[Federal Register Volume 83, Number 19 (Monday, January 29, 2018)]
[Notices]
[Pages 4083-4086]
[FR Doc No: 2018-01531]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82575; File No. TP 18-08]

Order Granting Limited Exemptions From Rules 101 and 102 of
Regulation M in Connection With Distributions of AT1 Contingent
Convertible Securities Pursuant to Rules 101(d) and 102(e) of
Regulation M

January 23, 2018.
    By letter dated January 23, 2018, counsel from Sullivan & Cromwell
LLP and Davis Polk & Wardell LLP (collectively, the ``Applicants''),\1\
requested that the staff of the Division of Trading and Markets grant,
on behalf of certain European financial institutions (each, an
``Issuer''), conditional class exemptive or no-action relief from Rules
101 and 102 of Regulation M under the Securities Exchange Act of 1934,
as amended (the ``Exchange Act''), to permit certain transactions in
ordinary shares underlying the contingent convertible debt securities
qualifying as additional tier 1 capital (``AT1 Contingent Convertible
Securities''), including ordinary shares represented by American
depositary shares (collectively, ``Shares''), by Issuers and affiliated
purchasers, including those acting as distribution participants, during
a distribution of such AT1 Contingent Convertible Securities.\2\
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    \1\ Letter from John O'Connor, Sullivan & Cromwell LLP, and John
Banes, Davis Polk & Wardell LLP, to Josephine J. Tao, Assistant
Dir., Office of Derivatives Policy & Trading Practices, Div. of
Trading & Mkts., SEC (Jan. 23, 2018) (the ``Request Letter'').
    \2\ The requested relief is solely to permit transactions in
Shares during a distribution of an Issuer's AT1 Contingent
Convertible Securities (i.e., the Request Letter does not seek
relief with respect to transactions in the AT1 Contingent
Convertible Securities themselves). For purposes of this relief, the
terms ``affiliated purchasers'' and ``distribution participants''
shall have the same meaning as defined in Rule 100(b) of Regulation
M. See 17 CFR 242.100(b).
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AT1 Contingent Convertible Securities

    Over the last several years, a number of European financial
institutions have issued various series of AT1 Contingent Convertible
Securities that are designed to qualify as additional tier 1 capital
(``AT1 Capital'') that can be counted by a financial institution
towards the capital requirements mandated by European regulators.\3\
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    \3\ Applicants represent in the Request Letter that the
qualification requirements/features for AT1 Contingent Convertible
Securities that qualify as AT1 Capital are set forth in the European
Union's Capital Requirements Directive IV and related Capital
Requirements Regulation (collectively, the ``CRD IV''), which were
issued in response to the new global regulatory frameworks on bank
capital adequacy and liquidity adopted by the Basel Committee on
Banking Supervision in December 2010 (generally known as ``Basel
III''). Applicants represent that the purpose of AT1 Capital is to
absorb future losses through conversion to common equity (or write-
down) so as to allow a financial institution to maintain sufficient
Common Equity Tier 1 Capital to continue as a going concern. In
addition, the basic equity-related-structure of AT1 Contingent
Convertible Securities that qualify as AT1 Capital under CRD IV is
summarized in the Request Letter.
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    Applicants represent in the Request Letter that the AT1 Contingent
Convertible Securities to be offered are fundamentally fixed-income
debt securities that are priced and traded by investors as such.\4\
Applicants also represent in the Request Letter that, unlike
traditional convertible debt instruments, the AT1 Contingent
Convertible Securities to be offered automatically convert into Shares
only upon the occurrence of a remote, capital adequacy-related trigger
event that is set forth in the terms of the relevant AT1 Contingent
Convertible Security.
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    \4\ Applicants also represent that Issuers have previously
indicated that they expect AT1 Contingent Convertible Securities to
price and trade more like traditional fixed-income debt instruments
than conventional convertible instruments (i.e., that investors in
AT1 Contingent Convertible Securities are generally focused on
receiving interest payments during the life of the AT1 Contingent
Convertible Securities rather than any potential equity upside in
the unlikely event of a conversion into Shares), citing to prior
requests for relief from Rules 101 and 102 of Regulation M in
connection with offerings of AT1 Contingent Convertible Securities:
Letter from Josephine J. Tao, Assistant Dir., Office of Derivatives
Policy & Trading Practices, Div. of Trading & Mkts., SEC, to Mark J.
Welshimer, Sullivan & Cromwell LLP (Apr. 7, 2015) (ING Groep N.V.);
Letter from Josephine J. Tao, Assistant Dir., Office of Derivatives
Policy & Trading Practices, Div. of Trading & Mkts., SEC, to John
Banes, Davis Polk & Wardwell London LLP (Mar. 6, 2014) (Lloyds
Banking Group); Letter from Josephine J. Tao, Assistant Dir., Office
of Derivatives Policy & Trading Practices, Div. of Trading & Mkts.,
SEC, to George H. White, Sullivan & Cromwell LLP (Nov. 7, 2013)
(Barclays PLC); Letter From Josephine J. Tao, Assistant Dir., Office
of Derivatives Policy & Trading Practices, Div. of Trading & Mkts.,
SEC, to Michael J. Willisch, Davis Polk & Wardwell Spain LLP (Nov.
3, 2017) (Banco Bilbao Vizcaya Argentaria, S.A.).
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    Specifically, Applicants represent, among other things, the
following:
     Relief is requested only with respect to AT1 Contingent
Convertible Securities that automatically and mandatorily convert into
Shares if the Issuer's Common Equity Tier 1 Capital Ratio (as
calculated in accordance with CRD IV) falls below a pre-determined
trigger level of 7.0% or lower; \5\
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    \5\ Applicants represent that guidance from the UK Prudential
Regulation Authority will generally result in a 7.0% trigger level
for AT1 Contingent Convertible Securities issued by UK financial
institutions, which is intended to ensure that only instruments that
will reliably absorb losses while a firm is still a going concern
can count towards the leverage ratio under CRD IV. Applicants
represent that the applicable 7.0% threshold is equivalent to the
sum of the basic 4.5% minimum for Common Equity Tier 1 Capital under
CRD IV and the additional 2.5% capital conservation buffer that is
also required to be satisfied with Common Equity Tier 1 Capital
under CRD IV.
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     A Common Equity Tier 1 Capital Ratio below 7.0% is
effectively a sign of distress, and conversion of AT1 Contingent
Convertible Securities with a trigger level of 7.0% or lower is
unlikely to occur as a result of actions within an Issuer's control;
     Because of the perceived severity of the regulatory
sanctions that would otherwise apply to an Issuer who allows its Common
Equity Tier 1 Capital Ratio to fall below its Combined Buffer
Requirement,\6\ Issuers have a strong

incentive to maintain capital levels, and investors expect such Issuers
to maintain capital levels, well in excess of the pre-determined
trigger level; \7\
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    \6\ In addition to the basic 4.5% minimum Common Equity Tier 1
Capital Ratio under CRD IV, there is a Combined Buffer Requirement
applicable to any institution that is incremental to the minimum
requirement and is composed of (1) in all cases, an additional 2.5%
capital conservation buffer (with the consequence that the sum of
the basic minimum and the Combined Buffer Requirement is never less
than 7.0%), and (2) at least three other potential buffers--namely,
(i) an institution-specific counter-cyclical capital buffer (which
may be disapplied by member states to small and medium-sized
institutions), (ii) a member state-specific systemic risk buffer,
and (iii) any applicable systemically important institution buffers.
    \7\ Applicants represent that the CRD IV regulatory sanctions
include automatic limitations on distributions (such as the ability
to pay dividends) and compensation that create significant
disincentives for an Issuer to allow its Common Equity Tier I
Capital Ratio to fall below the applicable Combined Buffer
Requirement.
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     Because the risk of regulatory capital falling below the
pre-determined trigger level is considered remote at the time of the
issuance, the price of the Shares is not expected to have a significant
impact on pricing or market demand for AT1 Contingent Convertible
Securities at the time of issuance;
     Because AT1 Contingent Convertible Securities would
convert only if Common Equity Tier 1 Capital fell below the pre-
determined trigger level of at least 7.0%, which would, effectively,
indicate distress of the Issuer, investors do not purchase AT1
Contingent Convertible Securities in the initial distribution of AT1
Contingent Convertible Securities to have the possibility of acquiring
Shares in a conversion or to increase their exposure to the Issuer's
common equity (i.e., investors, instead, are focused primarily on
receiving interest payments during the life of the AT1 Contingent
Convertible Securities);
     Accordingly, trading activity in the Shares at or around
the time of distribution is unlikely to influence the pricing or
trading of the AT1 Contingent Convertible Securities that would be in
distribution.

I. Rules 101 and 102 of Regulation M

    Rule 101 of Regulation M is an anti-manipulation rule that, subject
to certain exceptions, prohibits any ``distribution participant''
(i.e., underwriters, brokers, dealers, or other persons who have agreed
to participate or are participating in a distribution of securities)
and its ``affiliated purchasers'' from bidding for, purchasing, or
attempting to induce any person to bid for or purchase, any security
that is the subject of a distribution until after the applicable
restricted period, except as specifically permitted in the Rule. Rule
102 of Regulation M includes the same prohibitions but applies to
issuers, selling security holders, and any of their affiliated
purchasers.
    Regulation M applies to activities in both the securities in
distribution (i.e., activities in the ``subject securities'') and any
``reference securities,'' such as common stock underlying an
exercisable, exchangeable, or convertible security that is being
distributed.\8\ Accordingly, the Issuer's Shares may be deemed to be
``reference securities'' in relation to the AT1 Contingent Convertible
Securities. Thus, Regulation M would prohibit Issuers and any
affiliated purchasers from making any bids for, purchases of, or
attempts to induce any other person to bid for or purchase the Shares
during an applicable restricted period in connection with a
distribution of the Issuer's AT1 Contingent Convertible Securities.
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    \8\ See Anti-Manipulation Rules Concerning Securities Offerings,
Exchange Act Rel. No. 38067 (Dec. 20, 1996), 62 FR 520 (Jan. 3,
1997) (stating that transactions in ``reference securities'' can
have a direct and substantial effect on the pricing and terms of the
security in distribution).
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Discussion

    Based on the representations and facts presented in the Request
Letter--particularly, that a distribution of AT1 Contingent Convertible
Securities that satisfies the conditions set forth in the Request
Letter, as well as below, does not raise the concerns at which
Regulation M is directed and that any bids for, purchases of, or
attempts to induce any other person to bid for or purchase of the
Shares by Issuers or affiliated purchasers during an applicable
restricted period in connection with a distribution of the Issuer's AT1
Contingent Convertible Securities would be unlikely, except in unusual
circumstances, to affect the pricing or trading of the AT1 Contingent
Convertible Securities \9\--the U.S. Securities and Exchange Commission
(the ``Commission'') finds that it is appropriate in the public
interest and consistent with the protection of investors to grant class
exemptive relief from the requirements of Rule 101 and Rule 102, under
paragraph (d) of Rule 101 and paragraph (e) of Rule 102 of Regulation
M, respectively, in connection with distributions of AT1 Contingent
Convertible Securities that satisfy the conditions set forth below to
permit transactions involving Shares by an Issuer and its affiliated
purchasers (including those acting as distribution participants) during
a distribution of such AT1 Contingent Convertible Securities.\10\
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    \9\ In particular, that AT1 Contingent Convertible Securities do
not convert to equity unless the Issuer's regulatory capital falls
below a pre-determined trigger level, and that the price of and
trading activity in Shares at or around the time of a distribution
is not expected to influence or have a significant impact on pricing
or market demand for the AT1 Contingent Convertible Securities at
the time of issuance.
    \10\ Consistent with the limited scope of relief sought in the
Request Letter, the relief granted herein, however, does not extend
to transactions in the AT1 Contingent Convertible Securities
themselves. Transactions in the AT1 Contingent Convertible
Securities that are being distributed would need to comply with the
requirements of Regulation M and/or qualify for one of the
exceptions provided under Regulation M.
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    Consistent with the limited scope of relief sought in the Request
Letter, this relief is limited to distributions of AT1 Contingent
Convertible Securities by or on behalf of a ``foreign private issuer''
(within the meaning of Rule 3b-4 under the Exchange Act) and where the
``principal market'' (as such term is defined in Rule 100 of Regulation
M) of the underlying Shares is outside of the United States. This
condition narrowly tailors the relief's application to Issuers who
engage in distributions of the AT1 Contingent Convertible Securities
that are the subject of this relief and ensures that the Issuers of
such securities are subject to the information reporting requirements
of the Exchange Act. Limiting the scope of the relief in this way
should help to reduce the potential risk of transactions in Shares that
could adversely affect U.S. markets during a distribution of a non-U.S.
Issuer's AT1 Contingent Convertible Securities.
    This relief is also limited to distributions of AT1 Contingent
Convertible Securities that automatically and mandatorily convert into
Shares if an Issuer's Common Equity Tier 1 Capital Ratio (as calculated
in accordance with CRD IV) falls below a predetermined trigger level of
7.0% or lower. Applicants represent in the Request Letter that a Common
Equity Tier 1 Capital Ratio below 7.0% is considered, under guidance
from the UK Prudential Regulation Authority, to be effectively a sign
of distress, and conversion of AT1 Contingent Convertible Securities
with a trigger level of 7.0% or lower is unlikely to occur as a result
of actions within an Issuer's control. As such, this condition is
intended to further ensure the remoteness of any possibility of
conversion of the AT1 Contingent Convertible Securities, thus also
decreasing the likelihood of any trading activity in Shares during such
distributions affecting the pricing or demand for the AT1 Contingent
Convertible Securities being distributed.
    This relief also requires that, as of the date of the most recent
calculation required to be reported to the relevant

supervising authority under applicable regulatory capital rules prior
to the distribution of the AT1 Contingent Convertible Securities, the
Issuer's Common Equity Tier 1 Capital Ratio must exceed the applicable
Combined Buffer Requirement.\11\ This condition, which conforms to
applicable regulatory capital rules, is intended to ensure that the
Issuer maintains capital levels that are sufficiently above the pre-
determined trigger level at the time of distribution of the AT1
Contingent Convertible Securities.\12\ Accordingly, this condition
helps to ensure the remoteness of any possibility of conversion of the
AT1 Contingent Convertible Securities and, thus, to decrease the
likelihood of any trading activity in Shares during such distributions
affecting the pricing or demand for the AT1 Contingent Convertible
Securities being distributed.
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    \11\ See supra note 6.
    \12\ As mentioned above, because of the perceived severity of
regulatory sanctions that would apply to an Issuer that allows its
Common Equity Tier I Capital Ratio to decline below the applicable
Combined Buffer Requirement, it is expected that Issuers will
maintain capital levels well in excess of the predetermined trigger
level.
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    In addition, this relief applies only to AT1 Contingent Convertible
Securities in distribution that do not include any right of the Issuer
or holders to convert the AT1 Contingent Convertible Securities into
Shares at their option. This condition is intended to help to ensure
the remoteness of any possibility of conversion of the AT1 Contingent
Convertible Securities and, thus, to decrease the likelihood of trading
activity in Shares affecting the pricing or demand for the AT1
Contingent Convertible Securities in distribution.
    This relief also requires that any transactions in Shares by an
Issuer or any of its affiliated purchasers must be effected in the
ordinary course of business and not to facilitate the distribution of
the AT1 Contingent Convertible Securities. This condition should help
to ensure that transactions in Shares are more customer-driven rather
than driven by market activities that could potentially be used to
artificially facilitate the distribution of the AT1 Contingent
Convertible Securities or unduly impact the pricing of or demand for
the AT1 Contingent Convertible Securities in distribution.
    To ensure adequate transparency to potential U.S. investors in the
offering, this relief also requires that any prospectus or other
offering document that is distributed to U.S. investors in connection
with the offering of the AT1 Contingent Convertible Securities must
disclose the possibility of, or the intention to engage in,
transactions in Shares by an Issuer or its affiliated purchasers.
    This relief is also limited to Shares that qualify for the
actively-traded securities exception under Rule 101(c)(1) of Regulation
M because such securities are viewed by the Commission to be less
susceptible to manipulation. This limitation should also help to reduce
the impact of any attempt to artificially influence the price of the
AT1 Contingent Convertible Securities that are being distributed by
engaging in transactions in the Shares at or around the time of a
distribution.

II. Conclusion

    It is hereby ordered, pursuant to Rule 101(d) and Rule 102(e) of
Regulation M, that, based on the representations and facts presented in
the Request Letter, class exemptive relief from the requirements of
Rules 101 and Rule 102, respectively, is granted in connection with
distributions of AT1 Contingent Convertible Securities that satisfy the
conditions set forth below to permit transactions involving Shares by
an Issuer and its affiliated purchasers (including affiliated
purchasers who may be deemed to be participating in a distribution of
such Issuer's ATI Contingent Convertible Securities) during a
distribution of such AT1 Contingent Convertible Securities, as
described in the Request Letter and herein, subject to the following
conditions:
    (1) The Issuer of the AT1 Contingent Convertible Securities must be
a foreign private issuer (within the meaning of Rule 3b-4 under the
Exchange Act);
    (2) The principal market (within the meaning of Rule 100 of
Regulation M) of Shares must be outside of the United States;
    (3) The AT1 Contingent Convertible Securities in distribution must
only automatically and mandatorily convert into the Issuer's Shares if
the Issuer's Common Equity Tier 1 Capital Ratio (as calculated in
accordance with CRD IV) falls below a pre-determined trigger level of
7.0% or lower;
    (4) As of the date of the most recent calculation that is required
to be reported to the relevant supervising authority under applicable
regulatory capital rules prior to the distribution of the AT1
Contingent Convertible Securities, the Issuer's Common Equity Tier 1
Capital Ratio must exceed the applicable Combined Buffer Requirement;
    (5) The AT1 Contingent Convertible Securities in distribution must
not include any right of the Issuer or holders to convert the AT1
Contingent Convertible Securities into Shares at their option;
    (6) Any transactions in Shares by the Issuer or any of its
affiliated purchasers must be effected in the ordinary course of
business and not for the purpose of facilitating the distribution of
the AT1 Contingent Convertible Securities;
    (7) Any prospectus or other offering document that is distributed
to U.S. investors in connection with the offering of the AT1 Contingent
Convertible Securities must disclose the possibility of, or the
intention to engage in, transactions in Shares by the Issuer or its
affiliated purchasers;
    (8) Shares must have an ADTV (within the meaning of Rule 100 of
Regulation M) value of at least $1 million during the two full calendar
months immediately preceding, or any consecutive 60 calendar days
ending within the 10 calendar days preceding, the determination of the
offering price, and Shares must be issued by an Issuer whose common
equity securities have a public float value (within the meaning of Rule
100 of Regulation M) of at least $150 million; and
    (9) Except as otherwise exempted herein, the issuance of the AT1
Contingent Convertible Securities shall remain subject to the
provisions of Regulation M.
    In the event that any material change occurs in the facts or
representations in the Request Letter, the Applicants shall promptly
present for consideration the facts to staff in the Division of Trading
and Markets. This exemption is subject to modification or revocation at
any time the Commission determines that such action is necessary or
appropriate in furtherance of the purposes of the Exchange Act. In
addition, persons relying on this limited exemption are directed to the
anti-fraud and anti-manipulation provisions of the Exchange Act,
particularly Sections 9(a) and 10(b), and Rule 10b-5 thereunder.
Responsibility for compliance with these and any other applicable
provisions of the federal securities laws must rest with the persons
relying on this exemption.
    This Order should not be considered a view with respect to any
other question that the proposed transactions may raise, including, but
not limited to the adequacy of the disclosure concerning, and the
applicability of other federal or state laws to, the proposed
transactions.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\13\
Brent J. Fields,
Secretary.
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    \13\ 17 CFR 200.30-3(a)(6) and (9).
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[FR Doc. 2018-01531 Filed 1-26-18; 8:45 am]
 BILLING CODE 8011-01-P


SUPPORTING  STATEMENT FOR STANDARD FORM 83-1

REPORTING AND RECORDKEEPING REQUIREMENTS

FOR THE ENFORCEMENT POLICY REGARDING

THE SALE AND USE OF AFTERMARKET CATALYTIC CONVERTERS

PART A OF THE SUPPORTING STATEMENT

1.  IDENTIFICATION OF THE INFORMATION COLLECTION

1(a)  Title of the Information Collection

Enforcement Policy Regarding the Sale and Use of Aftermarket Catalytic
Converters (Renewal).  51 FR 28114-28119, 28133 (Aug. 5, 1986); 52 FR
42144 (Nov. 3, 1987), 67 FR 319-320 (Jan. 3, 2002).

OMB No. 2060-0135; EPA ICR No. 1292.07.

1(b)  Short Characterization

The aftermarket catalytic converter policy (51 Fed. Reg. 28114-28119,
28113 (Aug. 5, 1986); 52 Fed. Reg. 42144 (Nov. 3, 1987)) allows
aftermarket automobile catalytic converter manufacturers and
reconditioners to compete with the automobile manufacturers for the
aftermarket catalytic converter replacement market.  Without this
policy, it would be illegal, under section 203 of the Clean Air Act, 42
U.S.C. § 7522, to sell or install aftermarket catalytic converters that
do not conform exactly to the automobile manufacturers’ original
equipment (OE) versions of these parts.  The policy also makes it
possible for automobile repair shops, which are often small businesses,
to take on a significant share of the aftermarket catalyst replacement
market.  In doing so, consumers are able to purchase replacement
catalytic converters (converters) at a much lower price than they would
pay for an OE converter.  This helps to ensure that vehicles will not
create excessive air pollution because motorists are more likely to
replace damaged catalytic converters if they cost much less than OE
converters (cost savings resulting from the policy are estimated to be
about $680 million in 2005 dollars).

However, to ensure that air quality will not be compromised, it was
necessary to set standards for aftermarket catalytic converters, both
for performance and durability.  It was also necessary to ensure that
appropriate applications are installed on vehicles (i.e., the converter
has to be of a type and size appropriate for the vehicle application).
To these ends, the following recordkeeping and reporting  requirements
exist for aftermarket converter manufacturers, reconditioners and
installers:

Manufacturers:  On a one-time basis for each type or line of converter
manufactured, the manufacturer must report information identifying the
supplier, and information regarding the physical specifications of each
catalytic converter line produced, and information regarding
pre-production testing of the converters that show they meet standards
for certain specified vehicle applications (a single converter line can
be used on a large number of vehicle applications).  The original policy
required that once production had begun the manufacturer would submit to
EPA on a semi-annual basis the number of each type of catalyst
manufactured and a summary of information contained on warranty cards
or, at the option of the respondent, copies of warranty cards for all
converters sold. This reporting regarding sales and warranty information
was eliminated in March 1999, with the stipulation that records must be
maintained and the information submitted to EPA upon request.

Reconditioners:  On a one-time basis, the catalyst reconditioner must
report the identity of the company and a description of the test bench
used for testing used catalytic converters and the intended vehicle
application(s) for each converter type.  All used converters must be
tested individually to ensure they are still functional.  On a
semi-annual basis, the catalyst reconditioner must report the names and
addresses of distributors along with the number of each type of
converter sold to each distributor.  This reporting requirement was also
eliminated in March 1999, with the stipulation that records must be
maintained and the information submitted to EPA upon request.

Installers of aftermarket converters:  Installers have no reporting
requirements.  They simply fill out the warranty card and hand it to the
retail customer.  They must also include a brief statement with each
invoice stating the need for replacing the original converter.  They
also tag each removed converter with a reference to the invoice for
repair.  The invoices are required to be kept for 6 months.  The tagged
converters are required to be kept for 15 days.

2.  NEED FOR AND USE OF THE COLLECTION

     2(a)  Need/Authority for the Collection

Section 203(a)(3) of the Clean Air Act (Act) prohibits removal or
rendering inoperative of motor vehicle emission control equipment by
commercial service establishments or any other person.  It also
prohibits the causing of such acts.  In addition, it prohibits the
manufacture, sale or installation of devices that defeat the emission
control components or design elements.  The catalytic converter is the
major emission control device used by motor vehicle manufacturers.
Oxidation (two-way) catalytic converters reduce hydrocarbons and carbon
monoxide emissions, while oxidation-reduction (three-way) converters
(widely used since 1981) additionally reduce oxides of nitrogen
emissions.  If a vehicle is properly maintained, the catalytic converter
frequently will not require replacement for the life of the vehicle.
However, catalytic converters sometimes need replacement subsequent to
the automobile manufacturer emissions control warranty period, and
therefore any replacement cost is paid for by the vehicle owner.

The U.S. Environmental Protection Agency (EPA) has promoted vehicle
emissions inspection programs which require converter replacement where
missing or non-functioning converters are discovered.  The EPA believes
that the success of State and local government programs of this type
depends, in part, on the availability and cost of replacement
converters.  The average cost of a new original equipment manufacturer
(OE) converter is approximately $540-$650 installed.  This high cost of
replacement severely limited their installation after the warranty
period expired.  This enforcement policy allows the sale of low-cost
effective alternatives to the OE converters.  For the aftermarket
converter industry, including the installers, this is a multimillion
dollar industry.  Over 2,000,000 aftermarket converters are installed
each year.

The popularity of these low-cost replacement converters and the need to
ensure air quality benefits while promoting local tampering inspection
programs have led the Agency to implement this policy for the
manufacture, sale, and installation of new non-OE and used,
reconditioned OE converters.  Prior to the implementation of the policy,
aftermarket converter manufacturers and reconditioners were frequently
selling catalysts that had little, if any, efficacy.  Manufacturers who
were attempting to make a quality product were not able to compete on a
level playing field because muffler shops could purchase poor quality
converters for half the price of better aftermarket converters and
undersell the competition.  The manufacturer reporting and recordkeeping
requirements help ensure that proper equipment is manufactured and
distributed to installers and helps ensure proper retail level
installation of converters.

The installer requirements exist to enable EPA to monitor whether
correct  applications are made at the retail level and whether OE
converters are being replaced with aftermarket converters only in
appropriate circumstances (e.g., the original equipment converter should
not be replaced with an aftermarket converter while the vehicle is still
under its emissions warranty).  A strong incentive exists for cheating;
for example installing a used, untested converter would cost less than
half the price of a properly tested converter.

These are important conditions to the installation of aftermarket or
reconditioned catalytic converters.  An improper application (e.g., a
2-way converter on a vehicle that needs a 3-way converter) will result
in much higher emissions of harmful pollutants than a proper application
would.  Likewise, replacement of the original converter when the repair
is not needed can result in an increase in emissions since working OE
converters are more efficient than aftermarket converters.

2(b)  Practical Utility/Users of the Data

USE

The collection of information is necessary for the proper performance of
the functions of the Agency, including that the information collected
will have practical utility.  Without these requirements, enforcement
would be nearly impossible.  Neither EPA nor a reconditioner can
determine whether a used converter is effective by conducting a visual
inspection of the converter.  The efficacy of new aftermarket converters
for particular vehicle applications cannot be determined without
prototype testing and information on specifications.

All testing is to be conducted by the manufacturer or reconditioners,
and therefore the Agency believes that it is important that it have
access to testing records.  A record of the names and addresses of
dealers and distributors, as is required in the policy, allows for
prompt notification of these parties in the event of such an enforcement
action.

The primary use of the sales and warranty card information is for direct
compliance action.  Warranty cards often reveal direct evidence of
misapplication or defect warranty violations.  Sales information from
reconditioners provides an indirect way to make sure that production is
not exceeding the capacity of the test stand, and provides the Agency
with a list of distributor or retail facilities  for enforcement audits
and testing.

The installer requirements are needed to assure installation of
appropriate applications and to assure that catalytic converters are
only replaced when necessary.  Some repair shops could gain an unfair
advantage if they were to install cheaper 2-way converters on vehicles
requiring 3-way converters.  Repair shops could also improperly benefit,
at cost to both the consumer and ambient air quality, if OE converters
are replaced when they are still functional or when they are still
within the warranty period.

The requirements also facilitate knowledge on the part of the installers
of aftermarket converters and of the driving public that the converters
they are using are appropriate and effective and that no potential
liability should exist for the installer so long as the appropriate
converter is installed on each vehicle.

USERS

Air Enforcement Division, Office of Civil Enforcement, Office of
Enforcement and Compliance Assurance, U.S. Environmental Protection
Agency.  As noted above, the requirements also assist industry by
assuring a level playing field and by ensuring installers and their
customers that the converter to be installed is effective and
appropriate for the vehicle (e.g., 3-way converter of proper capacity on
vehicle that needs 3-way).

3.  NONDUPLICATION, CONSULTATIONS, AND OTHER COLLECTION CRITERIA

3(a)  Nonduplication

The information collection is not unnecessarily duplicative of
information otherwise reasonably accessible to the Agency.  The required
warranty provisions and the manufacturer reports and test records are
the only records of their kind available to document the information
needed to determine compliance.  The information can be in a variety of
formats and the manufacturers’ warranty card information reporting can
be electronic or the manufacturer can submit the actual warranty cards.

3(b)  Public Notice Required Prior to ICR Submission to OMB

In compliance with the Paperwork Reduction Act, a public comment period
of 60 days was announced in the Federal Register (70 Fed. Reg. 30941-43
(May 31, 2005)) regarding this proposed renewal ICR.  No comments were
received.  However, we have continued to update burden and cost
information and this ICR Supporting Statement, the associated Form 83-I
and the second Federal Register notice reflect these changes.

The ICR estimated burdens and costs that are being submitted to OMB for
this renewal have been revised and updated to reflect wage and inflation
increases, as well as estimated current workloads and corresponding
burden times for installers, reconditioners and manufacturers. An
additional estimate has been continued in this ICR regarding amortized
startup costs for new aftermarket converter installation businesses. A
second Federal Register notice is being published announcing the
submission of this Policy to OMB for approval.

3(c)  Consultations

For this ICR, EPA has contacted various affected industry respondents
for information regarding burdens and costs.  Following is a list of
non-EPA contacts, by name, phone number and affiliation:

1.  Peter Nitoglia, Car Sound Exhaust System, Inc.<PHONE_NUMBER>.

2.  George Schafer, Eastern manufacturing, Inc.,800-533-7199.

3.  Pat Haynes, Tenneco automotive,<PHONE_NUMBER>.

4.  Dave Miller, Miller Catalyzer,<PHONE_NUMBER>.

5.  Paula Couch, Brown Recycling,<PHONE_NUMBER>.

6.  Helamon Andre, KGC Warehouse,<PHONE_NUMBER>.

7.  Harley Mayer, Jr., Kataco Creek Converters,<PHONE_NUMBER>.

8.  Jim/Mark Zuckerman, Meineke Muffler, New Haven, CT.<PHONE_NUMBER>

9.  Katie, Midas Muffler, Beaverton, OR.,<PHONE_NUMBER>

3(d)  Effects of Less Frequent Collection

The information requested from the manufacturers would normally by kept
as part of their records, and should not constitute a significant burden
to maintain.  Additionally, the information requested is the minimum
considered necessary to adequately monitor the aftermarket converter
market and properly enforce the policy.  Note that the manufacturers and
reconditioners are voluntarily accepting recordkeeping burdens as a
condition of EPA not bringing actions for violation of section 203 of
the Clean Air Act.  EPA is willing to allow the sale of aftermarket
converters not certified to meet OE standards only if it can insure that
aftermarket converters meet the less strict standards of the policy and
that they are properly installed.

     The product development information requested is only collected
when a new product line is introduced by an aftermarket converter
manufacturer.  Less frequent collection of test results would allow some
converters to reach the market without proof of sufficient emission
testing to verify their effectiveness.  Semi-annual reports of
production or sales information are no longer required.  Test data on
used converters cannot be taken on less than every converter that is
recycled, since the condition of  the used converters varies widely
because of prior use history.

     No reporting is required for installers.  The recordkeeping must
accompany installation since there is no way to collect the information
afterward.

3(e)  General Guidelines

The collection is in compliance with OMB guidelines except that new
aftermarket converter manufacturers are required to keep warranty cards
for 5 years.  Because the warranty period for the converters is 5 years,
this length of time is necessary.  This requirement is also in line with
the applicable statute of limitations.  EPA has not received negative
comment regarding this maintenance period from the industry.

3(f)  Confidentiality

Confidentiality protections are provided pursuant to 40 C.F.R. § 2.201
et seq.

3(g)  Sensitive Questions

This section is inapplicable to this ICR.

4.  THE RESPONDENTS AND THE INFORMATION REQUESTED

     4(a)  Respondents/SIC Codes

     Respondents include the manufacturers of new aftermarket motor
vehicle catalytic converters and reconditioners of used aftermarket
converters.  The SIC code is 346 (NAICS 336399).  The other respondents
are automobile exhaust repair facilities.  Their SIC code is 7533 (NAICS
811112).

4(b) Information Requested

(i) Data Items, Including Recordkeeping Requirements

This ICR indicates for each recordkeeping requirement the length of time
persons are required to maintain the records specified.

One-time Reporting:

Parties required to submit converter testing information include all
manufacturers of new non-OEM converters and reconditioners of used OEM
converters.

Manufacturers of New Converters--Specifications Information:

     1)  Converter supplier and address.

     2)  General type of converter (e.g., oxidation, reduction,
three-way, etc.).

     3)  Number of each type of catalyst used per can (number of
individual monoliths containing catalytic metals in each unit).

     4)  Substrate (e.g., monolithic, pelleted) - give configuration
construction technique (e.g., extruded, laid-up, formed, etc.),
composition, supplier and address, composition of active constituents in
substrate (grams or troy ounces); for monolithic substrates, give number
of cells per square inch of frontal area, design tolerances, and nominal
cell wall thickness (in mils); for pelleted substrates, specify pellet
shape and dimensions, pellet bulk density, the use of more than one type
of pellet (e.g., Rh, or Pt/Pd), any geometrical distribution of pellets,
and (if this is controlled in production) the mean impregnation depth
(in microns) of active materials with production tolerances.

     5)  Washcoat - give composition of active constituents, and total
active material loading (grams or troy ounces) in washcoat.

     6)  Active material - give composition of active constituents,
loading of each active material including design tolerances, and total
active material loading including design tolerances (grams or
troy-ounces).

     7)  Container - specify dimensions, volume, materials used,
technique of containment and restraint, method of constructing
container, canner (if different from catalyst supplier), and insulation
and shielding (converter and/or vehicle).

     8)  Physical description - dimensions (e.g., length, width, height,
etc.), weight (lbs.), volume including design tolerances, active surface
area (BET), and total active surface area including design tolerances.

__New converter manufacturers Prototype Testing:

     1)  Year, make, and model of vehicles tested.

     2)  Method of mileage accumulation.

     3)  Name and address of testing facility.

     4)  Summary of conversion efficiency test results.

     5)  Intended vehicle applications for each converter type tested.

__Reconditioners of Catalytic Converters--Information on Test Bench:

     1)  Name and address of testing facility.

     2)  Description of facilities used for testing.

     3)  Intended vehicle applications for each converter type.

Periodic Reporting:

__Manufacturers:

     Manufacturers are no longer required to submit the following
information on a semi-annual basis; EPA reserves the right to require
information upon request:

     1)  The number of each type of converter manufactured.

     2)  A summary of the information contained on the warranty cards
received, or copies of the actual warranty cards.

_Reconditioners:

     Reconditioners are no longer required to submit names and addresses
of the persons or companies to whom the remanufacturer distributes,
along with the number of each type of converter sold to each on a
semi-annual basis.  EPA reserves the right to require this information
upon request.

Recordkeeping by Manufacturers of New Aftermarket Converters:

     The period of record retention for new aftermarket converter
manufacturers for warranty cards is 5 years.

Recordkeeping by Installers:

     There is no reporting.  Installers are required to fill out
warranty card if new aftermarket converter are installed, or provide
card to vehicle owner for completion of applicable sections and
submittal to manufacturer.  Installers must state reason for replacement
on invoice, maintain invoices for 6 months, and tag replaced converters
for 15 days.

     (ii)  Respondent Activities

     The information collection is to be implemented in ways consistent
and compatible, to the maximum extent practicable, with the existing
reporting and recordkeeping practices of those who are to respond.

           “*” indicates an item is a customary and usual business
practice (CBP), or is partially CBP.

          “N/A” indicates this was a one-time cost that has already
been absorbed under start-up costs associated with the policy when it
was promulgated or is otherwise not applicable.

NOTE:  There have been losses of new aftermarket catalytic converter
manufacturers since the last ICR. The overall population has been
reduced from 12 to 8.

          A.  New Aftermarket Catalytic Converter Manufacturers:

          A.1.  Provide Information Re Specifications and Applications

                and Information re Test Results for New Product Lines

      N/A(1) Reviewing instructions;

             (2) Developing, acquiring, installing and utilizing
(“DAIU”) technology and systems for the purpose of collecting,
validating, and verifying information;

             (3) DAIU technology and systems for the purpose of
processing and maintaining information;

      N/A(4) DAIU technology and systems for the purpose of disclosing
and providing information;

          N/A(5) Adjusting the existing ways to comply with any
previously applicable instructions and requirements;

      N/A(6) Training personnel to be able to respond to a collection of
information;

             (7) Searching data sources;

             (8) Completing & reviewing the collection of information;

             (9) Transmitting or otherwise disclosing the information.

This requirement is a one-time burden that only applies to new product
lines.  It has already been accomplished for all existing product lines,
many of which are likely to be usable for many years to come.  ICR
assumes each manufacturer develops and tests one new line every year.

          A.2.  Testing for Each New Product Line

      N/A(1) Reviewing Instructions;

             (2) DAIU technology and systems for collecting, validating
and verifying information;

             (3) DAIU technology and systems for processing and
maintaining information;

      N/A(4) DAIU technology and systems for disclosing and providing
information;

      N/A(5) Adjusting the existing ways to comply with any previously
applicable instructions and requirements;

      N/A(6) Training personnel to be able to respond to a collection of
information;

             (7) Searching data sources;

             (8) Completing & reviewing collection of information;

             (9) Transmitting or otherwise disclosing the information.

This requirement is a one-time burden that only applies to new product
lines.  In many cases it is contracted out.

           A.3.  Semi-Annual Reports re Manufacturing and Submittal of

Warranty Cards and Maintain Warranty Cards:

These reports are no longer required on a routine basis; EPA reserves
the right to require submission of information upon request.

       N/A(1) Reviewing instructions;

              (2) DAIU technology and systems for collecting, validating
and verifying information;

            *(3) DAIU technology and systems for processing and
maintaining information;

       N/A(4) DAIU technology and systems for disclosing and providing
information;

       N/A(5) Adjusting the existing ways to comply with any previously
applicable instructions and requirements;

       N/A(6) Training personnel to be able to respond to a collection
of information;

              (7) Searching data sources;

              (8) Completing & reviewing the collection of information;

              (9) Transmitting or otherwise disclosing information.

          B.  Used Catalytic Converter Reconditioners:

          B.1.  Submit Test Facility Information

          N/A(1) Reviewing instructions;

             (2) DAIU technology and systems for collecting, validating
and verifying information;

             (3) DAIU technology and systems for processing and
maintaining information;

             (4) DAIU technology and systems for disclosing and
providing information;

          N/A(5) Adjusting the existing ways to comply with any
previously applicable instructions and requirements;

          N/A(6) Training personnel to be able to respond to a
collection of information;

             (7) Searching data sources;

             (8) Completing & reviewing the collection of information;

             (9) Transmitting or otherwise disclosing the information.

     This is a one-time burden which has already been absorbed by
on-going facilities and we know of no new facilities.

          B.2.  Perform Efficiency Test on Each Used Converter

      N/A(1) Reviewing instructions;

             (2) DAIU technology and systems for collecting, validating
and verifying information;

             (3) DAIU technology and systems for processing and
maintaining information;

      N/A(4) DAIU technology and systems for disclosing and providing
information;

      N/A(5) Adjusting the existing ways to comply with any previously
applicable instructions and requirements;

      N/A(6) Training personnel to be able to respond to a collection of
information;

             (7) Searching data sources;

             (8) Completing & reviewing the collection of information;

             (9) Transmitting or otherwise disclosing the information.

          B.3.  Semi-Annual Report Regarding Distribution of Products:

These reports are no longer required on a routine basis; EPA reserves
the right to require submission of information upon request.

      N/A(1) Reviewing instructions;

             (2) DAIU technology and systems for collecting, validating
and verifying information;

             (3) DAIU technology and systems for processing and
maintaining information;

      N/A(4) DAIU technology and systems for disclosing and providing
information;

      N/A(5) Adjusting the existing ways to comply with any previously
applicable instructions and requirements;

      N/A(6) Training personnel to be able to respond to a collection of
information;

             (7) Searching data sources;

             (8) Completing & reviewing the collection of information;

             (9) Transmitting or otherwise disclosing the information.

          C.  Catalytic Converter Installers

          C.1.  Fill Out Warranty Card (For New Aftermarket Converters

                Only), State Reason for Replacement on Invoice and Place
Tag on

                Removed Converter

       N/A(1) Review instructions;

            *(2) DAIU technology and systems for collecting, validating
and verifying information;

            *(3) DAIU technology and systems for processing and
maintaining information;

       N/A(4) DAIU technology and systems for disclosing and providing
information;

       N/A(5) Adjust the existing ways to comply with any previously
applicable instructions and requirements;

       N/A(6) Train personnel to be able to respond to a collection of
information;

            *(7) Search data sources;

           *(8) Complete & review the collection of information;

             (9) Transmit or otherwise disclose the information.

     Most of the recordkeeping and maintenance is CBP.

     This ICR also makes an estimate for startup burdens and costs for
new businesses.

5.  THE INFORMATION COLLECTED--AGENCY ACTIVITIES, COLLECTION
     METHODOLOGY AND INFORMATION MANAGEMENT

5(a) Agency Activities

The information collection has been developed by an office within EPA
(OECA) that has planned and allocated resources for the efficient and
effective management and use of the information to be collected,
including the processing of the information in a manner which shall
enhance, where appropriate, the utility of the information to agencies
and the public.

EPA engages in the following activities in regard to the information
collection.

--          Review reports,

--          Conduct inspections or audits as appropriate,

--          Take enforcement actions where appropriate.

5(b) Collection Methodology and Management

New aftermarket catalytic converter manufacturers collect sales data and
warranty cards submitted to them by retail customers who have had
converters installed, or directly from the installers themselves.  This
is a customary business practice for many businesses.  Until 1999, the
new aftermarket converter manufacturers then reported semi-annually to
EPA manufacturing information (types of converters and how many sold)
and either a computerized list summarizing converter installations or
copies of the actual warranty cards, at their option.  However, routine
reporting is now only required regarding specifications for new product
lines.  Cards must be kept 5 years because that is the length of the
warranty period.

Since warranties are not required on reconditioned converters, the
converter reconditioners were required, prior to 1999, to provide
semi-annual information regarding to whom they sold reconditioned
converters, how many were sold, and what types were sold.  However,
routine reporting is no longer required.  .

No other recordkeeping or reporting is necessary for new aftermarket
converter manufacturers unless they create a new line of converters, in
which case data must be submitted regarding test results and appropriate
applications of the converters.  For used converter reconditioners,
testing of each converter is necessary to determine if it is still
functional.  However, no specific record retention requirement exists
regarding the results of individual tests, other than to include a
certification with the converter that it passed testing.  This short
statement can be pre-printed form.

If industry voices an interest in electronic reporting, EPA will
facilitate such data interchange, if practical. In the meantime, we
would be willing to accept computer discs or other electronic
information containing warranty information instead of hard copies of
the information.  Since routine reporting of sales and warranty
information is no longer required this does not appear to be a
significant issue.

Installers have no reporting requirement.  They merely fill out a
warranty card for each converter installed, and include on the customary
business practice invoice a pre-printed statement with a blank for why
replacement was appropriate.  The invoice, including the “reason for
replacement” statement, must be kept for 6 months.  In addition, the
removed converter is tagged for a 15 day period, so it can be directly
related to the vehicle and to the aftermarket converter that replaced
it.

5(c) Small Entity Flexibility

The information collection reduces to the extent practicable and
appropriate the burden on persons who shall provide information to or
for the Agency, including with respect to small entities, as defined by
the Regulatory Flexibility Act (5 U.S.C. § 601(6)), the use of such
techniques as:  (1) establishing differing compliance or reporting
requirements or timetables that take into account the resources
available to those who are to respond; (2) the clarification,
consolidation, or simplification of compliance and reporting
requirements; or (3) an exemption from coverage of the collection of
information, or any part thereof.

New aftermarket catalytic converter manufacturers are substantial
businesses with gross revenues in the millions of dollars per year.  The
catalytic converter reconditioners tend to be smaller businesses and the
recordkeeping and reporting requirements are somewhat less; to wit:
there are no warranty requirements and therefore no requirements to
maintain warranty cards or report warranty information.  More
importantly, the policy allows small businesses to compete with the
original equipment manufacturers in a market which was previously
inaccessible to them, and which would not be legal but for this policy.
Many installers are small businesses and have benefitted significantly
from this multimillion dollar industry.  Their requirements are minimal
(4-5 minutes per installation, at least some of which is not an EPA
imposed burden since maintaining invoices is a customary business
practice).

5(d)  Collection Schedule

Sales reports were previously required to be submitted to EPA by
manufacturers and reconditioners semi-annually.  This routine reporting
is no longer required.  No other regular reporting exists, but reports
must be submitted by new aftermarket converter manufacturers for new
product lines.  Installers do not report.  Their recordkeeping occurs at
the time of each installation transaction.

6.  ESTIMATING THE BURDEN AND COST OF THE COLLECTION

Assumptions:

The estimated dollar cost for new aftermarket converter manufacturers
will be different than for used OE converter reconditioners, since the
policy is different for each group.  The cost estimates for
manufacturers and reconditioners, and for installers, are outlined
below.

New Converter Manufacturers

     1.  The number of new aftermarket converter manufacturers is
approximately 8 (down from 12 in the previous ICR).  The cost to new
converter manufacturers consists of 1) the one-time cost of submitting
new product line specifications and testing information to EPA; and 2)
the one-time cost to test two converters for each product line using the
specifications outlined in the policy.  There is no longer a burden for
submission of semi-annual reports regarding manufacturing and sales.

2.  Contractor cost:  Based on estimates supplied by companies that
provide the testing services, the testing cost for a typical
manufacturer is approximately $88,044 per product line.  This estimate
includes the cost for personnel to conduct the testing, as well as the
actual cost of the testing equipment and procedures.  If the typical
manufacturer markets approximately one new product line every two years,
the total testing cost for a typical new converter manufacturer would be
$88,044 for two years. Under the assumption that the prevailing interest
rate is 10%, the annualized cost of the development testing would be
$88,044 amortized over 24 months at 10% compounded monthly, or $48,753
per manufacturer per year. We have estimated a 50% increase in the
number of new product lines over the last ICR, in part because there are
fewer manufacturers making the same number of converters.

3.  To estimate the labor cost of tabulating and reporting the
information as required, it was assumed in the 2002 ICR that the cost
for a technician was $33.68/hr. This cost figure was doubled to reflect
the cost of benefits and overhead, and was adjusted for inflation from
data on the BLS website.  For this ICR we have used the newest available
data from the Bureau of Labor Statistics website, which is found at
HYPERLINK "http://stats.bls.gov/news.release/ecec.t02.htm)."
http://stats.bls.gov/news.release/ecec.t02.htm).  While no job category
necessarily perfectly fits the technical work performed by aftermarket
catalytic converter manufacturers, we selected one of the highest paying
job categories of those that are closely related: precision metal
workers.  Their hourly wage as of 2003 was $19.62 per hour.  In reality,
much of the burden can be performed by lower pay scale clerical staff.
To account for benefits and overhead we have doubled this hourly wage,
which results in an hourly cost of $39.24.  To account for possible
inflation since 2003, we have applied an inflation factor of 1.0571,
which results in an inflation adjusted hourly cost burden of $41.48.

4.  The actual hour estimates per response (aside from the elimination
of the semi-annual reports as noted above) have been remained the same
since the last ICR.  For new converter manufacturers, putting together
an EPA report on specifications of a new product line takes about 2
hours.  We have eliminated reporting on manufacturing and sales
information, which  took about 0.5 hr.; and eliminated submission of
warranty card information, which took about 1 hour to box and send to
EPA.  The maintaining of records, including warranty records, requires
about 1 hour per year.

Reconditioners of Used Converters

1.  The number of reconditioned converter businesses is six at this
time, down from eight.

2.  The cost to a used converter reconditioner consists of the labor
costs of testing each` individual converter according to the test
procedures outlined in the policy, the cost of setting up the bench
testing equipment, and the cost of tabulating and reporting the
information required in the policy.  These cost elements are treated
separately below.

3.  Two technicians are needed to test each converter.  The cost of a
technician per hour is estimated to be somewhat less than for a new
aftermarket converter manufacturer, and instead is estimated to be about
the same as an automobile mechanic.  For the cost of an employee burden
hour, we used the same costs as for new aftermarket converter
manufacturers.  This gives an hourly cost per employee of $41.48,
including the cost of benefits and overhead and adjusted for inflation
to 2005 dollars.

4.  An average of 2.00 minutes are required for each test.

5.  Capital Costs for reconditioners equipment are based on test
equipment cost of about $172,000, having a useful life of about 5 years.
 If this is amortized over 5 years the yearly cost comes to about
$43,854 per reconditioner per year, including interest charges (10%
interest).

6.  Record-keeping costs for tabulating and reporting information to
Agency are based on the same labor rate as above, even though some of
this work may be done by lower pay scale clerical workers.

7.  Reconditioners no longer have the previous reporting burden of
preparation of a semi-annual report (such reports previously took about
4 hrs.; less than 8 hrs. per year). The maintenance of these records
takes about 1 hour per year.

Installers of Aftermarket Converters

1.  There are approximately 30,000 automotive exhaust repair shops
nationwide.  It is assumed that these entities install the vast majority
of aftermarket converters and it is further assumed that all of these
entities install converters, and generally excludes tire/brake shops,
and other non-exhaust repair facilities such as electrical diagnostic
and other such facilities.

2.  There are currently 2.3-2.7  million new aftermarket converters
installed per year. A recent report from the Manufacturers of Emission
controls Association reported a total of 3,079,249 new aftermarket
converters produced in 2001 (including catalytic converters manufactured
for use in Mexico).

3.  Typically, it takes an exhaust repair technician 4-5 minutes per
installation to handle all recordkeeping requirements (fill out warranty
card if applicable, fill in blank on invoice regarding reason for
replacement, and tag the converter that was removed).  This estimate is
based on information from shop owners as well as EPA experience with the
paperwork. In many cases, blank warranty cards are simply provided to
customers, further reducing burden times.

4.  The cost of an employee per hour is estimated to be about the same
as an automobile mechanic.  For the cost of an employee burden hour, we
used the most recent data from the Bureau of Labor Statistics for 2003
($17.88) and doubled that figure to reflect benefits and overhead.  This
gives an hourly cost of $35.76.  We adjusted for inflation to 2005
dollars, which results in an hourly cost estimate of $37.80.

5.  Using the above assumptions, each shop averages 83 installations per
year.  On the average, the paperwork is assumed to take about 5 minutes
per installation, or 7 hours per year.  At $37.80 per hour, this comes
to $263 per year per shop.

6(a)  Estimates of Respondent Burden and Cost

A.  New Aftermarket Catalytic Converter Manufacturers

         1.  PROVIDE SPECIFICATIONS FOR NEW PRODUCT LINES:

         One-time burden for each new product line.  Assume each
manufacturer develops one new product line every year.

         HRS. PER RESPONDENT:             2.0

         COST PER RESPONDENT:           $82.96

         HRS. FOR 8 RESPONDENTS:        16

         COST FOR 8 RESPONDENTS:      $664

         2.  TESTING OF PROTOTYPES (Purchased Services):

         One-time burden for new product lines.  Assume 1 new product
line per manufacturer every two years.

         HRS. PER RESPONDENT:    (contracted out)

         ANNUALIZED COST PER RESPONDENT:       $48,753

         HRS FOR 8 RESPONDENTS:  N/A

         COST FOR 8 RESPONDENTS:  $390,024

         3.  SEMI-ANNUAL SUBMISSIONS OF MANUFACTURING DATA AND

             WARRANTY CARDS (reporting requirement discontinued;
Recordkeeping                             exists):

         HRS. PER RESPONDENT:             1

         COST PER RESPONDENT:           $41.48

         HRS. FOR 8 RESPONDENTS:       8

         COST FOR 8 RESPONDENTS:     $331.84

    4.  ANNUALIZED O & M COSTS (for postage): $5 * 8 parties = $40 for
all respondents.

     B.  USED CATALYTIC CONVERTER RECONDITIONERS

         1.  SUBMIT TEST FACILITY INFORMATION:

         This is a one-time burden which has already been absorbed by
current reconditioners.  No new facilities are anticipated within the
period.

         2.  PERFORM EFFICIENCY TESTS ON EACH NEW CONVERTER:

         HRS. PER RESPONDENT:          623 (Represents 9345 converters
tested per year per Respondent)

         COST PER RESPONDENT:       $25,842

         HRS. FOR 6 RESPONDENTS:      3,738

         COST FOR 6 RESPONDENTS:   $155,052

         3.  SEMI-ANNUAL REPORTS REGARDING DISTRIBUTION OF PRODUCTS
                  (No reporting, but must maintain records):

         HRS. PER RESPONDENT:            1

         COST PER RESPONDENT:           $41.48

         HRS. FOR 6 RESPONDENTS:       6

         COST FOR 6 RESPONDENTS:     $248.88

         4.  AMORTIZED CAPITAL COSTS PER RESPONDENT:        $43,854.

              AMORTIZED CAPITAL COSTS FOR 6 RESPONDENTS:  $263,124.

         5.  ANNUALIZED O & M (for postage):  None.

     C.  RECORDKEEPING BY EXHAUST SYSTEM REPAIR FACILITIES

         1.  MAINTAIN INVOICES & REMOVAL JUSTIFICATION & TAG
                CONVERTERS

         HRS. PER RESPONDENT:          7

         COST PER RESPONDENT:         $263

            HRS. FOR 30,000 RESPONDENTS: 209,000

          COST FOR 30,000 RESPONDENTS:  $7,875,000

2.  STARTUP COSTS:  100 STARTUPS * 5 HRS. = 500 TOTAL hours x $37.80 =

$18,900

     CAPITAL COSTS (to purchase converter storage space): $228 * 100 =
$22,800 for all respondents.

6(b)  Summary of Respondent Costs

     1.  Total Yearly Costs for New Aftermarket Converter Manufacturers:

          $48,758 per respondent, including contractor testing costs & O

          & M costs; $390,064 for all 8 respondents.

     2.  Total Yearly Costs for Converter Reconditioners:

          $25,884 for yearly converter tests to check

          efficiency, capital costs of $43,854 = $69,737 per respondent,
and $418,425 for all 6                          respondents.

     3.  Total yearly costs for installers:

          $263 for 1 respondent =  $7,875,000 for all 30,000 installer
facilities.

       Total Startup costs for new businesses:  5 hrs. plus $228 for
  filing space or $417 per party * 100 new parties per year = $41,700
total.

   TOTAL YEARLY BURDEN:  $8,725,189 (including salaries); 212,101 hrs.
     for all respondents, including testing (plus 500 hrs. for 100
    startups = 212,601 hrs.).  Annualized cost burden other than
salaries: $675,988.

SUMMARY OF RESPONDENTS’ BURDENS AND COSTS BY CATEGORY:

I.  New Aftermarket Catalytic Converter Manufacturers

    A.  Annual Burden Hours per Party: 3. (24 for all 8 respondents)

    B.  Annualized Capital Costs per Party:  $0.00.

    C.  Annualized Operating Costs per party:  $5.00 ($40 for all 8)

    D.  Annualized Startup Costs:  $0.00 (no new entities entering the
market).

    E.  Annual Purchased Services per Party (for Testing of Prototypes):
 $48,753. ($390,024 for all 8).

II. Used Aftermarket Catalytic Converter Manufacturers

    A.  Annual Burden Hours per Party:  624 (testing of catalytic
converters to determine they are functional; the actual recordkeeping
burden is minimal).  (3,744 for all 6)

    B.  Annualized Capital Costs per Party:  $43,854. ($263,124 for all
6)

    C.  Annualized Operating Costs per Party:   $0.

    D.  Annualized Startup Costs:  None.  There have been no new parties
and none are expected in the next 3 years.

    E.  Annual Purchased Services per Party:  $0.00.

III. Installers of Aftermarket Converters

    A.  Annual Burden Hours per Party: 7

    B.  Annualized Capital Costs per Party:  $0.00.

    C.  Annualized Operating Costs per party:  $0.00.

    D.  Annual Purchased Services per Party:  $0.00.

    E.  Annualized Startup Costs:  Assume 100 new installers per year;
Assume reviewing instructions and setting up recordkeeping systems
requires 5 hrs per party and the purchase of file space of $228.  Total
startup cost would be $189 plus $228, for a total of $417 per party and
$41,700 nationwide.

    6(c)  Estimated EPA Burden and Cost

     The direct cost of personnel to process and analyze the information
collected is estimated to be $500 or about 20 hours at the cost of a
grade 12 employee.  An estimated travel cost of $5,000 would be needed
to monitor compliance with the policy, in addition to travel already
used for retail level inspections for automobile emissions tampering
generally.  The total annual cost to the government is thus estimated to
be $5500.

         6(d)  Reasons for Change in Burden

     Burdens for new and used aftermarket converter manufacturers and
reconditioners have been decreased to reflect reduced reporting since
reporting sales and warranty information is no longer required.  We also
increased the amount of burden for testing new converters since the
number of new converters made has remained the same while the number of
manufacturers has decreased. We have adjusted cost figures for
inflation.  The number of converter installation facilities, and
converters being installed have stayed flat as have the burden hours per
converter installation; however, total burden hours requested have
increased due to the correction of an error in previous renewals (see
below for explanation). Government cost has been decreased significantly
as the result of the elimination of most respondent reporting
requirements.

It is important to note that a combination of errors in calculations in
the previous ICR (67FR 319-320, Jan. 3, 2002) led to the annual burden
hours for installers being represented as 3.5 hours/year, rather than 7
hours/year. Spread over 30,000 installer respondents this led to a
shortfall of 104, 000 burden hours. This figure has been correctly
calculated in this ICR renewal.   There is, therefore,  no increase in
burden hours to the industry, rather the correction of a previous error
which accounts for the higher burden hour numbers.

         6(e)  Burden Statement

The public recordkeeping burden for this collection of information is
estimated to average:

         3 hours per new aftermarket converter manufacturer, on average,
with $5 annual operational costs per year and annualized purchased
services costs per year of $48,753;

         624 hours (including converter testing time) per used converter
reconditioner, on average, with annualized capital costs per year of
$43,854; and

         7 hours per respondent for aftermarket converter installation
facilities, with an additional 5 hours for the first year for startup
facilities and an additional $228 for startup capital costs.

The overall average is 7 hours per response (212,101 total burden hours
divided by 30,014 respondents).

Burden means the total time, effort, or financial resources expended by
persons to generate, maintain, retain, or disclose or provide
information to or for a Federal agency.  This includes the time needed
to review instructions, develop, acquire, install, and utilize
technology and systems for the purpose of collecting, validating, and
verifying information, processing and maintaining information, and
disclosing and providing information; adjust the existing ways to comply
with any previously applicable instructions and requirements; train
personnel to be able to respond to a collection of information; search
data sources; complete and review the collection of information; and
transmit or otherwise disclose the information.  An agency may not
conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid OMB
control number.  The OMB control numbers for EPA’s regulations are
listed in 40 C.F.R. Part 9 and 48 C.F.R. Chapter 15.

To comment on the Agency’s need for this information, the accuracy of
the provided burden estimates, and any suggested methods for minimizing
respondent burden, including the use of automated collection techniques,
EPA has established a public docket for this ICR under Docket ID No.
OECA-2005-0052, which is available for public viewing at the Enforcement
and Compliance Docket and Information Center in the EPA Docket Center
(EPA/DC), EPA West, Room B102, 1301 Constitution Avenue, NW, Washington,
DC. The EPA Docket Center Public Reading Room  is open from 8:30 a.m. to
4:30 p.m., Monday through Friday, excluding legal holidays.  The
telephone number for the Reading Room is<PHONE_NUMBER>, and the
telephone number for the Enforcement and Compliance Docket and
Information Center is<PHONE_NUMBER>. An electronic version of the
public docket is available through EPA Dockets (EDOCKET) at
http://www.epa.gov/edocket.  Use EDOCKET to submit or view public
comments, access the index listing of the contents of the public docket,
and to access those documents in the public docket that are available
electronically.  Once in the system, select “search,” then key in
the docket ID number identified above.  Also, you can send comments to
the Office of Information and Regulatory Affairs, Office of Management
and Budget, 725 17th Street, NW, Washington, DC 20503, Attention: Desk
Office for EPA.  Please include the EPA Docket ID No. OECA-2005-0052 and
OMB control number 2060-0135 in any correspondence.

Part B of the Supporting Statement

This part is not applicable..

PART B.  COLLECTION OF INFORMATION EMPLOYING STATISTICAL METHODS

 This section is not applicable because statistical methods are not used
in the data collection associated with the aftermarket catalytic
converter policy.

APPENDIX A.  Summary of Comments to First Federal Register Notice

No comments were received.

APPENDIX B.  Citation for Information Requirements of the ICR

The information requirements of this ICR are enumerated in the
Agency’s proposed and interim enforcement policy published in the
Federal Register on August 5, 1986 (51 Fed. Reg.  28114).  In this
Federal Register notice the Agency proposed to amend 40 C.F.R. Part 85
by adding a new Appendix IX, which would consist of this enforcement
policy.  There are no regulations applicable to this information
collection.  The citations listed below for the information requirements
refer to this Federal Register notice.

Information Requirement
                        Fed. Reg. Citation

New Converter Manufacturers

Collect and Transmit Converter specifications to EPA	51 FR 28119

Collect, file and maintain warranty information	51 FR 28117

Used Converter Reconditioners

Collect, file and maintain sales information and customer lists	51 FR
28118

Installers

Invoices, Warranties, Tag converters	51 FR 28816

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