[Federal Register Volume 82, Number 33 (Tuesday, February 21, 2017)]
[Rules and Regulations]
[Pages 11144-11146]
[FR Doc No: 2017-03020]

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2016-9190; Directorate Identifier 2016-NM-087-AD;
Amendment 39-18797; AD 2017-04-02]
RIN 2120-AA64

Airworthiness Directives; Bombardier, Inc. Airplanes

AGENCY: Federal Aviation Administration (FAA), Department of
Transportation (DOT).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: We are superseding Airworthiness Directive (AD) 2014-23-06 for
certain Bombardier, Inc. Model CL-600-2B19 (Regional Jet Series 100 &
440) airplanes. AD 2014-23-06 required modifying the main landing gear
(MLG) by installing a new bracket on the left and right lower aft-wing
planks. This new AD requires modification of the MLG with an improved
design. This AD was prompted by a report indicating that inboard and
outboard hydraulic lines of the brakes were found connected to the
incorrect ports on the swivel assembly of the MLG. We are issuing this
AD to address the unsafe condition on these products.

DATES: This AD is effective March 28, 2017.
    The Director of the Federal Register approved the incorporation by
reference of a certain publication listed in this AD as of March 28,
2017.

ADDRESSES: For service information identified in this final rule,
contact Bombardier, Inc., 400 C[ocirc]te-Vertu Road West, Dorval,
Qu[eacute]bec H4S 1Y9, Canada; Widebody Customer Response Center North
America toll-free telephone 1-866-538-1247 or direct-dial telephone 1-
514-855-2999; fax<PHONE_NUMBER>; email<EMAIL_ADDRESS>
Internet http://www.bombardier.com. You may view this referenced
service information at the FAA, Transport Airplane Directorate, 1601
Lind Avenue SW., Renton, WA. For information on the availability of
this material at the FAA, call<PHONE_NUMBER>. It is also available on
the Internet at http://www.regulations.gov by searching for and
locating Docket No. FAA-2016-9190.

Examining the AD Docket

    You may examine the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-
9190; or in person at the Docket Management Facility between 9 a.m. and
5 p.m., Monday through Friday, except Federal holidays. The AD docket
contains this AD, the regulatory evaluation, any comments received, and
other information. The address for the Docket Office (telephone 800-
647-5527) is Docket Management Facility, U.S. Department of
Transportation, Docket Operations, M-30, West Building Ground Floor,
Room W12-140, 1200 New Jersey Avenue SE., Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT: Fabio Buttitta, Aerospace Engineer,
Airframe and Mechanical Systems Branch, ANE-171, FAA, New York Aircraft
Certification Office, 1600 Stewart Avenue, Suite 410, Westbury, NY
11590; telephone<PHONE_NUMBER>; fax<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Discussion

    We issued a notice of proposed rulemaking (NPRM) to amend 14 CFR
part 39 to supersede AD 2014-23-06, Amendment 39-18022 (79 FR 69037,
November 20, 2014) (``AD 2014-23-06''). AD 2014-23-06 applied to
certain Bombardier, Inc. Model CL-600-2B19 (Regional Jet Series 100 &
440) airplanes. The NPRM published in the Federal Register on October
24, 2016 (81 FR 73042). The NPRM was prompted by a report indicating
that inboard and outboard hydraulic lines of the brakes were found
connected to the incorrect ports on the swivel assembly of the MLG. The
NPRM proposed to require modification of the MLG with an improved
design. We are issuing this AD to prevent incorrect installation of the
brake hydraulic lines, which could cause the brakes and the anti-skid
system to operate incorrectly, and result in catastrophic failure of
the airplane during a high-speed rejected takeoff.
    Transport Canada Civil Aviation (TCCA), which is the aviation
authority for Canada, has issued Canadian Airworthiness Directive CF-
2014-10R1, dated May 4, 2016 (referred to after this as the Mandatory
Continuing Airworthiness Information, or ``the MCAI''), to correct an
unsafe condition for certain Bombardier, Inc. Model CL-600-2B19
(Regional Jet Series 100 & 440) airplanes. The MCAI states:

    Cases of inboard and outboard hydraulic brake lines connected to
the incorrect port of the swivel assembly on the main landing gear
were found in service. Cross-connected brake hydraulic lines can
cause the brakes and/or the anti-skid system to operate incorrectly.
During a high speed rejected take-off, inability for the brakes to
operate correctly could be catastrophic. The original issue of this
[Canadian] AD mandated the modification to prevent inadvertent
cross-connection of the inboard and outboard hydraulic brake lines.
    Following the initial release of this [Canadian] AD, operators
reported that the modifications required by Bombardier Service
Bulletin (SB) 601R-32-110 Rev. NC., dated 19 December 2013, still
have a potential for incorrect connection. Subsequently, the SB has
been revised to introduce a modified design and this [Canadian] AD
revision is issued to mandate the incorporation of the modified
design.

You may examine the MCAI in the AD docket on the Internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2016-
9190.

Comments

    We gave the public the opportunity to participate in developing
this AD. We received no comments on the NPRM or on the determination of
the cost to the public.

Conclusion

    We reviewed the available data and determined that air safety and
the public interest require adopting this AD as proposed except for
minor editorial changes. We have determined that these minor changes:
     Are consistent with the intent that was proposed in the
NPRM for correcting the unsafe condition; and
     Do not add any additional burden upon the public than was
already proposed in the NPRM.

Related Service Information Under 1 CFR Part 51

    We reviewed Bombardier Service Bulletin 601R-32-110, Revision C,
dated May 4, 2016. The service information describes procedures for
modifying the MLG by installing a block on the left and right lower
aft-wing planks. This service information is reasonably available
because the interested parties have access to it through their normal
course of business or by the means identified in the ADDRESSES section.

Costs of Compliance

    We estimate that this AD affects 526 airplanes of U.S. registry.
    We also estimate that it will take about 9 work-hours per product
to comply with the basic requirements of this AD. The average labor
rate is $85 per work-hour. Required parts will cost about $190 per
product. Based on these figures, we estimate the cost of this AD on
U.S. operators to be $502,330, or $955 per product.

Authority for This Rulemaking

    Title 49 of the United States Code specifies the FAA's authority to
issue rules on aviation safety. Subtitle I, section 106, describes the
authority of the FAA Administrator. ``Subtitle VII: Aviation
Programs,'' describes in more detail the scope of the Agency's
authority.
    We are issuing this rulemaking under the authority described in
``Subtitle VII, Part A, Subpart III, Section 44701: General
requirements.'' Under that section, Congress charges the FAA with
promoting safe flight of civil aircraft in air commerce by prescribing
regulations for practices, methods, and procedures the Administrator
finds necessary for safety in air commerce. This regulation is within
the scope of that authority because it addresses an unsafe condition
that is likely to exist or develop on products identified in this
rulemaking action.

Regulatory Findings

    We determined that this AD will not have federalism implications
under Executive Order 13132. This AD will not have a substantial direct
effect on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government.
    For the reasons discussed above, I certify that this AD:
    1. Is not a ``significant regulatory action'' under Executive Order
12866;
    2. Is not a ``significant rule'' under the DOT Regulatory Policies
and Procedures (44 FR 11034, February 26, 1979);
    3. Will not affect intrastate aviation in Alaska; and
    4. Will not have a significant economic impact, positive or
negative, on a substantial number of small entities under the criteria
of the Regulatory Flexibility Act.

List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.

Adoption of the Amendment

    Accordingly, under the authority delegated to me by the
Administrator, the FAA amends 14 CFR part 39 as follows:

PART 39--AIRWORTHINESS DIRECTIVES

0
1. The authority citation for part 39 continues to read as follows:

    Authority:  49 U.S.C. 106(g), 40113, 44701.

Sec.  39.13   [Amended]

0
2. The FAA amends Sec.  39.13 by removing Airworthiness Directive (AD)
2014-23-06, Amendment 39-18022 (79 FR 69037, November 20, 2014), and
adding the following new AD:

2017-04-02 Bombardier, Inc.: Amendment 39-18797; Docket No. FAA-
2016-9190; Directorate Identifier 2016-NM-087-AD.

(a) Effective Date

    This AD is effective March 28, 2017.

(b) Affected ADs

    This AD replaces AD 2014-23-06, Amendment 39-18022 (79 FR 69037,
November 20, 2014) (``AD 2014-23-06'').

(c) Applicability

    This AD applies to Bombardier, Inc. Model CL-600-2B19 (Regional
Jet Series 100 & 440) airplanes, certificated in any category,
serial numbers 7003 and subsequent.

(d) Subject

    Air Transport Association (ATA) of America Code 32, Landing
gear.

(e) Reason

    This AD was prompted by a report indicating that inboard and
outboard hydraulic lines of the brakes were found connected to the
incorrect ports on the swivel assembly of the main landing gear
(MLG). We are issuing this AD to prevent incorrect installation of
the brake hydraulic lines, which could cause the brakes and the
anti-skid system to operate incorrectly, and result in catastrophic
failure during a high-speed rejected takeoff.

(f) Compliance

    Comply with this AD within the compliance times specified,
unless already done.

(g) Modification of the MLG

    (1) For airplanes on which Bombardier Service Bulletin 601R-32-
110, dated December 19, 2013, has been incorporated: Within 6,600
flight hours or 37 months after the effective date of this AD,
whichever occurs first, modify the MLG, in accordance with Part B of
the Accomplishment Instructions of Bombardier Service Bulletin 601R-
32-110, Revision C, dated May 4, 2016.
    (2) For airplanes on which Bombardier Service Bulletin 601R-32-
110, dated December 19, 2013, has not been incorporated: Within
4,400 flight hours or 24 months after the effective date of this AD,
whichever occurs first, modify the MLG, in accordance with Part A of
the Accomplishment Instructions of Bombardier Service Bulletin 601R-
32-110, Revision C, dated May 4, 2016.

(h) Credit for Previous Actions

    (1) This paragraph provides credit for actions required by
paragraph (g)(1) of this AD, if those actions were performed before
the effective date of this AD using Part B of Bombardier Service
Bulletin 601R-32-110, Revision A, dated October 29, 2015; or
Revision B, dated January 26, 2016.
    (2) This paragraph provides credit for actions required by
paragraph (g)(2) of this AD, if those actions were performed before
the effective date of this AD using Part A of Bombardier Service
Bulletin 601R-32-110, Revision A, dated October 29, 2015; or
Revision B, dated January 26, 2016.

(i) Other FAA AD Provisions

    The following provisions also apply to this AD:
    (1) Alternative Methods of Compliance (AMOCs): The Manager, New
York Aircraft Certification Office (ACO), ANE-170, FAA, has the
authority to approve AMOCs for this AD, if requested using the
procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19,
send your request to your principal inspector or local Flight
Standards District Office, as appropriate. If sending information
directly to the New York ACO, send it to ATTN: Program Manager,
Continuing Operational Safety, FAA, New York ACO, 1600 Stewart
Avenue, Suite 410, Westbury, NY 11590; telephone<PHONE_NUMBER>; fax

516-794-5531. Before using any approved AMOC, notify your
appropriate principal inspector, or lacking a principal inspector,
the manager of the local flight standards district office/
certificate holding district office.
    (2) Contacting the Manufacturer: As of the effective date of
this AD, for any requirement in this AD to obtain corrective actions
from a manufacturer, the action must be accomplished using a method
approved by the Manager, New York ACO, ANE-170, FAA; or Transport
Canada Civil Aviation (TCCA); or Bombardier, Inc.'s TCCA Design
Approval Organization (DAO). If approved by the DAO, the approval
must include the DAO-authorized signature.

(j) Related Information

    (1) Refer to Mandatory Continuing Airworthiness Information
(MCAI) Canadian Airworthiness Directive CF-2014-10R1, dated May 4,
2016, for related information. This MCAI may be found in the AD
docket on the Internet at http://www.regulations.gov by searching
for and locating Docket No. FAA-2016-9190.
    (2) Service information identified in this AD that is not
incorporated by reference is available at the addresses specified in
paragraphs (k)(3) and (k)(4) of this AD.

(k) Material Incorporated by Reference

    (1) The Director of the Federal Register approved the
incorporation by reference (IBR) of the service information listed
in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
    (2) You must use this service information as applicable to do
the actions required by this AD, unless this AD specifies otherwise.
    (i) Bombardier Service Bulletin 601R-32-110, Revision C, dated
May 4, 2016.
    (ii) Reserved.
    (3) For service information identified in this AD, contact
Bombardier, Inc., 400 C[ocirc]te-Vertu Road West, Dorval,
Qu[eacute]bec H4S 1Y9, Canada; Widebody Customer Response Center
North America toll-free telephone 1-866-538-1247 or direct-dial
telephone 1-514-855-2999; fax<PHONE_NUMBER>; email
<EMAIL_ADDRESS>Internet http://www.bombardier.com.
    (4) You may view this service information at the FAA, Transport
Airplane Directorate, 1601 Lind Avenue SW., Renton, WA. For
information on the availability of this material at the FAA, call
425-227-1221.
    (5) You may view this service information that is incorporated
by reference at the National Archives and Records Administration
(NARA). For information on the availability of this material at
NARA, call<PHONE_NUMBER>, or go to: http://www.archives.gov/federal-register/cfr/ibr-locations.html.

    Issued in Renton, Washington, on February 1, 2017.
Michael Kaszycki,
Acting Manager, Transport Airplane Directorate, Aircraft Certification
Service.
[FR Doc. 2017-03020 Filed 2-17-17; 8:45 am]
 BILLING CODE 4910-13-P


[Federal Register Volume 79, Number 224 (Thursday, November 20, 2014)]
[Proposed Rules]
[Pages 69073-69078]
[FR Doc No: 2014-27285]

=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

RIN 3038-AE24

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 240 and 241

[Release No. 33-9681; 34-73584; File No. S7-16-11]
RIN 3235-AK65

Forward Contracts With Embedded Volumetric Optionality

AGENCY: Commodity Futures Trading Commission; Securities and Exchange
Commission.

ACTION: Proposed interpretation.

-----------------------------------------------------------------------

SUMMARY: In accordance with section 712(d)(4) of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the ``Dodd-Frank Act''), the
Commodity Futures Trading Commission (the ``CFTC'') and the Securities
and Exchange Commission (``SEC''), after consultation with the Board of
Governors of the Federal Reserve System (``Board of Governors''), are
jointly issuing the CFTC's proposed clarification of its interpretation
concerning forward contracts with embedded volumetric optionality. The
CFTC invites public comment on all aspects of its proposed
interpretation.

DATES: Comments must be received on or before December 22, 2014.

ADDRESSES: You may submit comments, identified by RIN number 3038-AE24,
by any of the following methods:
     CFTC Web site: at http://comments.cftc.gov. Follow the
instructions for submitting comments through the Web site.
     Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
     Mail: Secretary of the Commission, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street NW.,
Washington, DC 20581.
     Hand Delivery/Courier: Same as Mail, above. Please submit
your comments using only one method.
    All comments must be submitted in English, or if not, accompanied
by an English translation. Comments will be posted as received to
www.cftc.gov. You should submit only information that you wish to make
available publicly. If you wish the CFTC to consider information that
you believe is exempt from disclosure under the Freedom of Information
Act, a petition for

confidential treatment of the exempt information may be submitted
according to the procedures established in Sec.  145.9 of the CFTC's
regulations, 17 CFR 145.9.
    The CFTC reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of a
submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, such as obscene language. All
submissions that have been redacted or removed that contain comments on
the merits of the notice will be retained in the public comment file
and will be considered as required under all applicable laws, and may
be accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: CFTC: Elise Pallais, Attorney Advisor,
(202) 418-5577<EMAIL_ADDRESS>Office of the General Counsel,
Commodity Futures Trading Commission, 1155 21st Street NW., Washington,
DC 20581. SEC: Carol McGee, Assistant Director,<PHONE_NUMBER>,
<EMAIL_ADDRESS>Office of Derivatives Policy, Division of Trading and
Markets, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Introduction

    In Further Definition of ``Swap,'' Security-Based Swap,'' and
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap
Agreement Recordkeeping (the ``Products Release''), the CFTC provided
an interpretation, in response to requests from commenters, with
respect to forward contracts that provide for variations in delivery
amount (i.e., that contain ``embedded volumetric optionality'').\1\
Specifically, the CFTC identified when an agreement, contract, or
transaction would fall within the forward contract exclusion from the
``swap'' and ``future delivery'' definitions in the Commodity Exchange
Act (the ``CEA'') \2\ notwithstanding that it contains embedded
volumetric optionality.\3\ In providing its interpretation, the CFTC
was guided by and sought to reconcile agency precedent regarding
forward contracts containing embedded optionality \4\ with the
statutory definition of ``swap'' in section 1a(47) of the CEA, which
provides, among other things, that commodity options are swaps, even if
physically settled.\5\
---------------------------------------------------------------------------

    \1\ See 77 FR 48207, 48238-42 (Aug. 13, 2012).
    \2\ See 7 U.S.C. 1a(47)(B)(ii) (excluding from the definition of
``swap'' ``any sale of a nonfinancial commodity or security for
deferred shipment or delivery, so long as the transaction is
intended to be physically settled''); 1a(27) (excluding from the
definition of ``future delivery'' ``any sale of any cash commodity
for deferred shipment or delivery'').
    \3\ See 77 FR 48238-42 & n.335. See also id. at 48227-36
(providing the CFTC's interpretation regarding the forward contract
exclusion for nonfinancial commodities).
    \4\ See id. at 48237-39 (citing In re Wright, CFTC Docket No.
97-02, 2010 WL 4388247 (CFTC Oct. 25, 2010), and Characteristics
Distinguishing Cash and Forward Contracts and ``Trade'' Options, 50
FR 39656 (Sept. 30, 1985) (``1985 CFTC OGC Interpretation'')).
    \5\ See id. at 48236-37; 7 U.S.C. 1a(47)(A)(i) (defining
``swap'' to include ``[an] option of any kind that is for the
purchase or sale, or based on the value, of 1 or more . . .
commodities . . .'') (emphasis added). Part 32 of the CFTC's
regulations includes an exemption for certain physically settled
options, termed ``trade options.'' See 17 C.F.R. 32.3. The trade
option exemption is currently subject to CFTC staff no-action
relief. See CFTC Letter No. 13-08 (April 5, 2013), available at
<EMAIL_ADDRESS>---------------------------------------------------------------------------

    The CFTC has received several comments from market participants
requesting that it modify or further clarify its interpretation.\6\
According to commenters, uncertainty with regard to the meaning of
certain language in the CFTC's interpretation, particularly the seventh
element, has led to confusion among market participants with regard to
how to characterize certain transactions, whether as excluded forward
contracts with embedded volumetric optionality or regulated trade
options.
---------------------------------------------------------------------------

    \6\ The Products Release included a request for comment on the
CFTC's interpretation. See 77 FR 48241-42. CFTC staff also solicited
comments in connection with a public roundtable to discuss issues
concerning end users and the Dodd-Frank Act. These comments are
available at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1256 and http://comments.cftc.gov/PublicComments/CommentList.aspx?id=1485, respectively.
---------------------------------------------------------------------------

II. Proposed Interpretation

    In response to commenters, the CFTC is proposing to clarify its
interpretation of when an agreement, contract, or transaction with
embedded volumetric optionality would be considered a forward
contract.\7\ Accordingly, the CFTC is proposing to provide that an
agreement, contract, or transaction falls within the forward exclusion
from the swap and future delivery definitions, notwithstanding that it
contains embedded volumetric optionality, when:
---------------------------------------------------------------------------

    \7\ Section 712(d)(4) provides that ``[a]ny interpretation of,
or guidance by either Commission regarding, a provision of this
title, shall be effective only if issued jointly by the Commodity
Futures Trading Commission and the Securities and Exchange
Commission, after consultation with the Board of Governors, if this
title requires the Commodity Futures Trading Commission and the
Securities and Exchange Commission to issue joint regulations to
implement the provision.'' While the Dodd-Frank Act would require
this interpretation to be issued jointly by the CFTC and the SEC, it
would be an interpretation solely of the CFTC and would not apply to
the exclusion from the swap and security-based swap definitions for
security forwards or to the distinction between security forwards
and security futures products.
---------------------------------------------------------------------------

    1. The embedded optionality does not undermine the overall nature
of the agreement, contract, or transaction as a forward contract;
    2. The predominant feature of the agreement, contract, or
transaction is actual delivery;
    3. The embedded optionality cannot be severed and marketed
separately from the overall agreement, contract, or transaction in
which it is embedded;
    4. The seller of a nonfinancial commodity underlying the agreement,
contract, or transaction with embedded volumetric optionality intends,
at the time it enters into the agreement, contract, or transaction to
deliver the underlying nonfinancial commodity if the embedded
volumetric optionality is exercised;
    5. The buyer of a nonfinancial commodity underlying the agreement,
contract or transaction with embedded volumetric optionality intends,
at the time it enters into the agreement, contract, or transaction, to
take delivery of the underlying nonfinancial commodity if the embedded
volumetric optionality is exercised;
    6. Both parties are commercial parties; and
    7. The embedded volumetric optionality is primarily intended, at
the time that the parties enter into the agreement, contract, or
transaction, to address physical factors or regulatory requirements
that reasonably influence demand for, or supply of, the nonfinancial
commodity.
    The first six elements are largely unchanged from the Products
Release.\8\ Among them, the CFTC is proposing to modify only the fourth
and fifth elements, to clarify that the CFTC's interpretation applies
to embedded volumetric optionality in the form of both puts and
calls.\9\ Accordingly, the CFTC's discussion of these six elements in
the Products Release would remain relevant and applicable.\10\
---------------------------------------------------------------------------

    \8\ See 77 FR 48238.
    \9\ As described in the Products Release, the fifth element did
not appear to contemplate circumstances where the seller of the
nonfinancial commodity might exercise the embedded volumetric
optionality. See 77 FR 48238 (``The buyer of a nonfinancial
commodity underlying the agreement, contract or transaction with
embedded volumetric optionality intends, at the time it enters into
the agreement, contract, or transaction, to take delivery of the
underlying nonfinancial commodity if it exercises the embedded
volumetric optionality.'') (emphasis added).
    \10\ See 77 FR 48238-39.
---------------------------------------------------------------------------

    The seventh element addresses the primary reason for including
embedded

volumetric optionality in a forward contract. As commenters have
explained, commercial parties are often unable to accurately predict
their exact delivery needs or production capacity for a given
nonfinancial commodity at contract initiation due to a variety of
factors, such as weather and certain other ``operational
considerations'' (e.g., transportation capacity).\11\ The embedded
volumetric optionality therefore offers commercial parties the
flexibility to vary the amount of the nonfinancial commodity delivered
during the life of the contract in response to uncertainty in the
demand for or supply of the nonfinancial commodity.\12\
---------------------------------------------------------------------------

    \11\ See, e.g., Letter from ONEOK, Inc. (July 22, 2011) at 4
(stating that ``day-to-day changes in demand'' for natural gas ``may
be caused by variation in weather, operational considerations, or
other factors''); Letter from the American Gas Association (Oct. 12,
2012) at 9 (stating that ``weather-sensitive demands'' for natural
gas ``cannot be accurately predicted in advance'').
    \12\ See, e.g., Letter from the Commodity Markets Council, the
National Corn Growers Association, and the Natural Gas Supply
Association (April 17, 2014) at 2 (``Physical end-users need these
contracts to address supply input or production output uncertainty
associated with the operation of a physical business.''); Letter
from the Plains All American Pipeline, L.P. (April 17, 2014) at 2
(``Such contracts provide us with the ability to allow our customers
flexibility to increase or decrease the amount of purchase or sale
of a commodity in response to prevailing market conditions.'').
---------------------------------------------------------------------------

    The seventh element ensures that this purpose, consistent with the
historical interpretation of a forward contract,\13\ is the primary
purpose for including embedded volumetric optionality in the contract.
In other words, the embedded volumetric optionality must primarily be
intended as a means of assuring a supply source or providing delivery
flexibility in the face of uncertainty regarding the quantity of the
nonfinancial commodity that may be needed or produced in the future,
consistent with the purposes of a forward contract.\14\
---------------------------------------------------------------------------

    \13\ See 77 FR 48228 (describing a forward contract as a
``commercial merchandising transaction'' in which delivery is
delayed for ``commercial convenience or necessity'').
    \14\ See 77 FR 48228 (``The primary purpose of a forward
contract is to transfer ownership of the commodity and not to
transfer solely its price risk.''). See also Letter from the
Commodity Markets Council, the National Corn Growers Association,
and the Natural Gas Supply Association (April 17, 2014) at 2
(``[Contracts with volumetric optionality] exist to permit end-users
to have agreements in place so that they can effectively and
economically manage the purchase or sale of commodities related to
their commercial businesses, not as a substitute for a financially
settled contract or for speculative purposes.''); Letter from ONEOK,
Inc. (July 22, 2011) at 7 (``Although the amounts that can be taken
on delivery may vary, the primary intent of the contracts is not to
provide price protection, which is clearly the intent of the
contracts described in the [1985 CFTC] OGC Interpretation as trade
options.'').
---------------------------------------------------------------------------

    In response to commenters, the CFTC is proposing to modify the
seventh element to further clarify its interpretation.\15\ To begin,
the CFTC is proposing to remove reference to the ``exercise or non-
exercise'' of the embedded volumetric optionality. This language was
included to embody the longstanding principle, recognized by
commenters, that intent may be ascertained by the relevant facts and
circumstances surrounding the contract, including the parties' course
of performance thereunder.\16\ According to commenters, however, this
language has created problems during contract negotiations, because
certain parties feel pressure to specify the exact factors that could
lead to the exercise or non-exercise of the volumetric optionality.\17\
By removing this language, the CFTC intends to clarify that the focus
of the seventh element is intent with respect to the embedded
volumetric optionality at the time of contract initiation.\18\ The CFTC
would further advise commercial parties that they may rely on
counterparty representations with respect to the intended purpose for
embedding volumetric optionality in the contract, provided they are
unaware, and should not reasonably have been aware, of facts indicating
a contrary purpose.
---------------------------------------------------------------------------

    \15\ As stated in the Products Release, the seventh element
reads as follows:
    The exercise or non-exercise of the embedded volumetric
optionality is based primarily on physical factors, or regulatory
requirements, that are outside the control of the parties and are
influencing demand for, or supply of, the nonfinancial commodity.
    77 FR 48238 (footnotes omitted).
    \16\ See 77 FR 48228 (``In assessing the parties' expectations
or intent regarding delivery, the CFTC consistently has applied a
`facts and circumstances' test.''); Letter from ONEOK, Inc. (July
22, 2011) at 6 (``The intent of the parties to defer delivery of a
varying amount can be ascertained based on objective criteria, such
as the pattern of deliveries in relation to variation in weather,
customer demand, or other similar factors.'').
    \17\ See, e.g., Letter from the Commodity Markets Council, the
National Corn Growers Association, and the Natural Gas Supply
Association (April 17, 2014) at 2 & n.3 (stating that commercial
parties are ``being asked for vague (and, therefore, potentially
unenforceable) representations'' because ``the question of the
reason for exercise of volumetric optionality can vary from
transaction to transaction and is not known until the time of
exercise''); Letter from the American Gas Association (April 17,
2014) at 10 (citing ``widespread confusion as to whether
counterparties must demonstrate forward contract status as of the
time of entering into an agreement, or as of the time of exercise or
non-exercise of delivery rights under the agreement.'').
    \18\ For example, in choosing whether to obtain additional
supply by exercising the embedded volumetric optionality under a
given contract or turning to another supply source--whether storage,
the spot market, or another forward contract with embedded
volumetric optionality--commercial parties would be able to consider
a variety of factors, including price, provided that the intended
purpose for including the embedded volumetric optionality in the
contract at contract initiation was to address physical factors or
regulatory requirements influencing the demand for or supply of the
commodity.
---------------------------------------------------------------------------

    The CFTC is also proposing to remove reference to physical factors
or regulatory requirements being ``outside the control of the
parties.'' This phrase was taken from commenter letters \19\ but has
also apparently created problems during contract negotiations, as
counterparties often disagree about the degree of control they have
over factors influencing their demand for or supply of the nonfinancial
commodity.\20\ By removing this language, the CFTC intends to clarify
that whether the parties have some influence over factors affecting
their demand for or supply of the nonfinancial commodity (e.g., the
scheduling of plant maintenance, plans for business expansion) would
not be inconsistent with the seventh element of the CFTC's
interpretation, provided that the embedded volumetric optionality is
included in the contract at initiation primarily to address potential
variability in a party's supply of or demand for the nonfinancial
commodity.
---------------------------------------------------------------------------

    \19\ See Letter from BG Americas & Global LNG (July 22, 2011) at
4 (``Variability associated with an energy customer's physical
demand is influenced by factors outside the control of the energy
suppliers (and sometimes the consumers) . . .''); Letter from the
Working Group of Commercial Energy Firms (July 22, 2011) at 8
(``Availability of production and requirements for consumption are
often influenced by factors outside the control of the parties to an
energy commodity transaction and can change on an hourly or daily
basis.'') (emphasis added).
    \20\ Letter from the Plains All American Pipeline, L.P. (April
17, 2014) at 3 (``[M]any counterparties understand the [seventh
element] to have failed when a counterparty has more than one
alternative to meet its physical commodity needs, therefore making
the choice of supply `within its control.'''); Letter from the
Commodity Markets Council, the National Corn Growers Association,
and the Natural Gas Supply Association (April 17, 2014) at 2-3
(listing as an issue stemming from the ambiguity in the seventh
element ``uncertainty as to whether end-users with more than one
supply choice are always exercising optionality within their
control'').
---------------------------------------------------------------------------

    The CFTC is also proposing to clarify that the phrase ``physical
factors'' should be construed broadly to include any fact or
circumstance that could reasonably influence supply of or demand for
the nonfinancial commodity under the contract. Such facts and
circumstances could include not only environmental factors, such as
weather or location, but relevant ``operational considerations'' (e.g.,
the availability of reliable transportation or technology) and broader
social forces, such as changes in demographics or geopolitics.\21\
Concerns that are

primarily about price risk (e.g., expectations that the cash market
price will increase or decrease), however, would not satisfy the
seventh element absent an applicable regulatory requirement to obtain
or provide the lowest price (e.g., the buyer is an energy company
regulated on a cost-of-service basis).\22\
---------------------------------------------------------------------------

    \21\ The CFTC reiterates that, as stated in the Products
Release, system reliability issues that lead to voluntary supply
curtailments would be considered ``physical factors'' within the
scope of the seventh element. See 77 FR 48239 n.345.
    \22\ See Letter from the Office of the General Counsel, Federal
Energy Regulatory Commission (Oct. 12, 2012) at 4. The CFTC confirms
that, as stated in the Products Release, the deliverable quantities
allowable under embedded volumetric optionality may be justified by
a combination of regulatory requirements and physical factors, such
that the quantity provided for by the embedded volumetric
optionality may reasonably exceed quantities required by regulation.
See 77 FR 48238 n.340.
---------------------------------------------------------------------------

    The CFTC understands that in certain retail electric market demand-
response programs, electric utilities have the right to interrupt or
curtail service to a customer to support system reliability.\23\ The
CFTC is proposing to clarify that, given that a key function of an
electricity system operator is to ensure grid reliability, demand
response agreements, even if not specifically mandated by a system
operator, may be properly characterized as the product of regulatory
requirements within the meaning of the seventh element.\24\
---------------------------------------------------------------------------

    \23\ See Letter from the National Rural Electric Cooperative
Association, the American Public Power Association, the Large Public
Power Association, and the Transmission Access Policy Study Group
(Oct. 12, 2012) at 9.
    \24\ The CFTC clarifies that its interpretations regarding full
requirements and output contracts, as provided in the Products
Release, would be unaffected by the discussion herein. See 77 FR
48239-40. Similarly, the CFTC reiterates that, depending on the
relevant facts and circumstances, capacity contracts, transmission
(or transportation) service agreements, tolling agreements, and
peaking supply contracts, as discussed in the Products Release, may
qualify as forward contracts with embedded volumetric optionality
provided they meet the elements of the CFTC's proposed
interpretation. See 77 FR 48240.
---------------------------------------------------------------------------

III. Request for Comment

    The CFTC believes that it would benefit from public comment about
its proposed interpretation, and therefore requests public comment on
all aspects of its proposed interpretation regarding forwards with
embedded volumetric optionality, and on the following questions:
    1. Market participants have expressed concerns about whether
various types of volumetric optionality fit within the CFTC's
interpretation. The CFTC recognizes that, since the interpretation is
not intended to provide relief for all forms of embedded volumetric
optionality, there are likely to remain concerns within the industry
about the treatment of embedded volumetric optionality within forward
contracts.
    The CFTC notes that, in April, 2012, the CFTC adopted an Interim
Final Rule for Commodity Options (the ``IFR'').\25\ Even if a contract
with volumetric optionality does not fit within the seven elements of
the interpretation, the CFTC believes there is widespread agreement
that contracts that fail one or more of the seven elements of the
CFTC's interpretation would fall within the exemption from most swaps
regulation provided by the IFR. Therefore, it appears that the IFR
provides a clear and well-understood mechanism through which contracts
with volumetric optionality can be exempted that avoids many of the
difficulties of determining whether a particular contract with
volumetric optionality would satisfy the seven elements of the CFTC's
interpretation.
---------------------------------------------------------------------------

    \25\ See 77 FR 25320 (April 27, 2012).
---------------------------------------------------------------------------

    The CFTC invites comment on whether the IFR's approach to defining
the universe of swaps subject to its exemption may provide a clearer
and easier mechanism for providing relief from swaps requirements than
the CFTC's interpretation of forwards with embedded volumetric
optionality and whether the IFR currently provides sufficient relief
for such contracts.
    2. Market participants have argued that the lack of clarity around
the seventh element of the CFTC's interpretation has led to costs to
end-users. Conceivably, since contracts that fail one or more of the
seven elements would be regulated as exempt commodity trade options
under the IFR, these costs are attributable to complying with the IFR.
The CFTC invites comment on whether or not this is the case, and
invites the submission of data quantifying those costs.
    3. What factors should the CFTC consider in determining whether the
proposed modifications and clarifications to the CFTC's interpretation
are appropriate in view of CFTC precedent regarding the interpretation
of the CEA's forward contract exclusion? Do the proposed changes
provide sufficient clarity on how contracts with embedded volumetric
optionality may satisfy all seven elements of the interpretation,
particularly the first and second elements? Are there reasons why
trying to provide further relief through the swap definition's forward
contract exclusion would not be in the public interest?

    By the Securities and Exchange Commission.
Brent J. Fields,
Secretary.
    Dated: November 13, 2014.

    Issued in Washington, DC, on November 13, 2014, by the Commodity
Futures Trading Commission.
Christopher J. Kirkpatrick,
Secretary of the Commission.

Commodity Futures Trading Commission (CFTC) Appendices to Forward
Contracts With Embedded Volumetric Optionality--Commission Voting
Summary, Chairman's Statement, and Commissioners' Statements

Appendix 1--Commodity Futures Trading Commission Voting Summary

    On this matter, Chairman Massad and Commissioners Wetjen, Bowen,
and Giancarlo voted in the affirmative. No Commissioner voted in the
negative.

Appendix 2--Statement of CFTC Chairman Timothy G. Massad

    I support the Staff's proposed interpretation regarding forward
contracts that have what is known as embedded volumetric
optionality--generally speaking, contracts to buy or sell a
nonfinancial commodity for deferred delivery that provide for
variations in delivery amount.
    One of my priorities has been to fine-tune our rules to make
sure they work as intended and do not impose undue burdens or
unintended consequences, particularly for the nonfinancial
commercial businesses that use these markets to hedge commercial
risks. We must make sure these businesses--whether they are
manufacturers, farmers, ranchers or other companies--can continue to
use these markets efficiently and effectively.
    This proposal is part of that effort. In certain situations,
commercial parties are unable to predict at the time a contract is
entered into the exact quantities of the commodity that they may
need or be able to supply, and the embedded volumetric optionality
offers them the flexibility to vary the quantities delivered
accordingly. The CFTC put out an interpretation, consisting of seven
factors, to provide clarity as to when such contracts would fall
within the forward contract exclusion from the swap definition, but
some market participants have felt this interpretation, in
particular the seventh factor, was hard to apply. In some cases, the
two parties would reach different conclusions about the same
contract.
    Today we are proposing clarifications to the interpretation that
I believe will alleviate this ambiguity and allow contracts with
volumetric optionality that truly are intended to address
uncertainty with respect to the parties' future production capacity
or delivery needs, and not for speculative purposes or as a means to
obtain one-way price protection, to fall within the exclusion.

Appendix 3--Statement of CFTC Commissioner Mark P. Wetjen

    This proposal further clarifying the definition of forward
contracts with embedded volumetric optionality, or EVO, is intended
to provide commercial firms the regulatory clarity they have sought
since the original release of the seven-part test in August 2012.
    The definition of a swap in the Commodity Exchange Act includes
commodity options, but excludes from that definition forward
contracts.\26\ There was a policy reason for this, and at its root
was a desire to ensure that Dodd-Frank captured many swaps, and
swap-like contracts, that were structured to be similar to options,
while also ensuring that a new regulatory regime was not
inadvertently and inappropriately extended into certain physical
markets.
---------------------------------------------------------------------------

    \26\ 7 U.S.C. 1a(47).
---------------------------------------------------------------------------

    The broad definitional language in question was designed to
ensure that financial--as opposed to physical--contracts could not
be structured or re-characterized to avoid the new market structure.
While the swap definition does not expressly exclude options on
energy and agricultural commodities, it does exclude both futures
and forwards. I am confident Congress did not intend to pull
contracts that historically have been treated as forwards into the
new swap regime solely because of optionality in the amount of the
physical commodity delivered under the contract.
    As a policy matter, Congress surely recognized that the swap
definition had to reflect a long-held Commission belief that
contracts that are physically settled, and where delivery is
required, do not pose the same systemic threats to the financial
system as contracts used for speculative purposes. Moreover,
Congress expanded the Commission's fraud \27\ and anti-manipulation
authority \28\ over markets where forward contracts are traded, and
left intact the Commission's surveillance authority to issue special
calls to market participants for all positions and transactions
related to a commodity.\29\
---------------------------------------------------------------------------

    \27\ 7 U.S.C. 9(c)(1) (``It shall be unlawful for any person,
directly or indirectly, to use or employ, or attempt to use or
employ, in connection with . . . a contract of sale of any commodity
in interstate commerce . . . any manipulative or deceptive device or
contrivance, in contravention of such rules and regulations as the
Commission shall promulgate . . .''.). See also 17 CFR Part 180.
    \28\ 7 U.S.C. 9(c)(3) (``[I]t shall be unlawful for any person,
directly or indirectly, to manipulate or attempt to manipulate the
price . . . of any commodity in interstate commerce. . .'').
    \29\ 17 CFR 18.05(b) (maintenance of books and records
concerning positions and transactions in the cash commodity); 17 CFR
1.31 (pursuant to Sec.  1.31(2), the authority to request
information required to be kept in accordance with the Act or
Commission regulations); 17 CFR 1.35 (pursuant to Sec.  1.35(3), the
authority to request from a futures commission merchant, retail
foreign exchange dealer, introducing broker or member of a
designated contract market or swap execution facility records
required to be kept by Sec.  1.35 in accordance with the
requirements of Sec.  1.31); 17 CFR 23.203 (pursuant to Sec.
23.203(a), the authority to request and receive within 72 hours any
records required to be kept by a swap dealer or major swap
participant by the Act and by Commission regulations and pursuant to
Sec.  23.203(2), the authority to request records of any swap or
related cash or forward transaction); 17 CFR 23.606 (pursuant to
Sec.  23.606(c), the authority to request information that a swap
dealer or major swap participant is required to maintain under Sec.
23.606(a)(1)); 17 CFR 45.2 (pursuant to Sec.  45.2(h), the authority
to request from swap execution facilities, designated contract
markets, derivatives clearing organizations, swap dealers, and major
swap participants records required to be kept pursuant to Sec.
45.2.); 17 CFR 46.2 (the authority, pursuant to Sec.  46.2(e), to
request records relating to pre-enactment and transition swaps in
existence on or after April 25, 2011).
---------------------------------------------------------------------------

    As mentioned, in resolving to adopt the appropriate regulatory
treatment of forward contracts with EVO, the Commission also must
weigh the operational and compliance consequences of that treatment.
Indeed, the Commission should bring a heightened sensitivity to
these considerations in the context of the power sector because
affordable electricity and heat are such fundamental needs of modern
life.
    The Commission's 2012 interpretation, while intended to be
helpful, contained certain ambiguities in the seven-part test that
created confusion among commercial end-users.
    Last spring, the Commission learned at a public roundtable that
some market participants may have withdrawn from the market due to
those ambiguities, resulting in inferior execution for commercial
firms. It is difficult to measure the exact impact of this
phenomenon, but apparently it has not been a positive one for
consumers of electricity and gas.

A. Ambiguity in the Seven-Part Test

    In discussing the seven-part test, commentators zeroed in on two
primary issues. First, many of the roundtable participants noted
that the exercise or non-exercise of volumetric optionality depends
on a number of factors,\30\ some of which will be outside of the
control of the parties, and some that will not.
---------------------------------------------------------------------------

    \30\ Letter from The Edison Electric Institute (``EEI'') and the
Electric Power Supply Association (``EPSA'') (April 17, 2014)
(``EEI/EPSA Letter'') at 3 (``The exercise or non-exercise of
volumetric optionality under a forward energy contract depends on a
number of factors, including but not limited to, any or all of the
following: (1) The level of demand as affected by weather or market
conditions; (2) the amount of unexercised volume remaining under the
contract; (3) the time of the change in the level of demand relative
to delivery scheduling capabilities, (4) anticipated future weather
conditions, (5) the delivery location under the contract relative to
the demand location; (6) the price and availability of
transportation capacity (e.g. pipeline capacity) to move natural
gas; (7) the price of alternative sources of supply; (8) the
availability of natural gas or electricity in the spot market; and/
or (9) the remaining inventory of the commodity in storage.'').
---------------------------------------------------------------------------

    Many also noted that parties could reasonably disagree on
whether, and the degree to which, a factor is outside of the control
of the parties. For example, having choice among more than one
source of supply, or selecting from those choices the lowest-priced
contract, to some commercial firms caused the contract to fail the
seventh prong.
    This ambiguity contributed to a second issue--market
participants stated that they often do not know the exact reasons
that optionality will be exercised until the time of exercise. In
other words, parties are uncertain how to characterize contracts at
the time of execution, and how intent at the time of exercise or
non-exercise might affect that analysis.\31\
---------------------------------------------------------------------------

    \31\ Letter from the American Gas Association (April 17, 2014)
(``AGA Letter'') at 10 (citing ``widespread confusion as to whether
counterparties must demonstrate forward contract status as of the
time of entering into an agreement, or as of the time of exercise or
non-exercise of delivery rights under the agreement.'').
---------------------------------------------------------------------------

    The seventh factor's ambiguity has caused a host of problems.
For instance, parties have been asked to provide vague and possibly
unenforceable representations in agreements.\32\ Parties also often
disagree about the proper categorization of a transaction, resulting
in them ``agreeing to disagree'' and considering the same
transaction to be, at the same time, a swap, trade option, or a
forward with EVO.\33\ This has had the unintended consequence of
distorting transaction data reported to the Commission.\34\
---------------------------------------------------------------------------

    \32\ AGA Letter at 2; EEI/EPSA letter at 3.
    \33\ NFP Electric Associations Letter at 3.
    \34\ EEI/EPSA letter at 3.
---------------------------------------------------------------------------

    The bottom line is that such uncertainty in the seven-part test
increased transaction costs for commercial firms and limited their
access to an effective risk-management tool.

B. Proposed Clarifications

    This proposal appropriately modifies and clarifies the
interpretation of the seventh prong. First, it clarifies that
concluding whether the seventh prong is met should be determined by
looking to the intent of the parties at the outset of contract
initiation.
    Second, the new proposal also deletes language referring to
physical or regulatory factors being ``outside of the control of the
parties.'' Deleting this ambiguous language helps clarify that
parties having some influence over factors affecting their demand
for a nonfinancial commodity will not per se cause a contract to
fail the seventh prong.
    In that vein, the proposal also notes that parties may take a
variety of factors into consideration when determining whether to
exercise volumetric optionality, so long as the intended purpose was
to address physical factors or regulatory requirements influencing
the demand for, or supply of, the commodity.
    Prongs one through six of the test are also appropriately
crafted to ensure that the EVO does not undermine the forward
contract's overall purpose. Prongs two and three help achieve those
purposes by requiring the predominant factor to be actual delivery,
and prohibiting the embedded optionality from being severed and
marketed separately from the overall agreement.
    Prongs four and five also help deter the potential for abuse of
these contracts by requiring that the seller under the contract
intends to deliver, and the buyer intends to receive, the underlying
commodity.
    This proposal should go a long way towards providing commercial
firms

adequate guidance, but I look forward to comments on whether it is
adequate enough.

Appendix 4--Concurring Statement of CFTC Commissioner Sharon Y. Bowen

    This is a proposal that, I am concerned, will neither provide
the clarity industry is seeking regarding the treatment of embedded
volumetric options nor the safeguards that Congress intended when it
passed the Dodd-Frank Wall Street Reform and Customer Protection
Act.
    I do not oppose the Commission's trying to better tailor our
regulations to address concerns of end-users. In fact, I commend the
Chairman and my fellow Commissioners for trying to address the
issues that have arisen from our existing guidance and rules on
embedded volumetric options. After many meetings with stakeholders
and much analysis of this subject, I am convinced that the
Commission should address concerns that industry has raised
regarding the treatment of embedded volumetric options.
    However, the proposed interpretation may not resolve the issues
industry has raised. Options, even physical options, have never been
interpreted by the Commission to be forward contracts. They lack the
central characteristic that is critical to being a forward contract
under the Commodity Exchange Act: A binding obligation to deliver at
some time in the future. The history on this is clear, if there is
no binding obligation to deliver, there is no forward contract.
    The seventh factor was intended, essentially, as a ``safe-
harbor'' provision. Notwithstanding the fact there is no obligation
to make or take delivery for the optional portion of the specified
commodity, the seventh factor was designed to allow a party's
transaction to receive the forward exclusion if that party can
demonstrate that it determined the specified, optional amount was
necessary based upon commercial and physical factors, and exercised
the option based upon those factors. In other words, this seventh
factor was designed to allow embedded volumetric options to receive
the forward contract exclusion treatment where their exercise was
driven largely by external commercial and physical factors central
to the party's commercial business, but largely beyond the control
of the party. Through its conduct then, the party was demonstrating
its intent to be ``bound'' to exercise the option if its estimate,
based on the factors it used, proved to be accurate.
    The Commission was trying to distinguish such a situation from a
situation where the party enters into the embedded volumetric option
intending to exercise the volumetric option based upon whether, at
the time of exercise, it still makes economic sense to use the
option. In other words, it was trying to distinguish a situation
where the motivation for exercising the option was primarily or
substantially based on price. In the latter case, the embedded
volumetric option is hard to distinguish, in usage, from any other
commodity option. There is no demonstration in the party's course of
conduct that it intended to be ``bound'' to exercise the option at
all.
    While this test is far from perfect, and I can see the
difficulty industry would have in administering it, the Commission
was clearly trying to find a rationale for allowing some volumetric
optionality that was consistent with the Commission's historic
treatment of forward contracts, while avoiding completely erasing
the line between options and futures on the one hand, and cash and
forward contracts on the other.
    This current proposal, however, in possibly broadening the
universe of options that would fit within the seventh factor, seems
to depart from that rationale, and in doing so, loses that vital
element of demonstrating the parties intended to be ``bound'' in
some sense to exercise the option and consequently that the option
was similar, in usage, to a forward contract. Without that, it is
not clear to me how such an option can be considered consistent with
a forward contract. If it cannot be considered at least similar to a
forward contract, I am not sure how a party would determine that
embedding such an option in a forward contract would not undermine
its nature as a forward contract and thus fail the first factor of
the seven-factor test.
    There is nothing in the Commodity Exchange Act or Dodd-Frank
that contemplates options can be deemed forward contracts simply by
being associated with a forward contract. In fact, the opposite
seems true: Congress specifically determined that commodity options
are swaps and removed the Commission's ability to provide exemptions
from the definition of swap.
    Interestingly though, Congress did maintain the Commission's
authority to determine how swaps that are commodity options should
be regulated since Congress did not repeal the Commission's plenary
authority over options, including options that are swaps. It was
that plenary authority that the Commission utilized to exempt trade
options from most of the regulations applicable to swaps in April
2012. It is that authority that the Commission should use here to
address embedded volumetric options.
    By seeking to broaden an exclusion for volumetric options
embedded in forward contracts, the proposed interpretation does try
to achieve a goal that industry apparently wants--they would like
these options to be outside the Commission's jurisdiction rather
than just exempted from regulation. However, history has shown that
as the circle of exclusion widens for industry, too often the circle
of protection narrows for investors and consumers.
    In 1993, one Commissioner cast the lone dissenting vote against
exempting over-the-counter energy derivatives from Commission
regulation. She argued that exempting energy derivatives from
regulation would set a dangerous precedent and would leave the
public unprotected. Today's proposal seems to go farther. It
excludes embedded volumetric options from the Commission's
authority. Whereas with an exemption, there is the ability to later
tailor it to fit the precise needs of the market and the public,
there is no turning back from an exclusion.
    Congress said, quite clearly, that commodity options are swaps,
not forwards. Embedded volumetric options should be exempted as
options, not excluded as forwards. I know many in industry have
spoken for the need for further clarity regarding the regulation of
embedded volumetric options. I don't know what clarity is achieved
by trying to call something what it is not. If it looks like an
option, is used like an option, and works like an option, it is most
likely, an option.
    I think the objective of providing for clear regulatory
treatment of embedded volumetric options will be far easier to
implement, and far more complete, if done through fixing the trade
option exemption. Regardless, this proposal is the vehicle before
the Commission at present. I want us to get this interpretation
right, and therefore support getting public comment on these
changes. I do not believe we should contemplate such a significant
change to our jurisdiction without receiving the public's views on
it first. I invite all interested stakeholders to respond to this
proposal and look forward to reviewing their comments.

[FR Doc. 2014-27285 Filed 11-19-14; 8:45 am]
BILLING CODE 6351-01-P; 8011-01-P


[Federal Register Volume 77, Number 149 (Thursday, August 2, 2012)]
[Proposed Rules]
[Pages 45983-45984]
[FR Doc No: 2012-18917]

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA-2012-0652; Airspace Docket No. 12-ACE-4]

Proposed Amendment of Class E Airspace; Anthony, KS

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

-----------------------------------------------------------------------

SUMMARY: This action proposes to amend Class E airspace at Anthony, KS.
Additional controlled airspace is necessary to accommodate new Standard
Instrument Approach Procedures (SIAP) at Anthony Municipal Airport. The
FAA is taking this action to enhance the safety and management of
Instrument Flight Rules (IFR) operations for SIAPs at the airport.

DATES: Comments must be received on or before September 17, 2012.

ADDRESSES: Send comments on this proposal to the U.S. Department of
Transportation, Docket Operations, 1200 New Jersey Avenue SE., West
Building Ground Floor, Room W12-140, Washington, DC 20590-0001. You
must identify the docket number FAA-2012-0652/Airspace Docket No. 12-
ACE-4, at the beginning of your comments. You may also submit comments
through the Internet at http://www.regulations.gov. You may review the
public docket containing the proposal, any comments received, and any
final disposition in person in the Dockets Office between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The Docket Office
(telephone 1-800-647-5527), is on the ground floor of the building at
the above address.

FOR FURTHER INFORMATION CONTACT: Scott Enander, Central Service Center,
Operations Support Group, Federal Aviation Administration, Southwest
Region, 2601 Meacham Blvd., Fort Worth, TX 76137; telephone: 817-321-
7716.

SUPPLEMENTARY INFORMATION:

Comments Invited

    Interested parties are invited to participate in this proposed
rulemaking by submitting such written data, views, or arguments, as
they may desire. Comments that provide the factual basis supporting the
views and suggestions presented are particularly helpful in developing
reasoned regulatory decisions on the proposal. Comments are
specifically invited on the overall regulatory, aeronautical, economic,
environmental, and energy-related aspects of the proposal.
Communications should identify both docket numbers and be submitted in
triplicate to the address listed above. Commenters wishing the FAA to
acknowledge receipt of their comments on this notice must submit with
those comments a self-addressed, stamped postcard on which the
following statement is made: ``Comments to Docket No. FAA-2012-0652/
Airspace Docket No. 12-ACE-4.'' The postcard will be date/time stamped
and returned to the commenter.

Availability of NPRMs

    An electronic copy of this document may be downloaded through the
Internet at http://www.regulations.gov. Recently published rulemaking
documents can also be accessed through the FAA's web page at http://www.faa.gov/airports_airtraffic/air_traffic/publications/airspace_amendments/.
    You may review the public docket containing the proposal, any
comments received and any final disposition in person in the Dockets
Office (see ADDRESSES section for address and phone number) between 9
a.m. and 5 p.m., Monday through Friday, except Federal holidays. An
informal docket may also be examined during normal business hours at
the office of the Central Service Center, 2601 Meacham Blvd., Fort
Worth, TX 76137.
    Persons interested in being placed on a mailing list for future
NPRMs should contact the FAA's Office of Rulemaking<PHONE_NUMBER>, to
request a copy of Advisory Circular No. 11-2A, Notice of Proposed
Rulemaking Distribution System, which describes the application
procedure.

The Proposal

    This action proposes to amend Title 14, Code of Federal Regulations
(14 CFR), Part 71 by amending Class E airspace extending upward from
700 feet above the surface to accommodate new standard instrument
approach procedures at Anthony Municipal Airport, Anthony, KS.
Controlled airspace is needed for the safety and management of IFR
operations at the airport.
    Class E airspace areas are published in Paragraph 6005 of FAA Order
7400.9V, dated August 9, 2011, and effective September 15, 2011, which
is incorporated by reference in 14 CFR 71.1. The Class E airspace
designation listed in this document would be published subsequently in
the Order.
    The FAA has determined that this proposed regulation only involves
an established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
It, therefore, (1) Is not a ``significant regulatory action'' under
Executive Order 12866; (2) is not a ``significant rule'' under DOT
Regulatory Policies and Procedures (44 FR 11034; February 26, 1979);
and (3) does not warrant preparation of a Regulatory Evaluation as the
anticipated impact is so minimal. Since this is a routine matter that
will only affect air traffic procedures and air navigation, it is
certified that this rule, when promulgated, will not have a significant
economic impact on a substantial number of small entities under the
criteria of the Regulatory Flexibility Act.
    The FAA's authority to issue rules regarding aviation safety is
found in Title 49 of the U.S. Code. Subtitle 1, Section 106 describes
the authority of the FAA Administrator. Subtitle VII, Aviation
Programs, describes in more detail the scope of the agency's authority.
This rulemaking is promulgated under the authority described in
Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the
FAA is charged with prescribing regulations to assign the use of
airspace necessary to ensure the safety of aircraft and the efficient
use of airspace. This regulation is within the scope of that authority
as it would amend controlled airspace at Anthony Municipal Airport,
Anthony, KS.

Environmental Review

    This proposal will be subject to an environmental analysis in
accordance with FAA Order 1050.1E, ``Environmental Impacts: Policies
and Procedures'' prior to any FAA final regulatory action.

List of Subjects in 14 CFR Part 71

    Airspace, Incorporation by reference, Navigation (Air).

The Proposed Amendment

    In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 14 CFR part 71 as follows:

PART 71--DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND REPORTING POINTS

    1. The authority citation for part 71 continues to read as follows:

    Authority: 49 U.S.C. 106(g); 40103, 40113, 40120; E.O. 10854, 24
FR 9565, 3 CFR, 1959-1963 Comp., p. 389.

Sec.  71.1  [Amended]

    2. The incorporation by reference in 14 CFR 71.1 of FAA Order
7400.9V, Airspace Designations and Reporting Points, dated August 9,
2011, and effective September 15, 2011, is amended as follows:

Paragraph 6005 Class E Airspace areas extending upward from 700
feet or more above the surface of the earth.

* * * * *

ACE KS E5 Anthony, KS [Amended]

Anthony Municipal Airport, KS
    (Lat. 37[deg]09'31'' N., long. 98[deg]04'47'' W.)

    That airspace extending upward from 700 feet above the surface
within a 6.4-mile radius of Anthony Municipal Airport, and within 2
miles each side of the 000[deg] bearing from the airport extending
from the 6.4-mile radius to 12 miles north of the airport.

    Issued in Fort Worth, TX, on June 22, 2012.
David P. Medina,
Manager, Operations Support Group, ATO Central Service Center.
[FR Doc. 2012-18917 Filed 8-1-12; 8:45 am]
BILLING CODE 4901-13-P


EPA Registration Division contact: Sidney Jackson,<PHONE_NUMBER>

Interregional Research Project Number 4 (IR-4)

PP No. 6E7153

EPA has received a pesticide petition (PP) [6E7153] from the IR-4, 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 180.429 by establishing a
tolerance for residues of the herbicide, chlorimuron-ethyl, [ethyl
2-[[[[ (4-chloro-6-methoxypyrimidin-2yl) amino]carbonyl] amino]sulfonyl]
benzoate] in or on the raw agricultural commodities cranberry,
bearberry, bilberry, lowbush berry, cloudberry, lingonberry, muntries
and partridgeberry at 0.02 parts per million (ppm).  EPA has determined
that the petition contains data or information regarding the elements
set forth in section 408 (d)(2) of the FDDCA; 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

1. Plant metabolism.

The plant metabolism of [14C]chlorimuron-ethyl is adequately understood
in three diverse crops: maize, peanuts and soybeans.  The results of
these plant metabolism studies indicate that no significant
chlorimuron-ethyl’s residues (<0.05 mg/kg) can be expected in either
food or feed commodities under pre-emergence (via soil application) and
post-emergence (via direct foliage application) when used in accordance
with the maximum label rates.   Chlorimuron ethyl metabolizes
extensively in the tolerant crops, such as maize, peanuts, and soybeans.
 Homo-glutathione conjugation of chlorimuron ethyl is the primary
inactivation pathway in the tolerant crops.  In soybeans, it also
undergoes deesterification to yield
[2-(4-chloro-6-methoxypyrimidin-2-ylcarbamoylsulfamoyl)benzoic acid. The
other metabolic pathways involve hydroxylation in either pyrimidine or
phenyl rings followed by conjugation with glucose. The cleavage of the
sulphonylurea linkage yields the corresponding sulphonamide and
pyrimidine amine.  The fate of chlorimuron ethyl is consistent under
both pre-emergence and post-emergence application scenarios. Similar
results to those obtained in maize have also been observed in soybean
and peanut plant metabolism studies and earlier reported in-vitro maize
plant metabolism investigations.

2. Analytical method.

The nature of residues of chlorimuron-ethyl is adequately understood and
an acceptable analytical method is available for enforcement purposes.
The limit of quantitation allows monitoring of crops with
chlorimuron-ethyl residues at or above the levels proposed in this
tolerance.

3. Magnitude of residues.

Magnitude of residue studies were conducted by IR-4 to determine residue
of chlorimuron ethyl in cranberries at five test sites during the 2001
growing season. At each trial, one post emergence foliar application of
chlorimuron-ethyl 25 WG® at a rate of approximately 0.016 lb ai/A was
made for a total of approximately 0.016 lb ai/A.  Either a non-ionic
surfactant at 0.25% or crop oil concentrate at 1% was added to the spray
mixture. Commercially mature cranberries were harvested 57-63 days
following the application.  The results from these trials show that the
residues of chlorimuron ethyl in cranberries from all five trials were
less than the Limit of Quantitation (0.0084 ppm).

B. Toxicological Profile

1. Acute toxicity.

A battery of acute toxicity tests on technical chlorimuron-ethyl places
it in the following Toxicity Categories:

Oral LD50		Rat			>5000 mg/kg		Category IV

Dermal LD50		Rabbit			>2000 mg/kg		Category III

Inhalation LC50	Rat			>5 mg/L		Category IV

Eye irritation		Rabbit			Mild irritation		Category III

Dermal irritation	Rabbit			Slight irritant		Category IV

Dermal sensitization	Guinea Pig		Not a sensitizer

2. Genotoxicty.

Chlorimuron-ethyl was tested in a battery of assays to evaluate
genotoxicity and chromosome aberrations with the following results.
Based on the weight-of-evidence, chlorimuron-ethyl is not considered to
be genotoxic or clastogenic.

Bacterial gene mutation           			Salmonella typhimurium    	Negative

Mammalian gene mutation in vitro  		CHO           		Negative

Mammalian chromosome aberrations in vivo 		Rat Bone Marrow		Negative

Unscheduled DNA synthesis in vitro 	    	       Rat Hepatocytes
Negative

3. Reproductive and developmental toxicity.

In a 2-generation rat reproduction study with chlorimuron-ethyl, the
NOAEL for both parents and offspring was 250 ppm (approximately 19
mg/kg/day), based on decreased body weight in parental animals and pup
growth parameters at 195 mg/kg/day.  There were no reproductive or
fertility effects at any dietary level.

In a rat developmental study, the maternal and developmental NOAELs were
both 30 mg/kg/day based on body weight effects in dams and growth
retardation (delayed ossification) in fetuses at higher doses.   In
rabbits, the maternal NOAEL was 48 mg/kg/day based on decreased body
weight gain during compound administration and 13 mg/kg/day in fetuses
based on growth retardation at higher doses.

4. Subchronic toxicity.

Subchronic (90-day) feeding studies were conducted with rats, mice, and
dogs.  In the rat subchronic toxicity study with chlorimuron-ethyl, the
NOAEL was 7/8 (males/females) mg/kg/day (100 ppm), respectively, based
on effects on body weight gain and liver changes at higher
concentrations.  In the mouse subchronic feeding study, there were no
adverse effects at any level and the NOAEL was 5000 ppm (1030 mg/kg/day
males, 1151 mg/kg/day females), the highest dose tested.  In a
subchronic feeding study in dogs, the NOAEL was 2.8/2.9 (males/females)
mg/kg/day (100 ppm) based on increased liver weight, hematologic
changes, and changes in thymus and prostate at the next highest
concentration, 1500 ppm (45.8mg/kg/day males and 42.7 mg/kg/day
females).  However a higher for dogs was subsequently established in a
chronic dog study which included an intermediate dose level (250 ppm).

5. Chronic toxicity.

Chronic studies with chlorimuron-ethyl were conducted on rats, mice, and
dogs.   Chlorimuron-ethyl was not oncogenic in rats or mice.  In a
chronic rat study the NOAEL was 250 ppm (12.5 mg/kg/day) based on body
weight changes at 2500 ppm (125 mg/kg/day).  In mice, the NOAEL was 1250
ppm (160 mg/kg/day males and 210 mg/kg/day females), the highest dose
tested.  There was no evidence of carcinogenicity or other
compound-related changes.  In dogs the chronic NOAEL was 250 ppm (10/9
mg/kg/day in males and females, respectively) based on mild hematologic
changes at 1500 ppm (51/55 mg/kg/day).

6. Animal metabolism.

Metabolism studies in rats showed that chlorimuron-ethyl is absorbed
from the gastro-intestinal tract and is eliminated equally in urine and
feces with a biological half-life of about 50 hours.  Chlorimuron-ethyl
was extensively metabolized oxidation, hydrolysis, or enzymatic
reactions with the major metabolite being a hydroxy-chlorimuron-ethyl.
The greatest concentration of radioactivity was found in the liver.

7. Metabolite toxicology.

None of the metabolites of chlorimuron-ethyl are considered to be of
toxicological significance to mammals.

8. Endocrine disruption.

Chlorimuron-ethyl has been evaluated in a battery of chronic, lifespan,
and multi-generational bioassays in mammals and acute and subchronic
studies on aquatic organisms and wildlife.  Based on the available data,
there is no indication that chlorimuron-ethyl exerts a toxic effect on
any endocrine organ.

C. Aggregate Exposure

Chlorimuron ethyl is an herbicide currently registered in the United
States for use on peanuts and soybeans. This tolerance petition proposes
the following new uses in the United States: cranberries. There are no
residential uses.

1. Dietary exposure.

For the chronic dietary endpoint EPA selected the NOAEL of 9 mg/kg/day
from the chronic dog study based on mild anemia at the LOAEL of 51
mg/kg/day.  With the uncertainty factor of 100, due to inter- and
intraspecies factors, the chronic RfD is 0.09 mg/kg/day.   No acute
dietary endpoint was selected since no effects attributable to a single
oral exposure were identified in toxicology studies with chlorimuron
ethyl.

i. Food.

a. Chronic Dietary Exposure Assessment

Chronic dietary exposure, resulting from the proposed use of chlorimuron
ethyl on cranberries, as well as on peanuts and soybeans, is well within
acceptable limits for all sectors of the population. The chronic module
of the Dietary Exposure Evaluation Model with the Food Commodity Intake
Database (DEEM-FCIDTM), Exponent, Inc., Version 2.14 was used to conduct
the assessment with a chronic RfD of 0.09 mg/kg/day. The analysis
employed tolerance-level residues and no further adjustments for
processing or percent of crop treated.

For the general U.S. population and all subpopulations <1% of the
chronic RfD was used.  This chronic dietary risk estimate for
chlorimuron ethyl shows that an adequate margin of safety exists for all
population subgroups, and that no effects would result from dietary
exposure to chlorimuron ethyl.

b. Acute Dietary Exposure

Based on the results of toxicity studies no endpoint attributable to a
single oral dose of chlorimuron ethyl was identified.

ii. Drinking Food.

Chronic drinking water exposure analyses were calculated for chlorimuron
ethyl using EPA screening concentration models for ground water
(SCI-GROW ver. 2.3) and surface water (FIRST ver. 1.0).  Results
indicate that a reasonable certainty exists that chlorimuron ethyl
residues in drinking water will not contribute significantly to the
aggregate human risk.

The predicted chronic concentration for chlorimuron ethyl under
worst-case conditions was 2.24 parts per billion (ppb) in ground water
(due to soybean uses) and 2.28 ppb in surface water (due to non-crop
uses).  When the surface water concentration was included in the chronic
dietary risk assessment, <1% of the cRfD was used for the general U.S.
population and all population subgroups, indicating a significant margin
of safety.

2. Non-dietary exposure.

Chlorimuron ethyl products are not labeled for residential non-food
uses, thereby eliminating the potential for residential exposure.
Non-occupational, non-dietary exposure for chlorimuron ethyl has not
been estimated because the proposed products are limited to commercial
crop production. Therefore, the potential for non-occupational exposure
is insignificant.

D. Cumulative Effects

EPA has not made a common mechanism of toxicity finding as to
chlorimuron-ethyl and any other substances and has not assumed that
chlorimuron-ethyl has a common mechanism of toxicity with other
substances.

E. Safety Determination

1. U.S. population.

Based on the completeness and reliability of the toxicity data and the
conservative exposure assessments, there is a reasonable certainty that
no harm will result from the aggregate exposure of residues of
chlorimuron ethyl including all anticipated dietary exposure (including
drinking water) and all other non-occupational exposures.  No additional
safety factors are warranted.

2. Infants and children.

Based on the completeness and reliability of the toxicity data, the lack
of toxicological endpoints of special concern, the lack of any
indication of greater sensitivity of children, and the conservative
exposure assessment, there is a reasonable certainty that no harm will
result to infants and children from the aggregate exposure to residues
of chlorimuron ethyl from all anticipated sources of dietary (including
drinking water) and non-occupational exposure. Accordingly, there is no
need to apply an additional safety factor for infants and children.

F. International Tolerances

There are no Canadian, Mexican or Codex MRLs for chlorimuron-ethyl on
cranberry.

Pesticide Petition for Tolerance
                   	AGRICULTURAL COMMODITIES

for Chlorimuron-ethyl
                                               Cranberry

Copyright by E.I. du Pont de Nemours and Company

Wilmington, DE 19880-0038 (September 2006)