[Federal Register Volume 80, Number 116 (Wednesday, June 17, 2015)]
[Notices]
[Pages 34765-34770]
[FR Doc No: 2015-14807]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75157; File No. 10-214]

Automated Matching Systems Exchange, LLC; Order Denying an
Application for a Limited Volume Exemption From Registration as a
National Securities Exchange Under Section 5 of the Securities Exchange
Act of 1934

June 11, 2015.

I. Introduction

    Automated Matching Systems Exchange, LLC (``AMSE'') believes that
its proposed business model would qualify it as an exchange. As defined
in Section 3(a)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'' or ``Act''), an ``exchange'' is ``any organization, association,
or group of persons, whether incorporated or unincorporated, which
constitutes, maintains, or provides a market place or facilities for
bringing together purchasers and sellers of securities or for otherwise
performing with respect to securities the functions commonly performed
by a stock exchange as that term is generally understood, and includes
the market place and the market facilities maintained by such
exchange.'' \1\ Under Section 5 of the Act, it is unlawful for an
exchange to effect any transaction in a security, or to report such
transaction, ``unless such exchange (1) is registered as a national
securities exchange . . . or (2) is exempted from such registration
upon application by the exchange because, in the opinion of the
Commission, by reason of the limited volume of transactions effected on
such exchange, it is not practicable and not necessary or appropriate
in the public interest or for the protection of investors to require
such registration.'' \2\
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    \1\ 15 U.S.C. 78c(a)(1). Rule 3b-16 under the Act further
provides that an organization, association, or group of persons
shall be considered to constitute, maintain, or provide `a market
place or facilities for bringing together purchasers and sellers of
securities or for otherwise performing with respect to securities
the functions commonly performed by a stock exchange,' as those
terms are used in Section 3(a)(1) of the Act, (15 U.S.C. 78c(a)(1)),
if such organization, association, or group of persons: (1) Brings
together the orders for securities of multiple buyers and sellers;
and (2) Uses established, non-discretionary methods (whether by
providing a trading facility or by setting rules) under which such
orders interact with each other, and the buyers and sellers entering
such orders agree to the terms of a trade. 17 CFR 240.3b-16(a).
    \2\ 15 U.S.C. 78e.
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    AMSE has chosen the latter option, seeking from the Commission an
exemption from registration as a national securities exchange.\3\ After
a careful review of the exemption application, however, we have
determined to deny it.
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    \3\ We note that, in a December 2014 public notice, the
Commission expressly stated that it understood AMSE to be seeking an
exemption under Section 5--not registration--and that AMSE did not
respond otherwise. See Securities Exchange Act Release No. 73911
(December 22, 2014), 79 FR 78507, note 1 (December 30, 2014)
(``Amendment Notice'') (``The Commission notes that AMSE's
application only seeks a limited volume exemption under Section 5 of
the Exchange Act from registration as a national securities exchange
under Section 6 of the Exchange Act. AMSE's application does not
seek to register as a national securities exchange.''). We therefore
deem any claim to the contrary waived.
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    Although our review leads us to identify a number of potential
issues that might warrant this result (including whether AMSE would
even qualify as an exchange),\4\ we find that the application is
fatally flawed because AMSE is proposing to possess the broad
regulatory powers and responsibilities that are reserved for self-
regulatory organizations (``SROs''), while simultaneously seeking
exemption from registration as an exchange.\5\ Under the Act, for an
exchange to possess the powers and responsibilities of an SRO, it must
register as a national securities exchange. An exchange that is exempt
from such registration does not meet the definition of an SRO under the
Act. Moreover, the Commission has never allowed an exempt exchange to
possess the broad range of regulatory powers and responsibilities of an
SRO. We believe that doing so here would be contrary to the Act and
inconsistent with the public interest and the protection of investors.
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    \4\ See infra Section III.A.
    \5\ SROs are privately-funded entities, entrusted with quasi-
governmental authority, which generally adopt rules to govern their
members and enforce these rules as well as the federal securities
laws. See generally Free Enterprise Fund v. Public Co. Accounting
Oversight Bd., 561 U.S. 477, 484 (2010) (explaining that ``private
self-regulatory organizations in the securities industry--such as
the New York Stock Exchange--. . . investigate and discipline their
own members subject to Commission oversight''). The quasi-
governmental authority afforded to SROs includes prosecutorial,
adjudicatory, and rulemaking authority.
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II. Background

A. Procedural History

    On July 7, 2014, AMSE filed with the Commission an application
seeking a limited volume exemption, under Section 5 of the Act, from
the requirement to register as a national securities exchange under
Section 6 of the Act.\6\ Notice of AMSE's exemption application was
published for comment in the Federal Register on July 29, 2014.\7\
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    \6\ In the interest of completeness, we note the events that
preceded AMSE's filing of its July 7th application. From December
2013 through March 2014, staff had numerous communications with AMSE
about its (then-draft) application, including multiple email
exchanges and at least one phone call; during these exchanges, the
staff explained that it was concerned that AMSE's proposed business
model was not an ``exchange.'' In March 2014, AMSE formally
submitted a Form 1 application. On April 24, 2014, the staff
returned AMSE's application because, based on its review, the staff
believed that AMSE had erred in submitting an application for an
exchange and instead should have submitted an application for a
national securities association, a classification that the staff
believed better fit with AMSE's proposed business model. On May 6,
2014, the staff had a phone call with AMSE in which the staff again
explained its view that AMSE's proposed business model was not an
exchange. On June 16, 2014, AMSE brought suit against the Commission
in the U.S. District Court for the District of South Dakota seeking
certain injunctive and declaratory relief in connection with its
application. See AMSE v. SEC, Civ. 14-4095 (D.S.D.). On June 24,
2014, the Commission staff and AMSE reached an agreement pursuant to
which AMSE would submit a new Form 1 application that would include
certain additional information needed to complete the application
and the staff would thereafter proceed to process the revised
application for Commission consideration.
    \7\ See Securities Exchange Act Release No. 72661 (July 23,
2014), 79 FR 44070.
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    On October 23, 2014, the Commission issued an order instituting
proceedings to determine whether to grant or deny AMSE's exemption
application.\8\ In that order, the Commission explained that it ``is
concerned that AMSE's exemption application does not meet a key
threshold requirement for being granted an exemption from exchange
registration--namely, that the applicant actually be an `exchange' as
defined under Section 3(a)(1) of the Exchange Act and Rule 3b-16
thereunder.'' \9\ The Commission specifically identified the fact that
``it does not appear that any AMSE system would operate as an exchange
by bringing together purchasers and sellers of securities.'' \10\
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    \8\ See Securities Exchange Act Release No. 73419, 79 FR 64421
(October 29, 2014) (``Order Instituting Proceedings'').
    \9\ Id. at 64422.
    \10\ Id.

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    On November 10, 2014, AMSE submitted Amendment No. 1 to its
exemption application. Notice of Amendment No. 1 to AMSE's exemption
application was published for comment in the Federal Register on
December 30, 2014.\11\ In the notice, the Commission advised interested
parties that it was considering potential ``additional grounds for
denial.'' As the Commission explained, ``AMSE's exemption application
states that AMSE would operate as a self-regulatory organization that
would exercise self-regulatory authority over its members,'' \12\ but
under the Act an exempt exchange is not an SRO; thus, ``any attempts by
AMSE to hold itself out as a self-regulatory organization while
simultaneously seeking an exemption under Section 5 would be contrary
to the Exchange Act.'' \13\
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    \11\ See Amendment Notice, supra note 3. In Amendment No. 1,
AMSE added language to Exhibit E that described proposed
consolidated quotation systems and a proposed optional order router
that could send orders between the distinct member-operated order
books.
    \12\ 79 FR at 78508.
    \13\ Id. On January 22, 2015, the Commission provided notice of
an extension of the time for the conclusion of the proceedings to
determine whether to grant or deny AMSE's exemption application. See
Securities Exchange Act Release No. 74116 (January 22, 2015), 80 FR
4321 (January 27, 2015) (``Extension Notice''). The Extension Notice
extended the time for the conclusion of the proceedings by 90 days,
to April 24, 2015. Id. AMSE subsequently consented to an additional
60-day extension of the time for the conclusion of the proceedings
to June 23, 2015. See Letter from Michael Stegawski, Chief
Regulatory Officer, AMSE, to SEC staff, dated February 27, 2015
(``AMSE February 27 Letter'').
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    On February 11, 2015, AMSE submitted Amendment Nos. 2A and 2B,
along with a comment letter.\14\ Among other things, Amendments 2A and
2B changed most of the application's references to ``self-regulatory
organization'' to ``limited volume exempt regulatory organization.''
\15\ Notwithstanding this change in nomenclature, AMSE did not
otherwise modify the accompanying description of the powers and
responsibilities it contemplated possessing. In some instances, AMSE
continued to refer to itself in terms that pertain only to SROs under
the Act or implied that it falls generally within the category of an
SRO and would exercise authority as such.\16\
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    \14\ See Letter from Michael Stegawski, Chief Regulatory
Officer, AMSE, to SEC staff, dated February 8, 2015 (``AMSE February
8 Letter''). Attached to the AMSE February 8 Letter were five
exhibits: Exhibit A--Amendment to Form 1 Application 2A, February
16, 2015 (``Amendment 2A''); Exhibit B--Amendment to Form 1
Application 2B, February 16, 2015 (``Amendment 2B''); Exhibit C--
January 16, 2015 Correspondence--Paul G. Alvarez; Exhibit D--January
5, 2015 Correspondence--Michael Stegawski (``AMSE January 5
Letter''); Exhibit E--Discussion Draft--Form 1 Application, January
5, 2015.
    \15\ See AMSE February 8 Letter. We note that Amendment Nos. 2A
and 2B appear to present different business models. We find it
unnecessary to analyze these proposed alternatives separately,
however, because both involve the same fatal flaw concerning AMSE's
proposal to exercise the panoply of self-regulatory powers and
responsibilities. Further, we note that neither the Act, nor Form 1,
nor the rules relating thereto provide for amendments in the
alternative.
    \16\ See infra notes 23-30 and accompanying text.
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    The Commission received thereafter one comment letter from 1st
Trade opposing AMSE's exemption application,\17\ to which AMSE
subsequently submitted a response.\18\
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    \17\ See Letter from Lori C. Sarian, Managing Partner, 1st
Trade, to Kevin M. O'Neill, Deputy Secretary, Commission, dated
April 14, 2015 (``1st Trade Letter''). This comment letter expresses
concerns about an overall lack of clarity and detail in AMSE's
application. This comment letter also raises concerns with respect
to specific aspects of AMSE's application, citing, among other
things, an ambiguity and vagueness surrounding membership
qualifications and obligations, an unclear application process for
certain potential members, proposed best execution obligations that
may be inconsistent with industry standards, an inadequate
description of operations and trade processing, inadequate issuer
requirements, and the duplication of requirements for potential
members who are already broker-dealers. Because the Commission's
focus in this order is on threshold matters with respect to AMSE's
application, many of 1st Trade's specific concerns are not addressed
herein.
    \18\ See Letter from Michael Stegawski, Chief Regulatory
Officer, AMSE, to Kevin M. O'Neill, Deputy Secretary, Commission,
dated April 22, 2015 (``AMSE Response Letter''). The AMSE Response
Letter provides responses to each of 1st Trade's specific comments.
See supra note 17.
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B. AMSE's Proposed Regulatory Functions

    In its exemption application, AMSE proposes that it would operate a
marketplace for securities processing.\19\ According to the
application, persons seeking to buy or sell securities could only enter
their orders through an AMSE member.\20\ And pursuant to AMSE's
proposed rules, any person may become a member of AMSE, provided that
the person submits an application and complies with any conditions
imposed by AMSE.\21\ AMSE proposes a specific application form for
broker-dealer firms to become its members.\22\
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    \19\ See Amendment 2B, Exhibit E, Section A.
    \20\ See Amendment 2B, Exhibit E, Section E. The definition of
``participant'' was added to the AMSE rules in Amendment 2B.
Participant means ``a Person who has entered into a contractual
agreement with an Exchange Member for the purpose of effecting
transactions in securities or submitting, disseminating, or
displaying orders.'' See AMSE Rule 1.5(w). In addition, Amendment 2B
replaced the term ``customer'' with ``participant'' throughout
AMSE's rules and other Form 1 Exhibits. See, e.g., AMSE Rules
Chapters III, IV, VI, VII, XI, and Amendment 2B, Exhibit E.
    \21\ See AMSE Rule 2.3. Amendment 2B removed the requirement
that AMSE members be registered broker-dealers. See Amendment No. 1,
AMSE Rule 2.3. In addition, Amendment 2B removed the requirement
that AMSE members comply with Regulation ATS. See Amendment No. 1,
Rules 15.1 -15.5.
    \22\ See Amendment 2B, Exhibit F and Rule 2.6(b).
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    Although AMSE's application seeks approval as an exempt exchange,
its proposal reveals AMSE's aim to exist simultaneously as an SRO.
Throughout its exemption application, AMSE refers to itself in terms
that pertain only to SROs under the Act. For example, AMSE's exemption
application refers to AMSE's rules being filed with the Commission
under Section 19(b) of the Act,\23\ which governs the filing of rules
by SROs with the Commission.\24\ AMSE's rules also state that its
disciplinary decisions and access decisions would be subject to agency
review under the Act,\25\ where such review is available only for the
activities of SROs under Section 19 of the Act.\26\ AMSE's exemption
application also repeatedly implies that it falls generally within the
category of an SRO and that it would exercise authority as such.\27\
AMSE also has stated in a comment letter that AMSE ``will become a
dedicated SRO for securities matching systems. . . .'' \28\ Further,
AMSE asserts that its members would hold a status under the Act that is
only conferred on members of SROs.\29\
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    \23\ See AMSE Rule 1.5(b).
    \24\ See 15 U.S.C. 78s(b).
    \25\ See AMSE Rules 8.14 and 9.7.
    \26\ See 15 U.S.C. 78s(b), (d).
    \27\ See, e.g., AMSE Rule 1.5(j) (``a self-regulatory
organization, other than the Exchange . . .'') and AMSE Rule 12.5
(``The Exchange may enter into one or more agreements with another
self-regulatory organization to provide regulatory services to the
Exchange to assist the Exchange in discharging its obligations under
Section 6 and Section 19(g) of the Act. . . .Notwithstanding the
fact that the Exchange may enter into one or more regulatory
services agreements, the Exchange shall retain ultimate legal
responsibility for, and control of, its self-regulatory
responsibilities . . .'').
    \28\ See AMSE Response Letter at 10; see also id. at 9 (AMSE
states that it ``will exercise self-regulatory powers.'').
    \29\ See AMSE Rule 1.5(l) (``An Exchange Member shall have the
status as provided in Section 3(a)(3) of the Act or, where
applicable, a Person operating pursuant to an exemption from
registration under the Act''). Section 3(a)(3) of the Act defines
``member'' exclusively within the context of either a national
securities exchange or a national securities association, which are
self-regulatory organizations. See 15 U.S.C. 78c(a)(3), (26).
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    In addition, throughout its exemption application, AMSE proposes to
perform regulatory oversight of its members that is consistent with the
powers and responsibilities of an SRO.\30\

Specifically, AMSE proposes to regulate its members with respect to:
training, experience, and competence; \31\ financial responsibility and
operational capacity; \32\ the maintenance of books and records; \33\
business conduct; \34\ anti-money laundering compliance programs; \35\
extension of margin or credit; \36\ custody of customer funds or
securities; \37\ fraud and manipulation; \38\ and compliance with
broker best execution obligations.\39\ AMSE also proposes to regulate
the associated persons of its members and would require each member to
establish, maintain, and enforce written supervisory procedures to
enable the member to supervise the activities of its associated persons
and to ensure their compliance with the securities laws, rules,
regulations and statements of policy promulgated thereunder, as well as
with AMSE rules.\40\ Moreover, at times AMSE asserts that it is
required to perform such functions under the Act,\41\ implying that it
will be an SRO, or acting in an equivalent, self-designated capacity it
calls a ``limited volume exempt regulatory organization.'' \42\ As the
1st Trade Letter observed, AMSE appears to be ``attempting to operate
with the most lenient regulatory constraints possible and in this
attempt are circumventing many accepted practices and regulatory
requirements.'' \43\
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    \30\ SROs' wide-ranging responsibilities generally involve
rulemaking, examining member firms for compliance with those rules
and the securities laws (including the Commission's rules
thereunder), taking disciplinary action against members that fail to
comply, and market monitoring, as well as professional activities
such as testing, training, and licensing. See, e.g., 15 U.S.C.
78f(b)(1) (requiring a national securities exchange to be so
organized and have the capacity to enforce compliance by its members
and associated persons with the Exchange Act, the rules and
regulations thereunder, and the rules of the exchange); 15 U.S.C.
78o-3(b)(2) (requiring the same of registered securities
associations); 15 U.S.C. 78f(b)(2)-(10) (specifying requirements for
the rules of a national securities exchange, including with respect
to preventing fraudulent acts and practices, and with the discipline
of members); 15 U.S.C. 78o-3(b)(3)-(15) (specifying requirements for
rules of a registered securities association, including with respect
to preventing fraudulent acts and practices, and with the discipline
of members); 15 U.S.C. 78o-3(g)(3)(B) (providing that a registered
securities association may bar natural persons from association with
a member if the person does not meet standards of training,
experience, and competence prescribed by rules of the association);
and 15 U.S.C. 78q(d) (providing for allocation of examination
authority across self-regulatory organizations).
    \31\ See AMSE Rule 2.4(b).
    \32\ See AMSE Rule 2.4(c)(1).
    \33\ See AMSE Rules 2.4(c)(2) and 4.1-4.4.
    \34\ See AMSE Rules 3.1-3.14.
    \35\ See AMSE Rule 5.6.
    \36\ See AMSE Rule 6.1.
    \37\ See AMSE Rule 10.12.
    \38\ See AMSE Rules 11.1-11.4.
    \39\ See AMSE Rule 11.8.
    \40\ See AMSE Rule 5.1; see also AMSE Rules 5.2-5.5.
    \41\ See, e.g., AMSE February 8 Letter at 5 (stating ``AMSE has
expressly elected not to register as a broker-dealer and comply with
the provisions of Regulation ATS and therefore is required to
exercise self-regulatory powers.''); and AMSE Rule 12.5 (``The
Exchange may enter into one or more agreements with another self-
regulatory organization to provide regulatory services to the
Exchange to assist the Exchange in discharging its obligations under
Section 6 and Section 19(g) of the Act . . .''). Section 6 of the
Act imposes regulatory obligations on national securities exchanges,
which are self-regulatory organizations; Section 19(g) of the Act
imposes obligations on self-regulatory organizations. See 15 U.S.C.
78f and 78s(g); see also 15 U.S.C. 78c(26) (defining self-regulatory
organization to include registered national securities exchange,
national securities associations, and clearing agencies).
    \42\ The term ``limited volume exempt regulatory organization''
is not a recognized term under the Act. AMSE created this defined
term in its rules. See AMSE Rule 1.5(ee) (```LVERO' means an entity
exercising self-regulatory powers pursuant to an exemption from
registration under the Act''). As noted above, prior to submitting
Amendments 2A and 2B, AMSE had referred to itself as an SRO; AMSE
replaced many of these references with ``limited volume exempt
regulatory organization'' after the Commission explained in December
2014 its preliminary view that AMSE would not qualify as an SRO.
Critically, AMSE did not accompany this nomenclature change with any
meaningfully limitations on the powers and responsibilities that it
proposed to exercise.
    \43\ 1st Trade Letter at 3.
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    AMSE also proposes to require its members and their associated
persons to agree to be regulated by AMSE and to recognize AMSE as being
obligated to enforce their compliance with the Act and regulations
thereunder.\44\ AMSE also would require its members and associated
persons to recognize AMSE as being required to discipline them for
violations of the Act, including through: expulsion; suspension;
limitation of activities, functions, and operation; fines; censure;
suspension or bar from association with an AMSE member; or any other
sanction determined in AMSE's discretion for violations of the Act.\45\
Here again, these are powers and responsibilities exercised by an
SRO.\46\
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    \44\ See AMSE Rules 2.2 and 2.5(e).
    \45\ See AMSE Rule 2.2. AMSE's rules quote the language in the
Act that gives national securities exchanges and national securities
associations the authority to enforce compliance by their members
with the Act. See 15 U.S.C. 78f(b)(6) and 78o-3(b)(7).
    \46\ See infra Section III.B.
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III. Discussion

A. AMSE Does Not Appear to Meet the Definition of an ``Exchange.''

    At the outset, we note that AMSE has urged the Commission to
conclude that AMSE should be granted an exemption from exchange
registration under the Act. Certain provisions of AMSE's amended
application indicate that AMSE's members may operate multiple distinct
trading systems, under an AMSE umbrella, while other provisions
indicate that AMSE itself would operate the proposed trading
systems.\47\
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    \47\ Compare AMSE Rule 11.8 (referring to participant orders
being executed ``on a designated trading platform, including that of
a trading system operated by the Exchange Member''); and Amendment
2B, Exhibit E, Section D (requiring AMSE members to be responsible
for having procedures for safeguarding their systems); with
Amendment 2B, Exhibit E, Section A (``the Exchange will operate one
or more fully automated electronic order books''); id. at Section E
(``[o]rders of Participants shall be ranked and maintained in the
Exchange's electronic books for orders''); and id. at Section F
(``[o]rders shall be matched for execution . . . on the Exchange's
electronic order book'').
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    These conflicting provisions make it difficult to ascertain the
operation of the trading system. Moreover, the lack of detail and
clarity in AMSE's exemption application prevents the Commission from
understanding precisely how AMSE proposes to bring together the orders
of multiple buyers and sellers and otherwise satisfy the definition of
``exchange.'' Under these circumstances, we would have grave doubts as
to whether AMSE could in fact qualify as an exchange exempt from
registration under the Act. We need not reach the merits of this issue,
however, because as we describe below AMSE's exemption application
suffers from a separate, fatal flaw.

B. It Is Contrary to the Act and Inconsistent With the Public Interest
and the Protection of Investors for an Exempt Exchange To Exercise the
Powers and Responsibilities of an SRO

    Even assuming that AMSE were deemed to be an exchange, the
Commission cannot find that AMSE should be granted an exemption from
the requirement to register as a national securities exchange under
Section 6 of the Act because the Commission believes that AMSE's
proposal is inconsistent with the Act.\48\ As described above, AMSE
proposes to exercise extensive self-regulatory powers that are reserved
under the Act for an SRO--indeed, the bulk of AMSE's rules are devoted
to this proposed regulatory function, and at times AMSE even refers to
itself as an SRO. But the Act does not afford the powers and
responsibilities of an SRO to an exchange that is exempt from
registration, nor does it require an exchange that is exempt from
registration to exercise such powers and responsibilities.\49\
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    \48\ For a history of the formation and regulation of stock
exchanges, see generally Concept Release Concerning Self-Regulation,
Securities Exchange Act Release No. 50700 (November 18, 2004), 69 FR
71256, at 71257-58 (December 8, 2004); Charles R. Geisst, Wall
Street: A History (1997); Michael E. Parrish, Securities Regulation
and the New Deal (1970); Joel Seligman, The Transformation of Wall
Street: A History of the Securities and Exchange Commission and
Modern Corporate Finance (3d ed. 2003).
    \49\ See supra note 42 and accompanying text.
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    Section 3(a)(26) of the Act defines an SRO, in pertinent part, as
any ``national

securities exchange.'' \50\ An entity may only become a ``national
securities exchange'' by registering under Section 6(a) of the Act,
\51\ as the Commission has previously explained.\52\ And, although
Section 5 of the Act permits an exempt exchange to operate lawfully
without registering as a national securities exchange,\53\ an exempt
exchange is, by definition, not a national securities exchange,\54\
and, thus, does not fall within the definition of ``self-regulatory
organization'' under the Act. It necessarily follows that, were we to
grant AMSE the exemption it seeks, AMSE would not be entitled, much
less required by the Act, to hold itself out as an SRO or to exercise
the self-regulatory authority that is statutorily afforded to SROs.
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    \50\ 15 U.S.C. 78c(a)(26) (defining SRO as ``any national
securities exchange, registered securities association, or
registered clearing agency''). See generally Barbara v. New York
Stock Exchange, Inc., 99 F.3d 49, 51 (2d Cir. 1996) (explaining that
``[u]nder the Act, [a national securities exchange] `is a self-
regulatory organization''').
    \51\ ``An exchange may be registered as a national securities
exchange under the terms and conditions hereinafter provided in this
section and in accordance with the provisions of section 19(a) of
this title, by filing with the Commission an application for
registration. . . .'' 15 U.S.C. 78f(a).
    \52\ In a previous order granting an exemption from registration
under Section 5 of the Act, the Commission stated that ``[b]y virtue
of this exemption from registration, the Wunsch System falls outside
the definition of a national securities exchange because the term
`national securities exchange' implies a registered entity (see,
e.g., sections 3(a)(26) of the Act (defining the term `self-
regulatory organization') and section 6(a) of the Act.''). See
Securities Exchange Act Release No. 28899 (February 20, 1991), 56 FR
8377, 8382 note 51 (February 28, 1991).
    \53\ To grant an exemption from the requirement to register as a
national securities exchange, the Commission must conclude that, in
the opinion of the Commission, by reason of the limited volume of
transactions effected on such exchange, it is not practicable and
not necessary or appropriate in the public interest or for the
protection of investors to require registration. 15 U.S.C. 78e.
    \54\ It is self-evident that an exchange cannot be exempt, under
Section 5, from registering as a national securities exchange under
Section 6, while simultaneously existing as a national securities
exchange under Section 6.
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    Nevertheless, there remains the question whether, in our
discretion, we could allow AMSE to exercise the powers and
responsibilities of an SRO, notwithstanding the fact that AMSE, as an
exempt exchange, would not meet the definition of an SRO. Although the
statutory language does not unambiguously forbid such a result, we
conclude that we lack the authority under the Act to permit an exempt
exchange to exercise the powers and responsibilities reserved for an
SRO. In our view, the Act reflects a deliberate balance between, on the
one hand, granting SROs the broad, quasi-governmental authority that
AMSE proposes to exercise, and, on the other hand, ensuring that an
SRO's exercise of this authority is carefully checked by close
Commission oversight.\55\ Indeed, we believe this understanding is
further supported by a primary Congressional purpose underlying the
1975 amendments to the Act,\56\ through which ``Congress specifically
and importantly modified [the system of self-regulation in the
securities industry] to enhance the SEC's oversight of self-regulatory
organizations.'' \57\ As the Senate Report accompanying the 1975
amendments explained, ``[t]he SEC is charged with supervising the
exercise of this self-regulatory power in order to assure that it is
used effectively to fulfill the responsibilities assigned to the self-
regulatory agencies, and that it is not used in a manner inimical to
the public interest or unfair to private interests.'' \58\
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    \55\ See, e.g., In re Series 7 Broker Qualification Exam Scoring
Litig., 548 F.3d 110, 112, 114 (D.C. Cir. 2008) (explaining that
``[t]he Exchange Act reveals a deliberate and careful design for
regulation of the securities industry'' that ``depends on the SEC's
delegation of certain governmental functions to private SROs'' and
describing how this ``delegation involves close oversight'' by the
Commission). See also S. Rep No. 94-75, at 24 (``self-regulatory
organizations exercise government power'').
    \56\ Securities Acts Amendments of 1975, P.L. 94-29.
    \57\ NASD v. SEC, 431 F.3d 803, 807 (D.C. Cir. 2005).
    \58\ S. Rep No. 94-75, at 23. See also id. at 22 (explaining
that the 1975 amendments were intended to ``clarify and strengthen
the Commission's oversight role with respect to the self-regulatory
organizations''); id. at 23 (``The self-regulatory organizations
exercise authority subject to SEC oversight. They have no authority
to regulate independently of the SEC's control.''); id. (explaining
that an objective of the 1975 amendments was ``assuring that the
self-regulatory organizations follow effective and fair procedures,
that their activities are not anticompetitive and that the
Commission's oversight powers are ample and its responsibility to
correct self-regulatory lapses is unmistakable''). See generally
Onnig H. Dombalagian, Demythologizing the Stock Exchange:
Reconciling Self-Regulation and the National Market System, 39 U.
Rich. L. Rev. 1069, 1080 (2005) (``One of the principal changes [of
the 1975 amendments] to the framework for exchange self-regulation
was to impose greater limitations on the exercise of rule making and
disciplinary authority by exchanges.'').
---------------------------------------------------------------------------

    Yet were we to allow AMSE to exercise the powers and
responsibilities of an SRO without actually qualifying as such under
the Act--i.e., without registering as a national securities exchange--
we would be deprived of many of the means that Congress thought were
critical for our effective oversight of the exercise of self-regulatory
powers. By its express terms, the Act affords us such oversight
authority only over an entity that qualifies as an SRO, which AMSE
would not have done. Accordingly, if we allowed an exempt exchange to
exercise the broad powers and responsibilities of an SRO, we would lack
the authority over that exempt entity that we would normally have
possessed over SROs to, among other things, ``approve or disapprove the
proposed rule change[s],'' \59\ ``abrogate, add to, [or] delete from''
an exchange rule,\60\ review a final disciplinary sanction imposed by
the exchange or any denial of access,\61\ ``suspend for a period not
exceeding twelve months . . . or to censure or impose limitations upon
the activities, functions, and operations'' of the exchange for
specified misconduct,\62\ or ``remove from office or censure'' any
officer or director of the exchange for specified misconduct.\63\ We do
not believe that such a result would be consistent with the
Congressional desire, as revealed through the statutory language and
the legislative history, that the Commission closely oversee the
exercise of self-regulatory authority.\64\
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78s(b).
    \60\ 15 U.S.C. 78s(c).
    \61\ 15 U.S.C. 78s(d)-(e).
    \62\ 15 U.S.C. 78s(h)(1). See generally S. Rep No. 94-75, at 34
(explaining that the oversight authorities under Section 19(h)(1) of
the Act are ``in addition to suspension and deregistration and are
intended to provide more usable sanctions than the SEC's traditional
`big stick''').
    \63\ 15 U.S.C. 78s(h)(4).
    \64\ We note that Congress also afforded the Commission
authority to enlist the assistance of the federal courts in carrying
out its oversight role. See S. Rep No. 94-75, at 35 (``Sections
21(e) and 21(f) [of the Exchange Act] would empower the SEC to apply
to a federal court for an order to (1) enjoin the violation of the
rules of a self-regulatory organization, (2) command a member of a
self-regulatory organization to comply with the rules of such
organization, or (3) command a self-regulatory organization to
enforce compliance by its members with the Exchange Act, the rules
thereunder, and the organization's own rules.'').
---------------------------------------------------------------------------

    This conclusion is consistent with our prior reading of the Act. As
the Commission has previously stated, ``any system exercising self-
regulatory powers, such as regulating its members' or subscribers'
conduct when engaged in activities outside of that trading system, must
register as an exchange or be operated by a national securities
association [which is also an SRO under the statutory definition]. This
is because self-regulatory activities in the securities markets must be
subject to Commission oversight under Section 19 of the Exchange Act.''
\65\ As we have explained, under our view of the Act, ``any system that
uses its market power to regulate its participants should be regulated
as an SRO.'' \66\
---------------------------------------------------------------------------

    \65\ See Securities Exchange Act Release No. 40760 (December 8,
1998), 63 FR 70844, 70847 (December 22, 1998) (``Regulation ATS
Adopting Release'').
    \66\ See Regulation ATS Adopting Release, 63 FR at 70859.

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

    Accordingly, as we read the Act, an exempt exchange is relieved of
the statutory obligations of a registered SRO but also forfeits the
ability to exercise the statutory authority of an SRO. To the extent
that AMSE desires to perform the extensive range of self-regulatory
responsibilities described in its exemption application, it must
qualify and register as a national securities exchange (or a national
securities association).
    In any event, even if we possessed the authority to grant AMSE an
exemption notwithstanding its intention to exercise the powers and
responsibilities reserved for SROs, we do not believe that doing so
would be consistent either with investor protection or the public
interest. In our view, when an exchange wants to exercise the broad
powers and responsibilities that AMSE is seeking here, an exemption
from registration is not appropriate because the Commission would lack
sufficient oversight mechanisms to ensure that the self-regulatory
authority is not exercised in a manner inimical to the public interest
or unfair to private interests. The Commission's oversight
responsibilities towards SROs has been a cornerstone of self-regulation
from its inception.\67\ Indeed, due to the potential harm to capital
formation, investors, and the public interest that could result from
the misuse of the securities markets, as noted above, Congress
intentionally created a highly regulated environment in which SROs must
be subject to close oversight by the Commission. Put simply, an entity
seeking to establish and enforce a comprehensive regulatory structure
with respect to the securities business of its broker-dealer members--
including the full range of business conduct, financial condition, and
regulatory compliance matters--could have a substantial impact on the
way those members engage in the securities business and comply with the
federal securities laws.\68\ In our view, any such entity should be
subject to full Commission oversight to assure its performance of such
functions is consistent with the protection of investors and the public
interest. For these additional reasons, in the exercise of our
discretion under Section 5 of the Act, we would deny the exemption
application.
---------------------------------------------------------------------------

    \67\ See William O. Douglas, Democracy and Finance 82 (1940).
    \68\ See, e.g., Securities Industry Study, Report of the
Subcommittee on Securities, Committee on Banking, Housing, and Urban
Affairs, U.S. Senate, 93rd Cong., at 14 (1973) (``The broad powers
delegated to the exchanges and the NASD under the Exchange Act
include the power to affect the interests of individuals and firms,
both members and non-members.'').
---------------------------------------------------------------------------

    Our conclusion today is not inconsistent with prior Commission
practice. At the outset, we think it is important to observe that the
Commission has rarely exercised its exemptive authority under Section
5--indeed, it has granted a limited volume exemption, as sought by AMSE
here, on only two prior occasions in the past 79 years.\69\ And while
the Commission imposed certain conditions upon exemptions from exchange
registration when it granted them, the exemptions and conditions
thereto neither allowed nor required the exercise of the extensive SRO
authority that AMSE is seeking.\70\ Moreover, although the Commission
acknowledged in the Regulation ATS Adopting Release that an exemption
under Section 5 could be available for an exchange that has self-
regulatory attributes,\71\ the Commission has never granted an
exemption to an exchange seeking to carry out the broad range of self-
regulatory functions performed by registered SROs, as proposed by
AMSE.\72\ Rather, the Commission has granted an exemption only once to
an exchange with ``self-regulatory attributes'' \73\ and, in that case,
the exchange sought only to impose financial and operational standards
as a condition for eligibility

for trading.\74\ The limited self-regulatory attributes in that case
stand in stark contrast to the full scope of self-regulatory powers
sought by AMSE here.
---------------------------------------------------------------------------

    \69\ In 1991, the Commission issued a limited volume exemption
from exchange registration for Wunsch Auction Systems, Inc.
(``WASI'') (now known as ``Arizona Stock Exchange''). See Securities
Exchange Act Release No. 28899 (February 20, 1991), 56 FR
8377(February 28, 1991) (``WASI Order''). WASI proposed to operate
an auction trading system for after-hours trading three times a
week, at a half an hour each. In 1999, the Commission issued a
limited volume exemption from exchange registration for Tradepoint
Financial Networks plc (``Tradepoint'') (now known as ``Swiss
Exchange''). See Securities Exchange Act Release No. 41199 (March
22, 1999), 64 FR 14953 (March 29, 1999). Tradepoint operated as a
U.K.-registered trading facility and offered trading only in
securities listed on the London Stock Exchange. Aside from these two
exemptions, the Commission has only issued limited volume exemptions
under Section 5 of the Act in the period from 1935 to1936; the
exemptions issued then were for a small group of municipally-based
securities exchanges that were already in existence at the time of
the initial adoption of the Act in 1934. See Securities Exchange Act
Release No. 416, November 14, 1935 (exempting the Honolulu Stock
Exchange, the Milwaukee Grain and Stock Exchange, and Minneapolis-
St. Paul Stock Exchange); Securities Exchange Act Release No. 432,
December 2, 1935 (exempting the Richmond Stock Exchange and Wheeling
Stock Exchange); Securities Exchange Act Release No. 472, February
3, 1936 (exempting the Colorado Springs Stock Exchange); Securities
Exchange Act Release No. 589, April 10, 1936 (exempting the Seattle
Stock Exchange).
    \70\ See Securities Exchange Act Release No. 416, November 14,
1935 (requiring the Honolulu Stock Exchange, the Milwaukee Grain and
Stock Exchange, and the Minneapolis-St. Paul Stock Exchange to keep
up-to-date and available to the public the data contained in the
application for exemption, make and keep required records, provide
reports as necessary, and provide in their rules that a willful
violation of any of the exemption conditions shall be inconsistent
with just and equitable principles of trade, and providing that the
same restrictions with regard to the extension of credit for
registered securities are imposed on securities listed on these
exchanges, that members of the exchanges are subject to Commission-
imposed financial responsibility rules and regulations, that the
manipulation provisions of the Securities Exchange Act apply to the
exchanges and their members, and that companies whose securities are
listed on the exchanges are required to file with the exchange and
Commission certain annual financial statements); Securities Exchange
Act Release No. 432, December 2, 1935 (granting exemptions for the
Richmond Stock Exchange and the Wheeling Stock Exchange upon the
same conditions imposed on the exchanges in Securities Exchange Act
Release No. 416); Securities Exchange Act Release No. 472, February
3, 1936 (granting an exemption to the Colorado Springs Stock
Exchange upon the same conditions imposed on the exchanges in
Securities Exchange Act Release Nos. 416 and 432); Securities
Exchange Act Release No. 589, April 10, 1936 (granting an exemption
to the Seattle Stock Exchange upon the same conditions imposed on
the exchanges in Securities Exchange Act Release Nos. 416, 432, and
472); WASI Order (granting an exemption based on the condition that
WASI (1) permit the Commission to conduct examinations; (2) comply
with its agreement to report volume and price data to the Commission
and to SROs, and provide other information (such as the identities
of participants who have entered orders) to the Commission and the
SROs upon request; (3) comply with its undertaking to implement
procedures to conduct surveillance of its employees and adopt
requirements to ensure the non-disclosure of confidential
information; (4) suspend trading in any security subject to a
regulatory halt for pending news called by the primary market for
the security or during suspensions of trading ordered by the
Commission pursuant to Section 12(k) of the Act, and consult with
the Commission subsequent to an exchange or NASDAQ session in which
an operational trading halt has occurred or a circuit breaker has
gone into effect; (5) suspend any auction at the request of the
Commission, assuming adequate notice is given, and (6) continue to
comply with the capacity, security, and contingency planning
guidelines contained in the Commission's Automation Review Policy).
    \71\ In the Regulation ATS Adopting Release, the Commission
stated that it ``believes that the low volume exemption continues to
be appropriate for some exchanges, such as an exchange that, for
example, disciplines its members (other than by excluding them or
limiting them from trading based on objective criteria, such as
creditworthiness), or has other self-regulatory attributes that
exclude it from the definition of alternative trading system.'' See
Regulation ATS Adopting Release, 63 FR at 70848, note 33.
    \72\ See supra notes 31-46 and accompanying text.
    \73\ The Commission notes the distinction between entities that
display ``self-regulatory attributes''--which implies having only a
few features of an SRO, such as disciplining members for violations
of its own rules--and entities seeking to exercise all or nearly all
of the powers of SROs under the Act. As discussed above, AMSE's
application shows that it is not proposing merely to have a few
self-regulatory attributes, but rather seeks to exercise the full
range of powers available to SROs under the Act. See supra notes 31-
46 and accompanying text. Under these conditions, the Commission
continues to believe, as previously stated, that the SRO functions
can be exercised only by an SRO, not an exempt exchange.
    \74\ See Securities Exchange Act Release No. 41199 (March 22,
1999), 64 FR 14953 (March 29, 1999) (order granting a limited volume
exemption under Section 5 of the Act to Tradepoint).
---------------------------------------------------------------------------

C. AMSE Is Mistaken in Its Interpretation of the Relevant Procedural
Requirements Relating to Its Exemption Application

    AMSE has labored under certain misunderstandings of the relevant
procedures throughout its interactions with the staff on this matter.
To the extent that there is any ambiguity in these procedures, we take
this opportunity to provide clarification. AMSE erroneously reads Rule
202.3(b)(2) of the Commission's procedural rules as establishing an
enforceable right on the part of AMSE to require the Commission's staff
to confer with AMSE. Rule 202.3(b)(2) provides, in relevant part:

    Applications for registration as national securities exchanges,
or exemption from registration as exchanges by reason of such
exchanges' limited volume of transactions filed with the Commission
are routed to the Division of Market Regulation, which examines
these applications to determine whether all necessary information
has been supplied and whether all required financial statements and
other documents have been furnished in proper form. . . . The staff
confers with applicants and makes suggestions in appropriate cases
for amendments and supplemental information. Where it appears
appropriate in the public interest and where a basis therefore
exists, denial proceedings may be instituted.

    AMSE appears to construe the second sentence in the quoted language
above to establish a binding obligation on the Commission staff to work
with AMSE to achieve Commission approval of its exemption application.
    But the rule contains no such requirement; indeed, it does not
prescribe any procedure that the Commission staff must follow when
working with applicants on applications for registration or exemption
from registration. To the contrary, when the rule refers to Commission
staff conferring with applicants, it is expressly descriptive, rather
than prescriptive, as to the staff's actions. And, critically, it
provides only that the staff will ``confer[] with applicants and make[]
suggestions in appropriate cases . . . .'' \75\ The rule thus
explicitly leaves it to the staff to identify the situations in which
it would be appropriate to confer with applicants.\76\ It certainly
does not (as AMSE appears to believe) entitle applicants to obtain
guidance from the staff so that the applicants can repeatedly amend
their applications before the Commission issues its final order.\77\ In
any event, as noted above, Commission staff in fact consulted with AMSE
and provided views and input to AMSE about its application.\78\
---------------------------------------------------------------------------

    \75\ 17 CFR 202.3(b)(2) (emphasis added).
    \76\ See, e.g., Dichter-Mad Family Partners, LLP v. United
States, 707 F.Supp.2d 1016, 1042-43 (C.D. Cal. 2010), aff'd, 709
F.3d 749 (9th Cir. 2013) (dismissing plaintiffs' claims upon
finding, among other things, that even though statute mandated that
agency staff ``shall'' engage in certain conduct, such language was
``modified by the discretionary `as appropriate''' and thus statute
conferred discretion upon agency officials). Cf. Nat'l Env't. Dev.
Ass'n's Clean Air Project v. EPA, 686 F.3d 803, 813 (D.C. Cir. 2012)
(concluding that the statutory phrase ``as appropriate'' conferred
``significant discretion'' upon the agency); Bear Valley Mut. Water
Co. v. Salazar, No. 11-01263, 2012 WL 5353353 (C.D. Cal. Oct. 17,
2012) (same); City of Toledo v. Beazer Materials & Servs., Inc., No.
90-CV-7344, 1995 WL 770396 (N.D. Ohio June 14, 1995) (the same
phrase in a federal regulation indicated that the described activity
was ``not mandatory'').
    \77\ Nor does the rule contain any suggestion that, absent such
a conference with the staff, the administrative record would be
fatally deficient and any subsequent action by the Commission on the
application would be improper.
    \78\ See supra note 6 (discussing communications between
Commission staff and AMSE regarding AMSE's application occurring
between December 2013 and March 2014).
---------------------------------------------------------------------------

IV. Conclusion

    The Commission has reviewed AMSE's application for a limited volume
exemption from registration as a national securities exchange and has
determined, for the reasons described above, to deny AMSE's
application.\79\
---------------------------------------------------------------------------

    \79\ We note that, at times during the pendency of its exemption
application, AMSE made unsubstantiated claims of bad faith on the
staff's part. We see no indication of any bad faith, however. And in
any event, we have reached our determination to deny AMSE's
exemption application based on our own independent review of the
application. Accordingly, we are confident that AMSE has had a full
and fair opportunity to present its application to us for
consideration and that AMSE has suffered no prejudice.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 5 of the Act, that
AMSE's application for an exemption from registration as a national
securities exchange be, and hereby is, denied.

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-14807 Filed 6-16-15; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 76, Number 153 (Tuesday, August 9, 2011)]
[Notices]
[Page 48940]
[FR Doc No: 2011-20009]

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

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

[Summary Notice No. PE-2011-35]

Petition for Exemption; Summary of Petition Received

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of petition for exemption received.

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

SUMMARY: This notice contains a summary of a petition seeking relief
from specified requirements of 14 CFR. The purpose of this notice is to
improve the public's awareness of, and participation in, this aspect of
FAA's regulatory activities. Neither publication of this notice nor the
inclusion or omission of information in the summary is intended to
affect the legal status of the petition or its final disposition.

DATES: Comments on this petition must identify the petition docket
number and must be received on or before August 29, 2011.

ADDRESSES: You may send comments identified by Docket Number FAA-2011-
0626 using any of the following methods:
     Government-wide rulemaking Web site: Go to http://www.regulations.gov and follow the instructions for sending your
comments electronically.
     Mail: Send comments to the Docket Management Facility;
U.S. Department of Transportation, 1200 New Jersey Avenue, SE., West
Building Ground Floor, Room W12-140, Washington, DC 20590.
     Fax: Fax comments to the Docket Management Facility at
202-493-2251.
     Hand Delivery: Bring comments to the Docket Management
Facility in Room W12-140 of the West Building Ground Floor at 1200 New
Jersey Avenue, SE., Washington, DC, between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
    Privacy: We will post all comments we receive, without change, to
http://www.regulations.gov, including any personal information you
provide. Using the search function of our docket web site, anyone can
find and read the comments received into any of our dockets, including
the name of the individual sending the comment (or signing the comment
for an association, business, labor union, etc.). You may review DOT's
complete Privacy Act Statement in the Federal Register published on
April 11, 2000 (65 FR 19477-78).
    Docket: To read background documents or comments received, go to
http://www.regulations.gov at any time or to the Docket Management
Facility in Room W12-140 of the West Building Ground Floor at 1200 New
Jersey Avenue, SE., Washington, DC, between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: Frances Shaver, ARM-200, (202) 267-
4059, FAA, Office of Rulemaking, 800 Independence Ave SW., Washington,
DC 20591. This notice is published pursuant to 14 CFR 11.85.

    Issued in Washington, DC, on August 2, 2011.
Dennis R. Pratte
Acting Director, Office of Rulemaking.

Petition For Exemption

    Docket No.: FAA-2011-0626.
    Petitioner: Joseph A. Jennings.
    Section of 14 CFR Affected: Sec.  21.197(a)(1).
    Description of Relief Sought: The petitioner requests relief from
Sec.  21.197(a)(1) to enable the petitioner, as a Designated
Airworthiness Representative, to issue functional check flight permits.

[FR Doc. 2011-20009 Filed 8-8-11; 8:45 am]
BILLING CODE 4910-13-P


UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, DC

Issued by the Department of Transportation on February 26, 2007

   NOTICE OF ACTION TAKEN -- DOCKET OST-2007-27364

________________________________________________________________________
_____________________________________________

This serves as notice to the public of the action described below, taken
by the Department official indicated (no additional confirming order
will be issued in this matter).

Application of SPIRIT AIRLINES, INC. (SPIRIT) filed 2/15/07 for:

XX  Exemption for two years under 49 U.S.C. 40109 to provide the
following service:

Scheduled foreign air transportation of persons, property, and mail from
points behind the United States, via points in the United States and
intermediate points, to points in Peru and beyond.  Spirit also requests
authority to perform charter service between the United States and Peru.

Applicant rep: Anita M. Mosner<PHONE_NUMBER>     DOT Analyst: Thuy H.
Cooper<PHONE_NUMBER>

D I S P O S I T I O N

XX  Granted in part (subject to conditions, see below)(see remarks
below)

XX  Balance dismissed (see remarks below)

The above action granting exemption authority was effective when taken:
February 26, 2007, through February 26, 2009.

Action taken by:   Paul L. Gretch, Director

		      Office of International Aviation

XX  The authority granted is consistent with the aviation agreement
between the United States and  Peru.

Except to the extent exempted or waived, this authority is subject to
the terms, conditions, and limitations indicated:  XX Holder’s
certificates of public convenience and necessity

   	    XX Standard exemption conditions (attached)

Conditions:  The authority granted to serve intermediate and beyond
points is limited to countries with which the United States has signed
open-skies agreements and/or countries for which US Airways holds
authority to serve under certificates and exemptions issued by the
Department.

Remarks: We dismiss Spirit’s application to the extent that it
requests authority to conduct operations from points behind the United
States.  Such authority is inherent in the authority that we award U.S.
air carriers to perform foreign air transportation.  We also dismiss
Spirit’s application for U.S.-Peru charter authority.  As a
certificated air carrier (see Order 98-7-6), Spirit already holds
worldwide charter authority (see 49 U.S.C.

§ 41109 (a)(5) and 14 C.F.R. § 212.1).

We acted on this application without awaiting expiration of the 15-day
answer period with the consent of all parties served with the
application.

________________________________________________________________________
_____________

On the basis of data officially noticeable under Rule 24(g) of the
Department's regulations, we found the applicant qualified to provide
the exemption services authorized.

Under authority assigned by the Department in its regulations, 14 CFR
Part 385, we found that (1) our action was consistent with Department
policy; (2) grant of the authority was consistent with the public
interest; and (3) grant of the authority would not constitute a major
regulatory action under the Energy Policy and Conservation Act of 1975.
To the extent not granted or dismissed, we denied all requests in the
referenced Docket.  We may amend, modify, or revoke the authority
granted in this Notice at any time without hearing at our discretion.

Persons entitled to petition the Department for review of the action set
forth in this Notice under the Department’s regulations, 14 CFR
§385.30, may file their petitions within seven (7) days after the date
of issuance of this Notice.  This action was effective when taken, and
the filing of a petition for review will not alter such effectiveness.

An electronic version of this document is available on the World Wide
Web at:

  HYPERLINK "http://dms.dot.gov//reports/reports_aviation.asp"
http://dms.dot.gov//reports/reports_aviation.asp

U.S. Carrier Exemption Conditions

In the conduct of the operations authorized, the U.S. carrier
applicant(s) shall:

(1)  Hold at all times effective operating authority from the government
of each country served;

(2)  Comply with applicable requirements concerning oversales contained
in 14 CFR 250 (for scheduled operations, if authorized);

(3)  Comply with the requirements for reporting data contained in 14 CFR
241;

(4)  Comply with requirements for minimum insurance coverage, and for
certifying that coverage to the Department, contained in 14 CFR 205;

(5)  Except as specifically exempted or otherwise provided for in a
Department Order, comply with the requirements of 14 CFR 203, concerning
waiver of Warsaw Convention liability limits and defenses;

(6)  Comply with all applicable requirements of the Federal Aviation
Administration, the Transportation Security Administration, and with all
applicable U.S. Government requirements concerning security, including,
but not limited to, 49 CFR Part 1544.  To assure compliance with all
applicable U.S. Government requirements concerning security, the holder
shall, before commencing any new service (including charter flights) to
or from a foreign airport, contact its International Principal Security
Inspector (IPSI) to advise the IPSI of its plans and to find out whether
the Transportation Security Administration has determined that security
is adequate to allow such airport(s) to be served;

(7)  Comply with such other reasonable terms, conditions, and
limitations required by the public interest as may be prescribed by the
Department of Transportation, with all applicable orders and regulations
of other U.S. agencies and courts, and with all applicable laws of the
United States.

The authority granted shall be effective only during the period when the
holder is in compliance with the conditions imposed above.

11/06

 Spirit intends to offer scheduled service between Ft, Lauderdale,
Florida and Lima and Chiclayo, Peru, beginning on or about May 1, 2007.


[Federal Register Volume 84, Number 22 (Friday, February 1, 2019)]
[Notices]
[Pages 1153-1155]
[FR Doc No: 2019-00676]

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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

[Docket No. FDA-2018-D-4628]

Risk Evaluation and Mitigation Strategies Assessment: Planning
and Reporting; Draft Guidance for Industry; Availability

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice of availability.

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

SUMMARY: The Food and Drug Administration (FDA or Agency) is announcing
the availability of a draft guidance for industry on the assessment of
risk evaluation and mitigation strategies (REMS) entitled ``REMS
Assessment: Planning and Reporting; Draft Guidance for Industry.'' The
draft guidance is one of several guidance documents being developed to
fulfill performance goals under the fifth authorization of the
prescription drug user fee program, the Prescription Drug User Fee Act
V. This draft guidance describes how to develop a REMS Assessment Plan;
specifically, how the REMS program goals, objectives, and REMS design
may impact the selection of metrics and data sources, which will be
used to assess whether the REMS is meeting its risk mitigation goals.
    The draft guidance recommends assessing the REMS using both process
measures and outcome measures and provides examples of metrics by
assessment categories, as well as data sources that may be utilized to
evaluate the performance of the REMS. The draft guidance also discusses
considerations for assessing the impact of REMS on patient access to
the drug or its burden to the healthcare delivery system. Finally, this
draft guidance provides recommendations on a standardized approach for
reporting REMS assessment findings to FDA using the REMS Assessment
Report.

DATES: Submit either electronic or written comments on the draft
guidance by April 2, 2019 to ensure that the Agency considers your
comment on this draft guidance before it begins work on the final
version of the guidance.

ADDRESSES: You may submit comments on any guidance at any time as
follows:

Electronic Submissions

    Submit electronic comments in the following way:
     Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. Comments submitted
electronically, including attachments, to https://www.regulations.gov
will be posted to the docket unchanged. Because your comment will be
made public, you are solely responsible for ensuring that your comment
does not include any confidential information that you or a third party
may not wish to be posted, such as medical information, your or anyone
else's Social Security number, or confidential business information,
such as a manufacturing process. Please note that if you include your
name, contact information, or other information that identifies you in
the body of your

comments, that information will be posted on https://www.regulations.gov.
     If you want to submit a comment with confidential
information that you do not wish to be made available to the public,
submit the comment as a written/paper submission and in the manner
detailed (see ``Written/Paper Submissions'' and ``Instructions'').

Written/Paper Submissions

    Submit written/paper submissions as follows:
     Mail/Hand delivery/Courier (for written/paper
submissions): Dockets Management Staff (HFA-305), Food and Drug
Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.
     For written/paper comments submitted to the Dockets
Management Staff, FDA will post your comment, as well as any
attachments, except for information submitted, marked and identified,
as confidential, if submitted as detailed in ``Instructions.''
    Instructions: All submissions received must include the Docket No.
FDA-2018-D-4628 for ``REMS Assessment: Planning and Reporting.''
Received comments will be placed in the docket and, except for those
submitted as ``Confidential Submissions,'' publicly viewable at https://www.regulations.gov or at the Dockets Management Staff between 9 a.m.
and 4 p.m., Monday through Friday.
     Confidential Submissions--To submit a comment with
confidential information that you do not wish to be made publicly
available, submit your comments only as a written/paper submission. You
should submit two copies total. One copy will include the information
you claim to be confidential with a heading or cover note that states
``THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.'' The Agency will
review this copy, including the claimed confidential information, in
its consideration of comments. The second copy, which will have the
claimed confidential information redacted/blacked out, will be
available for public viewing and posted on https://www.regulations.gov.
Submit both copies to the Dockets Management Staff. If you do not wish
your name and contact information to be made publicly available, you
can provide this information on the cover sheet and not in the body of
your comments and you must identify this information as
``confidential.'' Any information marked as ``confidential'' will not
be disclosed except in accordance with 21 CFR 10.20 and other
applicable disclosure law. For more information about FDA's posting of
comments to public dockets, see 80 FR 56469, September 18, 2015, or
access the information at: https://www.gpo.gov/fdsys/pkg/FR-2015-09-18/pdf/2015-23389.pdf.
    Docket: For access to the docket to read background documents or
the electronic and written/paper comments received, go to https://www.regulations.gov and insert the docket number, found in brackets in
the heading of this document, into the ``Search'' box and follow the
prompts and/or go to the Dockets Management Staff, 5630 Fishers Lane,
Rm. 1061, Rockville, MD 20852.
    You may submit comments on any guidance at any time (see 21 CFR
10.115(g)(5)).
    Submit written requests for single copies of the draft guidance to
the Division of Drug Information, Center for Drug Evaluation and
Research, Food and Drug Administration, 10001 New Hampshire Ave.,
Hillandale Bldg., 4th Floor, Silver Spring, MD 20993-0002, or to the
Office of Communication, Outreach and Development, Center for Biologics
Evaluation and Research, Food and Drug Administration, 10903 New
Hampshire Ave., Bldg. 71, Rm. 3128, Silver Spring, MD 20993-0002. Send
one self-addressed adhesive label to assist that office in processing
your requests. See the SUPPLEMENTARY INFORMATION section for electronic
access to the draft guidance document.

FOR FURTHER INFORMATION CONTACT: Doris Auth, Center for Drug Evaluation
and Research, Food and Drug Administration, 10903 New Hampshire Ave.,
Bldg. 22, Rm. 2480, Silver Spring, MD 20993-0002,<PHONE_NUMBER>,
<EMAIL_ADDRESS>or Stephen Ripley, Center for Biologics
Evaluation and Research, Food and Drug Administration, 10903 New
Hampshire Ave., Bldg. 71, Rm. 7301, Silver Spring, MD 20993-0002, 240-
402-7911.

SUPPLEMENTARY INFORMATION:

I. Background

    FDA is announcing the availability of a draft guidance for industry
entitled ``REMS Assessment: Planning and Reporting.'' The Food and Drug
Administration Amendments Act of 2007 created section 505-1 of the
Federal Food, Drug, and Cosmetic Act (FD&C Act) (21 U.S.C. 355-1),
which authorizes FDA to require a REMS for certain drugs if FDA
determines that a REMS is necessary to ensure that the benefits of the
drug outweigh its risks.
    REMS elements may include a medication guide, a patient package
insert, and/or a communication plan. FDA may also require certain
elements to assure safe use (ETASU) as part of a REMS. The ETASU can
include, for example, requirements that health care providers who
prescribe the drug have particular training or experience, that
patients using the drug be monitored, or that the drug be dispensed to
patients with evidence or other documentation of safe use conditions.
Certain REMS with ETASU may also include an implementation system
through which the sponsor is able to monitor and evaluate
implementation of the ETASU and work to improve their implementation.
All REMS for drugs approved under a new drug application or a biologics
license application must include a timetable for submission of
assessments of the REMS. The timetable for submission of assessments
must be, at a minimum, by 18 months, 3 years, and in the 7th year after
the initial approval of the REMS. For additional information about
REMS, see the guidances for industry ``Format and Content of a REMS
Document'' (82 FR 47529, October 12, 2017) (available at https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-drugs-gen/documents/document/ucm18&4128.pdf), FDA's Application of Statutory Factors in
Determining When a REMS Is Necessary (81 FR 64911, September 21, 2016)
(available at https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM521504.pdf), and
Risk Evaluation and Mitigation Strategies: Modifications and Revisions
Guidance for Industry (80 FR 18629, April 7, 2015) (available at
https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM441226.pdf).
    The FD&C Act requires applicants to conduct assessments to evaluate
the effectiveness of the REMS. The statute specifies that the
assessment for REMS must include an assessment of the extent to which
the approved strategy, including each element of the strategy, is
meeting the goal or whether one or more such goals or such elements
should be modified (section 505-1(g)(3) of the FD&C Act). The statute
does not specifically describe how an applicant should conduct
assessments. Many REMS include a goal related to knowledge, such as to
inform or educate patients and health care providers about the serious
risks associated with and safe use of a drug. When knowledge goals are
part of a REMS, the REMS Assessment Plan generally includes, as
appropriate, an evaluation of patients' and health care providers'
understanding of the serious risk(s) associated with, and safe use of,
the drug. Elsewhere in this issue of the

Federal Register, FDA is announcing the availability of a draft
guidance entitled ``Survey Methodologies to Assess REMS Goals That
Relate to Knowledge,'' which addresses the use of surveys to address
the knowledge goal.
    In addition to knowledge-related goals, REMS may include goals and
objectives related to the outcomes the REMS is intended to mitigate;
therefore, REMS assessments should also include elements that would
indicate whether these goals and objectives are being met. REMS
assessments can also include elements to assess the burden of REMS on
the health care delivery system and any unintended barriers to patient
access of the drug.
    This draft guidance is being issued consistent with FDA's good
guidance practices regulation (21 CFR 10.115). The draft guidance, when
finalized, will represent the current thinking of FDA on ``REMS
Assessment: Planning and Reporting.'' It does not establish any rights
for any person and is not binding on FDA or the public. You can use an
alternative approach if it satisfies the requirements of the applicable
statutes and regulations. This guidance is not subject to Executive
Order 12866.

II. Paperwork Reduction Act of 1995

    This draft guidance refers to collections of information that are
subject to review by the Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The title,
description, and respondent description of the information collection
are given under this section with an estimate of the annual reporting
burden. Included in the estimate is the time for reviewing
instructions, searching existing data sources, and gathering and
maintaining the data needed.
    We invite comments on these topics: (1) Whether the proposed
collection of information is necessary for the proper performance of
FDA's functions, including whether the information will have practical
utility; (2) the accuracy of FDA's estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used; (3) ways to enhance the quality,
utility, and clarity of the information to be collected; and (4) ways
to minimize the burden of the collection of information on respondents,
including through the use of automated collection techniques, when
appropriate, and other forms of information technology.
    Title: REMS Assessment: Planning and Reporting--OMB Control Number
0910-NEW.
    Description: This draft guidance provides instruction on submitting
REMS Assessments to FDA. These instructions recommend that application
holders submitting REMS Assessments should include the following
information in each submission: (1) A cover page that includes the
reporting time point, the date of the REMS Assessment Report, and the
assessment reporting period. The cover page should be followed by (2) a
table of contents; (3) an executive summary of the findings and
conclusions; (4) an introduction section; (5) a background section,
which includes the REMS goals and objectives, requirements, and
materials that were in place during the assessment reporting period, a
REMS history, and any pending supplements; (6) a summary of the REMS
Assessment Plan as an overview in tabular format (or other format
outline) and details of the assessment plan including any study
protocols submitted with the assessment or references to protocols
submitted prior to the REMS Assessment Report and methodology used to
support REMS assessment (e.g., survey, other methodology); (7) a
summary of the previous assessments, including the key results and the
overall conclusions; (8) the results or summary of findings of each
assessment metric, including a written summary of the data that was
analyzed, key results and a description of any limitations. When
appropriate, the data should be reported for the reporting period and
cumulatively, and trends in performance compared to previous periods
should be reported and discussed; (9) a discussion including the
overall assessment of whether the REMS is meeting its goals and
objectives, including the basis for that conclusion, and for REMS with
ETASU, whether the burden on the healthcare delivery system is being
minimized to the extent practicable, whether the ETASU are unduly
burdensome on patient access to medication, and an explanation for
these conclusions; (10) any proposed modifications to the REMS (e.g.,
to address REMS compliance issues, reduce burdens, overcome barriers to
patient access, improve efficiencies) as well as the basis for the
proposed modifications; and (11) any proposed revisions to the REMS
Assessment Plan if additional information is needed to make a
determination that the goal of the REMS is being met, or if there are
aspects of the REMS that are no longer necessary to assess.
    We estimate the burden of the information collection as follows:

                                                      Table 1--Estimated Annual Reporting Burden 1
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Number of                       Average burden
  Guidance for industry on REMS assessment: Planning and reporting      Number of      responses per     Total annual     per response     Total hours
                                                                       respondents       respondent       responses         (hours)
--------------------------------------------------------------------------------------------------------------------------------------------------------
REMS Assessments Submissions.......................................              47                1               47            162.5            7,638
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 There are no capital costs or operating and maintenance costs associated with this collection of information.

    There are currently 76 approved REMS programs. Based on a current
review of REMS assessment submission data and anticipating a similar
number of future submissions, we estimate that there will be 47 REMS
Assessment submissions annually. We also estimate that it will take an
application holder 162.5 hours to prepare and submit each REMS
Assessment (``Average Burden per Response'' in table 1) in accordance
with recommendations found in the guidance.

III. Electronic Access

    Persons with access to the internet may obtain the draft guidance
at https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/default.htm, https://www.fda.gov/BiologicsBloodVaccines/GuidanceComplianceRegulatoryInformation/Guidances/default.htm, or
https://www.regulations.gov.

    Dated: January 16, 2019.
Leslie Kux,
Associate Commissioner for Policy.
[FR Doc. 2019-00676 Filed 1-31-19; 8:45 am]
 BILLING CODE 4164-01-P