[Federal Register Volume 86, Number 7 (Tuesday, January 12, 2021)]
[Proposed Rules]
[Pages 2311-2318]
[FR Doc No: 2020-28700]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-90769; File No. S7-23-20]

Notice of Proposed Conditional Exemptive Order Granting a
Conditional Exemption From the Information Review Requirement and the
Recordkeeping Requirement Under the Securities Exchange Act of 1934 for
Certain Publications or Submissions of Broker-Dealer Quotations on an
Expert Market

AGENCY: Securities and Exchange Commission.

ACTION: Notice of proposed conditional exemptive order; request for
comment.

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SUMMARY: Pursuant to Section 36(a)(1) of the Securities Exchange Act of
1934 (the ``Exchange Act'') and Rule 15c2-11 under the Exchange Act (as
published in the Federal Register on October 27, 2020, ``Amended Rule
15c2-11'' or the ``Amended Rule''), the Securities and Exchange
Commission (the ``SEC'' or the ``Commission'') is proposing to grant
exemptive relief, subject to certain conditions, to permit broker-
dealers to publish or submit proprietary quotations for securities, on
a continuous basis, in a market where the distribution of such
quotations is restricted to sophisticated or professional investors,
without complying with the information review and recordkeeping
requirements of Amended Rule 15c2-11(a)(1)(i) and (d)(1)(i)(A),
respectively.

DATES: Comments should be received on or before February 11, 2021.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/exorders.shtml); or
     Send an email to<EMAIL_ADDRESS>
Paper Comments

     Send paper comments to Secretary, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-23-20. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
internet website (https://www.sec.gov/rules/exorders.shtml). Comments
are also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549-1090 on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
All comments received will be posted without change. Persons submitting
comments are cautioned that the Commission does not redact or edit
personal identifying information from comment submissions. Commenters
should submit only information that they wish to make available
publicly.

FOR FURTHER INFORMATION CONTACT: John Guidroz, Branch Chief, James
Curley, Laura Gold, Theresa Hajost, Patrice Pitts, Special Counsels,
Elizabeth Sandoe, Senior Special Counsel, Josephine Tao, Assistant
Director, or Mark Wolfe, Associate Director, at<PHONE_NUMBER>, in the
Division of Trading and Markets, Securities and Exchange Commission,
100 F Street NE, Washington, DC 20549-1090.

SUPPLEMENTARY INFORMATION:

I. Background

A. Adoption of Amendments to Rule 15c2-11

    Rule 15c2-11 specifies key, basic issuer information that must be
obtained and reviewed before a broker-dealer may initiate (or resume)
quotations for a security in a market other than a national securities
exchange, subject to certain exceptions.\1\ The Amended Rule becomes
effective on December 28, 2020. Except for paragraph (b)(5)(i)(M) of
the Amended Rule, compliance is required nine months following the
effective date, on September 28, 2021 (the ``Compliance Date'').\2\
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    \1\ The ``information review requirement'' refers to the Amended
Rule's requirement to obtain and review specified issuer
information, and to have a reasonable basis under the circumstances
for believing, based on a review of such information, together with
any applicable supplemental information also specified under the
Amended Rule, that the issuer information is accurate in all
material respects and is from reliable sources, before a broker-
dealer may publish or submit a quotation to initiate or resume a
quoted market in the issuer's security.
    \2\ See Publication or Submission of Quotations Without
Specified Information, Exchange Act Release No. 89891 (Sept. 16,
2020), 85 FR 68124, 68172 (Oct. 27, 2020) (``Adopting Release'').
The compliance date that is nine months after the effective date of
the Rule is referred to herein as the ``Compliance Date.'' Between
the effective date and the Compliance Date, broker-dealers must
comply with the provisions of Rule 15c2-11 prior to amendment. The
compliance date for paragraph (b)(5)(i)(M) of the Amended Rule is
two years after the effective date of the Amended Rule.
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    Under the Amended Rule, certain applicable issuer information must
be ``current'' and ``publicly available,'' as those terms are defined
in the Amended Rule,\3\ for a broker-dealer to initiate (or resume) a
quoted market in the issuer's security after complying with the
information review requirement.\4\ Further, with respect to the
``piggyback'' exception, which allows a broker-dealer to rely on the
quotations of the broker-dealer that initially complied with the
information review requirement to maintain continuous quotations for
the security in an interdealer quotation system (an ``IDQS''), the
amendments require that applicable issuer information also must be
current and publicly available, timely filed, or filed within 180
calendar days from the end of the issuer's most recent fiscal year or
any quarterly reporting period that is covered by a report required by
Section 13 or 15(d) of the Exchange Act, as applicable.\5\ As a result,
on the Compliance Date, broker-dealers may not rely on the piggyback
exception to maintain a quoted market in the securities of issuers for
which information is not current and publicly available.
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    \3\ See Amended Rule 15c2-11(e)(2) (defining the term
``current''), (e)(5) (defining the term ``publicly available'').
    \4\ See Amended Rule 15c2-11(a)(1)(i)(B). The Rule's
recordkeeping requirement is unchanged under the amendments, except
broker-dealers no longer have to preserve documents that are
available on the Commission's Electronic Data Gathering, Analysis
and Retrieval System (``EDGAR''). See Amended Rule 15c2-
11(d)(1)(i)(A).
    \5\ See Amended Rule 15c2-11(f)(3)(i)(C) (requiring an issuer's
specified information to be, depending on the regulatory status of
the issuer, one of the following: (1) Current and publicly
available; (2) timely filed (i.e., filed by the prescribed due date
for a report or statement as required by an Exchange Act or
Securities Act of 1933 (the ``Securities Act'') reporting
obligation); or (3) filed within 180 calendar days from a specified
period); see also Amended Rule 15c2-11(e)(3) (defining the term
``interdealer quotation system''). For purposes of this proposed
exemptive order, these requirements with respect to the piggyback
exception are referred to as the requirement to be ``current and
publicly available.'' The amendments also (1) modify the piggyback
exception's frequency-of-quotation requirement by eliminating both
the 12-business-day requirement and the 30-calendar-day window while
still requiring that no more than four business days in succession
elapse without a quotation, see Amended Rule 15c2-11(f)(3)(i)(A),
and (2) limit the amount of time during which broker-dealers may
rely on the exception to quote securities of issuers that they have
a reasonable basis under the circumstances for believing are shell
companies, see Amended Rule 15c2-11(f)(3)(B)(2).
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    The Commission received comments on the proposed amendments to Rule
15c2-11 that expressed interest in the formation of an ``expert
market'' for certain securities that become ineligible for quotation
after the Compliance Date because the information required by the Rule
is not current and publicly available for the issuers of those
securities.\6\ In response to comments, the Commission stated that,
under certain conditions and circumstances, an ``expert market'' could
enhance liquidity for sophisticated or professional investors in grey
market securities,\7\ as well as for small companies seeking growth
opportunities that might prefer to be quoted in a market that is
limited to such persons.\8\ The Commission stated that it
``preliminarily believes that any such expert market must not have the
potential to develop into a parallel market for which quotations are
accessible by retail investors and the general public.'' \9\
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    \6\ Comments are available on the Commission's website at
https://www.sec.gov/comments/s7/14/19/s71419.htm.
    \7\ Grey market securities are securities that trade over-the-
counter but for which no quoted prices are published or submitted in
a quotation medium for buyers and sellers to access.
    \8\ See Adopting Release at 68145.
    \9\ Id.
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    The Commission stated that it has the authority to issue exemptive
relief by order, under Section 36 of the Exchange Act and under the
Amended Rule,\10\ to facilitate the formation and implementation of
such an expert market. The Commission also stated that, in doing so, it
may consider certain safeguards to protect retail investors, such as
(1) the types of investors who may access quotations in this market
(e.g., sophisticated investors that have the ability to assess an
investment opportunity, including the ability to analyze its risks and
rewards), and (2) the types of securities that may be quoted in such a
market (e.g., those that were quoted in reliance on the piggyback
exception on the business day preceding the initial quotation that is
published or submitted in any such market).\11\
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    \10\ The exemptive authority provision of Rule 15c2-11 has been
re-lettered from paragraph (h) to paragraph (g) under the Amended
Rule. In addition, the standard for exemptive authority under the
Amended Rule conforms to the provision for exemptive authority in
Section 36 of the Exchange Act. See id. at 68167.
    \11\ See id. at 68145.
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B. Request for Exemptive Relief by OTC Link LLC

    In response to the Commission's discussion, OTC Link[supreg] LLC
(``OTC Link LLC''), a wholly owned subsidiary of OTC Markets Group Inc.
(``OTC Markets Group''), has submitted a request on

behalf of certain broker-dealers for an exemption from the Amended
Rule's information review requirement and recordkeeping requirement to
permit such broker-dealers to publish or submit, on a continuous basis,
proprietary quotations for certain securities of issuers for which
there is no current and publicly available information, and in other
specified circumstances, on one of its electronic platforms where the
distribution of such quotations is limited to sophisticated or
professional investors.
    OTC Link LLC operates trading platforms on which broker-dealers
provide liquidity and execution services for over 11,000 U.S. and
global securities. One such platform is OTC Link ATS, an alternative
trading system (``ATS'') that meets the definition of a ``qualified
interdealer quotation system'' under paragraph (e)(6) of the Amended
Rule. The securities that are quoted on OTC Link ATS are organized into
market tiers based on several factors, including the public
availability of current issuer information and whether an issuer meets
minimum financial thresholds. These market tiers include the
OTCQX[supreg] Best Market, the OTCQB[supreg] Venture Market, the Pink
Open Market, and the Expert Market. The Expert Market is a distinct
market tier on which OTC Link LLC's broker-dealer subscribers (each, a
``Subscriber'' and collectively, the ``Subscribers'') \12\ can, among
other things, find price transparency in certain securities that may
not be eligible or suitable for retail investors. Currently, the
distribution of quotations for securities that are published or
submitted on the Expert Market is limited to broker-dealers, and OTC
Link ATS does not make such quotations available to the general public.
In requesting exemptive relief on behalf of the Subscribers, OTC Link
LLC plans to modify the Expert Market to include the safeguards
described below.\13\
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    \12\ All Subscribers to OTC Link ATS are required to be broker-
dealer members of the Financial Industry Regulatory Authority
(``FINRA'') and must enter into a subscription agreement with OTC
Link LLC that outlines the terms and conditions of their use of OTC
Link ATS. All OTC Link ATS Subscribers can access all market tiers,
including the Expert Market. Under the proposed conditional
exemptive order, all quotations published or submitted on the Expert
Market would be attributable to Subscribers at prices at which such
Subscribers are prepared to trade. See, e.g., FINRA Rule 5220.
    \13\ Although OTC Link LLC is requesting relief on behalf of its
Subscribers using the Expert Market on OTC Link ATS, OTC Link LLC is
not requesting the same relief for OTC Link ATS, as a quotation
medium, because OTC Link ATS does not publish or submit quotations
on the Expert Market and, thus, does not engage in activity that is
subject to the provisions of Amended Rule 15c2-11.
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    The Commission is proposing to grant OTC Link LLC's request for
exemptive relief and issue a conditional exemptive order as outlined
below.
1. Distribution of Expert Market Quotes and Data
    Quotations published or submitted on the Expert Market are clearly
identified in a data feed to which OTC Markets Group controls which
Subscribers, market data distributors, and users have access. OTC
Markets Group currently limits the distribution of quotations published
or submitted on the Expert Market solely to broker-dealers. Under the
proposed conditional exemptive order, OTC Markets Group would authorize
market data distributors, including Subscribers, to be eligible to
receive quotations published or submitted on the Expert Market and to
distribute such data to Subscribers who comply with certain obligations
and restrictions on data access. As Expert Market quotations are
clearly identified in the data feed, recipients would be able to
control their distribution and display.
    Under the proposed exemptive relief, all entities that distribute
OTC Markets Group's market data, including Subscribers, would be
required to enter into a Market Data Distribution Agreement (``MDDA'')
directly with OTC Markets Group. OTC Markets Group would control which
market data distributors are permitted to receive market data, and the
MDDA would require each such market data distributor to report all end-
users to OTC Markets Group. OTC Markets Group would distribute
quotations published or submitted on the Expert Market to market data
distributors that agree to the MDDA's contractual and data access
restrictions that limit the distribution and display of quotations to
certain eligible investors, as described below. Accordingly, real-time
and delayed quotations \14\ published or submitted on the Expert Market
would not be permitted to be distributed or displayed to the general
public. Further, pursuant to the MDDA, market data distributors must
require any person to whom they distribute quotations published or
submitted on the Expert Market that is not party to the MDDA to agree,
by contract, not to distribute such quotations to any person that is
not a permitted recipient as described herein.
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    \14\ ``Delayed'' quotations, for the purpose of this proposal,
do not include ``end-of-day'' quotation information, which is
defined in the MDDA, and is generally understood to mean information
consisting of a snapshot of the best bid price and size and the best
ask price and size for a security, taken at the close of regular
trading hours. End-of-day quotation information does not include the
identity of the broker-dealer(s) that published or submitted the
quotation(s) that make up the ``end-of-day'' quotation. End-of-day
information is used by broker-dealers, custodian banks, clearing
firms, prime brokers and service bureaus for valuation, settlement,
accounting, clearing and custody purposes because it can be more
accurate, than last transaction information. Thus, end-of-day
quotation information that is used by broker-dealers in providing
valuation, settlement, accounting, clearing, and custody information
to its customers may be viewed by retail investors and the general
public; however, it is not actionable for the purposes of effecting
transactions.
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    In operating the Expert Market under the proposed exemptive relief,
OTC Link LLC would establish, maintain, and enforce written policies
and procedures that are reasonably designed to allow only permitted
recipients to view, and to prevent the general public from viewing,
quotations published or submitted on the Expert Market. OTC Link LLC
also would establish, maintain, and enforce policies and procedures to
regularly surveil the use of the Expert Market data feed. Further,
under its written policies and procedures, OTC Link LLC would determine
whether market data distributors, including Subscribers, are complying
with the terms of the MDDA. OTC Link LLC would regularly review
activity on the Expert Market and would establish, maintain, and
enforce policies and procedures that provide for further review and
escalation of issues, including irregular quotation activities that may
indicate fraudulent behavior (e.g., unusually high volumes) and non-
compliance with the MDDA. Escalation of issues may include a
determination of whether any market data distributor or Subscriber
should be denied further access to the Expert Market or whether a
detailed referral should be made to FINRA or Commission staff, or both.
2. Permitted Recipients of Quotations Published or Submitted on the
Expert Market
    As described above, the distribution of real-time and delayed
quotations published or submitted on the Expert Market would be limited
exclusively to market data distributors, including Subscribers, and
certain types of sophisticated or professional investors, specifically,
the following categories of market participants (each, a ``Qualified
Expert'' and collectively, the ``Qualified Experts''): (1) Any
qualified institutional buyer, as defined in Rule 144(A)(a)(1) under
the Securities Act; and (2) any accredited investor, as defined in Rule
501(a) of Regulation D; \15\ and (3) any

qualified purchaser, as defined in Section 2(a)(51)(A) of the
Investment Company Act of 1940 (the ``Investment Company Act'') and the
rules thereunder.\16\ Qualified Experts may receive quotations
published or submitted on the Expert Market directly from OTC Markets
Group, from any market data distributor or Subscriber that has entered
into the MDDA with OTC Markets Group, or from both.\17\
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    \15\ The term ``accredited investor'' includes, among other
things, any bank as defined in Section 3(a)(2) of the Securities
Act, broker or dealer registered pursuant to Section 15 of the
Exchange Act, investment adviser registered pursuant to Section 203
of the Investment Advisers Act of 1940, and investment company
registered under the Investment Company Act of 1940. See Rule
501(a)(1) of Regulation D. The term ``accredited investor'' also
includes any entity of a type not listed in Rule 501(a)(1), that is
not formed for the specific purpose of acquiring the securities
offered, that own investments in excess of $5,000,000, which could
include a foreign bank or other non-U.S. financial institution. See
Rule 501(a)(9) of Regulation D.
    \16\ OTC Link LLC has requested that foreign broker-dealers, as
defined in Exchange Act Rule 15a-6(b)(3), be included in the list of
Qualified Experts. The Commission is seeking comment, below,
regarding whether foreign broker-dealers, as defined in Exchange Act
Rule 15a-6(b)(3), should be included in the list of Qualified
Experts.
    \17\ Qualified Experts that receive Expert Market data directly
from OTC Markets Group would be subject to a subscriber agreement
that contractually limits any further distribution.
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    OTC Markets Group would also distribute quotations for an issuer's
security published or submitted on the Expert Market to the issuer of
any such security if the issuer contractually agrees not to distribute
such quotations, directly or indirectly, to any person that is not a
current officer, director, or employee of the issuer.\18\
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    \18\ As described above in Part I.B.1, market data distributors,
including Subscribers, would be contractually required to ensure
that the recipients of quotations published or submitted on the
Expert Market meet the definition of a Qualified Expert.
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3. Categories of Expert Market Securities
    The subject of Subscribers' proprietary quotations that can be
published or submitted on the Expert Market would be restricted to the
following categories of securities: (1) Any security that is quoted in
reliance on the piggyback exception prior to the Compliance Date and
loses such eligibility upon the Compliance Date due to a lack of
current and publicly available information about the issuer of the
security; \19\ (2) any security that is quoted in reliance on the
piggyback exception following the Compliance Date and subsequently
loses such eligibility due to a lack of current and publicly available
information about the issuer of the security, the issuer's status as a
shell company, or a failure to meet the frequency-of-quotation
requirement; \20\ and (3) any security that is issued in conjunction
with a Chapter 11 bankruptcy plan confirmed pursuant to Section 1129 of
the U.S. Bankruptcy Code (the ``Code'') \21\ and is exempt from
registration in accordance with Section 1145 of the Code.\22\
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    \19\ A quoted market on the Expert Market for such security
would have to commence within the first four business days from the
date on which it loses eligibility to be quoted in reliance on the
piggyback exception.
    \20\ A quoted market on the Expert Market for such security
would have to commence within the first four business days from the
date on which it loses eligibility to be quoted in reliance on the
piggyback exception.
    \21\ The issuers of such securities would be subject to
oversight of the bankruptcy court. After confirmation of the
bankruptcy plan, the bankruptcy courts may direct the company and
others to carry out the plan. See 28 U.S.C. 1142.
    \22\ A quoted market on the Expert Market for such security must
commence within 90 calendar days from the date on which it is
issued.
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    In addition, OTC Link LLC would remove from the Expert Market
quotations for any security that fits within the following two
categories: (1) Any security of an issuer that is the subject of a
registration revocation or trading suspension order issued by the
Commission pursuant to Section 12(j) or 12(k) of the Exchange Act,
respectively; and (2) any security of an issuer that OTC Link LLC has
identified as ``defunct'' (i.e., it has ceased operations, ceased to
exist, or has failed to respond to inquiries by OTC Link LLC). Once the
applicable Section 12(k) trading suspension order terminates or the
subject security is re-registered with the Commission following an
applicable Section 12(j) revocation order, in order to be quoted on the
Expert Market, the subject security must either (1) gain and then lose
eligibility to be quoted in reliance on the piggyback exception or (2)
be issued in conjunction with a Chapter 11 bankruptcy plan and be
quoted on the Expert Market in accordance with the timing requirements
discussed above.\23\
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    \23\ See supra notes 19 and 20.
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    In addition, OTC Link LLC would flag on its website any
``formerly'' suspended security for such period of time as set forth in
OTC Link LLC's policies and procedures, which OTC Link LLC represents
would be for two years following the applicable trading suspension.\24\
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    \24\ OTC Link LLC would remove any such flag if it becomes aware
of a Commission or court order finding for the successful challenge
of the applicable trading suspension.
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II. Discussion of Proposed Relief

    As a result of the amendments to Rule 15c2-11, after the Compliance
Date, broker-dealers must withdraw from publishing or submitting
quotations in a quotation medium for securities of issuers for which
information is not current and publicly available, and such securities
may migrate to the grey market, where no quoted prices are published in
a quotation medium for buyers and sellers to access and transact. As
the Commission stated in the Adopting Release, this may impose costs on
potential and existing investors by reducing liquidity for these
securities and potentially resulting in less efficient pricing.
Further, the loss of a quoted market and the information embedded in
share prices may adversely impact an issuer's ability to raise capital
through stock issuances or through other channels of finance, such as
debt. The Commission also noted that investors in securities in the
grey market may be more susceptible to fraud.\25\
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    \25\ See Adopting Release at 68145, 68198.
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    As described above, the Commission also stated in the Adopting
Release that it could be beneficial to establish an ``expert market''
that would enhance liquidity for sophisticated or professional
investors and promote growth opportunities for certain small companies,
although the comments received on the proposal provided insufficient
detail as to how that market would function, safeguard retail investors
from fraud and manipulation, and facilitate regulatory oversight.\26\
In its December 21, 2020 request, OTC Link LLC made certain
representations regarding how the Expert Market would function with
safeguards to reduce the potential for certain retail investors to be
harmed by fraud and manipulation, as well as representations regarding
how OTC Link LLC would establish, maintain, and enforce written
policies and procedures reasonably designed to facilitate the integrity
and Commission oversight of the Expert Market. Based on these and other
facts and representations made in OTC Link LLC's December 21, 2020
request, the Commission preliminarily believes that it is necessary or
appropriate in the public interest, and is consistent with the
protection of investors, to grant, subject to the conditions described
below, exemptive relief pursuant to Section 36(a)(1) of the Exchange
Act and Rule 15c2-11 to permit Subscribers to publish or submit
proprietary quotations on the Expert Market, on a continuous basis,
without complying with the requirements of Amended Rule 15c2-
11(a)(1)(i) and (d)(1)(i)(A). The Commission notes that OTC Link LLC
may implement additional conditions, criteria, or noticing mechanisms
for certain quotations on its platform by Subscribers as it may find
appropriate, including as to whether additional

quotations for securities of certain issuers should be transferred to
the Expert Market because they may present more risk to certain retail
investors.
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    \26\ Id. at 68145.
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    The proposed conditional exemptive relief would allow the Expert
Market to serve as a centralized location for published quotations in
certain securities--that otherwise would migrate to the grey market
following the Compliance Date--to be viewed exclusively by specified
categories of sophisticated or professional investors. Such relief,
therefore, could help to advance opportunities for more efficient
pricing in such securities, enhance liquidity for sophisticated or
professional investors in such securities, and promote capital
formation for companies seeking growth opportunities that might prefer
to be quoted in a market limited to such persons.

A. Permitted Recipients of Quotations Published or Submitted on the
Expert Market

    The Commission is proposing to limit the universe of market
participants to whom real-time and delayed quotations published or
submitted on the Expert Market are distributed. Accordingly, with one
exception discussed below, real-time or delayed quotations published or
submitted on the Expert Market may not be distributed, whether directly
or indirectly from another source,\27\ to any person that is not a
Qualified Expert. The Commission preliminarily believes that the
inability of the general public to view real-time and delayed
quotations published or submitted on the Expert Market should help
protect investors from incidents of fraud and manipulation in OTC
securities for which no or limited publicly available information about
the issuers exists to help counteract misinformation, while also
allowing Subscribers to maintain a market in certain securities for
certain qualified investors to interact.\28\
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    \27\ As discussed above in Part I.B, quotations published or
submitted on the Expert Market would be accessible to market data
distributors, including Subscribers, that have contractually agreed
to not distribute quotations published or submitted on the Expert
Market to persons who are ineligible to access such information
(i.e., non-Qualified Experts), including to the general public.
    \28\ See, e.g., Adopting Release at 68145.
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    The Commission preliminarily believes that including in the list of
Qualified Experts (1) any qualified institutional buyer, as defined in
Rule 144(A)(a)(1) under the Securities Act, and (2) any accredited
investor, as defined in Rule 501(a) of Regulation D, would
appropriately capture the types of investors who have, among other
things, demonstrated the ability to assess an investment opportunity
(including the ability to analyze risks and rewards), or the ability to
gain access to information about an issuer or about an investment
opportunity.\29\ Such persons should be able to view quotations
published or submitted on the Expert Market because they may not need
the same investor protections that are afforded, in part, by current
and publicly available issuer information in the same way that the
general public may need it to analyze an investment opportunity or to
counteract misinformation. In addition, the Commission preliminarily
believes that it is appropriate to include qualified purchasers, as
defined in Section 2(a)(51)(A) of the Investment Company Act and the
rules thereunder, in the list of Qualified Experts because qualified
purchasers are investors that have a high degree of financial
sophistication who are in a position to appreciate the risks associated
with investing in securities that would be quoted on the Expert Market
without the protections afforded by the Amended Rule.
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    \29\ See, e.g., Amending the ``Accredited Investor'' Definition,
Securities Act Release No. 10824 (Aug. 26, 2020), 85 FR 64234 (Oct.
9, 2020) (``Accredited Investor Release'').
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    Notably, this list of Qualified Experts would exclude customers of
broker-dealers and investment advisers (that do not fit into any of the
three categories of Qualified Experts) because this market is not
available to the general public.\30\
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    \30\ Any Subscriber that distributes quotations published or
submitted on the Expert Market to any person that is not a Qualified
Expert would not be eligible for the relief proposed herein and may
violate Rule 15c2-11.
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    In addition, as an exception to the Qualified Expert requirement,
the Commission preliminarily believes that it is appropriate for an
issuer to be able to view quotations published or submitted on the
Expert Market for its own security, if the issuer agrees not to
distribute such quotations, directly or indirectly, to any person that
is not a current officer, director, or employee of the issuer, as
described above. This is because such information could inform the
issuer about the liquidity and market price of the security and allow
the issuer to make informed decisions regarding future offerings to
raise capital. In order for an issuer to view these quotations, the
issuer would need to contractually agree not to distribute such
quotations, directly or indirectly, to any person that is not a current
officer, director, or employee of the issuer.

B. Expert Market Securities

    The Commission preliminarily believes that it is appropriate for
the following categories of securities to be eligible to be the subject
of Subscribers' proprietary quotations on the Expert Market.
    The first category is securities that lose eligibility to be quoted
in reliance on the piggyback exception--either (1) upon the Compliance
Date due to a lack of current and publicly available information about
an issuer, or (2) following the Compliance Date due to (i) a lack of
current and publicly available information about the issuer, (ii) the
issuer's status as a shell company, or (iii) a failure to meet the
frequency-of-quotation requirement--so long as quotations on the Expert
Market commence within four business days of such loss of
eligibility.\31\ As stated in the Adopting Release, the Commission
recognizes that holders of such securities may incur costs related to a
loss of liquidity when broker-dealers cannot rely on the piggyback
exception.\32\ The ability of broker-dealers (i.e., Subscribers) to
publish or submit proprietary quotations for those securities on the
Expert Market could help to facilitate liquidity for such securities
because the availability of quotations could reduce trading costs and
facilitate pricing efficiency. This is because investors that are
Qualified Experts would be able to view those quotations and use such
information in the mix of information (e.g., in addition to their own
due diligence or issuer disclosures that might not be publicly
available but to which they otherwise have access) that they take into
account as part of a meaningful investment analysis when making
investment decisions.\33\ Without the proposed exemption, as discussed
above, these securities may migrate to the grey market, to which retail
investors and the general public have access, without access to
information embedded in prices published in a quotation medium. The
ability of Subscribers to publish or submit quotations in a quotation
medium for such securities could help protect retail investors and

the general public from potential incidents of fraud and manipulation
in the grey market and facilitate liquidity for such securities.
---------------------------------------------------------------------------

    \31\ This four-business-day window mirrors the time frame
provided in the piggyback exception that quotations occur with no
more than four business days in succession without a priced
quotation. See Amended Rule 15c2-11(f)(3)(i). As an example, if
eligibility to be quoted in reliance on the piggyback exception were
lost on Monday, January 4, 2021, a Subscriber's quotations on the
Expert Market must commence no later than Friday, January 8, 2021 to
be eligible for this proposed exemption.
    \32\ Adopting Release at 68141.
    \33\ See, e.g., Accredited Investor Release at 64269-70.
---------------------------------------------------------------------------

    The second category captures securities issued in conjunction with
a Chapter 11 bankruptcy plan that is confirmed pursuant to Section 1129
of the Code and are exempt from registration in accordance with Section
1145 of the Code, so long as quotations on the Expert Market commence
within 90 calendar days from the date on which any such security is
issued.\34\ A bankruptcy proceeding is a significant event involving an
issuer that a broker-dealer should carefully consider before it
publishes or submits a quotation for the issuer's security in a
quotation medium.\35\ But, the Commission preliminarily believes that
the inclusion of this category of securities as eligible to be the
subject of Subscribers' quotations published or submitted on the Expert
Market is appropriate given that Qualified Experts are more likely than
the general public to possess the ability to evaluate the merits and
risks of a prospective investment opportunity and, therefore, it would
provide an efficient means to liquidate positions acquired through a
bankruptcy proceeding. The inclusion of this second category could help
promote capital formation opportunities for certain companies in
limited circumstances while ensuring, for investor protection, that the
distribution of quotations for the securities of such companies is
limited to investors that have a demonstrated ability to assess such an
investment opportunity.
---------------------------------------------------------------------------

    \34\ This 90-calendar-day window is consistent with the Amended
Rule's requirement for the information of prospectus issuers (i.e.,
issuers that filed a registration statement under the Securities
Act) to be ``current'' for broker-dealers to commence a quoted
market in these issuers' securities in a quotation medium. See
Amended Rule 15c2-11(b)(1). The Commission preliminarily believes
that it is appropriate to use a measurement of time that is
consistent with the Amended Rule's requirement for prospectus
issuers' information because both requirements pertain to the
commencement of a quoted market in securities of an issuer with
which the market is unfamiliar and are designed to ensure that the
Amended Rule's specified information about the issuers of these
securities is not stale or outdated with respect to such issuance.
    \35\ See Adopting Release at 68171.
---------------------------------------------------------------------------

    The Commission believes that it would be appropriate for OTC Link
LLC to remove from the Expert Market quotations published or submitted
for any security of an issuer that is the subject of a registration
revocation or trading suspension order issued by the Commission
pursuant to Section 12(j) or 12(k) of the Exchange Act, respectively.
Pursuant to any such registration revocation or trading suspension
order and the Commission's finding that it is in the public interest
and for the protection of investors,\36\ Subscribers would not be able
to effect transactions in such securities. Therefore, such quotations
must be removed.
---------------------------------------------------------------------------

    \36\ See Exchange Act Section 12(j) (``The Commission is
authorized, by order, as it deems necessary or appropriate for the
protection of investors to . . . revoke the registration of a
security, if the Commission finds . . . that the issuer of such
security has failed to comply with any provision of this chapter or
the rules and regulations thereunder.''); Exchange Act Section
12(k)(1)(A) (``If in its opinion the public interest and the
protection of investors so require, the Commission is authorized by
order--summarily to suspend trading in any security . . . for a
period not exceeding 10 business days . . . .'').
---------------------------------------------------------------------------

    In addition, the Commission preliminarily believes that it is
appropriate for OTC Link LLC to remove from the Expert Market
quotations published or submitted for any security of an issuer that
OTC Link LLC has identified as ``defunct,'' to prevent the publication
or submission of quotations for securities of issuers that have ceased
operations, ceased to exist, or have failed to respond to inquiries by
OTC Link LLC. Furthermore, the issuer of such security may not have a
transfer agent to allow investors to receive or transfer their stock
certificates. Thus, the quotations for such securities should be
removed from the Expert Market to help prevent such securities from
becoming vehicles for fraud and manipulation.
    Further, the Commission preliminarily believes that requiring OTC
Link LLC to flag on its website any ``formerly suspended'' security for
such period of time as set forth in OTC Link LLC's policies and
procedures (which would be for two years following the applicable
trading suspension) would help to promote investor protection.\37\ Such
a flag would serve as a notice to market participants that there was,
in the recent past, the presence of any number of factors (such as
uncertainty about the accuracy of publicly available issuer information
or questions about trading in the issuer's security) that led the
Commission to conclude that it was in the public interest and for the
protection of investors to suspend trading in the security.\38\
Accordingly, the Commission preliminarily believes that this flag
requirement would improve the overall mix of information about issuers
and their securities and would help investors make better-informed
investment decisions.\39\
---------------------------------------------------------------------------

    \37\ As discussed above in Part I.B.3, this period of time would
be for two years following the applicable trading suspension, unless
the trading suspension is successfully challenged.
    \38\ See, e.g., Adopting Release at 68151.
    \39\ See id. at 68144.
---------------------------------------------------------------------------

C. Policies and Procedures

    The Commission is proposing to condition the exemptive relief upon
OTC Link LLC establishing, maintaining, and enforcing reasonably
designed written policies and procedures to operate the Expert Market
in a manner that is consistent with how the Expert Market is described
herein. Such policies and procedures would account for the following:
(1) The manner in which the distribution of real-time and delayed
quotations on the Expert Market is limited, directly and indirectly,
only to Qualified Experts and, as applicable, issuers of securities for
which quotations are published or submitted on the Expert Market with
respect to their own securities; (2) specific actions that will be
taken if OTC Link LLC becomes aware that any Subscriber or market data
distributor or user has violated the contractual obligations described
above, and specific actions that will be taken if OTC Link LLC becomes
aware that an issuer has violated its contractual obligation not to
distribute, directly or indirectly, quotations published or submitted
on the Expert Market for its security to any person that is not a
current officer, director, or employee of the issuer; and (3) the
regular surveillance of the Expert Market data feed and quotation
activity on the Expert Market to determine whether a Subscriber or
market data distributor or user has facilitated access, directly or
indirectly, to quotations published or submitted on the Expert Market
to any person that is not a Qualified Expert or, as applicable, an
issuer of a security for which quotations are published or submitted on
the Expert Market with respect to its own security.
    The Commission preliminarily believes that the obligation to
establish, maintain, and enforce such written policies and procedures
as part of the proposed exemptive relief would help to prevent the
general public from accessing quote information, promote the integrity
of the Expert Market, and facilitate Commission oversight of the Expert
Market. In particular, OTC Link LLC's reasonably designed written
policies and procedures would provide transparency of, and set
expectations for, the manner in which OTC Link LLC operates the Expert
Market; would encompass compliance considerations relevant to the
operations of the Expert Market; and would assist Commission staff in
examining the Expert Market.

D. Recordkeeping Requirement

    Finally, the Commission is proposing to require as part of the
exemptive relief that OTC Link LLC preserve, for a period of not less
than three years, the first two years in an easily accessible place,
the following records:
    1. Documents and information regarding OTC Link LLC's written
policies and procedures related to the Expert Market, including records
related to the implementation of such written policies and procedures;
    2. Documents and information regarding any processes undertaken by
OTC Link LLC that analyze information over time to identify whether the
distribution of quotations published or submitted on the Expert Market
is limited only to Qualified Experts and, as applicable, issuers of
securities for which quotations are published or submitted on the
Expert Market with respect to their own securities; and
    3. Documents and information regarding OTC Link LLC's ongoing
surveillance of the quoting activity and distribution of quotations
published or submitted on the Expert Market, including any reports that
identify exceptions to compliance with the written policies and
procedures and the resolution of such exceptions.
    The Commission preliminarily believes that this recordkeeping
condition will help facilitate the Commission's oversight of the Expert
Market, including of Subscribers that publish or submit quotations on
the Expert Market and the distribution of such quotations. In
particular, the documents and information that would be required to be
maintained will provide the Commission with a record of how OTC Link
LLC has (1) implemented its reasonably designed written policies and
procedures described above; (2) conducted its ongoing maintenance of
such written policies and procedures in response to analysis of whether
quotations published or submitted on the Expert Market are distributed
only to market data distributors (including Subscribers), Qualified
Experts, and, as applicable, issuers of securities for which quotations
are published or submitted on the Expert Market with respect to their
own securities; and (3) enforced such written policies and procedures
as part of its ongoing surveillance of exceptions to compliance with
those written policies and procedures. The Commission also
preliminarily believes that these proposed recordkeeping conditions
would aid the Commission's oversight of OTC Link LLC's limitation on
the distribution of quotations published or submitted on the Expert
Market only to Qualified Experts (and, as applicable, issuers of
securities for which quotations are published or submitted on the
Expert Market with respect to their own securities).

E. Additional Considerations for Market Participants Relying on the
Proposed Exemption

    In addition, Subscribers that publish or submit quotations in
compliance with this proposed exemption remain subject to liability
under the antifraud provisions of the federal securities laws. Further,
the proposed exemption would not create an exemption or change existing
exemptions from the registration requirements or any other requirements
under the federal securities laws, including the Securities Act, for
any party. Accordingly, for example, if a Subscriber were to publish or
submit a quotation on the Expert Market in reliance on the proposed
exemption, the Subscriber would need to determine whether the security,
or any offer or sale of such security, is registered in accordance with
any applicable requirement under federal securities laws or whether an
exemption from any such registration requirement exists.

III. Request for Comments

    The Commission is seeking comment on all aspects of the proposed
exemption. In particular, the Commission requests comment on the
following questions about the proposed exemption. When responding to
the request for comment, please explain your reasoning. Additionally,
the Commission requests that commenters identify sources of data and
information as well as provide data and information to assist the
Commission in analyzing the impact of the proposed relief.
    1. Are there any other categories of securities that should be
eligible for Subscribers' proprietary quotations on the Expert Market?
Are there any other categories of securities that should be excluded
from Subscribers' proprietary quotations on the Expert Market? For
example, should only those securities that meet certain reported trade
thresholds be eligible for quoting? Please explain, including how this
suggestion would be necessary or appropriate in the public interest and
consistent with the protection of investors.
    2. Are there categories of investors included in the proposed list
of Qualified Experts who should be excluded? For example, should all
accredited investors, as defined in Rule 501(a) of Regulation D, be
considered Qualified Experts, or should the list be limited to a
narrower set of sophisticated investors? What steps should broker-
dealers and investment advisers be required to take, if any, to verify
the accredited investor status of customers before providing them
access to quotations published or submitted on the Expert Market?
Should all employees of an issuer, including those who would not
otherwise qualify as Qualified Experts, be allowed to view quotations
published or submitted on the Expert Market? Please explain, including
how this suggestion would be necessary or appropriate in the public
interest and consistent with the protection of investors.
    3. Are there any other categories of persons or entities that
should be eligible to view real-time or delayed quotations published or
submitted on the Expert Market? The Commission understands that foreign
broker-dealers, as defined in Exchange Act Rule 15a-6(b)(3), similar to
broker-dealers registered under Section 15 of the Exchange Act--an
entity included in the definition of ``accredited investor''--may
demonstrate the ability to assess an investment opportunity, the
capacity to allocate investments in such a way as to mitigate or avoid
risks of unsustainable loss, the ability to gain access to information
about an issuer or about an investment opportunity, or the ability to
bear the risk of a loss. OTC Link LLC has requested that such foreign
broker-dealers be included in the list of Qualified Experts. Should
foreign broker-dealers, as defined in Exchange Act Rule 15a-6(b)(3), be
added to the list of Qualified Experts? Please explain why or why not,
including how this suggestion would be necessary or appropriate in the
public interest and consistent with the protection of investors.
    4. What costs would be associated with the proposed Expert Market
exemption? Please specify the market participant(s) that would incur
such costs (e.g., issuers, broker-dealers, etc.), if any. Would the
cost of the proposed policies and procedures and recordkeeping
conditions prevent the formation of an ``expert market'' for any
eligible securities? Would the ability for issuers' securities to be
quoted on the Expert Market reduce incentives for relevant issuers to
provide public information?
    5. How active would quotations in these securities likely be if the
proposed exemptive relief were granted? What degree of liquidity and
price discovery would likely be facilitated by the ability of
Subscribers to publish or submit

quotations on the Expert Market? Where possible, please provide data or
identify sources of information the Commission could use to analyze the
impact of the relief on liquidity and price discovery.
    6. Does the proposed policies and procedures condition provide
appropriate assurance that real-time and delayed quotations published
or submitted on the Expert Market would not be accessible to the
general public, including retail investors, other than the Qualified
Experts? Please explain why or why not. If not, please explain how the
condition should be modified, including the minimum requirements that
should be included in OTC Link's policies and procedures to (1) ensure
that only Qualified Experts can view quotations published or submitted
on the Expert Market and (2) address concerns about fraud and
manipulation?
    7. Does the proposed recordkeeping condition for OTC Link LLC
provide appropriate means to facilitate the Commission's oversight of
the Expert Market, including of Subscribers that publish or submit
quotations on the Expert Market and the distribution of such
quotations? Please explain why or why not. If not, please explain how
the condition should be modified.
    8. Are the proposed safeguards appropriate to ensure that only
investors who are able to assess the risks and merits of investment in
the categories of securities proposed to be included in the Expert
Market are able to access quotations? Are the proposed conditions of
this exemptive order (in conjunction with FINRA rules that govern this
market) sufficient to prevent the general public from accessing
quotations published or submitted in the Expert Market, or should the
Commission impose additional conditions? Are there any other safeguards
that should be implemented in the Expert Market to protect investors?
    9. Are there additional conditions that the exemptive order
providing the relief proposed herein should include to help prevent
persons who are not Qualified Experts from accessing quotations
published or submitted on the Expert Market? If yes, please specify
such condition and explain how this suggestion would be necessary or
appropriate in the public interest and consistent with the protection
of investors.
    10. Should the exemptive order providing the relief proposed herein
include a sunset provision so that the relief would expire on a
particular date? If yes, what would be an appropriate date on which the
relief should expire (e.g., one year after the issuance of the
exemptive order, etc.) and why? Please discuss the costs and benefits
of including such a sunset provision in the exemptive order.
Additionally, please explain why such a sunset provision would be
necessary or appropriate in the public interest and consistent with the
protection of investors. Alternatively, please explain why the
exemptive order should omit a sunset provision, including a discussion
of the benefits and costs of such omission or any distortive effects on
the market. Lastly, please discuss whether there are alternative means
of achieving any benefits of a sunset provision.

    By the Commission.

    Dated: December 22, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-28700 Filed 1-11-21; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 11 (Thursday, January 16, 2014)]
[Notices]
[Page 2824]
[FR Doc No: 2014-00693]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. ER14-964-000]

Pleasant Valley Wind, LLC; Supplemental Notice That Initial
Market-Based Rate Filing Includes Request for Blanket Section 204
Authorization

    This is a supplemental notice in the above-referenced proceeding of
Pleasant Valley Wind, LLC's application for market-based rate
authority, with an accompanying rate tariff, noting that such
application includes a request for blanket authorization, under 18 CFR
part 34, of future issuances of securities and assumptions of
liability.
    Any person desiring to intervene or to protest should file with the
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426, in accordance with Rules 211 and 214 of the Commission's
Rules of Practice and Procedure (18 CFR 385.211 and 385.214). Anyone
filing a motion to intervene or protest must serve a copy of that
document on the Applicant.
    Notice is hereby given that the deadline for filing protests with
regard to the applicant's request for blanket authorization, under 18
CFR part 34, of future issuances of securities and assumptions of
liability, is January 29, 2014.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper, using the FERC Online links at http://www.ferc.gov. To facilitate electronic service, persons with Internet
access who will eFile a document and/or be listed as a contact for an
intervenor must create and validate an eRegistration account using the
eRegistration link. Select the eFiling link to log on and submit the
intervention or protests.
    Persons unable to file electronically should submit an original and
5 copies of the intervention or protest to the Federal Energy
Regulatory Commission, 888 First Street NE., Washington, DC 20426.
    The filings in the above-referenced proceeding are accessible in
the Commission's eLibrary system by clicking on the appropriate link in
the above list. They are also available for review in the Commission's
Public Reference Room in Washington, DC. There is an eSubscription link
on the Web site that enables subscribers to receive email notification
when a document is added to a subscribed docket(s). For assistance with
any FERC Online service, please email<EMAIL_ADDRESS>or
call<PHONE_NUMBER> (toll free). For TTY, call<PHONE_NUMBER>.

    Dated: January 9, 2014.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2014-00693 Filed 1-15-14; 8:45 am]
BILLING CODE 6717-01-P


had purchased a class offered by the fund that does not have an ongoing
sales charge and for which the shareholder qualifies according to the
fund's registration statement;
    (ii) In the case of shares exchanged within the same group of
investment companies, the highest applicable sales load rate of the
acquired security or the exchanged security; or
    (iii) If no reference load can be determined under paragraphs
(d)(14)(i) or (d)(14)(ii) of this section, the reference load is the
maximum sales charge rate permitted a fund that deducts an asset-based
sales charge and

a service fee under Rule 2830(d)(2)(A) of the Conduct Rules of the
NASD.
    (15) Sales load rate is the sales load expressed as a percentage of
the fund share offering price.
    14. Section 270.11a-3 is amended by revising paragraphs (b)(4) and
(b)(5)(i)(A) and (b)(5)(ii)(A) to read as follows:

Sec.  270.11a-3  Offers of exchange by open-end investment companies
other than separate accounts.

* * * * *
    (b) * * *
    (4) Any sales load charged with respect to the acquired security is
a percentage that is no greater than the excess, if any, of the rate of
the sales load applicable to that security in the absence of an
exchange over the sum of the rates of all sales loads and ongoing sales
charges (as permitted under Sec.  270.6c-10(b)), previously paid on the
exchanged security, Provided that:
    (i) The percentage rate of any sales load charged when the acquired
security is redeemed, that is solely the result of a deferred sales
load imposed on the exchanged security, may be no greater than the
excess, if any, of the applicable rate of such sales load, calculated
in accordance with paragraph (b)(5) of this section, over the sum of
the rates of all ongoing sales charges and sales loads previously paid
on the acquired security, and
    (ii) In no event may the sum of the rates of all ongoing sales
charges and sales loads imposed prior to and at the time the acquired
security is redeemed, including any ongoing sales charges and sales
load paid or to be paid with respect to the exchanged security, exceed
the maximum sales load rate, calculated in accordance with paragraph
(b)(5) of this section, that would be applicable in the absence of an
exchange to the security (exchanged or acquired) with the highest such
rate;
    (5) * * *
    (i) * * *
    (A) Reduced by the sum of the rates of all ongoing sales charges
collected on the acquired security pursuant to Sec.  270.6c-10(b), and
* * * * *
    (ii) * * *
    (A) The deferred sales load is reduced by the sum of the rates of
all ongoing sales charges previously collected on the exchanged
security pursuant to Sec.  270.6c-10(b), and
* * * * *

Sec.  270.12b-1  [Removed]

    15. Section 270.12b-1 is removed.
    16. Section 270.12b-2 is added to read as follows:

Sec.  270.12b-2  Investment company distribution fees.

    (a) Preliminary Matters. (1) Except as provided in this section, it
is unlawful for any fund (other than a fund complying with the
provisions of section 10(d) of the Act [15 U.S.C. 80a-10(d)]) to act as
a distributor of securities of which it is the issuer, except through
an underwriter.
    (2) For purposes of this section, a fund will be deemed to be
acting as a distributor of securities of which it is the issuer, other
than through an underwriter, if it directly or indirectly uses fund
assets to finance any distribution activity.
    (b) Marketing and Service Fee. A fund may use fund assets to
finance distribution activity, provided that, with regard to any class
of the fund:
    (1) All charges and fees deducted from fund assets to finance
distribution activity do not exceed the maximum rate of the service fee
allowed under Rule 2830 of the NASD Conduct Rules, except as permitted
by Sec.  270.6c-10(b);
    (2) If a fund (the ``acquiring fund'') acquires shares of another
fund (the ``acquired fund''), the combined rate of the marketing and
service fees of the acquiring fund and any acquired fund to finance
distribution activities does not exceed the maximum rate permitted in
paragraph (b)(1) of this section.
    (3) The marketing and service fee (or any increase in the rate of
such a fee) has been approved by a vote of at least a majority of the
fund's outstanding voting securities if the fee is instituted or
increased after any public offering of the fund's voting securities or
the sale of such securities to persons who are not affiliated persons
of the company, affiliated persons of such persons, promoters of the
fund, or affiliated persons of such promoters.
    (c) Directed Brokerage. Notwithstanding any other provision of this
section, a fund may not:
    (1) Compensate a broker or dealer for any promotion or sale of
shares issued by that fund by directing to the broker or dealer:
    (i) The fund's portfolio securities transactions; or
    (ii) Any remuneration, including but not limited to any commission,
mark-up, mark-down, or other fee (or portion thereof) received or to be
received from the fund's portfolio transactions effected through any
other broker (including a government securities broker) or dealer
(including a municipal securities dealer or a government securities
dealer); and
    (2) Direct its portfolio securities transactions to a broker or
dealer that promotes or sells shares issued by the fund, unless the
fund (or its investment adviser):
    (i) Is in compliance with the provisions of paragraph (c)(1) of
this section with respect to that broker or dealer; and
    (ii) Has implemented, and the fund's board of directors (including
a majority of directors who are not interested persons of the fund) has
approved, policies and procedures reasonably designed to prevent:
    (A) The persons responsible for selecting brokers and dealers to
effect the fund's portfolio securities transactions from taking into
account the brokers' and dealers' promotion or sale of shares issued by
the fund or any other registered investment company; and
    (B) The fund, and any investment adviser and principal underwriter
of the fund, from entering into any agreement (whether oral or written)
or other understanding under which the fund directs, or is expected to
direct, portfolio securities transactions, or any remuneration
described in paragraph (c)(1)(ii) of this section, to a broker
(including a government securities broker) or dealer (including a
municipal securities dealer or a government securities dealer) in
consideration for the promotion or sale of shares issued by the fund or
any other registered investment company.
    (d) Grandfathered Rule 12b-1 Fees. Until [date 5 years after
compliance date of the rule], notwithstanding any other provision in
this section, a fund may act as a distributor of securities sold prior
to [the compliance date of rule 12b-2] subject to a rule 12b-1 plan
approved under Sec.  270.12b-1 (2010 version) as in effect prior to
[the compliance date of rule 12b-2], provided that:
    (1) The fund's board of directors may vote to eliminate the
provisions in the fund's rule 12b-1 plan that were required by
paragraphs (b)(3)(i) (annual approval), (b)(3)(ii) (quarterly reports)
and (b)(3)(iii) (termination) of Sec.  270.12b-1 (2010 version);
    (2) With regard to any class of the fund, the fund does not
increase the annual rate of the fee paid under its rule 12b-1 plan in
the most recent fiscal year, and
    (3) As of [date 5 years after compliance date of the final rule]
all securities subject to paragraph (d) of this section must be
exchanged or converted into securities of a class that does not deduct
an ongoing sales charge as defined in Sec.  270.6c-10(d)(11) and that
does not charge a marketing and service fee in excess of the annual
rate of the fee paid under its rule 12b-1 plan in the most recent
fiscal year.

    (e) Definitions. For purposes of this section:
    (1) Fund means a registered open-end management investment company,
and includes a separate series of the fund.
    (2) Distribution activity means any activity which is primarily
intended to result in the sale of shares issued by a fund, including,
but not necessarily limited to, advertising, compensation of
underwriters, dealers, and sales personnel, the printing and mailing of
prospectuses to other than current shareholders, and the printing and
mailing of sales literature.
    (3) Marketing and Service Fee means any charges or fees deducted
from fund assets under paragraph (b)(1) of this section.
    17. Section 270.17a-8 is amended by revising paragraph (a)(3)(iv)
to read as follows:

Sec.  270.17a-8  Mergers of affiliated companies.

    (a) * * *
    (3) * * *
    (iv) Any distribution fees (as a percentage of the fund's average
net assets) authorized to be paid by the surviving company pursuant to
provisions of Sec.  270.12b-2(b) or (d) or Sec.  270.6c-10(b), are no
greater than the distribution fees (as a percentage of the fund's
average net assets) authorized to be paid by the merging company.
* * * * *
    18. Section 270.17d-3 is amended by revising paragraph (a) to read
as follows:

Sec.  270.17d-3  Exemption relating to certain joint enterprises or
arrangements concerning payment for distribution of shares of a
registered open-end management investment company.

* * * * *
    (a) Such agreement is made in compliance with the provisions of
Sec.  270.12b-2(b) or (d) or Sec.  270.6c-10(b); and
* * * * *
    19. Section 270.18f-3 is amended by revising paragraph (f)(2)(ii)
to read as follows:

Sec.  270.18f-3  Multiple class companies.

* * * * *
    (f) * * *
    (2) * * *
    (ii) The expenses, including distribution payments authorized under
Sec.  270.12b-2(b) or (d) or Sec.  270.6c-10(b), for the target class
are not higher than the expenses, including distribution payments
authorized under Sec.  270.12b-2(b) or (d) or Sec.  270.6c-10(b), for
the purchase class; and
* * * * *

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940

    20. The authority citation for Part 274 continues to read in part
as follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m,
78n, 78o(d), 80a-8, 80a-24, 80a-26, and 80a-29, unless otherwise
noted.
* * * * *
    21. Form N-1A (referenced in Sec. Sec.  239.15A and 274.11A) is
amended by:
    a. Adding the definition ``asset-based distribution fee'' in
alphabetical order to General Instructions A;
    b. Revising the ``Annual Fund Operating Expenses'' fee table and
Instruction 3(b) to Item 3;
    c. Revising paragraph b and removing the Instruction to paragraph b
of Item 12;
    d. Revising paragraph g and adding an Instruction to paragraph g of
Item 19;
    e. Adding paragraph d to item 25;
    f. Revising Instruction 5 to paragraph (b)(4) of Item 26;
    g. In the expense example in paragraph (d)(1) of Item 27, removing
the reference to ``distribution [and/or service](12b-1) fees'' and
adding in its place ``asset-based distribution fees'';
    h. In Instruction 2(a)(i) following paragraph (d)(1) to Item 27,
removing the reference to ``Distribution [and/or service](12b-1) fees''
and adding in its place ``asset-based distribution fees''; and
    i. Removing and reserving paragraph (m) of Item 28.
    The revisions read as follows:

    Note:  The text of Form N-1A does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form N-1A

* * * * *

General Instructions

A. Definitions

* * * * *
------``Asset-Based Distribution Fee'' means a fee deducted from Fund
assets to finance distribution activities pursuant to rule 12b-2(b) (17
CFR 270.12b-2(b)) (``Marketing and Service Fee''), rule 12b-2(d) (17
CFR 270.12b-2(d)), and/or rule 6c-10(b) (17 CFR 270.6c-10(b))
(``Ongoing Sales Charge'').
* * * * *

Item 3. Risk/Return Summary: Fee Table

* * * * *
    Annual Fund Operating Expenses (expenses that you pay each year as
a percentage of the value of your investment).

Management Fees...........................................         ----%
Ongoing Sales Charge......................................         ----%
Other Expenses............................................         ----%
  Marketing and Service Fee...............................         ----%
                                                                   ----%
                                                                   ----%
Total Annual Fund Operating Expenses......................         ----%

* * * * *
    Instructions.
* * * * *

3. Annual Fund Operating Expenses

* * * * *
    (b) ``Ongoing Sales Charge'' includes all expenses incurred during
the most recent fiscal year pursuant to rule 6c-10(b) (17 CFR 270.6c-
10(b)). ``Marketing and Service Fee'' includes all expenses incurred
during the most recent fiscal year pursuant to rule 12b-2(b) (17 CFR
270.12b-2(b)).
* * * * *

Item 12. Distribution Arrangements

* * * * *
    (b) Asset-Based Distribution Fees. If the Fund deducts an Asset-
Based Distribution Fee, state separately the rate of Ongoing Sales
Charges, Marketing and Service Fees, or fees charged pursuant to rule
12b-2(d) (17 CFR 270.12b-2(d)), as applicable, and state each one's
purpose and general terms, and provide disclosure to the following
effect:
    (1) The Fund deducts a fee for the sale and distribution of its
shares and, if applicable, for services provided to fund investors. If
the Fund deducts a fee for such services, describe the nature and
extent of services provided to fund investors.
    (2) For Multiple Class Funds that offer more than one Class in the
prospectus, discuss the general circumstances under which an investment
in a Class that deducts an Asset-Based Distribution Fee may be more or
less advantageous than an investment in a Class that either does not
deduct an Asset-Based Distribution Fee or a Class that deducts a
different Asset-Based Distribution Fee. Include the effect of different
holding periods and investment amounts in this description.
    (3) For Funds that deduct an Ongoing Sales Charge, the number of
months/years that an investor's shares would be subject to the charge
before automatically converting to a Class without such a deduction.
* * * * *

Item 19. Investment Advisory and Other Services

* * * * *
    (g) Asset-Based Distribution Fees. If the Fund deducts an Asset-
Based

Distribution Fee, provide a description of the fee(s) and how they are
used, including a list of the principal types of activities for which
payments are or will be made (e.g., advertising; printing and mailing
of prospectuses to other than current shareholders; compensation to
underwriters, compensation to broker-dealers, shareholder servicing
fees, etc.).
    Instruction. If a Fund offers a Class that deducts both an Ongoing
Sales Charge and a Marketing and Service Fee, separate the list of
activities according to type of fee.
* * * * *

Item 25. Underwriters

* * * * *
    (d) If the fund has elected to rely on rule 6c-10(c) (17 CFR Sec.
270.6c-10(c)) to permit the fund or its underwriter to distribute
shares at a price other than a current public offering price described
in the prospectus, state that the fund has made this election.
* * * * *

Item 26. Calculation of Performance Data

* * * * *
    (b) * * *
    (4) * * *
    Instructions.
* * * * *
    5. Include expenses accrued due to any Asset-Based Distribution
Fees owed in the expenses accrued for the period. Reimbursement accrued
may reduce the accrued expenses, but only to the extent the
reimbursement does not exceed expenses accrued for the period.
* * * * *

Item 28. Exhibits

* * * * *
    (m) Reserved.
* * * * *
    22. Form N-3 (referenced in Sec. Sec.  239.17a and 274.11b) is
amended by:
    a. Revising Instruction 2 to Item 7(a);
    b. Revising paragraph (f) and the Instruction to paragraph (f) of
Item 21;
    c. Revising Instruction 5 to Item 26(b)(ii).
    The revisions read as follows:

    Note: The text of Form N-3 does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form N-3

* * * * *

Item 7. Deductions and Expenses

    (a) * * *
    Instructions.
* * * * *
    2. If proceeds from explicit sales loads will not cover the
expected costs of distributing the contracts, identify from what source
the shortfall, if any, will be paid. If any shortfall is to be made up
from assets from the Insurance Company's general account, disclose, if
applicable, that any amounts paid by the Insurance Company may consist,
among other things, of proceeds derived from mortality and expense risk
charges deducted from the account. If Registrant directly or indirectly
pays any asset-based distribution expenses under rule 12b-2(b) (17 CFR
270.12b-2(b)), rule 12b-2(d) (17 CFR 270.12b-2(d)), or rule 6c-10(b)
(17 CFR 270.6c-10(b)), provide a description of the expenses and list
the principal types of activities for which payments are made.
* * * * *

Item 21. Investment Advisory and Other Services

* * * * *
    (f) If the Registrant deducts any asset-based distribution fees
under rule 12b-2(b) (Sec.  270.12b-2(b)), rule 12b-2(d) (17 CFR
270.12b-2(d)), or rule 6c-10(b) (17 CFR 270.6c-10(b)), provide a
description of the fee(s) and how they are used, including a list of
the principal types of activities for which payments are or will be
made (e.g., advertising; printing and mailing of prospectuses to other
than current shareholders; compensation to underwriters, compensation
to broker-dealers, shareholder servicing fees, etc.).
    Instruction. If a Registrant deducts both an ongoing sales charge
and a marketing and service fee, separate the list of activities
according to type of fee.
* * * * *

Item 26. Calculation of Performance Data

* * * * *
    (b) * * *
    (ii) * * *
* * * * *
    Instructions.
* * * * *
    5. Include all asset-based distribution expenses accrued under rule
12b-2(b) (17 CFR 270.12b-2(b)), rule 12b-2(d) (17 CFR 270.12b-2(d)),
and rule 6c-10(b) (17 CFR 270.6c-10(b)) among the expenses accrued for
the period. Reimbursement of expenses deducted from fund assets
pursuant to rule12b-2(b) (17 CFR 270.12b-2(b)), rule 12b-2(d) (17 CFR
270.12b-2(d)), and rule 6c-10(b) (17 CFR 270.6c-10(b)) may reduce the
accrued expenses, but only to the extent the reimbursement does not
exceed expenses accrued for the period.
* * * * *
    23. Form N-4 (referenced in Sec. Sec.  239.17b and 274.11c) is
amended by:
    a. In the ``Total Annual [Portfolio Company] Operating Expenses''
table in Item 3(a), removing the reference to ``distribution [and/or
service](12b-1) fees'' and adding in its place ``asset-based
distribution fees.''
    b. In Instruction 16 to Item 3 adding a definition of ``asset-based
distribution fees.''
    The addition reads as follows:

    Note:  the text of Form N-4 does not, and these amendments will
not, appear in the Code of Federal Regulations.

Form N-4

* * * * *

Item 3. Synopsis

* * * * *
    16. ``Management Fees'' include investment advisory fees (including
any component thereof based on the performance of the portfolio
company), any other management fees payable by the portfolio company to
the investment adviser or its affiliates, and administrative fees
payable to the investment adviser or its affiliates not included as
``Other Expenses.'' ``Asset-based distribution fee'' includes all
asset-based distribution expenses paid under rule 12b-2(b) (17 CFR
270.12b-2(b)), rule 12b-2(d) (17 CFR 270.12b-2(d)), and rule 6c-10(b)
(17 CFR 270.6c-10(b)).
* * * * *
    24. Form N-6 (referenced in Sec. Sec.  239.17c and 274.11d) is
amended by:
    a. In the ``Total Annual [Portfolio Company] Operating Expenses''
table in Item 3, removing the reference to ``distribution [and/or
service](12b-1) fees'' and adding in its place ``asset-based
distribution fees.''
    b. Adding paragraph (g) to Instruction 4 of Item 3.
    The addition reads as follows:

    Note:  The text of Form N-6 does not, and these amendments will
not, appear in the Code of Federal Regulations.

.Form N-6

* * * * *

Item 3. Risk/Benefit Summary: Fee Table

* * * * *
    Instructions.
* * * * *
    (4) * * *
    (g) ``Asset-based distribution fee'' includes all asset-based
distribution expenses paid under rule 12b-2(b) (17 CFR 270.12b-2(b)),
rule 12b-2(d) (17 CFR 270.12b-2(d)), and rule 6c-10(b) (17 CFR 270.6c-
10(b)).
* * * * *

    25. Form N-SAR (referenced in Sec. Sec.  249.330 and 274.101) is
amended by:
    a. Revising Item 40 in Instructions to Specific Items;
    b. Removing Items 41-44 in Instructions to Specific Items; and
    c. Removing the last sentence in the Instruction to Sub-Item 72DD2
in Instructions to Specific Items.
    The revision reads as follows:

    Note: The text of Form N-6 does not, and these amendments will
not, appear in the Code of Federal Regulations.

Form N-SAR

* * * * *

Instructions to Specific Items

* * * * *

Item 40: Plans Adopted Pursuant to Former Rule 12b-1

    Rule 12b-1 under the Act (17 CFR 270.12b-1), has been rescinded.
Registrants that have grandfathered 12b-1 share classes pursuant to
rule 12b-2(d) (17 CFR 270.12b-2(d)), should answer this question
``Yes.'' Registrants that do not have grandfathered 12b-1 share classes
pursuant to rule 12b-2(d) under the Act should answer this question
``No.''

     Dated: July 21, 2010.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-18305 Filed 8-3-10; 8:45 am]
BILLING CODE 8010-01-P


David Shanks 7 October 2013

The Aerospace CTG of 1997 was patterned after the Aerospace NESHAP of 1995.  Its numerical VOC emission limits were based on organic HAP limits in the NESHAP.   The CTG scope of coverage, exemptions, housekeeping provisions, and solvent vapor pressure limits mirror the organic HAP control measures in the NESHAP.  The major difference is that the Aerospace CTG determined RACT VOC limits for specialty coatings, while the NESHAP excluded specialty coatings, due to low usage.  Also, the NESHAP contains control measures for inorganic HAP, which is outside the scope of the CTG for VOCs.

The Aerospace NESHAP contains the following exemption in the overall rule Applicability section (40 CFR 63.741(e)):

      "All wastes that are determined to be hazardous wastes under the Resource Conservation and Recovery Act of 1976 (PL 94-580) (RCRA) as implemented by 40 CFR parts 260 and 261, and that are subject to RCRA requirements as implemented in 40 CFR part 262 through 268, are exempt from the requirements of this subpart."

The corresponding Applicability sections in the Missouri Aerospace VOC rules are 10 CSR 10-5.295(3)(I) for St. Louis and 10 CSR 10-2.205(3)(I) for Kansas City, but the RCRA waste exemption is absent from these VOC rules.    I've reviewed the earliest drafts of the St. Louis aerospace VOC rule.  In the first rule proposal, Section (3)(I) followed the NESHAP exemptions in all respects except the RCRA waste exemption.   I gave oral testimony at the Sept. 23, 1999 public hearing, but I didn't address the RCRA waste exemption in my comments, because I didn't notice the discrepancy.

The purpose of the RCRA exemption in the NESHAP is to avoid having the "closed container" housekeeping requirement for Cleaning Operations in the NESHAP (63.744) carry over into an identical "closed container" requirement once the cleaning materials enter hazardous waste rule jurisdiction.   Once a solvent wipe or spent solvent is placed in a RCRA waste container, the RCRA rules require the container to be kept closed in the shop area where it was generated ("satellite accumulation area"), during transport to an on-site storage area, during storage, during transportation to an off-site facility (i.e. beyond the jurisdiction of the aerospace NESHAP or aerospace VOC rules), and while it is awaiting final treatment or disposal at an off-site facility.

Unlike the NESHAP, the Cleaning Operation housekeeping sections of Missouri VOC rules 10 CSR  10-5.295(3)(E) and 10 CSR 10-2.205(3)(E) overlap hazardous waste requirements.    To eliminate this overlap in the Missouri rules, I suggest placing RCRA waste exemptions at the end of Section (3)(I) of the St. Louis and Kansas City rules.  However, the RCRA exemption language in the NESHAP (above) is unnecessarily complex.      A more concise Missouri-specific  exemption  would be:

      "17.  All wastes that are determined to be hazardous waste under Missouri hazardous waste regulation 10 CSR 25-4.261, and that are subject to the hazardous waste generators standards of 10 CSR 25-5.262."

Recently, the federal hazardous waste rules have been modified for solvent-contaminated wipes that may be used in some aerospace cleaning operations.   Under this rule, certain solvent wipes are conditionally excluded from the full range of hazardous waste rules, so long as they are managed under specific conditions.  One of the conditions of this solvent wipe rule is a closed container requirement:          "The solvent-contaminated wipes, when accumulated, stored, and transported, are contained in non-leaking closed containers that are labeled `Excluded Solvent-Contaminated Wipes.'  The containers must be able to contain free liquids, should free liquids occur.  During accumulation, a container is considered closed when there is complete contact between the fitted lid and the rim, except when it is necessary to add or removed solvent-contaminated wipes.  When the container is full, or when the solvent-contaminated wipes are no longer being accumulated, or when the container is being transported, the container must be sealed with all the lids properly and securely affixed to the container and all openings tightly bound or closed sufficiently to prevent leaks and emissions."          The federal solvent-contaminated wipe rule is not effective in most states (including Missouri) until it is incorporated into state hazardous waste rules.  Florida proposed to do so on October 1, and the solvent wipe rule is being discussed as a potential near-term incorporation at Missouri DNR Hazardous Waste Advisory Forum meetings.  It is not yet in Missouri rule, however, so the exemption suggested below cites the federal rule and a trigger based on Missouri adoption:

      "18.  Solvent-contaminated wipes that are managed in accordance with the conditional exclusions of 40 CFR 261.4(a)(26) or (b)(18), if incorporated into Missouri hazardous waste regulations. "