[Federal Register Volume 85, Number 39 (Thursday, February 27, 2020)]
[Notices]
[Pages 11437-11440]
[FR Doc No: 2020-03997]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88267; File No. SR-NSCC-2020-801]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of Advance Notice To Enhance the
Calculation of the Family-Issued Securities Charge

February 24, 2020.
    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 (``Clearing
Supervision Act'') \1\ and Rule 19b-4(n)(1)(i) under the Securities
Exchange Act of 1934 (``Act''),\2\ notice is hereby given that on
January 28, 2020, National Securities Clearing Corporation (``NSCC'')
filed with the Securities and Exchange Commission (``Commission'') the
advance notice SR-NSCC-2020-801 (``Advance Notice'') as described in
Items I, II and III below, which Items have been prepared by the
clearing agency.\3\ The Commission is publishing this notice to solicit
comments on the Advance Notice from interested persons.
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    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ On January 28, 2020, NSCC filed this Advance Notice as a
proposed rule change (SR-NSCC-2020-002) with the Commission pursuant
to Section 19(b)(1) of the Act, 15 U.S.C. 78s(b)(1), and Rule 19b-4
thereunder, 17 CFR 240.19b-4. A copy of the proposed rule change 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 Advance
Notice

    This Advance Notice consists of modifications to NSCC's Rules and
Procedures (``Rules'') \4\ in connection with a proposal to enhance the
calculation of NSCC's existing charge applied to long positions in
Family-Issued Securities \5\ (``FIS Charge'') by using the same haircut
percentages for all Members and no longer using Members' ratings on the
Credit Risk Rating Matrix (``CRRM'') \6\ in calculating this charge, as
described below.
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    \4\ Terms not defined herein are defined in the Rules, available
at www.dtcc.com/~/media/Files/Downloads/legal/rules/nscc_rules.pdf.
    \5\ A Family-Issued Security is defined in Rule 1 (Definitions
and Descriptions) of the Rules as ``a security that was issued by a
Member or an affiliate of that Member.'' Supra note 4.
    \6\ See Rule 1 and Section 4 of Rule 2B of the Rules, supra note
4. See also Securities Exchange Act Release Nos. 80734 (May 19,
2017), 82 FR 24177 (May 25, 2017) (SR-DTC-2017-002, SR-FICC-2017-
006, SR-NSCC-2017-002); and 80731 (May 19, 2017), 82 FR 24174 (May
25, 2017) (SR-DTC-2017-801, SR-FICC-2017-804, SR-NSCC-2017-801).
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Advance Notice

    In its filing with the Commission, the clearing agency included
statements concerning the purpose of and basis for the Advance Notice
and discussed any comments it received on the Advance Notice. 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 and B below, of the most significant aspects of such
statements.

(A) Clearing Agency's Statement on Comments on the Advance Notice
Received From Members, Participants, or Others

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

(B) Advance Notice Filed Pursuant to Section 806(e) of the Clearing
Supervision Act

Description of Proposed Changes
    NSCC is proposing to modify the Rules to enhance the calculation of
the FIS Charge by using the same haircut percentages for all Members
and no longer using Members' ratings on the CRRM in calculating this
charge. By using the same haircut percentages to calculate the FIS
Charge for all Members, NSCC believes this proposed enhancement would
better mitigate the specific wrong-way risk posed by long positions in
Family-Issued Securities that the charge was designed to address, as
described below.
Background
    As a central counterparty, NSCC occupies an important role in the
securities settlement system by interposing itself between
counterparties to financial transactions, thereby reducing the risk
faced by participants and contributing to global financial stability.
The effectiveness of a central counterparty's risk controls and the
adequacy of its financial resources are critical to achieving these
risk-reducing goals. As part of its market risk management strategy,
NSCC manages its credit exposure to Members by determining the
appropriate Required Fund Deposits to the Clearing Fund and monitoring
its sufficiency, as provided for in the Rules.\7\ The Required Fund
Deposit serves as each Member's margin.
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    \7\ See Rule 4 (Clearing Fund) and Procedure XV (Clearing Fund
Formula and Other Matters) of the Rules, supra note 4.
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    The objective of a Member's Required Fund Deposit is to mitigate
potential losses to NSCC associated with liquidating a Member's
portfolio in the event NSCC ceases to act for that Member (hereinafter
referred to as a ``default'').\8\ The aggregate of all Members'
Required Fund Deposits constitutes the Clearing Fund of NSCC.\9\ NSCC
may access its Clearing Fund should a defaulting Member's own Required
Fund Deposit be insufficient to satisfy losses to NSCC caused by the
liquidation of that Member's portfolio.\10\
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    \8\ The Rules identify when NSCC may cease to act for a Member
and the types of actions NSCC may take. For example, NSCC may
suspend a firm's membership with NSCC or prohibit or limit a
Member's access to NSCC's services in the event that Member defaults
on a financial or other obligation to NSCC. See Rule 46
(Restrictions on Access to Services) of the Rules, supra note 4.
    \9\ See Rule 4 (Clearing Fund) of the Rules, supra note 4.
    \10\ Id.
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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 NSCC, as identified
within Procedure XV of the Rules.\11\ NSCC regularly assesses the
market, liquidity and other risks that its margining methodologies are
designed to mitigate to evaluate whether margin levels are commensurate
with the particular risk attributes of each relevant product,
portfolio, and market.
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    \11\ Supra note 4.
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    Among the various risks that NSCC considers when evaluating the
effectiveness of its margining methodology are its counterparty risks,
including wrong-way risk. In particular, NSCC seeks to identify and
mitigate its exposures to specific wrong-way risk, which is defined as
the risk that an exposure to a counterparty is highly likely to
increase when the creditworthiness of that counterparty
deteriorates.\12\ NSCC has identified exposure to specific wrong-way
risk when it acts as central counterparty to a Member with long
positions in Family-Issued Securities. In the event a Member with long
positions in Family-Issued Securities defaults, NSCC would close out
those positions following a likely drop in the creditworthiness of the
issuer, possibly resulting in a loss to NSCC.
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    \12\ See Principles for financial market infrastructures, issued
by the Committee on Payment and Settlement Systems and the Technical
Committee of the International Organization of Securities
Commissions, pg. 47 n.65 (April 2012), available at http://www.bis.org/publ/cpss101a.pdf.
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    In order to address this exposure to specific wrong-way risk, NSCC

implemented the FIS Charge in 2015.\13\ The FIS Charge is applied to a
Member's long positions in Family-Issued Securities, which are the
positions NSCC would need to sell into the market following a Member
default.\14\
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    \13\ See Securities Exchange Act Release No. 76077 (October 5,
2015), 80 FR 61256 (October 9, 2015) (SR-NSCC-2015-003) (``Initial
FIS Filing'').
    \14\ Short positions in Family-Issued Securities are not subject
to the FIS Charge and are subject to the applicable volatility
charge, as provided for under the Rules. See Sections
I.(A)(1)(a)(iv) and I.(A)(2)(a)(iv) of Procedure XV (Clearing Fund
Formula and Other Matters) of the Rules, supra note 4.
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    When the FIS Charge was initially implemented, it was only applied
to Members that were placed on the Watch List based on the CRRM
rating.\15\ As part of its ongoing monitoring of its membership, NSCC
utilizes the internal CRRM to evaluate its credit risk exposures to its
Members based on a scale from strongest to weakest.\16\ Members that
fall within the higher risk rating categories are considered on NSCC's
Watch List and may be subject to enhanced surveillance or additional
margin charges, as permitted under the Rules.\17\ Therefore, the FIS
Charge was applied only to Members on the Watch List based on the
reasoning that these Members present a heightened credit risk to NSCC
or have demonstrated higher risk related to their ability to meet
settlement. However, in the Initial FIS Filing, NSCC proposed to
further evaluate its exposure to wrong-way risk presented by positions
in Family-Issued Securities by reviewing the impact of expanding the
application of the FIS Charge to positions in Family-Issued Securities
of all Members.\18\
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    \15\ See supra note 13.
    \16\ See supra note 6.
    \17\ Id.
    \18\ Supra note 13, at 61257.
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    Following that evaluation, NSCC implemented the current methodology
for calculating the FIS Charge, which expanded the application of the
charge to all Members, but continues to take into account Members'
ratings on the CRRM in calculating the applicable charge.\19\
Therefore, under the current methodology, in calculating its Members'
Required Fund Deposits, NSCC first excludes long positions in Family-
Issued Securities of Members from the applicable volatility charge, and
instead charges an amount calculated by multiplying the absolute value
of the long Net Unsettled Positions (as such term is defined in
Procedure XV of the Rules) in that Member's Family-Issued Securities by
a percentage that is no less than 40 percent.\20\ The percentage that
is used in calculating the FIS Charge depends on a Member's rating on
the CRRM. Under Procedure XV of the Rules, long Net Unsettled Positions
in (1) fixed income securities that are Family-Issued Securities are
charged a haircut rate of no less than 80 percent for Members that are
rated 6 or 7 on the CRRM, and no less than 40 percent for Members that
are rated 1 through 5 on the CRRM; and (2) equity securities that are
Family-Issued Securities are charged a haircut rate of 100 percent for
Members that are rated 6 or 7 on the CRRM, and no less than 50 percent
for Members that are rated 1 through 5 on the CRRM.\21\ The haircut
rates used in the FIS Charge as applied to positions in fixed income
securities were calibrated based on historical corporate issue recovery
rate data and address the risk that the Family-Issued Securities of a
Member would be devalued in the event of that Member's default.
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    \19\ See Securities Exchange Act Release Nos. 81550 (September
7, 2017), 82 FR 43061 (September 13, 2017) (SR-NSCC-2017-010); and
81545 (September 7, 2017), 82 FR 43054 (September 13, 2017) (SR-
NSCC-2017-804).
    \20\ See Sections I.(A)(1)(a)(iv) and I.(A)(2)(a)(iv) of
Procedure XV (Clearing Fund Formula and Other Matters) of the Rules,
supra note 4.
    \21\ Id.
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Proposed Change
    NSCC is now proposing to enhance the methodology for calculating
the FIS Charge by using the higher applicable percentage for all
Members, and no longer using a Member's CRRM rating in the calculation.
    Since implementation of the current calculation, NSCC has continued
to monitor its exposure to specific wrong-way risk and determined that
the risk characteristics to be considered when margining Family-Issued
Securities extend beyond Members' creditworthiness as measured through
the CRRM. More specifically, NSCC believes it may be exposed to
specific wrong-way risk despite a Members' rating on the CRRM, and NSCC
can better mitigate its exposure to this risk by calculating the FIS
Charge without considering Members' CRRM ratings. While the current
methodology appropriately assumes that Members with a higher rating on
the CRRM present a heightened credit risk to NSCC or have demonstrated
higher risk related to their ability to meet settlement, NSCC believes
this approach does not take into account the risk that a firm may
default due to unanticipated causes (referred to as a ``jump-to-
default'' scenario) not captured by the CRRM rating. The CRRM rating
necessarily relies on historical data as a predictor of future risks.
Jump-to-default scenarios are triggered by unanticipated causes that
could not be predicted based on historical trends or data, for example
fraud or other bad acts by management. The proposed change is designed
to improve NSCC's ability to cover the specific wrong-way risk posed by
long positions in Family-Issued Securities by applying the higher
applicable percentage in calculating the FIS Charge for all Members.
    In order to implement this proposal, NSCC would amend Sections
I.(A)(1)(a)(iv) and I.(A)(2)(a)(iv) of Procedure XV of the Rules, which
describe the methodology for calculating the FIS Charge, and provide
that (1) fixed income securities that are Family-Issued Securities
shall be charged a haircut rate of no less than 80 percent; and (2)
equity securities that are Family-Issued Securities shall be charged a
haircut rate of 100 percent.
Anticipated Effect on and Management of Risk
    NSCC believes that the proposed change to enhance the calculation
of the FIS Charge would improve the risk-based methodology NSCC employs
to measure market price risk and would better limit NSCC's credit
exposures to Members. Specifically, the proposed change would use the
higher applicable haircut percentage in calculating the FIS Charge for
all Members. These haircut percentages as applied to positions in fixed
income securities were calibrated to address the risk that the Family-
Issued Securities of a Member would be devalued in the event of that
Member's default. Therefore, the proposed FIS Charge would better
address NSCC's exposures to specific wrong-way risk with respect to all
Members' positions in Family-Issued Securities, particularly in jump-
to-default scenarios. By mitigating specific wrong-way risk for NSCC,
the proposed change would also mitigate risk for Members, because
lowering the risk profile for NSCC would in turn lower the risk
exposure that Members may have with respect to NSCC in its role as a
central counterparty. Further, the proposal is designed to meet NSCC's
risk management goals and its regulatory obligations, as described
below.
Consistency With the Clearing Supervision Act
    Although the Clearing Supervision Act does not specify a standard
of review for an advance notice, its stated purpose is instructive: To
mitigate systemic risk in the financial system and promote financial
stability by, among other things, promoting uniform risk management
standards for

systemically important financial market utilities and strengthening the
liquidity of systemically important financial market utilities.\22\
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    \22\ 12 U.S.C. 5461(b).
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    NSCC believes that the proposal is consistent with the Clearing
Supervision Act, specifically with the risk management objectives and
principles of Section 805(b), and with certain of the risk management
standards adopted by the Commission pursuant to Section 805(a)(2), for
the reasons described below.\23\
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    \23\ 12 U.S.C. 5464(a)(2) and (b).
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Consistency With Section 805(b) of the Clearing Supervision Act
    NSCC believes the proposal is consistent with Section 805(b) of the
Clearing Supervision Act because it would enhance the margin
methodology applied to long positions in Family-Issued Securities by
using the higher applicable percentage for all Members, rather than
considering Members' CRRM ratings in the calculation. The proposal
would improve NSCC's ability to mitigate specific wrong-way risk
exposures in a jump-to-default scenario and, in this way, would assist
NSCC in collecting margin that more accurately reflects NSCC's exposure
to a Member that clears Family-Issued Securities. The proposal would
also assist NSCC in its continuous efforts to improve the reliability
and effectiveness of its risk-based margining methodology by taking
into account specific wrong-way risk. As such, the proposal would help
NSCC, as a central counterparty, promote robust risk management, and
thus promote the prompt and accurate clearance and settlement of
securities transactions, as well as, in general, protect investors and
the public interest.
    In its critical role as a central counterparty, NSCC interposes
itself between counterparties to financial transactions, thereby
reducing the risk faced by its Members and contributing to global
financial stability. NSCC's liquidity risk management plays an integral
part in NSCC's ability to perform its role as a central counterparty.
Therefore, improving the reliability and effectiveness of its risk-
based margining methodology would be expected to also reduce systemic
risk in the financial system and would promote financial stability by
having a positive impact on the safety and soundness of the clearing
system.
    As a result, NSCC believes the proposal would be consistent with
the objectives and principles of Section 805(b) of the Clearing
Supervision Act, which specify the promotion of robust risk management,
promotion of safety and soundness, reduction of systemic risks and
support of the stability of the broader financial system.\24\
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    \24\ 12 U.S.C. 5464(b).
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Consistency With Section 805(a)(2) of the Clearing Supervision Act
    Section 805(a)(2) of the Clearing Supervision Act authorizes the
Commission to prescribe risk management standards for the payment,
clearing and settlement activities of designated clearing entities,
like NSCC, and financial institutions engaged in designated activities
for which the Commission is the supervisory agency or the appropriate
financial regulator.\25\ The Commission has accordingly adopted risk
management standards under Section 805(a)(2) of the Clearing
Supervision Act and Section 17A of the Act (``Covered Clearing Agency
Standards'').\26\
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    \25\ 12 U.S.C. 5464(a)(2).
    \26\ 17 CFR 240.17Ad-22(e).
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    The Covered Clearing Agency Standards require covered clearing
agencies to establish, implement, maintain, and enforce written
policies and procedures that are reasonably designed to meet certain
minimum requirements for their operations and risk management practices
on an ongoing basis.\27\ NSCC believes that the proposed change is
consistent with the Covered Clearing Agency Standards, in particular
Rules 17Ad-22(e)(4)(i),\28\ and (e)(6)(i) and (v),\29\ each promulgated
under the Act, for the reasons described below.
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    \27\ Id.
    \28\ 17 CFR 240.17Ad-22(e)(4)(i).
    \29\ 17 CFR 240.17Ad-22(e)(6)(i) and (v).
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    Rule 17Ad-22(e)(4)(i) under the Act requires that each covered
clearing agency 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.\30\ The specific wrong-way risk presented by Family-Issued
Securities is the risk that, in the event a Member with unsettled long
positions in Family-Issued Securities defaults, NSCC would close out
those positions following a likely drop in the credit-worthiness of the
issuer, possibly resulting in a loss to NSCC. The haircut rates used in
calculating the FIS Charge as applied to positions in fixed income
securities were calibrated based on historical corporate issue recovery
rate data, and, therefore, address the risk that the Family-Issued
Securities of a Member would be devalued in the event of that Member's
default. The proposal to apply the higher haircuts to all Members would
assist NSCC in addressing specific wrong-way risk exposures in a jump-
to-default scenario. By addressing this additional risk exposure, NSCC
believes the proposal would allow it to calculate the FIS Charge in a
way that more accurately reflects the risk characteristics of Family-
Issued Securities. The proposal would, therefore, permit NSCC to more
accurately identify, measure, monitor and manage its credit exposures
to Members with long positions in Family-Issued Securities, and would
assist NSCC in collecting and maintaining financial resources that
reflect its credit exposures to those Members. Therefore, NSCC believes
the proposed change is consistent with Rule 17Ad-22(e)(4)(i).\31\
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    \30\ 17 CFR 240.17Ad-22(e)(4)(i).
    \31\ Id.
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    Rule 17Ad-22(e)(6)(i) under the Act requires that each covered
clearing agency that provides central counterparty services 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.\32\ Rule 17Ad-22(e)(6)(v) under the Act requires that each
covered clearing agency that provides central counterparty services
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, uses an appropriate method for measuring credit exposure that
accounts for relevant product risk factors and portfolio effects across
products.\33\
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    \32\ 17 CFR 240.17Ad-22(e)(6)(i).
    \33\ 17 CFR 240.17Ad-22(e)(6)(v).
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    As stated above, long positions in Family-Issued Securities present
NSCC with exposure to specific wrong-way risk that, in the event a
Member with these positions defaults, NSCC would close out those
positions following a likely drop in the credit-worthiness of the
issuer, possibly resulting in a loss to NSCC. The haircut rates used in
the current methodology would continue to be used in the proposed
methodology

and as applied to positions in fixed income securities were calibrated
based on historical corporate issue recovery rate data and address the
risk that the Family-Issued Securities of a Member would be devalued in
the event of that Member's default. Therefore, the calculation of the
charge would continue to reflect the risk characteristics of Family-
Issued Securities. As described above, the proposed change to apply the
higher haircut rates to all Members would improve NSCC's ability to
mitigate its exposure to specific wrong-way risk in a jump-to-default
scenario. In this way, the proposal would assist NSCC in maintaining a
risk-based margin system that considers, and produces margin levels
commensurate with, the risks and particular attributes of long
positions in Family-Issued Securities. Additionally, NSCC believes the
proposed enhancement to the methodology for calculating the FIS Charge
is an appropriate method for measuring its credit exposures to its
Members, because the FIS Charge would continue to account for the risk
factors presented by these securities, i.e. the risk that these
securities would be devalued in the event of a Member default.
Therefore, NSCC believes the proposed change is consistent with Rule
17Ad-22(e)(6)(i) and (v).\34\
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    \34\ 17 CFR 240.17Ad-22(e)(6)(i) and (v).
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III. Date of Effectiveness of the Advance Notice, and Timing for
Commission Action

    The proposed change may be implemented if the Commission does not
object to the proposed change within 60 days of the later of (i) the
date that the proposed change was filed with the Commission or (ii) the
date that any additional information requested by the Commission is
received. The clearing agency shall not implement the proposed change
if the Commission has any objection to the proposed change.
    The Commission may extend the period for review by an additional 60
days if the proposed change raises novel or complex issues, subject to
the Commission providing the clearing agency with prompt written notice
of the extension. A proposed change may be implemented in less than 60
days from the date the advance notice is filed, or the date further
information requested by the Commission is received, if the Commission
notifies the clearing agency in writing that it does not object to the
proposed change and authorizes the clearing agency to implement the
proposed change on an earlier date, subject to any conditions imposed
by the Commission.
    The clearing agency shall post notice on its website of proposed
changes that are implemented.
    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 Advance
Notice is consistent with the Clearing Supervision 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-NSCC-2020-801 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-NSCC-2020-801. 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 Advance Notice that are filed with the
Commission, and all written communications relating to the Advance
Notice 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 NSCC 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-NSCC-2020-801 and should be submitted on
or before March 13, 2020.

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-03997 Filed 2-26-20; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: December 12, 2008 (Volume 73, Number 240)]
[Notices]
[Page 75808-75809]
[DOCID:fr12de08-130]

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DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

[Docket Number FRA-2006-25040]

Capital Metropolitan Transportation Authority; Notice of Public
Hearing

    On August 8, 2006, the Federal Railroad Administration (FRA)
published a notice (Notice) in the Federal Register announcing Capital
Metropolitan Authority's (CMTA) request for a waiver of compliance from
certain provisions of Title 49 of the Code of Federal Regulations (CFR)
for the operation of a new planned Commuter Rail Service (CRS) that
will share trackage with the Austin Area Terminal Railroad (AUAR), a
common carrier freight railroad. As explained in the Notice, CMTA is
constructing a 32-mile rail system (27 miles shared with AUAR) linking
the City of Leander, Texas, with downtown Austin, TX. CMTA plans to
utilize temporal separation of freight and passenger operations on the
shared trackage and a light rail style, non-FRA compliant Diesel-
Multiple Unit (DMU) vehicle in order to offer a `` `one seat ride'
operating on both the CMTA mainline and in city streets with tight
curvature.''
    As detailed in the Notice, CMTA seeks a waiver of compliance from
certain regulatory provisions of 49 CFR parts 219 (Control of Alcohol
and Drug Use), 221 (Rear end marking device), 223 (Safety glazing
standards), 225 (Railroad accident/incident reporting), 229 (Railroad
locomotive safety standards), 231 (Railroad safety appliance
standards), 238 (Passenger equipment safety standards), 239 (Passenger
train emergency preparedness) and 240 (Qualification and certification
of locomotive engineers).
    Noting that certain provisions in 49 CFR part 231 pertaining to
safety appliances are statutorily required, and therefore not subject
to FRA's waiver authority, CMTA also requests that FRA exercise its
authority under 49 U.S.C. 20306 to exempt CMTA from certain provisions
of Chapter 203, Title 49, of the United States Code because the ``CMTA
DMU vehicles will be equipped with their own array of safety devices
resulting in equivalent safety.'' Specifically, CMTA requests that for
purposes of its planned CRS system, FRA exempt it from the requirements
of 49 U.S.C. 20302 mandating that railroad vehicles be equipped with
(1) Handbrakes, (2) sill steps; and (3) side and end handholds.
    CMTA indicates that the DMU vehicles it plans to utilize for its
CRS service are equipped with automatic spring applied parking brakes,
as opposed to conventional hand brakes as required by Section 20302.
CMTA further indicates that the parking brakes will be controlled by
the one-person crew operating the vehicle from control stands within
the vehicle and that the parking brakes are capable of holding a
vehicle on a six percent grade at an 84.5 ton load. Accordingly, CMTA
states the parking brake of its DMU vehicles serves the same purpose of
a conventional hand brake, but in a manner that provides an equivalent
or superior level of safety.
    CMTA further indicates that sill steps (required by Section 20302)
are not necessary for safety on the DMU vehicles and would not enhance
the safety of the vehicles. Specifically, CMTA explains that the door
threshold of the vehicles is 23.5 inches above the top of the rail, and
such configuration renders still steps unnecessary.
    CMTA also indicates that side and end handholds (required by
Section 20302) are not necessary for safety on its DMU vehicles and in
fact, such appliances might present a safety hazard in the street-
running environment of its planned CRS system. Specifically, noting
that handholds are typically intended for use by crew members
performing yard and service duties, CMTA notes that its operations will
not involve any such activities from positions outside and adjacent to
the vehicle or near vehicle doors. Instead, CMTA indicates that yard
moves will be controlled from the control stand within the vehicle by
the on-board operator and switches will be hand thrown. Therefore, CMTA
notes that there is no need for personnel to mount or dismount the
vehicles using external appliances of any kind. Further, CMTA expresses
reservation about installing external handholds because of the street-
running characteristics of its planned CRS service noting that such
appliances would give pedestrians ``the opportunity to grab onto
something on the outside of the vehicle with the intention to hitch an
unlawful,'' and unsafe, ride.
    In accordance with 49 U.S.C. 20306, FRA may exempt CMTA from the
above statutory requirements based on evidence received and findings
developed at a hearing demonstrating that the statutory requirements
``preclude the development or implementation of more efficient railroad
transportation equipment or other transportation innovations under
existing law.'' Accordingly, in order to receive evidence and develop
findings to determine whether FRA should invoke its discretionary
authority under 49 U.S.C. 20306 in this instance, a public hearing is
scheduled to begin at 9 a.m. on Thursday, January 8, 2009, at the
Hilton Garden Inn located at 815 14th Street, NW., in Washington, DC.
Interested parties are invited to present oral statements at the
hearing. The hearing will be informal and will be conducted by a
representative designated by FRA in accordance with FRA's Rules of
Practice (49 CFR 211.25). The hearing will be a non-adversarial
proceeding; therefore, there will be no cross examination of persons
presenting statements. FRA representative will make an opening
statement outlining the scope of the hearing. After all initial
statements have been completed, those

persons wishing to make a brief rebuttal will be given the opportunity
to do so in the same order in which initial statements were made.
Additional procedures, as necessary for the conduct of the hearing,
will be announced at the hearing.
    The petitioners should be present at the hearing and prepared to
present evidence that any requirements of Chapter 203, title 49, United
States Code, for which exemption is sought to ``preclude the
development or implementation of more efficient railroad transportation
equipment or other transportation innovations under existing law.''

    Issued in Washington, DC on December 8, 2008.
Grady C. Cothen, Jr.,
Deputy Associate Administrator for Safety Standards and Program
Development.
[FR Doc. E8-29419 Filed 12-11-08; 8:45 am]

BILLING CODE 4910-06-P