NERC maintains that the proposed implementation period is necessary:
(1) To allow time for entities to develop the required models; (2) for
proper sequencing of assessments because thermal impact assessments are
dependent on GIC flow calculations that are determined by the
responsible planning entity; and (3) to give time for development of
viable corrective action plans, which may require applicable entities
to ``develop, perform, and/or validate new or modified studies,
assessments, procedures . . . [and because] [s]ome mitigation measures
may have significant budget, siting, or construction planning
requirements.'' \138\
---------------------------------------------------------------------------

    \137\ NERC Petition, Ex. B (Implementation Plan for TPL-007-1).
    \138\ Id. at 2.
---------------------------------------------------------------------------

    113. The proposed implementation plan states that Requirement R1
shall become effective on the first day of the first calendar quarter
that is six months after Commission approval. For Requirement R2, NERC
proposes that the requirement shall become effective on the first day
of the first calendar quarter that is 18 months after Commission
approval. NERC proposes that Requirement R5 shall become effective on
the first day of the first calendar quarter that is 24 months after
Commission approval. NERC proposes that Requirement R6 shall become
effective on the first day of the first calendar quarter that is 48
months after Commission approval. And for Requirement R3, Requirement
R4, and Requirement R7, NERC proposes that the requirements shall
become effective on the first day of the first calendar quarter that is
60 months after Commission approval.
NOPR
    114. The NOPR proposed to approve the implementation plan and
effective dates submitted by NERC. However, given the serial nature of
the requirements in Reliability Standard TPL-007-1, the Commission
expressed concern about the duration of the timeline associated with
any mitigation stemming from a corrective action plan and sought
comment from NERC and other interested entities as to whether the
length of the implementation plan, particularly with respect to
Requirements R4, R5, R6, and R7, could be reasonably shortened.
Comments
    115. NERC does not support shortening the implementation period.
NERC maintains that the proposed implementation period is ``appropriate
and commensurate with the requirements of the proposed standard'' and
is based on ``industry . . . projections on the time required for
obtaining validated tools, models and data necessary for conducting GMD
Vulnerability Assessments through the standard development process.''
\139\ NERC notes that the standard drafting team initially proposed a
four-year implementation plan, but received substantial comments
expressing concern with only having four years.
---------------------------------------------------------------------------

    \139\ NERC Comments at 30.
---------------------------------------------------------------------------

    116. The Trade Associations, BPA, CEA, Joint ISOs/RTOs and Tri-
State support the proposed implementation plan for largely the same
reasons as NERC.
    117. Gaunt proposes a shorter implementation period wherein the
initial GMD Vulnerability Assessment would be performed 48 months
following the effective date of a final rule in this proceeding, as
opposed to the proposed implementation plan's 60 months. Subsequent GMD
Vulnerability Assessments would be performed every 48 months
thereafter. Briggs states that a ``3 or 4 year timeline would likely
provide industry with enough time to implement corrective measures and
should be considered.'' \140\
---------------------------------------------------------------------------

    \140\ Briggs Comments at 7.
---------------------------------------------------------------------------

Commission Determination
    118. The Commission approves the implementation plan submitted by
NERC. When registered entities begin complying with Reliability
Standard TPL-007-1, it will likely be the first time that many
registered entities will have planned for a GMD event, beyond
developing the GMD operational procedures required by Reliability
Standard EOP-010-1. Registered

entities will gain the capacity to conduct GMD Vulnerability
Assessments over the course of the five-year implementation plan by
complying with, at phased intervals, the foundational requirements in
Reliability Standard TPL-007-1 (i.e., establishing responsibilities for
planning and developing models and performance criteria). In addition,
as discussed above, NERC's implementation plan affords sufficient time
for NERC to submit and for the Commission to consider the directed
revisions to Reliability Standard TPL-007-1 before the completion of
the first GMD Vulnerability Assessment. As such, the five-year
implementation plan will allow for the incorporation of the revised
Reliability Standard in the first round of GMD Vulnerability
Assessments.

I. Other Issues

    119. Several commenters indicated that the Commission should
address the threats posed by EMPs or otherwise raised the issue of
EMPs.\141\ For example, Briggs states that the Commission should
``initiate a process to improve the resilience of the U.S. electric
grid to the threat of high altitude electromagnetic pulse (HEMP)
attacks, which can be more severe than solar superstorms.'' \142\
However, as the Commission stated in Order No. 779 in directing the
development of GMD Reliability Standards and in Order No. 797 in
approving the First Stage GMD Reliability Standards, EMPs are not
within the scope of the GMD rulemaking proceedings.\143\
---------------------------------------------------------------------------

    \141\ See Briggs Comments at 7; EIS Comments at 3; JINSA
Comments at 2.
    \142\ Briggs Comments at 7.
    \143\ Order No. 797, 147 FERC ] 61,209 at P 42 (citing Order No.
779, 143 FERC ] 61,147 at P 14 n.20).
---------------------------------------------------------------------------

    120. Holdeman contends that the Commission ``should modify the
current preemption of States preventing them from having more stringent
reliability standards for Commission regulated entities than Commission
standards.'' \144\ As the Commission indicated in response to similar
comments in Order No. 797, section 215(i)(3) of the FPA provides in
relevant part that section 215 does not ``preempt any authority of any
State to take action to ensure the safety, adequacy, and reliability of
electric service within that State, as long as such action is not
inconsistent with any reliability standard.'' \145\ Moreover,
Reliability Standard TPL-007-1 does not preclude users, owners, and
operators of the Bulk-Power System from taking additional steps that
are designed to mitigate the effects of GMD events, provided those
additional steps are not inconsistent with the Commission-approved
Reliability Standards.
---------------------------------------------------------------------------

    \144\ Holdeman Comments at 2.
    \145\ Order No. 797, 147 FERC ] 61,209 at P 44 (citing 16 U.S.C.
824o(i)(3)).
---------------------------------------------------------------------------

    121. Certain commenters opposed to Reliability Standard TPL-007-1
contend that its approval could absolve industry of any legal liability
should a GMD event cause a disruption to the Bulk-Power System. For
example, Resilient Societies ``ask[s] the Commission to clarify its
expectation that the FERC jurisdictional entities will be held to
account, and be subject to liability in the event of gross negligence
or willful misconduct in planning for and mitigating solar geomagnetic
storms.'' \146\ Resilient Societies also contends that the Commission
does not have the legal authority ``to grant immunity from liability by
setting reliability standards.'' \147\
---------------------------------------------------------------------------

    \146\ Resilient Societies Comments at 62; see also CSP Comments
at 1 (``It would be far better for FERC to remand Standard TPL-007-1
in its entirety than to approve a reliability standard that would
grant liability protection to utilities while blocking the electric
grid protection for the public that a 21st century society
requires.'').
    \147\ Resilient Societies Comments at 62.
---------------------------------------------------------------------------

    122. The Commission has never stated in the GMD Reliability
Standard rulemakings that compliance with Commission-approved
Reliability Standards absolves registered entities from legal liability
generally, to the extent legal liability exists, should a disruption
occur on the Bulk-Power System due to a GMD event. Resilient Societies'
comment appears to misconstrue language in Order No. 779 in which the
Commission stated, when directing the development of the Second Stage
GMD Reliability Standards, that the ``Second Stage GMD Reliability
Standard should not impose `strict liability' on responsible entities
for failure to ensure the reliability operation of the Bulk-Power
System in the face of a GMD event of unforeseen severity.'' \148\ The
Commission's statement merely recognized that the Second Stage GMD
Reliability Standard should require registered entities to plan against
a defined benchmark GMD event, for the purpose of complying with the
proposed Reliability Standard, rather than any GMD event generally
(i.e., a GMD event that exceeded the severity of the benchmark GMD
event). The Commission did not suggest, nor could it suggest, that
compliance with a Reliability Standard would absolve registered
entities from general legal liability, if any, arising from a
disruption to the Bulk-Power System. The only liability the Commission
was referring to in Order No. 779 was the potential for penalties or
remediation under section 215 of the FPA for failure to comply with a
Commission-approved Reliability Standard.
---------------------------------------------------------------------------

    \148\ Order No. 779, 143 FERC ] 61,147 at P 84.
---------------------------------------------------------------------------

    123. Kappenman, Resilient Societies and Bardin filed comments that
addressed the NERC ``Level 2'' Appeal Panel decision.\149\ As a
threshold issue, we agree with the Appeal Panel that the issues raised
by the appellants in that proceeding are not procedural; instead they
address the substantive provisions of Reliability Standard TPL-007-1.
Section 8 (Process for Appealing an Action or Inaction) of the NERC
Standards Process Manual states:
---------------------------------------------------------------------------

    \149\ NERC August 17, 2015 Filing at Appendix 1 (Decision of
Level 2 Appeal Panel SPM Section 8 Appeal the Foundation For
Resilient Societies, Inc. TPL-007-1).

Any entity that has directly and materially affected interests and
that has been or will be adversely affected by any procedural action
or inaction related to the development, approval, revision,
reaffirmation, retirement or withdrawal of a Reliability Standard,
definition, Variance, associated implementation plan, or
Interpretation shall have the right to appeal. This appeals process
applies only to the NERC Reliability Standards processes as defined
in this manual, not to the technical content of the Reliability
---------------------------------------------------------------------------
Standards action.

    The appellants, who have the burden of proof under the NERC Rules
of Procedure, have not shown that NERC or the standard drafting team
failed to comply with any procedural requirements set forth in the NERC
Rules of Procedure.\150\ Instead, it would appear that the appeal
constitutes a collateral attack on the substantive provisions of
Reliability Standard TPL-007-1. As the appellants' substantive concerns
with Reliability Standard TPL-007-1 have been addressed in this Final
Rule, issues surrounding the NERC ``Level 2'' Appeal Panel decision
are, in any case, moot.
---------------------------------------------------------------------------

    \150\ NERC Rules of Procedure, Appendix 3A (Standard Processes
Manual), Section 8 (Process for Appealing an Action or Inaction)
(effective June 26, 2013).
---------------------------------------------------------------------------

III. Information Collection Statement

    124. The collection of information contained in this final rule is
subject to review by the Office of Management and Budget (OMB)
regulations under section 3507(d) of the Paperwork Reduction Act of
1995 (PRA).\151\ OMB's regulations require approval of certain
informational collection requirements imposed by agency rules.\152\
---------------------------------------------------------------------------

    \151\ 44 U.S.C. 3507(d).
    \152\ 5 CFR 1320.11.

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

    125. Upon approval of a collection(s) of information, OMB will
assign an OMB control number and an expiration date. Respondents
subject to the filing requirements of a rule will not be penalized for
failing to respond to these collections of information unless the
collections of information display a valid OMB control number.
    126. The Commission solicited comments on the need for this
information, whether the information will have practical utility, the
accuracy of the burden estimates, ways to enhance the quality, utility,
and clarity of the information to be collected or retained, and any
suggested methods for minimizing respondents' burden, including the use
of automated information techniques. The Commission asked that any
revised burden or cost estimates submitted by commenters be supported
by sufficient detail to understand how the estimates are generated. The
Commission received comments on specific requirements in Reliability
Standard TPL-007-1, which we address in this Final Rule. However, the
Commission did not receive any comments on our reporting burden
estimates or on the need for and the purpose of the information
collection requirements.\153\
---------------------------------------------------------------------------

    \153\ While noting the uncertainties surrounding the potential
costs associated with implementation of Reliability Standard TPL-
007-1 and the potential costs that could arise from a revised
Reliability Standard, the Trade Associations stated that they ``have
no specific comments regarding the OMB cost estimate in the NOPR.''
Trade Associations Comments at 9.
---------------------------------------------------------------------------

    Public Reporting Burden: The Commission approves Reliability
Standard TPL-007-1 and the associated implementation plan, violation
severity levels, and violation risk factors, as discussed above.
Reliability Standard TPL-007-1 will impose new requirements for
transmission planners, planning coordinators, transmission owners, and
generator owners. Reliability Standard TPL-007-1, Requirement R1
requires planning coordinators, in conjunction with the applicable
transmission planner, to identify the responsibilities of the planning
coordinator and transmission planner in the planning coordinator's
planning area for maintaining models and performing the study or
studies needed to complete GMD Vulnerability Assessments. Requirements
R2, R3, R4, R5, and R7 refer to the ``responsible entity, as determined
by Requirement R1,'' when identifying which applicable planning
coordinators or transmission planners are responsible for maintaining
models and performing the necessary study or studies. Requirement R2
requires that the responsible entities maintain models for performing
the studies needed to complete GMD Vulnerability Assessments, as
required in Requirement R4. Requirement R3 requires responsible
entities to have criteria for acceptable system steady state voltage
performance during a benchmark GMD event. Requirement R4 requires
responsible entities to complete a GMD Vulnerability Assessment of the
near-term transmission planning horizon once every 60 calendar months.
Requirement R5 requires responsible entities to provide GIC flow
information to transmission owners and generator owners that own an
applicable bulk electric system power transformer in the planning area.
This information is necessary for applicable transmission owners and
generator owners to conduct the thermal impact assessments required by
proposed Requirement R6. Requirement R6 requires applicable
transmission owners and generator owners to conduct thermal impact
assessments where the maximum effective GIC value provided in proposed
Requirement R5, Part 5.1 is 75 A/phase or greater. Requirement R7
requires responsible entities to develop a corrective action plan when
its GMD Vulnerability Assessment indicates that its system does not
meet the performance requirements of Table 1--Steady State Planning
Events. The corrective action plan must address how the performance
requirements will be met, must list the specific deficiencies and
associated actions that are necessary to achieve performance, and must
set forth a timetable for completion. The Commission estimates the
annual reporting burden and cost as follows:

                                           FERC-725N, as Modified by the Final Rule in Docket No. RM15-11-000
                  [TPL-007-1 Reliability Standard for Transmission System Planned Performance for Geomagnetic Disturbance Events] \154\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Annual number                     Average burden    Total annual burden
                                      Number of respondents      of responses    Total number     hours & cost per      hours & total        Cost per
                                                                per respondent   of responses      response \155\        annual cost      respondent ($)
                                  (1).........................             (2)     (1) * (2) =  (4)................  (3) * (4) = (5)....       (5) / (1)
                                                                                (3)
--------------------------------------------------------------------------------------------------------------------------------------------------------
(One-time) Requirement 1........  121 (PC & TP)...............               1             121  Eng. 5 hrs.          1,089 hrs. (605             $481.55
                                                                                ($331.75); RK 4      Eng., 484 RK);
                                                                                hrs. ($149.80).      $58,267.55
                                                                                ($40,141.75 Eng.,
                                                                                $18,125.80 RK).
(On-going) Requirement 1........  121 (PC & TP)...............               1             121  Eng. 3 hrs.          605 hrs. (363 Eng.,          273.95
                                                                                ($199.05); RK 2      242 RK);
                                                                                hrs. ($74.90).       $33,147.95
                                                                                ($24,085.05 Eng.,
                                                                                $9,062.90 RK).
(One-time) Requirement 2........  121 (PC & TP)...............               1             121  Eng. 22 hrs.         4840 hrs. (2,662           2,133.80
                                                                                ($1,459.70); RK 18   Eng., 2,178 RK);
                                                                                hrs. ($674.10).      $258,189.80
                                                                                ($176,623.70 Eng.,
                                                                                $81,566.10 RK).
(On-going) Requirement 2........  121 (PC & TP)...............               1             121  Eng. 5 hrs.          968 hrs. (605 Eng.,          444.10
                                                                                ($331.75); RK 3      363 RK);
                                                                                hrs. ($112.35).      $53,736.10
                                                                                ($40,141.75 Eng.,
                                                                                $13,594.35 RK).

(One-time) Requirement 3........  121 (PC & TP)...............               1             121  Eng. 5 hrs.          968 hrs. (605 Eng.,          444.10
                                                                                ($331.75); RK 3      363 RK);
                                                                                hrs. ($112.35).      $53,736.10
                                                                                ($40,141.75 Eng.,
                                                                                $13,594.35 RK).
(On-going) Requirement 3........  121 (PC & TP)...............               1             121  Eng. 1 hrs.          242 hrs. (121 Eng.,          103.80
                                                                                ($66.35);RK 1 hrs.   121 RK);
                                                                                ($37.45).            $12,559.80
                                                                                ($8,028.35 Eng.,
                                                                                $4,531.45 RK).
(On-going) Requirement 4........  121 (PC & TP)...............               1             121  Eng. 27 hrs.         5,808 hrs. (3,267          2,277.85
                                                                                ($1,791.45); RK 21   Eng., 2,541 RK);
                                                                                hrs. ($786.45).      $311,919.85
                                                                                ($216,765.45 Eng.,
                                                                                $95,154.40 RK).
(On-going) Requirement 5........  121 (PC & TP)...............               1             121  Eng. 9 hrs.          1936 hrs. (1,089             859.30
                                                                                ($597.15); RK 7      Eng., 847 RK);
                                                                                hrs. ($262.15).      $103,975.30
                                                                                ($72,255.15 Eng.,
                                                                                $31,720.15 RK).
(One-time) Requirement 6........  881 (TO & GO)...............               1             881  Eng. 22 hrs.         35,240 hrs. (19,382        2,133.89
                                                                                ($1,459.70); RK 18   Eng., 15,858 RK);
                                                                                hrs. ($674.19).      $1,879,957.09
                                                                                ($1,285,995.70
                                                                                Eng., $593,961.39
                                                                                RK).
(On-going) Requirement 6........  881 (TO & GO)...............               1             881  Eng. 2 hrs.          3,524 hrs. (1,762            207.60
                                                                                ($132.70); RK 2      Eng., 1762 RK);
                                                                                hrs. ($74.90).       $182,895.60
                                                                                ($116,908.70 Eng.,
                                                                                $65,986.90 RK).
(On-going) Requirement 7........  121 (PC & TP)...............               1             121  Eng. 11 hrs.         2,420 hrs. (1,331          1,066.90
                                                                                ($729.85); RK 9      Eng., 1,089 RK);
                                                                                hrs. ($337.05).      $129,094.90
                                                                                ($88,311.85 Eng.,
                                                                                $40,783.05 RK).
                                                               --------------------------------                                          ---------------
    Total.......................  ............................  ..............            2851  ...................  57,640 \156\ hrs.    ..............
                                                                                (31,792 Eng.,
                                                                                25,848 RK);
                                                                                $3,077,480.04
                                                                                ($2,109,399.20
                                                                                Eng., $968,080.84
                                                                                RK).
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Title: FERC-725N, Mandatory Reliability Standards: TPL Reliability
Standards.
---------------------------------------------------------------------------

    \154\ Eng.=engineer; RK =recordkeeping (record clerk);
PC=planning coordinator; TP=transmission planner; TO=transmission
owner; and GO=generator owner.
    \155\ The estimates for cost per response are derived using the
following formula: Burden Hours per Response * $/hour = Cost per
Response. The $66.35/hour figure for an engineer and the $37.45/hour
figure for a record clerk are based on data on the average salary
plus benefits from the Bureau of Labor Statistics obtainable at
http://www.bls.gov/oes/current/naics3_221000.htm and http://www.bls.gov/news.release/ecec.nr0.htm.
    \156\ Of the 57,640 total burden hours, 42,137 hours are one-
time burden hours, and 15,503 hours are on-going annual burden
hours.
---------------------------------------------------------------------------

    Action: Approved Additional Requirements.
    OMB Control No: 1902-0264.
    Respondents: Business or other for-profit and not-for-profit
institutions.
    Frequency of Responses: One time and on-going.
    Necessity of the Information: The Commission has reviewed the
requirements of Reliability Standard TPL-007-1 and has made a
determination that the requirements of this Reliability Standard are
necessary to implement section 215 of the FPA. Specifically, these
requirements address the threat posed by GMD events to the Bulk-Power
System and conform to the Commission's directives regarding development
of the Second Stage GMD Reliability Standards, as set forth in Order
No. 779.
    Internal review: The Commission has assured itself, by means of its
internal review, that there is specific, objective support for the
burden estimates associated with the information requirements.
    127. Interested persons may obtain information on the reporting
requirements by contacting the Federal Energy Regulatory Commission,
Office of the Executive Director, 888 First Street NE., Washington, DC
20426 [Attention: Ellen Brown, e-mail:

<EMAIL_ADDRESS>phone:<PHONE_NUMBER>, fax:<PHONE_NUMBER>].
    128. Comments concerning the information collections in this final
rule and the associated burden estimates, should be sent to the
Commission in this docket and may also be sent to the Office of
Management and Budget, Office of Information and Regulatory Affairs
[Attention: Desk Officer for the Federal Energy Regulatory Commission].
For security reasons, comments should be sent by e-mail to OMB at the
following e-mail address<EMAIL_ADDRESS>Please reference
FERC-725N and OMB Control No. 1902-0264 in your submission.

IV. Environmental Analysis

    129. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\157\ The
Commission has categorically excluded certain actions from this
requirement as not having a significant effect on the human
environment. Included in the exclusion are rules that are clarifying,
corrective, or procedural or that do not substantially change the
effect of the regulations being amended.\158\ The actions here fall
within this categorical exclusion in the Commission's regulations.
---------------------------------------------------------------------------

    \157\ Regulations Implementing the National Environmental Policy
Act of 1969, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats.
& Regs. Preambles 1986-1990 ] 30,783 (1987).
    \158\ 18 CFR 380.4(a)(2)(ii).
---------------------------------------------------------------------------

V. Regulatory Flexibility Act

    130. The Regulatory Flexibility Act of 1980 (RFA) \159\ generally
requires a description and analysis of final rules that will have
significant economic impact on a substantial number of small entities.
The Small Business Administration's (SBA) Office of Size Standards
develops the numerical definition of a small business.\160\ The SBA
revised its size standard for electric utilities (effective January 22,
2014) to a standard based on the number of employees, including
affiliates (from a standard based on megawatt hours).\161\ Under SBA's
new size standards, planning coordinators, transmission planners,
transmission owners, and generator owners are likely included in one of
the following categories (with the associated size thresholds noted for
each): \162\
---------------------------------------------------------------------------

    \159\ 5 U.S.C. 601-12.
    \160\ 13 CFR 121.101.
    \161\ SBA Final Rule on ``Small Business Size Standards:
Utilities,'' 78 FR 77,343 (Dec. 23, 2013).
    \162\ 13 CFR 121.201, Sector 22, Utilities.

 Hydroelectric power generation, at 500 employees
 Fossil fuel electric power generation, at 750 employees
 Nuclear electric power generation, at 750 employees
 Other electric power generation (e.g., solar, wind,
geothermal, biomass, and other), at 250 employees
 Electric bulk power transmission and control,\163\ at 500
employees
---------------------------------------------------------------------------

    \163\ This category covers transmission planners and planning
coordinators.

    131. Based on these categories, the Commission will use a
conservative threshold of 750 employees for all entities.\164\ Applying
this threshold, the Commission estimates that there are 440 small
entities that function as planning coordinators, transmission planners,
transmission owners, and/or generator owners. However, the Commission
estimates that only a subset of such small entities will be subject to
the approved Reliability Standard given the additional applicability
criterion in the approved Reliability Standard (i.e., to be subject to
the requirements of the approved Reliability Standard, the applicable
entity must own or must have a planning area that contains a large
power transformer with a high side, wye-grounded winding with terminal
voltage greater than 200 kV).
---------------------------------------------------------------------------

    \164\ By using the highest number threshold for all types of
entities, our estimate conservatively treats more entities as
``small entities.''
---------------------------------------------------------------------------

    132. Reliability Standard TPL-007-1 enhances reliability by
establishing requirements that require applicable entities to perform
GMD Vulnerability Assessments and to mitigate identified
vulnerabilities. The Commission estimates that each of the small
entities to whom the approved Reliability Standard applies will incur
one-time compliance costs of $5,193.34 and annual ongoing costs of
$5,233.50.
    133. The Commission does not consider the estimated cost per small
entity to impose a significant economic impact on a substantial number
of small entities. Accordingly, the Commission certifies that the
approved Reliability Standard will not have a significant economic
impact on a substantial number of small entities.

VI. Document Availability

    134. In addition to publishing the full text of this document in
the Federal Register, the Commission provides all interested persons an
opportunity to view and/or print the contents of this document via the
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's
Public Reference Room during normal business hours (8:30 a.m. to 5:00
p.m. Eastern time) at 888 First Street NE., Room 2A, Washington, DC
20426.
    135. From FERC's Home Page on the Internet, this information is
available on eLibrary. The full text of this document is available on
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or
downloading. To access this document in eLibrary, type the docket
number excluding the last three digits of this document in the docket
number field.
    136. User assistance is available for eLibrary and the FERC's
website during normal business hours from FERC Online Support at 202-
502-6652 (toll free at 1-866-208-3676) or email at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. E-mail the Public Reference Room at
<EMAIL_ADDRESS>
VII. Effective Date and Congressional Notification

    137. These regulations are effective November 29, 2016. The
Commission has determined, with the concurrence of the Administrator of
the Office of Information and Regulatory Affairs of OMB, that this rule
is not a ``major rule'' as defined in section 351 of the Small Business
Regulatory Enforcement Fairness Act of 1996.

    By the Commission.

    Issued: September 22, 2016.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

Appendix

Commenters

                            Initial Comments
------------------------------------------------------------------------
              Abbreviation                          Commenter
------------------------------------------------------------------------
AEP....................................  American Electric Power Service
                                          Corporation.
APS....................................  Arizona Public Service Company.
ATC....................................  American Transmission Company.

Baker..................................  Greta Baker.
Bardin.................................  David J. Bardin.
BPA....................................  Bonneville Power
                                          Administration.
Briggs.................................  Kevin Briggs.
CEA....................................  Canadian Electricity
                                          Association.
CSP....................................  Center for Security Policy.
EIS....................................  Electric Infrastructure
                                          Security Council.
Emprimus...............................  Emprimus LLC.
Exelon.................................  Exelon Corporation.
Gaunt..................................  Charles T. Gaunt.
Holdeman...............................  Eric Holdeman.
Hydro One..............................  Hydro One Networks Inc.
ITC....................................  International Transmission
                                          Company.
Lloyd's................................  Lloyd's America, Inc.
JINSA..................................  Jewish Institute for National
                                          Security Affairs.
Joint ISOs/RTOs........................  ISO New England Inc.,
                                          Midcontinent Independent
                                          Transmission System Operator,
                                          Inc., Independent Electricity
                                          System Operator, New York
                                          Independent System Operator,
                                          Inc., and PJM Interconnection,
                                          L.L.C.
Kappenman..............................  John G. Kappenman and Curtis
                                          Birnbach.
Morris.................................  Eric S. Morris.
NERC...................................  North American Electric
                                          Reliability Corporation.
Resilient Societies....................  Foundation for Resilient
                                          Societies.
Roodman................................  David Roodman.
Trade Associations.....................  American Public Power
                                          Association, Edison Electric
                                          Institute, Electricity
                                          Consumers Resource Council,
                                          Electric Power Supply
                                          Association, Large Public
                                          Power Council, National Rural
                                          Electric Cooperative
                                          Association.
Tri-State..............................  Tri-State Generation and
                                          Transmission Association, Inc.
USGS...................................  United States Geological
                                          Survey.
------------------------------------------------------------------------

                          Supplemental Comments
------------------------------------------------------------------------

------------------------------------------------------------------------
AEP....................................  American Electric Power Service
                                          Corporation.
Bardin.................................  David J. Bardin.
CSP....................................  Center for Security Policy.
Gaunt..................................  Charles T. Gaunt.
IEEE...................................  IEEE Power and Energy Society
                                          Transformers Committee.
Kappenman..............................  John G. Kappenman and Curtis
                                          Birnbach.
NERC...................................  North American Electric
                                          Reliability Corporation.
Resilient Societies....................  Foundation for Resilient
                                          Societies.
Roodman................................  David Roodman.
Trade Associations.....................  American Public Power
                                          Association, Edison Electric
                                          Institute, Electricity
                                          Consumers Resource Council,
                                          Electric Power Supply
                                          Association, Large Public
                                          Power Council, National Rural
                                          Electric Cooperative
                                          Association.
USGS...................................  United States Geological
                                          Survey.
------------------------------------------------------------------------

[FR Doc. 2016-23441 Filed 9-29-16; 8:45 am]
 BILLING CODE 6717-01-P


[Federal Register Volume 78, Number 246 (Monday, December 23, 2013)]
[Notices]
[Pages 77540-77545]
[FR Doc No: 2013-30448]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71098; File No. SR-NASDAQ-2013-152]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Describe the Implementation of Rule 4626(b)(3)

December 17, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 9, 2013, The NASDAQ Stock Market LLC (``NASDAQ'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I, II, and III, below, which Items have been prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange is filing a proposal to describe the implementation of
Rule 4626(b)(3). There is no text of the proposed rule change. The
complete text of the filing is available on the Exchange's Web site at
http://nasdaq.cchwallstreet.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose

I. Introduction

    On March 22, 2013, the Commission approved a proposal by Nasdaq to
establish a one-time voluntary accommodation policy for claims arising
from system difficulties that Nasdaq experienced during the initial
public offering (``IPO'') of Facebook, Inc. (``Facebook'' or ``FB'') on
May 18, 2012.\3\ Rule 4626 limits the liability of Nasdaq and its
affiliates with respect to any losses, damages, or other claims arising
out of the Nasdaq Market Center or its use and provides for limited
accommodations under the conditions specified in the rule.\4\ Rule
4626(b)(1) provides that for the aggregate of all claims made by market
participants related to the use of the Nasdaq Market Center during a
single calendar month, Nasdaq's payments under Rule 4626 shall not
exceed the larger of $500,000 or the amount of the recovery obtained by
Nasdaq under any applicable insurance policy. Rule 4626(b)(2) states
that for the aggregate of all claims made by market participants
related to systems malfunctions or errors of the Nasdaq Market Center
concerning locked/crossed compliance, trade through protection, market
maker quoting, order protection, or firm quote compliance, during a
single calendar month Nasdaq's payments under Rule 4626 shall not
exceed the larger of

$3,000,000 or the amount of the recovery obtained by Nasdaq under any
applicable insurance policy. Rule 4626(b)(3) establishes a methodology
for submission, evaluation, and payment of claims associated with the
Facebook IPO.
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 69216 (March 22, 2013),
78 FR 19040 (March 28, 2013) (SR-NASDAQ-2012-090) (``Approval
Order''). See also Securities Exchange Act Release No. 67507 (July
26, 2012), 77 FR 45706 (August 1, 2012) (SR-NASDAQ-2012-090)
(``Proposing Release'').
    \4\ Rule 4626(a) provides that except as set forth in the
accommodation portion of the rule, ``Nasdaq and its affiliates shall
not be liable for any losses, damages, or other claims arising out
of the Nasdaq Market Center or its use. Any losses, damages, or
other claims, related to a failure of the Nasdaq Market Center to
deliver, display, transmit, execute, compare, submit for clearance
and settlement, adjust, retain priority for, or otherwise correctly
process an order, Quote/Order, message, or other data entered into,
or created by, the Nasdaq Market Center shall be absorbed by the
member, or the member sponsoring the customer, that entered the
order, Quote/Order, message, or other data into the Nasdaq Market
Center.''
---------------------------------------------------------------------------

    On May 18, 2012, Nasdaq experienced system difficulties during the
Nasdaq Halt and Imbalance Cross Process (the ``Cross'') for the FB IPO.
These difficulties delayed the completion of the Cross from 11:05 a.m.
until 11:30 a.m.\5\ Based on its assessment of the information
available at the time, Nasdaq concluded that the system issues would
not have any effects beyond the delay itself. In an exercise of its
regulatory authority, Nasdaq determined to proceed with the IPO at
11:30 a.m. rather than postpone it.
---------------------------------------------------------------------------

    \5\ All times in this filing are Eastern Time.
---------------------------------------------------------------------------

    As a result of the system difficulties, however, certain orders for
FB stock that were entered between 11:11:00 a.m. and 11:30:09 a.m. in
the expectation of participating in the Cross--and that were not
cancelled prior to 11:30:09 a.m.--either did not execute or executed
after 1:50 p.m. at prices other than the $42.00 price established by
the Cross. (Other orders entered between 11:11:00 a.m. and 11:30:09
a.m., including cancellations, buy orders below $42.00, and sell orders
above $42.00, were handled without incident.) System issues also
delayed the dissemination of Cross transaction reports from 11:30 a.m.
until 1:50 p.m. At 1:50 p.m., Nasdaq system difficulties were
completely resolved.
    Rule 4626(b)(3) provides that, as a result of these unique
circumstances, Nasdaq will accommodate members for losses attributable
to the system difficulties on May 18, 2012 in an amount not to exceed
$62 million. Rule 4626(b)(3)(A) provides that all claims for such
accommodation must arise solely from realized or unrealized direct
trading losses arising from the following specific Cross orders:
    (i) SELL Cross orders that were submitted between 11:11 a.m. and
11:30 a.m. on May 18, 2012, that were priced at $42.00 or less, and
that did not execute;
    (ii) SELL Cross orders that were submitted between 11:11 a.m. and
11:30 a.m. on May 18, 2012, that were priced at $42.00 or less, and
that executed at a price below $42.00;
    (iii) BUY Cross orders priced at exactly $42.00 and that were
executed in the Cross but not immediately confirmed; and
    (iv) BUY Cross orders priced above $42.00 and that were executed in
the Cross but not immediately confirmed, but only to the extent entered
with respect to a customer that was permitted by the member to cancel
its order prior to 1:50 p.m. and for which a request to cancel the
order was submitted to Nasdaq by the member, also prior to 1:50 p.m.
    As originally approved, Rule 4626(b)(3)(D) provided that all claims
related to the FB IPO must be submitted in writing not later than 7
days after formal approval of the FB accommodation proposal by the
Commission, which occurred on March 22, 2013. In recognition of the
fact that the Passover and Good Friday holidays occurred during the
week when claim submissions would otherwise be due, Nasdaq submitted an
immediately effective proposed rule change to extend the deadline for
claim submission until 11:59 p.m. on April 8, 2013.\6\ Nasdaq received
claims with respect to 75 market participant identifiers (``MPIDs'')
within the deadline. Nasdaq did not receive any claims after the
deadline.
---------------------------------------------------------------------------

    \6\ Securities Exchange Act Release No. 69250 (March 28, 2013),
78 FR 20160 (April 3, 2013) (SR-NASDAQ-2013-055).
---------------------------------------------------------------------------

    Rule 4626(d)(3)(D) further provides that all claims shall be
processed and evaluated by the Financial Industry Regulation Authority
(``FINRA''), applying the standards set forth in Rule 4626. FINRA is
authorized to request such supplemental information as it deems
necessary to assist its evaluation of claims.
    Rule 4626(b)(3)(E) provides that FINRA shall provide to the Nasdaq
Board of Directors and the Board of Directors of NASDAQ OMX an analysis
of the total value of eligible claims. FINRA has provided the required
analysis. The provision further requires that Nasdaq will file with the
Commission a rule proposal setting forth the amount of eligible claims
under the standards set forth in Rule 4626 and the amount proposed to
be paid to members by Nasdaq. This proposed rule change, filed pursuant
to authority delegated by the Nasdaq Board of Directors, satisfies this
requirement. In addition, the proposed rule change discusses the
application of Rule 4626 to certain types of claims. Finally, the
proposed rule change discusses the process contemplated for payment of
valid claims.

II. FINRA Review Process

    For the claim review process, FINRA established a working group
consisting of FINRA Market Regulation Department analysts and managers
(``FB Claims Team'' or ``FINRA staff''). During the review process, the
designated analysts and managers did not perform any regulatory
services for any Nasdaq market, did not purchase FB stock (either in
the secondary market or as part of Nasdaq's IPO opening process) and
did not own FB stock.\7\
---------------------------------------------------------------------------

    \7\ A Steering Committee, composed of members of senior
management of the Market Regulation Department, provided guidance to
the FB Claims Team on the resolution of process and substantive
issues arising during the course of the FB claim evaluation process,
reviewed the form and content of the review summary forms for each
claim, and monitored the overall progress of the claim review
effort. However, members of the Steering Committee did not
participate in the FB Claim Team's assessment of and decisions to
recommend the approval or disapproval of individual claims.
---------------------------------------------------------------------------

    Following the issuance of the Approval Order, Nasdaq made each
claim received by Nasdaq (including associated worksheets) available to
FINRA by means of an encrypted shared access folder. The FB Claims Team
copied the claims and stored them on a FINRA network folder. Access to
the FINRA network folder was limited to FINRA staff directly working on
the FB claim review process. Throughout the process, the FB Claims Team
reconciled with Nasdaq staff the number of claims. After the window for
submitting claims closed on April 8, 2013, the FB Claims Team held a
meeting with a representative of Nasdaq to verify that each claim
received by Nasdaq had been copied to the FINRA network folder.
    Upon receipt of a claim, a manager in the FB Claims Team performed
a preliminary review of the claim to determine if the information
submitted appeared to be accurate and complete per the criteria set
forth in the rule filing. For each claim a matter was opened in a FINRA
database and the matter was linked back to the claimant's submission
for internal tracking purposes.\8\
---------------------------------------------------------------------------

    \8\ If a member firm submitted a claim with multiple MPIDs, the
FB Claims staff opened one matter in the tracking system. In the
case of claims involving sponsored access arrangements, the FB
Claims staff opened one matter in the tracking system under the
sponsoring firm.
---------------------------------------------------------------------------

    In several instances, FB Claims Team staff contacted the firm
filing the claim to obtain additional information or confirm certain
information provided within its claim worksheet. A dedicated email
address was established to facilitate all electronic communications
with firms. Access to the mailbox was limited to those staff directly
working on the FB claim review process.
    To assist the FB Claims Team, staff within FINRA's Market
Regulation Department developed scripts to retrieve order and execution
information related to each order listed on the individual claim
worksheets. The

FB Claims Team was provided with the complete Nasdaq SingleBook order
lifecycle, including execution messages, for each IPO Cross order and
any corresponding Order Audit Trail System (``OATS'') order lifecycles.
This information was posted on the same FINRA network where the claim
worksheets were stored. Market Regulation staff providing technology
support also provided additional data to validate the covering trade
information provided by the firms and assisted with ad hoc queries,
upon the request of the FB Claims Team. The Market Regulation
Department staff providing technology support to the FB Claims Team did
not perform any assessment of the eligibility of any individual orders
in the claims or make any determination as to whether any such orders
were entitled to any accommodation.
    The FB Claims Team staff reviewed the information provided by
Market Regulation Department technology support staff and compared the
information to the order information provided by the firms. In certain
instances, staff contacted firms to request additional information or
obtain clarification regarding any issues.
    After completing the analysis of each order listed in the claim,
one of the assigned analysts prepared a review summary memo for
supervisory review. The summary memo contained a report of findings,
which included sections regarding: (a) The order information; (b) the
direct trading losses calculation by the firm; (c) the staff's analysis
of the order information broken out by category; and (d) the staff's
direct trading losses calculation. Each review summary memo was
submitted for two levels of supervisory review.
    After receiving FINRA's review summary memos for each claim, Nasdaq
reviewed and determined that it concurred with FINRA's analysis.
Thereafter, on October 25, 2013, Nasdaq transmitted to members that had
submitted claims the results of the analysis for their claims. Based on
questions it then received from several members, Nasdaq concluded that
there may have been some confusion regarding the scope of permissible
claims based on Cross orders to BUY priced at $42. Accordingly, in an
effort to ensure that all potential valid claims were fully considered,
on November 4, 2013, Nasdaq contacted all claimants to provide them the
opportunity to provide FINRA with additional information to support
claims with regard to these orders. As a result of this process, the FB
Claims Team prepared supplemental review summary memos with respect to
several claims. Nasdaq reviewed and determined that it concurred with
FINRA's analysis, and the supplemental review summary memos were
transmitted to affected members on December 6, 2013.

III. Results

    The first category of covered claims, as provided in Rule
4626(b)(3)(A)(i), is SELL Cross orders that were submitted between
11:11 a.m. and 11:30 a.m. on May 18, 2012, that were priced at $42 or
less, and that did not execute (``Category I''). Sellers who entered
orders priced at $42.00 or less between 11:11 a.m. and 11:30 a.m. would
have expected their orders to execute in the Cross, because the Net
Order Imbalance Indicator (``NOII'') disseminated by Nasdaq indicated
that the relative proportion of buy and sell interest would allow the
execution, at a price of $42, of all sell orders priced at $42 or less.
Accordingly, if such orders did not execute due to Nasdaq's system
difficulties, the member entering the order would incur a loss. Under
Rule 4626(b)(3)(B), the measure of loss for such orders is the lesser
of (i) the differential between the expected execution price of $42 and
the actual execution price received, or (ii) the differential between
the expected execution price of $42 and a benchmark price of $40.527,
which constitutes the volume-weighted average price of FB stock on May
18, 2012, between 1:50 p.m. and 2:35 p.m. (the ``Benchmark Price'').
    Nasdaq received claims with respect to 791 orders in Category I.
FINRA's analysis has determined that claims with respect to 784 of
these orders were valid under the terms of the rule, and Nasdaq concurs
in this determination. The aggregate value of the valid claims is
$20,364,741.96.
    The second category of covered claims, as provided in Rule
4626(b)(3)(A)(ii), is SELL Cross orders that were submitted between
11:11 a.m. and 11:30 a.m. on May 18, 2012, that were priced at $42 or
less, and that executed at a price below $42 (``Category II''). Sellers
who entered orders priced at $42.00 or less between 11:11 a.m. and
11:30 a.m. would have expected their orders to execute in the Cross.
Accordingly, if such orders executed at a price less than $42 due to
Nasdaq's system difficulties, the member entering the order would incur
a loss. Under Rule 4626(b)(3)(B), the measure of loss for such orders
is the differential between the expected execution price of $42 and the
actual execution price received.
    Nasdaq received claims with respect to 242 orders in Category II.
FINRA's analysis has determined that claims with respect to 238 of
these orders were valid under the terms of the rule, and Nasdaq concurs
in this determination. The aggregate value of the valid claims is
$9,990,901.52.
    The third category of covered claims, as provided in Rule
4626(b)(3)(A)(iii), is BUY Cross orders priced at exactly $42 and that
were executed in the Cross but not immediately confirmed (``Category
III''). Buyers who entered orders priced at exactly $42 would not have
an expectation as to whether their orders would execute in the Cross,
since the NOII disseminated by Nasdaq indicated that the relative
proportion of buy and sell interest would not allow the execution of
all buy orders priced at $42. Accordingly, due to the delay of the
dissemination of confirmations until 1:50 p.m., such buyers may have
placed and received fills of orders to buy additional FB stock.
Alternatively, given the uncertainty as to whether these orders would
be executed in the Cross, a member may have allowed its customer to
cancel before 1:50 p.m., such that the member would have excess shares
when confirmation that the order was filled was provided at 1:50 p.m.
    The text of Rule 4626(b)(3)(A)(iii) does not directly state that
having excess shares through a duplicative buy order or a cancel is a
necessary condition for compensation to be received under this
category. The examples provided in explaining the purpose of SR-NASDAQ-
2012-090 make this condition clear, however.\9\ Specifically, in the
absence of one of these conditions resulting in an unexpected long
position, the member would either have been able to buy FB at a lower
price, if it was not filled in the Cross, or would have received the
price it sought in the Cross, and therefore any loss would be purely
speculative in nature. See Rule 4626(b)(3)(C) (excluding coverage for
``alleged or speculative lost trading opportunities''). Accordingly,
Nasdaq has instructed FINRA to apply the rule

in a manner that requires cancellations or additional purchase(s)
during the period prior to 1:50 p.m. for the claim to be compensable.
Under Rule 4626(b)(3)(B), the applicable measure of loss is the lesser
of (i) the differential between the expected execution price of $42 and
the actual execution price received, or (ii) the differential between
the expected execution price of $42 and the Benchmark Price.\10\
---------------------------------------------------------------------------

    \9\ ``Market participants who entered Cross-only eligible buy
orders priced exactly at $42.00 that executed in the Cross but that
were not confirmed until 1:50 p.m. could not have been sure whether
their orders had been executed because the number of buy and sell
limit shares priced at the clearing price and wishing to be matched
in the Cross is never exactly equal. Consequently, in the interval
between 11:30 a.m. and 1:50 p.m., these buyers may have purchased
shares in the continuous market, and upon receiving Cross execution
messages at 1:50 p.m., they may have experienced an unexpected long
position. The sale of such an unexpected long position at a lower
price would have occasioned a loss.'' Proposing Release, 77 FR at
45710. See also Proposing Release, 77 FR at 47511 (Example 6 and
Example 7).
    \10\ The measure is premised on the expectation that the
customer or proprietary account on whose behalf the trade was made
received a fill or submitted a cancellation prior to 1:50 p.m.,
making the fill of the Cross order at 1:50 p.m. the unexpected long
position that needed to be covered. Thus, the difference between the
$42 price of the Cross order and the lesser of the actual execution
price associated with selling this position or the Benchmark Price
is an appropriate measure of the member's covered loss.
---------------------------------------------------------------------------

    Following the completion of initial assessments of members' claims,
Nasdaq concluded that there may have been some confusion regarding the
conditions associated with Category III. Accordingly, in an effort to
ensure that all potential valid claims were fully considered, on
November 4, 2013, Nasdaq contacted all claimants to provide them the
opportunity to provide FINRA with additional information to support
claims with regard to these orders. Nasdaq received claims with respect
to 13,123 orders. FINRA's analysis has determined that claims with
respect to 6,644 of these orders were valid under the terms of the
rule,\11\ and Nasdaq concurs in this determination. The aggregate value
of the valid claims is $2,971,394.13.
---------------------------------------------------------------------------

    \11\ Claims reviewed in the supplemental process were considered
under Category III.
---------------------------------------------------------------------------

    The fourth category of covered claims, as provided in Rule
4626(b)(3)(A)(iv), is BUY Cross orders priced above $42 and that were
executed in the Cross but not immediately confirmed, but only to the
extent entered with respect to a customer that was permitted by the
member to cancel its order prior to 1:50 p.m., and for which a request
to cancel the order was submitted by the member, also prior to 1:50
p.m. (``Category IV''). Nasdaq believes that members that took such
actions were reasonably attempting to assist their own customers in
responding to the delayed dissemination of Cross transaction reports,
and that such members further attempted to communicate their actions to
Nasdaq through the submission of cancellations. When the member
received confirmation of the execution of the customer's order at 1:50
p.m., the member held shares for which it no longer had a recipient.
Under Rule 4626(b)(3)(B), the applicable measure of loss is the lesser
of (i) the differential between the expected execution price of $42 and
the actual execution price received, or (ii) the differential between
the expected execution price of $42 and the Benchmark Price. In this
category, however, the outcome was affected not only by Nasdaq system
issues, but also by the member's affirmative decision not to await the
dissemination of confirmations, despite the fact that the member should
reasonably have expected the order to be filled. Accordingly, Rule
4626(b)(3)(B) provides that a portion of the associated losses will be
borne by the members, with the amount of compensable loss reduced by
30%.
    Nasdaq received claims with respect to 44,966 orders in Category
IV. FINRA's analysis has determined that claims with respect to 40,397
of these orders were valid under the terms of the rule, and Nasdaq
concurs in this determination. The aggregate value of the valid claims,
as reduced by 30% for the reasons described above, is $10,702,864.00.
    For a particular member, the total of valid claims under Category
I, Category II, Category III, and Category IV is referred to as the
``Member's Share''. The sum of the Member's Share for all members,
which constitutes the maximum amount payable under Rule 4626 with
respect to the FB IPO, is $44,029,901.61.
    For several reasons, this amount is less than the maximum
accommodation pool of $62 million provided for in the rule. First, as
has been widely reported in the press, one member that was eligible to
file a claim under Rule 4626 opted to forego participation in the
program and instituted an arbitration proceeding against Nasdaq.\12\
Second, as detailed above, claims with respect to certain orders did
not satisfy the requirements of the rule. Notably, in some instances,
claims for compensation under Category III did not satisfy the rule
because there were not excess shares at 1:50 p.m., and claims for
compensation under Category IV did not satisfy the rule because the
member did not permit its customer to cancel its order prior to 1:50
p.m. or did not submit a request to cancel to Nasdaq prior to 1:50 p.m.
Although Nasdaq's systems provided it with information about the size,
price, and entry time of orders submitted to the Cross, as well as the
ultimate disposition of those orders, Nasdaq did not have information
about the customer-facing activities of its members. Accordingly, in
establishing the maximum value of an accommodation pool, Nasdaq needed
to assume that all orders in the Cross with the price and entry times
specified by the rule might provide the basis for a valid claim.
However, for the reasons described above, other actions (i.e.,
duplicative BUYS or customer cancellations) are required for harm to
exist. In conducting its analysis, FINRA fully evaluated claims to
determine whether such actions were taken. Accordingly, certain orders
in the Cross did not actually provide a basis for a claim. Finally,
Nasdaq believes that some members with BUY orders in the Cross did not
file claims with respect to such orders because they understood that
they had not taken actions that would provide the basis for a valid
claim, while other members with de minimis potential claims also chose
not to file.
---------------------------------------------------------------------------

    \12\ See ``UBS Challenges Nasdaq's Facebook IPO Plan'' (March
25, 2013) (available at http://blogs.wsj.com/deals/2013/03/25/ubs-challenges-nasdaqs-facebook-ipo-plan).
---------------------------------------------------------------------------

IV. Payment Process

    As discussed in the Proposing Release, Nasdaq's business and legal
relationships are with its members, not its members' customers. Nasdaq
has no contractual or other relationships with its members' customers,
and generally does not possess information about interactions between a
member and its customer that may underlie members' trading activity.
Nevertheless, in adopting the FB accommodation rule, Nasdaq was mindful
that member's customers were impacted by the processing of member
orders in the FB Cross. Accordingly, Rule 4626 requires that to the
extent that a member receiving accommodation thereunder had customers
that incurred losses, accommodation payments received by members from
Nasdaq must be used for the benefit of such customers.
    Accordingly, as provided in Rule 4626(b)(3)(F), all accommodation
payments are contingent upon a member's submission to Nasdaq, not later
than seven days after the effective date of this proposed rule change,
an attestation detailing:
    (i) the amount of compensation, accommodation, or other economic
benefit provided or to be provided by the member to its customers
(other than customers that were brokers or dealers trading for their
own account) in respect of trading in Facebook Inc. on May 18, 2012
(``Customer Compensation''), and
    (ii) the extent to which the losses reflected in the Member's Share
\13\ were incurred by the member trading for its

own account or for the account of a customer that was a broker or
dealer trading for its own account (``Covered Proprietary Losses'').
---------------------------------------------------------------------------

    \13\ Defined specifically as a member's direct trading losses
calculated in accordance with paragraphs (b)(3)(A) and (B) of the
proposed rule.
---------------------------------------------------------------------------

    As of October 25, 2013, Nasdaq provided each member that submitted
a claim with an initial analysis of the value of its claim, i.e., the
value of its Member's Share, along with the required form of
attestation. Thereafter, in an effort to ensure that all potential
valid claims were fully considered, on November 4, 2013, Nasdaq
contacted all claimants to provide them the opportunity to provide
FINRA with additional information to support claims, as discussed
above. As a result of this process, FINRA prepared supplemental review
summary memos with respect to several claims, and the supplemental
review summary memos were transmitted to affected members on December
6, 2013. Accordingly, all claimants are in a position to provide the
required attestation by December 16, 2013, the deadline mandated by the
rule. As provided in Rule 4626(b)(3)(F), failure to provide the
required attestation within the specified time limit will void the
member's eligibility to receive an accommodation under the rule. Each
member is also required to maintain books and records that detail the
nature and amount of Customer Compensation and Covered Proprietary
Losses. Nasdaq, through FINRA, its regulatory services provider, will
examine the accuracy of member's attestation at a later date.
    Rule 4626(b)(3)(G) provides that accommodation payments will be
made in two tranches of priority:
    (i) First, if a member has provided Customer Compensation, the
member will receive an amount equal to the lesser of the Member's Share
or the amount of Customer Compensation. For example, if a Member's
Share was $1 million, and the member had paid, or had committed to pay,
compensation to its customers of at least $1 million, the member's
expected accommodation would be $1 million. On the other hand, if the
Member's Share was $1 million, but the member had paid, or committed to
pay, only $500,000 in compensation to its customers, the member's
accommodation in the first tranche would be only $500,000.
    (ii) Second, the member will receive an amount with respect to
Covered Proprietary Losses; provided, however, that the sum of payments
to a member under the rule shall not exceed the Member's Share. If a
member had both Covered Proprietary Losses and losses associated with
customer business, it may receive distributions under both tranches.
For example, if a Member's Share was $1 million, the member had
$300,000 in Covered Proprietary Losses, and the member had provided
$300,000 in Customer Compensation, the member's expected accommodation
would be $600,000 in total. Alternatively, if the member had $300,000
in Covered Proprietary Losses and had provided $700,000 or more in
Customer Compensation, the member's expected accommodation would be $1
million.
    Rule 4626(b)(3)(G) further provides that in the event the amounts
calculated under the tranches exceed the maximum accommodation pool of
$62 million, amounts paid would be prorated in accordance with the
formula described in the rule. Because the total amount of valid claims
as determined by FINRA does not exceed $62 million, Nasdaq expects to
pay both tranches simultaneously without proration of claims.
    One notable issue that arose in the application of the Rule to
certain claims was the appropriate treatment of claims for orders
entered into Nasdaq under a sponsored access arrangement. Rule
4626(b)(3)(A) provides that ``the term `customer' shall be construed to
include any unaffiliated entity upon whose behalf an order is entered,
including any unaffiliated broker or dealer.'' Nasdaq rules permit the
existence of sponsored access arrangements, but require oversight by
the sponsor, which is required to be a member. See Nasdaq Rule 4611(d).
An order entered under a sponsored access arrangement is entered
through an MPID belonging to the sponsor, even though it originates
from the sponsoree. Thus, the order may be construed as being entered
by the sponsor on behalf of the sponsoree, causing the sponsoree to fit
within the definition of ``customer.'' A claim with respect to orders
entered under a sponsored access arrangement would be paid to the
sponsor, subject to its certification that it would provide the funds
as Customer Compensation to the sponsoree.\14\
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    \14\ For Category IV claims, if the sponsoree itself had
customer(s) permitted to cancel order(s) prior to 1:50 p.m., and the
sponsoree in fact submitted a cancellation to NASDAQ prior to 1:50
p.m., the claim would be construed as valid. This fact pattern did
not occur in any of the filed claims, however.
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    Rule 4626(b)(3)(H) provides that final payment of any accommodation
payment is contingent upon the execution and delivery to Nasdaq of a
release by the member of all claims by it or its affiliates against
Nasdaq or its affiliates for losses that arise out of, are associated
with, or relate in any way to the FB IPO Cross or to any actions or
omissions related in any way to that Cross, including but not limited
to the execution or confirmation of orders in FB on May 18, 2012.
Failure to provide the release within 14 days after the effective date
of this proposed rule change (i.e., by December 23, 2013) will void the
member's eligibility to receive an accommodation under the Rule. The
release also includes an attachment whereby the claimant may provide
Nasdaq with payment instructions. Nasdaq will pay all valid claims in
accordance with the payment instructions provided, immediately upon the
expiration of the 60-day time period during which this filing is
subject to suspension by the Commission. By its terms, the release will
be effective on the date on which payment to the member is provided in
accordance with the payment instructions provided.
    This proposed rule change is not intended to and does not affect
the limitations of liability set forth in Nasdaq's agreements or SEC-
sanctioned rules,\15\ or those limitations or immunities that bar
claims for damages against Nasdaq as a matter of law. Rather, they
reflect Nasdaq's determination to implement a fair and equitable
accommodation policy that takes into account the impacts of Nasdaq's
system issues on the investing public and members.
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    \15\ Notably, the Commission has repeatedly determined that
rules limiting SRO liability, such as Rule 4626(a), are consistent
with the Act. See, e.g., BATS Exchange and BATS-Y Exchange Rules
11.16; C2 Options Exchange Rule 6.42; CBOE Options Exchange Rule
6.7; CME Rule 578; EDGA and EDGX Rules 11.12; ISE Rule 705; NASDAQ
OMX PHLX Rule 3226; NASDAQ OMX BX Rule 4626; NYSE Rules 17 and 18;
NYSE MKT Rule 905NY; NYSE Arca (Options) Rule 14.2; NYSE Arca
(Equity) Rule 13.2; One Chicago Rule 421.
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2. Statutory Basis
    Nasdaq believes that the accommodation proposal is consistent with
Section 6(b) of the Act \16\ in general, and furthers the objectives of
Section 6(b)(5) of the Act \17\ in particular, because the proposal is

designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general to protect investors and the
public interest. In the Approval Order, the Commission found that Rule
4626(b)(3) is consistent with the Act because it ``sets forth objective
and transparent processes to determine eligible claims and how such
claims would be paid to Nasdaq members that elect to participate in the
accommodation plan.'' The Commission further determined that providing
compensation pursuant to the rule would be in the public interest and
that the rule would encourage members to compensate their customers.
Similarly, Nasdaq believes that this proposed rule change is consistent
with the Act because it will allow Nasdaq to accomplish the approved
objectives of the Rule 4626(b)(3) through final payment of eligible
claims. As described above, FINRA, in its role as a neutral third
party, has conducted an exhaustive analysis of submitted claims,
measuring relevant data against the rule's objective benchmarks to
ascertain the value of each member's claims, and Nasdaq has reviewed
and concurs in FINRA's analysis. Based on this analysis, and subject to
completion by claimants of the remaining conditions to payment, Nasdaq
will be able to pay the full amount of valid claims immediately upon
the expiration of the 60-day time period during which this filing is
subject to suspension by the Commission.
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    \16\ 15 U.S.C. 78f(b) (setting forth the prerequisites for
registration as a national securities exchange).
    \17\ 15 U.S.C. 78f(b)(5) (requiring that an exchange's rules be
``designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect
to, and facilitating transactions in securities, to remove
impediments to and perfect the mechanism of a free and open market
and a national market system, and, in general, to protect investors
and the public interest; and not [be] designed to permit unfair
discrimination between customers, issuers, brokers, or dealers, or
to regulate by virtue of any authority conferred by this chapter
matters not related to the purposes of this chapter or the
administration of the exchange'').
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Nasdaq believes that the proposed rule change will not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. Specifically, the proposed rule
change does not relate to the provision of goods or services, nor does
it impose regulatory restrictions on the ability of members to compete.
Accordingly, the change does not affect competition in any respect.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(ii) of the Act \18\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\19\ At any time within 60
days of the filing of the proposed rule change, the Commission
summarily may temporarily suspend such rule change if it appears to the
Commission that such action is: (i) Necessary or appropriate in the
public interest; (ii) for the protection of investors; or (iii)
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
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    \18\ 15 U.S.C. 78s(b)(3)(a)(ii).
    \19\ 17 CFR 240.19b-4(f)(6).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NASDAQ-2013-152 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2013-152. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549-1090, on official business days between the hours
of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be
available for inspection and copying at the principal offices of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NASDAQ-2013-152, and should be submitted on or before January 13, 2014.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-30448 Filed 12-20-13; 8:45 am]
BILLING CODE 8011-01-P