[Federal Register: May 20, 2008 (Volume 73, Number 98)]
[Rules and Regulations]
[Page 29044-29052]
[DOCID:fr20my08-3]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 270

[Release No. IC-28266; File No. S7-37-04]
RIN 3235-AJ31

Definition of Eligible Portfolio Company Under the Investment
Company Act of 1940

AGENCY: Securities and Exchange Commission (the ``Commission'').

ACTION: Final rule.

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SUMMARY: The Commission is adopting an amendment to a rule under the
Investment Company Act of 1940 to

more closely align the definition of eligible portfolio company, and
the investment activities of business development companies (``BDCs''),
with the purpose that Congress intended. The amendment expands the
definition of eligible portfolio company to include certain companies
that list their securities on a national securities exchange.

DATES: Effective Date: July 21, 2008.

FOR FURTHER INFORMATION CONTACT: Rochelle Kauffman Plesset, Senior
Counsel, Office of Chief Counsel, Division of Investment Management,
(202) 551-6840, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-5030.

SUPPLEMENTARY INFORMATION: The Commission today is adopting amendments
to Rule 2a-46 [17 CFR 270.2a-46] under the Investment Company Act of
1940 [15 U.S.C. 80a]. \1\
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    \1\ The amendments were proposed in Definition of Eligible
Portfolio Company under the Investment Company Act of 1940,
Investment Company Act Release No. 27539 (Oct. 25, 2006) [71 FR
64093 (Oct. 31, 2006)] (``Reproposing Release'').
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Table of Contents

I. Executive Summary
II. Background
III. Discussion
    A. Rule 2a-46(b)
    B. Use of Standard Based on Market Capitalization
    C. Dollar Level of Standard
IV. Cost-Benefit Analysis
V. Consideration of Promotion of Efficiency, Competition and Capital
Formation
VI. Paperwork Reduction Act
VII. Final Regulatory Flexibility Analysis
VIII. Statutory Authority
Text of Rule

I. Executive Summary

    A BDC is a closed-end investment company that Congress established
for the purpose of making capital more readily available to certain
types of companies. Under the Investment Company Act (``Investment
Company Act'' or ``Act''), a BDC must invest at least 70 percent of its
assets in ``eligible portfolio company'' securities and certain other
securities. Rule 2a-46 defines the term eligible portfolio company to
include any company whose securities are not listed on a national
securities exchange (``Exchange''). \2\ When we adopted Rule 2a-46 in
2006, we also requested comment on whether to further expand the
definition to include Exchange-listed companies that have (i) less than
$75 million in public float or (ii) less than $150 million in market
capitalization or less than $250 million in market capitalization. \3\
Today we are amending Rule 2a-46 to expand the definition of eligible
portfolio company to include Exchange-listed companies that have less
than $250 million in market capitalization.
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    \2\ Definition of Eligible Portfolio Company under the
Investment Company Act of 1940, Investment Company Act Release No.
27538 (Oct. 25, 2006) [71 FR 64086 (Oct. 31, 2006)] (``Adopting
Release'').
    \3\ See Reproposing Release, supra note 1.
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II. Background

    Congress established BDCs as a new category of closed-end
investment companies when it enacted the Small Business Investment
Incentive Act (``SBIIA'') in 1980. \4\ Congress intended that BDCs
would make capital more readily available to certain types of
companies. \5\ To accomplish this purpose, the Investment Company Act
generally prohibits a BDC from making any investment unless, at the
time of the investment, at least 70 percent of its total assets (``70%
basket'') are invested in securities of certain specific types of
companies, including ``eligible portfolio companies.'' \6\
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    \4\ Small Business Investment Incentive Act of 1980, Public Law
No. 96-477, 94 Stat. 2274 (1980) (codified at scattered sections of
the United States Code).
    \5\ See generally H.R. Rep. No. 1341, 96th Cong., 2d Sess. 21
(1980) (``House Report'').
    \6\ See Section 2(a)(46) of the Investment Company Act
(statutory definition of eligible portfolio company) [15 U.S.C. 80a-
2(a)(46)]. See also Section 55(a) of the Investment Company Act
(regulating the activities of BDCs) [15 U.S.C. 80a-54(a)]. Among
other things, the 70% basket may include securities of eligible
portfolio companies purchased in transactions not involving any
public offering, securities of eligible portfolio companies already
controlled by the BDC without regard to the nature of the offering,
and securities of certain financially distressed companies that do
not meet the definition of eligible portfolio company and that are
purchased in transactions not involving any public offering. See
Section 55(a).
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    The Investment Company Act defines eligible portfolio company to
include any domestic operating company \7\ that does not have a class
of securities with respect to which a member of an Exchange, broker, or
dealer may extend margin credit pursuant to rules promulgated by the
Federal Reserve Board under Section 7 of the Securities Exchange Act of
1934 (``Exchange Act''). \8\ At the time that Section 2(a)(46) was
adopted, Congress generally perceived the Federal Reserve Board's
definition of ``margin security'' to be a ``rational and objective test
for determining whether an issuer has ready access to the securities
markets.'' \9\ Nevertheless, Congress recognized that the definition of
eligible portfolio company as adopted, and, in particular, the
definition's reliance on the Federal Reserve Board's margin rules,
might need to be adjusted in the future. \10\ Accordingly, Congress
specifically gave the Commission rulemaking authority under Section
2(a)(46)(C)(iv) of the Investment Company Act to expand the definition
of eligible portfolio company. \11\
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    \7\ Section 2(a)(46) of the Investment Company Act defines
eligible portfolio company to include any company that satisfies the
criteria set forth in each of Section 2(a)(46)(A) and Section
2(a)(46)(B) in addition to one of the three criteria set forth in
Section 2(a)(46)(C). Section 2(a)(46)(A) defines eligible portfolio
company to include any company organized under the laws of, and with
its principal place of business in, one or more states of the United
States. Section 2(a)(46)(B) of the Investment Company Act generally
excludes from the definition of eligible portfolio company any
company that meets the definition of investment company under
Section 3 of the Investment Company Act, or that is excluded from
the definition of investment company by Section 3(c) of the Act, but
includes as an eligible portfolio company any small BDC that is
licensed by the Small Business Administration and that is a wholly-
owned subsidiary of a BDC.
    \8\ Section 2(a)(46)(C)(i). See also Section 2(a)(46)(C)(ii)
(defines eligible portfolio company to include companies that are
controlled by the investing BDC or certain of its affiliates);
Section 2(a)(46)(C)(iii) (defines eligible portfolio company to
include certain very small companies).
    \9\ House Report at 31. The House Report also indicated that
Section 2(a)(46)(C)(i) was ``intended to cover companies which are
unable to borrow money through conventional sources or which do not
have ready access to the public capital markets.'' Id. at 30. In
1980, the Federal Reserve Board periodically published lists of each
company that had a class of securities that was marginable under its
rules. Companies that were not listed as having a class of
marginable securities qualified as eligible portfolio companies.
    \10\ See House Report at 31.
    \11\ Under Section 2(a)(46)(C)(iv), the term eligible portfolio
company includes any issuer that, in addition to meeting the
requirements of Sections 2(a)(46)(A) and (B), ``meets such other
criteria as the Commission may, by rule, establish as consistent
with the public interest, the protection of investors, and the
purposes fairly intended by the policy and provisions of [the
Act].'' See House Report at 23 (``* * * the Commission is given
rulemaking authority to expand the class of eligible portfolio
companies, following certain specific standards.''). The legislative
history of the SBIIA also makes clear that the intent of this
provision ``is to enable the Commission through the administrative
process to broaden, if appropriate, the category of eligible
portfolio company.'' Congress also noted its expectation that ``the
Commission would institute [rulemaking] proceedings to consider
whether the definition of eligible portfolio company can be
expanded, consistent with the purpose of the legislation, to
increase the flow of capital to small, developing businesses or
financially troubled businesses.'' See House Report at 31. In
providing the Commission with rulemaking authority, Congress noted
``[a]mong the objective factors which the Commission may consider in
[rulemaking] proceedings are the size of such companies, the extent
of their public ownership, and their operating history as going
concerns and public companies.'' Id.
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    Since 1980, the Federal Reserve Board has periodically amended its
definition of margin security to increase the types of securities that
would fall within that definition under its rules. In 1998, for reasons
unrelated to small business capital formation, the Federal Reserve
Board amended its definition of margin

security to include all equity securities that trade on an Exchange or
are listed on the NASDAQ Stock Market, and most debt securities. This
amendment had the result of significantly reducing the companies that
qualify as eligible portfolio companies under Section 2(a)(46) of the
Investment Company Act. \12\
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    \12\ Securities Credit Transactions; Borrowing By Brokers and
Dealers, 63 FR 2805 (1998) (adopting final rule amendment). As a
result of these amendments, companies that would have been
considered eligible portfolio companies in 1980 may no longer meet
that definition. See Definition of Eligible Portfolio Company under
the Investment Company Act of 1940, Investment Company Act Release
No. 26647 (Nov. 1, 2004) [69 FR 64815 (Nov. 8, 2004)] (``2004
Proposing Release'') at nn.19-24.
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    In 2006, we adopted two rules, Rules 2a-46 and 55a-1 under the Act,
to address the impact of the Federal Reserve Board's amendment to its
definition of margin security on the definition of eligible portfolio
company. \13\ Rule 2a-46 defines eligible portfolio company to include
all domestic operating companies \14\ whose securities are not listed
on an Exchange. \15\ Rule 55a-1 conditionally permits a BDC to continue
to invest in any company that qualified as an eligible portfolio
company under Rule 2a-46 when the BDC made its initial investment(s) in
it, but that subsequently does not meet the definition of eligible
portfolio company because it no longer meets the requirements of that
rule. \16\
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    \13\ See Adopting Release, supra note 2.
    \14\ Rule 2a-46 incorporates the provisions of Sections
2(a)(46)(A) and (B). See supra note 7.
    \15\ 17 CFR 270.2a-46.
    \16\ 17 CFR 270.55a-1.
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    When we adopted Rules 2a-46 and 55a-1, we also proposed to amend
Rule 2a-46 to expand the definition of eligible portfolio company to
include certain public domestic operating companies that list their
securities on an Exchange. \17\ This proposal was designed to address
concerns that part of the rule (proposed in 2004, but not adopted \18\)
would be unworkable and too narrow. \19\
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    \17\ See Reproposing Release, supra note 1.
    \18\ See 2004 Proposing Release, supra note 12 (proposed a
definition of eligible portfolio company that would have included
certain financially-troubled Exchange-listed companies).
    \19\ For example, some commenters had stated that the proposed
rule would not include some small companies that list their
securities on an Exchange but that nevertheless may have
difficulties accessing conventional sources of capital and raising
additional capital on the public markets. See Reproposing Release,
supra note 1 at n.12 and accompanying text.
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    In the Reproposing Release, we requested comment on alternatives
that would expand the definition of eligible portfolio company to
include domestic operating companies with securities listed on an
Exchange. We asked whether we should expand the definition to include
any such company with (i) a public float of less than $75 million or
(ii) market capitalization of less than $150 million or market
capitalization of less than $250 million. \20\ We explained that the
$75 million public float standard incorporates the size-based standard
used in Form S-3 and Rule 12b-2 which the Commission has used to
delineate between small, unseasoned companies, and larger seasoned
companies whose securities are listed on an Exchange. \21\ We explained
that the market capitalization alternatives are similar to definitions
of ``micro-cap'' company used generally by market participants. \22\ We
also noted that some who had commented on Rule 2a-46 when it was
initially proposed had stated that companies with market
capitalizations in this range generally have limited (if any) analyst
coverage, have lower trading volume and are owned by fewer
institutional investors than companies with higher market
capitalizations. \23\ These commenters concluded that such companies
have difficulty accessing the public capital markets. \24\
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    \20\ See Reproposing Release, supra note 1.
    \21\ See, e.g., Form S-3 [17 CFR 239.13]; Rule 12b-2 under the
Exchange Act [17 CFR 240.12b-2].
    \22\ See Reproposing Release, supra note 1 at nn.38-40 and
accompanying text.
    \23\ Id. at nn.34-43 and accompanying text.
    \24\ E.g., comments of Williams & Jensen (Feb. 17, 2006);
comments of Representatives Sue Kelly and Nydia Vel[aacute]szquez
(Jan. 5, 2005) (commenting on the 2004 Proposing Release).
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    We received letters from fifteen commenters (including eight BDCs
and one legal counsel to BDCs). \25\ Fourteen commenters favored the
$250 million market capitalization standard. \26\ Several commenters
specifically noted that companies meeting such a standard ``often have
difficulty accessing traditional capital sources.'' \27\ Commenters
also stated that the $250 million market capitalization standard is
similar to what most market participants use to identify micro-cap
companies, and that these companies have less analyst coverage,
institutional ownership and lower trading volume. \28\
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    \25\ The eight BDCs were Allied Capital Corp., American Capital
Strategies Ltd., Apollo Investment Corp., Ares Capital Corp.,
Gladstone Management, Harris & Harris Group, Inc., MCG Capital Corp.
and NGP Capital Resources Company. We also received comments from
two trade associations (The Financial Roundtable and U.S. Chamber of
Commerce), one legal counsel to BDCs (Williams & Jensen), one
investment banker (Ferghana Partners Inc.), one investment adviser
(ThinkEquity Partners LLC) and two individuals. These letters are
available for inspection in the Commission's Public Reference Room
at 100 F Street, NE., Washington, DC 20549 (File No. S7-37-04), and
may be viewed at http://www.sec.gov/rules/proposed/
s73704.shtml#27539.
    \26\ One commenter did not address this issue. Comments of
Kathryn Ellis (Nov. 26, 2006). In addition, commenters generally
disagreed with the adoption of a public float standard. See infra
Section III.B.
    Two commenters also suggested that we include a provision that
would in the future adjust the standard that we adopt today to
reflect inflation. Comments of American Capital Strategies Ltd.
(Dec. 24, 2006); comments of Apollo Investment Corp. (Jan. 2, 2007).
We did not propose such a provision and therefore have not included
it in Rule 2a-46.
    \27\ See, e.g., comments of Apollo Investment Corp. (Jan. 2,
2007); comments of Gladstone Management (Nov. 2, 2006). See also
comments of Allied Capital Management (Dec. 21, 2006) (``Public
companies with a market capitalization of up to $250 million . . .
often have trouble accessing the traditional capital markets despite
the fact that their shares are listed on an exchange.'').
    \28\ See, e.g., comments of Gladstone Management (Nov. 2, 2006);
comments of American Capital Strategies Ltd. (Dec. 24, 2006);
comments of Apollo Investment Corp. (Jan. 2, 2007).
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    In addition, in support of the $250 million market capitalization
standard, one commenter provided information about public companies
that have received financing over the past several years and the types
of financing that they have received. \29\ Specifically, the commenter
submitted information regarding public companies that were able to
access the public markets, either by engaging in initial public
offerings or by issuing follow-on equity and debt financing. \30\ The
commenter also provided information regarding the public companies that
had obtained capital through private investment transactions. \31\ In
addition, the commenter provided information regarding the average
institutional leveraged loan size and average high yield issuance size.
\32\ Based on this information, the commenter concluded that companies
with less than $250 million market capitalization are having difficulty
accessing traditional capital sources. \33\ Accordingly, the commenter
urged the Commission to adopt the $250

million market capitalization standard. \34\
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    \29\ Comments of Williams & Jensen (Apr. 19, 2007, May 30,
2007). This commenter also provided information regarding the
investment practices of BDCs. The commenter, focusing on five of the
largest BDCs, provided a description of each BDC's investment focus,
the number of companies in each BDC's portfolio, and the number of
individual investments each BDC made that was greater than $100
million. The commenter also provided the average revenue of the
portfolio companies that are held by four BDCs. Comments of Williams
& Jensen (May 30, 2007).
    \30\ Comments of Williams & Jensen (Apr. 19, 2007).
    \31\ Comments of Williams & Jensen (May 30, 2007).
    \32\ Id.
    \33\ Comments of Williams & Jensen (Apr. 19, 2007, May 30,
2007).
    \34\ Comments of Williams & Jensen (Feb. 17, 2006, Apr. 19,
2007, May 30, 2007).
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III. Discussion

A. Rule 2a-46(b)

    After carefully considering the comments received in response to
both the Reproposing Release and the 2004 Proposing Release, we are
amending Rule 2a-46 to include new paragraph (b). \35\ Rule 2a-46(b)
expands the definition of eligible portfolio company to include any
domestic operating company that has a class of securities listed on an
Exchange and that has a market capitalization \36\ of less than $250
million (calculated using the price at which the company's common
equity is last sold, or the average of the bid and asked prices of the
company's common equity, in the principal market for such common
equity) on any day in the 60-day period immediately before the BDC's
acquisition of its securities. \37\ We believe that the new rule is
consistent with the public interest, the protection of investors and
the purposes fairly intended by the policy and provisions of the
Investment Company Act.
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    \35\ We are also designating the current text of Rule 2a-46 as
paragraph (a) of the rule.
    \36\ A company's market capitalization for purposes of the rule
is the aggregate market value of the company's outstanding voting
and non-voting common equity securities. See, e.g., Reproposing
Release, supra note 1 at n.16.
    \37\ Rule 2a-46(b). This method of calculating market
capitalization was used in both of the proposed market
capitalization alternatives in the reproposal. See Reproposing
Release, supra note 1 at n.16. We received no comment on this
method, and we are adopting it as proposed.
    We note that the method of calculating market capitalization is
stated solely for purposes of determining a company's qualification
as an eligible portfolio company. A BDC is required to value its
interests in portfolio companies for purposes of calculating the
BDC's net asset value consistent with Section 2(a)(41) of the
Investment Company Act.
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B. Use of Standard Based on Market Capitalization

    As discussed above, one of the alternatives that we proposed used a
public float standard, and the options proposed in the other
alternative used a market capitalization standard. \38\ We have decided
to adopt a market capitalization standard for the reasons discussed
below. For purposes of Rule 2a-46(b), market capitalization is the
aggregate value of a company's outstanding voting and non-voting equity
securities. \39\ In contrast, a company's public float is a company's
market capitalization minus the aggregate market value of common equity
held by the company's affiliates. \40\
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    \38\ See supra note 20 and accompanying text.
    \39\ See supra note 36.
    \40\ See, e.g., Reproposing Release, supra note 1 at n.16.
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    We requested comment on whether it would be burdensome for a BDC to
determine a company's eligible portfolio company status if the standard
is based on public float rather than market capitalization. \41\
Adopting a public float standard in Rule 2a-46(b) would have imposed
burdens that are not present in other Commission rules that incorporate
such a standard. These other Commission rules typically are rules in
which a company is responsible for calculating its own public float to
determine its eligibility in connection with certain registration or
reporting requirements. \42\ Section 55 of the Investment Company Act,
however, effectively requires a BDC to determine whether a target
company qualifies as an eligible portfolio company before investing in
it as part of the BDC's 70% basket. \43\ Consequently it is the BDC,
rather than the target company, that must determine whether a target
company meets the definition of eligible portfolio company under Rule
2a-46(b).
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    \41\ Id. at text following n.51.
    \42\ See supra note 21.
    \43\ Section 55(a) of the Investment Company Act.
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    Accordingly, although several commenters stated that both public
float and market capitalization are good indicators of whether a
company is small and unseasoned, all commenters who addressed this
issue preferred a market capitalization standard. \44\ Commenters
stated that information about a company's market capitalization is
readily available through third-party sources, while information about
a company's public float is not. \45\ Commenters generally explained
that, in order for a BDC to calculate a company's public float, as
proposed, it would have to determine the number of shares owned by the
company's affiliates, which is information not readily available on a
current basis through third-party sources. \46\ The BDC therefore would
have to communicate with possible target companies to determine whether
they would qualify under the definition of eligible portfolio company
before making any investment decision.
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    \44\ See, e.g., comments of American Capital Strategies Ltd.
(Dec. 24, 2006); comments of Gladstone Management (Nov. 2, 2006);
comments of Apollo Investment Corp. (Jan. 3, 2007).
    \45\ See, e.g., id.
    \46\ See, e.g., comments of American Capital Strategies Ltd.
(Dec. 24, 2006); comments of Ares Capital Corp. (Jan. 2, 2007).
Although Exchange Act reporting companies are required to disclose
their public float on the cover of Form 10-K [17 CFR 249.310], the
form requires a filer to disclose its public float as of the last
business day of the filer's most recently completed second fiscal
quarter. Because Rule 2a-46(b) defines an eligible portfolio company
to be a company that meets the requisite size standard on any day in
the 60-day period immediately before the BDC's acquisition of the
company's securities, the public float information on a company's
Form 10-K always would have been outdated for purposes of the
proposed public float alternative.
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    Commenters argued that requiring BDCs to determine a company's
public float within the requirements of the proposed rule would place
an unnecessary burden on BDCs and thereby impede appropriate investment
activity. \47\ In contrast, under the adopted market capitalization
standard, a BDC may use information obtained from third parties to
assist it in determining whether a possible investment target is an
eligible portfolio company. In this regard, we note that under the
adopted market capitalization standard, a BDC may use information
obtained from independent third parties to assist it in determining
whether a possible target company is an eligible portfolio company
without communicating with the target company directly. In light of
these burdens and the general public availability of information
regarding a company's market capitalization, we agree with commenters
that a market capitalization standard is appropriate for purposes of
Rule 2a-46.
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    \47\ See, e.g., comments of American Capital Strategies Ltd.
(Dec. 24, 2006).
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C. Dollar Level of Standard

    We are adopting new Rule 2a-46(b) to define eligible portfolio
company to include any company that is listed on an Exchange with
market capitalization of less than $250 million. The new standard,
consistent with legislative intent, broadens the definition of eligible
portfolio company. \48\ We estimate that, based on January 31, 2008
data, 6,062 companies, representing 61.3% (6,062/9,883) of all public
domestic operating companies, qualify as eligible portfolio companies
under Rule 2a-46(a). We further estimate that 1,649 Exchange-listed
companies qualify as eligible portfolio companies under Rule 2a-46(b).
\49\ Accordingly, we estimate that 7,711 companies, representing 78%
(7,711/9,883) of all public domestic operating companies

qualify as eligible portfolio companies under Rule 2a-46 as amended.
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    \48\ Supra note 11. As discussed above, the $250 million market
capitalization standard is a level similar to what most market
participants generally view to be ``micro-cap'' companies, a term
used to identify small public companies. See Reproposing Release,
supra note 1 at nn.38-40 and accompanying text.
    \49\ We note that our estimates reflect only companies with less
than $250 million market capitalization whose securities are listed
on Nasdaq, the New York Stock Exchange (``NYSE'') and the American
Stock Exchange (``Amex'').
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    In the Reproposing Release, we noted a general concern raised by
commenters in response to the 2004 Proposing Release \50\ that
companies with market capitalization up to $300 million are followed by
fewer analysts, have lower institutional ownership and have lower
trading volume than companies at higher levels of market
capitalization. \51\ These commenters concluded that companies having
market capitalization below that amount may have more difficulty
accessing public capital. We generally agreed that there may be some
correlation between the size of a company, based on these factors, and
the ability of a company to access public capital. \52\ We specifically
requested comment on whether any of the alternative standards would
better align the definition of eligible portfolio company with the
purpose that Congress intended when it adopted the SBIIA.
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    \50\ Supra note 12.
    \51\ Comments of Representatives Sue Kelly and Nydia Velazquez
at n.12 (Jan. 5, 2005); comments of Williams & Jensen (Feb. 17,
2006). These commenters also referred to analysis prepared by our
Office of Economic Affairs (``OEA'') in connection with Securities
Offering Reform. See memorandum dated December 3, 2004 (``OEA
Memorandum'') attached to comments of Williams & Jensen (Feb. 17,
2006), infra note 58.
    \52\ See Reproposing Release, supra note 1 at text following
n.36.
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    Commenters universally favored the $250 million market
capitalization standard. Commenters argued that companies with market
capitalization of less than $250 million often have difficulty
accessing traditional forms of capital and that adoption of the
standard thus would be consistent with Congressional intent. \53\ One
commenter also provided information regarding the limited number of
follow-on offerings of equity and debt securities by Exchange-listed
companies and stated that this information ``clearly demonstrates that
the vast majority of companies with market capitalizations of $250
million or less * * * have significantly limited access'' to the public
equity and debt markets. \54\ This commenter also argued that market
participants that provide public capital are not servicing the needs of
these companies. \55\
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    \53\ E.g., comments of Allied Capital Management (Dec. 21,
2006); comments of Apollo Investment Corp. (Jan. 2, 2007).
    \54\ See comments of Williams & Jensen (Apr. 19, 2007).
    \55\ Comments of Williams & Jensen (May 30, 2007).
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    Most commenters responding to the alternatives proposed in the
Reproposing Release also argued that companies with less than $250
million market capitalization have difficulty accessing public capital
because generally these companies are followed by fewer analysts, have
lower institutional ownership and lower trading volume than larger
companies. \56\ One commenter specifically noted that companies with
less than $250 million market capitalization ``have spotty analyst
coverage at best, * * * few or no institutional investors, and * * *
thin trading volumes'' and that ``these are characteristics of
companies that would not in today's market have ready access to public
capital.'' \57\ This commenter referred to information developed by our
Office of Economic Analysis (``OEA'') about those factors that were
prepared for purposes other than this rulemaking. \58\
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    \56\ See, e.g., comments of Gladstone Management (Nov. 2, 2006);
comments of Apollo Investment Corp. (Jan. 2, 2007); comments of Ares
Capital Corp. (Jan. 2, 2007).
    \57\ Comments of Williams & Jensen (Apr. 19, 2007).
    \58\ The commenter had attached to its comment letter statistics
that were prepared in connection with the Final Report of the
Advisory Committee on Smaller Public Companies. See Background
Statistics: Market Capitalization & Revenue of Public Companies,
August 1, 2005, at Table 7 (Analyst Coverage and Institutional
Holdings by Market Capitalization), attached to comments of Williams
& Jensen (Apr. 19, 2007). This commenter had attached to a prior
comment letter an earlier memorandum prepared by OEA that sets forth
data regarding analyst coverage, institutional ownership and average
daily trading for publicly traded companies between 1997 and 2003.
See OEA Memorandum dated December 3, 2004 attached to comments of
Williams & Jensen (Feb. 17, 2006) (exhibit entitled ``SEC Data
Demonstrates Lack of Market Following for Companies with Market
Capitalizations of $300 million or Less''). OEA prepared this
memorandum in connection with the Securities Offering Reform
rulemaking. See Securities Offering Reform, Securities Act Release
No. 8591 (July 19, 2005) [70 FR 44722 (Aug. 3, 2005)].
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    As we stated in the Reproposing Release, we believe that there is
some correlation between analyst coverage, institutional ownership and
trading volume and the ability of a company to access public capital.
\59\ Based on the comments we received, and our review of those factors
with respect to companies with less than $250 million market
capitalization, we believe that a distinction can be made with respect
to a company's ability to access public capital at $250 million market
capitalization. OEA has considered this information and determined that
fewer than 50% of companies with market capitalizations of less than
$250 million are followed by more than two analysts and that these
companies generally have lower institutional ownership and are more
thinly traded than larger companies.
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    \59\ See Reproposing Release, supra note 1 at n.37 and
accompanying text.
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    Moreover, in the Reproposing Release we requested comment on
whether adoption of a $250 million market capitalization standard would
result in BDCs focusing their investment activities in companies at the
higher end of the standard to the detriment of smaller companies. \60\
Commenters responded that adoption of a $250 million market
capitalization standard would not have this result, with some arguing
further that larger companies do not necessarily present a more
attractive investment in comparison to smaller companies. \61\
Commenters also argued that historically, BDCs have not invested in
larger non-public companies at the expense of smaller non-public
companies, and that there is no reason to suggest that this would occur
in the context of public companies. \62\ In light of these comments, we
are persuaded that our adoption of the $250 million market
capitalization standard is not likely to result in BDCs focusing their
investment activity on larger companies to the detriment of smaller
companies.
---------------------------------------------------------------------------

    \60\ See id. at n.47 and accompanying text. We requested comment
on this issue in response to a comment made by one commenter to the
2004 Proposing Release. This commenter raised the concern that BDCs
might not provide financing for smaller Exchange-listed companies if
the Commission adopts a standard higher than $100 million market
capitalization. See comments of Capital Southwest Corp. (Dec. 28,
2004).
    \61\ See, e.g., comments of MCG Capital Corp. (Dec. 27, 2006);
comments of American Capital Strategies Ltd. (Dec. 24, 2006).
    \62\ See comments of Harris & Harris Group (Jan. 3, 2007);
comments of ThinkEquity Partners LLC (Dec. 6, 2006).
---------------------------------------------------------------------------

    Accordingly, we conclude that adoption of the $250 million market
capitalization standard is an appropriate standard for purposes of the
amended rule and we believe that it is consistent with the public
interest, the protection of investors and the purposes fairly intended
by the policies and provisions of the Investment Company Act. \63\
---------------------------------------------------------------------------

    \63\ We are persuaded that our adoption of the $250 million
market capitalization standard is not inconsistent with our other
rules that distinguish between smaller and larger companies because
of the different purposes of these rules. For example, Form S-3
incorporates a $75 million public float standard (in addition to
other factors) to identify those companies about which sufficient
information is publicly available to allow them to take advantage of
our integrated disclosure system. See Revisions to the Eligibility
Requirements for Primary Securities Offerings on Forms S-3 and F-3,
Securities Act Release No. 8878 (Dec. 19, 2007) [72 FR 73534 (Dec.
27, 2007)]; Simplification of Registration for Primary Securities
Offerings, Securities Act Release No. 6943 (July 16, 1992) [57 FR
32461 (July 22, 1992)]. In contrast, Rule 2a-46(b) incorporates a
$250 million market capitalization standard to identify companies
that are having difficulty accessing public capital and may benefit
from greater access to BDC financing.

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

IV. Cost-Benefit Analysis

    We are sensitive to the costs and benefits that result from our
rules. In the Reproposing Release we requested public comment and
specific data regarding the costs and benefits of reproposed Rule 2a-
46(b). As discussed below, we received one comment regarding the
Commission's estimate of the companies that would benefit from the
reproposed rule. \64\
---------------------------------------------------------------------------

    \64\ Comments of Williams & Jensen (Apr. 19, 2007).
---------------------------------------------------------------------------

A. Benefits

    Rule 2a-46(b) more closely aligns the definition of eligible
portfolio company, and the investment activities of BDCs, with the
purpose that Congress intended. Specifically, Rule 2a-46(b) expands the
definition of eligible portfolio company to include any domestic
operating company with a class of securities listed on an Exchange that
has a market capitalization of less than $250 million.
    Many public companies that are included as eligible portfolio
companies under Rule 2a-46(b) may need capital for continued
development and growth, but, notwithstanding that their securities are
listed on an Exchange, may find it difficult to raise capital through
additional offerings or borrow money through other sources. By amending
the definition of eligible portfolio company to include these
companies, such companies will benefit because of the expanded sources
of capital from which the companies may seek to obtain financing.
Increased competition among capital providers will benefit shareholders
of companies seeking capital.
    Rule 2a-46(b) also benefits BDCs by expanding the universe of
investments that BDCs may include as part of their 70% basket. This
will allow BDCs to make additional investments to companies that
qualify as eligible portfolio companies under the rule, which in turn
could benefit BDC shareholders. Rule 2a-46(b) also benefits BDCs by
addressing the uncertainty caused by changes in the margin rules in the
operation of BDCs.
    In the Reproposing Release, OEA estimated, using June 30, 2006
data, that there were a total of 1,562 domestic operating companies
whose securities were listed on Nasdaq, the NYSE and Amex that have a
market capitalization of less than $250 million. At that time OEA
estimated that 6,041 domestic operating companies that qualified as
eligible portfolio companies under Rule 2a-46 as initially adopted.
Accordingly, OEA calculated that 7,603 companies, representing 77.2%
(7,603/9,845 \65\) of public domestic operating companies, would
qualify as eligible portfolio companies if the $250 million market
capitalization standard was adopted.
---------------------------------------------------------------------------

    \65\ See infra note 69.
---------------------------------------------------------------------------

    Using January 31, 2008 data, OEA estimates that there were a total
of 1,649 domestic operating companies whose securities were listed on
Nasdaq, the NYSE and the Amex that have a market capitalization of less
than $250 million. OEA further estimates that approximately 6,062
companies qualify as eligible portfolio companies under Rule 2a-46, as
initially adopted (now Rule 2a-46(a)). Accordingly, OEA calculates that
7,711 companies, representing 78% percent (7,711/9,883 \66\) of public
domestic operating companies, qualify as eligible portfolio companies
under amended Rule 2a-46.
---------------------------------------------------------------------------

    \66\ Id.
---------------------------------------------------------------------------

    OEA reached its estimates by first calculating the number of
companies whose securities were listed on Nasdaq, the NYSE and the
Amex. OEA then deducted from this estimate all foreign companies,
investment companies and companies that are excluded from the
definition of investment company by Section 3(c) of the Investment
Company Act (because both Section 2(a)(46) of the Investment Company
Act and Rule 2a-46 exclude these types of companies from the definition
of eligible portfolio company), and corrected for cases where
individual companies had multiple classes of securities listed. OEA
then determined the number of companies that had a market
capitalization of less than $250 million. \67\ Using the same
methodology, OEA determined the number of companies that qualify as
eligible portfolio companies under Rule 2a-46(a). \68\ OEA then
calculated the total number of eligible portfolio companies and the
percentage of the total public domestic operating companies that would
qualify as eligible portfolio companies under amended Rule 2a-46. \69\
---------------------------------------------------------------------------

    \67\ See supra note 49.
    \68\ See Adopting Release, supra note 2 at text preceding n.31.
    \69\ OEA estimated the total number of public domestic operating
companies by calculating the number of companies whose securities
were listed on Nasdaq, the NYSE and the Amex, in addition to those
companies whose securities were trading through the over-the-counter
bulletin board and on Pink Sheets LLC, correcting these figures for
cases where individual companies had multiple classes of securities
listed, and then removing from these figures foreign companies,
investment companies, and companies that are excluded from the
definition of investment company by Section 3(c).
---------------------------------------------------------------------------

    As noted above, one commenter stated that the Reproposing Release
overstated the percentage of companies that would benefit under Rule
2a-46, as amended by the reproposed rule. \70\ The commenter noted,
however, that regardless of whether or not the Commission overstated
the percentage of companies, ``the percentage in and of itself adds
little analytical weight in describing which public companies need
access to capital. * * *'' The commenter concluded that ``we believe
that there is no precise percentage of public companies that can or
should be targeted. * * *'' \71\ While the commenter agreed that
foreign companies, investment companies and most companies that are
excluded from the definition of investment company by Section 3(c) of
the Investment Company Act are excluded from qualifying as eligible
portfolio companies under the Investment Company Act, the commenter
suggested that these companies should still be included as part of the
total number of public companies. Thus, the commenter suggested that
the benefits of the rule should be calculated by comparing the total
number of companies that would be eligible portfolio companies under
the rule to the total number of public companies.
---------------------------------------------------------------------------

    \70\ Williams & Jensen (Apr. 19, 2007).
    \71\ Id.
---------------------------------------------------------------------------

    As discussed previously, Section 2(a)(46) excludes from the
definition of eligible portfolio companies foreign companies,
investment companies and most companies that are excluded from the
definition of investment company by Section 3(c). Therefore, in
determining the benefits of Rule 2a-46 as amended for purposes of this
analysis, we believe that it is appropriate to compare the number of
companies that meet the definition of eligible portfolio company under
the rule with the number of companies that are not statutorily
precluded from being treated as eligible portfolio companies.
    This commenter also argued that public companies listed on the OTC
Bulletin Board with market capitalizations of between $0 and $25
million should be excluded from OEA's calculations. \72\ The commenter
explained that although these companies qualify as eligible portfolio
companies, ``they are not likely to seek or be seriously considered
appropriate investments for a BDC.'' \73\ OEA's calculations are
intended to show the number of all companies that would fall within the
definition of eligible portfolio company under Rule 2a-46(b), however,
regardless of whether any particular company or size of company

would be seriously considered by a BDC for investment purposes.
Accordingly, we have not recalculated the numbers and percentages
stated above to reflect the commenter's view.
---------------------------------------------------------------------------

    \72\ Id.
    \73\ Id.
---------------------------------------------------------------------------

B. Costs

    We received no comments on the potential costs of our adoption of
the new standard. Although Rule 2a-46(b) might impose certain
administrative compliance costs on BDCs, it is our understanding that
these costs are similar to the types of compliance costs that a BDC
currently undertakes when it invests in a company. Specifically, a BDC
will need to determine, prior to investing in a company, if the company
has a class of securities listed on an Exchange and whether that
company's market capitalization was less than $250 million as of a date
within 60 days prior to the date of the BDC's investment. Costs in
obtaining this information, however, will be minimal because
information about the market capitalization of companies is readily
available from third-party sources. Finally, we anticipate that Rule
2a-46(b) will impose only minimal, if any, costs on portfolio
companies.

V. Consideration of Promotion of Efficiency, Competition and Capital
Formation

    Section 2(c) of the Investment Company Act mandates that the
Commission, when engaging in rulemaking that requires it to consider or
determine whether an action is necessary or appropriate in the public
interest, to consider, in addition to the protection of investors,
whether the action will promote efficiency, competition and capital
formation. \74\ In the Reproposing Release, we requested comment on our
analysis of the impact of Rule 2a-46(b) on efficiency, competition and
capital formation. As discussed in Section II of this Release,
commenters generally supported expanding the definition to include
Exchange-listed companies with less than $250 million market
capitalization because of their belief that these companies often have
difficulty accessing capital. \75\ Some commenters also argued that
expanding the rule to include Exchange-listed companies with less than
$250 million market capitalization would allow BDCs to compete with
other capital providers, and that such competition would benefit
shareholders of companies seeking capital. \76\ We have decided to
amend Rule 2a-46 to expand the definition of eligible portfolio company
to include Exchange-listed companies that have a market capitalization
of less than $250 million.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 80a-2(c).
    \75\ See supra note 27 and accompanying text.
    \76\ See, e.g., comments of Williams & Jensen (Apr. 19, 2007);
comments of Apollo Investment Corp. (Jan. 2, 2007).
---------------------------------------------------------------------------

    Rule 2a-46(b) is designed to promote efficiency, competition and
capital formation. Efficiency will be enhanced because Rule 2a-46(b)
expands the definition of eligible portfolio company so as to allow
BDCs to compete with other entities that provide capital to certain
companies. Competition for financing may result in lower cost capital
for current funding needs or may replace higher cost capital previously
issued, which could potentially allow companies desiring capital to
take on additional or different investment projects. Thus, Rule 2a-
46(b) will promote a more efficient allocation of capital. Rule 2a-
46(b) in our view also will promote efficiency by providing a workable
test for determining whether a company is an eligible portfolio
company.
    We also believe Rule 2a-46(b) will promote competition. Rule 2a-
46(b) allows BDCs more easily to compete with other capital providers,
and such competition benefits shareholders of BDCs, companies receiving
the capital and shareholders of companies receiving capital. The market
for private equity and debt investments can be highly competitive.
Since their establishment, BDCs have competed with various sources of
capital, including private equity funds (including venture capital
funds), hedge funds, investment banks and other BDCs, to provide
financing to certain companies. We believe that Rule 2a-46(b) will
encourage such competition. Such competition also benefits the
qualifying companies in need of capital and their shareholders because
such companies can more readily consider BDCs as a source of financing.
To the extent that BDCs provide either additional or less expensive
capital to these companies, those companies may be more competitive in
the marketplace.
    Finally, we believe that Rule 2a-46(b) may promote capital
formation. BDC investments represent additional capital to companies.
By expanding the definition of eligible portfolio company, Rule 2a-
46(b) may result in additional capital investments by BDCs. We estimate
that a total of 1,649 public domestic operating companies would qualify
as eligible portfolio companies under Rule 2a-46(b). The rule provides
greater access to public capital by increasing these companies' access
to BDC financing.

VI. Paperwork Reduction Act

    The Commission has determined that Rule 2a-46 as amended does not
involve a collection of information pursuant to the provisions of the
Paperwork Reduction Act [44 U.S.C. 3501 et seq.].

VII. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis has been prepared in
accordance with 5 U.S.C. 604. It relates to Rule 2a-46(b) under the
Investment Company Act. An Initial Regulatory Flexibility Analysis
(``IRFA'') was prepared in accordance with 5 U.S.C. 603 and was
published in the Reproposing Release. \77\
---------------------------------------------------------------------------

    \77\ Reproposing Release supra note 1 at Section VII.
---------------------------------------------------------------------------

A. Reasons for and Objectives of the Amendment

    As described previously in this Release, Rule 2a-46(b) more closely
aligns the definition of eligible portfolio company, and the investment
activities of BDCs, with the purpose that Congress intended.
Specifically, Rule 2a-46(b) will expand the definition of eligible
portfolio company to include any domestic operating company with a
class of securities listed on an Exchange that has a market
capitalization of less than $250 million. These companies may need BDC
financing for continued growth and development, but, notwithstanding
the fact that their securities are listed on an Exchange, may find it
difficult to raise additional capital in new offerings or borrow money
through other conventional sources.

B. Significant Issues Raised by Public Comment

    When the Commission reproposed Rule 2a-46(b), comment was requested
on the reproposal and the accompanying IRFA. None of the comment
letters specifically addressed the IRFA.

C. Small Entities Subject to the Rule

    Rule 2a-46(b) will affect BDCs and companies that qualify as small
entities under the Regulatory Flexibility Act. For purposes of the
Regulatory Flexibility Act, a BDC is a small entity if it, together
with other investment companies in the same group of related investment
companies, has net assets of $50 million or less as of the end of its

most recent fiscal year. \78\ As of June 2007, there were 73 BDCs, of
which 43 were small entities. A company other than an investment
company is a small entity under the Regulatory Flexibility Act if it
had total assets of $5 million or less on the last day of its most
recent fiscal year. \79\ We estimate there are approximately 20
Exchange-listed companies that may be considered small entities. \80\
---------------------------------------------------------------------------

    \78\ 17 CFR 270.0-10.
    \79\ 17 CFR 230.157; 17 CFR 240.0-10.
    \80\ We noted in the Reproposing Release that at that time we
calculated that there were approximately 2,500 companies, other than
investment companies, that may be considered small entities. See
Reproposing Release supra note 1 at text following n.72. This figure
inadvertently included companies whose securities are not listed on
an Exchange. Rule 2a-46(b), however, only pertains to companies
whose securities are listed on an Exchange. As discussed above, we
estimate that there are only approximately 20 Exchange-listed
companies that may be considered small entities.
---------------------------------------------------------------------------

    As discussed in this Release, Rule 2a-46(b) is intended to benefit
certain companies that need capital for continued development and
growth, but may be unable to borrow money through conventional sources
despite their securities being listed on an Exchange. Rule 2a-46(b)
will also benefit BDCs, including those that are small entities, by
expanding the number of companies that BDCs may include as part of
their 70% basket. Because none of the comment letters specifically
addressed the IRFA, we continue to believe that those BDCs and
companies that are small entities for purposes of the Regulatory
Flexibility Act would not be disproportionately affected by the amended
rule.

D. Reporting, Recordkeeping and Other Compliance Requirements

    Rule 2a-46(b) will not impose any new reporting or recordkeeping
requirements on BDCs or on companies. It also will impose only minimal,
if any, compliance requirements on portfolio companies.
    Rule 2a-46(b) will impose minimal compliance requirements on BDCs,
including small entities. A BDC would need to determine, prior to
investing in a company, if the company has a class of securities listed
on an Exchange and whether that company's market capitalization was
less than $250 million as of a date within 60 days prior to the date of
the BDC's investment. We anticipate that the costs associated with
obtaining this information would be minimal because such information is
readily available from third-party sources. Furthermore, it is our
understanding that these costs are similar to the types of compliance
costs that a BDC currently undertakes when it invests in an issuer.

E. Commission Action To Minimize Adverse Impact on Small Entities

    The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish our stated objectives, while
minimizing any significant adverse impact on small entities.
Alternatives in this category would include: (1) Establishing different
compliance or reporting standards that take into account the resources
available to small entities; (2) clarifying, consolidating, or
simplifying the compliance requirements for small entities; (3) the use
of performance rather than design standards; and (4) exempting small
entities from the coverage of the rules, or any part thereof.
    Establishing different compliance or reporting requirements for
small entities would not be appropriate under Rule 2a-46(b). Rule 2a-46
will not impose any reporting requirements on BDCs or on companies. It
will also not impose any compliance requirements on portfolio
companies. Rule 2a-46(b) will, however, impose some compliance
requirements on BDCs that are intended to ensure that BDCs invest
primarily in certain types of companies. These requirements should,
however, impose only minimal burdens on BDCs.
    We believe that clarifying, consolidating or simplifying the
compliance requirements for small entities would be inappropriate. As
discussed above, Rule 2a-46(b) will not impose any compliance
requirements on portfolio companies. As noted, Rule 2a-46(b) will
impose some compliance requirements on BDCs, which we believe will
impose minimal burdens on BDCs. These requirements are designed to
ensure that BDCs will invest in companies in accordance with the rule.
    We believe that using performance rather than design standards
would add unnecessary complexity. Rule 2a-46(b) provides a clear,
bright-line, workable test for determining whether a company is an
eligible portfolio company. A standard based on performance could be
unduly complicated and cause further uncertainty to BDCs, including
those that are small entities, when determining whether a company is an
eligible portfolio company. Likewise, the use of a performance standard
would bring uncertainty to companies in determining whether they meet
the definition of eligible portfolio company.
    Finally, we believe that it would be inappropriate to exempt BDCs
that are small entities from the coverage of Rule 2a-46(b). Rule 2a-
46(b) should benefit BDCs and companies, including those that are small
entities, by expanding the definition of eligible portfolio company to
include certain companies whose securities are listed on an Exchange.
Exempting BDCs and companies that are small entities from the amended
rule would be contradictory to the purpose of this rulemaking.

VIII. Statutory Authority

    We are amending Rule 2a-46 pursuant to our rulemaking authority
under Sections 2(a)(46)(C)(iv) and 38(a) of the Investment Company Act.

List of Subjects in 17 CFR Part 270

    Investment companies, Reporting and recordkeeping requirements,
Securities.

Text of Rule

    For reasons set forth in the preamble, Title 17, Chapter II of the
Code of Federal Regulations is amended as follows:

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
1. The authority citation for part 270 continues to read in part as
follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, and 80a-
39, unless otherwise noted.
* * * * *

0
2. Revise Sec.  270.2a-46 to read as follows:

Sec.  270.2a-46  Certain issuers as eligible portfolio companies.

    The term eligible portfolio company shall include any issuer that
meets the requirements set forth in paragraphs (A) and (B) of section
2(a)(46) of the Act (15 U.S.C. 80a-2(a)(46)(A) and (B)) and that:
    (a) Does not have any class of securities listed on a national
securities exchange; or
    (b) Has a class of securities listed on a national securities
exchange, but has an aggregate market value of outstanding voting and
non-voting common equity of less than $250 million. For purposes of
this paragraph:
    (1) The aggregate market value of an issuer's outstanding voting
and non-voting common equity shall be computed by use of the price at
which the common equity was last sold, or the average of the bid and
asked prices of such common equity, in the principal market for such
common equity as of a date within 60 days prior to the date of
acquisition of its securities by a business development company; and
    (2) Common equity has the same meaning as in 17 CFR 230.405.

    Dated: May 15, 2008.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E8-11254 Filed 5-19-08; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register Volume 77, Number 38 (Monday, February 27, 2012)]
[Proposed Rules]
[Pages 11423-11426]
[FR Doc No: 2012-4389]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket No. USCG-2012-0001]
RIN 1625-AA00

Safety Zone; Magothy River, Sillery Bay, MD

AGENCY: Coast Guard, DHS.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: The Coast Guard proposes to establish a safety zone in certain
waters of the Magothy River, in Sillery Bay, Maryland. This safety zone
is necessary to provide for the safety of life, property and the
environment. This safety zone restricts the movement of vessels
throughout the regulated area during The Bumper Bash, held annually on
the fourth Saturday of July.

DATES: Comments and related material must be received by the Coast
Guard on or before March 28, 2012. Requests for public meetings must be
received by the Coast Guard on or before March 12, 2012.

ADDRESSES: You may submit comments identified by docket number USCG-
2012-0001 using any one of the following methods:
    (1) Federal eRulemaking Portal: http://www.regulations.gov.
    (2) Fax:<PHONE_NUMBER>.
    (3) Mail: Docket Management Facility (M-30), U.S. Department of
Transportation, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE., Washington, DC 20590-0001.
    (4) Hand delivery: Same as mail address above, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. The telephone
number is<PHONE_NUMBER>.
    To avoid duplication, please use only one of these four methods.
See the ``Public Participation and Request for Comments'' portion of
the SUPPLEMENTARY INFORMATION section below for instructions on
submitting comments.

FOR FURTHER INFORMATION CONTACT: If you have questions on this proposed
rule, call or email Mr. Ronald Houck, Sector Baltimore Waterways
Management Division, Coast Guard; telephone<PHONE_NUMBER>, email
<EMAIL_ADDRESS>If you have questions on viewing or submitting
material to the docket, call Renee V. Wright, Program Manager, Docket
Operations, telephone<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION:

Public Participation and Request for Comments

    We encourage you to participate in this rulemaking by submitting
comments and related materials. All comments received will be posted
without change to http://www.regulations.gov and will include any
personal information you have provided.

Submitting comments

    If you submit a comment, please include the docket number for this
rulemaking (USCG-2012-0001), indicate the specific section of this
document to which each comment applies, and provide a reason for each
suggestion or recommendation. You may submit your comments and material
online (via http://www.regulations.gov) or by fax, mail, or hand
delivery, but please use only one of these means. If you submit a
comment online via www.regulations.gov, it will be considered received
by the Coast Guard when you successfully transmit the comment. If you
fax, hand deliver, or mail your comment, it will be considered as
having been received by the Coast Guard when it is received at the
Docket Management Facility. We recommend that you include your name and
a mailing address, an email address, or a telephone number in the body
of your document so that we can contact you if we have questions
regarding your submission.
    To submit your comment online, go to http://www.regulations.gov,
click on the ``submit a comment'' box, which will then become
highlighted in blue. In the ``Document Type'' drop down menu select
``Proposed Rule'' and insert ``USCG-2012-0001'' in the ``Keyword'' box.
Click ``Search'' then click on the balloon shape in the ``Actions''
column. If you submit your comments by mail or hand delivery, submit
them in an unbound format, no larger than 8\1/2\ by 11 inches, suitable
for copying and electronic filing. If you submit comments by mail and
would like to know that they reached the Facility, please enclose a
stamped, self-addressed postcard or envelope. We will consider all
comments and material received

during the comment period and may change the rule based on your
comments.

Viewing Comments and Documents

    To view comments, as well as documents mentioned in this preamble
as being available in the docket, go to http://www.regulations.gov,
click on the ``read comments'' box, which will then become highlighted
in blue. In the ``Keyword'' box insert ``USCG-2012-0001'' and click
``Search.'' Click the ``Open Docket Folder'' in the ``Actions'' column.
You may also visit the Docket Management Facility in Room W12-140 on
the ground floor of the Department of Transportation West Building,
1200 New Jersey Avenue SE., Washington, DC 20590, between 9 a.m. and 5
p.m., Monday through Friday, except Federal holidays. We have an
agreement with the Department of Transportation to use the Docket
Management Facility.

Privacy Act

    Anyone can search the electronic form of comments received into any
of our dockets by the name of the individual submitting the comment (or
signing the comment, if submitted on behalf of an association,
business, labor union, etc.). You may review a Privacy Act notice
regarding our public dockets in the January 17, 2008, issue of the
Federal Register (73 FR 3316).

Public meeting

    We do not now plan to hold a public meeting. But you may submit a
request for one on or before March 12, 2012 using one of the four
methods specified under ADDRESSES. Please explain why you believe a
public meeting would be beneficial. If we determine that one would aid
this rulemaking, we will hold one at a time and place announced by a
later notice in the Federal Register.

Basis and Purpose

    Each year, on the fourth Saturday in July, hundreds of recreational
boaters meet in Sillery Bay at Dobbins Island, Maryland for a gathering
called ``The Bumper Bash.'' The activity began in 2007. Due to the
growing presence of boaters in recent years, the annual gathering has
become increasingly congested. An estimated 700 recreational boats were
anchored or moored alongside other boats (rafted). The crowds of
persons on recreational vessels or other water craft create large lines
of rafted boats filling in the beachfront area of Dobbins Island. The
persons and vessels exceeded a safe limit. Accidental drownings,
personnel injuries, boat fires, boat capsizings and sinkings, and
boating collisions are safety concerns during such overcrowded events.
Access on the water for emergency response to the beach area is
critical. The Coast Guard has the authority to impose appropriate
controls on activities that may pose a threat to persons, vessels and
facilities under its jurisdiction. The Coast Guard proposes to
establish a permanent safety zone that will be enforced annually on the
fourth Saturday in July, during a gathering of persons on recreational
vessels and other water craft held in the Magothy River, in Sillery
Bay, Maryland. The proposed rule is needed to control movement within a
waterway that is expected to be populated by persons and vessels
seeking to attend The Bumper Bash activity.

Discussion of Proposed Rule

    The Coast Guard anticipates a large recreational boating fleet in
the Magothy River, in Sillery Bay, during The Bumper Bash at Dobbins
Island, Maryland annually on the fourth Saturday in July. Due to the
need for vessel control during the activity, vessel traffic will be
restricted to provide for the safety of persons and vessels within the
regulated area.
    The purpose of this rule is to promote maritime safety, and to
protect the environment and mariners transiting the area from the
potential hazards associated with a large gathering of recreational
vessels and other watercraft along a confined beachfront area with
swimmers and others present. This rule proposes to establish a safety
zone in the Magothy River, in Sillery Bay, contained within lines
connecting the following positions: From position latitude
39[deg]04'40'' N, longitude 076[deg]27'44'' W; thence to position
latitude 39[deg]04'48'' N, longitude 076[deg]27'19'' W; thence to
position latitude 39[deg]04'59'' N, longitude 076[deg]27'45'' W; thence
to position latitude 39[deg]04'59'' N, longitude 076[deg]28'01'' W;
thence to position latitude 39[deg]04'41'' N, longitude 076[deg]27'51''
W; thence to the point of origin at position latitude 39[deg]04'40'' N,
longitude 076[deg]27'44'' W. All coordinates reference Datum NAD 1983.
The rule will impact the movement of all persons and vessels in the
regulated area, and will limit the density of vessels and other
watercraft operating, remaining or anchoring within the regulated area
at the discretion of the Captain of the Port Baltimore, to ensure an
open water route remains accessible to law enforcement and emergency
personnel during the effective period. Public vessels located within
the regulated area will not contribute to the density determination.

Regulatory Analyses

    We developed this proposed rule after considering numerous statutes
and executive orders related to rulemaking. Below we summarize our
analyses based on 13 of these statutes or executive orders.

Regulatory Planning and Review

    This rule is not a significant regulatory action under section 3(f)
of Executive Order 12866, Regulatory Planning and Review, as
supplemented by Executive Order 13563, Improving Regulation and
Regulatory Review, and does not require an assessment of potential
costs and benefits under section 6(a)(3) of that Executive Order 12866
or under section 1 of Executive Order 13563. The Office of Management
and Budget has not reviewed it under those Orders. The effect of this
regulation will not be significant due to the limited size and duration
that the regulated area will be in effect and vessels transiting the
Magothy River may proceed safely around the zone. In addition,
notifications will be made to the maritime community via marine
information broadcasts so mariners may adjust their plans accordingly.

Small Entities

    Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have
considered whether this proposed rule would have a significant economic
impact on a substantial number of small entities. The term ``small
entities'' comprises small businesses, not-for-profit organizations
that are independently owned and operated and are not dominant in their
fields, and governmental jurisdictions with populations of less than
50,000.
    The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed
rule would not have a significant economic impact on a substantial
number of small entities. This proposed rule may affect the following
entities, some of which might be small entities: The owners or
operators of vessels intending to operate, remain or anchor within the
safety zone, from 8 a.m. until 10 p.m. on the fourth Saturday in July
annually. This safety zone will not have a significant economic impact
on a substantial number of small entities for the following reasons.
Traffic would be allowed to pass within the safety zone with the
permission of the Captain of the Port Baltimore. Vessels transiting the
Magothy River may proceed safely around the zone. Also, the Coast Guard
will issue maritime advisories widely available to users of the
waterway before the effective period.

    If you think that your business, organization, or governmental
jurisdiction qualifies as a small entity and that this rule would have
a significant economic impact on it, please submit a comment (see
ADDRESSES) explaining why you think it qualifies and how and to what
degree this rule would economically affect it.

Assistance for Small Entities

    Under section 213(a) of the Small Business Regulatory Enforcement
Fairness Act of 1996 (Pub. L. 104-121), we want to assist small
entities in understanding this proposed rule so that they can better
evaluate its effects on them and participate in the rulemaking. If the
rule would affect your small business, organization, or governmental
jurisdiction and you have questions concerning its provisions or
options for compliance, please contact Coast Guard Sector Baltimore,
Waterways Management Division, at telephone number<PHONE_NUMBER>. The
Coast Guard will not retaliate against small entities that question or
complain about this proposed rule or any policy or action of the Coast
Guard.

Collection of Information

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

Federalism

    A rule has implications for federalism under Executive Order 13132,
Federalism, if it has a substantial direct effect on State or local
governments and would either preempt State law or impose a substantial
direct cost of compliance on them. We have analyzed this proposed rule
under that Order and have determined that it does not have implications
for federalism.

Unfunded Mandates Reform Act

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

Taking of Private Property

    This proposed rule would not cause a taking of private property or
otherwise have taking implications under Executive Order 12630,
Governmental Actions and Interference with Constitutionally Protected
Property Rights.

Civil Justice Reform

    This proposed rule meets applicable standards in sections 3(a) and
3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize
litigation, eliminate ambiguity, and reduce burden.

Protection of Children

    We have analyzed this proposed rule under Executive Order 13045,
Protection of Children from Environmental Health Risks and Safety
Risks. This rule is not an economically significant rule and would not
create an environmental risk to health or risk to safety that might
disproportionately affect children.

Indian Tribal Governments

    This proposed rule does not have tribal implications under
Executive Order 13175, Consultation and Coordination with Indian Tribal
Governments, because it would not have a substantial direct effect on
one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes.

Energy Effects

    We have analyzed this proposed rule under Executive Order 13211,
Actions Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use. We have determined that it is not a ``significant
energy action'' under that order because it is not a ``significant
regulatory action'' under Executive Order 12866 and is not likely to
have a significant adverse effect on the supply, distribution, or use
of energy. The Administrator of the Office of Information and
Regulatory Affairs has not designated it as a significant energy
action. Therefore, it does not require a Statement of Energy Effects
under Executive Order 13211.

Technical Standards

    The National Technology Transfer and Advancement Act (NTTAA) (15
U.S.C. 272 note) directs agencies to use voluntary consensus standards
in their regulatory activities unless the agency provides Congress,
through the Office of Management and Budget, with an explanation of why
using these standards would be inconsistent with applicable law or
otherwise impractical. Voluntary consensus standards are technical
standards (e.g., specifications of materials, performance, design, or
operation; test methods; sampling procedures; and related management
systems practices) that are developed or adopted by voluntary consensus
standards bodies.
    This proposed rule does not use technical standards. Therefore, we
did not consider the use of voluntary consensus standards.

Environment

    We have analyzed this proposed rule under Department of Homeland
Security Management Directive 023-01 and Commandant Instruction
M16475.lD, which guide the Coast Guard in complying with the National
Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), and
have made a preliminary determination that this action is one of a
category of actions that do not individually or cumulatively have a
significant effect on the human environment. A preliminary
environmental analysis checklist supporting this determination is
available in the docket where indicated under ADDRESSES. This proposed
rule involves establishing a safety zone. We seek any comments or
information that may lead to the discovery of a significant
environmental impact from this proposed rule.

List of Subjects in 33 CFR Part 165

    Harbors, Marine safety, Navigation (water), Reporting and
recordkeeping requirements, Security measures, Waterways.

    For the reasons discussed in the preamble, the Coast Guard proposes
to amend 33 CFR part 165 as follows:

PART 165--REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS

    1. The authority citation for part 165 continues to read as
follows:

    Authority:  33 U.S.C. 1231; 46 U.S.C. Chapter 701; 50 U.S.C.
191, 195; 33 CFR 1.05-1(g), 6.04-1, 6.04-6, and 160.5; Pub. L. 107-
295, 116 Stat. 2064; Department of Homeland Security Delegation No.
0170.1.

    2. Add Sec.  165.513 to read as follows:

Sec.  165.001  Safety Zone; Magothy River, Sillery Bay, MD.

    (a) Regulated area. The following area is a safety zone: All waters
of the Magothy River, in Sillery Bay, contained within lines connecting
the following positions: from position latitude 39[deg]04'40'' N,
longitude 076[deg]27'44'' W; thence to position latitude 39[deg]04'48''
N, longitude 076[deg]27'19'' W; thence to position latitude
39[deg]04'59'' N, longitude 076[deg]27'45'' W; thence to position
latitude 39[deg]04'59'' N, longitude

076[deg]28'01'' W; thence to position latitude 39[deg]04'41'' N,
longitude 076[deg]27'51'' W; thence to the point of origin at position
latitude 39[deg]04'40'' N, longitude 076[deg]27'44'' W. All coordinates
reference Datum NAD 1983.
    (b) Definitions. As used in this section: (1) Captain of the Port
Baltimore means the Commander, U.S. Coast Guard Sector Baltimore,
Maryland.
    (2) Designated representative means any Coast Guard commissioned,
warrant, or petty officer who has been authorized by the Captain of the
Port Baltimore to assist in enforcing the safety zone described in
paragraph (a) of this section.
    (c) Regulations. (1) All persons are required to comply with the
general regulations governing safety zones found in 33 CFR 165.23.
    (2) All vessels and persons are prohibited from entering and
accessing this safety zone, except as authorized by the Captain of the
Port Baltimore or his or her designated representative.
    (3) Persons or vessels requiring entry into or passage within the
safety zone must request authorization from the Captain of the Port
Baltimore or his or her designated representative, by telephone at
(410) 576-2693 or by marine band radio on VHF-FM Channel 16 (156.8
MHz), from 8 a.m. until 10 p.m. on the fourth Saturday in July
annually. All Coast Guard vessels enforcing this safety zone can be
contacted on marine band radio VHF-FM Channel 16 (156.8 MHz).
    (4) All vessels and persons must comply with instructions of the
Captain of the Port Baltimore or his or her designated representative.
    (5) The operator of any vessel entering or located within this
safety zone shall:
    (i) travel at no-wake speed,
    (ii) stop the vessel immediately upon being directed to do so by
any commissioned, warrant or petty officer on board a vessel displaying
a Coast Guard Ensign, and
    (iii) proceed as directed by any commissioned, warrant or petty
officer on board a vessel displaying a Coast Guard Ensign.
    (d) Enforcement. The U.S. Coast Guard may be assisted in the patrol
and enforcement of the safety zone by any Federal, State, and local
agencies.
    (e) Enforcement period. This section will be enforced from 8 a.m.
until 10 p.m. on the fourth Saturday in July annually.

    Dated: February 7, 2012.
Mark P. O'Malley,
Captain, U.S. Coast Guard, Captain of the Port Baltimore Maryland.
[FR Doc. 2012-4389 Filed 2-24-12; 8:45 am]
BILLING CODE 9110-04-P


[Federal Register Volume 78, Number 44 (Wednesday, March 6, 2013)]
[Notices]
[Page 14529]
[FR Doc No: 2013-05134]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

Combined Notice of Filings

    Take notice that the Commission has received the following Natural
Gas Pipeline Rate and Refund Report filings:

Filings Instituting Proceedings

    Docket Numbers: RP13-584-000.
    Applicants: Columbia Gas Transmission, LLC.
    Description: TCO Modernization Settlement Implementation RP12-1021-
000 to be effective 3/1/2013.
    Filed Date: 2/26/13.
    Accession Number: 20130226-5055.
    Comments Due: 5 p.m. ET 3/11/13.

    Docket Numbers: RP13-585-000.
    Applicants: Empire Pipeline, Inc.
    Description: Deferred State Income Tax Balance (2012).
    Filed Date: 2/26/13.
    Accession Number: 20130226-5110.
    Comments Due: 5 p.m. ET 3/11/13.

    Docket Numbers: RP13-586-000.
    Applicants: Sabine Pipe Line LLC.
    Description: Sabine Section 5 Statement of Transportation Rates to
be effective 4/1/2013.
    Filed Date: 2/26/13.
    Accession Number: 20130226-5144.
    Comments Due: 5 p.m. ET 3/11/13.

    Any person desiring to intervene or protest in any of the above
proceedings must file in accordance with Rules 211 and 214 of the
Commission's Regulations (18 CFR 385.211 and 385.214) on or before 5:00
p.m. Eastern time on the specified comment date. Protests may be
considered, but intervention is necessary to become a party to the
proceeding.

Filings in Existing Proceedings

    Docket Numbers: RP13-490-001.
    Applicants: Arlington Storage Company, LLC.
    Description: Arlington Storage Company, LLC--Revised Compliance
Filing to be effective 4/1/2013.
    Filed Date: 2/26/13.
    Accession Number: 20130226-5137.
    Comments Due: 5 p.m. ET 3/4/13.

    Any person desiring to protest in any of the above proceedings must
file in accordance with Rule 211 of the Commission's Regulations (18
CFR 385.211) on or before 5:00 p.m. Eastern time on the specified
comment date.
    The filings are accessible in the Commission's eLibrary system by
clicking on the links or querying the docket number.
    eFiling is encouraged. More detailed information relating to filing
requirements, interventions, protests, and service can be found at:
http://www.ferc.gov/docs-filing/efiling/filing-req.pdf. For other
information, call<PHONE_NUMBER> (toll free). For TTY, call (202) 502-
8659.

    Dated February 27, 2013.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2013-05134 Filed 3-5-13; 8:45 am]
BILLING CODE 6717-01-P