defined by the JOBS Act, relative to entities that register as brokers.
Among other things, the JOBS Act adds Section 4(a)(6) to the Securities
Act,\70\ which creates an exemption (the ``crowdfunding exemption'')
from registration requirements under the Securities Act for securities
offered and sold pursuant to the crowdfunding exemption. Broadly, the
crowdfunding exemption permits an issuer to offer and sell up to $1
million in securities over a 12-month period. The amount of any such
security sold to an investor by an issuer is not permitted to exceed
specified thresholds. Further, the issuer must comply with other
specified requirements under the JOBS Act and Commission rules. Any
offering pursuant to the crowdfunding exemption must be conducted
through a broker or a funding portal that is registered with the SEC.
---------------------------------------------------------------------------

    \70\ 15 U.S.C. 77d(a)(6).
---------------------------------------------------------------------------

    Under the JOBS Act, a funding portal must become a member of a
national securities association that is registered under Section 15A of
the Exchange Act. FINRA is the only national securities association
that is registered under Section 15A of the Exchange Act.
    On October 23, 2013, the SEC proposed rules \71\ to require
registration of funding portals and to implement the provisions of
Title III of the JOBS Act. Prospective funding portal operators have
stated that they intend to register with the SEC pursuant to Regulation
Crowdfunding as adopted by the SEC and to apply for FINRA membership.
---------------------------------------------------------------------------

    \71\ See note 8 supra.
---------------------------------------------------------------------------

B. Regulatory Objective

    The crowdfunding exemption is designed to help provide startups and
small businesses with capital by making relatively low dollar offerings
of securities less costly. The exemption creates a regulatory pathway
for funding portals to facilitate the offer and sale of securities, as
registered funding portals, without being required to register with the
SEC as brokers,\72\ provided they comply with specified limitations on
their business activity.\73\
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    \72\ Exchange Act Section 3(h)(1) (15 U.S.C. 78c(h)(1)) directs
the Commission by rule to exempt, conditionally or unconditionally,
a registered funding portal from the requirement to register as a
broker or dealer under Exchange Act Section 15(a)(1) (15 U.S.C.
78o(a)(1)), provided that the funding portal: (1) remains subject to
the examination, enforcement and other rulemaking authority of the
Commission; (2) is a member of a registered national securities
association; and (3) is subject to other requirements that the
Commission determines appropriate.
    \73\ See note 6 supra.
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    FINRA's proposal aims to create a streamlined set of regulations
for funding portals with rules that reflect the limited scope of
activity permitted by funding portals while also maintaining investor
protection.

C. Economic Baseline

    In the absence of FINRA's Funding Portal Rules, intermediaries
intending to facilitate securities-based crowdfunding transactions in
reliance on the crowdfunding exemption would be required to register
with the SEC as brokers. The FINRA rules for registered brokers are
intended to address a wider range of activities than is permissible to
funding portals, and would place restrictions and costs not associated
with such firms' crowdfunding activities. If all crowdfunding
intermediaries were subject to the full requirements that apply to
registered brokers, there might be several unintended consequences.
First, the regulatory costs to operate the crowdfunding intermediary
would likely be high, potentially restricting the number of registered
crowdfunding intermediaries. These costs would include, but are not
limited to, capital requirements, compliance costs and other
restrictions on activities. Second, and relatedly, higher compliance
costs may limit the activities of those crowdfunding intermediaries
that do choose to register as these may restrict financial and other
available resources. Third, limited numbers of registered crowdfunding
intermediaries may reduce competition in the crowdfunding market and
lead to less efficient capital allocation.
    In addition to crowdfunding intermediaries, the absence of the
proposed rules may also have an impact on: issuers, typically startups
and small

businesses seeking to raise capital by issuing securities; investors
that purchase or may consider purchasing securities in such offerings;
and other capital providers, broker-dealers and finders that currently
participate in private offerings.
    For the issuers seeking to raise capital through securities-based
crowdfunding in reliance on the crowdfunding exemption, limited numbers
of registered crowdfunding intermediaries may result in higher capital
raising costs, decreased opportunities for selling securities through a
given registered funding portal, or an aggregate reduction in the
capacity of registered crowdfunding intermediaries. Higher regulatory
costs to registered intermediaries may also be passed on to issuers.
All of these impacts would collectively make it more difficult for
startups and small businesses to efficiently find capital for their
operations.
    Limited numbers of registered intermediaries may also limit
investor access to securities-based crowdfunding offerings. In
addition, higher capital raising costs to issuers and higher regulatory
costs to registered intermediaries could be passed on to potential
investors.
    The absence of the proposed Funding Portal Rules also might have an
effect on broker-dealers and finders participating in private
offerings. As discussed above, in the absence of FINRA's Funding Portal
Rules, issuers intending to raise capital in reliance on the
crowdfunding exemption may face higher costs. Some of these issuers may
instead choose to raise capital through private offerings with the
assistance of broker-dealers and finders. This could increase the
revenue of finders and broker-dealers in the market for private
offerings, but less competition in the fundraising market and greater
restrictions on participation of investors may lead to less efficient
allocation of capital.

D. Economic Impacts

    The proposed rules are intended to provide investors with
appropriate protections by applying the relevant controls and oversight
to the limited activities of funding portals. FINRA recognizes that
there are potential costs associated with compliance with the proposed
rules. Prospective funding portal members will need to become members
of FINRA and establish compliance procedures to comply with the
proposed rules, both on an initial and ongoing basis. The proposed
rules may also have an impact on other market participants such as
issuers and investors. Benefits of the proposed rules may include
greater competition among crowdfunding intermediaries, better market
oversight, and investor protection for those investing in offerings
made through funding portals. Costs and benefits associated with
FINRA's proposed rules are only a subset of the costs and benefits
associated with securities-based crowdfunding regulations. Regulatory
outcomes will depend on many other factors including the SEC rules.
1. The SEC's Economic Analysis
    The SEC's Regulation Crowdfunding Proposal \74\ includes a detailed
economic analysis that estimates the potential costs and benefits to
various market participants. However, the scope of the SEC's proposed
Regulation Crowdfunding is broader than the scope of FINRA's proposed
rules. Regulation Crowdfunding, as proposed, prescribes rules governing
the offer and sale of securities under the new crowdfunding provisions.
It also provides a framework for the regulation of registered funding
portals and brokers that issuers are required to use as intermediaries.
In addition, it exempts securities sold pursuant to the crowdfunding
exemption from registration requirements under the Securities Act. As a
result, the SEC's economic analysis examines the impacts of securities-
based crowdfunding in reliance on the crowdfunding exemption as a new
fundraising channel. For example, it estimates the costs for registered
brokers, and brokers that prospectively would register, to comply with
the various requirements to engage in securities-based crowdfunding
transactions. The SEC's economic analysis also estimates the costs for
an intermediary to develop a platform to engage in such transactions.
---------------------------------------------------------------------------

    \74\ See note 8 supra.
---------------------------------------------------------------------------

    In contrast, FINRA has written the proposed rules specifically for
funding portals. In the absence of FINRA's Funding Portal Rules,
securities-based crowdfunding in reliance on the crowdfunding exemption
is still possible under the SEC rules, though intermediaries intending
to facilitate such transactions would need to register as brokers.
2. Benefits
    FINRA's proposed Funding Portal Rules will make it possible for
intermediaries intending to facilitate securities-based crowdfunding
transactions in reliance on the crowdfunding exemption to register as
funding portals, which is a lower cost alternative to registering as
brokers. The proposed rules encourage funding portals to become members
of FINRA as they provide a streamlined set of regulations that are
tailored to the activities of funding portals and avoid the imposition
of burdens and costs not associated with permissible funding portal
activity. The proposed rules will likely increase the number of
registered crowdfunding intermediaries, promote competition, and in
turn potentially reduce costs to issuers and investors.
    Because funding portals will be required to comply with both the
SEC's and FINRA's rules if adopted, FINRA's Funding Portal Rules will
create additional regulatory oversight of registered funding portals
and improve the SEC's ability to effectively regulate registered
funding portals' activities. FINRA believes that the proposed rules
will reduce the risk of misconduct and fraud and help create a healthy
marketplace in which issuers are more comfortable using securities-
based crowdfunding to raise capital and investors are more willing to
participate.
3. Costs to Funding Portals
    FINRA recognizes that there will be costs to prospective funding
portal members associated with each major set of provisions below.
Because the proposed Funding Portal Rules have been streamlined to
reflect the limited scope of activity permitted to funding portals, the
compliance costs would be higher in the absence of the proposed rules
where crowdfunding intermediaries would have to register as broker-
dealers.
a. Registration and Other Costs
    Certain costs to prospective funding portals are estimated in the
economic impact analysis of FINRA's proposed rule change to adopt
Section 15 of Schedule A to the FINRA By-Laws governing fees for
funding portal members.\75\
---------------------------------------------------------------------------

    \75\ See note 12 supra.
---------------------------------------------------------------------------

b. Other Compliance Costs: Major Sets of Provisions
Funding Portal Conduct
    Under proposed Funding Portal Rule 200, prospective funding portal
members would need to develop and implement policies and processes
designed to meet high standards of commercial honor and principles of
trade, prevent use of manipulative, deceptive or other fraudulent
devices, and comply with the specified proposed requirements on
communications with the public.

Funding Portal Compliance
    Proposed Funding Portal Rule 300(a) requires that each funding
portal member establish and maintain a system to supervise the
activities of each associated person of the funding portal member that
is reasonably designed to achieve compliance with applicable securities
laws and regulations, and with the Funding Portal Rules.
    Proposed Funding Portal Rule 300(b) requires that each funding
portal member must designate to FINRA an executive representative.
    Proposed Funding Portal Rule 300(c) requires funding portal members
to report to FINRA (and sets forth the obligations of such members'
associated persons to report to the member) regulatory proceedings,
disciplinary and other events. Funding portal members would need to
establish policies and processes to detect the events that are required
to be reported and ensure prompt reporting of the events.
    Proposed Funding Portal Rule 300(d) is designed to require funding
portal members to report to FINRA all contact information required by
FINRA through such means as FINRA may specify.
    Proposed Funding Portal Rule 300(e) requires each funding portal
member to report to FINRA the member's gross revenue on Form FP-
Statement of Revenue.
    Proposed Funding Portal Rule 300(f) requires each funding portal
member to make and keep current a record listing every associated
person of the funding portal member that shows, for each such
associated person, every office of the funding portal member where the
associated person regularly conducts any business for the funding
portal member, and any registration number, if any, to be prescribed by
FINRA, and every identification number or code assigned to the
associated person by the funding portal member. The rule requires a
funding portal member to preserve all records made pursuant to the rule
for five years, the first two in an easily accessible place.
    The proposal would not require funding portals to implement an
anti-money laundering program at this time. Alternatively, broker-
dealers that operate a platform under the proposed rules would continue
to have anti-money laundering program obligations, and those
obligations would extend to any platform that they operate. While this
represents an additional cost to registered broker-dealers over new
entrants that register strictly as funding portals, these costs are
likely small because broker-dealers are already required to have in
place all the requirements for an anti-money laundering program.
Investigations and Sanctions
    Proposed Funding Portal Rule 800(a) provides that except for FINRA
Rules 8110, 8211, 8213 and 8312, all funding portal members shall be
subject to the FINRA Rule 8000 Series unless the context requires
otherwise.
    Proposed Funding Portal Rule 800(b) addresses specified information
that FINRA shall make available to the public. Proposed Funding Portal
Rule 800(b)(2) provides that FINRA shall make available to the public
information filed by a funding portal member indicating whether the
funding portal member or any associated person of the funding portal
member is subject to an event described in Section 3(a)(39) \76\ of the
Exchange Act, and that the funding portal member must keep this
information current and must update such information promptly, but in
any event not later than 10 days following any change in such
information.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78c(a)(39). Section 3(a)(39) of the Act sets
forth the definition of ``statutory disqualification.''
---------------------------------------------------------------------------

Application of FINRA Rule 9000 Series to Funding Portals
    Proposed Funding Portal Rule 900(a) provides that except for the
FINRA Rule 9520 Series, FINRA Rule 9557, and the FINRA Rule 9700
Series, all funding portal members shall be subject to the FINRA Rule
9000 Series unless the context requires otherwise.
    Proposed Funding Portal Rule 900(b) sets forth procedures for a
person to become or remain associated with a funding portal member,
notwithstanding the existence of a statutory disqualification as
defined in Article III, Section 4 of the FINRA By-Laws and for a
funding portal member or person associated with a funding portal member
to obtain relief from the eligibility or qualification requirements of
the FINRA By-Laws and Funding Portal Rules.
Arbitration and Mediation
    Proposed Funding Portal Rule 1200(a) is designed to provide that
funding portal members will be subject to the FINRA Rule 12000 Series,
FINRA Rule 13000 Series and FINRA Rule 14000 Series, unless the context
requires otherwise. Proposed Funding Portal Rule 1200(b) addresses
predispute arbitration agreements for investor accounts.
c. Estimate of Costs
    FINRA understands that the staffing and scope of the organization
necessary to provide crowdfunding services may be comparable to that of
a small broker-dealer. As such, FINRA looks to its experience with a
sample of smaller broker-dealers to estimate the potential costs
associated with the proposed rules. The sample firms do not appear to
have a heavy investment in dedicated compliance infrastructure. For
example, the designated contacts of these firms for FINRA tend to be a
managing principal, who often serves several other roles such as
executive representative, anti-money laundering representative, and
continuing education representative. Required, routine compliance
activities (such as annual certifications, email review, employee
trading account reviews, etc.) are generally performed by these
principals. In several instances, a firm will rely on a third-party
compliance consulting firm to help with its general compliance
functions. Several of the sample firms employ a model where their
financial and operations principals are employed off-site, work part
time or hold multiple registrations with different member firms. FINRA
estimates that less than 50% of one internal person's time is typically
spent on compliance activities at each of these firms. FINRA
understands from a small sample of these firms that they currently pay
$1,000 to $1,500 per month for compliance consulting services.
    FINRA also understands that there are a few member firms that
already offer private placement platforms for accredited investors.
FINRA understands from various reports that these types of firms may
have two full-time compliance officers and spend about $100,000 to
$150,000 annually on ensuring that all regulations are followed. FINRA
believes these estimates are likely for the full scope of broker-dealer
activity and include the costs associated with compliance activities
not covered by the rule proposal, and thus reflects compliance costs
for activities beyond the scope of the permitted business activities of
funding portals.
4. Costs to FINRA
    FINRA has identified costs that it would likely incur as a result
of the proposed rules. Specifically, FINRA needs to adapt its current
regulatory infrastructure to manage regulatory processes for funding
portals, including regulatory support to members and potential
challenges to its decisions. To minimize these burdens, FINRA intends
to use as much as possible of its in-place systems and processes.

5. Impact on Competition
    In the absence of FINRA's Funding Portal Rules, intermediaries
intending to facilitate securities-based crowdfunding transactions in
reliance on the crowdfunding exemption are required to register with
the SEC as brokers. As shown by the SEC's economic analysis in the
Regulation Crowdfunding Proposal, the compliance cost associated with
broker registration is expected to exceed the compliance cost
associated with funding portal registration. By appropriately limiting
the rule set and attendant compliance costs to match the permitted
business activities of funding portals, FINRA's Funding Portal Rules
will likely allow more registered intermediaries in the market and
promote competition in the provision of crowdfunding services among
funding portals and broker-dealers.
    As noted above, funding portals may serve as a substitute for some
private offerings currently offered through broker-dealers under other
exemptions from registration, such as Regulation D (17 CFR 230.500
through 230.508). By enabling prospective funding portals to become
members of FINRA and thereby engage in funding portal business, the
proposed rules may provide a more efficient form of capital raising by
issuers, resulting in a loss of underwriting business in these other
private offering platforms. FINRA first notes that these private
offerings serve only as a limited substitute for offerings pursuant to
the crowdfunding exemption, as they have significant limitations on
investor participation that make them inappropriate for many of the
investments that could be made available under the crowdfunding
exemption. Secondly, FINRA notes that any competitive impacts that
might arise from substitution across platforms is mitigated by the
ability of any broker-dealer to offer a crowdfunding platform or
register a funding portal affiliate, and thus compete to retain the
business.
    Increasing competition among financial intermediaries who might
assist startups and small businesses in obtaining capital will likely
lead to lower costs for some issuers, which may enable more startups
and small businesses to rely on securities-based crowdfunding as a new
source of capital. An increased number of issuers in the fundraising
market may promote competition and efficient allocation of capital
among crowdfunding issuers.
    Increased competition among crowdfunding intermediaries and issuers
should also lead to more investment opportunities and lower costs for
investors. More investors and thus more capital may be made available
to startups and small businesses, helping to achieve the regulatory
objective of the crowdfunding provisions of the JOBS Act.
6. Alternatives
    As discussed above, FINRA understands that under the SEC's proposed
rules, securities-based crowdfunding pursuant to the crowdfunding
exemption can occur in brokers that are members of a self-regulatory
organization. As such, FINRA considered applying its full rule set to
intermediaries providing crowdfunding services. FINRA determined that
this approach would impose costs not associated with the activities of
the intermediaries and would likely have negative consequences for
market efficiency and competition. FINRA also considered the
alternative of requiring persons associated with funding portal members
to register with FINRA and decided it would not be necessary at this
early stage in light of the limited activities of funding portals. As
FINRA gains experience in regulating funding portal member activities,
FINRA will reassess the alternative based on the nature and scope of
the business activities of funding portals.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    The proposed rule change was published for comment in Regulatory
Notice 13-34 (October 2013) (the ``Notice''). Seven comments were
received in response to the Notice. A copy of the Notice is attached as
Exhibit 2a. A list of commenters \77\ is attached as Exhibit 2b. Copies
of the comment letters received in response to the Notice are attached
as Exhibit 2c.
---------------------------------------------------------------------------

    \77\ All references to commenters are to the commenters as
listed in Exhibit 2b.
---------------------------------------------------------------------------

    Some commenters expressed concerns that the rules as proposed in
the Notice would impose too many requirements and, in combination with
the requirements set forth in the SEC's Regulation Crowdfunding
Proposal, would be costly and burdensome for prospective funding
portals.\78\ In contrast, other commenters expressed concern that the
proposal should impose more requirements such as those that apply to
current broker-dealer members or should include other requirements or
specified guidelines for purposes of oversight of funding portal
activities.\79\ Commenters' specific suggestions are discussed below.
---------------------------------------------------------------------------

    \78\ CyberIssues, Heritage and Polanco.
    \79\ FSA Institute, FSI, NASAA and Wulff.
---------------------------------------------------------------------------

1. Fidelity Bond
    As discussed earlier, the proposal as published in the Notice would
have required that funding portal members maintain fidelity bond
coverage. Two commenters suggested that FINRA should eliminate or
tailor the proposed rule.\80\ One of the commenters suggested that,
because the JOBS Act prohibits funding portals from holding, managing,
possessing or otherwise handling investor funds or securities, funding
portals pose limited risk in this area and the fidelity bond
requirement would impose an unnecessary cost on funding portals.\81\
One of the commenters suggested that, to help save on premiums for
prospective funding portals, fidelity bond coverage should not be
required until a funding portal member's membership application is
approved.\82\ On the other hand, two commenters suggested greater
stringency in this area.\83\ One commenter suggested that the proposed
fidelity bond requirement would not be sufficient for purposes of
oversight and that the proposed requirement should include financial
responsibility requirements.\84\ One commenter suggested that the
proposal should be revised to include fines for failure to maintain
adequate fidelity bonds.\85\
---------------------------------------------------------------------------

    \80\ CyberIssues and Heritage.
    \81\ Heritage.
    \82\ CyberIssues.
    \83\ NASAA and Wulff.
    \84\ Wulff.
    \85\ NASAA.
---------------------------------------------------------------------------

    In response, as discussed earlier, FINRA is not proposing the
fidelity bond requirement as part of this rulemaking. FINRA believes
that this approach is appropriate in the interest of reducing potential
burdens on prospective funding portal members given the limited nature
of funding portal business and given that regulatory experience with
funding portals is developing.\86\
---------------------------------------------------------------------------

    \86\ Similarly, given the limited nature of funding portal
business, in particular the prohibition against funding portals
holding, managing, possessing or otherwise handling investor funds
or securities, and given that funding portal business is at an early
stage of development, FINRA is not proposing net capital or similar
financial responsibility requirements for funding portal members at
this time. As discussed earlier, FINRA will monitor the development
of this area and determine whether a subsequent rulemaking regarding
fidelity bonds or other financial responsibility requirements is
merited.

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

2. Anti-Money Laundering Program
    As discussed earlier, the proposal as published in the Notice
included a proposed requirement that funding portal members implement a
written anti-money laundering program. Two commenters opposed the
proposed requirement.\87\ One suggested that the anti-money laundering
rules are too complex and expensive to comply with, and that the rule
is unnecessary because funding portals are prohibited from holding,
managing, possessing or otherwise handling investor funds or securities
and are thereby not in a position to facilitate money laundering.\88\
One commenter suggested that imposing the requirement on funding
portals would be duplicative of functions already performed for
instance by institutions where investor funds would be held in
escrow.\89\ On the other hand, one commenter expressed support for the
proposed requirement.\90\
---------------------------------------------------------------------------

    \87\ CyberIssues and Heritage.
    \88\ Heritage.
    \89\ CyberIssues.
    \90\ CFA Institute.
---------------------------------------------------------------------------

    In response, as discussed earlier, the BSA and the implementing
regulations thereunder apply to brokers and dealers in securities that
are registered or required to be registered with the Commission. The
BSA does not apply to funding portals at this time. Accordingly, FINRA
is not proposing an anti-money laundering requirement at this time.
3. Additional Specific Comments
a. Central Registration Depository
    One commenter suggested that the proposal should expressly mandate
that funding portal members file the SEC's Form Funding Portal and all
related forms through the Central Registration Depository, similar to
current FINRA Rule 1010(a).\91\ In response, FINRA believes that it is
sufficient, and consistent with the need for regulatory flexibility,
that the proposal provides for submission of specified information by
means and format prescribed by FINRA.\92\ FINRA is in the process of
developing systems for submission of specified information tailored to
prospective funding portal members which, consistent with the Funding
Portal Rules, FINRA will prescribe prior to the implementation of the
proposal.
---------------------------------------------------------------------------

    \91\ NASAA.
    \92\ See, e.g., proposed Funding Portal Rule 110(a)(3)(A),
regarding submission of Form FP-NMA, and proposed Funding Portal
Rule 110(a)(4)(B), regarding submission of Form FP-CMA.
---------------------------------------------------------------------------

b. Associated Persons of a Funding Portal Member
    One commenter suggested that FINRA should narrow the proposed
definition of associated person of a funding portal member as set forth
under proposed Funding Portal Rule 100(b).\93\ The commenter suggested
excluding from the definition employees of a funding portal whose
functions exclusively relate to providing various services to issuers.
In response, FINRA notes that the proposed definition is largely based
on the current definition under the FINRA By-Laws that applies to
broker-dealers and is meant to ensure among other things that the
specified persons are subject to FINRA rules. FINRA notes that services
that funding portals provide to issuers will potentially be an
important component of the business model of many funding portals.
Accordingly, FINRA does not propose to modify the definition.
---------------------------------------------------------------------------

    \93\ CyberIssues.
---------------------------------------------------------------------------

    Two commenters suggested that FINRA should institute examination
and licensing requirements for at least some associated persons of
funding portal members.\94\ In response, FINRA notes that the funding
portal business is at an early stage of development. Further, as
discussed earlier, FINRA notes that the scope of activities permitted
to funding portals is limited under the JOBS Act. Accordingly, FINRA is
not imposing examination and licensing requirements on associated
persons of funding portals at this time. However, as FINRA gains
experience under the proposed rules, FINRA will consider whether
additional rulemaking with respect to examination and licensing
requirements is merited.
---------------------------------------------------------------------------

    \94\ NASAA and Wulff.
---------------------------------------------------------------------------

c. Application of Additional Rules
    Two commenters suggested that FINRA should apply to funding portal
members additional rules from the FINRA rulebook that currently apply
to broker-dealer members or that FINRA should duplicate, within the
proposed Funding Portal Rules, standards adopted by the SEC in
Regulation Crowdfunding.\95\ One commenter proffered several current
FINRA rules governing broker-dealer members that the commenter
suggested should be replicated within the proposed Funding Portal Rules
to address potential conflicts of interest, such as the prohibition
against guarantees and sharing in accounts under FINRA Rule 2150, as
well as elements under FINRA Rule 2210 (Communications with the
Public), FINRA Rule 3220 (Influencing or Rewarding Employees of
Others), FINRA Rule 3240 (Borrowing From or Lending to Customers),
FINRA Rule 5230 (Payments Involving Publications that Influence the
Market Price of a Security), and FINRA Rule 5110 (Corporate Financing
Rule--Underwriting Terms and Arrangements).\96\ The commenter further
suggested that FINRA should adopt a distinct recordkeeping rule for
funding portal members over and above the recordkeeping rule for
funding portals adopted by the SEC.\97\ One commenter suggested that
the proposed Funding Portal Rules should duplicate rule language in the
SEC's Regulation Crowdfunding aimed at limiting, in conformity with
requirements of Title III of the JOBS Act,\98\ the activities of
funding portals, such as prohibiting funding portals from offering
investment advice or recommendations.
---------------------------------------------------------------------------

    \95\ CFA Institute and NASAA.
    \96\ NASAA.
    \97\ See proposed Regulation Crowdfunding Rule 404.
    \98\ See note 6 supra.
---------------------------------------------------------------------------

    In response, FINRA has stated in the Notice and in this filing its
intent to streamline the proposed rules to the extent possible to
reflect the limited scope of activity permitted by funding portals
while also maintaining investor protection. Further, FINRA will enforce
any rules for funding portals adopted by the SEC. As such, FINRA has
indicated that its rules should not duplicate any rules adopted by the
SEC in this area.\99\ Title III of the JOBS Act sets specified limits
on the activities of funding portals, for example, by expressly
prohibiting funding portals from offering investment advice or
recommendations and by prohibiting funding portals from holding,
managing, possessing or otherwise handling investor funds or
securities, which the SEC proposed to implement by rule.\100\ The SEC
has proposed to address such investor protection issues as measures to
reduce the risk of fraud,\101\ account opening,\102\ requirements with
respect to investor transactions,\103\ payments to third parties,\104\
and permissible communication channels.\105\ All funding portal members
of FINRA will be subject to these rules if they are

adopted by the SEC. Further, as discussed earlier, FINRA is proposing
specified conduct and compliance rules, also aimed at investor
protection.\106\ FINRA does not believe that it serves a regulatory
purpose to reduplicate in the Funding Portal Rules standards that the
SEC has proposed to address in its rulemaking, or to otherwise
duplicate in multiple iterations prohibitions against specified
activities already set forth under applicable statutes, proposed SEC
rules or the proposed FINRA Funding Portal Rules. As such, FINRA is not
proposing at this time the additional suggested rules and standards.
However, FINRA may propose additional requirements at a later time
should FINRA determine that such requirements, based on the development
of funding portal business under the FINRA Funding Portal Rules, and
any other applicable rules, are merited.
---------------------------------------------------------------------------

    \99\ See Regulatory Notice 12-34 (July 2012).
    \100\ See proposed Regulation Crowdfunding Rule 300(c)(2).
    \101\ See proposed Regulation Crowdfunding Rule 301.
    \102\ See proposed Regulation Crowdfunding Rule 302.
    \103\ See proposed Regulation Crowdfunding Rule 303.
    \104\ See proposed Regulation Crowdfunding Rule 305.
    \105\ See proposed Regulation Crowdfunding Rule 402.
    \106\ See, e.g., proposed Funding Portal Rule 200 and Rule 300
in Exhibit 5.
---------------------------------------------------------------------------

d. Miscellaneous
    One commenter proffered suggestions to amend FINRA's arbitration
procedures.\107\ While the comment is outside the scope of the proposed
rule change, FINRA notes that proposed Funding Portal Rule 1200
addresses arbitration issues for the purpose of ensuring that funding
portal members shall be subject to the existing FINRA rules in this
area, unless the context requires otherwise, and for streamlining the
existing predispute arbitration rule (FINRA Rule 2268) as appropriate
for funding portals.
---------------------------------------------------------------------------

    \107\ NASAA.
---------------------------------------------------------------------------

    One commenter suggested that FINRA should provide guidance
regarding the scope of liability for firms and advisors when clients
make inquiries regarding investments in crowdfunding offerings.\108\
The commenter suggested the SEC and FINRA should provide waiver of
liability language for advisors and an educational Web site on
crowdfunding, and that FINRA should undertake a retrospective review of
the Funding Portal Rules. In response, FINRA welcomes retrospective
review of rules and has committed to such review.\109\ Further, FINRA
notes that it makes substantial commitments to investor education and
has a robust and vigorous investor education program. FINRA welcomes
further dialogue on these issues as funding portal business develops
under any rules implemented by the SEC and the FINRA Funding Portal
Rules. FINRA does not propose at this time to provide waiver of
liability language as outside the scope of the proposed rule change.
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    \108\ FSI Institute.
    \109\ See, e.g., Regulatory Notice 14-14 (April 2014) (seeking
comment in connection with retrospective review of the
Communications with the Public rules); Regulatory Notice 14-15
(April 2014) (seeking comment in connection with retrospective
review of the gifts and gratuities and non-cash compensation rules);
and Regulatory Notice 15-10 (March 2015) (seeking comment in
connection with retrospective review of FINRA's membership
application rules).
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    One commenter requested that FINRA provide a template for
supervisory systems for funding portal members to follow.\110\ In
response, FINRA notes that under the proposed rules, it is the
responsibility of a funding portal member to establish and maintain a
system to supervise the activities of each associated person of the
funding portal member that is reasonably designed to achieve compliance
with applicable securities laws and regulations, and with the Funding
Portal Rules. Funding portal members will be expected to be mindful of
their supervisory obligations under the FINRA Funding Portal Rules and
other applicable rules to establish and maintain a supervisory system
accordingly.
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    \110\ CyberIssues.
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    One commenter suggested that Form FP-NMA should not require FP
Applicants to submit copies of contracts or agreements relating to
business activities of the FP Applicant.\111\ FINRA disagrees, as such
information is directly relevant to assessing an FP Applicant for
purposes of FINRA membership. Further, FINRA notes that the MAP as set
forth under proposed Funding Portal Rule 110 already reflects extensive
streamlining so as to tailor requirements to the permitted business of
funding portal members. Accordingly, FINRA does not propose to make the
suggested change. The same commenter sought clarification as to
whether, under proposed Funding Portal Rule 1200(b), funding portal
members are required to use predispute arbitration agreements with
investors. FINRA notes that neither proposed Funding Portal Rule
1200(b), nor the FINRA rule upon which it is based (FINRA Rule 2268),
impose such requirements.
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    \111\ CyberIssues.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2015-040 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2015-040. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of FINRA. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-FINRA-2015-040 and

should be submitted on or before November 18, 2015.
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    \112\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\112\
Brent J. Fields,
Secretary.G
[FR Doc. 2015-27370 Filed 10-27-15; 8:45 am]
 BILLING CODE 8011-01-P


1 American Lung Association Environmental Defense Clean Air Task Force U. S. Public Interest Research Group Southern Alliance for Clean Energy September 1, 2004 Jeffrey R. Holmstead Assistant Administrator, Air and Radiation U. S. Environmental Protection Agency 1200 Pennsylvania Avenue, N. W. ( Mailcode 6101A) Washington, D. C. 20460 Stephen D. Page Director, Office of Air Quality Planning and Standards U. S. Environmental Protection Agency ( Mailcode C404 04) Research Triangle Park, NC 27711 Dear Mr. Holmstead and Mr. Page:

Thank you for your August 5, 2004 response to our letter commenting on the state's PM2.5 boundary recommendations. We recognize EPA has recommended strengthening some of the state's recommendations for nonattainment area boundaries. However, EPA has left many important counties out of its recommended nonattainment areas. Therefore, the undersigned public health and environmental organizations are writing to urge EPA to reconsider and significantly strengthen its recommended air quality designations for particulates of 2.5 microns in size or smaller ( PM2.5). An alarming number of the recommendations contravene the law, EPA's long standing policy, good science, and basic common sense.

The nonattainment designations serve two essential public health functions. First, they establish the framework for air quality management plans across the country to address harmful particulate pollution levels. Second, the nonattainment designations tell the public whether the community where they live and are raising their families has air that is unhealthful. Such information can and does build public support for the measures needed to clean up the air. If EPA further advances the narrow approach it has recommended, the nation would suffer severe public health consequences. It would, simply put, undermine the fundamental purposes of the nonattainment designations. 2 EPA has recommended that 244 counties, including 11 partial counties and several cities and the District of Columbia be designated nonattainment for PM2.5. Our analysis found that 406 counties should be included in the nonattainment areas in order to include complete C/ MSAs and to properly control emissions. We are especially concerned that EPA's recommendations left out 30 coal fired power plants that are either in or adjacent to nonattaining C/ MSAs. The sulfur dioxide ( SO2), totaling 451,453 tons per year, and nitrogen oxides ( NOX), totaling 164,569 tons per year, from these facilities contribute greatly to fine particulate air pollution. Clean up of these power plants must be an integral part of state implementation plans to restore healthy air.

The analysis below identifies numerous deficiencies in EPA's recommendations that threaten the nation's pressing need to protect public health and lower the harmful concentrations of PM2.5. We note that in many cases a single area may have several different deficiencies. The failure to provide adequate designations for the health based PM2.5 standard will postpone critical pollution reductions, delay timely attainment, and prolong the exposure of children and other vulnerable populations to unhealthy levels of particulate pollution.

We respectfully urge EPA to correct these deficiencies.

PRESUMPTIVE NONATTAINMENT BOUNDARIES THAT CONSTITUTE THE FULL C/ MSAS ARE ESSENTIAL TO PROTECT PUBLIC HEALTH FROM HARMFUL PARTICULATE POLLUTION EPA's August 29, 2003 draft staff assessment of the policy implications of scientific and technical information about particulate matter or " staff paper," acknowledges that there is a large body of new health effects studies for particulates ( PM), indicating further evidence of the serious adverse health effects of the pollutant. These studies are based on epidemiologic, toxicological, controlled human exposure, and dosimetry analyses. 1 Any delay in attainment of the PM2.5 national ambient air quality standard will prolong these sensitive groups' exposure to unhealthy particulate pollution levels.

Unfortunately, many of EPA's recommended nonattainment designations for the PM2.5 standard do not encompass all counties in a Metropolitan Statistical Area or Consolidated Metropolitan Statistical Area ( C/ MSA) within which a monitored violation of the standard has occurred. These recommendations are contrary to the Clean Air Act, lacking in any reasoned basis, and must be rejected in the absence of a compelling technical justification for the smaller boundary.

The failure of EPA to promulgate protective nonattainment designations would threaten vital public health protections. Many urban centers are surrounded by rapidly expanding suburban counties. Timely attainment of the PM2.5 standard will depend on comprehensive boundaries that ensure that all pollution sources, both existing and new,

1 EPA 452/ D 03 001, August 2003, First Draft, 100. 3 are subject to effective air pollution abatement measures. In the absence of a nonattainment designation for the entire C/ MSA, both existing air pollution sources and growth in counties that have been designated attainment or unclassifiable will result in increased air pollution just outside the core nonattainment counties. This unchecked air pollution could dramatically undercut the emission reductions progress being made in the core designated counties. And this would mean that critical progress in lowering particulate pollution levels will be stymied.

Narrow boundaries will also unfairly distribute pollution control burdens among sources that contribute to the nonattainment problem. The private firms in the counties designated nonattainment will have to make additional pollution reductions to compensate for pollution abatement strategies that do not in fact encompass all contributing pollution sources. Comprehensive boundaries will, by contrast, help ensure all contributing sources are responsible for their share of pollution reductions.

Accordingly, section 107( d)( 1)( A)( i) of the Clean Air Act ( CAA) requires that all areas that do not meet the NAAQS or that contribute to ambient air quality in a nearby area that does not meet the standard should be designated nonattainment. See 42 U. S. C. § 7407( d)( 1)( A)( i). EPA's April 1, 2003 memo providing guidance to states (" Designations for the Fine Particle National Ambient Air Quality Standards") advised states to designate nonattainment boundaries that encompass all counties in the C/ MSA. EPA's memorandum finds: " The presumptive use of metropolitan area boundaries to define urban nonattainment areas is based on recent evidence that violations of the PM2.5 air quality standards generally include a significant urban scale contribution as well as a significant larger scale regional contribution."

Counties are included in C/ MSAs because they are part of the complex transportation and economic network in metropolitan areas. The economic and transportation factors that qualify them for inclusion in a C/ MSA are the same factors that contribute to the pollution in the area. Because C/ MSAs generally experience higher particulate pollution due to population density, traffic and commuting patterns, commercial and industrial development and area growth, EPA's presumptive boundary is integral to ensure protection of public health from the adverse effects of particulate pollution. Due to these important factors, if a county in a violating C/ MSA has no monitor, it should not be assumed to be attaining and left out of the nonattainment area. Through our review of EPA's recommendations, we have identified many C/ MSAs where counties with high or rising PM2.5 contributing pollutants have been inappropriately excluded.

EPA Must Use The Most Recent OMB Metropolitan Boundary Lists For The Designation of Nonattainment Boundaries In order to base these designations on the most representative data available, EPA must use the most recent ( 2003) OMB metropolitan boundary lists for its PM2.5 nonattainment boundary designations. This must be done in order to reflect current populations and the 4 emissions resulting from those populations. Our comments in this letter are based on the 2003 OMB lists.

Designation of Attainment/ Unclassifiable Areas Must Be Consistent with the Mandates of the Prevention of Significant Deterioration Program Our June 16, 2004 letter to you indicated our concerns regarding the recommendation by several states to divide the remainder of the state into numerous " postage stamp" attainment/ unclassifiable areas. This is the case for Montana, Utah and Wyoming. We are sending a more extensive letter to you, under separate cover, regarding this matter. We hereby incorporate this letter into these comprehensive comments on the PM2.5 boundaries.

SPECIFIC COMMENTS ON DEFICIENCIES IN EPA'S RECOMMENDATIONS The discussion below examines some of the specific problems with EPA's recommended air quality designations for PM2.5. It is incumbent upon EPA to ensure that the final air quality designations for PM2.5 are protective and comprehensive, as required by the manifest terms of the statute and EPA's interpretive policies, and are consistently and rationally implemented for all areas across the country. All of the comments below rely on the 2003 OMB metropolitan area lists and respond to EPA's boundary recommendations outlined in letters sent to the states at the end of June 2004.

Alabama Atlanta CMSA: Chambers County, Alabama is part of the Atlanta CMSA but EPA did not analyze the inclusion of this county in the nonattainment area. This county must be included in the Atlanta nonattainment area.

Birmingham CMSA: In its June 29, 2004 letter to Alabama, EPA recommended the inclusion of Jefferson, Shelby and Walker Counties in the PM2.5 nonattainment area; in addition to these counties, we recommend that Bibb, Blount, Chilton, Cullman, Etowah and St. Clair Counties be added to the nonattainment area. With the exception of Etowah County, these counties are all part of the Birmingham CMSA. EPA mentioned that Walker County " is contiguous to the MSA " and asked for the state to comment on which portion of the county should be designated nonattainment. The 2003 OMB metropolitan area list indicates that, Walker County is actually part of the Birmingham CMSA and therefore, the entire county must be included in the nonattainment area. According to EPA's letter, St. Clair and Blount Counties both experienced around 30% population growth between 1990 and 2000, suggesting that this high rate of population growth may contribute to the PM2.5 problem in the area. 5 EPA did not recommend that Etowah County be part of the nonattainment area despite its being adjacent to the nonattainment area and containing the Gadsden power plant. According to EPA's 2002 Acid Rain Database, this plant has no SO2 or NOX controls and the 2002 SO2 emissions were 8,741 tons per year while NOX emissions were 1,918 tons per year. 2 And the three year PM2.5 design value for Etowah County is very close to violating the annual standard, at 14.8 µ g/ m3.

Columbus CMSA: EPA recommended that Lee and Russell Counties be designated nonattainment; Macon County should be included in the nonattainment area as well since it is part of the CMSA. EPA mentioned that Lee County is, " adjacent to the MSA, has high VMT and a large population;" this county is actually part of the CMSA and therefore must be included in the nonattainment area. Despite the fact that Macon County is part of the CMSA, EPA's analysis failed to consider the county when analyzing several factors for determining the nonattainment boundary, including population data and growth and traffic data and VMT growth.

Chattanooga CMSA: EPA recommended that all or a portion of Jackson County be included in this nonattainment area due to large contributing facilities. EPA asked the state to recommend which portion( s) of this county should be included in the nonattainment area. Our analysis found that the Widows Creek power plant is located in Jackson County. This facility emits almost 44,000 tons per year of SO2 and over 25,000 tons per year of NOX. 3 Jackson County in its entirety should be included in the nonattainment area.

California Los Angeles CMSA: The CMSA also includes Ventura County, which must be part of the nonattainment area. The current PM2.5 three year annual average is 14.5 µ g/ m3, which is very close to the annual standard. The air quality in this area must be protected along with the rest of the Los Angeles nonattainment area. EPA has also recommended the exclusion of parts of Los Angeles, Riverside and San Bernardino Counties due to low emissions, lower populations and physical separations from the main portion of the CMSA. According to EPA's June 29, 2004 letter to California, total emissions from the excluded portions of these four counties totals over 65,000 tons per year of reactive organic gas ( ROG), 98,000 tons per year of NOX, over 3,500 tons per year of SOX and over 20,000 tons per year of PM2.5. While these emissions do not make up the majority of emissions for the nonattainment area, they are nonetheless significant enough to impact the nonattainment area. We emphasize again the importance of including entire counties in this nonattainment area.

2 EPA, Acid Rain Database, " 2002 Unit Level Emissions." 3 EPA, Acid Rain Database, " 2002 Unit Level Emissions." 6 Connecticut New York Newark Bridgeport, NY NJ CT PA CMSA: The entire CMSA, including Litchfield County must be designated nonattainment. EPA recommended the exclusion of Litchfield County from the nonattainment area partially due to a lack of monitored violations; however, there is no PM2.5 monitor in the county, so it is impossible to conclude that this county does not violated the standard.

District of Columbia Washington Baltimore CMSA: EPA has failed to recommend that this CMSA be designated as one nonattainment area; this area must be designated as one nonattainment area.

Georgia Athens MSA: EPA did not recommend the inclusion of Oglethorpe County in this nonattainment area, but this county is part of the MSA and must be included in the nonattainment boundary. There is no monitor in Oglethorpe County to prove that this county is attaining despite the PM2.5 violations in Clarke County.

Atlanta CMSA: EPA did not include all or portions of Butts, Dawson, Haralson, Heard, Jasper, Lamar, Meriwether, Pickens, Pike, Polk, Hall, Troup and Upson Counties and Chambers County, Alabama in the Atlanta nonattainment boundary. These counties are all part of the CMSA and must be included in the nonattainment area. Instead, EPA listed Hall, Heard and Jasper as being adjacent to the CMSA and recommended partial inclusion in the nonattainment boundary. We agree that Putnam County should be included in the nonattainment area due to the Harllee Branch power plant located in the county, but for planning purposes, we believe that the entire county should be included in the nonattainment area.

EPA has agreed with the state to make Floyd County a separate nonattainment area; this county must be included in the Atlanta CMSA nonattainment area. The Hammond power plant, located in Floyd County contributes to the nonattainment problem in the Atlanta area. As for the other counties that are included in the CMSA, but not recommended to be part of the nonattainment area, EPA's letter to the state does not even address most of these other counties. Thus, it appears that no analysis has been done for several counties that are part of the CMSA and these counties must be included in the nonattainment area.

Augusta MSA: Correspondence between the State and EPA indicates that Richmond County may be on the verge of nonattainment. Georgia had originally recommended that this county be designated nonattainment, but both the State and EPA since determined that incomplete data capture at one of the monitoring sites should lead to an attainment/ unclassifiable 7 determination. According to the State's June 15, 2004 letter to EPA, the monitor with complete data ( after data substitution) has a design value of 14.8 µ g/ m3, very near the PM2.5 annual standard. EPA's AirData website indicates that the 2001 2003 design value for the monitor with incomplete data is 15.2 µ g/ m3. While we recognize that an area can not be designated nonattainment with incomplete data, we request that EPA and the State be diligent in collecting complete data for this area in order to determine whether this area is indeed attaining the standard. Due to the monitoring data showing that are quality is most likely poor, this area should receive an unclassifiable designation at the most.

Columbus CMSA: EPA has not recommended the inclusion of the CMSA counties of Chattahoochee and Marion in the nonattainment area. Our letter to you indicated that Troup County should be analyzed for its impact on the nonattainment problem. According to EPA's June 29, 2004 letter to Georgia, Troup County's NOX emissions were over twice as high as any of the counties EPA has recommended for nonattainment in this area. Primary PM and VOC emissions in Troup County also appear to be high.

Macon CMSA: EPA has not recommended that Crawford, Jones, Peach, Houston, and Twiggs Counties be part of the nonattainment area despite the fact that these counties are all part of the CMSA. These counties must be included in the nonattainment area. In addition, EPA has only recommended that part of Monroe County be included in the nonattainment area; as this county is also part of the CMSA, the entire county must be included in the nonattainment area. Although EPA has assumed that air quality in the other counties is clean, Crawford, Jones, Peach and Twiggs Counties have no monitors in order to determine whether those counties are attaining or not. While Houston County's monitor is attaining, at 12.8 µ g/ m3, the county has the second largest population for the CMSA, after Bibb County, at 35%. In addition, Houston County is experiencing much faster growth than is Bibb County, with 24% growth between 1990 and 2000.

Illinois Chicago CMSA: EPA failed to include DeKalb, Kankakee and parts of Grundy and Kendall Counties in its recommended nonattainment boundary for the Chicago CMSA. These areas, in entirety, must be included in the nonattainment area. In addition, adjacent La Salle County appears to have high emissions, while the design value for this area is 14.1 µ g/ m3. This county should be analyzed for its impact on the nonattainment problem in the Chicago area.

St. Louis CMSA: EPA failed to include Bond, Calhoun, Clinton, Jersey, Macoupin, Montgomery, Morgan and Sangamon Counties in its recommended nonattainment area. EPA recommended that Randolph County be designated nonattainment as part of the St. Louis area, but is allowing for the State to submit further information documenting a justification for 8 including only a portion of the county in the nonattainment area. Although Montgomery, Morgan and Sangamon Counties are not part of the CMSA, they all contain power plants that must be analyzed for their impacts on the nonattainment problem. In 2002, these four plants together emitted over 78,000 tons of SO2 and over 27,000 tons of NOX. 4 Indiana Chicago CMSA: EPA failed to include Jasper, La Porte and Newton Counties in its recommendation for the Chicago nonattainment area. These counties are all part of the CMSA and must be designated nonattainment. EPA concluded that La Porte County is adjacent to the CMSA and does not contribute to nonattainment in the Chicago area. This county is actually included in the CMSA, and contains a coal fired power plant. Jasper County also contains a coal fired power plant. Jasper and Newton Counties do not have monitors in order to determine whether these areas are attaining.

Cincinnati CMSA: EPA failed to recommend a portion of Dearborn County and Franklin and Ohio Counties for nonattainment. These counties are all part of the CMSA and must be included in the nonattainment area in entirety. It is of particular importance that the coal fired power plant in Dearborn County be included within the nonattainment area boundaries.

Evansville MSA: EPA failed to recommend that Posey and Knox Counties be included in the nonattainment area. Posey County, inside the MSA, is home to a coal fired power plant and must be included in the nonattainment area. In 2002, the A. B. Brown facility emitted almost 9,000 tons of SO2 and over 7,000 tons of NOX. 5 Knox County, adjacent to the MSA, also contains a coal fired power plant ( Edwardsport) that emitted over 8,000 tons of SO2 and almost 2,000 tons of NOX in 2002.6 Neither of these counties contains monitors.

Indianapolis CMSA: EPA did not include 10 counties in its recommended nonattainment area for the Indianapolis CMSA. Those counties are: Bartholomew, Boone, Brown, Hancock, Henry, Jennings, Madison, Montgomery, Putnam, and Shelby. The entire CMSA must be designated as one nonattainment area.

Louisville CMSA: EPA failed to recommend that Harrison, Scott and Washington Counties be included in the nonattainment area. None of these counties contain monitors in order to determine whether they are attaining, but since they are all part of the CMSA, they must be included in the nonattainment area.

4 Id. 5 EPA, Acid Rain Database. 6 Id. 9 Kentucky Cincinnati CMSA: EPA failed to include Bracken, Carroll, Gallatin, Grant, Mason and Pendleton Counties in its recommended nonattainment area. Bracken, Gallatin, Grant and Pendleton Counties are all part of the nonattainment area and must be designated nonattainment. Carroll and Mason Counties are adjacent to the CMSA, but both contain high emitting coal fired power plants and therefore should be included in the nonattainment area due to their probable contribution to the poor air quality in the Cincinnati area. EPA's June 29, 2004 letter to the State explains that these counties should be designated attainment/ unclassifiable despite their power plants because they have low population, population growth and VMT. These factors do not change the important fact that the Ghent electric generating facility in Carroll County produced over 46,000 of SO2 and over 19,000 tons of NOX while the H. L. Spurlock power plant in Mason County emitted over 40,000 tons of SO2 and over 8,000 tons of NOX in 2002.7 Regardless of population in these counties, these high emitting plants must be controlled for their impact on the nonattainment problem in the Cincinnati area.

Evansville MSA: Our June 16, 2004 letter to you indicated that the Kentucky portions of the Evansville MSA must be designated nonattainment along with the Indiana portion of this MSA. But EPA has failed to recommend that this area be designated nonattainment. Henderson and Webster Counties must be included in this nonattainment area. In addition, Daviess County, adjacent to the MSA, must be included in the nonattainment area. There are two coal fired power plants in both Webster and Henderson Counties while the Elmer Smith power plant is located in Daviess County. Together, these facilities emitted almost 25,000 tons of SO2 and almost 24,000 tons of NOX in 2002. These power plants are most likely important factors in the area's nonattainment problem and must be controlled. 8 Huntington MSA: EPA failed to include Greenup County, part of the MSA, in its recommended nonattainment area. There is no monitor in this county in order to determine that this area is attaining despite the violation in the adjacent county. This county must be included in the nonattainment area.

Lexington CMSA: EPA failed to include 10 counties in this nonattainment area; those counties are: Anderson, Bath, Bourbon, Franklin, Jessamine, Menifee, Montgomery, Pulaski, Rock Castle and Scott. With the exception of Pulaski County, all of these counties are part of the CMSA. The entire CMSA must be designated nonattainment. The Cooper electric generating facility is located in Pulaski County; this facility emitted over 22,000 tons of SO2 and almost 5,000 tons of NOX in 2002.9 Therefore, this county must be included in the nonattainment area due to its probable contribution to the poor air quality in the area.

7 Id. 8 EPA, Acid Rain Database. 9 Id. 10 Louisville CMSA: EPA failed to include 9 counties ( Hardin, Henry, Larue, Meade, Nelson, Oldham, Shelly, Spencer and Trimble) in its recommended nonattainment area for the Louisville CMSA. EPA's analysis only indicates that Bullitt, Jefferson and Oldham Counties are part of the CMSA, but there are 6 other counties that are part of the CMSA. All of these counties must be included in the nonattainment area. Hardin County is the only county with a monitor besides Jefferson and Bullitt. The 2001 2003 design value for Hardin County is 14.1 µ g/ m3, which is very near to a violation.

Maryland Hagerstown Martinsburg MSA: EPA has recommended that the Maryland portion of the MSA ( Washington County) be designated nonattainment. As described in our previous letter to EPA, Alleghany County may also be a significant source of emissions impacting the nonattainment problem and should be considered for inclusion in the nonattainment area. In 2001, the county emitted over 3,000 tons of PM, over 20,000 tons of SO2 and over 12,000 tons of NOX. 10 It does not appear that an analysis of this county's emissions has been done.

Philadelphia CMSA: EPA failed to recommend that Cecil County be designated nonattainment as part of the Philadelphia nonattainment area. This county is part of the CMSA and must be included in the nonattainment area. EPA's documentation shows that Cecil County's 2001 2003 design value was 13.0 µ g/ m3, which is attaining, but close to the annual standard. Because the county's 1990 through 2000 growth rate was 20% and the percent VMT growth between 1996 and 2002 was 29%, emissions in this area will briskly increase in future years.

Washington Baltimore CMSA: EPA has failed to recommend that this CMSA be designated as one nonattainment area; this area must be designated as one nonattainment area. EPA also failed to include St. Mary's, Calvert and Queen Anne's Counties, all part of the CMSA, in the nonattainment area. Queen Anne's County has no monitor, but between 1990 and 2000 the county experienced 19% population growth and between 1996 and 2002 they experienced a 25% increase in VMT. EPA does not appear to have conducted an analysis for St. Mary's County.

Michigan Detroit CMSA: EPA failed to recommend Genesee and Lapeer Counties for nonattainment. These counties are part of the CMSA and must be designated nonattainment. EPA's letter to the state reports that NOX emissions in Genesee County are around 20,000 tons annually.

10 EPA, OAQPS spreadsheet. 11 EPA cites prevailing wind direction as a reason for not including Genesee County in the nonattainment area. Because the PM2.5 standard is an annual standard prevailing wind direction does not have as much impact on the elevated values as it would with the 24 hour standard. Although Lapeer County's emissions are lower, the population growth between 1990 and 2000 was 18%, which may lead to an increasing emission trend in the area. In addition, Ingham County in the Lansing East Lansing Owosso CMSA has high emissions, due to the Eckert Station power plant, which emitted over 6,500 tons of SO2 and over 3,500 tons of NOX in 2002.11 This county should be included in the nonattainment area as well.

Missouri St. Louis CMSA: St. Francois County, Lincoln, Warren, Washington Counties and Sullivan City ( in Crawford County) are not included in the recommended nonattainment area. Neighboring Ste. Genevieve County's NOX emissions are projected to be over 18,000 tons per year due to new industrial growth. This county should be included in the nonattainment area as well.

New Jersey New York CMSA: Ocean and Sussex Counties are not included in EPA's recommended nonattainment area, despite their being part of the CMSA. These counties must be included in the nonattainment area.

Philadelphia CMSA: EPA failed to include Cape May, Cumberland and Salem Counties in the Philadelphia nonattainment area. Cape May is adjacent to the CMSA, but is home to the B. L. England coal fired power plant, which emitted over 12,000 tons of SO2 and almost 3,000 tons of NOX in 2002.12 Cumberland and Salem Counties are within the CMSA; Salem County also contains a coal fired power plant. In 2002, the Deepwater power plant in Salem County emitted almost 2,500 tons of SO2 and almost 1,000 tons of NOX. 13 These counties must not be left out of the nonattainment area.

New York New York CMSA: EPA has not recommended that Duchess, Putnam and Ulster Counties be designated nonattainment. These counties are all part of the CMSA and must be included in the nonattainment area.

11 EPA, Acid Rain Database. 12 EPA, Acid Rain Database. 13 Id. 12 North Carolina Greensboro CMSA: Davie, Surry, Yadkin, and Rockingham Counties are all part of the CMSA, but EPA has not recommended that these areas be included in the nonattainment area. Rockingham County in particular is home to the Dan River coal fired power plant, which emitted almost 3,000 tons of SO2 and over 1,000 tons of NOX in 2002.14 In addition, the adjacent counties of Chatham and Rowan must be included in the nonattainment area due to the coal fired power plants located within these counties that contribute to the nonattainment problem. The Cape Fear power plant emitted almost 12,000 tons of SO2 and over 2,000 tons of NOX in 2002.15 The Buck electric generating facility is located in Rowan and must be included in the nonattainment area as well due to its likely contribution to the poor air quality in this area.

Hickory MSA: EPA only recommended parts of Burke and Caldwell Counties for nonattainment and did not recommend Alexander, Cleveland and Rutherford Counties for nonattainment. Cleveland and Rutherford Counties, adjacent to the MSA, both have higher emissions and must be included in the nonattainment area. The Cliffside coal fired power plant, located in both of these counties, emitted over 22,000 tons of SO2 and almost 4,000 tons of NOX in 2002.16 All of these counties must be included in the nonattainment area in their entirety.

Ohio Canton MSA: EPA failed to include Carroll County in this recommended nonattainment area; this area is part of the MSA and must be designated nonattainment with the rest of this area.

Cincinnati CMSA: Brown and Clinton Counties are not recommended for nonattainment despite their being part of the CMSA. The entire CMSA must be designated nonattainment.

Cleveland CMSA: The nearby Wayne County should be included in the nonattainment area due to its high emissions of SO2, NOX and VOC. 17 Columbus CMSA: EPA failed to include Ross, Madison, Morrow, Pickaway, Union, Marion, Know and Fayette Counties in the recommended nonattainment area. The Pickway electric generating station in Pickaway County emitted over 10,000 tons of SO2 in 2002. Coshocton County, adjacent to the CMSA, is home to the Conesville electric generating 14 Id. 15 Id. 16 Id. 17 EPA Region 5, letter to Ohio, 29 June 2004. 13 facility. In 2002 this facility emitted over 135,000 tons of SO2 and almost 27,000 tons of NOX. 18 Dayton CMSA: Champaign, Darke, Miami and Preble Counties were left out of EPA's recommended nonattainment area, but are part of the CMSA and must be included in the nonattainment area.

Toledo CMSA: EPA failed to recommend that the CMSA counties of Fulton, Ottawa and Sandusky be designated nonattainment; these areas must be included in the nonattainment area.

Pennsylvania Harrisburg CMSA: Both Perry County ( inside the CMSA) and Snyder County ( adjacent to the CMSA) were not included in EPA's recommended nonattainment area. The Sunbury coal fired power plant, located in Snyder County, emitted over 25,000 tons of SO2 and over 5,000 tons of NOX in 2002.19 Both of these counties must be included in the nonattainment area.

New York CMSA: EPA failed to include Pike County in the recommended New York nonattainment area. This county is part of the CMSA and must be included.

Philadelphia CMSA: Lehigh and Northampton Counties should be designated nonattainment due to their likely contributions to nonattaining C/ MSAs. Lehigh County, adjacent to both the Philadelphia CMSA and the Reading MSA ( also recommended for nonattainment) has high emissions of SO2, NOX and VOC, according to EPA's June 29, 2004 letter to the State. Northampton County is home to both the Martins Creek and Portland electric generating facilities, which are significant sources of SO2 and NOX pollution, emitting over 46,000 tons of SO2 and over 8,000 tons of NOX in 2002.20 This county is adjacent to both the New York CMSA and the Philadelphia CMSA. EPA and the State should determine which nonattainment area these counties contribute to in order to add them to the appropriate nonattainment area.

Tennessee Knoxville CMSA: EPA failed to include Campbell and Union Counties ( both part of the CMSA) in its recommended nonattainment area. These areas must be included as part of the nonattainment area.

18 EPA, Acid Rain Database. 19 Id. 20 Id. 14 Virginia Washington Baltimore CMSA: EPA has failed to recommend that eight Virginia counties and cities ( Clarke, Fauquier, Frederick, Spotsylvania, Stafford, and Warren Counties; Fredericksburg and Winchester Cities) in this CMSA be designated as nonattainment area; the entire CMSA must be designated nonattainment. None of these areas appear to have monitors in order to prove that they are indeed attaining the PM2.5 standard. According to EPA's letter to the state, the Stafford, Spotsylvania, Fauquier, and Fredericksburg areas all have a majority of people commuting to another county. In addition, emissions in Fauquier, Spotsylvania, Stafford, and Warren Counties are not low and need to be taken into consideration in the SIP planning process.

West Virginia Charleston MSA: Boone, Clay and Lincoln Counties are all part of the MSA and must be included in the nonattainment area; EPA has failed to include these counties in its recommendation.

Hagerstown MSA: EPA failed to include Morgan County in the recommended nonattainment area; this county is part of the MSA and must be included in the nonattainment area.

Fairmont CMSA: CMSA counties, Doddridge and Taylor must be included in the nonattainment area. In addition, Preston County, home to the Albright coal fired power plant that emitted over 20,000 tons of SO2 and over 4,000 tons of NOX in 2002,21 should also be included in the nonattainment area.

Parkersburg MSA: EPA failed to include Wirt County, part of the MSA, in the recommended nonattainment area. This county should be included in the nonattainment area.

We respectfully request EPA to strengthen its PM2.5 nonattainment area recommendations to better protect the millions of Americans breathing unhealthy particulate pollution levels.

21 Id. 15 Thank you for your consideration of our concerns.

Sincerely,

cc: Lydia Wegman, EPA OAQPS Rich Damberg, EPA OAQPS Larry Wallace, EPA OAQPS John L. Kirkwood President and Chief Executive Officer American Lung Association 1150 18th Street, N. W., Suite 900 Washington, D. C. 20036 202 785 3355 Jonathan Lewis Staff Attorney Clean Air Task Force 18 Tremont Street, Suite 530 Boston, MA 02108 617 624 0234 x12 Zachary Corrigan Staff Attorney, Clean Air Advocate U. S. Public Interest Research Group 202 546 9707 Cindy Copeland Environmental Defense 2334 North Broadway Boulder, CO 80304 303 440 4901 Stephen Smith Executive Director Southern Alliance for Clean Energy 28 N. Market Street, Suite 604 Asheville, NC


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