$6,208,591
Year 3+ Costs

                                                                       $16,010
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,208,591
Table 31.  Annual FEMA and Non-FEMA costs of the Proposed Rule (High Estimate, 2015$)

                                                                       Projects
                                                                     FEMA Admin
                                                                FEMA Grant Cost
                                                           Recipient Cost Share
                                                                     Total Cost
IA MHU
                                                                           4.88
                                                                            N/A
                                                                            N/A
                                                                        $3,383
                                                                        $3,383
IA PHC
                                                                           2.22
                                                                            N/A
                                                                       $24,071
                                                                            N/A
                                                                       $24,071
PA Category E
                                                                          19.19
                                                                            N/A
 $2,577,898
                                                                      $859,299
                                                                    $3,437,197
PA Category C (excludes road costs)
                                                                            7.1
                                                                            N/A
$25,404,814
 8,468,271
                                                                   $33,873,085
HMA Elevation
                                                                          73.69
                                                                            N/A
 $1,548,615
                                                                      $516,205
                                                                    $2,064,820
HMA Floodproofing
                                                                            4.7
                                                                            N/A
                                                                       $24,422
                                                                        $8,141
                                                                       $32,562
FEMA Training (Year 1)
                                                                            N/A
                                                                       $44,281
                                                                            N/A
                                                                            N/A
                                                                       $44,281
FEMA Training (Year 2+)
                                                                            N/A
                                                                       $14,326
                                                                            N/A
                                                                            N/A
                                                                       $14,326
Floodplain Determination
                                                                            127
                                                                        $1,684
                                                                            N/A
                                                                            N/A
                                                                        $1,684
Implementation Costs (Year 1 & 2)
                                                                            N/A
                                                                       $89,326
                                                                            N/A
                                                                            N/A
                                                                       $89,326
Year 1 Costs

                                                                      $135,291
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,584,735
Year 2 Costs

                                                                      $105,336
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,584,735
Year 3+ Costs

                                                                       $16,010
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,584,735
      Table 32 and Table 33 display the estimated low and high ten-year total costs (undiscounted, discounted at 3 percent, and discounted at 7 percent) for the proposed rule.
Table 32.  10-year cost totals using 3 percent and 7 percent discount rates (Low Estimate, 2015$)
                                     Year
                                                               FEMA Admin Costs
                                                               FEMA Grant Costs
                                                           Recipient Cost Share
                                                      Undiscounted annual costs
                                                  Annual costs discounted at 3%
                                                  Annual costs discounted at 7%
                                       1
                                                                      $135,291
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,194,265
                                                                    $6,013,850
                                                                    $5,789,033
                                       2
                                                                      $105,336
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,164,310
                                                                    $5,810,454
                                                                    $5,384,147
                                       3
                                                                       $16,010
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,074,984
                                                                    $5,559,471
                                                                    $4,958,997
                                       4
                                                                       $16,010
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,074,984
                                                                    $5,397,545
                                                                    $4,634,576
                                       5
                                                                       $16,010
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,074,984
                                                                    $5,240,335
                                                                    $4,331,380
                                       6
                                                                       $16,010
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,074,984
                                                                    $5,087,704
                                                                    $4,048,019
                                       7
                                                                       $16,010
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,074,984
                                                                    $4,939,518
                                                                    $3,783,195
                                       8
                                                                       $16,010
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,074,984
                                                                    $4,795,649
                                                                    $3,535,696
                                       9
                                                                       $16,010
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,074,984
                                                                    $4,655,970
                                                                    $3,304,389
                                      10
                                                                       $16,010
                                                                    $4,544,475
                                                                    $1,514,499
                                                                    $6,074,984
                                                                    $4,520,359
                                                                    $3,088,214
Total
                                                                      $368,707
                                                                   $45,444,751
                                                                   $15,144,992
                                                                   $60,958,451
                                                                   $52,020,854
                                                                   $42,857,646

                                                                     Annualized
                                                                    $6,098,431
                                                                    $6,101,965
Table 33.  10-year cost totals using 3 percent and 7 percent discount rates (High Estimate, 2015$)
                                                                           Year
                                                               FEMA Admin Costs
                                                               FEMA Grant Costs
                                                           Recipient Cost Share
                                                      Undiscounted annual costs
                                                  Annual costs discounted at 3%
                                                  Annual costs discounted at 7%
                                       1
                                                                      $135,291
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,570,409
                                                                   $38,417,873
                                                                   $36,981,691
                                       2
                                                                      $105,336
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,540,454
                                                                   $37,270,670
                                                                   $34,536,164
                                       3
                                                                       $16,010
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,451,128
                                                                   $36,103,371
                                                                   $32,203,872
                                       4
                                                                       $16,010
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,451,128
                                                                   $35,051,817
                                                                   $30,097,077
                                       5
                                                                       $16,010
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,451,128
                                                                   $34,030,890
                                                                   $28,128,109
                                       6
                                                                       $16,010
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,451,128
                                                                   $33,039,699
                                                                   $26,287,953
                                       7
                                                                       $16,010
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,451,128
                                                                   $32,077,378
                                                                   $24,568,180
                                       8
                                                                       $16,010
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,451,128
                                                                   $31,143,085
                                                                   $22,960,916
                                       9
                                                                       $16,010
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,451,128
                                                                   $30,236,005
                                                                   $21,458,800
                                      10
                                                                       $16,010
                                                                   $29,579,819
                                                                    $9,855,299
                                                                   $39,451,128
                                                                   $29,355,345
                                                                   $20,054,953
Total
                                                                      $368,707
                                                                  $295,798,190
                                                                   $98,552,993
                                                                  $394,719,890
                                                                  $336,726,132
                                                                  $277,277,715

                                                                     Annualized
                                                                   $39,474,575
                                                                   $39,478,109
10. BENEFITS
      Flooding is by far the most common natural disaster type in the United States.  Flooding is expected to worsen over the next century due to the expected effects of climate change, including more severe and frequent storms.  The National Weather Service estimates that flood loss averages $7.96 billion (2014 dollars) in damages and 82 fatalities per year over a 30 year period (excluding damages and fatalities from storm surge, so most of the damage from Hurricanes Katrina, Rita, and Sandy are excluded from these estimates).  These statistics are the backdrop to our analysis of the benefits of the proposed rule.  FEMA seeks comments or additional data from the public regarding the studies that are used in this section of the analysis.
      FEMA acknowledges the possibility that a reduction in flood insurance premiums as a result of the proposed rule could be used as a proxy to measure the risk reduction to building owners that would be provided by this rule.  However, FEMA lacks the data that would enable FEMA to quantify the benefits in this way.  NFIP data is not readily available in the granularity that would allow FEMA to distinguish between different types of non-residential structures, which may range from a barn to a hospital, and thus enable FEMA to capture an accurate measurement of premium changes to affected projects.  Additionally, measuring the risk reduction by using premiums is complicated because approximately 20 percent of flood insurance policies are subsidized.  However, these subsidized policies also have some of the highest risk associated with them.  It is difficult to measure unsubsidized premiums and, as a result, to isolate premium changes that would occur regardless of the proposed rule.  Instead, FEMA provides a variety of other measures to capture the benefits of the proposed rule.
      FEMA performed a literature review of the benefits of flood mitigation activities, including elevating or floodproofing existing residential and non-residential properties.  FEMA presents a summary of the findings below.  FEMA was unable to find studies that addressed the benefits of floodproofing bridges, the largest category of estimated costs for this proposed rule, and seeks comment and data to assist in estimating the benefits of these projects, as well as others covered by this rule.
      oo According to a study submitted to Congress by the National Institute of Building Sciences Multihazard Mitigation Council on behalf of FEMA, flood mitigation programs have an average benefit-cost ratio of 5.1 with a minimum of 3.0 and a maximum of 7.6 with a standard deviation of 1.1.  The data from this analysis was obtained from FEMA's HAZUS-MH flood model.  Benefit-Cost ratios were obtained by sampling grants for flood project mitigation activities and study investigators were able to sample 483 properties corresponding to 22 grants.  Total costs of mitigation was $2,204,000 with estimated benefits of $11,172,000 for a benefit-cost ratio of 5.06 (standard deviation 1.1).  These grants were used for elevation, floodproofing, and the removal and relocation of structures in the floodplain.  The avoidance of property damage was the dominant factor in this analysis.
      oo A study by the American Institute for Research found that in the V zone and Coastal A zone cases studied, calculations show that it is worth spending from 103 percent to 106 percent of the at-BFE building cost to add one to four feet of freeboard, and in some cases it may be worth spending up to 107 percent to 114 percent of the at BFE building cost.  More generally the study found that the cost of adding freeboard or installing a more flood-resistant foundation at the time of construction is modest but the benefit of doing so can be great.  This study recommends that the NFIP should require at least 1 foot of freeboard for all new construction in the SFHA.
      oo A study conducted by the ASFPM found that elevating 41 residences above the 100 year floodplain resulted in safer homes, the reduction in emergency response requirements and an estimated $2.4 million in federal dollars saved from the acquisitions, $3.4 million for elevation and $1.0 million from the elevation reimbursements.  This project cost FEMA Hazard Mitigation Grant Program (HMGP), U.S. Department of Housing and Urban Development (HUD), Sacramento County, Sacramento Area Flood Control Agency $2.2 million; FEMA HMGP, Sacramento County and Homeowners $2.7 million; and $650,000 worth of elevation reimbursements were funded by FEMA HMGP.
 10.1 Reduction in Damage to Properties
      One of the primary benefits of this proposed rule would be the reduction in damage to structures and their contents in future flooding events.  In 2008 FEMA published a report analyzing the benefits and costs of including freeboard in the construction of new residential homes in coastal areas, including Florida, Oregon, Massachusetts, and Mississippi.  These ratios are broken down by flood zone and include benefits for both damages avoided and reduction in flood insurance premiums.  For the purpose of this analysis, FEMA is only looking at damage avoidance.  The report found that in nearly all cases, the ratio of benefits to costs were above one (ratios above one mean that benefits exceed costs).
      Table 34 expresses the benefit-cost ratios that occur per foot of freeboard as a result of damages avoided.  Figure 3 shows the benefit-cost ratios graphically.  These ratios include both damage to structures and the contents of these structures.
Figure 3.  Benefit-Cost Ratios per foot of Freeboard (Damages Avoided Benefits Only)

Table 34.  Benefit-Cost Ratios per foot of Freeboard by Zone (Damages Avoided Benefits Only)
                               Freeboard (feet)
                                                                         V Zone
                                                                      Coastal A
                                                                         A Zone
                                       1
                                                                           9.86
                                                                          11.23
                                                                           1.68
                                       2
                                                                           7.13
                                                                           8.92
                                                                            1.3
                                       3
                                                                            5.5
                                                                            7.3
                                                                           0.88
      If the benefit-cost ratios from the relatively narrow sample of structures from this analysis were applied to all the projects covered by this rule nationwide, this rule would be cost-beneficial in most cases.  In the case of the 3-foot freeboard elevation in the A zone, the ratio is less than 1, but critical actions in all zones account for less than 5 percent of total projects.  Additionally, since the 3-foot requirement applies only to critical actions, the benefits would come from more than simple damage avoidance.  The additional requirements for critical actions are in place to protect health and safety as well as to ensure that the capability to respond to emergency activities remains in place.
      This report shows that the benefits of incorporating freeboard exceed the costs for certain projects located in coastal flood zones.  However, the report's scope is limited to new construction of houses in coastal areas, and did not examine non-residential structures or non-coastal areas.  In addition, this report did not examine the benefits of incorporating freeboard into floodproofing measures.  Flooding in coastal areas may include wave action, which is potentially more damaging than riverine flooding, and non-residential structures may have different damage profiles from flooding, depending on the type and size of the structure, as well as the contents of the building.
      Due to the relatively narrow scope of the study described above, FEMA has not used the results of this report to estimate monetized benefits of freeboard to the nationwide projects that would be affected by this rule.  FEMA requests comments from the public on applying the findings from this limited study more broadly, such as to projects outside the examined flood zones, to projects that are not new construction, or to projects that are non-residential.  FEMA requests comments from the public regarding available data that can be used for these estimates.  FEMA also requests information and studies from the public that examine the benefits of freeboard for a more diverse set of projects, such as non-residential structures (e.g. schools, hospitals, public facilities), retrofitting substantial improvement projects, projects in non-coastal  floodplains, and projects located outside the SFHA but inside the new FFRMS floodplain.  Finally, FEMA requests information and studies that examine the benefits of incorporating freeboard in floodproofing projects.  If FEMA receives additional information that informs an estimate of the monetized benefits of freeboard to a broad range of structures, we may provide a monetized estimate of benefits in the final rule.
10.2 Other Qualitative Benefits
      In addition to damages avoided, there are a number of other benefits from the proposed rule that FEMA is unable to monetize or quantify.  FEMA believes that the following benefits would result from the proposed freeboard and floodproofing requirements:
         oo          Potential for lives saved:  Improving infrastructure and elevating properties to a higher level results in a safer environment in the event of a flood.  In 2015, there were 176 flash and river flood fatalities, with a ten-year average from 2006-2015 of 84 fatalities per year.  Of the 176 deaths in 2015, 112 (64 percent), were killed in a vehicle, likely trying to cross a flooded road.  Ensuring properties are above the flood water can result in potential reduction in injuries and lives saved during a flood.  FEMA is unable to determine with certainty the number of injuries or fatalities that this rule may prevent.  FEMA believes that the elevation and floodproofing of properties may increase the safety of available buildings and therefore, fewer people may attempt to vacate their properties during a flood.
         oo          Savings in time and money from a reduced recovery period after a flood:  The economic impact of flooding is not limited to direct damage, but also includes forgone economic activity as buildings are repaired and communities recuperate from a flood.  Increased standards would reduce the amount of damage and therefore lower the economic impact of floods.
         oo          Increased safety of individuals:  This proposed rule would require critical actions such as hospitals or facilities that contain hazardous materials to meet freeboard or floodproofing requirements, which would lower risks resulting from these structures flooding.  Elevation or floodproofing may enable hospitals and healthcare facilities to continue providing services during and after a flood, improving the safety of patients that cannot be easily moved, and increasing the availability of treatment to those who need it.
         oo          Increased public safety:  The proposed rule would require that building plants (utilities, power systems, exhaust, heating / cooling, etc.) and potentially dangerous items (such as hazardous materials or electric equipment) are elevated or floodproofed above the BFE.  This would keep the building plant and potentially dangerous items safe from the effects of flooding, resulting in less damage and less potential hazard.  The proposed rule would decrease the risk of leakage due to flooding from facilities that contain hazardous materials, which would reduce public health or safety hazards.
         oo          Reduced personal and community impacts:  When a flood occurs, there is an emotional burden that comes with the loss of property and damage to the community.  Such an intangible damage can disrupt a household affected by a flood event.  Stress can negatively affect a person's health.  If community buildings are better prepared for flood events, this could result in less of an overall burden for community members and may provide an intangible benefit to community wellbeing.
         oo          Reduction in future health issues relating to flooding:  a home that has been flooded can provide ideal conditions for the growth and proliferation of mold.  Mold can result in adverse health impacts and damage to property, and may impact resale of properties.  Floodproofing and elevation could help avoid this mold growing and the negative impacts associated with it.
         oo          Improving the resiliency of bridges has significant qualitative benefits, including: protecting evacuation and escape routes; limiting blockages of floodwaters passing under the bridge, leading to more severe flooding upstream; and the cost of replacing the bridge again if it is damaged during a subsequent flood.
   7.3 Summary of Benefits
      FEMA anticipates that the benefits of the proposed rule would justify the costs.  FEMA has provided qualitative benefits, including the reduction in damage to properties and contents from future floods, potential lives saved, public health and safety benefits, reduced recovery time from floods, and increased community resilience to flooding.
10 RESULTS
      FEMA has reviewed the proposed rule's impact on Federal funding for new construction, substantial improvement, and repair of substantial damage through applicable grant programs.  FEMA estimates that the cumulative impact of all the factors together would result in moderate additional costs for grant recipients in or near the floodplain.  The impact of this rule is an estimated annualized cost of between $6.1 million and $39.5 million.  This cost would be offset by benefits from the prevention of substantial damage to structures and the protection of lives in future flooding events.
11 SENSITIVITY ANALYSIS
      The findings, results, and conclusions of this analysis could change if the assumptions or inputs were to change.  In other words, the findings of this analysis are sensitive to its assumptions.
      The cost estimates for this analysis use historical FEMA data.  The period of data examined includes Superstorm Sandy, so it may be skewed higher than historical averages.  In addition, much of this data was obtained from grant applications and project worksheets, which may have been subject to input errors.  The 10-year costs of this rule are highly dependent on future disasters and the number and type of grants awarded for any new construction, substantial renovation, or repair of substantial damage funded by FEMA.
      The benefits of this rule are also largely dependent on future flooding events.  Another large-scale flooding disaster such as Hurricane Katrina or Superstorm Sandy could push the benefits of this rule much higher.  A decrease in future flooding events over previous years could reduce the estimated benefits.
12 ALTERNATIVES CONSIDERED
Executive Order 13690 amended the definition of floodplain to include multiple approaches of the FFRMS to establish the vertical elevation and corresponding horizontal floodplain.  Federal agencies have the flexibility to select from the approaches of the FFRMS for a given action.  The options provided by the Executive Order are as follows:
            (i) The elevation and flood hazard area that result from using a CISA that uses the best-available, actionable hydrologic and hydraulic data and methods that integrate current and future changes in flooding based on climate science.  This approach would also include an emphasis on whether the action is a critical action as one of the factors to be considered when conducting the analysis;
            (ii) the elevation and flood hazard area that result from using the freeboard value, reached by adding an additional 2 feet to the BFE for non-critical actions and by adding an additional 3 feet to the BFE for critical actions;
            (iii) The area subject to flooding by the 0.2 percent annual chance flood; or
            (iv) The elevation and flood hazard area that result from using any other method identified in an update to the FFRMS.
FEMA lacks sufficient data to perform a full quantitative analysis of these approaches and instead relied on qualitative analysis.  FEMA seeks comment on its methodology and data to further inform its decision-making.
13.1 0.2 Percent Annual Chance Flood Approach
      FEMA considered using the 0.2 percent annual chance flood to determine the FFRMS floodplain. The 0.2 percent annual chance flood, also known as the 500-year flood, refers to a measurement of frequency.  The frequency is how often a flood of this magnitude can be expected to occur and is expressed as the interval of time expected to pass between occurrences of a certain size flood or the probability, expressed as a percentage that an event of this size would occur in any given year.  The two standard frequency measurements used by FEMA are the 1 percent annual chance (100-year) and the 0.2 percent annual chance (500-year).  These are used to designate (map) the floodplains in every U.S. community, and currently the 1 percent annual chance maps are used to require the purchase of flood insurance.
      The differences between the 1-percent and 0.2 percent floodplains vary widely depending on local topography.  In some cases, there is little difference between the 1-percent and 0.2 percent levels.  However, some areas such as the Plains States, and the lower Mississippi area are relatively flat, and the 0.2 percent level is significantly larger than the 1-percent level. See Figure 1 and Figure 2 for a visual representation.
      FEMA proposes not to use the 0.2 percent annual chance flood level because of the additional costs associated with its implementation.  The 0.2 percent annual chance flood level, like the freeboard approach, would expand the floodplain horizontally, and require higher elevations in and around the current 1 percent annual chance floodplain.  While most areas of the country have 1 percent annual chance floodplain information and the necessary topographical information to determine the horizontal extent under the FVA, far fewer are mapped with 0.2 percent annual chance floodplain information.  This is because although all FEMA-mapped flood zones have either detailed or approximate 1 percent annual chance floodplain boundaries, which provide the flood hazard information necessary to determine the horizontal extent under the FVA, FEMA estimates that only 18 percent of mapped flood zones have detailed floodplain boundaries of the 0.2 percent annual chance floodplain.  The necessary topographical information to determine if a proposed location is within the horizontal extent of the FFRMS-floodplain may be obtained from available resources such as those from the United States Geological Service.
      Freeboard elevations and Climate-Informed Science flood elevations are not currently mapped either, but the FVA allows applicants to use existing maps with the BFE and add 2- or 3-foot freeboard values to determine the FFRMS floodplain.  The 0.2 percent annual chance approach would require a map for each project.  For areas not mapped, FEMA subject matter experts estimate the per-mile average cost of mapping is $5,000.  Therefore, the cost of using the FVA would be significantly lower than the 0.2 percent annual chance floodplain approach.  FEMA requests public comments on using the 0.2 percent annual chance floodplain approach.
13.2 Climate-Informed Science Approach
      FEMA considered proposing the use of the FFRMS-CISA instead of FFRMS-FVA to reflect the FFRMS's designation of the FFRMS-CISA as the preferred approach.  However, there are several reasons why that course of action is not appropriate at this time.  First, actionable climate data is not currently available for all locations.  For coastal floodplains, one of the primary considerations associated with the FFRMS-CISA is determining what the projected future sea level rise will be for the area in which the project will be completed.  There are multiple interagency reports, published scientific journals, and agency tools that provide scenario-based projections of sea level rise for coastal floodplains.  However, there is no analogous approach for riverine floodplains to account for uncertainties due to climate change with respect to projected future precipitation and associated flooding.  Instead, the Revised Guidelines suggest the agency would need to conduct a hydrology study that is informed by expected changes in climate and land use factors and incorporate this analysis into its current method for determining the floodplain.  FEMA expects that more data will be developed surrounding the FFRMS-CISA as agencies implement the FFRMS and that this data will be considered and incorporated into future updates of the FFRMS.  FEMA requests comment on the availability of actionable climate data with respect to coastal and riverine floodplains.
      Second, in addition to the data challenges, there are a number of factors to be considered in deciding how to apply the FFRMS-CISA that might result in a decision-making process that could unnecessarily delay recovery in the wake of a disaster event for non-critical actions.  The Revised Guidelines recommend that the FFRMS-CISA methodology account for project-specific factors such as the risk to which the action will be exposed, the anticipated level of investment, and the lifecycle of the action.  For example, an applicant might consider a construction project that is in a coastal floodplain and find that there are multiple projections for what the sea level rise may be in 100 years.  The most aggressive projection might indicate that the project should be elevated 10 feet above the 1 percent annual chance flood elevation.  However, the applicant might decide that this project is not intended to be functional for 100 years or that the applicant's budget might justify using a lesser projection now and plan for future upgrades to the structure or facility.  There may be a way to standardize this type of decision-making process as the FFRMS-CISA is more broadly used; however, the current lack of a standardized methodology for making these decisions and the need to engage in such project-specific considerations in conjunction with stakeholders could result in uncertainty and delay.  In light of the above concerns, FEMA requests comment regarding how FEMA could implement the FFRMS-CISA for non-critical actions using a standardized, predictable, flexible, and cost-effective methodology or any other alternative.
13.3 Other Approaches
      FEMA could choose any of a combination the three approaches in the Executive Order.  For instance, FEMA could choose a more protective framework under which it would determine the elevations established under FFRMS-CISA, FFRMS-FVA and the FFRMS-0.2PFA for all critical actions and only allow the applicant to use the highest of the three elevations.  This framework would ensure that applicants were building to the most protective level, would avoid potential inconsistencies with FEMA's policy to encourage adoption of freeboard standards by local communities, and would prevent a scenario where an applicant was allowed to build to a lower elevation than previously required for critical actions under FEMA's implementation of Executive Order 11988.  FEMA believes that its proposed policy is sufficiently protective and would be less expensive to administer and implement than the alternative approach described above, but nonetheless welcomes comment on this alternative approach.
      Also alternatively, FEMA could allow the use of the FFRMS-CISA for critical actions regardless of whether the resulting elevation is higher than the application of the FFRMS-FVA.  This approach would give FEMA and its grantees more flexibility in implementing the standard, would enable FEMA and its grantees to build to an elevation based on the best available science taking criticality into account, and would provide a pathway to relief for those areas that experience declining flood risks.  FEMA believes that the need for standardization, administrability, and adequate protection all counsel in favor of its policy, but welcomes comments on all alternative approaches.
13 CONCLUSION
      FEMA believes that the benefits of preventing property damage and saving lives justify the costs of the proposed rule.  These benefits are a result of the improved protection of structures due to increased elevation and floodproofing standards in FEMA's proposed implementation of the FFRMS.  This rule would ensure that Federal investments are better protected from flood damage, and the natural values of floodplains are preserved.

Table 35.  Summary of Costs and Non-Monetized Benefits by Program (Low Estimate, 2015$)

                               3% Discount Rate
                               7% Discount Rate
Cost
                                                                   Undiscounted
                                                                  Present Value
                                                                     Annualized
                                                                  Present Value
                                                                     Annualized
IA MHU
                                                                         $2,376
                                                                         $2,027
                                                                           $238
                                                                         $1,669
                                                                           $238
IA PHC
                                                                        $16,901
                                                                        $14,417
                                                                         $1,690
                                                                        $11,871
                                                                         $1,690
PA Category C*
                                                                    $56,455,153
                                                                    $48,157,391
                                                                     $5,645,515
                                                                    $39,651,737
                                                                     $5,645,515
PA Category D
                                 Not estimated
PA Category E
                                                                     $2,593,108
                                                                     $2,211,974
                                                                       $259,311
                                                                     $1,821,290
                                                                       $259,311
PA Category F
                                 Not estimated
PA Category G
                                 Not estimated
HMA Elevation
                                                                     $1,498,569
                                                                     $1,278,309
                                                                       $149,857
                                                                     $1,052,532
                                                                       $149,857
HMA Floodproofing
                                                                        $23,637
                                                                        $20,163
                                                                         $2,364
                                                                        $16,602
                                                                         $2,364
FEMA Training
                                                                       $173,215
                                                                       $151,286
                                                                        $17,735
                                                                       $128,615
                                                                        $18,312
Floodplain Determination
                                                                        $15,156
                                                                        $13,112
                                                                         $1,537
                                                                        $10,972
                                                                         $1,562
Implementation Costs
                                                                       $178,652
                                                                       $170,923
                                                                        $20,037
                                                                       $161,503
                                                                        $22,994
Benefits

IA MHU
                                 Not estimated
                               Damage Avoidance
                             Potential Lives Saved
                      Increased Public Health and Safety
                            Decreased Cleanup Time
                       Protection of Critical Facilities
                  Reduction of Personal and Community Impacts
IA PHC

PA Category C

PA Category D

PA Category E

PA Category F

PA Category G

HMA Elevation

HMA Floodproofing

FEMA Training
                      Administrative Requirement of Rule
Floodplain Determination

Implementation Costs

      *Costs for roads not estimated
Table 36.  Summary of Costs and Non-Monetized Benefits by Program (High Estimate, 2015$)

                               3% Discount Rate
                               7% Discount Rate
Cost
                                                                   Undiscounted
                                                                  Present Value
                                                                     Annualized
                                                                  Present Value
                                                                     Annualized
IA MHU
                                                                        $33,833
                                                                        $28,861
                                                                         $3,383
                                                                        $23,763
                                                                         $3,383
IA PHC
                                                                       $240,712
                                                                       $205,332
                                                                        $24,071
                                                                       $169,066
                                                                        $24,071
PA Category C*
                                                                   $338,730,847
                                                                   $288,944,283
                                                                    $33,873,085
                                                                   $237,910,372
                                                                    $33,873,085
PA Category D
                                 Not estimated
PA Category E
                                                                    $34,371,967
                                                                    $29,319,985
                                                                     $3,437,197
                                                                    $24,141,432
                                                                     $3,437,197
PA Category F
                                 Not estimated
PA Category G
                                 Not estimated
HMA Elevation
                                                                    $20,648,203
                                                                    $17,613,336
                                                                     $2,064,820
                                                                    $14,502,434
                                                                     $2,064,820
HMA Floodproofing
                                                                        $32,562
                                                                       $277,761
                                                                        $32,562
                                                                       $228,702
                                                                        $32,562
FEMA Training
                                                                       $173,215
                                                                       $151,286
                                                                        $17,735
                                                                       $128,615
                                                                        $18,312
Floodplain Determination
                                                                        $15,156
                                                                        $13,112
                                                                         $1,537
                                                                        $10,972
                                                                         $1,562
Implementation Costs
                                                                       $178,652
                                                                       $170,923
                                                                        $20,037
                                                                       $161,503
                                                                        $22,994
Benefits

IA MHU
                                 Not estimated
                               Damage Avoidance
                             Potential Lives Saved
                      Increased Public Health and Safety
                            Decreased Cleanup Time
                       Protection of Critical Facilities
                  Reduction of Personal and Community Impacts
IA PHC

PA Category C

PA Category D

PA Category E

PA Category F

PA Category G

HMA Elevation

HMA Floodproofing

FEMA Training
                      Administrative Requirement of Rule
Floodplain Determination

Implementation Costs

      *Costs for roads not estimated
APPENDIX A. HORIZONTAL FLOODPLAIN INCREASES DUE TO FREEBOARD VALUES

Discussion of Data Sources for Appendix A
      This information is the result of an inventory of available optional datasets that may be developed during a Flood Insurance Study (FIS) performed by FEMA and an extraction of relevant data on floodplain area values.  A FIS is a compilation and presentation of flood risk data for specific watercourses, lakes, and coastal flood hazard areas within a community.  The FIS report contains detailed flood elevation data in flood profiles and data tables.
      A community may indicate that they would like additional Flood Risk Products made using the data collected during the FIS.  Examples of additional products include digital flooding depth grids, maps that depict the changes since the last issued FIRM, and Increased Flooding Scenarios.  The Increased Flooding Scenarios dataset  estimates hypothetical increases above the base flood elevation levels associated with a particular annual-chance event.  Communities may requests this dataset to enforce a specific freeboard, to investigate sea level rise scenarios, or for local planning, floodplain management, or mitigation purposes.  The data in this table is the list of communities that have elected to have the Increased Flood Scenarios datasets created as of November 2015.
      The Flood Risk Database (FRD)  provides a standard, systematic method for FEMA to collect, store, and distribute comprehensive flood risk data to the public and others in a digital format.  The FRD contains geospatial data layers, attribute lookup tables, supporting files, and other information necessary to create the Flood Risk Report (FRR) and the Flood Risk Map (FRM).  These datasets may be opened in a Geographic Information System (GIS) program to create maps or to perform analyses of the data.  Because these datasets are created as part of a Flood Insurance Study, they will become available to the public once the study is completed, the data is effective, and all FIS reports, FIRMs, and any created FRDs and FRRs are delivered to the community.  Not all counties included in this table have completed the ongoing study and therefore while some datasets are available online, not all can be downloaded at this time.  To analyze these datasets, when they are available, a GIS program such as ArcGIS will be required.
      To create this table, FEMA tasked our mapping contractors to inventory the counties that have Increased Flood Scenarios datasets, pulling data from both effective Flood Insurance Studies and those still underway but which had reliable draft data available.  The areas for the SFHA, BFE+1, BFE+2, and BFE+3 were obtained by the contractors from the datasets and summarized in a table.  These areas were then compared to calculate how much larger each area was when compared to the SFHA.


[Federal Register Volume 77, Number 79 (Tuesday, April 24, 2012)]
[Rules and Regulations]
[Pages 24381-24382]
[FR Doc No: 2012-9718]

=======================================================================
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DEPARTMENT OF HOMELAND SECURITY

Coast Guard

33 CFR Part 165

[Docket No. USCG-2011-1159]
RIN 1625-AA87

Security Zone; Passenger Vessel SAFARI EXPLORER Arrival/
Departure, Kaunakakai Harbor, Molokai, HI

AGENCY: Coast Guard, DHS.

ACTION: Temporary interim rule; reopening of comment period.

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

SUMMARY: The Coast Guard is reopening the comment period for the
temporary interim rule that established a temporary security zone for
Kaunakakai Harbor, including the entrance channel and offshore area
adjacent to the channel's entrance during the arrival and departure of
the Passenger Vessel Safari Explorer in Kaunakakai Harbor, Molokai,
Hawaii. The effective period for this temporary security zone began on
January 19, 2012 and ends on May 15, 2012. The Coast Guard held
informal public meetings regarding the interim rule. Following the
public meetings, the Coast Guard prepared a written synopsis of the
public comments received at the public meetings. This synopsis may be
viewed at http://www.regulations.gov under docket number USCG-2011-
1159. During this additional comment period, the Coast Guard invites
comments on how the temporary interim rule can be improved.

DATES: The Coast Guard will consider all comments that we receive on or
before May 7, 2012.

ADDRESSES: You may submit written comments identified by docket number
USCG-2011-1159 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.
Our online docket for this rulemaking is available on the Internet at
http://www.regulations.gov under docket number USCG-2011-1159.

FOR FURTHER INFORMATION CONTACT: If you have questions concerning the
meeting or the proposed rule, please call or email Lieutenant Commander
Scott Whaley, U.S. 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: On January 13, 2012, we published in the
Federal Register (77 FR 2019), a temporary interim rule that
established a temporary security zone for Kaunakakai Harbor, including
the entrance channel and offshore area adjacent to the channel's
entrance during the arrival and departure of the Passenger Vessel
Safari Explorer in Kaunakakai Harbor, Molokai, Hawaii. Comments on the
interim rule were required to be received on or before February 3,
2012. We are reopening the comment period on Docket No. 2011-1159. This
action will allow interested persons additional time to review and
submit comments on the synopsis of comments that the Coast Guard
prepared based on the comments received during public meetings. We will
consider comments received on or before May 7, 2012.

    Dated: April 6, 2012.
J.M. Nunan,
Captain, U.S. Coast Guard, Captain of the Port Honolulu.
[FR Doc. 2012-9718 Filed 4-23-12; 8:45 am]
BILLING CODE 9110-04-P


[Federal Register Volume 81, Number 29 (Friday, February 12, 2016)]
[Notices]
[Pages 7609-7613]
[FR Doc No: 2016-02841]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77081; File No. SR-CBOE-2016-007]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change Relating To Adopting a Principles-Based Approach
To Prohibit the Misuse of Material Nonpublic Information by Designated
Primary Market-Makers (``DPMs'') and Lead Market-Makers (``LMMs'')

February 8, 2016.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on February 1, 2016, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (the ``Commission'') the proposed rule change as described
in Items I, II, and III below, which Items have been prepared by the
Exchange. The Exchange filed the proposal as a ``non-controversial''
proposed rule change pursuant to section 19(b)(3)(A)(iii) of the Act
\3\ and Rule 19b-4(f)(6) thereunder.\4\ The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \4\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

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

    The text of the proposed rule change is available on the Exchange's
Web site (http://www.cboe.com/AboutCBOE/CBOELegalRegulatoryHome.aspx),
at the Exchange's Office of the Secretary, and at the Commission's
Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to adopt a principles-based approach to
prohibit the misuse of material, nonpublic information by DPMs and LMMs
by deleting Rule 8.91, sub-paragraph (b)(5) of Rule 8.15 and
paragraph(b)(vii) of Rule 8.15A. In so doing, the Exchange would
harmonize its rules related to the preventing the misuse of material,
nonpublic information for every Trading Permit Holder (``TPH''). The
Exchange believes that Rule 8.91, Rule 8.15(b)(5) and Rule
8.15A(b)(vii) are no longer necessary because all TPH, including DPMs
and LMMs are subject to the Exchange's general principles-based
requirements governing the protection against misuse of material,
nonpublic information, pursuant to Rule 4.18 (Prevention of the Misuse
of Material, Nonpublic Information), which obviates the need for
separately prescribed requirements for a subset of market participants
on the Exchange.
Background
    The Exchange has three classes of registered Market-Makers.
Pursuant to Rule 8.1, a Market-Maker is an individual TPH or TPH
organization that is registered with the Exchange for the purpose of
making transactions as a dealer-specialist on the Exchange. All Market-
Makers are subject to the requirements of Rule 8.7, which set forth the
obligations of Market-Makers, including quoting activity.
    Rule 8.85 outlines the obligations of DPM's, which, in addition to
the Market-Maker obligations of Rule 8.7, must fulfill a number of
increased obligations including providing continuous electronic quotes,
assuring that each of the displayed market quotations is honored, and
complying heightened with bid/ask differential requirements.\5\
---------------------------------------------------------------------------

    \5\ Compare Rule 8.85(a)(i) (``[Each DPM shall] provide
continuous electronic quotes . . . in at least 99% of the non-
adjusted options series or 100% of the non-adjusted option series
minus one call-put pair . . .'') with Rule 8.7(d)(ii)(B) (``A
Market-Maker will be required to maintain continuous electronic
quotes . . . in 60% of the non-adjusted option series of the Market-
Maker's appointed classes that have a time to expiration of less
than nine months.'').
---------------------------------------------------------------------------

    Rule 8.15 states that the Exchange may appoint, in an option class
for which a DPM has not been appointed, one or more Market-Makers in
good standing as LMMs and Supplemental Market-Makers (``SMMs'') to
participate in opening rotation procedures for Hybrid 3.0 classes and/
or to determine a formula for generating updated market quotations
during the trading day. LMM's in Hybrid 3.0 classes are obligated to
quote a firm two-sided market of sufficient size to accommodate a
relatively active opening within the bid/ask differential requirements
determined by the Exchange.
    Rule 8.15A states the Exchange may appoint one or more Market-
Makers in good standing with an appointment in a Hybrid-Trading system
option class for which a DPM has not been appointed as LMMs. Much like
DPMs LMMs in Hybrid Classes are subject to increased obligations that
include providing continuous electronic quotes that comply with the
bid/ask differential requirements determined by the Exchange.
    Pursuant to Rules 8.15B and 8.87, the exchange may establish
participation entitlements for LMM's and DPMs appointed pursuant to the
aforementioned Rules. DPM's and LMM's must meet specific obligations
prior to being awarded a participation entitlements [sic].
    Whether operating on the CBOE Trading Floor or from a remote
location, all Market-Makers, including DPMs and LMMs, have access to
the same information in the Consolidated Book that is available to all
other market participants. Moreover, none of the Exchange's Market-
Makers have agency obligations to the Exchange's Order Book. As such,
the primary distinctions between Market-Makers and DPMs and LMMs are
the increased quoting requirements and allocation entitlements.
    Despite the fact that Market-Makers, DPMs and LMMs have access to
the same trading information as all other market participants on the
Exchange, the Exchange has distinct rules governing how DPMs and LMMs
may operate. Rule 8.91(a) specifies that a DPM shall maintain
information barriers that are reasonably designed to prevent the misuse
of material, nonpublic information with any affiliates that may conduct
a brokerage business in option classes allocated to the DPM or act as a

specialist or market-maker in any security underlying options allocated
to the DPM. Rule 8.91 also requires a DPM provide its information
barriers to the Exchange and obtain prior written approval.
    Rule 8.15(b)(5) requires LMMs in Hybrid 3.0 classes maintain
information barriers that are reasonably designed to prevent the misuse
of material, nonpublic information with any affiliates that may conduct
a brokerage business in option classes allocated to the LMM or act as
specialist or Market-Maker in any security underlying options allocated
to the LMM. Rule 8.15A(b)(vii) similarly requires LMMs in Hybrid
classes maintain information barriers that are reasonably designed to
prevent the misuse of material, nonpublic information with any
affiliates that may conduct a brokerage business in option classes
allocated to the LMM or act as specialist or Market-Maker in any
security underlying options allocated to the LMM. Neither Rule 8.15 nor
8.15A require the prior Exchange approval of information barriers
outlined in Rule 8.91.
Proposed Rule Change
    The Exchange believes the particularized guidelines in Rules, 8.91,
8.15(b)(5) and 8.15A(b)(vii) for DPMs, LMMs in Hybrid 3.0 classes, and
LMMs in Hybrid classes, respectively, are no longer necessary and
proposes to delete them. Rather, the Exchange believes that Rule 4.18,
governing the misuse of material, nonpublic information provides for an
appropriate, principles-based approach to prevent the type of market
abuses Rules 8.91, 8.15(b)(5) and 8.15A(b)(vii) are designed to
address. Specifically, Rule 4.18 requires every TPH shall establish,
maintain and enforce written policies and procedures reasonably
designed, taking into consideration the nature of such TPH's business,
to prevent the misuse, in violation of the Exchange Act and Exchange
Rules, of material, nonpublic information by such TPH or persons
associated with such TPH. For the purposes of this Rule, conduct
constituting the misuse of material, nonpublic information in violation
of the Exchange Act and Exchange Rules includes, but is not limited to,
the following:
    (a) Trading in any securities issued by a corporation, partnership,
Trust Issued Receipts or Units (as defined in Exchange Rules) or a
trust or similar entities, or in any related securities or related
options or other derivative securities, or in any related non-U.S.
currency options, futures or options on futures on such currency, or
any other derivatives based on such currency, or in any related
commodity, related commodity futures or options on commodity futures or
in any related commodity derivatives, while in possession of material,
nonpublic information concerning that corporation, partnership, Trust
Issued Receipts, or those Units, or that trust or similar entities;
    (b) Trading in an underlying security or related options or other
derivative securities, or in any related non-U.S. currency, non-U.S.
currency options, futures or options on futures on such currency, or in
any related commodity, related commodity futures or options on
commodity futures or any other related commodities derivatives, or any
other derivatives based on such currency while in possession of
material nonpublic information concerning imminent transactions in the
above; and
    (c) Disclosing to another person or entity any material, nonpublic
information involving a corporation, partnership, Trust Issued
Receipts, or Units or a trust or similar entities whose shares are
publicly traded or an imminent transactions in an underlying security
or related securities or in the underlying non-U.S. currency of any
related non-U.S. currency options, futures or options on futures on
such currency, or any other derivatives based on such currency, or in
any related commodity, related commodity futures or options on
commodity futures or any other related commodity derivatives, for the
purpose of facilitating the possible misuse of such material, nonpublic
information.
    Because DPMs and LMMs are already subject to the requirements of
Rule 4.18, the Exchange does not believe that it is necessary to
separately require specific limitations on dealings between DPMs and
LMMs and affiliates. Deleting Rules 8.91, 8.15(b)(5) and 8.15A(b)(vii)
would provide DPMs and LMMs with the flexibility to adapt their
policies and procedures as appropriate to reflect changes to their
business model, business activities, or the securities market in a
manner similar to how Market-Makers on the Exchange currently operate
consistent with Rule 4.18.
    As noted above, DPMs and LMMs are distinguished under Exchange
Rules from other types of Market-Makers only to the extent that they
have certain heightened obligations and potential allocation
entitlements. However, none of these heightened obligations provides
different or greater access to nonpublic information than any other
market participant on the Exchange. Specifically, whether on the CBOE
Trading Floor or remotely, neither DPMs nor LMMs on the Exchange have
access to trading information provided by the Exchange, either at, or
prior to, the point of execution, that is not made available to all
other market participants on the Exchange in a similar manner. Further,
as noted above, DPMs and LMMs on the Exchange do not have any agency
responsibilities for orders in the Order Book. Accordingly, because
DPMs and LMMs do not have any trading advantages at the Exchange due to
their market role, the Exchange believes that they should be subject to
the same rules regarding the prevention of the misuse of material,
nonpublic information, specifically Rule 4.18.\6\
---------------------------------------------------------------------------

    \6\ The Exchange notes that by deleting Rule 8.91, the Exchange
would no longer require specific information barriers for DPMs or
require pre-approval of any information barriers that a DPM would
erect for purposes of protecting against the misuse of material
nonpublic information. However, as is the case today with Market-
Makers, information barriers of new entrants, including new DPMs,
would be subject to review as part of a new firm application.
Moreover, the policies and procedures of DPMs and LMMs, including
those relating to information barriers, would be subject to review
by FINRA, on behalf of the Exchange, pursuant to a Regulatory
Services Agreement.
---------------------------------------------------------------------------

    The Exchange notes that its proposed approach to use a principles-
based approach to protecting against the misuse of material nonpublic
information for all of its registered Market-Makers is consistent with
recently filed rule changes for NYSE MKT, LLC on behalf of NYSE Amex
Options, International Securities Exchange, LLC (``ISE'') and BOX
Options Exchange, LLC (``BOX'').\7\ The proposed approach is also
consistent with approved rule changes for NYSE Arca Equities Inc.
(``NYSE Arca''), BATS Exchange Inc. (``BATS'') and New York Stock
Exchange, LLC (``NYSE'') rules governing cash equity Market-Makers on
those respective exchanges.\8\ Except for

prescribed rules relating to floor-based designated Market-Makers on
the NYSE, who have access to specified nonpublic trading information,
each of these exchanges have moved to a principles-based approach to
protecting against the misuse of material, nonpublic information. In
connection with approving those rule changes, the Commission found that
eliminating redundant information barrier requirements should not
reduce the effectiveness of exchange rules requiring its members or
participants to establish and maintain systems to supervise the
activities of its members, including written procedures reasonably
designed to ensure compliance with applicable federal securities law
and regulations, and with the rules of the applicable exchange.\9\
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release Nos. 75432 (July 13,
2015), 80 FR 42597 (July 17, 2015) (Order Approving Adopting a
Principles-Based Approach to Prohibit the Misuse of Material
Nonpublic Information by Specialists and e-Specialists by Deleting
Rule 927.3NY and Section (f) of Rule 927.5NY); 75792 (August 31,
2015), 80 FR 53606 (September 4, 2015) (SR-ISE-2015-26) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change Adopting
a Principles-Based Approach to Prohibit the Misuse of Material, non-
public Information by Market Makers by Deleting Rule 810); 75916
(September 14, 2015), 80 FR 56503 (September 18, 2015) (SR-BOX-2015-
31) (Notice of Filing and immediate Effectiveness of Proposed Rule
Change to Adopt a Principles-based Approach to Prohibit the Misuse
of Material Nonpublic Information by Market Makers).
    \8\ See Securities Exchange Act Release Nos. 60604 (Sept. 2,
2009), 76 FR 46272 (Sept. 8, 2009) (SR-NYSEArca-2009-78) (Order
approving elimination of NYSE Arca rule that required market makers
to establish and maintain specifically prescribed information
barriers, including discussion of NYSE Arca and Nasdaq rules)
(``Arca Approval Order''); 61574 (Feb. 23, 2010), 75 FR 9455 (Mar.
2, 2010) (SR-BATS-2010-003) (Order approving amendments to BATS Rule
5.5 to move to a principles-based approach to protecting against the
misuse of material, non-public information, and noting that the
proposed change is consistent with the approaches of NYSE Arca and
Nasdaq) (``BATS Approval Order''); and 72534 (July 3, 2014), 79 FR
39440 (July 10, 2014), SR-NYSE-2014-12) (Order approving amendments
to NYSE Rule 98 governing designated market makers to move to a
principles-based approach to prohibit the misuse of material non-
public information) (``NYSE Approval Order'').
    \9\ See, e.g., BATS Approval Order, supra note 4 at 9458.
---------------------------------------------------------------------------

    The Exchange notes that even with this proposed rule change,
pursuant to Rule 4.18, a DPM or LMM would still be obligated to ensure
that its policies and procedures reflect the current state of its
business and continue to be reasonably designed to prevent the misuse
of material, nonpublic information. While information barriers would
not specifically be required under the proposal, Rule 4.18 already
requires that a TPH consider the nature of the TPH's business in
structuring its policies and procedures, which may dictate that an
information barrier or a functional separation be part of the
appropriate set of policies and procedures that would be reasonably
designed to achieve compliance with applicable securities law and
regulations, and with applicable Exchange rules.
    The Exchange is not proposing to change what is considered to be
material, non-public information and, thus does not expect there to be
any changes to the types of information that an affiliated brokerage
business of a market maker could share with such market maker. In that
regard, the proposed rule change will not permit the brokerage unit of
a TPH firm to have access to any non-public order or quote information
of affiliated market maker, including hidden or undisplayed orders and
quotes on the Exchange. TPHs do not expect to receive any additional
order or quote information as a result of this proposed rule change.
    Further, the Exchange does not believe that there will be any
material change to TPH information barriers as a result of removal of
the Exchange's pre-approval requirements for DPMs. In fact, the
Exchange anticipates that eliminating the pre-approval requirement
should facilitate implementation of changes to TPH information barriers
as necessary to protect against the misuse of material, non-public
information. The Exchange also suggests that the pre-approval
requirement is unnecessary because DPMs do not have agency
responsibilities to the book. However, as is the case today with market
makers, information barriers of new entrants would be subject to review
as part of a new firm application. Moreover, the policies and
procedures of market makers, including those relating to information
barriers would be subject to review by FINRA, on behalf of the
Exchange, pursuant to a Regulatory Services Agreement.
    The Exchange further notes that under Rule 4.18, a TPH would be
able [sic] would be able to structure its firm to provide for its
options DPMs or LMMs, as applicable, to be structured with its equities
and customer-facing businesses, provided that any such structuring
would be done in a manner reasonably designed to protect against the
misuse of material, nonpublic information. For example, pursuant to
Rule 4.18, a DPM on the Exchange could be in the same independent
trading unit, a defined in Rule 200(f) of Regulation SHO,\10\ as an
equities Market-Maker and other trading desks within the firm,
including options trading desks, so that the firm could share post-
trade information to better manage its risk across related securities.
The Exchange believes it is appropriate, and consistent with Rule 4.18
and section 15(g) of the Act \11\ for a firm to share options position
and related hedging position information (e.g., equities, futures, and
foreign currency) within a firm to better manage risk on a firm-wide
basis. The Exchange notes, however, that if so structured, a firm would
need to have appropriate policies and procedures, including information
barriers as applicable, to protect against the misuse of material non-
public information, and specifically customer information consistent
with Rule 4.18. The Exchange further notes that Federal rules supersede
Exchange rules in the event of any conflicts regarding the misuse of
material non-public information.
---------------------------------------------------------------------------

    \10\ 17 CFR part 242.200(f).
    \11\ 15 U.S.C. 78o(g).
---------------------------------------------------------------------------

    The Exchange believes that the proposed reliance on the principles-
based Rule 4.18 would ensure that a TPH that operates a DPM or LMM
would be required to protect against the misuse of any material
nonpublic information. As noted above, Rule 4.18 already requires that
firms refrain from trading while in possession of material nonpublic
information concerning imminent transactions in a security or related
product. The Exchange believes that moving to a principles-based
approach rather than prescribing how and when to wall off a DPM or LMM
from the rest of the firm would provide TPH operating DPMs or LMMs with
appropriate tools to better manage risk across a firm, including
integrating options positions with other positions of the firm or, as
applicable, by the respective independent trading unit. Specifically,
the Exchange believes that it is appropriate for risk management
purposes for a TPH operating a DPM or LMM to be able to consider both
DPM/LMM traded-positions for the purposes of calculating net positions
consistent with Rule 200 of Regulation SHO,\12\ calculating intra-day
net capital positions, and managing risk both generally as well as in
compliance with Rule 15c3-5 under the Act (the ``Market Access
Rule'').\13\ The Exchange notes that any risk management operations
would need to operate consistent with the requirement to protect
against the misuse of material non-public information.
---------------------------------------------------------------------------

    \12\ 17 CFR part 242.200.
    \13\ 17 CFR part 240.15c3-5.
---------------------------------------------------------------------------

    The Exchange further notes that if DPMs or LMMs are integrated with
other Market-Making operations, they would be subject to existing rules
that prohibit TPH from disadvantaging their customers or other market
participants by improperly capitalizing of a TPH organization's access
to the receipt of material nonpublic information. As such, a TPH
organization that integrates its DPM or LMM operations together with
equity Market-Making, would need to protect customer information
consistent with existing obligations to protect such information. The
Exchange has rules prohibiting TPHs from disadvantaging their customers
or other market participants by improperly capitalizing on the TPH's
access to or receipt of material nonpublic information. For example,
Rule 4.24(e) requires Each TPH shall establish, maintain, and enforce
written

supervisory procedures reasonably designed to prevent and detect
violations of applicable securities laws and regulations, and
applicable Exchange rules. Additionally Rule 6.9(e) prevents a TPH or
person associated with a TPH, who has knowledge of all material terms
and conditions of an original order and a solicited order, including a
facilitation order, to enter, based on such knowledge, an order to buy
or sell an option of the same class as an option that is the subject of
the original order, or an order to buy or sell the security underlying
such class, or an order to buy or sell any related instrument unless
certain circumstances are met.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the Securities Exchange Act of 1934 (the ``Act'') and the rules and
regulations thereunder applicable to the Exchange and, in particular,
the requirements of section 6(b) of the Act.\14\ Specifically, the
Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \15\ requirements that the rules of an exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and 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. Additionally,
the Exchange believes the proposed rule change is consistent with the
section 6(b)(5) \16\ requirement that the rules of an exchange not be
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Id.
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    In particular, the Exchange believes that the proposed rule change
would remove impediments to and perfect the mechanism of a free and
open market by adopting a principles-based approach to permit a TPH
operating a DPM or LMM to maintain and enforce policies and procedures
to, among other things, prohibit the misuse of material nonpublic
information. The proposed rule change would further eliminate
restrictions on how a TPH structures its DPM and LMM operations. The
Exchange notes that the proposed rule change is based on an approved
rule of the Exchange to which DPMs and LMMs are already subject-Rule
4.18-and harmonizes the rules governing DPMs, LMMs and Market-Makers.
Moreover, TPH operating DPMs and LMMs would continue to be subject to
federal and Exchange requirements for protecting material nonpublic
order information.\17\ The Exchange believes that the proposed rule
change would remove impediments to and perfect the mechanism of a free
and open market because it would harmonize the Exchange's approach to
protecting against the misuse of material nonpublic information and no
longer subject DPMs and LMMs to redundant requirements. The Exchange
does not believe that the existing requirements applicable to DPMs and
LMMs are narrowly tailored to their respective roles because neither
market participant has access to Exchange trading information in a
manner different from any other market participant on the Exchange and
they do not have agency responsibilities to the Order Book.
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    \17\ See 15 U.S.C. 78o(g) and Rule 4.18.
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    The Exchange further believes the proposal is designed to prevent
fraudulent and manipulative acts and practices and to promote just and
equitable principles of trade because existing rules make clear to all
TPH the type of conduct that is prohibited by the Exchange. While the
proposal eliminates certain requirements relating to the misuse of
material nonpublic information, DPMs, LMMs and all other TPH would
remain subject to existing Exchange rules requiring them to establish
and maintain systems to supervise their activities, and to create,
implement, and maintain written procedures that are reasonably designed
to comply with applicable securities laws and Exchange rules, including
the prohibition on the misuse of material nonpublic information.
    The Exchange notes that the proposed rule change would still
require that a TPH operating DPMs and LMMs maintain and enforce
policies and procedures designed to ensure compliance with applicable
federal securities laws and regulations and with Exchange rules. Even
thought there would no longer be pre-approval of DPM information
barriers, and DPM or LMM written policies and procedures would continue
to be subject to oversight by the Exchange and therefore the
elimination of specific restrictions should not reduce the
effectiveness of the Exchange rules to protect against the misuse of
material nonpublic information. Rather, TPH will be able to utilize a
flexible, principles-based approach to modify their policies and
procedures as appropriate to reflect changes to their business model,
business activities, or to the securities market itself. Moreover,
while specified information barriers may no longer be required, a TPH's
business model or business activities may dictate that an information
barrier or functional separation be part of the appropriate set of
policies and procedures that would be reasonably designed to achieve
compliance with applicable securities laws and regulations, and with
applicable Exchange rules. The Exchange therefore believes that the
proposed rule change will maintain the existing protection of investors
and the public interest that is currently applicable to DPM's and
LMM's, while at the same time removing impediments to and perfecting a
free and open market by moving to a principles-based approach to
protect against the misuse of material nonpublic information.

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

    CBOE 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. To the contrary, the Exchange
believes that the proposal will enhance competition by allowing DPMs
and LMMs to comply with applicable Exchange rules in a manner best
suited to their business models, business activities and the securities
markets, thus reducing regulatory burdens while still ensuring
compliance with applicable securities laws and regulations and Exchange
rules. The Exchange believes that the proposal will foster a fair and
orderly marketplace without being overly burdensome upon DPMs and LMMs.
    Moreover, the Exchange believes that the proposed rule change would
eliminate a burden on competition for TPH which currently exists as a
result of disparate rule treatment between the options and equities
markets regarding how to protect against the misuse of material,
nonpublic information. For those TPH that are also members of equities
exchanges their respective equity Market-Maker operations are now
subject to a principles-based approach to protecting against the misuse
of material nonpublic information. The Exchange believes it would
remove a burden on competition to enable TPH to similarly apply a
principles-based approach to protecting against the misuse of material
nonpublic information in the options space. To this end, the Exchange
notes that Rule 4.18 still requires a TPH that operates as a Market-
Maker on the Exchange,

including a DPM or LMM, to evaluate its business to assure that its
policies and procedures are reasonably designed to protect against the
misuse of material, non-public information. However, with this proposed
rule change, a TPH that trades equities and options could look at its
firm more holistically to structure its operations in a manner that
provides it with better tools to manage risks across multiple security
classes, while at the same time protecting against the misuse of
material nonpublic information.

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

    The Exchange neither solicited nor received comments on the
proposed rule change.

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

    Because the foregoing proposed rule change does not:
    A. Significantly affect the protection of investors or the public
interest;
    B. impose any significant burden on competition; and
    C. become operative for 30 days from the date on which it was
filed, or such shorter time as the Commission may designate, it has
become effective pursuant to section 19(b)(3)(A) of the Act \18\ and
Rule 19b-4(f)(6) \19\ thereunder. At any time within 60 days of the
filing of the proposed rule change, the Commission summarily may
temporarily suspend such rule change if it appears to the Commission
that such action is necessary or appropriate in the public interest,
for the protection of investors, or otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission will institute proceedings to determine whether the proposed
rule change should be approved or disapproved.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6).
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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-CBOE-2016-007 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-CBOE-2016-007. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2016-007 and should be
submitted on or before March 4, 2016.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02841 Filed 2-11-16; 8:45 am]
BILLING CODE 8011-01-P