[Federal Register Volume 85, Number 139 (Monday, July 20, 2020)]
[Proposed Rules]
[Pages 43773-43775]
[FR Doc No: 2020-14934]

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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 117

[Docket No. USCG-2018-0968]
RIN 1625-AA09

Drawbridge Operation Regulations; Old Fort Bayou, MS

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Coast Guard proposes to change the operating schedule that
governs the State Road 609 highway bascule bridge across the Old Fort
Bayou mile 1.6, Ocean Springs, Harrison County, Mississippi. This
proposed action would allow the bridge to close to vessel traffic from
6:30 a.m. to 8:00 a.m. and from 4 p.m. to 6 p.m. Monday through Friday,
except federal holidays and require a 12 hour notification to open the
bridge to vessels on Thanksgiving Day, Christmas Day and New Year's
Day. This proposed action is intended to enhance vehicle safety and
allow the bridge owner to effectively manage bridge operations during
federal holidays.

DATES: Comments and related material must be received by the Coast
Guard on or before September 18, 2020.

ADDRESSES: You may submit comments identified by docket number USCG-
2018-0968 using Federal eRulemaking Portal at http://www.regulations.gov.
    See the ``Public Participation and Request for Comments'' portion
of the SUPPLEMENTARY INFORMATION section for further instructions on
submitting comments.

FOR FURTHER INFORMATION CONTACT: If you have questions about this
proposed rulemaking, call or email Mr. Doug Blakemore, Eighth Coast
Guard District Bridge Administrator; telephone<PHONE_NUMBER>, email
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. Table of Abbreviations

CFR Code of Federal Regulations
DHS Department of Homeland Security
E.O. Executive Order
FR Federal Register
MDOT Mississippi Department of Transportation
OMB Office of Management and Budget
Pub. L. Public Law
NPRM Notice of proposed rulemaking
Sec.  Section
SR State Road
U.S.C. United States Code

II. Background, Purpose and Legal Basis

    MDOT has requested to change the operating requirements for the SR
609 highway bascule bridge across the Old Fort Bayou mile 1.6, Ocean
Springs, Harrison County, MS. This bridge currently operates according
to 33 CFR part 117.681 and opens on signal; except that, from 9 p.m. to
5 a.m., the draw opens on signal if at least eight hour notice is
given. At this bridge location the waterway is used by small
commercial, recreational and fishing vessels. The bridge has a vertical
clearance of 26' above mean high water in the closed to vessel
position.
    MDOT has requested two changes to the regulations. They asked to
close the bridge to vessel traffic from 6:30 a.m. to 8:00 a.m., from
10:45 a.m. to 12:30 p.m. and from 4 p.m. to 6 p.m. Monday through
Friday, except federal holidays and require a 12 hour notification to
open the bridge to vessels on Thanksgiving Day, Christmas Day and New
Year's Day. The first change is needed to prevent unsafe driving
conditions created when the bridge opens to vessels during morning and
evening commuting hours. The second change would allow MDOT to remove
the bridge tender during three federal holidays when there has been
almost no bridge openings.
    The Coast Guard allowed MDOT to temporarily change the bridge
operating schedule to measure the impacts to vehicle traffic that were
created when the bridge opened to vessels. For a 120 day period the
bridge did not open to vessel traffic from 6:30 a.m. to 8:00 a.m.,
10:45 a.m. to 12:30 p.m. and from 4 p.m. to 6 p.m. Monday through
Friday, except federal holidays. The Coast Guard published a Notice of
Temporary Deviation from the regulations and a request for comments
concerning these changes on February 4, 2019, Federal Register Volume
84, number 23, Monday, February 4, 2019. Two comments were received
during this temporary deviation. 1 comment was in favor of the change
and one comment that did not refer to this regulation change. During
this period there were no vehicle or vessel queues created by this
temporary operating schedule.
    After this temporary deviation the bridge returned to its normal
operating schedule. Over 88 days MDOT measured the vehicle and vessel
queues created when the bridge opened for vessels during the above
commute hours. MDOTs analysis of this data demonstrated that during the
above commuting periods vehicle queues were created when the bridge
opened for vessels and that the queues backed up traffic on SR 609 and
on U.S. Highway 90. U.S. 90 is located south of the bridge and
perpendicular to SR 609. These vehicle queues presented an increased
potential for rear end vehicle collisions on the U.S. 90 Highway. There
were no vessel queues during this period.
    From 2014 through 2017 this bridge opened once for vessels on
Thanksgiving Day, Christmas Day and New Year's Day.
    The Coast Guard is issuing this NPRM under authority 33 U.S.C. 499.

III. Discussion of Proposed Rule

    The Coast Guard's decision to promulgate a drawbridge regulation
depends primarily upon the effect of the proposed rule on navigation to
assure that the rule provides for the reasonable needs of navigation
after consideration of the rule on the impact to the public. The Coast
Guard must ensure that bridges across navigable waters do not
unreasonably obstruct waterway traffic and at the same time provide for
the reasonable needs of land traffic. Drawbridge operations must
balance the needs of vessel, vehicle, rail, pedestrian and recreational
traffic in the overall public interest.
    Closing the bridge to vessel traffic in the morning and evening
commuting hours appears to reduce vehicle queues while not creating
vessel queues. The reduction in vehicle queues enhances safety by
preventing vehicles from backing up on U.S. 90 highway.
    Since vessel queues were not created during this test the Coast
Guard has determined that closing the bridge to

vessel traffic in the morning and evening commute hours continues to
provide vessels with the reasonability to use the waterway.
    The Coast Guard does not agree that the bridge should close to
vessels from 10:45 a.m. to 12:30 p.m. Allowing this change would add
another 1\1/2\ hours that vessels would have to wait to transit through
the bridge. This unreasonably impacts navigation. MDOT should implement
traffic measures during this time period to reduce vehicle queues.
    Since this bridge opened once to vessels from 2014 through 2017 on
Thanksgiving Day, Christmas Day and New Year's Day, requiring a 12 hour
notice to open would not impact navigation.
    Additionally the bridge is required to open for emergencies
according to 33 CFR 117.31.

IV. Regulatory Analyses

    We developed this proposed rule after considering numerous statutes
and Executive orders related to rulemaking. Below we summarize our
analyses based on these statutes and Executive orders and we discuss
First Amendment rights of protestors.

A. Regulatory Planning and Review

    Executive Orders 12866 and 13563 direct agencies to assess the
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits. Executive Order 13771 directs agencies to control
regulatory costs through a budgeting process. This NPRM has not been
designated a ``significant regulatory action,'' under Executive Order
12866. Accordingly, the NPRM has not been reviewed by the Office of
Management and Budget (OMB) and pursuant to OMB guidance it is exempt
from the requirements of Executive Order 13771.
    This regulatory action determination is based on the ability that
vessels can still open the draw and transit given advance notice. Those
vessels with a vertical clearance requirement of less than 26 feet
above mean high water may transit the bridge at any time. Additionally
according to 33 CFR 117.31(b) the drawtender shall take all reasonable
measures to have the draw opened, regardless of the operating schedule
of the draw, for passage of certain vessels during emergency
situations. We believe this proposed change to the drawbridge operation
regulations at 33 CFR 117.675(a) will meet the reasonable needs of
navigation.

B. Impact on Small Entities

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as
amended, requires Federal agencies to consider the potential impact of
regulations on small entities during rulemaking. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this
proposed rule would not have a significant economic impact on a
substantial number of small entities.
    The bridge provides a 26 foot vertical clearance at mean high water
that should accommodate most present vessel traffic and the bridge will
continue to open on signal during most daylight hours for any vessel
during the above federal holidays provided at least 12 hour notice is
given. While some owners or operators of vessels intending to transit
the bridge may be small entities, for the reasons stated in section
IV.A above, this proposed rule would not have a significant economic
impact on any vessel owner or operator.
    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this proposed rule. If the proposed rule
would affect your small business, organization, or governmental
jurisdiction and you have questions concerning its provisions or
options for compliance, please contact the person listed in the FOR
FURTHER INFORMATION CONTACT section. The Coast Guard will not retaliate
against small entities that question or complain about this proposed
rule or any policy or action of the Coast Guard.

C. Collection of Information

    This proposed rule would call for no new collection of information
under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520.).

D. Federalism and Indian Tribal Government

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government. We have analyzed this proposed rule under that Order and
have determined that it is consistent with the fundamental federalism
principles and preemption requirements described in Executive Order
13132.
    Also, this proposed rule does not have tribal implications under
Executive Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it would not have a substantial direct effect on
one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes. If
you believe this proposed rule has implications for federalism or
Indian tribes, please contact the person listed in the FOR FURTHER
INFORMATION CONTACT section above.

E. Unfunded Mandates Reform Act

    The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
requires Federal agencies to assess the effects of their discretionary
regulatory actions. In particular, the Act addresses actions that may
result in the expenditure by a State, local, or tribal government, in
the aggregate, or by the private sector of $100,000,000 (adjusted for
inflation) or more in any one year. Though this proposed rule will not
result in such expenditure, we do discuss the effects of this proposed
rule elsewhere in this preamble.

F. Environment

    We have analyzed this rule under Department of Homeland Security
Management Directive 023-01 and U.S. Coast Guard Environmental Planning
Policy COMDTINST 5090.1 (series) which guide the Coast Guard in
complying with the National Environmental Policy Act of 1969 (NEPA) (42
U.S.C. 4321-4370f). We have made a preliminary determination that this
action is one of a category of actions that do not individually or
cumulatively have a significant effect on the human environment. This
proposed rule promulgates the operating regulations or procedures for
drawbridges. Normally this action is categorically excluded from
further review, under paragraph L49, of Chapter 3, Table 3-1 of the
U.S. Coast Guard Environmental Planning Implementation Procedures.
    Neither a Record of Environmental Consideration nor a Memorandum
for the Record are required for this rule.

G. Protest Activities

    The Coast Guard respects the First Amendment rights of protesters.
Protesters are asked to contact the person listed in the FOR FURTHER
INFORMATION CONTACT section to coordinate protest activities so that
your message can be received without

jeopardizing the safety or security of people, places or vessels.

V. Public Participation and Request for Comments

    We view public participation as essential to effective rulemaking,
and will consider all comments and material received during the comment
period. Your comment can help shape the outcome of this rulemaking. If
you submit a comment, please include the docket number for this
rulemaking, indicate the specific section of this document to which
each comment applies, and provide a reason for each suggestion or
recommendation.
    We encourage you to submit comments through the Federal eRulemaking
Portal at http://www.regulations.gov. If your material cannot be
submitted using http://www.regulations.gov, contact the person in the
FOR FURTHER INFORMATION CONTACT section of this document for alternate
instructions.
    We accept anonymous comments. All comments received will be posted
without change to http://www.regulations.gov and will include any
personal information you have provided. For more about privacy and the
docket, visit http://www.regulations.gov/privacynotice.
    Documents mentioned in this NPRM as being available in this docket
and all public comments, will be in our online docket at http://www.regulations.gov and can be viewed by following that website's
instructions. Additionally, if you go to the online docket and sign up
for email alerts, you will be notified when comments are posted or a
final rule is published.

List of Subjects in 33 CFR Part 117

    Bridges.

    For the reasons discussed in the preamble, the Coast Guard amends
33 CFR part 117 as follows:

PART 117--DRAWBRIDGE OPERATION REGULATIONS

0
1. The authority citation for part 117 continues to read as follows:

    Authority:  33 U.S.C. 499; 33 CFR 1.05-1; and Department of
Homeland Security Delegation No. 0170.1.

0
2. Revise Sec.  117.681 to read as follows:

Sec.  117.681   Old Fort Bayou.

    The draw of the bridge, mile 1.6 at Ocean Springs, shall open on
signal; except that, from 9 p.m. to 5 a.m., the draw shall open on
signal if at least eight hour notice is given; on Thanksgiving Day,
Christmas Day and New Year's Day the draw shall open on signal if at
least 12 hour notice is given; and the draw need not open to vessels
from 6:30 a.m. to 8 a.m. and from 4 p.m. to 6 p.m. Monday through
Friday except federal holidays. The draw shall open anytime at the
direction of the District Commander.

    Dated: May 4, 2020.
John P. Nadeau,
Rear Admiral, U.S. Coast Guard, Commander, Eighth Coast Guard District.
[FR Doc. 2020-14934 Filed 7-17-20; 8:45 am]
BILLING CODE 9110-04-P


[Federal Register Volume 77, Number 224 (Tuesday, November 20, 2012)]
[Notices]
[Pages 69673-69677]
[FR Doc No: 2012-28135]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68219; File No. SR-CHX-2012-15]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Amend Its Order Cancellation Fee

November 13, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 2, 2012, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. CHX has
filed the proposal pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(2) thereunder,\4\ which renders the proposal effective
upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change

    The CHX proposes to amend its Schedule of Fees and Assessments (the
``Fee Schedule''), effective November 2, 2012, relating to its order
cancellation fee for Participants entering and subsequently cancelling
order under certain circumstances. The text of this proposed rule
change is available on the Exchange's Web site at http://www.chx.com/rules/proposed_rules.htm and in the Commission's Public Reference
Room, 100 F Street NE., Washington, DC 20549.

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 CHX included statements
concerning the purpose of and basis for the proposed rule changes and
discussed any comments it received regarding the proposal. The text of
these statements may be examined at the places specified in Item IV
below. The CHX has prepared summaries, set forth in sections A, B and C
below, of the most significant aspects of such statements.

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

1. Purpose
History of the CHX Order Cancellation Fee
    Beginning in January 2010, the Exchange published Fee Schedule
imposed a charge for order cancellations in issues priced $1.00 per
share or more \5\ submitted by Participants whose orders rarely were at
or near the National Best Bid or Offer (``NBBO''), herein referred to
as the ``original cancellation fee.'' \6\ The application of the
original order cancellation fee depended, inter alia, on a calculation
involving the number of Wide orders (defined as display-eligible orders
in the Matching System which are two (2) or more cents away from the
NBBO), Quotable orders (all other display-eligible orders), the number
of trades executed and number of cancellations submitted by a
Participant in a month.\7\ The purpose of the original order
cancellation fee was to incent Participants to submit orders that were
close to the NBBO and to compensate the Exchange for the systems and
operational costs and burdens associated with handling and recording
orders that were rarely executed.
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    \5\ The Exchange excluded securities priced under $1 per share
from being subject to order cancellation fees, as it did not appear
that the activity in those issues gave rise to the same concerns as
securities priced at or greater than $1 per share. The Exchange
continues to find this to be the case and proposes to maintain the
exclusion of securities priced under $1 per share from order
cancellation fees.
    \6\ See Exchange Act Release No. 61392 (Jan. 21, 2010), 75 F.R.
4436 (Jan. 27, 2010) (SR-CHX-2010-02).
    \7\ Other requirements included that the trading activity must
have occurred in the Regular Trading Session and concerned
securities priced $1 per share or more. Also, cancellations arising
from ``Immediate or Cancel'' or ``Fill or Kill'' order types were
excluded from the calculation, as well as execution of cross orders.
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    However, soon after the imposition of the original order
cancellation fee, the Exchange had observed that the number of
unexecuted and displayed orders had actually increased for certain
Participants. It was apparent to the Exchange that in order to avoid
application of the cancellation fee, certain Participants were
submitting Quotable orders to the CHX's Matching System, but for an
extremely short duration, rendering such activity negligible. In
addition to avoiding order cancellation fees, this quotation activity
actually exacerbated the operational costs which the Exchange sought to
avoid by creating the order cancellation fee in the first place. The
Exchange had observed that those firms entering the limited durational
orders described above conducted much of their business on our trading
facilities in Exchange Traded Funds (``ETFs''), Exchange Traded Notes
(``ETNs'') or Exchange Traded Vehicles (``ETVs''), collectively
referred to as Exchange Traded Products (``ETPs'').\8\ As such, in
August 2010, the Exchange amended its order cancellation fee to exclude
all orders, transactions and cancellation activity in ETPs from the
cancellation fee calculation, herein referred to as the ``modified
order cancellation fee.''
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    \8\ See Securities Exchange Act Release No. 61392 (January 21,
2010), 75 F.R. 4436 (Jan. 27, 2010) (SR-CHX-2010-02).
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    Nevertheless, after the modified order cancellation fee went into
effect, the Exchange observed that certain Participants had found a
number of methods for avoiding the application of the modified order
cancellation fee. For example, certain Participants submitted Quotable
orders to the CHX's Matching System in non-ETPs, but for an extremely
short duration. In other cases, Participants submitted a large number
of Quotable orders in very thinly traded securities prior to the end of
the month. These and other similar methods were used by Participants to
reduce the order cancellation ratio and therefore, their cancellation
fee liability, without a corresponding increase in order executions. As
such, in September 2011, the Exchange revamped its order cancellation
fee methodology, herein referred to as the ``current order cancellation
fee.'' \9\
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    \9\ See Securities Exchange Act Release No. 65268 (September 6,
2011), 76 FR 56246 (September 12, 2011) (SR-CHX-2011-25).
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    The current order cancellation fee utilizes a formula, calculated
on a daily basis, which divides the Participant's total cancelled
volume in a given issue (``cvissue'') by the Participant's total
executed volume in that issue (``exvissue''). In those instances where
a Participant's daily activity in a given issue exceeds a cancellation
ratio of 30, the Exchange imposes an order cancellation fee of $.30 on
each cancellation in that issue for that day and bills such fees on a
monthly basis. By only crediting Participants with Quotable orders of
the same issue as Wide orders, the Exchange sought to eliminate the
practice of quoting in thinly-traded stocks to reduce cancellation fee
liability. Furthermore, by imposing the cancellation fee on a daily
basis, the Exchange sought to eliminate end-of-the-month fee avoidance
trading activity.
    After the current order cancellation fee went into effect, there
has been a noticeable reduction in the aforementioned ``gaming'' of the
order cancellation fee formula. However, the Exchange submits that this
fee mechanism can be further perfected to promote display liquidity
(i.e., the submission of more competitive Quotable orders). As such,
further changes to the current order cancellation fee formula are
necessary.
Proposed Order Cancellation Fee
    The Exchange now proposes to readopt the original order
cancellation fee, with amendments to provide for the daily calculation
of the order cancellation fee per security and to incorporate new order
cancellation formula parameters with values set security-type specific
(i.e., for each derivative and non-derivative tape A, B and C security
types). The Exchange submits that these changes will better incentivize
Participants to submit orders near the NBBO and will allow the Exchange
to better combat against ``gaming'' of the order cancellation fee
formula and to compensate the Exchange for the processing and
electronic storage costs associated with orders which ``quote around''
the NBBO and rarely execute.
    In determining whether the proposed order cancellation fee would be
imposed, the Exchange proposes to utilize a formula that subtracts from
the total daily number of Wide or ``W'' orders in a given security, the
product of Near or ``N'' orders \10\ in the same security submitted by
the Participant in the Regular Trading Session in a given day and its
corresponding N order multiplier or ``Nmult.'' The
difference between these two values is then divided by ``E,'' which is
defined as the greater of (a) one (1) or (b) the sum of all Wide and
Near orders in a given security that are submitted and executed (in
whole or in part) in the Regular Trading Session (excluding cross
transactions) on a given day.\11\ If the remaining value is equal to or
greater than the corresponding ``Cancellation Ratio'' for that
security, a corresponding

order cancellation fee would apply to the Participant for that day's
activity in that security. If, however, the value is less than the
corresponding Cancellation Ratio, the Participant would not be assessed
any fee on its cancellation instructions. Although the Cancellation
Ratio and order cancellation fee may vary depending on the type of
security, the Exchange proposes to set the Cancellation Ratio at 150
and the order cancellation fee rate at $0.01 per cancelled order,
across the board.\12\ Moreover, the order cancellation fee will be
calculated daily, per security and applied per Account Symbol \13\
maintained by each clearing Participant.
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    \10\ ``Near'' is the same as ``Quotable,'' as used in the
original and modified order cancellation fee. The Exchange submits
that the term ``Near'' better describes the order as its defining
characteristic is that it is near to or better than the NBBO.
    \11\ Orders that are less than a round-lot size (less than 100
shares in most securities) and cancellations from ``Immediate or
Cancel'' or ``Fill or Kill'' orders will not be counted towards the
number of cancellations resulting in a fee charged to a Participant.
In the event that a Participant has no executed provide orders in a
month, we assume that E has a value of one (1) in order to avoid a
mathematical error in applying the cancellation fee formula.
    \12\ Changes to any of the proposed parameter values, including
Order Cancellation Fee, Cancellation Ratio, Threshold Away Amount,
Minimum Duration and Nmult, will be made through proposed
fee filings pursuant to Rule 19b-4.
    \13\ Individual Account Symbols are assigned, by the Exchange,
to each trading account maintained by a clearing Participant. Each
clearing Participant which executes orders on the Exchange has at
least one Account Symbol, while some clearing Participants have
multiple account symbols. Multiple accounts can be used by clearing
Participants, for example, to segregate the order activity of
different clients. Calculating and applying the cancellation fee by
the Account Symbols maintained by the clearing Participant provides
a more precise way of identifying the conduct and correspondent
firms implicated by the proposed fee provisions.
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    In contrast to the original W order, an order may now be considered
Wide if any one of the following three conditions are met.\14\ First, a
W order is an order priced inferior to the National Best Bid (``NBB'')
for a buy order and National Best Offer (``NBO'') for a sell order at
the time the order is received by the Matching System and where the
difference between the order price and the NBB or NBO is equal to or
greater than its corresponding ``Threshold Away Amount.'' Second, a W
order is an order in a security that is voluntarily cancelled by the
Participant prior to the expiration of its corresponding ``Minimum
Duration,'' after acceptance by the Matching System, without any
partial executions. Finally, a W order is one that is marked ``Do Not
Display,'' pursuant to CHX Article 20, Rule 4(b)(9).\15\ By classifying
such orders as W orders, the Exchange endeavors to incentivize
Participants to post displayed bids and offers and thereby promote
displayed liquidity on the Exchange. In turn, the Exchange anticipates
that increased displayed liquidity would result in a greater number of
order executions and, ultimately, increased revenue for the Exchange.
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    \14\ As a general matter, all W orders are securities priced at
$1.00 share or more when submitted by the Participant in the Regular
Trading Session.
    \15\ Article 20, Rule 4(b)(9) defines a ``Do Not Display'' order
as an order for at least 1,000 shares when entered that is not to be
displayed in whole or in part.
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    Moreover, the proposed W order introduces two new parameters.
First, the ``Threshold Away Amount'' is a security-type specific value
that establishes a bright-line value for determining when an order
price is either away or near the NBBO. Although the value of this
parameter may eventually vary by security-type, the Exchange proposes
to set the Threshold Away Amount at $0.03 for all six security
types.\16\ Second, the ``Minimum Duration'' parameter is also a
security-type specific value that establishes a bright-line time limit
for determining whether an order is considered Wide or may be
considered Near. The purpose of this parameter is to promote order
execution by curtailing the submission of orders that are not present
and displayable for a reasonable period of time and, consequently, to
reduce the incidence of disruptive ``flickering quotes.'' The Exchange
submits that the longer an order is displayed the better chance it has
of being executed. Although this value may also vary by security type,
the Exchange proposes to set the Minimum Duration at 10 milliseconds
for all six security types.\17\
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    \16\ Supra note 12.
    \17\ Id.
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    In contrast to the original ``Quotable'' or ``Q'' order, the
proposed N order is defined as (1) an order in a security priced at
$1.00 per share or more submitted by the Participant in the Regular
Trading Session, (2) where the difference between the order price and
the NBB or NBO is less than its corresponding Threshold Away Amount and
(3) where the order is not voluntarily cancelled by the Participant
prior to either its corresponding Minimum Duration or prior to a
partial execution of the order, whichever is earlier.
    Moreover, the proposed N order will be modified by a ``Near order
multiplier'' or ``Nmult,'' which is a security-type specific
value, which multiplies the value of N. The practical effect of the
Nmult is that it enhances the mitigating effect of N orders
on the order cancellation ratio. Therefore, the purpose of the
Nmult is to give the Exchange the ability to enhance or
reduce the impact of N on the order cancellation ratio, so as to
ensure, inter alia, equitable application of the order cancellation
fee. This also provides a strong incentive for Participants to provide
more Near orders and fewer Wide orders by giving each Near order two
times the weight of a Wide order in calculating the calculation ratio.
Although this number may eventually vary by security type, like the
Cancellation Ratio, order cancellation fee rate, Threshold Away Amount
and Minimum Duration, the Exchange proposes to set the
``Nmult''at two (2) for all six security types.\18\
Generally speaking, all of these new parameters will allow the Exchange
to better adapt to future issues with the application of the proposed
order cancellation formula by merely adjusting these values.
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    \18\ Id.
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    The following examples illustrate how an order may be classified as
either Wide or Near. For all Examples, assume submission of a buy order
for 1,000 shares of a Tape A non-derivative security:
    For Example A, assume that the price of the order is $0.04 inferior
to the NBB and it is voluntarily cancelled by the Participant twelve
(12) milliseconds after submission to the Matching System. Since the
difference between the order price and NBB (``price difference'') is
greater than the Threshold Away Amount for a Tape A non-derivative
security ($0.03), this is a Wide order, notwithstanding all other
factors.
    For Example B, assume that the price of the order is $0.04 inferior
to the NBB and it is fully executed after twelve (12) milliseconds.
Since the price difference is greater than the corresponding Threshold
Away Amount, this is a Wide order, notwithstanding all other factors.
    For Example C, assume that the price of the order is $0.04 inferior
to the NBB, there is a partial execution of 500 shares after five (5)
milliseconds and the remainder of the order is voluntarily cancelled
after twelve (12) milliseconds. Since the price difference is greater
than the corresponding Threshold Away Amount, it is a Wide order,
notwithstanding all other factors.
    For Example D, assume that the price of the order is $0.01 inferior
to the NBB, there is a partial execution of 500 shares after five (5)
milliseconds, the remainder is voluntarily cancelled after twelve (12)
milliseconds and the order is marked ``Do Not Display.'' Since the
order is marked ``Do Not Display,'' it is a Wide order, notwithstanding
all other factors.
    For Example E, assume that the order price is equal to the NBB and
the order is fully executed after twelve (12) milliseconds. Since the
price difference is less than the corresponding Threshold Away Amount
and the order was fully executed, this is a Near order.

    For Example F, assume that the order price is equal to the NBB,
there is a partial execution of 500 shares after five (5) milliseconds
and the balance of the order is voluntarily cancelled after eight (8)
milliseconds. Since the price difference is less than the corresponding
Threshold Away Amount and the order was cancelled only after a partial
execution of 500 shares, this is a Near order, notwithstanding the
order having been voluntarily cancelled prior to the expiration of the
corresponding Minimum Duration.
    For Example G, assume that the order price is $0.01 inferior to the
NBB and it is voluntarily cancelled after 20 milliseconds without any
executions. Since the price difference is less than the corresponding
Threshold Away Amount and the order was only cancelled after the
expiration of the corresponding Minimum Duration, it is a Near order.
    Moreover, the operation of the proposed order cancellation fee
formula can be illustrated by the use of some more examples. For
Example 1, assume that on a given day, a Participant firm submits to
the Matching System 200,000 buy orders for a Tape A non-derivative
security. Of this amount, 180,000 orders are priced $0.04 inferior to
the NBB and are voluntarily cancelled after twelve (12) milliseconds,
thus making these orders Wide. The remaining 20,000 orders are priced
$0.02 inferior to the NBB and are voluntarily cancelled after twelve
(12) milliseconds, thus making these orders Near. Out of 200,000
submitted orders, 1,000 orders are executed in whole or in part.\19\
Pursuant to the proposed formula, the difference between W (180,000)
and the product of N and the corresponding Nmult of two
(40,000) is 140,000. Dividing that figure by the number of orders which
were executed (E or 1,000) results in a cancellation ratio of 140.
Since the corresponding Cancellation Ratio of a Tape A non-derivative
security is 150, no cancellation fee would be assessed on this day, to
this Participant, with respect to this specific security.
---------------------------------------------------------------------------

    \19\ Since orders may be partially executed, the Participants
may receive more trade executions than orders. The Exchange believes
that the formula should be based upon the number of orders executed
and not the number of trades reported.
---------------------------------------------------------------------------

    Example 1 also illustrates the power of the Nmult. Under
Example 1, the Nmult doubled the N value to the point that
the ratio was brought below the cancellation ratio threshold. That is,
without the N-multiplier, the cancellation ratio would have been 160
and the Participant would have been assessed the cancellation fee. The
utility of the Nmult and other parameters lies in its
ability to give the Exchange flexibility to make adjustments when
necessary, through proposed fee filings pursuant to Rule 19b-4, so as
to avoid unintended or inequitable application of the cancellation fee,
without having to completely revamp the formula, as well as to promote
the submission of Near orders.
    For Example 2, we assume the same facts as above, with the
exception that the Participant firm submits a total of 400,000 buy
orders for a Tape A non-derivative security on a given day and that
380,000 of those orders are Wide orders. Also assume that 200,000 such
W and N orders are cancelled. Pursuant to the proposed formula, the
difference between W (380,000) and the product of N and the
corresponding N multiplier of two (40,000) is 340,000. Dividing that
figure by the number of orders which were executed (E or 1,000) gives
us an order cancellation ratio of 340. Since the corresponding order
cancellation ratio of a Tape A non-derivative security is 150, a
cancellation fee of $2,000, which is the product of 200,000
cancellations and $0.01 per order cancelled, would be assessed on this
day, to this Participant, with respect to this specific security.
    The purpose of this order cancellation fee is to incent
Participants to submit orders which, when quoted, are at or close to
the NBBO or, at the very least, compensate the Exchange for the
processing and electronic storage costs associated with orders which
rarely execute. Under the proposed formula, the likelihood that the
cancellation fee would be imposed increases with the number of Wide
orders submitted by the Participant. The formula is designed to isolate
a pattern of behavior in which a Participant submits orders well
outside the NBBO and frequently cancels and reenters such orders to
continuously stay outside the NBBO.\20\ Participants that submit a
small number of Wide orders or submit a relatively large number of Near
orders are unlikely to be impacted by the proposed fee. Moreover, the
Minimum Duration parameter will prevent Participants from gaming the
formula by submitting orders which result in undesirable ``flickering
quotes'' and the Nmult will allow the Exchange to multiply
the mitigating effect of Near orders on the order cancellation ratio
when necessary. In addition, the likelihood that the cancellation fee
will be assessed diminishes as the number of orders actually executed
(E) increases. As such, the proposed order cancellation fee will have
the dual effect of promoting order execution and compensating the
Exchange for the processing and electronic storage costs associated
with orders which ``quote around'' the NBBO and rarely execute.
---------------------------------------------------------------------------

    \20\ Although the Exchange is not privy to the trading
strategies of the firms submitting large numbers of orders well
outside the NBBO, it appears that they are hoping to benefit from
Intermarket Sweep Order (``ISO'') satisfaction orders sent to the
Exchange pursuant to the requirements of Regulation NMS when a trade
through occurs on another trading center and the Wide orders are at
the CHX BBO. Since the sending of ISO satisfaction orders is not
required for non-Regular Trading Session activity, we are excluding
such activity from the proposed fee.
---------------------------------------------------------------------------

    The Exchange believes that the proposed order cancellation fee
benefits the national market system by promoting the display of Near
orders, which will result in increased displayed liquidity and reduced
order cancellations. This will, in turn, relieve the Exchange's systems
capacity and will result in decreased order and market data storage
costs. Since Wide orders are infrequently executed, such orders are
more expensive, on a relative basis, for the Exchange to receive and
process.
    The Exchange proposes to implement the cancellation charge
effective November 2, 2012. The formula by which the cancellation fee
is derived shall be calculated and made available to Participants
daily, but billed after the end of the month.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \21\ in general, and furthers the
objectives of Section 6(b)(4) of the Act \22\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and other persons using any facility or
system which the Exchange operates or controls. The Exchange believes
that amendments to the order cancellation fee described herein should
help to recoup some of the costs of administering and processing large
numbers of cancelled orders while fairly allocating costs among
Participants according to system use. In addition, these changes to the
Fee Schedule would equitably allocate reasonable fees among
Participants in a non-discriminatory manner by properly imposing fees
on those Participants which excessively enter and subsequently cancel
orders while not imposing fees on Participants that do not engage in
this resource draining behavior. Furthermore, the proposed order
cancellation fee of $0.01/order cancellation is reasonable in light of
the fact that it is less than the current order

cancellation fee of $0.30/order cancellation.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f.
    \22\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

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

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

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

    No written comments were solicited or received.

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

    The proposed rule change is to take effect pursuant to Section
19(b)(3)(A)(ii) of the Act \23\ and subparagraph (f)(2) of Rule 19b-4
thereunder \24\ because it establishes or changes a due, fee or other
charge applicable to the Exchange's members and non-members, which
renders the proposed rule change effective upon filing.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \24\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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-CHX-2012-15 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-CHX-2012-15. 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 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 offices of CHX. 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-CHX-2012-15, and should be submitted on or before
December 11, 2012.
---------------------------------------------------------------------------

    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28135 Filed 11-19-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: February 10, 2006 (Volume 71, Number 28)]
[Notices]
[Page 7082-7083]
[DOCID:fr10fe06-124]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53227; File No. PCAOB-2005-01]

Public Company Accounting Oversight Board; Order Approving
Proposed Auditing Standard No. 4, Reporting on Whether a Previously
Reported Material Weakness Continues to Exist

February 6, 2006.

I. Introduction

    On July 28, 2005, the Public Company Accounting Oversight Board
(the ``Board'' or the ``PCAOB'') filed with the Securities and Exchange
Commission (``Commission'') proposed Auditing Standard No. 4, Reporting
on Whether a Previously Reported Material Weakness Continues to Exist,
pursuant to the Sarbanes-Oxley Act of 2002 (the ``Act'') \1\ and
Section 19(b) of the Securities Exchange Act of 1934 (the ``Exchange
Act'').\2\ Auditing Standard No. 4 establishes requirements that apply
when an auditor is engaged to report on whether a previously reported
material weakness in internal control over financial reporting
continues to exist.\3\ Also, in connection with proposed Auditing
Standard No. 4, the Board adopted a proposed conforming amendment to AT
sec. 101, which encompasses agreed-upon procedures engagements in which
an auditor reports findings based on specific procedures performed on a
subject matter. AT sec. 101, Attest Engagements, is one of the interim
attestation standards adopted by the PCAOB in April 2003.\4\ Notice of
proposed Auditing Standard No. 4 and proposed amendment to AT sec. 101
(collectively referred to as the ``Proposed Standard'') was published
in

the Federal Register on December 30, 2005,\5\ and the Commission
received six comment letters. For the reasons discussed below, the
Commission is granting approval of the Proposed Standard.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 7202 et seq.
    \2\ 15 U.S.C. 78s(b).
    \3\ A previously reported material weakness, in the context of
the proposed auditing standard, means a material weakness that was
described previously in an auditor's report issued pursuant to PCAOB
Auditing Standard No. 2, An Audit of Internal Control Over Financial
Reporting Performed in Conjunction with an Audit of Financial
Statements.
    \4\ The Commission approved the PCAOB's adoption of the interim
standards in Release No. 34-47745, Order Regarding Section
103(a)(3)(B) of the Sarbanes-Oxley Act of 2002 (April 25, 2003).
    \5\ Release No. 34-52990 (December 21, 2005) [70 FR 77602].
---------------------------------------------------------------------------

II. Description

    The Act establishes the PCAOB to oversee the audits of public
companies and related matters, to protect investors, and to further the
public interest in the preparation of informative, accurate and
independent audit reports.\6\ Section 103(a) of the Act directs the
PCAOB to establish auditing and related attestation standards, quality
control standards, and ethics standards to be used by registered public
accounting firms in the preparation and issuance of audit reports as
required by the Act or the rules of the Commission.
---------------------------------------------------------------------------

    \6\ Section 101(a) of the Act.
---------------------------------------------------------------------------

    The Proposed Standard is applicable to engagements tailored solely
to report on whether a previously reported material weakness continues
to exist. Such an engagement is voluntary in nature at the election of
management, and may be performed as of any reasonable date selected by
management. The auditor may report on the remediation of one or more
material weaknesses as part of a single engagement, and the engagement
need not be performed in conjunction with an audit or review of the
company's financial statements. In order to perform such an engagement,
the auditor must receive a written report from management that contains
several elements, including a statement from management that the
identified material weakness no longer exists as of the date specified
by management. If the auditor determines that the material weakness
continues to exist, the company may re-address remediation efforts and
re-engage the auditor to opine on whether the material weakness
continues to exist. The Proposed Standard also includes illustrative
auditor's reports (Appendix A) and additional guidance (Appendix B--
``Background and Basis for Conclusions'').
    The Proposed Standard states that, if approved by the Commission,
it would be effective as of the date of Commission approval.

III. Discussion

    The Commission's comment period on the Proposed Standard ended on
January 20, 2006, and the Commission received six comment letters. The
comment letters came from four registered public accounting firms and
two professional associations.
    None of the comment letters received were from issuers or
investors. In general, the respondents expressed support for the
Proposed Standard.
    As part of their comment letters, two accounting firms and a
professional organization representing the internal audit profession
requested guidance on questions regarding the acceptable forms for use
in filing management's report and the auditor's report. In response to
these questions, the following is noted:
     Since the Commission's rules do not specifically address
the filing of such voluntary information, if an issuer wishes to
publicly disseminate the reports of management and the auditor on
whether a previously reported material weakness continues to exist, an
issuer can use any Exchange Act form it believes is appropriate.
     Our rules do not specify the form of disclosure that
management should use when describing the circumstances surrounding the
remediation of a previously reported material weakness, and our general
disclosure principle and requirements would apply. However, the
disclosure should not amend management's conclusion on the
effectiveness of internal control over financial reporting as of the
end of the fiscal year (performed pursuant to the Commission's rules
implementing Section 404 of the Sarbanes Oxley Act of 2002).\7\
Further, management can only conclude that internal control over
financial reporting is effective if as of the time of remediation of a
material weakness (or as of any other time) an assessment of
effectiveness pursuant to those rules is performed as of that time.
---------------------------------------------------------------------------

    \7\ Release No. 34-47986, Management's Reports on Internal
Control Over Financial Reporting and Certification of Disclosure in
Exchange Act Periodic Reports (June 5, 2003).
---------------------------------------------------------------------------

     If the remediation was completed between the end of the
fiscal year and the filing of the Form 10-K, management may include a
single, combined report on the results of the annual assessment of
internal control over financial reporting and the subsequent conclusion
related to the remediation of a material weakness identified in the
annual assessment.

IV. Conclusion

    The Commission believes that the proposed rules provide a
reasonable format for assessing whether a material weakness in a
company's internal controls that has been, or is being, reported to
investors continues to exist. However, to facilitate implementation of
the standard, the Commission expects the PCAOB, within 90 days of the
issuance of this order, to issue a clear and concise outline of the
affirmative audit steps set forth in the standard.
    On the basis of the foregoing, the Commission finds that proposed
Auditing Standard No. 4 and the proposed amendment to AT sec. 101 are
consistent with the requirements of the Act and the securities laws and
are necessary and appropriate in the public interest and for the
protection of investors.
    It is therefore ordered, pursuant to Section 107 of the Act and
Section 19(b)(2) of the Exchange Act, that proposed Auditing Standard
No. 4, Reporting on Whether a Previously Reported Material Weakness
Continues to Exist and a proposed Conforming Amendment to Interim
Attestation Standard--AT sec. 101, Attest Engagements (File No. PCAOB-
2005-01) be and hereby is approved.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E6-1841 Filed 2-9-06; 8:45 am]

BILLING CODE 8010-01-P


facilitates later comparisons with in-service faults.
    (f) A risk assessment.
    (1) The risk metric for the proposed product should describe
with a high degree of confidence the accumulated risk of a
locomotive control system that operates over a life-cycle of 25
years or greater. Each risk metric for the proposed product should
be expressed with an upper bound, as estimated with a sensitivity
analysis, and the risk value selected is demonstrated to have a high
degree of confidence.
    (2) Each risk calculation should consider the totality of the
locomotive control system and its method of operation. The failure
modes of each subsystem or component, or both, should be determined
for the integrated hardware/software (where applicable) as a
function of the Mean Time to Hazardous Events (MTTHE), failure
restoration rates, and the integrated hardware/software coverage of
all processor based subsystems or components, or both. Train
operating and movement rules, along with components that are layered
in order to enhance safety-critical behavior, should also be
considered.
    (3) An MTTHE value should be calculated for each subsystem or
component, or both, indicating the safety-critical behavior of the
integrated hardware/software subsystem or component, or both. The
human factor impact should be included in the assessment, whenever
applicable, to provide an integrated MTTHE value. The MTTHE
calculation should consider the rates of failures caused by
permanent, transient, and intermittent faults accounting for the
fault coverage of the integrated hardware/software subsystem or
component, phased-interval maintenance, and restoration of the
detected failures.
    (4) MTTHE compliance verification and validation should be based
on the assessment of the design for verification and validation
process, historical performance data, analytical methods and
experimental safety critical performance testing performed on the
subsystem or component. The compliance process shall be demonstrated
to be compliant and consistent with the MTTHE metric and
demonstrated to have a high degree of confidence.
    (5) The safety-critical behavior of all non-processor based
components, which are part

of a processor-based system or subsystem, should be quantified with
an MTTHE metric. The MTTHE assessment methodology should consider
failures caused by permanent, transient, and intermittent faults,
phase interval maintenance and restoration of failures and the
effect of fault coverage of each non-processor-based subsystem or
component. The MTTHE compliance verification and validation should
be based on the assessment of the design for verification and
validation process, historical performance data, analytical methods
and experimental safety critical performance testing performed on
the subsystem or component. The non-processor based quantification
compliance should also be demonstrated to have a high degree of
confidence.
    (g) A hazard mitigation analysis, including a complete and
comprehensive description of all hazards to be addressed in the
system design and development, mitigation techniques used, and
system safety precedence followed;
    (h) A complete description of the safety assessment and
verification and validation processes applied to the product and the
results of these processes;
    (i) A complete description of the safety assurance concepts used
in the product design, including an explanation of the design
principles and assumptions; the designer should address each of the
following safety considerations when designing and demonstrating the
safety of products covered by this part. In the event that any of
these principles are not followed, the analysis should describe both
the reason(s) for departure and the alternative(s) utilized to
mitigate or eliminate the hazards associated with the design
principle not followed.
    (1) Normal operation. The system (including all hardware and
software) should demonstrate safe operation with no hardware
failures under normal anticipated operating conditions with proper
inputs and within the expected range of environmental conditions.
All safety-critical functions should be performed properly under
these normal conditions. Absence of specific operator actions or
procedures will not prevent the system from operating safely. There
should be no hazards that are categorized as unacceptable or
undesirable. Hazards categorized as unacceptable should be
eliminated by design.
    (2) Systematic failure. It should be shown how the product is
designed to mitigate or eliminate unsafe systematic failures--those
conditions which can be attributed to human error that could occur
at various stages throughout product development. This includes
unsafe errors in the software due to human error in the software
specification, design or coding phases, or both; human errors that
could impact hardware design; unsafe conditions that could occur
because of an improperly designed human-machine interface;
installation and maintenance errors; and errors associated with
making modifications.
    (3) Random failure. The product should be shown to operate
safely under conditions of random hardware failure. This includes
single as well as multiple hardware failures, particularly in
instances where one or more failures could occur, remain undetected
(latent) and react in combination with a subsequent failure at a
later time to cause an unsafe operating situation. In instances
involving a latent failure, a subsequent failure is similar to there
being a single failure. In the event of a transient failure, and if
so designed, the system should restart itself if it is safe to do
so. Frequency of attempted restarts should be considered in the
hazard analysis. There should be no single point failures in the
product that can result in hazards categorized as unacceptable or
undesirable. Occurrence of credible single point failures that can
result in hazards shall be detected and the product should achieve a
known safe state before falsely activating any physical appliance.
If one non-self-revealing failure combined with a second failure can
cause a hazard that is categorized as unacceptable or undesirable,
then the second failure should be detected and the product should
achieve a known safe state before falsely activating any physical
appliance.
    (4) Common Mode failure. Another concern of multiple failures
involves common mode failure in which two or more subsystems or
components intended to compensate one another to perform the same
function all fail by the same mode and result in unsafe conditions.
This is of particular concern in instances in which two or more
elements (hardware or software, or both) are used in combination to
ensure safety. If a common mode failure exists, then any analysis
cannot rely on the assumption that failures are independent.
Examples include: the use of redundancy in which two or more
elements perform a given function in parallel and when one (hardware
or software) element checks/monitors another element (of hardware or
software) to help ensure its safe operation. Common mode failure
relates to independence, which shall be ensured in these instances.
When dealing with the effects of hardware failure, the designer
should address the effects of the failure not only on other
hardware, but also on the execution of the software, since hardware
failures can greatly affect how the software operates.
    (5) External influences. The product should operate safely when
subjected to different external influences, including:
    (i) Electrical influences such as power supply anomalies/
transients, abnormal/improper input conditions (e.g., outside of
normal range inputs relative to amplitude and frequency, unusual
combinations of inputs) including those related to a human operator,
and others such as electromagnetic interference or electrostatic
discharges, or both;
    (ii) Mechanical influences such as vibration and shock; and
climatic conditions such as temperature and humidity.
    (6) Modifications. Safety must be ensured following
modifications to the hardware or software, or both. All or some of
the concerns previously identified may be applicable depending upon
the nature and extent of the modifications.
    (7) Software. Software faults should not cause hazards
categorized as unacceptable or undesirable.
    (8) Closed Loop Principle. The product design should require
positive action to be taken in a prescribed manner to either begin
product operation or continue product operation.
    (j) A human factors analysis, including a complete description
of all human-machine interfaces, a complete description of all
functions performed by humans in connection with the product to
enhance or preserve safety, and an analysis of the physical
ergonomics of the product on the operators and the safe operation of
the system;
    (k) A complete description of the specific training of railroad
and contractor employees and supervisors necessary to ensure the
safe and proper installation, implementation, operation,
maintenance, repair, inspection, testing, and modification of the
product;
    (l) A complete description of the specific procedures and test
equipment necessary to ensure the safe and proper installation,
implementation, operation, maintenance, repair, inspection, test,
and modification of the product. These procedures, including
calibration requirements, should be consistent with or explain
deviations from the equipment manufacturer's recommendations;
    (m) A complete description of the necessary security measures
for the product over its life-cycle;
    (n) A complete description of each warning to be placed in the
Operations and Maintenance Manual and of all warning labels required
to be placed on equipment as necessary to ensure safety;
    (o) A complete description of all initial implementation testing
procedures necessary to establish that safety-functional
requirements are met and safety-critical hazards are appropriately
mitigated;
    (p) A complete description of all post-implementation testing
(validation) and monitoring procedures, including the intervals
necessary to establish that safety-functional requirements, safety-
critical hazard mitigation processes, and safety-critical tolerances
are not compromised over time, through use, or after maintenance
(repair, replacement, adjustment) is performed; and
    (q) A complete description of each record necessary to ensure
the safety of the system that is associated with periodic
maintenance, inspections, tests, repairs, replacements, adjustments,
and the system's resulting conditions, including records of
component failures resulting in safety relevant hazards;
    (r) A complete description of any safety-critical assumptions
regarding availability of the product, and a complete description of
all backup methods of operation; and
    (s) The configuration/revision control measures designed to
ensure that safety-functional requirements and safety-critical
hazard mitigation processes are not compromised as a result of any
change. Changes classified as maintenance require validation.

Guidance Regarding the Application of Human Factors in the Design of
Products

    The product design should sufficiently incorporate human factors
engineering that is appropriate to the complexity of the product;
the gender, educational, mental, and physical capabilities of the
intended operators and maintainers; the degree of required human
interaction with the component; and the environment in which the
product will be used. HMI design criteria minimize negative safety
effects by causing designers to consider human factors in the
development of HMIs. As used in this discussion, ``designer'' means
anyone who specifies requirements for--or designs a system or
subsystem, or both, for--a product subject to this part, and
``operator'' means any human who is intended to receive information
from, provide information to, or perform repairs or maintenance on a
safety critical locomotive control product subject to this part.
    I. FRA recommends that system designers should:
    (a) Design systems that anticipate possible user errors and
include capabilities to catch errors before they propagate through
the system;
    (b) Conduct cognitive task analyses prior to designing the
system to better understand the information processing requirements
of operators when making critical decisions;
    (c) Present information that accurately represents or predicts
system states; and
    (d) Ensure that electronics equipment radio frequency emissions
are compliant with appropriate Federal Communications Commission
(FCC) regulations. The FCC rules and regulations are codified in
Title 47 of the Code of Federal Regulations (CFR). The following
documentation is applicable to obtaining FCC Equipment
Authorization:
    (1) OET Bulletin Number 61 (October, 1992 Supersedes May, 1987
issue) FCC Equipment Authorization Program for Radio Frequency
Devices. This document provides an overview of the equipment
authorization program to control radio interference from radio
transmitters and certain other electronic products and how to obtain
an equipment authorization.
    (2) OET Bulletin 63: (October 1993) Understanding The FCC Part
15 Regulations for Low Power, Non-Licensed Transmitters. This
document provides a basic understanding of the FCC regulations for
low power, unlicensed transmitters, and includes answers to some
commonly-asked questions. This edition of the bulletin does not
contain information concerning personal communication services (PCS)
transmitters operating under Part 15, Subpart D of the rules.
    (3) Title 47 Code of Federal Regulations Parts 0 to 19. The FCC
rules and regulations governing PCS transmitters may be found in 47
CFR, Parts 0 to 19.
    (4) OET Bulletin 62 (December 1993) Understanding The FCC
Regulations for Computers and other Digital Devices. This document
has been prepared to provide a basic understanding of the FCC
regulations for digital (computing) devices, and includes answers to
some commonly-asked questions.
    II. Human factors issues designers should consider with regard
to the general functioning of a system include:
    (a) Reduced situational awareness and over-reliance. HMI design
shall give an operator active functions to perform, feedback on the
results of the operator's actions, and information on the automatic
functions of the system as well as its performance. The operator
shall be ``in-the loop.'' Designers should consider at minimum the
following methods of maintaining an active role for human operators:
    (1) The system should require an operator to initiate action to
operate the train and require an operator to remain ``in-the-loop''
for at least 30 minutes at a time;
    (2) The system should provide timely feedback to an operator
regarding the system's automated actions, the reasons for such
actions, and the effects of the operator's manual actions on the
system;
    (3) The system should warn operators in advance when they
require an operator to take action;
    (4) HMI design should equalize an operator's workload; and
    (5) HMI design should not distract from the operator's safety
related duties.
    (b) Expectation of predictability and consistency in product
behavior and communications. HMI design should accommodate an
operator's expectation of logical and consistent relationships
between actions and results. Similar objects should behave
consistently when an operator performs the same action upon them.
End users have a limited memory and ability to process information.
Therefore, HMI design should also minimize an operator's information
processing load.
    (1) To minimize information processing load, the designer
should:
    (i) Present integrated information that directly supports the
variety and types of decisions that an operator makes;
    (ii) Provide information in a format or representation that
minimizes the time required to understand and act; and
    (iii) Conduct utility tests of decision aids to establish clear
benefits such as processing time saved or improved quality of
decisions.
    (2) To minimize short-term memory load, the designer should
integrate data or information from multiple sources into a single
format or representation (``chunking'') and design so that three or
fewer ``chunks'' of information need to be remembered at any one
time. To minimize long-term memory load, the designer should design
to support recognition memory, design memory aids to minimize the
amount of information that should be recalled from unaided memory
when making critical decisions, and promote active processing of the
information.
    (3) When creating displays and controls, the designer shall
consider user ergonomics and should:
    (i) Locate displays as close as possible to the controls that
affect them;
    (ii) Locate displays and controls based on an operator's
position;
    (iii) Arrange controls to minimize the need for the operator to
change position;
    (iv) Arrange controls according to their expected order of use;
    (v) Group similar controls together;
    (vi) Design for high stimulus-response compatibility (geometric
and conceptual);
    (vii) Design safety-critical controls to require more than one
positive action to activate (e.g., auto stick shift requires two
movements to go into reverse);
    (viii) Design controls to allow easy recovery from error; and
    (ix) Design display and controls to reflect specific gender and
physical limitations of the intended operators.
    (4) Detailed locomotive ergonomics human machine interface
guidance may be found in ``Human Factors Guidelines for Locomotive
Cabs'' (FRA/ORD-98/03 or DOT-VNTSC-FRA-98-8).
    (5) The designer should also address information management. To
that end, HMI design should:
    (i) Display information in a manner which emphasizes its
relative importance;
    (ii) Comply with the ANSI/HFS 100-1988 standard;
    (iii) Utilize a display luminance that has a difference of at
least 35cd/m2 between the foreground and background (the displays
should be capable of a minimum contrast 3:1 with 7:1 preferred, and
controls should be provided to adjust the brightness level and
contrast level);
    (iv) Display only the information necessary to the user;
    (v) Where text is needed, use short, simple sentences or phrases
with wording that an operator will understand and appropriate to the
educational and cognitive capabilities of the intended operator;
    (vi) Use complete words where possible; where abbreviations are
necessary, choose a commonly accepted abbreviation or consistent
method and select commonly used terms and words that the operator
will understand;
    (vii) Adopt a consistent format for all display screens by
placing each design element in a consistent and specified location;
    (viii) Display critical information in the center of the
operator's field of view by placing items that need to be found
quickly in the upper left hand corner and items which are not time-
critical in the lower right hand corner of the field of view;
    (ix) Group items that belong together;
    (x) Design all visual displays to meet human performance
criteria under monochrome conditions and add color only if it will
help the user in performing a task, and use color coding as a
redundant coding technique;
    (xi) Limit the number of colors over a group of displays to no
more than seven;
    (xii) Design warnings to match the level of risk or danger with
the alerting nature of the signal; and
    (xiii) With respect to information entry, avoid full QWERTY
keyboards for data entry.
    (6) With respect to problem management, the HMI designer should
ensure that the HMI design:
    (i) Enhances an operator's situation awareness;
    (ii) Supports response selection and scheduling; and
    (iii) Supports contingency planning.
    (7) Designers should comply with FCC requirements for Maximum
Permissible Exposure limits for field strength and power

density for the transmitters operating at frequencies of 300 kHz to
100 GHz and specific absorption rate (SAR) limits for devices
operating within close proximity to the body. The Commission's
requirements are detailed in Parts 1 and 2 of the FCC's Rules and
Regulations [47 CFR 1.1307(b), 1.1310, 2.1091, 2.1093. The FCC has a
number of bulletins and supplements that offer guidelines and
suggestions for evaluating compliance. These documents are not
intended to establish mandatory procedures, other methods and
procedures may be acceptable if based on sound engineering practice.
    (i) OET Bulletin No. 65 (Edition 97-01, August 1997),
``Evaluating Compliance With FCC Guidelines For Human Exposure To
Radio Frequency Electromagnetic Fields'';
    (ii) OET Bulletin No 65 Supplement A, (Edition 97-01, August
1997), OET Bulletin No 65 Supplement B (Edition 97-01, August 1997);
and
    (iii) OET Bulletin No 65 Supplement C (Edition 01-01, June
2001). This bulletin provides assistance in determining whether
proposed or existing transmitting facilities, operations, or devices
comply with limits for human exposure to radio frequency RF fields
adopted by the FCC.

Guidance for Verification and Validation of Products

    The goal of this assessment is to provide an evaluation of the
product manufacturer's utilization of safety design practices during
the product's development and testing phases, as required by the
applicable railroad's requirements, the requirements of this part,
and any other previously agreed-upon controlling documents or
standards. The standards employed for verification or validation, or
both, of products shall be sufficient to support achievement of the
applicable requirements of this part.
    (a) The latest version of the following standards have been
recognized by FRA as providing appropriate risk analysis processes
for incorporation into verification and validation standards.
    (1) U.S. Department of Defense Military Standard (MIL-STD) 882C,
``System Safety Program Requirements'' (January 19, 1993);
    (2) CENELEC Standards as follows:
    (i) EN50126: 1999, Railway Applications: Specification and
Demonstration of Reliability, Availability, Maintainability and
Safety (RAMS);
    (ii) EN50128 (May 2001), Railway Applications: Software for
Railway Control and Protection Systems;
    (iii) EN50129: 2003, Railway Applications: Communications,
Signaling, and Processing Systems-Safety Related Electronic Systems
for Signaling; and
    (iv) EN50155:2001/A1:2002, Railway Applications: Electronic
Equipment Used in Rolling Stock.
    (3) ATCS Specification 140, Recommended Practices for Safety and
Systems Assurance.
    (4) ATCS Specification 130, Software Quality Assurance.
    (5) Safety of High Speed Ground Transportation Systems.
Analytical Methodology for Safety Validation of Computer Controlled
Subsystems. Volume II: Development of a Safety Validation
Methodology. Final Report September 1995. Author: Jonathan F.
Luedeke, Battelle. DOT/FRA/ORD-95/10.2.
    (6) IEC 61508 (International Electro-technical Commission),
Functional Safety of Electrical/Electronic/Programmable/Electronic
Safety (E/E/P/ES) Related Systems, Parts 1-7 as follows:
    (i) IEC 61508-1 (1998-12) Part 1: General requirements and IEC
61508-1 Corr. (1999-05) Corrigendum 1-Part 1: General Requirements;
    (ii) IEC 61508-2 (2000-05) Part 2: Requirements for electrical/
electronic/programmable electronic safety-related systems;
    (iii) IEC 61508-3 (1998-12) Part 3: Software requirements and
IEC 61508-3 Corr.1(1999-04) Corrigendum 1-Part3: Software
requirements;
    (iv) IEC 61508-4 (1998-12) Part 4: Definitions and abbreviations
and IEC 61508-4 Corr.1(1999-04) Corrigendum 1-Part 4: Definitions
and abbreviations;
    (v) IEC 61508-5 (1998-12) Part 5: Examples of methods for the
determination of safety integrity levels and IEC 61508-5 Corr.1
(1999-04) Corrigendum 1 Part 5: Examples of methods for
determination of safety integrity levels;
    (vi) 1IEC 61508-6 (2000-04) Part 6: Guidelines on the
applications of IEC 61508-2 and -3; and
    (vii) IEC 61508-7 (2000-03) Part 7: Overview of techniques and
measures.
    (b) When using unpublished standards, including proprietary
standards, the standards should be available for inspection and
replication by the railroad and FRA and should be available for
public examination.
    (c) Third party assessments. The railroad, the supplier, or FRA
may conclude it is necessary for a third party assessment of the
system. A third party assessor should be ``independent''. An
``independent third party'' means a technically competent entity
responsible to and compensated by the railroad (or an association on
behalf of one or more railroads) that is independent of the supplier
of the product. An entity that is owned or controlled by the
supplier, that is under common ownership or control with the
supplier, or that is otherwise involved in the development of the
product would not be considered ``independent''.
    (1) The reviewer should not engage in design efforts, in order
to preserve the reviewer's independence and maintain the supplier's
proprietary right to the product. The supplier should provide the
reviewer access to any, and all, documentation that the reviewer
requests and attendance at any design review or walk through that
the reviewer determines as necessary to complete and accomplish the
third party assessment. Representatives from FRA or the railroad
might accompany the reviewer.
    (2) Third party reviews can occur at a preliminary level, a
functional level, or implementation level. At the preliminary level,
the reviewer should evaluate with respect to safety and comment on
the adequacy of the processes, which the supplier applies to the
design, and development of the product. At a minimum, the reviewer
should compare the supplier processes with industry best practices
to determine if the vendor methodology is acceptable and employ any
other such tests or comparisons if they have been agreed to
previously with the railroad or FRA. Based on these analyses, the
reviewer shall identify and document any significant safety
vulnerabilities that are not adequately mitigated by the supplier's
(or user's) processes. At the functional level, the reviewer
evaluates the adequacy, and comprehensiveness, of the safety
analysis, and any other documents pertinent to the product being
assessed for completeness, correctness, and compliance with
applicable standards. This includes, but is not limited to the
Preliminary Hazard Analysis (PHA), all Fault Tree Analyses (FTA),
all Failure Mode and Effects Criticality Analysis (FMECA), and other
hazard analyses. At the implementation level the reviewer randomly
selects various safety-critical software modules for audit to verify
whether the system process and design requirements were followed.
The number of modules audited shall be determined as a
representative number sufficient to provide confidence that all un-
audited modules were developed in similar manner as the audited
module. During this phase the reviewer would also evaluate and
comment on the adequacy of the plan for installation and test of the
product for revenue service.
    (d) Reviewer Report. Upon completion of an assessment, the
reviewer prepares a final report of the assessment. The report
should contain the following information:
    (1) The reviewer's evaluation of the adequacy of the risk
analysis, including the supplier's MTTHE and risk estimates for the
product, and the supplier's confidence interval in these estimates;
    (2) Product vulnerabilities which the reviewer felt were not
adequately mitigated, including the method by which the railroad
would assure product safety in the event of a hardware or software
failure (i.e., how does the railroad or vendor assure that all
potentially hazardous failure modes are identified?) and the method
by which the railroad or vendor addresses comprehensiveness of the
product design for the requirements of the operations it will govern
(i.e., how does the railroad and/or vendor assure that all
potentially hazardous operating circumstances are identified? Who
records any deficiencies identified in the design process? Who
tracks the correction of these deficiencies and confirms that they
are corrected?);
    (3) A clear statement of position for all parties involved for
each product vulnerability cited by the reviewer;
    (4) Identification of any documentation or information sought by
the reviewer that was denied, incomplete, or inadequate;
    (5) A listing of each design procedure or process which was not
properly followed;
    (6) Identification of the software verification and validation
procedures for the product's safety-critical applications, and the
reviewer's evaluation of the adequacy of these procedures;
    (7) Methods employed by the product manufacturer to develop
safety-critical

software, such as use of structured language, code checks,
modularity, or other similar generally acceptable techniques; and
    (8) Methods by which the supplier or railroad addresses
comprehensiveness of the product design which considers the safety
elements.

PART 238--[AMENDED]

    21. The authority citation for part 238 continues to read as
follows:

    Authority:  49 U.S.C. 20103, 20107, 20133, 20141, 20302-20303,
20306, 20701-20702, 21301-21302, 21304; 28 U.S.C. 2461, note; and 49
CFR 1.49.

    22. Section 238.105 is amended by revising paragraph (d)(1) to read
as follows:

Sec.  238.105  Train electronic hardware and software safety.

* * * * *
    (d) * * *
    (1) Hardware and software that controls or monitors a train's
primary braking system shall either:
    (i) Fail safely by initiating a full service or emergency brake
application in the event of a hardware or software failure that could
impair the ability of the engineer to apply or release the brakes; or
    (ii) Provide the engineer access to direct manual control of the
primary braking system (service or emergency braking).
* * * * *
    23. Section 238.309 is amended by revising paragraphs (b), (c), and
(e) to read as follows:

Sec.  238.309  Periodic brake equipment maintenance.

* * * * *
    (b) DMU and MU locomotives. The brake equipment and brake cylinders
of each DMU or MU locomotive shall be cleaned, repaired, and tested,
and the filtering devices or dirt collectors located in the main
reservoir supply line to the air brake system cleaned, repaired, or
replaced at intervals in accordance with the following schedule:
    (1) Every 736 days if the DMU or MU locomotive is part of a fleet
that is not 100 percent equipped with air dryers;
    (2) Every 1,104 days if the DMU or MU locomotive is part of a fleet
that is 100 percent equipped with air dryers and is equipped with PS-
68, 26-C, 26-L, PS-90, CS-1, RT-2, RT-5A, GRB-1, CS-2, or 26-R brake
systems. (This listing of brake system types is intended to subsume all
brake systems using 26 type, ABD, or ABDW control valves and PS68, PS-
90, 26B-1, 26C, 26CE, 26-B1, 30CDW, or 30ECDW engineer's brake
valves.);
    (3) Every 1,840 days if the DMU or MU locomotive is part of a fleet
that is 100 percent equipped with air dryers and is equipped with KB-
HL1, KB-HS1, or KBCT1; and,
    (4) Every 736 days for all other DMU or MU locomotives.
    (c) Conventional locomotives. The brake equipment of each
conventional locomotive shall be cleaned, repaired, and tested in
accordance with the schedule provided in Sec.  229.29 of this chapter.
* * * * *
    (e) Cab cars. The brake equipment of each cab car shall be cleaned,
repaired, and tested at intervals in accordance with the following
schedule:
    (1) Every 1,840 days for locomotives equipped with CCB-1, CCB-2,
CCB-26, EPIC 1 (formerly EPIC 3102), EPIC 3102D2, EPIC 2, KB-HS1, or
Fastbrake brake systems.
    (2) Every 1,476 days for that portion of the cab car brake system
using brake valves that are identical to the passenger coach 26-C brake
system;
    (3) Every 1,104 days for that portion of the cab car brake system
using brake valves that are identical to the locomotive 26-L brake
system; and
    (4) Every 736 days for all other types of cab car brake valves.
* * * * *

    Issued in Washington, DC, on December 29, 2010.
Karen J. Rae,
Deputy Administrator.
[FR Doc. 2010-33244 Filed 1-11-11; 8:45 am]
BILLING CODE 4910-06-P