[Federal Register: April 22, 2009 (Volume 74, Number 76)]
[Notices]
[Page 18419-18424]
[DOCID:fr22ap09-88]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59772; File No. SR-FINRA-2008-019]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Amendment Nos. 1 and 2 and Order
Granting Accelerated Approval to a Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2, Relating to Sales Practice Standards and
Supervisory Requirements for Transactions in Deferred Variable
Annuities

April 15, 2009.

I. Introduction

    On May 21, 2008, the Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission (``SEC''
or ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend certain provisions of
NASD Rule 2821.\3\ The proposed rule change would modify the rule's
scope and the timing of principal review in addition to clarifying,
through a ``Supplementary Material'' section following the rule text,
various issues raised by commenters.\4\ The proposed rule change was
published for comment in the Federal Register on June 10, 2008.\5\ The
Commission received letters from 14 commenters in response to the
proposed rule change.\6\ On November 12, 2008, FINRA responded to the
comments \7\ and submitted Amendment No. 1 to the proposed rule change.
On April 1, 2009, FINRA submitted Amendment No. 2 to the proposed rule
change. This order provides notice of the proposed rule

change, as modified by Amendment Nos. 1 and 2, and approves the
proposed rule change, as amended, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ On March 17, 2008, FINRA filed a separate proposed rule
change, which became effective upon filing, to delay the effective
date of paragraphs (c) and (d) of NASD Rule 2821 until 180 days
following the Commission's approval or rejection of the substantive
proposed rule changes found in this filing. See Securities Exchange
Act Release No. 57769 (May 2, 2008), 73 FR 26176 (May 8, 2008)
(delaying order). Paragraphs (a), (b), and (e) of NASD Rule 2821
became effective as originally scheduled on May 5, 2008.
    \4\ Id.
    \5\ See Securities Exchange Act Release No. 57920 (June 4,
2008); 73 FR 32771 (June 10, 2008) (``notice'' or ``proposal'').
    \6\ See infra note 9.
    \7\ See Letter from James Wrona, Associate Vice President and
Associate General Counsel, FINRA, to Florence Harmon, Acting
Secretary, Commission, dated November 12, 2008 (``FINRA's
Response'').
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II. Description of the Proposed Rule Change

    FINRA proposed to amend NASD Rule 2821 to modify the rule's scope
and the timing of principal review. In addition, FINRA proposed to
clarify various issues that commenters have raised through a
``Supplementary Material'' section following the rule text. These
proposed changes are discussed in further detail below.

A. Limit Application of the Rule to Recommended Transactions

    Paragraph (c) of NASD Rule 2821 requires principals to treat all
transactions as if they have been recommended for purposes of the rule.
Following the Commission's approval of the rule, however, several
commenters asked that the Commission and FINRA reconsider this
approach. As FINRA stated in the notice, some commenters asserted that
applying the rule to non-recommended transactions would have unintended
and harmful consequences. In particular, these commenters claimed that
applying the rule to non-recommended transactions would effectively
force out of the deferred variable annuities business some firms that
offer low priced products, but that do not make recommendations or pay
transaction-based compensation. In addition, commenters stated that,
absent a recommendation, a customer should be free to invest in a
deferred variable annuity without interference or second guessing from
a broker-dealer.
    In response, FINRA proposed to limit the rule's application to
recommended transactions. In the notice, FINRA explained that limiting
the rule to recommended transactions would be consistent with the
approach taken in its general suitability rule, Rule 2310. FINRA also
stated that this change would not detract from the effectiveness of
Rule 2821 because at firms that permit registered representatives to
make recommendations concerning deferred variable annuities, the vast
majority of purchases and exchanges of deferred variable annuities are
recommended. FINRA offered further support for the rule change by
stating that non-recommended transactions pose fewer concerns regarding
conflicts of interest and less of a need for heightened sales-practice
requirements. FINRA also indicated that this change would promote
competition by allowing a wide variety of business models to exist,
including those premised on keeping costs low by, in part, eliminating
the need for a sales force and large numbers of principals. Finally,
FINRA stated that attempts by registered representatives to
mischaracterize transactions as non-recommended would be mitigated by
the requirement that firms implement reasonable measures to detect and
correct circumstances when brokers mischaracterize recommended
transactions as non-recommended.

B. Modifying the Starting Point for the Seven-Business-Day Review
Period

    NASD Rule 2821(c) requires principal review and approval ``[p]rior
to transmitting a customer's application for a deferred variable
annuity to the issuing insurance company for processing, but no later
than seven business days after the customer signs the application.'' A
number of commenters have asserted that this seven-day period may not
allow for a thorough principal review. As mentioned in the notice,
these commenters provided examples of situations where principal review
might be delayed, such as when a customer inadvertently omits
information from the application or when information provided by a
customer on the application needs clarification.
    FINRA proposed modifying the starting point for the seven-day
review period. Under the proposal, the period would begin on the date
when the firm's office of supervisory jurisdiction (``OSJ'') receives a
complete and correct copy of the application. FINRA stated that this
approach would allow firms to resolve issues that result in foreseeable
delays and to conduct a thorough review, while maintaining a definite
period within which the principal must make a final decision.
    To help ensure that the process remains efficient, the proposal
would also require the associated person who recommended the annuity to
promptly transmit the complete and correct application package to the
OSJ. However, that provision, proposed paragraph (b)(3), would not
preclude a customer who chooses to forward documents directly from
transmitting the complete and correct application package to the OSJ.

C. Clarification of Issues Through Supplementary Material

    As indicated in the notice, previous commenters to the rule have
raised a number of questions that FINRA believes require clarification.
Accordingly, FINRA proposed adding a ``Supplementary Material'' section
following the rule. FINRA also reconsidered the question of whether a
member may forward funds to an insurance company for deposit in the
insurance company's ``suspense account'' pending completion of
principal review. In the notice, FINRA proposed modifying its earlier
position rejecting such a process. Instead, FINRA proposed to allow the
use of a ``suspense account'' under limited circumstances, including,
among other things, a requirement that the insurance company segregate
the funds in a manner equivalent to that required of a member under
Exchange Act Rule 15c3-3.\8\
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    \8\ 17 CFR 240.15c3-3.
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    The proposed Supplementary Material section also offered
clarification in a number of areas, including the application of lump-
sum payments where part of the payment is intended for a deferred
variable annuity, forwarding customer checks, what constitutes a
``reasonable effort'' to determine whether a customer has had a recent
exchange at another broker-dealer, and the permissibility of using
information required for principal review in the contract issuance
process. FINRA indicated that each of these issues could broadly impact
how broker-dealers sell, or process transactions in, deferred variable
annuities.

III. Comment Letters

    The Commission received letters from 14 commenters on the proposed
rule change.\9\ FINRA responded to the

comments in a letter to the Commission.\10\ The comments and FINRA's
Response are discussed below.
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    \9\ The Committee of Annuity Insurers (``CAI'') submitted two
separate letters that we consider to be one comment. See letter from
Clifford Kirsch, Sutherland Asbill & Brennan LLP, on behalf of the
CAI, dated July 1, 2008 (``CAI Letter'') and from Clifford Kirsch,
Sutherland Asbill & Brennan LLP, on behalf of CAI, dated December
19, 2008 (``CAI Letter II'').
     See letters from Deborah Peters, Director, Broker Dealer
Compliance, EquiTrust Marketing Services, LLC to James Wrona
[Associate Vice President and Associate General Counsel, FINRA],
dated June 11, 2008 (``EquiTrust Letter''); Darrell Braman, Vice
President and Associate Legal Counsel and Sarah McCafferty, Vice
President and Chief Compliance Officer, T. Rowe Price Investment
Services, Inc., dated June 23, 2008 (``T. Rowe Price Letter'');
Theodore Tsung, Financial Services Software Innovator--Founder of
digiTRADE and EAssist, dated June 30, 2008; Laurence S. Schultz,
President, Public Investors Arbitration Bar Association, dated June
26, 2008 (``PIABA Letter''); Teresa Luiz, GWFS Equities, Inc., dated
June 30, 2008 (``GWFS Letter''); Heidi Stam, Managing Director and
General Counsel, Vanguard, dated June 30, 2008 (``Vanguard
Letter''); William A. Jacobson, Associate Clinical Professor,
Cornell Law School, and Director, Cornell Securities Law Clinic,
dated July 1, 2008 (``Cornell Letter''); Dale E. Brown, President
and CEO, Financial Services Institute, dated July 1, 2008 (``FSI
Letter''); Heather Traeger, Assistant Counsel, Investment Company
Institute, dated July 1, 2008 (``ICI Letter''); Cheryl Tobin, Asst.
Vice President, Insurance Counsel, Pacific Life Insurance Company to
James Wrona, Associate Vice President and Associate General Counsel,
FINRA, dated July 1, 2008 (``Pacific Life Letter''); Michael P.
DeGeorge, General Counsel, NAVA, Inc., dated July 1, 2008 (``NAVA
Letter''); Neal E. Nakagiri, President, CEO, CCO, NPB Financial
Group, LLC, dated July 2, 2008 (``NPB Letter'') and Carl B.
Wilkerson, Vice President & Chief Counsel, American Council of Life
Insurers, dated August 20, 2008 (``ACLI Letter''). Unless otherwise
noted, all letters are addressed to the Secretary or Acting
Secretary of the Commission.
    \10\ FINRA's Response, supra note 7.
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A. Limiting Application of the Rule to Recommended Transactions

    Several commenters supported FINRA's proposal to limit Rule 2821's
application to ``recommended'' transactions,\11\ generally indicating
that the proposed change would: Make the rule consistent with other
rules that have a suitability requirement; promote competition; and not
detract from the rule's effectiveness because most variable annuity
transactions involve a recommendation. Two commenters, however,
disagreed with the approach, arguing, among other things, that
registered representatives could falsely assert that an unsuitable
transaction was not recommended.\12\ FINRA acknowledged the concern,
but responded that it would be mitigated by the requirement that
broker-dealers implement reasonable measures to detect and correct
circumstances in which transactions can be mischaracterized.\13\ In
addition, FINRA stated that when a transaction is truly initiated by a
customer, actual or potential conflicts of interest are less likely,
and thus there is a lesser need for heightened sales-practice
requirements.\14\
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    \11\ See ACLI Letter, CAI Letter, ICI Letter, NAVA Letter,
Vanguard Letter, T. Rowe Price Letter.
    \12\ See Cornell Letter and PIABA Letter.
    \13\ See FINRA's Response, supra note 7.
    \14\ Id.
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    Another commenter requested clarification that a non-recommended
transaction includes a direct sale (i.e., one in which no sales-related
compensation is paid and no registered representative is involved).\15\
FINRA responded that whether a transaction is recommended does not turn
on whether it is a direct sale: Some firms use an Internet-based
computer system to make ``recommendations'' without assistance from a
registered representative, while others compensate registered
representatives for transactions solely initiated by the customer.\16\
FINRA also reiterated several factors relevant to determining when a
particular communication would be deemed a recommendation, including: A
communication's content, context and presentation; the tailoring of the
communication to a certain customer or customers; and whether the
communication was initiated by a person employed by the firm or by a
computer program used by the firm.\17\
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    \15\ See Pacific Life Letter.
    \16\ See FINRA's Response, supra note 7.
    \17\ Id. (citing NASD Policy Statement Regarding Application of
the NASD Suitability Rule to Online Communications, NASD Notice to
Members 01-23 (April 2001)).
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    One commenter sought clarification of the rule's application to
recommendations in the context of retirement plans.\18\ FINRA's
Response cited the rule's text, which states that the rule does not
generally apply to transactions made in connection with specific
employer-sponsored retirement plans except for recommendations made to
an individual plan participant regarding a deferred variable
annuity.\19\ Furthermore, FINRA indicated that a member's ``generic
communication to all plan participants indicating that the employer has
chosen a deferred variable annuity as the funding vehicle for its
retirement plan likely would not constitute a `recommendation'
triggering application of the proposed rule.'' \20\ Finally, FINRA
reiterated that the rule would not apply to plan-level decisions made
by sponsors, trustees, or custodians of qualified retirement or benefit
plans, regardless of whether a member has made a recommendation to an
individual plan participant.\21\
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    \18\ See GFWS Letter.
    \19\ NASD Rule 2821(a)(1).
    \20\ See FINRA's Response, supra note 7.
    \21\ Id.
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B. Modifying the Starting Point for the Seven-Business-Day Review
Period

    Most commenters supported FINRA's proposal to have the seven-
business-day period for principal review of the application begin on
the day that an OSJ receives the application.\22\ One commenter
expressed the view that the proposal gives the broker-dealer too much
time and that the time period should start when any office receives the
application.\23\ Some commenters stated that the time period for review
should be longer,\24\ and some indicated that there should be an
exception to the time limitations when a customer consents to a further
holding period.\25\ FINRA responded that they regard seven business
days after receipt by any OSJ as sufficient time in which to review an
application.\26\
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    \22\ See ACLI Letter, CAI Letter, FSI Letter, ICI Letter, NAVA
Letter, NPB Letter.
    \23\ See Pacific Life Letter.
    \24\ See ACLI Letter, CAI Letter.
    \25\ See ACLI Letter, CAI Letter, EquiTrust Letter, NAVA Letter.
    \26\ See FINRA's Response, supra note 7.
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C. Supplementary Material

1. Forwarding of Customer Checks/Funds
    Proposed SM.03 states that under certain conditions, a FINRA member
may forward a customer's check or funds to the insurance company prior
to principal approval.\27\ One of those conditions is that the
insurance company issuer agrees to ``(1) segregate the member's
customers' funds in a bank * * * account * * * (set up as described in
[Exchange Act] Rules 15c3-3(k)(2)(i) and 15c3-3(f)) to ensure that the
customers' funds will not be subject to any right, charge, security
interest, lien, or claim of any kind in favor of the member, insurance
company, or bank where the insurance company deposits such funds or any
creditor thereof or person claiming through them and hold those funds
either as cash or any instrument that a broker or dealer may deposit in
its Special Reserve Account for the Exclusive Benefit of Customers * *
*.''
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    \27\ NASD Rule 2821 initially prohibited broker-dealers from
ever forwarding checks/funds prior to principal approval of the
transaction. Most commenters to the original proposal favored
allowing broker-dealers to forward checks/funds, but they differed
regarding their views of FINRA's proposed requirements for allowing
it.
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    The commenters on this provision generally viewed current insurer
suspense account practices as sufficient but stated that the special
account requirement would be feasible if modified.\28\ For example, one
commenter suggested that insurers be permitted to segregate funds in an
account ``similar in form and function to a Reserve Bank Account under
[Exchange Act] Rule 15c3-3(e).'' \29\ This commenter also suggested
that FINRA consider adopting exemptions from the SM.03 requirements
depending on the treatment particular states afford to insurance
company suspense accounts.\30\
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    \28\ See e.g., ACLI Letter, NAVA Letter, Pacific Life Letter,
CAI Letter.
    \29\ See CAI Letter. Exchange Act Rule 15c3-3(e) applies to
broker-dealers that transmit funds promptly and that do not hold
those funds for periods longer than one business day. 17 CFR
240.15c3-3(e).
    \30\ See CAI Letter.
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    FINRA's Response stated that during the period before the
transaction is approved, when funds may need to be returned to the
customer, it is important for a FINRA member to have reasonable
assurances that the insurer will handle customer funds in a manner that
provides at least as much protection as

if those funds were handled by a broker-dealer that is permitted to
hold customer funds.\31\ Accordingly, FINRA declined to modify or
eliminate the proposed requirements to maintain equivalent
standards.\32\
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    \31\ See FINRA's Response, supra note 7.
    \32\ Id.
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    In response to one commenter's question regarding whether the
``Special Account Requirement'' of SM.03 requires the segregation by
the insurance company of customer funds from one broker-dealer from
those of other broker-dealers,\33\ FINRA indicated that it does
not.\34\ FINRA's Response further stated that the insurer could use one
special account for the customers of all the broker-dealers with which
it does business.\35\
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    \33\ See NAVA Letter. NAVA also stated that, in its experience,
``unaffiliated broker-dealers do not forward customer funds prior to
principal approval.'' Id. In this regard, FINRA noted that SM.03
allows a broker-dealer to forward checks/funds under certain
circumstances prior to principal approval; it does not require it.
Moreover, the Commission's previous exemptive order allowing firms
to hold checks for up to seven business days to complete the
principal review applies under the proposed amendments. See FINRA's
Response, supra note 7.
    \34\ See FINRA's Response, supra note 7.
    \35\ Id.
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    One commenter asked whether an insurance company could return
customer checks/funds to the broker-dealer rather than directly to the
customer if the broker-dealer's principal rejects the transaction.\36\
FINRA responded that the insurance company may make checks payable to
the broker-dealer if the broker-dealer is permitted to hold customer
funds.\37\ If broker-dealers that are not authorized to hold customer
funds receive checks from the insurance company, they should be payable
to the customer. In those cases, FINRA stressed that broker-dealers
must forward such checks to their customers ``promptly'' and keep an
incoming and outgoing record of the customer checks, as well as any
other funds that are remitted to the broker-dealer.\38\
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    \36\ See CAI Letter.
    \37\ See FINRA's Response, supra note 7. As FINRA and the
Commission previously have noted, ``Many broker-dealers are subject
to lower net capital requirements under [Exchange Act] Rule 15c3-1
and are exempt from the requirement to establish and fund a customer
reserve account under [Exchange Act] Rule 15c3-3 because they do not
carry customer funds or securities.'' Securities Exchange Act
Release No. 56376 (September 7, 2007), 72 FR 52400 (September 13,
2007). Although some of these firms receive checks from customers
made payable to third parties, the Commission does not deem a firm
to be carrying customer funds if it ``promptly transmits'' the
checks to third parties. The Commission has interpreted ``promptly
transmits'' to mean that ``such transmission or delivery is made no
later than noon of the next business day after receipt of such funds
or securities.'' Id. In conjunction with its approval of NASD Rule
2821, the Commission provided an exemption to the ``promptly
transmits'' requirement as long as, among other things, the
``principal has reviewed and determined whether he or she approves
of the purchase or exchange of the deferred variable annuity within
seven business days in accordance with [Rule 2821].'' Id. The
Commission's exemptive order remains applicable notwithstanding the
modification to the event that triggers the principal review period.
See discussion in Section III.B, supra of the amendment to rule
2821(c) establishing the timing for principal review.
    \38\ See FINRA's Response, supra note 7.
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    Finally, one commenter expressed confusion regarding this
provision, stating that ``the insurance company would necessarily have
a claim for payment if an application is approved and a contract
issued, while the member would necessarily have a claim for a return of
the funds if the application is not approved and the contract is not
issued.'' \39\ FINRA responded that it did not intend to suggest that
the funds had to remain in a segregated bank account of the type
referenced in SM.03 in perpetuity, but only until such time as the
insurance company is notified of the broker-dealer's approval and is
provided with the application, or is notified of the broker-dealer's
rejection of the application.\40\
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    \39\ See NAVA Letter.
    \40\ See FINRA's Response, supra note 7. Under the rule as
amended by Amendment No. 1, there could be delays between the time
when a principal approves an application and the time when an
insurer receives the approved application (e.g., when a broker-
dealer conveys principal approval to the insurer electronically but
sends an approved application via regular mail), thereby creating a
situation where the funds in a suspense account are released before
the insurance company has received the application. Amendment No. 2
clarifies that the insurance company must receive both a
notification of approval and the application before funds can be
released from the suspense account.
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2. Inquiries About Exchanges
    One commenter supported FINRA's proposal to clarify, in Rule
2821(b)(1)(B)(iii) and SM.05, that an analysis of whether the customer
has had another recent exchange should include exchanges at other
broker-dealers, but suggested that broker-dealers should be required to
do more than simply ask the customer whether he or she has had another
exchange.\41\ The commenter explained that variable annuity
transactions can be complex and confusing, and that some customers
might not understand that they had engaged in previous exchanges.\42\
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    \41\ See PIABA Letter. The rule currently states that the
broker-dealer must consider whether ``the customer's account has had
another deferred variable annuity exchange within the preceding 36
months.'' The proposal would eliminate the reference to an
``account.''
    \42\ Id.
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    FINRA responded that requiring broker-dealers to investigate
whether the customer has in fact had another exchange at another
broker-dealer is overly burdensome in light of the potential benefits.
FINRA indicated that instances of customer confusion regarding whether
or not an exchange had occurred would likely be the exception rather
than the rule.\43\ FINRA further noted that SM.05 requires that a
broker-dealer determine whether a customer has had another exchange at
that firm and that, solely for exchanges that occurred at other firms,
is permitted to rely on a customer's response to an inquiry regarding
possible exchanges by the customer at other broker-dealers.\44\ In
addition, FINRA reiterated the SM.05 requirement that broker-dealers
document in writing both the nature of the inquiry and the response
from the customer.\45\ FINRA stated that it believes that this
requirement would help ensure that broker-dealers ask customers about
exchanges in a manner that is reasonably calculated to elicit accurate
responses.\46\
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    \43\ See FINRA's Response, supra note 7.
    \44\ Id.
    \45\ Id.
    \46\ Id.
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D. Effective Date of the Proposed Amendments

    Some commenters requested a delay in the effective date of the
proposed rule change of between 12 and 18 months.\47\ One commenter
stated that the method by which the effective dates would be determined
has been confusing.\48\ Although FINRA believes that a delay of 12 to
18 months would be unreasonably long,\49\ it nevertheless agreed to
delay the effective date until 240 days following publication of the
Regulatory Notice announcing Commission approval. FINRA will announce
the effective date of the proposed rule change in a Regulatory Notice
to be published no later than 60 days following Commission approval.
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    \47\ See e.g., ACLI Letter, CAI Letter.
    \48\ See CAI Letter II.
    \49\ See FINRA's Response, supra note 7.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and
arguments concerning whether the proposed rule change as modified by
Amendment Nos. 1 and 2 is consistent with the Exchange 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 e-mail to<EMAIL_ADDRESS>Please include
File

Number SR-FINRA-2008-019 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-FINRA-2008-019. This
file number should be included on the subject line if e-mail 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 inspection
and copying in the Commission's Public Reference Room, 100 F Street,
NE., Washington, DC 20549, on official business days between the hours
of 10 a.m. and 3 p.m. Copies of such filing also will be available for
inspection and copying at the principal office of FINRA. 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-FINRA-2008-019 and should be
submitted on or before May 13, 2009.

V. Discussion and Findings

    After careful review of the proposal and consideration of the
comment letters and FINRA's Response, the Commission finds that the
proposed rule change, as amended, is consistent with the requirements
of the Exchange Act and the rules and regulations thereunder applicable
to FINRA.\50\ In particular, the Commission finds that the proposed
rule change is consistent with Section 15A(b)(6) of the Exchange
Act,\51\ which requires, among other things, that FINRA's rules be
designed to prevent fraudulent and manipulative acts and practices, 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.
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    \50\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \51\ 15 U.S.C. 78o-3(b)(6).
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    The Commission finds that the proposed rule change, as amended, is
reasonably designed to accomplish these ends by creating a mechanism
through which policies and procedures that are designed to ensure that
recommended variable annuity transactions are properly identified and
subject to timely principal review are put in place. As FINRA noted,
while most variable annuity transactions are ``recommended,'' whether
by a registered representative or an Internet-based computer system,
and thus would be subject to principal review, there are some broker-
dealers that do not make any recommendations as part of a business
model that provides lower cost products.\52\ The Commission believes
that principal review is less necessary when a particular variable
annuity transaction is not recommended. Accordingly, the Commission
believes that the rule change strikes the proper balance between
investor protection and efficiency by requiring principal review of
recommended transactions while, at the same time, removing an
unnecessary impediment to the purchase of these investments by
investors who do not need or seek a recommendation.
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    \52\ See FINRA's Response, supra note 7.
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    In addition, the Commission believes that FINRA struck a reasonable
balance with regard to the timeframe during which variable annuity
transactions must be reviewed by a principal. Requiring the seven-
business-day review requirement to begin at the time that a signed and
completed application is received by an OSJ will encourage the OSJ that
received the application to route it, within a reasonable time, to the
principal required to review it. We are not persuaded that the
principal review clock should begin to run when any office of a broker-
dealer receives an application because of the practical delays often
associated with processing an application and routing it to the
appropriate person. We also are not persuaded that the principal review
clock should be delayed until a particular OSJ receives the
application, because doing so could result in undue delays to the
prompt processing and completion of an investor's transaction.
    The Commission gave careful consideration to the comments raised
regarding the forwarding of customer funds during the period when an
application is under principal review. We believe that until a
transaction has been approved or denied, segregation of customer funds
in a special account similar in form and function as those described in
Exchange Act Rules 15c3-3(k)(2)(i) and 15c3-3(f) \53\ offers the best
assurance that investors' funds will be safeguarded in a manner that
most closely parallels the protective features of the Federal
securities laws, and that investors in different products should
receive similar treatment. Specifically, when an investor purchases a
non-variable annuity investment through a broker-dealer, she is
protected by the Securities Investor Protection Corporation in the
event the broker-dealer becomes insolvent. Because insurance companies
are subject to a different regulatory scheme than broker-dealers,
including differences resulting from variation in State insurance laws,
we believe deferred variable annuity investors are best protected by a
rule that closely mimics the protections and safeguards governing other
investors. Consequently, we believe that FINRA's proposed rule change
strikes a fair balance between the practical needs of broker-dealers
associated with transmitting funds to insurance companies and
protecting investors from the possibility that an insurance company may
become insolvent.
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    \53\ 17 CFR 240.15c3-3(k)(2)(i), 15c3-3(f).
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    With regard to FINRA's proposed requirement that broker-dealers
determine the number of prior customer exchanges, the Commission agrees
with FINRA that it is reasonable and appropriate for a broker-dealer to
be required to determine the number of exchanges that have occurred at
the firm itself. We believe this burden should be minimal, in that the
broker-dealer will have ready access to that information from its books
and records. The Commission also believes that it is reasonable to rely
on a customer's representations regarding exchanges conducted at other
firms given that most customers are in a good position to know whether
they have made any exchanges. While a customer's recollection of this
information may not always be fully accurate, the burdens associated
with requiring broker-dealers to obtain this information through other
means outweigh the benefits of any potential improvement in accuracy.
Moreover, this requirement is designed to help ensure that broker-
dealers ask about customers' exchanges in a manner that is reasonable
calculated to elicit accurate responses from customers

when they are asked about exchanges at other broker-dealers.
    Finally, given the rule's operational impact, we believe that it is
appropriate for its effective date to be delayed by 240 days following
publication of the Regulatory Notice announcing Commission approval.
This should provide sufficient time for broker-dealers and any other
affected parties to make necessary changes to their systems and
procedures without undue further delay of the rule's implementation.
    In approving Rule 2821, the Commission took note of the numerous
examinations of, and enforcement actions against, broker-dealers
involving the sale of variable annuity products.\54\ We understood that
many FINRA enforcement actions against broker-dealers involved
unsuitable recommendations of variable annuities and noted that the
rule was designed to curb these sales practice abuses.\55\ Rule 2821
has been subject to a thorough notice and comment process, and these
amendments to the rule respond directly to comments and questions
raised by commenters. For that reason, we believe that it is
appropriate to finalize the rule in order to provide broker-dealers and
others affected by it with the clarity needed to make operational and
systems changes required to implement the rule and achieve the investor
protections for which it is designed. Accordingly, based on the
foregoing reasons, the Commission believes that good cause exists,
consistent with Sections 15A(b)(6) \56\ and 19(b)(2) \57\ of the
Exchange Act, to approve the proposed rule change.
---------------------------------------------------------------------------

    \54\ See Securities Exchange Act Release No. 56375 (September 7,
2007), 72 FR 52403, 52411 (September 13, 2007).
    \55\ Id.
    \56\ 15 U.S.C. 78o-3(b)(6).
    \57\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    The Commission also finds good cause for approving the proposed
rule change as modified by Amendment Nos. 1 and 2 prior to the
thirtieth day after the date of publication of notice in the Federal
Register. Amendment No. 1 originally indicated that funds had to remain
in a segregated bank account until such time as the insurance company
is notified of the broker-dealer's approval or rejection of the
application. Under the rule as amended by Amendment No. 1, there could
be delays between the time when a principal approves an application and
the time when an insurer receives the approved application (e.g., when
a broker-dealer conveys principal approval to an insurer electronically
but sends an approved application via regular mail), thereby creating a
situation where the funds in a suspense account are released before the
insurance company has received the application necessary to issue the
contract. Therefore, Amendment No. 2 clarifies that the insurance
company must receive both a notification of approval and the
application before funds can be released from the suspense account.
Because these amendments do not significantly alter the proposed rule,
which was subject to a full notice and comment period, the Commission
finds that it is in the public interest to approve the proposed rule
change, as modified by Amendment Nos. 1 and 2, as soon as possible to
expedite their implementation. Accordingly, the Commission finds that
there is good cause, consistent with and in furtherance of the
objectives of Sections 15A(b)(6) \58\ and 19(b)(2) \59\ of the Exchange
Act, to approve Amendment Nos. 1 and 2 on an accelerated basis.
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78o-3(b)(6).
    \59\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\60\ that the proposed rule change (SR-FINRA-2008-019), as
modified by Amendment Nos. 1 and 2, be and hereby is, approved on an
accelerated basis.
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\61\
---------------------------------------------------------------------------

    \61\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-9159 Filed 4-21-09; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register Volume 80, Number 240 (Tuesday, December 15, 2015)]
[Notices]
[Pages 77683-77684]
[FR Doc No: 2015-31444]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76603; File No. SR-EDGX-2015-58]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of a Proposed Rule Change Related to
Fees for Use of EDGX Exchange, Inc.

 December 9, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on December 1, 2015, EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. The
Exchange has designated the proposed rule change as one establishing or
changing a member due, fee, or other charge imposed by the Exchange
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2)
thereunder,\4\ which renders the proposed rule change effective upon
filing with the Commission. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange filed a proposal to amend its fees and rebates
applicable to Members \5\ of the Exchange pursuant to EDGX Rule 15.1(a)
and (c) (``Fee Schedule'') to increase the fee for orders yielding fee
code K, which routes to NASDAQ OMX PSX (``PSX'') using ROUC or ROUE
routing strategy.
---------------------------------------------------------------------------

    \5\ The term ``Member'' is defined as ``any registered broker or
dealer, or any person associated with a registered broker or dealer,
that has been admitted to membership in the Exchange. A Member will
have the status of a ``member'' of the Exchange as that term is
defined in Section 3(a)(3) of the Act.'' See Exchange Rule 1.5(n).
---------------------------------------------------------------------------

    The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.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 parts of such
statements.

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

1. Purpose
    The Exchange proposes to increase the fee for orders yielding fee
code K, which routes to PSX using ROUC or ROUE routing strategy. In
securities priced at or above $1.00, the Exchange currently assesses a
fee of $0.0028 per share for Members' orders that yield fee code K. The
Exchange proposes to amend its Fee Schedule to increase this fee to
$0.0029 per share. The proposed change would enable the Exchange to
pass through the rate that BATS Trading, Inc. (``BATS Trading''), the
Exchange's affiliated routing broker-dealer, is charged for routing
orders to PSX when it does not qualify for a volume tiered reduced fee.
The proposed change is in response to PSX's December 2015 fee change
where PSX increased the fee to remove liquidity via routable order
types it charges its customers, from a fee of $0.0027 per share to a
fee of $0.0028 per share for Tapes A and B securities and from a fee of
$0.0028 per share to $0.0029 per share for Tape C securities.\6\ When
BATS Trading routes to PSX, it will now be charged a standard rate of
$0.0028 per share for Tapes A and B securities and $0.0029 per share
for Tape C securities.\7\ BATS Trading will pass through this rate to
the Exchange and the Exchange, in turn, will pass through of a rate of
$0.0029 per share for Tape A, B, and C securities to its Members.\8\
The proposed increase to the fee under fee code K would enable the
Exchange to equitably allocate its costs among all Members utilizing
fee code K. The Exchange proposes to implement this amendment to its
Fee Schedule immediately.
---------------------------------------------------------------------------

    \6\ See Equity Trader Alert 2015-189, available at http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA-2015-189.
    \7\ The Exchange notes that to the extent BATS Trading does or
does not achieve any volume tiered reduced fee on PSX, its rate for
fee code K will not change.
    \8\ The Exchange notes that, due to billing system limitations
that do not allow for separate rates by tape, it will pass through
the higher fee of $0.0029 per share for all Tapes A, B & C
securities.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\9\ in general, and
furthers the objectives of Section 6(b)(4),\10\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its Members and other persons using its
facilities. The Exchange believes that its proposal to increase the fee
for Members' orders that yield fee code K represents an equitable
allocation of reasonable dues, fees, and other charges among Members
and other persons using its facilities because the Exchange does not
levy additional fees or offer additional rebates for orders that it
routes to PSX through BATS Trading. As of December 1, 2015, PSX
increased the fee to remove liquidity from a fee of $0.0027 per share
to a fee of $0.0028 per share for Tapes A and B securities and from a
fee of $0.0028 per share to $0.0029 per share for Tape C
securities.\11\ Therefore, the Exchange believes that its proposal to
pass through a fee of $0.0029 per share for orders that yield fee code
K is equitable and reasonable because it accounts for the pricing
changes on PSX. In addition, the proposal allows the Exchange to now
charge its Members a pass-through rate for orders that are routed to
PSX.

Furthermore, the Exchange notes that routing through BATS Trading is
voluntary. Lastly, the Exchange also believes that the proposed
amendment is non-discriminatory because it applies uniformly to all
Members.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ See supra note 4.
---------------------------------------------------------------------------

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

    This proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act. The Exchange does not believe that this change represents a
significant departure from previous pricing offered by the Exchange or
pricing offered by the Exchange's competitors. Additionally, Members
may opt to disfavor the Exchange's pricing if they believe that
alternatives offer them better value. Accordingly, the Exchange does
not believe that the proposed changes will impair the ability of
Members or competing venues to maintain their competitive standing in
the financial markets. The Exchange believes that its proposal to pass
through a fee of $0.0029 per share for Members' orders that yield fee
code K would increase intermarket competition because it offers
customers an alternative means to route to PSX. The Exchange believes
that its proposal would not burden intramarket competition because the
proposed rate would apply uniformly to all Members.

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

    The Exchange has not solicited, and does not intend to solicit,
comments on this proposed rule change. The Exchange has not received
any unsolicited written comments from Members or other interested
parties.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \12\ and paragraph (f) of Rule 19b-4
thereunder.\13\ At any time within 60 days of the filing of the
proposed rule change, the Commission summarily may temporarily suspend
such rule change if it appears to the Commission that such action is
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A).
    \13\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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-EDGX-2015-58 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-EDGX-2015-58. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-EDGX-2015-58, and should be
submitted on or before January 5, 2016.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2015-31444 Filed 12-14-15; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 79, Number 101 (Tuesday, May 27, 2014)]
[Notices]
[Pages 30137-30138]
[FR Doc No: 2014-12166]

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ENVIRONMENTAL PROTECTION AGENCY

[FRL-9911-39-OA]

Notification of a Public Teleconference of the Clean Air
Scientific Advisory Committee Augmented Sulfur Oxides Primary NAAQS
Review Panel

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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

SUMMARY: The Environmental Protection Agency (EPA) Science Advisory
Board (SAB) Staff Office announces a public teleconference of the Clean
Air Scientific Advisory Committee (CASAC) Augmented Sulfur Oxides
Primary National Ambient Air Quality Standards (NAAQS) Review Panel to
discuss its draft review of EPA's Integrated Review Plan for the
Primary National Ambient Air Quality Standard for Sulfur Dioxide
(External Review Draft).

DATES: The CASAC will hold a teleconference on Wednesday, June 11,
2014, from 1:00 p.m. to 4:00 p.m. (Eastern Time).

ADDRESSES: The CASAC public teleconference will take place via
telephone only.

FOR FURTHER INFORMATION CONTACT: Any member of the public who wants
further information concerning the CASAC's public teleconference may
contact Dr. Diana Wong, Designated Federal Officer (DFO) via telephone
at<PHONE_NUMBER> or email at<EMAIL_ADDRESS>General information
concerning the CASAC can be found on the EPA Web site at http://www.epa.gov/casac.

SUPPLEMENTARY INFORMATION: The CASAC was established pursuant to the
Clean Air Act (CAA) Amendments of 1977, codified at 42 U.S.C.
7409D(d)(2), to review air quality criteria and NAAQS and recommend any
new NAAQS and revisions of existing criteria and NAAQS as may be
appropriate. The CASAC shall also provide advice, information, and
recommendations to the Administrator on the scientific and technical
aspects of issues related to the criteria for air quality standards,
research related to air quality, sources of air pollution, and of
adverse effects which may result from various strategies to attain and
maintain air quality standards. The CASAC is a Federal Advisory
Committee chartered under the Federal Advisory Committee Act (FACA), 5
U.S.C., App. 2. Section 109(d)(1) of the CAA requires that the Agency
periodically review and revise, as appropriate, the air quality
criteria and the NAAQS for the six ``criteria'' air pollutants,
including oxides of sulfur. EPA is currently reviewing the primary
(health-based) NAAQS for sulfur dioxide (SO2), as an
indicator for health effects caused by the presence of oxides of sulfur
in the ambient air and has requested CASAC advice.
    For purposes of the review of the sulfur oxides air quality
criteria for health and the primary NAAQS for sulfur dioxide, the CASAC
Augmented Sulfur Oxides Review Panel was formed following a request for
public nominations of experts (78 FR 43880--43881, July 22, 2013), and
held a public teleconference on April 22, 2014 (as noticed in 79 FR
16325-16326) to peer review EPA's Integrated Review Plan for the
Primary National Ambient Air Quality Standard for Sulfur Dioxide
(External Review Draft- March 2014). Information about this review
activity may be found on the CASAC Web site at http://yosemite.epa.gov/sab/sabproduct.nsf/fedrgstr_activites/SO_2%20Primary%20NAAQS%20Review?OpenDocument.
    Pursuant to FACA and EPA policy, notice is hereby given that the
CASAC Augmented Sulfur Oxides Primary NAAQS Review Panel will hold a
public teleconference to discuss CASAC's draft review of this EPA
document. The CASAC Augmented Sulfur Oxides Review Panel will comply
with the provisions of FACA and all appropriate SAB Staff Office
procedural policies.
    Technical Contacts: Any technical questions concerning the
Integrated Review Plan for the Primary National Ambient Air Quality
Standard for Sulfur Dioxide (External Review Draft--March 2014) should
be directed to Dr. Michael Stewart (stewart.michael@epa.gov).
    Availability of Meeting Materials: Prior to the teleconference, the
CASAC draft report, agenda and other materials will be accessible
through the calendar link on the blue navigation bar at http://www.epa.gov/casac/.
    Procedures for Providing Public Input: Public comment for
consideration by EPA's federal advisory committees and panels has a
different purpose from public comment provided to EPA program offices.
Therefore, the process for submitting comments to a federal advisory
committee is different from the process used to submit comments to an
EPA program office.
    Federal advisory committees and panels, including scientific
advisory committees, provide independent advice to EPA. Members of the
public can submit relevant comments for a federal advisory committee to
consider as it develops advice for EPA. Interested members of the
public may submit relevant written or oral information on the topic of
this advisory activity, and/or the group conducting the activity, for
the CASAC to consider during the advisory process. Input from the
public to the CASAC will have the most impact if it provides specific
scientific or technical information or analysis for CASAC panels to
consider or if it relates to the clarity or accuracy of the technical
information. Members of the public wishing to provide comment should
contact the DFO directly. Oral Statements: In general, individuals or
groups requesting an oral presentation on a public teleconference will
be limited to three minutes. Each person making an oral statement
should consider providing written comments as well as their oral
statement so that the points presented orally can be expanded upon in
writing. Interested parties should contact Dr. Diana Wong, DFO, in
writing (preferably via email) at the contact information noted above
by June 4, 2014 to be placed on the list of public speakers. Written
Statements: Written statements should be supplied to Dr. Diana Wong,
DFO, via email at the contact information noted above by June 4, 2014
so that the information may be made available to the Panel members for
their consideration. Written statements should be supplied in one of
the following electronic formats: Adobe Acrobat PDF, MS Word, MS
PowerPoint, or Rich Text files in IBM-PC/Windows 98/2000/XP format. It
is the SAB Staff Office general policy to post written comments on the
Web page for advisory meetings or teleconferences. Submitters are
requested to provide an unsigned version of each document because the
SAB Staff Office does not publish documents with signatures on its Web
sites. Members of the public should be aware that their personal
contact information, if included in any written

comments, may be posted to the CASAC Web site. Copyrighted material
will not be posted without explicit permission of the copyright holder.
    Accessibility: For information on access or services for
individuals with disabilities, please contact Dr. Diana Wong at (202)
564-2049 or<EMAIL_ADDRESS>To request accommodation of a
disability, please contact Dr. Diana Wong preferably at least ten days
prior to the teleconference to give EPA as much time as possible to
process your request.

    Dated: May 13, 2014.
Thomas H. Brennan,
Deputy Director, EPA Science Advisory Board Staff Office.
[FR Doc. 2014-12166 Filed 5-23-14; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register: September 17, 2008 (Volume 73, Number 181)]
[Rules and Regulations]
[Page 53721-53725]
[DOCID:fr17se08-9]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 180

[EPA-HQ-OPP-2006-0791; FRL-8374-1]

Inert Ingredient: Exemption From the Requirement of a Tolerance
for amylopectin, acid-hydrolyzed, 1-octenylbutanedioate and for
amylopectin, hydrogen 1-octadecenylbutanedioate

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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

SUMMARY: This regulation establishes exemptions from the requirement of
a tolerance for residues of amylopectin, acid-hydrolyzed, 1-
octenylbutanedioate (CAS Reg. No. 113894-85-2) and for amylopectin,
hydrogen 1-octadecenylbutanedioate (CAS Reg. No. 125109-81-1) when used
in antimicrobial formulations (food-contact surface sanitizing
solutions) under 40 CFR 180.940(a), and when used in accordance with
good agricultural or manufacturing practice under 40 CFR 180.950. The
petitioner, Lewis & Harrison, LLC, on behalf of Alco Chemical,
submitted a petition to EPA under the Federal Food, Drug, and Cosmetic
Act (FFDCA), as amended by the Food Quality Protection Act of 1996
(FQPA), requesting an exemption from the requirement of a tolerance.
This

regulation eliminates the need to establish a maximum permissible level
for residues of amylopectin, acid-hydrolyzed, 1-octenylbutanedioate and
amylopectin, hydrogen 1-octadecenylbutanedioate.

DATES: This regulation is effective September 17, 2008. Objections and
requests for hearings must be received on or before November 17, 2008,
and must be filed in accordance with the instructions provided in 40
CFR part 178 (see also Unit I.C. of the SUPPLEMENTARY INFORMATION).

ADDRESSES: EPA has established a docket for this action under docket
identification (ID) number EPA-HQ-OPP-2006-0791. To access the
electronic docket, go to http://www.regulations.gov, select ``Advanced
Search,'' then ``Docket Search.'' Insert the docket ID number where
indicated and select the ``Submit'' button. Follow the instructions on
the regulations.gov website to view the docket index or access
available documents. All documents in the docket are listed in the
docket index available in regulations.gov. Although listed in the
index, some information is not publicly available, e.g., Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. Certain other material, such as copyrighted
material, is not placed on the Internet and will be publicly available
only in hard copy form. Publicly available docket materials are
available either in the electronic docket at http://
www.regulations.gov, or, if only available in hard copy, at the OPP
Regulatory Public Docket in Rm. S-4400, One Potomac Yard (South Bldg.),
2777 S. Crystal Dr., Arlington, VA. The Docket Facility is open from
8:30 a.m. to 4 p.m., Monday through Friday, excluding legal holidays.
The Docket Facility telephone number is<PHONE_NUMBER>.

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

I. General Information

A. Does this Action Apply to Me?

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

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

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

C. Can I File an Objection or Hearing Request?

    Under section 408(g) of FFDCA, as amended by FQPA, any person may
file an objection to any aspect of this regulation and may also request
a hearing on those objections. The EPA procedural regulations which
govern the submission of objections and requests for hearings appear in
40 CFR part 178. You must file your objection or request a hearing on
this regulation in accordance with the instructions provided in 40 CFR
part 178. To ensure proper receipt by EPA, you must identify docket ID
number EPA-HQ-OPP-2006-0791 in the subject line on the first page of
your submission. All requests must be in writing, and must be mailed or
delivered to the Hearing Clerk on or before November 17, 2008.
    In addition to filing an objection or hearing request with the
Hearing Clerk as described in 40 CFR part 178, please submit a copy of
the filing that does not contain any CBI for inclusion in the public
docket that is described in ADDRESSES. Information not marked
confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA
without prior notice. Submit your copies, identified by docket ID
number EPA-HQ-OPP-2006-0791, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov.
Follow the on-line instructions for submitting comments.
     Mail: Office of Pesticide Programs (OPP) Regulatory Public
Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania
Ave., NW. Washington, DC 20460-0001.
     Delivery: OPP Regulatory Public Docket (7502P),
Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South
Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only
accepted during the Docket's normal hours of operation (8:30 a.m. to 4
p.m., Monday through Friday, excluding legal holidays). Special
arrangements should be made for deliveries of boxed information. The
Docket Facility telephone number is<PHONE_NUMBER>.

II. Background and Statutory Findings

    In the Federal Register of December 20, 2006 (71 FR 76321) (FRL-
8104-4), EPA issued a notice pursuant to section 408 of FFDCA, 21
U.S.C. 346a, as amended by FQPA (Public Law 104-170), announcing the
filing of a pesticide petition (PP 6E7083) by Lewis & Harrison, LLC, on
behalf of Alco Chemical, 122 C St., NW., Suite 740, Washington, DC
20001. The petition requested that 40 CFR 180.940(a) and 40 CFR 180.950
be amended by establishing exemptions from the requirement of a
tolerance for residues of amylopectin, acid-hydrolyzed, 1-
octenylbutanedioate (CAS Reg. No. 113894-85-2) and amylopectin,
hydrogen 1-octadecenylbutanedioate (CAS Reg. No. 125109-81-1) when used
in antimicrobial formulations (food-contact surface sanitizing
solutions) under 40 CFR 180.940(a) and when used in accordance with
good agricultural or manufacturing practice under 40 CFR 180.950. That
notice included a summary of the petition prepared by the petitioner.
There were no comments received in response to the notice of filing.
For ease of reading in this document amylopectin, acid-hydrolyzed, 1-
octenylbutanedioate (CAS Reg. No. 113894-85-2) and amylopectin,
hydrogen 1-octadecenylbutanedioate (CAS Reg. No. 125109-81-1) are
referred to as starch octenylsuccinates.
    Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish an
exemption from the requirement for a tolerance (the legal limit for a
pesticide chemical residue in or on a food) only if EPA determines that
the tolerance is ``safe.''

Section 408(b)(2)(A)(ii) of FFDCA defines ``safe'' to mean that ``there
is a reasonable certainty that no harm will result from aggregate
exposure to the pesticide chemical residue, including all anticipated
dietary exposures and all other exposures for which there is reliable
information.'' This includes exposure through drinking water and in
residential settings, but does not include occupational exposure.
Section 408(b)(2)(C) of FFDCA requires EPA to give special
consideration to exposure of infants and children to the pesticide
chemical residue in establishing a tolerance and to ``ensure that there
is a reasonable certainty that no harm will result to infants and
children from aggregate exposure to the pesticide chemical residue. . .
.''
    EPA performs a number of analyses to determine the risks from
aggregate exposure to pesticide residues. First, EPA determines the
toxicity of pesticides. Second, EPA examines exposure to the pesticide
through food, drinking water, and through other exposures that occur as
a result of pesticide use in residential settings.

III. Toxicological Profile

    Consistent with section 408(b)(2)(D) of FFDCA, EPA has reviewed the
available scientific data and other relevant information in support of
this action and considered its validity, completeness and reliability
and the relationship of this information to human risk. EPA has also
considered available information concerning the variability of the
sensitivities of major identifiable subgroups of consumers, including
infants and children. The nature of the toxic effects caused by starch
octenylsuccinates are discussed in this unit.
    The following provides a brief summary of the risk assessment and
conclusions for the Agency's review of starch octenylsuccinates. The
Agency's full decision document for this action is available in EPA's
Electronic Docket at http://www.regulations.gov, under docket number
EPA-HQ-OPP-2006-0791.
    The toxicity database is sufficient for starch octenylsuccinates.
In terms of hazard, there are low concerns (practically non-toxic). In
subchronic and chronic toxicity feeding studies in rats, the results
show that the compound does not produce compound-related effects at
dietary concentrations as high as 30% of the diet (equivalent to 15
gram/kilogram/day (g/kg/day)). While no neurotoxicity studies where
submitted, neurotoxicity was not observed in the dietary studies at
concentrations as high as 30% (15 g/day) of the test material. The
compound does not suggest increased toxicity in young rats and all the
mutagenicity testing results were negative. The metabolism data showed
that with oral dosing in dogs, 14C-octenylsuccinate was
absorbed and eliminated via the urine and feces. The major route of
elimination was via urine (62-72% of the administered radioactivity).
No developmental toxicity studies are available in the data base.
However, in the dietary study conducted in rats fed octenylsuccinate
modified starch during gestation through post-natal day 90 at doses up
to 30% (15 g/day), there was no systemic toxicity in female rats and
their offspring.
    Furthermore, it should be noted that starch octenylsuccinate
anhydride is currently permitted by the U.S. Food and Drug
Administration (FDA) as a direct food additive under 21 CFR 172.892.

IV. Aggregate Exposures

    In examining aggregate exposure, section 408 of FFDCA directs EPA
to consider available information concerning exposures from the
pesticide residue in food and all other non-occupational exposures,
including drinking water from ground water or surface water and
exposure through pesticide use in gardens, lawns, or buildings
(residential and other indoor uses).
    For dietary exposures, application of starch octenylsuccinates to
food (including crops, meats, and fish) as inert ingredients in
pesticide products is not expected to result in significant human
exposure to starch octenylsuccinates residues considering their rapid
biodegradation in soil and water and lack of persistence in the
environment. For the same reason, significant drinking water exposures
from the use of these chemicals as inert ingredients in pesticide
formulations are not anticipated.
    In evaluating the potential for exposure from the use of starch
octenylsuccinates in residential pesticide products, inhalation
exposures are not anticipated since the compounds are not likely to
volatize and are not expected to be absorbed via inhalation due to
their large particle size. It is expected that dermal exposure is the
primary route of exposure; however, based on their molecular weight,
these chemicals are not likely to be absorbed via the dermal route.
Therefore, there is no concern for dermal exposure.
    Starch octenylsuccinates are widely used in a variety of consumer
products. An aggregate assessment for starch octenylsuccinates was not
conducted because the exposures to the chemicals by non-pesticide
consumer products are not likely to result in significant residues of
concern. Furthermore, starch octenylsuccinates are used as food
additives and are normal constituents of the human diet.

V. Cumulative Effects

    Section 408(b)(2)(D)(v) of FFDCA requires that, when considering
whether to establish, modify, or revoke a tolerance, the Agency
consider ``available information'' concerning the cumulative effects of
a particular pesticide's residues and ``other substances that have a
common mechanism of toxicity.'' Unlike other pesticides for which EPA
has followed a cumulative risk approach based on a common mechanism of
toxicity, EPA has not made a common mechanism of toxicity finding as to
starch octenylsuccinates and any other substances and, these materials
do not appear to produce a toxic metabolite produced by other
substances. For the purposes of this tolerance action, therefore, EPA
has not assumed that starch octenylsuccinates have a common mechanism
of toxicity with other substances. For information regarding EPA's
efforts to determine which chemicals have a common mechanism of
toxicity and to evaluate the cumulative effects of such chemicals, see
the policy statements released by EPA's Office of Pesticide Programs
concerning common mechanism determinations and procedures for
cumulating effects from substances found to have a common mechanism on
EPA's website at http://www.epa.gov/pesticides/cumulative/.

VI. Safety Factor for Infants and Children

    Section 408 of the FFDCA provides that EPA shall apply an
additional tenfold margin of safety for infants and children in the
case of threshold effects to account for prenatal and postnatal
toxicity and the completeness of the database on toxicity and exposure
unless EPA determines that a different margin of safety will be safe
for infants and children. Margins of safety are incorporated into EPA
risk assessments either directly through use of a MOE analysis or
through using uncertainty (safety) factors in calculating a dose level
that poses no appreciable risk to humans. The toxicity database is
sufficient for starch octenylsuccinates and potential exposure is
adequately characterized given the low toxicity of starch
octenylsuccinates. In terms of hazard, there are low concerns
(practically non-toxic) and no residual

uncertainties regarding prenatal and/or postnatal toxicity. No
developmental toxicity studies are available in the data base. However,
in the dietary study conducted in rats fed octenylsuccinate modified
starch during gestation through post-natal day 90 at doses up to 30%
(15 g/day), there was no systemic toxicity in female rats and their
offspring. Based on lack of any systemic toxicity at doses up to 15 g/
day in rats, lack of any apparent developmental effects, and lack of
any systemic toxicity in weanlings at doses up to 15 g/day, EPA
concluded that there is no evidence of increased susceptibility to
infants and children. Given the low toxicity of starch
octenylsuccinates, a safety factor analysis has not been used to assess
risk. For similar reasons, including the lack of any concern regarding
increased sensitivity in the young, the additional 10X FQPA safety
factor for protection of infants and children is not necessary.

VII. Determination of Safety

    The toxicity database is sufficient for the risk assessment of
starch octenylsuccinates as specified. In terms of hazard, there are
low concerns (practically non-toxic). The toxicity database does not
indicate susceptibility in fetuses, thus there is no concern at this
time for increased sensitivity to infants and children to starch
octenylsuccinates when used as ingredients in pesticide formulations.
    Dietary (food and drinking water) exposures of concern are not
anticipated from the use of starch octenylsuccinate as inert
ingredients in pesticide and non-pesticide products, considering their
rapid biodegradation in soil and water and lack of persistence in the
environment. Inhalation and dermal exposures of concern from the use of
these chemicals as inert ingredients in pesticide products in
residential settings are not anticipated because these compounds are
not likely to volatize and are not expected to be absorbed due to their
large particle size.
    Considering their low toxicity (practically non-toxic), ready
biodegradation in soil and water, and lack of persistence in the
environment, it is unlikely that dietary and residential exposures of
concern would result from the use of starch octenylsuccinates as
ingredients in pesticides. An aggregate assessment for starch
octenylsuccinates was not conducted because the exposures to the
chemicals by non-pesticide consumer products are not likely to result
in significant residues of concern.
    Based on this information, EPA concludes that starch
octenylsuccinates do not pose a risk to the general population, or to
infants and children, under reasonably foreseeable circumstances.
Therefore, EPA finds that the exemptions from the requirement of a
tolerance for amylopectin, acid-hydrolyzed, 1-octenylbutanedioate (CAS
Reg. No. 113894-85-2) and for amylopectin, hydrogen 1-
octadecenylbutanedioate (CAS Reg. No. 125109-81-1) when used in
antimicrobial formulations (food-contact surface sanitizing solutions)
under 40 CFR 180.940(a), and when used in accordance with good
agricultural or manufacturing practice under 40 CFR 180.950 will be
safe under section 408(c) of FFDCA and is granting the requested
tolerance exemptions.

VIII. Other Considerations

A. Analytical Method

    An analytical method is not required for enforcement purposes since
the Agency is establishing an exemption from the requirement of a
tolerance without any numerical limitation.

B. International Tolerances

    The Agency is not aware of any country requiring a tolerance for
amylopectin, acid-hydrolyzed, 1-octenylbutanedioate (CAS Reg. No.
113894-85-2) and for amylopectin, hydrogen 1-octadecenylbutanedioate
(CAS Reg. No. 125109-81-1) nor have any CODEX Maximum Residue Levels
(MRLs) been established for any food crops at this time.

IX. Statutory and Executive Order Reviews

    This final rule establishes a tolerance under section 408(d) of
FFDCA in response to a petition submitted to the Agency. The Office of
Management and Budget (OMB) has exempted these types of actions from
review under Executive Order 12866, entitled Regulatory Planning and
Review (58 FR 51735, October 4, 1993). Because this final rule has been
exempted from review under Executive Order 12866, this final rule is
not subject to Executive Order 13211, Actions Concerning Regulations
That Significantly Affect Energy Supply, Distribution, or Use (66 FR
28355, May 22, 2001) or Executive Order 13045, entitled Protection of
Children from Environmental Health Risks and Safety Risks (62 FR 19885,
April 23, 1997). This final rule does not contain any information
collections subject to OMB approval under the Paperwork Reduction Act
(PRA), 44 U.S.C. 3501 et seq., nor does it require any special
considerations under Executive Order 12898, entitled Federal Actions to
Address Environmental Justice in Minority Populations and Low-Income
Populations (59 FR 7629, February 16, 1994).
    Since tolerances and exemptions that are established on the basis
of a petition under section 408(d) of FFDCA, such as the tolerance in
this final rule, do not require the issuance of a proposed rule, the
requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et
seq.) do not apply.
    This final rule directly regulates growers, food processors, food
handlers, and food retailers, not States or tribes, nor does this
action alter the relationships or distribution of power and
responsibilities established by Congress in the preemption provisions
of section 408(n)(4) of FFDCA. As such, the Agency has determined that
this action will not have a substantial direct effect on States or
tribal governments, on the relationship between the national government
and the States or tribal governments, or on the distribution of power
and responsibilities among the various levels of government or between
the Federal Government and Indian tribes. Thus, the Agency has
determined that Executive Order 13132, entitled Federalism (64 FR
43255, August 10, 1999) and Executive Order 13175, entitled
Consultation and Coordination with Indian Tribal Governments (65 FR
67249, November 9, 2000) do not apply to this final rule. In addition,
this final rule does not impose any enforceable duty or contain any
unfunded mandate as described under Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA) (Public Law 104-4).
    This action does not involve any technical standards that would
require Agency consideration of voluntary consensus standards pursuant
to section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272
note).

X. Congressional Review Act

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

List of Subjects in 40 CFR Part 180

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

    Dated: September 4, 2008.
Lois Rossi,
Director, Registration Division, Office of Pesticide Programs.

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

PART 180--[AMENDED]

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

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

0
2. Section 180.940 is amended by alphabetically adding entries to the
table in paragraph (a) to read as follows:

Sec.  180.940  Tolerance exemptions for active and inert ingredients
for use in antimicrobial formulations (Food-contact surface sanitizing
solutions).

    (a) * * *

----------------------------------------------------------------------------------------------------------------
                      Pesticide Chemical                              CAS Reg. No.                Limits
----------------------------------------------------------------------------------------------------------------
                                                  * * * * * * *
Amylopectin, acid-hydrolyzed, 1-oxtenylbutanedioate...........              113894-85-2                     none
Amylopectin, hydrogen 1-octadecenylbutanedioate...............              125109-81-1                     none
                                                  * * * * * * *
----------------------------------------------------------------------------------------------------------------

* * * * *

0
3. Section 180.950 is amended by alphabetically adding entries to the
table in paragraph (e) to read as follows:

Sec.  180.950  Tolerance exemptions for minimal risk active and inert
ingredients.

* * * * *
    (e) * * *

------------------------------------------------------------------------
                       Chemical                             CAS No.
------------------------------------------------------------------------
                                * * * * *
Amylopectin, acid-hydrolyzed, 1-octenylbutanedioate..        113894-85-2
Amylopectin, hydrogen 1-octadecenylbutanedioate......        125109-81-1
                                * * * * *
------------------------------------------------------------------------

[FR Doc. E8-21737 Filed 9-16-08; 8:45 am]

BILLING CODE 6560-50-S


[Federal Register: June 30, 2010 (Volume 75, Number 125)]
[Notices]
[Page 37864-37866]
[DOCID:fr30jn10-115]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62371; File No. SR-OCC-2010-04]

Self-Regulatory Organizations; The Options Clearing Corporation;
Notice of Filing of Proposed Rule Change To Revise Its By-Laws and
Rules To Establish a Clearing Fund Amount Intended To Support Losses
Under a Defined Set of Default Scenarios

June 24, 2009.
    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 March 16, 2010, The Options Clearing Corporation (``OCC'') filed
with the Securities and Exchange Commission (``Commission'') a proposed
rule change and on June 6, 2010, filed an amendment to the proposed
rule change. The proposed rule change, as amended, is described in

Items I, II, and III below, which Items have been substantially
prepared by OCC. The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, 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 purpose of this proposed rule change is to revise OCC's By-Laws
and Rules to establish a clearing fund amount intended to support
losses under a defined set of default scenarios.

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

    In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A),
(B), and (C) below, of the most significant aspects of these
statements.

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

1. Purpose
    This proposed rule change would revise OCC's By-Laws and Rules to
establish a clearing fund amount required to support losses under a
defined set of default scenarios. Currently, the amount of clearing
fund is calculated monthly and is based on a fixed percentage of the
average total daily margin requirements during the previous month.\3\
---------------------------------------------------------------------------

    \3\ Under the current formula, if 6% does not result in a
clearing fund amount of at least one billion dollars, then OCC
collects a higher percentage of the previous month's average daily
margin requirement that will result in a fund level of at least one
billion dollars. However, in no event is the percentage permitted to
exceed 7%.
---------------------------------------------------------------------------

    Under the proposed formula for determining the size of the clearing
fund, the level of the fund would be equal to the larger of the amount
of the charge to the fund that would result from (i) a default by the
single ``clearing member group'' the default of which would be likely
to result in the largest draw against the clearing fund or (ii) an
event involving the near-simultaneous default of two randomly-selected
``clearing member groups''.\4\ Initially, the confidence levels
employed by OCC in calculating the charge likely to result from a
default by OCC's largest ``clearing member group'' and the default of
two randomly-selected ``clearing member groups'' would be 99% and 99.9%
respectively. OCC would have discretion to employ different confidence
levels in these calculations but could not employ confidence levels of
less than 99%.\5\ The size of the clearing fund would continue to be
recalculated monthly based on average daily calculations for the
previous month. In no event would the size of the total clearing fund
be permitted to be less than one billion dollars.\6\
---------------------------------------------------------------------------

    \4\ The term ``clearing member group'' would be defined to mean
a clearing member and any member affiliates of such clearing member
(proposed new definition in Article I of OCC's By-Laws.).
    \5\ Proposed Interpretations & Policies .02 to Rule 1001.
    \6\ Proposed Interpretations & Policies .01 to Rule 1001.
---------------------------------------------------------------------------

    In considering whether to revise the clearing fund sizing formula,
OCC compared the size of the clearing fund that would have resulted
from application of the revised formula to the actual size of the
clearing fund for each month from February 2008 through September
2009.\7\ This analysis revealed that the size of the clearing fund
under the revised formula would have been on average 10% larger than
under the current formula. In September and October 2008, two months of
extreme volatility in the U.S. securities markets, the revised formula
would have resulted in a clearing fund size approximately 31% and 27%
greater than under the current formula. The average monthly change in
the size of the clearing fund and the standard deviation of clearing
fund size from month-to-month under the two formulas were broadly
similar.\8\
---------------------------------------------------------------------------

    \7\ The data used for this analysis was obtained prior to
implementation of the changes approved in SR-OCC-2007-20.
Accordingly, the data does not account for the effects those changes
had on OCC's clearing fund size calculation. SR-OCC-2007-20 allowed
certain securities to be analyzed as a single portfolio under OCC's
risk management methodology, the System for Theoretical Analysis and
Numerical Simulations (``STANS''), and consequently allowed OCC to
more accurately measure risk in Clearing Members accounts and more
precisely set margin requirements to reflect such risk.
    \8\ The comparative data described in this paragraph was
obtained using confidence levels of 99% and above. OCC estimates
that using only a 99% confidence level would have lowered the total
size of the clearing fund calculated using the proposed methodology
by an average of approximately one half of a percent.
---------------------------------------------------------------------------

    OCC believes the proposed new formula for calculating clearing fund
is a better predictor of losses that would be likely to result from the
default scenarios described above and would establish an adequate
clearing fund to cover losses without OCC having to require clearing
members to replenish the clearing fund. The existing formula for
determining the amount of clearing fund is intended to establish an
amount reasonably designed to cover losses resulting from one or more
clearing member defaults. OCC believes the formula adequately serves
that purpose. Nevertheless, OCC believes the proposed formula is a
better predictor of the actual losses likely to result from such
defaults. This is because the existing formula only indirectly accounts
for potential losses by setting the amount of the clearing fund as a
percentage of the previous month's average daily margin requirements.
In contrast, the proposed formula would directly account for various
types of default scenarios. Therefore, in OCC's view, the proposed
formula would be more likely to result in adequate clearing fund levels
if such scenarios occur and would more closely align the size of the
clearing fund with its intended purpose of absorbing losses from
clearing member defaults and avoid disruption of the clearance process
even during extreme market conditions. Article VIII, Section 6 of OCC's
By-Laws, which obligates clearing members to satisfy deficiencies in
their clearing fund deposits resulting from pro-rata charges or
otherwise,\9\ would remain unchanged.
---------------------------------------------------------------------------

    \9\ This is subject to a cap equal to 100% of a clearing
member's then-required deposit if it promptly withdraws from
membership and closes out or transfers its open positions.
---------------------------------------------------------------------------

    The specific amendments proposed to OCC's By-Laws and Rules to
facilitate the proposed changes to its clearing fund calculation, can
be found at http://www.optionsclearing.com/about/publications/
bylaws.jsp. If approved by the Commission, OCC would implement the
revised formula for determining the size of its clearing fund after
sixty days notice to clearing members.
2. Statutory Basis
    OCC believes the proposed rule changes are consistent with the
requirements of Section 17A of the Act \10\ and the rules and
regulations thereunder because the proposed rule changes would
facilitate prompt and accurate clearance and settlement of securities
transactions by creating a more direct correlation between the clearing
fund size and estimated losses from a defined set of default scenarios.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Competition

    OCC does not believe that the proposed rule change would impose any
burden on competition.

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

    Written comments relating to the proposed rule change have not been
solicited or received. OCC will notify the Commission of any written
comments received by OCC.

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

    Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the self-regulatory organization consents,
the Commission will:
    (A) By order approve the proposed rule change or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

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 e-mail to<EMAIL_ADDRESS>Please include
File Number SR-OCC-2010-04 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-OCC-2010-04. This file
number should be included on the subject line if e-mail 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 Section, 100 F Street,
NE., Washington, DC 20549-1090, on official business days between the
hours of 10 am and 3 pm. Copies of such filings will also be available
for inspection and copying at the principal office of the OCC and on
OCC's Web site at http://www.optionsclearing.com/about/publications/
bylaws.jsp. 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-OCC-
2010-04 and should be submitted on or  before July 21, 2010.
---------------------------------------------------------------------------

    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Trading and Markets,
---------------------------------------------------------------------------
pursuant to delegated authority.\11\

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15892 Filed 6-29-10; 8:45 am]
BILLING CODE 8010-01-P