[Federal Register: February 4, 2010 (Volume 75, Number 23)]
[Notices]
[Page 5814-5821]
[DOCID:fr04fe10-80]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 29127; 812-13559]

ShariahShares Exchange-Traded Fund Trust, et al.; Notice of
Application

January 29, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d) and 22(e) of the Act and rule 22c-1
under the Act, under section 12(d)(1)(J) of the Act for an exemption
from sections 12(d)(1)(A) and (B) of the Act, and under sections 6(c)
and 17(b) of the Act for an exemption from sections 17(a)(1) and (a)(2)
of the Act.

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Summary of Application: Applicants request an order that would permit
(a) certain open-end management investment companies and their series
to issue shares (``Fund Shares'') that can be redeemed only in large
aggregations (``Creation Unit Aggregations''); (b) secondary market
transactions in Fund Shares to occur at negotiated prices; (c) certain
series to pay redemption proceeds, under certain circumstances, more
than seven days after the tender of Fund Shares for redemption; (d)
certain affiliated persons of the series to deposit securities into,
and receive securities from, the series in connection with the purchase
and redemption of Creation Unit Aggregations; and (e) certain
registered management investment companies and unit investment trusts
outside of the same group of investment companies as the series to
acquire Fund Shares.

Applicants: ShariahShares Exchange-Traded Fund Trust (the ``Trust'')
and Florentez Investment Management, Inc. (the ``Adviser'').

Filing Dates: The application was filed on July 31, 2008, and amended
on September 16, 2009, and January 29, 2010. Applicants have agreed to
file an amendment during the notice period, the substance of which is
reflected in this notice.

Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on February 19, 2010 and should be accompanied by proof of service
on applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-

1090; Applicants, 12 Brillantez, Irvine, CA 92620.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel at
(202) 551-6817, or Julia Kim Gilmer, Branch Chief, at<PHONE_NUMBER>
(Division of Investment Management, Office of Investment Company
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling<PHONE_NUMBER>.

Applicants' Representations

    1. The Trust is registered as an open-end management investment
company and is organized as a Delaware statutory trust. The Trust will
initially offer two series (``Initial Index Funds''), each of which
will track an index of selected equity securities.\1\ Applicants may
establish one or more registered investment companies in addition to
the Trust that may be formed as a separate trust or a separate series
of the Trust, or one or more trusts in the future (``Future Index
Funds,'' collectively with the Initial Index Funds, the ``Index
Funds''). Each Future Index Fund will be advised by the Adviser or an
entity controlling, controlled by, or under common control with the
Adviser, and comply with the terms and conditions stated in the
application.\2\
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    \1\ The Initial Index Funds are ShariahShares FTSE USA Fund and
ShariahShares FTSE Developed ex-U.S. Fund.
    \2\ All existing entities that intend to rely on the requested
order have been named as applicants. Any other existing or future
entity that subsequently relies on the order will comply with the
terms and conditions of the application.
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    2. The Adviser will serve as the investment adviser to the Index
Funds. The Adviser will be registered as an investment adviser under
the Investment Advisers Act of 1940 (``Advisers Act'') prior to the
commencement of investment operations of any Index Fund. The Adviser
may enter into sub-advisory agreements with one or more sub-advisers
with respect to the Index Funds (the ``Sub-Advisers''). Each Sub-
Adviser will be registered under the Advisers Act. A broker-dealer
registered under the Securities Exchange Act of 1934 (the ``Exchange
Act'' and such broker-dealer, a ``Broker'') will serve as the principal
underwriter and distributor for the Creation Unit Aggregations of Fund
Shares (``Distributor''). The Distributor will not be affiliated with
the Adviser or a national securities exchange as defined in section
2(a)(26) of the Act (``Exchange'').
    3. Each Index Fund will hold certain equity securities (``Portfolio
Securities'') selected to correspond generally to the price and yield
performance, before fees and expenses, of a specified equity securities
index (an ``Underlying Index'').\3\ Certain of the Underlying Indicies
will be comprised of equity securities issued by domestic issuers and
non-domestic issuers meeting the requirements for trading in U.S.
markets (``Domestic Index''). Other Underlying Indicies may be
comprised of foreign equity securities or a combination of domestic and
foreign equity securities (``Foreign Index''). Index Funds that track
Domestic Indices are referred to as ``Domestic Funds'' and Index Funds
that track Foreign Indices are referred to as ``Foreign Funds.'' No
entity that creates, compiles, sponsors or maintains an Underlying
Index (``Index Provider'') is or will be an affiliated person, as
defined in section 2(a)(3) of the Act, or an affiliated person of an
affiliated person, of the Trust, an Index Fund, the Adviser, any Sub-
Adviser to or promoter of an Index Fund, or the Distributor. The Index
Provider to the Initial Index Funds is FTSE Group.
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    \3\ The Underlying Indicies for the Initial Index Funds are FTSE
Shariah USA Index and FTSE Shariah Developed ex U.S. Index.
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    4. The investment objective of each Index Fund will be to provide
investment results, before fees and expenses, that correspond generally
to the price and yield performance of its Underlying Index.\4\ The
value of each Index Fund's Underlying Index will be disseminated every
15 seconds throughout the trading day. An Index Fund will utilize
either a ``replication'' or ``representative sampling'' strategy which
will be disclosed with regard to each Index Fund in its prospectus
(``Prospectus'').\5\ An Index Fund using a replication strategy will
invest in the Component Securities in its Underlying Index in
approximately the same proportions as in the Underlying Index. An Index
Fund using a representative sampling strategy will invest in some, but
not necessarily all of the Component Securities.\6\ This may be the
case, for example, when there are practical difficulties or substantial
costs involved in compiling an entire Underlying Index basket that
contains hundreds of Component Securities, or in certain instances,
when a Component Security is illiquid. Applicants anticipate that an
Index Fund that uses representative sampling will not track the
performance of its Underlying Index with the same degree of accuracy as
an investment vehicle that invests in every Component Security of the
Underlying Index with the same weighting as the Underlying Index.
Applicants expect that each Index Fund will have a tracking error
relative to the performance of its Underlying Index of less than 5
percent.
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    \4\ Applicants represent that an Index Fund will invest at least
80% of its total assets, exclusive of securities lending collateral,
in the component securities that comprise its Underlying Index
(``Component Securities'') or, in the case of Foreign Funds,
Component Securities and depositary receipts representing such
securities. ``Depositary Receipts'' will typically be American
Depositary Receipts but may include Global Depositary Receipts and
Euro Depositary Receipts. Each Index Fund also may invest up to 20%
of its assets in certain futures, stock options, options on stock
index futures and swap contracts as related to its respective
Underlying Index and its Component Securities, cash and cash
equivalents, as well as in stocks not included in its Underlying
Index, but which the Adviser or Sub-Adviser believes will help the
Index Fund track its Underlying Index.
    \5\ All representations and conditions contained in the
application that require an Index Fund to disclose particular
information in the Index Fund's Prospectus and/or annual report
shall be effective with respect to the Index Fund until the time
that the Index Fund complies with disclosure requirements adopted by
the Commission in Investment Company Act Release No. 28584 (Jan. 13,
2009).
    \6\ Under the representative sampling strategy, stocks are
selected for inclusion in an Index Fund to have aggregate investment
characteristics, fundamental characteristics, and liquidity measures
similar to those of the Index Fund's Underlying Index taken in its
entirety.
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    5. Funds Shares will be sold at a price between $40 and $250 in
Creation Unit Aggregations which will have an initial price range of
$1,000,000 to $25,000,000. All orders to purchase Creation Unit
Aggregations must be placed with the Distributor by or through a party
that has entered into an agreement with the Distributor (``Authorized
Participant''). The Distributor will be responsible for transmitting
the orders to the Index Funds. An Authorized Participant must be
either: (a) A broker-dealer or other participant in the continuous net
settlement system of the National Securities Clearing Corporation, a
clearing agency registered with the Commission, or (b) a participant in
the Depository Trust Company (``DTC'', and such participant, ``DTC
Participant''). Fund Shares generally will be sold in Creation Unit
Aggregations in exchange for an in-kind deposit by the purchaser of a
portfolio of securities designated by the Adviser or the Sub-Adviser to
correspond generally to the price and yield performance of the relevant
Underlying Index (the ``Deposit Securities''), together with the
deposit of a specified cash payment (``Balancing Amount''). The
Balancing Amount is an amount equal to the difference between

(a) the net asset value (``NAV'') (per Creation Unit Aggregation) of an
Index Fund and (b) the total aggregate market value (per Creation Unit
Aggregation) of the Deposit Securities.\7\ An Index Fund may permit a
purchaser of Creation Unit Aggregations to substitute cash in lieu of
depositing some or all of the requisite Deposit Securities if the
Adviser or Sub-Adviser believed such method would reduce the Index
Fund's transaction costs or enhance the Index Fund's operating
efficiency.\8\
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    \7\ Each Index Fund will sell and redeem Creation Unit
Aggregations on a ``Business Day'' which includes any day that an
Index Fund is required to be open under Section 22(e) of the Act.
Each Business Day, prior to the opening of trading on the primary
listing Exchange, the list of names and amount of each security
constituting the current Deposit Securities and the Balancing
Amount, effective as of the previous Business Day, will be made
available. Any Exchange on which Fund Shares are listed will
disseminate, every 15 seconds during its regular trading hours,
through the facilities of the Consolidated Tape Association, an
amount per Fund Share representing the sum of the estimated
Balancing Amount and the current value of the Deposit Securities.
    \8\ Applicants state that in some circumstances or in certain
countries, it may not be practicable or convenient, or permissible
under the laws of certain countries or the regulations of certain
foreign stock exchanges, for a Foreign Fund to operate exclusively
on an ``in-kind'' basis. Applicants also note that when a
substantial rebalancing of a Foreign Fund's portfolio is required,
the Adviser or Sub-Adviser might prefer to receive cash rather than
stocks so that the Foreign Fund may avoid transaction costs involved
in liquidating part of its portfolio to achieve the rebalancing.
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    6. An investor purchasing or redeeming a Creation Unit Aggregation
from an Index Fund will be charged a fee (``Transaction Fee'') to
prevent the dilution of the interests of the remaining shareholders
resulting from costs in connection with the purchase or redemption of
Creation Unit Aggregations.\9\ The exact amounts of Transaction Fees
relevant to each Index Fund (including the maximum Transaction Fee)
will be fully disclosed in the Prospectus of such Index Fund. The
method for calculating the Transaction Fees will be disclosed in each
Prospectus or statement of additional information (``SAI''). The
Distributor will be responsible for delivering a Prospectus to those
persons purchasing Creation Unit Aggregations, and for maintaining
records of both the orders placed with it and the confirmations of
acceptance furnished. In addition, the Distributor will maintain a
record of the instructions given to the applicable Index Fund to
implement the delivery of Fund Shares.
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    \9\ Where an Index Fund permits a purchaser to substitute cash
in lieu of depositing a portion of the requisite Deposit Securities,
the purchaser may be assessed a higher Transaction Fee to cover the
cost of purchasing such Deposit Securities, including operational,
processing and brokerage costs, and part or all of the spread
between the expected bid and the offer side of the market relating
to such Deposit Securities.
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    7. Purchasers of Fund Shares in Creation Unit Aggregations may hold
such Fund Shares or may sell such Fund Shares into the secondary
market. Fund Shares will be listed and traded on an Exchange. It is
expected that one or more member firms of a listing Exchange will be
designated to act as a specialist or market maker and maintain a market
for Fund Shares trading on the Exchange (each a ``Market Maker'').
Prices of Fund Shares trading on an Exchange will be based on the
current bid/offer market. Fund Shares sold in the secondary market will
be subject to customary brokerage commissions and charges.
    8. Applicants expect that purchasers of Creation Unit Aggregations
will include institutional investors and arbitrageurs (which could
include institutional investors). A Market Maker, in providing a fair
and orderly secondary market for the Fund Shares, also may purchase
Creation Unit Aggregations for use in its market-making activities.
Applicants expect that secondary market purchasers of Fund Shares will
include both institutional investors and retail investors.\10\
Applicants expect that the price at which Fund Shares trade will be
disciplined by arbitrage opportunities created by the ability to
continually purchase or redeem Creation Unit Aggregations at their NAV,
which should ensure that Fund Shares will not trade at a material
discount or premium.
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    \10\ Fund Shares will be registered in book-entry form only. DTC
or its nominee will be the registered owner of all outstanding Fund
Shares. DTC or DTC Participants will maintain records reflecting
beneficial owners of Fund Shares.
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    9. Fund Shares will not be individually redeemable, and owners of
Fund Shares may acquire those Fund Shares from the Index Fund, or
tender such Fund Shares for redemption to the Index Fund, in Creation
Unit Aggregations only. To redeem, an investor will have to accumulate
enough Fund Shares to constitute a Creation Unit Aggregation.
Redemption orders must be placed by or through an Authorized
Participant. An investor redeeming a Creation Unit Aggregation
generally will receive (a) Portfolio Securities designated to be
delivered for Creation Unit Aggregation redemptions (``Fund
Securities'') on the date that the request for redemption is made\11\
and (b) a ``Cash Redemption Payment,'' consisting of an amount
calculated in the same manner as the Balancing Amount, although the
actual amount of the Cash Redemption Payment may differ from the
Balancing Amount if the Fund Securities are not identical to the
Deposit Securities on that day. An investor may receive the cash
equivalent of a Fund Security in certain circumstances, such as if the
investor is constrained from effecting transactions in the security by
regulation or policy.
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    \11\ As a general matter, the Deposit Securities and Fund
Securities will correspond pro rata to the securities held by each
Index Fund, but Fund Securities received on redemption may not
always be identical to Deposit Securities deposited in connection
with the purchase of Creation Unit Aggregations for the same day.
The Index Funds will comply with the Federal securities laws in
accepting Deposit Securities and satisfying redemptions with Fund
Securities, including that the Deposit Securities and Fund
Securities are sold in transactions that would be exempt from
registration under the Securities Act of 1933.
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    10. Neither the Trust nor any Index Fund will be marketed or
otherwise held out as an ``open-end investment company'' or a ``mutual
fund.'' Instead, each Index Fund will be marketed as an ``exchange-
traded fund,'' an ``investment company,'' a ``fund,'' or a ``trust.''
All marketing materials that describe the features or method of
obtaining, buying or selling Creation Unit Aggregations or Fund Shares
traded on an Exchange, or refer to redeemability, will prominently
disclose that Fund Shares are not individually redeemable and that the
owners of Fund Shares may purchase or redeem Fund Shares from the Index
Fund in Creation Unit Aggregations only. The same approach will be
followed in the SAI, shareholder reports and investor educational
materials issued or circulated in connection with the Fund Shares. The
Index Funds will provide copies of their annual and semi-annual
shareholder reports to DTC Participants for distribution to
shareholders.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and (B) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy

and provisions of the Act. Section 17(b) of the Act authorizes the
Commission to exempt a proposed transaction from section 17(a) of the
Act if evidence establishes that the terms of the transaction,
including the consideration to be paid or received, are reasonable and
fair and do not involve overreaching on the part of any person
concerned, and the proposed transaction is consistent with the policies
of the registered investment company and the general provisions of the
Act. Section 12(d)(1)(J) of the Act provides that the Commission may
exempt any person, security, or transaction, or any class or classes of
persons, securities or transactions, from any provisions of section
12(d)(1) if the exemption is consistent with the public interest and
the protection of investors.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the owner, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because Fund Shares will not be individually redeemable,
applicants request an order that would permit the Index Funds to
register as open-end management investment companies and issue Fund
Shares that are redeemable in Creation Unit Aggregations only.
Applicants state that investors may purchase Fund Shares in Creation
Unit Aggregations and redeem Creation Unit Aggregations from each Index
Fund. Applicants further state that because Creation Unit Aggregations
may always be purchased and redeemed at NAV, the market price of the
Fund Shares should not vary substantially from their NAV.

Section 22(d) of the Act and Rule 22c-1 under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security, which is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming or repurchasing
a redeemable security do so only at a price based on its NAV.
Applicants state that secondary market trading in Fund Shares will take
place at negotiated prices, not at a current offering price described
in an Index Fund's Prospectus, and not at a price based on NAV. Thus,
purchases and sales of Fund Shares in the secondary market will not
comply with section 22(d) of the Act and rule 22c-1 under the Act.
Applicants request an exemption under section 6(c) from these
provisions.
    5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Fund
Shares. Applicants maintain that while there is little legislative
history regarding section 22(d), its provisions, as well as those of
rule 22c-1, appear to have been designed to (a) prevent dilution caused
by certain riskless-trading schemes by principal underwriters and
contract dealers, (b) prevent unjust discrimination or preferential
treatment among buyers, and (c) ensure an orderly distribution of
investment company shares by eliminating price competition from dealers
offering shares at less than the published sales price and who could
pay investors a little more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted
by permitting Fund Shares to trade in the secondary market at
negotiated prices. Applicants state that (a) secondary market trading
in Fund Shares does not directly involve Index Fund assets and will not
result in dilution of an investment in Fund Shares, and (b) to the
extent different prices exist during a given trading day, or from day
to day, such variances occur as a result of third-party market forces,
such as supply and demand. Therefore, applicants assert that secondary
market transactions in Fund Shares will not lead to discrimination or
preferential treatment among purchasers. Finally, applicants contend
that the proposed distribution system will be orderly because
competitive forces in the marketplace will ensure that the difference
between the market price of Fund Shares and their NAV remains narrow.

Section 22(e)

    7. Section 22(e) generally prohibits a registered investment
company from suspending the right of redemption or postponing the date
of payment of redemption proceeds for more than seven days after the
tender of a security for redemption. Applicants state that settlement
of redemptions for a Foreign Fund will be contingent not only on the
securities settlement cycle of the United States market, but also on
the delivery cycles in local markets for the underlying foreign
securities held by a Foreign Fund. Applicants state that delivery
cycles for transferring Portfolio Securities to redeeming investors,
coupled with local market holiday schedules, may require a delivery
process longer than seven calendar days for the Foreign Funds.
Applicants request relief under section 6(c) of the Act from section
22(e) to allow the Foreign Funds to pay redemption proceeds up to
fourteen calendar days after the tender of a Creation Unit Aggregation
for redemption. Except as disclosed in the relevant Foreign Fund's
Prospectus and/or SAI, applicants expect that each Foreign Fund will be
able to deliver redemption proceeds within seven days.\12\ With respect
to future Foreign Funds, applicants seek the same relief from section
22(e) only to the extent that circumstances similar to those described
in the application exist.
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    \12\ Rule 15c6-1 under the Exchange Act requires that most
securities transactions be settled within three business days of the
trade. Applicants acknowledge that no relief obtained from the
requirements of section 22(e) will affect any obligations applicants
may have under rule 15c6-1.
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    8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the payment of
redemption proceeds. Applicants assert that the requested relief will
not lead to the problems that section 22(e) was designed to prevent.
Applicants state that the SAI will disclose those local holidays (over
the period of at least one year following the date of the SAI), if any,
that are expected to prevent the delivery of redemption proceeds in
seven calendar days, and the maximum number of days, up to fourteen
calendar days, needed to deliver the proceeds for each Foreign Fund.
Applicants are not seeking relief from section 22(e) with respect to
Foreign Funds that will not effect in-kind purchases and redemptions of
Creation Unit Aggregations.

Section 12(d)(1)

    9. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered investment company from acquiring securities of an
investment company if such securities represent more than 3% of the
total outstanding voting stock of the acquired company, more than 5% of
the total assets of the acquiring company, or, together with the
securities of any other investment companies, more than 10% of the
total assets of the acquiring company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end investment

company, its principal underwriter and any other broker-dealer from
selling the investment company's shares to another investment company
if the sale will cause the acquiring company to own more than 3% of the
acquired company's voting stock, or if the sale will cause more than
10% of the acquired company's voting stock to be owned by investment
companies generally.
    10. Applicants request an exemption to permit management investment
companies (``Purchasing Management Companies'') and unit investment
trusts (``Purchasing Trusts'') registered under the Act that are not
sponsored or advised by the Adviser or any entity controlling,
controlled by, or under common control with the Adviser and are not
part of the same ``group of investment companies,'' as defined in
section 12(d)(1)(G)(ii) of the Act, as the Index Funds (collectively,
``Purchasing Funds'') to acquire Fund Shares beyond the limits of
section 12(d)(1)(A). Purchasing Funds do not include the Index Funds.
In addition, applicants seek relief to permit the Index Funds or any
Broker to sell Fund Shares to a Purchasing Fund in excess of the limits
of section 12(d)(1)(B).
    11. Each Purchasing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Purchasing Fund Adviser'') and may be sub-advised by an
adviser(s) within the meaning of section 2(a)(20)(B) of the Act
(``Purchasing Fund Sub-Adviser''). Any investment adviser to a
Purchasing Fund will be registered under the Advisers Act. Each
Purchasing Trust will be sponsored by a sponsor (``Sponsor'').
    12. Applicants submit that the proposed conditions to the relief
requested, including the requirement that Purchasing Funds enter into
an agreement with an Index Fund for the purchase of Fund Shares (a
``Purchasing Fund Agreement''), adequately address the concerns
underlying the limits in section 12(d)(1)(A) and (B), which include
concerns about undue influence by a fund of funds over underlying
funds, excessive layering of fees and overly complex structures.
Applicants believe that the requested exemption is consistent with the
public interest and the protection of investors.
    13. Applicants believe that neither the Purchasing Funds nor a
Purchasing Fund Affiliate would be able to exert undue influence over
the Index Funds.\13\ To limit the control that a Purchasing Fund may
have over an Index Fund, applicants propose a condition prohibiting a
Purchasing Fund Adviser or a Sponsor, any person controlling,
controlled by, or under common control with a Purchasing Fund Adviser
or Sponsor, and any investment company or issuer that would be an
investment company but for sections 3(c)(1) or 3(c)(7) of the Act that
is advised or sponsored by a Purchasing Fund Adviser or Sponsor, or any
person controlling, controlled by, or under common control with a
Purchasing Fund Adviser or Sponsor (``Purchasing Fund Advisory Group'')
from controlling (individually or in the aggregate) an Index Fund
within the meaning of section 2(a)(9) of the Act. The same prohibition
would apply to any Purchasing Fund Sub-Adviser, any person controlling,
controlled by or under common control with the Purchasing Fund Sub-
Adviser, and any investment company or issuer that would be an
investment company but for sections 3(c)(1) or 3(c)(7) of the Act (or
portion of such investment company or issuer) advised or sponsored by
the Purchasing Fund Sub-Adviser or any person controlling, controlled
by or under common control with the Purchasing Fund Sub-Adviser
(``Purchasing Fund Sub-Advisory Group'').
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    \13\ A ``Purchasing Fund Affiliate'' is a Purchasing Fund
Adviser, Purchasing Fund Sub-Adviser, Sponsor, promoter, and
principal underwriter of a Purchasing Fund, and any person
controlling, controlled by, or under common control with any of
those entities. A ``Fund Affiliate'' is an investment adviser,
promoter, or principal underwriter of an Index Fund and any person
controlling, controlled by, or under common control with any of
these entities.
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    14. Applicants propose other conditions to limit the potential for
undue influence over the Index Funds, including that no Purchasing Fund
or Purchasing Fund Affiliate (except to the extent it is acting in its
capacity as an investment adviser to an Index Fund) will cause an Index
Fund to purchase a security in any offering of securities during the
existence of any underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated Underwriting'').
An ``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director, member
of an advisory board, Purchasing Fund Adviser, Purchasing Fund Sub-
Adviser, employee or Sponsor of the Purchasing Fund, or a person of
which any such officer, director, member of an advisory board,
Purchasing Fund Adviser, Purchasing Fund Sub-Adviser, employee, or
Sponsor is an affiliated person (except that any person whose
relationship to the Index Fund is covered by section 10(f) of the Act
is not an Underwriting Affiliate).
    15. Applicants assert that the proposed conditions address any
concerns regarding excessive layering of fees. The board of directors
or trustees of any Purchasing Management Company, including a majority
of the directors or trustees who are not ``interested persons'' within
the meaning of section 2(a)(19) of the Act (``disinterested directors
or trustees''), will find that the advisory fees charged to the
Purchasing Management Company are based on services provided that will
be in addition to, rather than duplicative of, services provided under
the advisory contract(s) of any Index Fund in which the Purchasing
Management Company may invest. In addition, except as provided by
condition 12, a Purchasing Fund Adviser or a trustee (``Trustee'') or
Sponsor of a Purchasing Trust will, as applicable, waive fees otherwise
payable to it by the Purchasing Fund in an amount at least equal to any
compensation (including fees received pursuant to any plan adopted by
an Index Fund under rule 12b-1 under the Act) received by the
Purchasing Fund Adviser or Trustee or Sponsor or an affiliated person
of the Purchasing Fund Adviser, Trustee or Sponsor, from the Index Fund
in connection with the investment by the Purchasing Fund in the Index
Fund. Applicants state that any sales charges or service fees charged
with respect to shares of a Purchasing Fund will not exceed the limits
applicable to a fund of funds set forth in National Association of
Securities Dealers (``NASD'') Conduct Rule 2830.\14\
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    \14\ All references to NASD Conduct Rule 2830 also includes any
successor or replacement rule that may be adopted by the Financial
Industry Regulatory Authority.
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    16. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Index Fund
may acquire securities of any investment company or company relying on
sections 3(c)(1) or 3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the Act, except to the extent
permitted by exemptive relief from the Commission permitting the Index
Fund to purchase shares of other investment companies for short-term
cash management purposes. To ensure that Purchasing Funds comply with
the terms and conditions of the requested relief from section 12(d)(1),
any Purchasing Fund that intends to invest in an Index Fund in reliance
on the requested order will be required to enter

into a Purchasing Fund Agreement between the Index Fund and the
Purchasing Fund requiring the Purchasing Fund to adhere to the terms
and conditions of the requested relief. The Purchasing Fund Agreement
also will include an acknowledgement from the Purchasing Fund that it
may rely on the requested order only to invest in the Index Funds and
not in any other investment company.
    17. Applicants also note that an Index Fund may choose to reject a
direct purchase of Fund Shares in Creation Unit Aggregations by a
Purchasing Fund. To the extent that a Purchasing Fund purchases Fund
Shares in the secondary market, an Index Fund would still retain its
ability to reject initial purchases of Fund Shares made in reliance on
the requested order by declining to enter into the Purchasing Fund
Agreement prior to any investment by a Purchasing Fund in excess of the
limits of section 12(d)(1)(A).

Section 17(a)(1) and (2) of the Act

    18. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``second tier affiliates''), from selling any security
to or purchasing any security from the company. Section 2(a)(3) of the
Act defines ``affiliated person'' to include (a) any person directly or
indirectly owning, controlling or holding with power to vote 5% or more
of the outstanding voting securities of the other person, (b) any
person 5% or more of whose outstanding voting securities are directly
or indirectly owned, controlled or held with the power to vote by the
other person, and (c) any person directly or indirectly controlling,
controlled by or under common control with the other person. Section
2(a)(9) of the Act provides that a control relationship will be
presumed where one person owns more than 25% of another person's voting
securities.
    19. Applicants request an exemption from section 17(a) of the Act
pursuant to sections 17(b) and 6(c) of the Act to permit persons to
effectuate in-kind purchases and redemptions with an Index Fund when
they are affiliated persons, or second-tier affiliates of an Index Fund
solely by virtue of one or more of the following: (a) Holding 5% or
more, or in excess of 25%, of the outstanding Fund Shares of one or
more Index Funds; (b) having an affiliation with a person with an
ownership interest described in (a); or (c) holding 5% or more, or more
than 25%, of the Fund Shares of one or more other registered investment
companies (or series thereof) advised by the Adviser, or an entity
controlling, controlled by, or under common control with the Adviser.
    20. Applicants assert that no useful purpose would be served by
prohibiting these types of affiliated persons from purchasing or
redeeming Creation Unit Aggregations through ``in-kind'' transactions.
The deposit procedures for both in-kind purchases and in-kind
redemptions of Creation Unit Aggregations will be the same for all
purchases and redemptions. Deposit Securities and Fund Securities will
be valued in the same manner as Portfolio Securities. Therefore,
applicants state that in-kind purchases and redemptions will afford no
opportunity for the specified affiliated persons, or second-tier
affiliates, of an Index Fund, to effect a transaction detrimental to
other holders of Fund Shares. Applicants also believe that in-kind
purchases and redemptions will not result in self-dealing or
overreaching of the Index Funds.
    21. Applicants also seek relief from section 17(a) to permit an
Index Fund that is an affiliated person of a Purchasing Fund to sell
its Fund Shares to and redeem its Fund Shares from a Purchasing Fund
and to engage in the accompanying in-kind transactions with the
Purchasing Fund.\15\ Applicants state that the terms of the transaction
are fair and reasonable. Applicants note that any consideration paid by
a Purchasing Fund for the purchase or redemption of Fund Shares
directly from an Index Fund will be based on the NAV of the Index
Fund.\16\ Applicants believe that any proposed transactions directly
between the Index Funds and Purchasing Funds will be consistent with
the policies of each Purchasing Fund. The purchase of Creation Unit
Aggregations by a Purchasing Fund directly from an Index Fund will be
accomplished in accordance with the investment restrictions of any such
Purchasing Fund and will be consistent with the investment policies set
forth in the Purchasing Fund's registration statement. The Purchasing
Fund Agreement will require any Purchasing Fund that purchases Creation
Unit Aggregations directly from an Index Fund to represent that the
purchase of Creation Unit Aggregations from an Index Fund by a
Purchasing Fund will be accomplished in compliance with the investment
restrictions of the Purchasing Fund and will be consistent with the
investment policies set forth in the Purchasing Fund's registration
statement.
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    \15\ Applicants acknowledge that receipt of compensation by (a)
an affiliated person of a Purchasing Fund, or an affiliated person
of such person, for the purchase by the Purchasing Fund of Fund
Shares or (b) an affiliated person of an Index Fund, or an
affiliated person of such person, for the sale by the Index Fund of
its Fund Shares to a Purchasing Fund may be prohibited by section
17(e)(1) of the Act. The Purchasing Fund Agreement also will include
this acknowledgement.
    \16\ Applicants believe that a Purchasing Fund will purchase
Fund Shares in the secondary market and will not purchase or redeem
Creation Unit Aggregations directly from an Index Fund. However, the
requested relief would apply to direct sales of Creation Unit
Aggregations by an Index Fund to a Purchasing Fund and direct
redemptions of Fund Shares.
---------------------------------------------------------------------------

Applicants' Conditions

    Applicants agree that any order granting the requested relief will
be subject to the following conditions:\17\
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    \17\ See note 5, supra.
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ETF Relief

    1. As long as the Index Funds operate in reliance on the requested
order, the Fund Shares will be listed on an Exchange.
    2. Neither the Trust nor any Index Fund will be advertised or
marketed as an open-end investment company or a mutual fund. Each Index
Fund's Prospectus will prominently disclose that Fund Shares are not
individually redeemable shares and will disclose that the owners of
Fund Shares may acquire those Fund Shares from such Index Fund and
tender those Fund Shares for redemption to the Index Fund in Creation
Unit Aggregations only. Any advertising material that describes the
purchase or sale of Creation Unit Aggregations or refers to
redeemability will prominently disclose that Fund Shares are not
individually redeemable and that owners of Fund Shares may acquire
those Fund Shares from an Index Fund and tender those Fund Shares for
redemption to such Index Fund in Creation Unit Aggregations only.
    3. The Web site maintained for the Index Funds, which will be
publicly accessible at no charge, will contain the following
information, on a per Fund Share basis, for each Index Fund: (a) The
prior Business Day's NAV and the mid-point of the bid-ask spread at the
time of the calculation of NAV (``Bid/Ask Price''), and a calculation
of the premium or discount of the Bid/Ask Price at the time of
calculation of the NAV against such NAV; and (b) data in chart format
displaying the frequency distribution of discounts and premiums of the
daily Bid/Ask Price against the NAV, within appropriate ranges, for
each of the four previous calendar quarters.

    4. Each Index Fund's Prospectus and annual report will also
include: (a) The information listed in condition 3(b), (i) in the case
of the Index Fund's Prospectus, for the most recently completed year
(and the most recently completed quarter or quarters, as applicable)
and (ii) in the case of the annual report, for the immediately
preceding five years, as applicable; and (b) the following data,
calculated on a per Fund Share basis for one, five and ten year periods
(or life of the Index Fund), (i) the cumulative total return and the
average annual total return based on NAV and Bid/Ask Price, and (ii)
the cumulative total return of the relevant Underlying Index.
    5. Each Index Fund's Prospectus will clearly disclose that, for
purposes of the Act, Fund Shares are issued by such Index Fund, which
is a registered investment company, and that the acquisition of Fund
Shares by investment companies is subject to the restrictions of
section 12(d)(1) of the Act, except as permitted by an exemptive order
that permits registered investment companies to invest in an Index Fund
beyond the limits in section 12(d)(1), subject to certain terms and
conditions, including that the registered investment company enter into
a Purchasing Fund Agreement with the Index Fund regarding the terms of
the investment.
    6. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of index-based exchange-traded funds.

Section 12(d)(1) Relief

    7. The members of a Purchasing Fund's Advisory Group will not
control (individually or in the aggregate) an Index Fund within the
meaning of section 2(a)(9) of the Act. The members of a Purchasing
Fund's Sub-Advisory Group will not control (individually or in the
aggregate) an Index Fund within the meaning of section 2(a)(9) of the
Act. If, as a result of a decrease in the outstanding Fund Shares of an
Index Fund, a Purchasing Fund's Advisory Group or a Purchasing Fund's
Sub-Advisory Group, each in the aggregate, becomes a holder of more
than 25% of the outstanding Fund Shares of an Index Fund, it will vote
its Fund Shares in the same proportion as the vote of all other holders
of the Fund Shares. This condition does not apply to the Purchasing
Fund's Sub-Advisory Group with respect to an Index Fund for which the
Purchasing Fund's Sub-Adviser or a person controlling, controlled by,
or under common control with the Purchasing Fund Sub-Adviser acts as
the investment adviser within the meaning of section 2(a)(20)(A) of the
Act.
    8. No Purchasing Fund or Purchasing Fund Affiliate will cause any
existing or potential investment by the Purchasing Fund in an Index
Fund to influence the terms of any services or transactions between the
Purchasing Fund or Purchasing Fund Affiliate and the Index Fund or a
Fund Affiliate.
    9. The board of directors or trustees of a Purchasing Management
Company, including a majority of the disinterested directors or
trustees, will adopt procedures reasonably designed to ensure that the
Purchasing Fund Adviser and Purchasing Fund Sub-Adviser are conducting
the investment program of the Purchasing Management Company without
taking into account any consideration received by the Purchasing
Management Company or a Purchasing Fund Affiliate from an Index Fund or
a Fund Affiliate in connection with any services or transactions.
    10. No Purchasing Fund or Purchasing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to an
Index Fund) will cause an Index Fund to purchase a security in any
Affiliated Underwriting.
    11. Before investing in an Index Fund in excess of the limits in
section 12(d)(1)(A), each Purchasing Fund and the Index Fund will
execute a Purchasing Fund Agreement stating, without limitation, that
their boards of directors or trustees and their investment advisers or
Sponsors and Trustees, as applicable, understand the terms and
conditions of the order, and agree to fulfill their responsibilities
under the order. At the time of its investment in Fund Shares in excess
of the limit in section 12(d)(1)(A)(i), a Purchasing Fund will notify
the Index Fund of the investment. At such time, the Purchasing Fund
will also transmit to the Index Fund a list of the names of each
Purchasing Fund Affiliate and Underwriting Affiliate. The Purchasing
Fund will notify the Index Fund of any changes to the list of names as
soon as reasonably practicable after a change occurs. The relevant
Index Fund and the Purchasing Fund will maintain and preserve a copy of
the order, the Purchasing Fund Agreement, and the list with any updated
information for the duration of the investment and for a period of not
less than six years thereafter, the first two years in an easily
accessible place.
    12. The Purchasing Fund Adviser, Trustee or Sponsor, as applicable,
will waive fees otherwise payable to it by the Purchasing Fund in an
amount at least equal to any compensation (including fees received
under any plan adopted by an Index Fund under rule 12b-1 under the Act)
received from an Index Fund by the Purchasing Fund Adviser, Trustee or
Sponsor, or an affiliated person of the Purchasing Fund Adviser,
Trustee or Sponsor, other than any advisory fees paid to the Purchasing
Fund Adviser, Trustee or Sponsor, or its affiliated person by an Index
Fund, in connection with the investment by the Purchasing Fund in the
Index Fund. Any Purchasing Fund Sub-Adviser will waive fees otherwise
payable to the Purchasing Fund Sub-Adviser, directly or indirectly, by
the Purchasing Management Company in an amount at least equal to any
compensation received from an Index Fund by the Purchasing Fund Sub-
Adviser, or an affiliated person of the Purchasing Fund Sub-Adviser,
other than any advisory fees paid to the Purchasing Fund Sub-Adviser or
its affiliated person by the Index Fund, in connection with any
investment by the Purchasing Management Company in an Index Fund made
at the direction of the Purchasing Fund Sub-Adviser. In the event that
the Purchasing Fund Sub-Adviser waives fees, the benefit of the waiver
will be passed through to the Purchasing Management Company.
    13. Any sales charges and/or service fees charged with respect to
shares of a Purchasing Fund will not exceed the limits applicable to a
fund of funds as set forth in NASD Conduct Rule 2830.
    14. Once an investment by a Purchasing Fund in Fund Shares exceeds
the limits of section 12(d)(1)(A)(i) of the Act, the board of
directors/trustees of an Index Fund (``Board''), including a majority
of the directors or trustees that are not ``interested persons'' within
the meaning of section 2(a)(19) of the Act (``disinterested Board
members''), will determine that any consideration paid by the Index
Fund to a Purchasing Fund or a Purchasing Fund Affiliate in connection
with any services or transactions (a) is fair and reasonable in
relation to the nature and quality of the services and benefits
received by such Index Fund; (b) is within the range of consideration
that the Index Fund would be required to pay to another unaffiliated
entity in connection with the same services or transactions; and (c)
does not involve overreaching on the part of any person concerned. This
condition does not apply with respect to any services or transactions
between an Index Fund and its investment adviser(s), or any person
controlling, controlled by, or under common control with such
investment adviser(s).

    15. The Board, including a majority of the disinterested Board
members, will adopt procedures reasonably designed to monitor any
purchases of securities by an Index Fund in an Affiliated Underwriting
once the investment by a Purchasing Fund in an Index Fund exceeds the
limit of section 12(d)(1)(A)(i) of the Act, including any purchases
made directly from an Underwriting Affiliate. The Board will review
these purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Purchasing Fund in an Index Fund. The Board will consider, among
other things: (a) Whether the purchases were consistent with the
investment objectives and policies of the Index Fund; (b) how the
performance of securities purchased in an Affiliated Underwriting
compares to the performance of comparable securities purchased during a
comparable period of time in underwritings other than Affiliated
Underwritings or to a benchmark such as a comparable market index; and
(c) whether the amount of securities purchased by the Index Fund in
Affiliated Underwritings and the amount purchased directly from an
Underwriting Affiliate have changed significantly from prior years. The
Board will take any appropriate actions based on its review, including,
if appropriate, the institution of procedures designed to assure that
purchases of securities in Affiliated Underwritings are in the best
interest of shareholders of the Index Fund.
    16. Each Index Fund will maintain and preserve permanently in an
easily accessible place a written copy of the procedures described in
the preceding condition, and any modifications to such procedures, and
will maintain and preserve for a period of not less than six years from
the end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings, once an investment by a Purchasing Fund in shares of the
Index Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities were acquired, the identity of
the underwriting syndicate's members, the terms of the purchase, and
the information or materials upon which the Board's determinations were
made.
    17. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Purchasing Management
Company, including a majority of the disinterested directors or
trustees, will find that the advisory fees charged under such contract
are based on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Index Fund in which the Purchasing Management Company may invest.
These findings and their basis will be recorded fully in the minute
books of the appropriate Purchasing Management Company.
    18. No Index Fund will acquire securities of any other investment
company or companies relying on sections 3(c)(1) or 3(c)(7) of the Act
in excess of the limits contained in section 12(d)(1)(A) of the Act,
except to the extent permitted by exemptive relief from the Commission
permitting the Index Fund to purchase shares of other investment
companies for short-term cash management purposes.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-2381 Filed 2-3-10; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: December 20, 2006 (Volume 71, Number 244)]
[Proposed Rules]
[Page 76255-76260]
[DOCID:fr20de06-34]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR PART 261

[EPA-R07-RCRA-2006-0923; FRL-8258-7]

Hazardous Waste Management System; Identification and Listing of
Hazardous Waste Proposed Exclusion

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule and request for comment.

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SUMMARY: The EPA (also, ``the Agency'' or ``we'' in this preamble) is
proposing to grant a petition to exclude or ``delist'' wastewater
treatment sludge from conversion coating on aluminum generated by the
Ford Motor Company (Ford) Kansas City Assembly Plant (KCAP) in
Claycomo, Missouri from the requirements of hazardous waste regulations
under the Resource Conservation and Recovery Act (RCRA). This proposed
exclusion, if finalized, conditionally excludes the petitioned waste
from the requirements of hazardous waste regulations under RCRA.
    This petition was evaluated in a manner similar to the expedited
process developed as a special project in conjunction with the Michigan
Department of Environmental Quality (MDEQ) for delisting similar wastes
generated by a similar manufacturing process. See 76 FR 10341, March 7,
2002. Based on an evaluation of waste-specific information provided by
Ford, we have tentatively concluded that the petitioned waste from KCAP
is nonhazardous with respect to the original listing criteria and that
there are no other factors which would cause the waste to be hazardous.
This exclusion, if finalized, would be valid only when the sludge is
disposed of in a Subtitle D landfill which is permitted, licensed, or
registered by a State to manage industrial solid waste.

DATES: We will accept public comments on this proposed rule until
February 5, 2007. We will stamp comments postmarked after the close of
the comment period as ``late.'' These ``late'' comments may not be
considered in formulating a final decision. Any person may request a
hearing on this proposed decision by filing a request with Carol
Kather, Acting Director, Air, RCRA and Toxics Division, Environmental
Protection Agency Region 7, 901 N. 5th St., Kansas City, Kansas, 66208.
Your request for a hearing must reach EPA by January 4, 2007. The
request must contain the information prescribed in Title 40 Code of
Federal Regulations (40 CFR) 260.20(d).

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R07-
RCRA-2006-0923, by one of the following methods:
    1. http://www.regulations.gov: Follow the on-line instructions for

submitting comments.
    2. E-mail<EMAIL_ADDRESS>    3. Mail: Ken Herstowski, Environmental Protection Agency, RCRA
Corrective Action and Permit Branch, 901 North 5th Street, Kansas City,
Kansas 66101.
    4. Hand Delivery or Courier. Deliver your comments to: Ken
Herstowski, Environmental Protection Agency, RCRA Corrective Action and
Permit Branch, 901 North 5th Street, Kansas City, Kansas 66101.
    Instructions: Direct your comments to Docket ID No. EPA-R07-RCRA-
2006-0923. EPA's policy is that all comments received will be included
in the public docket without change and may be made available online at
http://www.regulations.gov, including any personal information

provided, unless the comment includes information claimed to be
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Do not submit information that you
consider to be CBI or otherwise protected through http://www.regulations.gov or e-mail. The http://www.regulations.gov Web site

is an ``anonymous access'' system, which means EPA will not know your
identity or contact information unless you provide it in the body of
your comment. If you send an e-mail comment directly to EPA without
going through http://www.regulations.gov, your e-mail address will be

automatically captured and included as part of the comment that is
placed in the public docket and made available on the Internet. If you
submit an electronic comment, EPA recommends that you include your name
and other contact information in the body of your comment and with any
disk or CD-ROM you submit. If EPA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EPA
may not be able to consider your comment. Electronic files should avoid
the use of special characters, any form of encryption, and be free of
any defects or viruses.
    Docket. All documents in the electronic docket are listed in the
http://www.regulations.gov index. Although listed in the index, some

information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in http://www.regulations.gov or in hard copy at the Environmental

Protection Agency, RCRA Corrective Action and Permits Branch, 901 North
5th Street, Kansas City, Kansas. The hard copy RCRA regulatory docket
for this proposed rule, EPA-R07-RCRA-2006-0923, is available for
viewing from 8 a.m. to 5 p.m., Monday through Friday, excluding Federal
holidays. The public may copy material from the regulatory docket at
$0.15 per page. EPA requests that you contact the person listed in the
FOR FURTHER INFORMATION CONTACT section to schedule your inspection.
The interested persons wanting to examine these documents should make
an appointment with the office at least 24 hours in advance.

FOR FURTHER INFORMATION CONTACT: For further technical information
concerning this document or for appointments to view the docket,
contact Kenneth Herstowski at the Environmental Protection Agency, RCRA
Corrective Action and Permit Branch, 901 North 5th Street, Kansas City,
Kansas 66101, by calling<PHONE_NUMBER> or by e-mail at
<EMAIL_ADDRESS>

SUPPLEMENTARY INFORMATION: The information in this section is organized
as follows:

I. Background
    A. What is a delisting petition?
    B. What regulations allow a waste to be delisted?
II. Ford's Petition To Delist Waste From the Kansas City Assembly
Plant
    A. How is the petitioned waste generated?
    B. What is the process for delisting F019 from zinc phosphating
operations at automobile and light truck assembly plants?
    C. What information did Ford submit in support of its petition?
III. EPA's Evaluation of This Petition
    A. How did EPA evaluate the information submitted?
    B. What did EPA conclude about this waste?
IV. Proposal To Delist Waste From Kansas City Assembly Plant
    A. What is EPA proposing?
    B. What are the terms of this exclusion?
    C. What are the maximum allowable concentrations of hazardous
constituents in the waste?
V. Statutory and Executive Order Reviews

I. Background

    Throughout this document whenever ``we,'' ``us,'' or ``our'' is
used, we mean EPA.

A. What is a delisting petition?

    A delisting petition is a request from a generator to exclude waste
from the list of hazardous wastes under RCRA regulations. In a
delisting petition, the petitioner must show that waste generated at a
particular facility does not meet any of the criteria for which EPA
listed the waste as set forth in 40 CFR 261.11 and the background
document for the waste. In addition, a petitioner must demonstrate that
the waste does not exhibit any of the hazardous waste characteristics
(that is, ignitability, reactivity, corrosivity, and toxicity) and must
present sufficient information for us to decide whether factors other
than those for which the waste was listed warrant retaining it as a
hazardous waste. (See 40 CFR 260.22, 42 United States Code (U.S.C.)
6921(f) and the background document for a listed waste.)
    A generator remains obligated under RCRA to confirm that its waste
remains nonhazardous based on the hazardous waste characteristics even
if EPA has ``delisted'' the waste and to ensure that future generated
waste meets the conditions set.

B. What regulations allow a waste to be delisted?

    Under 40 CFR 260.20, 260.22, and 42 U.S.C. 6921(f), a facility may
petition the EPA to remove its waste from the lists of hazardous wastes
contained in 40 CFR 261.31 and 261.32. Specifically, 40 CFR 260.20
allows any person to petition the Administrator to modify or revoke any
provision of parts 260 through 266, 268, and 273 of 40 CFR.

II. Ford's Petition To Delist Waste From the Kansas City Assembly Plant

A. How is the petitioned wasted generated?

    Ford is petitioning to exclude wastewater treatment sludge
resulting from a conversion coating process on truck bodies which have
aluminum components. The truck bodies are

immersed in a zinc phosphate bath which applies a conversion coating on
the surface of the metal. The rinses and overflows from the conversion
coating process comingle with wastewaters from cleaning and rinsing
operations which may include alkaline cleaners, surfactants, organic
detergents and rinse conditioners. After the zinc phosphating bath, the
truck bodies are subjected to an electrocoating process and spray
painting. Overflows and rinse water from the electrocoating process and
from the paint booths combine with the wastewater from the conversion
coating before entering the wastewater treatment plant. When treated,
the wastewater from the conversion coating on aluminum causes all the
sludge generated from these wastewaters to be a listed waste, F019.
    In the wastewater treatment plant, large particles are screened out
and the wastewater is sent to various thickeners and clarifier tanks
where water and solids are further separated. The pH of the wastewater
may be adjusted and flocculents and coagulants may be added to
facilitate the thickening process. The solids which settle in the
thickeners and clarifiers are dewatered in a filter press and the
resultant F019 filter cake drops into a roll off box for disposal.
    The zinc phosphating process used today does not contain hexavalent
chromium or cyanide for which F019 was originally listed, but trivalent
chromium, nickel, and zinc may be present in the wastewater and in the
sludge. Other hazardous constituents such as organic solvents,
formaldehyde or additional metals could also be in the waste stream.
Before a waste can be delisted, the petitioner must demonstrate that
there are no hazardous constituents in the sludge from other operations
in the plant at levels of concern and that there are no other factors
that might cause the waste to be hazardous. Ford believes that its
sludge does not contain the constituents for which F019 was listed and
that there are no other constituents or factors that would cause the
waste to remain hazardous.

B. What is the process for delisting F019 from zinc phospating
operations at automobile and light truck assembly plants?

    The zinc phosphating process used by Ford at KCAP is substantially
similar to the process used at most automobile and light truck assembly
plants in conversion coating steel and aluminum. A number of automobile
and light truck assembly plants have been granted hazardous waste
exclusions as a result of a special expedited delisting project
established in a Memorandum of Understanding (MOU) between EPA Region 5
and MDEQ (67 FR 10341, March 7, 2002, and 68 FR 44652, July 30, 2003).
These facilities were able to take advantage of a common sampling
approach and expedited rulemaking procedure mainly due to the
similarity of the wastes and processes generating the waste. Ford
certified that the process generating the filter cake at KCAP is
consistent with the process described in the MOU for expedited
delistings.
    Using available historical data and other information, the
expedited process identified 70 constituents which might be of concern
in the F019 waste generated at automobile and light truck assembly
plants, and a Sampling and Analysis Plan was developed specifically for
testing this waste. EPA agreed to allow Ford to use the same Sampling
and Analysis Plan and the same list of constituents of concern to
demonstrate that the levels of constituents in the waste at KCAP are
below the levels of concern that could pose a threat to human health or
the environment when the waste is disposed in a nonhazardous landfill.

C. What information did Ford submit in support of its petition?

    To support its exclusion demonstration, Ford collected six samples
representing waste generated at KCAP over six weeks. All sampling was
done in accordance with the Sampling and Analysis Plan developed for
the expedited delisting project but modified to eliminate multiple
sampling events or long term storage of full roll-off boxes. A
representative amount of sludge was collected each week for six weeks
starting with the week of November 1, 2005 and continuing through the
week of December 12, 2005. The sludge for each week was placed in a
separate 55 gallon drum, and on December 19, 2005, composite and grab
samples were collected from all drums. In accordance with the Sampling
and Analysis Plan, each sample was analyzed for: (1) Total volatile
organic compound (VOC) analysis using SW-846 8260B with formaldehyde
analysis using SW-846 8315A, semivolatile organic compound (SVOC)
analysis using SW-846 8270C; (2) Toxicity Characteristic Leaching
Procedure (TCLP), Method 1311 in Test Methods for Evaluating Solid
Waste, Physical/Chemical Methods (SW-846) for the inorganic, VOC and
SVOC constituents of concern; (3) oil and grease analysis using SW-846
1664, (4) total metals using SW-846 6010B or 6020 with mercury analysis
using SW-846 7471A; (5) total constituent analysis for sulfide, SW-846
Method 9034 and reactive analysis for sulfide, SW-846 Section 7.3; and
(6) total constituent analysis for cyanide, SW-846 Method 9012A and
reactive analysis for cyanide, SW-846 Section 7.3. In addition, the pH
of each sample was measured using SW-846 Method 9045C and a
determination was made that the waste was not ignitable, corrosive or
reactive (see 40 CFR 261.21-261.23). The data submitted included the
appropriate quality assurance/quality control information and was
validated by an independent third party as required in the Sampling and
Analysis Plan. The maximum values of constituents detected in any
sample of the wastewater treatment sludge or in a TCLP extract of that
sludge are summarized in the table below.

----------------------------------------------------------------------------------------------------------------
                              Maximum concentration observed    Maximum allowable delisting level (2,000 cubic
                             --------------------------------                       yards)
         Constituent                                         ---------------------------------------------------
                              Total  (mg/kg)   TCLP  (mg/l)        Total  (mg/kg)             TCLP  (mg/l)
----------------------------------------------------------------------------------------------------------------
Barium......................         220            < 0.05                  NA                         1.00x10 \2\
Bis(2-ethylhexyl)phthalate..          18             0.0036                NA                         3.65x10 -\1\
Chromium....................          40            < 0.18                   7.60x10 \5\               5.00x10 \0\
Cresol, p-..................           8.2           0.4                   NA                         1.14x10 \1\
Cyanide.....................           0.86         < 0.05                  NA                         1.15x10 \1\
Dinitrotoluene, 2,4-........          < 0.001         0.00028                2.29x10 \5\               1.30x10 -\1\
Ethylbenzene................           1.6           0.06                  NA                         4.26x10 \1\
Formaldehyde................           4.9           0.24                   6.88x10 \3\               3.43x10 \2\
Mercury.....................           0.2          < 0.0007                 1.04x10 \1\               1.55x10 -\1\

Napthalene..................          < 0.001         0.011                 NA                         7.28x10 -\1\
Nickel......................        3000             8.7                   NA                         9.05x10 \1\
Sulfides....................         230            NA                     NA                        NA
Thallium....................          21            < 0.02                   1.16x10 \5\               2.82x10 -\1\
Tin.........................         120             3.1                   NA                         7.21x10 \2\
Toluene.....................          < 0.001         0.0025                NA                         6.08x10 \1\
Xylenes (total).............           7.9           0.33                  NA                         1.89x10 \1\
Zinc........................        7900             0.74                  NA                         8.98x10 \2\
----------------------------------------------------------------------------------------------------------------
< --Not detected at the specified concentration.
NA--The DRAS program did not calculate a delisting level for this constituent, or the delisting level was higher
  than those levels expected to be found in the waste. In the event high levels are discovered later, the
  constituent will be evaluated and a delisting level set in accordance with the methodology used to set
  delisting levels for the other constituents.
mg/kg--milligrams per kilogram.
mg/l--milligrams per liter.

    These levels represent the highest constituent concentration found
in any one sample and do not necessarily represent the specific levels
found in a single sample.

III. EPA's Evaluation of This Petition

A. How did EPA evaluate the information submitted?

    In developing this proposal, we considered the original listing
criteria and evaluated additional factors required by the Hazardous and
Solid Wastes Amendments of 1984 (HSWA). See section 222 of HSWA, 42
U.S.C. 6921(f), and 40 CFR 260.22(d)(2)-(4). We evaluated the
petitioned waste against the listing criteria and factors cited in 40
CFR 261.11(a)(2) and (3). These factors include: (1) Whether the waste
is considered acutely toxic; (2) the toxicity of the constituents; (3)
the concentration of the constituents in the waste; (4) the tendency of
the hazardous constituents to migrate and to bioaccumulate; (5)
persistence of these constituents in the environment once released from
the waste; (6) plausible and specific types of management of the
petitioned waste; (7) the quantity of waste produced; and (8) waste
variability.
    EPA identified plausible exposure routes (ground water, surface
water, air) for hazardous constituents released from the waste in an
improperly managed Subtitle D landfill. To evaluate the waste, we used
the Delisting Risk Assessment Software program (DRAS), a Windows based
software tool, to estimate the potential release of hazardous
constituents from the waste and to predict the risk associated with
those releases. For a detailed description of the DRAS program and
revisions see: 65 FR 58015, September 27, 2000; 65 FR 75637, December
4, 2000; 65 FR 75897, December 5, 2000; and 67 FR 10341, March 7, 2002.

B. What did EPA conclude about this waste?

    EPA compared the analytical results submitted by KCAP to the
maximum allowable levels calculated by the DRAS for an annual volume of
2,000 cubic yards. The maximum allowable levels for constituents
detected in the waste or the waste leachate are summarized in the table
above. All constituents compared favorably to the allowable levels.
    The table also includes the maximum allowable levels in groundwater
at a potential receptor well, as evaluated by DRAS. These levels are
the more conservative of either the Safe Drinking Water Act Maximum
Contaminant Level (MCL) or the health-based value calculated by DRAS
based on the target cancer risk level of 1x10 -\6\ or the
target hazard quotient of one.
    EPA also used the DRAS program to estimate the aggregate cancer
risk and hazard index for constituents detected in the waste. The
aggregate cancer risk is the cumulative total of all individual
constituent cancer risks. The hazard index is a similar cumulative
total of non-cancer effects. The target aggregate cancer risk is 1x10
-\5\ and the target hazard index is one. The wastewater
treatment sludge at KCAP met both of these criteria.

IV. Proposal To Delist Waste From Kansas City Assembly

A. What is EPA proposing?

    Today the EPA is proposing to conditionally exclude or delist 2,000
cubic yards annually of wastewater treatment sludge generated at KCAP
from conversion coating on aluminum.

B. What are the terms of this exclusion?

    Ford must dispose of the KCAP waste in a lined Subtitle D landfill
which is permitted, licensed, or registered by a state to manage
industrial waste. Ford must verify on a quarterly basis that the
concentrations of the constituents of concern in the KCAP sludge do not
exceed the allowable levels set forth in this exclusion. The list of
constituents for verification is based on the concentration and
frequency of occurrence of constituents of concern in Ford's KCAP
sludge and in wastes generated by the majority of facilities
participating in the expedited process to delist F019. This exclusion
applies only to a maximum annual volume of 2,000 cubic yards and is
effective only if all conditions contained in this rule are satisfied.

C. What are the maximum allowable concentrations of hazardous
constituents in the waste?

    Concentrations of the following constituents measured in the TCLP
(or OWEP, where appropriate) extract of the waste must not exceed the
following levels (mg/L): barium--100; chromium--5; mercury--0.155;
nickel--90; thallium--0.282; zinc--898; cyanides--11.5; ethyl benzene--
42.6; toluene--60.8; total xylenes--18.9; bis(2-ethylhexyl) phthalate--
0.365; p-cresol--11.4; 2,4-dinitrotoluene--0.13; formaldehyde--343; and
napthalene--0.728. The total concentrations in the waste of the
following constituents must not exceed the following levels (mg/kg):
chromium 760000; mercury--10.4; thallium--116000; 2,4-dinitrotoluene--
100000; and formaldehyde--6880.

V. Statutory and Executive Order Reviews

    Under Executive Order 12866, ``Regulatory Planning and Review'' (58

FR 51735, October 4, 1993), the Agency must determine whether the
regulatory action is ``significant'' and therefore subject to OMB
review and the requirements of the Executive Order. It has been
determined that this rule is not a ``significant regulatory action''
under the terms of Executive Order 12866 and therefore is not a
regulatory action subject to review by the Office of Management and
Budget (OMB).
    This rule does not impose an information collection burden under
the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
et seq.) because it applies to a particular facility only.
    Because this rule is of particular applicability relating to a
particular facility and does not have a significant economic impact on
a substantial number of small entities, it is not subject to the
regulatory flexibility provisions of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.).
    This rule is not subject to sections 202, 203, 204, and 205 of the
Unfunded Mandates Reform Act of 1995 (UMRA) (Pub. L. 104-4) because
this rule will affect only a particular facility. Therefore, EPA has
determined that this rule does not contain a Federal mandate that may
result in expenditures of $100 million or more for State, local, and
tribal governments, in the aggregate, or the private sector in any one
year.
    Because this rule will affect only a particular facility, this
final rule does not have federalism implications. It will not have
substantial direct effects 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, as
specified in Executive Order 13132, ``Federalism,'' (64 FR 43255,
August 10, 1999). Thus, Executive Order 13132 does not apply to this
rule. Similarly, because this rule will affect only a particular
facility, this final rule does not have tribal implications, as
specified in Executive Order 13175, ``Consultation and Coordination
with Indian Tribal Governments'' (65 FR 67249, November 9, 2000). Thus,
Executive Order 13175 does not apply to this rule.
    This rule also is not subject to Executive Order 13045,``Protection
of Children from Environmental Health Risks and Safety Risks'' (62 FR
19885, April 23, 1997), because it is not economically significant as
defined in Executive Order 12866, and because the Agency does not have
reason to believe the environmental health or safety risks addressed by
this action present a disproportionate risk to children. The basis for
this belief is that the Agency used the DRAS program, which considers
health and safety risks to infants and children, to calculate the
maximum allowable concentrations for this rule.
    This rule is not subject to Executive Order 13211, ``Actions
Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use'' (66 FR 28355 (May 22, 2001)), because it is not
a significant regulatory action under Executive Order 12866.
    This rule does not involve technical standards; thus, the
requirements of section 12(d) of the National Technology Transfer and
Advancement Act of 1995 (15 U.S.C. 272 note) do not apply.
    As required by section 3 of Executive Order 12988, ``Civil Justice
Reform,'' (61 FR 4729, February 7, 1996), in issuing this rule, EPA has
taken the necessary steps to eliminate drafting errors and ambiguity,
minimize potential litigation, and provide a clear legal standard for
affected conduct.

List of Subjects in 40 CFR Part 261

    Environmental protection, Hazardous waste, Recycling, and Reporting
and recordkeeping requirements.

    Authority: Sec. 3001(f) RCRA, 42 U.S.C. 6921(f). Authority for
this action has been delegated to the Regional Administrator (61 FR
32798, June 25, 1996).

    Dated: November 16, 2006.
John B. Askew,
Regional Administrator, Region 7.
    For the reasons set out in the preamble, 40 CFR part 261 is
proposed to be amended as follows:

PART 261--IDENTIFICATION AND LISTING OF HAZARDOUS WASTE

    1. The authority citation for part 261 continues to read as
follows:

    Authority: 42 U.S.C. 6905, 6912(a), 6921, 6922, and 6938.

    2. In Table 1 of Appendix IX of part 261 the following wastestream
is added in alphabetical order by facility to read as follows:

Appendix IX to Part 261--Wastes Excluded Under Sec. Sec.  260.20 and
260.22

                               Table 1.--Wastes Excluded From Non-Specific Sources
----------------------------------------------------------------------------------------------------------------
               Facility                        Address                          Waste description
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
Ford Motor Company Kansas City         Claycomo, Missouri.....  Wastewater treatment sludge, F019, that is
 Assembly Plant.                                                 generated at the Ford Motor Company (Ford)
                                                                 Kansas City Assembly Plant (KCAP) at a maximum
                                                                 annual rate of 2,000 cubic yards per year. The
                                                                 sludge must be disposed of in a lined landfill
                                                                 with leachate collection, which is licensed,
                                                                 permitted, or otherwise authorized to accept
                                                                 the delisted wastewater treatment sludge in
                                                                 accordance with 40 CFR part 258. The exclusion
                                                                 becomes effective as of (insert final
                                                                 publication date).
                                                                1. Delisting Levels: (a) The concentrations in a
                                                                 TCLP extract of the waste measured in any
                                                                 sample may not exceed the following levels (mg/
                                                                 L): barium--100; chromium--5; mercury--0.155;
                                                                 nickel--90; thallium--0.282; zinc--898;
                                                                 cyanides--11.5; ethyl benzene--42.6; toluene--
                                                                 60.8; total xylenes--18.9; bis(2-ethylhexyl)
                                                                 phthalate--0.365; p-cresol--11.4; 2,4-
                                                                 dinitrotoluene--0.13; formaldehyde--343; and
                                                                 napthalene--.728;
                                                                (b) The total concentrations measured in any
                                                                 sample may not exceed the following levels (mg/
                                                                 kg): chromium 760000; mercury--10.4; thallium--
                                                                 116000; 2,4-dinitrotoluene--100000; and
                                                                 formaldehyde--6880.
                                                                2. Quarterly Verification Testing: To verify
                                                                 that the waste does not exceed the specified
                                                                 delisting levels, Ford must collect and analyze
                                                                 one representative sample of KCAP's sludge on a
                                                                 quarterly basis.
                                                                3. Changes in Operating Conditions: Ford must
                                                                 notify the EPA in writing if the manufacturing
                                                                 process, the chemicals used in the
                                                                 manufacturing process, the treatment process,
                                                                 or the chemicals used in the treatment process
                                                                 at KCAP significantly change. Ford must handle
                                                                 wastes generated at KCAP after the process
                                                                 change as hazardous until it has demonstrated
                                                                 that the waste continues to meet the delisting
                                                                 levels and that no new hazardous constituents
                                                                 listed in appendix VIII of part 261 have been
                                                                 introduced and Ford has received written
                                                                 approval from EPA.

                                                                4. Data Submittals: Ford must submit the data
                                                                 obtained through verification testing at KCAP
                                                                 or as required by other conditions of this rule
                                                                 to EPA Region 7, Air, RCRA and Toxics Division,
                                                                 901 N. 5th, Kansas City, Kansas, 66208. The
                                                                 quarterly verification data and certification
                                                                 of proper disposal must be submitted annually
                                                                 upon the anniversary of the effective date of
                                                                 this exclusion. Ford must compile, summarize,
                                                                 and maintain at KCAP records of operating
                                                                 conditions and analytical data for a minimum of
                                                                 five years. Ford must make these records
                                                                 available for inspection. All data must be
                                                                 accompanied by a signed copy of the
                                                                 certification statement in 40 CFR
                                                                 260.22(i)(12).
                                                                5. Reopener Language--(a) If, anytime after
                                                                 disposal of the delisted waste, Ford possesses
                                                                 or is otherwise made aware of any data
                                                                 (including but not limited to leachate data or
                                                                 groundwater monitoring data) relevant to the
                                                                 delisted waste at KCAP indicating that any
                                                                 constituent is at a level in the leachate
                                                                 higher than the specified delisting level, or
                                                                 is in the groundwater at a concentration higher
                                                                 than the maximum allowable groundwater
                                                                 concentration in paragraph (e), then Ford must
                                                                 report such data in writing to the Regional
                                                                 Administrator within 10 days of first
                                                                 possessing or being made aware of that data.
                                                                (b) Based on the information described in
                                                                 paragraph (a) and any other information
                                                                 received from any source, the Regional
                                                                 Administrator will make a preliminary
                                                                 determination as to whether the reported
                                                                 information requires Agency action to protect
                                                                 human health or the environment. Further action
                                                                 may include suspending, or revoking the
                                                                 exclusion, or other appropriate response
                                                                 necessary to protect human health and the
                                                                 environment.
                                                                (c) If the Regional Administrator determines
                                                                 that the reported information does require
                                                                 Agency action, the Regional Administrator will
                                                                 notify Ford in writing of the actions the
                                                                 Regional Administrator believes are necessary
                                                                 to protect human health and the environment.
                                                                 The notice shall include a statement of the
                                                                 proposed action and a statement providing Ford
                                                                 with an opportunity to present information as
                                                                 to why the proposed Agency action is not
                                                                 necessary or to suggest an alternative action.
                                                                 Ford shall have 30 days from the date of the
                                                                 Regional Administrator's notice to present the
                                                                 information.
                                                                (d) If after 30 days Ford presents no further
                                                                 information, the Regional Administrator will
                                                                 issue a final written determination describing
                                                                 the Agency actions that are necessary to
                                                                 protect human health or the environment. Any
                                                                 required action described in the Regional
                                                                 Administrator's determination shall become
                                                                 effective immediately, unless the Regional
                                                                 Administrator provides otherwise.

                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

[FR Doc. E6-21603 Filed 12-19-06; 8:45 am]

BILLING CODE 6560-50-P