1This information was taken from http:// www. epa. gov/ chemrtk/ hpvchmlt. htm. More information on the HPV Voluntary Chemical Challenge is also available on http:// www. epa. gov/ chemrtk/ benefits. htm.

C:\ dmautop\ temp\ dwcgi 9574 1072814667 7258000. wpd MEMORANDUM TO: Jesse Pritts, EPA/ EAD Pat Harrigan, EPA/ EAD FROM: Ellie Ku Codding, ERG DATE: February 7, 2003 SUBJECT: Additional Data Sources for Screening Environmental Risk EPA Contract No. 68 C02 095, Work Assignment 0 05 As directed in Task 5B of the technical direction memo dated January 15, 2003, this memorandum presents additional data sources that might be used to identify facilities generating wastewater presenting environmental risk. ERG first presents the additional data sources identified and the identification process. Then ERG discusses information that could be useful in the evaluation of data sources already identified by EAD. Finally, ERG discusses recommendations and future activities.

Additional Data Sources ERG scanned readily available information and identified additional data sources relevant to the National Strategy. ERG identified two similar OPPT efforts whose data may complement data review efforts being conducted for the National Strategy. In 1999, OPPT reviewed data sources to collect information on chemicals in an effort to develop a database that could be used to prioritize chemicals for endocrine disruptor screening and testing.

Currently, OPPT is reviewing some of these data sources and additional data sources to extract information for High Production Volume ( HPV) chemicals. A U. S. HPV chemical is defined as any chemical which is manufactured in or imported into the United States in amounts equal to or greater than one million pounds per year1. EPA created the HPV Challenge program in which chemical producers can sponsor chemicals and voluntarily provide screening level health and environmental hazard data. ( Sponsoring is a voluntary action that reduces the chance of a chemical becoming a required " Test Chemical" under TSCA Section 4). OPPT is currently collecting data to support Toxic Substances Control Act ( TSCA) Section 4 Exposure Based findings for unsponsored HPV chemicals and provide supplemental information to update MEMORANDUM February 7, 2003 Page 2 C:\ dmautop\ temp\ dwcgi 9574 1072814667 7258000. wpd approximately 2,000 data profiles for sponsored HPV chemicals. Some of the data collected may be relevant to the National Strategy.

ERG reviewed the list of data sources reviewed by OPPT and eliminated those unrelated to water. ERG also searched for data sources in addition to those studied by OPPT. The following attachments summarize the information collected for your review:

Attachment 1: Table 1, Relevant Additional Data Sources Studied by OPPT Attachment 2: Table 2, Additional Data Sources Not Currently Being Considered by OPPT Sources Already Identified by EPA ERG also found data profiles from the 1999 OPPT reviews of sources currently being considered by EAD, for which briefs either already have been written or are being written. OPPT data profiles could augment EAD's reviews of these data sources. Although the profiles have not been updated since 1999, ERG is providing copies of the relevant profiles in the following attachments:

Attachment 3: 1999 OPPT Profile of the Environmental Management and Assessment Program ( EMAP); Attachment 4: 1999 OPPT Profile of the National Stream Quality Accounting Network ( NASQAN); Attachment 5: 1999 OPPT Profile of the National Water Quality Assessment ( NAWQA); and Attachment 6: 1999 OPPT Profile of the National Sediment Inventory ( NSI).

Recommendations and Future Activities Tables 1 and 2 represent ERG's findings from a preliminary scan of available information, and more investigation is needed to determine how and when these data sources can be used. First, sources need to be prioritized: some for immediate review in detail for potential use in the June 2003 cycle, and the rest for future consideration. ERG recommends immediately reviewing the sources containing data type " A" ( the first seven in Table 1 and the first four in Table 2). Upon agreement from EPA, ERG will generate briefs for these 11 data sources that are specific to the goals of the National Strategy. As part of this effort, ERG will continue to coordinate with OPPT HPV efforts, to incorporate their findings as much as possible.

Most of the sources identified in Tables 1 and 2 identify chemicals that present risk, but they lack a direct connection to a discharge category. For example, the Chesapeake Bay Monitoring Program Water Quality Data provide information on chemicals, locations, and concentrations found in the Chesapeake Bay, but there is no link to which industry generated the MEMORANDUM February 7, 2003 Page 3 C:\ dmautop\ temp\ dwcgi 9574 1072814667 7258000. wpd chemical. Currently the main sources that ERG believes link the chemical release to a point source discharge category are TRI ( used in the RSEI model) and PCS data. ERG recommends taking the next steps to identify how the OPPT chemical lists, toxicity information, and environmental fate data can be used to support EAD's identification of discharge categories that need investigation.

If you have any questions or comments, please contact Ellie Codding by phone ( 703 633 1673) or e mail ( eleanor. codding@ erg. com). C:\ dmautop\ temp\ dwcgi 9574 1072814667 7258000. wpd ATTACHMENT 1 Table 1. Relevant Additional Data Sources Studied by OPPT Rank1 Data Source Data Type2 Comments/ Questions3 1 Hazardous Substances Database ( ToxNet) A Production/ use data. OPPT profile under development for HPV effort.

2 Inventory Update Rule ( IUR) ( 2002) A Broad data on production volume, customers, worker exposures, and SIC. The 2002 version is now available from NTIS, Order number PB 2002 5082 ( CD Rom). OPPT profile under development for HPV effort.

3 Toxic Substances Control Act Test Submission ( TSCATS)

Database A Current HPV effort. Available to download through a query form at http:// dl. rtkent. org/ tsc/.

4 ATSDR Toxicological Profiles A Current HPV effort. May contain production, import/ export, use,

and disposal information. Available on the Internet from CRC Press, http:// www. atsdr. net/, for a subscription fee.

5 Chemical Market Reporter/ ChemExpo. com A Subscription to the Chemical Marketer Report is required. Current HPV effort.

6 OECD SIDS Profiles A Current HPV effort.

7 SRI Chemical Economics Handbook A Current HPV effort. Proprietary, available electronically to subscribers. 2002 subscription available for $ 42,000. OPPT owns this and EPA staff or their contractors can arrange to use it at OPPT.

8 Chesapeake Bay Monitoring Program Water Quality Data C Existing 1999 OPPT profile.

9 Chesapeake Bay Monitoring Program Benthic Sediment Survey Data C Existing 1999 OPPT profile.

10 Great Lakes Fish Monitoring Program C Existing 1999 OPPT profile.

11 National Estuary Program ( NEP) C Existing 1999 OPPT profile. ATTACHMENT 1 Table 1. Relevant Additional Data Sources Studied by OPPT, continued Rank1 Data Source Data Type2 Comments/ Questions3 C:\ dmautop\ temp\ dwcgi 9574 1072814667 7258000. wpd 12 Safe Drinking Water Information System ( SDWIS) C Existing 1999 OPPT profile.

13 National Drinking Water Contaminant Occurrence Database  Ambient Surface Water Data ( NCOD) C NCOD contains similar data to SDWIS. Current HPV effort.

14 Information Collection Rule ( ICR) C Existing 1999 OPPT profile. Data on water systems.

15 Environmental Contaminant Data Management System ( ECDMS) C Current HPV effort.

16 Superfund CLP Water and Soil Data C Existing 1999 OPPT profile.

17 National Human Exposure Assessment Survey ( NHEXAS) C Existing 1999 OPPT profile and current HPV effort.

18 " Everything" Added to Food in the U. S. ( EAFUS) C Existing 1999 OPPT profile and current HPV effort.

19 Contaminant Exposure and Effects  Terrestrial Vertebrates ( CEE TV) C Existing 1999 OPPT profile and current HPV effort.

20 Syracuse Bioconcentration Factor Data ( BCF) C Existing 1999 OPPT profile.

21 Syracuse Research Corporation Persistence Data ( SRC) C Existing 1999 OPPT profile.

22 Combined Environmental Release, Bioconcentration, and Persistence Data ( Persistence Data) C Existing 1999 OPPT profile.

23 National Occupational Exposure Survey ( NOES) C Electronic database of chemicals ( exposure agents) observed in the workplace from 1981  1983. Current HPV effort.

24 Total Exposure Assessment Methodology ( TEAM) C Existing 1999 OPPT profile and current HPV effort.

25 National Human Adipose Tissue Survey ( NHATS) C Existing 1999 OPPT profile and current HPV effort. ATTACHMENT 1 Table 1. Relevant Additional Data Sources Studied by OPPT, continued Rank1 Data Source Data Type2 Comments/ Questions3 C:\ dmautop\ temp\ dwcgi 9574 1072814667 7258000. wpd 26 Third National Health and Nutrition Examination Survey ( NHANES III) C Existing 1999 OPPT profile and current HPV effort.

27 Aquatic Information Toxicity Retrieval System C Existing 1999 OPPT profile and current HPV effort.

28 Pesticide Product Information System C Existing 1999 OPPT profile.

29 Persistence Groundwater Database C Existing 1999 OPPT profile 30 Source Ranking Database ( SRD) C Current HPV effort.

31 Use Clusters Scoring System ( UCSS) U Current HPV effort.

32 Bureau of Labor Statistics B Labor statistics can be downloaded in flat files from ftp:// ftp. bls. gov/ pub/ time. series/ compressed/ tape. format/. Current HPV effort.

33 State Web Sites U Current HPV effort.

34 U. S. Census web site B Current HPV effort.

35 Level 3 Fugacity Model U Current HPV effort.

36 PBT Profiler C Physical/ chemical fate properties. Current HPV effort.

37 Generic Internet Searches for Specific Chemicals C Current HPV effort.

38 EPIWIN U Current HPV effort.

39 Dun and Bradstreet ( D& B) B Current HPV effort. Proprietary information available from D& B 40 EPA's National Service Center for Environmental Publications ( NSCEP) U Current HPV effort. A repository for all EPA documents that can be either dowloaded or obtained by mail for free.

http:// www. epa. gov/ ncepihom/ ordering. htm/ ATTACHMENT 1 Table 1. Relevant Additional Data Sources Studied by OPPT, continued Rank1 Data Source Data Type2 Comments/ Questions3 C:\ dmautop\ temp\ dwcgi 9574 1072814667 7258000. wpd 41 Toxic Exposure Surveillance System Annual Report Data U Owner: American Association of Control Centers. Current HPV effort. Comprehensive poisoning surveillance database, PDF annual reports available on the Internet.

Notes:

1 Rank for review priority based on preliminary scan and subject to change.

2  Type of data expected: A  Chemical and discharge category, B  Facility, C  Chemical, U  Unknown at this time. Subject to change upon further investigation.

3  Current High Production Volume ( HPV) effort indicates that OPPT is investigating this source. Data profiles from the HPV effort will be available at a later date. C:\ dmautop\ temp\ dwcgi 9574 1072814667 7258000. wpd ATTACHMENT 2 Table 2. Additional Data Sources Not Currently Being Considered by OPPT Rank1 Data Source Data Type2 Comments/ Questions 1 Resource Conservation and Recovery Act Information ( RCRAInfo) A This database is a compilation of the former Biennial Reporting System ( BRS) and Resource Conservation and Recovery Information System ( RCRIS). It would provide information on both facility and chemicals.

2 Online Tracking Information System ( OTIS) A From EPA's web site ( http:// www. epa. gov/ Compliance/ planning/ data/ multimedia/ index. ht ml): "[ A] set of Web based search engines that provide information to registered government users regarding compliance and enforcement data. OTIS sends queries to the IDEA system and allows complex searching with pull down menus, providing output in an easy to use Web format. ( Please note that OTIS is for state and federal use.)"

3 REPS ( OECA) A Waste code profiles, based on OSW data, SIC specific, chemical concentrations.

4 Accidental Release Information Program ( ARIP) A http:// yosemite. epa. gov/ oswer/ ceppoweb. nsf/ content/ preventingacci dent. htm 5 Facility Registry System B 6 Grants Information & Control System U 7 USGS Report: Pharmaceuticals, Hormones, and Other Organic Wastewater Contaminants in U. S. Streams, 1999

2000: A National Reconnaissance C Available from Environmental Science & Technology, v. 36, no. 6,

pages 1202 1211 ATTACHMENT 2 Table 2. Additional Data Sources Not Currently Being Considered by OPPT, continued Rank1 Data Source Data Type2 Comments/ Questions C:\ dmautop\ temp\ dwcgi 9574 1072814667 7258000. wpd 8 CAL ECOTOX C List of chemicals to which animals ( primarily vertebrates) were exposed 9 National Science Institute U 10 Mercury Initiative C Notes:

1 Rank for review priority based on preliminary scan and subject to change.

2  Type of data expected: A  Chemical and discharge category, B  Facility, C  Chemical, U  Unknown at this time. Subject to change upon further investigation.


[Federal Register: October 31, 2006 (Volume 71, Number 210)]
[Rules and Regulations]
[Page 64085-64092]
[DOCID:fr31oc06-17]

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Part VII

Securities and Exchange Commission

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17 CFR Part 270

 Definition of Eligible Portfolio Company Under the Investment Company
Act of 1940; Final Rule and Proposed Rule

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 270

[Release No. IC-27538; 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 two new rules under the Investment
Company Act of 1940 (``Investment Company Act'' or ``Act''). The new
rules 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 rules expand
the definition of eligible portfolio company in a manner that promotes
the flow of capital to certain small, developing and financially
troubled companies.

DATES: Effective Date: November 30, 2006.

FOR FURTHER INFORMATION CONTACT: Rochelle Kauffman Plesset, Senior
Counsel, or Elizabeth G. Osterman, Assistant Chief Counsel, Office of
Chief Counsel,<PHONE_NUMBER>, Division of Investment Management,
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-5030.

SUPPLEMENTARY INFORMATION: The Commission today is adopting new Rule
2a-46 [17 CFR 270.2a-46] and new Rule 55a-1 [17 CFR 270.55a-1], both
under the Investment Company Act [15 U.S.C. 80a et seq.].\1\
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    \1\ Rules 2a-46 and 55a-1 were proposed in 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''). The Commission today
also issued a release reproposing Rule 2a-46(b). Definition of
Eligible Portfolio Company under the Investment Company Act of 1940,
Investment Company Act Release No. 27539 (Oct. 25, 2006).
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Table of Contents

I. Background
II. Discussion
    A. Rule 2a-46
    B. Rule 55a-1
III. Cost-Benefit Analysis
    A. Benefits
    B. Costs
IV. Consideration of Promotion of Efficiency, Competition and
Capital Formation
V. Paperwork Reduction Act
VI. Final Regulatory Flexibility Analysis
    A. Reasons and Objectives of the New Rules
    B. Significant Issues Raised by Public Comment
    C. Small Entities Subject to the Rule
    D. Reporting, Recordkeeping, and Other Compliance Requirements
    E. Commission Action To Minimize Adverse Impact on Small
Entities
VII. Statutory Authority

I. Background

    In 1980, Congress enacted the Small Business Investment Incentive
Act (``SBIIA''), which, among other things, established BDCs as a means
of making capital more readily available to small, developing and
financially troubled companies that do not have ready access to the
public capital markets or other forms of conventional financing.\2\
Consistent with this purpose, Section 55(a) of the Investment Company
Act generally prohibits a BDC from acquiring any assets unless, at the
time of acquisition, at least 70 percent of its total assets are
invested in securities of certain specified types of companies (``70
percent basket'').\3\ Among other things, the 70 percent basket may
include securities of eligible portfolio companies purchased in
transactions not involving any public offering,\4\ securities of
eligible portfolio companies already controlled by the BDC without
regard to the nature of the offering,\5\ 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.\6\
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    \2\ Pub. L. 96-477, 94th Stat. 2274 (1980) (codified at
scattered sections of the United States Code). See generally H.R.
Rep. No. 1341, 96th Cong., 2d Sess. 21 (1980) (``House Report'').
    \3\ Section 55(a) of the Investment Company Act [15 U.S.C. 80a-
54(a)]. See House Report at 23 (``The restrictions are designed to
assure that companies electing special treatment as [BDCs] are in
fact those that [SBIIA] is intended to aid--companies providing
capital and assistance to small, developing or financially troubled
businesses that are seeking to expand, not passive investors in
large, well-established businesses.'').
    Congress did not specifically regulate how a BDC should invest
the remainder of its assets (``30% basket''). See id. at 31, 38-40.
Congress clarified, however, that a BDC would be required to invest
its 30% basket in a manner consistent with the overall purpose of
SBIIA. Id. at 39-40 (``One such purpose would be to allow an
investment * * * in a publicly-held company whose success may be
stimulated or revived by the infusion of new capital or managerial
assistance. A second purpose might be to recognize the need for
[BDCs] * * * to have a source of cash flow to fund current
operations or to meet contingencies which may arise.'').
    \4\ See Section 55(a)(1) of the Investment Company Act. See also
Section 2(a)(46) of the Investment Company Act [15 U.S.C. 80a-
2(a)(46)] (statutory definition of eligible portfolio company).
    \5\ See Section 55(a)(2) of the Investment Company Act,
referring to companies with respect to which the BDC satisfies the
requirements of Section 2(a)(46)(C)(ii) of the Act. Section
2(a)(46)(C)(ii) provides that a company that meets the initial
requirements set forth in Sections 2(a)(46)(A) and (B) is an
eligible portfolio company if ``it is controlled by a [BDC], either
alone, or as part of a group acting together, and such [BDC] in fact
exercises a controlling influence over the management or policies of
such eligible portfolio company and, as a result of such control,
has an affiliated person who is a director of such eligible
portfolio company.''
    \6\ See Section 55(a)(3) of the Investment Company Act
(includes, among others, companies that have filed for bankruptcy).
In addition, a BDC generally may purchase the securities of an
eligible portfolio company from any person in a non-public offering
if there is no ready market for the securities and, immediately
before the purchase, the BDC owns at least 60% of the issuer's
outstanding equity securities. Section 55(a)(4) of the Investment
Company Act. BDCs may also invest in securities received in exchange
for, or distributed on or with respect to, the securities described
in paragraphs (1) through (4) of Section 55(a) or pursuant to the
exercise of options, warrants or other rights relating to these
securities and in cash and certain short-term securities. Sections
55(a)(5) and (6) of the Investment Company Act.
---------------------------------------------------------------------------

    The definition of eligible portfolio company is central to the
restrictions of section 55(a) and the purpose of SBIIA. Section
2(a)(46) first generally defines eligible portfolio company to include
only domestic companies that are not investment companies under the
Investment Company Act (``domestic operating companies'').\7\ Section
2(a)(46)(C) further defines eligible portfolio company under three
categories. Many BDCs invest in companies that historically met the
criteria of section 2(a)(46)(C)(i).\8\ Under section 2(a)(46)(C)(i), an
eligible portfolio company includes any company that does not have any
class of securities with respect to which a member of a national
securities exchange, broker or dealer may extend or maintain margin
credit pursuant to the rules or regulations adopted by the Federal
Reserve Board under section 7 of the Securities Exchange Act of 1934
(``Exchange Act''). 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'' that could be used to determine whether a company
has ready access to the public capital markets or other sources of
financing.\9\ Nevertheless, Congress recognized that the definition's
reliance on the Federal Reserve Board's margin rules might need to be
adjusted in the future. 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.\10\
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    \7\ See House Report at 29. Sections 2(a)(46)(A) of the
Investment Company Act defines eligible portfolio company to include
(among other things) companies organized under the laws of, and with
their principal 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\ In addition to section 2(a)(46)(C)(i), discussed infra,
section 2(a)(46)(C)(ii) includes in the definition of eligible
portfolio company any issuer in which the BDC or certain affiliates
own a controlling interest, see supra note 5, and section
2(a)(46)(C)(iii), enacted in 1996, includes in the definition any
issuer that has total assets of not more than $4 million, and
capital and surplus (shareholder equity minus retained earnings) of
not less than $2 million.
    \9\ See House Report at 30-31.
    \10\ House Report at 31. 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 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.'' While
stating that BDCs ``already have substantial freedom of action to
purchase securities of companies which are not eligible portfolio
companies,'' referring to the 30% basket, 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. Among the objective
factors which the Commission may consider in such proceedings are
the size of such companies, the extent of their public ownership,
and their operating history as going concerns and public
companies.''). See House Report at 31.
---------------------------------------------------------------------------

    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 adopted amendments to those rules that had the unintended
consequence of reducing the number of companies that meet the
definition of eligible portfolio company by expanding the definition of
margin security to include all publicly traded equity securities and
most debt securities.\11\
---------------------------------------------------------------------------

    \11\ See 2004 Proposing Release, supra note 1 at nn. 19-23 and
accompanying text.
---------------------------------------------------------------------------

    On November 1, 2004, we proposed for comment Rules 2a-46 and 55a-1
under the Investment Company Act.\12\ The proposed rules were designed
to address the impact of the Federal Reserve Board's 1998 amendments on
the definition of eligible portfolio company by realigning that
definition, and the investment activities of BDCs, with the purpose of
SBIIA.
---------------------------------------------------------------------------

    \12\ Id.
---------------------------------------------------------------------------

    Generally, proposed Rule 2a-46 would have defined eligible
portfolio company in one of two ways. Proposed Rule 2a-46(a) would have
defined eligible portfolio company to include any domestic operating
company \13\ that does not have any class of securities listed on a
national securities exchange (``Exchange'').\14\ Proposed Rule 2a-46(b)
would have defined eligible portfolio company to include any domestic
operating company that has a class of securities listed on an Exchange
but (1) has received notice that its securities will be delisted and
(2) is not eligible to list its securities on any Exchange. Proposed
Rule 55a-1 would have conditionally permitted a BDC to include in its
70 percent basket follow-on investments in any company that was an
eligible portfolio company as defined by proposed Rule 2a-46 at the
time of the BDC's initial investment(s) in it, but no longer met that
definition.
---------------------------------------------------------------------------

    \13\ The proposed rule incorporated the provisions of section
2(a)(46)(A) and (B). See supra note 7.
    \14\ The rule as proposed also would have defined eligible
portfolio company to include any domestic operating company that
does not have any class of securities listed on an automated
interdealer quotation system of a national securities association
(i.e., The NASDAQ Stock Market LLC (``Nasdaq'')). On August 1, 2006,
Nasdaq began operating as a national securities exchange registered
under section 6(a) of the Exchange Act.
---------------------------------------------------------------------------

II. Discussion

    We received thirty-six comment letters that addressed the proposed
rules.\15\ Commenters generally agreed that Commission rulemaking is
appropriate at this time. Virtually all commenters supported proposed
Rule 55a-1, and most commenters agreed with the definition of eligible
portfolio company set forth in proposed Rule 2a-46(a). Some commenters,
however, were concerned that proposed Rule 2a-46(b) would not include
many of the small public companies whose securities are listed on an
Exchange that historically would have met the definition of eligible
portfolio company before the margin rule amendments. In addition, some
commenters argued that some small companies that list their securities
on an Exchange may not fall within the definition set forth in proposed
Rule 2a-46(b), but nevertheless may have difficulties accessing
conventional sources of capital and raising capital on the public
capital markets. These commenters argued that these companies should
qualify as eligible portfolio companies under the rule.\16\ Commenters
also generally stated that proposed Rule 2a-46(b) was unworkable.\17\
---------------------------------------------------------------------------

    \15\ Commenters included members of Congress, BDCs, law firms,
trade associations and small businesses that had received financing
from a BDC. The comment 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). They also may be viewed at http://www.sec.gov/rules/proposed/ic-26647.htm
.

    \16\ See, e.g., comments of UTEK (Jan. 7, 2005); comments of
Gladstone Capital (Jan. 6, 2005); comments of Thompson & Knight
(Jan. 4, 2005). But see comments of the Committee on Federal
Regulation of Securities of the Business Law Section of the American
Bar Association (Jan. 5, 2005) (supporting proposal in full);
comments of the Investment Company Institute (Jan. 6, 2005)
(supporting proposal in full). A few commenters also argued that the
proposed rule may harm BDC shareholders because it would increase
the risk profile of a BDC. See, e.g., comments of Allied Capital
(Jan. 7, 2005). We discuss this comment below. See infra notes 24-25
and accompanying text.
    \17\ See, e.g., comments of Sherman & Sterling LLP (Jan. 7,
2005).
---------------------------------------------------------------------------

    After considering the comments received, the Commission today is
adopting Rule 2a-46, initially proposed as Rule 2a-46(a), to define
``eligible portfolio company'' to include all private companies and all
public companies whose securities are not listed on an Exchange. We
estimate that, based on June 2006 data, 61.4 percent (6,041/9,845) of
all public domestic operating companies qualify as eligible portfolio
companies under Rule 2a-46.
    We are not, however, adopting proposed paragraph (b). We are
sensitive to some commenters' concerns that the proposed rule was too
narrow. Accordingly, we are seeking comment on reproposed Rule 2a-46(b)
in a separate release.\18\
---------------------------------------------------------------------------

    \18\ See supra note 1.
---------------------------------------------------------------------------

    We also are adopting Rule 55a-1 today.\19\ That rule conditionally
allows BDCs to make follow-on investments in companies that met the
definition of eligible portfolio company under Rule 2a-46 at the time
of a BDC's initial investment(s) in them, but that do not meet that
definition at the time of the BDC's follow-on investment.
---------------------------------------------------------------------------

    \19\ Rule 55a-1 as adopted has been modified from the proposed
rule merely to refer to Rule 2a-46 as adopted, rather than reciting
the definition of eligible portfolio company set forth in Rule 2a-
46.
---------------------------------------------------------------------------

    We discuss the rules that we are adopting today in greater detail
below.

A. Rule 2a-46

    Rule 2a-46 defines eligible portfolio company to include all
private domestic operating companies \20\ and those public domestic
operating companies whose securities are not listed on an

Exchange.\21\ Public domestic operating companies whose securities are
quoted on the over-the-counter bulletin board (``OTCBB'') and through
Pink Sheets LLC (``Pink Sheets'') are not listed on an Exchange, and
therefore are eligible portfolio companies under this provision.
---------------------------------------------------------------------------

    \20\ Like Section 2(a)(46) and the proposed rule, Rule 2a-46
defines eligible portfolio company to include only domestic
operating companies. See supra notes 7 and 13 and accompanying text.
    \21\ Under this provision, an issuer would be an eligible
portfolio company if it does not have a class of securities listed
on a national securities exchange registered under Section 6(a) of
the Exchange Act, [15 U.S.C. 78f(a)] such as the New York Stock
Exchange (``NYSE''), the American Stock Exchange (``Amex''), and
Nasdaq. See supra note 14.
---------------------------------------------------------------------------

    Rule 2a-46 in our view provides a workable and appropriate test for
determining whether a company is an eligible portfolio company. The
rule more closely aligns the definition of eligible portfolio company
with the purpose of SBIIA by including many of the types of companies
that Congress originally intended to benefit from BDC financing that
may have lost their eligible portfolio company status because of the
change in the margin rules. Rule 2a-46 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.\22\
---------------------------------------------------------------------------

    \22\ See supra note 10.
---------------------------------------------------------------------------

    Most commenters supported proposed Rule 2a-46(a), and agreed that
this approach would establish a clear, workable standard that
correlates to whether a company has access to publicly raised
capital.\23\ A few commenters, however, raised a concern that this
provision, when coupled with the definition set forth in proposed
paragraph (b), would cause BDCs to focus their investment activities on
companies that are in financial distress because of their view that
most public companies that are quoted on the OTCBB or through Pink
Sheets are financially troubled.\24\
---------------------------------------------------------------------------

    \23\ See, e.g., comments of American Capital Strategies Ltd.
(Jan. 7, 2004); comments of Sherman & Sterling LLP (Jan. 7, 2005).
We note that the House of Representatives has passed legislation
that in part defines eligible portfolio company in a manner similar
to the definition that we are adopting today. See H.R. 436, 109th
Cong., 1st Sess. (2005) (an eligible portfolio company includes any
company that ``does not have any class of equity securities listed
for trading on a national securities exchange or traded through the
facilities of a national securities association as described in
Section 15A of the Securities Exchange Act of 1934''). S. 1396,
which is identical to H.R. 436, was introduced in the Senate on July
14, 2005. S. 1396, 109th Cong., 1st Sess. (2005). Both H.R. 436 and
S. 1396 are currently pending before the Senate Committee on
Banking, Housing and Urban Affairs.
    \24\ Comments of UTEK (Jan. 7, 2005); comments of Allied Capital
(Jan. 7, 2005). Some commenters also raised the concern that the
proposed rule would harm BDC shareholders by raising BDCs' risk
profiles. Rule 2a-46, however, is intended to address the
inadvertent reduction in the number of companies that qualify under
Section 2(a)(46) by the amendment to the margin rules. The rule does
not alter the statutory mandate or requires a BDC to invest in any
particular company. Further, Congress addressed investor protection
concerns with respect to BDC shareholders in 1980. See House Report
at 22 (explaining that SBIIA ``is intended to preserve to the
fullest possible extent * * * [investor] protections, while at the
same time reducing unnecessary regulatory burdens.''). In this
regard, the federal securities laws require, among other things,
BDCs to disclose to their shareholders the risks associated with
investment and to manage their business consistent with their
fiduciary obligations.
---------------------------------------------------------------------------

    Rule 2a-46 does not require BDCs to focus their investment
activities in financially troubled companies whose securities are
traded on the OTCBB or through Pink Sheets. Although some companies
have their shares traded on the OTCBB or though Pink Sheets because of
financial circumstances, this is not true for all companies whose
securities are traded on these quotation mediums. Rather, OTCBB and
Pink Sheets companies also include small public companies that do not
meet the minimum listing standards of one of the Exchanges, and
companies that wish to become more developed before applying to list
their securities on an Exchange even though they may already be
eligible to do so.\25\ In other words, although companies whose
securities are traded on the OTCBB and through Pink Sheets include
financially troubled companies, they also include small, developing,
financially stable public companies. Thus, we believe that including
companies that are traded on the OTCBB or through Pink Sheets as
eligible portfolio companies under Rule 2a-46 will not require BDCs to
change their investment strategies to focus on financially troubled
companies. Instead, the rule is designed to more closely align the
definition with the purpose of SBIIA.
---------------------------------------------------------------------------

    \25\ See ``A Little About The Pink Sheets'' at
http://www.PennyMarkets.com. See also Testimony of James A. Connolly III

representing the CEO Council before the Subcommittee of Oversight
and Investigations of the House Committee on Financial Services
(Sept. 23, 2004) (the OTCBB and Pink Sheet companies are `` `engines
of economic growth, job creation and innovation.' Our market space
of 7000 companies includes hundreds of millions of dollars in market
capitalization, tens of thousands of employees, and likely hundreds
of thousands of stockholders.'').
---------------------------------------------------------------------------

    We note that OTCBB and Pink Sheets companies also include a few
large companies that do not list their securities on an Exchange even
though they may meet applicable listing requirements. With this in
mind, we had asked in the Proposing Release whether we should exclude
from the definition of eligible portfolio company any company that
would meet the lowest initial quantitative listing standard of any
Exchange, regardless of whether the company enters into a listing
agreement with the Exchange. Commenters, however, argued that a company
that may meet the lowest initial quantitative listing of any Exchange
may nevertheless not have access to the public capital markets.\26\
These comments have persuaded us not to adopt this approach.
---------------------------------------------------------------------------

    \26\ See comments of Thompson & Knight (Jan. 4, 2005); comments
of American Capital Strategies (Jan. 7, 2006).
---------------------------------------------------------------------------

B. Rule 55a-1

    Proposed Rule 55a-1, which virtually all commenters supported, is
adopted.\27\ As adopted, Rule 55a-1 permits a BDC to include in its 70
percent basket follow-on investments in a company that met the
definition of eligible portfolio company under Rule 2a-46 at the time
of the BDC's initial investment(s) in the company, but subsequently
would not meet the definition of eligible portfolio company because the
company no longer meets the requirements of that rule (i.e., following
the BDC's initial investment(s) in the company, the company listed its
securities on an Exchange), subject to certain conditions. These
conditions permit a BDC to make a follow-on investment only if the BDC,
at the time of the follow-on investment: (1) Owns at least 50 percent
of (a) the greatest number of equity securities of such company,
including securities convertible into or exchangeable for such
securities, and (b) the greatest amount of certain debt securities of
such company held by the BDC at any time during the period when such
company was an eligible portfolio company; and (2) is one of the twenty
largest holders of record of the company's outstanding voting
securities.\28\ Rule 55a-1 is appropriate in the public interest and
consistent with the protection of investors and the purposes and
policies fairly intended by the policy and provisions of the Act.
---------------------------------------------------------------------------

    \27\ See supra note 19.
    \28\ The rule incorporates the conditions set forth in Section
55(a)(1)(B), the section that permits a BDC to make follow-on
investments in a company that was an eligible portfolio company at
the time of the BDC's initial investment(s), but that subsequently
lost its status as an eligible portfolio company because it issued
margin securities.
---------------------------------------------------------------------------

III. Cost-Benefit Analysis

    We are sensitive to the costs and benefits that result from our
rules. In the Proposing Release we requested public comment and
specific data regarding the costs and benefits of the proposed rules.
Several commenters suggested that proposed Rule 2a-46(a) would benefit
BDCs by addressing the impact caused

by changes in the margin rules.\29\ Another commenter argued that the
Commission calculated incorrectly the number of companies that the
proposed rule would benefit and wrote that the proposal would benefit
even fewer companies than the Commission estimated.\30\ We received no
comments on the costs and benefits of proposed Rule 55a-1.
---------------------------------------------------------------------------

    \29\ See, e.g., comment of American Capital Strategies (Jan. 7,
2005); comments of the Committee on Federal Regulation of Securities
of the Business Law Section of the American Bar Association (Jan. 5,
2005).
    \30\ Comments of Williams & Jensen (Jan. 7, 2005). In addition,
most commenters urged the Commission to modify the proposed rule to
capture more small companies whose securities are listed on an
Exchange. The Commission is reproposing Rule 2a-46(b) to address
this concern. See supra note 1.
---------------------------------------------------------------------------

A. Benefits

    Rules 2a-46 and 55a-1 would more closely align the definition of
eligible portfolio company with the purpose that Congress intended when
it established BDCs as a source of financing for certain types of
companies. These companies often need capital for continued development
and growth, but may be unable to borrow money through conventional
sources or may not have ready access to the public capital markets.
Rules 2a-46 and 55a-1 would also benefit BDCs by recapturing companies
that Congress originally intended to make eligible for BDC investment
as part of a BDC's 70 percent basket.
    A number of companies may have lost their eligible portfolio
company status as a result of amendments to the Federal Reserve Board's
margin rules. BDCs may be currently required to include in their 30
percent basket--rather than in their 70 percent basket--any investment
in these companies, notwithstanding the fact that they may be the type
of companies that Congress intended to benefit from BDC financing.
    Rule 2a-46 defines an eligible portfolio company to include all
private companies and those public companies whose securities are not
listed on an Exchange. The Commission's Office of Economic Analysis
(``OEA'') estimates that, as of June 2006, there were a total number of
6,041 domestic operating companies with securities that were traded on
the OTCBB and through Pink Sheets, and therefore would qualify as
eligible portfolio companies under the rule. OEA reached this
conclusion by first calculating the number of companies whose
securities are trading on the OTCBB (3,295 companies) and through Pink
Sheets (4,794 companies), and then removing from these figures
estimates of 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 (e.g., REITS, banks, insurance
companies) 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 (a deduction of 776 companies from OTCBB and
1,273 companies from Pink Sheets). OEA thus concluded that, as of June
2006, there were a total of 6,041 domestic operating companies (2,519
OTCBB companies and 3,522 Pink Sheets companies) that would qualify as
eligible portfolio companies. OEA estimates that these 6,041 companies
represent approximately 61.4 percent (6,041/9,845) \31\ of all public
domestic operating companies that could qualify as eligible portfolio
companies under Rule 2a-46.
---------------------------------------------------------------------------

    \31\ OEA concluded that, as of June 2006, there were 9,845
public domestic operating companies by calculating the number of
companies whose securities are listed on Nasdaq, NYSE and Amex, in
addition to those companies whose securities are trading on the
OTCBB and through Pink Sheets, corrected for cases where individual
companies had multiple classes of securities listed (60 companies),
and then removing from this number foreign companies, investment
companies, and companies that are excluded from the definition of
investment company by Section 3(c). See Sections 2(a)(46)(A) and
(B), supra note 7.
---------------------------------------------------------------------------

    In the Proposing Release, we explained that OEA estimated that 60
percent of public domestic operating companies do not have securities
that trade on an Exchange, and thus would meet the definition of
eligible portfolio company under proposed Rule 2a-46(a). We further
explained that even more public companies should qualify as eligible
portfolio companies by virtue of meeting the requirements of proposed
paragraph (b) of that rule (which, as noted previously, is being
reproposed).\32\
---------------------------------------------------------------------------

    \32\ See 2004 Proposing Release, supra note 1 at n.49 and
accompanying text.
---------------------------------------------------------------------------

    We note that one commenter argued that the Commission calculated
incorrectly the number of companies that the proposed rule would
benefit and wrote that the proposal would benefit even fewer companies
than the Commission estimated. The commenter argued that proposed Rule
2a-46(a) (which we are adopting today as Rule 2a-46) would capture only
52.4 percent of public companies.\33\
---------------------------------------------------------------------------

    \33\ Comments of Williams & Jensen (Jan. 7, 2005).
---------------------------------------------------------------------------

    The commenter's figure is lower than the figure calculated by OEA.
It appears that the commenter did not remove from its data foreign
companies, investment companies and companies that are excluded from
the definition of investment company by Section 3(c). As discussed
previously, because Section 2(a)(46) excludes these companies from the
definition of eligible portfolio company, we believe that they should
be excluded from the total number of companies trading on U.S. markets
when quantifying the benefits of the rule.
    Rule 55a-1 provides additional benefits to certain companies that
met the definition of eligible portfolio company under Rule 2a-46 at
the time of the BDC's initial investment(s) in them but that
subsequently lost their eligible portfolio company status under Rule
2a-46, by allowing BDCs to make follow-on investments in such companies
under certain conditions.
    Finally, we note that both Rule 2a-46 and Rule 55a-1 would benefit
BDCs by expanding the universe of investments that may be included in
their 70 percent baskets. It also benefits BDCs by addressing the
uncertainty caused by changes in the margin rules in the operation of
BDCs. As one commenter noted, a ``technical flaw'' in the definition of
eligible portfolio company arose as a result of changes to the margin
rules which imposed substantial constraints on BDC investments. The
commenter expressed its view that proposed Rule 2a-46(a) had corrected
this flaw.\34\
---------------------------------------------------------------------------

    \34\ See, e.g., comment of American Capital Strategies (Jan. 7,
2005). See also comments of Capital Southwest Corp. (Dec. 28, 2004).
---------------------------------------------------------------------------

B. Costs

    While Rules 2a-46 and 55a-1 might impose certain administrative
compliance costs on BDCs, we expect such costs to be minimal and
commenters provided no data as requested in the 2004 Proposing Release.
Under Rule 2a-46, a BDC would need to determine, prior to investing in
a company, whether the company has a class of securities listed on an
Exchange. Such information is easily obtainable through reliable third-
party sources. Furthermore, Section 55 of the Investment Company Act
generally requires a BDC to invest in eligible portfolio companies
through privately negotiated transactions. Thus, this information would
also be readily available to a BDC from the company during the course
of these negotiations.
    We also expect that a BDC's costs relating to the requirements of
Rule 55a-1 will be minimal. Rule 55a-1 permits a BDC to include in its
70 percent basket follow-on investments in a company that met the
definition of eligible portfolio company under Rule 2a-46 when the BDC
made its initial

investment(s), but that does not meet that definition at the time of
the follow-on investment. A BDC generally may make follow-on
investments under the rule only if, at the time of the follow-on
investment, the BDC owns at least 50 percent of (1) the greatest number
of equity securities of such company, including securities convertible
into or exchangeable for such securities and (2) the greatest amount of
certain debt securities of such company held by the BDC at any time
during the period when such company was an eligible portfolio company.
In addition, the rule requires a BDC that makes such a follow-on
investment to be one of the twenty largest holders of record of the
company's outstanding voting securities at the time of that investment.
    These requirements mirror the requirements set forth in Section
55(a)(1)(B) of the Investment Company Act, the provision that permits a
BDC to include in its 70 percent basket certain follow-on investments
in companies that were eligible portfolio companies at the time of the
BDC's initial investment(s), but that subsequently lost that status
because they issued marginable securities. Accordingly, BDCs already
make similar types of determinations when considering whether to make
follow-on investments in a company that had lost their eligible
portfolio company status because they had issued marginable securities.
We anticipate that the rule will impose only minimal, if any, costs on
companies.

IV. 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.\35\ In the Proposing Release, we requested comment on our
analysis of the impact of the proposed rules on efficiency, competition
and capital formation. Although we did not receive any comments that
specifically addressed proposed Rule 2a-46(a), which is the provision
that we are adopting today, we did receive comments about the entire
rule.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    Specifically, some commenters argued that proposed Rule 2a-46 was
too narrow and did not capture all of the very small public companies
that could benefit from BDC financing.\36\ We interpreted this comment
to suggest that capital formation may have been limited under the
proposed rule. We are sensitive to this concern and therefore are
seeking comment on reproposed Rule 2a-46(b) in a separate release.\37\
---------------------------------------------------------------------------

    \36\ See supra note 16 and accompanying text.
    \37\ See supra note 1.
---------------------------------------------------------------------------

    Some commenters also expressed a concern that proposed Rule 2a-
46(a), when coupled with the definition set forth in proposed paragraph
(b), would cause BDCs to focus their investment activities on companies
that are in financial distress because of their view that most public
companies that are quoted on the OTCBB or through Pink Sheets are
financially troubled.\38\ We interpret this comment to suggest that the
rule does not promote efficiency and would impede capital formation.
Rule 2a-46 as adopted, however, does not require BDCs to focus their
investment activities in financially troubled companies. Rather, Rule
2a-46 allows BDCs to invest in all companies whose securities are
traded on the OTCBB and through Pink Sheets, including small,
developing, financially stable public companies, which are among the
types of companies that Congress intended to benefit from BDC
financing.\39\
---------------------------------------------------------------------------

    \38\ See supra note 24 and accompanying text.
    \39\ See supra note 25 and accompanying text.
---------------------------------------------------------------------------

    As discussed, the new rules more closely align the definition of
eligible portfolio company, and the investment activities of BDCs, with
the purpose that Congress intended. Rule 2a-46 defines eligible
portfolio company to include all private companies and approximately
61.4 percent of public domestic operating companies. Rule 55a-1 permits
a BDC to include in its 70 percent basket follow-on investments in a
company that met the definition of eligible portfolio company under
Rule 2a-46 when the BDC made its initial investment(s), but that does
not meet that definition at the time of the follow-on investment. Both
rules will promote efficiency, competition and capital formation.
    Specifically, both rules promote efficiency by more closely
aligning the definition of eligible portfolio company with the purpose
of SBIIA. To the extent that BDC investments represent additional
capital to certain small companies, these rules enhance efficiency.
Efficiency will be enhanced because the rules address the unintended
adverse impact that the amendments to the margin rules have had on the
ability of BDCs to provide financing to these companies. Rule 2a-46 in
our view also promotes efficiency by providing a workable and
appropriate test for determining whether a company is an eligible
portfolio company. Rule 55a-1 will further enhance efficiency by making
it easier for BDCs to make follow-on investments in companies that no
longer meet the definition of eligible portfolio company under Rule 2a-
46.
    We also anticipate that these rules will promote competition. 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, hedge funds,
investment banks and other BDCs, to provide financing to certain small
businesses. We expect that the rules will encourage competition by
addressing the impact and uncertainty caused by changes in the margin
rules on BDC investment. Under the rules, BDCs will be able to compete
with other entities that provide capital to small, developing and
financially troubled companies in a manner that is consistent with the
statutory requirement that at least 70 percent of a BDC's assets must
be invested in those businesses at the time of any new investment. We
further note that shareholders of companies that had lost their status
as eligible portfolio companies will benefit under the rules because
such companies may now more readily consider BDCs as a source of
financing.
    Finally, we anticipate that the new rules will promote capital
formation. As mentioned above, eligible portfolio company is broadly
defined to include all private companies and a significant portion of
public domestic operating companies. The definition, however, is
designed to ensure that the investment activities of BDCs remain
focused primarily on the types of companies that Congress intended BDCs
to assist.

V. Paperwork Reduction Act

    The Commission has determined that these rules do not involve a
collection of information pursuant to the provisions of the Paperwork
Reduction Act [44 U.S.C. 3501 et seq.].

VI. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis has been prepared in
accordance with 5 U.S.C. 604, which relates to new Rules 2a-46 and 55a-
1 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 Proposing Release.\40\
---------------------------------------------------------------------------

    \40\ 2004 Proposing Release, supra note 1 at Section VII.
---------------------------------------------------------------------------

A. Reasons and Objectives of the New Rules

    As described more fully in Sections I. and II. of this Release, the
objectives of the new rules are to more closely align the definition of
eligible portfolio company set forth under the Investment Company Act,
and the investment activities of BDCs, with the purpose intended by
Congress when it established BDCs in 1980. The rules are designed to
recapture in the definition of eligible portfolio company companies
that Congress originally intended to include within the definition, but
that may have lost their eligible portfolio company status as a result
of the 1998 amendment to the Federal Reserve Board's margin rules.

B. Significant Issues Raised by Public Comment

    When the Commission proposed the rules that are being adopted
today, comment was requested on the proposal and the accompanying IRFA.
We received thirty-six comment letters that addressed the proposed
rules. As discussed, some commenters believed that proposed Rule 2a-46
was too narrow and did not include some small public companies that can
benefit from BDC financing. In a separate release, we are seeking
comment on reproposed Rule 2a-46(b), which would address this concern.
None of the comment letters, however, specifically addressed the IRFA.

C. Small Entities Subject to the Rule

    Rules 2a-46 and 55a-1 affect both 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.\41\ As of December 2005, there were 87 BDCs,
of which 66 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.\42\ We estimate that there are approximately 2,500
companies, other than investment companies, that may be considered
small entities under the Regulatory Flexibility Act.
---------------------------------------------------------------------------

    \41\ 17 CFR 270.0-10.
    \42\ 17 CFR 230.157; 17 CFR 240.0-10.
---------------------------------------------------------------------------

    As discussed in this Release, the rules are intended to more
closely align the definition of eligible portfolio company with the
purpose that Congress intended when it established BDCs as a source of
financing for certain small companies. These companies often need
capital for continued development and growth, but may be unable to
borrow money through conventional sources or may not have ready access
to the public capital markets. The rules would also benefit BDCs,
including those that are small entities, by recapturing the types of
companies that Congress originally intended to make eligible for BDC
investment as part of a BDC's 70 percent basket. We have no reason to
expect that those BDCs and companies that are small entities for
purposes of the Regulatory Flexibility Act will be disproportionately
affected by the rules.

D. Reporting, Recordkeeping and Other Compliance Requirements

    The rules do not impose any new reporting or recordkeeping
requirements on BDCs or on companies. The rules also do not impose any
compliance requirements on companies. They do, however, impose minimal
compliance requirements on all BDCs, including small entities. Under
Rule 2a-46, a BDC, prior to investing in a company, would need to
determine whether the company has a class of securities listed on an
Exchange. This information is readily available, and we believe that
all BDCs, including those that are small entities, already evaluate
similar types of information when considering whether to invest in a
company.
    Rule 55a-1 permits a BDC to include in its 70 percent basket
follow-on investments in a company that met the definition of eligible
portfolio company under Rule 2a-46 when the BDC made its initial
investment(s), but that does not meet that definition at the time of
the follow-on investment. A BDC generally may make follow-on
investments under the rule only if, at the time of the follow-on
investment, the BDC owns at least 50 percent of (1) the greatest number
of equity securities of such company, including securities convertible
into or exchangeable for such securities and (2) the greatest amount of
certain debt securities of such company held by the BDC at any time
during the period when such company was an eligible portfolio company.
In addition, the rule requires a BDC that makes such a follow-on
investment to be one of the twenty largest holders of record of the
company's outstanding voting securities at the time of investment.
These requirements are the same requirements set forth in Section
55(a)(1)(B) of the Investment Company Act, the provision that permits a
BDC to include in its 70 percent basket certain follow-on investments
in companies that were eligible portfolio companies at the time of the
BDC's initial investment(s), but that subsequently lost that status
because they issued marginable securities. Accordingly, BDCs, including
those that are small entities, already make similar types of
determinations when considering whether to make follow-on investments
in companies that had lost their eligible portfolio company status
because they had issued marginable securities.

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 under the proposed rules for
small entities; (3) the use of performance rather than design
standards; and (4) an exemption from coverage of the rules, or any part
thereof, for small entities.
    Establishing different compliance or reporting requirements for
small entities would not be appropriate. As discussed above, the rules
do not impose any reporting requirements on BDCs or on companies. In
addition, the rules do not impose any compliance requirements on
companies. Both Rules 2a-46 and 55a-1, however, do impose some
compliance requirements on BDCs that are intended to ensure that BDCs
invest primarily in those companies that Congress intended them to
invest in when it established BDCs in 1980. These requirements should,
however, impose minimum burdens on BDCs. We note that Rule 2a-46 as
adopted does not include proposed paragraph (b) in part because of
commenters' concerns that the conditions of that provision are
unworkable and burdensome.
    We also believe that clarifying, consolidating, or simplifying the
compliance requirements under the rules for small entities is
inappropriate. As discussed above, neither rule imposes any compliance
requirements on companies. Although the rules do impose some compliance
requirements on BDCs, as discussed above, these requirements, which we
believe will

impose minimal burdens on BDCs, are designed to insure that BDCs invest
primarily in those companies that Congress intended them to invest in
when it established BDCs in 1980.
    We believe that the use of performance rather than design standards
would add unnecessary complexity. The rules are intended to address the
impact and the uncertainty as a result of the 1998 amendment to the
Federal Reserve Board's margin rules by providing 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, including those that are small
entities, in determining whether they meet the definition of eligible
portfolio company.
    Finally, we believe that it would be inappropriate to exempt small
entities from the coverage of the rules. The rules are intended to
benefit BDCs and certain companies that qualify as eligible portfolio
companies, including those BDCs and other companies that are small
entities. These eligible portfolio companies often need capital for
continued development and growth. Exempting small entities from all or
part of the rules would be contradictory to the purpose of the rules.

VII. Statutory Authority

    We are adopting Rules 2a-46 and 55a-1 pursuant to our rulemaking
authority under Sections 2(a)(46)(C)(iv), 6(c) 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 Rules

0
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. Section 270.2a-46 is added 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 does
not have any class of securities listed on a national securities
exchange.

0
3. Section 270.55a-1 is added to read as follows:

Sec.  270.55a-1  Investment activities of business development
companies.

    Notwithstanding section 55(a) of the Act (15 U.S.C. 80a-54(a)), a
business development company may acquire securities purchased in
transactions not involving any public offering from an issuer, or from
any person who is an officer or employee of the issuer, if the issuer
meets the requirements of sections 2(a)(46)(A) and (B) of the Act (15
U.S.C. 80a-2(a)(46)(A) and (B)), but the issuer is not an eligible
portfolio company because it does not meet the requirements of Sec.
270.2a-46, and the business development company meets the requirements
of paragraphs (i) and (ii) of section 55(a)(1)(B) of the Act (15 U.S.C.
80a-54(a)(1)(B)(i) and (ii)).

    Dated: October 25, 2006.

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E6-18255 Filed 10-30-06; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register Volume 80, Number 24 (Thursday, February 5, 2015)]
[Rules and Regulations]
[Page 6435]
[FR Doc No: C1-2015-01205]

=======================================================================
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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Parts 25

[Docket No. FAA-2013-0142; Amdt. No. 25-141]
RIN 2120-AK12

Harmonization of Airworthiness Standards--Gust and Maneuver Load
Requirements; Correction

Correction

    In FAA rule document 2015-01205 appearing on pages 4761-4762 in the
issue of Thursday, January 29, 2015, make the following corrections:
    1. On page 4762 in the first column, the second paragraph should
read as follows:
    This document corrects three errors in the Greek letters and
subscripts contained in various equations in the regulatory text. In
one case, the ``U'' in the equation is changed from subscript to
regular, uppercase text. In another case, instead of ``PL =
PL-1g  U[sigma]AA'', the equation
should be ``PL = PL-1gU[sigma]AA''.
In two cases, the three Greek letters ``[rho][egr][phgr]'' after sigma
``[sigma]'' in the subscript of ``U'' are changed to ``ref''. In these
cases, ``U[sigma][rho][egr][phiv]'' should be
``U[sigma]ref''.
    2. On page 4762 in the first column, the third, fourth and fifth
paragraphs following the Corrections heading should read as follows:
    2. On page 73467, second column, line 11, the equation
``PL = PL-1g  U[sigma]AA''
is corrected to read ``PL = PL-1g
U[sigma]AA''.
    3. On page 73467, second column, fifth line from the bottom, the
equation ``U[sigma] = U[sigma][rho][egr][phiv]Fg'' is
corrected to read ``U[sigma] = U[sigma]ref Fg''.
    4. On page 73467, second column, third line from the bottom, the
text ``U[sigma][rho][egr][phiv]'' is corrected to read
``U[sigma]ref''.

[FR Doc. C1-2015-01205 Filed 2-4-15; 8:45 am]
BILLING CODE 1505-01-D


[Federal Register Volume 85, Number 216 (Friday, November 6, 2020)]
[Notices]
[Pages 71118-71120]
[FR Doc No: 2020-24633]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90311; File No. SR-NYSEArca-2020-92]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Amend Rule 7.31-E

November 2, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on October 20, 2020, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend Rule 7.31-E to cancel ALO Orders
that lock displayed interest. The proposed change is available on the
Exchange's website at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 7.31-E (Orders and Modifiers)
to provide that ALO Orders that lock displayed interest would be
cancelled. Specifically, the Exchange proposes to amend Rules 7.31-
E(e)(2), which describes how the Exchange processes ALO Orders, and
7.31-E(e)(3)(D), which describes how the Exchange processes Day ISO ALO
Orders. Currently, under Rule 7.31-E(e)(2)(B)(iii), an arriving ALO
Order to buy (sell) with a limit price that would lock a displayed
order priced equal to or below (above) the PBO (PBB) on the NYSE Arca
Book will be assigned a working price and display price one minimum
price variation (``MPV'') below (above) the displayed order. Day ISO
ALO Orders that would lock displayed interest on the NYSE Arca Book are
processed in the same manner.\4\ The Exchange proposes to amend these
rules to provide that arriving ALO and Day ISO ALO Orders with a limit
price that would lock displayed interest on the NYSE Arca Book would be
cancelled.
---------------------------------------------------------------------------

    \4\ See Rule 7.31-E(e)(3)(D)(ii).
---------------------------------------------------------------------------

    To effect this change, the Exchange proposes to delete the portion
of Rule 7.31-E(e)(2)(B)(iii) providing that an ALO Order that locks
displayed interest will be ``assigned a working price and display price
one MPV below (above) the displayed order on the NYSE Arca Book'' and
instead provide that such order would be cancelled. In addition, to
simplify the rule text, the Exchange proposes to combine Rule 7.31-
E(e)(2)(B)(iii), as revised, into Rule 7.31-E(e)(2)(B)(ii). Proposed
amended Rule 7.31-E(e)(2)(B)(ii) would thus provide:

    If the limit price of the ALO Order to buy (sell) crosses the
working price of any displayed or non-displayed order on the NYSE
Arca Book priced equal to or below (above) the PBO (PBB), it will
trade as the liquidity taker with such order(s). Any untraded
quantity of the ALO Order will have a working price equal to the PBO
(PBB) and a display price one MPV below (above) the PBO (PBB),
provided that if the limit price of the ALO Order to buy (sell)
locks the display price of any order ranked Priority 2--Display
Orders on the NYSE Arca Book priced equal to or below (above) the
PBO (PBB), it will be cancelled.

    The Exchange also proposes the following conforming changes to
Rules 7.31-E(e)(2)(B) and 7.31-E(e)(2)(C) to reflect the proposed
change to how ALO Orders that lock displayed interest would be handled:
     The Exchange proposes to renumber current Rule 7.31-
E(e)(2)(B)(iv) as 7.31-E(e)(2)(B)(iii) to accommodate the proposed
combination of current Rules 7.31-E(e)(2)(B)(ii) and 7.31-
E(e)(2)(B)(iii), as described above.
     The Exchange proposes to replace introductory references
providing that an ALO Order will be ``priced'' or ``priced or trade, or
both,'' with the phrase ``will be processed'' in Rules 7.31-E(e)(2)(B),
7.31-E(e)(2)(B)(iv)(a) (which would become Rule 7.31-E(e)(2)(B)(iii)(a)
after renumbering), 7.31-E(e)(2)(C), and 7.31-E(e)(2)(C)(i). The
Exchange proposes to use the term ``processed'' because some ALO Orders
would be cancelled (and therefore not priced or traded).
     The Exchange proposes to renumber current Rule 7.31-
E(e)(2)(B)(v) as 7.31-E(e)(2)(B)(iv) to accommodate the proposed
combination of current Rules 7.31-E(e)(2)(B)(ii) and 7.31-
E(e)(2)(B)(iii), as described above.
     The Exchange further proposes to revise Rule 7.31-
E(e)(2)(C)(i) to delete the reference to orders ranked Priority 2--
Display Orders because, as noted above, an ALO Order would no longer be
repriced based on contra-side Priority 2--Display Orders and instead
would be cancelled. Accordingly, the only time a resting ALO Order
would be repriced is if the contra-side PBBO re-prices.
    The Exchange proposes to amend Rule 7.31-E(e)(3)(D) to align the
rules governing Day ISO ALOs with the proposed changes to ALO Orders.

Currently, pursuant to Rule 7.31-E(e)(3)(D)(ii), if the limit price of
an arriving Day ISO ALO locks the display price of a displayed order on
the NYSE Arca Book, it will be assigned a working price and display
price one MPV below (above) the price of the displayed order. As with
ALO Orders, the Exchange proposes to amend this rule to specify that
arriving Day ISO ALOs that lock displayed interest would be cancelled.
    To effect this change, the Exchange proposes to delete the portion
of Rule 7.31-E(e)(3)(D)(ii) that provides that a Day ISO ALO that locks
displayed interest will be ``assigned a working price and display price
one MPV below (above) the displayed order on the NYSE Arca Book'' and
instead provide that such order would be cancelled. In addition, to
simplify the rule text, the Exchange proposes to combine Rule 7.31-
E(e)(3)(D)(ii), as revised, with Rule 7.31-E(e)(3)(D)(i). Proposed
amended Rule 7.31-E(e)(3)(D)(i) would thus provide:

    If the limit price of the Day ISO ALO to buy (sell) crosses the
working price of any displayed or non-displayed order on the NYSE
Arca Book, it will trade as the liquidity taker with such order(s).
Any untraded quantity of the Day ISO ALO will have a working price
and display price equal to its limit price, provided that if the
limit price of the Day ISO ALO to buy (sell) locks the display price
of any order ranked Priority 2--Display Orders on the NYSE Arca
Book, it will be cancelled.
    The Exchange also proposes the following conforming changes
consistent with the proposed change to cancel Day ISO ALOs that lock
displayed interest:
     The Exchange proposes to renumber Rule 7.31-
E(e)(3)(D)(iii) as Rule 7.31-E(e)(3)(D)(ii) to accommodate the proposed
combination of current Rules 7.31-E(e)(3)(D)(i) and 7.31-
E(e)(3)(D)(ii), as described above.
     The Exchange proposes to replace introductory references
providing that a Day ISO ALO Order will be ``priced'' or ``priced or
trade, or both,'' with the phrase ``will be processed'' in Rules 7.31-
E(e)(3)(D) and 7.31-E(3)(D)(ii)(a) (as renumbered). The Exchange
proposes this change to reflect that certain ALO Orders would be
cancelled (and therefore not priced or traded).
     The Exchange proposes to delete Rule 7.31-E(e)(3)(D)(iv),
which currently specifies how a Day ISO ALO will be processed after it
is displayed. Because a Day ISO ALO would now either display at its
limit price (because, by its terms, it can be displayed at a price that
locks or crosses the contra-side PBBO) \5\ or be cancelled if it locks
displayed interest on the NYSE Arca Book, there would no longer be any
circumstances where a resting Day ISO ALO would reprice and therefore
this rule text would no longer be applicable.
---------------------------------------------------------------------------

    \5\ See Rule 7.31-E(e)(3)(C).
---------------------------------------------------------------------------

* * * * *
    Because of the technology changes associated with this proposed
rule change, the Exchange will announce the implementation date by
Trader Update. Subject to approval of this proposed rule change, the
Exchange anticipates that the proposed changes will be implemented in
January 2021.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the
Act,\6\ in general, and furthers the objectives of Section 6(b)(5),\7\
in particular, because it is 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.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes the proposed rule change would remove
impediments to and perfect the mechanism of a free and open market by
simplifying the treatment of ALO Orders that lock displayed orders. The
Exchange believes that cancelling ALO Orders that lock displayed
interest, rather than repricing them, would provide ETP Holders with
greater determinism with respect to how ALO Orders would be processed
on the Exchange and enhance ETP Holders' ability to manage order flow
to suit their business needs. In addition, the Exchange believes that
cancelling ALO Orders that would otherwise be marketable against
displayed interest on the NYSE Arca Book is consistent with the terms
of the ALO Order, i.e., that such orders would not take liquidity on
the Exchange. The Exchange further believes that the proposed changes
would promote just and equitable principles of trade and remove
impediments to, and perfect the mechanism of, a free and open market
and a national market system and, in general, protect investors and the
public interest because the proposed behavior to cancel ALO Orders on
the Exchange if the limit price would lock contra-side displayed orders
would be consistent with functionality available on other exchanges for
similar order types when they lock displayed interest.\8\
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    \8\ See, e.g., Cboe BZX Exchange, Inc. (``BZX'') Rules
11.9(c)(6), 11.9(g)(1)(D), 11.9(g)(2)(D), and 11.13(a)(2)(C) (a Post
Only Order that locks displayed interest on BZX may be cancelled at
the User's option); Nasdaq Stock Exchange LLC (``Nasdaq'') Rule
4702(b)(4)(A) (Nasdaq Participants may opt to have Post-Only Orders
cancel if they lock orders displayed on the Nasdaq Book); MEMX LLC
(``MEMX'') Rules 11.6(a), 11.6(l), and 11.8(b)(10) (Users have the
option to apply Post Only and Cancel Back instructions to orders
that would lock displayed interest, and MEMX cancels ISO orders with
Post Only and Day instructions if they lock displayed interest).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The Exchange believes that
the proposed rule change would reduce the burden on competition because
it would simplify the treatment of such orders when they lock displayed
interest and promote consistency with functionality offered for similar
order types on other exchanges.\9\
---------------------------------------------------------------------------

    \9\ See id.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the
proposed rule change.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2020-92 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2020-92. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2020-92 and should be submitted
on or before November 27, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-24633 Filed 11-5-20; 8:45 am]
BILLING CODE 8011-01-P