[Federal Register Volume 77, Number 65 (Wednesday, April 4, 2012)]
[Notices]
[Pages 20388-20392]
[FR Doc No: 2012-8112]

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ENVIRONMENTAL PROTECTION AGENCY

[FRL-9655-9]

California State Nonroad Engine Pollution Control Standards;
Large Spark-Ignition (LSI) Engines; New Emission Standards and In-Use
Fleet Requirements; Notice of Decision

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of Decision.

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SUMMARY: EPA is granting the California Air Resources Board's (CARB's)
request for authorization of California's emission standards and
certification and test procedures for large spark-ignition nonroad
engines and in-use fleet average emission requirements for large- and
medium-sized fleets. California's LSI in-use fleet requirements are
applicable to fleets comprised of four or more pieces of equipment
powered by LSI engines, including forklifts, industrial tow tractors,
sweepers/scrubbers, and airport ground support equipment.

DATES: Petitions for review must be filed by June 4, 2012.

ADDRESSES: EPA has established a docket for this action under Docket ID
EPA-HQ-OAR-2011-0830. All documents relied upon in making this
decision, including those submitted to EPA by CARB, are contained in
the public docket. Publicly available docket materials are available
either electronically through www.regulations.gov or in hard copy at
the Air and Radiation Docket in the EPA Headquarters Library, EPA West
Building, Room 3334, located at 1301 Constitution Avenue NW.,
Washington, DC. The Public Reading Room is open to the public on all
federal government working days from 8:30 a.m. to 4:30 p.m.; generally,
it is open Monday through Friday, excluding holidays. The telephone
number for the Reading Room is<PHONE_NUMBER>. The Air and Radiation
Docket and Information Center's Web site is http://www.epa.gov/oar/docket.html. The electronic mail (email) address for the Air and
Radiation Docket is<EMAIL_ADDRESS>the telephone number is
(202) 566-1742, and the fax number is<PHONE_NUMBER>. An electronic
version of the public docket is available through the federal
government's electronic public docket and comment system. You may
access EPA dockets at http://www.regulations.gov. After opening the
www.regulations.gov Web site, enter EPA-HQ-OAR-2011-0830 in the ``Enter
Keyword or ID'' fill-in box to view documents in the record. Although a
part of the official docket, the public docket does not include
Confidential Business Information (``CBI'') or other information whose
disclosure is restricted by statute.
    EPA's Office of Transportation and Air Quality (``OTAQ'') maintains
a Web page that contains general information on its review of
California waiver requests. Included on that page are links to prior
waiver Federal Register notices, some of which are cited in today's
notice; the page can be accessed at http://www.epa.gov/otaq/cafr.htm.

FOR FURTHER INFORMATION CONTACT: Kristien G. Knapp, Attorney-Advisor,
Compliance Division, Office of Transportation and Air Quality, U.S.
Environmental Protection Agency, 1200 Pennsylvania Avenue (6405J), NW.,
Washington, DC 20460. Telephone:<PHONE_NUMBER>. Fax:<PHONE_NUMBER>.
Email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. Background

A. California's LSI Regulations

    By letter dated December 10, 2008, CARB submitted to EPA its
request pursuant to section 209(e) of the Clean Air Act (``CAA'' or
``the Act''), regarding its regulation of emissions from new off-road
large spark-ignition (LSI) engines and its in-use fleet requirements
for forklifts and other industrial equipment with LSI engines.\1\ The
LSI regulations are designed to reduce emissions of hydrocarbons (HC)
and oxides of nitrogen (NOX) from forklifts and other
industrial equipment powered by LSI engines. CARB approved the LSI
regulations at a public hearing on May 25, 2006 (by Resolution 06-
11).\2\ After making modifications to the regulation available on
December 1, 2006, and February 1, 2007 for supplemental public comment,
CARB's Executive Officer formally adopted the LSI regulations in
Executive Order R-07-001 on March 2, 2007.\3\ The LSI regulations are
codified at title 13, California Code of Regulations, sections 2775
through 2775.2.\4\
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    \1\ California Air Resources Board (``CARB''), ``Request for
Authorization,'' December 10, 2008, EPA-HQ-OAR-2011-0830-0001.
    \2\ CARB Enclosure 1, ``Resolution 06-11,'' EPA-HQ-OAR-2011-
0830-0002.
    \3\ CARB Enclosure 2, ``Executive Order R-07-001,'' EPA-HQ-OAR-
2011-0830-0003.
    \4\ CARB Enclosure 3, ``Final Regulation Order,'' EPA-HQ-OAR-
2011-0830-0004.
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    Underpinning CARB's LSI regulations is a set of emission standards
for new off-road LSI engines beginning in 2007. The emission standards
include: adoption of EPA's 2007 and later model year emission standards
for the same engines, more stringent standards for the 2010 and later
model years, optional certification standards, and more rigorous
certification and test procedures. The LSI regulations also apply to
operators of large- and medium-sized fleets of forklifts, sweepers/
scrubbers, airport ground support equipment (GSE), and industrial tow
tractors with engine displacements of greater than one liter. These
fleets must meet a fleet average in-use emission standard.

B. Clean Air Act Nonroad Engine and Vehicle Authorizations

    Section 209(e)(1) of the Act permanently preempts any State, or
political subdivision thereof, from adopting or attempting to enforce
any standard or other requirement relating to the control of emissions
for new nonroad engines or vehicles. States are also preempted from
adopting and enforcing standards and other requirements related to the
control of emissions from non-new nonroad engines or vehicles. Section
209(e)(2) requires the Administrator, after notice and opportunity for
public hearing, to authorize California to enforce such standards and
other requirements, unless EPA makes one of three findings. In
addition, other states with attainment plans may adopt and enforce such
regulations if the standards, and

implementation and enforcement procedures, are identical to
California's standards. On July 20, 1994, EPA promulgated a rule that
sets forth, among other things, regulations providing the criteria, as
found in section 209(e)(2), which EPA must consider before granting any
California authorization request for new nonroad engine or vehicle
emission standards.\5\ EPA later revised these regulations in 1997.\6\
As stated in the preamble to the 1994 rule, EPA has historically
interpreted the section 209(e)(2)(iii) ``consistency'' inquiry to
require, at minimum, that California standards and enforcement
procedures be consistent with section 209(a), section 209(e)(1), and
section 209(b)(1)(C) (as EPA has interpreted that subsection in the
context of section 209(b) motor vehicle waivers).\7\
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    \5\ 59 FR 36969 (July 20, 1994).
    \6\ See 62 FR 67733 (December 30, 1997). The applicable
regulations, now in 40 CFR part 1074, subpart B, Sec.  1074.105,
provide:
    (a) The Administrator will grant the authorization if California
determines that its standards will be, in the aggregate, at least as
protective of public health and welfare as otherwise applicable
federal standards.
    (b) The authorization will not be granted if the Administrator
finds that any of the following are true:
    (1) California's determination is arbitrary and capricious.
    (2) California does not need such standards to meet compelling
and extraordinary conditions.
    (3) The California standards and accompanying enforcement
procedures are not consistent with section 209 of the Act.
    (c) In considering any request from California to authorize the
state to adopt or enforce standards or other requirements relating
to the control of emissions from new nonroad spark-ignition engines
smaller than 50 horsepower, the Administrator will give appropriate
consideration to safety factors (including the potential increased
risk of burn or fire) associated with compliance with the California
standard.
    \7\ See 59 FR 36969 (July 20, 1994).
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    In order to be consistent with section 209(a), California's nonroad
standards and enforcement procedures must not apply to new motor
vehicles or new motor vehicle engines. To be consistent with section
209(e)(1), California's nonroad standards and enforcement procedures
must not attempt to regulate engine categories that are permanently
preempted from state regulation. To determine consistency with section
209(b)(1)(C), EPA typically reviews nonroad authorization requests
under the same ``consistency'' criteria that are applied to motor
vehicle waiver requests. Pursuant to section 209(b)(1)(C), the
Administrator shall not grant California a motor vehicle waiver if she
finds that California ``standards and accompanying enforcement
procedures are not consistent with section 202(a)'' of the Act.
Previous decisions granting waivers and authorizations have noted that
state standards and enforcement procedures are inconsistent with
section 202(a) if: (1) there is inadequate lead time to permit the
development of the necessary technology giving appropriate
consideration to the cost of compliance within that time, or (2) the
federal and state testing procedures impose inconsistent certification
requirements.

C. Burden of Proof

    In Motor and Equip. Mfrs Assoc. v. EPA, 627 F.2d 1095 (D.C. Cir.
1979) (``MEMA I''), the U.S. Court of Appeals stated that the
Administrator's role in a section 209 proceeding is to:

consider all evidence that passes the threshold test of materiality
and * * * thereafter assess such material evidence against a
standard of proof to determine whether the parties favoring a denial
of the waiver have shown that the factual circumstances exist in
which Congress intended a denial of the waiver.\8\
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    \8\ MEMA I, 627 F.2d at 1122.

The court in MEMA I considered the standards of proof under section 209
for the two findings related to granting a waiver for an ``accompanying
enforcement procedure'' (as opposed to the standards themselves): (1)
Protectiveness in the aggregate and (2) consistency with section 202(a)
findings. The court instructed that ``the standard of proof must take
account of the nature of the risk of error involved in any given
decision, and it therefore varies with the finding involved. We need
not decide how this standard operates in every waiver decision.'' \9\
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    \9\ Id.
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    The court upheld the Administrator's position that, to deny a
waiver, there must be ``clear and compelling evidence'' to show that
proposed procedures undermine the protectiveness of California's
standards.\10\ The court noted that this standard of proof also accords
with the congressional intent to provide California with the broadest
possible discretion in setting regulations it finds protective of the
public health and welfare.\11\
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    \10\ Id.
    \11\ Id.
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    With respect to the consistency finding, the court did not
articulate a standard of proof applicable to all proceedings, but found
that the opponents of the waiver were unable to meet their burden of
proof even if the standard were a mere preponderance of the evidence.
Although MEMA I did not explicitly consider the standards of proof
under section 209 concerning a waiver request for ``standards,'' as
compared to accompanying enforcement procedures, there is nothing in
the opinion to suggest that the court's analysis would not apply with
equal force to such determinations. EPA's past waiver decisions have
consistently made clear that: ``[E]ven in the two areas concededly
reserved for Federal judgment by this legislation--the existence of
`compelling and extraordinary' conditions and whether the standards are
technologically feasible--Congress intended that the standards of EPA
review of the State decision to be a narrow one.'' \12\
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    \12\ See, e.g., 40 FR 21102-103 (May 28, 1975).
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    Opponents of the waiver bear the burden of showing that the
criteria for a denial of California's waiver request have been met. As
found in MEMA I, this obligation rests firmly with opponents of the
waiver in a section 209 proceeding:

[t]he language of the statute and its legislative history indicate
that California's regulations, and California's determinations that
they must comply with the statute, when presented to the
Administrator are presumed to satisfy the waiver requirements and
that the burden of proving otherwise is on whoever attacks them.
California must present its regulations and findings at the hearing
and thereafter the parties opposing the waiver request bear the
burden of persuading the Administrator that the waiver request
should be denied.\13\
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    \13\ MEMA I, 627 F.2d at 1121.

The Administrator's burden, on the other hand, is to make a reasonable
evaluation of the information in the record in coming to the waiver
decision. As the court in MEMA I stated: ``here, too, if the
Administrator ignores evidence demonstrating that the waiver should not
be granted, or if he seeks to overcome that evidence with unsupported
assumptions of his own, he runs the risk of having his waiver decision
set aside as `arbitrary and capricious.' '' \14\ Therefore, the
Administrator's burden is to act ``reasonably.'' \15\
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    \14\ Id. at 1126.
    \15\ Id.
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D. EPA's Administrative Process in Consideration of California's LSI
Regulations

    Upon review of CARB's request, EPA offered an opportunity for a
public hearing, and requested written comment on issues relevant to a
full section 209(e) authorization analysis, by publication of a Federal
Register notice on October 31, 2011.\16\ Specifically, we requested
comment on: (a) Whether CARB's determination that its

standards, in the aggregate, are at least as protective of public
health and welfare as applicable federal standards is arbitrary and
capricious, (b) whether California needs such standards to meet
compelling and extraordinary conditions, and (c) whether California's
standards and accompanying enforcement procedures are consistent with
section 209 of the Act.
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    \16\ 76 FR 67184 (October 31, 2011).
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    In response to EPA's October 31, 2011 Federal Register notice, EPA
received one public comment, from Airlines for America (``A4A''). A4A
comments that California's LSI regulations as applicable to airport
ground support equipment is preempted by the Federal Aviation Act and
the Airline Deregulation Act.

II. Discussion

A. California's Protectiveness Determination

    Section 209(e)(2)(i) of the Act instructs that EPA cannot grant an
authorization if the agency finds that California was arbitrary and
capricious in its determination that its standards are, in the
aggregate, at least as protective of public health and welfare as
applicable federal standards. CARB's Board made a protectiveness
determination in Resolution 06-11, finding that California's LSI
regulations will not cause the California emission standards, in the
aggregate, to be less protective of public health and welfare than
applicable federal standards.\17\ CARB presents that California's LSI
program is at least as stringent as the federal LSI program ``because
for 2010 and later model-year LSI engines, California's standard for
HC+NOX at 0.8 g/kW-hr is more stringent than applicable
federal standard at 2.0 g/kW-hr and California's other LSI engine
standards are equivalent to federal standards for these model years.''
\18\ CARB contends that its protectiveness determination, based on the
stringency of its program as compared to the federal program, ``clearly
is not arbitrary and capricious.'' \19\
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    \17\ ``BE IT FURTHER RESOLVED that the Board hereby determines,
pursuant to section 209(e)(2) of the federal Clean Air Act that the
emission standards and other requirements related to the control of
emissions adopted as part of these regulations are, in the
aggregate, at least as protective of public health and welfare as
applicable federal standards, that California needs the adopted
standards to meet compelling and extraordinary conditions, and that
the adopted standards and accompanying enforcement procedures are
consistent with the provisions in section 209.'' CARB, Resolution
06-11, EPA-HQ-OAR-2011-0830-0003.
    \18\ CARB, Request for Authorization at 19.
    \19\ Id.
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    EPA did not receive any comments challenging California's
protectiveness determination. Therefore, based on the record before us,
EPA finds that opponents of the authorization have not shown that
California was arbitrary and capricious in its determination that its
standards are, in the aggregate, at least as protective of public
health and welfare as applicable federal standards.

B. Need for California Standards To Meet Compelling and Extraordinary
Conditions

    Section 209(e)(2)(ii) of the Act instructs that EPA cannot grant an
authorization if the agency finds that California ``does not need such
California standards to meet compelling and extraordinary conditions *
* *.'' This criterion restricts EPA's inquiry to whether California
needs its own mobile source pollution program to meet compelling and
extraordinary conditions, and not whether any given standards are
necessary to meet such conditions.\20\ As discussed above, for over
forty years CARB has repeatedly demonstrated the need for its mobile
source emissions program to address compelling and extraordinary
conditions in California. In its Resolution 06-11, CARB affirmed its
longstanding position that California continues to need its own motor
vehicle and engine program to meet its serious air pollution problems.
Likewise, EPA has consistently recognized that California continues to
have the same ``geographical and climatic conditions that, when
combined with the large numbers and high concentrations of automobiles,
create serious pollution problems.'' \21\ Furthermore, no commenter has
presented any argument or evidence to suggest that California no longer
needs a separate mobile source emissions program to address compelling
and extraordinary conditions in California. Therefore, EPA has
determined that we cannot deny California an authorization for its LSI
regulations under section 209(e)(2)(ii).
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    \20\ See 74 FR 32744, 32761 (July 8, 2009); 49 FR 18887, 18889-
18890 (May 3, 1984).
    \21\ 49 FR 18887, 18890 (May 3, 1984); see also 76 FR 34693
(June 14, 2011), 74 FR 32744, 32763 (July 8, 2009), and 73 FR 52042
(September 8, 2008).
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C. Consistency With Section 209 of the Clean Air Act

    Section 209(e)(2)(iii) of the Act instructs that EPA cannot grant
an authorization if California's standards and enforcement procedures
are not consistent with section 209. As described above, EPA has
historically evaluated this criterion for consistency with sections
209(a), 209(e)(1), and 209(b)(1)(C).
1. Consistency With Section 209(a)
    To be consistent with section 209(a) of the Clean Air Act,
California's LSI regulations must not apply to new motor vehicles or
new motor vehicle engines. California's LSI regulations expressly apply
only to off-road vehicles and do not apply to engines used in motor
vehicles as defined by section 216(2) of the Clean Air Act.\22\ No
commenter presented otherwise. Therefore, EPA cannot deny California's
request on the basis that California's LSI regulations are not
consistent with section 209(a).
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    \22\ CARB, Request for Authorization at 20.
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2. Consistency With Section 209(e)(1)
    To be consistent with section 209(e)(1) of the Clean Air Act,
California's LSI regulations must not affect new farming or
construction vehicles or engines that are below 175 horsepower, or new
locomotives or their engines. CARB presents that the Board ``ensured
consistency with section 209(e)(1) by specifically excluding new off-
road engines under 175 horsepower primarily used in farm and
construction vehicles and equipment from the definition of off-road LSI
engines.'' \23\ No commenter presented otherwise. Therefore, EPA cannot
deny California's request on the basis that California's LSI
regulations are not consistent with section 209(e)(1).
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    \23\ Id.
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3. Consistency With Section 209(b)(1)(C)
    The requirement that California's standards be consistent with
section 209(b)(1)(C) of the Clean Air Act effectively requires
consistency with section 202(a) of the Act. California standards are
inconsistent with section 202(a) of the Act if there is inadequate
lead-time to permit the development of technology necessary to meet
those requirements, giving appropriate consideration to the cost of
compliance within that timeframe. California's accompanying enforcement
procedures would also be inconsistent with section 202(a) if federal
and California test procedures conflicted. The scope of EPA's review of
whether California's action is consistent with section 202(a) is
narrow. The determination is limited to whether those opposed to the
authorization or waiver have met their burden of establishing that
California's standards are technologically infeasible, or that
California's test procedures

impose requirements inconsistent with the federal test procedures.\24\
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    \24\ MEMA I, 627, F.2d at 1126.
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a. Technological Feasibility
    Congress has stated that the consistency requirement of section
202(a) relates to technological feasibility.\25\ Section 202(a)(2)
states, in part, that any regulation promulgated under its authority
``shall take effect after such period as the Administrator finds
necessary to permit the development and application of the requisite
technology, giving appropriate consideration to the cost of compliance
within such period.'' Section 202(a) thus requires the Administrator to
first determine whether adequate technology already exists; or if it
does not, whether there is adequate time to develop and apply the
technology before the standards go into effect. The latter scenario
also requires the Administrator to decide whether the cost of
developing and applying the technology within that time is feasible.
Previous EPA waivers are in accord with this position.\26\ For example,
a previous EPA waiver decision considered California's standards and
enforcement procedures to be consistent with section 202(a) because
adequate technology existed as well as adequate lead-time to implement
that technology.\27\ Subsequently, Congress has stated that, generally,
EPA's construction of the waiver provision has been consistent with
congressional intent.\28\
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    \25\ H.R. Rep. No. 95-294, 95th Cong., 1st Sess. 301 (1977).
    \26\ See, e.g., 49 FR 1887, 1895 (May 3, 1984); 43 FR 32182,
32183 (July 25, 1978); 41 FR 44209, 44213 (October 7, 1976).
    \27\ 41 FR 44209 (October 7, 1976).
    \28\ H.R. Rep. No. 95-294, 95th Cong., 1st Sess. 301 (1977).
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    CARB presents that the technology required to comply with its LSI
regulations is currently available, and that it has provided sufficient
lead-time, giving consideration to cost of compliance.\29\ CARB points
to EPA's own analysis in the federal rule for these same engines, but
also separately concluded that fleet owners will be able to absorb or
pass compliance costs to their customers. CARB's LSI fleet requirements
progressively increase in stringency from year-to-year, and allow a
variety of compliance options, including combinations of retrofits that
have already been verified, lower-emission purchases, and zero emission
purchases. Capital costs of these options range from $30 to $5,000, and
may be exceeded by resultant lowered fuel use and lessened maintenance.
CARB also points out that fleet requirements apply selectively, provide
several exemptions, and that compliance extensions may be granted.
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    \29\ CARB, Request for Authorization at 24-28.
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    EPA did not receive any comments suggesting that CARB's standards
and test procedures are technologically infeasible. Consequently, based
on the record, EPA cannot deny California's authorization based on
technological infeasibility.
b. Consistency of Certification Procedures
    California's standards and accompanying enforcement procedures
would also be inconsistent with section 202(a) if the California test
procedures were to impose certification requirements inconsistent with
the federal certification requirements. Such inconsistency means that
manufacturers would be unable to meet both the California and federal
testing requirements using the same test vehicle or engine.\30\ CARB
presents that the LSI fleet requirements raise no issue regarding test
procedure consistency because there are no analogous federal test
procedures for LSI retrofit technologies.\31\ CARB also points out that
its retrofit verification program is a voluntary program available to
retrofit device manufacturers, and not directly required of fleet
owners.
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    \30\ See, e.g., 43 FR 32182 (July 25, 1978).
    \31\ CARB, Request for Authorization at 28.
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    EPA received no comments suggesting that CARB's LSI regulations
pose any test procedure consistency problem. Therefore, based on the
record, EPA cannot find that CARB's testing procedures are inconsistent
with section 202(a). Consequently, EPA cannot deny CARB's request based
on this criterion.

D. Other Issues

    Airlines for America (``A4A'') has provided comments opposing EPA's
grant of authorization for California's LSI regulations. The reasons
A4A provides in its comments are outside the scope of EPA's scope of
review of California authorization requests under section 209(e)(2).
A4A claims that California's LSI rules are preempted by the Federal
Aviation Act and the Airline Deregulation Act. As EPA has stated on
numerous occasions, EPA's review of California regulations under
section 209 is not a broad review of the reasonableness of the
regulations or its compatibility with all other laws. Sections 209(b)
and 209(e) of the Clean Air Act limit our authority to deny California
requests for waivers and authorizations to the three criteria listed
therein. As a result, EPA has consistently refrained from denying
California's requests for waivers and authorizations based on any other
criteria.\32\ In instances where the U.S. Court of Appeals has reviewed
EPA decisions declining to deny waiver requests based on criteria not
found in section 209(b), the Court has upheld and agreed with EPA's
determination.\33\ A4A's comment raises issues of federal preemption
that are not included within the criteria listed under sections 209(b)
and 209(e).\34\ Therefore, in considering whether to grant
authorization for California's LSI regulations under section 209(e),
EPA cannot deny California's request for authorization based on the
issues raised by A4A.
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    \32\ See, e.g., 74 FR 32744, 32783 (July 8, 2009).
    \33\ See Motor and Equipment Manufacturers Ass'n v. Nichols, 142
F.3d 449, 462-63, 466-67 (D.C. Cir. 1998), Motor and Equipment
Manufacturers Ass'n v. EPA, 627 F.2d 1095, 1111, 1114-20 (D.C. Cir.
1979).
    \34\ A4A may raise these issues in a direct challenge to
California's regulations in other forums, but these issues are not
relevant to EPA's limited review under section 209.
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E. Authorization Determination for California's LSI Regulations

    After a review of the information submitted by CARB and A4A, EPA
finds that those opposing California's request have not met the burden
of demonstrating that authorization for California's LSI regulations
should be denied based on any of the statutory criteria of section
209(e)(2). For this reason, EPA finds that an authorization for
California's LSI regulations should be granted.

III. Decision

    The Administrator has delegated the authority to grant California
section 209(e) authorizations to the Assistant Administrator for Air
and Radiation. After evaluating California's LSI regulations, CARB's
submissions, and the public comments from A4A, EPA is granting an
authorization to California for its LSI regulations.
    My decision will affect not only persons in California, but also
entities outside the State who must comply with California's
requirements. For this reason, I determine and find that this is a
final action of national applicability for purposes of section
307(b)(1) of the Act. Pursuant to section 307(b)(1) of the Act,
judicial review of this final action may be sought only in the United
States Court of Appeals for the District of Columbia Circuit. Petitions
for review must be filed by June 4, 2012. Judicial review of this final
action may not be obtained in subsequent enforcement proceedings,
pursuant to section 307(b)(2) of the Act.

IV. Statutory and Executive Order Reviews

    As with past authorization and waiver decisions, this action is not
a rule as defined by Executive Order 12866. Therefore, it is exempt
from review by the Office of Management and Budget as required for
rules and regulations by Executive Order 12866.
    In addition, this action is not a rule as defined in the Regulatory
Flexibility Act, 5 U.S.C. 601(2). Therefore, EPA has not prepared a
supporting regulatory flexibility analysis addressing the impact of
this action on small business entities.
    Further, the Congressional Review Act, 5 U.S.C. 801, et seq., as
added by the Small Business Regulatory Enforcement Fairness Act of
1996, does not apply because this action is not a rule for purposes of
5 U.S.C. 804(3).

    Dated: March 29, 2012.
Gina McCarthy,
Assistant Administrator, Office of Air and Radiation.
[FR Doc. 2012-8112 Filed 4-3-12; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register Volume 83, Number 204 (Monday, October 22, 2018)]
[Notices]
[Pages 53349-53350]
[FR Doc No: 2018-22904]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84431; File No. SR-CboeEDGX-2018-046]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change Related
to Fees for Use on Cboe EDGX Exchange, Inc.

October 16, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 1, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. The
Exchange has designated the proposed rule change as one establishing or
changing a member due, fee, or other charge imposed by the Exchange
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2)
thereunder,\4\ which renders the proposed rule change 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)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange filed a proposal to amend the Exchange's fee schedule
applicable to its equities trading platform (``EDGX Equities'') to
eliminate the Investor Depth Tier.
    The text of the proposed rule change is available at the Exchange's
website at www.markets.cboe.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The EDGX Equities fee schedule offers seven Add Volume Tiers that
provide enhanced rebates, ranging from of $0.0025 to $0.0032 per share,
for displayed orders that add liquidity in Tapes A, B, and C and yield
fee codes B,\5\ V,\6\ Y,\7\ 3 \8\ and 4.\9\ The purpose of the proposed
rule change is to amend the EDGX Equities fee schedule to eliminate the
Investor Depth Tier as this tier has not been successful in attracting
the required order flow to the Exchange. Currently, under the Investor
Depth Tier a Member is eligible for an enhanced rebate of $0.0031 per
share where that Member: (i) Adds an average daily volume (``ADV'')
\10\ greater than or equal to 0.12% of the total consolidated volume
(``TCV''); \11\ (ii) has an ``added liquidity'' as a percentage of
``added plus removed liquidity'' greater than or equal to 85%; and
(iii) adds an ADV greater than or equal to 400,000 shares as non-
displayed orders that yield fee code HA,\12\ HI,\13\ and/or MM.\14\ The
Investor Depth Tier was designed to encourage Members to bring a

combination of displayed and non-displayed order flow to the Exchange.
As the Exchange does not believe that this tier has been successful in
attracting the required order flow, the Exchange proposes to eliminate
the Investor Depth Tier. Members that meet the requirements of the
remaining six Add Volume Tiers will continue to receive rebates
pursuant to those tiers. Furthermore, Members that do not meet the
requirements for any of the Add Volume Tiers will continue to be paid
the standard rebate of $0.0020 applicable to fee codes B, V, Y, 3 and
4.
---------------------------------------------------------------------------

    \5\ ``B'' is associated with displayed orders that add liquidity
on EDGX for Tape B.
    \6\ ``V'' is associated with displayed orders that add liquidity
on EDGX for Tape A.
    \7\ ``Y'' is associated with displayed orders that add liquidity
on EDGX for Tape C.
    \8\ ``3'' is associated with displayed orders that add liquidity
on EDGX for Tape A or C during the post-market or pre-market trading
sessions.
    \9\ ``4'' is associated with displayed orders that add liquidity
on EDGX for Tape B during the post-market or pre-market trading
sessions.
    \10\ ``ADV'' means average daily volume calculated as the number
of shares added to, removed from, or routed by, the Exchange, or any
combination or subset thereof, per day. ADV is calculated on a
monthly basis.
    \11\ ``TCV'' means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
    \12\ ``HA'' is associated with non-displayed orders that add
liquidity on EDGX.
    \13\ ``HI'' is associated with non-displayed orders that add
liquidity on EDGX and receive price improvement.
    \14\ ``MM'' is associated with non-displayed orders that add
liquidity on EDGX using a Mid-Point Peg.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6 of the Act,\15\ in general, and Section 6(b)(4) of the Act,\16\ in
particular, in that it is designed to provide for the equitable
allocation of reasonable dues, fees and other charges among its Members
and other persons using its facilities.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f.
    \16\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed elimination of the Investor
Depth Tier is reasonable and equitable as this tier has not been
successful in attracting the required order flow to the Exchange. As
explained in the purpose section of this proposed rule change, the
Exchange offers a range of Add Volume Tiers that provide enhanced
rebates to qualifying displayed orders that add liquidity in Tape A, B,
and C securities. These tiers are designed to encourage more active
participation on the Exchange by providing higher rebates to Members
that meet specified requirements. The Investor Depth Tier, in
particular, was designed to encourage Members to bring different types
of order flow to the Exchange, including both displayed and non-
displayed liquidity. However, this tier has not been successful in
attracting the required order flow. The Exchange therefore believes
that it is appropriate to eliminate this tier at this time. The
Exchange also believes that the proposed fee change is equitable and
not unfairly discriminatory as it applies to all Members on an equal
basis. With the proposed change, no Member would be eligible for an
enhanced rebate based on meeting the requirements of the eliminated
Investor Depth Tier. Members will continue to be able to achieve
enhanced rebates for displayed orders that add liquidity by meeting the
requirements of any of the six remaining Add Volume Tiers. In addition,
Members that do not meet the requirements for any of the Add Volume
Tiers will continue to be paid the standard rebate applicable to fee
codes B, V, Y, 3 and 4.

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

    The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended. The
proposed elimination of the Investor Depth Tier is designed to remove
an incentive that the Exchange believes was not successful, and will
apply to all Members. The Exchange operates in a highly competitive
market in which market participants can readily direct their order flow
to competing venues. In such an environment, the Exchange must
continually review, and consider adjusting, its fees and rebates to
remain competitive with other exchanges. For the reasons described
above, the Exchange believes that the proposed fee changes reflect this
competitive environment.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \17\ and paragraph (f) of Rule 19b-4
thereunder.\18\ 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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 protected]. Please include
File Number SR-CboeEDGX-2018-046 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeEDGX-2018-046. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of this filing will also be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeEDGX-2018-046 and should be
submitted on or before November 13, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22904 Filed 10-19-18; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 84, Number 134 (Friday, July 12, 2019)]
[Notices]
[Pages 33306-33309]
[FR Doc No: 2019-14808]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86322; File No. SR-CboeEDGX-2019-042]

Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change
Relating To Amend the Exchange's Fee Schedule Applicable to its
Equities Trading Platform To Adopt a New Cross-Asset Volume Tier

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 25, 2019, Cboe EDGX Exchange, Inc. (``Exchange'' or ``EDGX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II, and III below, which
Items have been prepared by the Exchange. The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------

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

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

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

    Cboe EDGX Exchange, Inc. (``EDGX'' or the ``Exchange'') is filing
with the Securities and Exchange Commission (the ``Commission'') a
proposed rule change to amend the Exchange's fee schedule applicable to
its equities trading platform (``EDGX Equities'') to adopt a new Cross-
Asset Volume Tier. The text of the proposed rule change is attached
[sic] as Exhibit 5.
    The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/options/regulation/rule_filings/edgx/), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend its fee schedule applicable to its
equities trading platform (``EDGX Equities'') to adopt a new Cross-
Asset Tier, effective July 1, 2019.
    The Exchange first notes that it operates in a highly-competitive
market in which market participants can readily direct order flow to
competing venues if they deem fee levels at a particular venue to be
excessive or incentives to be insufficient. More specifically, the
Exchange is only one of several equity venues to which market
participants may direct their order flow, and it represents a small
percentage of the overall market. The Exchange in particular operates a
``Maker-Taker'' model whereby it pays credits to members that provide
liquidity and assesses fees to those that remove liquidity. The
Exchange's Fees Schedule sets forth the standard rebates and rates
applied per share for orders that provide and remove liquidity,
respectively. For example, for securities at or above $1.00 the
Exchange provides a standard rebate of $0.00170 per share for displayed
orders that add liquidity \3\ and assesses a fee of $0.00265 per share
for displayed orders that remove liquidity. In response to the
competitive environment, the Exchange also offers tiered pricing which
provides Members opportunities to qualify for higher rebates or reduced
fees where certain volume criteria and thresholds are met. Tiered
pricing provides an incremental incentive for Members to strive for
higher tier levels, which provides increasingly higher benefits or
discounts for satisfying increasingly more stringent criteria.
---------------------------------------------------------------------------

    \3\ Displayed Orders which add liquidity in Tape B securities
receive a standard rebate of $0.0025 per share.
---------------------------------------------------------------------------

    For example, pursuant to Footnote 1 of the Fees Schedule, the
Exchange offers eight Add Volume Tiers for displayed orders that
provide enhanced rebates, ranging from of $0.0020 to $0.0029 per share,
for orders yielding fee codes B,\4\ V,\5\ Y,\6\ 3 \7\ and 4.\8\ One
such Add Volume Tier under Footnote 1 is a Cross-Asset Volume Tier,
which is designed to incentivize members to achieve certain levels of
participation on both the Exchange's equities and options platform
(``EDGX Options''). More specifically, under the current Cross-Asset
Volume Tier, a Member receives a rebate of $0.0027 per share if that
Member (i) adds an ADV \9\ greater or equal to 0.20% of the TCV \10\
and (ii) has an ADV in Customer orders on EDGX Options greater or equal
to 0.08% of average OCV.\11\
---------------------------------------------------------------------------

    \4\ ``B'' is associated with displayed orders that add liquidity
on EDGX for Tape B.
    \5\ ``V'' is associated with displayed orders that add liquidity
on EDGX for Tape A.
    \6\ ``Y'' is associated with displayed orders that add liquidity
on EDGX for Tape C.
    \7\ ``3'' is associated with displayed orders that add liquidity
on EDGX for Tape A or C during the post-market or pre-market trading
sessions.
    \8\ ``4'' is associated with displayed orders that add liquidity
on EDGX for Tape B during the post-market or pre-market trading
sessions.
    \9\ ``ADV'' means average daily volume calculated as the number
of shares added to, removed from, or routed by, the Exchange, or any
combination or subset thereof, per day. ADV is calculated on a
monthly basis.
    \10\ ``TCV'' means total consolidated volume calculated as the
volume reported by all exchanges and trade reporting facilities to a
consolidated transaction reporting plan for the month for which the
fees apply.
    \11\ ``OCV'' means, for purposes of equities pricing, the total
equity and ETF options volume that clears in the Customer range at
the Options Clearing Corporation (``OCC'') for the month for which
the fees apply, excluding volume on any day that the Exchange
experiences an Exchange System Disruption and on any day with a
scheduled early market close, using the definition of Customer as
provided under the Exchange's fee schedule for EDGX Options.
---------------------------------------------------------------------------

    The Exchange proposes to create an additional cross-asset tier
(``Cross-Asset Volume Tier 2'') with a different criteria
combination.\12\ As proposed, under the Cross-Asset Volume Tier 2, a
Member would receive a rebate of $0.0027 per share if that Member (i)
adds an ADV greater or equal to 0.05% of the TCV and (ii) has an ADV in
AIM \13\ orders on EDGX Options greater than or equal to 25,000
contracts. The purpose of the proposed tier is to incentivize both
equities volume and participation on EDGX Options, particularly to
encourage submission of AIM orders, and also to provide Members an
additional opportunity to receive an enhanced rebate. Particularly, for
Members who do not currently reach the current thresholds in the
existing Add Volume Tiers, including the Cross-Asset Tier, the proposed
tier would provide an opportunity to meet an alternative set of
criteria to receive an enhanced rebate.
---------------------------------------------------------------------------

    \12\ In connection with adopting Cross-Asset Tier 2, the
Exchange also proposes to rename the current tier ``Cross-Asset
Volume Tier 1''.
    \13\ ``AIM'' refers to the Automated Improvement Mechanism. See
Exchange Rule 21.19 and Cboe EDGX Options Exchange Fee Schedule. The
ADV in AIM orders includes all orders entered into or executed
through AIM.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6 of the Act,\14\ in general, and furthers the
requirements of Section 6(b)(4),\15\ in particular, as it is designed
to provide for the equitable allocation of reasonable dues, fees and
other charges among its facilities and does not unfairly discriminate
between customers, issuers, brokers or dealers. The Exchange operates
in a highly-competitive market in which market participants can readily
direct order flow to competing venues if they deem fee levels at a
particular venue to be excessive or incentives to be insufficient. The
proposed rule change reflects a competitive pricing structure designed
to incentivize market participants to direct their order flow to the
Exchange, which the Exchange believes would enhance market quality to
the benefit of all Members.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f.
    \15\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    In particular, the Exchange believes the proposed tier is
reasonable because it provides an additional opportunity for Members to
receive an enhanced rebate by providing a different set of criteria
they can reach for. The Exchange notes that volume-based incentives and
discounts have been widely adopted by

exchanges,\16\ including the Exchange,\17\ and are reasonable,
equitable and non-discriminatory because they are open to all members
on an equal basis and provide additional benefits or discounts that are
reasonably related to (i) the value to an exchange's market quality and
(ii) associated higher levels of market activity, such as higher levels
of liquidity provision and/or growth patterns. Additionally, as noted
above, the Exchange operates in highly competitive market. The Exchange
is only one of several equity venues to which market participants may
direct their order flow, and it represents a small percentage of the
overall market. It is also only one of several maker-taker exchanges.
Competing equity exchanges offer similar tiered pricing structures to
that of the Exchange, including schedules of rebates and fees that
apply based upon members achieving certain volume and/or growth
thresholds. These competing pricing schedules, moreover, are presently
comparable to those that the Exchange provides, including the pricing
of comparable tiers.\18\
---------------------------------------------------------------------------

    \16\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule,
Footnote 1, Add Volume Tiers which provide enhanced rebates between
$0.0025 and $0.0032 per share for displayed orders where Members
meet certain volume thresholds.
    \17\ See e.g., Cboe EDGX U.S. Equities Exchange Fee Schedule,
Footnote 1, Add Volume Tiers (including a Cross-Asset Volume Tier),
which provide enhanced rebates between $0.0020 and $.0029 per share
for displayed orders where Members meet certain volume thresholds.
    \18\ See e.g., Cboe BZX U.S. Equities Exchange Fee Schedule,
Footnote 1, Add Volume Tiers. Cross-Asset Add Volume Tiers which
provide enhanced rebates between $0.0028-$0.0032 per share where
Members meet a specified level of ADV as a percentage of TCV and a
specified level of options add volume on BZX Options as a percentage
of OCV. See also The Nasdaq Stock Market, LLC, Equity 7 Pricing
Schedule, Section 118 Nasdaq Market Center Order Execution and
Routing, which offers credits between $0.0027-$0.00305 per share if
Member meets criteria requiring certain (1) volume thresholds on the
Nasdaq Stock Market and (2) volume thresholds on the Nasdaq Options
Market.
---------------------------------------------------------------------------

    Moreover, the Exchange believes the proposed Cross-Asset Tier 2 is
a reasonable means to encourage Members to increase their liquidity on
the Exchange and also their participation on EDGX Options, and
particularly in AIM. The Exchange believes that adopting a tier with
alternative criteria to the existing Cross-Asset Volume Tier, will
encourage those Members who could not previously achieve the existing
Cross-Asset Volume Tier criteria, or other available Add Volume Tiers,
to increase their order flow on EDGX equities and AIM order flow on
EDGX Options. Increased liquidity benefits all investors by deepening
the Exchange's liquidity pool, offering additional flexibility for all
investors to enjoy cost savings, supporting the quality of price
discovery, promoting market transparency and improving investor
protection. Additionally, incentivizing the submission of AIM orders
also benefits all market participants as AIM promotes price
improvement. The Exchange also believes that proposed rebate is
reasonable based on the difficulty of satisfying the tier's criteria
and ensures the proposed rebate and threshold appropriately reflects
the incremental difficulty to achieve the existing Add Volume Tiers.
The proposed rebate amount also does not represent a significant
departure from the rebates currently offered under the Exchange's
existing Add Volume Tiers, including the existing Cross-Asset Volume
Tier. Indeed, the rebate amount is the same offered as the existing
Cross-Asset Volume Tier and Add Volume Tier 3 (i.e., $0.0027 per share)
and within the range of the rebates offered under the remaining Add
Volume Tiers for displayed orders (i.e., $0.0020-$0.0029 per share).
    The Exchange believes that the proposal represents an equitable
allocation of rebates and is not unfairly discriminatory because it
applies uniformly to all members. Additionally a number of members have
a reasonable opportunity to satisfy the tier's criteria, which the
Exchange believe is less stringent than some other existing Add Volume
Tiers. Without having a view of Member's activity on other markets and
off-exchange venues, the Exchange has no way of knowing whether this
proposed rule change would definitely result in any Members qualifying
for this tier. However, the Exchange believes the proposed tier would
provide an incentive for Members to submit additional adding liquidity
on EDGX equities and AIM orders on EDGX options to qualify for the
proposed rebate. To the extent a Member participates on the Exchange
but not on EDGX Options, the Exchange does believe that the proposal is
still reasonable, equitably allocated and non-discriminatory with
respect to such Member based on the overall benefit to the Exchange
resulting from the success of EDGX Options. Particularly, the Exchange
believes such success allows the Exchange to continue to provide and
potentially expand its existing incentive programs to the benefit of
all participants on the Exchange, whether they participate on EDGX
Options or not. The proposed pricing program is also fair and equitable
in that membership in EDGX Options is available to all market
participants, which would provide them with access to the benefits on
EDGX Options provided by the proposed change, even where a member of
EDGX Options is not necessarily eligible for the proposed increased
rebate on the Exchange.
    The Exchange lastly notes that the proposal will not adversely
impact any Member's pricing or their ability to qualify for other
rebate tiers. Rather, should a Member not meet the proposed criteria,
the Member will merely not receive an enhanced rebate. Furthermore, the
proposed rebate would apply to all Members that meet the required
criteria under proposed Cross-Asset Tier 2.

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 intramarket or intermarket competition that is not
necessary or appropriate in furtherance of the purposes of the Act.
Rather, as discussed above, the Exchange believes that the proposed
change would encourage the submission of additional liquidity to a
public exchange, thereby promoting market depth, price discovery and
transparency and enhancing order execution opportunities for all
Members. As a result, the Exchange believes that the proposed change
furthers the Commission's goal in adopting Regulation NMS of fostering
competition among orders, which promotes ``more efficient pricing of
individual stocks for all types of orders, large and small.'' \19\
---------------------------------------------------------------------------

    \19\ Securities Exchange Act Release No. 51808, 70 FR 37495,
37498-99 (June 29, 2005) (S7-10-04) (Final Rule).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change does impose any
burden on intramarket competition that is not necessary or appropriate
in furtherance of the purposes of the Act. Particularly, the proposed
change applies uniformly to market participants. As discussed above, to
the extent a Member participates on the Exchange but not on EDGX
Options, the Exchange notes that the proposed change can provide an
overall benefit to the Exchange resulting from the success of EDGX
Options. Such success enables the Exchange to continue to provide and
potentially expand its existing incentive programs to the benefit of
all participants on the Exchange, whether they participate on EDGX
Options or not. The proposed pricing program is also fair and equitable
in that membership in EDGX Options is available to all market
participants. Additionally the proposed

change is designed to attract additional order flow to the Exchange and
EDGX Options. Specifically, the Exchange believes that the proposed
tier would incentivize market participants to direct providing
displayed order flow to the Exchange and encourage entry of AIM orders
on EDGX Options. Greater liquidity benefits all market participants on
the Exchange by providing more trading opportunities and encourages
Members to send orders, thereby contributing to robust levels of
liquidity, which benefits all market participant. Incentivizing the use
of AIM also benefits all market participants as AIM promotes price
improvement.
    Next, the Exchange believes the proposed rule change does not
impose any burden on intermarket competition that is not necessary or
appropriate in furtherance of the purposes of the Act. As previously
discussed, the Exchange operates in a highly competitive market.
Members have numerous alternative venues that they may participate on
and director their order flow, including 12 other equities exchanges
and off-exchange venues, including 32 alternative trading systems.
Additionally, the Exchange represents a small percentage of the overall
market. Based on publicly available information, no single equities
exchange has more than 18% of the market share.\20\ Therefore, no
exchange possesses significant pricing power in the execution of option
order flow. Indeed, participants can readily choose to send their
orders to other exchange and off-exchange venues if they deem fee
levels at those other venues to be more favorable. Moreover, the
Commission has repeatedly expressed its preference for competition over
regulatory intervention in determining prices, products, and services
in the securities markets. Specifically, in Regulation NMS, the
Commission highlighted the importance of market forces in determining
prices and SRO revenues and, also, recognized that current regulation
of the market system ``has been remarkably successful in promoting
market competition in its broader forms that are most important to
investors and listed companies.'' \21\ The fact that this market is
competitive has also long been recognized by the courts. In
NetCoalition v. Securities and Exchange Commission, the D.C. Circuit
stated as follows: ``[n]o one disputes that competition for order flow
is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market
system, buyers and sellers of securities, and the broker-dealers that
act as their order-routing agents, have a wide range of choices of
where to route orders for execution'; [and] `no exchange can afford to
take its market share percentages for granted' because `no exchange
possesses a monopoly, regulatory or otherwise, in the execution of
order flow from broker dealers'. . . .''.\22\ Accordingly, the Exchange
does not believe its proposed fee change imposes any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act.
---------------------------------------------------------------------------

    \20\ See Cboe Global Markets U.S. Equities Market Volume Summary
(June 25, 2019), available at http://markets.cboe.com/us/equities/market_share/.
    \21\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005).
    \22\ NetCoalition v. SEC, 615 F.3d 525, 539 (DC Cir. 2010)
(quoting Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-
21)).
---------------------------------------------------------------------------

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \23\ and paragraph (f) of Rule 19b-4 \24\
thereunder. 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. If the Commission
takes such action, the Commission will institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
---------------------------------------------------------------------------

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

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-CboeEDGX-2019-042 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CboeEDGX-2019-042. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeEDGX-2019-042 and should be
submitted on or before August 2, 2019.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
---------------------------------------------------------------------------

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

    Dated: July 8, 2019.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-14808 Filed 7-11-19; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 83, Number 114 (Wednesday, June 13, 2018)]
[Notices]
[Pages 27643-27647]
[FR Doc No: 2018-12648]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83393; File No. SR-FINRA-2018-023]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Amend
FINRA Rule 6730 Relating to ATS Reporting of Transactions to TRACE in
U.S. Treasury Securities

June 7, 2018.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 5, 2018, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to amend Rule 6730 to require alternative
trading systems (``ATSs'') that report transactions in U.S. Treasury
Securities to the Transaction Reporting and Compliance Engine
(``TRACE'') to identify non-FINRA member subscribers on those
transaction reports.
    The text of the proposed rule change is available on FINRA's
website at http://www.finra.org, at the principal office of FINRA and
at the Commission's Public Reference Room.

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

    In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any

comments it received on the proposed rule change. The text of these
statements may be examined at the places specified in Item IV below.
FINRA 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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On October 18, 2016, the SEC approved a proposed rule change to
require FINRA members to report secondary market transactions in U.S.
Treasury Securities to TRACE,\3\ and on July 10, 2017, FINRA members
began reporting transaction information on U.S. Treasury Security
transactions through TRACE.\4\ As approved, TRACE transaction
information in U.S. Treasury Securities is for regulatory purposes only
and is not disseminated publicly.\5\
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    \3\ See Securities Exchange Act Release No. 79116 (October 18,
2016), 81 FR 73167 (October 24, 2016) (Order Granting Accelerated
Approval of File No. SR-FINRA-2016-027).
    \4\ See Regulatory Notice 16-39 (October 2016).
    \5\ See Rule 6750(c)(5).
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    As with all TRACE reporting, transactions in U.S. Treasury
Securities that occur on an ATS generally must be reported to TRACE by
the counterparties, if they are FINRA members, and by the ATS
itself.\6\ A significant amount of trading activity in U.S. Treasury
Securities on ATSs involves market participants that are not registered
as broker-dealers or are not FINRA members, including, for example,
hedge funds, banks and principal trading firms (``PTFs''). As the U.S.
Department of the Treasury (``Treasury Department'') noted in its
recent Capital Markets Report, ``[t]rading activity [in U.S. Treasury
Securities] on the major electronic interdealer platforms is dominated
by PTFs, . . . . and collectively they account for over half of all
transaction volumes in the interdealer broker segment of the [cash
Treasury] market.'' \7\ Although the Capital Markets Report does not
define a ``PTF,'' the Joint Staff Report identifies the following as
typical characteristics of PTFs: (i) Principal investor; (ii) deploys
proprietary automated trading strategies; (iii) low latency is
typically a key element of the trading strategies; and (iv) may be
registered as a broker-dealer but does not have clients as in a typical
broker-dealer business model.\8\
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    \6\ See Regulatory Notice 14-53 (November 2014). There are
limited exemptions available where all the counterparties are FINRA
members, which would not apply where a transaction on an ATS
involves a non-FINRA member.
    \7\ See Treasury Department, A Financial System That Creates
Economic Opportunities: Capital Markets, Report to President Donald
J. Trump, Executive Order 13772 on Core Principles for Regulating
the United States Financial System, at 79-80 (October 2017)
(``Capital Markets Report''), https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf. The Capital Markets Report cited the July 13, 2015 Joint
Staff Report (``Joint Staff Report'' or ``JSR'') issued by the U.S.
Department of the Treasury, the Board of Governors of the Federal
Reserve System, the Federal Reserve Bank of New York, the SEC, and
the U.S. Commodity Futures Trading Commission (Inter-Agency Working
Group for Treasury Market Surveillance members (IAWG) or ``official
sector'') in response to unusually high levels of volatility and a
very rapid round-trip in prices that occurred in the market for U.S.
Treasury Securities, futures, and other related financial products
on October 15, 2014, https://www.treasury.gov/press-center/press-releases/Documents/Joint_Staff_Report_Treasury_10-15-2015.pdf.
    \8\ See JSR, at 50.
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    Because each current ATS is a FINRA member, all of the trading
activity in TRACE-Eligible Securities occurring on an ATS is required
to be reported to TRACE by that ATS; however, the identities of non-
FINRA members (including, but not limited to, hedge funds, banks and
PTFs) trading on the ATSs are not reported because they are treated as
customers, not FINRA members. Thus, while an ATS identifies a specific
FINRA-member counterparty on its TRACE reports by that counterparty's
market participant identifier (``MPID''), for transactions involving
non-FINRA members, the ATS reports the trade as a generic customer
trade and identifies the counterparty only with a ``C'' identifier.
Because of this, as the Capital Markets Report noted, ``[i]n essence, a
significant portion of PTF activity is anonymized in the TRACE data.''
\9\ The Treasury Department therefore recommended ``closing the gap in
the granularity of PTF data'' by requiring ATSs that facilitate
transactions in U.S. Treasury Securities ``to identify customers in
their reports of Treasury security transactions to TRACE.'' \10\
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    \9\ See Capital Markets Report, at 80.
    \10\ Id. The Capital Markets Report recommends ``closing the gap
in the granularity of PTF data,'' and also recommends requiring ATSs
to identify ``customers'' in their TRACE reports, which is a broader
term than ``PTFs.'' FINRA staff intends to work with the staff of
the Treasury Department to ensure the scope of the reporting
requirement is appropriate and meets regulatory needs in light of
the recommendations in the Capital Markets Report.
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    To assess the scope of non-FINRA member trading activity in U.S.
Treasury Securities on ATSs, FINRA analyzed transaction data submitted
to TRACE and found that, consistent with the views expressed in the
Capital Markets Report, the majority of trades in U.S. Treasury
Securities reported by ATSs do not identify the subscriber that is a
counterparty to the trade. Because a significant portion of ATS trades
in U.S. Treasury Securities involves unidentified counterparties, the
trading data available to FINRA and the official sector is incomplete.
Requiring specific subscriber information in ATS TRACE reports for
transactions in U.S. Treasury Securities would enhance the information
available to FINRA and the official sector and facilitate a better
understanding U.S. Treasury market structure and liquidity. As the
Treasury Department noted in the JSR, ``an event like October 15
highlights the need to better understand various factors that are
impacting liquidity in the U.S. Treasury market, especially during
stressed market conditions . . . [including] . . . changes in
intermediation, automated trading, regulation, and buy and sell-side
participation that may have altered trading practices as well as the
sources and characteristics of liquidity provision.'' \11\
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    \11\ See JSR, at 45.
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    In addition, FINRA believes that the proposed rule change would
result in an improvement to the effectiveness of FINRA's surveillance
patterns from the standpoint of greater granularity and thus more
accurate pattern detection, including the increased ability to identify
potentially manipulative activity. For example, FINRA's ability to
detect wash sales or prearranged trading activity would be improved if
the audit trail included the identity of the non-FINRA member
counterparty rather than the generic customer indicator received today.
The identity of the particular ATS subscriber allows the surveillance
pattern to narrow down the potential universe of matching trades and
thus more accurately detect instances of potential manipulation. As
such, the additional detail that would be added to transaction reports
by identifying non-FINRA member counterparties would enhance FINRA's
surveillance program for U.S. Treasury Securities.
    Consequently, as recommended in the Capital Markets Report, FINRA
is proposing to require member ATSs with a minimum threshold of trading
(``covered ATS'') to identify non-FINRA member subscribers associated
with their TRACE trade reports in U.S. Treasury Securities.
Specifically, FINRA proposes that a ``covered ATS'' would mean an ATS,
as that term is defined in Rule 300 of SEC Regulation ATS,\12\ that

executed transactions in U.S. Treasury Securities with non-FINRA member
subscribers of $10 billion or more in monthly par value, computed by
aggregating buy and sell transactions, for any two months in the
preceding calendar quarter.\13\ Pursuant to proposed Supplementary
Material .07, each covered ATS would be required to provide FINRA a
list of its non-FINRA member subscribers, as defined in Rule 300 of SEC
Regulation ATS, which would include entities such as PTFs, hedge funds
and banks. Based on the lists provided by the ATSs, FINRA would then
assign each non-FINRA member subscriber a unique MPID and provide that
MPID to each covered ATS to which the non-FINRA member subscribes so
that each non-FINRA member subscriber can be identified consistently
across all ATSs.\14\ Under this approach, the confidentiality of an
individual ATS's subscriber list would be preserved because FINRA would
provide each ATS a list of MPIDs based solely on the customer list
provided to FINRA by that ATS. Each covered ATS would then use the
assigned MPID in the contra-party field for purposes of identifying
each non-FINRA member counterparty, as required by Rule 6730(c)(6), in
place of using the current designations for contra-party ``customer''
or ``non-member affiliate'' identifiers.
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    \12\ See 17 CFR 242.300(a). As is the case with FINRA Rule
6720(c) (Alternative rading Systems), any member that meets the
definition of ``alternative trading system'' set forth in Rule 300
of Regulation ATS would be required to comply with the proposed rule
change irrespective of whether such member is excepted from the
requirements applicable to ATSs provided in Rule 301(b) of
Regulation ATS (e.g., such as where the member limits its securities
activities to government securities). See 17 CFR
242.301(a)()(ii)(A).
    \13\ Based on a sample review period of Treasury transaction
data reported to FINRA, the top six ATSs by volume would be
considered ``covered ATS'' and account for over 99% of the trade
reports submitted by ATSs to TRACE for U.S. Treasury Securities.
    \14\ Some non-members may have multiple MPIDs assigned to them,
for example if they use separate aggregation units or desks to
access or trade through the ATS, in which case the unit assigned the
MPID is the subscriber for purposes of this rule proposal.
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    If an ATS becomes a covered ATS subsequent to the compliance date
of the proposed rule, it must comply with new Supplementary Material
.07 within 60 calendar days of the end of the calendar quarter in which
it becomes a covered ATS. FINRA believes that 60 calendar days would
afford sufficient time for a newly covered ATS to provide FINRA a list
of, and obtain MPIDs for, its non-FINRA member subscribers, and to
perform any programming changes necessary to accurately reflect in
TRACE reports non-FINRA member counterparties using the MPIDs assigned
by FINRA.
    Once an ATS becomes a ``covered ATS'' under the rule, it will
remain within the scope of the definition. Thus, a covered ATS must
continue to identify each non-FINRA member subscriber in the contra-
party field using the MPID assigned by FINRA, irrespective of whether
its volume of executed transactions in U.S. Treasury Securities with
non-FINRA member subscribers falls below $10 billion in par value in
the future. In removing the current differentiation between subscribers
that are FINRA members and those that are not, and requiring the use of
an MPID by the ATS when reporting transactions in U.S. Treasury
Securities regardless of the subscriber's status as a FINRA member,
FINRA believes that the proposal would improve the completeness of the
information on transactions in U.S. Treasury Securities available to
FINRA and the official sector.
    Because a significant number of ATSs have minimal volume of
executions with non-FINRA members in U.S. Treasury Securities, the
proposed rule change would not apply to ATSs whose par value traded in
U.S. Treasury Securities with non-FINRA member subscribers is below $10
billion per month for any two months in the preceding calendar quarter.
FINRA believes that this approach is appropriate in that it limits the
application of the proposed requirement to the member ATSs that are
most active in trading U.S. Treasury Securities with non-FINRA members,
and, as such, responsible for submitting most of the ATS trade reports
for transactions in U.S. Treasury Securities against non-FINRA members.
Limiting the proposed counterparty identification requirement in this
manner balances the burdens associated with complying with the proposed
rule (i.e., providing FINRA a list of all non-FINRA member subscribers,
obtaining an MPID from FINRA, and using the assigned MPID in TRACE
reporting), with the benefits sought to be achieved by the proposed
requirement (i.e., additional granularity that will enhance the quality
of the information available to FINRA and the official sector on
transactions in U.S. Treasury Securities).
    FINRA does not believe that the absence of more detailed
counterparty information from those ATSs with activity levels below the
proposed threshold will materially affect the completeness of the audit
trail. However, if approved, FINRA intends to monitor the continued
appropriateness of the $10 billion dollar threshold to ensure that this
amount remains relevant in light of market changes. In addition, FINRA
intends to monitor the impact of this exception on its audit trail, as
well as for any potential negative impacts or changes in ATS or non-
member subscriber behavior.
    If the Commission approves the proposed rule change, FINRA will
announce the effective date of the proposed rule change in a Regulatory
Notice to be published no later than 60 days following Commission
approval. The effective date will be no later than 180 days following
publication of the Regulatory Notice announcing Commission approval.
ATSs would be required to submit a list of its non-member subscribers
to FINRA at least 60 days in advance of the effective date.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\15\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest and Section 15A(b)(9) of the Act,\16\ which requires
that FINRA rules not impose any burden on competition that is not
necessary or appropriate. FINRA believes that the proposed rule change
will make TRACE reporting of U.S. Treasury Securities transactions more
complete and thus enable FINRA to better identify potentially abusive
trading activity in the Treasury market that is already reported to
TRACE but is anonymized because of the existing limitations on customer
identification. Because this activity by non-FINRA members constitutes
a significant portion of ATS trading activity in U.S. Treasury
Securities, the proposed rule change will significantly enhance FINRA's
surveillance efforts as well as the trading data available to the
official sector. As the Commission has noted in the past, improved
surveillance capabilities can help FINRA detect and deter fraudulent
and manipulative acts and practices, and thus promote just and
equitable principles of trade and the protection of investors and the
public interest. In addition, this collection is the ``type of
additional data reporting to the official sector necessary to continue
to effectively monitor the functioning of the Treasury market and meet
the IAWG mission.'' \17\
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    \15\ 15 U.S.C. 78o-3(b)(6).
    \16\ 15 U.S.C. 78o-3(b)(9).
    \17\ See JSR, at 49.

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

    FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Economic Impacts
    FINRA has undertaken an economic impact assessment, as set forth
below, to analyze the need for the proposed rulemaking, the regulatory
objective of the proposal, the economic baseline of analysis, the
anticipated economic impacts, and the alternatives considered.
(a) Purpose and Regulatory Objective
    The proposed change to Rule 6730 would require ATSs that meet a
minimum threshold of trading against non-FINRA member subscribers to
identify such subscribers on TRACE transaction reports for U.S.
Treasury Securities. FINRA proposes to require ATSs to identify such
non-FINRA members on TRACE transaction reports to enhance the quality
of the information available to FINRA and the official sector on
transactions in U.S. Treasury Securities.
(b) Economic Baseline
    As discussed above, FINRA members have been reporting transaction
information on U.S. Treasury Securities to TRACE since July 10, 2017
and such information is used solely for FINRA and official sector use.
Since then, a majority of the trades in this market can be attributed
to non-FINRA members.
    Current TRACE reporting requirements enable FINRA to identify the
ATS on which a transaction occurs as well as the other members that are
parties to those transactions. However, FINRA does not have similar
insight into the identity of the non-FINRA members that are parties to
transactions on ATSs because such participants are identified as either
a customer or a non-member affiliate.
    The proposed rule change would apply to ATSs that report
transactions in U.S. Treasury Securities to TRACE. As mentioned in
FINRA's filing that required the reporting of U.S. Treasury Securities
transactions to TRACE, ``[t]he Treasury cash market has been bifurcated
between the inter-dealer market, in which dealers trade with one
another, and the dealer-to-customer market, where customers may include
asset managers, pension funds, insurance companies, and corporations.''
\18\ A number of entities that are not registered broker-dealers are
currently part of the inter-dealer market but they are not identified
in TRACE reports.
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    \18\ See Securities Exchange Act Release No. 78359 (July 19,
2016), 81 FR 48465 (July 25, 2016) (Notice of Filing of File No. SR-
FINRA-2016-027).
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(c) Economic Impacts
    FINRA believes that the proposed rule change to require ATSs to
identify non-FINRA members in TRACE reports for U.S. Treasury
Securities transactions should potentially impact a small number of
ATSs (i.e., those whose activity is at or above the minimum threshold
discussed above).
    Between July 10, 2017 and March 31, 2018, there were 17 ATSs on
which U.S. Treasury Securities were traded. A significant amount of the
trading volume, involved at least one market participant not registered
as a broker-dealer. Six of these ATSs had transaction volume of $10
billion or more in par value in at least two months in a given calendar
quarter against non-FINRA members and would have been subject to the
requirement had the proposed rule been in place.\19\ The total trading
volume of the six ATSs against non-FINRA member subscribers accounted
for more than 99.9% of trading by non-FINRA member subscribers across
all ATSs.
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    \19\ The six ATSs had transaction volume of more than $10
billion in par value in all of the months in our sample period,
while the remaining 11 ATSs never reached the threshold in any of
the months.
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    FINRA reached out to several ATSs to inquire about the potential
sources of costs. ATSs that are most active in trading of U.S. Treasury
Securities with non-FINRA members, and hence may have volumes at or
above the proposed volume threshold, may potentially need to update the
existing systems or build new systems and develop protocols in order to
provide FINRA with a list of all non-FINRA member subscribers, obtain a
corresponding list of MPIDs from FINRA, and use the assigned MPIDs in
TRACE reporting. FINRA understands that the proposed requirement would
also entail quality assurance testing relating to identifying clients
and matching the assigned MPIDs with the client list.
    FINRA also considered the potential impacts of the proposed
identification requirement on non-FINRA member subscribers. To the
extent that such participants prefer avoiding identification in TRACE
reporting, they may shift some or all of their trading activity to
other ATSs that are below the threshold. Non-FINRA member subscribers
may also incur search costs or may have to pay a liquidity premium in
case there is lighter trading on such ATSs.
    Alternatively, trading may shift to FINRA-registered broker-dealers
that are not ATSs or to venues that are not under FINRA jurisdiction,
such as banks, and thus have no reporting obligations to TRACE.
However, based on conversations with the industry, FINRA understands
that most trading in this market is electronic and member firms and
non-FINRA venues do not currently have the capability to facilitate the
volume of orders and trades that FINRA-member ATSs can facilitate
through electronic systems. FINRA cannot predict if non-FINRA member
market participants will ultimately find it more beneficial to
establish an alternative venue that is not required to report to TRACE,
but will monitor for such a potential outcome.
(d) Alternatives Considered
    FINRA considered various approaches to identifying non-FINRA
members that are parties to reported transactions in U.S. Treasury
Securities and engaged in discussions with ATSs and other stakeholders.
One alternative considered was to require each ATS to provide a monthly
list of all of its non-FINRA member subscribers and identify each of
its customers on TRACE reports for U.S. Treasury Securities. This
approach, which would cover the broadest range of subscribers, would
identify all of an ATS's subscribers regardless of the ATS's amount of
trading activity. Another alternative considered was to require each
ATS to provide FINRA with its order book information, including
providing each customer's order book activity rather than identifying
individual customers on TRACE trade reports. FINRA would then link the
order book information to the trade reports. Like the first option,
this alternative would provide FINRA with complete insight into each
customer's activity on the ATS; however, FINRA would be compiling the
transaction data from the order book information submitted by ATSs,
rather than having the ATSs identify customers when reporting to TRACE.
    However, the analysis of the transaction data and careful
consideration of the trade-offs between the costs associated with
collecting transaction or order book information from each ATS and the
incremental value the information brings to the surveillance program,
concluded that the proposed approach would cover a significant amount
of non-FINRA member customer activity, and enhance the quality of the
information available

to FINRA and the official sector on transactions in U.S. Treasury
Securities.

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

    Written comments were neither solicited nor received.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-FINRA-2018-023 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2018-023. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of FINRA. All comments received
will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-FINRA-2018-023, and should be submitted
on or before July 5, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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    \20\17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-12648 Filed 6-12-18; 8:45 am]
BILLING CODE 8011-01-P