment area,
entitled, ``New York SIP for Ozone--Attainment Demonstration for
Poughkeepsie, NY Area.'' On December 28, 2009 and January 26, 2011, New
York supplemented its February 8, 2008 submittal. The submittals
included the 2002 base year emissions inventory, projection year
emissions, attainment demonstrations, RFP plans, RACM analysis, RACT
analysis, contingency measures and on-road motor vehicle emission
budgets. New York's attainment demonstration SIP revisions are the only
subjects of this proposed rulemaking.
    EPA has taken several actions on New York's SIP revisions to
address the requirements of the 1997 8-hour ozone standard:
     On May 28, 2010 (75 FR 29897), EPA approved SIP revisions
for several of New York's RACT rules for emissions of volatile organic
compounds to address the RACT requirements for the 1997 8-hour ozone
standard.
     On July 13, 2010 (75 FR 43066), EPA conditionally approved
New York's 8-hour ozone statewide RACT analysis and the 8-hour ozone
RACM analysis for the New York City Metropolitan area. The condition
was that New York submits to EPA the RACT rules committed to in New
York's RACT plan, which ultimately New York did submit.
     On August 2, 2010 (75 FR 45057), EPA made the finding that
the motor vehicle emissions budgets for the New York portions of the
New York City Metropolitan area and the Poughkeepsie area associated
with the respective reasonable further progress and attainment
demonstrations are adequate for transportation conformity purposes.
     On August 18, 2011 (76 FR 51264), EPA approved the 2002
statewide base year emissions inventory and the projection year
emissions, the motor vehicle emissions budgets used for planning
purposes, the reasonable further progress plan, and the contingency
measures as they relate to the New York City Metropolitan area.
     On March 8, 2012 (77 FR 13974), EPA approved SIP revisions
for several of New York's RACT rules for emissions of volatile organic
compounds to address the conditional approval of New York's RACT plan
to meet the requirements for the 1997 8-hour ozone standard.
    New York has submitted all required SIP revisions to address the
1997 8-hour ozone standard, and has implemented all of the emission
control measures, including contingency measures, contained in these
SIP revisions. EPA's approval of these SIP revisions, in combination
with this proposed rulemaking action to approve the attainment
demonstrations for the 1997 8-hour ozone standard will serve to
completely address New York's requirements under the 1997 8-hour ozone
standard.

IV. What is EPA's basis for proposing to approve the attainment
demonstrations?

A. Air Quality Data and Attainment Determinations

    With respect to the New York City Metropolitan, Philadelphia, and
Poughkeepsie areas, EPA has evaluated the ambient air quality
monitoring data and has determined that all three areas attained the 8-
hour ozone standard by the required attainment date.
    In a June 18, 2012 Federal Register notice (77 FR 36163), EPA made
several determinations, including two determinations regarding the 1997
8-hour ozone NAAQS for the New York City Metropolitan moderate
nonattainment area. (Note EPA published a technical correction to the
June 18, 2012 action on August 9, 2012 (77 FR 47533)). First, EPA made
a clean data determination that the New York City Metropolitan area had
attained the 1997 8-hour ozone NAAQS. This determination was based upon
complete, quality assured and certified ambient air monitoring data
that showed the New York City Metropolitan area had monitored
attainment of the 1997 8-hour ozone NAAQS for the 2007-2009 and 2008-
2010 monitoring periods. Ambient air monitoring data for the 2009-2011
monitoring period is consistent with continued attainment. Second,
pursuant to section 181(b)(2)(A) of the CAA, EPA made a determination
of attainment that the New York City Metropolitan area had attained the
1997 8-hour ozone NAAQS by its attainment date of June 15, 2010.
    In a March 26, 2012 Federal Register notice (77 FR 17341), EPA made
two determinations regarding the 1997 8-hour ozone NAAQS for the
Philadelphia moderate nonattainment area. First, EPA made a clean data
determination that the Philadelphia area had attained the 1997 8-hour
ozone NAAQS. This determination was based upon complete, quality
assured and certified ambient air monitoring data that showed the
Philadelphia area had monitored attainment of the 1997 8-hour ozone
NAAQS for the 2008-2010 monitoring period. Ambient air monitoring data
for the 2009-2011 monitoring period is consistent with continued
attainment. Second, pursuant to section 181(b)(2)(A) of the CAA, EPA
made a determination of attainment that the Philadelphia area had
attained the 1997 8-hour ozone NAAQS by its attainment date of June 15,
2011.
    On December 7, 2009 (74 FR 63993), EPA made a clean data
determination for the Poughkeepsie area and announced the attainment
determination in the Federal Register. The clean data determinations
were based on 2006-2008 quality-assured and certified ozone monitoring
data for the Poughkeepsie area. Based on complete, quality-assured and
certified ozone monitoring data since the 2006-2008 monitoring period,
the Poughkeepsie area continues to show attainment through 2011, and
with preliminary ozone data through 2012.
    While not required, New Jersey and New York requested EPA to make
these determinations in certain circumstances. New Jersey requested EPA
to make a determination that the New York City Metropolitan area
attained the 8-hour ozone NAAQS in a letter dated January 19, 2011. New
York requested EPA to make determinations that the New York City
Metropolitan area and the Poughkeepsie area have attained the 8-hour
ozone NAAQS in letters dated June 16, 2011 and July 30, 2009,
respectively. Copies of these rulemakings containing the determinations
of attainment and the clean data determinations are included in the
Docket (EPA-R02-OAR-2012-0840) and available at www.regulations.gov.
The reader is referred to these other rulemakings for additional
information regarding all of the complete, quality-assured and
certified ozone monitoring data which served as the basis for these
determinations.
    EPA is aware that preliminary ambient air quality monitoring data
for 2012 may indicate that the New York City Metropolitan and
Philadelphia areas are no longer attaining the 1997 8-

hour ozone NAAQS, while the Poughkeepsie area continues to attain the
8-hour ozone NAAQS. However, 2012 monitoring data is not relevant to
this proposed rulemaking on SIP revisions which demonstrate how the
states met their plan to attain the 1997 8-hour ozone standard by the
June 15, 2010 attainment date (June 15, 2011 for the Philadelphia
area). Based on data through 2011, these areas are attaining the 1997
8-hour ozone NAAQS. EPA has a continuing obligation to review the air
quality data each year to determine whether areas are meeting the NAAQS
and will continue to conduct that review in the future after data is
complete, quality-assured, certified and submitted to EPA.
    Lastly, pursuant to 40 CFR 51.918, these determinations suspend the
requirements for various SIP items, including, the requirement to
submit an attainment demonstration, an RFP plan, and section 172(c)(9)
contingency measures for the eight-hour ozone NAAQS for so long as the
area continues to attain the ozone NAAQS. However, section 110(k)(2) of
the CAA requires EPA to take action on any administratively complete
SIP revision submittal within 12 months of the SIP being deemed
complete. Therefore, while the clean data determinations suspend the
state's obligation to submit the attainment demonstration SIP revision,
the determinations do not suspend EPA's obligation to take action on
the SIP revision if it has been submitted by the state and deemed to be
complete. EPA was sued by Sierra Club to take final action on these
particular attainment demonstration SIP revisions ((see Sierra Club v.
Jackson, Civil Action No. 11-2180-RBW) (D.D.C.)). EPA is proposing to
take such final action in this notice. The proposed rulemaking is
intended to address EPA's obligations.

B. Components of the Modeled Attainment Demonstrations

    Section 110(a)(2)(k) of the Act requires states to prepare air
quality modeling to demonstrate how they will meet ambient air quality
standards. EPA determined that states must use photochemical grid
modeling, or any other analytical method determined by the
Administrator to be at least as effective, to demonstrate attainment of
the ozone health-based standard in areas classified as ``moderate'' or
above, and to do so by the required attainment date. See 40 CFR
51.908(c). EPA requires an approvable attainment demonstration, showing
that attainment will occur by the attainment deadline, using air
quality modeling that meets EPA's guidelines and a `weight of evidence'
analysis that uses a variety of information to determine if the results
of the modeling analysis are supported by supplemental information or
need to be modified.
    New Jersey submitted an attainment demonstration for the New York
City Metropolitan and Philadelphia areas that included a modeling
analysis and a two-part weight of evidence analysis, which the State
said would result in attainment by the attainment date. The modeling
analysis predicted continued nonattainment by 2009. The first part of
the weight of evidence analysis included adjustments to the modeling
results to account for model bias. The second part of the weight of
evidence analysis included an evaluation of additional factors that
would support a conclusion that attainment will be reached by 2009,
despite the conclusion of the adjusted modeling analysis that predicted
continued nonattainment by 2009.
    New York submitted an attainment demonstration for the New York
City Metropolitan and Poughkeepsie areas that included a modeling
analysis and a weight of evidence analysis. With respect to the New
York City Metropolitan area, New York's modeling analysis predicted
continued nonattainment by 2009. Based on the measured ozone levels at
the time (2007), New York did not support a weight of evidence
conclusion that attainment will be reached by 2009. With respect to the
Poughkeepsie area, New York's modeling analysis predicted attainment by
2009.
    EPA determined that the photochemical grid modeling conducted by
the states was consistent with EPA's guidelines and the model performed
acceptably. Taking into account that EPA made clean data determinations
and determinations of attainment of the 1997 8-hour ozone NAAQS
attainment date for the New York City Metropolitan, Philadelphia and
Poughkeepsie areas, EPA is proposing to approve New Jersey's and New
York's demonstrations of attainment of the 1997 8-hour ozone standard
for these three moderate nonattainment areas.
    In addition, as noted earlier, EPA has already approved the RFP
plans for the New York City Metropolitan and Philadelphia areas. Given
the fact that these areas attained the ozone standard by the attainment
date suggests that the RFP plans may have been sufficient for the
moderate nonattainment areas to reach attainment. These RFP plans
contained corresponding emission control measures and the states
developed and adopted additional control measures to ensure attainment
of the ozone standard by the attainment date. All of the control
measures that were relied on for attainment and contained in the RFP
plans were submitted as SIP revisions and approved by EPA. Therefore,
the demonstration of attainment for the New York City Metropolitan,
Philadelphia and Poughkeepsie areas in New Jersey and New York SIPs are
approvable because New Jersey and New York each adopted all of the
control measures in its ozone plans.

C. EPA's Evaluation

    In summary, the basic photochemical grid modeling used by New
Jersey and New York in its SIP submittal meets EPA's guidelines and,
when used with the methods recommended in EPA's modeling guidance, is
acceptable to EPA. Air quality data through 2011 supports the states'
conclusions that the areas will demonstrate attainment of the 8-hour
ozone standard by the attainment date. The purpose of the attainment
demonstration is to show how the areas will meet the standard by the
attainment date. All the control measures included in the attainment
demonstration SIPs have already been adopted, submitted, approved and
implemented. Based on (1) the states following EPA's modeling guidance,
(2) the air quality data through 2011, (3) the areas attaining the
standard by the attainment date, and (4) the implemented SIP approved
control measures, EPA is proposing to approve the New Jersey and New
York attainment demonstration SIP revisions.

V. What is EPA's conclusion?

    EPA has evaluated New Jersey's and New York's submittals for
consistency with the Act, EPA regulations, and EPA policy. EPA has
evaluated the information provided by New Jersey and New York and has
considered all other information it deems relevant to attainment of the
1997 8-hour ozone standard, i.e., clean data determinations,
determinations that these areas attained the standard by the applicable
attainment date, statewide RACT analysis approval, reasonable further
progress plan approvals (including all applicable control strategy
regulations), continued attainment of the 1997 8-hour ozone standard
based on quality assured and certified monitoring data, and the
implementation of the more stringent 2008 8-hour ozone standard. EPA is
therefore proposing to approve the attainment demonstrations for the
New York City Metropolitan, Philadelphia and Poughkeepsie 1997 8-hour
ozone moderate nonattainment areas.

VI. Statutory and Executive Order Reviews

    Under the Clean Air Act, the Administrator is required to approve a
SIP submission that complies with the provisions of the Act and
applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a).
Thus, in reviewing SIP submissions, EPA's role is to approve state
choices, provided that they meet the criteria of the Clean Air Act.
Accordingly, this action merely approves state law as meeting Federal
requirements and does not impose additional requirements beyond those
imposed by state law. For that reason, this action:
     Is not a ``significant regulatory action'' subject to
review by the Office of Management and Budget under Executive Order
12866 (58 FR 51735, October 4, 1993);
     Does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     Does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Public Law 104-4);
     Does not have Federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     Is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of Section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the Clean Air Act; and
     Does not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, this rule does not have tribal implications as
specified by Executive Order 13175 (65 FR 67249, November 9, 2000),
because the SIP is not approved to apply in Indian country located in
the state, and EPA notes that it will not impose substantial direct
costs on tribal governments or preempt tribal law.

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Incorporation by
reference, Intergovernmental relations, Nitrogen dioxide, Ozone,
Reporting and recordkeeping requirements, Volatile organic compounds.

    Authority: 42 U.S.C. 7401 et seq.

    Dated: November 26, 2012.
Judith Enck,
Regional Administrator, Region 2.
[FR Doc. 2012-29896 Filed 12-10-12; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register Volume 75, Number 40 (Tuesday, March 2, 2010)]
[Notices]
[Pages 9455-9459]
[FR Doc No: 2010-4230]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61574; File No. SR-BATS-2010-003]

Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
To Amend BATS Rule 5.5, Entitled ``Information Barrier Procedures,''
and To Add New BATS Rule 12.13, Entitled ``Trading Ahead of Research
Reports''

February 23, 2010.
    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 February 11, 2010, BATS Exchange, Inc. (``BATS'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by BATS. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons and is approving the proposed rule change on an
accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange is proposing to amend BATS Rule 5.5, entitled
``Information Barrier Procedures,'' to modify the Exchange's rule
regarding information barrier procedures required of certain Exchange
Members. The Exchange is also proposing to add new Exchange Rule 12.13,
entitled ``Trading Ahead of Research Reports.''
    The text of the proposed rule change is available at the Exchange's
Web site at http://www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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 Exchange 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 III below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to eliminate the requirements of BATS Rule
5.5 that require a Member \3\ that trades for its own account or that
has a specialist or market maker operation on another market (defined
in BATS Rule 5.5(a) as a ``specialist'') to establish and maintain
certain specifically prescribed information barrier procedures and to
file such procedures with the Exchange. At the same time, the Exchange
proposes to amend BATS Rule 5.5 to more closely mirror the rules of
other self-regulatory organizations that create certain obligations for
all Member firms related to the prevention of the misuse of material,
non-public information. Finally, the Exchange proposes to add new BATS
Rule 12.13, which: (i) Prohibits Members from trading ahead of research
reports, and (ii) requires each Member to establish, maintain and
enforce procedures regarding the flow of information between research
department personnel and trading department personnel.
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    \3\ See BATS Rule 1.5(n).
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(i) All Members Must Maintain Policies Concerning the Misuse of
Material Non-Public Information
    Presently, the Exchange requires that each Member establish,
maintain and enforce written policies and procedures reasonably
designed to prevent the misuse of material, non-public information,
which includes review of employee and proprietary trading,
memorialization and documentation of

procedures, substantive supervision of interdepartmental communications
by the Member's compliance department and procedures concerning
proprietary trading when the firm is in possession of material, non-
public information.\4\ The Exchange also has specific rules prohibiting
Members from disadvantaging their customers or other market
participants by improperly capitalizing on the Members' access to or
receipt of material, non-public information. For example, the Exchange
prohibits a Member from trading ahead of its customer's limit
orders.\5\
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    \4\ See BATS Rule 5.5(a).
    \5\ See BATS Rule 12.6.
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(ii) Proposed Amendments to General Standards and Deletion of Specific
Information Barrier Procedures
    As noted above, the Exchange currently maintains a general standard
for all Members to establish, maintain and enforce written policies and
procedures reasonably designed to prevent the misuse of material, non-
public information, including certain specific procedures. The Exchange
also currently requires specific information barrier procedures for
Members that meet the definition in BATS Rule 5.5(a) of a
``specialist'' and requires such firms to file their information
barrier procedures with the Exchange. The Exchange proposes amending
the language that imposes the general standard of preventing the misuse
of material, non-public information and adding additional language to
provide clarity regarding the minimum policies and procedures a Member
must implement to comply with such general standards. As described in
further detail below, the Exchange also proposes deleting the specific
information barrier procedures required to be maintained by Exchange
Members that meet the definition of ``specialist.''
    Under the proposal, amended BATS Rule 5.5 would provide flexibility
to a BATS Member to develop and maintain procedures and controls to
prevent the misuse of material, non-public information that are
effective and appropriate to that Member. The Exchange proposes adding
Interpretation and Policy .01 to BATS Rule 5.5 that would provide
examples of conduct that would constitute the misuse of material, non-
public information.\6\ Proposed Interpretation and Policy .02 to BATS
Rule 5.5 would set forth specific policies and procedures that would be
required of Members.\7\ However, as made clear by the proposed
Interpretation and Policy, such policies and procedures would not in
all cases, satisfy the requirements and intent of amended BATS Rule
5.5; the adequacy of each Member's policies and procedures would depend
upon the nature of such Member's business.
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    \6\ Such examples include: (a) Trading in any securities issued
by a corporation, or in any related securities or related options or
other derivative securities, while in possession of material, non-
public information concerning that issuer; or (b) Trading in a
security or related options or other derivative securities, while in
possession of material non-public information concerning imminent
transactions in the security or related securities; or (c)
Disclosing to another person or entity any material, non-public
information involving a corporation whose shares are publicly traded
or an imminent transaction in an underlying security or related
securities for the purpose of facilitating the possible misuse of
such material, non-public information.
    \7\ The specific policies and procedures required, at a minimum,
would include: (a) All associated persons of the Member must be
advised in writing of the prohibition against the misuse of
material, non-public information; and (b) All associated persons of
the Member must sign attestations affirming their awareness of, and
agreement to abide by the aforementioned prohibitions. These signed
attestations must be maintained for at least three years, the first
two years in an easily accessible place; and (c) Each Member must
receive and retain copies of trade confirmations and monthly account
statements for each account in which an associated person: Has a
direct or indirect financial interest or makes investment decisions.
The activity in such brokerage accounts should be reviewed at least
quarterly by the Member for the purpose of detecting the possible
misuse of material, non-public information; and (d) All associated
persons must disclose to the Member whether they, or any person in
whose account they have a direct or indirect financial interest, or
make investment decisions, are an officer, director or 10%
shareholder in a company whose shares are publicly traded. Any
transaction in the stock (or option thereon) of such company shall
be reviewed to determine whether the transaction may have involved a
misuse of material non-public information.
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    The Exchange proposes to eliminate, in their entirety, the
requirements set forth in BATS Rule 5.5 that require certain members to
maintain and file with the Exchange specifically prescribed information
barrier procedures. This proposal is consistent with the change
recently approved by the Commission for NYSE Arca Equities, Inc.
(``NYSE Arca''), which allowed the elimination of a specific
information barrier requirement previously contained in NYSE Arca
rules.\8\ This proposal is also consistent with the approach currently
employed by the Nasdaq Stock Market, L.L.C. (``Nasdaq''), which does
not generally require its members to establish or maintain information
barriers.
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    \8\ Securities Exchange Act Release No. 60604 (September 1,
2009), 74 FR 46272 (September 8, 2009) (SR-NYSEArca-2009-78).
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    If the deletion of the requirement to maintain and file with the
Exchange certain prescribed information barrier procedures is approved,
the only specific information barrier requirement of the Exchange will
be the requirement described below, under proposed Rule 12.13, to
maintain policies and procedures reasonably designed to restrict or
limit the information flow between those with knowledge of the content
or timing of a research report and trading department personnel.
However, the Exchange does not intend to indicate that information
barriers may not be necessary for Members in other contexts. To the
contrary, information barrier procedures may be a necessary or
effective means to manage conflicts of interest or to prevent
communications of material non-public information between certain
individuals or groups.\9\ Further, as described above, under proposed
Interpretation and Policy .02, the adequacy of each Member's policies
and procedures will depend upon the nature of each Member's business.
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    \9\ The Exchange represents that it will issue a Regulatory
Circular to its Members notifying such Members of this proposal and
addressing related regulatory topics. For instance, the Regulatory
Circular will reinforce the requirement that Members of the Exchange
maintain policies and procedures that are reasonably designed to
assure compliance with applicable securities laws, rules,
regulations and statements of policy promulgated thereunder and the
Exchange's rules, including those relating to the misuse of material
non-public information. In addition, the Exchange represents that
the Regulatory Circular will include the following guidance:
``Pursuant to the proposed rule change, Members may utilize a
flexible, principles-based approach to modify their policies and
procedures as appropriate to reflect changes to their business
model, business activities, or to the securities market itself. A
Member should be proactive in assuring that its policies and
procedures reflect the current state of its business and continue to
be reasonably designed to achieve compliance with applicable federal
securities law and regulations, and with applicable Exchange rules.
While information barriers are not specifically required under the
proposal, a Member's business model or business activities may
dictate that an information barrier or a functional separation be
part of the appropriate set of policies and procedures that would be
reasonably designed to achieve compliance with applicable securities
law and regulations, and with applicable Exchange rules.''
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(iii) Proposed Addition of BATS Rule 12.13
    In an attempt to achieve additional consistency with certain other
market centers, the Exchange further proposes to add new BATS Rule
12.13, prohibiting Members from establishing, increasing, decreasing or
liquidating an inventory position in a security or a derivative of such
security based on non-public advance knowledge of the content or timing
of a research report in that security. Similar to FINRA Rule 5280 and
NYSE Arca Rule 6.7, the Exchange also proposes to require Members to
establish, maintain and enforce procedures reasonably designed to
restrict or limit the information flow

between research department personnel and trading department personnel,
so as to prevent trading department personnel from utilizing non-public
advance knowledge of the issuance or content of a research report.
(iv) Members Retain Responsibility for Compliance
    By prohibiting the misuse of material, non-public information, the
Exchange believes it has appropriately defined the behavior that its
participants must avoid. However, the Exchange also believes that
prescribing the form that these policies and procedures must take is
unnecessarily burdensome. By defining certain prohibited behavior
(e.g., BATS Rule 12.6) the Exchange has placed its participants on
notice as to their specific compliance burdens with respect to
preventing the misuse of material, non-public information. Further,
BATS Rule 5.1 requires each Member to establish, maintain and enforce
written procedures that enable such Member to supervise the activities
of associated persons of the Member and to assure their compliance with
applicable securities laws and regulations, and with BATS Rules.
Pursuant to this proposed rule change, Members may utilize a flexible,
principles-based approach to modify their policies and procedures as
appropriate to reflect changes to their business model, business
activities, or to the securities market itself. A Member should be
proactive in assuring that its policies and procedures reflect the
current state of its business and continue to be reasonably designed to
achieve compliance with applicable federal securities law and
regulations, and with applicable Exchange rules. In addition, in the
context of approving a similar proposal by NYSE Arca, the Commission
stated that, ``while information barriers are not specifically required
under the proposal, a [firm's] business model or business activities
may dictate that an information barrier or a functional separation be
part of the appropriate set of policies and procedures that would be
reasonably designed to achieve compliance with applicable securities
law and regulations, and with applicable Exchange rules.'' \10\
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    \10\ See Securities Exchange Act Release No. 60604 (September 1,
2009), 74 FR at 46275 (September 8, 2009) (SR-NYSEArca-2009-78).
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(v) Comparison to Framework Employed by Nasdaq and NYSE Arca
    By amending its rules in accordance with this proposal, the
Exchange reinforces a regulatory structure that clearly identifies
prohibited conduct (e.g., misuse of material, non-public information)
without further requiring Members to establish and maintain specific
compliance mechanisms (e.g., information barriers). For example, Nasdaq
prohibits the misuse of material, non-public information but does not
generally require that its members establish and maintain information
barriers,\11\ and NYSE Arca recently eliminated a requirement
applicable to NYSE Arca market makers specifically requiring
information barriers. In conjunction with such amendment, NYSE Arca
adopted NYSE Arca Rule 6.7, a rule that the Exchange has mirrored with
its proposal of BATS Rule 12.13. Finally, similar to BATS Rule 5.1,
Nasdaq Rule 3010 and NYSE Arca Rule 6.18 require the members of Nasdaq
and NYSE Arca, respectively, to establish and maintain systems to
supervise the activities of associated persons that are reasonably
designed to achieve compliance with applicable federal securities laws
and regulations, and the applicable rules of the exchange.
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    \11\ See Nasdaq Rules 2110-2, 2110-3, and 2110-4.
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    The Exchange believes that the approach proposed herein is
consistent with Nasdaq and NYSE Arca's respective structures. First,
like Nasdaq and NYSE Arca, market makers registered with BATS and other
firms that are Members of BATS that trade for their own accounts do not
have any advantages regarding relevant trading information provided by
the Exchange, either at, or prior to, the point of execution vis-
[agrave]-vis other market participants. Second, BATS has similar
requirements to Nasdaq and NYSE Arca concerning the maintenance of a
supervisory system and written supervisory procedures. The Exchange
notes that FINRA and BATS have previously acknowledged, pursuant to the
provisions of Rule 17d-2 under the Securities Exchange Act of 1934
(``17d-2 Agreement''), that, collectively, BATS Rules 5.1, 5.2, 5.3 and
5.4 are substantially similar to FINRA's NASD Rule 3010, which Nasdaq
and NYSE Arca rules incorporate by reference. For instance, BATS Rule
5.4 is similar to Rule 3010(c), which requires each FINRA member to
conduct an annual review of the businesses in which it engages and to
conduct annual office inspections including the ``periodic examination
of customer accounts to detect and prevent irregularities or abuses.''
Although the Exchange has not incorporated Rule 3010(c) into its Rules
by reference, Rule 3010(c) would apply to all broker-dealers that
engage in a customer business, because such firms are required to be
members of FINRA.\12\ Also, although not as detailed as Rule 3010(c)
with respect to the requirements of the inspection, BATS Rule 5.4 is
nearly identical in that it requires BATS Members to ``review the
activities of each office, which shall include the periodic examination
of customer accounts to detect and prevent irregularities or abuses.''
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    \12\ See 15 U.S.C. 78o(b)(8); see also 17 CFR 240.15b9-1(a).
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    Based on the foregoing, it is appropriate for the Exchange to
establish a similar approach with respect to information barriers
employed by Nasdaq and NYSE Arca.\13\
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    \13\ BATS notes that its current examination procedure regarding
its review for appropriate supervisory systems and procedures will
remain in place.
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(vi) Conclusion: Flexibility and Accountability
    Eliminating substantial portions of BATS Rule 5.5, and adding to
the general standards set forth therein to prohibit the misuse of
material, non-public information, as proposed by this filing, offers
Exchange participants both certainty and flexibility. BATS Members are
on notice as to their obligations to maintain and enforce written
policies and procedures reasonably designed to prevent the misuse of
material, non-public information. Like Nasdaq and NYSE Arca
participants, BATS Members will now be afforded the same flexibility to
maintain compliance mechanisms of their own design. The Exchange
believes that this approach fosters a fair and orderly marketplace
without being overly burdensome upon its Members.
2. Statutory Basis
    The rule change proposed in this submission is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange, and, in particular,
with the requirements of Section 6(b) of the Act.\14\ Specifically, the
proposed change is consistent with Section 6(b)(5) of the Act,\15\
because it is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and
remove impediments to, and perfect the mechanism of, a free and open
market and a national market system. Eliminating portions of BATS Rule
5.5 that prescribe specific procedures and information barriers that
must be maintained by certain Member firms,

while establishing more clarity regarding the minimum procedures that
must be maintained by any Member, consistent with other self-regulatory
organizations, should eliminate unnecessary regulatory burdens while at
the same time retaining an appropriate mechanism designed to ensure
that material, non-public information continues to be protected. In
particular, the proposed rule change will reduce the burdens on certain
Members that are currently required to maintain, and file with the
Exchange, specified information barriers. The Exchange believes that
the proposed changes will make compliance obligations with respect to
prevention of the misuse of material, non-public information more clear
to Exchange Members. The amended rule structure will be more consistent
with that of other exchanges and will nonetheless continue to ensure
protection of investors through existing regulations relevant to misuse
of material, non-public information that apply to Exchange Members
through the applicability and enforcement of relevant provisions of the
Act, including Section 15(f); \16\ rules imposed by other self-
regulatory organizations; a joint industry effort to surveil for
potential insider trading violations through a Rule 17d-2 Agreement\17\
and Regulatory Services Agreements between all self-regulatory
organizations that trade equity securities; and through the Exchange's
examination program.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ 15 U.S.C. 78o(f).
    \17\ See Securities Exchange Act Release 58806 (October 17,
2008), 73 FR 63216 (October 23, 2008); Securities Exchange Act
Release No. 58536 (September 12, 2008), 73 FR 54646 (September 22,
2008).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on
the proposed rule change.

III. 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<EMAIL_ADDRESS>Please include
File Number SR-BATS-2010-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-BATS-2010-003. 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 Web site viewing and
printing 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 BATS. 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 publicly available. All
submissions should refer to File Number SR-BATS-2010-003 and should be
submitted on or before March 23, 2010.

IV. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change

    After careful consideration, 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.\18\ The Commission believes that the proposal is consistent
with Section 6(b)(5) \19\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in 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.
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    \18\ In approving this rule change, the Commission notes that it
has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange is proposing to amend BATS Rule 5.5 to replace the
specifically prescribed information barrier requirement with a more
principles-based approach that would permit a Member to develop and
apply its own policies and procedures to, among other things, prohibit
the misuse of material nonpublic information. BATS Rule 5.5 addresses
concerns arising from the potential for the sharing of material non-
public information between a Member's market making activities and
other business activities of the Member or its affiliates. For
instance, one such concern is that the Member or affiliate engaging in
other business activities might use non-public information that was
acquired by the Member through its role as a market maker. Another
concern is that the Member might use material non-public information
received from the entity engaging in other business activities, such as
trading based on a change in the firm's buy or sell recommendation.\20\
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    \20\ See Securities Exchange Act Release No. 58328 (August 7,
2008), 73 FR 48260 (August 18, 2008) (SR-NYSE-2008-45) (articulating
concerns in the context of approving changes to NYSE Rule 98).
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    While amended BATS Rule 5.5 will no longer specify policies and
procedures a Member must establish, the proposal will require that the
policies and procedures be reasonably designed to ensure compliance
with applicable Federal securities law and regulations, and with
Exchange rules. The Commission believes that, with adequate oversight
by the Exchange of its members, elimination of prescriptive information
barrier requirements should not reduce the effectiveness of BATS rules
requiring Members to establish and maintain systems to supervise the
activities of Members, and written procedures that are reasonably
designed to comply with applicable securities laws and Exchange rules,
including the prohibition on misuse of material nonpublic information.
    Specifically, amended BATS Rule 5.5 will require Members to
establish,

maintain and enforce written procedures reasonably designed to prevent
the misuse of material non-public information by the Member or persons
associated with the Member. The misuse of material non-public
information includes trading in a security or related securities or
options or other derivative securities, while in possession of material
non-public information concerning the issuer, or while in possession of
material non-public information concerning imminent transactions in the
security or related securities.\21\ The Exchange also proposes to add
BATS Rule 12.13, which will prohibit a Member from establishing,
increasing, decreasing or liquidating an inventory position in a
security or derivative of that security based on advance non-public
knowledge of the content or timing of a research report concerning that
security.
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    \21\ See BATS Rule 5.5, Commentary .01.
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    Further, BATS Rules 5.1, 5.2, 5.3 and 5.4, which relate to a
Member's responsibilities or obligations related to conduct or
supervision, will continue to apply. For example, BATS Rule 5.1
requires BATS Members to ``establish, maintain and enforce written
procedures which will enable it to supervise properly the activities of
associated persons of the Member and to assure their compliance with
applicable securities laws, rules, regulations and statements of policy
promulgated thereunder, with the rules of the designated self-
regulatory organization, where appropriate, and with Exchange Rules.''
In addition, BATS Rule 5.4 requires BATS Members to ``review the
activities of each office, which shall include the periodic examination
of customer accounts to detect and prevent irregularities or abuses.''
These rules thus provide additional clarification that the supervisory
systems and internal inspections of Members must be reasonably designed
to achieve compliance with applicable securities laws and regulations
and with applicable BATS rules, including those relating to the misuse
of material non-public information.
    Pursuant to this proposal rule change, Members may utilize the
flexible, principles-based approach to modify their policies and
procedures as appropriate to reflect changes to their business model,
business activities, or to the securities market itself. A Member
should be proactive in assuring that its policies and procedures
reflect the current state of its business and continue to be reasonably
designed to achieve compliance with applicable federal securities law
and regulations, and with applicable Exchange rules. In addition, the
Commission notes that, while information barriers are not specifically
required under the proposal, a Member's business model or business
activities may dictate that an information barrier or a functional
separation be part of the appropriate set of policies and procedures
that would be reasonably designed to achieve compliance with applicable
securities law and regulations, and with applicable Exchange rules. In
this regard, the Exchange included in Interpretation and Policy .02 to
amended BATS Rule 5.5 a statement that the adequacy of each Member's
policies and procedures relating to the misuse of material non-public
information will depend upon the nature of such Member's business.
    The Commission believes that the regulatory approach in this
proposed rule change is substantially similar to the regulatory
approach of Nasdaq and NYSE Arca. In particular, the BATS approach,
like the Nasdaq and NYSE Arca approach, (i) enumerates the conduct that
is prohibited by its members, including the potential misuse of
material non-public information and (ii) provides for the policies and
procedures that must be reasonably designed to ensure compliance with
the same. In addition, the Commission notes that the Exchange has
represented that its current examination procedure for the review of
appropriate supervisory systems and procedures will remain in place.
    The Commission also finds good cause, pursuant to Section 19(b)(2)
of the Act,\22\ for approving the proposed rule change prior to the
30th day after the date of publication of notice in the Federal
Register. Although this proposed rule change does not require that
Members maintain specifically-prescribed information barriers, it will
continue to mandate that Members establish and maintain a set of
policies and procedures reasonably designed to achieve compliance with
applicable securities law and regulations, and with applicable Exchange
rules. As such, the Exchange is adopting an approach that is
substantially similar to the approach currently employed by Nasdaq and
NYSE Arca.\23\
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    \22\ 15 U.S.C. 78s(b)(2).
    \23\ See Securities Exchange Act Release No. 53128 (Jan. 13,
2006), 71 FR 3550 (January 23, 2006) (adopting Nasdaq IM-2110-2; IM-
2110-3; IM-2110-4, and Rule 3010); 60604 (September 1, 2009), 74 FR
46272 (September 8, 2009) (SR-NYSEArca-2009-78).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\24\ that the proposed rule change (SR-BATS-2010-003) be, and it
hereby is, approved on an accelerated basis.
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    \24\ 15 U.S.C. 78s(b)(2).
    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-4230 Filed 3-1-10; 8:45 am]
BILLING CODE 8011-01-P