[Federal Register: June 3, 2009 (Volume 74, Number 105)]
[Rules and Regulations]
[Page 26536-26543]
[DOCID:fr03jn09-8]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 180

[EPA-HQ-OPP-2007-0312; FRL-8414-6]

Triflumizole; Pesticide Tolerances

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: This regulation establishes tolerances for combined residues
of triflumizole and its metabolites containing the 4-chloro-2-
trifluoromethylaniline (FA-1-1) moiety, calculated as the parent
compound, in or on leafy greens subgroup 4A, except spinach; Brassica,
head and stem, subgroup 5A; Brassica, leafy greens, subgroup 5B;
cilantro leaves; Swiss chard; pineapple; papaya; black sapote;
canistel; mamey sapote; mango; sapodilla; star apple; hops, dried
cones; and turnip greens. Interregional Research Project Number 4 (IR-
4) requested these tolerances under the Federal Food, Drug, and
Cosmetic Act (FFDCA). This regulation also deletes the following time-
limited tolerances, as permanent tolerances supersede them: Collards,
kale and mustard greens, as residues on these commodities will be
covered by the Brassica, leafy greens, subgroup 5B tolerance; broccoli,
since residues will be covered by the Brassica, head and stem, subgroup
5A tolerance; dandelion leaves and parsley leaves, since residues will
be covered by the leafy greens subgroup 4A tolerance; Swiss chard and
turnip greens, as the time-limited tolerances will be superseded by
permanent tolerances; and coriander leaves, as the cilantro leaves
tolerance supersedes it and is the preferred commodity definition.

DATES: This regulation is effective June 3, 2009. Objections and
requests for hearings must be received on or before August 3, 2009, and
must be filed in accordance with the instructions provided in 40 CFR
part 178 (see also Unit I.C. of the SUPPLEMENTARY INFORMATION).

ADDRESSES: EPA has established a docket for this action under docket
identification (ID) number EPA-HQ-OPP-2007-0312. All documents in the
docket are listed in the docket index available at http://
www.regulations.gov. Although listed in the index, some information is
not publicly available, e.g., Confidential Business Information (CBI)
or other information whose disclosure is restricted by statute. Certain
other material, such as copyrighted material, is not placed on the
Internet and will be publicly available only in hard copy form.
Publicly available docket materials are available in the electronic
docket at http://www.regulations.gov, or, if only available in hard
copy, at the OPP Regulatory Public Docket in Rm. S-4400, One Potomac
Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. The Docket
Facility is open from 8:30 a.m. to 4 p.m., Monday through Friday,
excluding legal holidays. The Docket Facility telephone number is (703)
305-5805.

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

I. General Information

A. Does this Action Apply to Me?

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

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

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

C. Can I File an Objection or Hearing Request?

    Under section 408(g) of FFDCA, 21 U.S.C. 346a, any person may file
an objection to any aspect of this regulation and may also request a
hearing on those objections. You must file your objection or request a
hearing on this regulation in accordance with the instructions provided
in 40 CFR part 178. To ensure proper receipt by EPA, you must identify
docket ID number EPA-HQ-OPP-2007-0312 in the subject line on the first
page of your submission. All requests must be in writing, and must be
mailed or delivered to the Hearing Clerk as required by 40 CFR part 178
on or before August 3, 2009.
    In addition to filing an objection or hearing request with the
Hearing Clerk as described in 40 CFR part 178, please submit a copy of
the filing that does not contain any CBI for inclusion in the public
docket that is described in ADDRESSES. Information not marked
confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA
without prior notice. Submit this copy, identified by docket ID number
EPA-HQ-OPP-2007-0312, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov.
Follow the on-line instructions for submitting comments.
     Mail: Office of Pesticide Programs (OPP) Regulatory Public
Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania
Ave., NW., Washington, DC 20460-0001.
     Delivery: OPP Regulatory Public Docket (7502P),
Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South
Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only
accepted during the Docket Facility's normal hours of operation (8:30
a.m. to 4 p.m., Monday through Friday, excluding legal holidays).
Special arrangements should be made for deliveries of boxed
information. The Docket Facility telephone number is<PHONE_NUMBER>.

II. Petitions for Tolerance

    In the Federal Register of June 27, 2007 (72 FR 35237) (FRL-8133-
4), EPA issued a notice pursuant to section 408(d)(3) of FFDCA, 21
U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP
7E7183) by IR-4, Rutgers, The State University of New Jersey, 500
College Road East, Suite 201 W, Princeton, NJ 08540. The petition
requested that 40 CFR 180.476 be amended by establishing a tolerance
for combined residues of the fungicide triflumizole, 1-(1-((4-chloro-2-
(trifluoromethyl)phenyl)imino)-2-propoxyethyl)-1 H-imidazole, and its
metabolites containing the 4-chloro-2-trifluoromethylaniline moiety,
calculated as the parent compound, in or on Brassica, leafy greens,
subgroup 5B at 20.0 parts per million (ppm). That notice referenced a
summary of the petition prepared on behalf of IR-4 by Chemtura USA
Corporation, the registrant, which is available to the public in the
docket, http://www.regulations.gov. There were no comments received in
response to the notice of filing.
    In the Federal Register of February 6, 2008 (73 FR 6964) (FRL-8350-
9), EPA issued a notice pursuant to section 408(d)(3) of FFDCA, 21
U.S.C. 346a(d)(3), announcing the filing of pesticide petitions (PP
7E7258 and 7E7286) by IR-4. The petition requested that 40 CFR 180.476
be amended by establishing tolerances for combined residues of the
fungicide triflumizole, and its metabolites containing the 4-chloro-2-
trifluoromethylaniline moiety, calculated as the parent compound, in or
on food commodities for PP 7E7258: Leafy greens subgroup 4A, except
spinach, at 35 ppm; cilantro, leaves at 35 ppm; Swiss chard at 18 ppm;
pineapple at 4.0 ppm; papaya at 2.5 ppm; sapote, black at 2.5 ppm;
canistel at 2.5 ppm; sapote, mamey at 2.5 ppm; mango at 2.5 ppm;
sapodilla at 2.5 ppm; star apple at 2.5 ppm; and hop, dried cones at
50.0 ppm; and for PP 7E7286: Brassica, head and stem, subgroup 5A at
5.0 ppm. That notice referenced a summary of the petition prepared on
behalf of IR-4 by Chemtura USA Corporation, the registrant, which is
available to the public in the docket, http://www.regulations.gov.
There were no comments received in response to this notice of filing.
    In the Federal Register of May 16, 2008 (73 FR 28461) (FRL-8361-6),
EPA issued a notice pursuant to section 408(d)(3) of FFDCA, 21 U.S.C.
346a(d)(3), announcing the amendment of pesticide petition (PP 7E7258)
by IR-4. The petition requested that 40 CFR 180.476 be amended by
additionally establishing a tolerance for combined residues of the
fungicide triflumizole, and its metabolites containing the 4-chloro-2-
trifluoromethylaniline moiety, calculated as the parent compound, in or
on the food commodity turnip, greens at 40 ppm. That notice referenced
a summary of the petition prepared on behalf of IR-4 by Chemtura USA
Corporation, the registrant, which is available to the public in the
docket, http://www.regulations.gov. There were no comments received in
response to this notice of filing.
    Based upon review of the data supporting these petitions, EPA has
determined that some of the proposed tolerance levels should be
increased and has also revised the tolerance expression. The reasons
for these changes are explained in Unit IV.D.

III. Aggregate Risk Assessment and Determination of Safety

    Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a
tolerance (the legal limit for a pesticide chemical residue in or on a
food) only if EPA determines that the tolerance is ``safe.'' Section
408(b)(2)(A)(ii) of FFDCA defines ``safe'' to mean that ``there is a
reasonable certainty that no harm will result from aggregate exposure
to the pesticide chemical residue, including all anticipated dietary
exposures and all other exposures for which there is reliable
information.'' This includes exposure through drinking water and in
residential settings, but does not include occupational exposure.
Section 408(b)(2)(C) of FFDCA requires EPA to give special
consideration to exposure of infants and children to the pesticide
chemical residue in establishing a tolerance and to ``ensure that there
is a reasonable certainty that no harm will result to infants and
children from aggregate exposure to the pesticide chemical residue. . .
. ''
    Consistent with section 408(b)(2)(D) of FFDCA, and the factors
specified in section 408(b)(2)(D) of FFDCA, EPA has reviewed the
available scientific data and other relevant information in support of
this action. EPA has sufficient data to assess the hazards of and to
make a determination on aggregate exposure for the petitioned-for
tolerances for combined residues of triflumizole, and its metabolites
containing the 4-chloro-2-trifluoromethylaniline moiety, calculated as
the parent compound, on leafy greens subgroup 4A, except spinach at 35
parts per million (ppm); Brassica, head and stem, subgroup 5A at 8.0
ppm; Brassica, leafy greens, subgroup 5B at 40.0 ppm; cilantro

leaves at 35 ppm; Swiss chard at 18 ppm; pineapple at 4.0 ppm; papaya
at 2.5 ppm; black sapote at 2.5 ppm; canistel at 2.5 ppm; mamey sapote
at 2.5 ppm; mango at 2.5 ppm; sapodilla at 2.5 ppm; star apple at 2.5
ppm; hop, dried cones at 50.0 ppm; and turnip greens at 40 ppm. EPA's
assessment of exposures and risks associated with establishing
tolerances follows.

A. Toxicological Profile

    EPA has evaluated the available toxicity data and considered its
validity, completeness, and reliability as well as the relationship of
the results of the studies to human risk. EPA has also considered
available information concerning the variability of the sensitivities
of major identifiable subgroups of consumers, including infants and
children.
    Triflumizole has low acute toxicity via the oral, dermal, and
inhalation routes. It is a mild eye irritant and dermal sensitizer, but
is not a dermal irritant. The primary target organ affected by
triflumizole is the liver. Liver effects were seen in rat and mouse
subchronic and chronic/carcinogenicity studies. Subchronic effects
included increased absolute and relative liver weights, accumulation of
fat droplets, and slight hepatocyte centrilobular swelling. With
increased length of exposure, the types of microscopic lesions noted
increased in number and severity. Chronic effects included hepatocyte
fatty vacuolization; hepatocyte hypertrophy, focal inflammation, and
necrosis; fatty degeneration; eosinophilic foci of hepatocyte
alteration; hepatic nodules; bile duct hyperplasia; and hyaline
degeneration/fibrosis of the bile duct. The dog was less sensitive to
the effects of triflumizole. In the dog chronic study, effects included
increased liver weights, increased serum alkaline phosphatase levels,
and a macroscopic hepatic lobular pattern and granular texture. A very
mild, macrocytic anemia was also noted and was most likely secondary to
liver effects.
    A special microsomal enzyme induction study showed that
triflumizole can induce hepatic microsomal enzymes when administered
orally at high doses. Kidney weights were increased in the rat and
mouse also, but the only pathology seen microscopically was in the rat
chronic/carcinogenicity study in which cortical cysts were noted. Other
organ effects were observed microscopically at the highest dose tested
(HDT) in the chronic rat study, which mainly involved cystic or
hyperplastic lesions in endocrine glands and/or lymph nodes. Body
weight decrements were noted in the rat and/or mouse subchronic,
chronic and carcinogenicity studies and the developmental and
reproduction studies.
    Long-term dietary administration of triflumizole did not result in
an overall treatment-related increase in incidence of tumor formation
in rats or mice. Based upon the lack of evidence of carcinogenicity in
rats and mice, EPA classified triflumizole as ``not likely to be
carcinogenic to humans'' by all routes of exposure. Further,
triflumizole did not show evidence of mutagenicity in in vitro or in
vivo studies.
    Signs of neurotoxicity were seen in the acute oral toxicity studies
in the rat and mouse and an acute inhalation study in the rat.
Neurotoxic signs were also observed in the acute neurotoxicity study
based on functional-observational-battery (FOB) findings (neuromuscular
impairment) and decreased locomotor activity. By day 8 of the
observation period treated males and females were comparable to the
controls. Although there was a statistically significant increase in
hindlimb splay of low-dose females, this effect does not appear to be
of great toxicological significance, since no other FOB effects were
observed in low-dose females. No evidence of neurotoxicity was seen in
the rat subchronic oral toxicity study or the mouse subchronic oral
toxicity and carcinogenicity studies.
    In oral rat developmental studies, fetal effects (decreased numbers
of viable fetuses, increased dead or resorbed fetuses, increased
numbers of late resorptions, decreased fetal body weight and increased
incidences of cervical ribs) were seen at the same doses where less
severe maternal effects were noted (decreases in body weight gain and
food consumption and increases in placental, spleen and liver weights).
Fetal effects in the rabbit developmental study (decreased 24-hour
survival, increased fetal and litter incidences of lumbar ribs and
decreased placental weights) were noted at the same dose as maternal
toxic effects (decreased food consumption, and decreased placental
weights). In a multi-generation study in rats, offspring effects
included decreased pup weights, survival indices, and litter sizes in
both F3 litters, reduced litter size in the F1a litter, increased
total-litter mortality in the F3a litter, and developmental effects in
the F1b and F2b progeny. Reproductive toxicity, manifested as increased
gestation length, was increased at the high dose.
    Specific information on the studies received and the nature of the
adverse effects caused by triflumizole as well as the no-observed-
adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-
level (LOAEL) from the toxicity studies can be found at http://
www.regulations.gov in document ``Triflumizole: Second Amended Human
Health Risk Assessment for Proposed Uses on Leafy Greens (Subgroup 4A)
Except Spinach, Head and Stem Brassica (Subgroup 5A), Cilantro, Swiss
Chard, Pineapple, Papaya, Black Sapote, Canistel, Mamey Sapote, Mango,
Sapodilla, Star Apple, and Hops'' pages 51-55 in docket ID number EPA-
HQ-OPP-2007-0312.

B. Toxicological Endpoints

    For hazards that have a threshold below which there is no
appreciable risk, a toxicological point of departure (POD) is
identified as the basis for derivation of reference values for risk
assessment. The POD may be defined as the highest dose at which no
adverse effects are observed (the NOAEL) in the toxicology study
identified as appropriate for use in risk assessment. However, if a
NOAEL cannot be determined, the lowest dose at which adverse effects of
concern are identified (the LOAEL) or a Benchmark Dose (BMD) approach
is sometimes used for risk assessment. Uncertainty/safety factors (UFs)
are used in conjunction with the POD to take into account uncertainties
inherent in the extrapolation from laboratory animal data to humans and
in the variations in sensitivity among members of the human population
as well as other unknowns. Safety is assessed for acute and chronic
dietary risks by comparing aggregate food and water exposure to the
pesticide to the acute population adjusted dose (aPAD) and chronic
population adjusted dose (cPAD). The aPAD and cPAD are calculated by
dividing the POD by all applicable UFs. Aggregate short-, intermediate-
, and chronic-term risks are evaluated by comparing food, water, and
residential exposure to the POD to ensure that the margin of exposure
(MOE) called for by the product of all applicable UFs is not exceeded.
This latter value is referred to as the Level of Concern (LOC).
    For non-threshold risks, the Agency assumes that any amount of
exposure will lead to some degree of risk. Thus, the Agency estimates
risk in terms of the probability of an occurrence of the adverse effect
greater than that expected in a lifetime. For more information on the
general principles EPA uses in risk characterization and a complete
description of the risk assessment

process, see http://www.epa.gov/pesticides/factsheets/riskassess.htm.
    EPA identified an acute effect for the general population
(neuromuscular impairment and decreased locomotor activity seen in the
rat acute neurotoxicity study) and for females 13 to 49 years old
(decreased numbers of viable fetuses, increased dead or resorbed
fetuses, increased numbers of late resorptions, decreased fetal body
weight, and increased incidence of cervical ribs in the rat
developmental toxicity study that are presumed to occur after a single
exposure). The aPAD for the general population has been established at
0.25 milligrams/kilogram/day (mg/kg/day); whereas, the aPAD for females
13 to 49 years old is lower (0.1 mg/kg/day) due to the more sensitive
endpoint on which it is based.
    In previous risk assessments for triflumizole, the chronic
reference dose (cRfD) for the general population was derived from the
NOAEL of 1.5 mg/kg/day from the multi-generation rat reproduction
study. However, the Registrant requested that the Agency consider
historical control data in relation to the rat reproductive study.
Based on evaluation of the historical control data it was determined
that the NOAEL should be 3.5 mg/kg/day (previously classified as the
LOAEL). The NOAEL of 3.5 mg/kg/day was based on decreased pup body
weight, mortality, reduced litter size and increased incidence of
hydroureter and space between the body wall and organs observed at 8.5
mg/kg/day (NOAEL= 3.5 mg/kg/day). In addition, gestation length was
increased in the dams of F1a, F2a, and F3a intervals at the LOAEL of
8.5 mg/kg/day (NOAEL = 3.5 mg/kg/day).
    Based on a re-evaluation of the toxicity database, it was
determined that the most suitable endpoint for the derivation of a cRfD
was a LOAEL of 3.5 mg/kg/day (a NOAEL was not determined) identified in
a chronic rat study and based on liver toxicity. The revised NOAEL of
3.5 mg/kg/day in the rat reproduction study would not be protective of
potential liver toxicity associated with triflumizole. It was
determined that the LOAEL of 3.5 mg/kg/day from the Combined Chronic
Toxicity/Carcinogenicity (based on liver effects) was protective with
an additional safety factor.
    A summary of the toxicological endpoints for triflumizole used for
human risk assessment can be found at http://www.regulations.gov in
document ``Triflumizole: Second Amended Human Health Risk Assessment
for Proposed Uses on Leafy Greens (Subgroup 4A) Except Spinach, Head
and Stem Brassica (Subgroup 5A), Cilantro, Swiss Chard, Pineapple,
Papaya, Black Sapote, Canistel, Mamey Sapote, Mango, Sapodilla, Star
Apple, and Hops'' pages 30-32 in docket ID number EPA-HQ-OPP-2007-0312.

C. Exposure Assessment

    1. Dietary exposure from food and feed uses. In evaluating dietary
exposure to triflumizole, EPA considered exposure under the petitioned-
for tolerances as well as all existing triflumizole tolerances in 40
CFR 180.476. EPA assessed dietary exposures from triflumizole in food
as follows:
    i. Acute exposure. Quantitative acute dietary exposure and risk
assessments are performed for a food-use pesticide, if a toxicological
study has indicated the possibility of an effect of concern occurring
as a result of a 1-day or single exposure.
    In estimating acute dietary exposure, EPA used food consumption
information from the United States Department of Agriculture (USDA)
1994-1996 and 1998 Nationwide Continuing Surveys of Food Intake by
Individuals (CSFII). As to residue levels in food, EPA assumed
tolerance level residues and 100 percent crop treated (PCT) for all
existing and new uses of triflumizole.
    ii. Chronic exposure. In conducting the chronic dietary exposure
assessment EPA used the food consumption data from the USDA 1994-1996
and 1998 CSFII. As to residue levels in food, EPA used average field
trial residues as anticipated residues (ARs) for apple, grape, pear,
cherry, cucurbit, strawberry, leafy greens (subgroup 4A) except
spinach, head and stem Brassica (subgroup 5A), cilantro, Swiss chard,
pineapple, papaya, black sapote, canistel, mamey sapote, mango,
sapodilla, star apple and hops. For all other commodities, the
assessment used tolerance level residues. The EPA used PCT information
for apples, cantaloupes, cherries, cucumbers, grapes, hazelnuts
(filberts), honeydew melons, pears, pumpkins, squash, strawberries and
watermelons. 100 PCT information was used for the remaining registered
and proposed uses.
    iii. Cancer. Based on absence of significant tumor increases in two
rodent carcinogenicity studies, EPA has classified triflumizole as
``not likely to be carcinogenic to humans;'' therefore, a quantitative
exposure assessment to evaluate cancer risk is unnecessary.
    iv. Anticipated residue and PCT information. Section 408(b)(2)(E)
of FFDCA authorizes EPA to use available data and information on the
anticipated residue levels of pesticide residues in food and the actual
levels of pesticide residues that have been measured in food. If EPA
relies on such information, EPA must require pursuant to FFDCA section
408(f)(1) that data be provided 5 years after the tolerance is
established, modified, or left in effect, demonstrating that the levels
in food are not above the levels anticipated. For the present action,
EPA will issue such data call-ins as are required by FFDCA section
408(b)(2)(E) and authorized under FFDCA section 408(f)(1). Data will be
required to be submitted no later than 5 years from the date of
issuance of these tolerances.
    Section 408(b)(2)(F) of FFDCA states that the Agency may use data
on the actual percent of food treated for assessing chronic dietary
risk only if:
     Condition a: The data used are reliable and provide a
valid basis to show what percentage of the food derived from such crop
is likely to contain the pesticide residue.
     Condition b: The exposure estimate does not underestimate
exposure for any significant subpopulation group.
     Condition c: Data are available on pesticide use and food
consumption in a particular area, the exposure estimate does not
understate exposure for the population in such area.
In addition, the Agency must provide for periodic evaluation of any
estimates used. To provide for the periodic evaluation of the estimate
of PCT as required by FFDCA section 408(b)(2)(F), EPA may require
registrants to submit data on PCT.
    The Agency used PCT information for chronic assessments as follows:
    Apples 20%; Cantaloupe 10%; Cherries 15%; Cucumbers 5%; Grapes 5%;
Hazelnuts (Filberts) 15%; Honeydew melons 15%; Pears 40%; Pumpkin 5%;
Squash 1%; Strawberry 15%; and Watermelon 5%.
    In most cases, EPA uses available data from United States
Department of Agriculture/National Agricultural Statistics Service
(USDA/NASS), proprietary market surveys, and the National Pesticide Use
Database for the chemical/crop combination for the most recent 6 years.
EPA uses an average PCT for chronic dietary risk analysis. The average
PCT figure for each existing use is derived by combining available
public and private market survey data for that use, averaging across
all observations, and rounding to the nearest 5%, except for those
situations in which the average PCT is less than one. In those cases,
1% is used as the average PCT and 2.5% is used as the maximum PCT. EPA
uses a maximum PCT for acute dietary risk analysis. The

maximum PCT figure is the highest observed maximum value reported
within the recent 6 years of available public and private market survey
data for the existing use and rounded up to the nearest multiple of 5%.
    The Agency believes that the three conditions discussed in Unit
III.C.1.iv. have been met. With respect to Condition a, PCT estimates
are derived from Federal and private market survey data, which are
reliable and have a valid basis. The Agency is reasonably certain that
the percentage of the food treated is not likely to be an
underestimation. As to Conditions b and c, regional consumption
information and consumption information for significant subpopulations
is taken into account through EPA's computer-based model for evaluating
the exposure of significant subpopulations including several regional
groups. Use of this consumption information in EPA's risk assessment
process ensures that EPA's exposure estimate does not understate
exposure for any significant subpopulation group and allows the Agency
to be reasonably certain that no regional population is exposed to
residue levels higher than those estimated by the Agency. Other than
the data available through national food consumption surveys, EPA does
not have available reliable information on the regional consumption of
food to which triflumizole may be applied in a particular area.
    2. Dietary exposure from drinking water. The Agency used screening
level water exposure models in the dietary exposure analysis and risk
assessment for triflumizole in drinking water. These simulation models
take into account data on the physical, chemical, and fate/transport
characteristics of triflumizole. Further information regarding EPA
drinking water models used in pesticide exposure assessment can be
found at http://www.epa.gov/oppefed1/models/water/index.htm.
    Based on the Pesticide Root Zone Model/Exposure Analysis Modeling
System (PRZM/EXAMS) for surface water and Screening Concentration in
Ground Water (SCI-GROW) models for ground water, the estimated drinking
water concentrations (EDWCs) of triflumizole and its metabolites
containing the 4-chloro-2-trifluoromethyl aniline moiety for surface
water are estimated to be 37.4 parts per billion (ppb) for acute
exposures; 15.8 ppb for chronic exposures for non-cancer assessments.
For ground water, the EDWCs for all of the above exposure scenarios are
estimated to be 3.11 ppb.
    Modeled estimates of drinking water concentrations were directly
entered into the dietary exposure model. For acute dietary risk
assessment, the water concentration value of 37 ppb was used to assess
the contribution to drinking water. For chronic dietary risk
assessment, the water concentration of value 16 ppb was used to assess
the contribution to drinking water.
    3. From non-dietary exposure. The term ``residential exposure'' is
used in this document to refer to non-occupational, non-dietary
exposure (e.g., for lawn and garden pest control, indoor pest control,
termiticides, and flea and tick control on pets).
    Triflumizole is currently registered for use on ornamental plants
including trees, shrubs and vines in residential areas. Since
residential applications of triflumizole are to be made by commercial
applicators, residential handler exposures are not expected to occur.
In addition, post-application exposures of adults and children from
this use have been determined to be negligible. Therefore, a
residential exposure assessment is not necessary for triflumizole and
was not conducted.
    4. Cumulative effects from substances with a common mechanism of
toxicity. Section 408(b)(2)(D)(v) of FFDCA requires that, when
considering whether to establish, modify, or revoke a tolerance, the
Agency consider ``available information'' concerning the cumulative
effects of a particular pesticide's residues and ``other substances
that have a common mechanism of toxicity.''
    EPA has not found triflumizole to share a common mechanism of
toxicity with any other substances, and triflumizole does not appear to
produce a toxic metabolite produced by other substances. For the
purposes of this tolerance action, therefore, EPA has assumed that
triflumizole does not have a common mechanism of toxicity with other
substances. For information regarding EPA's efforts to determine which
chemicals have a common mechanism of toxicity and to evaluate the
cumulative effects of such chemicals, see EPA's website at http://
www.epa.gov/pesticides/cumulative.

D. Safety Factor for Infants and Children

    1. In general. Section 408(b)(2)(c) of FFDCA provides that EPA
shall apply an additional tenfold (10X) margin of safety for infants
and children in the case of threshold effects to account for prenatal
and postnatal toxicity and the completeness of the database on toxicity
and exposure unless EPA determines based on reliable data that a
different margin of safety will be safe for infants and children. This
additional margin of safety is commonly referred to as the FQPA safety
factor (SF). In applying this provision, EPA either retains the default
value of 10X, or uses a different additional safety factor when
reliable data available to EPA support the choice of a different
factor.
    2. Prenatal and postnatal sensitivity. The prenatal and postnatal
toxicity database for triflumizole includes prenatal developmental
toxicity studies in rats and rabbits and a multi-generation
reproduction toxicity study in rats. There is no evidence of increased
quantitative or qualitative susceptibility of rabbit fetuses following
in utero exposure to triflumizole. Although 24-hour fetal survival was
reduced in this study, 24-hour fetal survival is more an indicator of
fetal endurance after being removed from the womb rather than a
measurement of treatment-related effects on fetal viability and, thus,
is not appropriate to use to ascertain fetal susceptibility. In the
multi-generation rat reproduction study, reproductive toxicity
(increased gestation length and increased vaginal bleeding and
dystocias) was increased at the high dose. However, these effects may
be a result of endocrine effects on the reproductive system. Comparison
of offspring toxicity to reproductive toxicity is more appropriate to
evaluate susceptibility because the increased gestation length in the
dams is a true parental effect and may affect the dam or the offspring;
therefore, there is no increased susceptibility of offspring following
prenatal and postnatal exposure in the rat reproduction study.
    There was evidence of increased qualitative susceptibility
following in utero exposure of rats in a developmental study.
Developmental toxicity resulted in decreased pup viability, increased
dead or resorbed fetuses and an increased incidence of cervical ribs at
doses that resulted in less severe maternal toxicity (decreases in body
weight gain and food consumption and increases in placental, spleen and
liver weights). There are no residual uncertainties for developmental
toxicity, and the use of the developmental NOAEL and the endpoint for
the acute reference dose (aRfD) for females 13-49 is considered
protective of the prenatal toxicity following an acute dietary
exposure.
    3. Conclusion. EPA has determined that reliable data show the
safety of infants and children would be adequately protected if the
FQPA SF were reduced to 3X for all repeated exposure scenarios and 1X
for single

exposure scenarios. That decision is based on the following findings.
    i. The toxicity database for triflumizole is complete except for
immunotoxicity testing. Recent changes to 40 CFR part 158 make
immunotoxicity testing (OPPTS Guideline 870.7800) required for
pesticide registration; however, the existing data are sufficient for
endpoint selection for exposure/risk assessment scenarios, and for
evaluation of the requirements under the FQPA. In the toxicity database
for triflumizole, there was some indication of possible immunotoxicity
in the form of non-neoplastic lesions, characterized as dilated cyctic
sinuses in the thymic lymph node following dietary administration for 2
years. However, these lesions were seen only in male rats at the HDT
and only at the termination of the study. This indicates that these
lesions are non-specific, are due to the age of the rats, and thus are
not attributable to frank immunotoxicity. There were no other
corroborative changes, such as changes in the thymus weights, in this
study or in the thymus and spleen in the other studies (i.e.,
subchronic and chronic studies in dogs). Moreover, triflumizole belongs
to the imidazole class of compounds, which are not known to be
immunotoxicants. Based on the considerations in this unit, the Agency
does not believe that conducting the immunotoxicity study will result
in a dose less than the point of departure already used in this risk
assessment and an additional database uncertainty factor for potential
immunotoxicity does not need to be applied.
    ii. There is no need for a developmental neurotoxicity (DNT) study
or additional UFs to account for neurotoxicity based on the following
considerations:
    Signs of neurotoxicity were observed in the acute neurotoxicity
study based on FOB findings (neuromuscular impairment) and decreased
locomotor activity. By day 8 of the observation period treated males
and females were comparable to the controls. Although there was a
statistically significant increase in hindlimb splay of low-dose
females, this effect does not appear to be of great toxicological
significance, as no other FOB effects were observed in low-dose
females. In a combined subchronic oral toxicity/subchronic
neurotoxicity study there was no evidence of neurotoxicity at any dose
tested. Further, there were no signs of neurotoxicity and no
indications of increased susceptibility of in utero rats or rabbits or
offspring in the developmental and reproduction studies for
triflumizole. There was evidence of qualitative toxicity in the rat
developmental toxicity study, but only at doses that were maternally
toxic. The evidence does not support the need for a developmental
neurotoxicity study. This conclusion is supported by:
     No neurotoxic signs noted in the rat subchronic study at
any dose;
     No neurotoxic signs in the adult or offspring in the
developmental and reproduction studies; and
     No neurotoxicity noted in any developmental toxicity
study.
    iii. There is no evidence that triflumizole results in increased
susceptibility in in utero rats or rabbits in the prenatal
developmental studies or in young rats in the 2-generation reproduction
study. Although there is evidence of increased qualitative
susceptibility in the prenatal developmental study in rats, the Agency
did not identify any residual uncertainties after establishing toxicity
endpoints, traditional UFs for single exposure scenarios, and an
additional 3X SF for repeated exposures to triflumizole (to address
concerns for the use of a LOAEL instead of a NOAEL to derive the cRfD.
    iv. The chronic POD is derived from the use of a LOAEL (based on
liver toxicity; aseosinophilic foci in male rats and fatty vacuolation
and inflammation and necrosis in female rats) established in the
combined chronic toxicity/carcinogenicity study in rats. Although use
of a LOAEL as a POD raises uncertainty, here the uncertainty is
relatively low indicating that a 3X FQPA safety factor will be
adequate. That conclusion is based on the following weight of evidence
considerations:
     The most sensitive endpoint in the target organ (liver)
for this class of compounds (imidazole fungicide) is used for assessing
chronic risk;
     There is low concern for the observed effects since the
lesions did not progress into malignancy;
     The response was marginal at the LOAEL;
     The available data do not show this chemical to be a
potent toxicant, as clear NOAELs were established following dietary
administrations in all other studies, such as the 2-generation
reproduction study in rat (3.5 mg/kg/day); subchronic rat (15.3 mg/kg/
day) and mouse (33.1 mg/kg/day) studies; chronic dog study (10 mg/kg/
day); and mouse carcinogenicity (16.2 mg/kg/day) study; and
     The extrapolated NOAEL of 1.2 mg/kg/day is supported by a
comparable NOAEL (2.5 mg/kg/day) used to derive the cRfD for a
structurally-related chemical (Imazalil).
    Based on these weight-of-evidence considerations, EPA is confident
that the 3X FQPA SF is adequate to address the concerns for the lack of
a NOAEL in the rat combined chronic toxicity/carcinogenicity study and
that the cRfD would not underestimate dietary risk from chronic
exposure to triflumizole. Specific information regarding the additional
FQPA safety factor for chronic exposure to triflumizole can be found at
http://www.regulations.gov in document ``Triflumizole: A Short History
of the Chronic Endpoint'' in docket ID number EPA-HQ-OPP-2007-0312.
    v. There are no residual uncertainties identified in the exposure
databases. The acute dietary food exposure assessments were performed
based on 100 PCT and tolerance-level residues. The chronic dietary food
exposure assessment utilized tolerance-level residues or anticipated
residues that are based on reliable field trial data. For several
currently registered commodities, the chronic assessment also utilized
PCT data that have a valid basis and are considered to be reliable. EPA
made conservative (protective) assumptions in the ground and surface
water modeling used to assess exposure to triflumizole in drinking
water. At this time, residential exposure of infants and children is
expected to be negligible from the use of triflumizole. These
assessments will not underestimate the exposure and risks posed by
triflumizole.

E. Aggregate Risks and Determination of Safety

    EPA determines whether acute and chronic pesticide exposures are
safe by comparing aggregate exposure estimates to the aPAD and cPAD.
The aPAD and cPAD represent the highest safe exposures, taking into
account all appropriate SFs. EPA calculates the aPAD and cPAD by
dividing the POD by all applicable UFs. For linear cancer risks, EPA
calculates the probability of additional cancer cases given the
estimated aggregate exposure. Short-term, intermediate-term, and
chronic-term risks are evaluated by comparing the estimated aggregate
food, water, and residential exposure to the POD to ensure that the MOE
called for by the product of all applicable UFs is not exceeded.
    1. Acute risk. An acute aggregate risk assessment takes into
account exposure estimates from acute dietary consumption of food and
drinking water. Using the exposure assumptions discussed in this unit
for acute

exposure, EPA performed separate acute risk assessments for females 13
to 49 years old and for the general population, including infants and
children, based on different endpoints and aPADs. For females aged 13-
49, acute dietary exposure to triflumizole from food and water will
occupy 67% of the aPAD chosen for that population subgroup. For the
general population and population subgroups other than females aged 13-
49, acute dietary exposure to triflumizole is greatest for children 1-2
years old. That subgroup will occupy 40% of the applicable aPAD.
    2. Chronic risk. Using the exposure assumptions described in this
unit for chronic exposure, EPA has concluded that chronic exposure to
triflumizole from food and water will utilize 44% of the cPAD for
children 1-2 years old, the population group receiving the greatest
exposure. Based on the explanation in Unit III.C.3., regarding
residential use patterns, chronic residential exposure to residues of
triflumizole is not expected.
    3. Short-term and intermediate-term risk. Short-term and
intermediate-term aggregate exposure takes into account short-term and
intermediate-term residential exposure plus chronic exposure to food
and water (considered to be a background exposure level). Although
triflumizole is registered for commercial use on ornamentals in
residential areas, this use is not expected to result in significant
short-term or intermediate-term exposures of adults or children.
Therefore, the short-term and intermediate-term aggregate risk is the
sum of the risk from exposure to triflumizole through food and water
and will not be greater than the chronic aggregate risk.
    4. Aggregate cancer risk for U.S. population. Based on the absence
of significant tumor increases in two rodent carcinogenicity studies,
triflumizole was classified as ``not likely to be carcinogenic to
humans,'' and is not expected to pose a cancer risk to humans.
    5. Determination of safety. Based on these risk assessments, EPA
concludes that there is a reasonable certainty that no harm will result
to the general population, or to infants and children from aggregate
exposure to triflumizole residues.

IV. Other Considerations

A. Analytical Enforcement Methodology

    An adequate Gas Chromatography/Nitrogen Phosphorus Detector (GC/
NPD) method is available in Pesticide Analytical Methods (PAM) Vol. II
(Method I, section 180.476) for determining the combined residues of
triflumizole and its metabolites containing the FA-1-1 moiety in plant
commodities. The method limit of quantitation (LOQ) is 0.5 ppm for
plant commodities.

B. International Residue Limits

    There are no Codex, Canadian or Mexican maximum residue limits
(MRLs) established for residues of triflumizole in or on commodities
associated with this petition.

C. Revisions to Petitioned-For Tolerances

    Based upon review of the data supporting the petition, EPA revised
the proposed tolerances for the following commodities: Brassica, leafy
greens, subgroup 5B from 20 ppm to 40 ppm; and Brassica, head and stem,
subgroup 5A from 5.0 ppm to 8.0 ppm. EPA revised the tolerance levels
based on analysis of the residue field trial data using the Agency's
Tolerance Spreadsheet in accordance with the Agency's Guidance
Italicize Guiidance for Setting Pesticide Tolerances Based on Field
Trial Data. EPA also revised the tolerance expression to clarify 1.
That, as provided in FFDCA section 408(a)(3), the tolerance covers
metabolites and degradates of triflumizole not specifically mentioned;
and 2. That compliance with the specified tolerance levels is to be
determined by measuring only the specific compounds mentioned in the
tolerance expression. This change was made to both the tolerance
expressions for plant commodities and animal commodities because it
makes no substantive change to the meaning of the tolerance but rather
only clarifies the existing language.

V. Conclusion

    Therefore, tolerances are established for combined residues of
triflumizole, 1-(1-((4-chloro-2-(trifluoromethyl)phenyl)imino)-2-
propoxyethyl)-1 H -imidazole, and its metabolites containing the 4-
chloro-2-trifluoromethylaniline moiety, calculated as the parent
compound, in or on leafy greens subgroup 4A, except spinach at 35 ppm;
Brassica, head and stem, subgroup 5A at 8.0 ppm; Brassica, leafy
greens, subgroup 5B at 40.0 ppm; cilantro, leaves at 35 ppm; Swiss
chard at 18 ppm; pineapple at 4.0 ppm; papaya at 2.5 ppm; sapote, black
at 2.5 ppm; canistel at 2.5 ppm; sapote, mamey at 2.5 ppm; mango at 2.5
ppm; sapodilla at 2.5 ppm; star apple at 2.5 ppm; hop, dried cones at
50.0 ppm; and turnip, greens at 40 ppm.

VI. Statutory and Executive Order Reviews

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

Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law 104-4).
    This action does not involve any technical standards that would
require Agency consideration of voluntary consensus standards pursuant
to section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272
note).

VII. Congressional Review Act

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

List of Subjects in 40 CFR Part 180

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

    Dated: May 22, 2009.
Daniel J. Rosenblatt,
Acting Director, Registration Division, Office of Pesticide Programs.

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

PART 180--[AMENDED]

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

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

0
Section 180.476 is amended by revising the introductory text for
paragraph (a)(1); by alphabetically adding the following commodities to
the table in paragraph (a)(1); by revising the introductory text for
paragraph (a)(2); and by removing the entries for Broccoli; Collards;
Coriander, leaves; Dandelion, leaves; Kale; Mustard, greens; Parsley,
leaves; Swiss chard; and Turnip, greens from the table in paragraph (b)
to read as follows:

Sec.  180.476  Triflumizole; tolerances for residues

    (a) General. (1) Tolerances are established for residues of the
fungicide triflumizole, including its metabolites and degradates, in or
on the commodities listed in the table below. Compliance with the
tolerance levels specified below is to be determined by measuring only
the parent compound triflumizole, 1-(1-((4-chloro-2-
(trifluoromethyl)phenyl)imino)-2-propoxyethyl )-1 H -imidazole, and its
metabolites containing the 4-chloro-2-trifluoromethylaniline moiety,
calculated as stoichiometric equivalent of the parent compound.

------------------------------------------------------------------------
                   Commodity                        Parts per million
------------------------------------------------------------------------
                                * * * * *
Brassica, head and stem, subgroup 5A...........                      8.0
Brassica, leafy greens, subgroup 5B............                       40
Canistel.......................................                      2.5
                                * * * * *
Cilantro, leaves...............................                       35
                                * * * * *
Hop, dried cones...............................                       50
Leafy greens subgroup 4A, except spinach.......                       35
Mango..........................................                      2.5
Papaya.........................................                      2.5
                                * * * * *
Pineapple......................................                      4.0
Sapodilla......................................                      2.5
Sapote, black..................................                      2.5
Sapote, mamey..................................                      2.5
Star apple.....................................                      2.5
                                * * * * *
Swiss chard....................................                       18
Turnip, greens.................................                       40
                                * * * * *
------------------------------------------------------------------------

    (2) Tolerances are established for residues of the fungicide
triflumizole, including its metabolites and degradates, in or on the
commodities of animal origin listed in the table below. Compliance with
the tolerance levels specified below is to be determined by measuring
only the parent compound triflumizole, 1-(1-((4-chloro-2-
(trifluoromethyl)phenyl)imino)-2-propoxyethyl )-1 H -imidazole, the
metabolite 4-chloro-2-hydroxy-6-trifluoromethylaniline sulfate, and
other metabolites containing the 4-chloro-2-trifluoromethylaniline
moiety, calculated as the parent compound.
* * * * *
[FR Doc. E9-12949 Filed 6-2-09; 8:45 am]

BILLING CODE 6560-50-S


[Federal Register Volume 85, Number 250 (Wednesday, December 30, 2020)]
[Notices]
[Pages 86592-86595]
[FR Doc No: 2020-28895]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90797; File No. SR-OCC-2020-014]

Self-Regulatory Organizations; The Options Clearing Corporation;
Order Approving Proposed Rule Change To Adopt the OCC Third-Party Risk
Management Framework and Retire the OCC Counterparty Credit Risk
Management Framework

December 23, 2020.

I. Introduction

    On November 4, 2020, the Options Clearing Corporation (``OCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change SR-OCC-2020-014 (``Proposed Rule Change'')
pursuant to Section 19(b) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder to adopt a
proposed Third-Party Risk Management Framework (``TPRMF'') and retire
OCC's current Counterparty Credit Risk Management Policy
(``CCRMP'').\3\ The Proposed Rule Change was published for public
comment in the Federal Register on November 18, 2020.\4\ The Commission
has received no comments regarding the Proposed Rule Change. This order
approves the Proposed Rule Change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Notice of Filing infra note 4, 85 FR at 73582.
    \4\ Securities Exchange Act Release No. 90406 (Nov. 12, 2020),
85 FR 73582 (Nov. 18, 2020) (File No. SR-OCC-2020-014) (``Notice of
Filing'').
---------------------------------------------------------------------------

II. Background

    In 2017, OCC adopted the CCRMP, which outlines the key components
of OCC's framework for identifying, measuring, monitoring, and managing
OCC's exposures to its counterparties.\5\ OCC requested confidential
treatment of the CCRMP when it was proposed.\6\

OCC proposes to remove the confidential CCRMP from its rules and
replace it with the proposed TPRMF, which OCC would make publically
available. As described in more detail below, the proposed TPRMF
includes some, but not all of the substance of the existing CCRMP. OCC
represents that the details not carried forward into the proposed TPRMF
reside in OCC's procedures, and that removing such procedural details
from OCC's rules would eliminate redundancy that could lead to
confusion.\7\ The proposed TPRMF includes information about the risk
management lifecycle for Clearing Members, Financial Institutions,\8\
and Financial Market Utilities (``FMUs'') \9\--all of which are
currently addressed in the existing CCRMP--as well as information about
the risk management lifecycle for Exchanges \10\ and vendors. OCC also
proposes to make conforming changes to its Risk Management Framework
Policy, Liquidity Risk Management Framework, Margin Policy, and
Collateral Risk Management Policy, all of which reference the CCRMP.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 82312 (Dec. 13,
2017), 82 FR 60242 (Dec. 19, 2017) (File No. SR-OCC-2017-009)
(``CCRMP Approval Order'').
    \6\ See Securities Exchange Act Release No. 81949 (Oct. 26,
2017), 82 FR 50719 (Nov. 1, 2017) (File No. SR-OCC-2017-009).
    \7\ See Notice of Filing, 85 FR at 73586. In proposing the
replacement of the CCRMP with the TPRMF, OCC provided certain
internal procedures related to third-party risk management, for
which OCC requested confidential treatment. See id. at 73582.
    \8\ In the context of the proposed TPRMF, ``Financial
Institutions'' include clearing banks, custodians, liquidity
providers, and investment counterparties. See Notice of Filing, 85
FR at 73582-83.
    \9\ Under the proposed TPRMF, FMUs may include any person that
manages or operates a multilateral system for the purpose of
transferring, clearing, or settling payments, securities, or other
financial transactions among Financial Institutions or between
Financial Institutions and the person. See Notice of Filing, 85 FR
at 73583, n. 12.
    \10\ Under the proposed TPRMF, Exchange relationships may
include options exchanges, futures markets, OTC Trade Sources or
Loan Markets. See Notice of Filing, 85 FR at 73583, n. 13.
---------------------------------------------------------------------------

    Removal of redundancies. As noted above, the proposed TPRMF does
not include procedural details, found in the existing CCRMP, that are
addressed elsewhere in OCC's rules, policies, and procedures. With
regard to access and participation, for example, OCC's approach to risk
management for Clearing Members, Financial Institutions and FMUs would
not change under the proposed TPRMF, but the requirement that OCC
monitor for a low probability of defaulting on obligations and
assessing potential risks presented by indirect participants would
reside in OCC's procedures, not the proposed TPRMF. Additionally,
specific information related to the qualification and approval of
Clearing Members and Financial Institutions is publicly available in
the OCC By-Laws and Rulebook.\11\ Similarly, with regard to
counterparty credit risk, OCC's procedures require the measurement and
reporting of credit risk as part of OCC's ongoing monitoring processes.
In terms of managing counterparty credit risk, OCC proposes to describe
the utilization of its Watch Level reporting in the proposed TPRMF, but
to retain flexibility to respond to unforeseen circumstances by
defining the details of its Watch Level tiers in procedure documents.
---------------------------------------------------------------------------

    \11\ See e.g. OCC By-Laws, Art. V (Clearing Members), available
at https://www.theocc.com/getmedia/3309eceb-56cf-48fc-b3b3-498669a24572/occ_bylaws.pdf (last visited November 25, 2020); OCC
Rules, Ch. III (Financial Requirements), available at https://www.theocc.com/getmedia/9d3854cd-b782-450f-bcf7-33169b0576ce/occ_rules.pdf (last visited November 25, 2020).
---------------------------------------------------------------------------

    Overall third-party risk management. The proposed TPRMF defines the
set of risks that OCC faces from third-party relationships, including
financial, operational, information technology, security, legal, and
regulatory risks. In the context of the proposed TPRMF, financial risks
would include the failure of Clearing Members to meet obligations to
OCC as well as the failure of third-parties supporting daily settlement
processes and OCC's access to collateral and liquidity. The proposed
TPRMF describes OCC's processes for identifying, measuring, monitoring,
and managing risks from third-parties at on-boarding, through ongoing
monitoring, and finally, at off-boarding. The proposed TPRMF describes
OCC's processes for managing risks presented by Clearing Members,
Financial Institutions, and vendors as well as risks presented through
OCC's links to FMUs and Exchanges.
    The proposed TPRMF also describes OCC's processes regarding the
escalation of identified risks through working groups that have defined
decision-making authorities, functions, and responsibilities.
Specifically, the proposed TPRMF describes the roles of the Credit and
Liquidity Risk Working Group (``CLRWG''), the Exchange Working Group
(``EWG''), and the Vendor Risk Working Group (``VRWG'') in managing
risks presented by third-parties. Under the proposed TPRMF, each
working group would be responsible for escalating matters to OCC's
Management Committee (``MC''), which, in specific circumstances, would
be responsible for escalating matters to the Risk Committee of OCC's
Board of Directors (``RC'').
    Further, the proposed TPRMF defines certain authorities relating to
the management of Clearing Member, Financial Institution, and vendor
relationships. For example, the proposed TPRMF states that OCC's Chief
Executive Officer and Chief Operating Officer each has authority to
approve the onboarding of Financial Institutions and FMUs. Similarly,
the proposed TPRMF states that vendor agreements are executed by OCC
officers (i.e., a Vice President or above).
    Risks posed by Clearing Members, Financial Institutions, and
vendors. The proposed TPRMF describes OCC's framework for managing risk
throughout the relationship lifecycle (i.e., at on-boarding,
monitoring, and off-boarding) for Clearing Members, Financial
Institutions, and vendors. The proposed TPRMF defines the teams
responsible for managing the risks posed by Clearing Members, Financial
Institutions, and vendors at the various lifecycle stages. For example,
OCC's Financial Risk Management team would be responsible for
monitoring and reporting financial and operational risks posed by
Clearing Members.
    The proposed TPRMF also describes the basis for OCC's evaluation of
Clearing Members, Financial Institutions, and vendors with which it has
relationships. For example, the proposed TPRMF states that OCC's
evaluation of Clearing Member relationships is based on financial
resources, operational capacity, personnel, and facilities pursuant to
OCC's membership standards. Similarly, the proposed TPRMF states that
OCC's evaluation of Financial Institution relationships is based on
financial resources and operational capacity, such as whether a
relationship is structured to allow prompt access to assets and whether
a custodian is a supervised and regulated institution that adheres to
generally accepted accounting practices, maintains safekeeping
procedures, and has controls that fully protect these assets. Further,
the proposed TPRMF states that OCC's evaluation of vendor relationships
is based on a vendor's financial health and operational capacity, and
that the level of due diligence and monitoring of a specific vendor is
based on the inherent risk posed by OCC's relationship with the vendor.
    Link-specific risk management. Similar to the management of risks
posed by Clearing Members, Financial Institutions, and vendors, the
proposed TPRMF describes OCC's framework for managing risk for FMUs and
Exchanges throughout the relationship lifecycle. The proposed TPRMF
defines the teams responsible for managing the risks posed by FMUs and
Exchanges at the various lifecycle stages. For example, OCC's Business
Operations, Financial

Risk Management, Legal, and Third-party Risk Management teams are
responsible for evaluating FMU relationships at on-boarding while OCC's
Product and Business Development team is responsible for evaluating
Exchange relationships at on-boarding.
    The proposed TPRMF also describes the basis for OCC's evaluation of
FMUs and Exchanges with which it has relationships. For example, the
proposed TPRMF states that OCC's evaluation of FMU relationships is
based on financial condition, operational capabilities, and any legal
or regulatory risks associated with the relationship. The proposed
TPRMF states that OCC's review of Exchange relationships on an ongoing
basis includes the assessment of an Exchange's operational performance,
overall financial condition, and ability to meet contractual
obligations.

III. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Exchange Act directs the Commission to
approve a proposed rule change of a self-regulatory organization if it
finds that such proposed rule change is consistent with the
requirements of the Exchange Act and the rules and regulations
thereunder applicable to such organization.\12\ After carefully
considering the Proposed Rule Change, the Commission finds that the
proposal is consistent with the requirements of the Exchange Act and
the rules and regulations thereunder applicable to OCC. More
specifically, the Commission finds that the proposal is consistent with
Section 17A(b)(3)(F) of the Exchange Act \13\ as well as Rules 17Ad-
22(e)(3)(i) and (20) \14\ thereunder, as described in detail below.
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    \12\ 15 U.S.C. 78s(b)(2)(C).
    \13\ 15 U.S.C. 78q-1(b)(3)(F).
    \14\ 17 CFR 240.17Ad-22(e)(3)(i) and (20).
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A. Consistency With Section 17A(b)(3)(F) of the Exchange Act

    Section 17A(b)(3)(F) of the Exchange Act requires, among other
things, that the rules of a clearing agency be designed to assure the
safeguarding of securities and funds which are in the custody or
control of the clearing agency or for which it is responsible, and to
promote the prompt and accurate clearance and settlement of securities
transactions and, to the extent applicable, derivative agreements.\15\
Based on its review of the record, and for the reasons described below,
the Commission believes that replacing the existing CCRMP with the
proposed TPRMF as described above is consistent with assuring the
safeguarding of securities and funds as well as promoting prompt and
accurate clearance and settlement.
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    \15\ 15 U.S.C. 78q-1(b)(3)(F).
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    The CCRMP outlines OCC's framework for: (1) The identification of
credit risk, (2) counterparty access and participation standards, (3)
the measurement of counterparty exposures, (4) the monitoring and
managing of counterparty exposures, and (5) voluntary termination of
counterparty relationships.\16\ The Commission continues to believe
that the formalization of the components captured in the existing CCRMP
is consistent with the requirement that OCC's rules be designed to
assure the safeguarding of securities and funds which are in OCC's
custody or control or for which it is responsible.\17\ As described
above, the proposed TPRMF carries forward the substance of the existing
CCRMP with the exception of certain procedural details already
addressed elsewhere in OCC's rules, policies, and procedures. The
proposed TPRMF also includes components that are not part of the
existing CCRMP, such as the management of operational risk posed by
relationships with Financial Institutions--namely, whether a
relationship is structured to allow prompt access to assets and whether
a custodian is a supervised and regulated institution that adheres to
generally accepted accounting practices, maintains safekeeping
procedures, and has controls that fully protect these assets. The
Commission believes that the addition of such components to OCC's rules
is consistent with the assurance of safeguarding of securities and
funds in OCC's custody or control or for which it is responsible.
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    \16\ See CCRMP Approval Order, 82 FR at 60245.
    \17\ See id.
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    While the existing CCRMP provides a framework for addressing credit
risk specifically,\18\ the proposed TPRMF addresses financial risk more
broadly, which includes risks related to daily settlement. Further, the
proposed TPRMF specifically addresses risk posed by OCC's relationships
with entities more directly involved in the clearance and settlement of
securities transactions. For example, the proposed TPRMF addresses
risks posed by OCC's relationship with other FMUs. One such
relationship is OCC's reliance on the National Securities Clearing
Corporation to effect delivery of, and payment for, securities
underlying certain physically settled stock options and single stock
futures cleared by OCC.\19\ The Commission believes that replacement of
the narrowly focused CCRMP with the broader proposed TPRMF that
includes specific rules addressing risks related to OCC's relationship
with other FMUs is consistent with the promotion of prompt and accurate
clearance and settlement.
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    \18\ See id.
    \19\ See Securities Exchange Act Release No. 81266 (Jul. 31,
2017), 82 FR 36484 (Aug. 4, 2017) (File No. SR-OCC-2017-013).
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    Based on the foregoing, the Commission believes that the Proposed
Rule Change is consistent with the requirements of Section 17A(b)(3)(F)
of the Exchange Act.\20\
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    \20\ 15 U.S.C. 78q-1(b)(3)(F).
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B. Consistency With Rule 17Ad-22(e)(3)(i) Under the Exchange Act

    Rule 17Ad-22(e)(3)(i) requires each covered clearing agency to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to maintain a sound risk management
framework for comprehensively managing legal, credit risk, liquidity,
operational, general business, investment, custody, and other risks
that arise or are borne by the covered clearing agency, which includes
risk management policies, procedures, and systems designed to identify,
monitor, and manage the range of risks that arise in or are borne by
the covered clearing agency, that are subject to review on a specified
periodic basis and approved by the board of directors annually.\21\
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    \21\ 17 CFR 240.17Ad-22(e)(3)(i).
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    As noted above, the existing CCRMP provides a framework for
addressing credit risk specifically,\22\ but the proposed TPRMF
addresses a broader range of risks. Specifically, the proposed TPRMF
outlines OCC's approach to identifying, measuring, monitoring, and
managing financial, operational, information technology, security,
legal, and regulatory risks posed by Clearing Members, Financial
Institutions, FMUs, Exchanges, and vendors. The proposed TPRMF
describes, among other things, OCC's processes regarding the escalation
of identified risks through working groups all the way up to the RC as
appropriate. Further, the proposed TPRMF defines which teams within OCC
are responsible for managing risks posed by specific types of third
parties as well as the basis for evaluating relationships with such
third parties. The Commission believes, therefore, that the replacement
of the existing CCRMP with the proposed TPRMF is consistent with the
requirements of Rule

17Ad-22(e)(3)(i) under the Exchange Act.\23\
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    \22\ See CCRMP Approval Order, 82 FR at 60245.
    \23\ 17 CFR 240.17Ad-22(e)(3)(i).
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C. Consistency With Rule 17Ad-22(e)(20) Under the Exchange Act

    Rule 17Ad-22(e)(20) requires each covered clearing agency to
establish, implement, maintain and enforce written policies and
procedures reasonably designed to identify, monitor, and manage risks
related to any link the covered clearing agency establishes with one or
more other clearing agencies, financial market utilities (``FMUs''), or
trading markets.\24\ As described above, the proposed TPRMF outlines
OCC's approach to identify, measure, monitor, and manage risks arising
from relationships with FMUs and Exchanges. Just as with the management
of risks from third parties more broadly, the proposed TPRMF defines
which teams within OCC are responsible for managing risks posed by FMUs
and Exchanges. Further, the proposed TPRMF describes the basis for
OCC's evaluation of FMUs and Exchanges with which it has relationships.
The proposed TPRMF also states that OCC's Chief Executive Officer and
Chief Operating Officer each has authority to approve the onboarding of
FMUs. The Commission believes, therefore, that the proposed adoption of
the proposed TPRMF is consistent with the requirements of Rule 17Ad-
22(e)(20) under the Exchange Act.\25\
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    \24\ 17 CFR 240.17Ad-22(e)(20).
    \25\ Id.
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the
Proposed Rule Change is consistent with the requirements of the
Exchange Act, and in particular, the requirements of Section 17A of the
Exchange Act \26\ and the rules and regulations thereunder.
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    \26\ In approving this Proposed Rule Change, the Commission has
considered the proposed rules' impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\27\ that the Proposed Rule Change (SR-OCC-2020-014) be,
and hereby is, approved.
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    \27\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2020-28895 Filed 12-29-20; 8:45 am]
BILLING CODE 8011-01-P