[Federal Register Volume 77, Number 232 (Monday, December 3, 2012)]
[Notices]
[Pages 71601-71603]
[FR Doc No: 2012-29095]

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

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

[Docket No. FDA-2012-N-0477]

Agency Information Collection Activities; Submission for Office
of Management and Budget Review; Comment Request; Investigational
Device Exemptions Reports and Records

AGENCY: Food and Drug Administration, HHS.

ACTION: Notice.

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

SUMMARY: The Food and Drug Administration (FDA) is announcing that a
proposed collection of information has been submitted to the Office of
Management and Budget (OMB) for review and clearance under the
Paperwork Reduction Act of 1995.

DATES: Fax written comments on the collection of information by January
2, 2013.

ADDRESSES: To ensure that comments on the information collection are
received, OMB recommends that written comments be faxed to the Office
of Information and Regulatory Affairs, OMB, Attn: FDA Desk Officer,
Fax:<PHONE_NUMBER>, or emailed to<EMAIL_ADDRESS>All
comments should be identified with the OMB control number 0910-0078.
Also include the FDA docket number found in brackets in the heading of
this document.

FOR FURTHER INFORMATION CONTACT: Daniel Gittleson, Office of
Information Management, Food and Drug Administration, 1350 Piccard Dr.,
PI50-400B, Rockville, MD 20850,<PHONE_NUMBER>,
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: In compliance with 44 U.S.C. 3507, FDA has
submitted the following proposed collection of information to OMB for
review and clearance.

Investigational Device Exemptions Reports and Records--(OMB Control
Number 0910-0078)--Extension

    Section 520(g) of the Federal Food, Drug, and Cosmetic Act (the
FD&C Act) (21 U.S.C. 360j(g)) establishes the statutory authority to
collect information regarding investigational devices, and establishes
rules under which new medical devices may be tested using human
subjects in a clinical setting. The Food and Drug Administration
Modernization Act of 1997 (Pub. L. 105-115) added section 520(g)(6) to
the FD&C Act and permitted changes to be made to either the
investigational device or to the clinical protocol without FDA approval
of an investigational device exemption (IDE) supplement. An IDE allows
a device, which would otherwise be subject to provisions of the FD&C
Act, such as premarket notification or premarket approval, to be used
in investigations involving human subjects in which the safety and
effectiveness of the device is being studied. The purpose of part 812
(21 CFR part 812) is to encourage, to the extent consistent with the
protection of public health and safety and with ethical standards, the
discovery and development of useful devices intended for human use. The
IDE regulation is designed to encourage the development of useful
medical devices and allow investigators the maximum freedom possible,
without jeopardizing the health and safety of the public or violating
ethical standards. To do this, the regulation provides for different
levels of regulatory control, depending on the level of potential risk
the investigational device presents to human subjects. Investigations
of significant risk devices, ones that present a potential for serious
harm to the rights, safety, or welfare of human subjects, are subject
to the full requirements of the IDE regulation. Nonsignificant risk
device investigations, i.e., devices that do not present a potential
for serious harm, are

subject to the reduced burden of the abbreviated requirements. The
regulation also includes provisions for treatment IDEs. The purpose of
these provisions is to facilitate the availability, as early in the
device development process as possible, of promising new devices to
patients with life-threatening or serious conditions for which no
comparable or satisfactory alternative therapy is available. Section
812.10 permits the sponsor of the IDE to request a waiver to all of the
requirements of part 812. This information is needed for FDA to
determine if waiver of the requirements of part 812 will impact the
public's health and safety. Sections 812.20, 812.25, and 812.27 consist
of the information necessary to file an IDE application with FDA. The
submission of an IDE application to FDA is required only for
significant risk device investigations.
    Section 812.20 lists the data requirements for the original IDE
application; Sec.  812.25 lists the contents of the investigational
plan; and Sec.  812.27 lists the data relating to previous
investigations or testing. The information in the original IDE
application is evaluated by the Center for Devices and Radiological
Health to determine whether the proposed investigation will reasonably
protect the public health and safety, and for FDA to make a
determination to approve the IDE.
    Upon approval of an IDE application by FDA, a sponsor must submit
certain requests and reports. Under Sec.  812.35, a sponsor who wishes
to make a change in the investigation that affects the scientific
soundness of the study or the rights, safety, or welfare of the
subjects, is required to submit a request for the change to FDA.
Section 812.150 requires a sponsor to submit reports to FDA. These
requests and reports are submitted to FDA as supplemental applications.
This information is needed for FDA to assure protection of human
subjects and to allow review of the study's progress. Section 812.36(c)
identifies the information necessary to file a treatment IDE
application. FDA uses this information to determine if wider
distribution of the device is in the interest of the public health.
Section 812.36(f) identifies the reports required to allow FDA to
monitor the size and scope of the treatment IDE, to assess the
sponsor's due diligence in obtaining marketing clearance of the device,
and to ensure the integrity of the controlled clinical trials.
    Section 812.140 lists the recordkeeping requirements for
investigators and sponsors. FDA requires this information for tracking
and oversight purposes. Investigators are required to maintain records,
including correspondence and reports concerning the study, records of
receipt, use or disposition of devices, records of each subject's case
history and exposure to the device, informed consent documentation,
study protocol, and documentation of any deviation from the protocol.
Sponsors are required to maintain records including correspondence and
reports concerning the study, records of shipment and disposition,
signed investigator agreements, adverse device effects information,
and, for a nonsignificant risk device study, an explanation of the
nonsignificant risk determination, records of device name and intended
use, study objectives, investigator information, investigational review
board information, and statement on the extent that good manufacturing
practices will be followed.
    For a nonsignificant risk device investigation, the investigator's
and sponsor's recordkeeping and reporting burden is reduced. Pertinent
records on the study must be maintained by both parties, and reports
are made to sponsors and institutional review boards (IRBs). Reports
are made to FDA only in certain circumstances, e.g., recall of the
device, the occurrence of unanticipated adverse effects, and as a
consequence of certain IRB actions.
    The estimate of the burden is based on the number of IDEs received
in the last 3 years. In the Federal Register of May 24, 2012 (77 FR
31022), FDA published a 60-day notice requesting public comment on the
proposed collection of information. FDA received two comments, one of
which was outside the scope of the four collection of information
topics on which the notice solicited comments and will not be discussed
in this document. The other comment recommends streamlining the annual
IDE report requirements to focus on the reporting of safety information
only, rather than both safety and effectiveness. The comment notes that
the effectiveness information is ``reviewed during FDA clinical site
GCP compliance inspections'' and at the time of premarket application.
FDA recognizes that part 812 provides limited information on the
content of IDE annual reports; however, we believe that the specific
content requirements for IDE annual reports are outside the scope of
this PRA renewal notice. Section 812.150(b)(10) provides broad
authority for FDA to request information regarding ongoing IDEs, and
FDA will consider the need for additional guidance to IDE sponsors
regarding the content of annual reports.
    FDA estimates the burden of this collection of information as
follows:

                                 Table 1--Estimated Annual Reporting Burden \1\
----------------------------------------------------------------------------------------------------------------
                                                     Number of                        Average
     Activity/21 CFR Section         Number of     responses per   Total annual     burden per      Total hours
                                    respondents     respondent       responses       response
----------------------------------------------------------------------------------------------------------------
Waivers--812.10.................               1               1               1               1               1
IDE Application--812.20, 812.25,             356               1             356              80          28,480
 and 812.27.....................
Supplements--812.35 and 812.150.             356              12           4,272               6          25,632
Treatment IDE Applications--                   1               1               1             120             120
 812.36(c)......................
Treatment IDE Reporting--                      1               1               1              20              20
 812.36(f)......................
                                 -------------------------------------------------------------------------------
    Total.......................  ..............  ..............  ..............  ..............          54,253
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with this collection of
  information.

                               Table 2--Estimated Annual Recordkeeping Burden \1\
----------------------------------------------------------------------------------------------------------------
                                                     Number of                    Average burden
     Activity/21 CFR Section         Number of      records per    Total annual         per         Total hours
                                   recordkeepers   recordkeeper       records      recordkeeping
----------------------------------------------------------------------------------------------------------------
Original--812.140...............             356               1             356              10           3,560
Supplemental--812.140...........             356              12           4,272               1           4,272
Nonsignificant--812.140.........             356               1             356               6           2,136
                                 -------------------------------------------------------------------------------
    Total.......................  ..............  ..............  ..............  ..............           9,968
----------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with this collection of
  information.

                                               Table 3--Estimated Annual Third-Party Disclosure Burden \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Number of
                      Activity/21 CFR Section                           Number of     disclosures per    Total annual   Average  burden    Total hours
                                                                       respondents       respondent      disclosures    per  disclosure
--------------------------------------------------------------------------------------------------------------------------------------------------------
Reports for Nonsignificant Risk Studies--812.150...................               1                1                1                6                6
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ There are no capital costs or operating and maintenance costs associated with this collection of information.

    Dated: November 27, 2012.
Leslie Kux,
Assistant Commissioner for Policy.
[FR Doc. 2012-29095 Filed 11-30-12; 8:45 am]
BILLING CODE 4160-01-P


[Federal Register Volume 86, Number 37 (Friday, February 26, 2021)]
[Rules and Regulations]
[Pages 11627-11632]
[FR Doc No: 2020-28847]

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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-90788; File No. S7-25-20]

Custody of Digital Asset Securities by Special Purpose Broker-
Dealers

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

ACTION: Commission statement; request for comment.

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

SUMMARY: The Commission is issuing a statement and requesting comment
regarding the custody of digital asset securities by broker-dealers.

DATES:
    Effective date: April 27, 2021.
    Comments due: You may submit comments at any time throughout the
five-year term of this Commission Statement.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm); or
     Send an email to<EMAIL_ADDRESS>Please include
File No. S7-25-20 on the subject line.

Paper Comments

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

All submissions should refer to File Number S7-25-20. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method of submission. The Commission will post all
comments on the Commission's website (http://www.sec.gov). Comments are
also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549, on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
All comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate
Director, at<PHONE_NUMBER>; Thomas K. McGowan, Associate Director, at
(202) 551-5521; Randall W. Roy, Deputy Associate Director, at (202)
551-5522; Raymond A. Lombardo, Assistant Director, at<PHONE_NUMBER>;
Timothy C. Fox, Branch Chief, at<PHONE_NUMBER>; or A.J. Jacob, Special
Counsel, at<PHONE_NUMBER>, Division of Trading and Markets, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-7010.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Commission is issuing this statement and request for comment to
encourage innovation around the application of the Customer Protection
Rule to digital asset securities.\1\ The

Commission envisions broker-dealers performing the full set of broker-
dealer functions with respect to digital asset securities--including
maintaining custody of these assets--in a manner that addresses the
unique attributes of digital asset securities and minimizes risk to
investors and other market participants.\2\ Consequently, as discussed
below, the Commission's position in this statement is premised on a
broker-dealer limiting its business to digital asset securities to
isolate risk and having policies and procedures to, among other things,
assess a given digital asset security's distributed ledger technology
and protect the private keys necessary to transfer the digital asset
security. In this way, the Commission is cognizant of both investor
protection and potential capital formation innovations that could
result from digital asset securities.
---------------------------------------------------------------------------

    \1\ For purposes of this statement, the term ``digital asset''
refers to an asset that is issued and/or transferred using
distributed ledger or blockchain technology (``distributed ledger
technology''), including, but not limited to, so-called ``virtual
currencies,'' ``coins,'' and ``tokens.'' The focus of this statement
is digital assets that rely on cryptographic protocols. A digital
asset may or may not meet the definition of a ``security'' under the
federal securities laws. See, e.g., Report of Investigation Pursuant
to Section 21(a) of the Securities Exchange Act of 1934: The DAO,
Exchange Act Release No. 81207 (July 25, 2017). As used in this
statement, a ``digital asset security'' means a digital asset that
meets the definition of a ``security'' under the federal securities
laws. A digital asset that is not a security is referred to herein
as a ``non-security digital asset.''
    \2\ See 17 CFR 240.15c3-3. The Commission staff has issued a
joint statement with the Financial Industry Regulatory Authority on
broker-dealer custody of digital asset securities (``Joint
Statement''), as well as a no-action letter regarding the Joint
Statement to broker-dealers operating alternative trading systems
(``ATSs''). See Joint Staff Statement on Broker-Dealer Custody of
Digital Asset Securities, dated July 8, 2019, available at https://www.sec.gov/news/public-statement/joint-staff-statement-broker-dealer-custody-digital-asset-securities. See also Letter to Ms. Kris
Dailey, Financial Industry Regulatory Authority, ATS Role in the
Settlement of Digital Asset Security Trades, dated September 25,
2020 (discussing a three-step process broker-dealers use when
operating an alternative trading system for the purpose of trading
digital asset securities), available at https://www.sec.gov/divisions/marketreg/mr-noaction/2020/finra-ats-role-in-settlement-of-digital-asset-security-trades-09252020.pdf. Staff statements
represent the views of the staff. They are not rules, regulations,
or statements of the Commission. The Commission has neither approved
nor disapproved their content. These staff statements, like all
staff guidance, have no legal force or effect: they do not alter or
amend applicable law, and they create no new or additional
obligations for any person.
---------------------------------------------------------------------------

    Rule 15c3-3 under the Securities Exchange Act of 1934 (hereinafter
the ``Customer Protection Rule'' or ``Rule 15c3-3'') \3\ requires a
broker-dealer to promptly obtain and thereafter maintain physical
possession or control of all fully-paid and excess margin securities it
carries for the account of customers.\4\ Market participants have
raised questions concerning the application of the Customer Protection
Rule to the potential custody of digital asset securities for customers
by broker-dealers. The Commission is requesting comment in this area to
provide the Commission and its staff with an opportunity to gain
additional insight into the evolving standards and best practices with
respect to custody of digital asset securities. The Commission intends
to consider the public's comments in connection with any future
rulemaking or other Commission action in this area.
---------------------------------------------------------------------------

    \3\ See 17 CFR 240.15c3-3.
    \4\ See 17 CFR 240.15c3-3(b).
---------------------------------------------------------------------------

    As an interim step, in addition to the request for comment, the
Commission is issuing this statement. The Commission recognizes that
the market for digital asset securities is still new and rapidly
evolving. The technical requirements for transacting and custodying
digital asset securities are different from those involving traditional
securities. And traditional securities transactions often involve a
variety of intermediaries, infrastructure providers, and counterparties
for which there may be no analog in the digital asset securities
market. The Commission supports innovation in the digital asset
securities market to develop its infrastructure.
    In particular, the Commission's position, which will expire after a
period of five years from the publication date of this statement, is
that a broker-dealer operating under the circumstances set forth in
Section IV will not be subject to a Commission enforcement action on
the basis that the broker-dealer deems itself to have obtained and
maintained physical possession or control of customer fully paid and
excess margin digital asset securities for the purposes of paragraph
(b)(1) of Rule 15c3-3.\5\ These broker-dealers will be subject to
examination by the Financial Industry Regulatory Authority (``FINRA'')
and Commission staff to review whether the firm is operating in a
manner consistent with the circumstances described in Section IV below.
---------------------------------------------------------------------------

    \5\ Pursuant to the Congressional Review Act, the Office of
Information and Regulatory Affairs has designated this statement as
a ``major rule'' as defined by 5 U.S.C. 804(2). See 5 U.S.C. 801 et
seq.
---------------------------------------------------------------------------

    The five-year period in which the statement is in effect is
designed to provide market participants with an opportunity to develop
practices and processes that will enhance their ability to demonstrate
possession or control over digital asset securities. It also will
provide the Commission with experience in overseeing broker-dealer
custody of digital asset securities to inform further action in this
area.

II. Background

    Customers who use broker-dealers registered with the Commission to
custody their securities (and related cash) benefit from the
protections provided by the federal securities laws, including the
Customer Protection Rule and, in most cases, the Securities Investor
Protection Act of 1970 (``SIPA'').\6\ Generally, the Commission's
Customer Protection Rule requires a broker-dealer to segregate customer
securities and related cash from the firm's proprietary business
activities, other than those that facilitate customer transactions.\7\
The rule requires the broker-dealer to maintain physical possession or
control over customers' fully paid and excess margin securities.\8\
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78aaa, et seq. Under SIPA, customers' securities
held by a broker-dealer that is a member of the Securities Investor
Protection Corporation and customers' cash on deposit at such a
broker-dealer for the purpose of purchasing securities would be
isolated and readily identifiable as ``customer property'' and,
consequently, available to be distributed to customers ahead of
other creditors in the event of the broker-dealer's liquidation. Id.
    \7\ See Net Capital Requirements for Brokers and Dealers,
Exchange Act Rel. No. 21651 (Jan. 11, 1985), 50 FR 2690, 2690 (Jan.
18, 1985) (Rule 15c3-3 is designed ``to give more specific
protection to customer funds and securities, in effect forbidding
brokers and dealers from using customer assets to finance any part
of their businesses unrelated to servicing securities customers;
e.g., a firm is virtually precluded from using customer funds to buy
securities for its own account'').
    \8\ See 17 CFR 240.15c3-3(b)(1).
---------------------------------------------------------------------------

    Broker-dealer custody of securities is an integral service provided
to the securities markets. However, broker-dealer custody of digital
asset securities raises certain compliance questions with respect to
the Customer Protection Rule. More specifically, while paragraph (b)(1)
of Rule 15c3-3 requires that a broker-dealer ``control'' customer fully
paid and excess margin securities, it may not be possible for a broker-
dealer to establish control over a digital asset security with the same
control mechanisms used in connection with traditional securities.
Moreover, there have been instances of fraud, theft, and loss with
respect to the custodianship of digital assets, including digital asset
securities.\9\
---------------------------------------------------------------------------

    \9\ See generally, Report of the Attorney General's Cyber
Digital Task Force: Cryptocurrency Enforcement Framework (October
2020), at 15-16, available at https://www.justice.gov/ag/page/file/1326061/download.
---------------------------------------------------------------------------

    The risks associated with digital assets, including digital asset
securities, are due in part to differences in the clearance and
settlement of traditional securities and digital assets. Traditional
securities transactions generally are processed and settled through
clearing agencies, depositories, clearing banks, transfer agents, and
issuers. A broker-dealer's employees, regulators, and outside auditors
can contact these third parties to confirm that the broker-dealer

is in fact holding the traditional securities reflected on its books
and records and financial statements, thereby providing objective
processes for examining the broker-dealer's compliance with the
Customer Protection Rule. Also, the traditional securities
infrastructure has established processes to reverse or cancel mistaken
or unauthorized transactions. Thus, the traditional securities
infrastructure contains checks and controls that can be used to verify
proprietary and customer holdings of traditional securities by broker-
dealers, as well as processes designed to ensure that both parties to a
transfer of traditional securities agree to the terms of the transfer.
    Digital assets that are issued or transferred using distributed
ledger technology may not be subject to the same established clearance
and settlement process familiar to traditional securities market
participants.\10\ The manner in which digital assets, including digital
asset securities, are issued, held, or transferred may create greater
risk that a broker-dealer maintaining custody of this type of asset, as
well as the broker-dealer's customers, counterparties, and other
creditors, could suffer financial harm. For example, the broker-dealer
could be victimized by fraud or theft, could lose a ``private key''
necessary to transfer a client's digital assets, or could transfer a
client's digital assets to an unintended address without the ability to
reverse a fraudulent or mistaken transaction. In addition, malicious
activity attributed to actors taking advantage of potential
vulnerabilities that may be associated with distributed ledger
technology and its associated networks could render the broker-dealer
unable to transfer a customer's digital assets.
---------------------------------------------------------------------------

    \10\ The clearance and settlement of securities that are not
digital assets are characterized by infrastructure whereby
intermediaries such as clearing agencies and securities depositories
serve as key participants in the process. The clearance and
settlement of digital asset securities, on the other hand, generally
rely on few, if any, intermediaries and remain evolving areas of
practices and procedures.
---------------------------------------------------------------------------

    The express language of the Customer Protection Rule includes cash
and securities held at the broker-dealer. Therefore, customers holding
digital assets that are not securities through a broker-dealer could
receive less protection for those assets than customers holding
securities. The potential liabilities caused by the theft or loss of
non-securities property from a broker-dealer, including digital assets
that are not securities, could cause the broker-dealer to incur
substantial losses or even fail, impacting customers and other
creditors. As a consequence, the broker-dealer may need to be
liquidated in a proceeding under SIPA. SIPA protection does not extend
to all assets that may be held at a broker-dealer. Consequently, in a
SIPA liquidation of a broker-dealer that held non-security assets,
including non-security digital assets, investors may be treated as
general creditors, to the extent their claims involve assets that are
not within SIPA's definition of ``security.'' \11\
---------------------------------------------------------------------------

    \11\ Generally, SIPA defines the term ``security'' to include,
among other things, any note, stock, treasury stock bond, debenture,
evidence of indebtedness, any investment contract or certificate of
interest or participation in any profit-sharing agreement, provided
that such investment contract or interest is the subject of a
registration statement with the Commission pursuant to the
Securities Exchange Act of 1933 (15 U.S.C. 77a et seq.), and any
put, call, straddle, option, or privilege on any security, or group
or index of securities. See 15 U.S.C. 78lll(14). Generally, in a
SIPA liquidation, customers' claims receive priority to the estate
of customer property (generally cash and securities received
acquired or held by the broker-dealer for the securities accounts of
customers) over other creditors. See 15 U.S.C. 78fff & 78fff-2(c).
In addition, to the extent that the estate of customer property is
insufficient to satisfy the net equity claims of customers, the
trustee can advance up to $500,000 for each customer, of which up to
$250,000 can be used for cash claims. See 15 U.S.C. 78fff-3(a) &
(d).
---------------------------------------------------------------------------

III. Discussion

    A broker-dealer that maintains custody of a fully paid or excess
margin digital asset security for a customer must hold it in a manner
that complies with Rule 15c3-3, including that the digital asset
security must be in the exclusive physical possession or control of the
broker-dealer.\12\ A digital asset security that is not in the
exclusive physical possession or control of the broker-dealer because,
for example, an unauthorized person knows or has access to the
associated private key (and therefore has the ability to transfer it
without the authorization of the broker-dealer) would not be held in a
manner that complies with the possession or control requirement of Rule
15c3-3 and thus would be vulnerable to the risks the rule seeks to
mitigate.
---------------------------------------------------------------------------

    \12\ See 17 CFR 240.15c3-3(b).
---------------------------------------------------------------------------

    As noted above, the loss or theft of digital asset securities may
cause the firm and its digital asset customers to incur substantial
financial losses. This, in turn, could cause the firm to fail,
imperiling its traditional securities customers as well as the broker-
dealer's counterparties and other market participants. However, there
are measures a broker-dealer can employ to comply with Rule 15c3-3 and
mitigate these risks.
    One step that a broker-dealer could take to shield traditional
securities customers, counterparties, and market participants from the
risks and consequences of digital asset security fraud, theft, or loss
would be to limit its business exclusively to dealing in, effecting
transactions in, maintaining custody of, and/or operating an
alternative trading system for digital asset securities. Thus, to
operate in a manner consistent with the Commission's position, the
broker-dealer could not deal in, effect transactions in, maintain
custody of, or operate an alternative trading system for traditional
securities. In addition, by limiting its activities exclusively to
digital asset securities, the broker-dealer would shield its customers
from the risks that could arise if the firm engaged in activities
involving non-security digital assets, which are not expressly governed
by the Customer Protection Rule. For example, to the extent that the
requirements of the Customer Protection Rule do not apply to non-
security digital assets, such assets could receive less protection than
securities, which would increase the risk of theft or loss and could
ultimately cause the broker-dealer to fail, impacting customers and
other creditors.
    A second step the broker-dealer could take is to establish,
maintain, and enforce reasonably designed written policies and
procedures to conduct and document an analysis of whether a digital
asset is a security offered and sold pursuant to an effective
registration statement or an available exemption from registration, and
whether the broker-dealer has fulfilled its requirements to comply with
the federal securities laws with respect to effecting transactions in
that digital asset security, before undertaking to effect transactions
in and maintain custody of such asset. Such policies and procedures
should provide a reasonable level of assurance that any digital assets
transacted in or held in custody by the broker-dealer are in fact
digital asset securities. Utilizing such policies and procedures should
help ensure that the broker-dealer is confining its business to digital
asset securities and that such digital asset securities are being
offered, sold, or otherwise transacted in compliance with the federal
securities laws.
    A third step the broker-dealer could take is to establish,
maintain, and enforce reasonably designed written policies and
procedures to conduct and document an assessment of the characteristics
of a digital asset security's distributed ledger technology

and associated network \13\ prior to undertaking to maintain custody of
the digital asset security and at reasonable intervals thereafter. The
assessment could examine at least the following aspects of the
distributed ledger technology and its associated network, among others:
(1) Performance (i.e., does it work and will it continue to work as
intended); (2) transaction speed and throughput (i.e., can it process
transactions quickly enough for the intended application(s)); (3)
scalability (i.e., can it handle a potential increase in network
activity); (4) resiliency (i.e., can it absorb the impact of a problem
in one or more parts of its system and continue processing transactions
without data loss or corruption); (5) security and the relevant
consensus mechanism (i.e., can it detect and defend against malicious
attacks, such as 51% attacks \14\ or Denial-of-Service attacks, without
data loss or corruption); (6) complexity (i.e., can it be understood,
maintained, and improved); (7) extensibility (i.e., can it have new
functionality added, and continue processing transactions without data
loss or corruption); and (8) visibility (i.e., are its associated code,
standards, applications, and data publicly available and well
documented). The assessment also could examine the governance of the
distributed ledger technology and associated network and how protocol
updates and changes are agreed to and implemented. This would include
an assessment of impacts to the digital asset security of events such
as protocol upgrades, hard forks, airdrops, exchanges of one digital
asset for another, or staking.\15\ Such assessments would allow a
broker-dealer to be able to identify significant weaknesses or other
operational issues with the distributed ledger technology and
associated network utilized by the digital asset security, or other
risks posed to the broker-dealer's business by the digital asset
security, which would allow a broker-dealer to take appropriate action
to identify and reduce its exposure to such risks. Accordingly, if
there are significant weaknesses or other operational issues with the
distributed ledger technology and associated network, the broker-dealer
would be able to determine whether it could or could not maintain
custody of the digital asset security.
---------------------------------------------------------------------------

    \13\ For the purposes of this statement, a digital asset
security's distributed ledger technology and associated network
includes the protocols and any smart contracts or applications
integral to the operation of the digital asset security.
    \14\ For the purposes of this statement, a ``51% attack'' is an
attack on a blockchain or distributed ledger in which an attacker or
group of attackers controls a majority of the network's hash rate,
mining or computing power, allowing the attacker or group of
attackers to prevent new transactions from being confirmed.
    \15\ For purposes of this statement, ``hard forks'' refer to
backward-incompatible protocol changes to a distributed ledger that
create additional versions of the distributed ledger, potentially
creating new digital assets. ``Airdrops'' refer to the distribution
of digital assets to numerous addresses, usually at no monetary cost
to the recipient or in exchange for certain promotional services.
``Staking'' refers to the use of a digital asset in a consensus
mechanism.
---------------------------------------------------------------------------

    A fourth step the broker-dealer could take is to establish,
maintain, and enforce reasonably designed written policies, procedures,
and controls for safekeeping and demonstrating the broker-dealer has
exclusive possession or control over digital asset securities that are
consistent with industry best practices to protect against the theft,
loss, and unauthorized and accidental use of the private keys necessary
to access and transfer the digital asset securities the broker-dealer
holds in custody. These policies, procedures, and controls could
address, among other matters: (1) The on-boarding of a digital asset
security such that the broker-dealer can associate the digital asset
security to a private key over which it can reasonably demonstrate
exclusive physical possession or control; (2) the processes, software
and hardware systems, and any other formats or systems utilized to
create, store, or use private keys and any security or operational
vulnerabilities of those systems and formats; (3) the establishment of
private key generation processes that are secure and produce a
cryptographically strong private key that is compatible with the
distributed ledger technology and associated network and that is not
susceptible to being discovered by unauthorized persons during the
generation process or thereafter; (4) measures to protect private keys
from being used to make an unauthorized or accidental transfer of a
digital asset security held in custody by the broker-dealer; and (5)
measures that protect private keys from being corrupted, lost or
destroyed, that back-up the private key in a manner that does not
compromise the security of the private key, and that otherwise preserve
the ability of the firm to access and transfer a digital asset security
it holds in the event a facility, software, or hardware system, or
other format or system on which the private keys are stored and/or used
is disrupted or destroyed. These policies, procedures, and controls for
safekeeping and demonstrating the broker-dealer has exclusive
possession or control over digital asset securities should serve to
protect against the theft, loss, and unauthorized and accidental use of
the private keys and therefore the customers' digital asset securities.
    A fifth step the broker-dealer could take is to establish,
maintain, and enforce reasonably designed written policies, procedures,
and arrangements to: (1) Specifically identify, in advance, the steps
it intends to take in the wake of certain events that could affect the
firm's custody of the digital asset securities, including blockchain
malfunctions, 51% attacks, hard forks, or airdrops; (2) allow the
broker-dealer to comply with a court-ordered freeze or seizure; and (3)
allow the transfer of the digital asset securities held by the broker-
dealer to another special purpose broker-dealer, a trustee, receiver,
liquidator, a person performing a similar function, or another
appropriate person, in the event the broker-dealer can no longer
continue as a going concern and self-liquidates or is subject to a
formal bankruptcy, receivership, liquidation, or similar proceeding.
These policies and procedures should include measures for ensuring
continued safekeeping and accessibility of the digital asset
securities, even if the broker-dealer is wound down or liquidated, and
thus would provide a reasonable level of assurance that a broker-dealer
has developed plans to address unexpected disruptions to the broker-
dealer's control over digital asset securities.
    A sixth step the broker-dealer could take is to provide written
disclosures to prospective customers about the risks of investing in or
holding digital asset securities. The disclosures could include, among
other matters: (1) Prominent disclosure explaining that digital asset
securities may not be ``securities'' as defined in SIPA \16\--and in
particular, digital asset securities that are ``investment contracts''
under the Howey test \17\ but are not registered with the Commission
are excluded from SIPA's definition of ``securities''--and thus the
protections afforded to securities customers under SIPA may not apply
with respect to those securities; (2) a description of the risks of
fraud, manipulation, theft, and loss associated with digital asset
securities; (3) a description of the risks relating to valuation, price
volatility, and liquidity associated with digital asset securities; and
(4) a description of the processes, software and hardware systems, and
any other formats or systems utilized by the broker-dealer to create,
store, or use the broker-dealer's private keys and protect them from
loss, theft, or unauthorized or accidental use (including, but not
limited to, cold storage, key sharding,

multiple factor identification, and biometric authentication). The
purpose of such disclosures is to provide the prospective customers
with sufficient and easily understandable information about the risks
to enable them to make informed decisions about whether to invest in or
hold digital asset securities through the broker-dealer.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78lll(14).
    \17\ See SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
---------------------------------------------------------------------------

    A seventh step the broker-dealer could take is to enter into a
written agreement with each customer that sets forth the terms and
conditions with respect to receiving, purchasing, holding, safekeeping,
selling, transferring, exchanging, custodying, liquidating, and
otherwise transacting in digital asset securities on behalf of the
customer.\18\ This step would ensure documentation of the terms of
agreement between the customer and the broker-dealer providing custody
of the customer's digital asset security, which would provide greater
clarity and certainty to customers regarding their rights and
responsibilities under the agreement with the broker-dealer.
---------------------------------------------------------------------------

    \18\ The agreement should contain such provisions and
disclosures as are required by applicable laws, rules, and
regulations.
---------------------------------------------------------------------------

IV. Commission Position

    The Commission's position \19\ is expressly limited to paragraph
(b) of Rule 15c3-3 under the Securities Exchange Act of 1934
(``Exchange Act''). Furthermore, the Commission's position does not
modify or change any obligations of a broker-dealer, or other party, to
otherwise comply with the federal securities laws, including the
broker-dealer financial responsibility rules, obligations regarding
proxy voting and beneficial ownership communications, as well as the
broker-dealer's obligation to become a member of FINRA and to comply
with applicable anti-money laundering and countering the financing of
terrorism obligations under the Bank Secrecy Act.\20\ All terms used in
this Commission position will have the definitions set forth in Rule
15c3-3. Finally, the Commission's position, which will expire after a
period of five years from the publication date of this statement,
applies only to the exercise of its enforcement discretion with respect
to compliance with paragraph (b)(1) of Rule 15c3-3 under the
circumstances set forth below. During this period, the Commission will
continue to evaluate its position, and the circumstances set forth
below, on an ongoing basis as it considers responses to the request for
comments as well as further action in this area, including any future
rulemaking.
---------------------------------------------------------------------------

    \19\ The Commission's position is an agency statement of general
applicability with future effect designed to implement, interpret,
or prescribe law or policy.
    \20\ See Heath Tarbert, Chairman, U.S. Commodity Futures Trading
Commission, Kenneth A. Blanco, Director, Financial Crimes
Enforcement Network, and Jay Clayton, Chairman, Commission, Leaders
of CFTC, FinCEN, and SEC Issue Joint Statement on Activities
Involving Digital Assets, dated Oct. 11, 2019 (reminding persons
engaged in activities involving digital assets of their anti-money
laundering (``AML'') and countering the financing of terrorism
(``CFT'') obligations under the Bank Secrecy Act, and stating that
broker-dealers are required to implement reasonably-designed AML
programs and report suspicious activity, and that such requirements
are not limited in their application to activities involving digital
assets that are ``securities'' under the federal securities laws),
available at https://www.sec.gov/news/public-statement/cftc-fincen-secjointstatementdigitalassets.
---------------------------------------------------------------------------

    After considering the minimum steps that can be taken to mitigate
the risks posed by broker-dealer custody of digital asset securities,
for a period of five years, the Commission's position is that a broker-
dealer in the following circumstances would not be subject to a
Commission enforcement action on the basis that the broker-dealer deems
itself to have obtained and maintained physical possession or control
of customer fully paid and excess margin digital asset securities:
    1. The broker-dealer has access to the digital asset securities and
the capability to transfer them on the associated distributed ledger
technology;
    2. The broker-dealer limits its business to dealing in, effecting
transactions in, maintaining custody of, and/or operating an
alternative trading system for digital asset securities; provided a
broker-dealer may hold proprietary positions in traditional securities
solely for the purposes of meeting the firm's minimum net capital
requirements under Rule 15c3-1,\21\ or hedging the risks of its
proprietary positions in traditional securities and digital asset
securities.
---------------------------------------------------------------------------

    \21\ 17 CFR. 240.15c3-1.
---------------------------------------------------------------------------

    3. The broker-dealer establishes, maintains, and enforces
reasonably designed written policies and procedures to conduct and
document an analysis of whether a particular digital asset is a
security offered and sold pursuant to an effective registration
statement or an available exemption from registration, and whether the
broker-dealer meets its requirements to comply with the federal
securities laws with respect to effecting transactions in the digital
asset security, before undertaking to effect transactions in and
maintain custody of the digital asset security;
    4. The broker-dealer establishes, maintains, and enforces
reasonably designed written policies and procedures to conduct and
document an assessment of the characteristics of a digital asset
security's distributed ledger technology and associated network prior
to undertaking to maintain custody of the digital asset security and at
reasonable intervals thereafter;
    5. The broker-dealer does not undertake to maintain custody of a
digital asset security if the firm is aware of any material security or
operational problems or weaknesses with the distributed ledger
technology and associated network used to access and transfer the
digital asset security, or is aware of other material risks posed to
the broker-dealer's business by the digital asset security;
    6. The broker-dealer establishes, maintains, and enforces
reasonably designed written policies, procedures, and controls that are
consistent with industry best practices to demonstrate the broker-
dealer has exclusive control over the digital asset securities it holds
in custody and to protect against the theft, loss, and unauthorized and
accidental use of the private keys necessary to access and transfer the
digital asset securities the broker-dealer holds in custody;
    7. The broker-dealer establishes, maintains, and enforces
reasonably designed written policies, procedures, and arrangements to:
(i) Specifically identify, in advance, the steps it will take in the
wake of certain events that could affect the firm's custody of the
digital asset securities, including, without limitation, blockchain
malfunctions, 51% attacks, hard forks, or airdrops; (ii) allow for the
broker-dealer to comply with a court-ordered freeze or seizure; and
(iii) allow for the transfer of the digital asset securities held by
the broker-dealer to another special purpose broker-dealer, a trustee,
receiver, liquidator, or person performing a similar function, or to
another appropriate person, in the event the broker-dealer can no
longer continue as a going concern and self-liquidates or is subject to
a formal bankruptcy, receivership, liquidation, or similar proceeding;
    8. The broker-dealer provides written disclosures to prospective
customers: (i) That the firm is deeming itself to be in possession or
control of digital asset securities held for the customer for the
purposes of paragraph (b)(1) of Rule 15c3-3 based on its compliance
with this Commission position; and (ii) about the risks of investing in
or holding digital asset securities that, at a minimum: (a) Prominently
disclose that digital asset securities may not be ``securities'' as
defined in SIPA--and in particular, digital asset securities that are
``investment contracts'' under the

Howey test but are not registered with the Commission are excluded from
SIPA's definition of ``securities''--and thus the protections afforded
to securities customers under SIPA may not apply; (b) describe the
risks of fraud, manipulation, theft, and loss associated with digital
asset securities; (c) describe the risks relating to valuation, price
volatility, and liquidity associated with digital asset securities; and
(d) describe, at a high level that would not compromise any security
protocols, the processes, software and hardware systems, and any other
formats or systems utilized by the broker-dealer to create, store, or
use the broker-dealer's private keys and protect them from loss, theft,
or unauthorized or accidental use; \22\ and
---------------------------------------------------------------------------

    \22\ The broker-dealer will need to retain these written
disclosures in accordance with the broker-dealer record retention
rule. See 17 CFR 240.17a-4(b)(4).
---------------------------------------------------------------------------

    9. The broker-dealer enters into a written agreement with each
customer that sets forth the terms and conditions with respect to
receiving, purchasing, holding, safekeeping, selling, transferring,
exchanging, custodying, liquidating and otherwise transacting in
digital asset securities on behalf of the customer.\23\
---------------------------------------------------------------------------

    \23\ The broker-dealer will need to retain these written
agreements in accordance with the broker-dealer record retention
rule. See 17 CFR 240.17a-4(b)(7).
---------------------------------------------------------------------------

V. Request for Comment

    The Commission is seeking comment on the specific questions below.
When responding to the request for comment, please explain your
reasoning.
    1. What are industry best practices with respect to protecting
against theft, loss, and unauthorized or accidental use of private keys
necessary for accessing and transferring digital asset securities? What
are industry best practices for generating, safekeeping, and using
private keys? Please identify the sources of such best practices.
    2. What are industry best practices to address events that could
affect a broker-dealer's custody of digital asset securities such as a
hard fork, airdrop, or 51% attack? Please identify the sources of such
best practices.
    3. What are the processes, software and hardware systems, or other
formats or systems that are currently available to broker-dealers to
create, store, or use private keys and protect them from loss, theft,
or unauthorized or accidental use?
    4. What are accepted practices (or model language) with respect to
disclosing the risks of digital asset securities and the use of private
keys? Have these practices or the model language been utilized with
customers?
    5. Should the Commission expand this position in the future to
include other businesses such as traditional securities and/or non-
security digital assets? Should this position be expanded to include
the use of non-security digital assets as a means of payment for
digital asset securities, such as by incorporating a de minimis
threshold for non-security digital assets?
    6. What differences are there in the clearance and settlement of
traditional securities and digital assets that could lead to higher or
lower clearance and settlement risks for digital assets as compared to
traditional securities?
    7. What specific benefits and/or risks are implicated in a broker-
dealer operating a digital asset alternative trading system that the
Commission should consider for any future measures it may take?

    By the Commission.

    Dated: December 23, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-28847 Filed 2-25-21; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 76, Number 178 (Wednesday, September 14, 2011)]
[Notices]
[Pages 56773-56774]
[FR Doc No: 2011-23412]

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

DEPARTMENT OF HOMELAND SECURITY

Federal Emergency Management Agency

[Internal Agency Docket No. FEMA-4021-DR; Docket ID FEMA-2011-0001]

New Jersey; Amendment No. 2 to Notice of a Major Disaster
Declaration

AGENCY: Federal Emergency Management Agency, DHS.

ACTION: Notice.

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

SUMMARY: This notice amends the notice of a major disaster declaration
for the State of New Jersey (FEMA-4021-DR), dated August 31, 2011, and
related determinations.

DATES: Effective Date: September 4, 2011.

FOR FURTHER INFORMATION CONTACT: Peggy Miller, Office of Response and
Recovery, Federal Emergency Management Agency, 500 C Street, SW.,
Washington, DC 20472,<PHONE_NUMBER>.

SUPPLEMENTARY INFORMATION: The notice of a major disaster declaration
for the State of New Jersey is hereby amended to include the following
areas among those areas determined to have been adversely affected by
the event declared a major disaster by the President in his declaration
of August 31, 2011.

    Burlington, Hudson, Ocean, and Union Counties for Individual
Assistance and Public Assistance.

    Mercer County for Individual Assistance (already designated for
Public Assistance).

    Bergen, Essex, Middlesex, Morris, Passaic, and Somerset Counties
for Public Assistance (already designated for Individual
Assistance).

(The following Catalog of Federal Domestic Assistance Numbers (CFDA)
are to be used for reporting and drawing funds: 97.030, Community
Disaster Loans; 97.031, Cora Brown Fund; 97.032, Crisis Counseling;
97.033, Disaster Legal Services; 97.034, Disaster Unemployment
Assistance (DUA); 97.046, Fire Management Assistance Grant; 97.048,
Disaster Housing Assistance to Individuals and Households in
Presidentially Declared Disaster Areas; 97.049, Presidentially
Declared Disaster Assistance--Disaster Housing Operations for
Individuals and Households; 97.050, Presidentially Declared Disaster
Assistance to Individuals and Households--Other Needs; 97.036,

Disaster Grants--Public Assistance (Presidentially Declared
Disasters); 97.039, Hazard Mitigation Grant.)

W. Craig Fugate,
Administrator, Federal Emergency Management Agency.
[FR Doc. 2011-23412 Filed 9-13-11; 8:45 am]
BILLING CODE 9111-23-P


From:
O'Hare, Andrew<EMAIL_ADDRESS>To:
Keith Barnett/RTP/USEPA/US@EPA
Date:
10/25/2010 12:00 PM
Subject:
RE: Cement Correction Notice

Keith,

Thank for the opportunity to review.  Table 2 is still missing the opacity standard (20) under items 1 and 2.  Otherwise, the preamble and rule text are clear to me.

Do you plan to also clarify the compliance deadline language addressing the clinker production monitoring provisions in Sections 63.1350(d)(2) and 60.63(b)(2)?

Thanks,
Andy

Andrew T. O'Hare, CAE
Vice President, Regulatory Affairs
Portland Cement Association
500 New Jersey, Avenue, NW
Washington, DC 20001
Phone:<PHONE_NUMBER>
Fax:<PHONE_NUMBER>
Cell:<PHONE_NUMBER>
e-mail<EMAIL_ADDRESS>
-----Original Message-----
From<EMAIL_ADDRESS><EMAIL_ADDRESS>Sent: Monday, October 25, 2010 10:37 AM
To: O'Hare, Andrew
Cc<EMAIL_ADDRESS>Subject: Cement Correction Notice

Dear Andy:

I made corrections to the notice language based on comments.  Please check this over again.

(See attached file: Cement Corrections for PCA-10-22.docx)

Still working on the schedule.

Keith W. Barnett
USEPA/OAQPS/SPPD/MMG
Mail Code D243-02
Research Triangle Park, NC  27711
919-541-5605
<EMAIL_ADDRESS>