[Federal Register Volume 81, Number 65 (Tuesday, April 5, 2016)]
[Notices]
[Pages 19690-19695]
[FR Doc No: 2016-07687]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77480; File No. SR-BATS-2016-03]

Self-Regulatory Organizations; BATS Exchange, Inc.; Order
Granting Approval of Proposed Rule Change, as Modified by Amendment
Nos. 1 and 3 Thereto, To List and Trade Shares of the Elkhorn Dow Jones
RAFI Commodity ETF of Elkhorn ETF Trust

March 30, 2016.

I. Introduction

    On February 1, 2016, BATS Exchange, Inc. (``Exchange'' or ``BATS'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of the Elkhorn Dow Jones RAFI
Commodity ETF (``Fund''). On February 3, 2016, the Exchange filed
Amendment No. 1 to the proposed rule change. The proposed rule change,
as modified by Amendment No. 1 thereto, was published for comment in
the Federal Register on February 16, 2016.\3\ On March 22, 2016, the
Exchange filed and subsequently withdrew Amendment No. 2 to the
proposed rule change and filed Amendment No. 3 to the proposed rule
change.\4\ The Commission received no comments on the proposal. This
order grants approval of the proposed rule change, as modified by
Amendment Nos. 1 and 3 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77086 (Feb. 9,
2016), 81 FR 7857 (``Notice'').
    \4\ In Amendment No. 3 to the proposed rule change, the Exchange
clarified that: (a) All statements and representations made in the
proposal shall constitute continued listing requirements for listing
the Shares on the Exchange; (b) the issuer will advise the Exchange
of any failure by the Fund to comply with the continued listing
requirements; (c) pursuant to its obligations under Section 19(g)(1)
of the Act, the Exchange will surveil for compliance with the
continued listing requirements; and (d) if the Fund is not in
compliance with the applicable listing requirements, the Exchange
will commence delisting procedures under Exchange Rule 14.12.
Because Amendment No. 3 does not materially alter the substance of
the proposed rule change or raise unique or novel regulatory issues,
Amendment No. 3 is not subject to notice and comment (Amendment No.
3 to the proposed rule change is available at: http://www.sec.gov/comments/sr-bats-2016-03/bats201603-1.pdf).
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II. Exchange's Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares of the Fund
pursuant to BATS Rule 14.11(i), which governs the listing and trading
of Managed Fund Shares on the Exchange.\5\ The Shares will be offered
by the Elkhorn ETF Trust (``Trust''), which was established as a
Massachusetts business trust on December 12, 2013.\6\ Elkhorn
Investments, LLC will be the investment adviser (``Adviser'') to the
Fund. It is currently anticipated that day-to-day portfolio management
for the Fund will be provided by the Adviser. However, the Fund and the
Adviser may contract with an investment sub-adviser (``Sub-Adviser'')
to provide day-to-day portfolio management for the Fund. ALPS
Distributors, Inc. will be the principal underwriter and distributor of

the Fund's Shares. The Fund will contract with unaffiliated third
parties to provide administrative, custodial and transfer agency
services to the Fund. The Exchange represents the Adviser is not a
broker-dealer, but is affiliated with a broker-dealer, and it has
implemented a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition of, or
changes to, the Fund's portfolio.\7\
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    \5\ All statements and representations made in this filing
regarding (a) the description of the portfolio, (b) limitations on
portfolio holdings or reference assets, or (c) the applicability of
Exchange rules and surveillance procedures shall constitute
continued listing requirements for listing the Shares on the
Exchange.
    \6\ The Exchange represents that the Trust is registered under
the Investment Company Act of 1940 (``1940 Act''). See Registration
Statement on Form N-1A for the Trust, dated November 10, 2015 (File
Nos. 333-201473 and 811-22926) (``Registration Statement''). The
Exchange further states that the Trust has obtained certain
exemptive relief under the 1940 Act.
    \7\ See BATS Rule 14.11(i)(7). The Exchange further represents
that, in the event that (a) the Adviser or a Sub-Adviser becomes, or
becomes newly affiliated with, a broker-dealer or registers as a
broker-dealer, or (b) any new adviser or sub-adviser is a registered
broker-dealer or becomes affiliated with a broker-dealer, it will
implement a fire wall with respect to its relevant personnel or such
broker-dealer affiliate, as applicable, regarding access to
information concerning the composition of, or changes to, the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material, non-public information regarding
such portfolio.
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A. Exchange's Description of the Fund's Investments \8\
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    \8\ The Commission notes that additional information regarding
the Fund, the Trust, the Subsidiary (as defined herein), and the
Shares, including investment strategies, risks, creation and
redemption procedures, fees, portfolio holdings disclosure policies,
calculation of net asset value (``NAV''), distributions, and taxes,
among other things, can be found in the Notice and the Registration
Statement, as applicable. See Notice and Registration Statement,
supra notes 3 and 5, respectively.
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    According to the Exchange, the Fund's investment objective will be
to provide total return which exceeds that of the Dow Jones RAFI
Commodity Index (``Benchmark'') \9\ consistent with prudent investment
management.\10\ The Fund will seek excess return above the Benchmark
through the active management of a short duration portfolio of highly
liquid, high quality bonds.
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    \9\ The Benchmark is developed, maintained, and sponsored by S&P
Dow Jones Indices LLC (``S&P Indices'').
    \10\ According to the Exchange, the Benchmark currently contains
24 commodities across three major sectors including energy,
agriculture and livestock, and metals. See Notice, supra note 3
(providing additional information regarding the Benchmark and its
components, including a table describing each of the commodities
underlying the futures contracts included in the Benchmark as of
October 31, 2015, and each instrument's trading hours, exchange, and
ticker symbol).
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    The Fund will be an actively managed fund that seeks to achieve its
investment objective by investing, under normal market conditions,\11\
in exchange-traded commodity futures contracts, centrally cleared and
non-centrally cleared swaps,\12\ exchange-traded options on futures
contracts, and exchange-traded commodity-linked instruments \13\
(collectively, ``Commodities'') through a wholly-owned subsidiary
controlled by the Fund and organized under the laws of the Cayman
Islands (``Subsidiary''), thereby obtaining exposure to the commodities
markets.
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    \11\ The term ``under normal market conditions'' includes, but
is not limited to, the absence of extreme volatility or trading
halts in the fixed income markets, futures markets or the financial
markets generally; operational issues causing dissemination of
inaccurate market information; or force majeure type events such as
systems failure, natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption, or any similar
intervening circumstance.
    \12\ Investments in non-centrally cleared swaps (through the
Subsidiary) will not represent more than 20% of the Fund's net
assets. When investing in non-centrally cleared swaps, the
Subsidiary will seek, where possible, to use counterparties, as
applicable, whose financial status is such that the risk of default
is reduced; however, the risk of losses resulting from default is
still possible. The Adviser and/or a Sub-Adviser will evaluate the
creditworthiness of counterparties on an ongoing basis. In addition
to information provided by credit agencies, the Adviser's and/or a
Sub-Adviser's analysis will evaluate each approved counterparty
using various methods of analysis and may consider such factors as
the counterparty's liquidity, its reputation, the Adviser's and/or a
Sub-Adviser's past experience with the counterparty, its known
disciplinary history and its share of market participation.
    \13\ Exchange-traded commodity-linked instruments include only
the following: (1) Funds that provide exposure to commodities as
would be listed under Exchange Rules 14.11(b), (c), and (i); and (2)
pooled investment vehicles that invest primarily in commodities and
commodity-linked instruments as would be listed under Exchange Rules
14.11(d) and 14.11(e)(2), (4), (6), (7), (8), (9), and (10).
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    The Fund's Commodities investments, in part, will be comprised of
exchange-traded futures contracts on commodities that comprise the
Benchmark. Although the Fund, through the Subsidiary, will generally
hold many of the futures contracts included in the Benchmark, the Fund
and the Subsidiary will be actively managed and will not be obligated
to invest in all of (or to limit investments solely to) such futures
contracts. In addition, with respect to investments in exchange-traded
futures contracts, the Fund and the Subsidiary will not be obligated to
invest in the same amount or proportion as the Benchmark, or be
obligated to track the performance of the Benchmark. In addition to
exchange-traded futures contracts, the Fund's Commodities investments
will also be comprised of the following: Centrally cleared and non-
centrally cleared swaps on commodities; exchange-traded options on
futures contracts that provide exposure to the investment returns of
the commodities markets; and exchange-traded commodity-linked
instruments, without investing directly in physical commodities.
    The Fund will invest in Commodities through investments in the
Subsidiary and will not invest directly in physical commodities. The
Fund's investment in the Subsidiary may not exceed 25% of the Fund's
total assets. In addition to Commodities, the Fund's assets will be
invested in: (1) Short-term, investment grade fixed income securities,
including only the following instruments: U.S. government and agency
securities,\14\ corporate debt obligations,\15\ and repurchase
agreements; \16\ (2) money market instruments; \17\ (3) investment
companies (other than those that are commodity-linked instruments),\18\
including both exchange traded and non-exchange-traded investment
companies, that provide exposure to commodities, equity securities, and

fixed income securities to the extent permitted under the 1940 Act and
any applicable exemptive relief; \19\ (4) certain bank instruments;
\20\ and (5) cash and other cash equivalents (collectively, ``Other
Investments''). The Fund will use the Other Investments as investments,
to provide liquidity, and to collateralize the Subsidiary's commodity
exposure on a day-to-day basis.
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    \14\ Such securities are securities that are issued or
guaranteed by the U.S. Treasury, by various agencies of the U.S.
government, or by various instrumentalities, which have been
established or sponsored by the U.S. government. U.S. Treasury
obligations are backed by the ``full faith and credit'' of the U.S.
government. Securities issued or guaranteed by federal agencies and
U.S. government-sponsored instrumentalities may or may not be backed
by the full faith and credit of the U.S. government.
    \15\ At least 75% of corporate debt obligations will have a
minimum principal amount outstanding of $100 million or more.
    \16\ The Fund intends to enter into repurchase agreements only
with financial institutions and dealers believed by the Adviser and/
or a Sub-Adviser to present minimal credit risks in accordance with
criteria approved by the Trust's Board of Trustees (``Board''). The
Adviser and/or a Sub-Adviser will review and monitor the
creditworthiness of such institutions. The Adviser and/or a Sub-
Adviser will monitor the value of the collateral at the time the
transaction is entered into and at all times during the term of the
repurchase agreement.
    \17\ For the Fund's purposes, money market instruments will
include only the following instruments: Short-term, high-quality
securities issued or guaranteed by non-U.S. governments, agencies
and instrumentalities; non-convertible corporate debt securities
with remaining maturities of not more than 397 days that satisfy
ratings requirements under Rule 2a-7 under the 1940 Act; money
market mutual funds; and deposits and other obligations of U.S. and
non-U.S. banks and financial institutions. In addition, the Fund may
invest in commercial paper (short-term unsecured promissory notes),
but only if the commercial paper has received the highest rating
from at least one nationally recognized statistical rating
organization or, if unrated, has been judged by the Adviser and/or a
Sub-Adviser to be of comparable quality.
    \18\ According to the Exchange, the Fund may invest in the
securities of certain other investment companies in excess of the
limits imposed under the 1940 Act pursuant to an exemptive order
obtained by the Trust and the Adviser from the Commission. The
exchange-traded investment companies in which the Fund may invest
include Index Fund Shares (as described in Rule 14.11(c)), Portfolio
Depository Receipts (as described in Rule 14.11(b)), and Managed
Fund Shares (as described in Rule 14.11(i)). The non-exchange-traded
investment companies in which the Fund may invest include all non-
exchange-traded investment companies that are not money market
mutual funds, as described above. While the Fund and the Subsidiary
may invest in inverse commodity-linked instruments and securities of
investment companies, the Fund and the Subsidiary will not invest in
leveraged or inverse leveraged (e.g., 2X or -3X) commodity-linked
instruments or securities of investment companies.
    \19\ The exchange-traded investment companies and commodity-
linked instruments in which the Fund invests will be listed and
traded in the U.S. on registered exchanges.
    \20\ The term ``certain bank instruments'' includes only the
following instruments: Certificates of deposit issued against funds
deposited in a bank or savings and loan association; bankers'
acceptances, which are short-term credit instruments used to finance
commercial transactions; and bank time deposits, which are monies
kept on deposit with banks or savings and loan associations for a
stated period of time at a fixed rate of interest.
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    The Fund's investment in the Subsidiary will be designed to help
the Fund achieve exposure to commodity returns in a manner consistent
with the federal tax requirements applicable to the Fund and other
regulated investment companies. The Fund intends to qualify for, and to
elect to be treated as, a separate regulated investment company under
Subchapter M of the Internal Revenue Code.

B. Exchange's Description of the Subsidiary's Investments

    The Subsidiary will generally seek to make investments in
Commodities, and its portfolio will be managed by the Adviser or a Sub-
Adviser.\21\ The Adviser or a Sub-Adviser will use its discretion to
determine the percentage of the Fund's assets allocated to the
Commodities held by the Subsidiary that will be invested in exchange-
traded commodity futures contracts, centrally cleared and non-centrally
cleared swaps, exchange-traded options on futures contracts, and
exchange-traded commodity-linked instruments. In this regard, under
normal market conditions, the Subsidiary is expected, as a general
matter, to invest in futures contracts in proportional weights and
allocations that are similar to the Benchmark, as well as in the other
Commodities. Additionally, the Subsidiary, like the Fund, may invest in
Other Investments (e.g., as investments, to serve as margin or
collateral, or to otherwise support the Subsidiary's positions in
Commodities).
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    \21\ The Exchange states that the Subsidiary will not be
registered under the 1940 Act and will not be directly subject to
its investor protections, except as noted in the Registration
Statement. However, the Subsidiary will be wholly-owned and
controlled by the Fund. Therefore, the Fund's ownership and control
of the Subsidiary will prevent the Subsidiary from taking action
contrary to the interests of the Fund or its shareholders. The Board
will have oversight responsibility for the investment activities of
the Fund, including its expected investment in the Subsidiary, and
the Fund's role as the sole shareholder of the Subsidiary. The
Subsidiary will also enter into separate contracts for the provision
of custody, transfer agency, and accounting agent services with the
same or with affiliates of the same service providers that provide
those services to the Fund.
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    The Fund's investment in the Subsidiary is intended to provide the
Fund with exposure to commodity markets within the limits of current
federal income tax laws applicable to investment companies such as the
Fund, which limit the ability of investment companies to invest
directly in the derivative instruments. The Subsidiary will have the
same investment objective as the Fund, but unlike the Fund, it may
invest without limitation in Commodities. The Subsidiary's investments
will provide the Fund with exposure to domestic and international
markets.

C. Exchange's Description of Commodities Regulation

    The Commodity Futures Trading Commission (``CFTC'') has adopted
substantial amendments to CFTC Rule 4.5 relating to the permissible
exemptions and conditions for reliance on exemptions from registration
as a commodity pool operator. As a result of the instruments that will
be indirectly held by the Fund, the Adviser will register as a
commodity pool operator and will also become a member of the National
Futures Association (``NFA''). Any Sub-Adviser will register as a
commodity pool operator or commodity trading adviser, as required by
CFTC regulations. The Fund and the Subsidiary will be subject to
regulation by the CFTC and NFA and additional disclosure, reporting,
and recordkeeping rules imposed upon commodity pools.

D. Exchange's Description of the Fund's Investment Restrictions

    While the Fund will be permitted to borrow as permitted under the
1940 Act, the Fund's investments will not be used to seek performance
that is the multiple or inverse multiple (i.e., 2X and -3X) of the
Benchmark. In addition, the Fund may not invest more than 25% of the
value of its total assets in securities of issuers in any one industry
or group of industries. This restriction will not apply to obligations
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or securities of other investment companies.
    The Subsidiary's shares will be offered only to the Fund, and the
Fund will not sell shares of the Subsidiary to other investors. The
Fund and the Subsidiary will not invest in any non-U.S. equity
securities (other than shares of the Subsidiary). The Fund will not
purchase securities of open-end or closed-end investment companies,
except in compliance with the 1940 Act or any applicable exemptive
relief. In addition, the Exchange represents that, with respect to the
futures contracts and exchange-traded options on futures contracts in
which the Subsidiary invests, not more than 10% of the weight (to be
calculated as the value of the contract divided by the total absolute
notional value of the Subsidiary's futures and options contracts) of
the futures and options contracts held by the Subsidiary, in the
aggregate, shall consist of instruments whose principal trading market
is a market from which the Exchange may not obtain information
regarding trading in the futures contracts and exchange-traded options
on futures contracts by virtue of: (a) Its membership in the
Intermarket Surveillance Group (``ISG''); or (b) a comprehensive
surveillance sharing agreement.
    The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including securities deemed illiquid by the Adviser.\22\ The Fund will
monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets, as determined in
accordance with Commission staff guidance.
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    \22\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers,
and the mechanics of transfer).
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and
finds that it is consistent with the requirements of Section 6 of the
Act \23\ and the rules and regulations thereunder applicable to a
national

securities exchange.\24\ In particular, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act,\25\ which
requires, among other things, that the Exchange's rules be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.
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    \23\ 15 U.S.C. 78f.
    \24\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposal is consistent with
Section 11A(a)(1)(C)(iii) of the Act,\26\ which sets forth the finding
of Congress that it is in the public interest and appropriate for the
protection of investors and the maintenance of fair and orderly markets
to assure the availability to brokers, dealers, and investors of
information with respect to quotations for, and transactions in,
securities. Quotation and last-sale information for the Shares will be
available on the facilities of the Consolidated Tape Association
(``CTA''). An estimated value, defined in BATS Rule 14.11(i)(3)(C) as
the Intraday Indicative Value (``IIV''), that reflects an estimated
intraday value of the Fund's portfolio (including the Subsidiary's
portfolio), will be disseminated. The IIV will be based upon the
current value for the components of the Disclosed Portfolio (as defined
below) and will be updated and widely disseminated by one or more major
market data vendors and broadly displayed at least every 15 seconds
during the Exchange's Regular Trading Hours.\27\ On each business day,
before commencement of trading in Shares during Regular Trading
Hours,\28\ the Fund will disclose on its Web site the identities and
quantities of the portfolio of securities, Commodities, and other
assets (``Disclosed Portfolio'' as defined in Rule 14.11(i)(3)(B)) held
by the Fund and the Subsidiary that will form the basis for the Fund's
calculation of NAV at the end of the business day.\29\ The NAV of the
Fund's Shares generally will be calculated once daily Monday through
Friday as of the close of regular trading on the New York Stock
Exchange, generally 4:00 p.m. Eastern Time.\30\ Additionally,
information regarding market price and volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. The previous
day's closing price and trading volume information for the Shares will
also be published daily in the financial section of newspapers. Intra-
day executable price quotations on the securities and other assets held
by the Fund and the Subsidiary will be available from major broker-
dealer firms or on the exchange on which they are traded, as
applicable. Intra-day price information on the securities and other
assets held by the Fund and the Subsidiary will also be available
through subscription services, such as Bloomberg and Thomson Reuters,
which can be accessed by authorized participants and other
investors.\31\ Daily trading volume information for the Fund will also
be available in the financial section of newspapers, through
subscription services such as Bloomberg, Thomson Reuters, and
International Data Corporation, which can be accessed by authorized
participants and other investors, as well as through other electronic
services, including major

public Web sites. The Fund's Web site will include a form of the
prospectus for the Fund and additional data relating to NAV and other
applicable quantitative information. Information relating to the
Benchmark, including its constituents, weightings, and changes to its
constituents, will be available on the Web site of S&P Indices.
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    \26\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \27\ According to the Exchange, several major market data
vendors display and/or make widely available Intraday Indicative
Values published via the CTA or other data feeds.
    \28\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern
Time.
    \29\ According to the Exchange, the Fund's disclosure of
derivative positions in the Disclosed Portfolio will include
information that market participants can use to value these
positions intraday. On a daily basis, the Disclosed Portfolio
displayed on the Fund's Web site will include the following
information regarding each portfolio holding, as applicable to the
type of holding: Ticker symbol, CUSIP number or other identifier, if
any; a description of the holding (including the type of holding,
such as the type of swap), the identity of the security, commodity,
or other asset or instrument underlying the holding, if any; for
options, the option strike price; quantity held (as measured by, for
example, par value, notional value, or number of shares, contracts,
or units); maturity date, if any; coupon rate, if any; effective
date, if any; market value of the holding; and percentage weighting
of the holding in the Fund's portfolio. The Web site and information
will be publicly available at no charge.
    \30\ In determining the value of the assets held by the Fund and
the Subsidiary, the Fund's and the Subsidiary's investments will be
generally valued using market valuations. A market valuation
generally means a valuation (i) obtained from an exchange, a pricing
service, or a major market maker (or dealer), (ii) based on a price
quotation or other equivalent indication of value supplied by an
exchange, a pricing service, or a major market maker (or dealer), or
(iii) based on amortized cost. The Fund and the Subsidiary may use
various pricing services or discontinue the use of any pricing
service. A price obtained from a pricing service based on such
pricing service's valuation matrix may be considered a market
valuation. If available, debt securities and money market
instruments with maturities of more than 60 days will typically be
priced based on valuations provided by independent, third party
pricing agents. Such values will generally reflect the last reported
sales price if the security is actively traded. The third party
pricing agents may also value debt securities at an evaluated bid
price by employing methodologies that utilize actual market
transactions, broker supplied valuations, or other methodologies
designed to identify the market value for such securities. Debt
obligations with remaining maturities of 60 days or less may be
valued on the basis of amortized cost, which approximates market
value. If such prices are not available, the security will be valued
based on values supplied by independent brokers or by fair value
pricing, as described below. Futures contracts will be valued at the
settlement price established each day by the board or exchange on
which they are traded. Exchange-traded options will be valued at the
closing price in the market where such contracts are principally
traded. Swaps will be valued based on valuations provided by
independent, third-party pricing agents. Securities of non-exchange-
traded investment companies will be valued at NAV. Equity securities
listed on a securities exchange (including exchange-traded commodity
linked instruments and exchange-traded investment companies), market
or automated quotation system for which quotations are readily
available (except for securities traded on The NASDAQ Stock Market
LLC (``NASDAQ'') and the London Stock Exchange Alternative
Investment Market (``LSE AIM'')) will be valued at the last reported
sale price on the primary exchange or market on which they are
traded on the valuation date (or at approximately 4:00 p.m. Eastern
Time if a security's primary exchange is normally open at that
time). For a security that trades on multiple exchanges, the primary
exchange will generally be considered to be the exchange on which
the security generally has the highest volume of trading activity.
If it is not possible to determine the last reported sale price on
the relevant exchange or market on the valuation date, the value of
the security will be taken to be the most recent mean between the
bid and asked prices on such exchange or market on the valuation
date. Absent both bid and asked prices on such exchange, the bid
price may be used. For securities traded on NASDAQ or LSE AIM, the
official closing price will be used. If such prices are not
available, the security will be valued based on values supplied by
independent brokers or by fair value pricing, as described below.
The prices for foreign instruments will be reported in local
currency and converted to U.S. dollars using currency exchange
rates. Exchange rates will be provided daily by recognized
independent pricing agents. In the event that current market
valuations are not readily available or such valuations do not
reflect current market values, the affected investments will be
valued using fair value pricing pursuant to the pricing policy and
procedures approved by the Board in accordance with the 1940 Act.
Fair value pricing may require subjective determinations about the
value of an asset and may result in prices that differ from the
value that would be realized if the asset was sold.
    \31\ More specifically, the Exchange represents that pricing
information for exchange-traded commodity futures contracts,
exchange-traded options on futures contracts, exchange-traded
commodity-linked instruments, exchange-traded investment companies
other than exchange-traded commodity-linked instruments will be
available on the exchanges on which they are traded and through
subscription services. Pricing information for securities of non-
exchange-traded investment companies will be available through the
applicable fund's Web site or major market data vendors. Pricing
information for swaps, fixed income securities, and money market
instruments will be available through subscription services, broker-
dealer firms, and/or pricing services. Additionally, the Trade
Reporting and Compliance Engine (``TRACE'') of the Financial
Industry Regulatory Authority (``FINRA'') will be a source of price
information for certain fixed income securities held by the Fund.
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    The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily, and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.\32\
Trading in the Shares also will be subject to BATS Rule
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares
of the Fund may be halted.\33\ The Exchange may halt trading in the
Shares if trading is not occurring in the securities, Commodities, or
other assets constituting the Disclosed Portfolio of the Fund and the
Subsidiary, or if other unusual conditions or circumstances detrimental
to the maintenance of a fair and orderly market are present.\34\
Further, the Commission notes that the Reporting Authority that
provides the Disclosed Portfolio must implement and maintain, or be
subject to, procedures designed to prevent the use and dissemination of
material, non-public information regarding the actual components of the
portfolio.\35\ The Exchange states that it prohibits the distribution
of material, non-public information by its employees. The Exchange also
represents that the Adviser is affiliated with a broker-dealer, and the
Adviser has implemented a fire wall with respect to that broker-dealer
affiliate regarding access to information concerning the composition
of, or changes to, the Fund's portfolio.\36\ Moreover, the Exchange
represents that it may obtain information regarding trading in the
Shares and the underlying shares in exchange-traded investment
companies, commodity-linked instruments, futures, and options on
futures via ISG, from other exchanges who are members or affiliates of
ISG, or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.
---------------------------------------------------------------------------

    \32\ See BATS Rule 14.11(i)(4)(A)(ii).
    \33\ See BATS Rule 14.11(i)(4)(B)(iv).
    \34\ See BATS Rule 14.11(i)(4)(B)(iii) (providing additional
considerations for the suspension of trading in or removal from
listing of Managed Fund Shares on the Exchange). With respect to
trading halts, the Exchange may consider all relevant factors in
exercising its discretion to halt or suspend trading in the Shares
of the Fund. The Exchange will halt trading in the Shares under the
conditions specified in BATS Rule 11.18. Trading also may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable.
    \35\ See BATS Rule 14.11(i)(4)(B)(ii)(B).
    \36\ See supra note 7 and accompanying text. An investment
adviser to an open-end fund is required to be registered under the
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the
Adviser and any Sub-Adviser and their related personnel are subject
to the provisions of Rule 204A-1 under the Advisers Act relating to
codes of ethics. This Rule requires investment advisers to adopt a
code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
---------------------------------------------------------------------------

    The Exchange further represents that the Shares are deemed to be
equity securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
    (1) The Shares will be subject to BATS Rule 14.11(i), which sets
forth the initial and continued listing criteria applicable to Managed
Fund Shares.
    (2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
    (3) The Exchange believes that its surveillance procedures are
adequate to properly monitor the trading of the Shares on the Exchange
during all trading sessions and to deter and detect violations of
Exchange rules and the applicable federal securities laws. Trading of
the Shares through the Exchange will be subject to the Exchange's
surveillance procedures for derivative products, including Managed Fund
Shares.
    (4) The Exchange will communicate as needed regarding trading in
the Shares and in the exchange-traded Commodities and exchange-traded
investment companies not included within the definition of Commodities
(together, ``Exchange Traded Instruments'') held by the Fund and the
Subsidiary with other markets and other entities that are members of
ISG and may obtain trading information regarding trading in the Shares
and in the Exchange Traded Instruments held by the Fund and the
Subsidiary from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares and in
the Exchange Traded Instruments held by the Fund and the Subsidiary
from markets and other entities that are members of ISG, which includes
securities and futures exchanges, or with which the Exchange has in
place a comprehensive surveillance sharing agreement. The Exchange also
will be able to access, as needed, trade information for certain fixed
income securities held by the Fund reported to FINRA's TRACE.
    (5) With respect to the futures contracts and exchange-traded
options on futures contracts in which the Subsidiary invests, not more
than 10% of the weight (to be calculated as the value of the contract
divided by the total absolute notional value of the Subsidiary's
futures and options contracts) of the futures and options contracts
held by the Subsidiary, in the aggregate, shall consist of instruments
whose principal trading market is a market from which the Exchange may
not obtain information regarding trading in the futures contracts and
exchange-traded options on futures contracts by virtue of: (a) Its
membership in ISG; or (b) a comprehensive surveillance sharing
agreement.
    (6) Prior to the commencement of trading, the Exchange will inform
its members in an Information Circular (``Circular'') of the special
characteristics and risks associated with trading the Shares.
Specifically, the Circular will discuss the following: (a) The
procedures for purchases and redemptions of Shares in Creation Units
(and that Shares are not individually redeemable); (b) BATS Rule 3.7,
which imposes suitability obligations on Exchange members with respect
to recommending transactions in the Shares to customers; (c) how
information regarding the IIV and the Disclosed Portfolio is
disseminated; (d) the risks involved in trading the Shares during the
Pre-Opening \37\ and After Hours Trading Sessions \38\ when an

updated IIV will not be calculated or publicly disseminated; (e) the
requirement that members deliver a prospectus to investors purchasing
newly issued Shares prior to or concurrently with the confirmation of a
transaction; and (f) trading information.
---------------------------------------------------------------------------

    \37\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m.
Eastern Time.
    \38\ The After Hours Trading Session is from 4:00 p.m. to 5:00
p.m. Eastern Time.
---------------------------------------------------------------------------

    (7) For initial and continued listing, the Fund and the Subsidiary
must be in compliance with Rule 10A-3 under the Act.\39\
---------------------------------------------------------------------------

    \39\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (8) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including securities deemed illiquid by the Adviser under the 1940 Act.
    (9) The Fund will invest in Commodities through investments in the
Subsidiary and will not invest directly in physical commodities. The
Fund's investment in the Subsidiary may not exceed 25% of the Fund's
total assets. The Fund and the Subsidiary will not invest in any non-
U.S. equity securities (other than shares of the Subsidiary).
    (10) Investments in non-centrally cleared swaps (through the
Subsidiary) will not represent more than 20% of the Fund's net assets.
    (11) At least 75% of corporate debt obligations will have a minimum
principal amount outstanding of $100 million or more. In addition, the
exchange-traded investment companies and commodity-linked instruments
in which the Fund invests will be listed and traded in the U.S. on
registered exchanges.
    (12) While the Fund will be permitted to borrow as permitted under
the 1940 Act, the Fund's investments will not be used to seek
performance that is the multiple or inverse multiple (i.e., 2X and -3X)
of the Benchmark.
    (13) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
    The Exchange represents that all statements and representations
made in the filing regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules and surveillance procedures constitute
continued listing requirements for listing the Shares on the Exchange.
In addition, the issuer has represented to the Exchange that it will
advise the Exchange of any failure by the Fund to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange will surveil for compliance
with the continued listing requirements. If the Fund is not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under Exchange Rule 14.12. This approval
order is based on all of the Exchange's representations and description
of the Fund, including those set forth above and in the Notice. The
Commission notes that the Fund and the Shares must comply with the
requirements of BATS Rule 14.11(i), including those set forth in this
proposed rule change, to be listed and traded on the Exchange on an
initial and continuing basis.
    For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 1 and 3 thereto, is
consistent with Section 6(b)(5) of the Act \40\ and the rules and
regulations thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \40\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\41\ that the proposed rule change (SR-BATS-2016-03), as modified
by Amendment Nos. 1 and 3 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78s(b)(2).
    \42\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\42\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07687 Filed 4-4-16; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register: July 30, 2008 (Volume 73, Number 147)]
[Rules and Regulations]
[Page 44157-44162]
[DOCID:fr30jy08-13]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 180

[EPA-HQ-OPP-2006-0234; FRL-8370-8]

Gentamicin; Pesticide Tolerance for Emergency Exemptions

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: This regulation establishes a time-limited tolerance for
residues of gentamicin in or on apples. This action is in response to
EPA's granting of an emergency exemption under section 18 of the
Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) authorizing
use of the pesticide on apples. This regulation establishes a maximum
permissible level for residues of gentamicin in this food commodity.
The time-limited tolerance expires and is revoked on December 31, 2010.

DATES: This regulation is effective July 30, 2008. Objections and
requests for hearings must be received on or before September 29, 2008,
and must be filed in accordance with the instructions provided in 40
CFR part 178 (see also Unit I.C. of the SUPPLEMENTARY INFORMATION.

ADDRESSES: EPA has established a docket for this action under docket
identification (ID) number EPA-HQ-OPP-2006-0234. To access the
electronic docket, go to http://www.regulations.gov, select ``Advanced
Search,'' then ``Docket Search.'' Insert the docket ID number where
indicated and select the ``Submit'' button. Follow the instructions on
the regulations.gov website to view the docket index or access
available documents. All documents in the docket are listed in the
docket index available in regulations.gov. Although listed in the
index, some information is not publicly available, e.g., Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. Certain other material, such as copyrighted
material, is not placed on the Internet and will be publicly available
only in hard copy form. Publicly available docket materials are
available either in the electronic docket at http://
www.regulations.gov, or, if only available in hard copy, at the Office
of Pesticide Programs (OPP) Regulatory Public Docket in Rm. S-4400, One
Potomac Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. The
hours of operation of this Docket Facility are from 8:30 a.m. to 4
p.m., Monday through Friday, excluding legal holidays. The Docket
Facility telephone number is<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: Andrew Ertman, Registration Division
(7505P), Office of Pesticide Programs, Environmental Protection Agency,
1200 Pennsylvania Ave., NW., Washington, DC 20460-0001; telephone
number:<PHONE_NUMBER>; e-mail address<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this Action Apply to Me?

    You may be potentially affected by this action if you are an
agricultural producer, food manufacturer, or pesticide manufacturer.
Potentially affected entities may include, but are not limited to:
     Crop production (NAICS code 111).
     Animal production (NAICS code 112).
     Food manufacturing (NAICS code 311).
     Pesticide manufacturing (NAICS code 32532).
    This listing is not intended to be exhaustive, but rather provides
a guide for readers regarding entities likely to be affected by this
action. Other types of entities not listed in this unit could also be
affected. The North American Industrial Classification System (NAICS)
codes have been provided to assist you and others in determining
whether this action might apply to certain entities. If you have any
questions regarding the applicability of this action to a particular
entity, consult the person listed under FOR FURTHER INFORMATION
CONTACT.

 B. How Can I Access Electronic Copies of this Document?

    In addition to accessing an electronic copy of this Federal
Register document through the electronic docket at http://
www.regulations.gov, you may access this Federal Register document
electronically through the EPA Internet under the ``Federal Register''
listings at http://www.epa.gov/fedrgstr. You may also access a
frequently updated electronic version of 40 CFR part 180 through the
Government Printing Office's pilot e-CFR site at http://
www.gpoaccess.gov/ecfr.

C. Can I File an Objection or Hearing Request?

    Under section 408(g) of the Federal Food, Drug, and Cosmetic Act
(FFDCA), as amended by the Food Quality Protection Act of 1996 (FQPA),
any person may file an objection to any aspect of this regulation and
may also request a hearing on those objections. The EPA procedural
regulations which govern the submission of objections and requests for
hearings appear in 40 CFR part 178. You must file your objection or
request a hearing on this regulation in accordance with the
instructions provided in 40 CFR part 178. To ensure proper receipt by
EPA, you must identify docket ID number EPA-HQ-OPP-2006-0234 in the
subject line on the first page of your submission. All requests must be
in writing, and must be mailed or delivered to the Hearing Clerk on or
before September 29, 2008.
    In addition to filing an objection or hearing request with the
Hearing Clerk as described in 40 CFR part 178, please submit a copy of
the filing that does not contain any CBI for inclusion in the public
docket that is described in ADDRESSES. Information not marked
confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA
without prior notice. Submit your copies, identified by docket ID
number EPA-HQ-OPP-2006-0234, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov.
Follow the on-line instructions for submitting comments.
     Mail: Office of Pesticide Programs (OPP) Regulatory Public
Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania
Ave., NW., Washington, DC 20460-0001.
     Delivery: OPP Regulatory Public Docket (7502P),
Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South
Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only
accepted during the Docket's normal hours of operation (8:30 a.m. to 4
p.m., Monday through Friday, excluding legal holidays). Special
arrangements should be made for deliveries of boxed information. The
Docket Facility telephone number is<PHONE_NUMBER>.

II. Background and Statutory Findings

    EPA, on its own initiative, in accordance with sections 408(e) and
408(l)(6) of FFDCA, 21 U.S.C. 346a(e) and 346a(1)(6), is establishing a
time-limited tolerance for residues of the agricultural antibiotic
gentamicin, in or on apples at 0.10 parts per million (ppm). This time-
limited tolerance expires and is revoked on December 31, 2010. EPA will
publish a document in the Federal Register to remove the revoked
tolerances from the CFR.
    Section 408(l)(6) of FFDCA requires EPA to establish a time-limited
tolerance or exemption from the requirement for a tolerance for
pesticide chemical residues in food that will result from the use of a
pesticide under an emergency exemption granted by EPA under section 18
of FIFRA. Such tolerances can be established without providing notice
or period for public comment. EPA does not intend for its actions on
section 18 related time-limited tolerances to set binding precedents
for the application of section 408 of FFDCA and the new safety standard
to other tolerances and exemptions. Section 408(e) of FFDCA allows EPA
to establish a tolerance or an exemption from the requirement of a
tolerance on its own initiative, i.e., without having received any
petition from an outside party.
    Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a
tolerance (the legal limit for a pesticide chemical residue in or on a
food) only if EPA determines that the tolerance is ``safe.'' Section
408(b)(2)(A)(ii) of FFDCA defines ``safe'' to mean that ``there is a
reasonable certainty that no harm will result from aggregate exposure
to the pesticide chemical residue, including all anticipated dietary
exposures and all other exposures for which there is reliable
information.'' This includes exposure through drinking water and in
residential settings, but does not include occupational exposure.
Section 408(b)(2)(C) of FFDCA requires EPA to give special
consideration to exposure of infants and children to the pesticide
chemical residue in establishing a tolerance and to ``ensure that there
is a reasonable certainty that no harm will result to infants and
children from aggregate exposure to the pesticide chemical residue. * *
*''
    Section 18 of FIFRA authorizes EPA to exempt any Federal or State
agency from any provision of FIFRA, if EPA determines that ``emergency
conditions exist which require such exemption.'' EPA has established
regulations governing such emergency exemptions in 40 CFR part 166.

III. Emergency Exemption for Gentamicin on Apples and FFDCA Tolerances

    The State of Michigan requested the use of gentamicin on apples due
to the development of resistance of fire blight to the pesticide
streptomycin and the lack of viable control options. After having
reviewed the submission, EPA determined that emergency conditions exist
for this State, and that the criteria for an emergency exemption are
met. EPA has authorized under FIFRA section 18 the use of gentamicin on
apples for control of fire blight in Michigan.
    As part of its evaluation of the emergency exemption application,
EPA assessed the potential risks presented by residues of gentamicin in
or on apples. In doing so, EPA considered the safety standard in
section 408(b)(2) of FFDCA, and EPA decided that the necessary
tolerance under section 408(l)(6) of FFDCA would be consistent with the
safety standard and with FIFRA section 18. Consistent with the need to
move quickly on the emergency exemption in order to address an urgent
non-routine situation and to ensure that the resulting food is safe and
lawful, EPA is issuing this tolerance without notice and

opportunity for public comment as provided in section 408(l)(6) of
FFDCA. Although this time-limited tolerance expires and is revoked on
December 31, 2010, under section 408(l)(5) of FFDCA, residues of the
pesticide not in excess of the amount specified in the tolerance
remaining in or on apples after that date will not be unlawful,
provided the pesticide was applied in a manner that was lawful under
FIFRA, and the residues do not exceed a level that was authorized by
this time-limited tolerance at the time of that application. EPA will
take action to revoke this time-limited tolerance earlier if any
experience with, scientific data on, or other relevant information on
this pesticide indicate that the residues are not safe.
    Because this time-limited tolerance is being approved under
emergency conditions, EPA has not made any decisions about whether
gentamicin meets FIFRA's registration requirements for use on apples or
whether a permanent tolerance for this use would be appropriate. Under
these circumstances, EPA does not believe that this time-limited
tolerance decision serves as a basis for registration of gentamicin by
a State for special local needs under FIFRA section 24(c). Nor does
this tolerance serve as the basis for persons in any State other than
Michigan to use this pesticide on this crop under FIFRA section 18
absent the issuance of an emergency exemption applicable within that
State. For additional information regarding the emergency exemption for
gentamicin, contact the Agency's Registration Division at the address
provided under FOR FURTHER INFORMATION CONTACT.

IV. Aggregate Risk Assessment and Determination of Safety

    Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a
tolerance (the legal limit for a pesticide chemical residue in or on a
food) only if EPA determines that the tolerance is ``safe.'' Section
408(b)(2)(A)(ii) of FFDCA defines ``safe'' to mean that ``there is a
reasonable certainty that no harm will result from aggregate exposure
to the pesticide chemical residue, including all anticipated dietary
exposures and all other exposures for which there is reliable
information.'' This includes exposure through drinking water and in
residential settings, but does not include occupational exposure.
Section 408(b)(2)(C) of FFDCA requires EPA to give special
consideration to exposure of infants and children to the pesticide
chemical residue in establishing a tolerance and to ``ensure that there
is a reasonable certainty that no harm will result to infants and
children from aggregate exposure to the pesticide chemical residue. . .
.''
    Consistent with the factors specified in FFDCA section
408(b)(2)(D), EPA has reviewed the available scientific data and other
relevant information in support of this action. EPA has sufficient data
to assess the hazards of and to make a determination on aggregate
exposure expected as a result of this emergency exemption request and
the time-limited tolerance for residues of gentamicin on apples at 0.10
ppm. EPA's assessment of exposures and risks associated with
establishing time-limited tolerances follows.

A. Toxicological Endpoints

    For hazards that have a threshold below which there is no
appreciable risk, a toxicological point of departure (POD) is
identified as the basis for derivation of reference values for risk
assessment. The POD may be defined as the highest dose at which no
adverse effect are observed (the NOAEL) in the toxicology study
identified as appropriate for use in risk assessment. However, if a
NOAEL cannot be determined, the lowest dose at which adverse effects
are observed of concern are identified (the LOAEL) or a Benchmark Dose
(BMD) approach is sometimes used for risk assessment. Uncertainty/
safety factors (UFs) are used in conjunction with the POD to take into
account uncertainties inherent in the extrapolation from laboratory
animal data to humans and in the variations in sensitivity among
members of the human population as well as other unknowns. Safety is
assessed for acute and chronic dietary risks by comparing aggregate
food and water exposure to the pesticide to the acute population
adjusted dose (aPAD) and chronic population adjusted dose (cPAD). The
aPAD and cPAD are calculated by dividing the POD by all applicable UFs.
Aggregate short-term, intermediate-term, and chronic-term risks are
evaluated by comparing food, water, and residential exposure to the POD
to ensure that the margin of exposure (MOE) called for by the product
of all applicable UFs is not exceeded. This latter value is referred to
as the Level of Concern (LOC).
    For non-threshold risks, the Agency assumes that any amount of
exposure will lead to some degree of risk. Thus, the Agency estimates
risk in terms of the probability of an occurrence of the adverse effect
greater than that expected in a lifetime. For more information on the
general principles EPA uses in risk characterization and a complete
description of the risk assessment process, see http://www.epa.gov/
pesticides/factsheets/riskassess.htm.
    A summary of the toxicological endpoints for gentamicin used for
human risk assessment can be found at http://www.regulations.gov in the
document registration 06MI01. ``Section 18 Emergency Exemption
for the application of Gentamicin Sulfate to Apples. Human-Health Risk
Assessment'' pages 25-26 in docket ID number EPA-HQ-OPP-2006-0234.

B. Exposure Assessment

    1. Dietary exposure from food and feed uses. In evaluating dietary
exposure to gentamicin, EPA considered exposure under the time-limited
tolerance established by this action. EPA assessed dietary exposures
from gentamicin in food as follows:
    i. Acute exposure. No such effects were identified in the
toxicological studies for gentamicin; therefore, a quantitative acute
dietary exposure assessment is unnecessary.
    ii. Chronic exposure. A Tier 1 chronic dietary-exposure assessment
was conducted using the established/recommended tolerances for all food
commodities, 100% crop treated information for all proposed and
existing uses, and DEEMTM Version 7.81 default processing
factors for some processed commodities. Drinking water was incorporated
directly into the dietary assessment using the EDWC generated by
GENEEC2.
    iii. Cancer. A cancer dietary exposure assessment was not performed
for gentamicin because gentamicin is not likely to be carcinogenic to
humans.
    iv. Anticipated residue and percent crop treated (PCT) information.
EPA did not use anticipated residue and/or PCT information in the
dietary assessment for gentamicin. Tolerance level residues and/or 100%
CT were assumed for all food commodities.
    2. Dietary exposure from drinking water.The Agency used screening
level water exposure models in the dietary exposure analysis and risk
assessment for gentamicin in drinking water. These simulation models
take into account data on the physical, chemical, and fate/transport
characteristics of gentamicin. Further information regarding EPA
drinking water models used in pesticide exposure assessment can be
found at http://www.epa.gov/oppefed1/models/water/index.htm.
    A Tier I Generic Expected Environmental Concentration (GENEEC2)
screening model was used to determine estimated surface water
concentrations of gentamicin following 3 applications to apples.

    Based on the GENEEC2 model described above, the highest estimated
drinking water concentration (EDWC) of gentamicin for chronic exposure
is estimated to be 45.08 ppb for ground water and surface water.
Modeled estimates of drinking water concentrations were directly
entered into the dietary exposure model (DEEM Version 7.81). The
modeled exposure scenario was conservative, as compared to the section
18 use pattern.
    3. From non-dietary exposure. The term ``residential exposure'' is
used in this document to refer to non-occupational, non-dietary
exposure (e.g., for lawn and garden pest control, indoor pest control,
termiticides, and flea and tick control on pets).
    Gentamicin is not registered for any specific use patterns that
would result in residential exposure.
    4. Cumulative effects from substances with a common mechanism of
toxicity. Section 408(b)(2)(D)(v) of FFDCA requires that, when
considering whether to establish, modify, or revoke a tolerance, the
Agency consider ``available information'' concerning the cumulative
effects of a particular pesticide's residues and ``other substances
that have a common mechanism of toxicity.''
    EPA has not found gentamicin to share a common mechanism of
toxicity with any other substances, and gentamicin does not appear to
produce a toxic metabolite produced by other substances. For the
purposes of this tolerance action, therefore, EPA has assumed that
gentamicin does not have a common mechanism of toxicity with other
substances. For information regarding EPA's efforts to determine which
chemicals have a common mechanism of toxicity and to evaluate the
cumulative effects of such chemicals, see the policy statements
released by EPA's Office of Pesticide Programs concerning common
mechanism determinations and procedures for cumulating effects from
substances found to have a common mechanism on EPA's website at http://
www.epa.gov/pesticides/cumulative.

C. Safety Factor for Infants and Children

    1. In general. Section 408(b)(2)(C) of FFDCA provides that EPA
shall apply an additional tenfold (10X) margin of safety for infants
and children in the case of threshold effects to account for prenatal
and postnatal toxicity and the completeness of the database on toxicity
and exposure unless EPA determines based on reliable data that a
different margin of safety will be safe for infants and children. This
additional margin of safety is commonly referred to as the FQPA safety
factor (SF). In applying this provision, EPA either retains the default
value of 10X, or uses a different additional SF when reliable data
available to EPA support the choice of a different factor.
    2. Prenatal and postnatal sensitivity. Based on data reviewed by
the Agency, there is no evidence of increased susceptibility in the
developmental studies in rats, rabbits, mice, and guinea pigs.
Furthermore, there is no evidence in increased susceptibility in the 2-
generation reproduction study in rats. In all studies, gentamicin was
tested parentrally, which is very conservative since about 1% of the
oral dose is absorbed. The doses tested in these studies are 100-fold
higher than the hypothetical oral dose. Therefore, there is no residual
uncertainty for prenatal and/or postnatal susceptibility
    3. Conclusion. EPA has determined that reliable data show that the
safety of infants and children would be adequately protected if the
FQPA SF were reduced to 1X. That decision is based on the following
findings:
    i. The toxicity database for gentamicin is complete.
    ii. There is no indication that gentamicin is a neurotoxic chemical
and there is no need for a developmental neurotoxicity study or
additional UFs to account for neurotoxicity.
    iii. There is no evidence that gentamicin results in increased
susceptibility in the developmental studies in rats, rabbits, mice, and
guinea pigs. There is no evidence of increased susceptibility in the 2-
generation reproduction study in rats.
    iv. There are no residual uncertainties identified in the exposure
databases. The dietary food exposure assessments were performed based
on 100 PCT and tolerance-level residues. EPA made conservative
(protective) assumptions in the ground water and surface water modeling
used to assess exposure to gentamicin in drinking water. These
assessments will not underestimate the exposure and risks posed by
gentamicin.

D. Aggregate Risks and Determination of Safety

    EPA determines whether acute and chronic pesticide exposures are
safe by comparing aggregate exposure estimates to the aPAD and cPAD.
The aPAD and cPAD represent the highest safe exposures, taking into
account all appropriate SFs. EPA calculates the aPAD and cPAD by
dividing the POD by all applicable UFs. For linear cancer risks, EPA
calculates the probability of additional cancer cases given the
estimated aggregate exposure. Short-term, intermediate-term, and
chronic-term risks are evaluated by comparing the estimated aggregate
food, water, and residential exposure to the POD to ensure that the MOE
called for by the product of all applicable UFs is not exceeded.
    1. Acute risk. An acute aggregate risk assessment takes into
account exposure estimates from acute dietary consumption of food and
drinking water. No adverse effect resulting from a single-oral exposure
was identified, therefore, no acute dietary endpoint was selected.
Therefore, gentamicin is not expected to pose an acute risk.
    2. Chronic risk. Using the exposure assumptions described in this
unit for chronic exposure, EPA has concluded that exposure to
gentamicin from food and water will utilize 1% of the cPAD for the U.S.
population, 4% of the cPAD for all infants less than 1 year old, and 3%
of the cPAD for children 1-2 years old. All other population subgroups
utilize 2% or less of the cPAD. There are no residential uses for
gentamicin that result in chronic residential exposure to gentamicin.
    3. Short-term and intermediate-term risk. Short-term and
intermediate-term aggregate exposure takes into account short-term
residential exposure plus chronic exposure to food and water
(considered to be a background exposure level).
    Gentamicin is not registered for any use patterns that would result
in residential exposure. Therefore, the short-term aggregate risk is
the sum of the risk from exposure to gentamicin through food and water
and will not be greater than the chronic aggregate risk.
    4. Aggregate cancer risk for U.S. population. Gentamicin is not
likely to be carcinogenic to humans and is therefore not expected to
pose a cancer risk.
    5. Pharmaceutical aggregate risk. Section 408 of the FFDCA requires
EPA to consider potential sources of exposure to a pesticide and
related substances in addition to the dietary sources expected to
result from a pesticide use subject to the tolerance. In order to
determine whether to maintain a pesticide tolerance, EPA must
``determine that there is a reasonable certainty of no harm.'' Under
FFDCA section 505, the Food and Drug Administration (FDA) reviews human
drugs for safety and effectiveness and may approve a drug
notwithstanding the possibility that some users may experience adverse
side effects. EPA does not believe that, for purposes of the section
408 dietary risk assessment, it is compelled to treat a pharmaceutical
user the same as a non-user, or to assume that combined exposures to

pesticide and pharmaceutical residues that lead to a physiological
effect in the user constitutes ``harm'' under the meaning of section
408 of the FFDCA. Rather, EPA believes the appropriate way to consider
the pharmaceutical use of gentamicin in its risk assessment is to
examine the impact that the additional nonoccupational pesticide
exposures would have to a pharmaceutical user exposed to a related (or,
in some cases, the same) compound. Where the additional pesticide
exposure has no more than a minimal impact on the pharmaceutical user,
EPA could make a reasonable certainty of no harm finding for the
pesticide tolerances of that compound under section 408 of the FFDCA.
If the potential impact on the pharmaceutical user as a result of co-
exposure from pesticide use is more than minimal, then EPA would not be
able to conclude that dietary residues were safe, and would need to
discuss with FDA appropriate measures to reduce exposure from one or
both sources.
    The pesticidal exposure estimates reflect the dietary dose from
pesticidal uses of gentamicin that a user treated with a pharmaceutical
gentamicin product would receive in a reasonable worst-case scenario.
EPA's pesticide exposure assessment has taken into consideration the
appropriate population, exposure route, and exposure duration for
comparison with exposure to the pharmaceutical use of gentamicin.
    EPA estimates that the pharmaceutical gentamicin exposure a user is
expected to receive from a typical therapeutic dose (3-7.5 milligrams/
kilogram/day (mg/kg/day)) is 2,400 to 6,000 times greater than the
estimated dietary exposure from the pesticidal sources of gentamicin
(0.001229 mg/kg/day). Therefore, because the pesticide exposure has no
more than a minimal impact on the total dose to a pharmaceutical user,
EPA believes that there is a reasonable certainty that the potential
dietary pesticide exposure will result in no harm to a user being
treated therapeutically with gentamicin. FDA has been made aware of
EPA's conclusions regarding pesticide exposure in users receiving
treatment with a pharmaceutical gentamicin drug product.
    6. Determination of safety. Based on these risk assessments, EPA
concludes that there is a reasonable certainty that no harm will result
to the general population, or to infants and children, from aggregate
exposure to gentamicin residues.

V. Other Considerations

A. Analytical Enforcement Methodology

    Adequate enforcement methodology is available to enforce the
tolerance expression. The method may be requested from: Chief,
Analytical Chemistry Branch, Environmental Science Center, 701 Mapes
Rd., Ft. Meade, MD 20755-5350; telephone number:<PHONE_NUMBER>; e-mail
address<EMAIL_ADDRESS>
B. International Residue Limits

    There are no Codex maximum residue limits (MRLs) for residues of
gentamicin on apples.

VI. Conclusion

    Therefore, a time-limited tolerance is established for residues of
gentamicin per se, in or on apple at 0.10 ppm. The tolerance expires
and is revoked on December 31, 2010.

VII. Statutory and Executive Order Reviews

    This final rule establishes a tolerance under sections 408(e) and
408(l)(6) of FFDCA in response to a petition submitted to the Agency.
The Office of Management and Budget (OMB) has exempted these types of
actions from review under Executive Order 12866, entitled Regulatory
Planning and Review (58 FR 51735, October 4, 1993). Because this rule
has been exempted from review under Executive Order 12866, this rule is
not subject to Executive Order 13211, Actions Concerning Regulations
That Significantly Affect Energy Supply, Distribution, or Use (66 FR
28355, May 22, 2001) or Executive Order 13045, entitled Protection of
Children from Environmental Health Risks and Safety Risks (62 FR 19885,
April 23, 1997). This final rule does not contain any information
collections subject to OMB approval under the Paperwork Reduction Act
(PRA), 44 U.S.C. 3501 et seq., nor does it require any special
considerations under Executive Order 12898, entitled Federal Actions to
Address Environmental Justice in Minority Populations and Low-Income
Populations (59 FR 7629, February 16, 1994).
    Since tolerances and exemptions that are established in accordance
with sections 408(e) and 408(l)(6) of FFDCA, such as the tolerance in
this final rule, do not require the issuance of a proposed rule, the
requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et
seq.) do not apply.
    This final rule directly regulates growers, food processors, food
handlers, and food retailers, not States or tribes, nor does this
action alter the relationships or distribution of power and
responsibilities established by Congress in the preemption provisions
of section 408(n)(4) of FFDCA. As such, the Agency has determined that
this action will not have a substantial direct effect on States or
tribal governments, on the relationship between the national government
and the States or tribal governments, or on the distribution of power
and responsibilities among the various levels of government or between
the Federal Government and Indian tribes. Thus, the Agency has
determined that Executive Order 13132, entitled Federalism (64 FR
43255, August 10, 1999) and Executive Order 13175, entitled
Consultation and Coordination with Indian Tribal Governments (65 FR
67249, November 9, 2000) do not apply to this rule. In addition, This
rule does not impose any enforceable duty or contain any unfunded
mandate as described under Title II of the Unfunded Mandates Reform Act
of 1995 (UMRA) (Public Law 104-4).
    This action does not involve any technical standards that would
require Agency consideration of voluntary consensus standards pursuant
to section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272
note).

VIII. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report to each House of the Congress and to
the Comptroller General of the United States. EPA will submit a report
containing this rule and other required information to the U.S. Senate,
the U.S. House of Representatives, and the Comptroller General of the
United States prior to publication of this final rule in the Federal
Register. This final rule is not a ``major rule'' as defined by 5
U.S.C. 804(2).

List of Subjects in 40 CFR Part 180

    Environmental protection, Administrative practice and procedure,
Agricultural commodities, Pesticides and pests, Reporting and
recordkeeping requirements.

    Dated: July 17, 2008.
Lois Rossi,
Director, Registration Division, Office of Pesticide Programs.

0
Therefore, 40 CFR chapter I is amended as follows:

PART 180--[AMENDED]

0
1. The authority citation for part 180 continues to read as follows:

    Authority: 21 U.S.C. 321(q), 346a and 371.

0
 2. Section 180.642 is added to read as follows:

Sec.  180.642  Gentamicin; tolerances for residues.

    (a) General. [Reserved].
    (b) Section 18 emergency exemptions. Time-limited tolerances
specified in the following table are established for residues of
gentamicin in or on the specified agricultural commodities, resulting
from use of the pesticide pursuant to FIFRA section 18 emergency
exemptions. The tolerances expire and are revoked on the date specified
in the following table.

----------------------------------------------------------------------------------------------------------------
                Commodity                    Parts per million               Expiration/revocation date
----------------------------------------------------------------------------------------------------------------
Apple                                                        0.10                              December 31, 2010
----------------------------------------------------------------------------------------------------------------

    (c) Tolerance with regional restrictions. [Reserved]
    (d) Indirect or inadvertent residues. [Reserved]
[FR Doc. E8-17337 Filed 7-29-08; 8:45 am]

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