[Federal Register Volume 84, Number 209 (Tuesday, October 29, 2019)]
[Notices]
[Pages 57890-57896]
[FR Doc No: 2019-23551]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87387; File No. SR-OCC-2019-010]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change Related to Proposed Changes to
the Options Clearing Corporation's Rules, Margin Policy, Margin
Methodology, Clearing Fund Methodology Policy, and Clearing Fund and
Stress Testing Methodology To Address Specific Wrong-Way Risk

October 23, 2019.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on October 10, 2019, the Options Clearing
Corporation (``OCC'') 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 prepared primarily by OCC. 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. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    The proposed rule change is filed in connection with proposed
enhancements to OCC's Rules, margin policy and methodology, Clearing
Fund policy, and Clearing Fund and stress testing methodology to adopt
new margin charges and other risk measures to address the specific
wrong-way risk presented by certain cleared positions.
    The proposed amendments to OCC's Rules are included in Exhibit 5A
of the filing.\3\ The proposed amendments to OCC's Margin Policy and
Margins Methodology are included in Exhibits 5B and 5C, respectively.
The proposed amendments to OCC's Clearing Fund Methodology Policy
(``CFM Policy'') and Stress Testing and Clearing Fund Methodology
Description (``Methodology Description'') are included in Exhibits 5D
and 5E, respectively. Material proposed to be added to the Rules,
Margin Policy and Margins Methodology as currently in effect is marked
by underlining, and material proposed to be deleted is marked in
strikethrough text; however, the proposed Specific Wrong-Way Risk Add-
On chapter of the Margins Methodology is presented without marking to
improve readability as the entire chapter is newly proposed rule
text.\4\ Material proposed to be added to the CFM Policy and
Methodology Description is marked by double underlining, and material
proposed to be deleted is marked in double strikethrough text.\5\ The
proposed changes are described in detail in Item II below.
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    \3\ The Commission notes that exhibits referenced herein are
included in the filing submitted by OCC to the Commission, but are
not included in this Notice.
    \4\ OCC also has filed an advance notice with the Commission in
connection with the proposed changes. See SR-OCC-2019-807.
    \5\ OCC also filed with the Commission proposed rule change and
advance notice filings concerning enhancements to its CFM Policy and
Methodology Description, which are currently pending Commission
review. See SR-OCC-2019-009 and SR-OCC-2019-806. OCC has marked
proposed changes to the CFM Policy and Methodology Description
described herein in double marking to clearly differentiate those
changes from other changes currently pending Commission review.
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    The proposed rule change is available on OCC's website at https://www.theocc.com/about/publications/bylaws.jsp. All terms with initial
capitalization that are not otherwise defined herein have the same
meaning as set forth in the OCC By-Laws and Rules.\6\
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    \6\ OCC's By-Laws and Rules can be found on OCC's public
website: http://optionsclearing.com/about/publications/bylaws.jsp.
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II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    In its filing with the Commission, OCC 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. OCC has
prepared summaries, set forth in sections (A), (B), and (C) below, of
the most significant aspects of these statements.

A. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

1. Purpose
Background
    As a central counterparty (``CCP''), OCC is exposed to wrong-way
risk, which is the risk that arises when exposure to a counterparty is
adversely correlated with the credit quality and probability of default
of that counterparty. Specific wrong-way risk (``SWWR'') arises when an
exposure to a participant is highly likely to increase when the
creditworthiness of that participant is deteriorating.\7\ For example,
SWWR arises where a Clearing Member's cleared positions contain equity
securities issued by the Clearing Member or its affiliates (i.e., the
Clearing Member Group) (such positions referred to herein as ``SWWR
Equity positions'') as the equity issued by the Clearing Member Group
may be assumed to have a price at or near zero in a default or
bankruptcy scenario, and those positions (e.g., equity used as a hedge,
stock loans, options on equity, single-stock futures) may experience
substantial losses. In addition, SWWR may arise where uncollateralized
exchange-traded notes (``ETNs'') issued by a Clearing Member or its
affiliates (``SWWR ETN positions'') are part of the Clearing Member's
cleared positions (these positions, collectively with ``SWWR Equity
positions,'' are hereinafter referred to as ``SWWR positions''). SWWR
may also arise when a Clearing Member posts equity securities or ETNs
issued by it or of its affiliates as margin collateral.
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    \7\ See Securities Exchange Act Release No. 78961 (September 28,
2016), 81 FR 70786, 70816, n. 317 (October 13, 2016) (S7-03-14)
(``Standards for Covered Clearing Agencies''). See also Committee on
Payment and Settlement Systems and Technical Committee of the
International Organization of Securities Commissions, Principles for
financial market infrastructures (Apr. 16, 2012), available at
http://www.bis.org/publ/cpss101a.pdf.
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    OCC currently accounts for SWWR as it relates to margin collateral
by generally prohibiting a Clearing Member from pledging equities
issued by it or one of its affiliates as margin collateral unless this
pledge provides a hedge against a cleared position in the same
account.\8\ OCC does not, however, currently account for SWWR as it
relates to cleared positions. As a result, OCC is proposing a new
``add-on'' charge \9\ for its margin methodology, the System for
Theoretical Analysis and Numerical Simulations (``STANS''),\10\ and new
stress test scenarios that may result in intra-day margin calls and, in
more extreme cases, intra-month increases in the size of OCC's Clearing
Fund \11\ to address the wrong-way risk of OCC's cleared positions
involving Clearing Member-issued securities. In addition, OCC proposes
to introduce certain restrictions on stock lending activity related to
SWWR positions.
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    \8\ See OCC Rule 604, Interpretation and Policy .16.
    \9\ Under OCC's Margin Policy, OCC may collateralize certain
exposures through the use of add-on charges.
    \10\ See Securities Exchange Act Release No. 53322 (February 15,
2006), 71 FR 9403 (February 23, 2006) (SR-OCC-2004-20). A detailed
description of the STANS methodology is available at http://optionsclearing.com/risk-management/margins/.
    \11\ Under OCC's existing stress testing and Clearing Fund
methodology, OCC runs on a daily basis a set of stress test
scenarios designed to measure the exposure of the Clearing Fund to
the portfolios of individual Clearing Member Groups and determine
whether any such exposure is sufficiently large as to necessitate
OCC calling for additional resources so that OCC continues to
maintain sufficient financial resources to guard against potential
losses under a wide range of stress scenarios, including extreme but
plausible market conditions (``Sufficiency Scenarios,'' and such
scenarios collectively constituting ``Sufficiency Stress Tests'').
See Securities Exchange Act Release No. 83714 (July 26, 2018), 83 FR
37570 (August 1, 2018) (SR-OCC-2018-803) and Securities Exchange Act
Release No. 83735 (July 27, 2018), 83 FR 37855 (August 2, 2018) (SR-
OCC-2018-008). Under OCC Rule 609, the CFM Policy, and the
Methodology Description, if a Sufficiency Stress Test identifies
exposures that exceed 75% of the current Clearing Fund requirement
less deficits (the ``75% threshold'' or ``Sufficiency Stress Test
Threshold 1''), OCC may require additional margin deposits from the
Clearing Member Group(s) driving the breach. If a Sufficiency Stress
Test identifies exposures that exceed 90% of the current Clearing
Fund, OCC would perform an intra-month resizing of the Clearing
Fund. Id.
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Proposed Changes
    OCC proposes to enhance its management of SWWR by: (1) Imposing
certain restrictions on stock lending activity at OCC; (2) adopting a
new SWWR margin add-on for STANS (``SWWR Add-on''); (3) introducing new
stress test scenarios to capture the SWWR of cleared positions
involving Clearing Member-issued ETNs beyond certain pre-defined
thresholds; and (4) making other clarifying and conforming changes to
the CFM Policy and Methodology Description. The proposed changes are
intended to address the credit risks arising from SWWR positions at
OCC. The proposed changes are described in detail below.
1. Prohibition on Lending Clearing Member/Affiliate-Issued Securities
    OCC operates two programs for stock loan transactions: (1) The
Stock Loan/Hedge Program and (2) the Market Loan Program (collectively,
the ``Stock Loan Programs''). In the Stock Loan/Hedge Program,
prospective Lending and Borrowing Clearing Members identify each other
(independent of OCC), agree to bilaterally negotiated terms of the
stock loan (in this case, a ``Hedge Loan''), and then send the details
of the stock loan to the Depository Trust Company (``DTC'') designating
the stock loan as a Hedge Loan for guaranty and clearance at OCC. The
Lending Clearing Member then instructs DTC to transfer a specified
number of shares of Eligible Stock \12\ to the account of the Borrowing
Clearing Member, and the Borrowing Clearing Member instructs DTC to
transfer the appropriate amount of cash collateral to the account of
the Lending Clearing Member. In the Market Loan Program, stock loans
are initiated through the matching of bids and offers that are either
agreed upon by the Market Loan Clearing Members or matched anonymously
through a Loan Market (such stock loans being ``Market Loans''). In
order to initiate a Market Loan, the Loan Market sends a matched
transaction to OCC, which in turn sends two separate but linked
settlement instructions to DTC to effect the movement of Eligible Stock
and cash collateral between the accounts of the Market Loan Clearing
Members through OCC's account at DTC.
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    \12\ OCC's By-Laws define ``Eligible Stock'' to mean, in part,
any security that is eligible for lending in the Stock Loan/Hedge
Program and the Market Loan Program. See Article I, Section 1.E(3)
of the OCC By-Laws. Eligible Stock may include ETNs issued by OCC's
Clearing Members.
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    Regardless of whether a transaction is initiated under the Stock
Loan/Hedge Program or Market Loan Program, OCC novates the transaction
and becomes the lender to the Borrowing Clearing Member and the
borrower to the Lending Clearing Member. As the principal counterparty
to the Borrowing and Lending Clearing Members, OCC guarantees the
return of the full value of cash collateral to a Borrowing Clearing
Member and guarantees the return of the Loaned Stock (or value of that
Loaned Stock) to the Lending Clearing Member.\13\ As noted above, OCC
may be exposed to SWWR in its Stock Loan Programs where Clearing
Members lend equity securities or ETNs issued by the Clearing Member or
its affiliates. Specifically, the lending of Clearing Member or Member
Affiliate-issued equity or ETNs creates a long exposure and liability
in the case when a Clearing

Member defaults and its own or affiliated equity or ETN declines.
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    \13\ Under the Market Loan Program, OCC also provides a limited
guaranty of dividend and rebate payments.
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    OCC proposes to mitigate SWWR in its Stock Loan Programs by
prohibiting Clearing Members from lending any Eligible Stock issued by
such Clearing Member or any affiliate of such Clearing Member. The
proposed restriction would apply to both SWWR Equity positions and SWWR
ETN positions. OCC does not believe that the proposed restriction on
lending SWWR Equity positions would have a material impact on Clearing
Members in the Stock Loan Programs as Clearing Members do not typically
engage in lending of their own equity securities and borrowers
typically do not accept equity securities issued by their lending
counterparty.\14\ The proposed restrictions on lending SWWR ETN
positions would, however, impact a very small segment of Clearing
Members that lend SWWR ETNs.\15\ OCC believes that the impact of the
proposed changes would be limited by the fact that, unlike listed
options, Clearing Members are able to lend SWWR positions on an
uncleared basis outside of OCC. The proposed restrictions on lending
activity in the Stock Loan Programs would not prevent Clearing Members
from lending equities or ETNs issued by the Clearing Member or any
affiliate of such Clearing Member on a bilateral basis if members wish
to do so.
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    \14\ As of the start of September 2019, OCC had 107 Clearing
Members, of which 64 have member or affiliate-issued securities
eligible for lending in the Stock Loan Programs. OCC analyzed SWWR
Equity lending activity for its Clearing Members from January 2018
through the beginning of September 2019. During this period, less
than 10 Clearing Members had stock lending activity in SWWR Equity
positions, and loans of SWWR Equity positions constituted less than
three percent of each of those Clearing Members' average notional
stock lending activity for the period.
    \15\ OCC analyzed SWWR ETN lending activity for its Clearing
Members from January 2018 through the beginning of September 2019.
Only 11 of OCC's 107 Clearing Members have member or affiliate
issued ETNs. During this period, less than 10 Clearing Members had
stock lending activity for SWWR ETN positions. For the majority of
these Clearing Members, lending in SWWR ETN positions constituted
approximately 13 percent or less of each of those Clearing Members'
average notional stock lending activity for the period. For Clearing
Members that averaged higher notational lending activity, OCC has
observed significant reductions in this activity over recent months.
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    The proposed prohibition on lending Clearing Member or Member
Affiliate-issued Eligible Stock would be included in new OCC Rules
2202(f) and 2202A(f) for the Stock Loan/Hedge Program and Market Loan
Program, respectively. OCC would also make conforming changes to its
Margin Policy and Margins Methodology to reflect the newly proposed
restrictions in stock lending activity.
    The proposed rule change would only apply to stock lending activity
as of the time of implementation of the proposed rule change. The
proposed rule change would not be applied retroactively to existing
open positions, and Clearing Members with open stock loans involving
Clearing Member or Member Affiliate-issued Eligible Stock would not be
forced to terminate those existing positions. Any SWWR stock lending
positions in existence as of the implementation of the proposed rule
change would be subject to the SWWR charges described below until such
positions are closed out through the normal course stock loan
termination process.
2. SWWR Add-on
    OCC proposes to adopt a new margin add-on (i.e., the SWWR Add-on)
to address SWWR from cleared positions involving Clearing Member and
affiliate issued equities and ETNs. The SWWR Add-on would be calculated
for each margin tier account of a Clearing Member Group having
positions related to either publicly traded equities or ETNs issued by
the Clearing Member Group and would cover all types of positions
(equity used as collateral, equity and ETN options, single-stock
futures). The proposed SWWR Add-on is comprised of three main
components: (1) ``SWWR Equity Charge,'' (2) ``SWWR ETN Charge,'' and
(3) ``SWWR Residual.'' Each of these components is discussed below.
a. SWWR Equity Charge
    Under the proposal, when a Clearing Member defaults, it is assumed
that the price of any equity security issued by the Clearing Member
Group would fall to zero. As a result, OCC would calculate the SWWR
Equity Charge by assuming that a Clearing Member's and its affiliates'
equity securities would be priced at zero and value all cleared
positions accordingly (i.e., all stocks, single stock futures, call
options, and put options would be valued at zero) to provide full
protection for the risk of potential market exposure to products on a
Clearing Member Group's own equity in a default or bankruptcy scenario.
In each margin account, the profit and loss (``P&L'') of SWWR Equity
positions would be calculated as the difference of the theoretical
value of such securities (i.e., zero) and the closing price of the
position multiplied by the net quantity.\16\ Moreover, any potential
gain from the SWWR positions would be excluded by flooring the SWWR
Equity Charge at zero.\17\ As a result, OCC believes that the proposed
SWWR Equity Charge would adequately cover the SWWR arising from a
Clearing Member's SWWR Equity positions.
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    \16\ Because SWWR of equity-related positions would be fully
covered as part of margins, these positions would be removed from
Clearing Fund shortfall calculations under OCC's stress testing and
Clearing Fund methodology. Accordingly, OCC proposes to revise its
Methodology Description to reflect the exclusion of SWWR Equity
positions from the synthetic accounts used in OCC's stress testing.
    \17\ For example, suppose the P&L from the SWWR equity price
going to 0 for all SWWR equity-related positions were a loss of $1
million. The SWWR Equity Charge in this case would be $1 million. If
the P&L were a gain of $1 million, the SWWR Equity Charge would be
$0.
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b. SWWR ETN Charge
    In addition to SWWR that arises from equity securities issued by a
Clearing Member or its affiliates, OCC is also exposed to SWWR from
open positions related to the uncollateralized ETNs issued by a
Clearing Member/Group, which are adversely correlated with the credit
quality of that Clearing Member Group. These ETNs are generally
equivalent to unsecured senior debt issued by the Clearing Member/
Group. While a Clearing Member default can be triggered by its failure
to meet other obligations, the firm may or may not default on its ETNs.
Hence, the recovery rate for ETNs is uncertain and could be between 0%
and 100%.
    To address SWWR presented by ETNs issued by a Clearing Member/
Group, OCC proposes to calculate an SWWR ETN Charge as part of the SWWR
Add-on. OCC notes that, unlike SWWR Equity positions, for which it is
assumed that the price of any equity security issued by the Clearing
Member Group would fall to zero, the recovery rate for ETNs would not
necessarily fall to zero. As a result, the proposed SWWR ETN Charge
would utilize an industry standard recovery rate assumption designed to
reflect the credit risk associated with such ETN positions.\18\ OCC
would also adopt additional stress test scenarios to monitor and
measure SWWR ETN position exposures and allow for OCC to call for
additional financial resources from its Clearing Members when certain
thresholds are breached. These SWWR stress test scenarios are discussed
in further detail below.
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    \18\ ETNs issued by a Clearing Member Group would still be
stressed in OCC's Clearing Fund as only a part of the credit risk is
covered by the SWWR ETN Charge. Additionally, any credit from margin
assets would be adjusted by the direct charges related to the risk
of the equity and ETNs issued by each Clearing Member Group.
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c. SWWR Residual
    To ensure that OCC appropriately calculates margins to capture SWWR

Equity and SWWR ETN position exposures, OCC proposes to include an SWWR
Residual component in SWWR Add-on. Under the proposal, OCC would
continue to calculate base STANS margin requirements for Clearing
Members with SWWR positions including SWWR Equity and SWWR ETN
positions under its current methodology (i.e., without assuming that
all SWWR Equity positions fall to a value of zero and without assuming
all SWWR ETN positions are valued at the recovery rate times their
current price).\19\ OCC would then also calculate a residual STANS
margin with the SWWR Equity and SWWR ETN positions removed since for
SWWR their P&L would be captured through the SWWR Equity and SWWR ETN
Charges. The SWWR Residual would then be the difference between the
residual margin and the base margin. If the sum of the SWWR Equity
Charge, SWWR ETN Charge and SWWR Residual would result in a net credit
to the Clearing Member,\20\ then the SWWR Residual would be adjusted to
ensure that OCC always uses a more conservative measure that captures
the greater of either the base STANS margin or the residual STANS
margin plus the SWWR Equity and SWWR ETN Charges.\21\
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    \19\ STANS margin requirements are comprised of the sum of
several components, each reflecting a different aspect of risk. The
base component of the STANS margin requirement for each account is
obtained using a risk measure known as 99% Expected Shortfall. The
Expected Shortfall component is established as the estimated average
of potential losses higher than the 99% value at risk threshold. The
term ``value at risk'' or ``VaR'' refers to a statistical technique
that, generally speaking, is used in risk management to measure the
potential risk of loss for a given set of assets over a particular
time horizon. This base component is then adjusted by the addition
of a stress test component, which is obtained from consideration of
the increases in 99% Expected Shortfall that would arise from market
movements that are especially large and/or in which various kinds of
risk factors exhibit perfect or zero correlations in place of their
correlations estimated from historical data (``Dependence Add-on''),
or from extreme adverse idiosyncratic movements in individual risk
factors to which the account is particularly exposed
(``Concentration Add-on'').
    \20\ For example, where a customer of a Clearing Member has net
short positions referencing that Clearing Member's issued equities,
such positions may actually present so-called ``right-way risk''
whereby the position would result in a gain or margin credit for
that account as the credit quality of the Clearing Member
deteriorates.
    \21\ For example, suppose that there are no SWWR ETN positions
and the Expected Shortfall of a portfolio including all positions
was a $10 million loss and the Expected Shortfall with the SWWR
Equity-related positions removed was a greater loss of $11 million.
In this case, the SWWR Residual would be -$1 million. If the
Expected Shortfall with the SWWR Equity-related positions removed
was reduced to a loss of $9 million then the SWWR Residual would
depend on the SWWR Equity Charge: If the SWWR Equity Charge was more
negative than -$1 million, then the SWWR Residual would be +$1
million; if the SWWR Equity Charge was $0, then SWWR Residual would
be $0; and if SWWR Equity Charge was between $0 and -$1 million
(e.g., -$0.4 million), then SWWR Residual would be positive and the
opposite value of SWWR Equity Charge (e.g., +$0.4 million). Thus,
the sum of the SWWR Equity Charge, SWWR ETN Charge, and SWWR
Residual cannot be positive.
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3. Enhancements to Sufficiency Stress Test Scenarios for ETNs
    OCC proposes to revise its CFM Policy and Methodology Description
to introduce new stress test scenarios designed to capture SWWR
exposures for Clearing Member-issued ETNs that are not accounted for in
the SWWR ETN Charge and that exceed certain thresholds of OCC's
Clearing Fund (``SWWR Sufficiency Scenarios'').\22\ Under the proposal,
certain Sufficiency Scenarios \23\ would be evaluated with Clearing
Member-issued ETNs declining to zero within the respective Clearing
Member's accounts. Such scenarios would include, but would not be
limited to, the 1987 ``Black Monday'' market event on a Cover 1 basis
and the two most extreme moves from the 2008 historical market event on
a Cover 2 basis.
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    \22\ OCC notes that it may also develop additional Informational
Scenarios to monitor SWWR; however, these Informational Scenarios
would not be used to call for additional financial resources from
Clearing Members.
    \23\ See supra note 11.
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    SWWR Sufficiency Scenarios would value Clearing Member-issued ETNs
at a price of zero within their own accounts capturing impacts to any
cleared positions tied to those ETNs. Calls, equities, and single-stock
futures would all be valued at zero and puts would be valued at their
strike price. For these scenarios, margin assets for shortfall
calculations would not be adjusted by the SWWR ETN Charge. In addition,
other scenarios may be created that embed the SWWR Equity risk by not
excluding positions related to the Clearing Member Group's own equity
but using an equity price of zero to value all related products.
    In the event an SWWR Sufficiency Scenario identifies exposures that
exceed 75% of the current Clearing Fund requirement less deficits, OCC
may require additional margin deposits from the Clearing Member
Group(s) driving the breach. If an SWWR Sufficiency Stress Scenario
identifies exposures that exceed 90% of the current Clearing Fund, OCC
would perform an intra-month resizing of the Clearing Fund. The
proposed change would enable OCC to more accurately measure its credit
risks as they relate to SWWR and better test the sufficiency of its
overall financial resources and would allow OCC to call for additional
financial resources when SWWR ETN position exposures exceed certain
thresholds of OCC's Clearing Fund. As a result of these proposed
enhancements, OCC believes it would have sufficient financial resources
to cover the SWWR associated with SWWR ETN positions if such positions
were to be liquidated for less than the assumed recovery rate.
    OCC notes that, under its current CFM Policy, in the event results
of a daily Sufficiency Stress Test over the final five business days
preceding the monthly Clearing Fund sizing exceed 90% of the projected
Clearing Fund size for the upcoming month, the Clearing Fund size is
set such that the peak Sufficiency Stress Test draw is no greater than
90% of the Clearing Fund size. OCC proposes to revise the CFM Policy to
provide that OCC generally does not intend to mutualize exposures
resulting from the proposed SWWR Sufficiency Scenarios and therefore
SWWR Sufficiency Scenarios would not be included for purposes of this
anti-procyclicality measure. The proposed change is generally aligned
with OCC's intention to appropriately charge individual Clearing
Members based on the SWWR they bring to OCC.
4. Other Clarifying and Conforming Changes to CFM Policy and
Methodology Description
    In addition to the proposed changes described above, OCC would
revise the CFM Policy and Methodology Description to provide that, with
respect to stress test portfolio construction, SWWR single-name equity
positions would be removed from stress test portfolios as they are
fully collateralized in margins. Additionally, the Methodology
Description would be revised to provide that when adding STANS margin
asset amounts to scenario gains and losses, the SWWR Equity Charge,
SWWR ETN Charge, and certain other Add-ons from STANS margin asset
amounts are excluded.
    Finally, OCC would revise its Methodology Description to clarify
that for Idiosyncratic Scenarios,\24\ the four riskiest names used to
calculate idiosyncratic stress test exposures would exclude any equity
issued by the Clearing Member's own firms and make

other clarifying, non-substantive changes to the Methodology
Description concerning stress testing price shocks for products with
multiple risk factors and Idiosyncratic Scenarios that are unrelated to
the proposal described herein.
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    \24\ OCC has proposed in separate proposed rule change and
advance notice filings to adopt a new set of stress scenarios to be
used in the monthly sizing of OCC's Clearing Fund that are designed
to capture the risks of extreme moves in individual or small subsets
of securities (``Idiosyncratic Scenarios''). These Idiosyncratic
Scenarios would consider the four single-name securities with the
worst P&L in a Clearing Member's portfolio. See supra note 5.
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Clearing Member Outreach
    To inform Clearing Members of the proposed changes, OCC has
provided an overview of the proposed changes to the Financial Risk
Advisory Council (``FRAC''), a working group comprised of exchanges,
Clearing Members and indirect participants of OCC. OCC has also
performed direct outreach to Clearing Members that would be most
impacted by the proposed changes. To-date, OCC has not received any
material objections or concerns in response to this outreach.
Implementation Timing
    OCC expects to implement the proposed changes within sixty (60)
days after the date that OCC receives all necessary regulatory
approvals for the proposed changes. OCC will announce the
implementation date of the proposed change by an Information Memorandum
posted to its public website at least two (2) weeks prior to
implementation.
(1) Statutory Basis
    OCC believes the proposed rule change is consistent with
requirements of the Act and rules and regulations thereunder applicable
to registered clearing agencies. Specifically, OCC believes the
proposed rule change is consistent with Section 17A(b)(3)(F) of the Act
\25\ and Rule 17Ad-22(b)(2),\26\ Rule 17Ad-22(e)(4),\27\ and Rule 17Ad-
22(e)(6) \28\ thereunder, as described in further detail below.
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    \25\ 15 U.S.C. 78q-1(b)(3)(F).
    \26\ 17 CFR 240.17Ad-22(b)(2).
    \27\ 17 CFR 240.17Ad-22(e)(4).
    \28\ 17 CFR 240.17Ad-22(e)(6).
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Consistency With the Section 17A(b)(3)(F) of the Exchange Act
    Section 17A(b)(3)(F) of the Act \29\ requires, among other things,
that the rules of a clearing agency be designed to promote the prompt
and accurate clearance and settlement of securities and derivatives
transactions, to assure the safeguarding of securities and funds which
are in its custody or control or for which it is responsible, and, in
general, to protect investors and the public interest. OCC believes
that prohibiting Clearing Members from lending their own or Member
Affiliate-issued securities in the Stock Loan Programs and introducing
the proposed SWWR Add-on charge would enhance OCC's ability to manage
the credit risks presented by its Clearing Members' SWWR positions and
would reduce the risk that OCC's financial resources would be
insufficient in the event of a Clearing Member default. As a result,
the proposed change is designed, in general, to enhance OCC's framework
for measuring and managing its credit risks so that it can continue to
provide prompt and accurate clearance and settlement of securities and
derivatives transactions, assure the safeguarding of securities and
funds which are in its custody or control or for which it is
responsible, and, in general, protect investors and the public interest
consistent with Section 17A(b)(3)(F) of the Act.\30\
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78q-1(b)(3)(F).
    \30\ Id.
---------------------------------------------------------------------------

    In addition, OCC believes that introducing new SWWR Sufficiency
Scenarios designed to capture SWWR exposures for Clearing Member-issued
ETNs that are not accounted for in the SWWR ETN Charge would provide
OCC with a more comprehensive approach to managing OCC's credit risks
as they relate to SWWR ETN positions. The proposed change would enable
OCC to more accurately measure its credit risks and better test the
sufficiency of its overall financial resources and would allow OCC to
call for additional financial resources when those exposures exceed
certain thresholds of OCC's Clearing Fund. The proposed rule change is
therefore designed to enhance OCC's overall framework for measuring and
managing its credit risks and would reduce the risk that OCC's
financial resources would be insufficient in the event of a Clearing
Member default. For these reasons, OCC believes the proposed change is
designed to promote the prompt and accurate clearance and settlement of
securities and derivatives transactions, to assure the safeguarding of
securities and funds in the custody or control of the clearing agency
or for which it is responsible, and, in general, to protect investors
and the public interest in accordance with Section 17A(b)(3)(F) of the
Act.\31\
---------------------------------------------------------------------------

    \31\ Id.
---------------------------------------------------------------------------

    OCC also proposes a number of other clarifying and conforming
changes to its CFM Policy and Methodology Description required to
implement the proposed SWWR Add-on and SWWR Sufficiency Scenarios
described herein and to more clearly describe OCC's stress testing
practices. OCC believes that these changes would enhance OCC's overall
framework for measuring and managing its credit risks so that it can
continue to provide prompt and accurate clearance and settlement of
securities and derivatives transactions, assure the safeguarding of
securities and funds which are in its custody or control or for which
it is responsible, and, in general, protect investors and the public
interest consistent with Section 17A(b)(3)(F) of the Act.\32\
---------------------------------------------------------------------------

    \32\ Id.
---------------------------------------------------------------------------

Consistency With Rule 17Ad-22 Under the Exchange Act
    Rule 17Ad-22(b)(2) \33\ requires a registered clearing agency that
performs CCP services to establish, implement, maintain and enforce
written policies and procedures reasonably designed to, in part, use
margin requirements to limit its credit exposures to participants under
normal market conditions and use risk-based models and parameters to
set such margin requirements. In addition, Rules 17Ad-22(e)(6)(i) and
(v) \34\ require a covered clearing agency that provides CCP services
to establish, implement, maintain and enforce written policies and
procedures reasonably designed to cover its credit exposures to its
participants by establishing a risk-based margin system that, at a
minimum: (1) Considers and produces margin levels commensurate with the
risks and particular attributes of each relevant product, portfolio,
and market, and (2) uses an appropriate method for measuring credit
exposure that accounts for relevant product risk factors and portfolio
effects across products.
---------------------------------------------------------------------------

    \33\ 17 CFR 240.17Ad-22(b)(2).
    \34\ 17 CFR 240.17Ad-22(e)(6)(i) and (v).
---------------------------------------------------------------------------

    The proposed changes to OCC's margin and Clearing Fund policies and
methodologies to adopt the SWWR Add-on would utilize a risk-based model
designed to limit OCC's credit exposures to Clearing Members that
present SWWR exposure to OCC through the clearing of Clearing Member-
issued equity and ETN positions. OCC believes the proposed SWWR Add-on
is reasonably designed to produce margin levels commensurate with the
risks and particular attributes SWWR Equity and ETN positions and would
use an appropriate method for measuring credit exposure that accounts
for relevant product risk factors such as SWWR.
    The proposed SWWR Add-on would include both an SWWR Equity Charge
and SWWR ETN Charge to address the SWWR attributes and exposures
presented to OCC by each type of product. For example, the SWWR Equity
Charge assumes that when a Clearing Member defaults the price of

any equity security issued by the Clearing Member Group would fall to
zero. As a result, OCC would calculate the SWWR Equity Charge by
assuming that a Clearing Member's and its affiliates' equity securities
would be priced at zero and value all cleared positions accordingly to
provide full protection for the risk of potential market exposure to
products on a Clearing Member Group's own equity in a default or
bankruptcy scenario. Moreover, the SWWR Add-on charge would include an
SWWR Residual component to ensure that OCC takes the more conservative
of the base STANS margin requirement or margin requirements including
the SWWR Equity Charge (particularly in circumstances where using the
SWWR Equity Charge would result in a net credit to the Clearing
Member).
    In addition, OCC would adopt an SWWR ETN Charge to address the SWWR
presented by Clearing Member-issued ETNs. ETNs have different
characteristics than equity securities and more closely reflect those
characteristics of other unsecured debt obligations. For example, if a
Clearing Member defaults that does not necessarily imply that it will
automatically default on its ETNs. Therefore, ETNs are not necessarily
valued at 0 and in fact may retain 100% of their value and be exposed
to normal market risk. OCC proposes to measure the risk of these
positions using an industry standard recovery rate assumption designed
to calculate a margin charge that reflects the expected credit risk
associated with such ETN positions. The potential market risk of the
ETNs would still be covered by including ETNs in regular margin
calculations, whereas the SWWR Equity positions are assumed to be
heading towards bankruptcy and necessarily valued near 0 in a default
situation.
    For these reasons, OCC believes the proposed SWWR Add-on would
enhance OCC's margin system by providing for a risk-based model that:
(1) Sets margin requirements designed to limit OCC's SWWR exposures to
its participant; (2) considers and produces margin levels commensurate
with the risks and particular attributes SWWR positions cleared by OCC;
and (3) uses an appropriate method for measuring such SWWR exposures
consistent with the requirements of Rules 17Ad-22(b)(2), (e)(6)(i) and
(e)(6)(v).\35\
---------------------------------------------------------------------------

    \35\ 17 CFR 240.17Ad-22(b)(2), (e)(6)(i), and (e)(6)(v).
---------------------------------------------------------------------------

    Rules 17Ad-22(e)(4)(iii) and (vi) \36\ require that a covered
clearing agency establish, implement, maintain and enforce written
policies and procedures reasonably designed to effectively identify,
measure, monitor, and manage its credit exposures to participants and
those arising from its payment, clearing, and settlement processes,
including by: (1) Maintaining additional financial resources at the
minimum to enable it to cover a wide range of foreseeable stress
scenarios that include, but are not limited to, the default of the
participant family that would potentially cause the largest aggregate
credit exposure for the covered clearing agency in extreme but
plausible market conditions and (2) testing the sufficiency of its
total financial resources available to meet these minimum financial
resource requirements. OCC believes that introducing new SWWR
Sufficiency Scenarios designed to capture SWWR exposures for Clearing
Member-issued ETNs that are not accounted for in the SWWR ETN Charge
would enable OCC to more accurately measure its credit risks and better
test the sufficiency of its overall financial resources, particularly
in stressed marked conditions. The proposed change would also allow OCC
to call for additional financial resources when those exposures exceed
certain thresholds of OCC's Clearing Fund. The proposed rule change is
therefore designed to enhance OCC's overall framework for measuring and
managing its credit risks and would reduce the risk that OCC's
financial resources would be insufficient in the event of a Clearing
Member default consistent with Rules 17Ad-22(e)(4)(iii) and (vi).\37\
---------------------------------------------------------------------------

    \36\ 17 CFR 240.17Ad-22(e)(4)(iii) and (vi).
    \37\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(4) \38\ generally requires that a covered clearing
agency establish, implement, maintain and enforce written policies and
procedures reasonably designed to effectively identify, measure,
monitor, and manage its credit exposures to participants and those
arising from its payment, clearing, and settlement processes. By
prohibiting Clearing Members from lending Eligible Stock issued by the
Clearing Member or any affiliate of such Clearing Member, OCC would
mitigate the SWWR that currently exists in its Stock Loan Programs and
thereby reduce the risk that OCC's financial resources would be
insufficient in the event such a Clearing Member would default. OCC
believes the proposed change is therefore reasonably designed to help
OCC manage the credit risks associated with SWWR Equity and SWWR ETN
positions in the Stock Loan Programs and is therefore consistent with
Rule 17Ad-22(e)(4).\39\
---------------------------------------------------------------------------

    \38\ 17 CFR 240.17Ad-22(e)(4).
    \39\ Id.
---------------------------------------------------------------------------

    For the reasons set forth above, OCC believes the proposed rule
change is consistent with Section 17A(b)(3)(F) of the Act \40\ and the
rules promulgated thereunder.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78q-1(b)(3)(F)
---------------------------------------------------------------------------

B. Clearing Agency's Statement on Burden on Competition

    Section 17A(b)(3)(I) of the Act \41\ requires that the rules of a
clearing agency not impose any burden on competition not necessary or
appropriate in furtherance of the purposes of the Act. OCC notes that
while the proposed SWWR Add-on and SWWR Sufficiency Scenario margin
charges may impact or impose a burden on competition for those Clearing
Members with SWWR exposures in their cleared positions when compared to
Clearing Members without SWWR positions, any burden on competition
would be necessary or appropriate in furtherance of the purposes of the
Act. The proposed margin charges would be imposed on all Clearing
Members that bring SWWR exposure to OCC on an individualized basis in
an amount reasonably calculated to mitigate the risks posed to OCC by
such Clearing Members' SWWR positions. The proposed rule change is
necessary for OCC to limit its credit exposures posed by these
securities. Moreover, OCC believes that the proposed rule change would
appropriately charge individual Clearing Members based on the SWWR they
bring to OCC. The Clearing Members most likely to be impacted by the
proposed changes primarily consist of larger Clearing Members or
Clearing Members that are affiliated with, larger holding companies,
banks, and financial services firms that issue publicly traded equity
or issued ETNs. OCC notes, however, that the proposed changes could
impact any Clearing Member that has publicly traded equity or issued
ETNs and that clears positions in such securities through OCC,
regardless of the respective size of that member. The proposed rule
change would enable OCC to calculate and collect margin that more
accurately reflects the risk characteristics of these securities and to
help limit potential losses from defaults by Clearing Members with SWWR
exposures. In this way, OCC believes the proposed change would promote
the prompt and accurate clearance and settlement of securities
transactions and protect investors and the public interest. As such,
OCC believes any burden on

competition imposed by the new SWWR Add-on and SWWR Sufficiency Stress
Test margin charges would be necessary and appropriate in furtherance
of the Act and would therefore be consistent with Section 17A(b)(3)(I)
of the Act.\42\
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78q-1(b)(3)(I).
    \42\ Id.
---------------------------------------------------------------------------

    OCC also proposes to mitigate SWWR in its Stock Loan Programs by
prohibiting Clearing Members from lending any Eligible Stock issued by
such Clearing Member or any affiliate of such Clearing Member. As
discussed above, OCC does not believe that the proposed restriction on
lending SWWR Equity positions would have a material impact on Clearing
Members in the Stock Loan Programs. The vast majority of OCC's Clearing
Members do not lend their own or affiliate-issued equity securities in
the Stock Loan Programs, and to the extent Clearing Members do engage
in such activity, it is minimal when compared to their overall stock
lending activity.\43\ The proposed restrictions on lending SWWR ETN
positions would, however, impact a very small segment of Clearing
Members that lend SWWR ETNs.\44\ OCC believes that it is necessary and
appropriate to mitigate the SWWR associated with this stock lending
activity by restricting Clearing Members from lending any Eligible
Stock issued by such Clearing Member or any affiliate of such Clearing
Member. OCC believes restricting the lending of SWWR positions is the
most prudent way to manage SWWR in the Stock Loan Programs because it
is the simplest and most effective way to mitigate this risk from an
operational and default management perspective. By restricting lending
activity for SWWR positions, large changes in margin requirements
associated with the initiation of these types of positions would be
avoided. The proposed change would also simplify the potential closeout
activities associated with a default. Moreover, OCC believes the
proposed limitation on lending SWWR positions is the most effective way
to address the potential liquidity demands driven by the lending of
SWWR positions, the costs of which are borne by all of OCC's Clearing
Members and not just those members lending SWWR positions. OCC also
believes that the high rate of collateralization of these positions
that would otherwise be imposed through the newly proposed SWWR charges
would create an incentive for members to not use the OCC Stock Loan
Programs for these transactions. OCC further notes that, unlike listed
options, OCC's Stock Loan Programs only constitute a portion of the
overall securities lending markets and therefore Clearing Members would
still be able to lend these securities on an uncleared basis outside of
OCC. As a result, the proposed restrictions on lending activity in the
Stock Loan Programs would not prevent Clearing Members from lending
those securities on a bilateral basis if they choose to do so, thereby
limiting the potential competitive impact or burden of the proposed
rule change. OCC believes the proposed change would enhance OCC's
ability to manage the credit risks presented by SWWR positions in the
Stock Loan Programs and would reduce the risk that OCC's financial
resources would be insufficient in the event of a Clearing Member
default, thereby promoting the prompt and accurate clearance and
settlement of securities transactions and the protection of investors
and the public interest. As such, OCC believes any burden on
competition imposed by the proposed restrictions would be necessary and
appropriate in furtherance of the Act and would therefore be consistent
with Section 17A(b)(3)(I) of the Act.\45\
---------------------------------------------------------------------------

    \43\ See supra note 14 and associated text.
    \44\ See supra note 15 and associated text.
    \45\ Id.
---------------------------------------------------------------------------

C. Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants or Others

    Written comments on the proposed rule change were not and are not
intended to be solicited with respect to the proposed rule change and
none have been received.

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 up to 90 days (i) as the
Commission may designate 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 the 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 Exchange 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-OCC-2019-010 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-OCC-2019-010. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the 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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of OCC and on OCC's website at
https://www.theocc.com/about/publications/bylaws.jsp.
    All comments received will be posted without change. Persons
submitting comments are cautioned that we do not redact or edit
personal identifying information from comment submissions. You should
submit only information that you wish to make available publicly.
    All submissions should refer to File Number SR-OCC-2019-010 and
should be submitted on or before November 19, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
---------------------------------------------------------------------------

    \46\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Petersen,
Assistant Secretary.
[FR Doc. 2019-23551 Filed 10-28-19; 8:45 am]
BILLING CODE 8011-01-P


Technical Support Document for the 2008 Critical Use Exemption to the
Phaseout of Methyl Bromide

Prepared by ICF International for the U.S. Environmental Protection
Agency

July 12, 2007

CONTENTS

Analysis of a Major U.S. Methyl Bromide Supply Disruption: The Potential
Role of Imports

Statistical Projection of Future U.S. Pre-Phaseout Methyl Bromide
Inventory

Appendix A: Projection of Article 5 Methyl Bromide Consumption Through
2008

I. Analysis of a Major U.S. Methyl Bromide Supply Disruption:

The Potential Role of Imports

Introduction

Since 2004, U.S. methyl bromide producers’ estimate of the time needed
to re-establish methyl bromide production in the United States following
a major domestic supply disruption has changed, prompting a reassessment
of the inventory needed to mitigate potential supply shortages following
such an event.  In the event of a loss of domestic methyl bromide
production capacity, the supply shortfall of methyl bromide for domestic
consumption is estimated based on the amount of methyl bromide needed in
excess of the amount that can be expected to be imported from foreign
producers to satisfy domestic demand over the period required to restore
domestic production capacity.  The quantity of methyl bromide authorized
by the Parties to the Montreal Protocol for critical uses in the United
States in 2008 (and the amount on which the projected 2008 methyl
bromide demand is based) is 5,355,946 kg (or 5,356 MT).  To meet demand
not expected to be satisfied by imports during the time required to
re-establish domestic production would require domestic methyl bromide
inventories of approximately 11 - 43% of the annual 2008 demand or
between 581 and 2,731 MT.  This document explains the process by which
this inventory calculation was reached.

This analysis assumes that the methyl bromide supply (i.e., the lost
domestic production capacity) will be re-established   However, it is
important to note that in the event of a major loss of domestic
production, whether U.S. methyl bromide production companies decide to
re-establish methyl bromide production capacity or to reconfigure their
facility to produce methyl bromide would be an individual company
business decision.  For example, if the methyl bromide shortfall is
such that the price of methyl bromide increases and some users choose to
switch to alternatives, the demand for methyl bromide may decrease.
Under these circumstances, producers may choose to continue to purchase
and transship methyl bromide from foreign suppliers, to not re-establish
methyl bromide production capacity, and to instead re-direct production
lines to manufacture other, potentially higher-value chemicals.  In
brief, the market response to a methyl bromide plant failure and the
subsequent response of domestic and foreign methyl bromide manufacturers
could follow a number of different scenarios.  Additionally, chemical
manufacturers that are not currently producing methyl bromide would face
geographical limitations to producing methyl bromide, since they would
need to be located in the vicinity of a source of elemental bromine,
found principally in underground brine deposits in Arkansas and
Michigan.  Quantitative analyses of these alternative scenarios are not
provided in this report.

The potential for importing methyl bromide following a major domestic
supply disruption depends on three key parameters: (1) the estimated
total foreign production capacity for methyl bromide; (2) the amount of
the foreign-produced methyl bromide that would be available to U.S.
customers considering worldwide demand; and (3) the availability and
capacity of specialized shipping containers needed to import methyl
bromide taking into consideration the logistics of shipping methyl
bromide from foreign suppliers to the U.S.

Foreign Production Capacity and Worldwide Demand

The amount of methyl bromide that can be imported into the United States
depends on foreign production capacity and existing claims on that
capacity (i.e., existing contracts between foreign manufacturers of
methyl bromide and foreign consumers).  As of 2006, Israel, Japan, and
China were the only countries other than the United States that were
still producing methyl bromide.  The calculation of methyl bromide
production capacity in China, Israel, and Japan is based on consumption
data reported to UNEP, interviews with industry representatives, and
publicly available information.

Worldwide Demand

Calculated worldwide demand for methyl bromide in 2008 is presented in
REF _Ref167276294 \h  Table 1  based on U.S. and foreign critical use,
QPS, and feedstock demand.  Demand for critical use for both U.S. and
non-Article 5 foreign users is assumed to be the amount authorized for
critical uses in 2008 at the 18th Meeting of the Parties.  The 2008
consumption of methyl bromide for controlled uses by Article 5 countries
was calculated based on data reported to UNEP for years 1991-2005.  A
steady rate of decline in demand since 2002 (approximately 1,000 MT per
year) was projected out to 2008 to estimate future Article 5 consumption
(see Annex A).  U.S. and foreign demand for QPS and feedstock methyl
bromide, which are assumed to be relatively constant over time, are
based on UNEP (2006).  Total worldwide consumption of methyl bromide in
2008 is based on 2008 critical use allocations and data reported by UNEP
(2006), and is projected to be approximately 30,710 MT (including U.S.
consumption).

Table   SEQ Table \* ARABIC  1 . Estimated Total Worldwide Methyl
Bromide Demand in 2008, in Metric Tons

Methyl Bromide Use	Annual Methyl Bromide Demand (MT)

U.S. Consumption of Critical Use Methyl Bromide a	5,356

Non-Article 5 Foreign Consumption of Critical Use Methyl Bromide a	528

Article 5 Consumption of Critical Use Methyl Bromide b	6,000

Worldwide Consumption of QPS Methyl Bromide C	13,815

Worldwide Consumption of Feedstock Methyl Bromide C	5,014

TOTAL	30,713

a Critical Use methyl bromide, as authorized for critical use in 2008 at
the 18th Meeting of the Parties. Available at:   HYPERLINK
"http://ozone.unep.org/Meeting_Documents/mop/18mop/MOP-18-10E.pdf"
http://ozone.unep.org/Meeting_Documents/mop/18mop/MOP-18-10E.pdf .

b Demand in 2008 for Article 5 consumption of critical use methyl
bromide was estimated based on historical trends in data reported to
UNEP.  See Annex A for calculation detail.  Source: UNEP. 2006. 2006
Report of the Methyl Bromide Technical Options Committee: 2006
Assessment.  Available at:   HYPERLINK
"http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml"
 http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml
.

C Demand in 2008 for QPS and feedstock methyl bromide was assumed to be
equal to reported consumption for these applications in 2005.  Source:
UNEP. 2006. 2006 Report of the Methyl Bromide Technical Options
Committee: 2006 Assessment.  Available at:   HYPERLINK
"http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml"
 http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml
.

Foreign methyl bromide production capacity is estimated to be greater
than total worldwide consumption of methyl bromide in 2008, based on
2008 critical use allocations, data reported by UNEP (2006), and
interviews with industry representatives.  Therefore, foreign production
should be adequate for meeting U.S. critical use needs, as well as the
rest of demand worldwide, if U.S. methyl bromide production is shut
down. The foreign production capacity estimate is not provided in this
public document because that information could be used to estimate
information about the production capacity of individual companies.

Availability and Capacity of Specialized Shipping Containers and
Shipping Logistics

Imports and exports of methyl bromide require specialized shipping
containers, or isotanks, of which there are a limited number.  Because
manufacturing new methyl bromide isotanks is a slow process, it may be
difficult or impossible to quickly manufacture significant numbers of
new isotanks in response to a production failure.  As a result, in the
event of a domestic supply disruption, the United States would have to
depend on the existing capacity of isotanks to import methyl bromide for
U.S. customers and transship methyl bromide for foreign customers from
foreign manufacturers.

While methyl bromide imports have the potential to offset all of the
methyl bromide needed for domestic critical use (and formerly obtained
from domestic production) for the estimated period, some short-term
supply deficit would be experienced in the U.S during the timeframe
required to complete the first import shipment if adequate domestic
inventories are not available.

The timeframe for future shipments of methyl bromide to the United
States is also a crucial element in the analysis of importing methyl
bromide to the United States following a major U.S. production failure.
The shipping timeframe determines not only how long it will take for the
first shipment of methyl bromide to arrive, but also the number of
roundtrips (or “turns”) the isotanks can make in a given timeframe,
thereby impacting both the speed at which methyl bromide can reach the
United States and the total quantity of methyl bromide that can be
imported before U.S. methyl bromide production is resumed. Based on
information provided by industry representatives, it is estimated that
it would take 15 weeks for the first shipment of methyl bromide to reach
the United States following a domestic production failure.

Conclusion: Estimate of Supply Shortfall

With sufficient foreign production capacity to meet U.S. and worldwide
critical use needs, the limiting factor in the event of a major loss of
domestic production capacity becomes the shipping container capacity
available to import the foreign methyl bromide into the United States
and the logistics of such shipments.  Assuming that U.S. critical users
will require the 5,356 MT authorized for critical uses in 2008, the
available shipping containers and estimated shipping capacity would be
adequate to fulfill U.S. critical use methyl bromide demand; however,
ramping-up foreign production and adjusting shipping routes to
transition the United States from a major exporter to a major importer
would take time. Therefore, the United States would be without newly
produced or imported methyl bromide for a certain time
period—estimated to be 15 weeks—after a domestic production failure
(based on information from industry representatives).  Meeting demand
during this time period would require domestic methyl bromide
inventories of approximately 11 - 43% of the annual 2008 demand or
between 581 and 2,731 MT.  These inventory estimates represent the range
of critical use demand over the time period preceding the first shipment
of imports, depending on the season at which the major loss of domestic
production capacity occurred.  The season at which the domestic supply
disruption occurs will affect the inventory needed because the rate of
methyl bromide use is not constant throughout the year.

The supply shortfall range of 581 MT to 2,731 MT is calculated based on
average seasonal production of critical use methyl bromide in the United
States in 2005 and 2006.  Quarterly production data for 2005 and 2006
show consistent patterns in the level of production throughout the year;
these are likely the result of normal variation in methyl bromide demand
at different times of year.  For example, methyl bromide used for
pre-plant applications would be in the highest demand immediately prior
to the growing season.  The supply shortfall range is estimated by first
calculating the average percentages of annual production produced weekly
in each of the four quarters in 2005 and 2006, and then multiplying the
maximum and minimum weekly percentages by the 15 week shortfall period
and total 2008 critical use methyl bromide demand (5,356 MT).  The
resulting upper and lower bounds reflect seasonal differences in the
level of production and critical use demand.  For example, if a domestic
production failure event occurred when the most methyl bromide is
typically produced, an inventory of 2,731 MT of methyl bromide would be
needed to satisfy demand for the 15 weeks before imports began to
arrive.  If a major production failure occurred at the time of lowest
methyl bromide production, only 581 MT would be needed.

Limitations

There are several limitations associated with the estimate that 581 MT
to 2,731 MT of inventory would be adequate to meet a supply shortfall
resulting from a sudden domestic supply failure.  First, it should be
noted that the pre-2005 inventory is held by multiple companies, and the
sale of that inventory is governed by market forces.  Hence, in the
event of a production failure, the stockpile could be purchased by any
user (i.e., critical use/non-critical use, QPS, feedstock, or foreign
users).  Most likely, the stockpile would go to the user willing to pay
the highest price in time of short-term global shortage.  Second, there
may also be existing contract agreements that must be honored.  As a
result, there is no guarantee that the existing pre-2005 inventory of
methyl bromide will flow towards U.S. critical uses in the case of a
production failure.  Third, it is not clear that a contingency plan
exists amongst the various methyl bromide producers as to how to respond
to a major supply disruption.  Thus, the reallocation of shipping
containers to import methyl bromide into the United States may not occur
smoothly over the first weeks or months while the various manufacturers,
shippers, and customers sort out their arrangements.  Finally,
characteristics such as the purity of the pre-2005 inventory of methyl
bromide could affect users’ ability to use this inventory to meet
their needs for methyl bromide; however, these characteristics are not
known.  For example, some of the methyl bromide held in inventory may be
intended for pre-plant uses may be pre-mixed with chloropicrin in
compressed gas cylinders and therefore could not be used for
post-harvest fumigation.

II. Statistical Projection of Future U.S. Pre-Phaseout Methyl Bromide
Inventory

This brief report presents the results of an analysis to project the
pre-2005 methyl bromide inventory that will remain on January 1, 2008.
The data for this analysis was provided by EPA on June 6, 2007.  In
accordance with a notice published on August 25, 2004 (69 FR 52403),
entitled “Request for Information on Existing and Available Stocks of
Methyl Bromide,” data on methyl bromide inventory existing on January
1, 2004, were collected from all entities that held inventories of
methyl bromide for sale or for transfer.  Data on methyl bromide
inventory held as of January 1, 2005, were collected from all methyl
bromide producers, importers, exporters, distributors, and applicators,
pursuant to a Section 114 request dated April 15, 2005.  Inventory data
for January 1st of 2006 and 2007 for all methyl bromide producers,
importers, distributors, and applicators were collected pursuant to a
rule published on December 13, 2005 (70 FR 73604) that amended methyl
bromide reporting requirements at 40 CFR 82.13 in a manner that enables
EPA to calculate the aggregate inventory for each calendar year.

In order to estimate the future available methyl bromide inventory, a
simple linear fit was performed using SAS® (Statistical Analysis
System) software.  As shown in   REF _Ref169407747 \h  Table 2  below,
approximately 4,447 Metric Tons of methyl bromide are projected to be
held by companies in the United States as of January 1, 2008.  The
inventory on January 1, 2008 was estimated using only the four data
points (i.e., aggregated data about the amount of inventory held in the
U.S. on January 1st of 2004, 2005, 2006 and 2007) that are presented in
 REF _Ref169338263 \h  Table 2 .

Table   SEQ Table \* ARABIC  2 .  Projected Linear Trend of Methyl
Bromide Inventory, in Metric Tons

Year	Reported	Projected

2004	16,422.35	16,156.32

2005	12,993.83	13,228.93

2006	9,973.65	10,301.53

2007	7,671.09	7,374.14

2008

4,446.74

Figure   SEQ Figure \* ARABIC  1 .  Projected Linear Trend of Methyl
Bromide Inventory

Appendix A: Projection of Article 5 methyl bromide consumption through
2008

Table A1 below shows the projection of Article 5 methyl bromide
consumption through 2008. Article 5 consumption in 2002 through 2005 is
from UNEP (2007).  The consumption values for 2006 through 2008 are
projected based on the 2002-2005 consumption trend.  The 2006 Assessment
of the Methyl Bromide Technical Options Committee supports this
projection method, stating that “extrapolation of consumption in
2002-2005 indicates that consumption of approximately 7,000 tonnes can
be expected in Article 5 countries in 2007 if recent trends continue.”

As shown in Table A1, consumption in 2008 is projected to be
approximately 6,000 MT.  This value is used to calculate the total
worldwide methyl bromide demand in 2008.

Table A1. Methyl Bromide Consumption in Article 5 Countries (MT)

2002 a 	2003 a 	2004 a 	2005 a	2006 (projected)	2007 (projected) b	2008
(projected)

12,707	11,820	10,495	9,372	8,000	7,000	6,000

a UNEP. 2007. Consumption Data from UNEP Ozone Secretariat Article 7
Reporting. Available at: http://ozone.unep.org/Data_Reporting/

b UNEP. 2006. 2006 Report of the Methyl Bromide Technical Options
Committee: 2006 Assessment.  Available at:   HYPERLINK
"http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml"
 http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml
.

 Elemental bromine is required for methyl bromide production. Seawater
does contain bromine salts, but at such low concentrations that it is
very energy intensive to use as a source for the production of methyl
bromide.

 France discontinued methyl bromide production as of 2006 and Romania in
2004.  Methyl bromide production in France and Romania was not included
in the calculation of foreign production capacity because it is assumed
that capacity for methyl bromide production no longer exists or could
not be restored in a reasonable time frame in those countries.  Romania
closed its methyl bromide production facilities in 2004, and the
Albemarle Port de Bouc facility in France has been reconfigured as of
2006 to produce fine chemicals and is no longer producing methyl
bromide. (Sources: UNEP. 2006. 2006 Report of the Methyl Bromide
Technical Options Committee: 2006 Assessment.  Available at:   HYPERLINK
"http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml"
 http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml
;  Scheraga, Dan. Chemical Market Reporter. “Elf strengthens bromine
production.” Mar 9, 1998;v253n10:36.)

 UNEP. 2006.  2006 Report of the Methyl Bromide Technical Options
Committee: 2006 Assessment.  Available at:   HYPERLINK
"http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml"
 http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml

 UNEP. 2006.  2006 Report of the Methyl Bromide Technical Options
Committee: 2006 Assessment.  Available at:   HYPERLINK
"http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml"
 http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml

 UNEP. 2006.  2006 Report of the Methyl Bromide Technical Options
Committee: 2006 Assessment.  Available at:   HYPERLINK
"http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml"
 http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml

 The average of 2005 and 2006 quarterly production totals were used
because these are the only two full years after the CUE program began on
January 1, 2005.  Thus, these years are expected to be most
representative of the quarterly distribution of future production.

 UNEP. 2007. Consumption Data from UNEP Ozone Secretariat Article 7
Reporting. Available at: http://ozone.unep.org/Data_Reporting/

 UNEP. 2006. 2006 Report of the Methyl Bromide Technical Options
Committee: 2006 Assessment.  Available at:   HYPERLINK
"http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml"
 http://ozone.unep.org/Assessment_Panels/TEAP/Reports/MBTOC/index.shtml
.  Page 35.

 PAGE

 PAGE   - 2 -

 PAGE

                .


[Federal Register Volume 76, Number 120 (Wednesday, June 22, 2011)]
[Rules and Regulations]
[Pages 36307-36308]
[FR Doc No: 2011-15560]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Part 333

[Docket No. FDA-2011-D-0404]

Guidance for Industry on Topical Acne Drug Products for Over-the-
Counter Human Use--Revision of Labeling and Classification of Benzoyl
Peroxide as Safe and Effective; Small Entity Compliance Guide;
Availability

AGENCY: Food and Drug Administration, HHS.

ACTION: Final rule; guidance.

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SUMMARY: The Food and Drug Administration (FDA) is announcing the
availability of a guidance for small business entities entitled
``Topical Acne Drug Products for Over-the-Counter Human Use--Revision
of Labeling and Classification of Benzoyl Peroxide as Safe and
Effective.'' This guidance is intended to help small businesses
understand and comply with the requirements of the final rule that adds
benzoyl peroxide as a generally recognized as safe and effective
(GRASE) active ingredient in over-the-counter (OTC) topical acne drug
products and provides new labeling requirements applicable to all OTC
topical acne products marketed under the monograph (75 FR 9767, March
4, 2010) (final rule). The guidance describes the requirements of the
final rule in plain language and provides answers to common questions
on how to comply with the rule. This guidance was prepared in
accordance with the Small Business Regulatory Fairness Act.

DATES: Submit either electronic or written comments on Agency guidances
at any time.

ADDRESSES: Submit written requests for single copies of this guidance
to the Division of Drug Information, Center for Drug Evaluation and
Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg.
51, rm. 2201, Silver Spring, MD 20993-0002. Send one self-addressed
adhesive label to assist that office in processing your requests. See
the SUPPLEMENTARY INFORMATION section for electronic access to the
guidance document.
    Submit electronic comments on the guidance to http://www.regulations.gov. Submit written comments to the Division of Dockets
Management (HFA-305), Food and Drug Administration, 5630 Fishers Lane,
rm. 1061, Rockville, MD 20852.

FOR FURTHER INFORMATION CONTACT: Arlene H. Solbeck, Center for Drug
Evaluation and Research, Food and Drug Administration, 10903 New
Hampshire Ave., Bldg. 22, rm. 5426, Silver Spring, MD 20993-0002, 301-
796-2090.

SUPPLEMENTARY INFORMATION:

I. Background

    FDA is announcing the availability of a guidance for small business
entities entitled ``Topical Acne Drug Products for Over-the-Counter
Human Use--Revision of Labeling and Classification of Benzoyl Peroxide
as Safe and Effective; Small Entity Compliance Guide.'' This guidance
summarizes the March 4, 2010, final rule regarding topical acne drug
products for OTC use that makes the following changes to the OTC
regulations:
     Adds benzoyl peroxide as a GRASE active ingredient in OTC
topical acne drug products.
     Sets forth new warnings and a direction that must be
included in labeling of OTC topical acne drug products that contain
benzoyl peroxide.
     Revises labeling requirements for all OTC topical acne
drug products to ensure consistency with the standardized drug facts
formatting and requirements set forth in Sec.  201.66 (21 CFR 201.66).
    The guidance summarizes in table form the requirements for specific
warnings and directions in the labeling that apply to all OTC acne drug
products marketed under the monograph (i.e., products that contain any
of the active ingredients permitted under the OTC topical acne drug
monograph, including benzoyl peroxide, resorcinol, resorcinol
monoacetate, salicylic acid, and/or sulfur) (21 CFR part 333, subpart
D)). The summaries include new warnings and a new ``direction for use''
required specifically for OTC topical acne products that contain
benzoyl peroxide. The revised labeling requirements ensure that the
labeling of OTC topical acne drug products is consistent with the
standardized drug facts labeling content and format requirements in
Sec.  201.66.
    FDA is issuing this small entity compliance guide as level 2
guidance consistent with FDA's good guidance practices regulation (21
CFR 10.115). The guidance represents the Agency's current thinking on
the classification of benzoyl peroxide as GRASE in the OTC topical acne
drug monograph, and revised labeling requirements for OTC topical acne
products, as set forth in the final rule. It does not create or confer
any rights for or on any person and does not operate to bind FDA or the
public. An alternative approach may be used if such approach satisfies
the requirements of the applicable statutes and regulations.

II. Comments

    Interested persons may submit to the Division of Dockets Management
(see ADDRESSES) either electronic or written comments regarding this
document. It is only necessary to send one set of comments. It is no
longer necessary to send two copies of mailed comments. Identify
comments with the docket number found in brackets in the heading of
this document. Received comments may be seen in the Division of Dockets
Management between 9 a.m. and 4 p.m., Monday through Friday.

III. Electronic Access

    Persons with access to the Internet may obtain the document at
either http://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/default.htm or http://www.regulations.gov.

    Dated: June 16, 2011.
Leslie Kux,
Acting Assistant Commissioner for Policy.
[FR Doc. 2011-15560 Filed 6-21-11; 8:45 am]
BILLING CODE 4160-01-P


[Federal Register Volume 78, Number 51 (Friday, March 15, 2013)]
[Notices]
[Pages 16554-16556]
[FR Doc No: 2013-06044]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69105; File No. SR-NYSEMKT-2013-17]

Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed Rule Change Amending Commentary .02
to NYSE Amex Options Rule 960NY To Extend the Penny Pilot in Options
Classes in Certain Issues Through June 30, 2013

March 11, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that on February 26, 2013, NYSE MKT LLC (the ``Exchange'' or
``NYSE MKT'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend Commentary .02 to NYSE Amex Options
Rule 960NY in order to extend the Penny Pilot in options classes in
certain issues (``Pilot Program'') previously approved by the
Securities and Exchange Commission (``Commission'') through June 30,
2013. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the Exchange's principal office
and at the Commission's Public Reference Room.

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 self-regulatory organization
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 those 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 parts of such statements.

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

1. Purpose
    The Exchange hereby proposes to amend Commentary .02 to Exchange
Rule 960NY to extend the time period of the Pilot Program,\4\ which is
currently scheduled to expire on March 31, 2013 through June 30, 2013.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 68427 (December 13,
2012), 77 FR 75227 (December 19, 2012) (SR-NYSEMKT-2012-75).
---------------------------------------------------------------------------

    This filing does not propose any substantive changes to the Pilot
Program: all classes currently participating will remain the same and
all minimum increments will remain unchanged. The Exchange believes the
benefits to public customers and other market participants who will be
able to express their true prices to buy and sell options have been
demonstrated to outweigh the increase in quote traffic.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \5\ of the
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers
the objectives of Section 6(b)(5),\6\ in

particular, in that it is 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, and to
remove impediments to and perfect the mechanisms of a free and open
market and a national market system. The Exchange believes that the
Pilot Program promotes just and equitable principles of trade by
enabling public customers and other market participants to express
their true prices to buy and sell options. The proposal to extend the
Pilot Program is designed to promote just and equitable principles of
trade, to foster cooperation and coordination with persons engaged in
facilitating transactions in securities, and to remove impediments to
and perfect the mechanisms of a free and open market and a national
market system, by allowing the Exchange and the Commission additional
time to analyze the impact of the Pilot Program while also allowing the
Exchange to continue to compete for order flow with other exchanges in
option issues trading as part of the Pilot Program.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 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. Specifically, the Exchange
believes that, by extending the expiration of the Pilot Program, the
proposed rule change will allow for further analysis of the Pilot
Program and a determination of how the Program should be structured in
the future. In doing so, the proposed rule change will also serve to
promote regulatory clarity and consistency, thereby reducing burdens on
the marketplace and facilitating investor protection. The Pilot Program
is an industry wide initiative supported by all other option exchanges.
The Exchange believes that extending the Pilot Program to coincide with
the expiration of the Pilot Program at other exchange will allow for
continued competition between NYSE Amex Options market participants
trading similar products as their counterparts on other exchanges,
while at the same time allowing the Exchange to continue to compete for
order flow with other exchanges in option issues trading as part of the
Pilot Program.

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

    No written comments were solicited or received with respect to the
proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section
19(b)(3)(A)(iii) of the Act \7\ and Rule 19b-4(f)(6) thereunder.\8\
Because the proposed rule change does not: (i) Significantly affect the
protection of investors or the public interest; (ii) impose any
significant burden on competition; and (iii) become operative prior to
30 days from the date on which it was filed, or such shorter time as
the Commission may designate if consistent with the protection of
investors and the public interest, the proposed rule change has become
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6)(iii) thereunder.\10\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \8\ 17 CFR 240.19b-4(f)(6).
    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6)(iii).
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative prior to 30 days after the date of the filing.\11\
However, pursuant to Rule 19b-4(f)(6)(iii),\12\ the Commission may
designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposal
may become operative immediately upon filing. The Commission believes
that waiving the 30-day operative delay is consistent with the
protection of investors and the public interest because doing so will
allow the Pilot Program to continue without interruption in a manner
that is consistent with the Commission's prior approval of the
extension and expansion of the Pilot Program and will allow the
Exchange and the Commission additional time to analyze the impact of
the Pilot Program.\13\ Accordingly, the Commission designates the
proposed rule change as operative upon filing with the Commission.\14\
---------------------------------------------------------------------------

    \11\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the Exchange to give the Commission written notice of the
Exchange's intent to file the proposed rule change along with a
brief description and the text of the proposed rule change, at least
five business days prior to the date of filing of the proposed rule
change, or such shorter time as designated by the Commission. The
Exchange has satisfied this pre-filing requirement.
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
    \13\ See Securities Exchange Act Release No. 61061 (November 24,
2009), 74 FR 62857 (December 1, 2009) (SR-NYSEArca-2009-44). See
also supra note 4.
    \14\ For purposes only of waiving the operative delay for this
proposal, the Commission has considered the proposed rule's impact
on efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act.

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-NYSEMKT-2013-17 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEMKT-2013-17. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official

business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NYSEMKT-2013-17 and should be submitted on or before
April 5, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-06044 Filed 3-14-13; 8:45 am]
BILLING CODE 8011-01-P