[Federal Register: July 2, 2008 (Volume 73, Number 128)]
[Notices]
[Page 38003-38008]
[DOCID:fr02jy08-120]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58024; File No. SR-NYSEArca-2008-63)

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of a Proposed Rule Change Relating to the Listing and Trading of Shares
of the MacroShares Medical Inflation Trusts

June 25, 2008.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 13, 2008, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange''),
through its wholly owned subsidiary, NYSE Arca Equities, Inc. (``NYSE
Arca Equities''), filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 8.400
(Paired Trust Shares), and to list and trade shares of the MacroShares
Medical Inflation Up Trust Series 2008-1 (``Up Trust'') and the
MacroShares Medical Inflation Down Trust Series 2008-1 (``Down Trust'')
(collectively, the ``Trusts'') pursuant to that rule. The shares of the
Up Trust are referred to as the Up MacroShares, the shares of the Down
Trust are referred to as the Down MacroShares, and they are referred to
collectively as the ``Shares.'' The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
http://www.nyse.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend NYSE Arca Equities Rule 8.400
(Paired Trust Shares), and to list and trade the Up MacroShares and the
Down MacroShares under the rule, as proposed to be amended herein.\3\
The Up MacroShares and the Down MacroShares will be offered by the Up
Trust and the Down Trust, respectively, established by MACRO Inflation
Depositor, LLC, as depositor, under the laws of the State of New York.
The Trusts are not registered with the Commission as investment
companies.\4\
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    \3\ The Commission approved for listing and trading a similar
product on the American Stock Exchange. See Securities Exchange Act
Release No. 54839 (November 29, 2006), 71 FR 70804 (December 6,
2006) (SR-Amex-2006-82) (approving listing and trading Claymore
MACROshares Oil Up Tradeable Shares and Claymore MACROshares Oil
Down Tradeable Shares). The Commission also approved this product
for trading on the Exchange pursuant to unlisted trading privileges
when it approved new NYSE Arca Equities Rule 8.400. See Securities
Exchange Act Release No. 55033 (December 29, 2006), 72 FR 1253
(January 10, 2007) (SR-NYSEArca-2006-75) (approving trading Claymore
MACROshares Oil Up Tradeable Shares and Claymore MACROshares Oil
Down Tradeable Shares).
    \4\ The Shares are being offered by the Trusts under the
Securities Act of 1933, as amended, 15 U.S.C. 77a. On January 25,
2008, the depositor filed with the Commission Amendment No. 1 to
Registration Statement on Form S-1 for the Up MacroShares (File No.
333-147948) (``Up Trust Registration Statement''). The depositor
will file with the Commission a Registration Statement on Form S-1
for the Down MacroShares prior to commencement of trading in the
Shares on the Exchange.
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a. Amendment to NYSE Arca Equities Rule 8.400
    The Exchange proposes to amend NYSE Arca Equities Rule 8.400, which
applies to Paired Trust Shares, to accommodate the listing and trading
of Shares. In its current form, NYSE Arca Equities Rule 8.400 applies
to Paired Trust Shares that consist of Holding Shares and Tradeable
Shares.\5\ As described in more detail below, the structure of the
series of Paired Trust Shares proposed to be listed and traded on the
Exchange pursuant to this proposed rule change varies from the
structure of Holding Shares and Tradable Shares in that there are no
Holding Trusts and there is only one set of trusts (the ``Up Trust''
and the ``Down Trust'') instead of two.
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    \5\ Holding Shares are issued by a matched pair of trusts
(``Holding Trusts'') in exchange for cash, and Tradeable Shares are
issued by a different pair of trusts (``Tradeable Trusts'') in
exchange for the deposit of Holding Shares. These rules accommodated
the structure of the Claymore MACROshares Oil Up Tradeable Shares
and Claymore MACROshares Oil Down Tradeable Shares previously
approved by the Commission. See note 3, supra.
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    Under the proposed amendments to NYSE Arca Equities Rule
8.400(b)(1), the term ``Paired Trust Shares'' would refer to: (1) Both
Holding Shares and Tradeable Shares; or (2) solely ``Trading Shares,''
which is a new defined term in NYSE Arca Equities Rule 8.400(b)(1)(B).
Trading Shares would be defined similarly to Holding Shares in current
NYSE Arca Equities Rule 8.400(b)(2) (proposed to be renumbered as NYSE
Arca Equities Rule 8.400(b)(1)(A)(i)), except that it is not required
that a majority of Trading Shares be acquired

and deposited in a related Tradeable Trust, as it is with Holding
Shares, insofar as Trading Shares do not involve the deposit of Holding
Shares in a Tradeable Trust. The term Trading Share would be defined as
a security: (1) That is issued by either of a matched pair of trusts
(``Trading Trusts'') whose respective underlying values move in
opposite directions as the value of a specified Reference Price
(defined in NYSE Arca Equities Rule 8.400(c)) varies from its starting
level; (2) that is issued in exchange for cash; (3) the issuance
proceeds of which are invested and reinvested in highly rated short-
term financial instruments that mature prior to the next scheduled
income distribution date for the security and that serve specified
functions; (4) that represents a beneficial interest in the Trading
Trust that issued it; (5) the value of which is determined by the
underlying value of the related Trading Trust, which underlying value
will either (a) increase as a result of an increase in the Reference
Price and decrease as a result of a decrease in the Reference Price (in
the case of an ``Up Trading Share'' issued by an ``Up Trading Trust'')
or (b) increase as a result of a decrease in the Reference Price and
decrease as the result of an increase in the Reference Price (in the
case of a ``Down Trading Share'' issued by the paired ``Down Trading
Trust''); (6) whose issuing Trading Trust enters into one or more
settlement contracts and an income distribution agreement with the
other paired Trading Trust; (7) that, when timely aggregated in a
specified minimum number or amount of securities, along with a
specified multiple of that number or amount of securities issued by the
other paired Trading Trust, may be redeemed for a distribution of cash
and/or securities on specified dates by authorized parties, and (8)
that may be subject to early mandatory redemption of all Trading Shares
prior to the final scheduled termination date under specified
circumstances.
    As a result of a recent interpretation by the staff of the Internal
Revenue Service relating to the inability to interpose a grantor trust
in order to utilize a certain tax reporting form, the Exchange has been
notified that the need for the current two-tier trust structure set
forth in NYSE Arca Equities Rule 8.400 for Paired Trust Shares is no
longer necessary. The Exchange represents that there are no substantive
differences between the proposed structure (a single set of Trading
Trusts that issue Trading Shares and hold financial instruments) and
the current two-tier structure (a set of Tradeable Trusts that issue
Tradeable Shares and hold Holding Shares issued by a set of Holding
Trusts that invest in financial instruments).
    The Exchange proposes conforming changes in the remainder of NYSE
Arca Equities Rule 8.400. Specifically, NYSE Arca Equities Rule
8.400(c) would be amended to provide that, with respect to the value of
the ``Reference Price'' as defined in that rule, the mechanism that
incorporates the value of the Reference Price into the value
determination for the Paired Trust Shares could consist of settlement
contracts and an earnings distribution agreement entered into by and
between the paired Trading Trusts that issue the Trading Shares, as
well as by and between the paired Holding Trusts that issue the Holding
Shares.
    NYSE Arca Equities Rule 8.400(d)(1)(i) would be amended to add
Trading Trusts to the other entities (i.e., Holding Trusts and
Tradeable Trusts) for which the Exchange will establish a minimum
number of Paired Trust Shares required to be outstanding at the
commencement of trading. NYSE Arca Equities Rule 8.400(d)(1)(ii) would
be amended to state that the Exchange will obtain a representation that
the underlying value per share of each Up Trading Share and Down
Trading Share (in the case of a series with Trading Shares) will be
calculated daily and made available to all market participants at the
same time.
    NYSE Arca Equities Rule 8.400(d)(2) would be amended to state that
the Exchange will remove from listing any series of Paired Trust Shares
under specified circumstances. Specifically, Trading Trusts, Up Trading
Shares and Down Trading Shares would be added to the existing rule for
purposes of the distribution and combined market value criteria of such
rule (NYSE Arca Equities Rule 8.400(d)(2)(i)).
    NYSE Arca Equities Rule 8.400(d)(2)(ii), relating to calculation of
the intraday value of the Reference Price, would be amended to state
that, for a series of Paired Trust Shares for which the value of the
Reference Price is not updated intraday, such value shall be calculated
and available once each trading day. In addition, NYSE Arca Equities
Rule 8.400(d)(2)(iii), relating to the availability of intraday
indicative values, would be amended to add reference to Trading Shares
and to provide an exception for series of Paired Trust Shares that have
been approved for listing and trading by the Commission under Section
19(b)(2) of the Act \6\ without the requirement than an intraday
indicative value be made available as set forth in subparagraph (iii).
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    \6\ 15 U.S.C. 78s(b).
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    NYSE Arca Equities Rule 8.400(d)(2)(iv) would be amended to clarify
that the provision relating to the need to file a proposed rule change
pursuant to Rule 19b-4 under the Act \7\ if a substitute index or other
replacement benchmark is selected for the determination of the
Reference Price applies to Trading Shares as well as Tradeable Shares.
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    \7\ 17 CFR 240.19b-4.
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    The trading halts provision in NYSE Arca Rule 8.400(d) would be
amended to add reference to Trading Shares. The term ``Trading Trust''
also would be added to the termination provision in NYSE Arca Equities
Rule 8.400(d)(2), the trust term provision in NYSE Arca Equities Rule
8.400(d)(3), the trustee requirement provision in NYSE Arca Equities
Rule 8.400(d)(4)(i), and the voting rights provision in NYSE Arca
Equities Rule 8.400(d)(5).
    NYSE Arca Equities Rule 8.400(f) (Limitation of Corporation
Liability) would be amended to substitute ``trusts'' for ``Holding
Trusts'' in the provision relating to underlying values of the trusts,
in order to encompass Tradeable Trusts.
b. Description of the Shares and the Trusts
    The Up Trust and the Down Trust intend to issue Up MacroShares and
Down MacroShares, respectively, on a continuous basis at the direction
of authorized participants, as described in more detail below. The Up
MacroShares and the Down MacroShares represent undivided beneficial
interests in the Up Trust and the Down Trust, respectively.
    The assets of each Trust will consist of an income distribution
agreement and settlement contracts entered into with the other
Trust.\8\ Under the income distribution agreement, as of any
distribution date, each Trust will either: (1) Be required to pay a
portion of its available income to the other Trust; or (2) be entitled
to receive all or a portion of the other Trust's available income,
based, in each case, on the Applicable Reference Value of Medical
Inflation (the ``Applicable Reference Value,'' as defined below) for
each day during the preceding calculation period. Under each settlement
contract, in connection with the final scheduled termination date, an
early termination date or any redemption date, each Trust will either:
(1) Be required to make a final payment

out of its assets to the other Trust; or (2) be entitled to receive a
final payment from the other Trust out of the assets of the other
Trust, based, in each case, on the Applicable Reference Value for the
period from the closing date through the date of redemption. Each Trust
will also hold U.S. Treasuries and repurchase agreements on U.S.
Treasuries to secure its obligations under the income distribution
agreement and the settlement contracts.
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    \8\ The Exchange states that the income distribution agreement
and applicable settlement contracts will be attached as Exhibits to
the Registration Statement.
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    Each Trust will make quarterly distributions of income on the
treasuries and a final distribution of all assets it holds on deposit
on the final scheduled termination date, an early termination date or a
redemption date. Each quarterly and final distribution will be based on
the value for the medical care component of the Consumer Price Index
for All Urban Consumers (``CPI-U''), as calculated and published
monthly by the Bureau of Labor Statistics (``BLS'') at http://
www.bls.gov.\9\ The medical care component of the CPI-U reflects
inflation in the cost of medical goods and services. The Applicable
Reference Value is a daily linear interpolation based on the monthly
values of the medical care component of the CPI-U for the preceding two
months, and is the Reference Price for purposes of NYSE Arca Equities
Rule 8.400, on the basis of which quarterly and final distributions on
the Up MacroShares and Down MacroShares are calculated. The Applicable
Reference Value is determined for each calendar day using a formula set
forth in the Up Trust Registration Statement.\10\ For purposes of
determining the Applicable Reference Value, following the monthly
publication by the BLS, any corrections to the CPI-U values released
for any calendar month will not be taken into consideration or used to
recalculate the underlying value of the Shares.
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    \9\ The BLS publishes a summary of its methodology for
calculating the CPI at http://www.bls.gov/cpi/. In addition, a
manual entitled BLS Handbook of Methods, in which a chapter is
dedicated to calculation methodology for the CPI, may be accessed on
the BLS Web site at http://www.bls.gov/opub/hom/pdf/homch17.pdf.
According to the Up Trust Registration Statement, the CPI is a
complex mathematical construct that combines economic theory with
sampling and other statistical techniques and uses data from various
consumer surveys to produce a measure of average price changes for
the consumption sector of the American economy. The CPI's
measurement objectives and the standards according to which the BLS
defines any bias in the CPI are derived from the broader framework
of a hypothetical cost-of-living index. The goal of any cost-of-
living index is to determine the lowest hypothetical expenditure
level necessary at this month's prices to achieve the same standard
of living as that attained during a base reference time period.
    \10\ The final distribution made on the Up MacroShares on the
final scheduled termination date, an early termination date or a
redemption date will be based upon the underlying value of the Up
Trust: (1) In the case of the final scheduled termination date, on
that final scheduled termination date; (2) in the case of an early
termination date, on that early termination date; and (3) in the
case of a redemption date, on the related redemption order date.
Underlying value will be calculated for each business day at the
beginning of that business day and will be based upon the Applicable
Reference Value on the preceding day, regardless of whether that
preceding day is a business day or a non-business day. The
underlying value on each determination date represents the aggregate
amount of the assets in the paired trusts to which the Up Trust
would be entitled if the settlement contracts were settled on that
date. The underlying value of the Up Trust on each determination
date also represents the aggregate final distribution to which
holders of the Up MacroShares would be entitled if those shares were
redeemed on that date. The underlying value is calculated for each
business day as follows:
    The sum of the Up earned income accruals for each day that has
elapsed during the current calculation period up to and including
the current business day
    plus
    The UP investment amount on that date multiplied by the
leveraged settlement factor (as defined in the Registration
Statement), calculated for the day preceding the current business
day.
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c. The CPI and the ``Medical Care'' Major Group
    According to the Up Trust Registration Statement, the BLS divides
the CPI basket of consumer goods and services into a hierarchy of
categories and a number of sub-categories. The first category is the
category of the eight ``Major Groups,'' each of which is divided into
sub-groups. ``Medical Care'' is one of the Major Groups. The Major
Group of ``Medical Care'' represents, as of December 2006 (2003-2004
Weights) 6.23% of the total consumer items which are covered by the
CPI-U. The CPI-U ``medical care aggregate index'' covers two sub-
groups: (1) ``Medical Care Commodities,'' consisting of the expenditure
categories of ``Prescription Drugs'' and ``Over-the-Counter Drugs and
Medical Supplies,'' which are together responsible, as of December 2006
(2003-2004 Weights), for approximately 23.021% of the CPI-U medical
care aggregate index; and (2) ``Medical Care Services,'' consisting of
three expenditure categories: ``Professional Services,'' ``Hospital
Services,'' and ``Health Insurance,'' which collectively, as of
December 2006 (2003-2004 Weights), represent approximately 76.962% of
the CPI-U medical care aggregate index.
    The movement of the CPI medical care index is based on the average
change in the prices of the sample set of entry level items selected to
compose such index (e.g., a prescription for a specific medicine or a
visit of a specified duration to a doctor or a hospital). The
``outlets'' providing medical care, such as pharmacies, doctors'
offices and hospitals, and the medical items which will be sampled in
each such outlet are chosen by means of the commodities and services
sampling procedure described in the Up Trust Registration Statement.
The CPI data collectors select the sample items in each entry-level
category by surveying respondents who purchased medical commodities
and/or services in the chosen outlets. The CPI defines the transaction
price for medical care items as all payments received or expected to be
received from eligible payers, including both patients and insurers.
    With respect to the Up Trust, if the ratio of the Applicable
Reference Value on any day to the Applicable Reference Value on the
closing date (the date on which the Trusts entered into an income
distribution agreement) exceeds the hurdle rate (``Hurdle Rate''),\11\
compounded on an annualized basis for the period from the closing date
to the day of measurement,\12\ the underlying value of the Up Trust on
the next business day will include all of its assets plus a portion of
the assets of the paired Down Trust. This portion of assets due from
the Down Trust will be multiplied by the leverage factor (``Leverage
Factor'').\13\ Conversely, if

this ratio is less than the compounded hurdle rate, the Up Trust's
underlying value will decrease, because a portion of its assets will be
included in the underlying value of its paired Down Trust. This portion
of assets due to the Down Trust will be doubled by the Leverage Factor.
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    \11\ The hurdle rate has been designated as 4.50%. This rate is
fixed during the term of the Trusts. The Up Trust Registration
Statement provides a description for calculating a hypothetical
``per share underlying value'' for any date, which is the amount an
investor would be entitled to receive as a final distribution on
that date if the paired trusts were to settle the settlement
contracts and the Up Trust were to make a final distribution on Up
MacroShares. Because such a final distribution is hypothetical, the
Up Trust Registration Statement refers to it solely for the purpose
of explaining the meaning of underlying value and the terms of the
income distribution agreement and the settlement contracts. The
formula used to calculate underlying value is designed to compensate
holders of the Up MacroShares for a rate of increase in the value of
the medical care component of the Consumer Price Index that is above
the designated ``hurdle rate,'' compounded for the period from the
closing date to the relevant date of measurement. However, according
to the Up Trust Registration Statement, the amount of this
compensation is not designed to equal, in absolute terms or in any
specified proportion, the increase in the price of medical goods and
services and an investment in the shares will not offset such price
increases but will provide only some measure of protection against
them. The amount of that protection depends upon certain structural
features of the transaction as well as the methodology for
calculating the medical component of the CPI-U, as described in the
Up Trust Registration Statement.
    \12\ Telephone Conversation between Michael Cavalier, Associate
General Counsel, NYSE Euronext and Ronesha A. Butler, Special
Counsel, Division of Trading and Markets, Commission dated June 25,
2008. Compounded Hurdle Rate is defined in the Registration
Statement. See supra note 4.
    \13\ The leverage factor is 2 and will be fixed for the term of
the Trusts. According to the Up Trust Registration Statement, the
impact of changes in the Applicable Reference Value is multiplied by
the leverage factor. The medical inflation ratio of the Applicable
Reference Value on a certain day to the Applicable Reference Value
on the closing day, divided by the compounded hurdle rate, will
yield a settlement factor by which the assets held on deposit by the
Up Trust must be multiplied in order to determine the Trust's
underlying value. Before being so applied, this settlement factor is
first adjusted by a leverage factor, (i.e., 2). The effect of this
is to double any increase in the underlying value of the Up Trust as
well as to double any decline in that underlying value, making the
per-share underlying value and the market price of an investor's Up
MacroShares potentially more volatile than the value of medical
inflation which those shares reference.
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    With respect to the Down Trust, if the ratio of the Applicable
Reference Value on any day to the Applicable Reference Value on the
closing date (the date on which the Trusts entered into an income
distribution agreement) exceeds the Hurdle Rate, compounded for the
period from the closing date to the day of measurement, the underlying
value of the Down Trust on the next business day will decrease, because
a portion of its assets will be included in the underlying value of its
paired Up Trust. This portion of assets due to the Up Trust will be
multiplied by the Leverage Factor. Conversely, if this ratio is less
than the compounded Hurdle Rate, the Down Trust's underlying value will
increase, because a portion of the assets of the Up Trust will be
included in the underlying value of the Down Trust. This portion of
assets due from the Up Trust will be doubled by the Leverage Factor.
    The Up MacroShares may be issued only in MacroShares Units
consisting of a minimum of 50,000 Up MacroShares issued by the Up Trust
and 50,000 Down MacroShares issued by the Down Trust. The Up Trust and
Down Trust will issue their shares in the minimum amounts that
constitute a MacroShares Unit on an ongoing basis only to persons who
qualify as authorized participants at the per-share underlying value of
those shares on the business day on which a creation order for the
shares is delivered to and accepted by MacroMarkets LLC, the
administrative agent.\14\ The Shares may then be sold by authorized
participants to the public at the market price prevailing at the time
of any such sale.
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    \14\ Authorized participants must also pay a transaction fee of
$2,000 for any paired redemption or issuance and, for any paired
issuance directed prior to July 1, 2008, a fee equal to 3.00% of the
aggregate par amount of paired shares being created.
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    The Up MacroShares must be redeemed together with Down MacroShares
by any holder who is an authorized participant on any business day in
MacroShares Units consisting of a minimum of 50,000 Up MacroShares and
50,000 Down MacroShares, at the respective per share underlying values
of those shares, as measured on the applicable redemption date. Unless
earlier redeemed on a redemption date or an early termination date, a
final distribution will be made on the Up MacroShares on the
distribution date occurring in 2018.
    The Up Trust Registration Statement includes a number of
hypothetical scenarios of circumstances that will impact the underlying
value of an Up MacroShare and a Down MacroShare. More information
regarding the Shares, the Up Trust and the Applicable Reference Value,
Income Distribution, Redemption Final Distribution, Risks, Fees and
Expenses, Termination Triggers, and Creation and Redemption Procedures
can be found in the Up Trust Registration Statement.\15\
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    \15\ See supra note 4.
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d. Availability of Information
    At the beginning of each business day, not later than one hour
prior to the commencement of trading in the Core Trading Session on the
Exchange, State Street Bank and Trust Company, the trustee for the Up
Trust and the Down Trust, will calculate the underlying value of the Up
Trust and the Down Trust and the per share underlying value of one Up
MacroShare and one Down MacroShare. The trustee will then provide such
values to the administrative agent, who will post them on its Web site
located at http://www.macromarkets.com. The trustee will base its
calculation of underlying value for any business day on the
administrative agent's calculation of the Applicable Reference Value
for the preceding day (regardless of whether that preceding day is a
business day or non-business day),\16\ which it will provide to the
trustee. The underlying value will be disseminated to all market
participants at the same time.
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    \16\ The daily value of the Applicable Reference Value on the
preceding day will be based upon the value of the medical component
of the CPI-U that was calculated and published by the BLS for the
second and third preceding calendar months.
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    An intraday indicative value will not be disseminated for the
Trusts. The Reference Price (in the case of the Up Macroshares and Down
Macroshares, the Applicable Reference Value) is a daily linear
interpolation based on the monthly values of the medical care component
of the CPI-U for the preceding two months. The Exchange believes that
the Reference Price applicable to the Trusts, considered together with
the current market price of Shares, will provide investors with
sufficient information to approximate the amount to be received upon
redemption of Shares.
    Information regarding the market price and volume of the Shares
will be continually available on a real-time basis throughout the day
via electronic services. The previous day's closing price and trading
volume information for the Shares will be published daily in the
financial section of major newspapers and will be available from major
market data vendors. Quotation and last sale information for the Shares
will be available via the Consolidated Tape Association high-speed
line.
e. Initial and Continued Listing Criteria
    NYSE Arca Equities Rule 8.400(d) sets forth initial and continued
listing criteria applicable to Paired Trust Shares. A minimum of
100,000 Up MacroShares and 100,000 Down MacroShares will be required to
be outstanding at the commencement of trading. In addition, the
Exchange will obtain a representation on behalf of the Up Trust and the
Down Trust that the underlying value per share of each Up Share and
Down Share, respectively, will be calculated daily and will be made
available to all market participants at the same time. The Exchange
will remove from listing the Up MacroShares or the Down MacroShares
under the circumstances outlined in the proposed amendments to NYSE
Arca Equities Rule 8.400(d) for Trading Shares, which include:
     If, after the initial twelve-month period following the
commencement of trading of the Shares, (A) the Up Trust or the Down
Trust has more than 60 days remaining until termination and there are
fewer than 50 record and/or beneficial holders of Up MacroShares or
Down MacroShares, respectively, for 30 or more consecutive trading
days; (B) if the Up Trust or the Down Trust has fewer than 50,000 Up
MacroShares or Down MacroShares, respectively, issued and outstanding;
or (C) if the combined market value of all Shares issued and
outstanding for the Up Trust and the Down Trust combined is less than
$1,000,000;
     If a replacement benchmark is selected for the
determination of the Applicable Reference Value, unless the Exchange
files with the Commission a related proposed rule change pursuant

to Rule 19b-4 under the Act \17\ seeking approval to continue trading
the Up MacroShares or Down MacroShares and such rule change is approved
by the Commission; or
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    \17\ 17 CFR 240.19b-4.
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     If such other event shall occur or condition exists which
in the opinion of the Exchange makes further dealings on the Exchange
inadvisable.

    NYSE Arca Equities Rule 8.400(d)(2) also provides that the Exchange
will halt trading in the Up MacroShares or the Down MacroShares, as the
case may be, if the circuit breaker parameters of NYSE Arca Equities
Rule 7.12 have been reached. In exercising its discretion to halt or
suspend trading in the Up MacroShares or the Down MacroShares, the
Exchange may consider other factors that may be relevant.
f. Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. Trading may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (1) the extent to
which trading is not occurring in the underlying securities; or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. NYSE Arca
Equities Rule 8.400(d)(2) described above sets forth circumstances
under which Shares may be halted.
    If the Exchange becomes aware that the underlying value per Share
of each Up Share and Down Share is not disseminated to all market
participants at the same time, it will halt trading in the Up
MacroShares or the Down MacroShares, as the case may be, until such
time as the underlying value per share is available to all market
participants.
g. Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern Time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions.
h. Surveillance
    The Exchange intends to utilize its existing surveillance
procedures applicable to derivative securities products, including
Paired Trust Shares, to monitor trading in the Shares. The Exchange
represents that these procedures are adequate to properly monitor
Exchange trading of the Shares in all trading sessions and to deter and
detect violations of Exchange rules and applicable federal securities
laws.
    The Exchange's current trading surveillance focuses on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations.
    The Exchange may obtain information via the Intermarket
Surveillance Group (``ISG'') from other exchanges who are members of
the ISG.\18\ In addition, the Exchange also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
---------------------------------------------------------------------------

    \18\ For a list of the current members of ISG, see http://
www.isgportal.org.
---------------------------------------------------------------------------

i. Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin (``Bulletin'') of the special
characteristics and risks associated with trading the Shares.
Specifically, the Bulletin will discuss the following: (1) What the
Shares are; (2) the procedures for purchases and redemptions of Shares
in MacroShares Units (and that Shares are not individually redeemable);
(3) NYSE Arca Equities Rule 9.2(a),\19\ which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to
every customer prior to trading the Shares; (4) the requirement that
ETP Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (5) trading information.
---------------------------------------------------------------------------

    \19\ NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder,
before recommending a transaction, must have reasonable grounds to
believe that the recommendation is suitable for the customer based
on any facts disclosed by the customer as to his other security
holdings and as to his financial situation and needs. Further, the
rule provides, with a limited exception, that prior to the execution
of a transaction recommended to a noninstitutional customer, the ETP
Holder shall make reasonable efforts to obrain information
concerning the customer's financial status, tax status, investment
objectives, and any other information that the ETP Holder believes
would be useful to make a recommendation. See Securities Exchange
Act release No. 54026 (June 21, 2006), 71 FR 36850 (June 28, 2006)
(SR-PCX-2005-1150).
---------------------------------------------------------------------------

    In addition, the Bulletin will reference that the Shares are
subject to various fees and expenses described in the Registration
Statement. The Bulletin will discuss any exemptive, no-action, and
interpretive relief granted by the Commission from any rules under the
Act.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \20\ that a national securities
exchange have rules that are designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. The Exchange believes that the proposed rule
amendments will facilitate the listing and trading of additional types
of exchange-traded products that will enhance competition among market
participants, to the benefit of investors and the marketplace. In
addition, the listing and trading criteria set forth in the proposed
rules are intended to protect investors and the public interest.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.

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

    Written comments on the proposed rule change were neither solicited
nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 35 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 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 e-mail to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2008-63 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2008-63. This
file number should be included on the subject line if e-mail 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 inspection
and copying 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 the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2008-63 and should
be submitted on or before July 23, 2008.
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-14929 Filed 7-1-08; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register: December 31, 2007 (Volume 72, Number 249)]
[Rules and Regulations]
[Page 74168-74169]
[DOCID:fr31de07-4]

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 211

[Release No. SAB 110]

Staff Accounting Bulletin No. 110

AGENCY: Securities and Exchange Commission.

ACTION: Publication of Staff Accounting Bulletin.

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

SUMMARY: This staff accounting bulletin (``SAB'') expresses the views
of the staff regarding the use of a ``simplified'' method, as discussed
in SAB No. 107 (``SAB 107''), in developing an estimate of expected
term of ``plain vanilla'' share options in accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment. In particular, the staff indicated in SAB 107 that it will
accept a company's election to use the simplified method, regardless of
whether the company has sufficient information to make more refined
estimates of expected term. At the time SAB 107 was issued, the staff
believed that more detailed external information about employee
exercise behavior (e.g., employee exercise patterns by industry and/or
other categories of companies) would, over time, become readily
available to companies. Therefore, the staff stated in SAB 107 that it
would not expect a company to use the simplified method for share
option grants after December 31, 2007. The staff understands that such
detailed information about employee exercise behavior may not be widely
available by December 31, 2007. Accordingly, the staff will continue to
accept, under certain circumstances, the use of the simplified method
beyond December 31, 2007.

DATES: Effective December 21, 2007.

FOR FURTHER INFORMATION CONTACT: Sandie E. Kim or Mark J. Barrysmith,
Office of the Chief Accountant<PHONE_NUMBER>, or Craig C. Olinger,
Division of Corporation Finance<PHONE_NUMBER>, Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The statements in staff accounting bulletins
are not rules or interpretations of the Commission, nor are they
published as bearing the Commission's official approval. They represent
interpretations and practices followed by the Division of Corporation
Finance and the Office of the Chief Accountant in administering the
disclosure requirements of the Federal securities laws.

    Dated: December 21, 2007.
Florence Harmon,
Deputy Secretary.

PART 211--[AMENDED]

0
Accordingly, Part 211 of Title 17 of the Code of Federal Regulations is
amended by adding Staff Accounting Bulletin No. 110 to the table found
in Subpart B.

Staff Accounting Bulletin No. 110

    Effective January 1, 2008, the staff hereby amends and replaces
Question 6 of Section D.2 of Topic 14, Share-Based Payment, of the
Staff Accounting Bulletin Series. Question 6 of Topic 14: D.2 (as
amended) expresses the views of the staff regarding the use of a
``simplified'' method in developing an estimate of expected term of
``plain vanilla'' share options in accordance with Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment.

    Note: The text of SAB 110 will not appear in the Code of Federal
Regulations.

TOPIC 14: SHARE-BASED PAYMENT

* * * * *

D. Certain Assumptions Used in Valuation Methods

* * * * *

2. Expected Term

* * * * *
    Facts: Company E grants equity share options to its employees that
have the following basic characteristics: \75\
---------------------------------------------------------------------------

    \75\ Employee share options with these features are sometimes
referred to as ``plain vanilla'' options.
---------------------------------------------------------------------------

     The share options are granted at-the-money;
     Exercisability is conditional only on performing service
through the vesting date; \76\
---------------------------------------------------------------------------

    \76\ 76 In this fact pattern the requisite service period equals
the vesting period.
---------------------------------------------------------------------------

     If an employee terminates service prior to vesting, the
employee would forfeit the share options;
     If an employee terminates service after vesting, the
employee would have a limited time to exercise the share options
(typically 30-90 days); and
     The share options are nontransferable and nonhedgeable.
    Company E utilizes the Black-Scholes-Merton closed-form model for
valuing its employee share options.
    Question 6: As share options with these ``plain vanilla''
characteristics have been granted in significant quantities by many
companies in the past, is the staff aware of any ``simple''
methodologies that can be used to estimate expected term?
    Interpretive Response: As noted above, the staff understands that
an entity that is unable to rely on its historical exercise data may
find that certain alternative information, such as exercise data
relating to employees of other companies, is not easily obtainable. As
such, some companies may encounter difficulties in making a refined
estimate of expected term. Accordingly, if a company concludes that its
historical share option exercise experience does not provide a
reasonable basis upon which to estimate expected term, the staff will
accept the following ``simplified'' method for ``plain vanilla''
options consistent with those in the fact set above: expected term =
((vesting term + original contractual term) / 2). Assuming a ten year
original contractual term and graded vesting over four years (25% of
the options in each grant vest annually) for the share options in the
fact set described above, the resultant expected term would be 6.25
years.\77\ Academic

research on the exercise of options issued to executives provides some
general support for outcomes that would be produced by the application
of this method.\78\
---------------------------------------------------------------------------

    \77\ Calculated as [[[1 year vesting term (for the first 25%
vested) plus 2 year vesting term (for the second 25% vested) plus 3
year vesting term (for the third 25% vested) plus 4 year vesting
term (for the last 25% vested)] divided by 4 total years of vesting]
plus 10 year contractual life] divided by 2; that is, (((1+2+3+4)/4)
+ 10) /2 = 6.25 years.
    \78\ J.N. Carpenter, ``The exercise and valuation of executive
stock options,'' Journal of Financial Economics, 1998, pp. 127-158
studies a sample of 40 NYSE and AMEX firms over the period 1979-1994
with share option terms reasonably consistent to the terms presented
in the fact set and example. The mean time to exercise after grant
was 5.83 years and the median was 6.08 years. The ``mean time to
exercise'' is shorter than expected term since the study's sample
included only exercised options. Other research on executive options
includes (but is not limited to) J. Carr Bettis; John M. Bizjak; and
Michael L. Lemmon, ``Exercise behavior, valuation, and the incentive
effects of employee stock options,'' forthcoming in the Journal of
Financial Economics. One of the few studies on nonexecutive employee
options the staff is aware of is S. Huddart, ``Patterns of stock
option exercise in the United States,'' in: J. Carpenter and D.
Yermack, eds., Executive Compensation and Shareholder Value: Theory
and Evidence (Kluwer, Boston, MA, 1999), pp. 115-142.
---------------------------------------------------------------------------

    Examples of situations in which the staff believes that it may be
appropriate to use this simplified method include the following:
     A company does not have sufficient historical exercise
data to provide a reasonable basis upon which to estimate expected term
due to the limited period of time its equity shares have been publicly
traded.
     A company significantly changes the terms of its share
option grants or the types of employees that receive share option
grants such that its historical exercise data may no longer provide a
reasonable basis upon which to estimate expected term.
     A company has or expects to have significant structural
changes in its business such that its historical exercise data may no
longer provide a reasonable basis upon which to estimate expected term.
    The staff understands that a company may have sufficient historical
exercise data for some of its share option grants but not for others.
In such cases, the staff will accept the use of the simplified method
for only some but not all share option grants. The staff also does not
believe that it is necessary for a company to consider using a lattice
model before it decides that it is eligible to use this simplified
method. Further, the staff will not object to the use of this
simplified method in periods prior to the time a company's equity
shares are traded in a public market.
    If a company uses this simplified method, the company should
disclose in the notes to its financial statements the use of the
method, the reason why the method was used, the types of share option
grants for which the method was used if the method was not used for all
share option grants, and the periods for which the method was used if
the method was not used in all periods. Companies that have sufficient
historical share option exercise experience upon which to estimate
expected term may not apply this simplified method. In addition, this
simplified method is not intended to be applied as a benchmark in
evaluating the appropriateness of more refined estimates of expected
term.
    Also, as noted above in Question 5, the staff believes that more
detailed external information about exercise behavior will, over time,
become readily available to companies. As such, the staff does not
expect that such a simplified method would be used for share option
grants when more relevant detailed information becomes widely
available.

[FR Doc. E7-25178 Filed 12-28-07; 8:45 am]

BILLING CODE 8011-01-P


converted between these parameters. Equipment designed for multiple
platforms are evaluated against each applicable entry 7A003.a.1,
7A003.a.2, or 7A003.a.3.

    b. Designed for ``aircraft'', land vehicles or vessels, with an
embedded `positional aiding reference' and providing position after
loss of all `positional aiding references' for a period of up to 4
minutes, having an accuracy of less (better) than 10 meters `CEP';

    Technical Note:
    7A003.b refers to systems in which `inertial measurement
equipment or systems' and other independent `positional aiding
references' are built into a single unit (i.e., embedded) in order
to achieve improved performance.

    c. Designed for ``aircraft'', land vehicles or vessels,
providing heading or True North determination and having any of the
following:
    c.1. A maximum operating angular rate less (lower) than 500 deg/
s and a heading accuracy without the use of `positional aiding
references' equal to or less (better) than 0.07 deg sec (Lat)
(equivalent to 6 arc minutes rms at 45 degrees latitude); or
    c.2. A maximum operating angular rate equal to or greater
(higher) than 500 deg/s and a heading accuracy without the use of
`positional aiding references' equal to or less (better) than 0.2
deg sec (Lat) (equivalent to 17 arc minutes rms at 45 degrees
latitude);
    d. Providing acceleration measurements or angular rate
measurements, in more than one dimension, and having any of the
following:
    d.1. Performance specified by 7A001 or 7A002 along any axis,
without the use of any aiding references; or
    d.2. Being ``space-qualified'' and providing angular rate
measurements having an ``angle random walk'' along any axis of less
(better) than or equal to 0.1 degree per square root hour.

    Note:
    7A003.d.2 does not apply to `inertial measurement equipment or
systems' that contain ``spinning mass gyros'' as the only type of
gyro.

0
45. In Supplement No. 1 to Part 774 (the Commerce Control List),
Category 7, ECCN 7D003 is amended by:
0
a. Revising the Special Conditions for STA section; and
0
b. Removing and reserving paragraph 7D003.c.
    The revision reads as follows:

7D003 Other ``software'' as follows (see List of Items Controlled).

* * * * *

Special Conditions for STA

STA: License Exception STA may not be used to ship or transmit
software in 7D003.a or .b to any of the destinations listed in
Country Group A:6 (See Supplement No.1 to part 740 of the EAR).
* * * * *

0
46. In Supplement No. 1 to Part 774 (the Commerce Control List),
Category 7, ECCN 7D004 is amended by revising the heading to read as
follows:

7D004 ``Source code'' incorporating ``development'' ``technology''
specified by 7E004.a.1 to a.6 or 7E004.b, for any of the following:
(see List of Items Controlled).

* * * * *

0
47. In Supplement No. 1 to Part 774 (the Commerce Control List),
Category 7 is amended by adding ECCN 7D005 to read as follows:

7D005 ``Software'' ``specially designed'' to decrypt Global Navigation
Satellite Systems (GNSS) ranging signals designed for government use.

License Requirements

Reason for Control: NS, AT

                                            Country Chart (see Supp. No.
                Control(s)                         1 to part 738)

NS applies to entire entry................  NS Column 1.
AT applies to entire entry................  AT Column 1.

List Based License Exceptions (See Part 740 for a description of all
license exceptions)

CIV: N/A
TSR: N/A

List of Items Controlled

Related Controls: N/A
Related Definitions: N/A
Items:

    The list of items controlled is contained in the ECCN heading.

0
48. In Supplement No. 1 to Part 774 (the Commerce Control List),
Category 7, ECCN 7E001 is amended by:
0
a. Revising the heading;
0
b. Revising the NS paragraph in the License Requirements section; and
0
c. Adding a Note to the end of the Items paragraph of the List of Items
Controlled section.
    The revisions and addtion to read as follows:

7E001 ``Technology'' according to the General Technology Note for the
``development'' of equipment or ``software'', specified by 7.A., 7.B.,
7D001, 7D002, 7D003 or 7D005.

License Requirements

* * * * *

                                            Country chart (see Supp. No.
                Control(s)                         1 to part 738).

NS applies to ``technology'' for items      NS Column 1.
 controlled by 7A001 to 7A004, 7A006,
 7A008, 7B001 to 7B003, 7D001 to 7D005.

                                * * * * *

* * * * *

List of Items Controlled

* * * * *
Items:

    The list of items controlled is contained in the ECCN heading.

    Note:
     7E001 includes key management ``technology'' exclusively for
equipment specified in 7A005.a.

0
49. In Supplement No. 1 to Part 774 (the Commerce Control List),
Category 7, ECCN 7E004 is amended by removing and reserving paragraph
b.6 and removing the Nota Bene below it. Note that 7E004.b remains.

0
50. In Supplement No. 1 to Part 774 (the Commerce Control List),
Category 8, ECCN 8A002 is amended by:
0
a. Revising paragraph i.2 and the Technical Note below it in the Items
paragraph of the List of Items Controlled; and
0
b. Adding a Nota Bene below the Note that follows paragraph q.2 in the
Items paragraph of the List of Items Controlled section.
    The revisions and addition read as follows:

8A002 Marine systems, equipment, ``parts'' and ``components,'' as
follows (see List of Items Controlled).

* * * * *

List of Items Controlled

* * * * *
Items:
* * * * *
    i. * * *
    i.2. Controlled by proportional master-slave techniques and
having 5 degrees of `freedom of movement' or more;

    Technical Note:
    Only functions having proportionally related motion control
using positional feedback are counted when determining the number of
degrees of `freedom of movement'.

* * * * *
    q. * * *
    q.2. * * *

    Note:
    * * *

N.B. For equipment and devices ``specially designed'' for military
use see ECCN 8A620.f.
* * * * *

0
51. In Supplement No. 1 to Part 774 (the Commerce Control List),
Category 9, ECCN 9A001 is amended by revising the Note to 9A001.a to be
Note 1 and adding Note 2 following 9A001.a in the Items paragraph of
the List of Items Controlled section, to read as follows:

9A001 Aero gas turbine engines having any of the following (see List of
Items Controlled).

* * * * *

List of Items Controlled

* * * * *
Items:

    a. * * *

    Note 1:
    9A001.a. does not control aero gas turbine engines which meet
all of the following:
    a. Certified by the civil aviation authority in a country listed
in Supplement No. 1 to Part 743; and
    b. Intended to power non-military manned aircraft for which any
of the following has been issued by a Wassenaar Arrangement
Participating State listed in Supplement No.

1 to Part 743 for the aircraft with this specific engine type:
    b.1. A civil type certificate; or
    b.2. An equivalent document recognized by the International
Civil Aviation Organization (ICAO).

    Note 2:
     9A001.a does not apply to aero gas turbine engines for
Auxiliary Power Units (APUs) approved by the civil aviation
authority in a Wassenaar Arrangement Participating State (see
Supplement No. 1 to part 743 of the EAR).

* * * * *

0
52. Supplement No. 2 to part 774 ``General Technology and Software
Notes'' is amended by removing the phrase ``operation, maintenance
(checking), and repair'' and adding in its place ``operation,
maintenance (checking), or repair'' in the General Technology Note.

0
53. Supplement No. 5 to part 774 ``Items Classified Under ECCNS 0A521,
0B521, 0C521, 0D521 and 0E521'' is amended by removing the date ``June
20, 2014'' and adding in its place ``June 20, 2015'' from rows 0D521
No. 2 and 0E521 No. 6 and under the column entitled ``Date when the
item will be designated EAR99, unless reclassified in another ECCN or
the 0Y521 classification is reissued.''

0
54. Supplement No. 6 to part 774 ``Sensitive List'' is amended by:
0
a. Revising paragraphs (4)(ii) and (iii);
0
b. Removing and reserving paragraph (7)(iv);
0
c. Redesignating paragraphs (7)(v) and (vi) as paragraphs (7)(vi) and
(vii);
0
d. Adding new paragraph (7)(v).
    The revisions and addition read as follows:

Supplement No. 6 to Part 774--Sensitive List

* * * * *
    (4) * * *
    (ii) 4D001--''Software'' ``specially designed'' for the
``development'' or ``production'' of equipment controlled under ECCN
4A001.a.2 or for the ``development'' or ``production'' of ``digital
computers'' having an `Adjusted Peak Performance' (`APP') exceeding
1.0 Weighted TeraFLOPS (WT).
    (iii) 4E001-- ``Technology'' according to the General Technology
Note for the ``development'' or ``production'' of any of the
following equipment or ``software'': equipment controlled under ECCN
4A001.a.2, ``digital computers'' having an `Adjusted Peak
Performance' (`APP') exceeding 1.0 Weighted TeraFLOPS (WT), or
``software'' controlled under the specific provisions of 4D001
described in this Supplement.
* * * * *
    (7) * * *
    (v) 7D004.a to .d and .g.
* * * * *

    Dated: July 25, 2014.
Kevin J. Wolf,
Assistant Secretary for Export Administration.
[FR Doc. 2014-17975 Filed 8-1-14; 8:45 am]
BILLING CODE 3510-33-P


COMPANY FEDERAL REGISTER DOCUMENT SUBMISSION

EPA Registration Division contact: Tony Kish,<PHONE_NUMBER>

ABERCO A

PetitionPP

Ppppp

	EPA has received a pesticide petition # 5F6904 from ABERCO Inc., 9430 Lanham-Severn Road, Seabrook, MD 20706 proposing, pursuant to section 408(d) of the Federal Food, Drug, and Cosmetic Act (FFDCA), 21 U.S.C. 346a(d), to amend 40 CFR part 180.

1. by establishing a tolerance for residues of

propylene oxide in or on the raw agricultural commodity grape, raisin at 1.0 ppm; fig at 3.0 ppm; and plum, prune, dried at 2.0 ppm.

2. Further the petitioner proposes to delete 40 CFR 180.491 sections (a)(2) and (a)(4).  These directions are described on the label and are no longer required in the tolerance expression.

EPA has determined that the petition contains data or information regarding the elements set forth in section 408(d)(2) of the FFDCA; however, EPA has not fully evaluated the sufficiency of the submitted data at this time or whether the data supports granting of the petition.  Additional data may be needed before EPA rules on the petition.

A. Residue Chemistry

.

Propylene Oxide is reported to potentially metabolize in plants to propylene chlorohydrin and propylene bromohydrin, and propylene glycol.  Currently only propylene oxide is contained in the tolerance expression.

.

3. Magnitude of the Residue

Fig, Prune and Raisin

Samples of fig, prune and raisin were treated with a mixture of 8% PPO: 92% CO2 for 48 hours at a rate of 35 lb/1000 ft3 at 27oC (0.05 oz active ingredient per ft3).  In raisins residues fell to not detectable after 7 days.  For figs residues of PPO were less than 0.5 PPM after 2 days and for prunes residues dropped to below 0.1 PPM after 2 days.

B. Toxicological Profile

.

The acute oral rat LD50 for propylene oxide has been reported by various investigators in various species. The average value was 689 mg/kg.   This value would place propylene oxide into EPA’s acute oral toxicity labeling Category III.

The acute dermal toxicity of propylene oxide has been studied in the standard rabbit model and been found to exceed 1200 mg/kg.  The reported LD50 values would place propylene oxide into EPA’s acute dermal toxicity labeling Category II.

The acute 4-hour inhalation LC50 for propylene oxide has been reported by various investigators in various species. The reported values all exceed 4 mg/L.   These values place propylene oxide into EPA’s acute inhalation toxicity Category III.

Propylene oxide is severely irritant to the eye and is in EPA’s eye irritation Category I.

Propylene oxide is severely irritant to the skin and is in EPA’s skin irritation Category I.

Propylene oxide is a dermal sensitizer.

.

The genotoxicity and mutagenicity of propylene oxide has been studied in a variety of test systems. Generally, positive results are reported in in vitro test systems and, with a few exceptions, negative results are reported in in vivo tests.

In vivo exposure in well controlled studies propylene oxide generally does not produce mutations or other gene damage.

.

There is no clear evidence that propylene oxide is a developmental or reproductive toxicant.  A summary of two major studies is presented below.

NIOSH sponsored an investigation of the developmental toxicity of inhaled propylene oxide in Sprague-Dawley rats and rabbits.

The only evidence of fetal malformations seen in rats was an increase in wavy ribs and reduced ossification in rats exposed from gestation days 1-16. The incidence of rib dysmorphology and reduced ossification of fetal ribs and vertebrae were more frequent in exposed animals. In this study, propylene oxide was considered not teratogenic but fetotoxicity and reproductive effects were observed. These were related to maternal toxicity of the exposure level in rats. In rabbits, clear evidence of maternal toxicity was not observed but the exposure level used was from 12.5% to 25% of the probable 4 hour acute LC50 in the rabbit.

Hayes et al. (1988) conducted a 2-generation reproductive toxicity study in F344 rats exposed to propylene oxide by inhalation. No treatment-related effect was observed in any of the following reproductive parameters: fertility, litter size and neonatal growth, and survival. Furthermore, no effects attributable to propylene oxide exposure were observed at gross pathological examination in either the adults or weanlings or histopathological examination of the pups. In this study PPO did not produce reproductive toxicity.  A  NOAEL for reproductive effects of 300 ppm [713 mg/cu.m (which was the highest dose tested)] and a NOAEL for changes in body weight of 100 ppm [238 mg/cu.m] were identified.

A number of studies are available for evaluation of the toxicity of propylene oxide under sub-chronic and chronic administration conditions. These are inhalation studies but are useful for the evaluation of potential toxicity following dietary ingestion since: (a) the PPO systemic dose can be calculated for these studies; and, (b) in each of these studies careful examination of toxicity endpoints and of non-tumor lesions was made.

Based on these and other toxicology studies (acute toxicity, carcinogenicity, sub-chronic / chronic toxicity, and developmental and reproductive effects, the following toxicity endpoints can be selected for propylene oxide:

Toxicology Endpoints for Propylene Oxide

Exposure Scenario	Dose (mg/kg/day)	Endpoint	Study

Acute Dietary	NOAEL = 305 mg/kg

UF = 500

FQPA SF = 1	LOAEL = 305 mg/kg/day in rats based on weight loss, ataxia, and axonopathy effects.

Acute RfD = 0.61 mg/kg/day

Acute PAD = 0.61 mg/kg/day

	Rat 7-week inhalation study (Onishi et al., 1988)

Chronic (non-cancer) dietary	NOAEL = 20.3 mg/kg/day

UF = 300

FQPA SF = 1

Rat -> Human Stability Factor (RHSF) = 50-x

	LOAEL = 60.9 mg/kg/day in rats (weight gain depression, slight increase in mortality).

Chronic RfD = 3.38 mg/kg/day

Chronic PAD = 3.38 mg/kg/day

	Reuzel and Kuper (1983) 2-year inhalation toxicity / carcinogenicity study in SD rats

Chronic (cancer) dietary

Not likely to be carcinogenic to humans via relevant routes of exposure

	Developmental Effects

Was not teratogenic in the rat or rabbit. Fetotoxicity and effects on maternal reproductive parameters observed but related to maternal toxicity.

	Reproductive Effects

Did not produce reproductive toxicity in a well conducted multi-generation reproductive effects study.

.

On the basis of in vitro experiments, 2 metabolic pathways have been suggested.  Propylene oxide was found to be a substrate for rat liver glutathione epoxide transferase, while nonenzymic conjugation was negligible.

The nonenzymatic hydrolysis to 1,2-propanediol is rather slow.  At 37 °C, the half-life for the uncatalysed reaction in a neutral medium was found to be 87 h.

Propanediol can be excreted unchanged via the kidneys and can be oxidized to lactic and pyruvic acid.

.

Propylene oxide has two metabolites, propylene chlorohydrin and propylene bromohydrin.  Essentially propylene chlorohydrin is unreactive.  The Agency has not required either hydrin to be part of the tolerance expression.

.

There is no evidence that propylene oxide functions as an endocrine disruptor.

C. Aggregate Exposure

.

This petition seeks modification and addition to the tolerances of propylene oxide on processed spices, dried herbs, cocoa, nutmeats (except peanuts), raisins, figs and prunes (only tolerances on raisins, figs and prunes are new).  Of these only nutmeats represent a significant dietary contributor.  Processed spices and dried herbs are not used in a manner that would provide a significant dietary contributor of pesticide residues.  Cocoa powder is also used in cooking and foods to be further processed (i.e. baked goods).  Less than 1% of the fig, raisin and prune crops would be treated and residues do not exceed 1 PPM on any of these commodities.

.

The combined exposure to propylene oxide from all uses (except figs, prunes and raisins) is summarized below.

Table: 90th %-ile PPO Diet Dose (residues assumed at tolerance level)

Group	90%-ile PPO- Consumption (nuts, spices, and cocoa)	Mid-point BW (Kg)	90%-ile PPO Dietary  Dose

U.S. Population	Nut: 82.5 µg/day

Spice: 4.5 µg/day

Cocoa: 0.65 µg/day	70 kg	1.18 µg/kg/day

0.064 µg/kg/day

0.0093 µg/kg/day

Total: 1.25 µg/kg/day

Infants < 1 year	Nut: 0 µg/day

Spice: 4.5 µg/day

Cocoa: 0.65 µg/day	7.3 kg	0 µg/kg/day

0.616 µg/kg/day

0.089 µg/kg/day

Total: 0.705 µg/kg/day

Children, 1 – 6 years	Nut: 50.7 µg/day

Spice: 4.5 µg/day

Cocoa: 0.65 µg/day	17 kg	2.98 µg/kg/day

0.265 µg/kg/day

0.038 µg/kg/day

Total: 3.28 µg/kg/day

Children, 7 – 12 years	Nut: 84.0 µg/day

Spice: 4.5 µg/day

Cocoa: 0.65 µg/day	32 kg	2.63 µg/kg/day

0.141 µg/kg/day

0.020 µg/kg/day

Total: 2.79 µg/kg/day

Males > 13 years	Nut: 86.7 µg/day

Spice: 4.5 µg/day

Cocoa: 0.65 µg/day	80 kg	1.08 µg/kg/day

0.056 µg/kg/day

0.0081 µg/kg/day

Total: 1.14 µg/kg/day

Females > 13 years	Nut: 83.4 µg/day

Spice: 4.5 µg/day

Cocoa: 0.65 µg/day	60 kg	1.39 µg/kg/day

0.075 µg/kg/day

0.011 µg/kg/day

Total: 1.48 µg/kg/day

.

Since propylene oxide is currently utilized only in fumigation chambers and is a volatile chemical, no drinking water contamination is expected.

2 Non-Dietary exposure.

Other than those that handle propylene oxide and off-gassing of fumigated quantities, no other forms of exposure to propylene oxide are anticipated.

D. Cumulative Effects

Proplyene oxide is not known accumulate in animal tissue of any kind, therefore no cumulative effects are expected.

E. Safety Determination

Based on estimates of total dietary exposure (excluding figs, prunes and raisins), should this tolerance amendment go into effect, the percent risk cup occupancy for various standard subpopulations of interest are shown in the following tables.

Percent Risk Cup Occupancy for Chronic Dietary Exposure to

PPO Residues at Tolerance Levels as Consumed

Population Group	PPO Dietary Dose	Percent Risk Cup

cRfD = 3.38 mg/kg/day

U.S. Population	1.25 (g/kg/day	0.037%

Infants < 1 year	0.705 (g/kg/day	0.021%

Children, 1 - 6 years	3.28 (g/kg/day	0.097%

Children, 7 - 12 years	2.79 (g/kg/day	0.083%

Males, > 13 years	1.14 (g/kg/day	0.034%

Females, > 13 years	1.48 (g/kg/day	0.044%

Revised March 8, 2007

 PAGE  2

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[Federal Register: April 24, 2006 (Volume 71, Number 78)]
[Proposed Rules]
[Page 20931-20932]
[DOCID:fr24ap06-19]

=======================================================================
-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 63

[EPA-R01-OAR-2006-0119; A-1-FRL-8049-8]

Approval of the Clean Air Act, Section 112(l), Authority for
Hazardous Air Pollutants; Perchloroethylene Dry Cleaner Regulation,
State of Maine Department of Environmental Protection

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

SUMMARY: EPA proposes to approve the Maine Department of Environmental
Protection's (ME DEP) request for approval to implement and enforce
``Chapter 125: Perchloroethylene Dry Cleaner Regulation'' in place of
the National Emissions Standard for Hazardous Air Pollutants for
Perchloroethylene Dry Cleaning Facilities (``Dry Cleaning NESHAP'') as
it applies to area sources. Approval of this request for partial rule
substitution would make Chapter 125 federally enforceable and
consolidate the compliance requirements for area source dry cleaners in
Maine into one set of regulations. Major source dry cleaning facilities
would remain subject to the Dry Cleaning NESHAP.

DATES: Written comments must be received on or before May 24, 2006.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R01-
OAR-2006-0119 by one of the following methods:
    1. http://www.regulations.gov: Follow the on-line instructions for

submitting comments.
    2. E-mail<EMAIL_ADDRESS>    3. Fax:<PHONE_NUMBER>.
    4. Mail: ``EPA-R01-OAR-2006-0119'', Dan Brown, U.S. Environmental
Protection Agency, EPA New England Regional Office, One Congress
Street, Suite 1100 (mail code CAP), Boston, MA 02114-2023.
    5. Hand Delivery or Courier. Deliver your comments to: Dan Brown,
Manager, Air Permits, Toxics and Indoor Programs Unit, Office of
Ecosystem Protection, U.S. Environmental Protection Agency, EPA New
England Regional Office, One Congress Street, 11th floor, (CAP),
Boston, MA 02114-2023. Such deliveries are only accepted during the
Regional Office's normal hours of operation. The Regional Office's
official hours of business are Monday through Friday, 8:30 to 4:30,
excluding legal holidays.
    Please see the direct final rule which is located in the Rules
Section of this Federal Register for detailed instructions on how to
submit comments.

FOR FURTHER INFORMATION CONTACT: Susan Lancey, Air Permits, Toxics, and
Indoor Programs Unit, U.S. Environmental Protection Agency, EPA New
England Regional Office, One Congress St, Suite 1100, Boston, MA 02114,
telephone number<PHONE_NUMBER>, fax<PHONE_NUMBER>, e-mail
<EMAIL_ADDRESS>

SUPPLEMENTARY INFORMATION: In the final rules section of this Federal
Register, EPA is approving ME DEP's request as a direct final rule
without prior proposal because the Agency views this as a
noncontroversial action and anticipates no relevant adverse comments.
Chapter 125 has been in effect in Maine since 1991 and is, taken as a
whole, more stringent than the Dry Cleaning NESHAP. A detailed
rationale for the approval is set forth in the direct final rule. If no
relevant adverse comments are received in response to this action, EPA
will take no further action on this proposed rule. If the EPA receives
relevant adverse comments, EPA will withdraw the direct final rule and
it will not take effect. EPA will then address all public comments
received in a subsequent final rule based on this proposed rule. The
EPA will not institute a second comment period in this action.
    For additional information see the direct final action which is
published in the Rules Section of this Federal Register.

    Dated: March 16, 2006.
Robert W. Varney,
Regional Administrator, EPA--New England.
[FR Doc. 06-3854 Filed 4-21-06; 8:45 am]

BILLING CODE 6560-50-P


UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

 National Vehicle and Fuel Emissions Laboratory

                              2565 Plymouth Road

                    Ann Arbor, Michigan 48105-2498

											OFFICE OF

										      AIR AND RADIATION

September 26, 2008

MEMORANDUM

FROM:  	Todd Sherwood

Assessment and Standards Division, US EPA

TO:	   	Docket ID No. EPA-HQ-OAR-2005-0047

SUBJECT:	Meeting with Eaton

EPA staff met with representatives of Eaton on July 29, 2008.  Eaton had
provided a list of questions in advance of the meeting.  Those questions
and the answers we provided are attached.

Attachment

Attachment

Questions from Eaton and EPA responses

1.	What is the latest OBD regulation for heavy duty engines used for
highway application (model year 2011 and beyond)? Where is it located on
epa.gov? Does that include particular requirements on diesel
aftertreatment? If so, is that the only requirement source for
aftertreatment?

	8500-14000# Vehicle	8500-14000# Engine	>14000# Engine

	EPA existing	§86.1806-05	§86.005-17	None

	EPA proposed & soon final	§86.1806-07

§86.1806-10	§86.010-17	§86.010-18	  HYPERLINK
"http://www.epa.gov/obd/regtech/heavy.htm"
www.epa.gov/obd/regtech/heavy.htm

CARB existing	CCR 1968.2 (OBDII)	CCR 1971.1 (HDOBD)	  HYPERLINK
"http://www.arb.ca.gov/msprog/obdprog/hdobdreg.htm"
www.arb.ca.gov/msprog/obdprog/hdobdreg.htm

  HYPERLINK "http://www.arb.ca.gov/msprog/obdprog/obdregs.htm"
www.arb.ca.gov/msprog/obdprog/obdregs.htm

Note:  >8500# = Heavy-duty for EPA; 8500-14000# = Medium-duty for CARB;
>14000# = HD for CARB.

Both the CARB and EPA regulations noted above have similar requirements
for diesel aftertreatment.

2.	Other than the current OBDs for highway application, what are the
regulations for non-road applications (2012+)?

No one in North America has OBD requirements for HD diesel nonroad.  We
hope to work on that in a future rule.  We do have some OBD requirements
for spark-ignition nonroad.  Talk to Alan Stout of EPA at<PHONE_NUMBER>.

3.	What is the EPA process to get certificate on passing the OBD and
Emissions? Time frame (when should we have the certification before the
production? And how long it will take for certification process)? Will
that process also depend on the production volume?

These are questions that should be posed to a certification
representative.  For >14000# OBD certification questions, contact Jason
Gumbs at<PHONE_NUMBER>.  For <14000# OBD certification questions, contact
Jason Gumbs or Arvon Mitcham at<PHONE_NUMBER>.

4.	For performance monitors of each catalysts (reformer, LNT, DPF, SCR
in our case), what are the major requirements? What about sensor aging?
Any requirements on monitoring the sensor aging (particularly dynamic
response variations)?

This requires discussion and study of the regulatory language.

5.	Requirements on the diagnostics trouble code (DTC: triggering and
storing?)? MIL/DTC handling and light on process?

These specifics are detailed in the regulatory language and in SAE/ISO
standards.

6.	Requirements on the service? Communication protocol?

Regarding service information availability requirements, contact Holly
Pugliese at<PHONE_NUMBER>.  Regarding communication protocol, either SAE
J1939 or ISO 15765 are required.

7.	OBD testing and validation process? Any EOL requests?

For >14000#, the testing requirements are detailed in the regulatory
language.  “EOL” is not a term I know.  If it means “end of
line”, then there are production engine testing requirements for
>14000#, some of which are expected to be done at the end of the
production line.  These are detailed in the regulatory language.

8.	What are the mileages and time periods that each Catalyst is
considered useful life?

Useful life mileages are 110K, 185K, and 435K miles, depending on weight
class.  Required aging of aftertreatment devices for emissions purposes
is being developed by Jason Gumbs and others in the Certification
Division.  Required aging for OBD purposes is being developed within the
context of our soon to be final rule.

9.	Separation requirements on the aged catalysts and UL catalysts?

10.	Due to the nature of this new technology, for some components we
won’t be able to have vehicle aged parts, what is the regulation on
thermally aged catalysts which can be considered equivalent to vehicle
aged parts?

See #8.

11.	Balance of functional monitoring and component based monitoring?

?

12.	OBD requirements for dosing?

Any active reductant/injection system must be monitored as detailed in
the regulatory language.

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