[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Notices]
[Pages 20770-20771]
[FR Doc No: 2011-8805]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64230; File No. SR-EDGA-2011-12]

Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend
EDGA Rule 11.13 To Extend the Operation of a Pilot

April 7, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on April 5, 2011, the EDGA Exchange, Inc. (the ``Exchange'' or the
``EDGA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which items have been prepared by the self-regulatory
organization. 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.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend EDGA Rule 11.13 to extend the
operation of a pilot pursuant to the Rule until the earlier of August
11, 2011 or the date on which a limit up/limit down mechanism to
address extraordinary market volatility, if adopted, applies. The text
of the proposed rule change is available on the Exchange's Web site at
http://www.directedge.com, at the Exchange's principal office, on the
Commission's Web site at http://www.sec.gov, and at the Public
Reference Room of the Commission.

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

    In its filing with the Commission, the Exchange 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. The self-regulatory organization 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
    The purpose of this filing is to extend the effectiveness of the
Exchange's current rule applicable to Clearly Erroneous Executions,
Rule 11.13. The rule, explained in further detail below, was approved
to operate under a pilot program set to expire on December 10, 2010.
Then, it was subsequently extended by the Exchange to April 11, 2011.
The Exchange now proposes to extend the pilot program to extend until
the earlier of August 11, 2011 or the date on which a limit up/limit
down mechanism to address extraordinary market volatility, if adopted,
applies.
    On September 10, 2010, the Commission approved, on a pilot basis,
changes to EDGA Rule 11.13 to provide for uniform treatment: (1) Of
clearly erroneous execution reviews in multi-stock events involving
twenty or more securities; and (2) in the event transactions occur that
result in the issuance of an individual stock trading pause by the
primary market and subsequent transactions that occur before the
trading pause is in effect on the Exchange.\3\ The Exchange also
adopted additional changes to Rule 11.13 that reduced the ability of
the Exchange to deviate from the objective standards set forth in Rule
11.13.\4\ The pilot was subsequently extended to April 11, 2011.\5\ The
Exchange believes the benefits to market participants from the more
objective clearly erroneous executions rule should be approved to
continue on a pilot basis.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 62886 (September 10,
2010), 75 FR
     56613 (September 16, 2010) (SR-EDGA-2010-03).
    \4\ Id.
    \5\ See Securities Exchange Act Release No. 63517 (December 10,
2010), 75 FR 78318 (December 15, 2010) (SR-EDGA-2010-24).
---------------------------------------------------------------------------

2. Statutory Basis
    The statutory basis for the proposed rule change is Section 6(b)(5)
of the Act,\6\ which requires the rules of an exchange to promote just
and equitable principles of trade, to remove impediments to and perfect
the mechanism of a free and open market and a national market system
and, in general, to protect investors and the public interest. The
Exchange believes that the proposed rule meets these requirements in
that it promotes transparency and uniformity across

markets concerning review of transactions as clearly erroneous.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The proposed rule change does not impose 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

    The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.

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

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \7\ and Rule 19b-
4(f)(6)(iii) thereunder.\8\ The Exchange has asked the Commission to
waive the 30-day operative delay so that the proposal may become
operative immediately upon filing. The Commission believes that waiving
the 30-day operative delay is consistent with the protection of
investors and the public interest because such waiver will allow the
pilot program to continue uninterrupted and help ensure uniformity
among the national securities exchanges and FINRA with respect to the
treatment of clearly erroneous transactions.\9\ Accordingly, the
Commission waives the 30-day operative delay requirement and designates
the proposed rule change as operative upon filing with the Commission.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A).
    \8\ 17 CFR 240.19b-4(f)(6)(iii). In addition, Rule 19b-
4(f)(6)(iii) requires that a self-regulatory organization submit to
the Commission written notice of its intent 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 filing of the
proposed rule change, or such shorter time as designated by the
Commission. The Commission notes that the Exchange has satisfied
this requirement.
    \9\ For purposes only of waiving the 30-day operative delay, 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 summarily may temporarily suspend 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 Number SR-EDGA-2011-12 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EDGA-2011-12. 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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of the Exchange. 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 publicly available. All
submissions should refer to File Number SR-EDGA-2011-12 and should be
submitted on or before May 4, 2011.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
---------------------------------------------------------------------------

    \10\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8805 Filed 4-12-11; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 76, Number 118 (Monday, June 20, 2011)]
[Notices]
[Pages 35924-35926]
[FR Doc No: 2011-15265]

=======================================================================
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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64675; File No. SR-EDGA-2011-18]

Self-Regulatory Organizations; EDGA Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Relating to
Amendments to the EDGA Exchange, Inc. Fee Schedule

June 15, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 3, 2011, the EDGA Exchange, Inc. (the ``Exchange'' or the
``EDGA'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which items have been prepared by the self-regulatory
organization. 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.
---------------------------------------------------------------------------

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

    The Exchange proposes to amend its fees and rebates applicable to
Members \3\ of the Exchange pursuant to EDGA Rule 15.1(a) and (c). All
of the changes described herein are applicable to EDGA Members. The
text of the proposed rule change is available on the Exchange's
Internet Web site at http://www.directedge.com.
---------------------------------------------------------------------------

    \3\ A Member is any registered broker or dealer, or any person
associated with a registered broker or dealer, that has been
admitted to membership in the Exchange.
---------------------------------------------------------------------------

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

    In its filing with the Commission, the self-regulatory organization
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. The self-regulatory organization
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

Purpose
    In SR-EDGA-2011-16,\4\ the Exchange filed for immediate
effectiveness a rule filing to amend Rule 11.9 to introduce three
additional routing strategies to the rule. These routing strategies
included ROBB and ROCO, which were added to Rules 11.9(b)(3)(c)(vi)-
(vii), respectively, and SWPC, which was added to Rule 11.9(b)(3)(q).
---------------------------------------------------------------------------

    \4\ See SR-EDGA-2011-16 (May 5, 2011).
---------------------------------------------------------------------------

    ROBB/ROCO are routing options whereby orders check the System for
available shares and then are sent to destinations on the System
routing table. If shares remain unexecuted after routing, they are
posted on the book, unless otherwise instructed by the User.\5\ The
difference between the latter two routing strategies lies in the
difference in the System routing tables for the ROBB/ROCO strategies.
---------------------------------------------------------------------------

    \5\ As defined in Rule 1.5(cc).
---------------------------------------------------------------------------

    SWPC is a routing option under which an order checks the System for
available shares and then is sent to only Protected Quotations and only
for displayed size. To the extent that any portion of the order is
unexecuted, the remainder is posted on the book at the

order's limit price. The entire SWPC order will not be cancelled back
to the User immediately if at the time of entry there is an
insufficient share quantity in the SWPC order to fulfill the displayed
size of all Protected Quotations. This routing option is similar to the
strategies set forth in NASDAQ Rule 4758(a)(1)(A)(vi) (``NASDAQ's
``MOPP'' strategy) and BATS Exchange, Inc. Rule 11.13(a)(3)(D)
(``Parallel T'').\6\
---------------------------------------------------------------------------

    \6\ See, e.g., NASDAQ Rule 4758, BATS Rule 11.13(a)(3)(D).
---------------------------------------------------------------------------

    The Exchange proposes to add the ROBB and ROCO strategies to the
description of Flag BY and assign it a rebate of $0.0004 per share
(i.e, routed to BATS BYX Exchange, removes liquidity) since they are
additional strategies that route orders to the BATS BYX Exchange
(``BYX'') for the purpose of removing liquidity.
    In addition, the Exchange also proposes to add the ROCO routing
strategy to the description of Flag MT and assign it a fee of $0.00012
per share since it routes orders to EDGX Mid-Point Match (``MPM'').
    Additionally, the Exchange proposes to add the SWPC routing
strategy to Flag SW and assign it a fee of $0.0031 per share for
removal of liquidity from all market centers except from the New York
Stock Exchange (NYSE). For any orders that use the SWPC strategy that
remove liquidity from the NYSE, the Exchange will continue to assign
them a Flag D and charge a fee of $0.0023 per share. This is further
clarified in footnote 8 to the EDGA fee schedule.
    Finally, the Exchange proposes to add the ROOC routing strategy, as
defined in EDGA Rule 11.9(b)(3)(n),\7\ to the description of the RT
flag so that the ROOC strategy yields the RT flag and is assessed a
rate of $0.0025 per share for any routed executions other than
executions adding liquidity at the opening or closing sessions. In
addition, the Exchange proposes to add clarifying language to footnote
10 of the fee schedule to clarify that footnote 10 only applies to the
ROUT routing strategy and not to the ROOC routing strategy.
---------------------------------------------------------------------------

    \7\ Rule 11.9(b)(3)(n) defines a ROOC as a routing option for
orders that the entering firm wishes to designate for participation
in the opening or closing process of a primary listing market (NYSE,
Nasdaq, NYSE Amex, or NYSE Arca) if received before the opening/
closing time of such market. If shares remain unexecuted after
attempting to execute in the opening or closing process, they are
either posted to the book, executed, or routed like a ROUT routing
option, as defined in Rule 11.9(b)(3)(c).
---------------------------------------------------------------------------

    The Exchange proposes to implement these amendments to its fee
schedule on June 6, 2011.
Basis
    The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Exchange Act,\8\ in general,
and furthers the objectives of Section 6(b)(4),\9\ in particular, as it
is designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other persons using its
facilities. The fee of $0.0012 per share for the MT Flag for orders
that are routing using the ROCO routing strategy represents a pass
through of the EDGX fee for removing liquidity from MPM, as indicated
in the EDGX fee schedule for Flag MT. The $0.0012 per share is
competitive and superior to comparable exchange standard removal rates
of $0.0030 per share (Nasdaq), $0.0030 per share (NYSE Arca), $0.0023
per share (NYSE), and $0.0028 per share (BATS BZX). The fee is also
equitable as it is competitive with other fees assessed for similar
routing strategies to ROCO that access low cost destinations, such as
ROUZ, as defined in Rule 11.9(b)(3)(c)(v) (yields Flag Z, $0.0010 per
share) and ROUD/ROUE, as defined in Rules 11.9(b)(3)(b) and
11.9(b)(3)(c)(i) (Flag T, $0.0012 per share). The Exchange believes
that the proposed fee is non-discriminatory in that it applies
uniformly to all Members.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the rebate of $0.0004 per share for
routing to BYX and removing liquidity using routing strategies ROBB/
ROCO is an equitable allocation of reasonable dues, fees, and other
charges among its members and other person using its facilities. When
EDGA routes to BYX and removes liquidity, BYX rebates EDGA $0.0003 per
share. If a member uses EDGA to route to BYX using one of the listed
routing strategies (including ROBB/ROCO, as proposed), EDGA provides a
$0.0001 discount per share. The Exchange believes that this discounted
rate would incentivize Members to first route through EDGA to reach BYX
and would thereby increase liquidity on EDGA. This type of rate is also
similar to other rates that EDGA charges, such as ``one-under'' pricing
for routing to Nasdaq using the INET routing strategy and is consistent
with the processing of similar routing strategies by EDGA's
competitors.\10\ The Exchange believes that the proposed rebate is non-
discriminatory in that it applies uniformly to all Members.
---------------------------------------------------------------------------

    \10\ See footnote 7 of the EDGA fee schedule. See also BATS BZX
fee schedule: Discounted Destination Specific Routing (``One
Under'') to NYSE, NYSE ARCA and NASDAQ. See Securities Exchange Act
Release No. 62858, 75 FR 55838 (September 14, 2010) (SR-BATS-2010-
023) (modifying the BATS fee schedule in order to amend the fees for
its BATS + NYSE Arca destination specific routing option to continue
to offer a ``one under'' pricing model).
---------------------------------------------------------------------------

    The fee of $0.0031 per share for the SWPC routing strategy is an
equitable allocation of reasonable dues, fees, and other charges in
that the SWPC routing strategy is limited in its interaction with other
Member orders as it only executes to the extent a Member order is at
the Protected Quotation. As a result, compared to other routing
strategies that always sweep the EDGA book before routing out, such as
ROBA (fee of $0.0025 per share), the SWPC fee is higher. Secondly, the
fee is equitable when compared to other similar type strategies of
EDGA's competitors. As noted in SR-EDGA-2011-16 (May 5, 2011), the SWPC
routing strategy is based on Nasdaq's MOPP strategy and BATS BZX/BYX
Exchange Parallel T routing strategy.\11\ Specifically, Nasdaq charges
$0.0035 per share for the MOPP strategy and BATS charges $0.0033 per
share for the Parallel T strategy. EDGA's rate is even more competitive
than these. Finally, the SWPC routing strategy is similar in
functionality to SWPA/SWPB, both of which are charged $0.0031 per
share.\12\ The lower fee charged for removing liquidity from the NYSE
($0.0023 per share) is consistent with the processing of similar
routing strategies by EDGA's competitors. Secondly, of the major market
centers, the NYSE fees for removing liquidity itself are lower, and
EDGA is thus able to pass back such lower rates to its Members.
---------------------------------------------------------------------------

    \11\ See, e.g., NASDAQ Rule 4758 and BATS Rule 11.13.
    \12\ See Securities Exchange Act Release No. 63820, 76 FR 7608
(February 10, 2011) (SR-EDGA-2011-02).
---------------------------------------------------------------------------

    The Exchange believes that assessing a fee of $0.0025 per share for
Members using the ROOC routing strategy, as defined in EDGA Rule
11.9(b)(3)(n), for any routed executions other than executions adding
liquidity at the opening or closing sessions of primary listing
markets, is an equitable allocation of reasonable dues, fees, and other
charges among its members and other person using its facilities. The
rate represents a flat, low cost routing rate for EDGA members. The
flat-rate provides simplicity for customers instead of passing through
the actual rates that EDGA receives from various destinations on its
schedule. This type of rate is similar to other rates that EDGA
charges, such as the flat rates for the ROUT routing strategy (yielding
Flag RT and priced at $.0025 per share) and for Flag 7 executions
($0.0027 per

share). In this rate, EDGA takes into account the rates that it is
charged or rebated when routing to other destinations. It is also
consistent with the processing of similar routing strategies by EDGA's
competitors, such as Nasdaq's DOTM routing strategy \13\ for which
Nasdaq charges $0.0030 per share.
---------------------------------------------------------------------------

    \13\ Nasdaq's DOTM routing strategy posts on a primary listing
market for the open and then acts like Nasdaq's STGY routing
strategy for the rest of the trading session. See NASDAQ Rule 4758.
[sic]
---------------------------------------------------------------------------

    The rate is also equitable in that for any routed executions other
than adding liquidity at the opening or closing sessions of primary
listing markets, the ROOC routing strategy acts like an ROUT routing
strategy, as defined in Rule 11.9(b)(3)(c). As a result, it is assessed
an identical fee to the ROUT routing strategy. The Exchange believes
that the proposed rebate is non-discriminatory in that it applies
uniformly to all Members.
    The Exchange also notes that it operates in a highly competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive. The proposed rule change reflects a competitive pricing
structure designed to incent market participants to direct their order
flow to the Exchange. The Exchange believes that the proposed rates are
equitable in that they apply uniformly to all Members. The Exchange
believes the fees and credits remain competitive with those charged by
other venues and therefore continue to be reasonable and equitably
allocated to Members.

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

    The proposed rule change does not impose 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

    The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from members or other interested
parties.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3) [sic] of the Act \14\ and Rule 19b-4(f)(2) \15\ thereunder. At
any time within 60 days of the filing of such proposed rule change, the
Commission summarily may temporarily suspend 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.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 19b-4(f)(2).
---------------------------------------------------------------------------

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 Number SR-EDGA-2011-18 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EDGA-2011-18. 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 website viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. 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-EDGA-2011-18 and should be
submitted on or before July 11, 2011.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

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

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-15265 Filed 6-17-11; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 82, Number 59 (Wednesday, March 29, 2017)]
[Rules and Regulations]
[Pages 15458-15461]
[FR Doc No: 2017-06227]

=======================================================================
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DEPARTMENT OF COMMERCE

Bureau of Industry and Security

15 CFR Part 744

[Docket No. 170109042-7255-01]
RIN 0694-AH30

Removal of Certain Persons From the Entity List; Addition of a
Person to the Entity List; and EAR Conforming Change

AGENCY: Bureau of Industry and Security, Commerce.

ACTION: Final rule.

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

SUMMARY: This rule amends the Export Administration Regulations (EAR)
by removing two persons listed under the destination of China from the
Entity List. The two removals are the result of a request for removal
received by BIS pursuant to the section of the EAR used for requesting
removal or modification of an Entity List entry and a review of
information provided in the removal request in accordance with the
procedure for requesting removal or modification of an Entity List
entity. In light of the recent settlement of administrative and
criminal enforcement actions against ZTE Corporation and ZTE Kangxun,
the End-User Review Committee (ERC) has determined that these two
persons being removed have performed their undertakings to the U.S.
Government in a timely manner and have otherwise cooperated with the
U.S. Government in resolving the matter which led to the two entities'
listing.
    This final rule also adds one person to the Entity List. This
person who is added to the Entity List has been determined by the U.S.
Government to be acting contrary to the national security or foreign
policy interests of the United States. This person will be listed on
the Entity List under the destination of China.
    Lastly, this final rule makes a conforming change to the EAR as a
result of the removal of these two persons from the Entity List.

DATES: This rule is effective March 29, 2017.

FOR FURTHER INFORMATION CONTACT: Chair, End-User Review Committee,
Office of the Assistant Secretary, Export Administration, Bureau of
Industry and Security, Department of Commerce, Phone:<PHONE_NUMBER>,
Email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Background

    The Entity List (Supplement No. 4 to part 744) identifies entities
and other persons reasonably believed to be involved, or to pose a
significant risk of being or becoming involved, in activities contrary
to the national security or foreign policy interests of the United
States. The EAR imposes additional license requirements on, and limits
the availability of most license exceptions for, exports, reexports,
and transfers (in-country) to those listed. The ``license review
policy'' for each listed entity or other person is identified in the
License Review Policy column on the Entity List and the impact on the
availability of license exceptions is described in the Federal Register
notice adding entities or other persons to the Entity List. BIS places
entities and other persons on the Entity List pursuant to sections of
part 744 (Control Policy: End-User and End-Use Based) and part 746
(Embargoes and Other Special Controls) of the EAR.
    The End-User Review Committee (ERC), composed of representatives of
the Departments of Commerce (Chair), State, Defense, Energy and, where
appropriate, the Treasury, makes all decisions regarding additions to,
removals from, or other modifications to the Entity List. The ERC makes
all decisions to add an entry to the Entity List by majority vote and
all decisions to remove or modify an entry by unanimous vote.

ERC Entity List Decisions

Removals From the Entity List

    This rule implements a decision of the ERC to remove the following
two entries from the Entity List: Zhongxing Telecommunications
Equipment (ZTE) Corporation and ZTE Kangxun Telecommunications Ltd.
These two entities were added to the Entity List on March 8, 2016 (see
81 FR 12006).
    The U.S. Government recently reached an agreement with ZTE
Corporation and ZTE Kangxun for the settlement of administrative
charges and entry of a guilty plea in a criminal case against the
companies. On March 7, 2017, Secretary of Commerce Wilbur L. Ross, Jr.,
issued a statement regarding the settlement and guilty plea, which
resulted in a very substantial monetary penalty, intrusive independent
monitoring, and additional suspended penalties that will be imposed if
ZTE fails to meet its obligations or further violates U.S. export
controls.
    In light of the settlement, the ERC has determined that ZTE
Corporation and ZTE Kangxun have performed their undertakings to the
U.S. Government in a timely manner and have otherwise cooperated with
the U.S. Government in resolving the matter which led to the two
entities' listing. Therefore, the ERC has decided to remove these two
entities from the Entity List.
    This final rule implements the decision to remove the following two
entities located in China from the Entity List:

China

    (1) Zhongxing Telecommunications Equipment (ZTE) Corporation, ZTE
Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District,
Shenzhen, China; and
    (2) ZTE Kangxun Telecommunications Ltd., 2/3 Floor,

Suite A, ZTE Communication Mansion Keji (S) Road, Hi-New Shenzhen,
518057 China.
    The removal of the persons referenced above, which was approved by
the ERC, eliminates the existing license requirements in Supplement No.
4 to part 744 for exports, reexports and transfers (in-country) to
these entities. However, the removal of these persons from the Entity
List does not relieve persons of other obligations under part 744 of
the EAR or under other parts of the EAR. Neither the removal of an
entity from the Entity List nor the removal of Entity List-based
license requirements relieves persons of their obligations under
General Prohibition 5 in Sec.  736.2(b)(5) of the EAR which provides
that, ``you may not, without a license, knowingly export or reexport
any item subject to the EAR to an end-user or end-use that is
prohibited by part 744 of the EAR.'' Additionally, this removal does
not relieve persons of their obligation to apply for export, reexport
or in-country transfer licenses required by other provisions of the
EAR. BIS strongly urges the use of Supplement No. 3 to part 732 of the
EAR, ``BIS's `Know Your Customer' Guidance and Red Flags,'' when
persons are involved in transactions that are subject to the EAR.

Addition to the Entity List

    This rule implements the decision of the ERC to add one person to
the Entity List. This person is being added on the basis of Sec.
744.11 (License requirements that apply to entities acting contrary to
the national security or foreign policy interests of the United States)
of the EAR. The person added to the Entity List will be listed under
the destination of China.
    The ERC reviewed Sec.  744.11(b) (Criteria for revising the Entity
List) in making the determination to add this person to the Entity
List. Under that paragraph, persons and those acting on behalf of such
persons may be added to the Entity List if there is reasonable cause to
believe, based on specific and articulable facts, that they have been
involved, are involved, or pose a significant risk of being or becoming
involved in, activities that are contrary to the national security or
foreign policy interests of the United States. Paragraphs (b)(1)
through (5) of Sec.  744.11 include an illustrative list of activities
that could be contrary to the national security or foreign policy
interests of the United States.
    Pursuant to Sec.  744.11(b) of the EAR, the ERC determined that
this person, Shi Lirong, located in the destination of China, be added
to the Entity List for actions contrary to the national security or
foreign policy interests of the United States. The ERC determined that
there is reasonable cause to believe, based on specific and articulable
facts, that Shi Lirong has been involved in actions contrary to the
national security or foreign policy interests of the United States.
Specifically, Shi Lirong was the CEO of ZTE Corporation at the time the
ZTE documents that contributed to ZTE's listing were signed. Shi Lirong
signed and approved the document ``Report Regarding Comprehensive
Reorganization and Standardization of the Company Export Control
Related Matters,'' which described how ZTE planned and organized a
scheme to establish, control and use a series of ``detached'' (i.e.,
shell) companies to illicitly reexport controlled items to Iran in
violation of U.S. export control laws.
    Pursuant to Sec.  744.11(b) of the EAR, the ERC determined that the
conduct of this person raises sufficient concern that prior review of
exports, reexports or transfers (in-country) of items subject to the
EAR involving this person, and the possible imposition of license
conditions or license denials on shipments to the person, will enhance
BIS's ability to prevent violations of the EAR. Therefore, this person
is being added to the Entity List.
    For this person added to the Entity List, BIS imposes a license
requirement for all items subject to the EAR and a license review
policy of presumption of denial. The license requirements apply to any
transaction in which items are to be exported, reexported, or
transferred (in-country) to this person or in which such person acts as
purchaser, intermediate consignee, ultimate consignee, or end-user. In
addition, no license exceptions are available for exports, reexports,
or transfers (in-country) to this person being added to the Entity List
in this rule.
    This final rule adds the following person to the Entity List:

China

    (1) Shi Lirong, Yuanzhong Garden Tower A, Room 26A, Futian,
Shenzhen, China; and Xinghai Mingcheng, 2nd Floor, Shenzhen, China.

Conforming EAR Change

    This final rule removes Supplement No. 7 to part 744--Temporary
General License, which was originally added to the EAR in a final rule
on March 24, 2016 (81 FR 15633). The March 24 final rule amended the
EAR by adding Supplement No. 7 to part 744 to create a temporary
general license that returned, until June 30, 2016, the licensing and
other policies of the EAR regarding exports, reexports, and transfers
(in-country) to ZTE Corporation and ZTE Kangxun to those which were in
effect prior to their addition to the Entity List on March 8, 2016. BIS
subsequently extended the validity date of the temporary general
license on four occasions (June 28, 2016 (81 FR 41799), August 19, 2016
(81 FR 55372), November 18, 2016 (81 FR 81663), and February 24, 2017
(82 FR 11505)), resulting in the current validity end-date of March 29,
2017.
    As described above under the section Removals From the Entity List,
this final rule removes the two entities identified in the temporary
general license from the Entity List. Therefore, this final rule
removes as a conforming change Supplement No. 7 to part 744 because it
is no longer needed.

Export Administration Act of 1979

    Although the Export Administration Act of 1979 expired on August
20, 2001, the President, through Executive Order 13222 of August 17,
2001, 3 CFR, 2001 Comp., p. 783 (2002), as amended by Executive Order
13637 of March 8, 2013, 78 FR 16129 (March 13, 2013) and as extended by
the Notice of August 4, 2016, 81 FR 52587 (August 8, 2016), has
continued the Export Administration Regulations in effect under the
International Emergency Economic Powers Act. BIS continues to carry out
the provisions of the Export Administration Act of 1979, as appropriate
and to the extent permitted by law, pursuant to Executive Order 13222,
as amended by Executive Order 13637.

Rulemaking Requirements

    1. Executive Orders 13563 and 12866 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). This rule
has been determined to be not significant for purposes of Executive
Order 12866.
    2. Notwithstanding any other provision of law, no person is
required to respond to nor be subject to a penalty for failure to
comply with a collection of information, subject to the requirements of
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) (PRA),
unless that collection of information displays a currently valid Office
of Management and Budget (OMB) Control Number. This regulation involves
collections previously approved by OMB under control

number 0694-0088, Simplified Network Application Processing System,
which includes, among other things, license applications and carries a
burden estimate of 43.8 minutes for a manual or electronic submission.
Total burden hours associated with the PRA and OMB control number 0694-
0088 are not expected to increase as a result of this rule. You may
send comments regarding the collection of information associated with
this rule, including suggestions for reducing the burden, to Jasmeet K.
Seehra, Office of Management and Budget (OMB), by email to
<EMAIL_ADDRESS>or by fax to<PHONE_NUMBER>.
    3. This rule does not contain policies with Federalism implications
as that term is defined in Executive Order 13132.
    4. The provisions of the Administrative Procedure Act (APA) (5
U.S.C. 553) requiring notice of proposed rulemaking, the opportunity
for public comment and a delay in effective date are inapplicable
because this regulation involves a military or foreign affairs function
of the United States. (See 5 U.S.C. 553(a)(1)). BIS implements this
rule to protect U.S. national security or foreign policy interests by
preventing items from being exported, reexported, or transferred (in
country) to the person being added to the Entity List. If the effective
date of this rule were delayed to allow for notice and comment, then
the person being added to the Entity List by this action would be able
to continue receiving items subject to the EAR without a license, to
the detriment of the national security and foreign policy interests of
the United States. In addition, publishing a proposed rule would give
this party notice of the U.S. Government's intention to place him on
the Entity List and would create an incentive for this person to
accelerate his receipt of items subject to the EAR in order to conduct
activities that are contrary to the national security or foreign policy
interests of the United States, to set up additional aliases, change
addresses, and/or to take other measures to try to limit the impact of
the listing on the Entity List after a final rule is published.
    Further, no other law requires that a notice of proposed rulemaking
and an opportunity for public comment be given for this rule. Because a
notice of proposed rulemaking and an opportunity for public comment are
not required for this rule by 5 U.S.C. 553, or by any other law, the
analytical requirements of the Regulatory Flexibility Act, 5 U.S.C. 601
et seq., are not applicable. Accordingly, no regulatory flexibility
analysis is required and none has been prepared.
    5. For the two persons removed from the Entity List in this final
rule and for the conforming EAR change to remove Supplement No. 7 to
part 744, BIS finds good cause, pursuant to the APA, 5 U.S.C.
553(b)(B), to waive requirements that this rule be subject to notice
and the opportunity for public comment because it would be contrary to
the public interest.
    In determining whether to grant a request for removal from the
Entity List, a committee of U.S. Government agencies (the End-User
Review Committee (ERC)) evaluates information about and commitments
made by listed persons requesting removal from the Entity List, the
nature and terms of which are set forth in 15 CFR part 744, Supplement
No. 5, as noted in 15 CFR 744.16(b). The information, commitments, and
criteria for this extensive review were all established through the
notice of proposed rulemaking and public comment process (72 FR 31005
(June 5, 2007) (proposed rule), and 73 FR 49311 (August 21, 2008)
(final rule)). These two removals have been made within the established
regulatory framework of the Entity List. If the rule were to be delayed
to allow for public comment, U.S. exporters may face unnecessary
economic losses as they turn away potential sales to the entities
removed by this rule because the customer remained a listed person on
the Entity List even after the ERC approved the removal pursuant to the
regulatory process established by the rule published at 73 FR 49311 on
August 21, 2008. By publishing without prior notice and comment, BIS
allows the applicants to receive U.S. exports immediately because the
applicants already have received approval by the ERC pursuant to 15 CFR
part 744, Supplement No. 5, as noted in 15 CFR 744.16(b).
    Removals from the Entity List granted by the ERC involve
interagency deliberation and result from review of public and non-
public sources, including sensitive law enforcement information and
classified information, and the measurement of such information against
the Entity List removal criteria. This information is extensively
reviewed according to the criteria for evaluating removal requests from
the Entity List, as set out in 15 CFR part 744, Supplement No. 5 and 15
CFR 744.16(b). For reasons of national security, BIS is not at liberty
to provide to the public the detailed information on which the ERC
relied to make the decisions to remove these entities. In addition, the
information included in the removal request is information exchanged
between the applicant and the ERC, which by law (section 12(c) of the
Export Administration Act of 1979), BIS is restricted from sharing with
the public. Moreover, removal requests from the Entity List contain
confidential business information, which is necessary for the extensive
review conducted by the U.S. Government in assessing such removal
requests.
    Additionally, section 553(d) of the APA generally provides that
rules may not take effect earlier than thirty (30) days after they are
published in the Federal Register. BIS finds good cause to waive the
30-day delay in effectiveness under 5 U.S.C. 553(d)(1) because this
rule is a substantive rule which relieves a restriction. This rule's
removal of two persons from the Entity List removes requirements (the
Entity-List-based license requirement and limitation on use of license
exceptions) related to these two persons.
    No other law requires that a notice of proposed rulemaking and an
opportunity for public comment be given for this final rule. Because a
notice of proposed rulemaking and an opportunity for public comment are
not required under the APA or by any other law, the analytical
requirements of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.)
are not applicable. As a result, no final regulatory flexibility
analysis is required and none has been prepared.

List of Subjects in 15 CFR Part 744

    Exports, Reporting and recordkeeping requirements, Terrorism.

    Accordingly, part 744 of the Export Administration Regulations (15
CFR parts 730-774) is amended as follows:

PART 744--[AMENDED]

0
1. The authority citation for 15 CFR part 744 is revised to read as
follows:

    Authority: 50 U.S.C. 4601 et seq.; 50 U.S.C. 1701 et seq.; 22
U.S.C. 3201 et seq.; 42 U.S.C. 2139a; 22 U.S.C. 7201 et seq.; 22
U.S.C. 7210; E.O. 12058, 43 FR 20947, 3 CFR, 1978 Comp., p. 179;
E.O. 12851, 58 FR 33181, 3 CFR, 1993 Comp., p. 608; E.O. 12938, 59
FR 59099, 3 CFR, 1994 Comp., p. 950; E.O. 12947, 60 FR 5079, 3 CFR,
1995 Comp., p. 356; E.O. 13026, 61 FR 58767, 3 CFR, 1996 Comp., p.
228; E.O. 13099, 63 FR 45167, 3 CFR, 1998 Comp., p. 208; E.O. 13222,
66 FR 44025, 3 CFR, 2001 Comp., p. 783; E.O. 13224, 66 FR 49079, 3
CFR, 2001 Comp., p. 786; Notice of August 4, 2016, 81 FR 52587
(August 8, 2016); Notice of September 15, 2016, 81 FR 64343
(September 19, 2016); Notice of November 8, 2016, 81 FR 79379
(November 10, 2016); Notice of January 13, 2017, 82 FR 6165 (January
18, 2017).

0
2. Supplement No. 4 to Part 744 is amended:
0
a. By removing, under China, two Chinese entities, ``Zhongxing
Telecommunications Equipment (ZTE) Corporation, ZTE Plaza, Keji Road
South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, China'';
and ``ZTE Kangxun Telecommunications Ltd., 2/3 Floor, Suite A, ZTE
Communication Mansion Keji (S) Road, Hi-New Shenzhen, 518057 China '';
and
0
b. By adding, under China, one Chinese entity.
    The addition reads as follows:

Supplement No. 4 to Part 744--Entity List

* * * * *

----------------------------------------------------------------------------------------------------------------
                                                            License         License review     Federal Register
             Country                    Entity            requirement           policy             citation
----------------------------------------------------------------------------------------------------------------

                                                  * * * * * * *
CHINA, PEOPLE'S REPUBLIC OF

                                                  * * * * * * *
                                  Shi Lirong,         For all items       Presumption of      82 FR [INSERT FR
                                   Yuanzhong Garden    subject to the      denial.             PAGE NUMBER];
                                   Tower A, Room       EAR. (See Sec.                          March 29, 2017.
                                   26A, Futian,        744.11 of the
                                   Shenzhen, China;    EAR).
                                   and Xinghai
                                   Mingcheng, 2nd
                                   Floor, Shenzhen,
                                   China.

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

Supplement No. 7 to Part 744--[Removed]

0
3. Remove Supplement No. 7 to Part 744.

    Dated: March 24, 2017.
Matthew S. Borman,
Deputy Assistant Secretary for Export Administration.
[FR Doc. 2017-06227 Filed 3-28-17; 8:45 am]
 BILLING CODE 3510-33-P