[Federal Register Volume 83, Number 41 (Thursday, March 1, 2018)]
[Proposed Rules]
[Pages 8818-8822]
[FR Doc No: 2018-04191]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R02-OAR-2016-0625, FRL-9975-03--Region 2]

Approval and Promulgation of Air Quality Implementation Plans;
New Jersey; Infrastructure Requirements for the 2008 Lead, 2008 Ozone,
2010 Nitrogen Dioxide, 2010 Sulfur Dioxide, 2011 Carbon Monoxide, 2006
PM10, 2012 PM2.5, 1997 Ozone, and the 1997 and 2006 PM2.5 National
Ambient Air Quality Standards

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: The Environmental Protection Agency (EPA) is proposing to
approve elements of New Jersey's State Implementation Plan (SIP)
revision submitted regarding the infrastructure requirements of section
110(a)(1) and (2) of the Clean Air Act (CAA) for the 2008 lead, 2008
ozone, 2010 nitrogen dioxide, 2010 sulfur dioxide, 2011 carbon
monoxide, 2006 particulate matter of 10 microns or less
(PM10), and 2012 particulate matter of 2.5 microns or less
(PM2.5) National Ambient Air Quality Standards (NAAQS). The
EPA is also proposing to approve three infrastructure requirements of
the 1997 ozone and the 1997 and 2006 PM2.5 NAAQS. The
infrastructure requirements are designed to ensure that the structural
components of each state's air quality management program are adequate
to meet the state's responsibilities under the CAA.

DATES: Written comments must be received on or before April 2, 2018.

ADDRESSES: Submit your comments, identified by Docket ID Number EPA-
R02-OAR-2016-0625 at http://www.regulations.gov. Follow the online
instructions for submitting comments. Once submitted, comments cannot
be edited or removed from Regulations.gov. The EPA may publish any
comment received to its public docket. Do not submit electronically any
information you consider to be Confidential Business Information (CBI)
or other information whose disclosure is restricted by statute.
Multimedia submissions (audio, video, etc.) must be accompanied by a
written comment. The written comment is considered the official comment
and should include discussion of all points you wish to make. The EPA
will generally not consider comments or comment contents located
outside of the primary submission (i.e., on the web, cloud, or other
file sharing system). For additional submission methods, the full EPA
public comment policy, information about CBI or multimedia submissions,
and general guidance on making effective comments, please visit http://www2.epa.gov/dockets/commenting-epa-dockets.

FOR FURTHER INFORMATION CONTACT: Anthony (Ted) Gardella, Environmental
Protection Agency, 290 Broadway, New York, New York 10007-1866, at
(212) 637-3892, or by email at [email protected].

SUPPLEMENTARY INFORMATION: The Supplementary Information section is
arranged as follows:

Table of Contents

I. What action is the EPA proposing?
II. What is the background for this proposed rulemaking?
III. What elements are required under CAA sections 110(a)(1) and
(2)?
IV. What did New Jersey submit?
V. How has the State addressed the elements of the section 110(a)(1)
and (2) ``infrastructure'' provisions?
VI. What action is the EPA taking?
VII. Incororation by Reference
VIII. Statutory and Executive Order Reviews

I. What action is the EPA proposing?

    The EPA is proposing to approve elements of the State of New
Jersey's Infrastructure State Implementation Plan (SIP) submission,
dated October 17, 2014, and as supplemented on March 15, 2017, as
meeting the section 110(a) infrastructure requirements of the Clean Air
Act (CAA) for the following National Ambient Air Quality Standards
(NAAQS or standard): 2008 ozone, 2008 lead, 2010 nitrogen dioxide
(NO2), 2010 sulfur dioxide (SO2), 2011 carbon
monoxide (CO), 2006 particulate matter of 10 microns or less
(PM10), and 2012 particulate matter of 2.5 microns or less
(PM2.5). As explained below, the State has the necessary
infrastructure, resources and general authority to implement the 2008
ozone, 2008 lead, 2010 NO2, 2010 SO2, 2011 CO,
2006 PM10, and 2012 PM2.5 NAAQS, except where
specifically noted.
    The EPA is also proposing to approve three CAA section 110(a)
infrastructure requirements for the 1997 ozone and the 1997 and 2006
PM2.5 NAAQS that were conditionally approved by the EPA on
June 14, 2013 (78 FR 35764). New Jersey's response to the conditional
approval was not submitted to EPA within one year, but was submitted
approximately three months late, and supplemented on March 15, 2017, so
the conditional approval is treated as a disapproval. The EPA is also
now proposing to approve New Jersey's October 17, 2014 submittal, as
supplemented on March 15, 2017, for the 1997 ozone and the 1997 and
2006 PM2.5 NAAQS.

II. What is the background for this proposed rulemaking?

    On March 27, 2008 (73 FR 16436), the EPA promulgated a revised
NAAQS for ozone. The EPA revised the level of the 8-hour ozone NAAQS
from 0.08 parts per million (ppm) to 0.075 ppm.
    On October 15, 2008 (73 FR 66964), the EPA promulgated a new NAAQS,
a rolling 3-month average NAAQS for lead. The 2008 lead NAAQS is 0.15
micrograms per cubic meter of air ([micro]g/m3) maximum
(not-to-be-exceeded).
    On January 22, 2010 (75 FR 6474), the EPA promulgated a new 1-hour
primary NAAQS for NO2 at a level of 100 parts per billion
(ppb), based on a 3-year average of the 98th percentile of the yearly
distribution of 1-hour daily maximum concentrations.
    On June 2, 2010 (75 FR 35520), the EPA promulgated a revised
primary NAAQS for SO2 at a level of 75 ppb, based on a 3-
year average of the annual 99th percentile of 1-hour daily maximum
concentrations.
    On December 14, 2012 (78 FR 3086), the EPA promulgated a revised
primary NAAQS for PM2.5 for the annual standard. The revised
standard was set at the level of 12 [micro]g/m\3\ calculated as an
annual average, which is averaged over a three-year period.
    On September 21, 2006 (71 FR 61144), the EPA retained the primary
and secondary 24-hour PM10 standard of 150 [micro]g/m\3\,
not to be exceeded more than once per year on average over a 3-year
period. The standard was initially promulgated on June 2, 1987 (52 FR
24634). The PM10 standard was also retained on December 14,
2012 (78 FR 3086).
    On August 31, 2011 (54 FR 54294), the EPA retained the existing
primary and secondary standards for CO of 9 ppm as an 8-hour average,
and 35 ppm as a 1-hour standard average, neither to be exceeded more
than once per year. The standards were initially established on April
30, 1971 (36 FR 8186).
    Section 110(a)(1) of the CAA provides the procedural and timing
requirements for SIPs. Section 110(a)(2) of the CAA lists specific
elements that states must meet for SIP requirements related to a newly
established or revised NAAQS. Sections 110(a)(1) and (2) of the CAA
require, in part, that states submit to EPA plans to implement,
maintain and enforce each of the NAAQS promulgated by the EPA. By
statute, SIPs meeting the requirements of sections 110(a)(1) and (2)
are to be submitted by states within three years

after promulgation of a new or revised standard. The EPA refers to this
type of SIP submission as the ``infrastructure'' SIP because the SIP
ensures that states can implement, maintain and enforce the air
standards.
    On October 17, 2014 the New Jersey Department of Environmental
Protection (NJDEP) submitted a revision to its SIP to address
requirements under section 110(a)(2) of the CAA (the infrastructure
requirements) related to the 2008 lead, 2008 ozone, 2010
NO2, 2010 SO2, and 2012 PM2.5 NAAQS.
On March 15, 2017, NJDEP submitted a supplement to the October 17, 2014
SIP submission. Although not specifically required by 110(a)(1) since
neither NAAQS was new or revised,\1\ the SIP submission included
infrastructure requirements for the 2006 PM10 and 2011 CO
NAAQS. New Jersey's SIP submission also addresses the infrastructure
requirements that were conditionally approved for the 1997 ozone and
the 1997 and 2006 PM2.5 NAAQS.
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    \1\ EPA notes that, when promulgated, the 2006 24 hour
PM10 NAAQS and the 2011 primary CO NAAQS were neither
``new'' nor ``revised'' NAAQS--they merely retained, without
revision, prior NAAQS for those pollutants. Accordingly,
promulgation of these NAAQS did not trigger a new obligation for New
Jersey to make infrastructure SIP submissions.
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    On March 30, 2016, New Jersey withdrew the portion of the October
17, 2014 SIP submittal addressing 110(a)(2)(D)(i)(I) (prongs 1 and 2)
for the 2008 Ozone NAAQS. The EPA subsequently issued a Finding of
Failure to submit to New Jersey.\2\
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    \2\ 81 FR 38963 (June 15, 2016).
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    On September 6, 2016 \3\ EPA acted on elements of the October 17,
2014 SIP submittal that addressed interstate transport provisions
concerning the Prevention of Significant Deterioration (PSD)
regulations, and visibility protection. Section 110(a)(2)(D)(i)(II)
(prongs 3 and 4).
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    \3\ 81 FR 64070 (September 19, 2016) (EPA disapproved prong 3,
addressing interstate transport provisions concerning the PSD
regulations, and approved prong 4, concerning visibility).
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III. What elements are required under CAA sections 110(a)(1) and (2)?

    The infrastructure requirements of CAA section 110(a)(1) and (2)
are discussed in the following EPA guidance documents: EPA's October 2,
2007, ``Guidance on SIP Elements Required Under Section 110(a)(1) and
(2) for the 1997 8-Hour Ozone and PM2.5 National Ambient Air
Quality Standards;'' September 25, 2009, ``Guidance on SIP Elements
Required Under Section 110(a)(1) and (2) for the 2006 24-Hour Fine
Particle (PM2.5) National Ambient Air Quality Standards;''
September 13, 2013, ``Guidance on Infrastructure State Implementation
Plan (SIP) Elements under Clean Air Act Sections 110(a)(1) and
110(a)(2),'' \4\ (2013 Guidance) (addresses the 2008 ozone, 2010
NO2, 2010 SO2, and 2012 PM2.5 NAAQS,
as well as infrastructure SIPs for new or revised NAAQS promulgated in
the future); October 14, 2011, ``Guidance on Infrastructure State
Implementation Plan (SIP) Elements under Clean Air Act Sections
110(a)(1) and 110(a)(2) for the 2008 Lead (Pb) National Ambient Air
Quality Standards (NAAQS);'' March 17, 2016, ``Information on
Interstate Transport ``Good Neighbor'' Provision for the 2012 Fine
Particulate Matter National Ambient Air Quality Standards under Clean
Air Act section 110(a)(2)(D)(i)(I).''
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    \4\ ``Guidance on Infrastructure State Implementation Plan (SIP)
Elements under Clean Air Act Sections 110(a)(1) and 110(a)(2)'' can
be found at: http://www.epa.gov/airquality/urbanair/sipstatus/infrastructure.html.
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    The EPA reviews each infrastructure SIP submission for compliance
with the applicable statutory provisions of CAA 110(a)(2). The 14
elements required to be addressed by CAA section 110(a)(2) are:
     110(a)(2)(A): Emission limits and other control measures;
     110(a)(2)(B): Ambient air quality monitoring/data system;
     110(a)(2)(C): Program for enforcement of control measures;
     110(a)(2)(D)(i)(I) and (II): Interstate pollution
transport;
     110(a)(2)(D)(ii): Interstate and international pollution
abatement;
     110(a)(2)(E): Adequate resources and authority, conflict
of interest, oversight of local governments and local authorities;
     110(a)(2)(F): Stationary source monitoring and reporting;
     110(a)(2)(G): Emergency powers;
     110(a)(2)(H): Future SIP revisions;
     110(a)(2)(I): Plan revisions for nonattainment areas
(under part D);
     110(a)(2)(J): Consultation with government officials,
public notification, and PSD and visibility protection;
     110(a)(2)(K): Air quality modeling and data;
     110(a)(2)(L): Permitting fees;
     110(a)(2)(M): Consultation/participation by affected local
entities.
    Two elements identified in section 110(a)(2) are not governed by
the three-year submission deadline of section 110(a)(1) because SIPs
incorporating necessary local nonattainment area controls are not due
within three years after promulgation of a new or revised NAAQS, but
rather due at the time that the nonattainment area plan requirements
are due pursuant to section 172 of the CAA. See 77 FR 46354 (August 3,
2012); 77 FR 60308 (October 3, 2012, footnote 1). These requirements
are: (1) Submissions required by section 110(a)(2)(C) to the extent
that subsection refers to a permit program as required in part D Title
I of the CAA, and (2) submissions required by section 110(a)(2)(I)
which pertain to the nonattainment planning requirements of part D,
Title I of the CAA. As a result, this action does not address the
nonattainment permit program requirements of 110(a)(2)(C) or the
nonattainment planning requirements related to section 110(a)(2)(I).
    One of the requirements of section 110(a)(2)(J) is that SIPs meet
the applicable requirements of CAA part C related to visibility. New
Jersey addresses visibility protection requirements through its
Regional Haze SIP submittal which the EPA approved on January 3, 2012
(77 FR 19). As indicated in the EPA's September 2013 Infrastructure
Guidance, although states are subject to visibility and regional haze
program requirements under CAA part C, the visibility and regional haze
requirements under CAA part C do not change due to promulgation of, or
revision to, a NAAQS. The SIP is not required to be revised with
respect to visibility protection since there are no new visibility
obligations. Accordingly, air agencies do not need to address the
visibility sub-element of section 110(a)(2)(J) in infrastructure SIP
submissions. Hence, the EPA considers this sub-element to be not
germane to infrastructure SIPs and therefore this action does not
address the visibility sub-element of section 110(a)(2)(J).

IV. What did New Jersey submit?

    The EPA is acting on a New Jersey SIP submittal dated October 17,
2014 which addresses the section 110 infrastructure requirements for
the following seven NAAQS: 2008 ozone, 2008 lead, 2010 NO2,
2010 SO2, 2011 CO, 2006 PM10, and 2012
PM2.5. New Jersey's SIP revision also addresses the section
110(a)(2) infrastructure requirements for three elements that EPA
conditionally approved on June 14, 2013 (78 FR 35764) for the 1997
ozone and the 1997 and 2006 PM2.5 NAAQS. In a letter dated
October 28, 2014, the EPA determined that New Jersey's infrastructure
SIP revision, dated October 17, 2014, to be administratively complete
except for inclusion of a state adopted PSD program.
    New Jersey's October 2014 section 110 submittal demonstrates how
the

State, where applicable, has a plan in place that meets the
requirements of section 110(a)(1) and (2) for the 2008 ozone, 2008
lead, 2010 NO2, 2010 SO2, 2011 CO, 2006
PM10, and 2012 PM2.5 NAAQS and for the three
section 110(a)(2) elements conditionally approved by the EPA in June
2013 for the 1997 ozone and the 1997 and 2006 PM2.5 NAAQS.
The State's plan references the current New Jersey Air Quality SIP, the
New Jersey Statutes Annotated (NJSA) and/or the New Jersey
Administrative Code (NJAC). The NJSA and the NJAC (air pollution
control regulations) referenced in the submittal are publicly
available. On June 4, 2014, NJDEP issued a notice providing the public
the opportunity to comment and request a public hearing on the proposed
110 infrastructure SIP submittal. The public comment period ended on
July 23, 2014 and the public did not request, nor did NJDEP hold, a
public hearing. New Jersey air pollution control regulations that have
been previously approved by the EPA and incorporated into the New
Jersey SIP can be found at 40 CFR 52.1570 and are posted on the
internet at https://www.epa.gov/sips-nj/epa-approved-statutes-and-regulations-new-jersey-sip.

V. How has the State addressed the elements of the section 110(a)(1)
and (2) ``infrastructure'' provisions?

    The EPA's evaluation and rationale for proposing action on New
Jersey's October 2014 infrastructure SIP submittal is detailed in the
``Technical Support Document for EPA's Proposed Rulemaking for the New
Jersey State Implementation Plan Revision For Meeting the
Infrastructure Requirements In the Clean Air Act'' dated February 2018
(TSD). The TSD also discusses in detail how New Jersey's SIP revision
addresses the infrastructure requirements of section 110(a)(1) and (2)
of the CAA. The TSD is available in the docket (EPA-R02-OAR-2016-0625).
The reader should refer to this TSD for the EPA's detailed rationale
for proposing approval of particular CAA section 110(a)(2) elements.
The EPA is soliciting public comments on the issues discussed in this
document. These comments will be considered before taking final action.
    The following summarizes the EPA's proposed findings, based on the
detailed rationale discussed in the TSD, for New Jersey's SIP revision
addressing the infrastructure requirements of section 110(a)(1) and (2)
for the following seven NAAQS: 2008 ozone, 2008 lead, 2010
NO2, 2010 SO2, 2011 CO, 2006 PM10, and
2012 PM2.5 NAAQS:
    In this rulemaking, the EPA is proposing to approve New Jersey's
infrastructure SIP submittal for the seven NAAQS noted herein as
addressing the requirements of CAA section 110(a)(2) (A), (B), (C)
(with the exception of program requirements for PSD and permitting
programs for minor sources and minor modifications), (E), (F), (G),
(H), (J) (with the exception of program requirements related to PSD),
(K), (L), and (M) of the CAA.
    In accordance with 40 CFR part 51, appendix V, EPA found that New
Jersey's October 17, 2014 infrastructure SIP submittal is technically
incomplete for the portions addressing the infrastructure elements in
section 110(a)(2)(C), (D)(i)(II), (D)(ii), and (J) relating to the
permitting program for PSD, because New Jersey has not adequately
addressed the requirements of part C of title I of the CAA for having a
SIP approved PSD permit program. The EPA found the remainder of the SIP
submittal to be administratively and technically complete. On October
28, 2014, EPA sent a letter to New Jersey Department of Environmental
Protection notifying New Jersey of this determination. As a result of
this incompleteness finding, the EPA is not taking action on the PSD
related portions of section 110(a)(2)(C), (D)(ii), and (J) for the
seven NAAQS included in New Jersey's October 2014 infrastructure SIP
submittal, until New Jersey submits a SIP to address the PSD permit
program requirements of part C of title I of the CAA.\5\ The EPA
recognizes, however, that New Jersey has elected to comply with the
Federal PSD requirements by accepting delegation of the Federal rules
and has been successfully implementing this program for many years. New
Jersey is already subject to a Federal Implementation Plan (FIP) which
incorporates by reference the federal PSD provisions as codified in 40
CFR 51.21, with the exception of paragraph (a)(1), into the
implementation plan for the State. 40 CFR 52.1603.\6\ New Jersey would
not have to take further action for the FIP-based permitting process to
continue operating.
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    \5\ As discussed in section II and footnote 3, above, EPA took
action on section 110(a)(2)(D)(i)(II) (prongs 3 and 4). 81 FR 64070
(Sept. 19, 2016).
    \6\ On August 7, 1980 (45 FR 52676, at 52741), EPA disapproved a
number of states SIPs for PSD purposes, including New Jersey, and
incorporated by reference portions of the federal PSD provisions in
40 CFR 52.21 into the implementation plans for those states. This
FIP was subsequently amended to reflect amendments to the federal
PSD rule, on March 10, 2003 (68 FR 11316, at 11322) and December 24,
2003 (68 FR 74483, at 74488). The PSD FIP is incorporated by
reference in the New Jersey SIP in 40 CFR 52.1603.
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    The EPA does not anticipate any adverse consequences to New Jersey
as a result of this incompleteness finding for the PSD related portions
of section 110(a)(2)(C), (D)(i)(II), (D)(ii), and (J) for New Jersey's
2014 infrastructure SIP revision. First, mandatory sanctions would not
apply to New Jersey under CAA section 179 because the failure to submit
a PSD SIP is neither required under title I part D of the CAA, nor in
response to a SIP call under section 110(k)(5) of the CAA. Second, EPA
is not subject to any further FIP duty from our finding of
incompleteness because of the PSD FIP that has already been approved,
and that addresses the SIP deficiency.
    The EPA finds that the remainder of New Jersey's October 2014
infrastructure submittal provides the basic program elements specified
in section 110(a)(2) of the CAA necessary to implement, maintain, and
enforce the NAAQS. A detailed summary of EPA's review and rationale for
approving New Jersey's infrastructure SIP submittal may be found in the
TSD for this rulemaking action which is available on line at
www.regulations.gov, Docket ID Number EPA-R02-OAR-2016-0625.
    The EPA is not acting on the portions of the SIP submittal
addressing CAA section 110(a)(2)(D)(i)(I) with respect to the 2008
ozone, 2008 lead, 2010 NO2, 2010 SO2, 2011 CO,
2006 PM10, and 2012 PM2.5 NAAQS. As previously
mentioned, in a letter to EPA dated March 30, 2016, New Jersey withdrew
the portion of its October 17, 2014 SIP submission addressing
110(a)(2)(D)(i)(I) for interstate transport requirements (commonly
referred to as the ``Good Neighbor Provision'' or ``prongs 1 and 2'')
with respect to the 2008 8-hour ozone NAAQS.\7\ The EPA will address
the requirements of CAA sections 110(a)(2)(D)(i)(I) for the 2008 lead,
2010 NO2, 2010 SO2, 2011 CO, 2006
PM10, and 2012 PM2.5 in a separate action at a
later date.
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    \7\ On June 15, 2016 (81 FR 38963) the EPA issued a finding that
New Jersey failed to submit an infrastructure SIP revision for the
interstate transport requirements of CAA section 110(a)(2)(D)(i)(I),
also called the ``good neighbor'' provision, for the 2008 8-hour
ozone NAAQS. On November 16, 2015, the EPA proposed a rule to
address the ``good neighbor'' provisions of the 2008 ozone NAAQS.
The rule proposed to promulgate FIPs in 23 states, including New
Jersey, to reduce interstate transport as to the 2008 ozone NAAQS.
The EPA finalized the rule and respective FIPs on September 7, 2016.
81 FR 74504 (Oct. 26, 2016).
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    The following summarizes the EPA's proposed findings, based on the
detailed rationale discussed in the TSD, for New Jersey's SIP revision
addressing the

infrastructure requirements of section 110(a)(1) and (2) for the 1997
8-hour ozone NAAQS and the 1997 and 2006 PM2.5 NAAQS:
    In this rulemaking, the EPA is also proposing to approve New
Jersey's infrastructure SIP submittal for the 1997 8-hour ozone NAAQS
and the 1997 and 2006 PM2.5 NAAQS as addressing the
requirements in CAA sections 110(a)(2)(E)(ii) [conflict of interest
provisions] and (E)(iii) [oversight of local governments and local
authorities]; and proposing to approve New Jersey's infrastructure SIP
submittal for the 1997 8-hour ozone NAAQS as addressing the
requirements in CAA section 110(a)(2)(G) [emergency powers]. The EPA
previously conditionally approved sub-elements 110(a)(2)(E)(ii) and
(E)(iii) and element 110(a)(2)(G) in a final rule dated June 14, 2013
(see 78 FR 35764). The EPA's approval was conditioned upon New Jersey
correcting the following deficiencies within one year of EPA's June 14,
2013 final rule:
     Sub-element 110(E)(ii) [conflict of interest provisions]:
Submitting for approval into the SIP the statutes or regulations
necessary to substantially meet the requirements of CAA section
128(a)(2) that addresses conflict of interest;
     Sub-element 110(E)(iii) [oversight of local governments
and local authorities]: Identify the local governments or authorities
that: (a) Participate in the SIP planning efforts, (b) have been
delegated responsibilities to implement or enforce portions of the SIP,
and (c) provide copies of the agreement or memoranda of understanding
(MOU) between the State and local governments or authorities;
     Element 110(G) [emergency powers]: Submit for approval
into the SIP the current version of NJAC 7:27-12 ``Prevention and
Control of Air Pollution Emergencies'' (Subchapter 12) and submit the
current version the emergency criteria levels that the State will use
in making alerts, warnings or emergencies.
    With reference to New Jersey's infrastructure SIP submittal for the
1997 8-hour ozone NAAQS and the 1997 and 2006 PM2.5 NAAQS,
New Jersey, in a letter dated May 2, 2013, committed to correct the
deficiencies that the EPA identified in the April 10, 2013 proposed
rule (78 FR 21296) within one year from the effective date of the EPA's
June 14, 2013 final rule, i.e., one year from July 15, 2013, or by July
15, 2014. In the SIP submittal dated October 17, 2014, as supplemented
in a letter dated March 15, 2017, New Jersey addressed the deficiencies
that the EPA identified in the June 14, 2013 final rule. However, CAA
section 110(k)(4) requires states to meet their commitment not later
than one year after conditional approval; if not, a conditional
approval is treated as a disapproval. Therefore, since New Jersey's
October 17, 2014 SIP revision was submitted late, sub-elements
110(a)(2)(E)(ii) and (E)(iii) and element 110(a)(2)(G) for the 1997 8-
hour ozone NAAQS and the 1997 and 2006 PM2.5 NAAQS were
disapproved, by operation of law. However, the EPA has reviewed New
Jersey's October 17, 2014 SIP revision, as supplemented on March 15,
2017, and is now proposing to find that the State has fully addressed
the deficiencies that EPA identified in the June 14, 2013 final rule.
The reader is referred to the TSD for this action for details
concerning the EPA's analysis. Therefore, the EPA is proposing to
approve New Jersey's infrastructure SIP submittal for the 1997 8-hour
ozone NAAQS and the 1997 and 2006 PM2.5 NAAQS as addressing
the requirements of CAA sections 110(a)(2)(E)(ii) [conflict of interest
provisions] and (E)(iii) [oversight of local governments and local
authorities]; and proposing to approve New Jersey's infrastructure SIP
submittal for the 1997 8-hour ozone NAAQS as addressing the
requirements of CAA section 110(a)(2)(G) [emergency powers].
    With the State's submittal of information that addresses CAA
section 110(a)(2)(E)(iii), the EPA is proposing to remove 40 CFR
52.1579 (Intergovernmental cooperation) that the EPA previously
identified as not meeting the requirements of subpart M
(Intergovernmental Consultation) of part 51 since the SIP had not
adequately described the responsibilities of local agencies in
developing, implementing and enforcing the SIP.

VI. What action is the EPA taking?

    The EPA is proposing to approve New Jersey's infrastructure
submittal dated October 17, 2014, as supplemented on March 15, 2017,
for the 2008 ozone, 2008 lead, 2010 NO2, 2010
SO2, 2011 CO, 2006 PM10, and 2012
PM2.5. NAAQS, respectively, as meeting the requirements of
section 110(a)(2) of the CAA, including specifically sections
110(a)(2)(A), (B), (C) (with the exception of program requirements for
PSD and the permitting program for minor sources and minor
modifications), (E), (F), (G), (H), (J) (with the exception of program
requirements related to PSD and visibility), (K), (L), and (M) of the
CAA.
    The EPA is not taking action on the following elements that are not
germane to infrastructure SIPs: Sections 110(a)(2)(C) (sub-element
related to nonattainment permitting); 110(a)(2)(I); and the visibility
requirements of section 110(a)(2)(J). In addition, with respect to 2008
lead, 2010 NO2, 2010 SO2, 2011 CO, 2006
PM10, and 2012 PM2.5 NAAQS, the EPA previously
took action on CAA element 110(a)(2)(D)(i)(II) [prongs 3 and 4] and
will take action on CAA element 110(a)(2)(D)(i)(I) [prongs 1 and 2] at
a later date. As noted above, New Jersey withdrew the portion of its
October 17, 2014 SIP submission addressing 110(a)(2)(D)(i)(I) with
respect to the 2008 8-hour ozone NAAQS. Also, with respect to the 1997
ozone and the 1997 and 2006 PM2.5. NAAQS, the EPA is
proposing to approve that New Jersey has met the infrastructure SIP
requirements pertaining to sections 110(a)(2)(E)(ii) [conflict of
interest] and (E)(iii) [oversight of local governments and local
authorities]; and with respect to the 1997 ozone NAAQS, we are
proposing to approve that New Jersey has met the infrastructure SIP
requirements pertaining to section 110(a)(2)(G) [emergency powers].
    The EPA is proposing to delete the deficiency at 40 CFR 52.1579
because the deficiency identified would be resolved by the approval of
CAA section 110(a)(2)(E)(iii) for each of the NAAQS indicated in this
action.
    In addition, the EPA is proposing to incorporate into the New
Jersey SIP the following regulation and statutes:
    N.J.S.A. 52:13D-14, 52:13D-16(a)-(b) and 52:13D-21(n) ``New
Jersey's Conflict of Interest Law,'' \8\
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    \8\ N.J.S.A. 52:13D-14 (effective January 11, 1972). 52:13D-16
(effective January 11, 1972); most recent amendment to 52:13D-16,
(September 16, 1996). 52:13D-21 (effective January 11, 1972),
subsection 52:13D-21(n) (effective March 15, 2006).
---------------------------------------------------------------------------

    N.J.A.C 7:27-12, ``Prevention and Control of Air Pollution
Emergencies.'' \9\
---------------------------------------------------------------------------

    \9\ N.J.A.C 7:27-12 state effective October 24, 1969 (as amended
May 20, 1974).
---------------------------------------------------------------------------

VII. Incorporation by Reference

    In this rule, the EPA is proposing to include in a final rule
regulatory text that iucludes incorporation by reference. In accordance
with the requiremnents of 1 CFR 51.5, the EPA is proposing to
incorporate by reference the regulations and statutes identified at the
bottom of Section VI of this rule. The EPA has made, and will continue
to make, these documents generally available through
www.regulations.gov and at the EPA Region 2 Office (please contact the
person identified in the FOR FURTHER INFORMATION CONTACT section of
this preamble for more information).

VIII. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP
submission that complies with the provisions of the CAA and applicable
Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in
reviewing SIP submissions, EPA's role is to approve state choices,
provided that they meet the criteria of the CAA. Accordingly, this
action merely proposes to approve state law as meeting Federal
requirements and does not impose additional requirements beyond those
imposed by state law. For that reason, this proposed action:
     Is not a ``significant regulatory action'' subject to
review by the Office of Management and Budget under Executive Order
12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21,
2011);
     is not an Executive Order 13771 (82 FR 9339, February 2,
2017) regulatory action because SIP approvals are exempted under
Executive Order 12866
     does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     does not have Federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     is not subject to requirements of Section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the CAA; and
     does not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, this proposed rulemaking action, pertaining to New
Jersey's section 110(a)(2) infrastructure requirements for the 1997 and
2008 ozone NAAQS, 1997, 2006 and 2012 PM2.5 NAAQS, 2006
PM10 NAAQS, 2010 NO2 NAAQS, 2010 SO2
NAAQS, 2011 CO NAAQS, and 2008 lead NAAQS do not have tribal
implications as specified by Executive Order 13175 (65 FR 67249,
November 9, 2000), because the SIP is not approved to apply in Indian
country located in the state, and EPA notes that it will not impose
substantial direct costs on tribal governments or preempt tribal law.

List of Subjects in 40 CFR Part 52

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

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

    Dated: February 14, 2018.
Peter D. Lopez,
Regional Administrator, Region 2.
[FR Doc. 2018-04191 Filed 2-28-18; 8:45 am]
 BILLING CODE 6560-50-P


[Federal Register Volume 87, Number 169 (Thursday, September 1, 2022)]
[Notices]
[Pages 53818-53822]
[FR Doc No: 2022-18860]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-95616; File No. SR-FICC-2021-009]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving of Proposed Rule Change To Enhance Capital Requirements
and Make Other Changes

August 26, 2022.

I. Introduction

    On December 13, 2021, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'')
proposed rule change SR-FICC-2021-009 (the ``Proposed Rule Change'')
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder.\2\ The Proposed Rule Change
was published for comment in the Federal Register on December 29,
2021.\3\ On January 26, 2022, pursuant to Section 19(b)(2) of the
Act,\4\ the Commission designated a longer period within which to
approve, disapprove, or institute proceedings to determine whether to
approve or disapprove the Proposed Rule Change.\5\ On March 23, 2022,
the Commission instituted proceedings to determine whether to approve
or disapprove the Proposed Rule Change.\6\ On June 23, 2022, the
Commission designated a longer period for Commission action on the
proceedings to determine whether to approve or disapprove the Proposed
Rule Change.\7\ The Commission has received comments regarding the
substance of the Proposed Rule Change.\8\ For the reasons discussed
below, the Commission is approving the Proposed Rule Change.\9\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 93857 (December 22,
2021), 86 FR 74130 (December 29, 2021) (File No. SR-FICC-2021-009)
(``Notice of Filing'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ Securities Exchange Act Release No. 94066 (January 26,
2022), 87 FR 5523 (February 1, 2022) (SR-FICC-2021-009).
    \6\ Securities Exchange Act Release No. 94497 (March 23, 2022),
87 FR 18409 (March 30, 2022) (SR-FICC-2021-009).
    \7\ Securities Exchange Act Release No. 95144 (June 23, 2022),
87 FR 38807 (June 29, 2022) (SR-FICC-2021-009).
    \8\ The Commission received one comment letter that does not
bear on the Proposed Rule Change. The comment is available at
https://www.sec.gov/comments/sr-ficc-2021-009/srficc2021009.htm.
Since the proposed changes contained in this Proposed Rule Change
are similar to changes proposed simultaneously by FICC's affiliates,
National Securities Clearing Corporation and The Depository Trust
Company, the Commission has considered all public comments received
on the proposals regardless of whether the comments are submitted to
the Proposed Rule Change or to the proposals filed by FICC's
affiliates.
    \9\ Capitalized terms not defined herein are defined in FICC's
Rules, available at https://www.dtcc.com/legal/rules-and-procedures.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    FICC proposes to amend the Government Securities Division (``GSD'')
Rulebook (the ``GSD Rules'') and the Mortgage-Backed Securities
Division (``MBSD'') Clearing Rules (the ``MBSD Rules,'' and together
with the GSD Rules, the ``Rules'') of FICC in order to (A) revise
FICC's capital requirements for GSD members and MBSD members
(collectively, ``members''),\10\ (B) streamline FICC's Watch List and
enhanced surveillance list, and (C) make certain other clarifying,
technical, and supplementary changes to implement items (A) and (B).
---------------------------------------------------------------------------

    \10\ FICC states that these capital requirements have not been
updated for nearly 20 years. See Notice of Filing, supra note 3, at
74130. Although FICC has not updated capital requirements for many
of its members in nearly 20 years, during that time FICC has adopted
new membership categories with corresponding capital requirements
that FICC believes are still appropriate. As such, FICC is not
proposing changes to capital requirements for all membership
categories. See id.
---------------------------------------------------------------------------

A. Changes to FICC's Capital Requirements for Members

i. GSD Netting Members and MBSD Clearing Members
    U.S. Broker-Dealer or Future Commission Merchant Members: For
certain GSD Netting Members \11\ and MBSD Clearing Members,\12\ FICC
proposes not to change the applicable capital requirements, but to (i)
provide expressly for equivalence among measures of Excess Net Capital,
Excess Liquid Capital,\13\ and Excess Adjusted Net Capital,\14\
depending on what such members are required to report on their
regulatory filings \15\ and (ii) make some clarifying and conforming
language changes to improve the accessibility and transparency of the
capital requirements, without substantive effect. FICC also proposes to
clarify that an applicant must satisfy its applicable capital
requirements when it applies for membership and at all times
thereafter, and therefore proposes to delete language requiring that a
member satisfy its capital requirements as of the end of the calendar
month prior to the effective date of its membership.
---------------------------------------------------------------------------

    \11\ The GSD Netting Members include Dealer Netting Members,
Futures Commission Merchant Netting Members, and Inter-Dealer Broker
Netting Members.
    \12\ The MBSD Clearing Members include Dealer Clearing Members
and Inter-Dealer Broker Clearing Members.
    \13\ FICC proposes to define, in both the GSD and MBSD Rules,
Excess Liquid Capital as the difference between the Liquid Capital
of a Government Securities Broker or Government Securities Dealer
and the minimum Liquid Capital that such Government Securities
Broker or Government Securities Dealer must have to comply with the
requirements of 17 CFR Section 402.2(a), (b) and (c), or any
successor rule or regulation thereto.
    \14\ FICC proposes to define, in both the GSD and MBSD Rules,
Excess Adjusted Net Capital as the difference between the adjusted
net capital of a Futures Commission Merchant and the minimum
adjusted net capital that such Futures Commission Merchant must have
to comply with the requirements of 17 CFR Section 1.17(a)(1) or
(a)(2), or any successor rule or regulation thereto.
    \15\ In addition to these requirements, FICC is proposing that
MBSD Inter-Dealer Clearing Members have a Net Worth of $25 million.
---------------------------------------------------------------------------

    U.S. Bank and Trust Company Members: For GSD Bank Netting Members
and MBSD Bank Clearing Members, FICC proposes to (1) change the measure
of capital requirements for banks and trust companies from equity
capital to common equity tier 1 capital (``CET1 Capital''),\16\ (2)
raise the minimum capital requirements for banks and trust companies
from $100 million to $500 million, and (3) require

U.S. banks and trust companies to be well capitalized (``Well
Capitalized'').\17\
---------------------------------------------------------------------------

    \16\ Under the proposal, CET1 Capital would be defined as an
entity's common equity tier 1 capital, calculated in accordance with
such entity's regulatory and/or statutory requirements.
    \17\ FICC proposes to incorporate the definition of ``Well
Capitalized'' as that term is defined by the Federal Deposit
Insurance Corporation in its capital adequacy rules and regulations.
See 12 CFR 324.403(b)(1). See 12 CFR 324.403(b)(1).
---------------------------------------------------------------------------

    The proposal would align FICC's capital requirements with banking
regulators' changes to regulatory capital requirements over the past
several years, which have standardized and harmonized the calculation
and measurement of bank capital and leverage throughout the world.\18\
Consistent with these changes by banking regulators, FICC states that
it believes that the appropriate capital measure for members that are
banks and trust companies should be CET1 Capital and that FICC's
capital requirements for members should be enhanced to be consistent
with these increased regulatory capital requirements.\19\ FICC further
states that it believes the proposed capital requirements for banks
better measures the capital available to bank members to absorb losses
arising out of their clearance and settlement activities at FICC or
otherwise, and would help FICC more effectively manage and mitigate the
credit risks posed by its members.\20\
---------------------------------------------------------------------------

    \18\ See Notice of Filing, supra note 3, at 74134.
    \19\ See id.
    \20\ See id. at 74141.
---------------------------------------------------------------------------

    Additionally, FICC states that requiring U.S. banks and trust
companies to be Well Capitalized ensures that bank members are well
capitalized while also allowing CET1 Capital to be relative to either
the risk-weighted assets or average total assets of the bank or trust
company.\21\ FICC further states that expressly tying the definition of
Well Capitalized to the FDIC's definition of ``well capitalized'' will
ensure that the proposed requirement keeps pace with future changes to
regulatory capital requirements.\22\
---------------------------------------------------------------------------

    \21\ See id. at 74134.
    \22\ See id.
---------------------------------------------------------------------------

Foreign Broker-Dealer and Bank Members
    Currently, a member who is a foreign broker-dealer or bank is
subject to a multiplier that requires such member to maintain capital
of either 1.5, 5, or 7 times its otherwise-applicable capital
requirements.\23\
---------------------------------------------------------------------------

    \23\ The applicable multiplier is based on which generally
accepted accounting standards (``GAAP'') the non-U.S. member uses to
prepare its financial statements, when not prepared in accordance
with U.S. GAAP. See Section 4(b) of Rule 2A of the GSD Rules and
Section 2(e) of Rule 2A of the MBSD Rules, supra note 9.
---------------------------------------------------------------------------

    Foreign Broker-Dealer Members: FICC proposes to require a Foreign
Netting Member or Foreign Person Clearing Member \24\ who is a broker
or dealer to maintain a minimum of $25 million in total equity capital.
FICC states the multiplier was designed to account for the less
transparent nature of accounting standards other than U.S. GAAP.\25\
However, given that accounting standards have converged over the years,
FICC no longer believes the multiplier is necessary and its retirement
would be a welcomed simplification for both FICC and its members.\26\
---------------------------------------------------------------------------

    \24\ Under the proposal, this requirement would not apply to a
Dealer Clearing Member or Inter-Dealer Broker Clearing Member.
    \25\ See id. at 74191.
    \26\ See id. at 74191.
---------------------------------------------------------------------------

    Non-U.S. Bank Members: Like U.S. bank members, FICC proposes that
non-U.S. bank members maintain at least $500 million in CET1 Capital.
FICC proposes additional requirements for non-U.S. bank members \27\ as
follows: (1) comply with the greater of (i) the member's home country
minimum capital and ratio requirements, including any applicable
buffers, or (ii) the minimum capital and ratio standards promulgated by
the Basel Committee on Banking Supervision,\28\ (2) provide an
attestation for itself, its parent bank, and its parent bank holding
company detailing the minimum capital requirements, including any
applicable buffers, and capital ratios required by their home country
regulator,\29\ and (3) notify FICC of (i) any breach of its minimum
capital, including buffers, and ratio requirements within two business
days, or (ii) any changes to its requirements within 15 calendar days.
---------------------------------------------------------------------------

    \27\ For GSD, this includes a Foreign Netting Member that is
bank or trust company established or chartered under the laws of a
non-U.S. jurisdiction and not applying to become a Bank Netting
Member through a U.S. branch or agency. For MBSD, Foreign Person
that is a Clearing Member who is a bank or trust company established
or chartered under the laws of a non-U.S. jurisdiction and not
applying to become a Bank Clearing Member through a U.S. branch or
agency.
    \28\ See Basel Committee on Banking Supervision, The Basel
Framework, available at https://www.bis.org/basel_framework/index.htm?export=pdf. NSCC states that the proposal will align
NSCC's capital requirements with banking regulators' changes to
regulatory capital requirements over the past several years, which
have standardized and harmonized the calculation and measurement of
bank capital and leverage throughout the world. See Notice of
Filing, supra note 3, at 74190. See also supra note 30. NSCC
proposes tying its minimum requirement to the requirements
promulgated by the Basel Committee on Banking Supervision to ensure
that its non-U.S. bank members meet minimum international standards
where their home country requirements may be more lenient.
    \29\ FICC also proposes to require non-U.S. bank members to
periodically provide new attestations on at least an annual basis
and upon request by FICC.
---------------------------------------------------------------------------

    Other Foreign Members: FICC proposes that it may, based on
information provided by or concerning an applicant that is a Foreign
Netting Member or a Foreign Person who is a Clearing Member, also
assign minimum financial requirements for the applicant based on (i)
how closely the applicant resembles another existing category of
Netting Member or Clearing Member and (ii) the applicant's risk
profile, which assigned minimum financial requirements would be
promptly communicated to, and discussed with, the applicant.\30\
---------------------------------------------------------------------------

    \30\ The member must also continue to maintain compliance with
its home country's minimum financial requirements. See Section
3(a)(v) of Rule 2A of the GSD Rules and Section 1(j) of Rule 2A of
the MBSD Rules, supra note 9.
---------------------------------------------------------------------------

    Insurance Company Netting Members: FICC proposes to leave the
capital requirements applicable to Insurance Company Netting Members
unchanged, however FICC proposes to (i) specify the calculation of the
existing risk-based capital ratio and (ii) correct typographical errors
and make some clarifying and conforming language changes and add a
paragraph heading to improve the accessibility and transparency of the
capital requirements, without substantive effect.\31\ FICC also
proposes to clarify that an applicant must satisfy its applicable
capital requirements when it applies for membership and at all times
thereafter, and therefore proposes to delete language requiring that a
member satisfy its capital requirements as of the end of the calendar
month prior to the effective date of its membership.
---------------------------------------------------------------------------

    \31\ FICC proposes to make some clarifying and conforming
language changes to improve the accessibility and transparency of
the capital requirements, without substantive effect, including, for
GSD, Registered Investment Company Netting Members, and, for MBSD,
Unregistered Investment Pool Clearing Members, Government Securities
Issuer Clearing Members, Insured Credit Union Clearing Members, and
Registered Investment Company Clearing Members.
---------------------------------------------------------------------------

Other Types of Netting Members and Clearing Members
    Currently, other types of entities applying to be a Netting Member
or Clearing Member, are required to satisfy such minimum standards of
financial responsibility as determined by FICC. FICC proposes to adopt
more specific standards for these different types of members.
    Government Securities Issuer Netting Members: Currently, FICC does
not have a capital requirement for this particular category of Netting
Member. FICC proposes to require equity capital of at least $100
million.

    Other Netting Members and Clearing Members: Similar to other
foreign member applicants discussed above, for other Netting Members or
Clearing Members with no specific financial responsibilities
requirements, FICC proposes that such Netting Members or Clearing
Members be in compliance with their regulator's minimum financial
requirements. FICC also proposes that it may, based on information
provided by or concerning an applicant applying to become a Netting
Member or Clearing Member, also assign minimum financial requirements
for the applicant based on (i) how closely the applicant resembles an
existing category of Netting Member or Clearing Member and (ii) the
applicant's risk profile, which assigned minimum financial requirements
would be promptly communicated to, and discussed with, the applicant.
ii. GSD Funds-Only Settling Bank Members and MBSD Cash Settling Bank
Members
    FICC proposes to require that a Funds-Only Settling Bank or a Cash
Settling Bank Member that, in accordance with such entity's regulatory
and/or statutory requirements, calculates a Tier 1 RBC Ratio must have
a Tier 1 RBC Ratio \32\ equal to or greater than the Tier 1 RBC Ratio
that would be required for such Funds-Only Settling Bank to be Well
Capitalized. FICC does not currently have a capital requirement for
Funds-Only Settling Banks or Cash Settling Bank Members.
---------------------------------------------------------------------------

    \32\ For both GSD and MBSD, FICC proposes to define the Tier 1
RBC Ratio is the ratio of an entity's tier 1 capital to its total
risk-weighted assets, calculated in accordance with such entity's
regulatory and/or statutory requirements.
---------------------------------------------------------------------------

iii. GSD Sponsoring Members
    FICC proposes to leave the required equity capital for a Bank
Netting Member applying to become a Category 1 Sponsoring Member
unchanged, however FICC proposes to (i) replace the previous references
to such Bank Netting Member or its bank holding company being ``well-
capitalized'' with the new defined term Well Capitalized and (ii) make
some clarifying and conforming language changes to improve the
accessibility and transparency of the capital requirements, without
substantive effect.
    FICC also proposes to clarify that an applicant must satisfy its
applicable capital requirements when it applies for membership and at
all times thereafter, and therefore proposes to delete language
requiring that a member satisfy its capital requirements as of the end
of the calendar month prior to the effective date of its membership.
iv. GSD CCIT Members
    FICC proposes to leave the capital requirements for a CCIT Member
unchanged but delete the required multiplier for a CCIT Member that
does not prepare its financial statements in accordance with U.S.
GAAP.\33\ FICC also proposes to fix a typographical error and clarify
existing language that the eligibility, qualifications and standards
set forth in respect of an applicant shall continue to be met upon an
applicant's admission as a CCIT Member and at all times while a CCIT
Member.
---------------------------------------------------------------------------

    \33\ See supra text accompanying note 23.
---------------------------------------------------------------------------

v. Implementation Timeframe
    FICC proposes to implement the proposed changes to its membership
capital requirements one year after the Commission's approval of the
Proposed Rule Change.\34\ During the one-year period, FICC would
periodically provide members with an estimate of their capital
requirements based on the proposal.\35\
---------------------------------------------------------------------------

    \34\ The changes to FICC's Watch List and enhanced surveillance
list discussed in Section II.B below will not be subject to the one
year delayed implementation.
    \35\ See Notice of Filing, supra note 3, at 74141.
---------------------------------------------------------------------------

B. Changes to FICC's Watch List and Enhanced Surveillance List

    FICC currently uses two credit risk monitoring systems: a Watch
List and a separate list of members subject to enhanced surveillance
(``enhanced surveillance list''). The current Watch List includes
members that have either (1) receive a heightened credit risk rating
based on FICC's Credit Risk Rating Matrix (``CRRM''),\36\ or (2) been
deemed to pose a heightened credit risk to FICC or other members.\37\
FICC may require a member placed on the Watch List to post additional
collateral above the member's margin calculated pursuant to FICC's
margin methodology.\38\ Members on the Watch List are also subject to
more thorough monitoring by FICC of its financial condition and
operational capability.\39\
---------------------------------------------------------------------------

    \36\ FICC members generally are subject to the CRRM, in which
each member is rated on a scale of one to seven with seven
reflecting the highest credit risk posed to FICC. Members who
receive a CRRM rating of five to seven are currently, automatically
placed on the Watch List. See Rule 1 and Section 12 of Rule 3 of the
GSD Rules and Rule 1 and Section 11 of Rule 3 of the MBSD Rules,
supra note 9.
    \37\ See id. In making its determination, NSCC may consider any
information NSCC obtains through continuously monitoring its members
for compliance with its membership requirements.
    \38\ See Section 12(e) of Rule 3 of the GSD Rules and Section
11(e) of Rule 3 of the MBSD Rules, supra note 9.
    \39\ See Section 12(f) of Rule 3 of the GSD Rules and Section
11(f) of Rule 3 of the MBSD Rules, supra note 9.
---------------------------------------------------------------------------

    FICC also maintains a separate enhanced surveillance list, which
includes members who are subject to a more thorough monitoring of its
financial condition and operational capability based on FICC's
determination that the member poses heightened credit risks, which may
include members already on or soon to be on the Watch List.\40\ Members
on the enhanced surveillance list are reported to FICC's management
committees, are regularly reviewed by FICC senior management, and may
be required to make more frequent financial disclosures to FICC.\41\
---------------------------------------------------------------------------

    \40\ See id.
    \41\ See id.
---------------------------------------------------------------------------

    FICC believes that maintaining two separate lists has confused
various FICC stakeholders,\42\ so FICC proposes to remove references to
an enhanced surveillance list from its Rules.\43\ FICC also proposes to
remove members with a CRRM rating of five from being automatically
included on the Watch List. FICC states that members with a CRRM rating
of five represent the largest single CRRM rating category, but FICC
does not believe all such members present heightened credit
concerns.\44\ FICC would still retain the authority to place a member
with a CRRM rating of five on the Watch List or otherwise if FICC deems
the member poses a heightened risk to FICC. FICC believes that these
procedures would allow it to appropriately monitor the credit risks
presented to it by its members and that the enhanced surveillance list
is not necessary because members on the enhanced surveillance list are
subject to the same potential consequences as members placed on the
Watch List.\45\
---------------------------------------------------------------------------

    \42\ See Notice of Filing, supra note 3, at 74140.
    \43\ For any members currently on the enhanced surveillance list
that are not also on the Watch List, FICC will add these members to
the Watch List. See id.
    \44\ See id. FICC states that the majority of members with a
CRRM rating of 5 are either rated ``investment grade'' by external
rating agencies or, in the absence of external ratings, FICC
believes are equivalent to investment grade, as many of these
members are primary dealers and large foreign banks. See id.
    \45\ See id. at 74133, 74140.
---------------------------------------------------------------------------

C. Other Changes

    FICC proposes to (1) revise or add headings and sub-headings as
appropriate, (2) revise defined terms and add appropriate defined terms
to facilitate the proposed changes, (3) rearrange and consolidate
paragraphs to promote readability, (4) fix

typographical and other errors, and (5) make specified other changes in
order to improve clarity and the accessibility and transparency of the
Rules.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \46\ provides that the Commission
shall approve a proposed rule change of a self-regulatory organization
if it finds that such proposed rule change is consistent with the
requirements of the Act and rules and regulations thereunder applicable
to such organization. After careful review of the Proposed Rule Change
and consideration of the comments on the proposal, the Commission finds
that the Proposed Rule Change is consistent with the requirements of
the Act and the rules and regulations thereunder applicable to FICC. In
particular, the Commission finds that the Proposed Rule Change is
consistent with Sections 17A(b)(3)(F) of the Act,\47\ and Rules 17Ad-
22(e)(4) and (e)(18) thereunder,\48\ for the reasons described below.
---------------------------------------------------------------------------

    \46\ 15 U.S.C. 78s(b)(2)(C).
    \47\ 15 U.S.C. 78q-1(b)(3)(F).
    \48\ 17 CFR 240.17Ad-22(e)(4) and (e)(18).
---------------------------------------------------------------------------

A. Consistency with Section 17A(b)(3)(F) of the Act

    Section 17A(b)(3)(F) of the Act requires, among other things, that
the rules of a clearing agency be designed to promote the prompt and
accurate clearance and settlement of securities transactions, assure
the safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible, and
protect investors and the public interest; and are not designed to
permit unfair discrimination in the admission of participants or among
participants in the use of the clearing agency.\49\ Based on its review
of the record, the Commission finds that the proposal is consistent
with Section 17A(b)(3)(F) of the Act.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

i. Prompt and Accurate Clearance and Settlement and Safeguarding of
Securities and Funds
    The Commission believes that the proposal is designed to promote
the prompt and accurate clearance and settlement of securities
transactions, and assure the safeguarding of securities and funds which
are in the custody or control of FICC. The Commission believes that
membership standards at covered clearing agencies should seek to limit
the potential for member defaults and, as a result, losses to non-
defaulting members in the event of a member default. As the Commission
stated when adopting the Covered Clearing Agency Standards, using risk-
based criteria helps to protect investors by limiting the participants
of a covered clearing agency to those for which the covered clearing
agency has assessed the likelihood of default.\50\ More specifically,
the Commission believes that membership standards related to minimum
capital requirements serve as one tool in limiting this default risk by
ensuring that members have sufficient capital to meet its obligations
and to absorb losses.
---------------------------------------------------------------------------

    \50\ See Securities Exchange Act Release No. 78961 (September
28, 2016), 81 FR 70786, 70839 (October 13, 2016) (S7-03-14)
(``Covered Clearing Agency Standards'').
---------------------------------------------------------------------------

    Covered clearing agencies employ membership standards as the first
line of defense in their risk management, ensuring that its members,
among other things, hold sufficient financial resources to meet the
obligations that they may incur as a member of the covered clearing
agency. These requirements are separate from the collection of margin,
which addresses the risk of the cleared transactions. Instead, capital
requirements seek to ensure that FICC has sufficiently addressed the
member's counterparty credit risk, that is, that the member has
sufficient financial resources both to meet its margin requirements or
potential loss allocation in the event of a member default; these
requirements are not a substitute for margin.
    The Commission also considered other factors as support for its
determination that these proposed minimum capital requirements are
reasonable. The Commission understands that FICC has not revised these
requirements in over 20 years. During that time, the Commission
recognizes that there have been significant changes to the financial
markets during that timeframe, such as new risks arising from cyber
threats and online trading technologies, and heightened operational
risk due to a more sophisticated and complex business environment. In
addition, the Commission understands that FICC considered several
factors, including inflation and the capital requirements of other
financial market infrastructures, and the Commission agrees that these
factors support the reasonableness of the proposed minimum capital
requirements.\51\ Further, the Commission believes that the consistency
between the proposed requirements and those of other financial market
infrastructures tends to indicate that such requirements should address
the obligations attendant to participating in a financial market
infrastructure like FICC, i.e., that they are tailored to ensure that a
member can meet its requirements to FICC in the event of, for example,
a loss allocation or an intraday margin call. Finally, based on its
supervisory experience, the Commission understands that trading volume,
in terms of both number of transactions and notional value, have
increased significantly across the FICC membership during that time
period.\52\ The Commission believes that this significant increase in
trading volumes represents additional risk for FICC and supports the
need for the proposed minimum capital requirements. Taken together, the
Commission believes that these factors support its determination
regarding the reasonableness of the proposed minimum capital
requirements, as they would allow FICC to ensure that its members have
capital sufficient to address the risks posed by their activities in
addition to the margin for particular transactions.
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    \51\ See Notice, supra note 3, at 74186, (citing, e.g., The
Options Clearing Corporation, OCC Rules, Rule 301(a), available at
https://www.theocc.com/Company-Information/Documents-and-Archives/ByLaws-and-Rules (requiring broker-dealers to have initial net
capital of not less than $2,500,000); Chicago Mercantile Exchange
Inc., CME Rulebook, Rule 970.A.1, available at https://www.cmegroup.com/rulebook/CME/I/9/9.pdf (requiring clearing members
to maintain capital of at least $5 million, with banks required to
maintain minimum tier 1 capital of at least $5 billion).
    \52\ See, e.g., DTCC Annual Reports, available at https://www.dtcc.com/about/annual-report, and CPMI-IOSCO Quantitative
Disclosures for FICC, section 23.1 (setting forth daily average
volumes by asset class and average notional value), available at
https://www.dtcc.com/legal/policy-and-compliance.
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    For most members, the changes would increase the minimum capital
requirements and ensure that members, such as U.S. and foreign bank
members, would continue to hold sufficient financial resources
consistent with those requirements and their applicable regulatory
obligations, although they would not actually increase the amounts held
as the members generally meet the new requirements already based on
their current capital. Through these changes, FICC should be able to
ensure members have sufficient capital to meet its obligations and to
absorb losses, which could further limit the potential for a member
default. In turn, limiting the potential for a member default should
promote the prompt and accurate clearance and settlement of securities
transactions. In addition, FICC's proposed minimum capital requirements
would thereby further limit potential losses to non-defaulting members
in the event of a member

default, which helps assure the safeguarding of securities and funds
which are in the custody or control of FICC.
    Additionally, the Commission believes FICC's proposal to streamline
its credit risk monitoring systems into one Watch List, as described
above in Section II.B., would eliminate existing confusion and should
enhance FICC's efficiency in monitoring its members' credit risk by
focusing on only those members that present heightened credit risk.
Similarly, the Commission believes FICC's proposal to make clarifying
and transparency changes, as described above in Section II.C., would
remove ambiguity and ensure FICC's Rules are clear and accurate, which
would help ensure FICC's members understand its obligations to FICC and
FICC's clearance and settlement activities. Therefore, the Commission
believes these changes should promote the prompt and accurate clearance
and settlement of securities transactions.
ii. Protection of Investors and the Public Interest
    The Commission believes that FICC's proposal to increase the
capital requirements applicable to its members would protect investors
and the public interest. As discussed above in Section III.A.1, the
Commission believes the proposal is designed to strengthen FICC's risk
management practices. Because a defaulting member could place stresses
on FICC with respect to FICC's ability to meet its clearance and
settlement obligations upon which the broader financial system relies,
it is important that FICC has strong membership requirements to ensure
that its members are able to meet their obligations. By reducing the
risk of a member default and any subsequent allocation of losses, the
proposal should help to protect investors and the public interest by
helping to ensure that investors' securities transactions are cleared
and settled promptly and accurately and to assure the safeguarding of
securities and funds which are in FICC's custody or control.
    For the reasons discussed in this Sections III.A., the Commission
finds that the Proposed Rule Change is consistent with the requirements
of Section 17A(b)(3)(F) of the Act.\53\
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    \53\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(4)

    Rule 17Ad-22(e)(4)(i) under the Act requires that a covered
clearing agency establish, implement, maintain and enforce written
policies and procedures reasonably designed to effectively identify,
measure, monitor, and manage its credit exposures to participants and
those arising from its payment, clearing, and settlement processes,
including by maintaining sufficient financial resources to cover its
credit exposure to each participant fully with a high degree of
confidence.\54\
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    \54\ 17 CFR 240.17Ad-22(e)(4)(i).
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    Increasing membership capital requirements, as described above in
Section II.A., would help ensure that members maintain sufficient
capital to meet their obligations to FICC, including potential future
obligations required to fund its trading activity with FICC or to
absorb losses allocated to it. By ensuring members' ability to meet
their financial obligations to FICC, the proposal, in turn, will help
ensure FICC continues to maintain sufficient financial resources to
cover its credit exposure to each participant fully with a high degree
of confidence.
    Additionally, the proposal to revise the Watch List, as described
above in Section II.B, could help FICC better allocate its resources
for monitoring its credit exposures to members, which, in turn, could
help FICC more effectively manage and mitigate its credit exposures to
its members. Therefore, the Commission finds the Proposed Rule Change
is consistent with Rule 17Ad-22(e)(4)(i) under the Exchange Act.

C. Consistency With Rule 17Ad-22(e)(18)

    Rule 17Ad-22(e)(18) under the Act requires that a covered clearing
agency establish, implement, maintain, and enforce written policies and
procedures reasonably designed to establish objective, risk-based, and
publicly disclosed criteria for participation, which permit fair and
open access by direct and, where relevant, indirect participants and
other financial market utilities, require participants to have
sufficient financial resources and robust operational capacity to meet
obligations arising from participation in the clearing agency, and
monitor compliance with such participation requirements on an ongoing
basis.\55\
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    \55\ 17 CFR 240.17Ad-22(e)(18).
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    As described above in Section II.A., the proposal will increase
FICC's minimum capital requirements for its members. For both U.S. and
non-U.S. bank and trust company members, the proposal will revise how
net capital is defined to incorporate a measurement used by banking
regulators and impose additional financial requirements on non-U.S.
bank and trust company members tied to home country regulatory
requirements and international standards. For non-U.S. broker-dealers
and government securities issuers, the proposal would eliminate
conditional and discretionary minimum capital requirements in favor of
establishing objective minimum capital requirements. The proposal will
also establish a category for all other members, which will impose
minimum financial requirements tied to that entity's regulatory
requirements, which FICC may increase based on how closely it resembles
another membership type and its risk-profile.
    Additionally, as discussed above in Section III.A.i, the Commission
understands that FICC considered several additional risks faced by its
members, both qualitative and quantitative, in determining its proposed
capital requirements.\56\ Therefore, the Commission concludes the
proposal is reasonably designed to establish objective, risk-based, and
publicly disclosed criteria for participation. For the reasons
described above, the Commission finds that the Proposed Rule Change is
consistent with Rule 17Ad-22(e)(18) under the Act.\57\
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    \56\ See Notice of Filing, supra note 3, at 74131.
    \57\ Id.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the Act,
and in particular with the requirements of Section 17A of the Act \58\
and the rules and regulations promulgated thereunder.
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    \58\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\59\ that proposed rule change SR-FICC-2021-009, be, and hereby is,
approved.\60\
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    \59\ 15 U.S.C. 78s(b)(2).
    \60\ In approving the Proposed Rule Change, the Commission
considered its impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
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    \61\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-18860 Filed 8-31-22; 8:45 am]
BILLING CODE 8011-01-P


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