1 draft 4/ 9/ 04 a Comments on 8 Hour Ozone NAAQS Implementation Rule ( Phase I)

OMB Comments 1. COMMENT: It is not clear that Alternative Y is superior in terms of the Agency's Preferred Approach ( Option 2). For example, based on the information contained in the " Qualitative Assessment", 10 areas ( including major metropolitan areas) would be classified lower under Alternative Y than under Option 2. Only 8 areas would be classified lower under Option 2 than under Alternative Y. How can the Agency be sure that Alternative Y is superior to Option 2?

RESPONSE: We have added text to the preamble ( in a response to comment) to explain why Alternative Y is not preferred. See attachment A.

2. COMMENT: How much discretion does EPA have over the control requirements in the higher classifications within Subpart 2? AND Does EPA have discretion to alter the Subpart 2 timeframes?

RESPONSE: In general, we do not believe we have authority to waive subpart 2 requirements or to modify the statutorily prescribed time frames. We plan to address this issue in the phase 2 rulemaking, where we will address the remaining implementation issues not covered in the phase 1 notice. The June 2, 2003 proposal discussed this issue and noted that the only way we could provide an exemption from the control requirements under subpart 2 was if application of the requirement would produce an " absurd result" and that we would consider those situations on a case by case basis. ( See 68 FR 32825). We received comments on this issue, which we will address in the phase 2 notice.

3. COMMENT: It is possible that two areas, each with the same 8 hour design value, would be classified differently; one in Subpart 1, and the other in Subpart 2. Did EPA consider altering the [" attainment" I'm assuming] timeframe under Subpart 2 marginal ( currently 3 years) to equate with the Subpart 1 timeframe ( 5 years)? ( The other timeframes in Subpart 2 would have to be changed accordingly.) If such a change is made in the final rule, are there " logical outgrowth" problems?

RESPONSE: Although we believe we have a good argument for why we can " translate" the subpart 2 classification table to 8 hour values based on the Supreme Court's ruling, our attorneys do not believe we can defend modifying the attainment timeframes in the table. We did receive a number of comments that advocate longer attainment times, but generally in the context of placing areas in other classifications. It is important to note that subpart 1 does not provide areas covered by that subpart with 5 years to attain. Rather, areas must demonstrate attainment as expeditiously as practicable. We anticipate that most subpart 1 areas, like most areas classified as marginal, will be able to attain in 3 years after designation. 2 4. COMMENT: What is the definition of " rural" that EPA is using in this rule?

RESPONSE: We are using the definition that parallels the provision for rural transport areas in section 182( h) of the Act, namely that the area cannot be in or adjacent to a C/ MSA.

5. COMMENT: On pages 53 54, EPA states that it will shortly issue new guidance on determining whether a region is subject to overwhelming transport. Please provide a draft of this guidance to OMB for review.

RESPONSE: I must still discuss with our modeling folks before providing an answer. We will remove the " shortly" from the notice, however. In general, EPA's modeling guidance receives external review through a cross section panel of modeling experts.

6. COMMENT: EPA is limiting the " overwhelming transport" areas to rural areas. The explanation given on pages 54 55 of the preamble is, however, not very convincing. Recommend that EPA allow non rural areas to be considered for the " overwhelming transport" classification.

RESPONSE: Part of the unstated rationale for restricting the overwhelming transport classification to rural areas is the fact that we hope to make a similar classification available in the PM2.5 implementation program. That program would be governed entirely under subpart 1, with no hierarchy of classifications such as in subpart 2. Many urban areas in the East are affected by transport of PM2.5 precursors. To have a large number urban areas eligible for an overwhelming transport classification does not appear wise, since it implies that they cannot do much to solve their own problem. PM2.5 in urban areas has a direct component that EPA expects to be controlled locally, even if the area is " overwhelmed" by transport of secondary PM2.5 components. Therefore, the PM2.5 program proposes restricting the overwhelming transport classification to rural areas. We are attempting to structure the ozone program to be inconsistent with the PM2.5 program in terms of how to handle transport.

7. COMMENT: What are the NSR requirements for this rule?

RESPONSE: NSR for the 8 hour standard will be addressed in the second phase of the rule.

8. COMMENT: What are EPA's plans for the RIA?

RESPONSE: Our plans for additional economic analysis ( not an RIA), include a quantitative cost and impact assessment in support of the portion of the final ozone implementation rule addressing rate of progress and reasonable available control technology decisions. EPA plans to use 2001 2003 air quality data, a revised 2001 emissions inventory and associated projected inventories for 2007, 2010, and 2015. 3 Emission reduction targets will be developed for each hypothetical non attainment area and the costs to meet these targets assessed.

The geographic scope of the assessment will be non attainment areas in the CAM X domain that have anticipated differences in cost and impacts due to alternatives which provide plausible bounds regarding rate of progress and reasonable available control technology determinations.

There are also related analyses outside the scope of the formal rulemaking that will look at cost/ feasibility of attaining the standard in non attainment areas in the CAM X modeling domain. 4 ATTACHMENT A ( ALTERNATIVE Y RESPONSE; the second approach in the text below refers to Alternative Y in the impact analysis addendum document)

Under one of these options, we would reduce the range for the subpart 2 classifications, which would have classified more subpart 2 areas in higher classifications, thereby extending the maximum period for attainment. We have addressed the problems associated with that kind of classification structure above. Under another of these options, the classification structure would have relied solely on 8 hour ozone design values. This approach was a variant of Option 2 in which all areas with 8 hour design value of less than a value that is equivalent to the 1 hour value of 0.121 ppm would be covered by subpart 1. This option has the opposite effect of the one in which the range of concentrations is reduced, namely that more areas would have been placed in lower classifications, increasing the number of areas for which the initial classification would not provide sufficient time to attain.


EPA Registration Division contact: Barbara Madden<PHONE_NUMBER>

2E6504

Summary of Petitions

	EPA has received a pesticide petition (2E6504) from Interregional
Research Project #4 (IR-4), Rutgers, The State University of New Jersey,
500 College Road East, Suite 201 W, Princeton, NJ 08540 proposing,
pursuant to section 408(d) of the Federal Food, Drug, and Cosmetic Act
(FFDCA), 21 U.S.C. 346a(d), to amend 40 CFR part 180.189 by establishing
a tolerance for residues of coumaphos, O, O-Diethyl
O-(3-chloro-4-methyl-2-oxo-2H-1-benzopyran-7-yl) phosphoro-thioate and
its oxygen analog (coumaphoxon;  O, O-Diethyl
O-(3-chloro-4-methyl-2-oxo-2H-1-benzopyran-7-yl) phosphate in or on the
raw agricultural commodities honey at 0.1 parts per million (ppm) and
honeycomb at 100 ppm. EPA has determined that the petition contains data
or information regarding the elements set forth in section 408(d)(2) of
the FFDCA; however, EPA has not fully evaluated the sufficiency of the
submitted data at this time or whether the data supports granting of the
petition.  Additional data may be needed before EPA rules on the
petition.

A. Residue Chemistry

. There are no registered uses for coumaphos on agricultural crops, or
ornamentals.   Therefore, plant metabolism data are not necessary or
required.  Coumaphos strips will be used in bee hives.  Of the two bee
products (honey and honeycomb), only honey is listed as part of animal
(human) diet per EPA’s Table 1.  Raw Agricultural and Processed
Commodities and Feedstuffs Derived from Crops.  The nature of the
coumaphos residues in rat and ruminant is adequately understood.  The
residues of concern in animals are  combined residues of coumaphos and
its oxygen analog (coumaphoxon), as specified in 40 CFR 180.189.

. Two different LC/MS/MS  methods, one each for honey and  honeycomb
(beeswax), were developed to measure the residues of coumaphos and its
oxygen analog.  The analytical methods have successfully passed EPA
compliant independent laboratory validation tests.   Due to a unique
specificity of the LC/MS/MS technique, no separate confirmatory
procedure is needed for coumaphos and its oxygen analog  in  honey or
honeycomb.  Coumaphos and its oxygen analog were found to be stable for
at least 18 months in honey and beeswax when frozen.  In addition, both
coumaphos and its oxygen analog have been evaluated using the
multi-residue methodologies as published in Pesticide Analytical Manual,
Volume I.

. Two field trials were conducted for the determining the magnitude of
coumaphos residues in honey and honeycomb following bee hive treatment
with coumaphos bee strips (CheckMite+®) for the control of varroa mites
and the small hive beetle.

i)  In a field trial designed to determine the worst-case coumaphos
residues,  test sites with each test site consisting of five  healthy
commercial honey bee colonies (Apis mellifera L.) were used.  One
application of the CheckMite+ strips was made to one test site by
hanging two 10% coumaphos strips in the brood chamber of each of the
colonies.  The bee colonies at another the test site served as controls.
 Each colony in the study received a honey super on the top of the brood
chamber.  The coumaphos strips remained in the brood chambers of the
treated bee hives for 45 days during the honey flow.

After the 45-day treatment period, the strips were removed along with
the honey supers.

Honey and beeswax samples were collected randomly from each honey super
per colony.    In addition, few honey samples were taken from the brood
chambers.  The honey samples were taken from the brood nest frames
adjacent to the treatment strips as the worst-case. Immediately after
sampling, a new empty honey super was placed above the brood nest of
each of the colonies.  Sampling was repeated 13 days later by taking one
honey and one beeswax sample from each honey super per colony as
described above.

Honey and beeswax samples were analyzed for the magnitude of residues
of coumaphos and its oxygen analog using the analytical methods
described above.  The maximum combined residues of coumaphos and its
oxygen analog in any single analysis from any sampling interval were
0.071 ppm in honey super honey, 0.073 ppm in brood chamber honey, 43 ppm
in honey super wax and 51 ppm in brood chamber wax.  The limit of
quantitation (LOQ) for each analyte was 0.01 ppm in honey and 0.5 ppm in
beeswax.

ii)   The second field trial for the magnitude of coumaphos residues was
performed near Algoa (Texas).  In this trial, plastic strips
(CheckMite+®) impregnated with 5%, 7.5% or 10% coumaphos were used for
the control of varroa mites and the small hive beetle in processed honey
and comb honey production trials.

Nine test sites, each consisting of four standard honey bee colonies
(Apis mellifera L.) were used in this study.  Some test sites were used
for processed honey production and other sites were used for comb honey
production.  In the processed honey production trial, bee hives at one
site served as control.  Other bee hives were each treated with two 10%
coumaphos strips for the control of varroa mites and one 10% coumaphos
strip for controlling the small hive beetle.  The treatment materials
remained in the bee hives for 45 days, after which time all coumaphos
strips were removed from the hives.  After a withdrawal period of 14
days, honey supers were added to each brood chamber for honey
collection.  Honey was collected in the supers for 36 days.  For each
colony, honey from the honey supers was harvested by using a commercial
extractor, and samples of extracted honey and beeswax were taken for
residue analysis.

In the comb honey production trial, bee hives at one site served as
control.  At one test site, each hive was treated with two 10% coumaphos
strips for varroa mite control and one 10% coumaphos strip under a cover
for controlling the small hive beetle.  At one test site, each bee hive
received one 10% coumaphos strip under a cover for the small hive beetle
control.  The treatment materials in the bee hives at the above two test
sites remained for 45 days, after which time the treatment materials
were removed from the brood chambers.  After a withdrawal period of 14
days, honey supers were added for honey collection to the brood chamber
of each colony.  At this time, the bee hives at the fourth site were
each treated with one 10% coumaphos strip for the small hive beetle
control and honey supers were added for honey collection.  Thirty-six
days later, honey and beeswax from the honey supers in all four sites
were harvested, and small sub-samples were taken for residue analysis.

The maximum combined residues of coumaphos and its oxygen analog in any
single analysis from the sampling interval were 0.011 ppm in honey from
the processed honey trial, <0.5 ppm in the beeswax from the processed
honey trial, and (0.5 ppm in the comb honey (honey  plus honeycomb
combined).

B. Toxicological Profile

. Coumaphos technical is highly acutely toxic via the oral and
inhalation routes of exposure.  The rat acute oral LD50 = >17
milligram/kilogram (mg/kg) (category I) and the rat acute inhalation
LC50 =  > 0.038 milligram/Liter (mg/L) (category I).  It is moderately
toxic via the dermal route of exposure (the rat acute dermal LD50 = >
2000 mg/kg (category III); and the technical coumaphos was mildly
irritating to the eye (category III) and was not a skin irritant
(category IV) in rabbits. Coumaphos was not a dermal sensitizer in
rabbits and guinea pigs.  Coumaphos is classified as a Group E chemical,
indicating that it is “Not Likely” to be carcinogenic in humans via
relevant routes of exposure.

. [i)  Gene mutation - A Salmonella/microsome study was conducted.
Coumaphos was not mutagenic when tested at levels up to 12,500 ug/plate
with and without metabolic activation in Salmonella typhimurium strains
TA1535, TA1537, TA100, and TA98.

ii)   Structural chromosomal aberration - Coumaphos was tested in a
mouse-micronucleus test at different levels up to 1920 mg/kg by gavage.
Negative results were obtained at 480 mg/kg.  Cytotoxicity was observed
at dose levels above 480 mg/kg.  Mortality was observed at higher dose
level making the results uninterpretable.

iii)  Direct DNA damage and repair - A Pol A test on Escherichia coli
was conducted.  Coumaphos was not mutagenic when tested at levels up to
5000 ug/plate with and without metabolic activation

. [i)  In a two-generation reproduction study, rats were fed diets
containing coumaphos at  0, 0.07, 0.3, or 1.79 mg/kg/day (males) and 0,
0.08, 0.34 or 2.02 mg/kg/day (females), respectively.  There was no
increased sensitivity to pups over the adults.  For parental/systemic
toxicity, the NOAEL was 1.79 mg/kg/day, (HDT); a LOAEL was not
established.  For reproductive toxicity, the NOAEL was 1.79 mg/kg/day; a
LOAEL was not established.

Cholinesterase activity was measured in adults and pups.  There was
dose-related decreases in plasma and red blood cell cholinesterase
activity in dams at 0.34 and 2.02 mg/kg/day.  Generally, no differences
were seen on day 47 and day 91 measurements.  Brain levels were
biologically significantly inhibited in Fo and F1 adult females at 2.02
mg/kg/day, and in Fo adult males at 1.79 mg/kg/day.  In pups, no
significant changes in red blood cell or brain cholinesterase activity
were seen on day 4, but on day 21 changes were seen at 2.02 mg/kg/day.
In F1 pups, plasma and red blood cell ChE inhibition of 38-44% was seen,
while in F2 pups, only plasma was affected (31-44%).  The only
significant brain inhibition in pups was an 8% decrease in F1 females on
day 21.  The NOAEL was 0.3 mg/kg/day for cholinesterase inhibition in
dams and in pups on day 21.

ii)  The developmental toxicity studies in rats and rabbits summarized
below showed no evidence of additional sensitivity to young rats or
rabbits following pre- or postnatal exposure to coumaphos and comparable
NOAELs were established for adults and offspring.

a)  In a developmental toxicity study pregnant rats received oral doses
of coumaphos at 0, 1, 5 or 25 mg/kg/day during gestation days 6 through
15.   For maternal toxicity, the NOAEL was 5 mg/kg/day  and the LOAEL
was 25 mg/kg/day based on clinical signs of cholinesterase inhibition.
For developmental toxicity, the NOAEL was 25 mg/kg/day (HDT); a LOAEL
was not established.  There was no evidence of teratogenicity.

b)  In a developmental toxicity study, pregnant rabbits were given
single oral dose of coumaphos at 0, 0.25, 2, or 18 mg/kg/day during
gestation days 7 through 19.  For maternal toxicity, the NOAEL was 2
mg/kg/day and the LOAEL was 18 mg/kg/day based on mortality (2/17) and
cholinergic signs.  For developmental toxicity, the NOAEL was 18
mg/kg/day (HDT); a LOAEL was not established.  There was no evidence of
teratogenicity.]

[i)  In a 13-week feeding study, coumaphos was orally administered in
the diet to rats equivalent to 0, 0.2, 0.5 or 1.0 mg/kg/day dose rate.
Plasma, erythrocyte (RBC) and brain cholinesterase (ChE) levels were
determined at 3, 8 and 13 weeks.

Brain ChE was not inhibited at any time.  The LEL for cholinesterase
inhibition was determined at or lower than 0.2 mg/kg/day based on RBC
ChE inhibition.  The NOEL for cholinesterase inhibition is less than 2
ppm.  No signs of systemic toxicity were observed at any dose. The
systemic LEL and NOEL were greater than 1.0 mg/kg/day.

ii)  In a 21-day subchronic dermal toxicity study,  coumaphos was
administered to male and  female rats at dose levels of 0, 2, 4, 20 or
100 mg/kg/day.  Plasma, erythrocyte (RBC) and brain cholinesterase (ChE)
levels were determined.  The LEL for cholinesterase inhibition was 2
mg/kg/day based on RBC and plasma ChE.  The NOEL for cholinesterase
inhibition was less than 2 mg/kg/day.  Signs of systemic toxicity
occurred at 20 mg/kg/day and above and included muscle fasciculation in
males. The systemic LEL was 20 mg/kg/day based on muscle fasciculation
and tremors. The systemic NOEL was established at 4 mg/kg/day.

This study in combination with a second study (see below) was accepted
by EPA by using lower doses in females.

iii)  In a 21-day dermal study, coumaphos was administered to female
rats at dose levels equivalent to 0, 0.1, 0.5, 1.1 or 2.1 mg/kg/day.  At
1.1 mg/kg/day, RBC ChE was inhibited (24 and 28% for the two highest
doses).  The LEL for cholinesterase inhibition was 1.1 mg/kg/day based
on inhibition of RBC ChE in females. The NOEL for cholinesterase
inhibition was 0.5 mg/kg/day.  There was no systemic toxicity observed
at any dose level. The systemic LEL appeared greater than 2.1 mg/kg/day.
The systemic NOEL was 2.1 mg/kg/day (4 mg/kg/day based on a separate
study).  This study was considered acceptable when taken together with
the study cited above.  When the two studies were considered together,
the NOEL and LEL for systemic effects were determined to be at 4 and 20
mg/kg/day, respectively.  The NOEL and LEL for cholinesterase inhibition
were determined at 0.5 and 1.1 mg/kg/day, respectively.

. [i)   In a 2-year chronic feeding/carcinogenicity study in rat,
coumaphos was fed to groups of rats at dose levels equivalent to 0,
0.05, 0.25 or 1.22 mg/kg/day in males and at 0, 0.07, 0.36 or 1.70
mg/kg/day in females.   The systematic NOEL and LEL were  0.36 mg/kg/day
and 1.70 mg/kg/day in females, respectively, based on decreased body
weight gain.   The NOEL (ChE) and LEL (ChE) were established at 0.36
mg/kg/day and 1.70 mg/kg/day in females, respectively.

There was no evidence of carcinogenicity at any dose. Dosing was
adequate to evaluate carcinogenic potential.

ii)  In a carcinogenicity study, coumaphos was administered to groups of
rats at dose levels of 10 or 20 ppm in the diet for 103 weeks.  Body
weights of female rats were slightly lower than the controls at 10 and
20 ppm. Decreases in male body weight was observed at 20 ppm.  No other
toxic manifestations were apparent.  There was no evidence that
administration of coumaphos was associated with an increase in tumors.
Dosing was considered adequate to evaluate carcinogenic potential.

iii)  In a carcinogenicity study, coumaphos  was administered to groups
of mice at dose levels at 10 and 20 ppm in the diet for 103 weeks.  No
toxic manifestations were apparent.  There was no evidence that
administration of coumaphos was associated with an increase in tumors.
Dosing was considered adequate to evaluate carcinogenic potential based
on range-finding data.  It was expected that ChE would have been
inhibited if the measurement was evaluated.

iv)  In a 1-year feeding study in dogs,  Beagles were fed coumaphos diet
equivalent to 0.025, 0.775, or 2.295 mg/kg/day (males), and 0.024,
0.705, or 2.478 mg/kg/day (females), respectively.  Control groups
received untreated diet.  Plasma, erythrocyte and brain cholinesterase
(ChE) activity was monitored in the study. Based upon significant and
biologically relevant depression of RBC ChE and plasma ChE activity
levels in dogs, this study provided a NOEL of 0.025 mg/kg/day and a LEL
of 0.7 mg/kg/day.

There were no other treatment related systemic changes at any dose
level. The systemic NOEL was 2.3 mg/kg/day and the LEL was greater than
2.3 mg/kg/day.

Carcinogenicity Classification - Coumaphos was classified by the HED
RfD/Peer review Committee on October 13, 1994 as a "Group E" , i.e., no
evidence of noncarcinogenicity for humans, based on adequate studies in
two animal species.]

. [Radiolabeled  coumaphos was administered to rats at dose levels of
1.0 mg/kg intravenously and 1.0 and 15.0 mg/kg, orally. A fourth group
received 1.0 mg/kg coumaphos daily for 14 days.   The plasma half life
ranged from 2.35 to 3.30 hours at 1.0 mg/kg (including the repeated dose
group) and 2.93 to 5.30 hours at 15.0 mg/kg.

Urinary excretion was rapid with 63-87% of the administered dose being
excreted within 24 hours. 76-96% of the administered dose was excreted
within 168 hours.  Tissue residues were highest in fat, kidney, liver
and muscle. The urine contained 5 to 8 metabolites and the feces
contained 5 to 7 metabolites. The major metabolite was chlorferone (the
hydroxylated leaving group).  Coumaphos represented 0.1% of the urinary
metabolites.  Coumaphos represented 0.2% of the fecal metabolites when
administered intravenously.  However, when administered orally coumaphos
represented approximately 15 to 55% of the fecal metabolites.  The range

varied depending on whether coumaphos was administered as a single dose
or repeated dose.]

. NA

.  NA

C.  Aggregate Exposure

Food. Coumaphos is an acaricide currently registered in the U.S. for use
on livestock animals for the control of arthropod pests.  Tolerances
have been established (40 CFR 180.189) for the combined residues of
coumaphos (O,O-diethyl O-3-chloro-4-methyl-2-oxo-2H-1-benzopyran-7-yl
phosphorothioate) and its oxygen analog, coumaphoxon (O,O-diethyl
O-3-chloro-4-methyl-2-oxo-2H-1-benzopyran-7-yl phosphate), in or on
meat, fat, and meat byproducts of cattle, goats, hogs, horses, and
sheep, and in milk.  Tolerances are set at 1.0 ppm in livestock tissues
and 0.5 ppm in milk-fat residues.  Although tolerances are still listed
in the most recent  CFR (revised July 1, 2001) for sheep and goats (1.0
ppm), the use of coumaphos on sheep and goat is no longer supported by
Bayer (the technical registrant) in the U.S.  The USDA does wish to
maintain these tolerances for a small number of sheep and goats imported
in the U.S. from Mexico.  The dietary risk assessment conducted by
Bayer, nevertheless included the use on sheep and goats to be supportive
of USDA's interest in continuing this use on a limited scale.  Bayer
used the following  toxicological dose and endpoints (LOAEL 2.0
mg/kg/day, UF = 300, giving the acute RfD = 0.007 mg/kg/day; NOAEL 0.025
mg/kg/day, UF = 100, giving the chronic RfD = 0.00025 mg/kg/day) for
conducting the acute and chronic dietary risk assessments for coumaphos.
 For coumaphos dietary risk assessment, the FQPA SF = 1 is established
by EPA.

Bayer performed the acute and chronic dietary exposure analysis for
coumaphos by using the Dietary Exposure Evaluation Model (DEEM(, version
7.76).  The DEEM analysis evaluated the individual food consumption as
reported by respondents in the USDA 1994-6/98 nationwide Continuing
Surveys of Food Intake by Individuals (CSFII) and accumulated exposure
to the chemical for each commodity.  The anticipated residue values
(ARs) were calculated from field trial data for estimation of both acute
and chronic dietary exposures for all livestock commodities, with the
exception of milk.  The residue values used for milk were taken from the
USDA's PDP 1997 and 1998 monitoring data which showed no detectable
residues in milk out of 750 samples tested.

The DEEM analysis included the following percent livestock treated (PLT)
information: 4% beef including lean meat without removable fat, beef
fat, beef liver, beef byproducts, kidney; 1% horse including lean meat;
1% hog including meat, hog fat, hog liver, hog byproducts; 1% veal
including lean meat without removable fat, veal fat, veal liver, veal
meat by-products, veal kidney; 4% milk; sheep and goats (0.1% each); and
40% honey.

For honey, the average value determined in a Bayer field trial for the
combined residues of coumaphos and its oxygen analog for three replicate
samples representing the worst-case residues  was used for both acute
and chronic dietary exposure assessment.  This is because all honey food
forms are classified as partially blended commodity (HED SOP 99.6
Classification of Food Forms with Respect to Level of Blending, August
20, 1999).  The average coumaphos residues in honey was 0.043 ppm.  The
concentration factor of 0.6  was considered for coumaphos residues for
processed honey. This value was determined by a laboratory honey
processing study conducted by Bayer.  This laboratory study showed
average 40% reduction in coumaphos residues after honey processing.

Both the acute and chronic analyses for coumaphos are highly refined
(Tier 3 Monte-Carlo) estimate of dietary exposure from residues in food
with 500 iterations and seed of 10 for acute and chronic analysis.  Both
acute and chronic dietary exposures were each evaluated at the 99.9th
percentile for the overall U.S. population and various population
subgroups.  The results of the acute and chronic dietary exposure
analysis performed by Bayer are summarized below.

a)  Acute exposure.  For the acute dietary exposure analysis evaluated
at the 99.9th percentile, the most highly exposed population subgroup,
children 1-6 years, had an exposure equal to 18.3% of the aRfD (acute
reference dose) and a margin of exposure (MOE) of 1558 at the 99.9th
percentile.  The acute dietary exposure occupied 8.7% of the aRfD for
the U.S. population, 4.4% of the aRfD for females 13 through 50 years
old, 17% of the RfD for all infants less than 1 year old; the infant
sub-population at greatest exposure, and 18.3% of the aRfD for children
1-6 years old, the children sub-population at greatest exposure.
Milk-based water was the most critical commodity for the acute dietary
analysis, and it contributed 71% to the acute exposure of the children
1-6 years subgroup.  However, there have been no detects of coumaphos
residues in 750 samples of milk products in the USDA Pesticide Data
Program (PDP) for the years 1996 through 1998. The Tier 3 Monte Carlo
acute dietary exposure estimates were all below EPA's level of concern
for the overall U.S. population as well as the various population
subgroups.

b) Chronic exposure.   For the chronic dietary exposure analysis
evaluated at 99.9th percentile, the most highly exposed population
subgroup, children 1-6 years, had an exposure equal to 13.3% of the cRfD
(chronic reference dose) for children 1-6 years old. The critical
commodities contributing to the chronic exposure of the children 1-6
years subgroup were dairy products (8.7%) and meat (4.5%).   The chronic
dietary exposure utilized  4.5% of the RfD for the U.S. population, 4.5%
of the RfD for all infants less than 1 year old.  The Tier 3 chronic
dietary exposure estimates for the overall U.S. population as well as
the various population subgroups were all below EPA's level of concern.

  Bayer has  generated new data on the adsorption/desorption of
coumaphos and its oxygen analog (coumaphoxon) in four U.S. soils.  The
results of this study showed Koc values ranging from  749.7 to 4,102.7
for coumaphoxon, and from 1845.4 to 10,232.6 for coumaphos.   Using the
new data and FIRST and SCI-GROW models for analysis, the estimated
environmental concentrations (EEC's) of coumaphos in surface water and
ground water, respectively, for acute exposures are estimated to be 6.7
ppb for surface water and 0.01 ppb for ground water.  The EEC's for
chronic exposures are estimated to be 1.7 ppb for surface water and 0.01
ppb for ground water.  Information related to the Agency suggests that
most of the coumaphos residual resulting from dip use on livestock is
collected and transported to concrete-lined evaporation pits thereby
negating any potential for ground water contamination.  For this
reason, these EECs are very conservative exposure assessment for
coumaphos.

Coumaphos is not registered for use on any sites that would result in
residential exposure.  The term “residential” is used here to refer
to non-occupational, non-dietary exposure (e.g., for lawn and garden
pest control, indoor pest control, termiticides, and flea and tick
control on pests).

D. Cumulative Effects

Coumaphos is in a family of pesticides known as organophosphates.  EPA
has concluded that organophosphates share a common mechanism of toxicity
and thus have a cumulative toxic effect (A Common Mechanism of Action:
The Organophosphate Pesticides, 11/2/98, USEPA).  Under normal
circumstances, the Agency would not consider establishing a tolerance
for an organophosphate product prior to completing the cumulative
assessment for this class of pesticide.  However, EPA has considered the
potential cumulative effects of coumaphos, and EPA concluded the risks
posed by granting this tolerance are so small that they are effectively
indistinguishable from the overall aggregate risk of coumaphos, much
less the overall cumulative risk posed by the organophosphates.  The
dire need for this use, combined with its infinitesimal risk, make it
clear the use of CheckMite+® will not have any additive effect on the
cumulative risk of organophosphates.

E.  Safety Determination

. Based on the exposure assessment described above and on the
completeness and reliability of the toxicity data, it can be concluded
that the exposure estimates from all label and the proposed use in
beehives of coumaphos are 8.66% of aRfD (aPAD) and 4.5% of cRfD (cPAD)
for dietary exposures.  EPA generally has no concerns for exposures
below 100 percent of the PAD.  Thus, it can be concluded that there is
reasonable certainty that no harm will result from aggregate exposure to
coumaphos residues.

. The Agency has reviewed all toxicology studies submitted and has
determined that the toxicity data base is essentially complete.  The
FQPA Safety Factor was reduced to 1X.  The toxicity database includes an
acceptable two-generation reproduction study in tars, acceptable
prenatal developmental toxicity studies in rats and rabbits, and
acceptable acute and subchronic neurotoxicity studies in rats.  These
studies show no increased sensitivity to fetuses as compared to maternal
animals following acute in utero exposure in the developmental rat and
rabbit studies and no increased sensitivity to pups as compared to
adults in a multi-generation reproduction study in rats.  There was no
evidence of abnormalities in the development of the fetus nervous system
in the pre/postnatal studies.

Using the same exposure assumptions as employed for the determination in
the general population, it has been calculated that the percent of the
RfD that will be utilized by aggregate exposure to residues of coumaphos
is <13.3% of cRfD and 18.26% of aRfD for children 1-6 years (the most
impacted sub-population).  Therefore, based on the completeness and
reliability of the toxicity database and the conservative exposure
assessment, Bayer concludes that there is a reasonable certainty that no
harm will result to infants and children from aggregate exposure to
coumaphos residues.

F.  International Tolerances

There are no Codex tolerances for coumaphos, therefore there are no
harmonization issues with this tolerance.

 PAGE  9

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[Federal Register Volume 87, Number 55 (Tuesday, March 22, 2022)]
[Notices]
[Pages 16262-16265]
[FR Doc No: 2022-05981]

=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94430; File No. SR-FINRA-2022-004]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Expiration Date of the Temporary
Amendments Set Forth in SR-FINRA-2020-015 and SR-FINRA-2020-027

March 16, 2022.
    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 March 7, 2022, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by FINRA. FINRA has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which
renders the proposal effective upon receipt of this filing by the
Commission. 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\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to extend the expiration date of the temporary
amendments set forth in SR-FINRA-2020-015 and SR-FINRA-2020-027 from
March 31, 2022, to July 31, 2022.\4\ The proposed rule change would not
make any changes to the text of FINRA rules.
---------------------------------------------------------------------------

    \4\ If FINRA seeks to provide additional temporary relief from
the rule requirements identified in this proposed rule change beyond
July 31, 2022, FINRA will submit a separate rule filing to further
extend the temporary extension of time. The amended FINRA rules will
revert to their original form at the conclusion of the temporary
relief period and any extension thereof.
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    The text of the proposed rule change is available on FINRA's
website at http://www.finra.org, at the principal office of FINRA 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, 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
    In response to the COVID-19 global health crisis and the
corresponding need to restrict in-person activities, FINRA filed
proposed rule changes, SR-FINRA-2020-015 and SR-FINRA-2020-027, which
respectively provide temporary relief from some timing, method of
service and other procedural requirements in FINRA rules and allow
FINRA's Office of Hearing Officers (``OHO'') and the National
Adjudicatory Council (``NAC'') to conduct hearings, on a temporary
basis, by video conference, if warranted by the current COVID-19-
related public health risks posed by an in-person hearing. In December
2021, FINRA filed a proposed rule change, SR-FINRA-2021-031, to extend
the expiration date of the temporary amendments in both SR-FINRA-2020-
015 and SR-FINRA-2020-027 from December 31, 2021, to March 31, 2022.\5\
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    \5\ See Securities Exchange Act Release No. 93758 (December 13,
2021), 86 FR 71695 (December 17, 2021) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2021-031).
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    While there are material signs of improvement, uncertainty still
remains for the coming months. The continued presence of COVID-19
variants, dissimilar vaccination rates throughout the United States,
and the current medium to high COVID-19 community levels in many states
indicate that COVID-19 remains an active and real public health
concern.\6\ Due to the uncertainty and the lack of a clear timeframe
for a sustained and widespread abatement of COVID-19-related health
concerns and corresponding restrictions,\7\ FINRA believes there is a
continued need for temporary relief beyond March 31, 2022. Accordingly,
FINRA proposes to extend the expiration date of the temporary rule
amendments in SR-FINRA-2020-015 and SR-FINRA-2020-027 from March 31,
2022, to July 31, 2022.\8\
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    \6\ For example, on February 18, 2022, President Joe Biden
continued the national emergency concerning COVID-19 beyond March 1,
2022, because COVID-19 ``continues to cause significant risk to the
public health and safety'' of the United States. See Continuation of
the National Emergency Concerning the Coronavirus Disease 2019
(COVID-19) Pandemic, 87 FR 10289 (February 23, 2022).
    \7\ For instance, the Centers for Disease Control and Prevention
(``CDC'') recommends that people wear a mask in public indoor
settings in areas with a high COVID-19 community level regardless of
vaccination status or individual risk. See https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/about-face-coverings.html. Furthermore, numerous states currently have COVID-19
restrictions in place. Hawaii requires most people to wear masks in
indoor public places regardless of vaccination status and several
other states have mask mandates in certain settings, such as
healthcare and correctional facilities.
    \8\ As a further basis for extending the expiration date to July
31, 2022, FINRA notes that its Board has approved the submission of
a rule proposal to the Commission to make permanent the temporary
service and filing rules originally set forth in SR-FINRA-2020-015.
See https://www.finra.org/about/governance/finra-board-governors/meetings/update-finra-board-governors-meeting-december-2021. FINRA
contemplates filing the rule proposal with the Commission in the
near future and the extension of the temporary rule amendments would
help to avoid the rules reverting to their original form before the
permanent rules, if approved by the Commission, become effective.
FINRA notes that the proposal approved by its Board does not include
the temporary rule amendments pertaining to video conference
hearings originally set forth in SR-FINRA-2020-027.
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i. SR-FINRA-2020-015
    As stated in its previous filings, FINRA proposed, and subsequently
extended, the changes set forth in SR-

FINRA-2020-015 to temporarily amend some timing, method of service and
other procedural requirements in FINRA rules during the period in which
FINRA's operations are impacted by the outbreak of COVID-19.\9\ Among
other things, the need for FINRA staff, with limited exceptions, to
work remotely and restrict in-person activities-consistent with the
recommendations of public health officials-have made it challenging to
meet some procedural requirements and perform some functions required
under FINRA rules. For example, working remotely makes it difficult to
send and receive hard copy documents and conduct in-person oral
arguments. The temporary amendments have addressed these concerns by
easing logistical and other issues and providing FINRA with needed
flexibility for its operations during the COVID-19 outbreak, allowing
FINRA to continue critical adjudicatory and review processes in a
reasonable and fair manner and meet its critical investor protection
goals, while also following best practices with respect to the health
and safety of its staff.
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    \9\ See Securities Exchange Act Release No. 88917 (May 20,
2020), 85 FR 31832 (May 27, 2020) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2020-015); Securities Exchange
Act Release No. 89055 (June 12, 2020), 85 FR 36928 (June 18, 2020)
(Notice of Filing and Immediate Effectiveness of File No. SR-FINRA-
2020-017); Securities Exchange Act Release No. 89423 (July 29,
2020), 85 FR 47278 (August 4, 2020) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2020-022); Securities Exchange
Act Release No. 90619 (December 9, 2020), 85 FR 81250 (December 15,
2020) (Notice of Filing and Immediate Effectiveness of File No. SR-
FINRA-2020-042); Securities Exchange Act Release No. 91495 (April 7,
2021), 86 FR 19306 (April 13, 2021) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2021-006); Securities Exchange
Act Release No. 92685 (August 17, 2021), 86 FR 47169 (August 23,
2021) (Notice of Filing and Immediate Effectiveness of File No. SR-
FINRA-2021-019); supra note 5.
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    FINRA staff, with limited exceptions, continue to work remotely to
protect their health and safety. As indicated in its previous filings,
FINRA has established a COVID-19 task force to develop a data-driven,
staged plan for FINRA staff to safely return to working in FINRA office
locations and resume other in-person activities. Based on its
assessment of current COVID-19 conditions, FINRA does not believe the
COVID-19-related health concerns necessitating this relief will
meaningfully subside by March 31, 2022, and therefore proposes to
extend the expiration date of the temporary rule amendments originally
set forth in SR-FINRA-2020-015 \10\ from March 31, 2022, to July 31,
2022.\11\
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    \10\ See supra note 9 (outlining the filing history of SR-FINRA-
2020-015 and its prior extensions).
    \11\ As noted above, FINRA plans to submit a rule proposal to
the Commission to make permanent the temporary service and filing
rules originally set forth in SR-FINRA-2020-015. See supra note 8.
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ii. SR-FINRA-2020-027
    The same public health concerns and restrictions, along with a
corresponding backlog of disciplinary cases,\12\ led FINRA to file, and
subsequently extend to March 31, 2022, SR-FINRA-2020-027 to temporarily
amend FINRA Rules 1015, 9261, 9524, and 9830 to grant OHO and the NAC
authority \13\ to conduct hearings in connection with appeals of
Membership Application Program decisions, disciplinary actions,
eligibility proceedings and temporary and permanent cease and desist
orders by video conference, if warranted by the COVID-19-related public
health risks posed by an in-person hearing.\14\
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    \12\ For example, FINRA began temporarily postponing in-person
hearings as a result of the COVID-19 impacts on March 16, 2020.
    \13\ For OHO hearings under FINRA Rules 9261 and 9830, the
proposed rule change temporarily grants authority to the Chief or
Deputy Chief Hearing Officer to order that a hearing be conducted by
video conference. For NAC hearings under FINRA Rules 1015 and 9524,
this temporary authority is granted to the NAC or the relevant
Subcommittee.
    \14\ See Securities Exchange Act Release No. 89739 (September 2,
2020), 85 FR 55712 (September 9, 2020) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2020-027); Securities
Exchange Act Release No. 90619 (December 9, 2020), 85 FR 81250
(December 15, 2020) (Notice of Filing and Immediate Effectiveness of
File No. SR-FINRA-2020-042); Securities Exchange Act Release No.
91495 (April 7, 2021), 86 FR 19306 (April 13, 2021) (Notice of
Filing and Immediate Effectiveness of File No. SR-FINRA-2021-006);
Securities Exchange Act Release No. 92685 (August 17, 2021), 86 FR
47169 (August 23, 2021) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2021-019); supra note 5.
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    As set forth in the previous filings, FINRA also relies on the
guidance of its health and safety consultant, in conjunction with
COVID-19 data and guidance issued by public health authorities, to
determine whether the current public health risks presented by an in-
person hearing may warrant a hearing by video conference.\15\ Based on
that guidance and data, FINRA does not believe the COVID-19-related
health concerns necessitating this relief will meaningfully subside by
March 31, 2022, and believes there will be a continued need for this
temporary relief beyond that date.\16\ Accordingly, FINRA proposes to
extend the expiration date of the temporary rule amendments originally
set forth in SR-FINRA-2020-027 from March 31, 2022, to July 31,
2022.\17\ The extension of these temporary amendments allowing for
specified OHO and NAC hearings to proceed by video conference will
allow FINRA's critical adjudicatory functions to continue to operate
effectively in these extraordinary circumstances-enabling FINRA to
fulfill its statutory obligations to protect investors and maintain
fair and orderly markets-while also protecting the health and safety of
hearing participants.\18\
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    \15\ As noted in SR-FINRA-2020-027, the temporary proposed rule
change grants discretion to OHO and the NAC to order a video
conference hearing. In deciding whether to schedule a hearing by
video conference, OHO and the NAC may consider a variety of other
factors in addition to COVID-19 trends. In SR-FINRA-2020-027, FINRA
provided a non-exhaustive list of other factors OHO and the NAC may
take into consideration, including a hearing participant's
individual health concerns and access to the connectivity and
technology necessary to participate in a video conference hearing.
    \16\ FINRA notes that the proposed extension of the temporary
amendments does not mean a video conference hearing will be ordered
in every case. FINRA strives to hold in-person hearings when it is
safe to do so and began to hold such hearings at a single location
last year. Specifically, FINRA held its first in-person hearing
since the temporary rule change was implemented in July 2021. A
subsequent surge in case numbers for the Delta variant of the COVID-
19 virus caused FINRA's outside health and safety consultant to
recommend in early August against in-person hearings. Accordingly,
the Chief Hearing Officer converted hearings scheduled after mid-
September from in-person to video conference on a case-by-case
basis. In addition to creating a safe environment in which an in-
person hearing may be held, as mentioned above, a number of other
considerations inform whether any given case will be held in-person
or by video conference.
    \17\ See supra note 5.
    \18\ Since the temporary amendments were implemented, OHO and
the NAC have conducted several hearings by video conference. As of
February 24, 2022, OHO has conducted 15 disciplinary hearings by
video conference (decisions have been issued in 11 of these cases).
In five of these disciplinary hearings, all of the parties agreed to
proceed by video conference; the other 10 were ordered to proceed by
video conference by the Chief Hearing Officer. OHO currently has
hearings scheduled in seven additional disciplinary matters. OHO has
ordered that four proceed by video conference. No determination has
yet been made regarding whether the other hearings will be in-person
or by video conference. Also, as of February 23, 2022, the NAC,
through the relevant Subcommittee, has conducted 14 oral arguments
by video conference in connection with appeals of FINRA disciplinary
proceedings pursuant to FINRA Rule 9341(d), as temporarily amended.
Furthermore, the NAC has conducted via video conference a one-day
evidentiary hearing in a membership application proceeding pursuant
to FINRA Rule 1015, as temporarily amended.
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    FINRA has filed the proposed rule change for immediate
effectiveness and has requested that the SEC waive the requirement that
the proposed rule change not become operative for 30 days after the
date of the filing, so FINRA can implement the proposed rule change
immediately.

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. FINRA believes that the proposed rule change is also
consistent with Section 15A(b)(8) of the Act,\20\ which requires, among
other things, that FINRA rules provide a fair procedure for the
disciplining of members and persons associated with members.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78o-3(b)(6).
    \20\ 15 U.S.C. 78o-3(b)(8).
---------------------------------------------------------------------------

    The proposed rule change, which extends the expiration date of the
temporary amendments to FINRA rules set forth in SR-FINRA-2020-015,
will continue to provide FINRA, and in some cases another party to a
proceeding, temporary modifications to its procedural requirements in
order to allow FINRA to maintain fair processes and protect investors
while operating in a remote work environment and with corresponding
restrictions on its activities. It is in the public interest, and
consistent with the Act's purpose, for FINRA to operate pursuant to
this temporary relief. The temporary amendments allow FINRA to specify
filing and service methods, extend certain time periods, and modify the
format of oral argument for FINRA disciplinary and eligibility
proceedings and other review processes to cope with the current
pandemic conditions. In addition, extending this temporary relief will
further support FINRA's disciplinary and eligibility proceedings and
other review processes that serve a critical role in providing investor
protection and maintaining fair and orderly markets.
    The proposed rule change, which also extends the expiration date of
the temporary amendments to FINRA rules set forth in SR-FINRA-2020-027,
will continue to aid FINRA's efforts to timely conduct hearings in
connection with its core adjudicatory functions. Given the current and
frequently changing COVID-19 conditions and the uncertainty around when
those conditions will see meaningful, widespread and sustained
improvement, without this relief allowing OHO and NAC hearings to
proceed by video conference, FINRA might be required to postpone some
or almost all hearings indefinitely. FINRA must be able to perform its
critical adjudicatory functions to fulfill its statutory obligations to
protect investors and maintain fair and orderly markets. As such, this
relief is essential to FINRA's ability to fulfill its statutory
obligations and allows hearing participants to avoid the serious COVID-
19-related health and safety risks associated with in-person hearings.
    Among other things, this relief will allow OHO to conduct temporary
cease and desist proceedings by video conference so that FINRA can take
immediate action to stop ongoing customer harm and will allow the NAC
to timely provide members, disqualified individuals and other
applicants an approval or denial of their applications. As set forth in
detail in the original filing, this temporary relief allowing OHO and
NAC hearings to proceed by video conference accounts for fair process
considerations and will continue to provide fair process while avoiding
the COVID-19-related public health risks for hearing participants.
Accordingly, the proposed rule change extending this temporary relief
is in the public interest and consistent with the Act's purpose.

B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the temporary 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 set forth in
SR-FINRA-2020-015 and SR-FINRA-2020-027, the proposed rule change is
intended solely to extend temporary relief necessitated by the
continued impacts of the COVID-19 outbreak and the related health and
safety risks of conducting in-person activities. FINRA believes that
the proposed rule change will prevent unnecessary impediments to
FINRA's operations, including its critical adjudicatory processes, and
its ability to fulfill its statutory obligations to protect investors
and maintain fair and orderly markets that would otherwise result if
the temporary amendments were to expire on March 31, 2022.

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

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6) thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days after the date of filing. However,
pursuant to Rule 19b-4(f)(6)(iii), the Commission may designate a
shorter time if such action is consistent with the protection of
investors and the public interest. As FINRA requested in connection
with SR-FINRA-2020-015 and related extensions,\23\ FINRA has also asked
the Commission to waive the 30-day operative delay so that this
proposed rule change may become operative immediately upon filing.
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    \23\ See SR-FINRA-2020-015, 85 FR at 31836. Although FINRA did
not request that the Commission waive the 30-day operative delay for
SR-FINRA-2020-027, FINRA did request that the Commission waive the
30-day operative delay for SR-FINRA-2020-042, FINRA-2021-006, FINRA-
2021-019, and FINRA-2021-031, which extended the expiration date of
the temporary amendments originally set forth in SR-FINRA-2020-027.
---------------------------------------------------------------------------

    FINRA has indicated that extending the relief provided originally
in SR-FINRA-2020-015 and SR-FINRA-2020-027 will continue to ease
logistical and other issues by providing FINRA with needed flexibility
for its operations during the COVID-19 outbreak. Importantly, extending
the relief provided in these prior rule changes immediately upon filing
and without a 30-day operative delay will allow FINRA to continue
critical adjudicatory and review processes in a reasonable and fair
manner and meet its critical investor protection goals, while also
following best practices with respect to the health and safety of its
employees.\24\ The Commission also notes that this proposal, like SR-
FINRA-2020-015 and SR-FINRA-2020-027, provides only temporary relief
during the period in which FINRA's operations are impacted by COVID-19.
As proposed, the changes would be in place through July 31, 2022.\25\
FINRA also noted in both SR-FINRA-2020-015 and SR-FINRA-2020-027 that
the amended rules will revert back to their original state at the

conclusion of the temporary relief period unless, if applicable, there
is any extension thereof,\26\ or, as FINRA notes in this filing, it
proposes to make any amended rule permanent in connection with a
separate proposed rule change filing.\27\ For these reasons, the
Commission believes that waiver of the 30-day operative delay for this
proposal is consistent with the protection of investors and the public
interest. Accordingly, the Commission hereby waives the 30-day
operative delay and designates the proposal operative upon filing.\28\
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    \24\ See supra Item II.A.1; see also SR-FINRA-2020-015, 85 FR at
31833.
    \25\ As noted above, see supra note 4, FINRA stated that if it
requires temporary relief from the rule requirements identified in
this proposal beyond July 31, 2022, it may submit a separate rule
filing to extend the effectiveness of the temporary relief under
these rules.
    \26\ See SR-FINRA-2020-015, 85 FR at 31833; see also SR-FINRA-
2020-027, 85 FR at 55712.
    \27\ Any such proposed rule change to make an amended rule
permanent would require notice and comment, as well as Commission
approval, before becoming effective. See supra note 8.
    \28\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule change's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such 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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or 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 email to [email protected]. Please include
File Number SR-FINRA-2022-004 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-2022-004. This
file number should be included on the subject line if email 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 website (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 website 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 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of FINRA. All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2022-004 and should be submitted
on or before April 12, 2022.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-05981 Filed 3-21-22; 8:45 am]
BILLING CODE 8011-01-P


ETP, there would be reason to question whether a surveillance-sharing
agreement with the CME would, in fact, assist in detecting and
deterring fraudulent and manipulative misconduct affecting the price of
the spot bitcoin held by that ETP. If, however, an exchange proposing
to list and trade a spot bitcoin ETP identifies the CME as the
regulated market with which it has a comprehensive surveillance-sharing
agreement, the exchange could overcome the Commission's concern by
demonstrating that there is a reasonable likelihood that a person
attempting to manipulate the spot bitcoin ETP would have to trade on
the CME in order to manipulate the ETP, because such demonstration
would help establish that the exchange's surveillance-sharing agreement
with the CME would have the intended effect of aiding in the detection
and deterrence of fraudulent and manipulative misconduct related to the
spot bitcoin held by the ETP.\182\
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    \181\ See Teucrium Order, 87 FR at 21679 n.46 (citing USBT
Order, 85 FR at 12604; NYDIG Order, 87 FR at 14936 nn.65-67). See
also Valkyrie XBTO Order, 87 FR at 28851 n.42.
    \182\ See Teucrium Order, 87 FR at 21679 n.46; Valkyrie XBTO
Order, 87 FR at 28851 n.42.
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    Because, here, BZX is seeking to list a spot bitcoin ETP that
relies on the CME as the purported ``significant'' regulated market
with which it has a comprehensive surveillance-sharing agreement, the
assets held by the proposed ETP would not be traded on the CME. Thus
there is reason to question whether a surveillance-sharing agreement
with the CME would, in fact, assist in detecting and deterring
fraudulent and manipulative misconduct affecting the price of the spot
bitcoin held by the proposed ETP.\183\ An exchange can overcome this
concern by demonstrating that there is a reasonable likelihood that a
person attempting to manipulate the proposed ETP would have to trade on
the CME in order to manipulate the ETP because such demonstration would
help establish that an exchange's surveillance-sharing agreement with
the CME would have the intended effect of aiding in the detection and
deterrence of fraudulent and manipulative misconduct related to the
spot bitcoin held by the proposed ETP.\184\ As discussed and explained
above,\185\ the Commission finds that BZX has not made such
demonstration.
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    \183\ See Teucrium Order, 87 FR at 21679 n.46; Valkyrie XBTO
Order, 87 FR at 28851 n.42. There is reason to question whether the
CME's surveillance would capture manipulation of spot bitcoin that
occurs off of the CME, if, for example, off-CME manipulation of spot
bitcoin does not also similarly impact CME bitcoin futures
contracts.
    \184\ See Teucrium Order, 87 FR at 21679 n.46; Valkyrie XBTO
Order, 87 FR at 28851 n.42.
    \185\ See Section III.B.2.i, supra.
---------------------------------------------------------------------------

    To the extent that the Exchange is arguing that the CME's
surveillance would, in fact, assist in detecting and deterring
fraudulent and manipulative misconduct that impacts spot bitcoin ETPs
in the same way as it would for misconduct that impacts the CME bitcoin
futures ETFs/ETPs, the information in the record for this filing does
not support such a claim. First, while BZX emphasizes that the
``pricing inputs and methodology (except for the calculation time)''
for the Reference Rate are ``the same'' as for the BRR,\186\ this does
not--absent supporting data--establish any link between prices of
shares of any CME bitcoin futures ETFs/ETPs and the prices of Shares of
the proposed spot bitcoin ETP. There is no evidence in the record that
shares of CME bitcoin futures ETFs/ETPs are priced according to the
BRR. The BRR is a once-a-day reference rate of the U.S. dollar price of
one bitcoin as of 4:00 p.m., London Time.\187\ The BRR aggregates the
trade flow of its constituent spot bitcoin platforms--Coinbase, Gemini,
LMAX Digital, itBit, Kraken, and Bitstamp \188\--during a specific one-
hour calculation window.\189\ While the BRR is used to value the final
cash settlement of CME bitcoin futures contracts, it is not generally
used for daily cash settlement of such contracts,\190\ nor is it
claimed to be used for any intra-day trading of such contracts. In
addition, CME bitcoin futures ETFs do not hold their CME bitcoin
futures contracts to final cash settlement; rather, the contracts are
rolled \191\ prior to their settlement dates. Moreover, the shares of
CME bitcoin futures ETFs trade in secondary markets, and there is no
evidence in the record for this filing that such intra-day, secondary
market trading prices are determined by the BRR.
---------------------------------------------------------------------------

    \186\ See Notice, 87 FR at 8323. The Reference Rate is
calculated as of 4:00 p.m. E.T., whereas the BRR is calculated as of
4:00 p.m. London Time. See Notice, 87 FR at 8329 n.77.
    \187\ See https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Reference+Rates+Methodology.pdf.
    \188\ See https://docs-cfbenchmarks.s3.amazonaws.com/CME+CF+Constituent+Exchanges.pdf.
    \189\ See https://www.cmegroup.com/trading/files/bitcoin-reference-rate-methodology.pdf. This one-hour window is partitioned
into 12, five-minute intervals, where the BRR is calculated as the
equally-weighted average of the volume-weighted medians of all 12
partitions. See id.
    \190\ Under normal procedures, daily cash settlements are
generally based on the volume-weighted average price of trading
activity on CME Globex between 2:59 p.m. and 3:00 p.m., Central
Time). See https://www.cmegroup.com/confluence/display/EPICSANDBOX/Bitcoin for a description of CME bitcoin futures daily settlement
procedures.
    \191\ Rolling a futures contract refers to extending the
expiration of a position by closing out the futures contract that is
nearing expiration and opening a new position in a futures contract
with a later expiration.
---------------------------------------------------------------------------

    There is also no evidence in the record that the Shares' prices
would be determined by the Reference Rate.\192\ The Reference Rate
aggregates the trade flow of the Constituent Bitcoin Platforms--the
current Constituent Bitcoin Platforms are Bitstamp, Coinbase, Gemini,
itBit and Kraken--during an observation window between 3:00 p.m. and
4:00 p.m. E.T. into the U.S. dollar price of one bitcoin at 4:00 p.m.
E.T. While the Reference Rate would be used daily to value the bitcoins
held by the Trust, the Reference Rate would not be used for the
creation or redemption of Shares, nor is it claimed that the Reference
Rate would be used for any intra-day secondary market trading of the
Shares.\193\ Rather, the Share price would be discovered through
continuous intra-day, secondary market interactions of buy and sell
interests.\194\
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    \192\ As noted above, see supra note 33, the Commission
understands that the Reference Rate was discontinued as of April
2022. Because the Exchange has not amended its filing or its
assertions with respect to the Reference Rate, the Commission's
analysis herein responds to the Exchange's arguments as presented in
its filing by assuming that the Reference Rate continues to be
published.
    \193\ See supra notes 106-109 and accompanying text.
    \194\ As discussed above, the use of the Reference Rate by the
Trust to determine the value of its bitcoin does not support the
finding that the Exchange has established other means to prevent
fraud and manipulation that are sufficient to justify dispensing
with the detection and deterrence of fraud and manipulation provided
by a comprehensive surveillance-sharing agreement with a regulated
market of significant size related to spot bitcoin. See Section
III.B.1.ii, supra. Likewise, the Commission has previously rejected
arguments by listing exchanges that the use of a reference rate
similar to the BRR to value bitcoin held by proposed spot bitcoin
ETPs provides other means to prevent fraud and manipulation that are
sufficient to justify dispensing with the detection and deterrence
of fraud and manipulation provided by a comprehensive surveillance-
sharing agreement with a regulated market of significant size
related to spot bitcoin. See Wise Origin Order, 87 FR at 5532-33;
SkyBridge Order, 87 FR at 3877. Accordingly, the Reference Rate and
the BRR, and the similarities between the BRR and the Reference
Rate, are not informative in the Commission's determination of
whether the Exchange has established other means to prevent fraud
and manipulation.
---------------------------------------------------------------------------

    Thus, although the Exchange focuses on the similarities between the
BRR and the Reference Rate,\195\ there is no

evidence in the record that the shares of any CME bitcoin futures ETF/
ETP, or the Shares of the proposed spot bitcoin ETP, would trade in the
secondary market at a price related to (or informed by) the BRR or the
Reference Rate.\196\
---------------------------------------------------------------------------

    \195\ Despite the Exchange's claim that the Reference Rate uses
``inputs from the same bitcoin trading platforms'' as the BRR, the
BRR includes trade flow from LMAX Digital, which platform does not
appear to be included as a Constituent Bitcoin Platform of the
Reference Rate.
    \196\ In addition, the Commission's determination in the
Teucrium Order and the Valkyrie XBTO Order to approve the listing
and trading of the relevant CME bitcoin futures ETPs was not based
on the ETPs' use--or lack of use--of the BRR (or any other similar
pricing mechanism) for the calculation of NAV, or on the fact that
the BRR is used for the final cash settlement of CME bitcoin futures
contracts. Rather, as discussed above, the Commission approved the
listing and trading of such CME bitcoin futures ETPs, not because of
the BRR, but because the Commission found that the listing exchanges
satisfy the requirement pertaining to a surveillance-sharing
agreement with a regulated market of significant size related to the
underlying bitcoin assets--which for such ETPs are CME bitcoin
futures contracts, not spot bitcoin.
---------------------------------------------------------------------------

    Second, even if the Exchange had demonstrated a link between the
BRR and/or the Reference Rate and the prices of bitcoin futures ETFs/
ETPs and/or the proposed spot bitcoin ETP, which it has not, it does
not necessarily follow that the CME's surveillance would, in fact,
assist in detecting and deterring fraudulent and manipulative
misconduct that impacts spot bitcoin ETPs in the same way as it would
for misconduct that impacts the CME bitcoin futures ETFs/ETPs--
particularly when such misconduct occurs off of the CME itself.\197\
For example, even assuming, for the sake of argument, that the BRR and/
or the Reference Rate is a potential link between prices on certain
spot bitcoin platforms and CME bitcoin futures prices, it does not--
absent supporting data--necessarily follow that any manipulation that
impacts spot bitcoin also similarly impacts CME bitcoin futures
contracts. The Exchange has not provided analysis or data that assesses
the reaction (if any) of CME bitcoin futures contracts to instances of
fraud and manipulation in spot bitcoin markets.
---------------------------------------------------------------------------

    \197\ See also supra note 183.
---------------------------------------------------------------------------

    In addition, the disapproval of the proposal would not constitute
an ``arbitrary and capricious'' administrative action in violation of
the Administrative Procedure Act.\198\ Importantly, the issuers are not
similarly situated. The issuers of CME bitcoin futures-based ETFs/ETPs
propose to hold only CME bitcoin futures contracts (which are traded on
the CME itself) as their only non-cash holdings, and the Trust proposes
to hold only spot bitcoin (which is not traded on the CME). As
explained in detail above, and in the Teucrium Order, Valkyrie XBTO
Order, and the Grayscale Order, because of this important difference,
for a spot bitcoin ETP, there is reason to question whether a
surveillance-sharing agreement with the CME would, in fact, assist in
detecting and deterring fraudulent and manipulative misconduct
affecting the price of the spot bitcoin held by that ETP.\199\ And as
discussed above, neither the Exchange nor any other evidence in the
record for this filing, sufficiently demonstrates that the CME's
surveillance can be reasonably relied upon to capture the effects of
manipulation of the spot bitcoin assets underlying the proposed ETP
when such manipulation is not attempted on the CME itself.
---------------------------------------------------------------------------

    \198\ The Commission is disapproving this proposed rule change
because BZX has not met its burden to demonstrate that its proposal
is consistent with the requirements of Exchange Act Section 6(b)(5).
The Commission's disapproval of this proposed rule change does not
rest on an evaluation of the relative investment quality of a
product holding spot bitcoin versus a product holding CME bitcoin
futures, or an assessment of whether bitcoin, or blockchain
technology more generally, has utility or value as an innovation or
an investment. See, e.g., Winklevoss Order, 83 FR at 37580; USBT
Order, 85 FR at 12597; One River Order, 87 FR at 33550; Grayscale
Order, 87 FR at 40318 n.227.
    \199\ See supra note 183 and accompanying text.
---------------------------------------------------------------------------

    Moreover, the analytical framework for assessing compliance with
the requirements of Exchange Act Section 6(b)(5) that the Commission
applies here (i.e., comprehensive surveillance-sharing agreement with a
regulated market of significant size related to the underlying bitcoin
assets) is the same one that the Commission has applied in each of its
orders considering previous proposals to list bitcoin-based commodity
trusts and trust issued receipts.\200\ The Commission has applied this
framework to each proposal by analyzing the evidence presented by the
listing exchange and statements made by commenters.\201\ Exchange Act
Section 6(b)(5) can be satisfied by a proper showing; the Commission
has in fact recently approved proposals by the Exchange and the Nasdaq
Stock Market to list and trade shares of ETPs holding CME bitcoin
futures as their only non-cash holdings.\202\ And in the orders
approving the CME bitcoin futures-based ETPs, the Commission explicitly
discussed how an exchange seeking to list and trade a spot bitcoin ETP
could overcome the lack of a one-to-one relationship between the
regulated market with which it has a surveillance-sharing agreement and
the market(s) on which the assets held by a spot bitcoin ETP could be
traded: by demonstrating that there is a reasonable likelihood that a
person attempting to manipulate the spot bitcoin ETP would have to
trade on the regulated market (i.e., on the CME) to manipulate the spot
bitcoin ETP.\203\
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    \200\ See supra notes 11-24 and accompanying text.
    \201\ See supra note 11.
    \202\ See Teucrium Order and Valkyrie XBTO Order, supra note 11.
    \203\ See supra note 182 and accompanying text.
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    When considering past proposals for spot bitcoin ETPs, the
Commission has, in particular, reviewed the econometric and/or
statistical evidence in the record to determine whether the listing
exchange's proposal has met the applicable standard.\204\ The
Commission's assessment fundamentally presents quantitative, empirical
questions, but, as discussed above, the Exchange has not provided
evidence sufficient to support its arguments. Instead, the Exchange
makes various assertions that are not supported by the limited data in
the record regarding, among other things, CME bitcoin futures trading
size, volume, and open interest, and spot bitcoin market
capitalization, or the relationship between spot bitcoin prices and CME
bitcoin futures prices (including the lead-lag relationship between the
spot market and the CME bitcoin futures market), and the record
contains insufficient empirical analysis or quantitative evidence of
any such data to support the Exchange's conclusions.\205\
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    \204\ See, e.g., USBT Order, 85 FR at 12612-13; VanEck Order, 86
FR at 64547-48; WisdomTree Order, 86 FR at 69330-32; Kryptoin Order,
86 FR at 74175-76; NYDIG Order, 87 FR at 14938-39; Wise Origin
Order, 87 FR at 5534-36; Global X Order, 87 FR at 14919-20; ARK
21Shares Order, 87 FR at 20023-24; Bitwise Order, 87 FR at 40286-92;
Grayscale Order, 87 FR at 40311-14.
    \205\ See Sections III.B.1 & III.B.2, supra.
---------------------------------------------------------------------------

    The Exchange also argues that ``a distinction between [bitcoin
futures] ETFs and [spot bitcoin] ETPs is unwarranted'' because the
Trust has agreed to voluntarily comply with some requirements of the
1940 Act.\206\ While, as stated by the Exchange, an undertaking by the
Trust to comply voluntarily with certain requirements of the 1940 Act
may provide some level of transparency and promote certain types of
investor protection, it does not alter the Commission's analysis under
the Exchange Act relating to a spot bitcoin ETP.\207\ As discussed
above, the

proposed rule change does not relate to the same underlying holdings as
either ETFs regulated under the 1940 Act that provide exposure to
bitcoin through CME bitcoin futures, or CME bitcoin futures-based ETPs
that have registered their offerings under the Securities Act but are
not regulated under the 1940 Act.\208\ And as discussed above, neither
the Exchange nor any other evidence in the record for this filing,
sufficiently demonstrates that the CME's surveillance can be reasonably
relied upon to capture the effects of manipulation of the spot bitcoin
assets underlying the proposed ETP when such manipulation is not
attempted on the CME itself. The requirements of Section 6(b)(5) of the
Exchange Act apply to the rules of national securities exchanges.
Accordingly, the relevant obligation to have a comprehensive
surveillance-sharing agreement with a regulated market of significant
size related to spot bitcoin, or other means to prevent fraudulent and
manipulative acts and practices that are sufficient to justify
dispensing with such a surveillance-sharing agreement, resides with the
listing exchange. Because there is insufficient evidence in the record
demonstrating that BZX has satisfied this obligation, the Commission
cannot approve the proposed ETP for listing and trading on BZX.
---------------------------------------------------------------------------

    \206\ See supra note 172 and accompanying text.
    \207\ The 1940 Act provides for the regulation of investment
companies. See 15 U.S.C. 80a. In general, the 1940 Act is designed
to minimize conflicts of interest and is focused on disclosure to
the investing public of information about the fund and its
investment objectives, as well as on investment company structure
and operations. See https://www.sec.gov/investment/laws-and-rules.
The requirements of Section 6(b)(5) of the Exchange Act, on the
other hand, apply to the rules of national securities exchanges and
require, among other things, that such rules be designed to prevent
fraudulent and manipulative acts and practices. 15 U.S.C. 78f(b)(5).
    \208\ Although counsel for the sponsor of the Teucrium Bitcoin
Futures Fund submitted a letter to the Commission stating that the
trust, which was not regulated under the 1940 Act, intended to
comply with certain requirements of the 1940 Act, the Commission did
not rely on this representation as a basis for its approval of the
proposed rule change. See Teucrium Order, 87 FR at 21682. See also
letter from W. Thomas Conner, Shareholder, VedderPrice, dated
September 1, 2021, at 9.
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C. Whether BZX Has Met Its Burden To Demonstrate That the Proposal Is
Designed To Protect Investors and the Public Interest

    BZX contends that, if approved, the proposed ETP would protect
investors and the public interest. However, the Commission must
consider these potential benefits in the broader context of whether the
proposal meets each of the applicable requirements of the Exchange
Act.\209\ Because BZX has not demonstrated that its proposed rule
change is designed to prevent fraudulent and manipulative acts and
practices, the Commission must disapprove the proposal.
---------------------------------------------------------------------------

    \209\ See Winklevoss Order, 83 FR at 37602. See also
GraniteShares Order, 83 FR at 43931; ProShares Order, 83 FR at
43941; USBT Order, 85 FR at 12615; WisdomTree Order, 86 FR at 69333;
Valkyrie Order, 86 FR at 74163; Kryptoin Order, 86 FR at 74178;
SkyBridge Order, 87 FR at 3880; Wise Origin Order, 87 FR at 5537;
ARK 21Shares Order, 87 FR at 20026; Global X Order, 87 FR at 14921;
Bitwise Order, 87 FR at 40292; Grayscale Order, 87 FR at 40319.
---------------------------------------------------------------------------

(1) BZX's Assertions
    The Exchange states that the proposal is designed to protect
investors and the public interest. BZX asserts that access for U.S.
retail investors to gain exposure to bitcoin via a transparent and U.S.
regulated, exchange-traded vehicle remains limited.\210\ According to
the Exchange, current options include: (i) paying a potentially high
premium (and high management fees) to buy over-the-counter (``OTC'')
bitcoin funds, to the advantage of more sophisticated investors that
are able to create shares at NAV directly with the issuing trust; (ii)
facing the technical risk, complexity, and generally high fees
associated with buying spot bitcoin; (iii) purchasing shares of
operating companies that they believe will provide proxy exposure to
bitcoin with limited disclosure about the associated risks; or (iv)
through the purchase of bitcoin futures ETFs that represents a sub-
optimal investment for long-term investors.\211\ Meanwhile, the
Exchange represents that investors in many other countries, including
Canada \212\ and Brazil, are able to use more traditional exchange-
listed and traded products (including exchange-traded funds holding
physical bitcoin) to gain exposure to bitcoin, disadvantaging U.S.
investors and leaving them with more risky means of getting bitcoin
exposure.\213\ Additionally, investors in other countries and regions,
specifically Canada and Europe, generally pay lower fees than U.S.
retail investors that invest in OTC bitcoin funds due to the fee
pressure that results from increased competition among available
bitcoin investment options.\214\ Without an approved and regulated spot
bitcoin ETP in the U.S. as a viable alternative, BZX argues that U.S.
investors could seek to purchase shares of non-U.S. bitcoin vehicles in
order to get access to bitcoin exposure, and given the separate
regulatory regime and the potential difficulties associated with any
international litigation, such an arrangement would create more risk
exposure for U.S. investors than they would otherwise have with an U.S.
exchange listed ETP.\215\
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    \210\ See Notice, 87 FR at 8322.
    \211\ See id.
    \212\ The Exchange notes that the Purpose Bitcoin ETF, a retail
physical bitcoin ETP launched in Canada, reportedly reached $1.2
billion in assets under management as of October 15, 2021,
demonstrating the demand for a North American market listed bitcoin
ETP. See id. at 8322 n.46.
    \213\ The Exchange notes that securities regulators in a number
of other countries have either approved or otherwise allowed the
listing and trading of bitcoin ETPs. Specifically, these funds
include the Purpose Bitcoin ETF, Bitcoin ETF, VanEck Vectors Bitcoin
ETN, WisdomTree Bitcoin ETP, Bitcoin Tracker One, BTCetc bitcoin
ETP, Amun Bitcoin ETP, Amun Bitcoin Suisse ETP, 21Shares Short
Bitcoin ETP, CoinShares Physical Bitcoin ETP. See id. at 8322 n.47.
    \214\ See id. at 8322.
    \215\ See id.
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    BZX argues that over the past 1.5 years, U.S. investor exposure to
bitcoin through OTC bitcoin funds has grown into the tens of billions
of dollars and more than a billion dollars of exposure through bitcoin
futures ETFs.\216\ With that growth, BZX asserts, so too has grown the
quantifiable investor protection issues to U.S. investors through roll
costs for bitcoin futures ETFs and premium/discount volatility and
management fees for OTC bitcoin funds.\217\ The Exchange understands
the Commission's previous focus on potential manipulation of a spot
bitcoin ETP in prior disapproval orders, but now believes that such
concerns have been sufficiently mitigated, and that the growing and
quantifiable investor protection concerns should be a central
consideration as the Commission reviews this proposal.\218\ The
Exchange believes that approving this proposal (and comparable
proposals) provides the Commission with the opportunity to allow U.S.
investors with access to bitcoin in a regulated and transparent
exchange-traded vehicle that would act to limit risk to U.S. investors
by: (i) reducing premium and discount volatility; (ii) reducing
management fees through meaningful competition; (iii) reducing risks
and costs associated with investing in bitcoin futures ETFs and
operating companies that are imperfect proxies for bitcoin exposure;
and (iv) providing an alternative for investors to self-custodying spot
bitcoin.\219\
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    \216\ See id. at 8329.
    \217\ See id.
    \218\ See id.
    \219\ See id.
---------------------------------------------------------------------------

    In addition, BZX represents that the Sponsor has taken 1940 Act
considerations into account in structuring the Trust's operations in
seeking ``to protect investors and the public interest.'' \220\
Although the Trust would not be an investment company registered under
the 1940 Act, the Exchange represents that: (a) the Trust would qualify
as an investment company under Accounting Standards Update 2013-08 and,
as such, the Sponsor would ensure that the Trust's financial statements
would be audited at least annually by an independent registered public
accounting firm and,

as part of such audit, the auditor would be expected to perform
procedures similar to those used for ETFs registered under the 1940
Act; (b) the Sponsor would facilitate the Trust's compliance with the
financial record keeping and reporting requirements under the Sarbanes-
Oxley Act of 2002; (c) the Trust's Custodian would qualify as a
``custodian'' under the 1940 Act, and the Custodian would agree to
exercise reasonable care, prudence, and diligence such as a person
having responsibility for the safekeeping of property of the Trust
would exercise; (d) the Trust would be subject to the transparency
requirements of Rule 6c-11 under the 1940 Act; (e) the Sponsor would
adopt procedures to ensure there are no transactions with affiliated
persons that would be prohibited by Section 17 of the 1940 Act and the
applicable rules and regulations thereunder; (f) the Trust would
maintain a fidelity bond for the benefit of the Trust in the maximum
amount required by Rule 17g-1 under the 1940 Act; and (g) the Sponsor
or applicable service provider of the Trust would maintain the books
and records of the Trust in satisfaction of the requirements of Section
31 of the 1940 Act.\221\
---------------------------------------------------------------------------

    \220\ See id. at 8323.
    \221\ See id. at 8323-24.
---------------------------------------------------------------------------

(2) Analysis
    The Commission disagrees that the proposal should be approved
because it is designed to protect investors and the public interest.
Here, even if it were true that, compared to trading in unregulated
spot bitcoin markets or OTC bitcoin funds, trading a spot bitcoin-based
ETP on a national securities exchange could provide some additional
protection to investors, or that the Shares would provide more
efficient exposure to bitcoin than other products on the market such as
bitcoin futures ETPs, or that approval of a spot bitcoin ETP could
enhance competition, the Commission must consider this potential
benefit in the broader context of whether the proposal meets each of
the applicable requirements of the Exchange Act.\222\ Moreover, the
same consideration applies despite the Exchange's representation that
the Sponsor would voluntarily apply certain provisions of the 1940 Act,
as described above, to the Trust. Pursuant to Section 19(b)(2) of the
Exchange Act, the Commission must approve a proposed rule change filed
by a national securities exchange if it finds that the proposed rule
change is consistent with the applicable requirements of the Exchange
Act--including the requirement under Section 6(b)(5) that the rules of
a national securities exchange be designed to prevent fraudulent and
manipulative acts and practices--and it must disapprove the filing if
it does not make such a finding.\223\ Thus, even if a proposed rule
change purports to protect investors from a particular type of
investment risk--such as experiencing a potentially high premium/
discount by investing in an OTC bitcoin fund or roll costs by investing
in bitcoin futures ETPs--or purports to provide benefits to investors
and the public interest--such as enhancing competition--the proposed
rule change may still fail to meet the requirements under the Exchange
Act.\224\
---------------------------------------------------------------------------

    \222\ See supra note 209.
    \223\ See Exchange Act Section 19(b)(2)(C), 15 U.S.C.
78s(b)(2)(C). See also Affiliated Ute Citizens of Utah v. United
States, 406 U.S. 128, 151 (1972) (Congress enacted the Exchange Act
largely ``for the purpose of avoiding frauds''); Gabelli v. SEC, 568
U.S. 442, 451 (2013) (The ``SEC's very purpose'' is to detect and
mitigate fraud.).
    \224\ See SolidX Order, 82 FR at 16259; VanEck Order, 86 FR at
54550-51; WisdomTree Order, 86 FR at 69344; Kryptoin Order, 86 FR at
74179; Valkyrie Order, 86 FR at 74163; SkyBridge Order, 87 FR at
3881; Wise Origin Order, 87 FR at 5538; ARK 21Shares Order, 87 FR at
20026-27.
---------------------------------------------------------------------------

    For the reasons discussed above, BZX has not met its burden of
demonstrating an adequate basis in the record for the Commission to
find that the proposal is consistent with Exchange Act Section
6(b)(5),\225\ and, accordingly, the Commission must disapprove the
proposal.\226\
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    \225\ 15 U.S.C. 78f(b)(5).
    \226\ In disapproving the proposed rule change, the Commission
has considered its impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

IV. Conclusion

    For the reasons set forth above, the Commission does not find,
pursuant to Section 19(b)(2) of the Exchange Act, that the proposed
rule change is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to a national
securities exchange, and in particular, with Section 6(b)(5) of the
Exchange Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act, that proposed rule change SR-CboeBZX-2022-006 be, and it
hereby is, disapproved.

    By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-22345 Filed 10-13-22; 8:45 am]
BILLING CODE 8011-01-P