[Federal Register: June 19, 2009 (Volume 74, Number 117)]
[Notices]
[Page 29255-29261]
[DOCID:fr19jn09-133]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60113; File No. SR-FINRA-2007-009]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change, as Modified by
Amendment No. 1 Thereto, To Modernize and Simplify NASD Rule 2720

June 15, 2009.

I. Introduction

    The Financial Industry Regulatory Authority, Inc. (``FINRA'') (f/k/
a National Association of Securities Dealers, Inc. (``NASD'')) filed
with the Securities and Exchange Commission (``Commission'' or ``SEC'')
on September 6, 2007, and amended on May 1, 2009,\1\ pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'' or ``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposal to
modernize and simplify NASD Rule 2720 (Distributions of Securities of
Members and Affiliates--Conflicts of Interest) (``Rule 2720'' or
``Rule''), which governs public offerings of securities in which a
member with a conflict of interest participates, and make corresponding
changes to FINRA Rule 5110 (Corporate Financing Rule) (``Rule 5110'').
This proposal was published for comment in the Federal Register on May
13, 2009.\4\ The Commission received no comments on the proposal. This
order approves the proposed rule change, as modified by Amendment No.
1.
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    \1\ This Amendment No. 1 to SR-FINRA-2007-009 replaces and
supersedes the original filing submitted on September 6, 2007,
except with regard to Exhibit 2 (NASD Notice to Members 06-52 and
comments received in response to NASD Notice to Members 06-52).
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
    \4\ Exchange Act Release No. 59880 (May 7, 2009), 74 FR 22600
(May 13, 2009) (SR-FINRA-2007-009).
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II. Description of the Proposed Rule Change

    Rule 2720 governs public offerings of securities issued by
participating members or their affiliates, public offerings in which a
member or any of its associated persons or affiliates has a conflict of
interest, and public offerings that result in a member becoming a
public company. The Rule regulates the potential conflicts of interest
that exist with respect to the pricing of such offerings and the
conduct of due diligence when a member participates in such offerings.
    In September 2006, FINRA published NASD Notice to Members 06-52
requesting comment on proposed amendments to Rule 2720 (the ``original
proposal''). FINRA received two comment letters that generally
supported the proposal and recognized the need to modernize the
Rule.\5\ However, in response to the comments received, FINRA staff
made certain revisions to the original proposal in its September 6,
2007 filing with the Commission. In order to address Commission staff's
comments, FINRA filed Amendment No. 1 to SR-FINRA-2007-009 on May 1,
2009.
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    \5\ Letter from the Securities Industry and Financial Markets
Association, dated November 1, 2006 (the ``SIFMA Letter''); and
Letter from the American Bar Association, dated December 4, 2006
(the ``ABA Letter'').
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    The proposed rule change would replace the current Rule in its
entirety with proposed Rule 2720 entitled ``Public Offerings of
Securities With Conflicts of Interest.'' The proposal would, among
other things: (1) Exempt from the filing and qualified independent
underwriter (``QIU'') requirements public offerings of investment grade
rated securities, public offerings of securities that have a bona fide
public market, and public offerings in which the member primarily
responsible for managing the offering does not have a conflict of
interest and can meet the disciplinary history requirements for a QIU;
(2) Amend the definition of ``conflict of interest'' to include public
offerings in which at least five percent of the offering proceeds are
directed to a participating member or its affiliates; (3) Modify the
Rule's disclosure requirements to provide more prominent disclosure of
conflicts of interest in the offering documents; and (4) Amend the
Rule's provisions regarding the use of a QIU to eliminate the
requirement that the QIU render a pricing opinion. In addition, the
proposed rule change would amend the QIU qualification requirements to
focus on the experience of the firm

rather than its board of directors, prohibit a member from acting as a
QIU if it would receive more than five percent of the proceeds of an
offering, and lengthen from five to ten years the amount of time that a
person involved in due diligence in a supervisory capacity must have a
clean disciplinary history. These and the other proposed amendments are
discussed in greater detail below.

A. Proposed Rule 2720(a)

    Proposed Rule 2720(a) would provide that no member that has a
conflict of interest may participate in a public offering unless the
offering meets one of the exemptions set forth in paragraph (a)(1) or a
QIU participates in the offering pursuant to paragraph (a)(2).
1. Offerings Exempt From the QIU and Filing Requirements Under
Paragraph (a)(1)
    FINRA proposed an exemption from the QIU and filing requirements
for public offerings in which the member primarily responsible for
managing the offering (e.g., the book-running lead manager or lead
placement agent) does not have a conflict of interest, is not an
affiliate of a member that has a conflict of interest, and can meet the
disciplinary history requirements for a QIU under proposed paragraph
(f)(12)(E).\6\ FINRA staff believed that a QIU should not be required
for such offerings because the book-running lead manager or lead
placement agent (or member acting in a similar capacity), which does
not have conflict of interest, would be expected to perform the
necessary due diligence that would otherwise be required of a QIU.\7\
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    \6\ See proposed Rule 2720(a)(1)(A).
    \7\ FINRA clarified their understanding that all syndicate
members have due diligence responsibility, but the book-runner(s) in
a firm commitment offering and the lead placement agent(s) in a best
efforts offering typically hire outside counsel to help members meet
their due diligence obligations.
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    In response to comments on the original proposal,\8\ FINRA amended
this provision to clarify that it would apply to public offerings in
which there are joint books or that are best efforts offerings.
However, where there are two or more co-lead managers or co-lead
placement agents that have equal responsibilities with regard to due
diligence, FINRA clarified that each would need to be free of conflicts
of interest. FINRA believes that, due to the important role a book-
runner or dealer-manager can be expected to play in the due diligence
process in an offering, even if that responsibility is shared equally
with other members, the Rule's QIU provisions would apply and the
offering would have to be filed for review if any book-runner or
dealer-manager has a conflict.
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    \8\ SIFMA Letter.
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    FINRA also proposed an exemption from the QIU and filing
requirements for public offerings of securities that have a bona fide
public market.\9\ The current Rule exempts public offerings of
securities for which there is a ``bona fide independent market'' from
Rule 2720's QIU requirement, but not the filing requirement.\10\ The
proposed rule change would replace the term ``bona fide independent
market'' with ``bona fide public market,'' which is defined in proposed
Rule 2720(f)(3) in accordance with the numerical standards set forth in
Regulation M.\11\ Specifically, ``bona fide public market'' would be
defined in the proposal as a market for a security issued by a company
that has been reporting under the Exchange Act for at least 90 days, is
current in its reporting requirements and whose securities are listed
on a national securities exchange with an average daily trading volume
of at least $1 million, provided that the issuer's common equity
securities have a public float value of at least $150 million. One
commenter expressed strong support for the proposed definition of
``bona fide public market.'' \12\
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    \9\ See proposed Rule 2720(a)(1)(B).
    \10\ ``Bona fide independent market'' is defined in current Rule
2720(b)(3) as a market in a security that is listed on a national
securities exchange or Nasdaq with a market price of $5 per share,
aggregate trading volume of 500,000 shares over 90 days and a public
float of 5 million shares.
    \11\ 17 CFR 242.100 to 105.
    \12\ ABA Letter.
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    FINRA also proposed to exempt from the filing requirement (and
retain the existing exemption from the QIU requirement) public
offerings of investment grade rated securities and securities in the
same series that have equal rights and obligations as investment grade
rated securities.\13\ In response to comments on the original
proposal,\14\ FINRA proposed to define ``investment grade rated'' in
proposed Rule 2720(f)(8) to refer to securities that are rated by a
nationally recognized statistical rating organization in one of its
four highest generic rating categories. This definition is consistent
with the definition proposed by FINRA in SR-NASD-2004-022 relating to
the filing requirements and the regulation of public offerings of
securities registered with the Commission and offered by members
pursuant to Securities Act Rule 415 (the ``proposed shelf
amendments'').\15\
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    \13\ See proposed Rule 2720(a)(1)(C). Thus, proposed Rule
2720(a)(1)(C) would apply to public offerings of securities that
have not received an individual rating, but are of the same class or
series and are considered ``pari passu'' with other investment grade
rated securities issued by the same company.
    \14\ ABA Letter.
    \15\ See Exchange Act Release No. 50749 (November 29, 2004), 69
FR 70735 (December 7, 2004) (notice of filing of SR-NASD-2004-022)
and Amendment No. 5 (filed on August 31, 2007), available at http://
www.finra.org/Industry/Regulation/RuleFilings/2004/P036671.
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    These three types of public offerings described above and
enumerated in paragraphs (a)(1)(A) through (a)(1)(C) of proposed Rule
2720 would not be subject to the QIU requirements of the proposed Rule
and, by operation of proposed Rule 2720(d), they would not be subject
to the filing requirements of Rule 5110 (formerly NASD Rule 2710).\16\
They would be, however, subject to the other provisions of proposed
Rule 2720, e.g., the escrow and discretionary account requirements in
paragraphs (b) and (c) respectively, if applicable. Additionally, these
public offerings would be subject to certain disclosure requirements.
Proposed Rule 2720(a)(1) would require prominent disclosure of the
nature of the conflict of interest in the prospectus, offering
circular, or similar document for the public offering.
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    \16\ On September 11, 2008, the Commission approved proposed
rule change SR-FINRA-2008-039, in which FINRA proposed, among other
things, to adopt NASD Rule 2710 as Rule 5110 in the Consolidated
FINRA Rulebook. See Exchange Act Release No. 58514 (September 11,
2008), 73 FR 54190 (September 18, 2008). SR-FINRA-2008-039 was
implemented on December 15, 2008. See Regulatory Notice 08-57
(October 2008).
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    In response to the original proposal, one commenter requested
clarification regarding the ``prominent disclosure'' requirement in the
proposed Rule.\17\ Proposed Rule 2720(f)(10) provides a description of
how a member could make ``prominent disclosure'' for purposes of
paragraphs (a)(1) and (a)(2)(B) of the proposed Rule. Specifically, a
member could make the notation ``(Conflicts of Interest)'' following
the listing of the Plan of Distribution in the Table of Contents
section required in Item 502 of Regulation S-K, and provide such
disclosures in the Plan of Distribution section required in Item 508
and any Prospectus Summary section required in Item 503 of Regulation
S-K. For offering documents not subject to Regulation S-K, ``prominent
disclosure'' could be made by providing disclosure on the front page of
the offering document that a conflict exists, with a cross-reference to
the discussion within the offering document and in the summary of the
offering document if one is included.

FINRA stated that these methods of disclosure would be considered a
non-exclusive safe harbor for effecting ``prominent disclosure,'' and
clarified it would consider alternative but equally prominent
disclosures on a case-by-case basis.
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    \17\ ABA Letter.
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2. Offerings in Which a QIU Must Participate Under Paragraph (a)(2)
    If a member with a conflict of interest participates in a public
offering that does not meet the conditions of proposed Rule 2720(a)(1),
then proposed Rule 2720(a)(2)(A) would require that a QIU participate
in the preparation of the registration statement and the prospectus,
offering circular or similar document and exercise the usual standards
of ``due diligence'' with respect thereto.\18\
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    \18\ The requisite qualifications of a QIU are set forth in the
definition of ``qualified independent underwriter'' in proposed Rule
2720(f)(12), which is discussed in greater detail below.
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    Like proposed Rule 2720(a)(1), proposed Rule 2720(a)(2)(B) would
require ``prominent disclosure'' (as defined in proposed Rule
2720(f)(10)) in the prospectus, offering circular, or similar document
of the nature of the conflict of interest. In addition, proposed Rule
2720(a)(2)(B) would require disclosure of the name of the member acting
as QIU and a brief statement regarding the role and responsibilities of
the QIU. The disclosure requirements contained in current Rule 2720(d)
require that, among other things, the offering documents expressly
state that the member acting as QIU (if one is required for the
offering) is assuming its responsibilities in pricing the offering and
conducting due diligence. In response to commenters' concerns that such
a statement potentially could give rise to liability on the part of the
QIU,\19\ FINRA proposed to replace this disclosure requirement with a
more general statement about the role and responsibilities of a QIU.
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    \19\ ABA Letter; SIFMA Letter.
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    FINRA clarified that a public offering in which a QIU participates
pursuant to proposed paragraph (a)(2) would continue to be subject to
the filing requirements of Rule 5110.\20\ Additionally, as in the Rule
currently, a public offering in which a QIU participates would be
required to meet proposed Rule 2720's escrow and discretionary account
requirements, if applicable.
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    \20\ See proposed Rule 2720(d).
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    Current Rule 2720 requires that a QIU provide an opinion that the
price at which equity securities are offered to the public is no
higher, or the yield for debt securities is no lower, than that
recommended by the QIU. The proposed rule change would eliminate the
requirement that a QIU provide a pricing opinion. FINRA staff stated
that they were unaware of instances where QIUs have made
recommendations that were inconsistent with pricing decisions by the
book-running lead manager or lead placement agent. In addition, FINRA
staff stated that they believe QIU pricing opinions in at-the-market
offerings are of little to no value. Both commenters expressed strong
support for eliminating the QIU pricing requirement.\21\
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    \21\ ABA Letter; SIFMA Letter.
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B. Escrow of Proceeds; Net Capital Computation

    Proposed Rule 2720(b)(1) would require that all proceeds from a
public offering by a member of its securities be placed in a duly
established escrow account and not be released therefrom or used by the
member in any manner until the member has complied with the net capital
requirements set forth in paragraph (b)(2). This proposed provision
mirrors current Rule 2720(e).\22\
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    \22\ Members are reminded that additional escrow account
maintenance and payment requirements may be applicable under
Exchange Act Rule 15c2-4.
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    The net capital requirements set forth in proposed Rule 2720(b)(2)
mirror current Rule 2720(e)(2), except that FINRA is proposing to
replace the reference to Exchange Act Rule 15c3-1(f) with a reference
in proposed Rule 2720(b)(2) to the alternative standard for calculating
net capital under Exchange Act Rule 15c3-1(a)(1)(ii).
    In addition, proposed Rule 2720(b)(3) would require that any member
offering its securities pursuant to the proposed Rule disclose in the
registration statement, offering circular, or similar document a date
by which the offering is reasonably expected to be completed and the
terms upon which the proceeds will be released from the escrow account
described in paragraph (b)(1). This provision mirrors current Rule
2720(d)(1).

C. Disclosure

    Current Rule 2720(d)(1) requires disclosure in the registration
statement or offering circular regarding the date the offering will be
completed and the terms upon which proceeds will be released from the
escrow account. Current Rule 2720(d)(2) requires disclosure: (1) That
the offering is being made pursuant to Rule 2720; (2) Relating to the
member's status in the offering; and (3) Relating to the QIU (if one is
required).
    The proposed rule change would delete current paragraph (d) of Rule
2720. As discussed above, the proposal would move the disclosure
requirements in current paragraph (d)(1) to proposed paragraph (b)(3)
and establish separate disclosure requirements for public offerings in
which a QIU participates (proposed Rule 2720(a)(2)(B)) and public
offerings in which a QIU does not participate (proposed Rule
2720(a)(1)).

D. Discretionary Accounts

    Proposed Rule 2720(c) would prohibit, notwithstanding NASD Rule
2510 (Discretionary Accounts), members that have a conflict of interest
from selling to a discretionary account any security with respect to
which the conflict exists, unless the member has received specific
written approval of the transaction from the account holder and retains
documentation of the approval in its records. This provision differs
from current Rule 2720(l), which also places limitations on sales to
discretionary accounts, in that proposed Rule 2720(c) would only apply
to the sale of securities by the member with the conflict of interest.
Current Rule 2720(l) limits discretionary sales by all firms
participating in the offering, even those that do not have a conflict
of interest. One commenter expressed support for limiting this
provision to the member that has a conflict.\23\ FINRA has clarified
that the ``specific written approval'' requirement in this provision
could be satisfied by an e-mail from the customer.
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    \23\ ABA Letter.
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E. Application of Rule 5110

    As noted above, proposed Rule 2720(d) would provide that any public
offering subject to the QIU requirements of paragraph (a)(2) would also
be subject to Rule 5110, whether or not the offering would otherwise be
exempted from Rule 5110's filing or other requirements. Rule 5110
generally requires members to file with FINRA public offerings for
review of the proposed underwriting terms and arrangements. Rule 5110
contains certain exemptions from the filing requirements for, among
others, public offerings of the securities of seasoned issuers and
offerings of investment grade debt.\24\ However, pursuant to

current Rule 2720(m), these exemptions are inapplicable to public
offerings that fall within the scope of Rule 2720. Thus, for example,
while a public offering of the securities of a seasoned issuer is
normally exempt from filing under Rule 5110, if a member participating
in the offering has a conflict of interest with the seasoned issuer, it
must be filed and comply with Rule 5110. The proposed rule change would
narrow this filing requirement to apply only to those public offerings
that fall within the scope of proposed Rule 2720(a)(2).
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    \24\ The ``seasoned issuer'' filing exemption in Rule
5110(b)(7)(C) currently exempts offerings registered on Forms S-3
and F-3 by issuers that meet the standards for those Forms prior to
October 21, 1992 (i.e., a three-year reporting history and either
$150 million float or $100 million float and annual trading volume
of three million shares). The proposed shelf amendments (see supra
note 14) would preserve the current filing requirements and amend
the Rule to specifically describe the pre-October 21, 1992
standards.
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    In response to comments on the original proposal,\25\ FINRA
proposed to amend current Rule 5110(b)(7), which lists offerings that
are exempt from the Rule 5110 filing requirements, to specify that
documents and information related to the public offerings listed in
Rule 5110(b)(7) are not required to be filed with FINRA for review,
unless the public offering is subject to the QIU requirements of Rule
2720(a)(2). This would clarify that if a public offering listed in Rule
5110(b)(7) is subject to Rule 2720(a)(1), such offering would not be
subject to the filing requirements of Rule 5110.
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    \25\ SIFMA Letter.
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F. Requests for Exemption From Rule 2720

    Proposed Rule 2720(e) would permit, pursuant to the Rule 9600
Series, FINRA in exceptional and unusual circumstances, taking into
consideration all relevant factors, to exempt a member unconditionally
or on specified terms from any or all of the provisions of the proposed
Rule that it would deem appropriate. This provision mirrors existing
Rule 2720(o).

G. Definition of ``Affiliate''

    Proposed Rule 2720(f)(1) would define the term ``affiliate'' as an
entity that controls, is controlled by or is under common control with
a member. While current Rule 2720(b)(1) incorporates the ``control''
standard in the definition of affiliate, FINRA proposed instead to
adopt a separate definition of ``control,'' which is discussed below.
    In response to comments on the original proposal,\26\ FINRA
narrowed the proposed definition of ``affiliate'' to apply only where
an entity controls, is controlled by or is under common control with a
member. As originally proposed, the definition would have applied where
an entity was under common control with another entity that controls,
was controlled by or was under common control with a member.
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    \26\ ABA Letter.
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H. Definition of ``Beneficial Ownership''

    Proposed Rule 2720(f)(2) would define ``beneficial ownership'' as
the right to the economic benefits of a security. This provision
mirrors the definition contained in current Rule 2720(b)(2). In NASD
Notice to Members 06-52, FINRA requested comment on whether Rule 2720
should incorporate the definition of ``beneficial ownership'' found in
Exchange Act Rule 13d-3. That definition includes the right to dispose
and vote the securities, which would apply to many investment funds. In
response to comments suggesting that the definition should be confined
to economic interests in which the member can profit directly,\27\
FINRA is proposing to retain the current definition of ``beneficial
ownership.''
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    \27\ Id.
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I. Definition of ``Common Equity''

    Proposed Rule 2720(f)(4) would define ``common equity'' as the
total number of shares of common stock outstanding without regard to
class, whether voting or non-voting, convertible or non-convertible,
exchangeable or non-exchangeable, redeemable or non-redeemable, as
reflected on the consolidated financial statements of the company. This
definition mirrors current Rule 2720(b)(5).

J. Definition of ``Conflict of Interest''

    Proposed Rule 2720(f)(5) would define ``conflict of interest'' to
be the situation where, at the time of a member's participation in an
entity's public offering, any of four conditions applies. The proposed
Rule would operate much as it does currently. However, the proposed
rule change would relocate many of the current Rule's substantive
concepts to the definition of ``conflict of interest.''
    First, pursuant to proposed Rule 2720(f)(5)(A), a conflict of
interest would exist if the securities are to be issued by the member.
    Second, pursuant to proposed Rule 2720(f)(5)(B), a conflict of
interest would exist if the issuer controls, is controlled by, or is
under common control with the member or the member's associated
persons. ``Control'' is defined in proposed Rule 2720(f)(6) and is
discussed below.
    Third, pursuant to proposed Rule 2720(f)(5)(C), a conflict of
interest would exist where at least five percent of the net offering
proceeds, not including underwriting compensation, are intended to be
either used to reduce or retire the balance of a loan or credit
facility extended by the member, its affiliates, and its associated
persons (in the aggregate) or otherwise directed to the member, its
affiliates, and associated persons (in the aggregate). In response to
comments on the original proposal,\28\ FINRA amended the proposed
definition to clarify that the proceeds are net of underwriting
compensation.
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    \28\ SIFMA Letter.
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    Currently, Rule 5110(h) requires public offerings in which ten
percent or more of the offering proceeds (not including the
underwriting discount) will be paid to participating members to comply
with Rule 2720's QIU requirements. Pursuant to this proposed rule
change, FINRA proposed to delete Rule 5110(h) and move the proceeds
requirement to Rule 2720 by defining ``conflict of interest'' to
include a member's participation in a public offering where proceeds
are directed to the member. Although the threshold for proceeds
directed to a member would be lowered from ten percent to five percent,
the new threshold would apply to each participating member individually
(including the member's affiliates and its associated persons), not on
an aggregate basis for all participating members, as is currently the
case. Thus, for example, a conflict of interest would exist where a
member received five percent of the proceeds, but not where two
unaffiliated members each received three percent of the proceeds.
    Fourth, pursuant to proposed Rule 2720(f)(5)(D), a conflict of
interest would exist if, as a result of the public offering and any
transactions contemplated at the time of the public offering, the
member will be an affiliate of the issuer, the member will become
publicly owned, or the issuer will become a member or form a broker-
dealer subsidiary.
    In response to comments on the original proposal,\29\ FINRA
clarified that for purposes of Rule 2720, ``participation in a public
offering'' has the same meaning as in Rule 5110. Rule 5110(a)(5)
provides that ``participation or participating in a public offering''
means:
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    \29\ Id.

    Participation in the preparation of the offering or other
documents, participation in the distribution of the offering on an
underwritten, non-underwritten, or any other basis, furnishing of
customer and/or broker lists for solicitation, or participation in
any advisory or consulting capacity to the issuer

related to the offering, but not the preparation of an appraisal in
a savings and loan conversion or a bank offering or the preparation
of a fairness opinion pursuant to [Exchange Act] Rule 13e-3.\30\
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    \30\ Rule 5110(a)(5). Pursuant to the proposed shelf amendments
(see supra note 15), this definition in former NASD Rule 2710 (which
has since been moved to the Consolidated FINRA Rulebook as Rule
5110) would be amended to specify participation in the distribution
of the offering on an ``underwritten, non-underwritten, principal,
agency or any other basis'' and to include ``participation in a
shelf takedown.''
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K. Definition of ``Control''

    As noted above, under the current Rule, the control standard is
incorporated in the definition of ``affiliate.'' The proposal would
create a separate definition of ``control,'' which would be defined as
any of the following: (1) Beneficial ownership of ten percent or more
of the outstanding common equity of an entity, including any right to
receive such securities within 60 days of the member's participation in
the public offering; \31\ (2) The right to ten percent or more of the
distributable profits or losses of an entity that is a partnership,
including any right to receive an interest in such distributable
profits or losses within 60 days of the member's participation in the
public offering; \32\ (3) Beneficial ownership of ten percent or more
of the outstanding subordinated debt of an entity, including any right
to receive such subordinated debt within 60 days of the member's
participation in the public offering; \33\ (4) Beneficial ownership of
ten percent or more of the outstanding preferred equity of an entity,
including any right to receive such preferred equity within 60 days of
the member's participation in the public offering; \34\ or (5) The
power to direct or cause the direction of the management or policies of
an entity.\35\ FINRA believed it was important in subparagraph (i) to
include entities other than corporations in order to expressly include
conflicts that may arise in connection with the offerings of, for
example, trusts.
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    \31\ Proposed Rule 2720(f)(6)(A)(i). The term ``beneficial
ownership'' is defined in proposed paragraph (f)(2).
    \32\ Proposed Rule 2720(f)(6)(A)(ii).
    \33\ Proposed Rule 2720(f)(6)(A)(iii).
    \34\ Proposed Rule 2720(f)(6)(A)(iv).
    \35\ Proposed Rule 2720(f)(6)(A)(v).
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    FINRA had originally proposed that the definition of control would
eliminate ownership of subordinated debt and preferred equity as a
basis for a conflict of interest.\36\ However, in response to comments
from Commission staff, FINRA proposed to include beneficial ownership
of ten percent or more of the outstanding common equity (which is
defined expressly to include non-voting stock), subordinated debt or
preferred equity in the proposed definition of control. Thus, for
example, ``control'' could derive from the restrictive covenants
typically found in debt indentures, preferred rights to dividends given
to holders of non-voting common or preferred stock or special voting
rights given to certain classes of (generally) non-voting stock. While
FINRA specifically requested comment on whether such forms of ownership
give rise to a conflict of interest and should be included in the
proposed rule, no comments were received in regards to this filing.
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    \36\ See current Rule 2720(b)(7)(A) and (C).
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    The proposed definition of control would not only include shares
beneficially owned by a participating member, but also the right to
receive such securities within 60 days of the member's participation in
the public offering. In its original filing of September 6, 2007, FINRA
proposed that for purposes of this provision, 60 days would be from the
effective date of the offering. However, in Amendment No. 1, FINRA
revised the proposed rule text to provide that the relevant time frame
is ``within 60 days of the member's participation in the public
offering.'' \37\ This would ensure that the Rule properly applies to
takedowns from an effective shelf registration. FINRA stated their
belief that the determination of control should be when the member
participates in an offering, not the date that a registration statement
for the offering is declared effective.
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    \37\ For purposes of Rule 2720, ``participation in a public
offering'' has the same meaning as in Rule 5110(a)(5). See supra for
further discussion of the definition of the term ``participation in
a public offering.''
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    Thus, under the proposed rule change, warrants or rights for voting
securities that are exercisable within 60 days of the member's
participation in the public offering would be included in the
calculation of voting securities when determining whether control
exists. In response to comments on the original proposal, FINRA
clarified that in calculating the percentage beneficial ownership, it
would be appropriate to include the potential ownership of shares in
both the numerator and denominator.\38\ FINRA did not believe, however,
that this calculation should include securities that could be received
by all investors. Rather, FINRA clarified that the calculation would be
limited to warrants or rights that are exercisable within 60 days and
received by the participating member only and would not include
warrants or rights held by other investors.
---------------------------------------------------------------------------

    \38\ See ABA Letter (requesting that FINRA clarify whether the
amount of securities to be received by a member and any other person
within 60 days of the offering will be included in the denominator
in order to calculate the member's total ownership interest in the
issuer's securities).
---------------------------------------------------------------------------

L. Definition of ``Entity''

    Currently, Rule 2720 does not contain a definition of ``entity.''
Pursuant to proposed Rule 2720(f)(7), an ``entity'' would be defined,
for purposes of the definitions of affiliate, conflict of interest, and
control under the Rule, as ``a company, corporation, partnership,
trust, sole proprietorship, association or organized group of
persons.''
    The proposed definition would expressly exclude: (1) An investment
company registered under the Investment Company Act of 1940
(``Investment Company Act''); \39\ (2) A ``separate account'' as
defined in Section 2(a)(37) of the Investment Company Act; \40\ (3) A
``real estate investment trust'' as defined in Section 856 of the
Internal Revenue Code; \41\ and (4) A ``direct participation program''
as defined in NASD Rule 2810.\42\ These exclusions are substantially
similar to the exemptions from the ``conflict of interest'' provisions
contained in current Rule 2720(b)(7)(D). In response to comments on the
original proposal,\43\ FINRA revised the proposed definition of
``conflict of interest'' to apply only to a public offering of an
``entity.''
---------------------------------------------------------------------------

    \39\ Proposed Rule 2720(f)(7)(B)(i).
    \40\ Proposed Rule 2720(f)(7)(B)(ii).
    \41\ Proposed Rule 2720(f)(7)(B)(iii).
    \42\ Proposed Rule 2720(f)(7)(B)(iv).
    \43\ SIFMA Letter.
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M. Definition of ``Preferred Equity''

    Proposed Rule 2720(f)(9) would define the term ``preferred equity''
as the aggregate capital invested by all persons in the preferred
securities outstanding without regard to class, whether voting or non-
voting, convertible or non-convertible, exchangeable or non-
exchangeable, redeemable or non-redeemable, as reflected on the
consolidated financial statements of the company. This definition
mirrors current Rule 2720(b)(12).

N. Definition of ``Public Offering''

    Proposed Rule 2720(f)(11) is substantively similar to the
definition of ``public offering'' in current Rule 2720(b)(14) and would
define the term as any primary or secondary offering of securities made
pursuant to a registration statement or offering circular including
exchange offers, rights offerings, offerings made pursuant

to a merger or acquisition and all other securities offerings of any
kind whatsoever. The proposed definition excludes from its scope any
offering made pursuant to an exemption from registration under Sections
4(1), 4(2) or 4(6) of the Securities Act of 1933 (``Securities
Act''),\44\ Securities Act Rule 504, if the securities are ``restricted
securities'' under Securities Act Rule 144(a)(3), Securities Act Rule
505, or Securities Act Rule 506, and Securities Act Rule 144A or
Regulation S. FINRA currently does not interpret an offering made
pursuant to Regulation S to be within the scope of a ``public
offering'' under this Rule and as such, proposed also to exclude these
offerings from the definition. Additionally, in response to comments on
the original proposal,\45\ FINRA amended the proposed definition of
``public offering'' to expressly exclude exempted securities as defined
in Section 3(a)(12) of the Exchange Act,\46\ as in the current Rule.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 77d(1), (2), and (6).
    \45\ ABA Letter.
    \46\ 15 U.S.C. 78c(a)(12).
---------------------------------------------------------------------------

    One commenter suggested that the proposed rule should provide an
express exclusion for offerings made pursuant to Securities Act Rule
144A.\47\ FINRA agreed and added an express exclusion for offerings
under Securities Act Rule 144A. FINRA also noted that it currently does
not interpret an offering made pursuant to Securities Act Rule 144A to
be within the scope of either Rule 5110 or Rule 2720.
---------------------------------------------------------------------------

    \47\ ABA Letter.
---------------------------------------------------------------------------

O. Definition of ``Qualified Independent Underwriter''

    Proposed Rule 2720(f)(12) defines the term ``qualified independent
underwriter'' as a member that meets five specified conditions.
Specifically, the member must first not have a conflict of interest and
must not be an affiliate of any member that has a conflict of
interest.\48\ The Rule currently does not disqualify or prohibit a QIU
from receiving proceeds from an offering. The proposed rule change
would prohibit a QIU from receiving more than five percent of the
offering proceeds because the receipt of such proceeds would disqualify
a member from acting as a QIU because it would fall within the proposed
definition of ``conflict of interest.''
---------------------------------------------------------------------------

    \48\ Proposed Rule 2720(f)(12)(A).
---------------------------------------------------------------------------

    The second condition for being considered a QIU in the proposed
Rule is the member could not beneficially own, as of the date of the
member's participation in the public offering, more than five percent
of the class of securities that would give rise to a conflict of
interest, including any right to receive any such securities
exercisable within 60 days.\49\ Current Rule 2720(b)(15)(E) prohibits a
member from acting as a QIU if it is an affiliate of the issuer or if
it beneficially owns at least five percent of the equity, subordinated
debt or partnership interest of the issuer. The proposed rule change
would maintain these prohibitions.
---------------------------------------------------------------------------

    \49\ Proposed Rule 2720(f)(12)(B).
---------------------------------------------------------------------------

    Third, the member would need to have agreed, in acting as a QIU, to
undertake the legal responsibilities and liabilities of an underwriter
under the Securities Act, specifically including those inherent in
Section 11 thereof.\50\ The proposed provision mirrors current Rule
2720(b)(15)(F).
---------------------------------------------------------------------------

    \50\ Proposed Rule 2720(f)(12)(C).
---------------------------------------------------------------------------

    Fourth, the member would need to have served as underwriter in at
least three public offerings of a similar size and type during the
three-year period immediately preceding the filing of the registration
statement or the date of first sale in an offering for which there is
no registration statement.\51\ This requirement would be deemed
satisfied if, during the past three years, the member, with respect to
a proposed public offering of debt securities, has acted as sole
underwriter or book-running lead or co-manager of at least three public
offerings of debt securities each with gross proceeds of not less than
25% of the anticipated gross proceeds of the proposed offering. With
respect to a proposed public offering of equity securities, this
requirement would be deemed satisfied if, during the past three years,
the member has acted as sole underwriter or book-running lead or co-
manager of at least three public offerings of equity securities (or of
securities convertible into equity securities), each with gross
proceeds of not less than 50% of the anticipated gross proceeds of the
proposed offering. While FINRA specifically requested comment on
whether the 50% threshold should be lowered if an equity offering is
particularly large (e.g., over $1 billion), no comments were received
in regards to the filing. The proposed requirements would be similar
those set forth in current Rule 2720(b)(15)(C). The proposal would,
however, shorten the relevant period from five to three years and would
impose, as discussed above, the requirement that a QIU must have acted
as a managing underwriter in at least three similar offerings during
that time.
---------------------------------------------------------------------------

    \51\ Proposed Rule 2720(f)(12)(D).
---------------------------------------------------------------------------

    Additionally, Rule 2720(b)(15)(B) currently permits a member to
serve as a QIU only if the member is a sole proprietorship and the sole
proprietor has been actively engaged in the investment banking or
securities business for the five-year period immediately preceding the
filing of the registration statement, or is a corporation or
partnership and a majority of its board of directors or general
partners has been similarly engaged in the investment banking or
securities business. The proposed rule change would eliminate the
requirement regarding board or partner experience, since FINRA staff
believed that the experience of the firm is more relevant.
    The fifth and final condition for being considered a QIU in the
proposed Rule would be that the member's associated persons in a
supervisory capacity who are responsible for organizing, structuring,
or performing due diligence with respect to corporate public offerings
of securities could not have certain criminal or disciplinary
histories.\52\ These associated persons could not have been convicted
within ten years prior to the filing of the registration statement or
the preparation of an offering circular in an offering without a
registration statement of a violation of the anti-fraud provisions of
the federal or state securities laws, or any rules or regulations
promulgated thereunder, in connection with a registered or unregistered
offering of securities. These associated persons also could not be
subject to any order, judgment, or decree of any court of competent
jurisdiction entered within ten years prior to the filing of the
registration statement, or the preparation of an offering circular in
an offering without a registration statement, permanently enjoining or
restraining such person from engaging in or continuing any conduct or
practice in violation of the anti-fraud provisions of the federal or
state securities laws, or any rules or regulations promulgated
thereunder in connection with a registered or unregistered offering of
securities. Finally, these associated persons could not have been
suspended or barred from association with any member by an order or
decision of the Commission, any state, FINRA, or any other self-
regulatory organization within ten years prior to the filing of the
registration statement, or the preparation of an offering circular in
an offering without a registration statement, for any conduct or
practice in violation of the anti-fraud provisions of the federal or
state securities laws, or

any rules, or regulations promulgated thereunder, or the anti-fraud
rules of any self-regulatory organization in connection with a
registered or unregistered offering of securities. The Rule currently
prohibits an associated person's involvement in the due diligence
process in a supervisory capacity if that person has been subject to
certain criminal and disciplinary actions pertaining to the offering of
securities within five years prior to the filing of the registration
statement. The proposed rule change, as described above, would lengthen
this period from five to ten years.
---------------------------------------------------------------------------

    \52\ See proposed Rule 2720(f)(12)(E).
---------------------------------------------------------------------------

P. Definition of ``Registration Statement''

    Proposed Rule 2720(f)(13) would define the term ``registration
statement'' as a registration statement as defined by Section 2(a)(8)
of the Securities Act,\53\ notification on Form 1A filed with the
Commission pursuant to the provisions of Securities Act Rule 252, or
any other document, by whatever name known, initiating a registration
or similar process for an issue of securities which is required to be
filed by the laws or regulations of any federal or state agency. This
definition mirrors current Rule 2720(b)(16), except for technical
changes to correct the references in the current Rule to Securities Act
Section 2(8) and Securities Act Rule 255.
---------------------------------------------------------------------------

    \53\ 15 U.S.C. 77b(a)(8).
---------------------------------------------------------------------------

Q. Definition of ``Subordinated Debt''

    Proposed Rule 2720(f)(14) would define ``subordinated debt'' to
include debt of an issuer which is expressly subordinate in right of
payment to (or with a claim on assets subordinate to) any existing or
future debt of such issuer or all debt that is specified as
subordinated at the time of issuance. Subordinated debt would not
include short-term debt with maturity at issuance of less than one year
and secured debt and bank debt not specified as subordinated debt at
the time of issuance. This definition mirrors current Rule 2720(b)(18).

R. Deleted Definitions

    Proposed Rule 2720 would not include definitions for some terms
that appear in current Rule 2720. These would be the definitions for
``company,'' ``effective date,'' ``immediate family,'' ``parent,''
``person,'' ``public director,'' and ``settlement.'' In response to
comments on the original proposal,\54\ FINRA proposed to adopt the
current Rule 2720 definitions of ``company,'' ``effective date,''
``immediate family,'' and ``person'' as new paragraphs (a)(11) through
(14) of Rule 5110 because they are used in that rule. Proposed Rule
2720(f) provides that the definitions in Rule 5110 are incorporated by
reference in Rule 2720.
---------------------------------------------------------------------------

    \54\ ABA Letter.
---------------------------------------------------------------------------

S. Corporate Governance and Periodic Reporting

    Rule 2720 currently includes certain provisions that do not apply
to the public offering itself and instead require the issuer to adopt
corporate governance policies relating to an audit committee, public
directors, and to issue periodic reports to shareholders.\55\ With the
enactment of the Sarbanes-Oxley Act of 2002 and recent SEC rulemaking
and interpretive actions, FINRA enunciated its belief that issuers'
periodic reporting requirements under the Exchange Act have been
enhanced and listing standard changes intended to improve corporate
governance and enhance the role of audit committees have been adopted.
Accordingly, FINRA decided that separate Rule 2720 requirements for
corporate governance and periodic reporting would be unnecessary. One
commenter expressed support for eliminating these provisions from Rule
2720.\56\
---------------------------------------------------------------------------

    \55\ See current Rule 2720(f), (g), and (h).
    \56\ ABA Letter.
---------------------------------------------------------------------------

T. Intrastate Offerings

    Rule 2720(j) currently requires any member offering its securities
pursuant to the intrastate offering exemption under the Securities Act
to include in the offering documents information required in a release
that the Commission published in 1972. The proposed amendments would
delete this requirement from Rule 2720. FINRA stated their belief that
disclosure requirements for unregistered offerings should be addressed
in a more comprehensive manner by the Commission, the states, or FINRA,
and not imposed under the narrow scope of Rule 2720 or limited to
intrastate offerings. One commenter suggested that FINRA should not
adopt disclosure requirements for intrastate offerings because such
offerings are subject to the disclosure requirements of the state where
the securities are offered.\57\
---------------------------------------------------------------------------

    \57\ Id.
---------------------------------------------------------------------------

U. Suitability

    Rule 2720(k) currently requires that every member underwriting an
issue of its own securities, or securities of an affiliate or company
with which it has a conflict of interest, that recommends to a customer
the purchase of a security of such issue must have reasonable grounds
to believe that the recommendation is suitable for the customer. FINRA
did not propose a similar provision in proposed Rule 2720 because NASD
Rule 2310 already addresses a member's obligations relating to
suitability.

III. Discussion and Findings

    After careful review of the proposed rule change, the Commission
finds that the proposed rule change is consistent with the requirements
of the Act, and the rules and regulations thereunder that are
applicable to a national securities association.\58\ In particular, the
Commission believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act,\59\ which requires,
among other things, that FINRA rules 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. The Commission believes that FINRA has substantially
streamlined the Rule thus enhancing its members' ability to comply with
the rule while maintaining investor protections. The Rule, as amended
in the proposal, continues regulation that protects investors in
offerings where the member has a conflict of interest.
---------------------------------------------------------------------------

    \58\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
    \59\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\60\ that the proposed rule change (File No. SR-FINRA-2007-009), as
modified by Amendment No. 1, be, and hereby is, approved.
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78s(b)(2).
    \61\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-14367 Filed 6-18-09; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register Volume 86, Number 196 (Thursday, October 14, 2021)]
[Notices]
[Pages 57138-57139]
[FR Doc No: 2021-22300]

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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OAR-2020-0622; FRL-9141-01-OMS]

Information Collection Request Submitted to OMB for Review and
Approval; Comment Request; NESHAP for Wood Furniture Manufacturing
Operations (Renewal)

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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

SUMMARY: The Environmental Protection Agency (EPA) has submitted an
information collection request (ICR), NESHAP for Wood Furniture
Manufacturing Operations (EPA ICR Number 1716.11, OMB Control Number
2060-0324), 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
December 31, 2021. Public comments were previously requested, via the
Federal

Register, on February 8, 2021 during a 60-day comment period. This
notice allows for an additional 30 days for public comments. A fuller
description of the ICR is given below, including its estimated burden
and cost to the public. An agency may neither conduct nor sponsor, and
a person is not required to respond to, a collection of information
unless it displays a currently valid OMB control number.

DATES: Additional comments may be submitted on or before November 15,
2021.

ADDRESSES: Submit your comments, referencing Docket ID Number EPA-HQ-
OAR-2020-0622, 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: Muntasir Ali, Sector Policies and
Program Division (D243-05), Office of Air Quality Planning and
Standards, U.S. Environmental Protection Agency, Research Triangle
Park, North Carolina, 27711; telephone number:<PHONE_NUMBER>; email
address: [email protected].

SUPPLEMENTARY INFORMATION: 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
https://www.regulations.gov, or in person at the EPA Docket Center, WJC
West Building, 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 http://www.epa.gov/dockets.
    Abstract: Owners and operators of wood furniture manufacturing
facilities are required to comply with reporting and record keeping
requirements for the general provisions of 40 CFR part 63, subpart A,
as well as the applicable specific standards in 40 CFR part 63 subpart
JJ. This includes submitting initial notifications, performance tests
and periodic reports and results, and maintaining records of the
occurrence and duration of any startup, shutdown, or malfunction in the
operation of an affected facility, or any period during which the
monitoring system is inoperative. These reports are used by EPA to
determine compliance with these standards.
    Form Numbers: None.
    Respondents/affected entities: Wood furniture manufacturing
facilities.
    Respondent's obligation to respond: Mandatory (40 CFR part 63,
subpart JJ).
    Estimated number of respondents: 230 (total), consisting of 142
existing major sources and 88 existing incidental/area sources.
    Frequency of response: Quarterly and semi-annually.
    Total estimated burden: 15,900 hours (per year). Burden is defined
at 5 CFR 1320.3(b).
    Total estimated cost: $1,890,000 (per year), which includes $12,900
in annualized capital/startup and/or operation & maintenance costs.
    Changes in the Estimates: There is a decrease in burden from the
most-recently approved ICR as currently identified in the OMB Inventory
of Approved Burdens. This is due to a decrease in the number of
respondents subject to Subpart JJ. The estimated number of respondents
is based on a review of affected facilities in EPA's Enforcement and
Compliance History Online (ECHO) database and reflects consolidation
within the industry. The regulations have not changed significantly
over the past three years and are not anticipated to change
significantly over the next three years. The growth rate for this
industry is very low or non-existent, so there is no significant change
in the overall burden. Since there are no significant changes in the
regulatory requirements and there is no significant industry growth,
there are no changes in the capital/startup cost. There is a decrease
in operation and maintenance (O&M) costs due to a decrease in the
number of respondents with these costs. Operation and maintenance (O&M)
costs have been updated from year 2001 to year 2019 using the CEPCI
Index.

Courtney Kerwin,
Director, Regulatory Support Division.
[FR Doc. 2021-22300 Filed 10-13-21; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register Volume 87, Number 110 (Wednesday, June 8, 2022)]
[Rules and Regulations]
[Pages 34779-34781]
[FR Doc No: 2022-12325]

=======================================================================
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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 100

[Docket Number USCG-2022-0444]
RIN 1625-AA08

Special Local Regulation; Lake of the Ozarks MM 1-6, Lake Ozark,
MO

AGENCY: Coast Guard, DHS.

ACTION: Temporary final rule.

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

SUMMARY: The Coast Guard is establishing a special local regulation for
the navigable waters of the Lake of the Ozarks within a 50-yard radius
of all vessels participating in a boat parade starting at the foremost
vessel in the World's Largest Parade marine event and extending to the
last vessel in the parade. This special local regulation will follow
the vessels until the parade's conclusion. The special local regulation
is needed to protect personnel, vessels, and the marine environment
from potential hazards created by the gathering of participant vessels
during the Parade. Entry of vessels or persons into this zone is
prohibited unless specifically authorized by the Captain of the Port
Upper Mississippi River.

DATES: This rule is effective from 10:30 a.m. through 1 p.m. June 10,
2022.

ADDRESSES: To view documents mentioned in this preamble as being
available in the docket, go to https://www.regulations.gov, type USCG-
2022-0444 in the search box and click ``Search.'' Next, in the Document
Type column, select ``Supporting & Related Material.''

FOR FURTHER INFORMATION CONTACT: If you have questions on this rule,
call or email Lieutenant Commander Stephanie Moore, Sector Upper
Mississippi River Waterways Management Division, U.S. Coast Guard;
telephone<PHONE_NUMBER>, email [email protected].

SUPPLEMENTARY INFORMATION:

I. Table of Abbreviations

CFR Code of Federal Regulations
COTP Captain of The Port Sector Upper Mississippi River
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
Sec.  Section
U.S.C. United States Code

II. Background Information and Regulatory History

    The Coast Guard is issuing this temporary rule without prior notice
and opportunity to comment pursuant to

authority under section 4(a) of the Administrative Procedure Act (APA)
(5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule
without prior notice and opportunity to comment when the agency for
good cause finds that those procedures are ``impracticable,
unnecessary, or contrary to the public interest.'' Under 5 U.S.C.
553(b)(B), the Coast Guard finds that good cause exists for not
publishing a notice of proposed rulemaking (NPRM) with respect to this
rule because it is impracticable. Sector Upper Mississippi River
received the marine event application on May 25, 2022, prompting the
creation of this rule due to the nature of the event. We must establish
this special local regulation immediately and lack sufficient time to
provide a reasonable comment period and then consider those comments
before issuing the rule. Under 5 U.S.C. 553(d)(3), the Coast Guard
finds that good cause exists for making this rule effective less than
30 days after publication in the Federal Register. Delaying this rule
would be contrary to public safety due to potential hazards for
participants of the event and those transiting in the area around it.

III. Legal Authority and Need for Rule

    The Coast Guard is issuing this rule under authority in 46 U.S.C.
70034 (previously 33 U.S.C. 1231). The Captain of the Port Sector Upper
Mississippi River (COTP) has determined that potential hazards
associated with this marine parade will be a safety concern for anyone
operating or transiting within the lake of the Ozarks from MM 6 through
MM 1. This rule is needed to protect personnel, vessels, and the marine
environment in the navigable waters within the special local regulation
while the parade is occurring.

IV. Discussion of the Rule

    The World's Largest Boat Parade is a gathering of over 1000 boats
in an attempt to break a world record for the largest parade. It will
occur on June 10, 2022 from 10:30 a.m. until 1 p.m. on the Lake of the
Ozarks from MM 6 through MM 1. This special local regulation is a
moving limited access area that follows the participants of the parade
as they transit the parade route between MM 6 through MM 1. All
spectator vessels and vessels not participating in this parade will not
be allowed to transit within a 50 yard radius surrounding the area that
includes vessels at the front of the parade extending to the vessels
transiting at the end of the parade. Vessels other than those directly
involved in the event will only be allowed to safely transit the
regulated area when the Coast Guard Patrol Commander has deemed it safe
to do so.
    No vessel or person will be permitted to enter the area without
obtaining permission from the COTP or a designated representative. A
designated representative is a commissioned, warrant, or petty officer
of the U.S. Coast Guard (USCG) assigned to units under the operational
control of USCG Sector Upper Mississippi River. To seek permission to
enter, contact the COTP or a designated representative via VHF-FM
channel 16, or through USCG Sector Upper Mississippi River at 314-269-
2332. Persons and vessels permitted to enter the area must comply with
all lawful orders or directions issued by the COTP or designated
representative. The COTP or a designated representative will inform the
public of the effective period for the special local regulation as well
as any changes in the dates and times of enforcement, as well as
reductions in size of the safety zone as conditions improve, through
Local Notice to Mariners (LNMs), Broadcast Notices to Mariners (BNMs),
and/or Safety Marine Information Broadcast (SMIB), as appropriate.

V. Regulatory Analyses

    We developed this rule after considering numerous statutes and
Executive orders related to rulemaking. Below we summarize our analyses
based on a number of these statutes and Executive orders.

A. Regulatory Planning and Review

    Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits. This rule has not been designated a ``significant
regulatory action,'' under Executive Order 12866. Accordingly, this
rule has not been reviewed by the Office of Management and Budget
(OMB).
    This regulatory action determination is based on a special local
regulation located on the Lake of the Ozarks at MM 6 through MM 1. The
regulation is expected to be active only during the hours of 10:30 a.m.
to 1:00 p.m. on June 10, 2022.

B. Impact on Small Entities

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as
amended, requires Federal agencies to consider the potential impact of
regulations on small entities during rulemaking. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule
will not have a significant economic impact on a substantial number of
small entities.
    While some owners or operators of vessels intending to transit the
special local regulation area may be small entities, for the reasons
stated in section V.A above, this rule will not have a significant
economic impact on any vessel owner or operator.
    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this rule. If the rule would affect your
small business, organization, or governmental jurisdiction and you have
questions concerning its provisions or options for compliance, please
call or email the person listed in the FOR FURTHER INFORMATION CONTACT
section.
    Small businesses may send comments on the actions of Federal
employees who enforce, or otherwise determine compliance with, Federal
regulations to the Small Business and Agriculture Regulatory
Enforcement Ombudsman and the Regional Small Business Regulatory
Fairness Boards. The Ombudsman evaluates these actions annually and
rates each agency's responsiveness to small business. If you wish to
comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR
(1-888-734-3247). The Coast Guard will not retaliate against small
entities that question or complain about this rule or any policy or
action of the Coast Guard.

C. Collection of Information

    This rule will not call for a new collection of information under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

D. Federalism and Indian Tribal Governments

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the National Government and the States, or on the
distribution of power and responsibilities among the various levels of
government. We have analyzed this rule under that Order and have
determined that it is consistent with the fundamental federalism
principles and preemption requirements described in Executive Order
13132.
    Also, this rule does not have tribal implications under Executive
Order

13175, Consultation and Coordination with Indian Tribal Governments,
because it does not have a substantial direct effect on one or more
Indian tribes, on the relationship between the Federal Government and
Indian tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian tribes.

E. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this rule will not result in
such an expenditure, we do discuss the effects of this rule elsewhere
in this preamble.

F. Environment

    We have analyzed this rule under Department of Homeland Security
Directive 023-01, Rev. 1, associated implementing instructions, and
Environmental Planning COMDTINST 5090.1 (series), which guide the Coast
Guard in complying with the National Environmental Policy Act of 1969
(42 U.S.C. 4321-4370f), and have determined that this action is one of
a category of actions that do not individually or cumulatively have a
significant effect on the human environment. This special local
regulation is a moving limited access area that follows the
participants of the parade as they transit the parade route between MM
6 through MM 1. All spectator vessels and vessels not participating in
this parade will not be allowed to transit within a 50 yard radius
surrounding the area that includes vessels at the front of the parade
extending to the vessels transiting at the end of the parade. It is
categorically excluded from further review under paragraph L61 of
Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 1.

G. Protest Activities

    The Coast Guard respects the First Amendment rights of protesters.
Protesters are asked to call or email the person listed in the FOR
FURTHER INFORMATION CONTACT section to coordinate protest activities so
that your message can be received without jeopardizing the safety or
security of people, places or vessels.

List of Subjects in 33 CFR Part 100

    Marine Safety, Navigation (water), Reporting and recordkeeping
requirements, Waterways.

    For the reasons discussed in the preamble, the Coast Guard amends
33 CFR part 100 as follows:

PART 100--SAFETY OF LIFE ON NAVIGABLE WATERS

0
1. The authority citation for part 100 continues to read as follows:

    Authority:  46 U.S.C 70041; 33 CFR1.05-1.

0
2. Add Sec.  100.T08-0444 to read as follows:

Sec.  100.T08-0444  Special Local Regulation; Lake of the Ozarks MM 1-
6, Lake Ozark, MO.

    (a) Regulated areas. All waters on the Lake of the Ozarks within MM
6 through MM 1.
    (b) Definitions. (1) Coast Guard Patrol Commander means a
commissioned, warrant, or petty officer of the U.S. Coast Guard who has
been designated by the Captain of the Port Sector Upper Mississippi
River (COTP).
    (2) Participant means all persons and vessels participating in The
World's Largest Boat Parade under the auspices of the Marine Event
Permit issued to the sponsor approved by the COTP.
    (3) Spectator means all persons and vessels not registered with the
event sponsor as participants or official patrol who are present on the
water to observe the event.
    (c) Special local regulations. (1) The World's Largest Boat Parade
will occur on June 10, 2022 from 10:30 a.m. through 1 p.m. on the Lake
of the Ozarks from MM 6 through MM 1. This special local regulation is
a moving limited access area that follows the participants of the
parade as they transit the parade route between MM 6 through MM 1. All
spectator vessels and vessels not participating in this parade will not
be allowed to transit within a 50 yard radius surrounding the area that
includes vessels at the front of the parade extending to the vessels
transiting at the end of the parade. Vessels other than spectator
vessels and those directly involved in the event will only be allowed
to safely transit the regulated area when the Coast Guard Patrol
Commander has deemed it safe to do so. No vessel or person will be
permitted to enter the area without obtaining permission from the COTP
or a designated representative.
    (2) The Coast Guard Patrol Commander may forbid and control the
movement of all vessels and persons in the regulated area. When hailed
or signaled by an official patrol vessel, a vessel or person in the
regulated area shall immediately comply with the directions given.
Failure to do so may result in expulsion from the area, citation for
failure to comply, or both.
    (3) The Coast Guard Patrol Commander may terminate the event, or
the operation of any participant in the event, at any time it is deemed
necessary for the protection of life or property.
    (4) All Coast Guard vessels enforcing this regulated area can be
contacted on marine band radio VHF-FM channel 16 (156.8 MHz).
    (5) Only participants and official patrol vessels are allowed to
enter the parade route area.

    Dated: June 3, 2022.
R.M. Scott,
Captain, U.S. Coast Guard, Captain of the Port Sector Upper Mississippi
River.
[FR Doc. 2022-12325 Filed 6-7-22; 8:45 am]
BILLING CODE 9110-04-P