MEMORANDUM

To: Paul Bolon, OSHA

From: Chet Fenton, ERG

Date: July 13, 2008

Subject: Data sources for OSHA’s regulatory impact assessments

OSHA regularly uses standard statistical information collected and
published by federal agencies to develop estimates of the numbers of
establishments, firms, and employees affected by OSHA standards. The
primary sources of this statistical information are summarized below.

Basic Profile Data

Economic Census (Bureau of the Census)

The Economic Census is conducted every five years and reports a range of
economic information on a disaggregated industry basis. The Census
provides four key statistics: number of establishments; value of sales,
shipments, receipts, revenue or business done, annual payroll and number
of employees. The Census also provides data about the number of
employees engaged in production occupations and about specialization of
firms by type of product produced. Economic Census statistics are
consistent with those published in Statistics of U.S. Businesses and
County Business Patterns (see below).

Statistics of U.S. Businesses (Bureau of the Census)

Statistics of U.S. Businesses (SUSB) is an annual series that provides
national and subnational economic data by enterprise size and industry.
SUSB covers most of the country's economic activity. The series excludes
data on nonemployer businesses, private households, railroads,
agricultural production, and most government entities. SUSB provides
comprehensive estimates at the 6-digit NAICS level of the number of
establishments, firms, and payroll, broken down by employment size of
firms. For census years (e.g., 2002), the SUSB also provides estimates
of annual receipts at the same level of industry and firm size
disaggregation. Because the SUSB provides estimates on a firm-size
basis, it is the standard source for the data needed to develop small
entity profiles and to analyze small-entity economic impacts.

Tabulations providing data by employment size of firm have been
assembled as far back as 1989. The comparability of data over time may
be affected by definitional changes in establishments, activity status,
and industrial classifications. Starting with the 2003 data year, data
from the Statistics of U.S. Businesses series are published on the basis
of the 2002 North American Industry Classification System (NAICS). Data
for 1998 through 2002 were published based on 1997 NAICS. Most changes
between 1997 NAICS and 2002 NAICS were minor, except within the
construction, wholesale trade, and information sectors.

Statistics of U.S. Businesses basic data items are extracted from the
Business Register, a file of all known single and multi-establishment
companies maintained and updated by the U.S. Census Bureau. The annual
Company Organization Survey provides individual establishment data for
multiestablishment companies. Data for single-establishment companies
are obtained from various Census Bureau programs, such as the Annual
Survey of Manufactures and Current Business Surveys, as well as from
administrative records of the Internal Revenue Service, the Social
Security Administration, and the Bureau of Labor Statistics.

In accordance with U.S. Code, Title 13, Section 9, no data are published
that would disclose the operations of an individual employer. However,
the number of firms and establishments in an industry classification and
the distribution of these establishments by employment-size class are
not considered to be disclosures. Therefore, this information may be
released even though other information (e.g., number of employees) is
withheld from publications.

All SUSB data are tabulated from universe files and are not subject to
sampling errors. However, the data are subject to nonsampling errors,
which can be attributed to many sources: inability to identify all cases
in the universe; definition and classification difficulties; differences
in interpretation of questions; errors in recording or coding the data
obtained; and estimation of employers who reported too late to be
included in the tabulations and for records with missing or misreported
data. The accuracy of the data is determined by the joint effects of the
various nonsampling errors. No direct measurement of these effects has
been obtained; however, precautionary steps were taken in all phases of
collection, processing, and tabulation to minimize the effects of
nonsampling errors.

Estimates of total employment, establishments, and payroll are
consistent with those published in County Business Patterns.

County Business Patterns (Bureau of the Census)

County Business Patterns (CBP) is an annual series that provides
subnational economic data by industry. The series is useful for studying
the economic activity of small areas; analyzing economic changes over
time; and as a benchmark for statistical series, surveys, and databases
between economic censuses. CBP provides annual estimates at the 6-digit
NAICS level of the numbers of establishments, employees, and annual
payroll in each industry. These estimates are further disaggregated by
the employment size of the establishment.

County Business Patterns covers most of the country's economic activity.
The series, however, excludes data on self-employed individuals,
employees of private households, railroad employees, agricultural
production employees, and most government employees.

This series has been published annually since 1964 and at irregular
intervals dating back to 1946. The comparability of data over time may
be affected by definitional changes in establishments, activity status,
and industrial classifications. Data from County Business Patterns are
currently published primarily according to the 2002 North American
Industry Classification System (NAICS).

County Business Patterns basic data items are extracted from the
Business Register, a file of all known single and multiestablishment
employer companies maintained and updated by the U.S. Census Bureau. The
annual Company Organization Survey provides individual establishment
data for multiestablishment companies. Data for single-establishment
companies are obtained from various Census Bureau programs, such as the
Annual Survey of Manufactures and Current Business Surveys, as well as
from administrative record sources.

CBP statistics are subject to the same confidentiality restrictions and
reliability considerations as discussed for the SUSB above. CBP
estimates for total employment, establishments, and payroll are
consistent with those published in the SUSB.

Occupational Employment Statistics (Bureau of Labor Statistics)

The Occupational Employment Statistics (OES) survey is the primary data
source for occupational employment statistics. OES data permit estimates
of the numbers of employees by detailed occupation disaggregated at the
4-digit NAICS industry level. OES also provide data on average and
median wage levels also disaggregated by occupation and industry.

The OES survey is a semiannual mail survey measuring occupational
employment and wage rates for wage and salary workers in nonfarm
establishments in the United States. OES estimates are constructed from
a sample of about 1.2 million establishments. Forms are mailed to
approximately 200,000 establishments in May and November of each year
for a 3-year period. The nationwide response rate for the May 2008
estimates is 78.2 percent based on establishments and 74.3 percent based
on employment. The survey included establishments sampled in the May
2008, November 2007, May 2007, November 2006, May 2006, and November
2005 semiannual panels.

The OES survey uses the Office of Management and Budget (OMB)
occupational classification system, the Standard Occupational
Classification (SOC) system. The OES survey categorizes workers into 801
detailed occupations. Together, these detailed occupations make up 22 of
the 23 major occupational groups. Military specific occupations are not
included in the OES survey.

The OES survey uses the North American Industry Classification System
(NAICS). The May 2008 estimates and survey data are based on the 2007
NAICS. Earlier panel data and estimates were based on the 2002 NAICS.
The OES survey covers all full- and part-time wage and salary workers in
nonfarm industries. The survey does not include the self-employed,
owners and partners in unincorporated firms, household workers, or
unpaid family workers.

Occupational employment is the estimate of total wage and salary
employment in an occupation across the industries surveyed. The OES
survey defines employment as the number of workers who can be classified
as full- or part-time employees, including workers on paid vacations or
other types of paid leave; workers on unpaid short-term absences;
salaried officers, executives, and staff members of incorporated firms;
employees temporarily assigned to other units; and employees for whom
the reporting unit is their permanent duty station regardless of whether
that unit prepares their paycheck.

Wage estimates from the OES are based on straight-time, gross pay,
exclusive of premium pay. Base rate, cost-of-living allowances,
guaranteed pay, hazardous-duty pay, incentive pay including commissions
and production bonuses, tips, and on-call pay are included. Excluded are
back pay, jury duty pay, overtime pay, severance pay, shift
differentials, nonproduction bonuses, employer cost for supplementary
benefits, and tuition reimbursements.

Estimates calculated from a sample survey are subject to two types of
error: sampling and nonsampling. Sampling error occurs when estimates
are calculated from a subset (that is, a sample) of the population
instead of the full population. When a sample of the population is
surveyed, there is a chance that the sample estimate of the
characteristic of interest may differ from the population value of that
characteristic. Nonsampling error occurs for a variety of reasons, none
of which are directly connected to sampling. Examples of nonsampling
error include: excessive nonresponse, data incorrectly reported by the
respondent, errors in the administrative data used to create the
sampling frame, data entry mistakes, and mistakes made in editing and
processing the collected data. Every attempt is made to minimize
nonsampling error through survey methods such as data editing,
imputation methods, and benchmarking of data to current employment
totals.

Other Profile Data

Receipts

Data on value of sales, shipments, receipts, or other business revenues
are available on a disaggregated industry level from the Economic Census
for census years (e.g., 1997, 2002, 2007, etc.) This value for revenues
is also included in the SUSB database for census years and is available
disaggregated by industry and by firm employment size. For non-census
years, OSHA estimates the level of revenues based on the ratio of
receipts to payroll for the most recent census year and the current
payroll level. This method assumes that the revenue-payroll ratio
remains basically unchanged from the previous census year.

Profit Rates

Profit rate statistics used in measuring the economic impact of OSHA
regulations are derived from financial statistics collected by the U.S.
Internal Revenue Service and published annually in the Corporation
Source Book. The IRS reports are based on a stratified statistical
sample of unaudited tax returns filed by corporations during each tax
year.  In 2006, this sample comprised approximately 104,000 returns
drawn from a universe of about 5.8 million active corporate returns
filed during the 2006 tax year.

The IRS data is available for all industry sectors and is disaggregated
on a level comparable to the 4-digit NAICS industry classification
system. OSHA estimates profit rates by calculating the ratio of the
totals for “net income (less deficit)” to “total receipts” as
shown in the income statement table for each industry as presented the
IRS Corporation Source Book publications. This statistic can be
calculated for each industry over an extended time period, permitting
the development of long-run profit measures.

For the present updates of OSHA RIA’s, OSHA is using the average
yearly profit rate for each industry over the 7-year period, 2000 to
2006, the most recent year for which IRS data are available. This time
period includes at the outset the previous business cycle contraction
and trough that occurred in November 2001, and covers much of the
expansion the preceded the recent peak of economic activity that
occurred in December of 2007.

The IRS profit rate statistics are superior to other profit statistics
data sources because they are based on statistical sampling,
comprehensively cover at a disaggregated level all industries
potentially subject to OSHA regulations, and are available on a
consistent basis over an extended time period.

Turnover Rates

Estimates of compliance costs for some OSHA regulatory requirements
(e.g. training) may depend on the number of newly hired or transferred
employees during any given period. Statistics on turnover rates by
industry are obtained from the Job Openings and Labor Turnover Survey
(JOLTS) conducted by the Bureau of Labor Statistics. The program
involves the monthly collection, processing, and dissemination of job
openings and labor turnover data. The data, collected from sampled
establishments on a voluntary basis, include employment, job openings,
hires, quits, layoffs and discharges, and other separations. JOLTS data
permit monthly and annual estimates of turnover rates on an aggregated
industry-sector basis.

Other Wage Data

The Bureau of Labor Statistics National Compensation Survey (NCS)
provides comprehensive measures of   HYPERLINK
"http://www.bls.gov/ncs/ocs/"  occupational wages ;   HYPERLINK
"http://www.bls.gov/ncs/ect/"  employment cost trends ,   HYPERLINK
"http://www.bls.gov/ncs/ebs/"  and benefit incidence  and detailed plan
provisions. Detailed occupational earnings are available for
metropolitan and non-metropolitan areas, broad geographic regions, and
on a national basis. The index component of the NCS, Employer Cost Index
(ECI), measures changes in labor costs. Average hourly employer cost for
employee compensation is presented in the Employer Cost for Employee
Compensation publication. These statistics permit the development of
adjustment factors to estimate the value of fringe benefits associated
with changes in labor requirements.

 Internal Revenue Service, Corporation Source Book of Statistics of
Income (annual).

 The tax year is defined to include accounting periods extending 12
months beyond the June 30th fiscal year end in each year.

 See National Bureau of Economic Research (NBER), Determination of the
December 2007 Peak in Economic Activity, December 12, 2208; and NBER
Press Release, July 17, 2003.

 PAGE

 PAGE   1


[Federal Register Volume 79, Number 62 (Tuesday, April 1, 2014)]
[Notices]
[Pages 18357-18364]
[FR Doc No: 2014-07187]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71804; File No. SR-NYSEArca-2013-141]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 2 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 2, To Adopt New NYSE
Arca Equities Rule 7.25 To Create a Crowd Participant Program on a
Pilot Basis To Incent Competitive Quoting and Trading Volume in
Exchange-Traded Products by Market Makers Qualified With the Exchange
as CPs

March 26, 2014.
    On December 6, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to adopt the Crowd Participant Program (``CP
Program'' or ``Program''), a one-year pilot program, to incent
competitive quoting and trading volume in exchange-traded products
(``ETPs'') by Market Makers qualified with the Exchange as Crowd
Participants (``CPs''). The proposed rule change was published for
comment in the Federal Register on December 26, 2013.\3\ The Commission
received no comment letters on the proposal. On February 5, 2014,
pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a
longer period within which to either approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\5\ On March
19, 2014, the Exchange submitted Amendment No. 2 to the proposed rule
change.\6\ The Commission is publishing this notice to solicit comments
on Amendment No. 2 from interested persons, and is approving the
proposed rule change, as modified by Amendment No. 2 thereto, on an
accelerated basis.\7\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 71146 (Dec. 19,
2013), 78 FR 78426 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ Securities Exchange Act Release No. 71479 (Feb. 5, 2014), 79
FR 8225 (Feb. 11, 2014). The Commission determined that it was
appropriate to designate a longer period within which to take action
on the proposed rule change so that it has sufficient time to
consider the proposed rule change. Accordingly, the Commission
designated March 26, 2014 as the date by which it should approve,
disapprove, or institute proceedings to determine whether to
disapprove the proposed rule change.
    \6\ Amendment No. 1 was filed by the Exchange on March 18, 2014
and withdrawn by the Exchange on March 19, 2014 due to a technical
error. In Amendment No. 2, the Exchange proposes to: (i) Change,
from two-million shares to one-million shares, the consolidated
average daily volume (``CADV'') threshold applicable to
participation eligibility in the proposed CP Program; (ii) change
the CP Program Fee (as described below) from a fixed amount of
$50,000 to a range of $50,000 to $100,000, as determined exclusively
by the issuer; and (iii) clarify that the CP Program Fee cannot be
refunded to an issuer.
    \7\ Today the Commission also is granting exemptive relief from
Rule 102 under Regulation M concerning the CP Program. See
Securities Exchange Act Release No. 71805 (Mar. 26, 2014) (Order
Granting a Limited Exemption from Rule 102 of Regulation M
Concerning the NYSE Arca, Inc.'s Crowd Participant Program Pilot).
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I. Description of the Amended Proposal

    As set forth in more detail in the Notice,\8\ the Exchange is
proposing to adopt new NYSE Arca Equities Rule 7.25 and to amend its
fee schedules to set forth the requirements for the CP Program, which
will be a voluntary one-year pilot program for issuers of certain ETPs
listed on the Exchange. The Exchange states that the CP Program is
designed to incentivize Market Makers \9\ qualified with the Exchange
as CPs \10\ to quote and trade in certain low-volume ETPs by offering
issuers an alternative fee program funded by participating issuers and
credited to CPs from the Exchange's general revenues.\11\ In addition,
the Exchange states that the Program is designed to add competition
among existing qualified Market Makers on the Exchange.\12\ The
Exchange states that the CP Program will offer an alternative to the
existing Lead Market Maker program on the Exchange and the ETP
Incentive Program (under NYSE Arca Equities Rule 8.800) \13\ for
issuers to consider when determining where to list their
securities.\14\ The Exchange states that under the voluntary CP
Program, multiple CPs would compete for daily rebates, which would be
funded from the Exchange's general revenues and offset by charging
issuers a non-refundable ``CP Program Fee,'' which would be credited to
the Exchange's general revenues.\15\
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    \8\ See Notice, supra note 3.
    \9\ A Market Maker is an Equity Trading Permit Holder that acts
as a Market Maker pursuant to NYSE Arca Equities Rule 7. See NYSE
Arca Equities Rule 1.1(v). An Equity Trading Permit Holder is a sole
proprietorship, partnership, corporation, limited liability company,
or other organization in good standing that has been issued an
Equity Trading Permit. See NYSE Arca Equities Rule 1.1(n).
    \10\ A ``Crowd Participant'' is defined as an Equity Trading
Permit Holder that: (1) Is qualified as a Market Maker, and in good
standing, on the Exchange; (2) electronically enters quotes and
orders into the systems and facilities of the Exchange; and (3) is
obligated to maintain a displayed bid or offer at the National Best
Bid (``NBB'') or the National Best Offer (``NBO''), respectively, in
each assigned ETP consistent with paragraph (g) of the proposed
rule. See proposed NYSE Arca Equities Rule 7.25(a).
    \11\ See Notice, supra note 3, at 78427.
    \12\ Id.
    \13\ See Securities Exchange Act Release No. 69706 (June 6,
2013), 78 FR 35340 (June 12, 2013) (SR-NYSEArca-2013-34).
    \14\ See Notice, supra note 3, at 78427.
    \15\ Id.
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A. Eligible Products; Issuer and CP Application Process

    An ETP will be eligible to participate in the CP Program if (i) it
is listed on the Exchange as of the commencement of the pilot period or
becomes listed during the pilot period; (ii) the listing is under NYSE
Arca Equities Rules 5.2(j)(3) (Investment Company Units), 5.2(j)(5)
(Equity Gold Shares), 8.100 (Portfolio Depositary Receipts), 8.200
(Trust Issued Receipts), 8.201 (Commodity-Based Trust Shares), 8.202
(Currency Trust Shares), 8.203 (Commodity Index Trust Shares), 8.204
(Commodity Futures Trust Shares), 8.300 (Partnership Units), 8.600
(Managed Fund Shares), or 8.700 (Managed Trust Securities); (iii) it is
neither participating in the ETP Incentive Program under Rule 8.800 nor
has a Lead Market Maker assigned to it; (iv) with respect to an ETP
that was listed on the Exchange before the commencement of the CP
Program, the ETP has a CADV of one million shares or less for at least
the preceding three months; and (v) if the ETP is added to the CP
Program after listing on the Exchange, it is compliant with continuing
listing standards.\16\
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    \16\ See proposed NYSE Arca Equities Rule 7.25(b). See also
Amendment No. 2, supra note 6.
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    An issuer that wishes to have an ETP participate in the CP Program
and pay the Exchange a non-refundable CP Program Fee will be required
to submit a written application in a form prescribed by the Exchange
for each

ETP.\17\ An issuer may apply to have its ETP participate at the time of
listing or thereafter at the beginning of each quarter during the pilot
period.\18\ The Exchange may, on a CP Program-wide basis, limit the
number of ETPs that any one issuer may have in the CP Program.\19\ In
addition, in order for its ETP to be eligible to participate in the CP
Program, an issuer must be current in all payments due to the
Exchange.\20\
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    \17\ See proposed NYSE Arca Equities Rule 7.25(c)(2). See also
Amendment No. 2, supra note 6.
    \18\ Id.
    \19\ Id.
    \20\ See proposed NYSE Arca Equities Rule 7.25(c)(1).
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    The Exchange will communicate the ETP(s) proposed for inclusion in
the CP Program on a written solicitation that will be sent to all
qualified CPs along with the CP Program Fee the issuer will pay the
Exchange for each ETP, which will be determined by the issuer based on
the range of fees set forth in the Exchange's Schedule of Fees and
Charges for Exchange Listing Services (``Listing Fee Schedule'').\21\
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    \21\ See proposed NYSE Arca Equities Rule 7.25(c)(3).
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    To qualify as a CP, an Exchange Trading Permit Holder must (i) be
qualified as a Market Maker, and in good standing, on the Exchange; and
(ii) have adequate information barriers between the business unit of
the Exchange Trading Permit Holder acting as a CP in a proprietary
capacity and the Exchange Trading Permit Holder's customer, research
and investment banking business, if any.\22\ To become a CP, an
Exchange Trading Permit Holder must submit a CP application form with
all supporting documentation to the Exchange.\23\ Exchange staff will
determine whether an applicant is qualified to become a CP based on the
qualifications described in the proposed rule and shall notify the
applicant of its decision.\24\ If an applicant is approved by the
Exchange to receive CP status, such applicant will be required to have
connectivity with relevant Exchange systems before it will be permitted
to quote and trade as a CP on the Exchange.\25\ If approved to receive
CP status, a CP shall be assigned to participating ETPs in the same
manner that Market Makers are currently assigned to securities listed
on the Exchange.\26\ If an applicant is disapproved by the Exchange,
the applicant may seek review under NYSE Arca Equities Rule 10.13 \27\
and/or reapply for CP status at least three calendar months following
the month in which the applicant received the disapproval notice from
the Exchange.\28\
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    \22\ See proposed NYSE Arca Equities Rule 7.25(d)(1).
    \23\ See proposed NYSE Arca Equities Rule 7.25(d)(2).
    \24\ See proposed NYSE Arca Equities Rule 7.25(d)(3)-(4).
    \25\ See proposed NYSE Arca Equities Rule 7.25(d)(5).
    \26\ Id. The Exchange does not anticipate placing a limit on the
number of CPs assigned to a particular ETP or on the number of ETPs
to which a particular CP would be assigned. See Notice, supra note
3, at 78429.
    \27\ NYSE Arca Equities Rule 10.13 provides the procedure for
persons aggrieved by certain actions taken by the Exchange to apply
for an opportunity to be heard and to have the action reviewed.
    \28\ See proposed NYSE Arca Equities Rule 7.25(d)(6).
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B. Disclosure Relating to the CP Program

    Pursuant to proposed NYSE Arca Equities Rule 7.25(c)(4), the
Exchange will provide notification on a dedicated page on its Web site
regarding: (i) The ETPs participating in the CP Program; (ii) the date
a particular ETP begins participating and ceases participating in the
CP Program; (iii) the date the Exchange receives written notice of an
issuer's intent to withdraw its ETP from the CP Program, or a CP's
intent to withdraw from its ETP assignment(s) in the CP Program, and,
in each case, the intended withdrawal date, if provided; (iv) the CPs
assigned to each ETP participating in the CP Program; and (v) the
amount of the CP Program Fee for each ETP. This page will also include
a fair and balanced description of the CP Program, including: (i) A
description of the CP Program's operation as a pilot, including the
effective date thereof; (ii) the potential benefits that may be
realized by an ETP's participation in the CP Program; (iii) the
potential risks that may be attendant with an ETP's participation in
the CP Program; (iv) the potential impact resulting from an ETP's entry
into and exit from the CP Program; and (v) how interested parties can
request additional information regarding the CP Program and/or the ETPs
participating therein.\29\
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    \29\ See proposed NYSE Arca Equities Rule 7.25(c)(4).
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    Under proposed NYSE Arca Equities Rule 7.25(c)(5), an issuer of an
ETP that is approved to participate in the CP Program will be required
to issue a press release to the public when an ETP commences or ceases
participation in the CP Program. The press release will be in a form
and manner prescribed by the Exchange, and if practicable, will be
issued at least two days before the ETP commences or ceases
participation in the CP Program.\30\ The issuer also will be required
to dedicate space on its Web site, or, if it does not have a Web site,
on the Web site of the adviser or sponsor of the ETP, to (i) include
any such press releases and (ii) provide a hyperlink to the dedicated
page on the Exchange's Web site that describes the CP Program.\31\
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    \30\ The issuer's press release will be required to include
language describing, for example, that while the impact of
participation in or exit from the CP Program, which is optional,
cannot be fully understood until objective observations can be made
in the context of the CP Program, potential impacts on the market
quality of the issuer's ETP may result, including with respect to
the average spread and average quoted size for the ETP. See Notice,
supra note 3, at 78429, n.13.
    \31\ See proposed NYSE Arca Equities Rule 7.25(c)(5). The
disclosure requirements set forth in the proposal would be in
addition to, and would not supersede, the prospectus disclosure
requirements under the Securities Act of 1933 or the Investment
Company Act of 1940. See Notice, supra note 3, at 78429, n.14.
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C. CP Program Fee

    An issuer (or sponsor on behalf of the issuer) of an ETP that is
participating in the CP Program will be required to pay the Exchange a
non-refundable ``CP Program Fee'' in accordance with the Exchange's
Listing Fee Schedule, which fee will be credited to the Exchange's
general revenues.\32\ The Exchange proposes to amend its Listing Fee
Schedule to provide that the CP Program Fee under NYSE Arca Rule 7.25
will be determined by the issuer within a range of $50,000-
$100,000.\33\ The CP Program Fee for each ETP will be paid by the
issuer to the Exchange in quarterly installments at the beginning of
each quarter and prorated if the issuer commences participation for an
ETP in the CP Program after the beginning of a quarter.\34\ If the ETP
has a sponsor, the sponsor may pay the CP Program Fee to the
Exchange.\35\ The CP Program Fee paid by an issuer will be credited to
the Exchange's general revenues.\36\ The issuer will not receive a
credit from the Exchange, even if the assigned CPs did not satisfy
their daily or monthly quoting requirements in any given month in such
quarter for the ETP.\37\ The precise amount of the CP Program

Fee to be paid for an ETP in the CP Program will be determined by the
issuer.\38\
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    \32\ See proposed NYSE Arca Equities Rule 7.25(e). See also
Amendment No. 2, supra note 6. An ETP shall not be permitted to
begin participation in the CP Program, and therefore will not be
charged the CP Program Fee, unless there are eligible CPs assigned
to such ETP. See Amendment No. 2, supra note 6.
    \33\ See proposed Listing Fee Schedule; see also Amendment No.
2, supra note 6. An issuer participating in the CP Program will
still be required to pay applicable listing and annual fees. See
Notice, supra note 3, at 78429, n.20.
    \34\ See proposed Listing Fee Schedule.
    \35\ Id. The term ``sponsor'' means the registered investment
adviser that provides investment management services to an ETP or
any of such investment adviser's parents or subsidiaries. Id.
    \36\ Id.
    \37\ Id. See also Amendment No. 2, supra note 6.
    \38\ See proposed Listing Fee Schedule; see also Amendment No.
2, supra note 6.
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D. CP Performance Measurement

    The Exchange will measure the performance of a CP in an assigned
ETP by calculating Size Event Tests (``SETs'') during Core Trading
Hours \39\ on every day on which the Exchange is open for business.\40\
The Exchange will measure the quoted displayed size at the NBB (NBO) of
each CP at least once per second to determine bid (offer) SETs (a ``Bid
(Offer) SET'').\41\ A CP will be considered to have a winning Bid
(Offer) SET (a ``Winning Bid (Offer) SET'') for a particular ETP if, at
the time of the SET, the CP: (i) Is quoting at least 500 shares of the
ETP at the NBB (NBO); (ii) has the greatest aggregate displayed size at
the NBB (NBO); and (iii) is quoting an offer (bid) of at least 100
shares at a price at or within 1.2% of the CP's best bid (offer).\42\
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    \39\ See NYSE Arca Equities Rule 1.1(j).
    \40\ See proposed NYSE Arca Equities Rule 7.25(f)(1).
    \41\ See proposed NYSE Arca Equities Rule 7.25(f)(2).
    \42\ See proposed NYSE Arca Equities Rule 7.25(f)(3).
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E. CP Quoting Requirements

    Each CP that is assigned to one or more ETPs in the CP Program will
be required to maintain continuous, two-sided displayed quotes or
orders in accordance with existing NYSE Arca Equities Rule 7.23(a)(1)
for each such ETP.\43\ In addition, CPs have additional daily and
monthly quoting requirements under the proposal. First, a CP must have
Winning Bid (Offer) SETs equal to at least 10% of the total Bid (Offer)
SETs on any trading day in order to meet its daily quoting requirement
and be eligible for the daily CP Payments for an ETP (described in the
Exchange's Schedule of Fees and Charges for Exchange Services
(``Trading Fee Schedule'')).\44\ Furthermore, a CP must have displayed
quotes or orders of at least 100 shares at the NBB (NBO) at least 10%
of the time that the Exchange calculates Bid (Offer) SETs to meet its
monthly quoting requirement.\45\ For purposes of meeting these daily
and monthly quoting requirements, CP quotes may be for the account of
the CP in either a proprietary capacity or a principal capacity on
behalf of an affiliated or unaffiliated person.\46\ For purposes of
measuring CP quoting, the Exchange will include all Market Maker quotes
and orders in assigned ETPs of an Equity Trading Permit Holder that is
a CP.\47\
---------------------------------------------------------------------------

    \43\ See proposed NYSE Arca Equities Rule 7.25(g)(1).
    \44\ See proposed NYSE Arca Equities Rule 7.25(g)(2).
    \45\ See proposed NYSE Arca Equities Rule 7.25(g)(3).
    \46\ See proposed NYSE Arca Equities Rule 7.25(g)(4). A CP's
quotes in a principal capacity could include quotes submitted to the
Exchange on behalf of customers or other unaffiliated or affiliated
persons. See Notice, supra note 3, at 78430, n.26.
    \47\ See proposed NYSE Arca Equities Rule 7.25(g)(4).
---------------------------------------------------------------------------

F. CP Payment

    Proposed NYSE Arca Equities Rule 7.25(h) provides that the Exchange
will credit a CP for a ``CP Payment'' from its general revenues in
accordance with the Exchange's Trading Fee Schedule.
    The Exchange proposes to amend its Trading Fee Schedule to specify
the amount of the total daily rebate, which would be an amount not to
exceed the CP Program Fee paid to the Exchange by an issuer under Rule
7.25, less a 5% Exchange administration fee, divided by the number of
trading days in the calendar year.\48\ Half of this amount will be
allocated to bid SETs and half will be allocated to offer SETs.\49\
---------------------------------------------------------------------------

    \48\ See proposed Trading Fee Schedule.
    \49\ Id.
---------------------------------------------------------------------------

    Furthermore, 70% of the bid (offer) SET amount will be credited to
the CP with the highest number of Winning Bid (Offer) SETs and 30% of
the bid (offer) SET amount will be credited to the CP with the second-
highest number of Winning Bid (Offer) SETs.\50\ If only one CP is
eligible for the bid (offer) SET amount, 100% of such rebate will be
provided to such CP.\51\ If more than two CPs have an equal number of
Winning Bid (Offer) SETs, the CP with the higher executed volume in the
ETP on the Exchange on the particular trading day will be awarded the
applicable daily CP Payment.\52\ A rebate will not be provided if no
eligible CPs exist (e.g., if CPs are assigned to the ETP but do not
satisfy the requirements to have a Winning Bid or Winning Offer).\53\
---------------------------------------------------------------------------

    \50\ Id.
    \51\ Id.
    \52\ Id.
    \53\ Id.
---------------------------------------------------------------------------

    The Exchange will credit a CP for the CP Payment at the end of each
month.\54\ If the ETP is withdrawn from the CP Program pursuant to
proposed Rule 7.25(i) (as described below) during the month, then the
CP will not be eligible for a CP Payment after the date of such
withdrawal.\55\ Furthermore, if an issuer does not pay its quarterly
installments to the Exchange on time and the ETP continues to be
included in the CP Program, the Exchange will continue to credit CPs in
accordance with the Exchange's Trading Fee Schedule.\56\
---------------------------------------------------------------------------

    \54\ Id.
    \55\ Id.
    \56\ Id.
---------------------------------------------------------------------------

G. Withdrawal

    The Exchange will withdraw an ETP from the CP Program upon request
from the issuer.\57\ If an ETP liquidates or suspends the redemption of
shares, it will be automatically withdrawn from the CP Program as of
the ETP liquidation or suspension date.\58\ An ETP will be
automatically removed from the CP Program if the issuer is not current
in all payments due to the Exchange after two consecutive quarters.\59\
Finally, if an ETP maintains a CADV of one million shares or more for
three consecutive months, it will be automatically withdrawn from the
CP Program within one month thereafter.\60\
---------------------------------------------------------------------------

    \57\ See proposed NYSE Arca Equities Rule 7.25(i)(2).
    \58\ See proposed NYSE Arca Equities Rule 7.25(i)(1).
    \59\ See proposed NYSE Arca Equities Rule 7.25(i)(3). Only the
ETP for which an issuer is not current in payments would be subject
to withdrawal. For example, if an issuer listed two ETPs on the
Exchange that participated in the CP Program and was current in
payments for one but not for the other, only the latter ETP would be
subject to withdrawal from the CP Program. See Notice, supra note 3,
at 78430, n.32.
    \60\ See proposed NYSE Arca Equities Rule 7.25(i)(4); see also
Amendment No. 2, supra note 6. If after such automatic withdrawal
the ETP fails to maintain a CADV of one million shares or more for
three consecutive months, the issuer of the ETP may reapply for the
CP Program one month thereafter. See proposed NYSE Arca Equities
Rule 7.25(i)(4).
---------------------------------------------------------------------------

    A CP that does not satisfy the monthly quoting requirement for
three consecutive months will be subject to the potential withdrawal of
its CP status.\61\ Any such withdrawal determinations would be for a
specific ETP.\62\ A CP can also initiate withdrawal from an ETP
assignment in the CP Program by giving notice to the Exchange.\63\ The
Exchange will effect such withdrawal as soon as practicable, but no
later than 30 days after the date the notice is received by the
Exchange.\64\ Such withdrawal can be for a specific ETP or for all ETPs
to which the CP is assigned.\65\
---------------------------------------------------------------------------

    \61\ See proposed NYSE Arca Equities Rule 7.25(j)(1).
    \62\ Id. For example, if a CP satisfied its monthly quoting
requirement for one ETP but not for another ETP that it was assigned
to, the CP would be subject to withdrawal for the latter ETP but not
the former. See Notice, supra note 3, at 78431, n.35.
    \63\ See proposed NYSE Arca Equities Rule 7.25(j)(2).
    \64\ Id.
    \65\ Id.

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H. Implementation of Pilot

    The CP Program will be offered to issuers from the date of
implementation, which will occur no later than 90 days after Commission
approval of the filing, until one calendar year after
implementation.\66\ During the pilot period, the Exchange will assess
the CP Program and may expand the criteria for ETPs that are eligible
to participate.\67\ At the end of the pilot period, the Exchange will
determine whether to continue or discontinue the CP Program or make it
permanent.\68\
---------------------------------------------------------------------------

    \66\ See Notice, supra note 3, at 78431.
    \67\ Id. The Commission notes that any modifications to the
terms of the proposal would require a rule filing with the
Commission pursuant to Section 19(b) of the Exchange Act and Rule
19b-4 thereunder.
    \68\ The Commission notes that any proposed continuance of the
CP Program or proposal to make the CP Program permanent would
require a rule filing with the Commission pursuant to Section 19(b)
of the Exchange Act and Rule 19b-4 thereunder.
---------------------------------------------------------------------------

    During the pilot period, the Exchange will provide the Commission
with certain market quality reports each month, which will also be
posted on the Exchange's Web site.\69\ Such reports will include the
Exchange's analysis regarding the CP Program and whether it is
achieving its goals,\70\ as well as market quality data such as, for
all ETPs listed as of the date of implementation of the CP Program and
listed during the pilot period (for comparative purposes, including
comparable ETPs that are listed on the Exchange but not participating
in the CP Program): volume (CADV and NYSE Arca average daily volume);
NBBO bid/ask spread differentials; CP participation rates; NYSE Arca
market share; CP time spent at the inside; CP time spent within $0.03
of the inside; percent of time NYSE Arca had the best price with the
best size; CP quoted spread; CP quoted depth; and Rule 605 statistics
(one-month delay).\71\ These reports will also compare, to the extent
practicable, ETPs before and after they are in the CP Program, and will
further provide data and analysis about the market quality of ETPs that
exceed the one million share CADV threshold and ``graduate,'' or are
otherwise withdrawn or terminated from, the CP Program.\72\ These
reports will also compare, to the extent practicable, the CP Program
against the ETP Incentive Program, including with respect to the
potential impact that one program may have on the other and how the
analysis described above with respect to the CP Program compares to the
Exchange's similar analysis with respect to the ETP Incentive
Program.\73\ In connection with the proposal, the Exchange will provide
other data and information related to the CP Program as may be
periodically requested by the Commission.\74\ In addition, the Exchange
states that issuers may utilize ArcaVision to analyze and replicate
data on their own.\75\
---------------------------------------------------------------------------

    \69\ See Notice, supra note 3, at 78431.
    \70\ The Exchange believes that an initial indicator of the
success of the CP Program will be the extent to which issuers elect
to have their ETPs participate therein, as well as the number of
Market Makers that choose to act as CPs. See Notice, supra note 3,
at 78431, n. 36.
    \71\ See Notice, supra note 3, at 78431.
    \72\ Id. See also Amendment No. 2, supra note 6.
    \73\ See Notice, supra note 3, at 78431.
    \74\ Id.
    \75\ Id. NYSE Arca provides ArcaVision free of charge to the
public via the Web site www.ArcaVision.com. According to the
Exchange, ArcaVision offers a significant amount of trading data and
market quality statistics for every Regulation NMS equity security
traded in the United States, including all ETPs. Publicly available
reports within ArcaVision, which include relevant comparative data,
are the Symbol Summary, Symbol Analytics, Volume Comparison and
Quotation Comparison reports, among others. In addition, users can
create the reports on a per[hyphen]symbol basis over a flexible time
frame and can also take advantage of predefined symbol sets based on
type of ETP or issuer. Users can also create their own symbol lists.
The Exchange states that ArcaVision allows an ETP issuer to see
additional information specific to its CPs and other Market Makers
in each ETP via the ``ArcaVision Market Maker Summary'' reporting
mechanism. Id. at 78431, n.37.
---------------------------------------------------------------------------

I. Surveillance

    The Exchange represents that its surveillance procedures will be
adequate to properly monitor the trading of ETPs participating in the
CP Program on the Exchange during all trading sessions and to detect
and deter violations of Exchange rules and applicable federal
securities laws.\76\ The Exchange states that trading of the ETPs
through the Exchange will be subject to the Financial Industry
Regulatory Authority's (``FINRA'') surveillance procedures for
derivative products including ETFs,\77\ and that the Exchange may
obtain information via the Intermarket Surveillance Group (``ISG'')
from other exchanges that are members or affiliates of the ISG; and
from issuers and public and non-public data sources such as, for
example, Bloomberg.\78\
---------------------------------------------------------------------------

    \76\ See Notice, supra note 3, at 78433.
    \77\ FINRA surveils trading on the Exchange, including ETP
trading, pursuant to a Regulatory Services Agreement (``RSA''). The
Exchange is responsible for FINRA's performance under this RSA. Id.
at 78432, n.39.
    \78\ Id. at 78433.
---------------------------------------------------------------------------

II. Discussion and Commission Findings

    The Commission has carefully considered the proposed rule change,
as modified by Amendment No. 2 thereto, and finds that the proposed
rule change, as modified by Amendment No. 2 thereto, is consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to national securities exchanges. In particular, as
discussed below, the Commission finds that the proposed rule change, as
modified by Amendment No. 2 thereto, is consistent with Section 6(b)(4)
of the Act,\79\ which requires that the rules of a national securities
exchange provide for the equitable allocation of reasonable dues, fees,
and other charges among its members and issuers and other persons using
its facilities, and with Section 6(b)(5) of the Act,\80\ which
requires, among other things, that the rules of a national securities
exchange be designed to promote just and equitable principles of trade,
to remove impediments to and perfect the mechanism of a free and open
market and a national market system, and, in general, to protect
investors and the public interest, and that the rules not be designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers. Further, as required by Section 3(f) of the Act, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation.\81\
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78f(b)(4).
    \80\ 15 U.S.C. 78f(b)(5).
    \81\ See 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The CP Program, as proposed to be implemented on a pilot basis, is
designed to enhance the market quality for certain lower volume ETPs
participating in the program by incentivizing Market Makers to take CP
assignments in such ETPs by offering an alternative fee structure for
such CPs. As proposed by the Exchange, each CP must comply with a
monthly quoting requirement in order to remain a CP, and must comply
with a daily quoting requirement in order to be eligible for the daily
CP Payments, which are higher than the standard quoting requirements
applicable to Market Makers on the Exchange. Specifically, in addition
to satisfying the requirements of NYSE Arca Equities Rule 7.23, with
respect to the daily quoting requirement, the CP with the greatest
aggregate size at the NBB or NBO at each SET will be considered to have
the Winning Bid (Offer) SET, provided the CP is quoting at least 500
shares of the ETP at the NBB (NBO) and is quoting at least 100 shares
on the other side of the market at a price at or within 1.2% of the
CP's best bid (offer). The CPs with the highest and second highest
number of Winning Bid (Offer) SETs each day will receive a portion of
the daily rebate, provided

that such CPs have Winning Bid (Offer) SETs equal to at least 10% of
the total Winning Bid (Offer) SETs on any trading day. With respect to
the monthly quoting requirement, a CP must be quoting at least 100
shares at the NBB or NBO at least 10% of the time that the Exchange is
calculating Bid (Offer) SETs. Thus, the proposal is designed to
incentivize both quoting frequency at the NBBO and quoted size at the
NBBO, by conditioning eligibility for CP status, eligibility for the
daily CP Payment, and allocation of the daily CP Payment on whether a
CP meets or exceeds various quoting requirements. In addition, the
Program is separately designed to incentivize CPs to compete with each
other to receive the CP Payments, as only the eligible CPs with the
highest and second highest numbers of Winning Bid (Offer) SETs will
receive a portion of the daily CP Payment, and if more than two CPs
have an equal number of Winning Bid (Offer) SETs, the CP with the
higher executed volume in the ETP on the Exchange on the particular
trading day will be awarded the applicable portion of the daily CP
Payment. As a result, the proposal has the potential to improve the
market quality of the ETPs that participate in the CP Program by
encouraging CPs to provide liquidity in such ETPs consistent with the
performance standards. This potential improved market quality, were it
to occur, could benefit investors in the form of enhanced liquidity,
narrowed spreads, and reduced transaction costs.
    In addition, because the quoted bid-ask spread in a security
represents one of the main drivers of transaction costs for investors,
and because high price volatility should generally deter investors from
trading low-liquidity ETPs, the CP Program, were the potential benefits
of the program to occur, should facilitate a more-efficient and less-
uncertain trading environment for investors.\82\ Furthermore, were the
potential benefits of the CP Program to occur, improving the liquidity
of certain low-volume ETPs may lead to both an overall increase in ETP
trading volume and a redistribution of trading volume toward lower-
volume ETPs that would not otherwise attract sufficient liquidity to
successfully participate in the market.
---------------------------------------------------------------------------

    \82\ Transaction costs are generally defined as the penalty that
an investor pays for transacting. Transaction costs have four
components: Commissions; bid/ask spread; market impact; and
opportunity cost. See Grinold, Kahn. Active Portfolio Management,
Second Edition, Chapter 16. An increase in bid-ask spreads will
inevitably increase the transaction costs of an investor. In
addition, transactions in low-liquidity securities have a higher
market impact when compared to other more liquid securities. See
Albert Kyle's (1985) measure of market impact (Kyle's Lambda),
defining an inverse relationship between volume and price impact.
Therefore, the lower the volume of the ETP or stock, the higher the
market impact of any transaction in that stock. This last effect
acts as a disincentive to trading that security. Therefore, an
environment where an ETP trades more often and with a larger number
of shares will reduce transaction costs both through the narrowing
of spreads and lower market impact.
---------------------------------------------------------------------------

    While the Commission believes that the CP Program has the potential
to improve market quality of the ETPs participating in the Program, the
Commission is concerned about unintended consequences of the CP
Program. For example, the CP Program could have the potential to
distort market forces because the CP Program may act to artificially
influence trading in ETPs that otherwise would not be traded.
Similarly, the Commission recognizes concerns about the potential
negative impact on an ETP participating in the Program, such as reduced
liquidity and wider spreads, when an ETP is withdrawn or terminated
from the CP Program. While the Commission is mindful of these concerns,
the Commission believes, for the reasons described below, that certain
aspects of the CP Program could help mitigate these concerns.
    First, the proposal contains disclosure provisions that will help
to alert and educate potential and existing investors in the ETPs
participating in the Program about the Program. Specifically, the
Exchange will disclose on its Web site the following information: (i)
The ETPs participating in the CP Program and the CPs assigned to each
participating ETP; (ii) the date a particular ETP begins participating
or ceases participating in the CP Program; (iii) the date the Exchange
receives written notice of an issuer's intent to withdraw its ETP from
the CP Program, or a CP's intent to withdraw from its ETP assignment(s)
in the CP Program, and, in each case, the intended withdrawal date, if
provided; and (iii) the amount of the CP Program Fee for each ETP. The
Exchange also will include on its Web site a fair and balanced
description of the CP Program, including a description of the potential
benefits and risks that may be attendant with an ETP's participation in
the Program. Furthermore, an issuer of an ETP that is approved to
participate in the CP Program will be required to issue a press release
to the public when an ETP commences or ceases participation in the CP
Program, to post such press release on its Web site, and to provide on
its Web site a hyperlink to the Exchange's Web page describing the CP
Program. This disclosure will help to inform investors and other market
participants which ETPs are participating in the CP Program, which CPs
are assigned to each ETP, the amount of CP Program Fee an issuer will
incur as a result of participating in the CP Program, the amount of the
daily CP Payments that CPs may be eligible to receive from the Exchange
under the CP Program, and the potential benefits and risks of the
Program. A wide variety of ETPs are currently listed and trading today,
and the Commission believes that such disclosure could be helpful for
investors and other market participants to discern which ETPs listed on
the Exchange are and are not subject to the CP Program and to make
informed investment decisions with respect to ETPs.\83\
---------------------------------------------------------------------------

    \83\ The concurrent exemptive relief the Commission is issuing
today from Rule 102 under Regulation M concerning the CP Program
also contains additional disclosure requirements. See Securities
Exchange Act Release No. 71805 (Mar. 26, 2014), supra note 7.
---------------------------------------------------------------------------

    Second, the CP Program is targeted at a subset of ETPs, namely
those ETPs that are generally less liquid and which the Exchange
believes might benefit most from the CP Program. Specifically, as
proposed, ETPs that are otherwise eligible for the CP Program will not
be eligible if they have a CADV of more than 1,000,000 shares for three
consecutive months. Likewise, the CP Program will terminate with
respect to a particular ETP if the ETP sustains a CADV of 1,000,000
shares or more for three consecutive months.
    Finally, as proposed by the Exchange, the CP Program will be
limited to a one-year pilot. The Commission believes that it is
important to implement the CP Program as a pilot. Operating the CP
Program as a pilot will allow assessment of whether the Program is in
fact achieving its goal of improving the market quality of ETPs by
increasing the supply of Market Makers seeking to take on CP
assignments in ETPs, prior to any proposal or determination to make the
program permanent.\84\ In addition, approval on a pilot basis will
allow the assessment, prior to any proposal or determination to make
the Program permanent, of whether the Program has any unintended impact
on the participating ETPs, securities not participating in the Program,
or the market or market participants generally.
---------------------------------------------------------------------------

    \84\ The Exchange would be required to file with the Commission
any proposal to extend the CP Program beyond the pilot period or to
make the program permanent pursuant to Section 19(b) of the Exchange
Act and the rules and regulations thereunder. Such a filing would be
published for comment in the Federal Register pursuant to Section
19(b) and Rule 19b-4.
---------------------------------------------------------------------------

    The Exchange has represented that during the pilot it will submit
monthly reports to the Commission about market quality in respect of
the CP Program and

that these reports will be posted on the Exchange's public Web site.
The Exchange has represented that such reports will include the
Exchange's analysis regarding the CP Program and whether it is
achieving its goals, as well as market quality data for all ETPs listed
as of the date of implementation of the CP Program and listed during
the pilot period (for comparative purposes, including comparable ETPs
that are listed on the Exchange but not participating in the CP
Program) such as volume (CADV and NYSE Arca average daily volume), NBBO
bid/ask spread differentials, CP participation rates, NYSE Arca market
share, CP time spent at the inside, CP time spent within $0.03 of the
inside, percent of time NYSE Arca had the best price with the best
size, CP quoted spread, CP quoted depth, and Rule 605 statistics (one-
month delay). In addition, the Exchange has represented that it will
provide in the monthly public report to the Commission data and
analysis on the market quality of ETPs after they exceed the one
million CADV threshold and ``graduate'' from the Program or are
otherwise withdrawn or terminated from the Program. The Exchange has
also represented that the monthly public reports to the Commission will
also compare the CP Program against the ETP Incentive Program,
including with respect to the potential impact that one program may
have on the other and how the analysis described above with respect to
the CP Program compares to the Exchange's similar analysis with respect
to the ETP Incentive Program. The Exchange also has represented that it
will provide to the Commission any other data and information related
to the CP Program as may be periodically requested by the Commission in
connection with the proposal. Furthermore, the Exchange has represented
that issuers may utilize ArcaVision to analyze and replicate data on
their own.\85\ This information will help the Commission, the Exchange,
and other interested persons to evaluate whether the CP Program has
resulted in the intended benefits it is designed to achieve, any
unintended consequences resulting from the CP Program, and the extent
to which the CP Program alleviates or aggravates the concerns the
Commission has noted, including previously-stated Commission concerns
relating to issuer payments to market makers.\86\
---------------------------------------------------------------------------

    \85\ See supra note 75 and accompanying text.
    \86\ See infra notes 88-91 and accompanying text.
---------------------------------------------------------------------------

    For example, the Exchange and the Commission will look to assess
what impact, if any, there is on the market quality of ETPs that
withdraw or are otherwise terminated from the CP Program. One way for
an ETP to be terminated from the CP Program is if it exceeds the
1,000,000 CADV threshold included within the rules. The Commission
recognizes that the CP Program may not, in the one-year pilot period,
produce sufficient data (i.e., a large number of ETPs that enter and
exit the Program) to allow a full assessment of whether termination (or
withdrawal) of an ETP from the Program has resulted in any unintended
consequences on the market quality of the ETP or otherwise. However,
the Commission believes that the proposal strikes a reasonable balance
between (i) setting the threshold for ``graduation'' from the CP
Program high enough to encourage participation in the Program and (ii)
setting the threshold low enough to have a sufficient number of ETPs
graduate from the CP Program within the pilot period so that the
Exchange, the Commission, and other interested persons can assess the
impact, if any, of the CP Program, including ``graduation'' of ETPs
from the Program.
    Furthermore, the pilot structure of the CP Program will provide
information to help determine whether any provisions of the CP Program
should be modified. For example, based on data from the pilot, the
Exchange may determine that the 1,000,000 CADV termination threshold is
not an appropriate threshold on which to base eligibility for the
Program or that the Program should be time-limited.
    The Commission believes that the design of the CP Program and the
public disclosure requirements, coupled with implementation of the
proposal on a pilot basis, should help mitigate potential concerns the
Commission has noted above relating to any unintended or negative
effects of the CP Program on the ETP market and investors.
    The Commission has previously expressed concerns relating to
payments by issuers to market makers. FINRA Rule 5250 (formerly NASD
Rule 2460) prohibits FINRA members and their associated persons from
directly or indirectly accepting any payment from an issuer for acting
as a market maker.\87\ FINRA Rule 5250 was implemented, in part, to
address concerns about issuers paying market makers, directly or
indirectly, to improperly influence the price of an issuer's stock and
because of conflict of interest concerns between issuers and market
makers.\88\ FINRA Rule 5250 was designed to preserve ``the integrity of
the marketplace by ensuring that quotations accurately reflect a
broker-dealer's interest in buying or selling a security.'' \89\
Specifically, in the NASD Rule 2460 Approval Order, the Commission
found that the
---------------------------------------------------------------------------

    \87\ FINRA has amended Rule 5250 to create an exception for
payments to members that are expressly provided for under the rules
of a national securities exchange that are effective after being
filed with, or filed with and approved by, the Commission pursuant
to the requirements of the Act. See Securities Exchange Act Release
No. 69398 (Apr. 18, 2013), 78 FR 24261 (Apr. 24, 2013). This
amendment to FINRA Rule 5250 became effective May 15, 2013.
    \88\ See Securities Exchange Act Release No. 38812 (July 3,
1997), 62 FR 37105 (July 10, 1997) (SR-NASD-97-29) (``NASD Rule 2460
Approval Order''), at 37107.
    \89\ See id. at 37107.

decision by a firm to make a market in a given security and the
question of price generally are dependent on a number of factors,
including, among others, supply and demand, the firm's expectations
toward the market, its current inventory position, and exposure to
risk and competition. This decision should not be influenced by
payments to the member from issuers or promoters. Public investors
expect broker-dealers' quotations to be based on the factors
described above. If payments to broker-dealers by promoters and
issuers were permitted, investors would not be able to ascertain
which quotations in the marketplace are based on actual interest and
which quotations are supported by issuers or promoters. This
structure would harm investor confidence in the overall integrity of
the marketplace.\90\
---------------------------------------------------------------------------

    \90\ See id.

    The Commission also added that ``such payments may be viewed as a
conflict of interest since they may influence the member's decision as
to whether to quote or make a market in a security and, thereafter, the
prices that the member would quote.'' \91\
---------------------------------------------------------------------------

    \91\ See id. at 37106.
---------------------------------------------------------------------------

    The Commission believes that a number of aspects of the CP Program
mitigate the concerns that FINRA Rule 5250 was designed to address.
First, the Commission believes that the terms of the CP Program are
generally objective, clear, and transparent. The standards for the CP
Program are set forth in proposed NYSE Arca Equities Rule 7.25 and the
Exchange's Listing Fee Schedule and Trading Fee Schedule (further
described above) \92\ and describe the ETP eligibility criteria,
application process, fee and payment structure, CP performance
standards, CP Payment allocation, and withdrawal standards. These
requirements apply to all ETPs, issuers, and CPs participating in the
CP Program.\93\
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    \92\ See supra Section I.
    \93\ While the Exchange will have some amount of discretion
pursuant to the proposed rules to limit the number of ETPs that any
one issuer may have in the CP Program, the Commission believes such
limit would not be unfairly discriminatory, as it would be imposed
on a Program-wide basis.

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

    Second, the Exchange also will provide notification on its public
Web site regarding the various aspects of the CP Program. As discussed
above, this disclosure will include: (i) The ETPs participating in the
CP Program and the CPs assigned to each participating ETP; (ii) the
date a particular ETP begins participating or ceases participating in
the CP Program; (iii) the date the Exchange receives written notice of
an issuer's intent to withdraw its ETP from the CP Program, or a CP's
intent to withdraw from its ETP assignment(s) in the CP Program, and,
in each case, the intended withdrawal date, if provided; (iv) the
amount of the CP Program Fee for each ETP; and (v) a fair and balanced
description of the CP Program, including the potential benefits and
risks that may be attendant with an ETP's participation in the Program.
In addition, an issuer of an ETP participating in the CP Program will
be required to issue a press release when an ETP commences or ceases
participation in the CP Program, to post such press release on its Web
site, and to provide on its Web site a hyperlink to the Exchange's Web
page describing the CP Program.
    And third, ETPs participating in the CP Program will be traded on
the Exchange, which is a regulated market, pursuant to the current
trading and reporting rules of the Exchange, and pursuant to the
Exchange's established market surveillance and trade monitoring
procedures. The Exchange will administer the application and acceptance
of the ETPs and CPs into the CP Program, as well as the continuation in
and withdrawal from the Program. The Exchange will collect the CP
Program Fees from issuers and credit them to the Exchange's general
revenues. A CP will be eligible to receive a CP Payment from the
Exchange's general revenues only after it meets the proposed CP quoting
requirements, as determined by the Exchange. Furthermore, the CP
Program Fees will be paid into the Exchange's general revenues, and the
CP Payments will be paid out of the Exchange's general revenues. If no
eligible CP exists for particular ETP on a particular day, no CP
Payment will be provided on that day. If the assigned CPs in a
particular ETP do not satisfy their daily or monthly quoting
requirements in any given day or month in a quarter, the issuer will
not receive any credit from the Exchange following the end of the
quarter. If an issuer does not pay its quarterly installment of the CP
Program Fee for a particular ETP to the Exchange on time and the ETP
continues to be included in the CP Program, the Exchange will continue
to credit CPs in accordance with the Trading Fee Schedule. The
Commission believes that these factors, taken together, should help to
mitigate the conflict of interest and other concerns that the
Commission has previously identified \94\ relating to issuers paying
for market making.
---------------------------------------------------------------------------

    \94\ See NASD Rule 2460 Approval Order, supra note 88, and supra
notes 88-91. See also Securities Act Release No. 6334 (Aug. 6,
1981), 46 FR 42001 (Aug. 18, 1981), at Section IV.B (Treatment as
Statutory Underwriter).
---------------------------------------------------------------------------

    The Commission believes that it is reasonable and consistent with
the Act for the Exchange to limit the CP Program to certain types of
securities to allow the Exchange, through a pilot, to assess whether
the Program will have the desired effect of improving the market
quality of these securities before implementing the Program on a
permanent basis. The Commission believes that it is reasonable and
consistent with the Act for the Exchange to limit the CP Program to
products under the 1,000,000 CADV threshold, to support the Exchange's
stated purpose to ``incentivize Market Makers on the Exchange to quote
and trade in certain low-volume ETPs.'' \95\
---------------------------------------------------------------------------

    \95\ See Notice, supra note 3, at 78427.
---------------------------------------------------------------------------

    The Commission believes that the CP Program Fees are an equitable
allocation of reasonable fees. First, participation in the CP Program
is voluntary. An entity is free to determine whether it would be
economically desirable to pay the CP Program Fee, given the permitted
range of the fee, the trading characteristics of the ETP, and the
anticipated benefit. If an issuer chooses to participate in the CP
Program with respect to an ETP, it will have the discretion to
determine the amount of the CP Program Fee it will pay, between $50,000
and $100,000. The CP Program Fee will be paid for by either the issuer
that has an ETP participating in the CP Program or the sponsor
associated with such issuer. Thus, the CP Program Fee will be incurred
and paid for by an entity that has chosen to participate in, and that
may potentially benefit from, the CP Program.\96\ An entity that
chooses not to participate will not be required to pay any additional
fee beyond the standard listing and annual fees. Further, the permitted
range of CP Program Fees will be the same for any issuer wishing to
participate in the Program. The Commission also believes that allowing
the issuer some discretion when determining the amount of the CP
Program Fee amount is consistent with the Act. Not all ETPs are alike,
and trading in certain products may be riskier or more costly than
trading in others. The Commission believes that it is reasonable to
allow each issuer to choose to participate in the Program and to
determine the amount, subject to a permitted range, at which it is
desirable to incentivize CPs through the CP Program Fee to improve the
market quality of ETPs participating in the Program. Finally, as
discussed above, the payment of the CP Program Fee will be transparent
to the marketplace, as this information will be disclosed on the
Exchange's Web site.
---------------------------------------------------------------------------

    \96\ Issuers of exchange-traded funds registered under the 1940
Act are prohibited from paying directly or indirectly for
distribution of their shares (i.e., directly or indirectly financing
any activity that is primarily intended to result in the sale of
shares), unless such payments are made pursuant to a plan that meets
the requirements of Rule 12b-1 under the 1940 Act. Although the
services at issue could be primarily intended to result in the sale
of fund shares, the Commission has stated that such a determination
will depend on the surrounding circumstances. See Payment of Asset-
Based Sales Loads by Registered Open-End Management Investment
Companies, Investment Company Act Release No. 16431 (June 13, 1988)
(``1988 12b-1 Release''). As the Commission has noted previously, if
a fund makes payments that are ostensibly for a non-distribution
purpose, and the recipient of those payments finances distribution,
the question arises whether the fund's assets are being used
indirectly for distribution. The Commission has stated that there
can be no precise definition of what types of expenditures
constitute indirect use of fund assets, and this determination is
based on the facts and circumstances of each individual case. In
addition, fund directors, particularly independent directors bear
substantial responsibility for making that judgment. See Bearing of
Distribution Expenses by Mutual Funds, Investment Company Act
Release No. 11414 (October 28, 1980).
---------------------------------------------------------------------------

Section 11(d)(1) of the Exchange Act

    Section 11(d)(1) of the Exchange Act \97\ generally prohibits a
broker-dealer from extending or maintaining credit, or arranging for
the extension or maintenance of credit, on shares of new issue
securities, if the broker-dealer participated in the distribution of
the new issue securities within the preceding 30 days. The Commission's
view is that shares of open-end investment companies and unit
investment trusts registered under the 1940 Act, such as ETP shares,
are distributed in a continuous manner, and broker-dealers that sell
such securities are therefore participating in the ``distribution'' of
a new issue for purposes of Section 11(d)(1).\98\
---------------------------------------------------------------------------

    \97\ 15 U.S.C. 78k(d)(1)
    \98\ See, e.g., Exchange Act Release Nos. 6726 (Feb. 8, 1962),
27 FR 1415 (Feb. 15, 1962) and 21577 (Dec. 18, 1984), 49 FR 50174
(Dec. 27, 1984).
---------------------------------------------------------------------------

    The Division of Trading and Markets, acting under delegated
authority, granted an exemption from Section 11(d)(1) and Rule 11d1-2
thereunder for broker-dealers that have entered into an agreement with
an exchange-traded fund's distributor to place orders with

the distributor to purchase or redeem the exchange-traded fund's shares
(``Broker-Dealer APs).\99\ The SIA Exemption allows a Broker-Dealer AP
to extend or maintain credit, or arrange for the extension or
maintenance of credit, to or for customers on the shares of qualifying
exchange-traded funds subject to the condition that neither the Broker-
Dealer AP, nor any natural person associated with the Broker-Dealer AP,
directly or indirectly (including through any affiliate of the Broker-
Dealer AP), receives from the fund complex any payment, compensation,
or other economic incentive to promote or sell the shares of the
exchange-traded fund to persons outside the fund complex, other than
non-cash compensation permitted under NASD Rule 2830(l)(5)(A), (B), or
(C). This condition is intended to eliminate special incentives that
Broker-Dealer APs and their associated persons might otherwise have to
``push'' exchange-traded fund shares.\100\
---------------------------------------------------------------------------

    \99\ See Letter from Catherine McGuire, Chief Counsel, Division
of Trading and Markets, Securities and Exchange Commission to
Securities Industry Association (Nov. 21, 2005) (``SIA Exemption'').
    \100\ Trading and markets staff provided no-action relief from
Section 11(d)(1) for broker-dealers engaging in secondary market
proprietary or customer transactions in securities of Commodity-
based Exchange-Traded Trusts (``CBETTs'') similar to the
Commission's SIA Exemption. This relief is conditioned on the
broker-dealer and any natural person associated with the broker-
dealer not receiving from the Fund complex, directly or indirectly,
any payment, compensation or other economic incentive to promote or
sell Shares to persons outside of the Fund complex, other than non-
cash compensation permitted under NASD Rule 2830(1)(5)(A), (B), or
(C). See No-Action Letter re: DB Commodity Index Tracking Fund and
DB Commodity Services LLC (Jan. 19, 2006); No-Action Letter re:
Rydex Specialized Products LLC (Dec. 5, 2005); No-Action Letter re:
streetTRACKS Gold Trust (Dec. 12, 2005); and No-Action Letter re:
iShares COMEX Gold Trust (Dec. 12, 2005).
---------------------------------------------------------------------------

    The CP Program will permit certain ETPs to voluntarily incur
increased listing fees payable to the Exchange. In turn, the Exchange
will use the fees to make CP Payments to market makers that improve the
liquidity of participating issuers' securities, and thus enhance the
market quality for the participating issuers. CP Payments will be
accrued for, among other things, maintaining continuous, two-sided
displayed quotes or orders. Receipt of the CP Payments by certain
broker-dealers will implicate the conditions of the SIA Exemption \101\
from the new issue lending restriction in Section 11(d)(1) of the
Exchange Act discussed above. The Commission's view is that the CP
Payments market makers will receive under the proposal are indirect
payments from the fund complex to the market maker and that those
payments are compensation to promote the shares of the ETP. Therefore,
a market maker that is also a broker-dealer receiving the incentives
will not be able to rely on the SIA Exemption from Section
11(d)(1).\102\ This does not mean that broker-dealers cannot
participate in the CP Program; it merely means they cannot rely on the
SIA Exemption \103\ while doing so. Thus, broker-dealers that
participate in the CP Program will need to comply with Section 11(d)(1)
unless there is another applicable exemption.
---------------------------------------------------------------------------

    \101\ See also note 100, supra.
    \102\ Id.
    \103\ Id.
---------------------------------------------------------------------------

III. Solicitation of Comments on Amendment No. 2

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 2
to 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-NYSEArca-2013-141 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2013-141. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 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 the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2013-141 and should
be submitted on or before April 22, 2014.

IV. Accelerated Approval of Proposed Rule Change as Modified by
Amendment No. 2

    As discussed above, the Exchange submitted Amendment No. 2 to (i)
change, from two-million shares to one-million shares, the CADV
threshold applicable to participation eligibility in the proposed CP
Program; (ii) change the CP Program Fee from a fixed amount of $50,000
to a range of $50,000 to $100,000, as determined exclusively by the
issuer; and (iii) clarify that the CP Program Fee cannot be refunded to
an issuer. The Commission believes that the modification to the CADV
threshold and the clarification regarding the CP Program Fee in
Amendment No. 2 cause the proposed CP Program to more closely mirror
the respective features of the Exchange's existing pilot ETP Incentive
Program under NYSE Arca Equities Rule 8.800. In addition, the
modification in Amendment No. 2 to the CP Program Fee causes it to be
similar to the fee imposed by another exchange in a similar
program.\104\ Accordingly, the Commission finds good cause, pursuant to
Section 19(b)(2) of the Act,\105\ for approving the proposed rule
change, as modified by Amendment No. 2, prior to the 30th day after the
date of publication of notice in the Federal Register.
---------------------------------------------------------------------------

    \104\ See Nasdaq Rule 5950(b)(2).
    \105\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\106\ that the proposed rule change (SR-NYSEArca-2013-141), as
modified by Amendment No. 2 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \106\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\107\
---------------------------------------------------------------------------

    \107\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-07187 Filed 3-31-14; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 81, Number 51 (Wednesday, March 16, 2016)]
[Notices]
[Pages 14195-14197]
[FR Doc No: 2016-05933]

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DEPARTMENT OF TRANSPORTATION

Federal Motor Carrier Safety Administration

Inspection, Repair, and Maintenance; Periodic Inspection of
Commercial Motor Vehicles; Acceptance of Mexico's NOM-068-SCT-2-2014
Inspection Program

AGENCY: Federal Motor Carrier Safety Administration (FMCSA), DOT.

ACTION: Notice on periodic inspection programs.

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

SUMMARY: The FMCSA announces its acceptance of the Norma Oficial
Mexicana ((NOM) or Official Mexican Standard) concerning the periodic
inspection (PI) of commercial motor vehicles (CMVs). The Agency has
reviewed NOM-068-SCT-2-2014 (NOM 68) and determined that it should be
added to the list of programs which are comparable to, or as effective
as, the Federal PI requirements contained in the Federal Motor Carrier
Safety Regulations (FMCSRs). FMCSA's acceptance of NOM 68 means that
Mexico-domiciled motor carriers operating in the United States must
ensure that their CMVs are inspected annually as required by the
Secretar[iacute]a de Comunicaciones y Transportes (SCT). The motor
carrier must retain a copy of the inspection report and a sticker/decal
must be affixed to the vehicle in order to satisfy the PI requirements
in the United States. These motor carriers will no longer have the
option of relying on their employees to conduct inspections of the CMVs
the carrier controls, using commercial garages for such inspections, or
passing a roadside inspection based on criteria published by the
Commercial Motor Vehicle Safety Alliance (CVSA) to comply with the
periodic inspection requirements at 49 CFR part 396.

DATES: This action is effective March 16, 2016. NOM-68 inspection
decals issued on or after October 1, 2015, will be accepted as proof of
a periodic during roadside inspections and investigations conducted on
or after March 16, 2016.

FOR FURTHER INFORMATION CONTACT: Mr. Marcelo Perez, North American
Borders Division, MC-ESB,<PHONE_NUMBER>, Federal Motor Carrier Safety
Administration, 903 San Jacinto Blvd., Suite 1100, Austin, TX 78701.
Office hours are from 7:45 a.m. to 4:15 p.m., CDT, Monday through
Friday, except Federal holidays.

SUPPLEMENTARY INFORMATION:

Background

    Section 210 of the Motor Carrier Safety Act of 1984 (49 U.S.C.
31142) (the Act) requires the Secretary of Transportation to prescribe
standards for annual or more frequent inspection of CMVs unless the
Secretary finds that another inspection system is as effective as an
annual or more frequent inspection. On December 7, 1988, in response to
the Act, the Federal Highway Administration (FHWA), the agency within
the Department of Transportation responsible for motor carrier safety
until 1999, published a final rule amending 49 CFR part 396 of the
FMCSRs (53 FR 49402). The final rule required CMVs operated in
interstate commerce to be inspected at least once a year. The
inspection was to be based on Federal inspection standards, or a State
inspection program determined by the FHWA, FMCSA's predecessor agency,
to be comparable to, or as effective as, the Federal standards.
Accordingly, if FHWA decided that a State's PI program was comparable
to, or as effective as, the requirements of part 396, then the motor
carrier had to ensure that all of its CMVs which are required by that
State to be inspected through the State's inspection program were
inspected. If a State did not have such a program, the motor carrier
was responsible for ensuring its CMVs are inspected using one of the
alternatives included in the final rule.
    On March 16, 1989, the FHWA published a notice in the Federal
Register that requested States and other interested parties to identify
and provide information on the CMV inspection programs in their
respective jurisdictions (54 FR 11020). Upon review of the information
submitted, the FHWA published a list of State

inspection programs that were determined to be comparable to the
Federal PI requirements (54 FR 50726, December 8, 1989). This initial
list included 15 States and the District of Columbia. The list was
revised on September 23, 1991, to include the inspection programs of
the Alabama Liquefied Petroleum Gas (LPG) Board, California, Hawaii,
Louisiana, Minnesota, all of the Canadian Provinces, and the Yukon
Territory (56 FR 47982).
    On November 27, 1992, the list was revised to include the Wisconsin
bus inspection program (57 FR 56400). On April 14, 1994, the list was
revised to include the Texas CMV inspection program (59 FR 17829). The
list was revised on November 7, 1995, to include the Connecticut bus
inspection program (60 FR 56183). On February 19, 1998, the Ohio
inspection program for church buses was added to the list (63 FR 8516),
with a notice announcing FMCSA's acceptance of certain enhancements to
the program on June 18, 2001 (66 FR 32863). And on October 22, 2008,
the list was revised to include the Massachusetts CMV inspection
program (73 FR 63040).

FMCSA Determination: Official Mexican Standard, NOM 68

    On January 19, 2015, the SCT of Mexico published its Official
Mexican Standard, NOM-68, in the Official Gazette, Mexico's equivalent
of the Federal Register. NOM-68 addresses Federal inspection standards
for CMVs in Mexico. Beginning May 19, 2015, Mexico-domiciled motor
carriers must take their vehicles to an SCT-approved inspection center
for a mandatory vehicle inspection. The inspections must be performed
once every year, and on the months set on the Inspection Calendar.
    FMCSA has reviewed Mexico's pass-fail criteria for the specific
vehicle components and systems examined as during the mandatory vehicle
inspection and determined that Mexico's inspection program is
comparable to, or as effective as, FMCSA's requirements. The Agency
compared the pass-fail requirements of Appendix G to the Federal Motor
Carrier Safety Regulations (i.e., the U.S. periodic inspection
standards), which includes the 13 vehicle systems and components listed
below with the list of vehicle systems and components included in NOM
68.
    1. Brake system;
    2. Coupling devices;
    3. Exhaust system;
    4. Fuel system;
    5. Lighting devices;
    6. Safe loading;
    7. Steering mechanism;
    8. Suspension;
    9. Frame;
    10. Tires;
    11. Wheels and rims;
    12. Windshield glazing; and,
    13. Windshield wipers.
    NOM-68 is organized into 79 sections, with multiple sections
covering each of the 13 areas in Appendix G. In some instances, NOM-68
covers the requirements in greater detail and others Mexico's
inspection standards cover equipment which is not addressed in the
FMCSRs. While Appendix G does not include the same level of detail as
NOM 68, 49 CFR part 393 provides many of those requirements in detail
comparable to that of NOM-68. Therefore, NOM 68 provides an annual
inspection standard that requires all the parts and accessories that
must be installed on CMVs to be in proper working order in order to
pass the inspection.
    FMCSA acknowledges that Mexico's compliance date for certain
vehicle safety systems and components, such as antilock braking systems
(or ABS), differs from the U.S. requirements. However, the Agency does
not believe the differences in the compliance dates for such systems is
a sufficient basis for considering Mexico's annual inspection standards
to be substantively different. Mexico-domiciled motor carriers are
subject to the same requirements as U.S.- and Canada-domiciled carriers
operating on U.S. public roads with regard to the requirements of 49
CFR part 393. This means the presence of an annual inspection decal
would not provide relief from the requirements of part 393.
    Mexico's mandatory annual inspection requirements cover most of the
types of CMVs subject to FMCSA's periodic inspection regulations, which
includes passenger-carrying vehicles designed to transport 16 or more
passengers (including the driver) and property-carrying vehicles with a
gross weight, gross vehicle weight rating, or gross combination weight
rating of 10,001 pounds or more. Therefore, both the inspection
criteria for the vehicle components and safety systems, and the types
of vehicles required to be inspected are comparable to FMCSA's
requirements.
    For CMVs that are subject to FMCSA's periodic inspection
requirements but excepted from the NOM 68 requirements, the motor
carrier may continue to rely upon the options allowed under 49 CFR
396.17. FMCSA will work with the government of Mexico and the
Commercial Vehicle Safety Alliance to provide detailed guidance on the
specific vehicles subject to NOM 68 requirements to ensure uniform and
consistent enforcement of Sec.  396.17 (and the compatible State
requirements adopted in accordance with 49 CFR part 350 concerning the
Motor Carrier Safety Assistance Program) during roadside inspections of
Mexico-domiciled vehicles operating in the United States.
    It should be noted that in accepting the Mexico's program, FMCSA
also accepts the recordkeeping requirements associated with the
inspection program. Upon successful completion of Mexico's inspection,
a report is created which identifies the vehicle, inspector, and the
status of the inspection. In addition to the report, a program
inspection sticker decal indicating that the vehicle has passed the
inspection will be affixed to the vehicle's windshield.

Relationship Between FMCSA's Decision Concerning Periodic Inspection
and the Enforcement of the Requirements Under 49 CFR Part 393

    FMCSA notes that its acceptance of Mexico's PI program does not in
any way alter the enforcement of the safety requirements under 49 CFR
part 393 concerning vehicle parts and accessories necessary for safe
operations. All interstate motor carriers operating CMVs in the United
States, including Canada- and Mexico-domiciled motor carriers, must
ensure that their CMVs meet the applicable requirements under 49 CFR
part 393 regardless of whether the vehicle has passed a PI. And Part
393 includes cross-references to various Federal Motor Vehicle Safety
Standards (FMVSSs) established by the National Highway Traffic Safety
Administration and applicable to vehicle manufacturers. Through these
cross-references, FMCSA holds motor carriers responsible for ensuring
that vehicles manufactured on or after the effective dates of the NHTSA
standards are maintained to keep the safety equipment and features
installed by the manufacturer operable.
    While manufacturers building CMVs designed and sold for use in
Canada and Mexico are not required to meet the FMVSSs, FMCSA requires
that the motor carriers operating these vehicles in the United States
meet the same safety requirements applicable to domestic motor
carriers. And, although the effective date for certain vehicle safety
requirements such as antilock braking systems under NOM 68 and Canada's
rules may differ from the effective date for the U.S. requirements,
vehicles manufactured on or after the effective dates listed in the
FMVSSs,

and cross-referenced in part 393, must meet FMCSA's requirements when
operating in the United States. These vehicles are subject to roadside
inspections while operating in the United States and violations of
these 49 CFR part 393 requirements may be cited on the inspection
report.
    Acceptance of periodic inspection decals from Canada or Mexico
simply means that these carriers would not be cited for violations of
49 CFR 396.17. As noted above, this decision does not constitute an
exception from any of the applicable requirements under 49 CFR part
393. Therefore, today's decision in no way compromises safety.
    Although passing a roadside inspection is another option under the
current regime, FMCSA published a notice of proposed rulemaking on
October 7, 2015 (80 FR 60592), which would, in response to a petition
for rulemaking from the Commercial Vehicle Safety Alliance (CVSA),
eliminate this option for all motor carriers subject to the FMCSRs.

Jurisdictions With Equivalent Periodic Inspection Programs

    The following is a complete list of States with inspection programs
that FMCSA has determined are comparable to, or as effective as, the
Federal PI requirements.
     Alabama (LPG Board),
     California,
     Connecticut,
     District of Columbia,
     Hawaii,
     Illinois,
     Louisiana,
     Maine,
     Maryland,
     Massachusetts,
     Michigan,
     Minnesota,
     New Hampshire,
     New Jersey,
     New York,
     Ohio,
     Pennsylvania,
     Rhode Island,
     Texas,
     Utah,
     Vermont,
     Virginia,
     West Virginia,
     Wisconsin.
    Please note that since the list was originally established, two
States have been removed. Arkansas no longer has a PI program for buses
comparable to, or as effective, as the Federal PI program. And Oklahoma
repealed its inspection requirements. Therefore, these States are no
longer listed.
    In addition to the States listed above, FMCSA accepts the
inspection programs of the 10 Canadian Provinces (Alberta, British
Columbia, Manitoba, New Brunswick, Newfoundland, Nova Scotia, Ontario,
Prince Edward Island, Quebec and Saskatchewan) and the Yukon Territory,
and with today's notice, Mexico's NOM 68 program, as comparable to, or
as effective as, the Federal PI requirements.
    All other jurisdictions either have no PI programs for CMVs or
their PI programs have not been determined by the FMCSA to be
comparable to, or as effective as, the Federal PI requirements. Should
any of these jurisdictions wish to establish a program or modify their
programs in order to make them comparable to the Federal requirements,
the State should contact the appropriate FMCSA division office.

List of Subjects

    Highway safety, Highways and roads, Motor carriers, Motor vehicle
maintenance, Motor vehicle safety, Reporting and recordkeeping
requirements.

    Authority: 49 U.S.C. 31132, 31136, 31142, 31502, and 31504; 49
CFR 1.87.

    Issued on: March 9, 2016.
T.F. Scott Darling, III,
Acting Administrator.
[FR Doc. 2016-05933 Filed 3-15-16; 8:45 am]
 BILLING CODE 4910-EX-P


[Federal Register Volume 80, Number 209 (Thursday, October 29, 2015)]
[Notices]
[Page 66525]
[FR Doc No: 2015-27572]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Project No. 2380-005]

Duke Energy Progress, Inc., Duke Energy Progress, LLC; Notice of
Transfer of Exemption

    1. By letter filed September 25, 2015, Duke Energy Progress, LLC
(Duke Energy) informed the Commission that the exemption from licensing
for the Marshall Hydroelectric Project No. 2380, originally issued
February 18, 1983,\1\ has been transferred to Duke Energy Progress,
LLC. The project is located on the French Broad River in Madison
County, North Carolina. The transfer of an exemption does not require
Commission approval.
---------------------------------------------------------------------------

    \1\ 22 FERC ] 62,211, Notice of Exemption from Licensing (1983).
---------------------------------------------------------------------------

    2. Duke Energy Progress, LLC is now the exemptee of the Marshall
Hydroelectric Project, No. 2380. All correspondence should be forwarded
to: Ms. Tami Styer, Project Manager II, Duke Energy Progress, LLC, c/o
Duke Energy Water Strategy & Hydro Licensing, 522 South Church Street,
Mail Code EC12Y, Charlotte, NC 28202.

    Dated: October 23, 2015.
Kimberly D. Bose,
 Secretary.
[FR Doc. 2015-27572 Filed 10-28-15; 8:45 am]
 BILLING CODE 6717-01-P