[Federal Register Volume 85, Number 164 (Monday, August 24, 2020)]
[Notices]
[Pages 52164-52166]
[FR Doc No: 2020-18464]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89593; File No. SR-FICC-2020-006]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Order Approving Proposed Rule Change To Provide for a Passive
Acknowledgement Process and Make Other Changes

August 18, 2020.

I. Introduction

    On June 19, 2020, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ proposed rule change SR-
FICC-2020-006. The proposed rule change was published for comment in
the Federal Register on July 7, 2020.\3\ The Commission did not receive
any comment letters on the proposed rule change. For the reasons
discussed below, the Commission is approving the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 89193 (June 30, 2020),
85 FR 40723 (July 7, 2020) (SR-FICC-2020-006) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    FICC proposes to modify its Government Securities Division
(``GSD'') Rulebook (``GSD Rules'') and its Mortgage-Backed Securities
Division (``MBSD'' and together with GSD, each, a ``Division'')
Clearing Rules (``MSBD Rules,'' and together with the GSD Rules,
``Rules'') \4\ in order to (i) provide for a passive acknowledgement
process whereby any settling bank that does not timely acknowledge that
it will settle its Funds-Only (Cash) Settlement Figures (as defined
below) with FICC (i.e., acknowledge its intention to pay to or collect
from FICC), or notify the Settlement Agent (as defined below) of its
refusal to settle for one or more members \5\ for which it is the
designated GSD Funds-Only Settling Bank or MBSD Cash Settling Bank
(collectively, ``FICC Settling Banks'') and has not otherwise been in
contact with the Settlement Agent, would be deemed to have acknowledged
its Funds-Only (Cash) Settlement Figures, (ii) codify FICC's discretion
to exclude a FICC Settling Bank's balance from the National Settlement
Service (``NSS'') file in certain circumstances, and (iii) make certain
technical and conforming changes.
---------------------------------------------------------------------------

    \4\ Capitalized terms not defined herein are defined in the
Rules, available at http://www.dtcc.com/legal/rules-and-procedures.
    \5\ The use of ``members'' here refers to any participant that
is required to appoint a Funds-Only Settling Bank or Cash Settling
Bank, which includes GSD Netting Members, GSD Centrally Cleared
Institutional Triparty (``CCIT'') Members, GSD Sponsoring Members,
and MBSD Clearing Members. References hereinafter to the term
``members'' shall be used for ease of reference. See GSD Rule 13,
Section 4(a) and MBSD Rule 3A, Section (a), supra note 4.
---------------------------------------------------------------------------

A. Current Funds-Only (Cash) Settlement Process

    Each Division provides a standardized, automated method for
settling funds-only, for GSD, and cash, for MBSD, settlement
(collectively, ``Funds-Only (Cash) Settlement'') obligations,
respectively, between each Division and its respective members' FICC
Settling Banks. Each member designates a FICC Settling Bank to settle
its Funds-Only (Cash) Settlement obligations with FICC. Settlement is
effected via the NSS.\6\
---------------------------------------------------------------------------

    \6\ GSD Rule 13, Section 5(i) and MBSD Rule 11, Section 9(i),
supra note 4. For a general description of the NSS, see National
Settlement Service, available at https://www.frbservices.org/financial-services/national-settlement-service/index.html.
---------------------------------------------------------------------------

    On each business day, as applicable, each Division calculates
either a Funds-Only Settlement Amount or Cash Balance figure,
respectively, for each member and reports to each member and its
respective FICC Settling Bank a Net Funds-Only Settlement Figure \7\
(for GSD) and either a Total Debit Cash Balance Figure or a Total
Credit Cash Balance Figure \8\ (for MBSD) (collectively, ``Funds-Only
(Cash) Settlement Figures''). The Depository Trust Company (``DTC'')
acts as Settlement Agent \9\ for both GSD's funds-only and MBSD's cash
settlement process.
---------------------------------------------------------------------------

    \7\ Net Funds-Only Settlement Figure means the net amount of the
Funds-Only Settlement Amounts of the Netting Members for which a
Funds-Only Settling Bank Member is acting. GSD Rule 1, supra note 4.
For GSD, Funds-Only Settlement Amounts reflect: (i) Changes in the
value of securities when they are marked to market, (ii) cash
adjustments related to securities trades, (iii) the pass-through of
coupon payments for term repos or trade obligations that cross a
coupon date, and (iv) other items, such as billing invoices. GSD
Rule 13, Section 1, supra note 4.
    \8\ Total Debit Cash Balance Figure means the sum of the Cash
Balances which are debits of the Members for which a Cash Settling
Bank Member is acting. MSBD Rule 1, supra note 4. Total Credit Cash
Balance Figures means the sum of the Cash Balances which are credits
of the Members for which a Cash Settling Bank Member is acting. MSBD
Rule 1, supra note 4. For MBSD, Cash Settlement amounts reflect: (i)
The To Be Announced (``TBA'') Transaction Adjustment Payment, (ii)
Net Pool Transaction Adjustment Payment, (iii) principal and
interest payments for failing net pool settlement obligations (to
the extent that they are not handled by the FedWire Securities
Service Automated Claims Adjustment Process), and (iv) other items,
such as Factor Update Adjustments and billing invoices. MBSD Rule
11, Section 7, supra note 4.
    \9\ DTC Settlement Operations acts as the Settlement Agent for
GSD and MBSD. ``Settlement Agent'' means the bank or trust company
that FICC may, from time to time, designate to act as its agent for
purposes of interfacing with NSS for funds-only settlement pursuant
to GSD Rule 13 (for GSD) and for Cash Settlement pursuant to MBSD
Rule 11. GSD Rule 1 and MBSD Rule 1, supra note 4.
---------------------------------------------------------------------------

    Once the FICC Settling Banks receive their Funds-Only (Cash)
Settlement Figures from the Settlement Agent, the FICC Settling Banks
submit either (1) acknowledgement that they will settle their Funds-
Only (Cash) Settlement Figures with FICC or (2) refusal to settle such
amounts on behalf of one or more of their respective members.\10\ The
acknowledgement or refusal submission occurs through a designated
terminal system.\11\ If all of the FICC Settling Banks submit
acknowledgements of their intent to settle, then DTC, as Settlement
Agent, would submit the requisite file to the relevant Federal Reserve
Bank (``FRB'') for processing through the NSS.\12\
---------------------------------------------------------------------------

    \10\ A FICC Settling Bank that settles only for itself may not
refuse to settle for itself and, therefore, may opt out of the
requirement to acknowledge its Funds-Only (Cash) Settlement Figures.
GSD Rule 13, Section 5(b) and MBSD Rule 11, Section 9, supra note 4.
The passive acknowledgement process would not apply to such FICC
Settling Banks that have chosen to opt out. See Notice, supra note
3, at 40723-24.
    \11\ GSD Rule 13, Section 5(b) and MBSD Rule 11, Section 9(b),
supra note 4.
    \12\ GSD Rule 13, Section 5(i) and MBSD Rule 11, Section 9(i),
supra note 4.
---------------------------------------------------------------------------

    If a FICC Settling Bank notifies the Settlement Agent that the FICC
Settling Bank refuses to pay the Funds-Only (Cash) Settlement Figure
for a member, then FICC would exclude that member's amount and the
Settlement Agent would provide the FICC Settling Bank with a new Funds-
Only (Cash) Settlement Figure that no longer includes the excluded
member's amount. The FICC Settling Bank must then immediately send a
message to the Settlement Agent acknowledging the new amount.\13\ The
Settlement Agent would then submit the requisite file to the FRB for
processing through the NSS.
---------------------------------------------------------------------------

    \13\ GSD Rule 13, Section 5(c) and MBSD Rule 11, Section 9(c),
supra note 4.

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

    The deadline for FICC Settling Banks to acknowledge or refuse is 30
minutes prior to the time at which debits and credits are executed via
the NSS.\14\ If a FICC Settling Bank does not acknowledge or refuse by
this time, the Settlement Agent would use the most recent contact
information available to contact the FICC Settling Bank. If the
Settlement Agent is unable to contact the FICC Settling Bank or does
not receive a response from the FICC Settling Bank as to the
acknowledgement or refusal, FICC would determine whether to request an
NSS extension while also determining whether to remove the FICC
Settling Bank's Funds-Only (Cash) Settlement Figure from the NSS file.
---------------------------------------------------------------------------

    \14\ For GSD, the NSS execution times are 10:00 a.m. and 3:15
p.m.; for MBSD, these times are 10:00 a.m. and 2:45 p.m. GSD
Schedule of Timeframes, supra note 4, and MBSD Processing Schedule
and Timeframes, available at http://www.dtcc.com/clearing-services/ficc-mbsd/ficc-mbsd-user-documentation.
---------------------------------------------------------------------------

    Under the current process, failure of a FICC Settling Bank to
timely respond to the Settlement Agent after the Settlement Agent posts
final settlement figures creates uncertainty with respect to timely
completion of settlement at FICC. FICC states that it designed the
proposed rule change to address this issue as discussed below.\15\
---------------------------------------------------------------------------

    \15\ See Notice, supra note 3, at 40724.
---------------------------------------------------------------------------

B. Proposed Rule Change

    FICC proposes to establish an ``Acknowledgement Cutoff Time'' after
which FICC would apply the passive acknowledgement process. The
Acknowledgement Cutoff Time would be defined as the later of: (i) 30
minutes after the FICC Settling Banks have been notified that such
payment is due, or (ii) 30 minutes prior to the times established by
FICC for the execution of Funds-Only (Cash) Settlement debits and
credits via NSS.
1. Passive Acknowledgement Process
    If a FICC Settling Bank (i) does not submit either (1) an
acknowledgement that it would settle the Funds-Only (Cash) Settlement
Figure with FICC, or (2) a refusal to pay the Funds-Only (Cash)
Settlement Figure, by the Acknowledgement Cutoff Time, and (ii) has not
been in contact with the Settlement Agent, then the Settlement Agent
would attempt to contact the FICC Settling Bank. This passive
acknowledgement process would also apply in situations where the FICC
Settling Bank receives a new Funds-Only (Cash) Settlement Figure after
such FICC Settling Bank's refusal to pay the prior Funds-Only (Cash)
Settlement Figure for one or more members. Additionally, to facilitate
the Settlement Agent's ability to contact FICC Settling Banks, FICC
proposes to revise the Rules to state that each FICC Settling Bank must
ensure that it maintains accurate contact details with the Settlement
Agent so that the Settlement Agent may contact the FICC Settling Bank
regarding this settlement process and any settlement issues.
    If the FICC Settling Bank cannot be reached, then the FICC Settling
Bank would be deemed to have acknowledged that it will settle such
Funds-Only (Cash) Settlement Figure with FICC. The FICC Settling Bank's
balance will then, in the ordinary course of settlement processing, be
debited from or credited to its FRB account through the NSS process
along with the other FICC Settling Banks.
    However, if the Settlement Agent is able to contact the FICC
Settling Bank who notifies the Settlement Agent that it needs more time
to determine whether to acknowledge or refuse, then the FICC Settling
Bank would not be deemed to have acknowledged its Funds-Only (Cash)
Settlement Figure. In this circumstance, the FICC Settling Bank balance
would not, as a matter of course, be included in the NSS file unless
the FICC Settling Bank subsequently affirmatively acknowledges the
balance before the Settlement Agent submits the NSS file.
2. Discretion to Exclude Funds-Only (Cash) Settlement Figures From the
NSS File
    FICC represents that, although it would maintain flexibility for
FICC Settling Banks requesting extra time, it must facilitate timely
settlement via NSS for the other Settling Banks.\16\ Therefore, FICC
proposes to retain its discretion to remove the FICC Settling Bank's
Funds-Only (Cash) Settlement Figure from the NSS file if: (1) Passive
acknowledgement does not apply because the FICC Settling Bank has
notified the Settlement Agent that it cannot yet acknowledge or refuse
its Funds-Only (Cash) Settlement Figure, and (2) the payment deadline
(i.e., the time by which it must execute settlement via the NSS) \17\
established by FICC is approaching. According to FICC, its discretion
in this circumstance would facilitate timely processing of the NSS file
for the other FICC Settling Banks.\18\
---------------------------------------------------------------------------

    \16\ See Notice, supra note 3, at 40725.
    \17\ Supra note 14.
    \18\ See Notice, supra note 3, at 40725.
---------------------------------------------------------------------------

3. Technical and Conforming Changes
    FICC proposes to make certain technical and conforming changes to
the Rules to enhance clarity. First, FICC proposes to revise the Rules
to add a new defined term ``Acknowledgement Cutoff Time.'' \19\ Second,
FICC proposes to replace certain references to the ``Corporation,'' the
``Corporation's Operations area,'' and ``DTC'' with ``Settlement
Agent'' for accuracy and consistency and to clarify the role of the
Settlement Agent under the relevant Rules.\20\ In addition, FICC
proposes to move certain current subsections and to revise the
subsection numbers in the relevant Rules to enhance clarity and
accuracy.\21\
---------------------------------------------------------------------------

    \19\ See id.
    \20\ See id. at 40725-40726.
    \21\ See id. at 40725.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \22\ directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to such organization. After careful consideration, the
Commission finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to FICC. In particular, the Commission finds that the
proposed rule change is consistent with Section 17A(b)(3)(F) of the Act
\23\ for the reasons described below.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(2)(C).
    \23\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    Section 17A(b)(3)(F) of the Act requires, in part, that the rules
be designed to promote the prompt and accurate clearance and settlement
of securities transactions.\24\ As stated in Section II.A above, the
failure of a FICC Settling Bank to timely acknowledge that it will
settle its Funds-Only (Cash) Settlement Figure with FICC or refuse to
pay its Funds-Only (Cash) Settlement Figure creates uncertainty with
respect to the timely completion of Funds-Only (Cash) Settlement at
FICC. Additionally, circumstances in which a FICC Settling Bank has
requested more time to either acknowledge or refuse its Funds-Only
(Cash) Settlement Figure could create uncertainty with respect to the
timely completion of Funds-Only (Cash) Settlement at FICC via NSS
because FICC would not be able to submit the NSS file that includes the
balance of the requesting FICC Settling Bank.
---------------------------------------------------------------------------

    \24\ Id.

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

    The introduction of a passive acknowledgement process, in which a
FICC Settling Bank has not responded by the Acknowledgement Cutoff Time
and cannot be reached by the Settlement Agent would be deemed to have
passively acknowledged its Funds-Only (Cash) Settlement Figure, could
enhance settlement certainty because it would allow FICC to submit the
NSS file for settlement of all FICC Settling Banks' obligations despite
an unresponsive FICC Settling Bank. Additionally, the change to
expressly allow FICC to exclude a FICC Settling Bank's balance from the
NSS file, where the FICC Settling Bank has requested more time, would
allow FICC to submit the NSS file without the FICC Settling Bank's
balance and thus complete Funds-Only (Cash) Settlement for all other
members. Therefore, the Commission believes the changes are designed to
promote the prompt and accurate clearance and settlement of securities
transactions, consistent with Section 17A(b)(3)(F) of the Act.\25\
---------------------------------------------------------------------------

    \25\ Id.
---------------------------------------------------------------------------

    Further, the technical and conforming changes should ensure that
the Rules remain clear and accurate to FICC members. Having clear and
accurate Rules should facilitate FICC members' understanding of those
rules and provide members with increased predictability and certainty
regarding their obligations. Therefore, the Commission believes the
technical and conforming changes would also promote the prompt and
accurate clearance and settlement of securities, consistent with
Section 17A(b)(3)(F) of the Act.\26\
---------------------------------------------------------------------------

    \26\ Id.
---------------------------------------------------------------------------

IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act
and, in particular, with the requirements of Section 17A of the Act
\27\ and the rules and regulations promulgated thereunder.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\28\ that proposed rule change SR-FICC-2020-006, be, and hereby is,
approved.\29\
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78s(b)(2).
    \29\ In approving the proposed rule change, the Commission
considered the proposals' impact on efficiency, competition, and
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-18464 Filed 8-21-20; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 88, Number 125 (Friday, June 30, 2023)]
[Notices]
[Pages 42361-42362]
[FR Doc No: 2023-13949]

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

ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OAR-2016-0094; FRL-11120-01-OMS]

Agency Information Collection Activities; Submission to the
Office of Management and Budget for Review and Approval; Comment
Request; Importation of On-Highway Vehicles and Motorcycles and Nonroad
Engines, Vehicles, and Equipment (Renewal)

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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

SUMMARY: The Environmental Protection Agency (EPA) has submitted an
information collection request (ICR), ``Importation of On-highway
Vehicles and Motorcycles and Nonroad Engines, Vehicles, and Equipment''
(EPA ICR Number 2583.03, OMB Control Number 2060-0717) to the Office of
Management and Budget (OMB) for review and approval in accordance with
the Paperwork Reduction Act. This is a proposed extension of the ICR,
which is currently approved through June 30, 2023. Public comments were
previously requested via the Federal Register on October 5, 2022,
during a 60-day comment period. This notice allows for an additional 30
days for public comments.

DATES: Additional comments may be submitted on or before July 31, 2023.

ADDRESSES: Submit your comments, referencing Docket ID Number EPA-HQ-
OAR-2016-0094, to EPA online using www.regulations.gov (our preferred
method), or by mail to: EPA Docket Center, Environmental Protection
Agency, Mail Code 28221T, 1200 Pennsylvania Ave. NW, Washington, DC
20460. EPA's policy is that all comments received will be included in
the public docket without change including any personal information
provided, unless the comment includes profanity, threats, information
claimed to be Confidential Business Information (CBI) or other
information whose disclosure is restricted by statute.
    Submit written comments and recommendations to OMB for the proposed
information collection within 30 days of publication of this notice to
www.reginfo.gov/public/do/PRAMain. Find this particular information
collection by selecting ``Currently under 30-day Review--Open for
Public Comments'' or by using the search function.

FOR FURTHER INFORMATION CONTACT: Holly Pugliese, Compliance Division,
Office of Transportation and Air Quality, Environmental Protection
Agency, 2000 Traverwood, Ann Arbor, Michigan, 48105; telephone number:
734-214-4288; fax number:<PHONE_NUMBER>; email address:
[email protected].

SUPPLEMENTARY INFORMATION: This is a proposed extension of the ICR,
which is currently approved through June 30, 2023. An agency may not
conduct or sponsor and a person is not required to respond to a
collection of information unless it displays a currently valid OMB
control number.
    Public comments were previously requested via the Federal Register
on October 5, 2022, during a 60-day

comment period (87 FR 60392). This notice allows for an additional 30
days for public comments. Supporting documents, which explain in detail
the information that the EPA will be collecting, are available in the
public docket for this ICR. The docket can be viewed online at
www.regulations.gov or in person at the EPA Docket Center, WJC West,
Room 3334, 1301 Constitution Ave. NW, Washington, DC. The telephone
number for the Docket Center is<PHONE_NUMBER>. For additional
information about EPA's public docket, visit https://www.epa.gov/dockets.
    Abstract: The Clean Air Act requires that on-highway vehicles and
motorcycles, and nonroad vehicles, engines, and equipment imported into
the U.S. either comply with applicable emission requirements or qualify
for an applicable exemption or exclusion. The Compliance Division (CD)
in the EPA's Office of Air and Radiation maintains and makes available
instruments to importers to help facilitate the importation of products
at U.S. Borders. EPA Form 3520-1 is used by importers of on-highway
vehicles and motorcycles, and EPA Form 3520-21 is used by importers of
nonroad vehicles, engines, and equipment. For most imports, U.S.
Customs and Border Protection (CBP) regulations require that EPA
Declaration Forms 3520-1 and 3520-21 be filed with CBP at the time of
entry. EPA does not require that the forms be submitted directly to
EPA. Rather, they are used by CBP to facilitate the importation process
at U.S. borders. EPA does require that the forms be kept by importers
for a period of five years after importation to assist EPA's Office of
Enforcement and Compliance Assurance (OECA) and CBP should any issues
arise with any given importation.
    In addition, this ICR covers the burden of EPA Form 3520-8 which
EPA makes available upon request and is used by Independent Commercial
Importers (ICIs), who bring on-highway vehicles into compliance and
provide emissions test results, to request final importation clearance
for their on-highway vehicles.
    Since 2016, CBP has been using the Automated Commercial Environment
(ACE) to facilitate the electronic filing of imports documents rather
than collecting paper. ACE has become the primary system through which
the trade community and other importers report imports and exports.
Through ACE as the single point of submission, manual processes have
been streamlined and automated, and paper submissions (e.g. fillable
PDFs) have been significantly reduced. Rather than file hard copy
forms, importers can log into ACE and check boxes corresponding to
information elements currently on the forms. Filers using the ACE
interface will also receive transaction information that will be kept
by the filer. However, EPA will continue to maintain the forms on our
website in fillable PDF format. Although importers are expected to use
the ACE interface to submit information, the PDF versions of the form
can also be submitted directly into ACE by importers.
    Form Numbers: 3520-1, 3520-21, 3520-8.
    Respondents/affected entities: Information collected is from
individual importers, or companies who import and/or manufacture on-
highway vehicles and motorcycles and nonroad engines, vehicles, and
equipment.
    Respondent's obligation to respond: Required for any importer to
legally import on-highway vehicles and motorcycles and nonroad engines,
vehicles, and equipment vehicles or engines into the U.S.
    Estimated number of respondents: 14,810.
    Frequency of response: Once per entry. (One form per shipment may
be used.)
    Total estimated burden: 131,985 hours (per year). Burden is defined
at 5 CFR 1320.03(b).
    Total estimated cost: $8,009,549 (per year), which includes $0
annualized capital or operation & maintenance costs.
    Changes in Estimates: There is an increase of 50,000 hours in the
total estimated respondent burden compared with the ICR currently
approved by OMB. This increase is due to the estimated annual number of
entries (forms filed with CBP) rising from 160,000 per year to
approximately 260,000 per year. Accordingly, due to the additional
forms filed and slight increases in labor costs, estimated average
annual costs have increased by approximately $3,764,850.

Courtney Kerwin,
Director, Regulatory Support Division.
[FR Doc. 2023-13949 Filed 6-29-23; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register Volume 77, Number 145 (Friday, July 27, 2012)]
[Notices]
[Pages 44235-44238]
[FR Doc No: 2012-18377]

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

ENVIRONMENTAL PROTECTION AGENCY

[FRL-9706-8]

Forms and Procedures for Submitting Compliance Reports:
Requirements Pertaining to Reformulated Gasoline, Anti-dumping,
Gasoline Sulfur, Renewable Fuel Standard Requirements, etc. and
Greenhouse Gas Reporting Requirements Related to Coal-Based Liquid
Fuels and Petroleum Products

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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

SUMMARY: EPA's Office of Transportation and Air Quality (OTAQ) is
announcing that compliance reports submitted or due on or after August
31, 2012 must be submitted via EPA's Central Data Exchange (CDX). The
substance and format of the reports is unchanged. EPA is switching to
all-electronic reporting using CDX because it is simple, cost
effective, and will improve the availability and integrity of data. As
of August 31, 2012, parties will no longer be permitted to submit
reports via portable electronic media, such as CDs or diskettes. This
notice affects parties subject to reporting requirements under 40 CFR
part 80, including requirements pertaining to reformulated gasoline,
anti-dumping, gasoline sulfur, ultra-low sulfur diesel, benzene
content, and the renewable fuel standard. This notice also affects
parties subject to greenhouse gas reporting requirements related to
coal-based liquid fuels and petroleum products under 40 CFR part 98,
subparts LL and MM.

DATES: The reporting procedures described in this notice are effective
starting with reports due or submitted to EPA on or after August 31,
2012.

FOR FURTHER INFORMATION CONTACT: Anne-Marie C. Pastorkovich, Attorney/
Advisor, Environmental Protection Agency, 1200 Pennsylvania Avenue NW.
(6406J), Washington, DC 20460; telephone number:<PHONE_NUMBER>; fax
number:<PHONE_NUMBER>; email address<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. Does this notice apply to me?

    This action affects regulated parties who submit information to EPA
under fuels programs governed by 40 CFR Part 80, including the
reformulated gasoline, anti-dumping, gasoline sulfur, ultra-low sulfur
diesel, and benzene programs, as well as the renewable fuel standard.
This action also affects regulated parties who submit information to
EPA related to the greenhouse gas reporting requirements of 40 CFR part
98, subparts LL and MM. The specific programs and forms affected are
discussed in Section III--What Reports Must Be Submitted via CDX?
Reports due or submitted to EPA on or after August 31, 2012 must be
submitted to the OTAQ Fuels Reporting System via the EPA Central Data
Exchange (CDX). As of that date, regulated parties will no longer be
permitted to report by submitting portable electronic media, such as
CDs or diskettes. This notice also affects the resubmission of any
report to EPA, if the resubmission occurs on or after August 31, 2012.
If you have further questions regarding the applicability of this
action to a particular party, please contact the person listed in FOR
FURTHER INFORMATION CONTACT.

II. Why is EPA switching to all-electronic reporting using CDX?

    EPA's Central Data Exchange (CDX) enables fast, efficient, and
secure submission of data to EPA. Among the advantages offered by CDX
are the following features, which will improve fuel reporting under 40
CFR Part 80 and greenhouse gas reporting under 40 CFR part 98, subparts
LL and MM. CDX allows regulated parties to:
     Submit data through one centralized and secure point of
access;
     Receive confirmation from EPA when submissions are
received;
     Submit data in a variety of formats including Excel and
flat-file; and
     Reduce costs associated with submitting and processing
data submissions.
    EPA does not charge the regulated party to set up a CDX account.
Virtually all regulated parties subject to 40 CFR part 80 already have
CDX accounts and EPA's primary reporting instructions already specify
the submission of compliance reports using CDX. However, to date we
have permitted submission of CDs or diskettes as an alternative to CDX
reporting under certain circumstances. Starting with reports due or
submitted on or after August 31, 2012, these alternative options for
submitting reports will no longer apply.
    There are several reasons for eliminating alternative submission
options. Parties often submit CDs without properly ``burning'' data to
them, so that no report is submitted. EPA staff must then notify the
regulated party that they must re-submit using CDX or by sending a CD
that actually contains the required data. This type of reporting error
cannot occur with a CDX transmission.

    Electronic media submitted to EPA via postal mail is irradiated for
security reasons, which often damages CDs and diskettes, rendering them
unusable. When this occurs, EPA staff must notify regulated parties to
ensure a usable resubmission occurs. This type of damage cannot occur
with a CDX transmission.
    When parties submit portable electronic media such as CDs or
diskettes, they are also required to submit a physical, signed, cover
letter that identifies all the files being submitted and that explains
the reason why the data was not submitted to EPA using CDX. EPA is
required to review and retain this paperwork and must match up the
paperwork to the physical media submitted. We must store both the paper
and the physical media, and eventually we must catalog and archive
them. With CDX, the process is done quickly, easily, and
electronically, and no superfluous paper record or physical object
requiring special storage is generated by the submitter. EPA is able to
more quickly and efficiently process reports received through CDX, and
the amount of paper and physical media that must be utilized, reviewed,
stored, and eventually archived, is greatly reduced.
    EPA believes there is no reason to provide for alternatives to CDX
and that exclusive use of CDX will increase efficiency and lower the
costs associated with the submission and processing of compliance
reports. It will also enhance the availability and integrity of
information stored in our compliance database. Most compliance data is
not publicly available (since it often contains information claimed as
confidential business information by the submitter), but the data must
be made available to EPA program and enforcement personnel. By
utilizing CDX, information is entered into our compliance database and
available for use much more quickly. By fully utilizing CDX, we expect
not only enhanced availability, but enhanced data integrity as well.
Parties using CDX are able to submit data in common file formats
(including Excel); EPA is also providing a unified report form that
allows companies to check report formats before submission to help
avoid careless errors that prevent reports from being accepted by the
system. Using CDX, a user may view its own reporting history and
submitters may download and decrypt all reports that they submitted to
EPA after July of 2011.
    Fully implementing electronic reporting via CDX is consistent with
EPA, and government-wide, efforts to encourage secure electronic
reporting and reduce costs associated with the processing and storage
of paper formats and accompanying physical media. The alternative
options we provided previously in the instructions for 40 CFR part 80
programs and for 40 CFR part 98, subparts LL and MM were not meant as
primary means of reporting, but were generally intended as a temporary
measure for parties who did not have working CDX accounts in time for a
reporting deadline. For example, the instructions for the RFS2
alternative reporting procedure specifically state that the procedure
is intended for parties who were unable to get a CDX account within a
month of the reporting deadline, and further require that the party
explain the reason they were not reporting via CDX in the cover letter
they provide with the mailed-in media. Since virtually all reporting
parties already have CDX accounts, we no longer believe any alternative
submission options are necessary. We are providing ample notice in
order to ensure that any party who does not yet have a CDX account has
sufficient time to get one prior to August 31, 2012. Any party
requiring a new CDX account may set up an account at http://cdx.epa.gov/epa_home.asp.

III. What reports must be submitted via CDX?

    For parties subject to the reformulated gasoline (RFG) and anti-
dumping regulations of Subparts D and E, the Tier 2 gasoline sulfur
regulations of Subpart H and the gasoline toxics requirements (MSAT2)
of Subpart J, reports must be submitted via CDX, starting with reports
submitted or due on or after August 31, 2012. The report forms
currently in use as of July 3, 2012 are listed with their OMB approval
numbers and current expiration dates:
     3520-20C (RFG0301): Reformulated Gasoline and Anti-Dumping
Batch Report, OMB Control Number 2060-0277, Expires December 31, 2014;
     3520-20D (RFG0400): Reformulated Gasoline and Anti-Dumping
Quarterly Summary, OMB Control Number 2060-0277, Expires December 31,
2014;
     3520-20E (RFG0500): Reformulated Gasoline and Anti-dumping
Annual Compliance Designation, OMB Control Number 2060-0277, Expires
December 31, 2014;
     3520-20H (RFG0800): Anti-Dumping Program Annual Report,
OMB Control Number 2060-0277, Expires December 31, 2014;
     3520-20I (RFG0900): Reformulated Gasoline Toxics Emissions
Performance Averaging Report, OMB Control Number 2060-0277, Expires
December 31, 2014;
     3520-20J (RFG1000): Reformulated Gasoline Program Benzene
Content Averaging Report, OMB Control Number 2060-0277, Expires
December 31, 2014;
     3520-20L (RFG1200): Reformulated Gasoline Program
NOX Emissions Performance Averaging Report (Complex Model),
OMB Control Number 2060-0277, Expires December 31, 2014;
     3520-20M (RFG1300): Reformulated Gasoline Program VOC
Emissions Performance Averaging Report, OMB Control Number 2060-0277,
Expires December 31, 2014;
     3520-20N (RFG1400): Reformulated Gasoline Program
Averaging Areas Report, OMB Control Number 2060-0277, Expires December
31, 2014;
     3520-20P (RFG1600): Reformulated Gasoline Program Credit
Transfer Report (Complex Model), OMB Control Number 2060-0277, Expires
December 31, 2014;
     3520-20Q (RFG1700): Reformulated Gasoline Program Oxygen
Content Averaging Report (Complex Model), OMB Control Number 2060-0277,
Expires December 31, 2014;
     RFG2000: RFG & Anti-Dumping Annual Benzene Report (MSAT-
2), OMB Control Number 2060-0277, Expires December 31, 2014;
     RFG2200: MSAT2 Credit Transfer Report (MSAT-2), OMB
Control Number 2060-0277, Expires December 31, 2014;
     RFG2500: MSAT-2 Precompliance Report (MSAT-2), OMB Control
Number 2060-0277, Expires December 31, 2014; and
     Gasoline Sulfur and Benzene Batch Report (Tier 2 Gasoline
Sulfur and MSAT-2), OMB Control Numbers 2060-0437 and 2060-0277,
Expiring January 31, 2014 and December 31, 2014.
    Forms and instructions may be viewed on EPA's ``Reformulated
Gasoline Reporting Forms'' Web page at the following URL: http://www.epa.gov/otaq/fuels/reporting/rfg.htm.
    For parties who are subject to the Tier 2 gasoline sulfur reporting
regulations of Subpart H, the following reports must be submitted via
CDX, starting with reports submitted or due on or after August 31,
2012. The report forms currently in use as of July 3, 2012 are listed
with their OMB approval numbers and current expiration dates:
     OH-GSC01: Overhead Information Included in Company
Reports, OMB Control Number 2060-0437, Expiring January 31, 2014--this
form includes the ``overhead'' (identifying information) that must be
included in Tier 2 gasoline sulfur reports on a company level;
     GSC0100: Gasoline Sulfur Allotment Banking Report (company

report), OMB Control Number 2060-0437, Expiring January 31, 2014;
     GSC0200: Gasoline Sulfur Allotment Transfer/Conversion
Report (company report), OMB Control Number 2060-0437, Expiring January
31, 2014;
     GSC0300: Gasoline Sulfur Corporate Pool Average Report
(company report), OMB Control Number 2060-0437, Expiring January 31,
2014;
     GSC0400: Gasoline Sulfur Corporate Pool Facility
Identification Report (company report), OMB Control Number 2060-0437,
Expiring January 31, 2014;
     OH-GSF01: Overhead Information Included in Facility
Reports, Expiring January 31, 2014--this form includes the ``overhead''
(identifying information) that must be included in Tier 2 gasoline
sulfur reports on a facility level;
     GSF-0100: Gasoline Sulfur Credit Banking and Allotment
Generation Report, OMB Control Number 2060-0437, Expiring January 31,
2014;
     GSF-0200: Gasoline Sulfur Credit Transfer/Conversion
Report, OMB Control Number 2060-0437, Expiring January 31, 2014;
     GSF-0301: Gasoline Sulfur Facility Summary Report, OMB
Control Number 2060-0437, Expiring January 31, 2014;
     GSF-0401: Gasoline Sulfur and Benzene Batch Report, OMB
Control Number 2060-0437, Expiring January 31, 2014; and
     GSF-0500: Gasoline Sulfur Report for Batches Containing
Previously Certified Gasoline, OMB Control Number 2060-0437, Expiring
January 31, 2014.
    Forms and instructions may be viewed on EPA's ``Tier 2 Gasoline
Sulfur Reporting Forms'' Web page at the following URL: http://www.epa.gov/otaq/fuels/reporting/tier2.htm.
    For parties who are subject to the diesel sulfur reporting
regulations of Subpart I, the following report forms must be submitted
via CDX, starting with reports submitted or due on or after August 31,
2012. The report forms currently in use as of July 3, 2012 are listed
with their OMB approval numbers and current expiration dates:
     DSF0100: Diesel Fuel Sulfur Credit Banking & Generation
Report, OMB Control Number 2060-0308, Renewal Pending;
     DSF0200: Diesel Fuel Sulfur Credit Transfer Report, OMB
Control Number 2060-0308, Renewal Pending;
     DSF0302: Diesel Fuel Sulfur Facility Summary Report, OMB
Control Number 2060-0308, Renewal Pending;
     DSF0401: Diesel Fuel Sulfur Batch Report, OMB Control
Number 2060-0308, Renewal Pending;
     DSF0504: Designate & Track Handoff Report, OMB Control
Number 2060-0308, Renewal Pending;
     DSF0601: Designate & Track Total Volume Report, OMB
Control Number 2060-0308, Renewal Pending;
     DSF0700: Designate & Track Facility Compliance Calculation
Report, OMB Control Number 2060-0308, Renewal Pending;
     DSE0700: Designate & Track Entity Compliance Calculation
Report, OMB Control Number 2060-0308, Renewal Pending;
     DSF0900: Motor Vehicle Diesel Fuel Sulfur Pre-Compliance
Report, OMB Control Number 2060-0308, Renewal Pending; and
     DSF0951: NRLM Diesel Fuel Sulfur Pre-Compliance Report,
OMB Control Number 2060-0308, Renewal Pending.
    Forms and instructions may be viewed on EPA's ``Diesel Fuel
Reporting Forms'' Web page at the following URL: http://www.epa.gov/otaq/fuels/reporting/diesel.htm. The spreadsheet templates for Diesel
Sulfur & Solvent Yellow 124 Test Facility Qualification are not
affected by this notice. These forms are only used by fuel testing
facilities in order to qualify use of test methods which determine
sulfur content and the presence of a marker.
    For parties who are subject to the renewable fuel standard (RFS2)
regulations of Subpart M, the following reports must be submitted via
CDX, starting with reports submitted or due on or after August 31,
2012. The report forms currently in use as of the date of July 3, 2012
are listed with their OMB approval numbers and current expiration
dates:
     RFS0103: RFS2 Q1 2012 Activity Report, OMB Control Number
2060-0640, Expiring July 31, 2013.
     RFS0104: RFS2 Activity Report, OMB Control Number 2060-
0640, Expiring July 31, 2013.
     RFS0201: RFS1 RIN Transaction Report, OMB Control Number
2060-0640, Expiring July 31, 2013.
     RFS0302: RFS2 2011 Annual Compliance Report, OMB Control
Number 2060-0640, Expiring July 31, 2013.
     RFS0601: RFS2 Renewable Fuel Producer Supplemental Report,
OMB Control Number 2060-0640, Expiring July 31, 2013.
     RFS0701: RFS2 Renewable Fuel Producer Co-products Report,
OMB Control Number 2060-0640, Expiring July 31, 2013.
     RFS0801: RFS2 Renewable Biomass Report, OMB Control Number
2060-0640, Expiring July 31, 2013.
     RFS0901: RFS2 Production Outlook Report, OMB Control
Number 2060-0640, Expiring July 13, 2013.

Prior year versions of these forms are on our Web page for the purpose
of resubmissions. These include the RFS0101--RFS2 2011Activity Report,
RFSA101--RFS 2011 Activity Report, RFS0102--RFS2 2011 Activity Report,
RFS0301--RFS 2010 Annual Compliance Report, RFS0700--RFS2 Renewable
Fuel Producer Co-Products Report, RFS 0800--RFS2 Renewable Biomass
Report, and RFS0900--RFS2 Production Outlook Report. In addition,
several RFS1 reports are provided at our Web page for resubmission
purposes. These include the RFS0100--RFS Activity Report, RFS0200--RIN
Transaction Report, RFS0300--RFS Obligated Party Annual Compliance
Report, and RFS0400--RFS RIN Generation Report. As of August 31, 2012,
any resubmission of these reports must use CDX.
    Forms and instructions may be viewed on EPA's ``Renewable Fuel
Standard Reporting Forms'' Web page at the following URL: http://www.epa.gov/otaq/fuels/reporting/rfs.htm.
    For parties subject to the Mandatory Reporting of Greenhouse Gases
Rule of 40 CFR part 98, subparts LL (suppliers of coal-based liquid
fuels) and/or MM (suppliers of petroleum products), reports must be
submitted via CDX, starting with reports submitted or due on or after
August 31, 2012. The report forms currently in use as of the date of
July 3, 2012 are listed with their OMB approval numbers and current
expiration dates:
     GHG0101: GHG Report--Products by Measurement Method, OMB
Control No. 2060-0629, Expiring November 30, 2012; OMB Control No.
2025-0003, Expiring April 30, 2015
     GHG0201: GHG Report--Aggregate Petroleum Products, Natural
Gas Liquids and Coal-to-Liquid Products, OMB Control No. 2060-0629,
Expiring November 30, 2012; OMB Control No. 2025-0003, Expiring April
30, 2015
     GHG0301: GHG Report--Total CO2, OMB Control No.
2060-0629, Expiring November 30, 2012; OMB Control No. 2025-0003,
Expiring April 30, 2015
     GHG0401: GHG Report--Blended Products that Do Not Contain
Biomass, OMB Control No. 2060-0629, Expiring November 30, 2012; OMB
Control No. 2025-0003, Expiring April 30, 2015
     GHG0501: GHG Report--Crude Oil Received, OMB Control No.
2060-0629, Expiring November 30, 2012; OMB Control No. 2025-0003,
Expiring April 30, 2015
     GHG0601: GHG Report--NAICS Codes and Parent Company
Information,

OMB Control No. 2060-0629, Expiring November 30, 2012; OMB Control No.
2025-0003, Expiring April 30, 2015
    Prior year versions of these forms are included on our Web page for
the purpose of resubmissions. These include the GHG0100: GHG Report--
Products by Measurement Method, GHG0200: GHG Report--Aggregate
Petroleum Products, Natural Gas Liquids and Coal-to-Liquid Products,
GHG0300: GHG Report--Total CO2, GHG0400: GHG Report--Blended
Products that Do Not Contain Biomass, GHG0500: GHG Report--Crude Oil
Received, and GHG0600: GHG Report--NAICS Codes and Parent Company
Information. As of August 31, 2012, any resubmission of these forms
must use CDX.
    Forms and instructions may be viewed on EPA's ``Greenhouse Gas
Reporting Program Reporting Forms and Instructions'' Web page at the
following URL: http://www.epa.gov/otaq/fuels/reporting/ghg-llmmreporting.htm.

IV. Useful References

    The following Web pages provide information about CDX and provide
information, instructions, and tutorials to assist parties in
submitting reports to EPA:
     General Information about the EPA Central Data Exchange
(CDX)--https://www.epa.gov/cdx/
     Submitting Reports--Central Data Exchange--http://www.epa.gov/otaq/fuels/reporting/cdx.htm
     Office of Transportation and Air Quality (OTAQ)--DCFUEL
Registration Quick Start Guide (PDF)--http://www.epa.gov/otaq/regs/fuels/420b11028b.pdf
     Office of Transportation and Air Quality (OTAQ) DCFUEL
User Guide (PDF)--http://www.epa.gov/otaq/regs/fuels/420b11027b.pdf
     Office of Transportation and Air Quality (OTAQ) DCFUEL
Submission Quick Start Guide (PDF)--http://www.epa.gov/otaq/regs/fuels/420b11029.pdf
     DCFUEL On-Line Reporting Tutorial--http://www.epa.gov/otaq/fuels/reporting/dcfuelstutorial/dcfuels.htm

List of Subjects

    Environmental protection; Administrative practice and procedure;
Air pollution control; Confidential business information; Diesel fuel;
Fuel additives; Gasoline; Imports; Motor vehicle pollution; Reporting
and recordkeeping requirements.

    Dated: July 11, 2012.
Byron J. Bunker,
Acting Director, Compliance Division, Office of Transportation and Air
Quality.
[FR Doc. 2012-18377 Filed 7-26-12; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register: May 8, 2006 (Volume 71, Number 88)]
[Notices]
[Page 26797-26804]
[DOCID:fr08my06-74]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53743; File No. SR-NASD-2006-045]

Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed
Rule Change Relating to Amendments to Rule 2520 (Margin Requirements)

April 28, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 3, 2006, the National Association of Securities Dealers, Inc.
(``NASD'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by NASD. NASD has
designated the proposed rule change as constituting a ``non-
controversial'' rule change pursuant to section 19(b)(3)(A) \3\ of the
Act and Rule 19b-4(f)(6) thereunder,\4\ which renders the proposal
effective upon filing with the Commission. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6). NASD gave the Commission written
notice of its intent to file this proposed rule change on March 24,
2006.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    NASD is proposing to amend NASD Rules 2520 and 2522 that will
revise the margin requirements to (1) recognize specific additional
complex option

spread strategies for purposes of determining required margin and (2)
amend the provisions relating to ``permitted offsets'' for certain
listed option transactions.
    The text of the proposed rule change is below. Proposed new
language is italicized; deletions are in brackets.
* * * * *
2520. Margin Requirements
    (a) through (e) No Change.
    (f) Other Provisions
    (1) No Change.
    (2) Puts, Calls and Other Options, Currency Warrants, Currency
Index Warrants and Stock Index Warrants
    (A) through (B) No Change.
    (C) For purposes of this subparagraph (f)(2), obligations issued by
the United States Government shall be referred to as United States
Government obligations. Mortgage pass-through obligations guaranteed as
to timely payment of principal and interest by the Government National
Mortgage Association shall be referred to as GNMA obligations.
    In the case of any put, call, currency warrant, currency index
warrant, or stock index warrant carried ``long'' in a customer's
account that expires in nine months or less, initial margin must be
deposited and maintained equal to at least 100% of the purchase price
of the option or warrant.
    Long Listed Option or Warrant With An Expiration Exceeding Nine
Months. In the case of a put, call, index stock group option, or stock
index warrant that is issued by a registered clearing agency, margin
must be deposited and maintained equal to at least 75% of the current
market value of the option or warrant; provided that the option or
warrant has a remaining period to expiration exceeding nine months.
    Long OTC Option or Warrant With An Expiration Exceeding Nine
Months. In the case of a[n OTC] put, [or ]call, index stock group
option,[ on a stock or stock index, and a] or stock index warrant[,]
carried long that is not issued by a registered clearing agency[ with
an expiration exceeding 9 months], margin must be deposited and
maintained equal to at least 75% of the option's or warrant's ``in-the-
money'' amount plus 100% of the amount, if any, by which the current
market value of the option or warrant exceeds its ``in-the-money''
amount provided the option or warrant:[. Options or warrants margined
pursuant to this paragraph must:]
    (i) [be valued at all times for margin purposes at an amount not to
exceed, the in-the-money amount,]
    [(ii) be]is guaranteed by the carrying broker-dealer, [and]
    (ii) [(iii) have]has an American-style exercise provision, and
    (iii) has a remaining period to expiration exceeding nine months.
    (D) through (F) No Change.
    (G) (i) through (iv) No Change.
    (v) The following requirements set forth the minimum amount of
margin that must be maintained in margin accounts of customers having
positions in components underlying options, and stock index warrants,
when such components are held in conjunction with certain positions in
the overlying option or warrant. The option or warrant must be issued
by a registered clearing agency or guaranteed by the carrying broker/
dealer. In the case of a call or warrant carried in a short position, a
related long position in the underlying component shall be valued at no
more than the call/warrant exercise price for margin equity purposes.
    a. Long Option or Warrant Offset. When a component underlying an
option or warrant is carried long (short) in an account in which there
is also carried a long put (call) or warrant specifying equivalent
units of the underlying component, the minimum amount of margin that
must be maintained on the underlying component is 10% of the
[aggregate] option/warrant exercise price plus the ``out-of-the-money''
amount, not to exceed the minimum maintenance required pursuant to
paragraph (c) of this Rule.
    b. Conversions. When a call or warrant carried in a short position
is covered by a long position in equivalent units of the underlying
component and [there] is also carried with a long put or warrant
specifying equivalent units of the same underlying component and having
the same exercise price and expiration date as the short call or
warrant, the minimum amount of margin that must be maintained for the
underlying component shall be 10% of the [aggregate] exercise price.
    c. Reverse Conversions. When a put or warrant carried in a short
position is covered by a short position in equivalent units of the
underlying component and is also carried with a long call or warrant
specifying equivalent units of the same underlying component and having
the same exercise price and expiration date as the short put or
warrant, the minimum amount of margin that must be maintained for the
underlying component shall be 10% of the [aggregate] exercise price
plus the amount by which the exercise price of the put exceeds the
current market value of the underlying, if any.
    d. Collars. When a call or warrant carried in a short position is
covered by a long position in equivalent units of the underlying
component and is also carried with a long put or warrant specifying
equivalent units of the same underlying component and having a lower
exercise price and the same expiration date as the short call/warrant,
the minimum amount of margin that must be maintained for the underlying
component shall be the lesser of 10% of the [aggregate] exercise price
of the put plus the put ``out-of-the-money'' amount or 25% of the call
aggregate exercise price.
    e. Butterfly Spread. This subparagraph applies to a butterfly
spread as defined in Rule 2522 where all option positions are issued by
a registered clearing agency or guaranteed by the carrying broker/
dealer.
    1. No Change.
    2. With respect to a short butterfly spread as defined in Rule
2522, margin must be deposited and maintained equal to at least the
amount of the [aggregate] difference between the two lowest exercise
prices with respect to short butterfly spreads comprised of calls or
the [aggregate] difference between the two highest exercise prices with
respect to short butterfly spreads comprised of puts. The net proceeds
from the sale of short option components may be applied to the
requirement.
    f. Box Spread. This subparagraph applies to box spreads as defined
in Rule 2522, where all option positions are issued by a registered
clearing agency or guaranteed by the carrying broker/dealer.
    1. With respect to a long box spread as defined in Rule 2522, the
net debit must be paid in full.
    2. With respect to a short box spread as defined in Rule 2522,
margin must be deposited and maintained equal to at least the amount of
the [aggregate] difference between the exercise prices. The net
proceeds from the sale of the short option components may be applied to
the requirement.
    g. Long Box Spread in European-Style Options. With respect to a
long box spread as defined in Rule 2522, in which all component options
have a European-style exercise provision and are issued by a registered
clearing agency or guaranteed by the carrying broker/dealer, margin
must be deposited and maintained equal to at least 50% of the
[aggregate] difference in the exercise prices. The net proceeds from
the sale of short option components may be applied to the requirement.
For margin purposes, the long box spread may be valued at an amount not
to exceed

100% of the [aggregate] difference in the exercise prices.
    h. Long Condor Spread. This subparagraph applies to a long condor
spread as defined in Rule 2522 where all option positions are issued by
a registered clearing agency or guaranteed by the carrying broker/
dealer. With respect to a long condor spread as defined in Rule 2522,
the net debit must be paid in full.
    i. Short Iron Butterfly Spread. This subparagraph applies to a
short iron butterfly spread as defined in Rule 2522 where all option
positions are issued by a registered clearing agency or guaranteed by
the carrying broker/dealer. With respect to a short iron butterfly
spread as defined in Rule 2522, margin must be deposited and maintained
equal to at least the amount of the exercise price interval. The net
proceeds from the sale of short option components may be applied to the
requirement.
    j. Short Iron Condor Spread. This subparagraph applies to a short
iron condor spread as defined in Rule 2522 where all option positions
are issued by a registered clearing agency or guaranteed by the
carrying broker/dealer. With respect to a short iron condor spread as
defined in Rule 2522, margin must be deposited and maintained equal to
at least the amount of the exercise price interval. The net proceeds
from the sale of short option components may be applied to the
requirement.
    k. Long Calendar Butterfly Spread. This subparagraph applies to a
long calendar butterfly spread as defined in Rule 2522 where all option
positions are issued by a registered clearing agency or guaranteed by
the carrying broker/dealer. With respect to a long calendar butterfly
spread as defined in Rule 2522, the net debit must be paid in full.
    l. Long Calendar Condor Spread. This subparagraph applies to a long
calendar condor spread as defined in Rule 2522 where all option
positions are issued by a registered clearing agency or guaranteed by
the carrying broker/dealer. With respect to a long calendar condor
spread as defined in Rule 2522, the net debit must be paid in full.
    m. Short Calendar Iron Butterfly Spread. This subparagraph applies
to a short calendar iron butterfly spread as defined in Rule 2522 where
all option positions are issued by a registered clearing agency or
guaranteed by the carrying broker/dealer. With respect to a short
calendar iron butterfly spread as defined in Rule 2522, margin must be
deposited and maintained equal to at least the amount of the exercise
price interval. The net proceeds from the sale of short option
components may be applied to the requirement.
    n. Short Calendar Iron Condor Spread. This subparagraph applies to
a short calendar iron condor spread as defined in Rule 2522 where all
option positions are issued by a registered clearing agency or
guaranteed by the carrying broker/dealer. With respect to a short
calendar iron condor spread as defined in Rule 2522, margin must be
deposited and maintained equal to at least the amount of the exercise
price interval. The net proceeds from the sale of short option
components may be applied to the requirement.
    (H) through (I) No Change.
    (J) (i) Registered specialists, market makers or traders--
Notwithstanding the other provisions of this subparagraph (f)(2), a
member may clear and carry the listed option transactions of one or
more registered specialists, registered market makers or registered
traders in options (whereby[which] registered traders are deemed
specialists for all purposes under the Act, pursuant to the rules of a
national securities exchange) (hereinafter referred to as
``specialist(s)''), upon a ``Good Faith'' margin basis satisfactory to
the concerned parties, provided the ``Good Faith'' margin
requirement[s] is not less than the Net Capital haircut deduction of
the member [organization] carrying the transaction pursuant to SEC Rule
15c3-1 under the Act. In lieu of collecting the ``Good Faith'' margin
requirement, a carrying member [organization] may elect to deduct in
computing its Net Capital the amount of any deficiency between the
equity maintained in the account and the ``Good Faith'' margin
required.
    For purposes of this paragraph (f)(2)(J), a permitted offset
position means, in the case of an option in which a specialist or
market maker makes a market, a position in the underlying asset or
other related assets, and in the case of other securities in which a
specialist or market maker makes a market, a position in options
overlying the securities in which a specialist or market maker makes a
market. Accordingly, a specialist or market maker in options may
establish, on a share-for-share basis, a long or short position in the
securities underlying the options in which the specialist or market
maker makes a market, and a specialist or market maker in securities
other than options may purchase or write options overlying the
securities in which the specialist or market maker makes a market, if
the account holds the following permitted offset positions:
    a. A short option position which [is ``in or at the money'' and] is
not offset by a long or short option position for an equal or greater
number of shares of the same underlying security which is ``in the
money'';
    b. A long option position which [is ``in or at the money'' and] is
not offset by a long or short option position for an equal or greater
number of shares of the same underlying security which is ``in the
money'';
    c. A short option position against which an exercise notice was
tendered;
    d. A long option position which was exercised;
    e. A net long position in a security (other than an option) in
which a specialist or market maker makes a market;
    f. A net short position in a security (other than an option) in
which the specialist or market maker makes a market; or
    g. A specified portfolio type as referred to in SEC Rule 15c3-1,
including its appendices, or any applicable SEC staff interpretation or
no-action position.
    Permitted offset transactions must be effected for specialist or
market making purposes such as hedging, risk reduction, rebalancing of
positions, liquidation, or accommodation[s] of customer orders, or
other similar [market making]specialist or market maker purpose. The
specialist or market maker must be able to demonstrate compliance with
this provision.
    For purposes of this paragraph (f)(2)(J) [the term ``in or at the
money'' means the current market price of the underlying security is
not more than two standard exercise intervals below (with respect to a
call option) or above (with respect to a put option) the exercise price
of the option;] the term ``in the money'' means the current market
price of the underlying asset or index is not below (with respect to a
call option) or above (with respect to a put option) the exercise price
of the option; and, the term ``overlying option'' means a put option
purchased or a call option written against a long position in an
underlying asset; or a call option purchased or a put option written
against a short position in an underlying asset.
    (ii) Securities, including options, in such accounts shall be
valued conservatively in the light of current market prices and the
amount which might be realized upon liquidation. Substantial additional
margin must be required or excess [n]Net [c]Capital maintained in all
cases where the securities carried:
    a. through b. No Change.
    c. In one or more or all accounts, including proprietary accounts

combined, are such that they cannot be liquidated promptly or represent
undue concentration of risk in view of the carrying member's [n]Net
[c]Capital and its overall exposure to material loss.
    (K) through (L) No Change.
    (M) Cash account transactions--A member may make option
transactions in a customer's cash account, provided that:
    (i) No Change.
    (ii) Spreads. A European-style cash-settled index stock group
option or stock index warrant carried in a short position is deemed a
covered position, and eligible for the cash account, provided a long
position in a European-style cash-settled stock group index option, or
stock index warrant having the same underlying component or index that
is based on the same aggregate current underlying value, is held in or
purchased for the account on the same day, provided that:
    a. through b. No Change.
    c. There is held in the account at the time the positions are
established, or received into the account promptly thereafter:
    1. Cash or cash equivalents of not less than any amount by which
the [aggregate] exercise price of the long call or call warrant (short
put or put warrant) exceeds the [aggregate] exercise price of the short
call or call warrant (long put or put warrant), to which [requirement
of] net proceeds from the sale of the short position may be applied, or
    2. An escrow agreement.
    The escrow agreement must certify that the bank holds for the
account of the customer as security for the agreement i. cash, ii. cash
equivalents, or iii. a combination thereof having an aggregate market
value at the time the positions are established of not less than any
amount by which the [aggregate] exercise price of the long call or call
warrant (short put or put warrant) exceeds the [aggregate] exercise
price of a short call or call warrant (long put or put warrant) and
that the bank will promptly pay the member such amount in the event the
account is assigned an exercise notice or that the bank will promptly
pay the member funds sufficient to purchase a warrant sold short in the
event of a buy-in.
    d. No Change.
    (iii) Long Butterfly Spreads, Short Butterfly Spreads, Long Condor
Spreads, Short Iron Butterfly Spreads, or Short Iron Condor Spreads.
Put or call options carried in a short position are deemed covered
positions and eligible for the cash account provided that the account
contains long positions of the same type which in conjunction with the
short options, constitute a long butterfly spread, short butterfly
spread, long condor spread, short iron butterfly spread, or short iron
condor spread as defined in Rule 2522 and provided that:
    a. through d. No Change.
    e. All components options expire concurrently;
    [e]f. With respect to a long butterfly spread or long condor spread
as defined in Rule 2522, the net debit is paid in full; and
    [f]g. With respect to a short butterfly spread, short iron
butterfly spread or short iron condor spread as defined in Rule 2522,
there is held in the account at the time the positions are established
or received into the account promptly thereafter:
    1. Cash or cash equivalents of not less than the amount of the
[aggregate] difference between the two lowest exercise prices with
respect to short butterfly spreads comprised of call options or the
[aggregate] difference between the two highest exercise prices with
respect to short butterfly spreads comprised [or] of put options, to
which [requirement] the net proceeds from the sale of short option
components may be applied; or
    2. An escrow agreement.
    The escrow agreement must certify that the bank holds for the
account of the customer as security for the agreement i. cash, ii. cash
equivalents or iii. a combination thereof having an aggregate market
value at the time the positions are established of not less than the
amount of the [aggregate] difference between the two lowest exercise
prices with respect to short butterfly spreads comprised of calls or
the [aggregate] difference between the two highest exercise prices with
respect to short butterfly spreads comprised of puts and that the bank
will promptly pay the member such amount in the event the account is
assigned an exercise notice on the call (put) with the lowest (highest)
exercise price.
    (iv) Box Spreads. Puts and calls carried in a short position are
deemed covered positions and eligible for the cash account provided
that the account contains long positions which in conjunction with the
short options constitute a box spread as defined in Rule 2522 provided
that:
    a. through d. No Change.
    e. All component options expire concurrently;
    [e]f. With respect to a long box spread as defined in Rule 2522,
the net debit is paid in full; and
    [f]g. With respect to a short box spread as defined in Rule 2522,
there is held in the account at the time the positions are established,
or received into the account promptly thereafter:
    1. Cash or cash equivalents of not less than the amount of the
[aggregate] difference between the exercise prices, to which
[requirement] the net proceeds from the sale of short option components
may be applied; or
    2. An escrow agreement.
    The escrow agreement must certify that the bank holds for the
account of the customer as security for the agreement i. cash, ii. cash
equivalents or iii. a combination thereof having an aggregate market
value at the time the positions are established of not less than the
amount of the [aggregate] difference between the exercise prices and
that the bank will promptly pay the member such amount in the event the
account is assigned an exercise notice on either short option.
    (3) through (11) No Change.
* * * * *
    2522. Definitions Related to Options, Currency Warrants, Currency
Index Warrants and Stock Index Warrants Transactions.
    (a) The following definitions shall apply to the margin
requirements for options, currency warrants, currency index warrants
and stock index warrants transactions:
    (1) through (5) No Change.
    (6) Box Spread.
    The term ``box spread'' means an aggregation of positions in a long
call and short put with the same exercise price (``buy side'') coupled
with a long put and short call with the same exercise price (``sell
side'') [all of which have the same underlying component or index and
time of expirations, and are based on the same aggregate current
underlying value, and are] structured as[;]: (A) a ``long box spread''
in which the sell side exercise price exceeds the buy side exercise
price or (B) a ``short box spread'' in which the buy side exercise
price exceeds the sell side exercise price[.], all of which have the
same contract size, underlying component or index and time of
expiration, and are based on the same aggregate current underlying
value.
    (7) through (8) No Change.
    (9) Butterfly Spread
    The term ``butterfly spread'' means an aggregation of positions in
three series of either puts or calls, [all having the same underlying
component or index, and time of expiration, and based on the same
aggregate current underlying value, where the interval between the
exercise price of each series is equal, which positions are] structured
as either: (A) a ``long butterfly spread'' in which two short options
in the same

series are offset by one long option with a higher exercise price and
one long option with a lower exercise price or (B) a ``short butterfly
spread'' in which two long options in the same series offset one short
option with a higher exercise price and one short option with a lower
exercise price[.], all of which have the same contract size, underlying
component or index and time of expiration, are based on the same
aggregate current underlying value, where the interval between the
exercise price of each series is equal, and the exercise prices are in
ascending order.
    (10) Calendar Spread
    The term ``calendar spread'' or ``time spread'' means the sale of
one option and the simultaneous purchase of another option of the same
type, both specifying the same underlying component with the same
exercise price or different exercise prices, where the ``long'' option
expires after the ``short'' option.
    (10) through (22) renumbered as (11) through (23).
    [(23)](24) Escrow Agreement
    The term ``escrow agreement,'' when used in connection with cash
settled calls, puts, currency warrants, currency index warrants, or
stock index warrants carried short, means any agreement issued in a
form acceptable to [the Association]NASD under which a bank holding
cash, cash equivalents, one or more qualified equity securities or a
combination thereof in the case of a call [option] or warrant or cash,
cash equivalents or a combination thereof in the case of a put [option]
or warrant is obligated (in the case of an option) to pay the creditor
the exercise settlement amount in the event an option is assigned an
exercise notice or, (in the case of a warrant) the funds sufficient to
purchase a warrant sold short in the event of a buy-in.
    [The term ``escrow agreement'' when used in connection with non
cash settled call or put options carried short, means any agreement
issued in a form acceptable to the Association under which a bank
holding the underlying security (in the case of a call option) or
required cash or cash equivalents or a combination thereof (in the case
of a put option) is obligated to deliver to the creditor (in the case
of a call option) or accept from the creditor (in the case of a put
option) the underlying security against payment of the exercise price
in the event of the call or put is assigned an exercise notice.]
    (24) through (40) renumbered as (25) through (41).
    (42) Long Calendar Butterfly Spread
    The term ``long calendar butterfly spread'' means an aggregation of
positions in three series of either puts or calls, structured as two
short options with the same exercise price, offset by a long option
with a lower exercise price and a long option with a higher exercise
price, all of which have the same contract size, underlying component
or index, are based on the same aggregate current underlying value,
where the interval between the exercise price of each series is equal,
the exercise prices are in consecutive order, and one long option
expires after the other three options expire concurrently. However, a
long calendar butterfly spread cannot be composed of cash-settled,
European-style index options. This strategy can also be considered a
combination of one long calendar spread and one long butterfly spread,
as defined in this rule.
    (43) Long Calendar Condor Spread
    The term ``long calendar condor spread'' means an aggregation of
positions in four series of either puts or calls, structured as a long
option with the lowest exercise price, two short options with the next
two consecutively higher exercise prices and a long option with the
highest exercise price, all of which have the same contract size,
underlying component or index, are based on the same aggregate current
underlying value, where the interval between the exercise price of each
series is equal, the exercise prices are in consecutive order, and one
long option expires after the other three options expire concurrently.
However, a long calendar condor spread cannot be composed of cash-
settled, European-style index options. This strategy can also be
considered a combination of one long calendar spread and two long
butterfly spreads, as defined in this rule.
    (44) Long Condor Spread
    The term ``long condor spread'' means an aggregation of positions
in four series of either puts or calls, structured as a long option
with the lowest exercise price, two short options with the next two
consecutively higher exercise prices and a long option with the highest
exercise price, all of which have the same contract size, underlying
component or index and time of expiration, are based on the same
aggregate current underlying value, where the interval between the
exercise price of each series is equal, and the exercise prices are in
consecutive order. This strategy can also be considered a combination
of two long butterfly spreads, as defined in this rule.
    (41) through (60) renumbered as (45) through (64).
    (65) Short Calendar Iron Butterfly Spread
    The term ``short calendar iron butterfly spread'' means an
aggregation of positions in two series of puts and two series of calls,
structured as a short put and a short call with the same exercise
price, offset by a long put with a lower exercise price and a long call
with a higher exercise price, all of which have the same contract size,
underlying component or index, are based on the same aggregate current
underlying value, where the interval between the exercise price of each
series is equal, the exercise prices are in consecutive order, and one
long option expires after the other three options expire concurrently.
However, a short calendar iron butterfly spread cannot be composed of
cash-settled, European-style index options. This strategy can also be
considered a combination of one long calendar spread, one long
butterfly spread, and one short box spread, as defined in this rule.
    (66) Short Calendar Iron Condor Spread
    The term ``short calendar iron condor spread'' means an aggregation
of positions in two series of puts and two series of calls, structured
as a long put with the lowest exercise price, a short put and a short
call with the next two consecutively higher exercise prices and a long
call with the highest exercise price, all of which have the same
contract size, underlying component or index, are based on the same
aggregate current underlying value, where the interval between the
exercise price of each series is equal, the exercise prices are in
consecutive order, and one long option expires after the other three
options expire concurrently. However, a short calendar iron condor
spread cannot be composed of cash-settled, European-style index
options. This strategy can also be considered a combination of one long
calendar spread, two long butterfly spreads, and one short box spread,
as defined in this rule.
    (67) Short Iron Butterfly Spread
    The term ``short iron butterfly spread'' means an aggregation of
positions in two series of puts and two series of calls, structured as
a short put and a short call with the same exercise price, offset by a
long put with a lower exercise price and a long call with a higher
exercise price, all of which have the same contract size, underlying
component or index and time of expiration, are based on the same
aggregate current underlying value, where the interval between the
exercise price of each series is equal, and the exercise prices are in
consecutive order. This strategy can also be considered a combination
of one long butterfly spread and one short box spread, as defined in
this rule.
    (68) Short Iron Condor Spread

    The term ``short iron condor spread'' means an aggregation of
positions in two series of puts and two series of calls, structured as
a long put with the lowest exercise price, a short put and a short call
with the next two consecutively higher exercise prices, and a long call
with the highest exercise price, all of which have the same contract
size, underlying component or index and time of expiration, are based
on the same aggregate current underlying value, where the interval
between the exercise price of each series is equal, and the exercise
prices are in consecutive order. This strategy can also be considered a
combination of two long butterfly spreads and one short box spread, as
defined in this rule.
    (61) through (77) renumbered as (69) through (85).
* * * * *

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. NASD has prepared summaries, set forth in sections A, B
and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose

Background

    The proposed rule change is consistent with recent margin rule
amendments by the New York Stock Exchange (``NYSE'') and the Chicago
Board Options Exchange (``CBOE''), which were recently approved by the
Commission.\5\ Specifically, NASD is proposing to amend Rule 2520 to
(1) recognize specific additional complex option spread strategies for
purposes of determining required margin and (2) amend the provisions
relating to ``permitted offsets'' for certain listed option
transactions. In addition, NASD is proposing to amend Rule 2522 to
include definitions relating to the proposed rule change described
above as well as certain other conforming definitional and language
changes.
---------------------------------------------------------------------------

    \5\ See Exchange Act Release No. 52951 (December 14, 2005), 70
FR 75523 (December 20, 2005) (SR-NYSE-2004-39); and Exchange Act
Release No. 52950 (December 14, 2005), 70 FR 75512 (December 20,
2005) (SR-CBOE-2004-53).
---------------------------------------------------------------------------

    1. Complex Option Spread Strategies
    NASD proposes to amend Rule 2520 and the corresponding definitions
in Rule 2522 to recognize specific additional complex option spread
strategies and set margin requirements commensurate with the risk of
such spread strategies. These complex option spread strategies are the
net result of combining two or more spread strategies that are
currently recognized in NASD's margin rules. The netting of contracts
in option series common to each of the currently recognized spreads in
an aggregation reduces it to the complex spread strategies noted below.
    Basic option spreads can be paired in such ways that they offset
each other in terms of risk. The total risk of the combined spreads is
less than the sum of the risk of both spread positions if viewed as
stand-alone strategies. The specific complex option spread strategies
listed below are structured using the same principles as, and are
essentially expansions of, the advanced spreads currently allowed in
Rule 2520 and as defined in Rule 2522.
    Currently, Rule 2520 recognizes and prescribes margin requirements
for advanced spread strategies known as the ``butterfly spread'' and
the ``box spread.'' However, these option spreads are limited in scope.
The proposed rule change seeks to expand on the types of pairings that
would qualify for butterfly spread and box spread margin treatment. In
addition, Rule 2520 recognizes a ``calendar spread,'' also known as a
``time spread,'' yet it is not identified as such. NASD proposes to
define this term as ``the sale of one option and the simultaneous
purchase of another option of the same type, both specifying the same
underlying component with the same exercise price or different exercise
prices, where the `long' option expires after the `short' option,'' in
Rule 2522 since some of the complex spreads NASD seeks to recognize in
the proposed rule change will include this component of spread
strategies.
    To be eligible for the margin requirements set forth below, a
complex spread must be consistent with one of the seven patterns
specified below. The expiration months and the sequence of the exercise
prices must correspond to the same pattern, and the intervals between
the exercise prices must be equal.
    Members will be required to obtain initial and maintenance margin
for the subject complex spreads, whether established outright or
through netting, of not less than the sum of the margin required on
each basic spread in the equivalent aggregation.
    The basic requirements are as follows: (a) The complex option
spreads must be carried in a margin account; and (b) European-style \6\
options are prohibited for complex spread combinations having a long
option series that expires after the other option series (i.e., those
that involve a time spread such as items 5, 6, and 7 below). Only
American-style options \7\ may be used in these combinations.
Additionally, the intervals between exercise prices must be equal, and
each complex spread must comprise four option series, with the
exception of item 4 below, which must comprise three option series.
---------------------------------------------------------------------------

    \6\ A European-style option is an option contract that can be
exercised only on its expiration date.
    \7\ An American-style option is an option contract that can be
exercised at any time between the date of purchase and its
expiration date.
---------------------------------------------------------------------------

    The sum of the margin required on each currently recognized spread
in each of the applicable aggregations renders margin requirements for
the subject complex spread strategies as stated below. The additional
complex option spread strategies and maintenance margin requirements
are as follows:
    (1) A Long Condor Spread is comprised of two long Butterfly
Spreads. The proposal requires initial and maintenance margin of full
cash payment of the net debit incurred when this spread strategy is
established. Full payment of the net debit incurred will cover any
potential risk to the carrying broker-dealer.
    (2) A Short Iron Butterfly Spread is comprised of one long
Butterfly Spread and one short Box Spread. The establishment of a long
Butterfly Spread results in a margin requirement equal to the net debit
incurred. The establishment of a short Box Spread requires margin equal
to the aggregate difference between the exercise prices. The net
proceeds from the sale of short option components may be applied to the
margin requirement. Accordingly, to cover the risk to the carrying
broker-dealer, the proposal requires a deposit of the aggregate
exercise price differential. The net credit received may be applied to
the deposit required.
    (3) A Short Iron Condor Spread is comprised of two long Butterfly
Spreads and one short Box Spread. The establishment of long Butterfly
Spreads results in a margin requirement equal to the net debit
incurred. The establishment of a short Box Spread requires margin equal
to the difference in the strike price. Accordingly, to cover the risk
to the carrying broker-dealer,

the proposal requires a deposit of the aggregate exercise price
differential. The net credit received may be applied to the deposit
required.
    (4) A Long Calendar Butterfly Spread is comprised of one long
Calendar Spread and one long Butterfly Spread. The proposal requires
initial and maintenance margin of full cash payment of the net debit
incurred when this spread strategy is established. Full payment of the
net debit incurred will cover any potential risk to the carrying
broker-dealer.
    (5) A Long Calendar Condor Spread is comprised of one long Calendar
Spread and two long Butterfly Spreads. The proposal requires initial
and maintenance margin of full cash payment of the net debit incurred
when this spread strategy is established. Full payment of the net debit
incurred will cover any potential risk to the carrying broker-dealer.
    (6) A Short Calendar Iron Butterfly Spread is comprised of one long
Calendar Spread plus one long Butterfly Spread and one short Box
Spread. To cover the risk to the carrying broker-dealer, the proposal
requires a deposit of the aggregate exercise price differential. The
net credit received may be applied to the deposit required.
    (7) A Short Calendar Iron Condor Spread is comprised of one Long
Calendar Spread plus two long Butterfly Spreads and one short Box
Spread. To cover the risk to the carrying broker-dealer, the proposal
requires a deposit of the aggregate exercise price differential. The
net credit received may be applied to the deposit required.
    As noted above, the purpose and benefit is to set levels of margin
that more precisely represent actual net risk of the option positions
in the account and enable customers to implement these strategies more
efficiently.

2. Permitted Offsets

    Rule 2520(f)(2)(J) addresses margin requirements for members that
clear and carry the listed options transactions of registered
specialists, registered market makers or registered traders in options,
and recognizes certain offset positions in establishing the margin
requirements. The rule currently limits permitted offsets for these
parties to options series that are ``in or at the money,'' which is
defined to mean ``the current market price of the underlying security
is not more than two standard exercise intervals below (with respect to
a call option) or above (with respect to a put option) the exercise
price of the option.''
    Recently, various option exchanges have provided for the listing of
options with one-dollar strike intervals in a number of classes. As a
result, the use of securities to hedge options series that have one-
dollar strike intervals has unintentionally become more restrictive.
The proposed rule change will eliminate the definition of ``in or at
the money,'' thereby eliminating the two standard exercise interval
limitation for listed options. In addition, the proposed rule change
will require permitted offset transactions to be effected for
specialist or market-making purposes such as hedging, risk reduction,
rebalancing of positions, liquidation, or accommodation of customer
orders, or other similar specialist or market-making purposes.
    Since clearing firms have risk monitoring systems that alert them
to unhedged positions and haircut requirements pursuant to Rule 15c3-1
of the Act,\8\ which perform a similar function as NASD margin
requirements relative to providing adequate risk coverage to broker-
dealers, elimination of the two-dollar standard exercise price
limitation and definition of ``in or at the money'' will not diminish
the ``safety and soundness'' protections that the margin rules provide.
---------------------------------------------------------------------------

    \8\ 17 CFR 240.15c3-1.
---------------------------------------------------------------------------

    This proposed rule change is effective upon filing. The effective
date and the implementation date will be the date of filing.
2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the
provisions of section 15A(b)(6) of the Act,\9\ which requires, among
other things, that NASD rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. NASD believes that the proposed rule change will set
margin requirements commensurate with the risk of the identified
options spread strategies and will further promote consistent margin
requirements among the self-regulatory organizations.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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

    NASD does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Because the foregoing proposed rule change does not: (1)
Significantly affect the protection of investors or the public
interest; (2) impose any significant burden on competition; and (3) by
its terms, become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest,
the proposed rule change has become effective pursuant to section
19(b)(3)(A) \10\ of the Act and Rule 19b-4(f)(6) thereunder.\11\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6). Rule 19b-4(f)(6) requires that NASD
give the Commission written notice of NASD's intention to file the
proposed rule change along with a brief description and text of the
proposed rule change at least five business days prior to the date
of the filing of the proposed rule change. The Commission notes that
NASD has satisfied the pre-filing five-day notice requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \12\ normally
may not become operative prior to 30 days after the date of filing.
However, Rule 19b-4(f)(6)(iii) \13\ permits the Commission to designate
a shorter time if such actions is consistent with the protection of
investors and the public interest. NASD has requested that the
Commission waive the 30-day operative delay and designate the proposed
rule change to become operative on the date of filing with the
Commission, in order to conform NASD's margin rules to the recent rule
changes by the NYSE and CBOE \14\ and to avoid subjecting firms to
conflicting margin requirements. The Commission believes that waiving
the 30-day operative delay is consistent with the protection of
investors and the public interest.\15\
---------------------------------------------------------------------------

    \12\ Id.
    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ See supra note 5.
    \15\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors,

or otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to<EMAIL_ADDRESS>Please include

File No. SR-NASD-2006-045 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NASD-2006-045. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments,

all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room. Copies of such
filing also will be available for inspection and copying at the
principal office of NASD. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to File Number
SR-NASD-2006-045 and should be submitted on or before May 30, 2006.
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
Nancy M. Morris,
Secretary.
[FR Doc. E6-6911 Filed 5-5-06; 8:45 am]

BILLING CODE 8010-01-P