appropriate return based on the limited partners' projected growth, the
long-term growth projection could be adjusted by averaging projected
long term GDP and the projected long term inflation rate.\151\ The
latter would have to be updated regularly to test its accuracy.
---------------------------------------------------------------------------

    \150\ In such a DCF analysis the dividend yield would be
calculated by dividing the distribution to the limited partner by
the limited partner share price.
    \151\ INGAA Additional Initial Comments dated Dec. 21 at 4-6;
Vilbert Report at 18-19.
---------------------------------------------------------------------------

    103. Mr. Horst, the witness for the State of Alaska, responded that
the INGAA model was mathematically correct, but that the model's
assumptions about the rate of growth and incentive distributions were
open to question and the results would overstate the equity for the MLP
as a whole.\152\ INGAA filed a reply to Mr. Horst's arguments by Mr.
Vilbert that first calculates the actual DCF values for eight publicly
traded general partner interests.\153\ Mr. Vilbert then compares the
resulting value of the general partner interests for the same eight
firms generated by the model. The results calibrate more closely to the
eight market samples than the analysis produced by Mr. Horst but, like
Mr. Horst's analysis, tend to overstate the value of the general
partner interest.
---------------------------------------------------------------------------

    \152\ State of Alaska, Reply Comments dated February 20, 2008 at
6 and Third Horst Aff. at 6-15.
    \153\ INGAA, Post-Technical Supplemental Comments dated March
12, 2008 at 2-4 and Vilbert Aff. attached thereto, passim. The
Commission will accept INGAA's March 12 filing because INGAA had no
earlier opportunity to reply to the material contained in the State
of Alaska's February 20, 2008 filing.
---------------------------------------------------------------------------

    104. The Commission will not use the INGAA model for several
reasons. First, the internal operations of the model are relatively
opaque, and the model appears to have a relatively wide range of error.
Second, as the court stated in Petal Gas Storage, LLC v. FERC,\154\ the
purpose of the proxy group is to ``provide market-determined stock and
dividend figures from public companies comparable to a target company
for which those figures are unavailable.'' While INGAA used eight
publicly traded general partner interests to test the validity of the
model, most of those interests are not related to MLPs that have been
proffered in rate proceedings before the Commission. In the absence of
such market-determined figures for the general partner interest of the
MLPs to be included in the proxy group, use of the INGAA model would
necessarily entail deriving an estimated equity cost of capital for the
general partner through various assumptions that markup the limited
partner's cost of capital. In these circumstances, use of the INGAA
model would be inconsistent with the purpose of the proxy group of
providing a fully market-based estimated cost of capital.
---------------------------------------------------------------------------

    \154\ 496 F. 3d 695 at 699.
---------------------------------------------------------------------------

    105. INGAA alternatively suggested that the returns from the
current methodology be reduced somewhat to reflect the admittedly lower
growth rate of a MLP's limited partnership interests. However, its
proposal to do that by averaging GDP growth projections with the
Federal Reserve's target inflation rate appears to have no analytical
basis. Therefore, INGAA's recommendations will not be accepted
here.\155\
---------------------------------------------------------------------------

    \155\ See AOPL Post-Technical Comments at 3-4, which suggest
that the complexity of Mr. Vilbert's model and the use of its
assumption indicate that it is more appropriate to rely on the
limited partners' distributions in a DCF analysis.
---------------------------------------------------------------------------

    106. Based upon the above discussion, the Commission concludes that
the long term growth component for an MLPs equity cost of capital
should be 50 percent of long term GDP, rather than the full long term
GDP currently used for corporations.
    c. Proposed upward adjustments to the long term component
    107. NAPTP asserted that the Commission should increase rather than
decrease the long term growth component used to determine an MLP's
equity cost of capital to reflect the general partner component of an
MLP's equity.\156\ It asserts that equity cost of capital must be
determined for the MLP as a whole, not just for the limited partners.
NAPTP asserts that the return, and hence the projected growth rate,
must generate sufficient cash flows to support the IDRs provided the
general partner under most MLP agreements. To this end, it marked up
the growth rate of the limited partners to reflect the portion of the
equity effectively controlled by the general partner through its IDRs.
Thus, if the growth rate for the limited partners was 10 percent and
the general partner received a total of 50 percent of the
distributions, the growth rate for the general partner could be as high
as 20 percent. The Shipper Interest partners argued that this only
rewarded the general partner for its excessive distributions and would
inordinately increase the MLPs equity cost of capital.
---------------------------------------------------------------------------

    \156\ NAPTP Additional Comments dated Dec. 21 at 3-4.
---------------------------------------------------------------------------

    108. Both INGAA's witness Vilbert and the State of Alaska's witness
Horst rejected the NAPTP approach on mathematical grounds. Both argue
that the gross-up fails to properly value the general partner's
interest at multiples that reflect the general partner interest's
relative risk to that of the limited partners.\157\ Furthermore,
Vilbert argues that the general partner's risk, while always greater
than that of the limited partner, declines as the MLP matures and the
general partner's share of distributions increases.\158\ As this
occurs, the growth rate of the general partner's interest slows and
approaches that of the limited partner. Failure to adjust for both
facts means that the general partner's interest is undervalued using
the NAPTP method, thus overstating the yield, and thus the return, that
would be incorporated in the DCF model. As such, the NAPTP approach is
inappropriate.
---------------------------------------------------------------------------

    \157\ State of Alaska, Reply Comments dated February 20, 2008 at
6 and Third Horst Aff. at 2, 4-5.
    \158\ INGAA, Post-Technical Supplemental Comments dated March
12, 2008 at 2-4 and Vilbert Aff. at 6-12.
---------------------------------------------------------------------------

    109. The Commission agrees that the NAPTP method is mathematically
and conceptually flawed. Moreover, it has the same basic limitation as
the INGAA model in that there is simply not enough publicly generated,
transparent information at this time to support developing an equity
cost of capital for the MLP as a whole. INGAA likewise attempted to
develop an approach that would reflect the growth rate, and the return,
of the MLP as a whole. The Commission has previously concluded that
this approach has too many practical limits. Therefore the Commission
will not pursue this issue further here.

E. The Weighting of the Growth Components

    110. The third issue is whether to change the weighting of the
short-term and long-term components now used in

the Commission's DCF model. As has been discussed, the Commission's
existing policy is to provide two-thirds of the weight to the short-
term component and one-third to the long-term component. TransCanada
suggested changing the weighting, so that the 90 percent of the weight
should be to the short-term component.\159\ MidAmerica recommended the
use of a single stage model and abandoning the long-term component
completely.\160\ However, these suggestions received no support from
the other parties and would serve to increase the overall returns by
sharply diminishing or eliminating the long-term component of the DCF.
---------------------------------------------------------------------------

    \159\ TransCanada, Reply Comments at 13-14; Additional Comments
dated December 21 at 9-12.
    \160\ MidAmerican Response to Request for Additional Comments
dated December 21 at 9-11.
---------------------------------------------------------------------------

    111. As discussed in the previous section, the Commission's
longstanding policy is that the growth component of the DCF analysis of
gas and oil proxy companies must include a projection of long-term
growth, and the court affirmed that policy in Williston I. As the
Commission has explained in numerous orders, the DCF methodology
requires that a long-term evaluation be taken into account. In the
preceding section, the Commission has fully discussed why the long-term
growth projection for MLPs should be 50 percent of projected long-term
growth of GDP.
    112. The Commission established its policy of giving the long-term
growth projection one-third weight, while the short-term growth
projection is given two-thirds weight, in Opinion Nos. 414-A. The
Commission explained its weighting policy as follows:

    While determining the cost of equity nevertheless requires that
a long-term evaluation be taken into account, long-term projections
are inherently more difficult to make, and thus less reliable, than
short-term projections. Over a longer period, there is a greater
likelihood for unanticipated developments to occur affecting the
projection. Given the greater reliability of the short-term
projection, we believe it appropriate to give it greater weight.
However, continuing to give some effect to the long-term growth
projection will aid in normalizing any distortions that might be
reflected in short-term data limited to a narrow segment of the
economy.\161\

    \161\ Opinion No. 414-A, 84 FERC at 61,423.

The court affirmed this policy in CAPP v. FERC,\162\ stating that ``in
an exercise so hard to limit by strict rules, it would likely be
difficult to show that the Commission abused its discretion in the
weighting choice.''
---------------------------------------------------------------------------

    \162\ 254 F.3d at 289.

    113. The need to normalize any distortions that may be reflected in
short-term data limited to a narrow segment of the economy applies
equally to the IBES five-year growth projections for MLPs as for
corporations. At the same time, the two-thirds weighting for the short-
term growth projections recognizes their greater reliability. Moreover,
TransCanada does not establish why the MLP short-term growth
projections should be accorded a greater weight than that of
corporations. In fact, as was discussed in the previous section, the
record reasonably shows that investment houses include a long-term
growth component in their DCF analyses of MLPs, and use a long-term
growth projection that is lower than the projected long-term growth in
GDP. Therefore the Commission will not modify the two-thirds to one-
third ratio it now uses in its DCF model and will apply that ratio to
all pending cases.

V. Pending Proceedings

    114. The procedural issue here is whether this Policy Statement
should be applied to all proceedings that are now before the Commission
for which the ROE issue has not been resolved with finality. NGSA
asserts that any new policy should apply only prospectively and not to
cases now pending before the Commission. Indicated Shippers take the
same position, asserting that application of the Policy Statement to
pending proceedings would be administratively inefficient and would
materially delay instituting new rates in the Kern River proceeding,
which is now before the Commission on rehearing. Indicated Shippers
further argue that in Kern River the Commission addressed and rejected
the use of MLPs without some adjustment to reflect the fact that MLP
distributions involve both a return of and return on equity. They also
argue that there would be no inequity because Kern River could always
file a new section 4 rate case if the existing proceeding proved
unsatisfactory. Finally, Indicated Shippers assert that a policy change
should not be applied retroactively because it does not have the force
of law\163\ and because policy statements are considered ``statements
issued by the agency to advise the public prospectively of the manner
in which the agency proposes to exercise a discretionary power.'' \164\
---------------------------------------------------------------------------

    \163\ Citing Consolidated Edison of New York, et al., v. FERC,
315 F.3d 316, 323-24 (DC Cir. 2003) (Consolidated Edison).
    \164\ Citing American Bus Assn. v. ICC, 627 F.2d 525, 529 (DC
Cir. 1980).
---------------------------------------------------------------------------

    115. MidAmerica answered that the Policy Statement must be applied
to all pending cases and Kern River in particular for two reasons. It
states that in Petal the court both seriously questioned the
Commission's analysis regarding MLPs and held that it was improper to
include an entity of higher risk (a pipeline) and one of lower risk,
such as a diversified natural gas company, in the same sample without
adjusting the returns. MidAmerica argues that application of the
Williston doctrine\165\ requires that it be given an opportunity to
address the return on equity issue further. This is particularly the
case since the court suggested applying the upper end of the range of
reasonableness as a way of compensating for the difference in risk.
MidAmerica asserts that application of either this suggestion or use of
the unadjusted MLP sample Kern River advanced at hearing would result
in the same return on equity.
---------------------------------------------------------------------------

    \165\ See Williston Basis Interstate Pipeline Co. v. FERC, 165
F.3d 54 (DC Cir. 1999) (Williston). MidAmerica cites to the related
administrative proceeding, Williston Basin Interstate Pipeline Co.,
104 FERC ] 61,036 (2003), but the principles are the same. The cited
Commission case was in response to the remand in cited court
decision.
---------------------------------------------------------------------------

    116. The Commission concludes that the instant Policy Statement
must be applied to all proceedings now pending at hearing before an ALJ
or before the Commission for which the ROE issue has not been resolved
with finality. In Petal v. FERC, the court vacated and remanded the
Commission's orders on the ROE issue in both Petal and HIOS. In both
those cases, the Commission applied its current policy of using a proxy
group based on the corporations listed in the Value Line Investment
Survey's list of diversified natural gas firms that own Commission-
regulated natural gas pipelines, without regard to what portion of the
company's business comprises pipeline operations. The court found that
the Commission had not shown that the proxy group arrangements used in
those cases were risk-appropriate. In this Policy Statement we have
reexamined our proxy group policy in light of the Petal v. FERC remand
as well as current trends in the gas and oil pipeline industries, and
determined we must modify our policy as discussed above. Therefore,
because the Commission's current proxy group policies as applied in
prior cases have not withstood court review, the Commission cannot and
will not apply them in currently pending

cases in which there has been no final determination of ROE issues.
    The Commission orders:
    (A) The Commission adopts the Policy Statement and supporting
analysis contained in the body of this order.
    (B) This Policy Statement is effective the date issued and shall
apply to all oil and gas pipelines then pending before the Commission
in which there has been no final determination of ROE issues.

    By the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

Appendix A

      Table 1.--DCF Analysis for Selected Corporations and MLPs Owning Jurisdictional Natural Gas Pipelines
                                 [Six-month period ended 03/31/2008, in percent]
----------------------------------------------------------------------------------------------------------------
                                                     (2)       (3) Growth      (4)
                                     (1) 6-mos. -------------     rate    -------------     (5)          (6)
                                        avg                     (``g'')                   Adjusted    Estimated
              Company                 dividend    IBES  (03/ -------------                dividend     cost of
                                       yield         08)       GDP (1/22/   Composite      yield        equity
                                                                  08)
----------------------------------------------------------------------------------------------------------------
Spectra Energy Corp...............         3.65            6         4.43         5.48         3.75         9.23
El Paso Corp......................         0.96           11         4.43         8.81         1.00         9.81
Oneok Partners, LP................         6.66            5         2.22         4.07         6.80        10.87
Boardwalk Pipeline Partners, LP...         6.29            6         2.22         4.74         6.44        11.18
Oneok, Inc........................         3.10           10         4.43         8.14         3.23        11.37
TC Pipelines, LP..................         7.46            5         2.22         4.07         7.61        11.68
TEPPCO Partners, LP...............         7.31            6         2.22         4.74         7.48        12.22
Spectra Energy Partners...........         5.00           10         2.22         7.41         5.18        12.59
Enterprise Products Partners, LP..         6.45            8         2.22         6.07         6.64        12.71
Kinder Morgan Energy Partners, LP.         6.69            8         2.22         6.07         6.89        12.96
Williams Companies................         1.17           16         4.43        12.14         1.24        13.38
----------------------------------------------------------------------------------------------------------------
Column (1) is taken from individual company analysis.
Column (2) is taken from I/B/E/S Monthly Summary Data, U.S. Edition.
Column (3) is calculated from three sources: BA, Global Insight, and SSA.
Column (4) = Column(2)*\2/3\ + Column(3)*\1/3\.
Column (5) = Column(1)*(1 + 0.5*Column(4)).
Column (6) = Column(4) + Column(5).

    Note: This Appendix is for illustrative purposes only and does
not prejudge what would be an appropriate proxy group for use in
individual proceedings.

                  Table 2.--DCF Analysis for Selected MLPs Owning Jurisdictional Oil Pipelines
                                 [Six-month period ended 03/31/2008, in percent]
----------------------------------------------------------------------------------------------------------------
                                                     (2)       (3) Growth      (4)
                                     (1) 6-mos. -------------     rate    -------------     (5)          (6)
                                        avg                     (``g'')                   Adjusted    Estimated
              Company                 dividend    IBES  (03/ -------------                dividend     cost of
                                       yield         08)      50% GDP (1/   Composite      yield        equity
                                                                 22/08)
----------------------------------------------------------------------------------------------------------------
Buckeye Partners, LP..............         6.72            5         2.22         4.07         6.86        10.93
Magellan Midstream Partners, LP...         6.16            6         2.22         4.74         6.30        11.04
NuStar Energy, LP.................         7.07            6         2.22         4.74         7.24        11.98
TEPPCO Partners, LP...............         7.31            6         2.22         4.74         7.48        12.22
Plains All American Pipelines, LP.         6.74            7         2.22         5.41         6.93        12.33
Enbridge Energy Partners, LP......         7.58            6         2.22         4.74         7.76        12.50
Enterprise Products Partners, LP..         6.45            8         2.22         6.07         6.64        12.71
Kinder Morgan Energy Partners, LP.         6.69            8         2.22         6.07         6.89        12.96
----------------------------------------------------------------------------------------------------------------
Column (1) is taken from individual company analysis.
Column (2) is taken from I/B/E/S Monthly Summary Data, U.S. Edition.
Column (3) is calculated from three sources: BA, Global Insight, and SSA.
Column (4) = Column(2)*\2/3\ + Column(3)*\1/3\.
Column (5) = Column(1)*(1 + 0.5*Column(4)).
Column (6) = Column(4) + Column(5).

    Note: This Appendix is for illustrative purposes only and does
not prejudge what would be an appropriate proxy group for use in
individual proceedings.

Appendix B

    In this Appendix, we illustrate with a simplified numerical
example why a DCF analysis using a proxy MLP's full distribution,
including any return of equity, does not lead to the award of an
excess ROE in a pipeline rate case or the double recovery of
depreciation.
    In this example, we compare the results of a DCF analysis for
two firms included in a proxy group, one a corporation and the other
an MLP. We initially assume that the theoretical basis of the DCF
methodology is sound. In other words, the DCF formula will lead to
valid results for investors in pricing shares and returns. We
further assume that each proxy firm engages only in jurisdictional
interstate natural gas pipeline business. Therefore, each proxy firm
charges cost-of-service rates determined by the Commission in the
proxy firm's last rate case. We also assume that the Commission
awarded the same 10 percent ROE to each proxy firm in its last rate
case.
    Based on these assumptions and the additional facts set forth
below illustrating the typical differences between corporations and
MLPs, we first set forth the DCF analysis

an investor would perform to determine the value of the
corporation's stock and the MLP's limited partner units. We then
assume, consistent with the underlying premise of the DCF model,
that the results of the investor's DCF analysis represent the actual
share prices of the two proxy firms. Using those share prices, we
then apply the DCF formula used in rate cases to determine the ROEs
of the two proxy firms. As illustrated below, that DCF analysis
arrives at the same 10 percent ROE for the proxy MLP, as for the
proxy corporation, despite the fact the MLP's distribution includes
a return of equity. Thus, the inclusion of return of equity in the
MLP's distribution does not improperly distort the rate case DCF
analysis.

Assumed Facts

    The proxy corporation's rate base is $100. In its last rate
case, the Commission awarded the proxy corporation an ROE of 10
percent, and found that its depreciable life is 25 years. So the
proxy corporation's cost of service includes $10 for ROE, and $4 for
depreciation. We assume that in its most recent year of operations,
the corporation actually collected those amounts from its customers,
and paid a dividend of $6.50, i.e., a dividend equal to 65 percent
of its annual earnings. The corporation thus retains $7.50 in cash
flow, which it reinvests the following year. This reflects the fact
that corporations typically pay out less than earnings in their
dividends. We also assume that the corporation's composite growth
rate is 8 percent.
    The facts with respect to the MLP are the same, with two
exceptions. First, the MLP paid its unit holders a distribution of
$13, i.e., a distribution equal to 130 percent of earnings. The
remaining $1 is distributed to the general partner of the MLP.
Second, the MLP's composite growth rate is only 5 percent.

DCF Analysis of Proxy Corporation

    As discussed at P 2 of the notice, an investor uses the
following DCF formula to determine share price (with simplifying
assumptions):

D/(ROE-g) = P
where P is the price of the stock at the relevant time, D is the
current dividend, ROE is the discount rate or rate of return, and g
is the expected constant growth in dividend income to be reflected
in capital appreciation. Using that formula, investors would
determine the rational stock price for the proxy corporation as
follows:

$6.50 dividend/(ROE of .10-growth of .08) = Stock Price of $325

That is, investors would sell shares at a price above $325, and buy
shares until the price reached $325. In a rate case for another
pipeline, the Commission will determine the ROE of the proxy firm by
solving the above formula for ROE, instead of share price. This
rearranges the formula so that:

D/P + g = ROE

    Using that formula and assuming the proxy corporation's actual
stock price is $325, the Commission would determine the proxy
corporation's ROE as follows:

$6.50 dividend/$325 stock price + growth of .08 = ROE of .10

    Therefore, if the corporation was included in the proxy group
for purposes of determining another firm's ROE in a new rate case,
we would find, under the assumed facts, that the proxy corporation
has the same 10 percent ROE as we awarded in its last rate case.

DCF Analysis of Proxy MLP

    We now go through the same exercise for the proxy MLP to
determine whether its distribution in excess of earnings distorts
its DCF analysis so as to improperly inflate its ROE. Using the D/
(ROE - g) = P formula described above, investors would determine the
proxy MLP's share price as follows:

$13 distribution/ (ROE of .10 - growth of .05) = Share price of $260

    Assuming that the actual price of units in the proxy MLP is
$260, we now determine the ROE of the proxy MLP, using the DCF
formula used in rate cases (D/P + g = ROE). Under that formula, we
would calculate the proxy MLP's ROE as follows:

$13 distribution/$260 unit price + growth of .05 = ROE of .10

    Therefore, if the MLP was included in the proxy group for
purposes of determining another firm's ROE in a new rate case, we
would, under the assumed facts, reach the same result as we reached
for above proxy corporation: That the proxy MLP has the same 10
percent ROE as we awarded in its last rate case.
    By contrast, if the Commission capped the proxy MLP's
distribution at its $10 in earnings but continued to use the $260
share price, the ROE calculated for the proxy MLP would be only
about 8.8 percent, and thus less than the 10 percent ROE the
Commission awarded the proxy MLP in its last rate case and less than
the results for the proxy corporation:

$10 distribution/$260 unit price + growth of .05 = ROE of .088

Conclusion

    As shown by the above illustrative calculations, an MLP may be
included in the proxy group and its full distribution used in the
DCF analysis without distorting the results. This is because the
level of an MLP's distributions affects both its share price and its
projected growth rate. The MLP's inclusion of a return of equity in
its distribution causes its share price to be higher than it
otherwise would be and its growth rate to be lower. These facts
offset the effect of the higher distribution on the DCF calculation
of the MLP's ROE. Indeed, capping the MLP's distribution at earnings
would lead to a distorted result. This is because there would be
mismatch between the market-determined share price, which reflects
the actual, higher uncapped distribution, and the lower earnings-
capped distribution.

[FR Doc. E8-9186 Filed 4-28-08; 8:45 am]

BILLING CODE 6717-01-P


[Federal Register Volume 86, Number 48 (Monday, March 15, 2021)]
[Notices]
[Pages 14359-14360]
[FR Doc No: 2021-05309]

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DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

[Docket No. FRA-2021-0006-N-2]

Proposed Agency Information Collection Activities; Comment
Request

AGENCY: Federal Railroad Administration (FRA), U.S. Department of
Transportation (DOT).

ACTION: Notice of information collection; request for comment.

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

SUMMARY: Under the Paperwork Reduction Act of 1995 (PRA) and its
implementing regulations, FRA seeks approval of the Information
Collection Request (ICR) abstracted below. Before submitting this ICR
to the Office of Management and Budget (OMB) for approval, FRA is
soliciting public comment on specific aspects of the activities
identified in the ICR.

DATES: Interested persons are invited to submit comments on or before
May 14, 2021.

ADDRESSES: Submit comments and recommendations for the proposed ICR to
Ms. Hodan Wells, Information Collection Clearance Officer at email:
<EMAIL_ADDRESS>or telephone:<PHONE_NUMBER>. Please refer to the
assigned OMB control number in any correspondence submitted. FRA will
summarize comments received in response to this notice in a subsequent
notice and include them in its information collection submission to OMB
for approval.

SUPPLEMENTARY INFORMATION: The PRA, 44 U.S.C. 3501-3520, and its
implementing regulations, 5 CFR part 1320, require Federal agencies to
provide 60-days' notice to the public to allow comment on information
collection activities before seeking OMB approval of the activities.
See 44 U.S.C. 3506, 3507; 5 CFR 1320.8 through 1320.12. Specifically,
FRA invites interested parties to comment on the following ICR
regarding: (1) Whether the information collection activities are
necessary for FRA to properly execute its functions, including whether
the

activities will have practical utility; (2) the accuracy of FRA's
estimates of the burden of the information collection activities,
including the validity of the methodology and assumptions used to
determine the estimates; (3) ways for FRA to enhance the quality,
utility, and clarity of the information being collected; and (4) ways
for FRA to minimize the burden of information collection activities on
the public, including the use of automated collection techniques or
other forms of information technology. See 44 U.S.C. 3506(c)(2)(A); 5
CFR 1320.8(d)(1).
    FRA believes that soliciting public comment may reduce the
administrative and paperwork burdens associated with the collection of
information that Federal regulations mandate. In summary, FRA reasons
that comments received will advance three objectives: (1) Reduce
reporting burdens; (2) organize information collection requirements in
a ``user-friendly'' format to improve the use of such information; and
(3) accurately assess the resources expended to retrieve and produce
information requested. See 44 U.S.C. 3501.
    The summary below describes the ICR that FRA will submit for OMB
clearance as the PRA requires:
    Title: Report of Railroad Trespasser Form.
    OMB Control Number: 2130-NEW.
    Abstract: Trespasser deaths on railroad rights-of-way and other
railroad property are the leading cause of fatalities attributable to
railroad operations in the United States. To address this serious
issue, the railroad industry, governments (Federal, State, and local),
and other interested parties must know more about the individuals who
trespass. With such knowledge, specific educational programs,
materials, and messages regarding the hazards and consequences of
trespassing on railroad property can be developed and effectively
distributed. Due to the lack of available root cause data, FRA proposes
to collect data from law enforcement agencies to develop general
profiles of the root causes of trespassing. This will allow FRA and
other interested parties, such as Operation Lifesaver, to target
audiences with appropriate education and enforcement campaigns to
reduce the annual number of injuries and fatalities.
    Completion and submission of form FRA F 6180.178 will be required
for law enforcement agency grantees, as a condition of FRA's Railroad
Trespassing Enforcement Grant. The grantees will complete the form for
each trespasser incident in their jurisdiction, describing the
trespassers' race/ethnicity, gender and age to the best of their
abilities. For law enforcement agencies not receiving FRA's Railroad
Trespassing Enforcement grants, completion and submission of this form
is voluntary.
    For convenience to the respondents, FRA proposes an electronic
option where the respondents can respond via a web-based form. The web-
based form also will facilitate FRA's ability to maintain the data
collected in a more useful and uniform manner, as the dropdown boxes
will assist FRA in receiving more standardized responses.
    Type of Request: Approval of a new collection of information.
    Affected Public: Public authorities.
    Form(s): FRA F 6180.178.
    Respondent Universe: Law enforcement agencies.
    Frequency of Submission: Monthly.
    Reporting Burden:

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Average time    Total annual
                  Form                       Respondent universe           Total annual  responses         per response    burden hours     Total cost
                                                                                (minutes)        (hours)       equivalent
--------------------------------------------------------------------------------------------------------------------------------------------------------
Report of Railroad Trespasser Form (New  Law enforcement agencies,   2,800 forms........................              10             467         $22,229
 Form FRA F 6180.178).                    grantees.
                                         Law enforcement agencies,   500 forms..........................              10              83           3,951
                                          non-grantees.
                                                                    ------------------------------------------------------------------------------------
    Total \1\..........................  Law enforcement agencies    3,300 responses....................             N/A             550          26,180
                                          \2\.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Totals may not add due to rounding.
\2\ The hourly wage rate to calculate the dollar cost equivalent for law enforcement employees amounts to $47.60 per hour (an hourly wage rate of $27.40
  plus an hourly benefit of $20.20). FRA obtained this information from the Department of Labor, Bureau of Labor Statistics (BLS), Occupational
  Employment Statistics (OES) 11-3011, classified within NAICS 999200, State Government--excluding schools and hospitals. See https://www.bls.gov/oes/current/naics4_999200.htm.

    Total Estimated Annual Responses: 3,300.
    Total Estimated Annual Burden: 550 hours.
    Total Estimated Annual Burden Hour Dollar Cost Equivalent: $26,180.
    Under 44 U.S.C. 3507(a) and 5 CFR 1320.5(b) and 1320.8(b)(3)(vi),
FRA informs all interested parties that a respondent is not required to
respond to, conduct, or sponsor a collection of information that does
not display a currently valid OMB control number.

    Authority: 44 U.S.C. 3501-3520.

Brett A. Jortland,
Acting Chief Counsel.
[FR Doc. 2021-05309 Filed 3-12-21; 8:45 am]
BILLING CODE 4910-06-P


[Federal Register Volume 76, Number 50 (Tuesday, March 15, 2011)]
[Notices]
[Pages 14038-14039]
[FR Doc No: 2011-5893]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

[Docket No. USCG-2011-0129]

TWIC/MTSA Policy Advisory Council; Voluntary Use of TWIC Readers

AGENCY: Coast Guard, DHS.

ACTION: Notice of availability and request for comments.

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

SUMMARY: The Coast Guard announces the release of and seeks comments on
Policy Advisory Council (PAC) Decision 01-11, ``Voluntary Use of TWIC
Readers.'' This PAC Decision provides guidance for using Transportation
Security Identification Credential (TWIC) readers as part of a Vessel
Security Plan or Facility Security Plan. This PAC Decision is directed
at owners and operators of vessels and facilities regulated under the
Maritime Transportation Security Act, for the purpose of purchasing and
installing TWIC readers and systems.

DATES: Comments and related material must either be submitted to our
online docket via http://www.regulations.gov on or before May 16, 2011
or reach the Docket Management Facility by that date.

ADDRESSES: You may submit comments identified by docket number USCG-
2011-0129 using any one of the following methods:
    (1) Federal eRulemaking Portal: http://www.regulations.gov.
    (2) Fax:<PHONE_NUMBER>.
    (3) Mail: Docket Management Facility (M-30), U.S. Department of
Transportation, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue, SE., Washington, DC 20590-0001.
    (4) Hand Delivery: Same as mail address above, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The telephone
number is<PHONE_NUMBER>.
    To avoid duplication, please use only one of these four methods.
See the ``Public Participation and Request for Comments'' portion of
the SUPPLEMENTARY INFORMATION section below for instructions on
submitting comments.
    The PAC Decision is available in the docket and can be viewed by
going to http://www.regulations.gov, inserting USCG-2011-0129 in the
``Keyword'' box, and then clicking ``Search.'' This policy is also
available at http://www.homeport.uscg.mil; under the Maritime Security
tab, click on the ``MTSA/ISPS Policy Advisory Council'' link, PAC 01-
11.

FOR FURTHER INFORMATION CONTACT: If you have questions on this notice
or the policy, call or e-mail LCDR Loan O'Brien (CG-5442), U.S. Coast
Guard, telephone<PHONE_NUMBER>, e-mail<EMAIL_ADDRESS>If you
have questions on viewing or submitting material to the docket, call
Ms. Renee V. Wright, Program Manager, Docket Operations, telephone 202-
366-9826.

SUPPLEMENTARY INFORMATION:

Public Participation and Request for Comments

    We encourage you to submit comments and related material on the
Policy Advisory Council (PAC) Decision 01-11, ``Voluntary Use of TWIC
Readers.'' All comments received will be posted, without change, to
http://www.regulations.gov and will include any personal information
you have provided.
    Submitting comments: If you submit a comment, please include the
docket number for this notice (USCG-2011-0129) and provide a reason for
each suggestion or recommendation. You may submit your comments and
material online, or by fax, mail or hand delivery, but please use only
one of these means. We recommend that you include your name and a
mailing address, an e-mail address, or a telephone number in the body
of your document so that we can contact you if we have questions
regarding your submission.
    To submit your comment online, go to http://www.regulations.gov and
insert ``USCG-2011-0129'' in the ``Keyword'' box. If you submit your
comments by mail or hand delivery, submit them in an unbound format, no
larger than 8\1/2\ by 11 inches, suitable for copying and electronic
filing. If you submit them by mail and would like to know that they
reached the Facility, please enclose a stamped, self-addressed postcard
or envelope. We will consider all comments and material received during
the comment period.
    Viewing the comments and PAC Decision 01-11: To view the comments
and PAC Decision 01-11, go to http://www.regulations.gov, click on the
``read comments'' box, which will then become highlighted in blue. In
the ``Keyword'' box insert ``USCG-2011-0129'' and click ``Search.''
Click the ``Open Docket Folder'' in the ``Actions'' column. If you do
not have access to the Internet, you may view the docket online by
visiting the Docket Management Facility in Room W12-140 on the ground
floor of the Department of Transportation West Building, 1200 New
Jersey Avenue, SE., Washington, DC 20590, between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays. We have an agreement
with the Department of Transportation to use the Docket Management
Facility.
    This PAC Decision 01-11 is also available at http://www.homeport.uscg.mil under the TWIC tab of the ``Featured Homeport
Links'' section, click on the ``Policy Advisory Council Decisions for
TWIC'' link, PAC Decision 01-11.
    Privacy Act: Anyone can search the electronic form of comments
received into any of our dockets by the name of the individual
submitting the comment (or signing the comment, if submitted on behalf
of an association, business, labor union, etc.). You may review a
Privacy Act, system of records notice regarding our public dockets in
the January 17, 2008, issue of the Federal Register (73 FR 3316).

Background and Purpose

    In accordance with the Maritime Transportation Security Act of 2002
(MTSA) (Pub. L. 107-295), and the Security and Accountability for Every
Port Act of 2006 (Pub. L. 109-347), this PAC Decision facilitates the
use of transportation security card readers to leverage the full
security benefits of the Transportation Worker Identification
Credential (TWIC). The Department of Homeland Security, Coast Guard,
and the Transportation Security Administration (TSA) remain in the
process of finishing the TWIC reader pilot program. As such, many
facility owners and operators who received grant funding have been
reluctant to move forward on purchasing TWIC

equipment. This Policy Advisory Council (PAC) Decision 01-11,
``Voluntary Use of TWIC Readers'' provides guidance on how vessel and
facility owners and operators can use TWIC readers to meet existing
regulatory requirements for effective (1) identity verification, (2)
card validity, and (3) card authentication.

Discussion

    TWIC regulations state that all persons requiring unescorted access
to secure areas of MTSA-covered vessels, facilities and outer
continental shelf facilities must possess a TWIC before such access is
granted. 33 CFR 101.514. At each entry, the TWIC must be checked for
(1) identity verification, (2) card validity, and (3) card
authentication. 33 CFR 104.265(c)(1), 105.255(c)(1), or 106.260(c)(1).
The current requirement for identity verification is to visually
compare the photograph on the TWIC to the person at the access point.
The Coast Guard, however, may determine an alternative method of
identity verification if the method meets or exceeds the effectiveness
of a visual inspection. 33 CFR 101.130.
    With this PAC Decision 01-11, the Coast Guard determines that a
biometric match using a TWIC reader from the TSA list of readers that
have passed the Initial Capability Evaluation Test to confirm that the
biometric template stored on the TWIC matches the fingerprint of the
individual presenting the TWIC meets or exceeds the effectiveness of a
visual identity verification check. An owner or operator of a vessel or
facility may also use a TWIC reader to check for card validity by
either (1) comparing the card's internal Federal Agency Smart Card
Number to the TSA Cancelled Card List, or (2) using a Certificate
Revocation List. An owner or operator may also perform card
authentication by using a TWIC reader to perform the CHALLENGE/RESPONSE
protocol using the Card Authentication Certificate and the card
authentication private key on the TWIC.
    PAC Decision 01-11 also contains additional guidance. It states
that TWIC readers used under this determination should be used in
accordance with manufacturer instructions, and operated by trained
personnel. Additionally, it points out that TWIC readers allowed
pursuant to this interim guidance may no longer be valid after
promulgation of a TWIC reader final rule requiring the use of readers.
Finally, it reminds vessel and facility owners/operators using PAC
Decision 01-11 that they must submit a Vessel Security Plan or Facility
Security Plan amendment in accordance with applicable regulations.
    Comments on PAC Decision 01-11 may be submitted to the Coast Guard
via the docket as described above under ADDRESSES. PAC Decision 01-11
is considered a ``significant guidance document'' under the terms of
the Office of Management and Budget's ``Final Bulletin for Agency Good
Guidance Practices,'' which was published in the Federal Register on
January 25, 2007 (72 FR 3432).

    Authority: This notice is issued under authority of 5 U.S.C.
552(a) and 33 CFR 101.130.

    Dated: March 7, 2011.
Kevin S. Cook,
Rear Admiral, U.S. Coast Guard, Director of Prevention Policy.
[FR Doc. 2011-5893 Filed 3-14-11; 8:45 am]
BILLING CODE 9110-04-P


[Federal Register Volume 77, Number 199 (Monday, October 15, 2012)]
[Notices]
[Pages 62558-62562]
[FR Doc No: 2012-25283]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68020; File No. SR-CBOE-2012-094]

 Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change To Update Its
Rule 31.10--Corporate Governance--in Order To Comply With New Rule 10C-
1 Under the Securities Exchange Act of 1934

October 9, 2012.
    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 September 25, 2012, Chicago Board Options Exchange,
Incorporated (the ``Exchange'' or ``CBOE'') filed with the Securities
and Exchange Commission (the ``Commission'') the proposed rule change
as described in Items I, II, and III below, which Items have been
prepared by the Exchange. 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 the
Substance of the Proposed Rule Change

    CBOE proposes to update its Rule 31.10--Corporate Governance--in
order to comply with new Rule 10C-1 under the Act. The text of the
proposed rule change is available on the Exchange's Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx), at the Exchange's
Office of the Secretary, and at the Commission's Public Reference Room.

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 Exchange 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
    Effective July 27, 2012, the Commission adopted Rule 10C-1 (the
``New Rule'') to the Act.\3\ The New Rule directs national securities
exchanges to establish listing standards that, among other things,
require each member of a listed issuer's compensation committee to be a
member of the board of directors and to be ``independent'', as defined
in the listing standards of the national securities exchanges. The New
Rule also discusses issuers' retention of compensation advisers. The
Exchange hereby proposes to update its Rule 31.10, which discusses
corporate governance requirements of issuers on the Exchange, in order
to place Rule 31.10 in compliance with the New Rule.
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 67220 (June 20,
2012) 77 FR 38422 (June 27, 2012) (File No. S7-13-11).
---------------------------------------------------------------------------

    Rule 31.10 currently states that compensation of the chief
executive officer, and all other executive officers, of an issuer must
be determined, or recommended to the board of directors of the issuer
for determination, either by a majority of all independent directors or
a compensation committee comprised solely of independent directors. The
New Rule's requirements regarding a compensation committee, as well as
the broad definition of ``compensation committee'' and the independence
of those directors on the compensation committee (all described below),
make Rule 31.10(c)'s statement that compensation of executive officers
may be determined by a majority of all independent directors a bit
superfluous. Due to the broad definition of the term ``compensation
committee'' as defined in the New Rule, the Exchange hereby proposes to
simply state that compensation of all executive officers of an issuer
be determined, or recommended to the board of directors of the issuer
for determination, by a compensation committee.
    The New Rule provides a definition of ``compensation committee'',
which the Exchange proposes to adopt. For the purposes of Rule 31.10,
the term ``compensation committee'' shall mean: (A) A committee of the
board of directors that is designated as the compensation committee; or
(B) in the absence of a committee of the board of directors that is
designated as the compensation committee, a committee of the board of
directors performing functions typically performed by a

compensation committee, including oversight of executive compensation,
even if it is not designated as the compensation committee or also
performs other functions; or (C) in the absence of a committee as
described in paragraphs (c)(1)(A) or (B) of Rule 31.10, the members of
the board of directors who oversee executive compensation matters on
behalf of the board of directors. The Exchange's proposed definition of
``compensation committee'' is modeled after that described in the New
Rule.\4\ The New Rule allows exchanges to exempt issuers who, in the
absence of a committee as described in paragraphs (c)(1)(A) or (B) of
Rule 31.10, have a ``compensation committee'' that is composed of the
members of the board of directors who oversee executive compensation
matters on behalf of the board of directors from those requirements
described in paragraphs (a)(1) and (b) of proposed Interpretation and
Policy .11 to Rule 31.10 (described and discussed below). However, the
Exchange does not believe that it is unduly burdensome to require
issuers who, in the absence of a committee as described in paragraphs
(c)(1)(A) or (B) of Rule 31.10, have a ``compensation committee'' that
is composed of the members of the board of directors who oversee
executive compensation matters on behalf of the board of directors to
comply with paragraphs (a)(1) and (b) of proposed Interpretation and
Policy .11. Further, providing this exemption might provide issuers
with a way to avoid those requirements of paragraphs (a)(1) and (b) of
proposed Interpretation and Policy .11 by simply not having a
``compensation committee'' as defined in paragraphs (c)(1)(A) or (B) of
Rule 31.10. Therefore, the Exchange does not propose to exempt issuers
who, in the absence of a committee as described in paragraphs (c)(1)(A)
or (B) of Rule 31.10, have a ``compensation committee'' that is
composed of the members of the board of directors who oversee executive
compensation matters on behalf of the board of directors from those
requirements described in paragraphs (a)(1) and (b) of proposed
Interpretation and Policy .11 to Rule 31.10.
---------------------------------------------------------------------------

    \4\ 17 CFR 240.10C-1(c)(2).
---------------------------------------------------------------------------

    The New Rule states that ``each member of the compensation
committee must be an independent member of the board of directors of
the listed issuer, and must otherwise be independent.'' \5\ The New
Rule further clarifies that, in determining the independence
requirements for the members of compensation committees, the Exchange
must consider all relevant factors, including, but not limited to, the
source of compensation for that director (including any consulting,
advisory or other compensatory fee paid by the issuer to the director),
and whether the director is affiliated with the issuer or a subsidiary
or affiliate of a subsidiary of the issuer.\6\
---------------------------------------------------------------------------

    \5\ 17 CFR 240.10C-1(b)(1)(i).
    \6\ 17 CFR 240.10C-1(b)(1)(ii).
---------------------------------------------------------------------------

    The Exchange hereby proposes to amend Rule 31.10(c) to state that
all members of a compensation committee must be ``independent
directors'' as defined in Rule 31.10(h)(2). ``Independent director'' is
defined in Rule 31.10(h)(2) as:

a person other than an officer or employee of the company or its
subsidiaries or any other individual having a relationship, which, in
the opinion of the company's board of directors, would interfere with
the exercise of independent judgment in carrying out the
responsibilities of a director. The following persons shall not be
considered independent:
    (A) a director who is, or at any time during the past three years
was, employed by the company or by any parent or subsidiary of the
company;
    (B) a director who accepted or who has a family member who accepted
any payments from the company or any parent or subsidiary of the
company in excess of $60,000 during the current or any of the past
three fiscal years, other than the following:
    (i) compensation for board or board committee service;
    (ii) payments arising solely from investments in the company's
securities;
    (iii) compensation paid to a family member who is a non-executive
employee of the company or a parent or subsidiary of the company;
    (iv) benefits under a tax-qualified retirement plan, or non-
discretionary compensation; or
    (v) loans permitted under Exchange Act Section 13(k).
    Provided, however, that audit committee members are subject to
additional, more stringent requirements under Exchange Act Rule 10A-3,
which requirements are incorporated by reference in the Exchange rules
pursuant to Rule 31.10(b).
    (C) a director who is a family member of an individual who is, or
at any time during the past three years was, employed by the company or
by any parent or subsidiary of the company as an executive officer;
    (D) a director who is, or has a family member who is, a partner in,
or a controlling shareholder or an executive officer of, any
organization to which the company made, or from which the company
received, payments for property or services in the current or any of
the past three fiscal years that exceed 5% of the recipient's
consolidated gross revenues for that year, or $200,000, whichever is
more, other than the following:
    (i) payments arising solely from investments in the company's
securities; or
    (ii) payments under non-discretionary charitable contribution
matching programs;
    (E) a director of the listed company who is, or has a family member
who is, employed as an executive officer of another entity where at any
time during the past three years any of the executive officers of the
listed company serve on the compensation committee of such other
entity;
    (F) a director who is, or has a family member who is, a current
partner of the company's outside auditor, or was a partner or employee
of the company's outside auditor who worked on the company's audit at
any time during any of the past three years; or
    (G) in the case of an investment company, in lieu of Rules
31.10(h)(2)(A)-(F), a director who is an ``interested person'' of the
company as defined in Section 2(a)(19) of the Investment Company Act of
1940, other than in his or her capacity as a member of the board of
directors or any board committee.\7\
---------------------------------------------------------------------------

    \7\ See CBOE Rule 31.10(h)(2).
---------------------------------------------------------------------------

    The Exchange believes that the current definition of ``independent
director'' meets the criteria listed for determining independence
requirements under the New Rule. The requirements that a director is
not considered ``independent'' if he or a family member has accepted
any payments from the company or any parent or subsidiary of the
company in excess of $60,000 during the current or any of the past
three fiscal years, other than compensation for board or committee
service, payments arising solely from investments in the company's
securities, compensation paid to a family member who is a non-executive
employee of the company or a parent or subsidiary of the company,
benefits under a tax-qualified retirement plan, or non-discretionary
compensation, or loans permitted under Exchange Act Section 13(k)
demonstrates that the definition of ``independent'' considers the
sources of compensation of a member of the compensation committee.

    The Exchange believes that the current definition of ``independent
director'' meets the requirement in the New Rule that the Exchange's
rules must consider whether the director is affiliated with the issuer
or a subsidiary or affiliate of a subsidiary of the issuer. For
purposes of the New Rule, an ``affiliate'' of, or a person
``affiliated'' with, a specified person, is a person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the person
specified.\8\ Rule 31.10(h)(2) states that a director is not
``independent'' if, in the opinion of the issuer's board of directors,
the person has a relationship which would interfere with the exercise
of independent judgment in carrying out the responsibilities of a
director. Any kind of affiliate relationship, under the definition
provided above, could be viewed as a conflict of interest that might
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. Therefore, by nature, a board of
directors would have to consider any affiliate relationship in coming
to that manner of opinion. As such, a rule that requires a board of
directors to consider whether a director has a relationship which would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director in order to determine whether or not the
director is ``independent'' naturally requires consideration of whether
the director is affiliated with the issuer, a subsidiary of the issuer
or an affiliate of a subsidiary of the issuer.
---------------------------------------------------------------------------

    \8\ 17 CFR 240.12b-2. The term ``control'' (including the terms
``controlling,'' ``controlled by'' and ``under common control
with'') means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by
contract, or otherwise. 17 CFR 240.12b-2.
---------------------------------------------------------------------------

    The New Rule states that any exchange to which the New Rule applies
must provide issuers an opportunity to cure any violations of the rules
that such exchange may put in place as a result of the New Rule.\9\ The
New Rule further states that an exchange's rule regarding the curing of
violations may state that if a member of a compensation committee
ceases to be an ``independent director'' for reasons outside of that
member's reasonable control, that person, with notice by the issuer to
the applicable exchange, may remain a compensation committee member
until the earlier of the next annual shareholders meeting of the issuer
or one year from the occurrence of the event that caused the member to
no longer be an ``independent director''. As such, the Exchange
proposes to adopt this language and state that if a member of a
compensation committee ceases to be an ``independent director'' for
reasons outside of that member's reasonable control, that person may
remain a compensation committee member until the earlier of the next
annual shareholders meeting of the issuer or one year from the
occurrence of the event that caused the member to no longer be an
``independent director''. The Exchange will require that an issuer
relying on this provision must provide notice to the Exchange
immediately upon learning of the event or circumstance that caused the
member to cease to be an ``independent director''.
---------------------------------------------------------------------------

    \9\ 17 CFR 240.10C-1(a)(3).
---------------------------------------------------------------------------

    Rule 31.10(c) currently provides an exception to the independence
requirement for compensation committee members. This exception states
that, notwithstanding said independence requirements, if the
compensation committee is comprised of at least three members, one
director, who is not independent as defined in Rule 31.10(h)(2) and is
not a current officer or employee or a family member of an officer or
employee, may be appointed to the compensation committee if the board,
under exceptional and limited circumstances, determines that such
individual's membership on the committee is required by the best
interests of the company and its shareholders, and the board discloses,
in the proxy statement for the next annual meeting subsequent to such
determination (or, if the issuer does not file a proxy, in its Form 10-
K or 20-F), the nature of the relationship and the reasons for the
determination. A member appointed under this exception may not serve
longer than two years.\10\ However, the New Rule includes no such
exception to the independence requirements. The Exchange therefore
proposes to delete this exception. The Exchange believes that
independence of compensation committee members is important to ensure
that there exist no undue influences in the compensation of executive
officers. Further, in these times during which executive compensation
has (understandably) fallen under some scrutiny, it is important to
provide the appearance of a transparent and not-unduly-influenced
process to determine executive compensation, and an exception that
allows issuers to have non-independent directors influence compensation
can have a damaging impact on the markets.
---------------------------------------------------------------------------

    \10\ See CBOE Rule 31.10(c)(3).
---------------------------------------------------------------------------

    Currently, Rule 31.10(c) states that the chief executive officer of
an issuer may not be present during voting or deliberations regarding
his salary. CBOE proposes to extend this clause to all executive
officers and state that the executive officer for whom compensation is
being determined may not be present during voting or deliberations
regarding compensation of that executive officer. The Exchange believes
that this extension is appropriate and will further prevent any
executive officer for whom compensation is being determined from having
undue or inappropriate influence on his compensation.
    The New Rule exempts from the independence requirements limited
partnerships, companies in bankruptcy proceedings, open-end management
investment companies registered under the Investment Company Act of
1940, and any foreign private issuer that discloses in its annual
report the reasons that the foreign private issuer does not have an
independent compensation committee.\11\ The Exchange thereby proposes
to incorporate those exemptions into proposed Rule 31.10(f)(6) by
reference by stating that the categories of issuers listed in Sec.
240.10C-1(b)(1)(iii)(A) of the Securities Exchange Act of 1934 [sic]
are also exempt from the requirements Rule 31.10(c)(2) (which discusses
independence of directors on an issuer's compensation committee). These
categories of issuers are still subject to all other requirements
regarding executive compensation (unless otherwise noted).
---------------------------------------------------------------------------

    \11\ 17 CFR 240.10C-1(b)(1)(iii).
---------------------------------------------------------------------------

    Rule 31.10(f) currently exempts a number of other categories of
issuers from the executive compensation requirements of Rule 31.10(c).
These types of issuers are controlled companies, registered management
investment companies (which are similar to open-end management
investment companies), and asset-backed issuers and other passive
issuers, cooperatives.\12\ The Exchange determined to exempt these
categories of issuers from executive compensation requirements of Rule
31.10(c) due to their various unique attributes.\13\ While the New Rule
changes some of the executive compensation requirements, The Exchange
believes that these categories of issues [sic] should still be

exempt from all executive compensation requirements in Rule 31.10(c)
generally. To the extent that the above-referenced proposed Rule
31.10(f)(6)'s exemption of open-end management investment companies
registered under the Investment Company Act of 1940 from the
compensation committee director independence requirements of Rule
31.10(c)(2) conflicts with the more general already-existing exemption
of registered management investment companies from the requirements of
Rule 31.10(c), the more general exemption of registered management
investment companies from the requirements of Rule 31.10(c) shall be
controlling. As such, Rule 31.10(f)(2) shall be amended to state that
the exemption of management investment companies from the requirements
of Rule 31.10(c) shall be controlling over any other potentially-
conflicting exemptions that may arise under Rule 31.10(f)(6).
---------------------------------------------------------------------------

    \12\ See CBOE Rule 31.10(f)(1)-(4).
    \13\ See Securities Exchange Act Release No. 49995 (July 9,
2004), 69 FR 42476 (July 15, 2004) (SR-CBOE-2004-028).
---------------------------------------------------------------------------

    The New Rule also discusses the retention of compensation
consultants, independent legal counsel and other compensation advisers
to assist the compensation committee of an issuer in determining
compensation for executives.\14\ Rule 31.10 currently does not speak to
this issue. Therefore, the Exchange proposes to adopt the provisions of
the New Rule regarding this issue in a substantively identical manner
to that in the New Rule in new Interpretation and Policy .11 to Rule
31.10. This new Interpretation and Policy would state that the
compensation committee of an issuer, in its capacity as a committee of
the board of directors, may, in its sole discretion, retain or obtain
the advice of a compensation consultant, independent legal counsel or
other adviser. The compensation committee shall be directly responsible
for the appointment, compensation and oversight of the work of any
compensation consultant, independent legal counsel and other adviser
retained by the compensation committee. Nothing in this Interpretation
and Policy .11 to Rule 31.10 shall be construed to require the
compensation committee to implement or act consistently with the advice
or recommendations of the compensation consultant, independent legal
counsel or other adviser to the compensation committee, or to affect
the ability or obligation of a compensation committee to exercise its
own judgment in fulfillment of the duties of the compensation
committee.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.10C-1(b)(2).
---------------------------------------------------------------------------

    Under this new Interpretation and Policy .11 to Rule 31.10, each
listed issuer must provide for appropriate funding, as determined by
the compensation committee, in its capacity as a committee of the board
of directors, for payment of reasonable compensation to a compensation
consultant, independent legal counsel or any other adviser retained by
the compensation committee.
    Under this new Interpretation and Policy .11 to Rule 31.10, the
compensation committee of a listed issuer may select a compensation
consultant, legal counsel or other adviser to the compensation
committee only after taking into consideration the following factors:
(1) The provision of other services to the issuer by the person that
employs the compensation consultant, legal counsel or other adviser,
(2) the amount of fees received from the issuer by the person that
employs the compensation consultant, legal counsel or other adviser, as
a percentage of the total revenue of the person that employs the
compensation consultant, legal counsel or other adviser, (3) the
policies and procedures of the person that employs the compensation
consultant, legal counsel or other adviser that are designed to prevent
conflicts of interest, (4) any business or personal relationship of the
compensation consultant, legal counsel or other adviser with a member
of the compensation committee, (5) any stock of the issuer owned by the
compensation consultant, legal counsel or other adviser, and (6) any
business or personal relationship of the compensation consultant, legal
counsel, other adviser or the person employing the adviser with an
executive office of the issuer. A compensation committee must consider
these factors with respect to any compensation consultant, legal
counsel or other advisor that provides advice to the compensation
committee (other than in-house legal counsel).
    The requirements of this Interpretation and Policy .11 to Rule
31.10 shall not apply to (1) any controlled company or to any smaller
reporting company, (2) the listing of a security futures product
cleared by a clearing agency that is registered pursuant to section 17A
of the Act (15 U.S.C. 78q-1) or that is exempt from the registration
requirements of section 17A(b)(7)(A) (15 U.S.C. 78q-1(b)(7)(A)), or (3)
the listing of a standardized option, as defined in Sec.  240.9b-
1(a)(4), issued by a clearing agency that is registered pursuant to
section 17A of the Act (15 U.S.C. 78q-1). These exemptions comply with
those stated in the New Rule.\15\ To be clear, small reporting
companies are still subject to other corporate governance rules, as
applicable
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    \15\ 17 CFR 240.10C-1(b)(5).
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2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the Act \16\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\17\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \18\ requirements that the rules of
an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest. The proposed changes will protect investors by
ensuring independent and well-informed determination of executive
compensation. In addition, the Exchange believes that the proposed
changes bring the Exchange into compliance with the requirements
described in the New Rule.
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    \16\ 15 U.S.C. 78s(b)(1).
    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange further believes that the proposed changes are
consistent with the New Rule. Further, these proposed changes, in
ensuring independent determination of executive compensation, will also
improve investor confidence regarding executive compensation. This
improved investor confidence will perfect the mechanism for a free and
open market and a national market system.

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

    CBOE does not believe that the proposed rule change will 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 neither solicited nor received comments on the
proposed rule change.

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

    Within 45 days of the date of publication of this notice in the
Federal

Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule
change should be disapproved.

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 email to<EMAIL_ADDRESS>Please include
File Number SR-CBOE-2012-094 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-CBOE-2012-094. This file
number should be included on the subject line if email 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 on official business
days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for inspection and copying at the
principal offices 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-CBOE-2012-094, and should be submitted on or before
November 5, 2012.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25283 Filed 10-12-12; 8:45 am]
BILLING CODE 8011-01-P