[Federal Register Volume 80, Number 59 (Friday, March 27, 2015)]
[Rules and Regulations]
[Pages 16296-16302]
[FR Doc No: 2015-06861]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 180

[EPA-HQ-OPP-2014-0209; FRL-9924-60]

Deltamethrin; Pesticide Tolerances

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: This regulation establishes tolerances for residues of the
insecticide deltamethrin in or on all food and feed commodities from
use of deltamethrin as a wide-area mosquito adulticide. Bayer
CropScience requested these tolerances under the Federal Food, Drug,
and Cosmetic Act (FFDCA).

DATES: This regulation is effective March 27, 2015. Objections and
requests for hearings must be received on or before May 26, 2015, and
must be filed in accordance with the instructions provided in 40 CFR
part 178 (see also Unit I.C. of the SUPPLEMENTARY INFORMATION).

ADDRESSES: The docket for this action, identified by docket
identification (ID) number EPA-HQ-OPP-2014-0209, is available at http://www.regulations.gov or at the Office of Pesticide Programs Regulatory
Public Docket (OPP Docket) in the Environmental Protection Agency
Docket Center (EPA/DC), West William Jefferson Clinton Bldg., Rm. 3334,
1301 Constitution Ave. NW., Washington, DC 20460-0001. The Public
Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through
Friday, excluding legal holidays. The telephone number for the Public
Reading Room is<PHONE_NUMBER>, and the telephone number for the OPP
Docket is<PHONE_NUMBER>. Please review the visitor instructions and
additional information about the docket available at http://www.epa.gov/dockets.

FOR FURTHER INFORMATION CONTACT: Susan Lewis, Registration Division
(7505P), Office of Pesticide Programs, Environmental Protection Agency,
1200 Pennsylvania Ave. NW., Washington, DC 20460-0001; main telephone
number:<PHONE_NUMBER>; email address<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this action apply to me?

    You may be potentially affected by this action if you are an
agricultural producer, food manufacturer, or pesticide manufacturer.
The following list of North American Industrial Classification System
(NAICS) codes is not intended to be exhaustive, but rather provides a
guide to help readers determine whether this document applies to them.
Potentially affected entities may include:
     Crop production (NAICS code 111).
     Animal production (NAICS code 112).
     Food manufacturing (NAICS code 311).
     Pesticide manufacturing (NAICS code 32532).

B. How can I get electronic access to other related information?

    You may access a frequently updated electronic version of EPA's
tolerance regulations at 40 CFR part 180 through the Government
Printing Office's e-CFR site at http://www.ecfr.gov/cgi-bin/text-idx?&c=ecfr&tpl=/ecfrbrowse/Title40/40tab_02.tpl.

C. How can I file an objection or hearing request?

    Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an
objection to any aspect of this regulation and may also request a
hearing on those objections. You must file your objection or request a
hearing on this regulation in accordance with the instructions provided
in 40 CFR part 178. To ensure proper receipt by EPA, you must identify
docket ID number EPA-HQ-OPP-2014-0209 in the subject line on the first
page of your submission. All objections and requests for a hearing must
be in writing, and must be received by the Hearing Clerk on or before
May 26, 2015. Addresses for mail and hand delivery of objections and
hearing requests are provided in 40 CFR 178.25(b).
    In addition to filing an objection or hearing request with the
Hearing Clerk as described in 40 CFR part 178, please submit a copy of
the filing (excluding any Confidential Business Information (CBI)) for
inclusion in the public docket. Information not marked confidential
pursuant to 40 CFR part 2 may be disclosed publicly by EPA without
prior notice. Submit the non-CBI copy of your objection or hearing
request, identified by docket ID number EPA-HQ-OPP-2014-0209, by one of
the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov.
Follow the online instructions for submitting comments. Do not submit
electronically any information you consider to be CBI or other
information whose disclosure is restricted by statute.
     Mail: OPP Docket, Environmental Protection Agency Docket
Center (EPA/DC), (28221T), 1200 Pennsylvania Ave. NW., Washington, DC
20460-0001.
     Hand Delivery: To make special arrangements for hand
delivery or delivery of boxed information, please follow the
instructions at http://www.epa.gov/dockets/contacts.html.
    Additional instructions on commenting or visiting the docket, along
with more information about dockets generally, is available at http://www.epa.gov/dockets.

II. Summary of Petitioned-For Tolerance

    In the Federal Register of January 28, 2015 (80 FR 4527) (FRL-9921-
60), EPA issued a document pursuant to FFDCA section 408(d)(3), 21
U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP
[3F8210]) by Bayer CropScience, 2 T.W. Alexander Dr., Research Triangle
Park, NC 27709. The petition requested that 40 CFR 180.435 be amended
by establishing a tolerance for residues of the insecticide
deltamethrin, (1R,3R)-R-cyano(3-phenoxyphenyl)methyl 3-(2,2-
dibromoethenyl)-2,2-dimethylcyclopropanecarboxylate, in or on food and
feed commodities at 0.05 parts per million (ppm) from use as a wide-
area mosquito adulticide. That document referenced a summary of the
petition prepared by Bayer CropScience, the registrant, which is
available in the docket, http://www.regulations.gov. One comment was
received on the notice of filing. EPA's response to the comment is
discussed in Unit IV.C.

III. Aggregate Risk Assessment and Determination of Safety

    Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a
tolerance (the legal limit for a pesticide chemical residue in or on a
food) only if EPA determines that the tolerance is ``safe.'' Section
408(b)(2)(A)(ii) of FFDCA defines ``safe'' to mean that ``there is a
reasonable certainty that no harm will result from aggregate exposure
to the pesticide chemical residue, including all anticipated dietary
exposures and all other exposures for which there is reliable
information.'' This includes exposure through drinking water and in
residential settings, but does not include occupational exposure.
Section 408(b)(2)(C) of FFDCA requires EPA to give special
consideration to exposure of infants and children to the pesticide
chemical residue in establishing a tolerance and to ``ensure that there
is a reasonable certainty that no harm will result to infants and
children from

aggregate exposure to the pesticide chemical residue. . . .''
    Consistent with FFDCA section 408(b)(2)(D), and the factors
specified in FFDCA section 408(b)(2)(D), EPA has reviewed the available
scientific data and other relevant information in support of this
action. EPA has sufficient data to assess the hazards of and to make a
determination on aggregate exposure for deltamethrin including exposure
resulting from the tolerances established by this action. EPA's
assessment of exposures and risks associated with deltamethrin follows.

A. Toxicological Profile

    EPA has evaluated the available toxicity data and considered its
validity, completeness, and reliability as well as the relationship of
the results of the studies to human risk. EPA has also considered
available information concerning the variability of the sensitivities
of major identifiable subgroups of consumers, including infants and
children. Deltamethrin, a Type II pyrethroid, targets the nervous
system by disrupting the voltage-gated sodium channels, resulting in
neurotoxicity. Neurotoxicity was observed throughout the toxicity
database, and effects were seen across species, sexes, exposure
duration, and routes of administration. Clinical signs characteristic
of Type II pyrethroids, such as increased salivation, altered mobility/
gait, and tremors were the most common effects observed. Increased
sensitivity to external stimuli, abnormal vocalization, and decreased
fore- and hind-limb grip strength were also commonly observed in the
database.
    Deltamethrin is rapidly absorbed following an oral dose, and
effects are typically observed within two to five hours after dosing.
For pyrethroids, as a class, the combination of rapid absorption,
metabolism, and elimination precludes accumulation and increased
potency following repeated dosing. This is also true of deltamethrin.
No observed adverse effect levels (NOAELs) for the acute and chronic
studies are similar, and the acute endpoint is protective of the
endpoints from repeat dosing studies.
    A dermal risk assessment was not conducted based on the lack of
effects in a 21-day dermal study and low potential for dermal
absorption for deltamethrin. These findings are consistent with the
toxicology profile of many pyrethroids.
    Deltamethrin did not have any adverse effects on fetuses or
offspring in the prenatal developmental studies in rats and rabbits.
However, potential qualitative susceptibility was observed at high
doses in the developmental neurotoxicity study (DNT) and the 2-
generation reproduction study. Symptoms included vocalization,
decreased pre- and post-weaning body weight in pups of both sexes,
decreased body weight and body weight gain in maternal animals,
hyperactivity, and excessive salivation. The increased qualitative
susceptibility in the DNT and 2-generation reproduction study was
observed at doses 10- to 20-fold higher (near lethal doses) than the
current points of departure (PODs) selected for risk assessment. At
doses near the POD, no effects on parental animals or offspring were
observed in either the DNT or 2-generation reproductive studies.
Therefore, the current PODs are protective of the observed sensitivity.
    There was no evidence of immunotoxicity after deltamethrin exposure
in the toxicology database or in an immunotoxicity study in rats.
Deltamethrin is classified as ``not likely to be carcinogenic to
humans.'' There was no evidence of carcinogenicity in the combined
chronic/carcinogenicity study in rats or the carcinogenicity study in
mice. In a battery of mutagenicity studies there was no evidence of a
mutagenic effect.
    The database shows that deltamethrin has moderate to minimal acute
toxicity via the oral route, moderate acute toxicity via the inhalation
route, and minimal acute toxicity via the dermal route of exposure.
Deltamethrin is minimally irritating to the eyes, non-irritating to the
skin, and is not a skin sensitizer.
    The Agency is making best use of the extensive scientific knowledge
about the mode of action/adverse outcome pathway (MOA/AOP) on
pyrethroids in the risk assessments for this class of pesticides. A
significant portion of the scientific literature on pyrethroids
utilizes deltamethrin as the test chemical. In the on-going work by the
Council for the Advancement of Pyrethroid Human Risk Assessment
(CAPHRA), deltamethrin is one of two sentinel pyrethroids being used to
develop the initial, extensive database of in vitro and in vivo
toxicology studies and highly refined physiologically-based
pharmacokinetic (PBPK) models. Pharmacokinetics (PK) can be defined as
what the body does to the chemical. The underlying PK of pyrethroids is
an important determination of their toxicity because the concentration
of pyrethroid at the sodium channel relates to the extent of toxicity;
greater pyrethroid concentration translates as increased neurotoxicity.
Age-dependent PK differences have been identified for several
pyrethroids (i.e., there are differences in the ability of adults and
juveniles to metabolize pyrethroids). The enzymes that metabolize and
detoxify pyrethroids are present in rats and humans at birth, and as a
result, both juveniles and adults are able to tolerate low doses of
pyrethroids when the internal dose, or the amount of pyrethroid at the
sodium channel, is low. However, the activity of these enzymes
increases with age, conveying in adults a greater capacity to detoxify
pyrethroids compared to juveniles and the PK contribution to the FQPA
Safety Factor will be 1X for adults and children >6 years old, and 3X
for children <6 years old.
    Pharmacodynamics (PD) can be defined as the changes that chemicals
cause to the body, in this case, how pyrethroids interact with the
sodium channels. In contrast to the age-related PK differences
identified for pyrethroids, pharmacodynamic contributions to pyrethroid
toxicity are not age-dependent. The occurrence and ontogeny of voltage-
gated sodium channels in humans are not well characterized compared to
those in the rat. The available data indicate that the rat is a highly-
sensitive model and extrapolations from the rat would be protective of
human health. Based on the comparable function and distribution of
sodium channels between the species, the rat is an appropriate
surrogate for the evaluation of human PD. Based on the body of data,
the Agency concludes that juvenile rats are not more sensitive than
adults with respect to pyrethroid PD, and the PD contribution to the
FQPA SF will be 1X.
    The Wolansky et al. acute oral study (2006), in which decreased
motor activity was observed, provides the most robust data set for
extrapolating risk from exposure to deltamethrin. The dose used for
risk assessment was determined using a benchmark dose (BMD) analysis
using one standard deviation from the control group as the benchmark
response (BMR) as suggested for continuous endpoints in the Agency's
BMD guidance (USEPA 2012). The Wolansky acute study, endpoint, and dose
were used for all dietary (acute), non-occupational (incidental oral
and inhalation), and occupational exposure (inhalation) scenarios
because it was the most robust data set for extrapolating risk from
deltamethrin, and there is a lack of increased hazard from repeated/
chronic exposure to deltamethrin.
    Specific information on the studies received and the nature of the
adverse effects caused by deltamethrin as well

as the no-observed-adverse-effect-level (NOAEL) and the lowest-
observed-adverse-effect-level (LOAEL) from the toxicity studies can be
found at http://www.regulations.gov in document Deltamethrin. Human
Health Risk Assessment for the Proposed Use of Deltamethrin as a
Mosquito Adulticide over Agricultural Crops at [page 55] in docket ID
number EPA-HQ-OPP-20[14]-[0209].

B. Toxicological Points of Departure/Levels of Concern

    Once a pesticide's toxicological profile is determined, EPA
identifies toxicological points of departure (POD) and levels of
concern to use in evaluating the risk posed by human exposure to the
pesticide. For hazards that have a threshold below which there is no
appreciable risk, the toxicological POD is used as the basis for
derivation of reference values for risk assessment. PODs are developed
based on a careful analysis of the doses in each toxicological study to
determine the dose at which no adverse effects are observed (the NOAEL)
and the lowest dose at which adverse effects of concern are identified
(the LOAEL). Uncertainty/safety factors are used in conjunction with
the POD to calculate a safe exposure level--generally referred to as a
population-adjusted dose (PAD) or a reference dose (RfD)--and a safe
margin of exposure (MOE). For non-threshold risks, the Agency assumes
that any amount of exposure will lead to some degree of risk. Thus, the
Agency estimates risk in terms of the probability of an occurrence of
the adverse effect expected in a lifetime. For more information on the
general principles EPA uses in risk characterization and a complete
description of the risk assessment process, see http://www.epa.gov/pesticides/factsheets/riskassess.htm.
    A summary of the toxicological endpoints for deltamethrin used for
human risk assessment is discussed in Unit III.B of the final rule
published in the Federal Register of [November 7, 2014] ([79] FR
[66294]) (FRL-9918-24).

C. Exposure Assessment

    1. Dietary exposure from food and feed uses. In evaluating dietary
exposure to deltamethrin, EPA considered exposure under the petitioned-
for tolerance as well as all existing deltamethrin tolerances in 40 CFR
180.435. Acute and chronic dietary (food and drinking water) exposure
assessments were conducted using the Dietary Exposure Evaluation Model
software with the Food Commodity Intake Database (DEEM-FCID) Version
3.16. This software uses 2003-2008 food consumption data from the U.S.
Department of Agriculture's (USDA's) National Health and Nutrition
Examination Survey, What We Eat in America, (NHANES/WWEIA). Specific
information on the dietary exposure assessment can be found at http://www.regulations.gov in document Deltamethrin. Acute and Chronic Dietary
(Food and Drinking Water) Exposure and Risk Assessment for the Proposed
Use of Deltamethrin as a Wide Area Mosquito Adulticide over
Agricultural Crops in docket ID number EPA-HQ-OPP-20[14]-[0209].
    i. Acute exposure. Quantitative acute dietary exposure and risk
assessments are performed for a food-use pesticide, if a toxicological
study has indicated the possibility of an effect of concern occurring
as a result of a 1-day or single exposure. Such effects were identified
for deltamethrin. As to residue levels in food, EPA used tolerance-
level residues for most commodities and Pesticide Data Program (PDP)
monitoring data for a number of commodities. Maximum percent crop
treated (%CT) estimates were used for some commodities. To account for
the mosquito adulticide use, the maximum residue value from the
mosquito adulticide trials was multiplied by the %CT estimate for the
adulticide use (1%) for those commodities that would only have a
residue as a result of the mosquito adulticide use. However, if the
commodity could have residues from both the agricultural and
mosquitocide uses, residue values from the adulticide trials were
included in a distribution considering the 1% CT estimate (depending on
whether the commodities were blended, nonblended, or partially
blended). Default processing factors were used for some processed
commodities and empirical factors were used for others.
    ii. Chronic exposure. As to residue levels in food, EPA [used
tolerance-level residues for most commodities. The average PDP value
was used for cereal grains and milk. The average mosquito adulticide
residue value multiplied by the 1% CT estimate was used to account for
the mosquito adulticide uses. Since deltamethrin is registered for use
in food handling establishments (FHEs), one-half the FHE tolerance was
used to account for the FHE uses. The FHE tolerance is based on the
LOQ, and one-half the tolerance was used as a refinement in the dietary
assessment. For the commodities for which one-half the FHE tolerance
was used, the assumption was made that there was a 4.65% chance that a
food item consumed by a person contained deltamethrin residues as a
result of treatment at some point in an FHE. Default processing factors
were used for some processed commodities and empirical factors were
used for others.
    The chronic assessment was conducted solely for the purpose of
obtaining estimates of background levels of dietary exposure for
estimating aggregate risk.
    iii. Cancer. Based on the data summarized in Unit III.A., EPA has
concluded that deltamethrin does not pose a cancer risk to humans.
Therefore, a dietary exposure assessment for the purpose of assessing
cancer risk is unnecessary.
    iv. Anticipated residue and percent crop treated (PCT) information.
    Section 408(b)(2)(E) of FFDCA authorizes EPA to use available data
and information on the anticipated residue levels of pesticide residues
in food and the actual levels of pesticide residues that have been
measured in food. If EPA relies on such information, EPA must require
pursuant to FFDCA section 408(f)(1) that data be provided 5 years after
the tolerance is established, modified, or left in effect,
demonstrating that the levels in food are not above the levels
anticipated. For the present action, EPA will issue such data call-ins
as are required by FFDCA section 408(b)(2)(E) and authorized under
FFDCA section 408(f)(1). Data will be required to be submitted no later
than 5 years from the date of issuance of these tolerances.
    Section 408(b)(2)(F) of FFDCA states that the Agency may use data
on the actual percent of food treated for assessing chronic dietary
risk only if:
     Condition a: The data used are reliable and provide a
valid basis to show what percentage of the food derived from such crop
is likely to contain the pesticide residue.
     Condition b: The exposure estimate does not underestimate
exposure for any significant subpopulation group.
     Condition c: Data are available on pesticide use and food
consumption in a particular area, the exposure estimate does not
understate exposure for the population in such area.
    In addition, the Agency must provide for periodic evaluation of any
estimates used. To provide for the periodic evaluation of the estimate
of PCT as required by FFDCA section 408(b)(2)(F), EPA may require
registrants to submit data on PCT.
    The Agency estimated the PCT for existing uses as follows: For
acute dietary: 2.5% for apples, cantaloupes, carrots, soybeans,
tomatoes, and watermelons; and 5% for cucumbers and pears. For chronic
dietary: 1% for

apples, cantaloupes, carrots, cotton, potatoes (some food forms),
pumpkins, radishes, squash, tomatoes, turnips, and watermelon; 2.5% for
cucumbers, leeks, onions, pears, and sunflowers; 4.65% (commodities
with residues resulting only from the FHE use) for: Almonds,
pistachios, potatoes (some food forms), soybeans, sweet corn, and
walnuts; 5% for canola and peppers; and 40% for globe artichokes.
    In the acute and chronic assessments, the mosquito adulticide %CT
estimate of 1% was used to modify the mosquito adulticide use residue
value. Residues from the mosquito adulticide use were included for all
commodities with the exception of livestock commodities because the
livestock commodities tolerances are very conservative, and any
residues in livestock feed items resulting from the mosquito adulticide
use will not increase the established tolerance levels.
    In most cases, EPA uses available data from United States
Department of Agriculture/National Agricultural Statistics Service
(USDA/NASS), proprietary market surveys, and the National Pesticide Use
Database for the chemical/crop combination for the most recent 6-7
years. EPA uses an average PCT for chronic dietary risk analysis. The
average PCT figure for each existing use is derived by combining
available public and private market survey data for that use, averaging
across all observations, and rounding to the nearest 5%, except for
those situations in which the average PCT is less than one. In those
cases, 1% is used as the average PCT and 2.5% is used as the maximum
PCT. EPA uses a maximum PCT for acute dietary risk analysis. The
maximum PCT figure is the highest observed maximum value reported
within the recent 6 years of available public and private market survey
data for the existing use and rounded up to the nearest multiple of 5%.
    The Agency believes that the three conditions discussed in Unit
III.C.1.iv. have been met. With respect to Condition a, PCT estimates
are derived from Federal and private market survey data, which are
reliable and have a valid basis. The Agency is reasonably certain that
the percentage of the food treated is not likely to be an
underestimation. As to Conditions b and c, regional consumption
information and consumption information for significant subpopulations
is taken into account through EPA's computer-based model for evaluating
the exposure of significant subpopulations including several regional
groups. Use of this consumption information in EPA's risk assessment
process ensures that EPA's exposure estimate does not understate
exposure for any significant subpopulation group and allows the Agency
to be reasonably certain that no regional population is exposed to
residue levels higher than those estimated by the Agency. Other than
the data available through national food consumption surveys, EPA does
not have available reliable information on the regional consumption of
food to which deltamethrin may be applied in a particular area.
    2. Dietary exposure from drinking water. The Agency used screening
level water exposure models in the dietary exposure analysis and risk
assessment for deltamethrin in drinking water. These simulation models
take into account data on the physical, chemical, and fate/transport
characteristics of deltamethrin. Further information regarding EPA
drinking water models used in pesticide exposure assessment can be
found at http://www.epa.gov/oppefed1/models/water/index.htm.
    The estimated drinking water concentration (EDWC) of deltamethrin
for acute and chronic exposures is estimated to be 0.200 parts per
billion (ppb) for both surface water and ground water. The FIRST Model
was used to determine the surface water concentration, and the SCI-GROW
Model was used to determine the groundwater concentration. The acute
surface water EDWC and the groundwater EDWC were equivalent because, in
both cases, the value was limited by the solubility of deltamethrin.
    Modeled estimates of drinking water concentrations were directly
entered into the dietary exposure model.
    3. From non-dietary exposure. The term ``residential exposure'' is
used in this document to refer to non-occupational, non-dietary
exposure (e.g., for lawn and garden pest control, indoor pest control,
termiticides, and flea and tick control on pets).
    Deltamethrin is currently registered for the following uses that
could result in residential exposures: Residential outdoor and indoor
sites, turf, paint additives, and pet products.
    There are no residential handler exposure scenarios associated with
the proposed mosquito control use as applications are to be made by
Federal, State, Tribal or local Government Officials or the U.S.
Military. However, there is potential for residential post-application
exposure resulting from mosquito control use. Post-application
inhalation exposures and incidental oral (hand-to-mouth) contact with
residues deposited on lawn/turf from ULV truck fogger applications were
included in the quantitative risk assessment. To calculate post-
application exposure from ULV truck fogger applications, EPA used the
2012 Residential SOPs for Outdoor Fogging/Misting Systems, with minimal
modification to the well-mixed box (WMB) model. The WMB model allows
for the estimation of inhalation exposure in the breathing zones of
adults and children residing in areas being treated by ground
application of deltamethrin.
    EPA also assessed handler and post-application exposures for
existing residential uses of deltamethrin (i.e., indoor, outdoor, pet,
and paint additive). A quantitative dermal assessment for residential
handlers was not conducted since no systemic toxicity associated with
dermal exposure to deltamethrin was observed. MOEs were calculated for
the inhalation route of exposure only. Adult post-application exposures
from the existing uses were not quantitatively assessed since
inhalation exposures are typically negligible in outdoor settings.
Post-application inhalation exposure for adults and children is
anticipated to be negligible for representative residential registered
uses; therefore, a quantitative post-application inhalation exposure
assessment was not performed. EPA assessed post-application incidental
oral exposures to children for representative indoor/outdoor and pet
incidental oral scenarios including hand-to-mouth, object-to-mouth,
soil ingestion, and episodic granule ingestion scenarios.
    Further information regarding EPA standard assumptions and generic
inputs for residential exposures may be found at http://www.epa.gov/pesticides/trac/science/trac6a05.pdf.
    4. Cumulative effects from substances with a common mechanism of
toxicity. Section 408(b)(2)(D)(v) of FFDCA requires that, when
considering whether to establish, modify, or revoke a tolerance, the
Agency consider ``available information'' concerning the cumulative
effects of a particular pesticide's residues and ``other substances
that have a common mechanism of toxicity.''
    The Agency has determined that the pyrethroids and pyrethrins share
a common mechanism of toxicity: the ability to interact with voltage-
gated sodium channels ultimately leading to neurotoxicity. The
cumulative risk assessment (CRA) for the pyrethroids/pyrethrins
(published on 11/9/2011 and available at http://www.regulations.gov;
EPA-HQ-OPP-2011-0746) did not identify cumulative risks of concern,
allowing the Agency to consider new uses for pyrethroids. Deltamethrin
was

included in the pyrethroid/pyrethrin CRA.
    Dietary exposures make a minor contribution to the total pyrethroid
exposure. The dietary exposure assessment performed in support of the
pyrethroid CRA was much more highly refined than that performed for
deltamethrin alone. Additionally, the PODs selected for deltamethrin
are specific to deltamethrin, whereas the PODs selected for the
cumulative assessment were based on common mechanism of action data
that are appropriate for all 20 pyrethroids included in the CRA.
Dietary exposure to deltamethrin residues resulting from the proposed
wide-area mosquito adulticide use will contribute very little to the
dietary exposure to deltamethrin alone and will have an insignificant
impact on the cumulative risk assessment. No dietary, residential, or
aggregate risk estimates of concern have been identified in the single
chemical assessment.
    In the cumulative assessment, residential exposure was the greatest
contributor to the total exposure. In order to determine if the
registered deltamethrin indoor and turf uses will significantly
contribute to, or change the overall findings in the pyrethroid CRA,
the Agency performed a quantitative exposure and risk assessment. This
assessment used the deltamethrin relative potency factor (RPF) as well
as the same exposure algorithms and inputs that were used in the 2011
pyrethroid CRA. In all cases, the estimated deltamethrin MOEs using the
RPF method were higher (i.e., less of a risk concern) than those used
in the 2011 pyrethroid CRA. Thus, the Agency continues to support the
previous assessment, and concludes that the registered deltamethrin
uses will not significantly contribute to the overall findings in the
2011 pyrethroid CRA, and the registered deltamethrin indoor and turf
uses will have no impact on the residential component of the cumulative
risk estimates.
    For information regarding EPA's efforts to evaluate the risk of
exposure to this class of chemicals, refer to: - http://www.epa.gov/oppsrrd1/reevaluation/pyrethroids-pyrethrins.html.

D. Safety Factor for Infants and Children

    1. In general. Section 408(b)(2)(C) of FFDCA provides that EPA
shall apply an additional tenfold (10X) margin of safety for infants
and children in the case of threshold effects to account for prenatal
and postnatal toxicity and the completeness of the database on toxicity
and exposure unless EPA determines based on reliable data that a
different margin of safety will be safe for infants and children. This
additional margin of safety is commonly referred to as the FQPA Safety
Factor (SF). In applying this provision, EPA either retains the default
value of 10X, or uses a different additional safety factor when
reliable data available to EPA support the choice of a different
factor.
    2. Prenatal and postnatal sensitivity. There were no indications of
fetal toxicity in any of the guideline studies. Evidence of increased
juvenile qualitative sensitivity was observed in the DNT and 2-
generation reproduction studies at doses that were considered to be
relatively high (i.e., near lethal doses). However, at doses near the
point of departure, no effects on parental animals or offspring were
observed in either the DNT or 2-generation reproduction study and,
therefore, there is no susceptibility at these doses.
    3. Conclusion. EPA has determined that reliable data show the
safety of infants and children would be adequately protected if the
FQPA SF were reduced to 3X for infants and children <6 years old; and
to 1X for children >6 years old, women of child bearing age and all
adult populations. That decision is based on the following findings:
    i. The database of experimental toxicology studies available for
deltamethrin is largely complete including developmental toxicity
studies in rats and rabbits, a reproduction study in rats, and acute
neurotoxicity (ACN), subchronic neurotoxicity (SCN), and developmental
neurotoxicity (DNT) studies. The database provides a robust
characterization profile for children 6 years old and older, as well as
for adults. In addition to the standard guideline studies, numerous
studies from the scientific literature that describe the
pharmacodynamic and pharmacokinetic profile of the pyrethroids in
general have been considered in this assessment. Many of these studies
were conducted with deltamethrin. A 28- or 90-day inhalation study is
not available, but the Agency determined the study is not required for
deltamethrin.
    ii. As with other pyrethroids, deltamethrin causes neurotoxicity
from interaction with sodium channels leading to clinical signs of
neurotoxicity. These effects are well characterized and adequately
assessed by the body of data available to the Agency.
    iii. There were no indications of fetal toxicity in any of the
guideline studies in the database, including developmental studies in
the rat and rabbit, a developmental neurotoxicity study in rats, and a
2-generation reproduction study in rats. There was evidence of
increased juvenile qualitative susceptibility at high doses observed in
both the DNT and 2-generation reproduction studies. These observations
are consistent with the findings of juvenile sensitivity in the
literature for deltamethrin. However, the observations of increased
sensitivity were at doses that were considered to be relatively high
(i.e., near lethal doses), whereas at doses near the point of
departure, no effects on parental animals or offspring were observed in
either the developmental neurotoxicity (DNT) or 2-generation
reproduction study and, therefore, there is no susceptibility at these
doses. The Agency has retained a 3X uncertainty factor to protect for
exposures of children <6 years of age based on increased quantitative
susceptibility seen in studies on pyrethroid pharmacokinetics
(primarily conducted with deltamethrin) and the increased quantitative
juvenile susceptibility observed in high dose guideline and literature
studies with deltamethrin and other pyrethroids. The Agency has no
residual uncertainties regarding age-related sensitivity for women of
child bearing age as well as for all adult populations and children >=6
years of age, based on the absence of pre-natal sensitivity observed in
76 guideline studies for 24 pyrethroids and the scientific literature.
Additionally, no evidence of increased quantitative or qualitative
susceptibility was seen in the pyrethroid scientific literature related
to pharmacodynamics.
    iv. There are no residual uncertainties with regard to dietary
exposure. The dietary exposure assessments are based on high-end
residue levels for most commodities, and that account for parent and
metabolites of concern, processing factors, and percent crop treated
assumptions. Furthermore, conservative, upper-bound assumptions were
used to determine exposure through drinking water and residential
sources, such that these exposures have not been underestimated.

E. Aggregate Risks and Determination of Safety

    EPA determines whether acute and chronic dietary pesticide
exposures are safe by comparing aggregate exposure estimates to the
acute PAD (aPAD) and chronic PAD (cPAD). For linear cancer risks, EPA
calculates the lifetime probability of acquiring cancer given the
estimated aggregate exposure. Short-,

intermediate-, and chronic-term risks are evaluated by comparing the
estimated aggregate food, water, and residential exposure to the
appropriate PODs to ensure that an adequate MOE exists.
    1. Acute risk. Using the exposure assumptions discussed in this
unit for acute exposure, the acute dietary exposure from food and water
to deltamethrin will occupy 81% of the aPAD for children 1-2 years old,
the population group receiving the greatest exposure.
    2. Chronic risk. A chronic dietary risk assessment was not
conducted because there is no apparent increase in hazard from
repeated/chronic exposures to deltamethrin. Therefore, the acute
endpoint is protective of the endpoints from repeat dosing studies. A
chronic dietary exposure assessment was performed in order to generate
background exposure estimates to aggregate with residential exposure
estimates for the short-term aggregate risk assessment.
    3. Short-term risk. Short-term aggregate exposure takes into
account short-term residential exposure plus chronic exposure to food
and water (considered to be a background exposure level). Deltamethrin
is currently registered for uses that could result in short-term
residential exposure, and the Agency has determined that it is
appropriate to aggregate chronic exposure through food and water with
short-term residential exposures to deltamethrin.
    Using the exposure assumptions described in this unit for short-
term exposures, EPA has concluded the combined short-term food, water,
and residential exposures result in aggregate MOEs of 2,500 for the
general U.S. population and of 520 for children 1-2 years old, the
population group receiving the greatest exposure. Because EPA's level
of concern for deltamethrin is an MOE of 300 or below, these MOEs are
not of concern.
    4. Intermediate-term risk. Because no intermediate-term adverse
effect was identified, deltamethrin is not expected to pose an
intermediate-term risk.
    5. Aggregate cancer risk for U.S. population. Based on the lack of
evidence of carcinogenicity in two adequate rodent carcinogenicity
studies, deltamethrin is not expected to pose a cancer risk to humans.
    6. Determination of safety. Based on these risk assessments, EPA
concludes that there is a reasonable certainty that no harm will result
to the general population, or to infants and children from aggregate
exposure to deltamethrin residues.

IV. Other Considerations

A. Analytical Enforcement Methodology

    Adequate enforcement methodology utilizing gas chromatography with
electron capture detection (GC/ECD), is available for enforcing
tolerances for residues of deltamethrin in plant commodities, as
described in Pesticide Analytical Manual (PAM) Volume II, Section
180.422. Another GC/ECD method (Method HRAV-22) is available for
enforcing tolerances in livestock commodities. Adequate confirmatory
method validation data have been submitted for these methods, along
with adequate independent laboratory validation (ILV) trials.
    Multiresidue methods data for cis-deltamethrin and trans-
deltamethrin were previously sent to FDA. Cis-deltamethrin is
completely recovered through Methods 302 and 303, and partially
recovered through Method 304. Trans-Deltamethrin is partially recovered
through Method 303, but not recovered through Method 304.

B. International Residue Limits

    In making its tolerance decisions, EPA seeks to harmonize U.S.
tolerances with international standards whenever possible, consistent
with U.S. food safety standards and agricultural practices. EPA
considers the international maximum residue limits (MRLs) established
by the Codex Alimentarius Commission (Codex), as required by FFDCA
section 408(b)(4). The Codex Alimentarius is a joint United Nations
Food and Agriculture Organization/World Health Organization food
standards program, and it is recognized as an international food safety
standards-setting organization in trade agreements to which the United
States is a party. EPA may establish a tolerance that is different from
a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain
the reasons for departing from the Codex level.
    Harmonization of MRLs is not an issue for the proposed use of
deltamethrin as a wide area mosquitocide since established tolerance
levels are not changing.

C. Response to Comments

    An anonymous citizen objected to the approval of the requested
tolerance for deltamethrin. The commenter expressed concerns about the
neurotoxicity of the chemical and made unsubstantiated claims that
together with all other approved toxic chemicals, use of deltamethrin
could lead to many deaths and injuries and that the Agency is harming
the American people. Under section 408 of the Federal Food, Drug and
Cosmetic Act (FFDCA) EPA is authorized to establish pesticide
tolerances where the safety standard imposed by that statute is met.
When new or amended tolerances for residues of a pesticide in food or
feed are requested, the Agency evaluates whether there is a reasonable
certainty of no harm from aggregate exposure to the pesticide chemical
residue. The risk assessment conducted by the Agency considers the
potential risks from dietary exposure and other non-occupational
exposures. The Agency also considers the available information
regarding cumulative toxicological effects of the pesticide residues
and other substances that share a common mechanism of toxicity with the
subject pesticide. Such an assessment has been conducted for
deltamethrin. Deltamethrin is a Type II pyrethroid, and as with other
pyrethroids, deltamethrin causes neurotoxicity. These effects are well
characterized and adequately assessed by the body of data available to
the Agency. The Agency is confident that it has chosen endpoints,
points of departure, and uncertainty factors, that have a strong
scientific foundation and that are protective for all human
populations. As a result, EPA concludes that the tolerances for
deltamethrin are safe.

V. Conclusion

    Therefore, tolerances are established for residues of deltamethrin,
(1R,3R)-3-(2,2-dibromovinyl)-2,2-dimethylcyclopropanecarboxylic acid
(S)-alpha-cyano-3-phenoxybenzyl ester and its major metabolites, trans-
deltamethrin (S)-alpha-cyano-m-phenoxybenzyl-(1R,3R)-3-(2,2-
dibromovinyl)-2,2-dimethylcyclopropanecarboxylate and alpha-R-
deltamethrin[(R)-alpha-cyano-m-phenoxybenzyl-(1R,3R)-3-(2,2-
dibromovinyl)-2,2-dimethylcyclopropanecarboxylate in or on all food/
feed items (other than those covered by a higher tolerance as a result
of use on growing crops) from use as a wide-area mosquito adulticide at
0.05 ppm.
    Currently, a tolerance of 0.05 ppm is established for residues of
deltamethrin in or on all food/feed items (other than those covered by
a higher tolerance as a result of use on growing crops) in food/feed
handling establishments. The tolerance level does not need to be
increased for the proposed use as a mosquito adulticide; however, EPA
is revising 40 CFR 180.435 to clarify the tolerance. In addition, EPA
is removing subparagraphs (a)(2)(i), (ii), (A) and (B) as they contain
language that is more

appropriately enforced under the Federal Insecticide, Fungicide, and
Rodenticide Act (FIFRA) as use directions on the label.

VI. Statutory and Executive Order Reviews

    This action establishes tolerances under FFDCA section 408(d) in
response to a petition submitted to the Agency. The Office of
Management and Budget (OMB) has exempted these types of actions from
review under Executive Order 12866, entitled ``Regulatory Planning and
Review'' (58 FR 51735, October 4, 1993). Because this action has been
exempted from review under Executive Order 12866, this action is not
subject to Executive Order 13211, entitled ``Actions Concerning
Regulations That Significantly Affect Energy Supply, Distribution, or
Use'' (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled
``Protection of Children from Environmental Health Risks and Safety
Risks'' (62 FR 19885, April 23, 1997). This action does not contain any
information collections subject to OMB approval under the Paperwork
Reduction Act (PRA) (44 U.S.C. 3501 et seq.), nor does it require any
special considerations under Executive Order 12898, entitled ``Federal
Actions to Address Environmental Justice in Minority Populations and
Low-Income Populations'' (59 FR 7629, February 16, 1994).
    Since tolerances and exemptions that are established on the basis
of a petition under FFDCA section 408(d), such as the tolerance in this
final rule, do not require the issuance of a proposed rule, the
requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et
seq.), do not apply.
    This action directly regulates growers, food processors, food
handlers, and food retailers, not States or tribes, nor does this
action alter the relationships or distribution of power and
responsibilities established by Congress in the preemption provisions
of FFDCA section 408(n)(4). As such, the Agency has determined that
this action will not have a substantial direct effect on States or
tribal governments, on the relationship between the national government
and the States or tribal governments, or on the distribution of power
and responsibilities among the various levels of government or between
the Federal Government and Indian tribes. Thus, the Agency has
determined that Executive Order 13132, entitled ``Federalism'' (64 FR
43255, August 10, 1999) and Executive Order 13175, entitled
``Consultation and Coordination with Indian Tribal Governments'' (65 FR
67249, November 9, 2000) do not apply to this action. In addition, this
action does not impose any enforceable duty or contain any unfunded
mandate as described under Title II of the Unfunded Mandates Reform Act
(UMRA) (2 U.S.C. 1501 et seq.).
    This action does not involve any technical standards that would
require Agency consideration of voluntary consensus standards pursuant
to section 12(d) of the National Technology Transfer and Advancement
Act (NTTAA) (15 U.S.C. 272 note).

VII. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
EPA will submit a report containing this rule and other required
information to the U.S. Senate, the U.S. House of Representatives, and
the Comptroller General of the United States prior to publication of
the rule in the Federal Register. This action is not a ``major rule''
as defined by 5 U.S.C. 804(2).

List of Subjects in 40 CFR Part 180

    Environmental protection, Administrative practice and procedure,
Agricultural commodities, Pesticides and pests, Reporting and
recordkeeping requirements.

    Dated: March 18, 2015.
Susan Lewis,
Director, Registration Division, Office of Pesticide Programs.

    Therefore, 40 CFR chapter I is amended as follows:

PART 180--[AMENDED]

0
1. The authority citation for part 180 continues to read as follows:

    Authority: 21 U.S.C. 321(q), 346a and 371.

0
2. In Sec.  180.435, paragraph (a)(2) is revised to read as:

Sec.  180.435  Deltamethrin; tolerances for residues.

    (a) General. * * *
* * * * *
    (2) A tolerance of 0.05 ppm is established for residues of the
insecticide deltamethrin, including its metabolites and degradates, in
or on all food/feed items (other than those covered by a higher
tolerance as a result of use on growing crops) when deltamethrin is
used in food/feed handling establishments or as a wide-area mosquito
adulticide. Compliance with the tolerance levels specified is to be
determined by measuring only deltamethrin, (1R,3R)-3-(2,2-
dibromovinyl)-2,2-dimethylcyclopropanecarboxylic acid (S)-alpha-cyano-
3-phenoxybenzyl ester, and its major metabolites, trans-deltamethrin,
(S)-alpha-cyano-m-phenoxybenzyl(1R,3S)-3-(2,2-dibromovinyl)-2,2-
dimethylcyclopropanecarboxylate, and alpha-R-deltamethrin, (R)-alpha-
cyano-m-phenoxybenzyl-(1R,3R)-3-(2,2-dibromovinyl)-2,2-
dimethylcyclopropanecarboxylate, in or on the commodity.
* * * * *
[FR Doc. 2015-06861 Filed 3-26-15; 8:45 am]
 BILLING CODE 6560-50-P


[Federal Register Volume 86, Number 13 (Friday, January 22, 2021)]
[Notices]
[Pages 6724-6729]
[FR Doc No: 2021-01324]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90931; File No. SR-FICC-2020-803]

Self-Regulatory Organizations; Fixed Income Clearing Corporation;
Notice of No Objection To Advance Notice To Include Same-Day Settling
Trades in the Risk Management, Novation, Guarantee, and Settlement
Services of the Government Securities Division's Delivery-Versus-
Payment Service, and Make Other Changes

January 14, 2021.
    On November 19, 2020, Fixed Income Clearing Corporation (``FICC'')
filed with the Securities and Exchange Commission (``Commission'')
advance notice SR-FICC-2020-803 (``Advance Notice'') pursuant to
Section 806(e)(1) of Title VIII of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, entitled Payment, Clearing and Settlement
Supervision Act of 2010 (``Clearing Supervision Act''),\1\ and Rule
19b-4(n)(1)(i) \2\ under the Securities Exchange Act of 1934
(``Exchange Act'').\3\ In the Advance Notice, FICC proposes to (1)
expand its provision of central counterparty services to include the
start leg of certain repurchase agreement (``repo'') transactions, and
(2) enable participating FICC members to pair-off and settle certain
offsetting obligations, as described more fully below. The Advance
Notice was published for public comment in the Federal Register on
December 29,

2020,\4\ and the Commission has received no comments regarding the
changes proposed in the Advance Notice.\5\ This publication serves as
notice of no objection to the Advance Notice.
---------------------------------------------------------------------------

    \1\ 12 U.S.C. 5465(e)(1).
    \2\ 17 CFR 240.19b-4(n)(1)(i).
    \3\ 15 U.S.C. 78a et seq.
    \4\ Securities Exchange Act Release No. 90736 (December 21,
2020), 85 FR 85743 (December 29, 2020) (File No. SR-FICC-2020-803)
(``Notice of Filing'').
    \5\ On November 19, 2020, FICC also filed a related proposed
rule change (SR-FICC-2020-015) (``Proposed Rule Change'') with the
Commission pursuant to Section 19(b)(1) of the Exchange Act and Rule
19b-4 thereunder. See 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b-4
respectively. The Proposed Rule Change was published in the Federal
Register on December 8, 2020. Securities Exchange Act Release No.
90551 (December 2, 2020), 85 FR 79051 (December 8, 2020). In the
Proposed Rule Change, FICC seeks approval of proposed changes to its
rules necessary to implement the Advance Notice. The comment period
for the related Proposed Rule Change filing closed on December 29,
2020, and the Commission received no comments. As the proposals
contained in the Advance Notice were also filed as a proposed rule
change, all public comments received on the proposal are considered,
regardless of whether the comments are submitted on the Proposed
Rule Change or the Advance Notice.
---------------------------------------------------------------------------

I. The Advance Notice

A. Background

    FICC, through its Government Securities Division (``GSD''), serves
as a central counterparty (``CCP'') and provider of clearance and
settlement services for cash-settled U.S. Treasury securities.\6\ Among
its services, FICC provides real-time trade matching, clearing, risk
management, and netting for repo transactions in U.S. Treasury
securities in which all securities delivery obligations are made
against full payment (``delivery-versus-payment'' or ``DVP'') (the
``DVP Service'').\7\
---------------------------------------------------------------------------

    \6\ FICC is composed of two divisions: GSD and the Mortgage-
Backed Securities Division (``MBSD''). GSD provides real-time trade
matching, clearing, risk management, and netting for trades in U.S.
government debt issues. MBSD provides real-time automated trade
matching, trade confirmation, risk management, netting, and
electronic pool notification to the mortgage-backed securities
(``MBS'') market. The Advance Notice deals solely with proposed
changes to the GSD Rulebook (``Rules''), which are available at
http://www.dtcc.com/legal/rules-and-procedures.
    \7\ In addition to the DVP Service, FICC also provides such
services to facilitate trading other types of repos. FICC's General
Collateral Finance (``GCF'') Repo[supreg] Service enables members to
trade general collateral finance repos based on rate, term, and
underlying product throughout the day on a blind basis. See Rule
20--Special Provisions for GCF Repo Transactions, supra note 6.
FICC's Centrally Cleared Institutional Triparty (``CCIT'') Service
enables trading of tri-party repos between members that participate
in the GCF Repo Service and members that are institutional cash
lenders (other than investment companies registered under the
Investment Company Act of 1940, as amended). See Rule 3B--CCIT
Service, supra note 6. Unlike the DVP Service, the GCF Repo and CCIT
Services settle via the triparty platform of a clearing bank. This
Advance Notice proposes changes specific to the DVP Service.
---------------------------------------------------------------------------

    DVP repos involve a pair of transactions between two parties. The
first transaction (the ``Start Leg'') consists of the sale of
securities, in which one party delivers securities in exchange for the
other party's delivery of cash. The second transaction (the ``End
Leg'') occurs on a date after that of the Start Leg and consists of the
repurchase of securities, in which the obligations to deliver cash and
securities are the reverse of the Start Leg. The parties agree to the
terms of the trade, including the specific securities, principal
amount, interest rate, haircut, and date of maturity (i.e., either
overnight or term).
    A DVP repo that is scheduled to start one or more business days
after the submission of trade details to FICC is a ``forward starting''
repo. A DVP repo that is scheduled to start on the same business day as
trade details are submitted to FICC is a ``same-day starting'' repo.
For forward starting repos, FICC acts as CCP for both the Start Leg and
the End Leg. However, since the inception of the DVP Service, for same-
day starting repos, FICC generally has acted as CCP for the End Leg
only.\8\ Although FICC does not currently novate the Start Leg of same-
day starting repos, FICC collects margin from the parties for the End
Leg on the scheduled settlement date of the Start Leg.\9\ Currently,
the parties to a same-day starting repo settle the Start Leg
bilaterally outside of FICC.
---------------------------------------------------------------------------

    \8\ There is one limited scenario in which FICC currently acts
as CCP for the Start Leg of a brokered same-day starting repo.
Specifically, if the Start Leg fails to settle on its original
scheduled settlement date, FICC currently assumes responsibility for
settlement of the Start Leg on the evening of the original scheduled
settlement date. See Notice of Filing, supra note 4 at 85744.
    \9\ See Notice of Filing, supra note 4 at 85744, 50.
---------------------------------------------------------------------------

    The first step in the clearance and settlement process of a DVP
repo is for the parties to submit the trade details to FICC.\10\ Upon
receipt, FICC validates the trade details in a procedure referred to in
FICC's Rules as ``Trade Comparison,'' which culminates in the legally
binding and enforceable contract between FICC and the parties to the
trade.\11\ There are different types of Trade Comparisons, depending on
which entity submits the trade details to FICC, and the procedures,
timing, and other applicable operational arrangements vary depending on
the type. For example, a Bilateral Comparison occurs when the
individual FICC members that are the parties to a trade each submit
trade details to FICC.\12\ A Demand Comparison occurs when an Inter-
Dealer Broker (``IDB'') or qualifying non-IDB repo broker \13\ (each, a
``Repo Broker'') submits trade details to FICC on behalf of both
parties to a trade.\14\
---------------------------------------------------------------------------

    \10\ Trade details may be submitted to FICC by, or on behalf of,
a member in a form, manner, and timeframe prescribed by FICC's
Rules. See Rule 5--Comparison System, supra note 6.
    \11\ Id.
    \12\ See Rule 6A--Bilateral Comparison, supra note 6.
    \13\ For purposes of the Advance Notice, both IDBs and non-IDB
repo brokers are FICC members. A qualifying non-IDB repo broker is
one that FICC has determined: (1) Operates as a broker with regard
to activity in a segregated repo account, and (2) agrees and
participates in FICC's repo netting service in the same manner as an
IDB that participates in the service. See Rule 1--Definitions, supra
note 6.
    \14\ See Rule 6B--Demand Comparison, supra note 6.
---------------------------------------------------------------------------

    FICC generally novates and guarantees settlement of a trade upon
Trade Comparison.\15\ Additionally, on a daily basis, FICC aggregates
and matches a member's offsetting obligations resulting from the
member's trades, thereby netting the member's total daily settlement
obligations.\16\ In the DVP Service, such netting takes place the night
before the scheduled settlement date of whichever leg of the repo would
settle on the following business day.\17\
---------------------------------------------------------------------------

    \15\ See Rule 5--Comparison System, supra note 6.
    \16\ See Rule 11--Netting System, supra note 6.
    \17\ See Notice of Filing, supra note 4 at 85745-46.
---------------------------------------------------------------------------

    Trades that settle bilaterally outside of FICC do not have the
benefit of FICC's CCP services, and therefore, such trades can be
subject to greater risk of settlement fails.\18\ Moreover, trades
facilitated by a Repo Broker that settle outside of FICC require
multiple bilateral securities movements between the parties to the
trade and the Repo Broker. The greater the number of bilateral
securities movements involved in trade settlement, the greater the
potential for operational risk resulting in settlement fails. If the
Start Leg of a DVP repo submitted by a Repo Broker fails to settle on
the original scheduled settlement date, FICC currently steps in that
evening as CCP and assumes

responsibility for settling the trade.\19\ This process may involve
FICC receiving securities from the failing party or netting the
settlement obligations arising from the Start Leg against those of the
End Leg of the same or another repo. FICC states that although its
current process of centralizing the settlement of such failed Start
Legs decreases further settlement risk, the current process is
operationally inefficient because it does not eliminate the multiple
securities movements that give rise to the risk of settlement
fails.\20\
---------------------------------------------------------------------------

    \18\ There are several risk factors inherent to trades that
clear bilaterally as opposed to trades that clear through a CCP. For
example, the credit risk associated with bilaterally cleared trades
remains with the original counterparties, who might not utilize
robust and transparent margin requirements, multilateral netting,
emergency liquidity and loss sharing arrangements, or other risk
mitigation measures. See U.S. Department of the Treasury Report, A
Financial System That Creates Economic Opportunities: Capital
Markets at 78, 81 (October 2017), available at https://www.treasury.gov/press-center/press-releases/documents/a-financial-system-capital-markets-final-final.pdf; Joint Staff Report: The U.S.
Treasury Market at 55 (October 15, 2014), available at https://www.treasury.gov/press-center/press-releases/Documents/Joint_Staff_Report_Treasury_10-15-2014.pdf; Treasury Market
Practices Group, White Paper on Clearing and Settlement in the
Secondary Market for U.S. Treasury Securities at 2-4 (July 11,
2019), available at https://www.newyorkfed.org/medialibrary/Microsites/tmpg/files/CS_FinalPaper_071119.pdf.
    \19\ See Section 5, Rule 19--Special Provisions for Brokered
Repo Transactions, supra note 6.
    \20\ See Notice of Filing, supra note 4 at 85744.
---------------------------------------------------------------------------

B. Proposed Same-Day Settling Service

    FICC states that its members have expressed an interest in FICC
acting as CCP for the Start Leg of same-day starting repos.\21\ In the
Advance Notice, FICC proposes to modify its Rules to include the Start
Leg of same-day starting repos in the risk management, novation,
guarantee, and settlement services of the DVP Service (the ``Same-Day
Settling Service''). Upon Trade Comparison, FICC would act as CCP for
the Start Leg of same-day starting repos, which would settle on the
same business day. FICC's margin collection with respect to the trade
would not change from the current process. After FICC's novation, if
the Start Leg were to fail, the parties' obligations to and from FICC
would go through the netting process that evening, and FICC would
continue to apply the margin amounts collected with respect to the
trade towards FICC's risk management of the End Leg.
---------------------------------------------------------------------------

    \21\ Id.
---------------------------------------------------------------------------

    FICC believes that the Same-Day Starting Service could increase
settlement efficiencies and decrease settlement risk because it would
eliminate the movement of securities between members by centralizing
the settlement of the Start Leg of same-day starting repos with
FICC.\22\ Moreover, for same-day starting repos submitted by Repo
Brokers, the Same-Day Settling Service would remove the Repo Broker
from the settlement process by eliminating the multiple bilateral
securities movements involved in the settlement of the Start Leg.
---------------------------------------------------------------------------

    \22\ See Notice of Filing, supra note 4 at 85744, 49-50.
---------------------------------------------------------------------------

1. Voluntary for Repo Brokers; Mandatory for Other Members
    As proposed in the Advance Notice, participation in the proposed
Same-Day Settling Service would be voluntary for Repo Brokers. Repo
Brokers often provide a suite of services to their clients, including
facilitating the bilateral settlement of the Start Leg of same-day
starting repos. FICC states that a requirement on Repo Brokers to
participate in the Same-Day Settling Service could disrupt the current
service offerings from Repo Brokers to their clients.\23\ Since Repo
Brokers submit trade details to FICC on behalf of both parties to a
trade, a Repo Broker opting out of the Same-Day Settling Service would
simply result in settlement of the Start Leg bilaterally outside of
FICC, as is done currently. FICC believes that providing optionality
would allow Repo Brokers and their clients to determine whether a Repo
Broker should participate in the Same-Day Settling Service.\24\ For
participating Repo Brokers, FICC would no longer assume responsibility
for a failed Start Leg because FICC would already be acting as CCP for
the Start Leg upon Trade Comparison.
---------------------------------------------------------------------------

    \23\ See Notice of Filing, supra note 4 at 85746.
    \24\ Id.
---------------------------------------------------------------------------

    For FICC's members that are not Repo Brokers, participation in the
Same-Day Settling Service would be mandatory. Unlike Repo Brokers,
FICC's individual members submit trade details with respect to their
own side of a trade only, such that Trade Comparison only occurs after
FICC validates the trade details submitted by both parties to the
trade.\25\ Accordingly, if one party to a same-day starting repo could
choose to opt out of the Same-Day Settling Service, FICC would not be
able to act as CCP with equal and opposite settlement obligations
between the two parties. Such trades would, therefore, need to settle
outside of FICC as they do currently. However, unlike the clients of a
Repo Broker, such members would not know in advance whether any given
Start Leg would settle with FICC as CCP or bilaterally outside of FICC.
By requiring such members to participate in the Same-Day Settling
Service, members would have certainty that their Compared Trades would
settle with FICC acting as CCP.
---------------------------------------------------------------------------

    \25\ See Rule 6A--Bilateral Comparison, supra note 6.
---------------------------------------------------------------------------

2. As-Of Trades
    For purposes of the Advance Notice, same-day starting repos would
include As-Of Trades,\26\ in which a member submits a DVP repo for
comparison on the business day after the scheduled settlement date for
the Start Leg, and the End Leg is the current business day or
thereafter. FICC states that members occasionally submit As-Of Trades
due to human or operational errors.\27\ FICC further states that it
included As-Of Trades in the Advance Notice in order to reasonably
include as many variations of same-day starting repos as possible to
ensure that FICC would provide consistent settlement processing for all
same-day starting repos.\28\
---------------------------------------------------------------------------

    \26\ See Rule 1, supra note 6.
    \27\ See Notice of Filing, supra note 4 at 85745.
    \28\ Id.
---------------------------------------------------------------------------

    Currently, the Start Leg of an As-Of Trade settles outside of FICC.
An End Leg scheduled to settle on the current business day also settles
outside of FICC. However, an End Leg scheduled to settle on a date
after the current business day settles with FICC acting as CCP. As
proposed in the Advance Notice, FICC would act as CCP with respect to
both the Start and End Legs of a same-day starting repo, regardless of
the timing of the respective scheduled settlement dates.
3. Settlement at Contract Value or System Value
    As mentioned above, netting in the DVP Service occurs the night
before the scheduled settlement date. Because settlement of Start Legs
within the Same-Day Settling Service would occur on the same business
day as Trade Comparison, such transactions would generally not be
netted.\29\ Instead, FICC would settle such transactions on a trade-
for-trade basis. Transactions that FICC settles on a trade-for-trade
basis (i.e., transactions that are not netted) settle at ``Contract
Value,'' which means the dollar value at which the transaction is to be
settled on the scheduled settlement date.\30\ Transactions that settle
on a future date (i.e., transactions that are netted) settle at
``System Value,'' which includes accrued interest. For consistency with
the foregoing, FICC proposes to clarify the Rules with respect to the
Same-Day Settling Service to reflect that any leg of a DVP repo to be
settled on a trade-for-trade basis would settle at Contract Value,
whereas any leg to be settled on a future date would settle at System
Value.\31\
---------------------------------------------------------------------------

    \29\ The Start Leg of same-day starting repos would be netted in
the limited scenario of a brokered repo settlement fail on the
scheduled settlement date. See supra note 8; Notice of Filing, supra
note 4 at 85744.
    \30\ See Rule 1--Definitions, supra note 6.
    \31\ For example, for an overnight repo that is an As-Of Trade,
both legs would settle at Contract Value because both would settle
on the date of Trade Comparison and therefore would not be netted.
For an overnight repo that is a same-day starting repo, the Start
Leg would settle on the date of Trade Comparison at Contract Value,
whereas the End Leg would be netted that evening and settle the
following business day at System Value. For an overnight repo that
is forward starting (i.e., both legs would settle on dates in the
future), both legs would be subject to netting and settle at System
Value. Notice of Filing, supra note 4 at 85746.

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

4. Late-Day Compared Trades
    FICC states that members occasionally execute same-day starting
repos after the close of the Fedwire Securities Service (``Fedwire''),
which is the service that members generally use for settling bilateral
securities obligations.\32\ Currently, such trades settle bilaterally
between the parties outside of FICC, provided that both parties use the
same clearing bank for settlement. In the Advance Notice, FICC proposes
to include such late-day trades in the Same-Day Settling Service (i.e.,
FICC proposes to act as CCP for the Start Leg) on a reasonable efforts
basis, meaning that FICC would attempt to contact the parties to the
trade and FICC's clearing bank to confirm agreement to settle the
trade.\33\
---------------------------------------------------------------------------

    \32\ The Fedwire is a service provided by the Federal Reserve
Banks that includes settlement and transfer of DVP securities
transactions. The Fedwire operates daily from 8:30 a.m. to 3:30 p.m.
(All times herein are Eastern Time.) See Fedwire and National
Securities Service, Federal Reserve Bank of New York (March 2015),
available at https://www.newyorkfed.org/aboutthefed/fedpoint/fed43.html; Fedwire Securities Service, Board of Governors of the
Federal Reserve System (July 31, 2014), available at https://www.federalreserve.gov/paymentsystems/fedsecs_about.htm.
    \33\ See Notice of Filing, supra note 4 at 85748.
---------------------------------------------------------------------------

    Specifically, for members that clear at FICC's clearing bank, FICC
would attempt to settle any same-day starting repos that are compared
between 3:01 p.m. and 5:00 p.m., provided that (1) FICC is able to
contact the parties to the trade and FICC's clearing bank, and (2) the
parties and FICC's clearing bank agree to settle the trade. For members
that do not clear at FICC's clearing bank, FICC proposes to attempt to
settle, on a reasonable efforts basis, same-day starting repos that are
compared during the Fedwire reversal period between 3:01 p.m. and 3:30
p.m., provided that (1) FICC is able to contact FICC's clearing bank
and the parties to the trade, (2) FICC's clearing bank and the parties
to the trade confirm agreement to settle the trade, and (3) FICC's
clearing bank, the member's clearing bank, and the Federal Reserve Bank
of New York each permit settlement of the trade.
5. Other Changes to FICC's Rules To Incorporate the Same-Day Settling
Service
    In the Advance Notice, FICC proposes changes to several Rule
provisions to ensure the relevant applicability of such provisions to
the Same-Day Settling Service. FICC proposes to add a newly defined
term ``Same-Day Settling Trade'' to capture the universe of DVP repos
that would be covered by the Same-Day Settling Service. FICC proposes
to modify the definitions of ``Deliver Obligation'' and ``Receive
Obligation'' to include references to Same-Day Settling Trades. FICC
proposes to modify the definitions of ``Settlement Value'' and ``System
Value'' to contemplate that Same-Day Settling Trades could settle at
Contract Value or System Value, depending on the circumstances of the
trade, as described above.
    FICC proposes to incorporate Same-Day Settling Trades into the
existing Rule provisions governing the Comparison System and Netting
System. FICC proposes to add Rule provisions addressing eligibility
requirements for Same-Day Settling Trades to qualify for FICC's
novation and settlement guarantee. FICC proposes to incorporate Same-
Day Settling Trades into the Rule provisions governing how parties
satisfy their obligations to FICC, including trades that become
uncompared or canceled. FICC proposes to incorporate Same-Day Settling
Trades into the Rule provisions dealing with settlement fails. Finally,
FICC proposes to include appropriate cross-references to ensure that
various Rule provisions related to general securities settlement apply
to Same-Day Settling Trades.

C. Proposed Pair-Off Service

    Settlement fails occur because one party does not have inventory to
settle with the other party on the scheduled settlement date.
Currently, a member's obligations that remain unsettled when the
Fedwire closes go through FICC's overnight netting system for
settlement the following business day, and the member is subject to
FICC's fails charge.\34\ In a scenario where a member has offsetting
unsettled failed obligations in the same security (i.e., separate
failed obligations to both deliver and receive the same security) after
the close of the Fedwire, those obligations currently go through the
overnight netting system for settlement the following day.
---------------------------------------------------------------------------

    \34\ See Section 14, Rule 11--Netting System, supra note 6.
---------------------------------------------------------------------------

    In the Advance Notice, FICC proposes an optional service for
members whereby FICC would pair-off a member's offsetting failed
securities settlement obligations each day, beginning at 3:32 p.m.
(shortly after the Fedwire closes) until 4:00 p.m. (the ``Pair-Off
Service''). Additionally, the member would receive either a debit or
credit, as applicable, to account for any difference in the settlement
value of its deliver and receive obligations as part of FICC's intraday
funds-only settlement (``FOS'') process. Therefore, the proposed Pair-
Off Service would enable participating members to settle their
obligations on the day they arise, rather than continuing to the next
day as unsettled failed obligations, as they would under the current
practice. Failed obligations that remain unsettled overnight present
market risk exposure to both FICC and the parties to such trades. FICC
believes that by enabling the earlier settlement of a member's
offsetting obligations, the proposed Pair-Off Service could reduce such
overnight market risk.\35\
---------------------------------------------------------------------------

    \35\ See Notice of Filing, supra note 4 at 85749-50.
---------------------------------------------------------------------------

    FICC proposes to start the Pair-Off Service at approximately 3:32
p.m., and provide FOS banks with their intraday net FOS figures by 4:00
p.m. for acknowledgement by 4:30 p.m. Accordingly, FICC proposes to
change the timing of FOS processing from the current time of 3:15 p.m.
to 4:30 p.m. to enable FICC to settle any net money differences that
would arise from the proposed Pair-Off Service.

II. Discussion and Commission Findings

    Although the Clearing Supervision Act does not specify a standard
of review for an advance notice, the stated purpose of the Clearing
Supervision Act is instructive: To mitigate systemic risk in the
financial system and promote financial stability by, among other
things, promoting uniform risk management standards for SIFMUs and
strengthening the liquidity of SIFMUs.\36\
---------------------------------------------------------------------------

    \36\ See 12 U.S.C. 5461(b).
---------------------------------------------------------------------------

    Section 805(a)(2) of the Clearing Supervision Act authorizes the
Commission to prescribe regulations containing risk management
standards for the payment, clearing, and settlement activities of
designated clearing entities engaged in designated activities for which
the Commission is the supervisory agency.\37\ Section 805(b) of the
Clearing Supervision Act provides the following objectives and
principles for the Commission's risk management standards prescribed
under Section 805(a): \38\
---------------------------------------------------------------------------

    \37\ 12 U.S.C. 5464(a)(2).
    \38\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

     To promote robust risk management;
     to promote safety and soundness;
     to reduce systemic risks; and
     to support the stability of the broader financial system.
    Section 805(c) provides, in addition, that the Commission's risk
management standards may address such areas as

risk management and default policies and procedures, among others
areas.\39\
---------------------------------------------------------------------------

    \39\ 12 U.S.C. 5464(c).
---------------------------------------------------------------------------

    The Commission has adopted risk management standards under Section
805(a)(2) of the Clearing Supervision Act and Section 17A of the
Exchange Act (the ``Clearing Agency Rules'').\40\ The Clearing Agency
Rules require, among other things, each covered clearing agency to
establish, implement, maintain, and enforce written policies and
procedures that are reasonably designed to meet certain minimum
requirements for its operations and risk management practices on an
ongoing basis.\41\ As such, it is appropriate for the Commission to
review advance notices against the Clearing Agency Rules and the
objectives and principles of these risk management standards as
described in Section 805(b) of the Clearing Supervision Act. As
discussed below, the Commission believes the proposals in the Advance
Notice are consistent with the objectives and principles described in
Section 805(b) of the Clearing Supervision Act \42\ and in the Clearing
Agency Rules, in particular Rule 17Ad-22(e)(21).\43\
---------------------------------------------------------------------------

    \40\ 17 CFR 240.17Ad-22. See Securities Exchange Act Release No.
68080 (October 22, 2012), 77 FR 66220 (November 2, 2012) (S7-08-11).
See also Securities Exchange Act Release No. 78961 (September 28,
2016), 81 FR 70786 (October 13, 2016) (S7-03-14) (``Covered Clearing
Agency Standards''). FICC is a ``covered clearing agency'' as
defined in Rule 17Ad-22(a)(5).
    \41\ Id.
    \42\ 12 U.S.C. 5464(b).
    \43\ 17 CFR 240.17Ad-22(e)(21)(i), (ii), and (iii).
---------------------------------------------------------------------------

A. Consistency With Section 805(b) of the Clearing Supervision Act

    The Commission believes that the Advance Notice is consistent with
the stated objectives and principles of Section 805(b) of the Clearing
Supervision Act because the changes proposed in the Advance Notice are
consistent with reducing systemic risks, supporting the stability of
the broader financial system, promoting robust risk management, and
promoting safety and soundness.\44\
---------------------------------------------------------------------------

    \44\ 12 U.S.C. 5464(b).
---------------------------------------------------------------------------

    The Commission believes that the proposals in the Advance Notice
are consistent with the principles of reducing systemic risk and
supporting the stability of the broader financial system. When a CCP
novates a trade and takes offsetting and guaranteed positions between
the two original parties to the trade, the length of time from novation
to trade settlement may affect the CCP's exposure to credit, market,
and liquidity risk. For example, settlement fails extend the time to
settlement and can thereby present risk to the CCP that a member's
positions and other resources that the CCP holds (generally, the
member's margin) decline in market value as the CCP considers whether
and how it might liquidate, transfer, or otherwise dispose of such
assets to minimize losses. Settlement fails can also affect the amount
of liquidity risk a CCP may need to bear for purposes of settling an
unsettled trade because CCPs may rely on incoming payments from some
members to facilitate payments to other members. For FICC's members, a
settlement fail on a securities delivery obligation causes the non-
failing party to withhold payment while settlement is rescheduled for
the following business day and until the trade ultimately settles. In
the interim, the non-failing party cannot use the securities, which it
may have already committed to deliver in subsequent trading activity,
giving rise to the risk of further settlement fails. Also, the failing
party does not have use of the cash proceeds from the trade. Settlement
fails can, therefore, undermine the liquidity of a well-functioning
market, and a member default could lead to the default of other members
and market participants as well. Settlement fails can therefore be a
source of systemic risk and instability to the broader market.
    As described above in Section I.A., FICC currently acts as CCP for
only the End Leg of a same-day starting DVP repo. The Start Leg
currently settles bilaterally outside of FICC between the parties to
the trade. Trades that settle bilaterally outside of FICC are generally
exposed to more operational risk and consequently may result in more
settlement fails than trades which are novated and risk-managed by FICC
in its role as CCP.\45\
---------------------------------------------------------------------------

    \45\ See supra note 18.
---------------------------------------------------------------------------

    By centralizing settlement of the Start Leg of same-day starting
repos, the proposal would eliminate the current bilateral settlement of
securities between the parties. Once the Start Leg is subject to FICC's
settlement guarantee, a settlement fail would be contained between the
failing party and FICC. Even if the start leg were to fail, FICC's
margin collection and other risk mitigation measures would be in place
to protect the non-failing party originally on the other side of the
trade. The Same-Day Settling Service would thereby likely reduce the
spread of settlement fails to other market participants. As a result,
the Commission believes that the Same-Day Settling Service could reduce
the risk associated with settlement fails in the DVP repo market. More
broadly, by preventing the spread of settlement fails to other market
participants, the Same-Day Settling Service also could help reduce
systemic risk and support the stability of the broader financial
system.
    Additionally, as discussed above in Section I.A., trades
facilitated by a Repo Broker that settle outside of FICC require
multiple bilateral securities movements between the parties to the
trade and the Repo Broker. The greater the number of bilateral
securities movements involved in trade settlement, the greater the
potential for operational risk resulting in settlement fails. FICC
currently manages the risk of a failed Start Leg for a brokered repo by
assuming responsibility for trade settlement on the evening of the
original scheduled settlement date. While this approach decreases
further settlement risk, it neither prevents the original settlement
fail nor does it eliminate the multiple bilateral securities movements
for settling the Start Leg until after a settlement fail. For
participating Repo Brokers, the Same-Day Settling Service would
eliminate the bilateral securities movements and the associated risk of
settlement fails because FICC would novate and guarantee settlement of
the Start Leg upon Trade Comparison. As a result, the Commission
believes that the Same-Day Settling Service could improve efficiency in
the settlement process for brokered DVP repos and thereby reduce the
risk of settlement fails.
    Finally, as discussed above in Section I.C., the proposed Pair-Off
Service would enable participating members to settle their offsetting
failed securities settlement obligations each day after the Fedwire
closes. FICC's current process is for such failed obligations to go
through the evening netting system, with settlement rescheduled for the
following business day. The proposed Pair-Off Service represents a more
efficient process for resolving failed settlement obligations because
settlement would occur on the day they arise, rather than continuing as
settlement fails to the next business day. Moreover, failed obligations
that remain unsettled overnight present market risk exposure to both
FICC and the parties to such trades. By enabling the earlier settlement
of a member's offsetting obligations, the proposed Pair-Off Service
could reduce such overnight market risk.
    For the reasons discussed above, the Commission believes that the
proposals in the Advance Notice could minimize the occurrence of
settlement fails, reduce associated risks, and improve settlement
efficiency. Accordingly, the Commission believes that the proposals

in the Advance Notice are consistent with the objectives of reducing
systemic risks and supporting the stability of the broader financial
system.\46\
---------------------------------------------------------------------------

    \46\ Id.
---------------------------------------------------------------------------

    The Commission further believes that FICC's proposals in the
Advance Notice are consistent with the objectives of promoting robust
risk management and promoting safety and soundness. First, as discussed
above in Section I.A., FICC currently acts as CCP for the End Leg of
same-day starting repos. In that role, FICC risk manages, novates, and
guarantees settlement of such trades. The proposed Same-Day Settling
Service would expand FICC's role as CCP to include the Start Leg of
same-day starting repos, thereby applying FICC's existing risk
management standards to such trades. The Commission believes that
extending FICC's existing risk management standards in acting as CCP
for the Start Leg of same-day settling repos is consistent with the
objective of promoting robust risk management.\47\
---------------------------------------------------------------------------

    \47\ Id.
---------------------------------------------------------------------------

    Additionally, as discussed above in Section I.C., the proposed
Pair-Off Service would enable participating members to settle their
offsetting failed securities settlement obligations each day, shortly
after the Fedwire closes. FICC's current process is for such failed
obligations to go through the evening netting system, with settlement
rescheduled for the following business day. The proposed Pair-Off
Service represents a more efficient process for resolving failed
settlement obligations because settlement would occur on the day they
arise, rather than continuing as settlement fails to the next business
day. As discussed above, failed obligations that remain unsettled
overnight present market risk exposure to both FICC and the parties to
such trades. By enabling the earlier settlement of a member's
offsetting obligations for those members who choose to use the service,
the proposed Pair-Off Service could reduce such overnight market risk
and protect FICC from sustaining associated losses. Accordingly, the
Commission believes that adopting the proposed Pair-Off Service is
consistent with the objectives of promoting robust risk management and
promoting safety and soundness.\48\
---------------------------------------------------------------------------

    \48\ Id.
---------------------------------------------------------------------------

B. Consistency With Rule 17Ad-22(e)(21)

    Rule 17Ad-22(e)(21) under the Exchange Act requires each covered
clearing agency to establish, implement, maintain, and enforce written
policies and procedures reasonably designed to be efficient and
effective in meeting the requirements of its participants and the
markets it serves, and have the covered clearing agency's management
regularly review the efficiency and effectiveness of its (i) clearing
and settlement arrangements, (ii) operating structure, including risk
management policies, procedures and systems, and (iii) scope of
products cleared or settled.\49\
---------------------------------------------------------------------------

    \49\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------

    As discussed above in Section I.B, the proposed Same-Day Settling
Service would eliminate bilateral settlements between the parties to
the Start Leg of a DVP repo and allow FICC to settle both the Start and
End Legs of a DVP Repo. In that regard, the proposed Same-Day Settling
Service represents a more efficient and effective settlement process
than FICC's current process, which generally includes bilateral
settlement of the Start Leg. FICC designed the Same-Day Settling
Service in response to requests from its members, to mitigate the
operational risk that can result in settlement fails. As discussed
above, if not contained, settlement fails can spread to other market
participants and undermine the liquidity of a well-functioning
market.\50\ In contrast, reducing the occurrence of settlement fails
(and their resultant effects) would strengthen broader market
liquidity. Therefore, by reducing the risk of settlement fails, the
proposal would benefit FICC's members when it results in transactions
that settle on time that might have otherwise failed, with lower
overall transaction costs. Accordingly, the Commission believes that
adopting the proposed Same-Day Settling Service would be consistent
with Rule 17Ad-22(e)(21) \51\ because the proposal would broaden the
scope of the DVP Service to include the Start Leg of same-day starting
repos in a manner designed to be efficient and effective in reducing
settlement fails to the benefit of FICC's members and the broader DVP
repo market.
---------------------------------------------------------------------------

    \50\ Additionally, when a FICC member fails to meet its
settlement obligations, the member incurs FICC's fails charge, which
could further impact the member's liquidity. See Section 14, Rule
11--Netting System, supra note 6.
    \51\ 17 CFR 240.17Ad-22(e)(21).
---------------------------------------------------------------------------

    Moreover, as discussed above in Section I.C, the proposed Pair-Off
Service would enable participating members to settle their offsetting
failed securities settlement obligations each day, shortly after the
Fedwire closes. Under FICC's current process, such failed obligations
go through the evening netting system, with settlement rescheduled for
the following business day. The proposed Pair-Off Service represents a
more efficient process for resolving failed settlement obligations
because settlement would occur on the day the obligations arise, rather
than continuing as settlement fails to the next business day. As
discussed above, failed obligations that remain unsettled overnight
present market risk exposure to both FICC and the parties to such
trades. By enabling earlier settlement of a member's offsetting
obligations, the proposed Pair-Off Service could reduce such overnight
market risk. Accordingly, the Commission believes that adopting the
proposed Pair-Off Service would be consistent with Rule 17Ad-22(e)(21)
\52\ because the proposal would enable the earlier settlement of a
member's offsetting failed obligations in a manner designed to be
efficient and effective in reducing overnight market risk to the
benefit of FICC's members.
---------------------------------------------------------------------------

    \52\ Id.
---------------------------------------------------------------------------

III. Conclusion

    It is therefore noticed, pursuant to Section 806(e)(1)(I) of the
Clearing Supervision Act, that the Commission does not object to
Advance Notice (SR-FICC-2020-803) and that FICC is authorized to
implement the proposed change as of the date of this notice or the date
of an order by the Commission approving proposed rule change SR-FICC-
2020-015, whichever is later.

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-01324 Filed 1-21-21; 8:45 am]
BILLING CODE 8011-01-P


                    UNITED STATES OF AMERICA

            DEPARTMENT OF TRANSPORTATION

                    OFFICE OF THE SECRETARY

                             WASHINGTON, DC

                                   	Issued by the Department of
Transportation on July 14, 2003

		       NOTICE OF ACTION TAKEN -- DOCKET OST-2003-15403

________________________________________________________________________
_________________________________

This serves as notice to the public of the action described below, taken
by the Department official indicated (no additional confirming order
will be issued in this matter).

Application of      American Airlines, Inc.       filed    6/11/03
for:

XX  Exemption under 49 U.S.C. 40109 to provide the following service:

Between points in the United States and Cameroon, and to integrate this
authority with its existing certificate and exemption authority.
American intends to operate this service under a code-share arrangement
with Swiss International Air Lines, Ltd. d/b/a Swiss.

Applicant rep:    Carl B. Nelson, Jr.<PHONE_NUMBER>      DOT Analyst:
Sylvia Moore<PHONE_NUMBER>

D I S P O S I T I O N

XX  Granted (subject to condition, see below)

The above action was effective when taken:  July 14, 2003,   through
July 14, 2005

Action taken by:   Paul L. Gretch, Director

		    Office of International Aviation

XX  The authority granted is consistent with the overall state of
aviation relations between the United States and Cameroon.

Except to the extent exempted or waived, this authority is subject to
the terms, conditions, and limitations indicated:     XX  Holder’s
Certificates of Public Convenience and Necessity

	      XX  Standard Exemption Conditions (attached)

                     XX  Statement of Authorization approving
American/Swiss code-share operations,

		dated April 23, 2002, and conditions therein

________________________

Conditions:  The route integration authority granted is subject to the
condition that any service provided under this exemption shall be
consistent with all applicable agreements between the United States and
the foreign countries involved.  Furthermore, (a) nothing in the award
of the route integration authority requested should be construed as
conferring upon American rights (including fifth-freedom intermediate
and/or beyond rights) to serve markets where U.S. carrier entry is
limited unless American notifies the Department of its intent to serve
such a market and unless and until the Department has completed any
necessary carrier selection procedures to determine which carrier(s)
should be authorized to exercise such rights; and (b) should there be a
request by any carrier to use the limited-entry route rights that are
included in American’s authority by virtue of the route integration
exemption granted here, but that are not then being used by American,
the holding of such authority by route integration will not be
considered as providing any preference for American in a competitive
carrier selection proceeding to determine which carrier(s) should be
entitled to use the authority at issue.

(See Reverse Side)

2

On the basis of data officially noticeable under Rule 24(g) of the
Department’s regulations, we found the applicant qualified to provide
the services authorized.

Under authority assigned by the Department in its regulations, 14 CFR
Part 385, we found that (1) our action was consistent with Department
policy; (2) grant of the exemption was consistent with the public
interest, and (3) grant of the authority would not constitute a major
regulatory action under the Energy Policy and Conservation Act of 1975.
To the extent not granted or dismissed, we denied all requests in the
referenced Docket.  We may amend, modify, or revoke the authority
granted in this Notice at any time without hearing at our discretion.

Persons entitled to petition the Department for review of the action set
forth in this Notice under the Department’s regulations, 14 CFR
§385.30, may file their petitions within seven (7) days after the date
of issuance of this Notice.  This action was effective when taken, and
the filing of a petition for review will not alter such effectiveness.

An electronic version of this document is available on the World Wide
Web at:

http://dms.dot.gov//reports/reports_aviation.asp

U.S. Carrier Exemption Conditions

In the conduct of operations authorized, the U.S. carrier applicant(s)
shall:

(1)  Hold at all times effective operating authority from the government
of each country served;

(2)  Comply with applicable requirements concerning oversales contained
in 14 CFR 250 (for scheduled operations, if authorized);

(3)  Comply with the requirements for reporting data contained in 14 CFR
241;

(4)  Comply with requirements for minimum insurance coverage, and for
certifying that coverage to the Department, contained in 14 CFR 205;

(5)  Except as specifically exempted or otherwise provided for in a
Department Order, comply with the requirements of 14 CFR 203, concerning
waiver of Warsaw Convention liability limits and defenses;

(6)  Comply with the applicable requirements of the Federal Aviation
Administration Regulations and with all applicable U.S. Government
requirements concerning security; and

(7)  Comply with such other reasonable terms, conditions, and
limitations required by the public interest as may be prescribed by the
Department of Transportation, with all applicable orders and regulations
of other U.S. agencies and courts, and with all applicable laws of the
United States.

The authority granted shall be effective only during the period when the
holder is in compliance with the conditions imposed above.

 To assure compliance with all applicable U.S. Government requirements
concerning security, the holder should, before commencing any new
service (including charter flights) to or from a foreign airport, inform
its Principal Security Inspector (PSI) to advise the PSI of its plans
and to find out whether the Transportation Security Administration has
determined that security is adequate to allow such airport(s) to be
served.

06/2003