[Federal Register Volume 85, Number 162 (Thursday, August 20, 2020)]
[Notices]
[Pages 51503-51510]
[FR Doc No: 2020-18199]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89560; File No. SR-FICC-2020-009]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of Filing of Proposed Rule Change, as Modified by Amendment No.
1, To Introduce the Margin Liquidity Adjustment Charge and Include a
Bid-Ask Risk Charge in the VaR Charges

August 14, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 30, 2020, Fixed Income Clearing Corporation (``FICC'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-FICC-2020-009. On August 13, 2020, FICC filed Amendment
No. 1 to the proposed rule change, to make clarifications and
corrections to the proposed rule change.\3\ The proposed rule change,
as modified by Amendment No. 1 (hereinafter, the ``Proposed Rule
Change''), is described in Items I, II and III below, which Items have
been prepared primarily by the clearing agency.\4\ The Commission is
publishing this notice to solicit comments on the Proposed Rule Change
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 made clarifications and corrections to the
description of the proposed rule change and Exhibits 3 and 5 of the
filing, and these clarifications and corrections have been
incorporated, as appropriate, into the description of the proposed
rule change in Item II below.
    \4\ On July 30, 2020, FICC filed the proposed rule change as an
advance notice (SR-FICC-2020-802) with the Commission pursuant to
Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act entitled the Payment, Clearing, and
Settlement Supervision Act of 2010, 12 U.S.C. 5465(e)(1), and Rule
19b-4(n)(1)(i) under the Act, 17 CFR 240.19b-4(n)(1)(i). On August
13, 2020, FICC filed Amendment No. 1 to the advance notice to make
similar clarifications and corrections to the advance notice. A copy
of the advance notice, as modified by Amendment No. 1 (hereinafter,
the ``Advance Notice'') is available at http://www.dtcc.com/legal/sec-rule-filings.aspx.
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I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    The Proposed Rule Change consists of modifications to the FICC
Government Securities Division (``GSD'') Rulebook (``GSD Rules'') and
the FICC Mortgage-Backed Securities Division (``MBSD'') Clearing Rules
(``MBSD Rules,'' and together with the GSD Rules, ``Rules'') to
introduce the Margin Liquidity Adjustment (``MLA'') charge as an
additional component of GSD and MBSD's respective Clearing Funds, as
described in greater detail below.\5\
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    \5\ Capitalized terms not defined herein are defined in the GSD
Rules, available at http://www.dtcc.com/~/media/Files/Downloads/
legal/rules/ficc_gov_rules.pdf, and the MBSD Rules, available at
www.dtcc.com/~/media/Files/Downloads/legal/rules/
ficc_mbsd_rules.pdf.
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    This Proposed Rule Change also consists of modifications to the GSD
Rules, the MBSD Rules, the GSD Methodology Document--GSD Initial Market
Risk Margin Model (``GSD QRM Methodology Document'') and the MBSD
Methodology and Model Operations Document--MBSD Quantitative Risk Model
(``MBSD QRM Methodology Document,'' and together with the GSD QRM
Methodology Document, the ``QRM Methodology Documents'') in order to
(i) enhance the calculation of the VaR Charges of GSD and MBSD to
include a bid-ask spread risk charge, and (ii) make necessary technical
changes to the QRM Methodology Documents in order to implement this
proposed change.

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency 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 clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

1. Purpose
    FICC is proposing to enhance the methodology for calculating
Required Fund Deposits to the respective Clearing Funds of GSD and MBSD
by (1) introducing a new component, the MLA charge, which would be
calculated to address the risk presented to FICC when a Member's
portfolio contains large net unsettled positions in a particular group
of securities with a similar risk profile or in a particular
transaction type (referred to as ``asset groups''),\6\ and (2)
enhancing the calculation of the VaR Charges of GSD and MBSD by
including a bid-ask spread risk charge, as described in more detail
below.\7\
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    \6\ References herein to ``Members'' refer to GSD Netting
Members and MBSD Clearing Members, as such terms are defined in the
Rules. References herein to ``net unsettled positions'' refer to,
with respect to GSD, Net Unsettled Positions, as such term is
defined in GSD Rule 1 (Definitions) and, with respect to MBSD,
refers to the net positions that have not yet settled. Supra note 4.
    \7\ The results of a study of the potential impact of adopting
the proposed changes have been provided to the Commission.
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    FICC is also proposing to make certain technical changes to the QRM
Methodology Documents, as described in below, in order to implement the
proposed enhancement to the VaR Charges.
(i) Overview of the Required Fund Deposits and the Clearing Funds
    As part of its market risk management strategy, FICC manages its
credit

exposure to Members by determining the appropriate Required Fund
Deposits to the GSD and MBSD Clearing Fund and monitoring their
sufficiency, as provided for in the Rules.\8\ The Required Fund
Deposits serve as each Member's margin. The objective of a Member's
Required Fund Deposit is to mitigate potential losses to FICC
associated with liquidating a Member's portfolio in the event FICC
ceases to act for that Member (hereinafter referred to as a
``default'').\9\ The aggregate of all Members' Required Fund Deposits
constitutes the respective GSD and MBSD Clearing Funds. FICC would
access the GSD and MBSD Clearing Funds should a defaulting Member's own
Required Fund Deposit be insufficient to satisfy losses to FICC caused
by the liquidation of that Member's portfolio.
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    \8\ See GSD Rule 4 (Clearing Fund and Loss Allocation) and MBSD
Rule 4 (Clearing Fund Formula and Loss Allocation), supra note 4.
FICC's market risk management strategy is designed to comply with
Rule 17Ad-22(e)(4) under the Act, where these risks are referred to
as ``credit risks.'' 17 CFR 240.17Ad-22(e)(4).
    \9\ The Rules identify when FICC may cease to act for a Member
and the types of actions FICC may take. For example, FICC may
suspend a firm's membership with FICC or prohibit or limit a
Member's access to FICC's services in the event that Member defaults
on a financial or other obligation to FICC. See GSD Rule 21
(Restrictions on Access to Services), and MBSD Rule 14 (Restrictions
on Access to Services), of the Rules, supra note 4.
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    Pursuant to the Rules, each Member's Required Fund Deposit amount
consists of a number of applicable components, each of which is
calculated to address specific risks faced by FICC, as identified
within the Rules.\10\ The VaR Charge comprises the largest portion of a
Member's Required Fund Deposit amount. Currently, the GSD QRM
Methodology Document states that the total VaR Charge for each
portfolio is the sum of the sensitivity VaR of the portfolio plus the
haircut charges plus the repo interest volatility charges plus the
pool/TBA basis charge. In the MBSD QRM Methodology Document, the
current description of the total VaR Charge states that it is the sum
of the designated VaR Charge and the haircut charge.
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    \10\ Supra note 4.
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    The VaR Charge is calculated using a risk-based margin methodology
that is intended to capture the risks related to market price that is
associated with the securities in a Member's portfolio. This risk-based
margin methodology is designed to project the potential losses that
could occur in connection with the liquidation of a defaulting Member's
portfolio, assuming a portfolio would take three days to liquidate in
normal market conditions. The projected liquidation gains or losses are
used to determine the amount of the VaR Charge, which is calculated to
cover projected liquidation losses at 99 percent confidence level for
Members.\11\
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    \11\ Unregistered Investment Pool Clearing Members are subject
to a VaR Charge with a minimum target confidence level assumption of
99.5 percent. See MBSD Rule 4, Section 2(c), supra note 4.
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    FICC regularly assesses market and liquidity risks as such risks
relate to its margining methodologies to evaluate whether margin levels
are commensurate with the particular risk attributes of each relevant
product, portfolio, and market. The proposed changes to include the MLA
charge to its Clearing Fund methodology and to enhance the VaR Charges
by including a bid-ask spread risk charge, as described below, are the
result of FICC's regular review of the effectiveness of its margining
methodology.
(ii) Overview of Liquidation Transaction Costs and Proposed Changes
    Each of the proposed changes addresses a similar, but separate,
risk that FICC faces increased transaction costs when it liquidates the
net unsettled positions of a defaulted Member due to the unique
characteristics of that Member's portfolio. The transaction costs to
FICC to liquidate a defaulted Member's portfolio include both market
impact costs and fixed costs. Market impact costs are the costs due to
the marketability of a security, and generally increase when a
portfolio contains large net unsettled positions in a particular group
of securities with a similar risk profile or in a particular
transaction type, as described more below. Fixed costs are the costs
that generally do not fluctuate and may be caused by the bid-ask spread
of a particular security. The bid-ask spread of a security accounts for
the difference between the observed market price that a buyer is
willing to pay for that security and the observed market price that a
seller is willing to sell that security.
    The transaction cost to liquidate a defaulted Member's portfolio is
currently captured by the measurement of market risk through the
calculation of the VaR Charge.\12\ The proposed changes would
supplement and enhance the current measurement of this market risk to
address situations where the characteristics of the defaulted Member's
portfolio could cause these costs to be higher than the amount
collected for the VaR Charge.
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    \12\ The calculation of the VaR Charge is described in GSD Rule
1 (Definitions) and MBSD Rules 1 (Definitions). Supra note 4.
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    First, as described in more detail below, the MLA charge is
designed to address the market impact costs of liquidating a defaulted
Member's portfolio that may increase when that portfolio includes large
net unsettled positions in a particular group of securities with a
similar risk profile or in a particular transaction type. These
positions may be more difficult to liquidate because a large number of
securities with similar risk profiles could reduce the marketability of
those large net unsettled positions, increasing the market impact costs
to FICC. As described below, the MLA charge would supplement the VaR
Charge.
    Second, as described in more detail below, the bid-ask spread risk
charge would address the risk that the transaction costs of liquidating
a defaulted Member's net unsettled positions may increase due to the
fixed costs related to the bid-ask spread. As described below, this
proposed change would be incorporated into, and, thereby, enhance the
current measure of transaction costs through, the VaR Charge.
(iii) Proposed Margin Liquidity Adjustment Charge
    In order to address the risks of increased market impact costs
presented by portfolios that contain large net unsettled positions in
the same asset group, FICC is proposing to introduce a new component to
the GSD and MBSD Clearing Fund formulas, the MLA charge.
    As noted above, a Member portfolio with large net unsettled
positions in a particular group of securities with a similar risk
profile or in a particular transaction type may be more difficult to
liquidate in the market in the event the Member defaults because a
concentration in that group of securities or in a transaction type
could reduce the marketability of those large net unsettled positions.
Therefore, such portfolios create a risk that FICC may face increased
market impact cost to liquidate that portfolio in the assumed margin
period of risk of three business days at market prices.
    The proposed MLA charge would be calculated to address this
increased market impact cost by assessing sufficient margin to mitigate
this risk. As described below, the proposed MLA charge would be
calculated for different asset groups. Essentially, the calculation is
designed to compare the total market value of a net unsettled position
in a particular asset group, which FICC would be required to liquidate
in the

event of a Member default, to the available trading volume of that
asset group or equities subgroup in the market.\13\ If the market value
of the net unsettled position is large, as compared to the available
trading volume of that asset group, then there is an increased risk
that FICC would face additional market impact costs in liquidating that
position in the event of a Member default. Therefore, the proposed
calculation would provide FICC with a measurement of the possible
increased market impact cost that FICC could face when it liquidates a
large net unsettled position in a particular asset group.
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    \13\ FICC would determine average daily trading volume by
reviewing data that is made publicly available by the Securities
Industry and Financial Markets Association (``SIFMA''), at https://www.sifma.org/resources/archive/research/statistics.
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    To calculate the MLA charge, FICC would categorize securities into
separate asset groups. For GSD, asset groups would include the
following, each of which have similar risk profiles: (a) U.S. Treasury
securities, which would be further categorized by maturity--those
maturing in (i) less than one year, (ii) equal to or more than one year
and less than two years, (iii) equal to or more than two years and less
than five years, (iv) equal to or more than five years and less than
ten years, and (v) equal to or more than ten years; (b) Treasury-
Inflation Protected Securities (``TIPS''), which would be further
categorized by maturity--those maturing in (i) less than two years,
(ii) equal to or more than two years and less than six years, (iii)
equal to or more than six years and less than eleven years, and (iv)
equal to or more than eleven years; (c) U.S. agency bonds; and (d)
mortgage pools transactions. For MBSD, to-be-announced (``TBA'')
transactions, Specified Pool Trades and Stipulated Trades would be
included in one mortgage-backed securities asset group.
    FICC would first calculate a measurement of market impact cost with
respect to the net unsettled positions of a Member in each of these
asset groups. As described above, the calculation of an MLA charge is
designed to measure the potential additional market impact cost to FICC
of closing out a large net unsettled position in that particular asset
group.
    To determine the market impact cost for each net unsettled position
in Treasuries maturing less than one year and TIPS for GSD and in the
mortgage-backed securities asset group for MBSD, FICC would use the
directional market impact cost, which is a function of the net
unsettled position's net directional market value.\14\ To determine the
market impact cost for all other net unsettled positions, FICC would
add together two components: (1) The directional market impact cost, as
described above, and (2) the basis cost, which is based on the net
unsettled position's gross market value.\15\
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    \14\ The net directional market value of an asset group within a
portfolio is calculated as the absolute difference between the
market value of the long net unsettled positions in that asset
group, and the market value of the short net unsettled positions in
that asset group. For example, if the market value of the long net
unsettled positions is $100,000, and the market value of the short
net unsettled positions is $150,000, the net directional market
value of the asset group is $50,000.
    \15\ To determine the gross market value of the net unsettled
positions in each asset group, FICC would sum the absolute value of
each CUSIP in the asset group.
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    The calculation of market impact cost for net unsettled positions
in Treasuries maturing less than one year and TIPS for GSD and in the
mortgage-backed securities asset group for MBSD would not include basis
cost because basis risk is negligible for these types of positions.
    For all asset groups, when determining the market impact costs, the
net directional market value and the gross market value of the net
unsettled positions would be divided by the average daily volumes of
the securities in that asset group over a lookback period.\16\
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    \16\ Supra note 12.
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    FICC would then compare the calculated market impact cost to a
portion of the VaR Charge that is allocated to net unsettled positions
in those asset groups.\17\ If the ratio of the calculated market impact
cost to the 1-day VaR Charge is greater than a threshold, an MLA charge
would be applied to that asset group.\18\ If the ratio of these two
amounts is equal to or less than this threshold, an MLA charge would
not be applied to that asset group. The threshold would be based on an
estimate of the market impact cost that is incorporated into the
calculation of the 1-day VaR charge, such that an MLA charge would
apply only when the calculated market impact cost exceeds this
threshold.
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    \17\ FICC's margining methodology uses a three-day assumed
period of risk. For purposes of this calculation, FICC would use a
portion of the VaR Charge that is based on one-day assumed period of
risk and calculated by applying a simple square-root of time
scaling, referred to in this Proposed Rule Change as ``1-day VaR
Charge.'' Any changes that FICC deems appropriate to this assumed
period of risk would be subject to FICC's model risk management
governance procedures set forth in the Clearing Agency Model Risk
Management Framework (``Model Risk Management Framework''). See
Securities Exchange Act Release Nos. 81485 (August 25, 2017), 82 FR
41433 (August 31, 2017) (File No. SR-FICC-2017-014); 84458 (October
19, 2018), 83 FR 53925 (October 25, 2018) (File No. SR-FICC-2018-
010); 88911 (May 20, 2020), 85 FR 31828 (May 27, 2020) (File No. SR-
FICC-2020-004).
    \18\ FICC would review the method for calculating the thresholds
from time to time and any changes that FICC deems appropriate would
be subject to FICC's model risk management governance procedures set
forth in the Model Risk Management Framework. See id.
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    When applicable, an MLA charge for each asset group would be
calculated as a proportion of the product of (1) the amount by which
the ratio of the calculated market impact cost to the applicable 1-day
VaR charge exceeds the threshold, and (2) the 1-day VaR charge
allocated to that asset group.
    For each Member portfolio, FICC would add the MLA charges for net
unsettled positions in each asset group to determine a total MLA charge
for a Member.
    The ratio of the calculated market impact cost to the 1-day VaR
Charge would also determine if FICC would apply a downward adjustment,
based on a scaling factor, to the total MLA charge, and the size of any
adjustment. For net unsettled positions that have a higher ratio of
calculated market impact cost to the 1-day VaR Charge, FICC would apply
a larger adjustment to the MLA charge by assuming that it would
liquidate that position on a different timeframe than the assumed
margin period of risk of three business days. For example, FICC may be
able to mitigate potential losses associated with liquidating a
Member's portfolio by liquidating a net unsettled position with a
larger VaR Charge over a longer timeframe. Therefore, when applicable,
FICC would apply a multiplier to the calculated MLA charge. When the
ratio of calculated market impact cost to the 1-day VaR Charge is
lower, the multiplier would be one, and no adjustment would be applied;
as the ratio gets higher the multiplier decreases and the MLA charge is
adjusted downward.
    The final MLA charge would be calculated daily and, when the charge
is applicable, as described above, would be included as a component of
Members' Required Fund Deposit.
MLA Excess Amount for GSD Sponsored Members
    For GSD, the calculation of the MLA charge for a Sponsored Member
that clears through single account sponsored by a Sponsoring Member
would be the same as described above. For a GSD Sponsored Member that
clears through multiple accounts sponsored by multiple Sponsoring
Members, in addition to calculating an MLA charge for each account (as
described above), FICC would also calculate an MLA charge for the
consolidated portfolio.

    If the MLA charge of the consolidated portfolio is higher than the
sum of all MLA charges for each account of the Sponsored Member, the
Sponsored Member would be charged the amount of such difference, to be
referred to as the ``MLA Excess Amount,'' in addition to the applicable
MLA charge. If the MLA charge of the consolidated portfolio is not
higher than the sum of all MLA charges for each account of the
Sponsored Member, then the Sponsored Member will only be charged an MLA
charge for each sponsored account, as applicable.
    The MLA Excess Amount is designed to capture the additional market
impact cost that could be incurred when a Sponsored Member defaults,
and each of the Sponsoring Members liquidates net unsettled positions
associated with that defaulted Sponsored Member. If large net unsettled
positions in the same asset group are being liquidated by multiple
Sponsoring Members, the market impact cost to liquidate those positions
could increase. The MLA Excess Amount would address this additional
market impact cost by capturing any difference between the calculations
of the MLA charge for each sponsored account and for the consolidated
portfolio.
Proposed Changes to GSD and MBSD Rules
    The proposal described above would be implemented into the GSD
Rules and MBSD Rules. Specifically, FICC would amend GSD Rule 1
(Definitions) and MBSD Rule 1 (Definitions) to include a description of
the MLA charge.
    The proposed change to GSD Rule 1 (Definitions) would first
identify each of the asset groups and would then separately describe
the two calculations of market impact cost by these asset groups by
identifying the components of these calculations. The proposed
definition would state that GSD would compare the calculated market
impact cost to a portion of that Member's VaR Charge, to determine if
an MLA charge would be applied to an asset group. The proposed
definition would then state that GSD would add each of the applicable
MLA charges calculated for each asset group together. Finally, the
proposed definition would state that GSD may apply a downward adjusting
scaling factor to result in a final MLA charge. The proposed change to
GSD Rule 1 (Definitions) would also include a definition of the ``MLA
Excess Amount.'' The proposed definition would state that it would be
an additional charge applicable to Sponsored Members that clear through
multiple accounts sponsored by multiple Sponsoring Members and would
describe how the additional charge would be determined.
    The proposed change to MBSD Rule 1 (Definitions) would define the
MBS asset group, for purposes of calculating this charge, and would
then describe the calculation of market impact cost for that asst group
by identifying the components of this calculation. The proposed
definition would state that MBSD would compare the calculated market
impact cost to a portion of the Member's VaR Charge, to determine if an
MLA charge would be applied to a net unsettled position. Finally, the
proposed definition would state that MBSD may apply a downward
adjusting scaling factor to result in a final MLA charge.
    FICC would also amend GSD Rule 4 (Clearing Fund and Loss
Allocation) and MBSD Rule 4 (Clearing Fund and Loss Allocation) to
include the MLA charge as a component of the Clearing Fund formula.
(iv) Proposed Bid-Ask Spread Risk Charge
    FICC has identified potential risk that its margining methodologies
do not account for the transaction costs related to bid-ask spread in
the market that could be incurred when liquidating a portfolio. Bid-ask
spreads account for the difference between the observed market price
that a buyer is willing to pay for a security and the observed market
price that a seller is willing to sell that security. Therefore, FICC
is proposing to amend the VaR models of GSD and MBSD to include a bid-
ask spread risk charge in the VaR Charges of GSD and MBSD to address
this risk.
    In order to calculate this charge, GSD would segment Members'
portfolios into separate bid-ask spread risk classes by product type
and maturity. The bid-ask spread risk classes would be separated into
the following types: (a) Mortgage pools (``MBS''); (b) TIPS; (c) U.S.
agency bonds; and (d) U.S. Treasury securities, which would be further
segmented into separate classes based on maturities as follows: (i)
Less than five years, (ii) equal to or more than five years and less
than ten years, and (iii) equal to or more than ten years. FICC would
further segment the U.S. Treasury securities into separate classes
based on maturities.
    Only the MBS asset group is applicable to MBSD Member portfolios.
FICC would exclude Option Contracts in to-be-announced (``TBA'')
transactions from the bid-ask spread risk charge because, in the event
of a Member default, FICC would liquidate any Option Contracts in TBAs
in a Member's portfolio at the intrinsic value of the Option Contract
and, therefore, does not face a transaction cost related to the bid-ask
spread.
    Each product type and maturity risk class would be assigned a
specific bid-ask spread haircut rate in the form of a basis point
charge that would be applied to the gross market value in that
particular risk class. The applicable bid-ask spread risk charge would
be the product of the gross market value in a particular risk class in
the Member's portfolio and the applicable basis point charge. The bid-
ask spread risk charge would be calculated at the portfolio level, such
that FICC would aggregate the bid-ask spread risk charges of the
applicable risk classes for the Member's portfolio.
    FICC proposes to review the haircut rates annually based on either
the analysis of liquidation transaction costs related to the bid-ask
spread that is conducted in connection with its annual simulation of a
Member default or market data that is sourced from a third-party data
vendor. Based on the analyses from recent years' simulation exercises,
FICC does not anticipate that these haircut rates would change
significantly year over year. FICC may also adjust the haircut rates
following its annual model validation review, to the extent the results
of that review indicate the current haircut rates are not adequate to
address the risk presented by transaction costs from a bid-ask
spread.\19\
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    \19\ All proposed changes to the haircuts would be subject to
FICC's model risk management governance procedures set forth in the
Model Risk Management Framework. See id.
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    The proposed initial haircuts are based on the analysis from the
most recent annual default simulation and market data sourced from a
third-party data vendor, and are listed in the table below:

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                                                                                Haircut
                  Class                             Asset class                    Maturity              (bps)
----------------------------------------------------------------------------------------------------------------
MBS......................................  MBS.........................  All........................         0.8

TIPS.....................................  TIPS........................  All........................         2.1
Agency...................................  Agency bonds................  All........................         3.8
Treasury 5-..............................  Treasury....................  < 5 years..................         0.6
Treasury 5-10............................  Treasury....................  5-10 years.................         0.7
Treasury 10+.............................  Treasury....................  >10 years..................         0.7
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Proposed Changes to GSD and MBSD Rules
    The proposal described above would be implemented into the GSD
Rules and MBSD Rules. Specifically, FICC would include a description of
the bid-ask spread risk charge in the current definitions of the VaR
Charge in GSD Rule 1 (Definitions) and MBSD Rule 1 (Definitions). The
proposed change would state that the calculations the VaR Charge shall
include an additional bid-ask spread risk charge measured by
multiplying the gross market value of each net unsettled position by a
basis point charge. The proposed change would also state that the basis
point charge would be based on six risk classes and would identify
those risk classes.
Proposed Changes to QRM Methodology Documents
    To implement this proposal, FICC is proposing to amend the QRM
Methodology Documents to describe the bid-ask spread risk charge.
Specifically, FICC would describe (i) that the bid-ask spread risk
charge is designed to mitigate the risk related to transaction costs in
liquidating a portfolio in the event of a Member default; (ii) how the
bid-ask spread risk charge would be calculated; and (ii) the impact
analysis that was conducted in each of the QRM Methodology Documents.
The GSD QRM Methodology Document would describe the proposed six
classes (listed in the table above). The MBSD QRM Methodology Document
would state that the only class for MBSD portfolios is the MBS asset
class, and that the Option Contracts in TBAs would be excluded from the
proposed charge. Finally, FICC would update the descriptions of the
total VaR Charge in the QRM Methodology Documents to include the bid-
ask spread risk charge as a component of this charge.
(v) Proposed Technical Changes
    Finally, FICC would amend the QRM Methodology Documents to re-
number the sections and tables, and update certain section titles, as
necessary, to add a new section that describes the proposed bid-ask
spread risk charge.
(vi) Implementation Timeframe
    FICC would implement the proposed changes no later than 10 Business
Days after the later of the approval of the Proposed Rule Change and no
objection to the related advance notice \20\ by the Commission. FICC
would announce the effective date of the proposed changes by Important
Notice posted to its website.
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    \20\ Supra note 3.
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2. Statutory Basis
    FICC believes that the proposed changes are consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a registered clearing agency. In particular, FICC
believes the proposed changes are consistent with Section 17A(b)(3)(F)
of the Act,\21\ and Rules 17Ad-22(e)(4)(i) and (e)(6)(i), each
promulgated under the Act,\22\ for the reasons described below.
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    \21\ 15 U.S.C. 78q-1(b)(3)(F).
    \22\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i).
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    Section 17A(b)(3)(F) of the Act requires that the rules of FICC be
designed to, among other things, assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible.\23\ FICC believes the proposed change to
implement the MLA charge is designed to assure the safeguarding of
securities and funds which are in its custody or control or for which
it is responsible because it is designed to address the market impact
costs to FICC of liquidating a Member's portfolio in the event of that
Member's default. Specifically, the proposed MLA charge would allow
FICC to collect sufficient financial resources to cover its exposure
that it may face increased market impact costs in liquidating net
unsettled positions in a particular group of securities with a similar
risk profile or in a particular transaction type that are not captured
by the VaR Charge. Additionally, as described above, the proposed MLA
Excess Amount is designed to capture any additional market impact cost
that could be incurred when each of the Sponsoring Members liquidates
large net unsettled positions in securities of the same asset group
that are all associated with one defaulted Sponsored Member.
---------------------------------------------------------------------------

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

    The Clearing Fund is a key tool that FICC uses to mitigate
potential losses to FICC associated with liquidating a Member's
portfolio in the event of Member default. Therefore, the proposed
change to include the MLA charge among the Clearing Fund components,
when applicable, would enable FICC to better address the increased
market impact costs of liquidating net unsettled positions in a
particular group of securities with a similar risk profile or in a
particular transaction type, such that, in the event of Member default,
FICC's operations would not be disrupted and non-defaulting Members
would not be exposed to losses they cannot anticipate or control. In
this way, the Proposed Rule Change to implement the MLA charge is
designed to assure the safeguarding of securities and funds which are
in the custody or control of FICC or for which it is responsible,
consistent with Section 17A(b)(3)(F) of the Act.\24\
---------------------------------------------------------------------------

    \24\ Id.
---------------------------------------------------------------------------

    Additionally, FICC believes that the proposed change to amend the
VaR model of each of GSD and MBSD to include bid-ask spread risk charge
within Members' final VaR Charge would be designed to assure the
safeguarding of securities and funds that are in the custody or control
of FICC or for which it is responsible because the proposed change
would enable FICC to better limit its exposure to increased transaction
costs due to the bid-ask spread in the market when liquidating the a
defaulted Member's portfolio. FICC believes that including the above-
described bid-ask spread risk charge within the VaR Charges would
better ensure that FICC calculates and collects sufficient margin and,
thereby, better enable FICC to limit its exposure to these transaction
costs. By enabling FICC to limit its exposure to Members in this way,
the proposed change is designed to better ensure that, in the event of
a Member Default, FICC would have adequate margin from the defaulting
Member and non-defaulting Members would not be exposed to losses they
cannot anticipate or control.

In this way, the proposed change to include the bid-ask spread risk
charge within the calculation of the final VaR Charges of GSD and MBSD
would be designed to assure the safeguarding of securities and funds
which are in the custody or control of FICC or for which it is
responsible and therefore consistent with Section 17A(b)(3)(F) of the
Act.\25\
---------------------------------------------------------------------------

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

    FICC believes that the proposed technical changes described above
are designed to assure the safeguarding of securities and funds which
are in the custody and control of the clearing agency or for which it
is responsible, consistent with Section 17A(b)(3)(F) the Act.\26\ FICC
believes the proposed technical changes would also enhance the clarity
of the QRM Methodology Documents for FICC. Having clear and accurate
methodology documents, which describe how the bid-ask spread risk
charge would be calculated and that such bid-ask spread risk charge is
included within the calculation of the final VaR Charges of GSD and
MBSD, would help to ensure that FICC continues to accurately calculate
and assess margin and in turn, collect sufficient margin from its
Members and better enable FICC to limit its exposures to the risks
related to increased transaction costs due to the bid-ask spread in the
market that could be incurred when liquidating a portfolio. By better
enabling FICC to limit its exposure to Member's in this way, the
proposed change is designed to better ensure that, in the event of a
Member default, FICC would have adequate margin from the defaulting
Member and non-defaulting Members would not be exposed to losses they
cannot anticipate or control. In this way, the proposed technical
changes to the QRM Methodology Documents would be designed to assure
the safeguarding of securities and funds which are in the custody or
control of FICC or for which it is responsible and therefore consistent
with Section 17A(b)(3)(F) of the Act.\27\
---------------------------------------------------------------------------

    \26\ Id.
    \27\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(4)(i) under the Act requires, in part, that FICC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to effectively identify, measure,
monitor, and manage its credit exposures to participants and those
arising from its payment, clearing, and settlement processes, including
by maintaining sufficient financial resources to cover its credit
exposure to each participant fully with a high degree of
confidence.\28\
---------------------------------------------------------------------------

    \28\ 17 CFR 240.17Ad-22(e)(4)(i).
---------------------------------------------------------------------------

    As described above, FICC believes that both of the proposed changes
would enable it to better identify, measure, monitor, and, through the
collection of Members' Required Fund Deposits, manage its credit
exposures to Members by maintaining sufficient resources to cover those
credit exposures fully with a high degree of confidence.
    Specifically, FICC believes that the proposed MLA charge would
effectively mitigate the risks related to large net unsettled positions
of securities in the same asset group within a portfolio and would
address the potential increased risks FICC may face related to its
ability to liquidate such positions in the event of a Member default.
The proposed MLA Excess Amount would supplement this proposed charge to
capture any additional market impact cost related to Sponsored Members
that clear through multiple accounts with multiple Sponsoring Members.
    Therefore, FICC believes that the proposal would enhance FICC's
ability to effectively identify, measure and monitor its credit
exposures and would enhance its ability to maintain sufficient
financial resources to cover its credit exposure to each participant
fully with a high degree of confidence. As such, FICC believes the
proposed changes are consistent with Rule 17Ad-22(e)(4)(i) under the
Act.\29\
---------------------------------------------------------------------------

    \29\ Id.
---------------------------------------------------------------------------

    Additionally, FICC believes that the proposed bid-ask spread risk
charge would enhance FICC's ability to identify, measure, monitor and
manage its credit exposures to Members and those exposures arising from
its payment, clearing, and settlement processes because the proposed
changes would better ensure that FICC maintains sufficient financial
resources to cover its credit exposure to each Member with a high
degree of confidence. FICC believes that the proposed change would
enable FICC to more effectively identify, measure, monitor and manage
its exposures to risks related to market price, and enable it to better
limit its exposure to potential losses from Member defaults by
providing a more effective measure of the risks related to market
price. As described above, due to the bid-ask spread in the market,
there is an observable transaction cost to liquidate a portfolio. The
proposed bid-ask spread risk charge is designed to manage the risk
related to this transaction cost in the event a Member's portfolio is
liquidated. As such, FICC believes that the proposed change would
better address the potential risks that FICC may face that are related
to its ability liquidate a Member's net unsettled positions in the
event of that firm's default, and thereby enhance FICC's ability to
effectively identify, measure and monitor its credit exposures and
would enhance its ability to maintain sufficient financial resources to
cover its credit exposure to each participant fully with a high degree
of confidence. In this way, FICC believes this proposed change is also
consistent with Rule 17Ad-22(e)(4)(i) under the Act.\30\
---------------------------------------------------------------------------

    \30\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(6)(i) under the Act requires, in part, that FICC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum, considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 240.17Ad-22(e)(6)(i).
---------------------------------------------------------------------------

    The Required Fund Deposits are made up of risk-based components (as
margin) that are calculated and assessed daily to limit FICC's credit
exposures to Members, including the VaR Charges. FICC's proposed change
to introduce an MLA charge is designed to more effectively address the
risks presented by large net unsettled positions in the same asset
group. FICC believes the addition of the MLA charge would enable FICC
to assess a more appropriate level of margin that accounts for these
risks. This proposed change is designed to assist FICC in maintaining a
risk-based margin system that considers, and produces margin levels
commensurate with, the risks and particular attributes of portfolios
that contain large net unsettled positions in the same asset group and
may be more difficult to liquidate in the event of a Member default.
The proposed MLA Excess Amount would further this goal by measuring any
additional risks that could be presented by a Sponsored Member that
clears through multiple accounts at multiple Sponsoring Members.
Therefore, FICC believes the proposed change is consistent with Rule
17Ad-22(e)(6)(i) under the Act.\32\
---------------------------------------------------------------------------

    \32\ Id.
---------------------------------------------------------------------------

    Furthermore, FICC believes that including the bid-ask spread risk
charge within the calculation of the final VaR Charges of GSD and MBSD
would provide FICC with a better assessment of its risks related to
market price. This proposed change would enable FICC to assess a more
appropriate level of margin that accounts for this risk at the

portfolio level. As such, each Member portfolio would be subject to a
risk-based margining system that, at minimum, considers, and produces
margin levels commensurate with, the risks and particular attributes of
each relevant product, portfolio, and market, consistent with Rule
17Ad-22(e)(6)(i) under the Act.\33\
---------------------------------------------------------------------------

    \33\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    FICC believes that the proposed changes could have an impact on
competition. Specifically, FICC believes the proposed changes could
burden competition because they would result in larger Required Fund
Deposit amounts for Members when the additional charges are applicable
and result in a Required Fund Deposit that is greater than the amount
calculated pursuant to the current formula.
    When the proposal results in a larger Required Fund Deposit, the
proposed change could burden competition for Members that have lower
operating margins or higher costs of capital compared to other Members.
However, the increase in Required Fund Deposit would be in direct
relation to the specific risks presented by each Member's net unsettled
positions, and each Member's Required Fund Deposit would continue to be
calculated with the same parameters and at the same confidence level
for each Member. Therefore, Members that present similar net unsettled
positions, regardless of the type of Member, would have similar impacts
on their Required Fund Deposit amounts. As such FICC believes that any
burden on competition imposed by the proposed changes would not be
significant and, further, would be both necessary and appropriate in
furtherance of FICC's efforts to mitigate risks and meet the
requirements of the Act, as described in this filing and further below.
    FICC believes the above described burden on competition that may be
created by the proposed MLA charge and the bid-ask spread risk charge
would be necessary in furtherance of the Act, specifically Section
17A(b)(3)(F) of the Act.\34\ As stated above, the proposed MLA charge
is designed to address the market impact costs to FICC of liquidating a
Member's portfolio in the event of that Member's default. Specifically,
the proposed MLA charge would allow FICC to collect sufficient
financial resources to cover its exposure that it may face increased
market impact costs in liquidating net unsettled positions that are not
captured by the VaR Charge. Additionally, as described above, the
proposed MLA Excess Amount is designed to capture any additional market
impact cost that could be incurred when each of the Sponsoring Members
liquidates large net unsettled positions in securities of the same
asset group that are all associated with one defaulted Sponsored
Member. Likewise, the proposed bid-ask spread risk charge is designed
to help limit FICC's exposures to the increased transaction costs due
to the bid-ask spread in the market that could be incurred when
liquidating a Member's portfolio in the event of a Member default.
Therefore, FICC believes this proposed change is consistent with the
requirements of Section 17A(b)(3)(F) of the Act, which requires that
the Rules be designed to assure the safeguarding of securities and
funds that are in FICC's custody or control or which it is
responsible.\35\
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78q-1(b)(3)(F).
    \35\ Id.
---------------------------------------------------------------------------

    FICC believes these proposed changes would also support FICC's
compliance with Rules 17Ad-22(e)(4)(i) and Rule 17Ad-22(e)(6)(i) under
the Act, which require FICC to establish, implement, maintain and
enforce written policies and procedures reasonably designed to (x)
effectively identify, measure, monitor, and manage its credit exposures
to participants and those arising from its payment, clearing, and
settlement processes, including by maintaining sufficient financial
resources to cover its credit exposure to each participant fully with a
high degree of confidence; and (y) cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum, considers, and produces margin levels commensurate with, the
risks and particular attributes of each relevant product, portfolio,
and market.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i).
---------------------------------------------------------------------------

    As described above, FICC believes the introduction of the MLA
charge would allow FICC to employ a risk-based methodology that would
address the increased market impact costs that FICC could face when
liquidating net unsettled positions in a particular group of securities
with a similar risk profile or in a particular transaction type. The
proposed MLA Excess Amount would supplement this proposed charge to
capture any additional market impact cost related to Sponsored Members
that clear through multiple accounts with multiple Sponsoring Members.
Similarly, the proposed change to include the bid-ask spread risk
charge within the calculation of the VaR Charge would allow FICC to
employ a risk-based methodology that would better measure the
transaction costs that could be incurred in liquidating a defaulted
Member's portfolio. Therefore, the proposed changes would better limit
FICC's credit exposures to Members, consistent with the requirements of
Rules 17Ad-22(e)(4)(i) and Rule 17Ad-22(e)(6)(i) under the Act.\37\
---------------------------------------------------------------------------

    \37\ Id.
---------------------------------------------------------------------------

    FICC believes that the above described burden on competition that
could be created by the proposed changes would be appropriate in
furtherance of the Act because such changes have been appropriately
designed to assure the safeguarding of securities and funds which are
in the custody or control of FICC or for which it is responsible, as
described in detail above. The proposed MLA charge and the proposed
bid-ask spread risk charge would also enable FICC to produce margin
levels more commensurate with the risks and particular attributes of
each Member's portfolio.
    The proposed MLA charge and the MLA Excess Amount would do this by
measuring the increased market impact costs that FICC may face when
liquidating a defaulted Member's portfolio that includes net unsettled
positions in a particular group of securities with a similar risk
profile or in a particular transaction type. With respect to the
proposed bid-ask spread risk charge, a haircut (in the form of a basis
point charge that would be applied to the gross market value) would be
applied to separate risk classes in the portfolio. As described above,
for purposes of calculating this charge, the portfolio would be
segmented into separate risk classes, by asset group and maturity, and
a haircut would be applied to the gross market value of each group.
Therefore, because the proposed changes are designed to provide FICC
with an appropriate measure of the risks (i.e., risks related to both
market impact costs and transaction costs) presented by Members'
portfolios, FICC believes the proposal is appropriately designed to
meet its risk management goals and its regulatory obligations.
    FICC believes that it has designed the proposed changes in an
appropriate way in order to meet compliance with its obligations under
the Act. Specifically, the proposals would improve the risk-based
margining methodology that FICC employs to set margin requirements and
better limit FICC's credit exposures to its Members. Therefore, as
described above, FICC believes the proposed changes are necessary and
appropriate

in furtherance of FICC's obligations under the Act, specifically
Section 17A(b)(3)(F) of the Act \38\ and Rules 17Ad-22(e)(4)(i) and
Rule 17Ad-22(e)(6)(i) under the Act.\39\
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78q-1(b)(3)(F).
    \39\ 17 CFR 240.17Ad-22(e)(4)(i), (e)(6)(i).
---------------------------------------------------------------------------

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others

    FICC has not received or solicited any written comments relating to
this proposal. FICC will notify the Commission of any written comments
received by FICC.

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 up to 90 days (i) as the
Commission may designate 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.
    The proposal shall not take effect until all regulatory actions
required with respect to the proposal are completed.

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-FICC-2020-009 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549.
All submissions should refer to File Number SR-FICC-2020-009. 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 website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the Proposed Rule Change that are filed with
the Commission, and all written communications relating to the Proposed
Rule Change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of FICC and on DTCC's website
(http://dtcc.com/legal/sec-rule-filings.aspx). All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FICC-2020-009 and should be submitted on
or before September 10, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
J. Matthew DeLesDernier,
Assistant Secretary.

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

    \40\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2020-18199 Filed 8-19-20; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: May 26, 2010 (Volume 75, Number 101)]
[Notices]
[Page 29531-29533]
[DOCID:fr26my10-43]

=======================================================================
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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OW-2003-0019; FRL-9155-1]

Agency Information Collection Activities; Proposed Collection;
Comment Request; Clean Watersheds Needs Survey (Renewal); ICR No.
0318.12; OMB Control No. 2040-0050

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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

SUMMARY: In compliance with the Paperwork Reduction Act (PRA) (44
U.S.C. 3501 et seq.), this document announces that EPA is planning to
submit a request to renew an existing approved Information Collection
Request (ICR) to the Office of Management and Budget (OMB). This ICR is
scheduled to expire on January 31, 2011. Before submitting the ICR to
OMB for review and approval, EPA is soliciting comments on specific
aspects of the proposed information collection as described below.

DATES: Comments must be submitted on or before July 26, 2010.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-OW-
2003-0019, by one of the following methods:
     http://www.regulations.gov: Follow the online instructions
for submitting comments.
     E-mail<EMAIL_ADDRESS>     Fax:<PHONE_NUMBER>.
     Mail: Water Docket, Environmental Protection Agency,
Mailcode: 4104T, 1200 Pennsylvania Ave., NW., Washington, DC 20460.
     Hand Delivery: Docket at Public Reading Room, Room B102,
EPA West

Building, 1301 Constitution Avenue, NW., Washington, DC. Such
deliveries are only accepted during the Docket's normal hours of
operation, and special arrangements should be made for deliveries of
boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OW-2003-
0019. EPA's policy is that all comments received will be included in
the public docket without change and may be made available online at
http://www.regulations.gov, including any personal information
provided, unless the comment includes information claimed to be
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Do not submit information that you
consider to be CBI or otherwise protected through http://
www.regulations.gov, or e-mail. The http://www.regulations.gov Web site
is an ``anonymous access'' system, which means EPA will not know your
identity or contact information unless you provide it in the body of
your comment. If you send an e-mail comment directly to EPA without
going through http://www.regulations.gov, your e-mail address will be
automatically captured and included as part of the comment that is
placed in the public docket and made available on the Internet. If you
submit an electronic comment, EPA recommends that you include your name
and other contact information in the body of your comment and with any
disk or CD-ROM you submit. If EPA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EPA
may not be able to consider your comment. Electronic files should avoid
the use of special characters, any form of encryption, and be free of
any defects or viruses. For additional information about EPA's public
docket visit the EPA Docket Center homepage at http://www.epa.gov/
epahome/dockets.htm.

FOR FURTHER INFORMATION CONTACT: Michael Plastino, Municipal Support
Division, Office of Wastewater Management, Environmental Protection
Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460; phone
number:<PHONE_NUMBER>; fax number:<PHONE_NUMBER>; email address:
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

How can I access the docket and/or submit comments?

    EPA has established a public docket for this ICR under Docket ID
No. EPA-HQ-OW-2003-0019, which is available for online viewing at
http://www.regulations.gov,, or in person viewing at the Water Docket
in the EPA Docket Center (EPA/DC), EPA West, Room 3334, 1301
Constitution Ave., NW., Washington, DC. The EPA/DC Public Reading Room
is open from 8 a.m. to 4:30 p.m., Monday through Friday, excluding
legal holidays. The telephone number for the Reading Room is 202-566-
1744, and the telephone number for the Water Docket is<PHONE_NUMBER>.
    Use http://www.regulations.gov, to obtain a copy of the draft
collection of information, submit or view public comments, access the
index listing of the contents of the docket, and to access those
documents in the public docket that are available electronically. Once
in the system, select ``search,'' then key in the docket ID number
identified in this document.

What information is EPA particularly interested in?

    Pursuant to section 3506(c)(2)(A) of the PRA, EPA specifically
solicits comments and information to enable it to:
    (i) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the Agency,
including whether the information will have practical utility;
    (ii) Evaluate the accuracy of the Agency's estimate of the burden
of the proposed collection of information, including the validity of
the methodology and assumptions used;
    (iii) Enhance the quality, utility, and clarity of the information
to be collected; and
    (iv) Minimize the burden of the collection of information on those
who are to respond, including through the use of appropriate automated
electronic, mechanical, or other technological collection techniques or
other forms of information technology, e.g., permitting electronic
submission of responses. In particular, EPA is requesting comments from
very small businesses (those that employ less than 25) on examples of
specific additional efforts that EPA could make to reduce the paperwork
burden for very small businesses affected by this collection.

What should I consider when I prepare my comments for EPA?

    You may find the following suggestions helpful for preparing your
comments:
    1. Explain your views as clearly as possible and provide specific
examples.
    2. Describe any assumptions that you used.
    3. Provide copies of any technical information and/or data you used
that support your views.
    4. If you estimate potential burden or costs, explain how you
arrived at the estimate that you provide.
    5. Offer alternative ways to improve the collection activity.
    6. Make sure to submit your comments by the deadline identified
under DATES.
    7. To ensure proper receipt by EPA, be sure to identify the docket
ID number assigned to this action in the subject line on the first page
of your response. You may also provide the name, date, and Federal
Register citation.

What information collection activity or ICR does this apply to?

    Affected Entities: Entities potentially affected by this action are
state governments and publicly owned wastewater treatment facilities.
    Title: Clean Watersheds Needs Survey (CWNS) 2012 (Renewal).
    ICR numbers: EPA ICR No. 0318.12, OMB Control No. 2040-0050.
    ICR status: This ICR is currently scheduled to expire on January
31, 2011. An Agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information, unless it displays
a currently valid OMB control number. The OMB control numbers for EPA's
regulations in title 40 of the CFR, after appearing in the Federal
Register when approved, are listed in 40 CFR part 9, are displayed
either by publication in the Federal Register or by other appropriate
means, such as on the related collection instrument or form, if
applicable. The display of OMB control numbers in certain EPA
regulations is consolidated in 40 CFR part 9.
    Abstract: The Clean Watersheds Needs Survey (CWNS) is required by
Sections 205(a) and 516(b)(1) of the Clean Water Act (http://
www.epa.gov/cwns). It is a periodic inventory of existing and proposed
publicly owned wastewater treatment works (POTWs) and other water
pollution control facilities in the United States, as well as an
estimate of how many POTWs need to be built. The CWNS is a joint effort
of EPA and the States and Territories. The Survey records cost and
technical data associated with POTWs and other water pollution control
facilities, existing and proposed, in the United States. The State
respondents who provide this information to EPA are State agencies
responsible for environmental pollution control. No confidential
information is used, nor is sensitive information protected from
release under the Public Information Act. EPA achieves national
consistency in the final results through the

application of uniform guidelines and validation techniques.
    For CWNS 2012, EPA is offering States two options for
participating: (1) The Traditional Method and (2) the Gap Approach
Option. The Gap Approach Option enables a State to comprehensively
assess at the State level, for various facility size groupings,
wastewater facility revenues and capital and operation maintenance
(O&M) expenses over 20 years. This comprehensive facility economic
analysis supports State and EPA sustainable infrastructure programs.
The Traditional Method enables States to assess the capital needs for
each facility within the state. This spatially comprehensive assessment
of capital needs, along with current and projected populations
receiving various levels of wastewater treatment, supports holistic
watershed management approaches.
    Under the ``Traditional Method'' of documenting water pollution
control needs, states submit capital needs for all facilities in the
state:
     Wastewater Treatment Plants.
     Separate Sewer Systems.
     Combined Sewer Systems.
     Stormwater Management.
     Decentralized Wastewater Treatment.
     Nonpoint Source (NPS) Control.
    For each need, states submit one or more supporting documents
(Facility Plan, Engineer's Estimate, etc.). Revenue and operation and
maintenance (O&M) needs data are not collected in the Traditional
Method.
    Under the ``Gap Approach'' to documenting water pollution control
needs, states submit capital & O&M needs and revenues for a sample of
these facilities:
     Wastewater Treatment Plants.
     Separate Sewer Systems.
     Combined Sewer Systems.
    For these sampled facilities, revenues are submitted and asset
condition analysis data is used to estimate capital and O&M needs.
Results from the sample set of facilities are extrapolated to provide
State level estimates at 25% accuracy. Average sample rates
are:
     10-25% for facilities serving less than 10,000 people.
     30-60% for facilities serving between 10,000 and 100,000
people.
     100% (census survey) for the largest 3% of facilities in
each state.
    EPA is interested in comments and information on an alternate
sample design that would provide state level estimates at 10% accuracy. Under this alternative, average sample rates would
be:
     15-45% for facilities serving less than 10,000 people.
     35-80% for facilities serving between 10,000 and 100,000
people.
     100% (census survey) for the largest 3% of facilities in
each state.
    Since in CWNS the Gap Approach is only applicable to Wastewater
Treatment Plants, Separate Sewer Systems, and Combined Sewer Systems,
States selecting the Gap Approach will use the Traditional Method for
all other facilities (Stormwater Management, Decentralized Wastewater
Treatment, NPS Control).
    Burden Statement: The annual public reporting and recordkeeping
burden for this collection of information is estimated to average 1.55
hours per response. Burden means the total time, effort, or financial
resources expended by persons to generate, maintain, retain, or
disclose or provide information to or for a Federal agency. This
includes the time needed to review instructions; develop, acquire,
install, and utilize technology and systems for the purposes of
collecting, validating, and verifying information, processing and
maintaining information, and disclosing and providing information;
adjust the existing ways to comply with any previously applicable
instructions and requirements which have subsequently changed; train
personnel to be able to respond to a collection of information; search
data sources; complete and review the collection of information; and
transmit or otherwise disclose the information.
    The ICR provides a detailed explanation of the Agency's estimate,
which is only briefly summarized here:
    Frequency of response: Every 4 years.
    Estimated total number of potential respondents: 56 States (States,
District of Columbia, U.S. Territories) and 5,122 Local Facilities.
    Estimated total average number of responses for each State
respondent: 271.
    Estimated total annual State burden hours: 7,053.
    Estimated total average number of responses for each Local Facility
respondent: 5,122.
    Estimated total annual Local Facility burden hours: 2,031.
    Estimated total annual costs: $284,372 for States and $85,666 for
Local Facilities. These costs are all capital costs, there are no
maintenance and operational costs.

Are there changes in the estimates from the last approval?

    There is an increase of 277 hours in the total estimated respondent
burden compared with that identified in the ICR currently approved by
OMB. The 277 hour increase is the net result of a decrease of 182 State
burden hours combined with an increase of 459 hours in Local Facility
burden hours. These changes are estimated impacts of 10 States
selecting the Gap Approach Option. In this option, total state effort
is projected to decrease slightly due to the sampling design (the
greater State effort per facility is slightly more than offset by
entering data for a sampled portion of facilities rather than for all
facilities). For Local Facilities, the projected increased burden
results from the extra per facility effort being slightly more than the
burden saved by switching from a census to a sampling approach.

What is the next step in the process for this ICR?

    EPA will consider the comments received and amend the ICR as
appropriate. The final ICR package will then be submitted to OMB for
review and approval pursuant to 5 CFR 1320.12. At that time, EPA will
issue another Federal Register notice pursuant to 5 CFR
1320.5(a)(1)(iv) to announce the submission of the ICR to OMB and the
opportunity to submit additional comments to OMB. If you have any
questions about this ICR or the approval process, please contact the
technical person listed under FOR FURTHER INFORMATION CONTACT.

    Dated: May 20, 2010.
Sheila E. Frace,
Acting Director, Office of Wastewater Management.
[FR Doc. 2010-12651 Filed 5-25-10; 8:45 am]
BILLING CODE 6560-50-P


Department of Energy Washington, DC 20585 June 13, 2002 Elizabeth A. Cotsworth, Director Office of Solid Waste (5301W) U. S. Environmental Protection Agency 1200 Pennsylvania Avenue, N. W. Washington, D. C. 20460 Re: Petition for Treatability Variances From the Land Disposal Restrictions Treatment Standards Applicable to Certain Radioactively Contaminated Metal Containing Waste Batteries Dear Ms. Cotsworth:

The purpose of this letter is to request treatability variances, under 40 CFR 268.44( a), from the Resource Conservation and Recovery Act (RCRA) Land Disposal Restrictions (LDR) treatment standards for three waste streams managed at facilities owned by the U. S. Department of Energy (DOE): radioactively contaminated mercury containing waste batteries, radioactively contaminated cadmium containing waste batteries, and radioactively contaminated silver containing waste batteries.

Under the LDR program, a restricted waste must meet the applicable treatment standards before it can be land disposed. Such treatment standards are identified in 40 CFR 268.40 and are linked to restricted wastes by way of a waste code and a "waste description and treatment/ regulatory subcategory." For wastes that exhibit the Toxicity Characteristic (TC) for cadmium (D006 waste code), two subcategories are named: one applies in general to wastes exhibiting the TC for cadmium and the other applies to cadmium containing batteries. The radioactively contaminated cadmium containing waste batteries generated at DOE facilities are classified in the D006 Cadmium Containing Batteries Subcategory.

For wastes that exhibit the TC for mercury (D009 waste code), six subcategories are named for nonwastewaters. Most radioactively contaminated mercury containing waste batteries generated at DOE facilities are classified in the D009 High Mercury Inorganic Subcategory. For wastes that exhibit the TC for silver (D011 waste code), there are no regulatory subcategories. Thus, any radioactively contaminated silver containing waste batteries exhibiting the TC for silver that are managed at DOE facilities are subject to the general LDR treatment standards applicable to all D011 wastes exhibiting the TC for silver.

As the enclosed petition further explains, for the D006 Cadmium Containing Batteries Subcategory and the D009 High Mercury Inorganic Subcategory, the existing LDR treatment standards involve the use of high temperature treatment units to volatilize the hazardous metals and subsequently condense and collect them for reuse, leaving significantly reduced metal concentrations in the residuals. However, in the cases of radioactively contaminated mercury and cadmium containing waste batteries, the recovered metals would likely contain residual radioactive contamination. The Department is not aware of any metals recovery facility with the capability to treat such radioactively contaminated waste batteries. Accordingly, pursuant to 40 CFR 268.44( a)( 2), DOE 2 believes the LDR treatment standards applicable to these waste batteries are not appropriate.

For wastes in the D011 waste code, the existing LDR treatment standards require treatment to meet constituent concentration levels for silver and any underlying hazardous constituents. However, in the case of radioactively contaminated silver containing batteries within the DOE complex, which historically occur in small numbers and typically are commingled with other types of mixed waste batteries, meeting these standards could involve manually segregating the silver containing batteries from the commingled waste stream before treatment. Considering the potential increase in radiation exposure associated with such a segregation effort, DOE believes, pursuant to 40 CFR 268.44( a)( 2), that the existing D011 LDR treatment standard is not appropriate for radioactively contaminated, silver containing waste batteries.

A single petition is being submitted for the three LDR treatment variances because the circumstances causing the existing LDR treatment standards to be inappropriate for each radioactively contaminated, metal containing battery waste stream are related. Furthermore, the same specified technology [macroencapsulation (as defined in 40 CFR 268.45)] is proposed as the alternative LDR treatment standard for each of the waste streams. The petition proposes macroencapsulation as a protective alternative LDR treatment standard for these waste streams because metal containing waste batteries are similar to the types of materials that EPA has identified as inherently hazardous debris, for which EPA has already determined macroencapsulation to be an acceptable treatment technology.

In accordance with 40 CFR 260.20, DOE requests the Office of Solid Waste's consideration of the enclosed petition, and urges the Agency to approve the alternative LDR treatment standards proposed for these mixed waste batteries. If there are questions about the petition, or if you need additional information regarding these mixed waste batteries, please contact Bill Fortune of my staff at (202) 586 7302 or william. fortune@ eh. doe. gov.

Sincerely,

Andy Lawrence Director Office of Environmental Policy & Guidance Enclosure cc: J. Berlow, EPA, Office of Solid Waste (5302W) H. Davis, EPA, Office of Solid Waste (5302W) M. Gilbertson, DOE, Office of Basic and Applied Research (EM 52)