[Federal Register Volume 85, Number 170 (Tuesday, September 1, 2020)]
[Notices]
[Pages 54461-54468]
[FR Doc No: 2020-19192]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89679; File No. SR-FINRA-2020-024]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a Proposed Rule Change To Delete
the FINRA Order Audit Trail System (OATS) Rules

August 26, 2020.
    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 August 14, 2020, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by FINRA. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    FINRA is proposing to eliminate the Order Audit Trail System
(``OATS'') rules in the FINRA Rule 7400 Series and FINRA Rule 4554
(Alternative Trading Systems--Recording and Reporting Requirements of
Order and Execution Information for NMS Stocks) once members are
effectively reporting to the consolidated audit trail (``CAT'') and the
CAT's accuracy and reliability meet certain standards, as described
below. The Rule 7400 Series and Rule 4554 are collectively referred to
herein as the ``OATS Rules.''
    The text of the proposed rule change is available on FINRA's
website at http://www.finra.org, at the principal office of FINRA 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, FINRA 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. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
(a) Background
    FINRA and the national securities exchanges (collectively, the
``Participants'') \3\ filed with the Commission, pursuant to Section
11A of the Exchange Act \4\ and Rule 608 of Regulation NMS
thereunder,\5\ the National Market System Plan Governing the
Consolidated Audit Trail (the ``CAT NMS Plan'' or ``Plan'').\6\ The
Participants filed the Plan to comply with Rule 613 of Regulation NMS
under the Exchange Act.\7\ The Plan was published for comment in the
Federal Register on May 17, 2016,\8\ and approved by the Commission, as
modified, on November 15, 2016.\9\ On March 15, 2017, the Commission
approved the FINRA Rule 6800 Series to implement provisions of the CAT
NMS Plan that are applicable to FINRA members.\10\
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    \3\ For a complete list of Participants, see Exhibit A to the
Limited Liability Company Agreement of Consolidated Audit Trail,
LLC, available at www.catnmsplan.com/sites/default/files/2020-07/LLC-Agreement-of-Consolidated-Audit-Trail-LLC-as-of-7.24.20.pdf.
    \4\ 15 U.S.C. 78k-1.
    \5\ 17 CFR 242.608.
    \6\ See Letter from the Participants to Brent J. Fields,
Secretary, Commission, dated September 30, 2014; and Letter from
Participants to Brent J. Fields, Secretary, Commission, dated
February 27, 2015. On December 24, 2015, the Participants submitted
an amendment to the CAT NMS Plan. See Letter from Participants to
Brent J. Fields, Secretary, Commission, dated December 23, 2015.
     Unless otherwise specified, capitalized terms used in this rule
filing are defined as set forth in the CAT Compliance Rule Series or
in the CAT NMS Plan.
    \7\ 17 CFR 242.613.
    \8\ See Securities Exchange Act Release No. 77724 (April 27,
2016), 81 FR 30614 (May 17, 2016).
    \9\ See Securities Exchange Act Release No. 79318 (November 15,
2016), 81 FR 84696 (November 23, 2016) (``Approval Order'').
    \10\ See Securities Exchange Act Release No. 80255 (March 15,
2017), 82 FR 14563 (March 21, 2017) (Order Approving File No. SR-
FINRA-2017-003). See also Securities Exchange Act Release No. 89119
(June 22, 2020), 85 FR 38468 (June 26, 2020) (Notice of Filing and
Immediate Effectiveness of File No. SR-FINRA-2020-018).
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    The CAT NMS Plan is intended to create, implement and maintain a
consolidated audit trail that will capture in a single consolidated
data source customer and order event information for orders in NMS
Securities and OTC Equity Securities, across all markets, from the time
of order inception through routing, cancellation, modification or
execution.\11\ Among other things, Section C.9. of Appendix C to the
Plan, as modified by the Commission, requires each Participant to
``file with the SEC the relevant rule change filing to eliminate or
modify its duplicative rules within six (6) months of the SEC's
approval of the CAT NMS Plan.'' \12\ The Plan notes that ``the
elimination of such rules and the retirement of such [sic] systems
[will] be effective at such time as CAT Data meets minimum standards of
accuracy and reliability.'' \13\ Finally, the Plan requires the rule
filing to discuss the following:
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    \11\ See, e.g., Securities Exchange Act Release No. 67457 (July
18, 2012), 77 FR 45722, 45723 (August 1, 2012).
    \12\ In compliance with this requirement, in May 2017, FINRA
filed a proposed rule change to eliminate the OATS Rules and amend
FINRA's electronic blue sheet (``EBS'') rules, Rules 8211 and 8213
(``original proposal''). See Securities Exchange Act Release No.
80783 (May 26, 2017), 82 FR 25423 (June 1, 2017) (Notice of Filing
of File No. SR-FINRA-2017-013). FINRA filed an amendment to the
original proposal on August 25, 2017. See Securities Exchange Act
Release No. 81499 (August 30, 2017), 82 FR 42168 (September 6,
2017). The original proposal was subsequently withdrawn but provided
similar views and mechanisms for eliminating the OATS Rules as this
proposed rule change does and, as noted above, also proposed to
amend the EBS rules. See Securities Exchange Act Release No. 82524
(January 17, 2018), 83 FR 3239 (January 23, 2018) (Notice of
Withdrawal of File No. SR-FINRA-2017-013).
     FINRA notes that the current filing addresses only the
elimination of the OATS Rules. Proposed amendments to the EBS rules
would be subject to a separate FINRA rule filing made in conjunction
with SEC rulemaking to amend Rule 17a-25 under the Exchange Act. 17
CFR 240.17a-25.
    \13\ See CAT NMS Plan, Appendix C, Section C.9.
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    (i) Specific accuracy and reliability standards that will determine
when duplicative systems will be retired, including, but not limited
to, whether the attainment of a certain Error Rate should determine
when a system duplicative of the CAT can be retired;
    (ii) whether the availability of certain data from Small Industry
Members \14\ two years after the Effective Date would facilitate a more
expeditious retirement of duplicative systems; and
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    \14\ As noted in footnote 6, unless otherwise specified,
capitalized terms used in this rule filing are defined as set forth
in the CAT Compliance Rule Series or in the CAT NMS Plan. ``Small
Industry Member'' is defined in FINRA Rule 6810(nn) as an Industry
Member that qualifies as a small broker-dealer as defined in SEA
Rule 0-10(c). On April 20, 2020, the Commission granted exemptive
relief from certain provisions of the CAT NMS Plan related to
broker-dealers that do not qualify as Small Industry Members solely
because such broker-dealers satisfy Rule 0-10(i)(2) under the
Exchange Act in that they introduce transactions on a fully
disclosed basis to clearing firms that are not small businesses or
small organizations (referred to as ``Introducing Industry
Members''). Specifically, the Commission provided exemptive relief
from requiring Introducing Industry Members to comply with the
requirements of the CAT NMS Plan that apply to Industry Members
other than Small Industry Members (``Large Industry Members''),
provided that the Participants require such Introducing Industry
Members to comply with the requirements of the CAT NMS Plan that
apply to Small Industry Members. See Securities Exchange Act Release
No. 88703 (April 20, 2020), 85 FR 23115 (April 24, 2020) (Order
Granting Limited Exemptive Relief Related to Certain Introducing
Brokers From the Requirements of the CAT NMS Plan) (the
``Introducing Brokers Exemptive Order'').
     As used herein, the term ``Small Industry Member'' includes
Introducing Industry Members in accordance with the Introducing
Brokers Exemptive Order.
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    (iii) whether individual Industry Members can be exempted from
reporting to duplicative systems once their CAT reporting meets
specified accuracy and reliability standards, including, but not
limited to, ways in which establishing cross-system regulatory
functionality or integrating data from existing systems and the CAT
would facilitate such Individual Industry Member exemptions.\15\
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    \15\ See CAT NMS Plan, Appendix C, Section C.9.
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    In response to these requirements, the proposed rule change deletes
the OATS Rules from the FINRA rulebook.\16\ The proposed rule change
will be implemented once the CAT achieves the specific accuracy and
reliability standards described below and FINRA has determined that its
usage of the CAT Data has not revealed material issues that have not
been corrected, confirmed that the CAT includes all data necessary to
allow FINRA to continue to meet its surveillance obligations and
confirmed that the Plan Processor is sufficiently meeting its
obligations under the CAT NMS Plan relating to the reporting and
linkage of Phase 2a Industry Member Data, which as discussed further
below, will replicate what is in OATS today.\17\
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    \16\ FINRA is considering whether there are additional FINRA
rules that can be deleted or amended, as necessary, upon the
implementation of CAT, e.g., trade reporting rules requiring the
submission of ``non-tape'' regulatory reports relating to riskless
principal and agency transactions (Rules 6282, 6380A, 6380B and
6622), Rule 6431 (Recording of Quotation Information) and Rule 4590
(Synchronization of Member Business Clocks). Such proposed changes
would be subject to a separate rule filing with the SEC.
     In addition, FINRA notes that there are multiple rules
throughout the FINRA rulebook that cross-reference or otherwise
incorporate some or all of the OATS Rules. If the Commission
approves the proposed rule change, FINRA would file a proposed rule
change to delete or amend, as applicable, the references to the OATS
Rules before the amendments in the current proposed rule change are
implemented.
    \17\ FINRA notes that OATS was originally proposed to fulfill
one of the undertakings contained in an order issued by the
Commission relating to the settlement of an enforcement action
against FINRA (f/k/a National Association of Securities Dealers,
Inc. (``NASD'')) for failure to adequately enforce its rules. See
Securities Exchange Act Release No. 39729 (March 6, 1998), 63 FR
12559 (March 13, 1998) (Order Approving File No SR-NASD-97-56)
(``OATS Approval Order''); see also Securities Exchange Act Release
No. 37538 (August 8, 1996); Administrative Proceeding File No. 3-
9056 (``SEC Order''). In the OATS Approval Order, the Commission
concluded that OATS satisfied the conditions of the SEC Order and
was consistent with the Exchange Act. See 63 FR at 12566-67. As
noted, the Plan is designed to create, implement and maintain a CAT
that would capture customer and order event information for orders
in NMS Securities and OTC Equity Securities, across all markets,
from the time of order inception through routing, cancellation,
modification, or execution in a single consolidated data source.
FINRA has already adopted rules to enforce compliance by its
Industry Members, as applicable, with the provisions of the Plan.
See Rule 6800 Series.
     Once the CAT can replace OATS, FINRA believes it will be
appropriate to delete the OATS Rules that were implemented to comply
with the SEC Order. FINRA will not transition from OATS to CAT until
its surveillance program is fully prepared for such transition.
Accordingly, FINRA believes that it would continue to be in
compliance with the requirements of the SEC Order once the OATS
Rules are deleted.

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(b) Specific Accuracy and Reliability Standards
    The first issue the Plan requires the proposed rule change to
discuss is ``specific accuracy and reliability standards that will
determine when duplicative systems will be retired, including, but not
limited to, whether the attainment of a certain Error Rate should
determine when a system duplicative of the CAT can be retired.'' \18\
FINRA believes that relevant error rates are the primary, but not the
sole, metric by which to determine the CAT's accuracy and reliability
and will serve as the baseline requirement needed before OATS can be
retired.
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    \18\ See CAT NMS Plan, Appendix C, Section C.9.
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    As discussed in Section A.3(b) of Appendix C to the CAT NMS Plan,
the Participants established an initial Error Rate, as defined in the
Plan, of 5% on initially submitted data (i.e., data as submitted by a
CAT Reporter before any required corrections are performed). The
Participants noted in the Plan that their expectation was that ``error
rates after reprocessing of error corrections will be de minimis.''
\19\ The Participants based this Error Rate on their consideration of
``current and historical OATS Error Rates, the magnitude of new
reporting requirements on the CAT Reporters and the fact that many CAT
Reporters may have never been obligated to report data to an audit
trail.'' \20\
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    \19\ See CAT NMS Plan, Appendix C, Section A.3(b), at note 102.
    \20\ See CAT NMS Plan, Appendix C, Section A.3(b).
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    FINRA agrees with the Participants' conclusion that a 5% pre-
correction threshold ``strikes the balance of adapting to a new
reporting regime, while ensuring that the data provided to regulators
will be capable of being used to conduct surveillance and market
reconstruction, as well as having a sufficient level of accuracy to
facilitate the retirement of existing regulatory reports and systems
where possible.'' \21\ However, FINRA does not believe that a 5% error
rate alone would ensure a sufficient level of data accuracy and
reliability for purposes of surveillance and investigations, and as
noted above, the expectation is that error rates after reprocessing of
error corrections also must be de minimis. Accordingly, FINRA believes
that, when assessing the accuracy and reliability of the data for the
purposes of retiring OATS, the error thresholds should be measured in
more granular ways and should also include maximum error rates of post-
correction data, which represents the data most likely to be used by
FINRA to conduct surveillance. Although FINRA is proposing to measure
the appropriate error rates in the aggregate, rather than firm-by-firm,
FINRA believes that the error rates should be measured solely for
equity securities since options orders are not currently reported
regularly or included in OATS.
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    \21\ See supra note 20.
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    To ensure the CAT's accuracy and reliability, FINRA is proposing
that, before OATS could be retired, the CAT would generally need to
achieve a sustained error rate for Industry Member reporting in each of
the categories below for a period of at least 180 days of 5% or lower,
measured on a pre-correction or as-submitted basis, and 2% or lower on
a post-correction basis (measured at T+5).\22\ FINRA is proposing to
measure the 5% pre-correction and 2% post-correction thresholds by
averaging the error rate across the period, not require a 5% pre-
correction and 2% post-correction maximum each day for 180 consecutive
days. FINRA believes that measuring each of the thresholds over the
course of 180 days will ensure that the CAT consistently meets minimum
accuracy and reliability thresholds for Industry Member reporting while
also ensuring that single-day measurements do not unduly affect the
overall measurements.
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    \22\ The Plan requires that the Plan Processor must ensure that
regulators have access to corrected and linked order and Customer
data by 8:00 a.m. Eastern Time on T+5. See CAT NMS Plan, Appendix C,
Section A.2(a).
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    Based on prior experience with OATS, FINRA believes that a 2% post-
correction error rate is the appropriate maximum standard for purposes
of retiring OATS. Currently, OATS non-compliance rates are lower than
2%--generally at or slightly below 1%. However, compliance rates have
not always been at this level, particularly with the implementation of
new OATS reporting requirements.\23\ These higher non-compliance rates
following major releases have been temporary and did not result in a
degradation of FINRA's surveillance capabilities. With experience over
time, the OATS compliance rates have dramatically improved and, as
noted above, the post-correction error rate is generally at or below 1%
today. FINRA anticipates that this will be the case with respect to CAT
reporting, which is anticipated to be more complex and new to some
firms and therefore more likely to contain errors when initially
reported. Thus, FINRA believes that a 2% post-correction error rate
strikes a reasonable balance between the potential costs of retaining
OATS and requiring duplicative reporting by firms for a longer period
in order to achieve a lower error rate and any potential impact on
FINRA's surveillance capabilities, which FINRA anticipates would be
temporary. Importantly and as further discussed below, while error
rates are a key standardized measure in determining whether OATS
retirement is appropriate, FINRA's use of the data in the CAT also must
confirm that there are no material issues that have not been corrected,
the CAT includes all data necessary to allow FINRA to continue to meet
its surveillance obligations and the Plan Processor is sufficiently
meeting its obligations under the CAT NMS Plan relating to the
reporting and linkage of Phase 2a Industry Member Data. As such, even
if maximum error rates are met, FINRA must evaluate and confirm

that overall, there are no material issues and the data is accurate and
reliable.\24\
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    \23\ As discussed in the CAT NMS Plan, the Participants
considered industry experience with OATS for purposes of determining
the applicable Error Rate for the CAT, noting that there have been
three major industry impacting releases: (1) OATS Phase III, which
required manual orders to be reported to OATS; (2) OATS for OTC
Securities which required OTC equity securities to be reported to
OATS; and (3) OATS for NMS which required all NMS stocks to be
reported to OATS. Each of these releases was accompanied by
significant updates to the required formats which required OATS
reporters to update and test their reporting systems and
infrastructure. The CAT NMS Plan also cites the combined average
error rates for the time periods immediately following release
across five significant categories for these three releases: The
average rejection percentage rate, representing order events that
did not pass systemic validations, was 2.42%. The average late
percentage rate, representing order events not submitted in a timely
manner, was 0.36%. The average order/trade matching error rate,
representing OATS Execution Reports unsuccessfully matched to a
FINRA Facility trade report was 0.86%. The average Exchange/Route
matching error rate, representing OATS Route Reports unsuccessfully
matched to an exchange order was 3.12%. Finally, the average
Interfirm Route matching error rate, representing OATS Route Reports
unsuccessfully matched to a report representing the receipt of the
route by another reporting entity was 2.44%. The Plan further notes
that the error rates for the 1999 initial OATS implementation were
significantly higher (e.g., the initial rejection rates for OATS
were 23% and the late reporting rate was 2.79%). See CAT NMS Plan,
Appendix C, Section A.3(b).
    \24\ FINRA notes that while error rates after reprocessing of
error corrections are ultimately expected to be de minimis for the
CAT (see CAT NMS Plan, Appendix C, note 102), FINRA does not believe
that post-correction errors need to be de minimis before OATS can be
retired and is not suggesting, with this proposal, that 2% would
meet the ultimate objective of de minimis error rates for CAT.
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    FINRA is proposing to use error rates in each of the following
categories, measured solely for equities, to assess whether the
threshold pre- and post-correction error rates are being met:
     Rejection Rates and Data Validations. FINRA has reviewed
the data validations for the CAT, which are set forth in the Industry
Member Technical Specifications published by the Plan Processor,\25\
and confirmed that they are substantially similar to OATS. While not
required to be designed the same as OATS, data validations must be
functionally equivalent to OATS in accordance with the CAT NMS Plan
(i.e., the same types of basic data validations must be performed by
the Plan Processor to comply with the CAT NMS Plan requirements).
Appendix D of the Plan, for example, requires that certain file
validations \26\ and syntax and context checks be performed on all
submitted records.\27\ If a record does not pass these basic data
validations, it must be rejected and returned to the CAT Reporter to be
corrected and resubmitted.\28\ The Plan also requires the Plan
Processor to provide daily statistics on rejection rates after the data
has been processed, including the number of files rejected and
accepted, the number of order events accepted and rejected, and the
number of each type of report rejected.\29\ FINRA is proposing that,
over the 180-day period, aggregate rejection rates (measured solely for
equities) must be no more than 5% pre-correction or 2% post-correction
across all CAT Reporters.
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    \25\ See, e.g., Industry Member Technical Specifications (2a/2b)
version 2.2.1 r6, dated June 22, 2020, available at
www.catnmsplan.com/sites/default/files/2020-06/CAT_Reporting_Technical_Specifications_for_Industry%20Members_v2.2.1r6_CLEAN.pdf.
    \26\ See CAT NMS Plan, Appendix D, Section 7.2. The Plan
requires the Plan Processor to confirm that file transmission and
receipt are in the correct formats, including validation of header
and trailers on the submitted report, confirmation of a valid SRO-
Assigned Market Participant Identifier, and verification of the
number of records in the file.
    \27\ See supra note 26. The Plan notes that syntax and context
checks would include format checks (i.e., that data is entered in
the specified format); data type checks (i.e., that the data type of
each attribute conforms to the specifications); consistency checks
(i.e., that all attributes for a record of a specified type are
consistent); range/logic checks (i.e., that each attribute for every
record has a value within specified limits and the values provided
are associated with the event type they represent); data validity
checks (i.e., that each attribute for every record has an acceptable
value); completeness checks (i.e., that each mandatory attribute for
every record is not null); and timeliness checks (i.e., that the
records were submitted within the submission timelines).
    \28\ See supra note 26.
    \29\ See supra note 26.
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     Intra-Firm Linkages. The Plan requires that ``the Plan
Processor must be able to link all related order events from all CAT
Reporters involved in the lifecycle of an order.'' \30\ At a minimum,
this requirement includes the creation of an order lifecycle between
``[a]ll order events handled within an individual CAT Reporter,
including orders routed to internal desks or departments with different
functions (e.g., an internal ATS).'' \31\ FINRA is proposing that
aggregate intra-firm linkage rates across all Industry Member Reporters
must be at least 95% pre-correction and 98% post-correction.
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    \30\ See CAT NMS Plan, Appendix D, Section 3.
    \31\ See supra note 30.
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     Inter-Firm Linkages. The order linkage requirements in the
Plan also require that the Plan Processor be able to create the
lifecycle between orders routed between broker-dealers.\32\ FINRA is
proposing that at least a 95% pre-correction and 98% post-correction
aggregate match rate be achieved for orders routed between two Industry
Member Reporters.\33\
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    \32\ See supra note 30.
    \33\ This assumes linkage statistics will include both unlinked
route reports and new orders where no related route report could be
found.
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     Order Linkage Rates. In addition to creating linkages
within and between broker-dealers, the Plan also includes requirements
that the Plan Processor be able to create lifecycles to link various
pieces of related orders.\34\ For example, the Plan requires linkages
of order information to create an order lifecycle from origination or
receipt to cancellation or execution. In addition, the Plan requires
linkages between customer orders and ``representative'' orders created
in firm accounts for the purpose of facilitating a customer order,
riskless principal orders, and orders worked through average price
accounts.\35\ Pursuant to the phased approach for Industry Member
reporting, certain of these order linkages will not be required in the
initial phase of reporting (or ``phase 2a''), which commenced on June
22, 2020.\36\ For example, linkages for representative order scenarios
involving agency average price trades, net trades and aggregated orders
will not be required until the third phase of reporting (or ``phase
2c'') is implemented in April 2021; such linkages are not required in
OATS today. FINRA is proposing that there be at least a 95% pre-
correction and 98% post-correction rate for order linkages that are
required in phase 2a.
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    \34\ See CAT NMS Plan, Appendix D, Section 3.
    \35\ See supra note 34.
    \36\ See CAT Reporting Timelines at www.catnmsplan.com/timelines/. See also Securities Exchange Act Release No. 88702
(April 20, 2020), 85 FR 23075 (April 24, 2020) (Order Granting
Conditional Exemptive Relief from Sections 6.4, 6.7(a)(v) and
6.7(a)(vi) of the CAT NMS Plan) (``Phased Industry Member Reporting
Exemptive Order'') and FINRA Rule 6895.
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    FINRA notes that in phase 2a, linkage is required between the
representative street side order and the order being represented when
the representative order was originated specifically to represent a
single order (received either from a customer or another broker-dealer)
and there is: (1) An existing direct electronic link in the firm's
system between the order being represented and the representative
order, and (2) any resulting executions are immediately and
automatically applied to the represented order in the firm's
system.\37\ While such linkages are not required in OATS today, FINRA
believes that it is appropriate to evaluate them for purposes of
retiring OATS. These linkages represent a significant enhancement to
the data currently available in OATS and will enhance the quality of
the equity audit trail. FINRA further notes that linkages for more
complex representative order scenarios, such as those involving agency
average price trades, net trades and aggregated orders, will not be
required until phase 2c. Accordingly, FINRA does not anticipate that
the error rates for the phase 2a representative order linkages in CAT
would be significantly higher than the order linkages available in OATS
today. Nonetheless, in evaluating whether the standards for OATS
retirement have been met, FINRA will take into consideration if the
error rates for the phase 2a representative order linkages have a
significant negative impact on the overall error rates for order
linkages.
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    \37\ See Industry Member Technical Specifications (2a/2b)
version 2.2.1 r6, dated June 22, 2020, available at
www.catnmsplan.com/sites/default/files/2020-06/CAT_Reporting_Technical_Specifications_for_Industry%20Members_v2.2.1r6_CLEAN.pdf.
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     Exchange and TRF/ORF Match Rates. The Plan requires that
an order lifecycle be created to link ``[o]rders routed from broker-
dealers to exchanges'' and ``[e]xecuted orders and trade reports.''
\38\ FINRA is proposing at least a 95% pre-correction and 98% post-
correction aggregate match rate to each equity exchange for orders
routed

from Industry Members to an exchange and, for over-the-counter
executions, the same match rate for orders linked to trade reports.
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    \38\ See CAT NMS Plan, Appendix D, Section 3.
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    FINRA intends to commence its review of CAT data and error rates
based on phase 2a data and linkages, which would replicate the data in
OATS today, and will not wait for implementation of phase 2c reporting
(and the attendant linkages) to do so. As discussed in the Phased
Industry Member Reporting Exemptive Order,\39\ Phase 2a Industry Member
Data includes all events and scenarios covered by OATS. FINRA Rule 7440
describes the OATS requirements for recording information, which
includes information related to the receipt or origination of orders,
order transmittal, and order modifications, cancellations and
executions. Large Industry Members and Small Industry Members that
currently are reporting to OATS (``Small Industry OATS Reporters'') are
required to submit data to the CAT for these same events and scenarios
during phase 2a. Accordingly, Phase 2a Industry Member Data is the most
relevant for OATS retirement purposes.
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    \39\ See supra note 36.
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    FINRA anticipates retiring OATS based solely on phase 2a reporting,
assuming the threshold pre- and post-correction error rates are
achieved and FINRA's use of the data confirms that the data is accurate
and reliable, as discussed below. This is because, as noted above,
phase 2a data and linkages will replicate what is in OATS today; the
data and linkages that are not required to be reported until phase 2c
are not in OATS today. OATS will not be retired prior to commencement
of phase 2c reporting by Large Industry Members in April 2021, and
there may be an initial increase in error rates immediately following
implementation of the new phase 2c reporting requirements. FINRA does
not believe that such increase would impact FINRA's ability to assess
the accuracy and reliability of phase 2a data for purposes of
determining OATS retirement. In addition, FINRA believes that Industry
Members would gain experience with the new 2c reporting requirements
over time, such that the expected increase in the error rate would
dissipate. Such short-lived increase is not expected to have an impact
on FINRA's ability to meet its surveillance obligations.
    Even if these error rate thresholds are met, FINRA must evaluate
and confirm through incorporation of CAT Data into its automated
surveillance program that the data is accurate and reliable.\40\ Thus,
in addition to the maximum error rates and matching thresholds proposed
above, FINRA's use of CAT Data must confirm that (i) there are no
material issues that have not been corrected (e.g., delays in the
processing of data, issues with query functions, etc.), (ii) the CAT
includes all data necessary to allow FINRA to continue to meet its
surveillance obligations and (iii) the Plan Processor is sufficiently
meeting its obligations under the CAT NMS Plan relating to the
reporting and linkage of Phase 2a Industry Member Data. FINRA notes
that any errors in the CAT Data may manifest themselves only after
surveillance patterns and other queries have been run. Thus, while the
error rate thresholds may be met over a 180-day period, additional time
may be required to reliably establish that usage of the CAT has not
revealed material issues that have not been corrected and allow
contextual analysis of the data to take place to uncover errors in
reporting or processing that may not be apparent from more standardized
data validation processes.\41\
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    \40\ For example, FINRA will need to transition all or
substantially all of its automated surveillance patterns to CAT Data
in order to evaluate the accuracy and reliability of the data.
    \41\ FINRA notes that the proposed criteria and anticipated
timing of OATS retirement outlined in this filing are premised on
and assume there are no material changes to the current CAT
implementation plan, including availability and FINRA's access to
CAT Data. Pursuant to amendments to the CAT NMS Plan adopted by the
SEC, OATS must be retired by December 31, 2021 for the Plan
Participants to meet the Period 3 Financial Accountability Milestone
(Full Availability and Regulatory Utilization of Transactional
Database Functionality). See CAT NMS Plan, Sections 1.1 and 11.6.
---------------------------------------------------------------------------

    Based on the proposed accuracy and reliability standards described
above, FINRA anticipates that the time period for implementation for
the deletion of the OATS Rules could be significant. Thus, in order to
help alert members of the status of the OATS Rules, if the Commission
approves the proposed rule change, FINRA is proposing to add
introductory language to Rule 4554 and the Rule 7400 Series clarifying
that the SEC has approved a proposed rule change (SR-FINRA-2020-024) to
remove Rule 4554 and the Rule 7400 Series from the FINRA rulebook;
however, by its terms, SR-FINRA-2020-024 will not be implemented until
FINRA has determined that the CAT has achieved a level of accuracy and
reliability sufficient to replace OATS. Once FINRA has determined that
such standards have been met, FINRA will file for immediate
effectiveness a rule filing setting forth the basis for its
determination and will publish a Regulatory Notice announcing the
implementation date of SR-FINRA-2020-024. FINRA is proposing that this
language be added to Rule 4554 and the Rule 7400 Series upon approval
of the proposed rule change by the SEC.
(c) Small Industry Member Data Availability
    The second issue the Plan requires the proposed rule change to
address is ``whether the availability of certain data from Small
Industry Members two years after the Effective Date would facilitate a
more expeditious retirement of duplicative systems.'' \42\
---------------------------------------------------------------------------

    \42\ See CAT NMS Plan, Appendix C, Section C.9.
---------------------------------------------------------------------------

    As discussed in the original proposal, FINRA believes that there is
no effective way to retire OATS until all current OATS reporters are
reporting to the CAT. Pursuant to the phased reporting approach, Small
Industry OATS Reporters and Large Industry Members were required to
begin reporting to the CAT on the same date, June 22, 2020.\43\ Thus,
at this time, all current OATS reporters are required to report to the
CAT.\44\ Small Industry Members that are not currently required to
record and report information to OATS are required to begin reporting
to the CAT in December 2021.\45\
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    \43\ See supra note 36.
    \44\ The 180-day timeframes discussed above with respect to
usage of the data and calculation of error rates will apply to data
reported to the CAT by Small Industry OATS Reporters.
    \45\ See supra note 36.
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    FINRA believes that the requirement that all current OATS reporters
begin reporting to the CAT on June 22, 2020 will expedite the
retirement of OATS, providing a significant cost savings for the
industry.
(d) Individual Industry Member Exemptions
    The final issue the Plan requires the proposed rule change to
address is ``whether individual Industry Members can be exempted from
reporting to duplicative systems once their CAT reporting meets
specified accuracy and reliability standards, including, but not
limited to, ways in which establishing cross-system regulatory
functionality or integrating data from existing systems and the CAT
would facilitate such Individual Industry Member exemptions.'' \46\
---------------------------------------------------------------------------

    \46\ See CAT NMS Plan, Appendix C, Section C.9.
---------------------------------------------------------------------------

    FINRA believes that a single cut-over from OATS to CAT is highly
preferable to a firm-by-firm approach and is not proposing to exempt
members from the OATS requirements on a firm-by-firm basis. The primary
benefit to a firm-by-firm exemptive approach would be to

reduce the amount of time an individual firm is required to report to a
legacy system (e.g., OATS) if it is also accurately and reliably
reporting to the CAT. FINRA believes that the overall accuracy and
reliability thresholds for the CAT described above would need to be met
under any conditions before firms could stop reporting to OATS. In
addition, a firm-by-firm approach would require that OATS and CAT data
be combined and integrated in order for FINRA to conduct surveillance
in accordance with SEC rules and SRO obligations. This process would be
technologically costly and complex and could potentially compromise the
quality of the data and FINRA's surveillance. Moreover, as discussed
above, Small Industry OATS Reporters are required to report to the CAT
on the same timeframe as all other OATS Reporters (i.e., Large Industry
Members). Thus, there is no need to exempt members from OATS
requirements on a firm-by-firm basis.
    If the Commission approves the proposed rule change, the rule text
will be effective upon approval; however, the amendments will not be
implemented until FINRA has determined the accuracy and reliability
standards set forth in the proposed rule change have been met. Once
FINRA has determined that such standards have been met, FINRA will file
for immediate effectiveness a separate rule filing setting forth the
basis for its determination and will publish a Regulatory Notice
announcing the implementation date of the amendments proposed herein.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\47\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest, and Section 15A(b)(9) of the Act,\48\ which requires
that FINRA rules not impose any burden on competition that is not
necessary or appropriate.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78o-3(b)(6).
    \48\ 15 U.S.C. 78o-3(b)(9).
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    FINRA believes that the proposed rule change fulfills FINRA's
obligation under the CAT NMS Plan to submit a proposed rule change to
eliminate or modify duplicative rules. FINRA believes that the approach
set forth in the proposed rule change strikes the appropriate balance
between ensuring that FINRA is able to continue to fulfill its
statutory obligation to protect investors and the public interest by
ensuring its surveillance of market activity remains accurate and
effective while also establishing a reasonable timeframe for
elimination the OATS Rules, which will be rendered duplicative after
implementation of the CAT.

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

    FINRA has undertaken an economic impact assessment to analyze the
regulatory need for the proposed rule change, its potential economic
impacts, including anticipated costs and benefits, and the alternatives
considered in assessing how to best meet regulatory objectives. FINRA
does not believe that the proposed rule change will result in any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Regulatory Need
    As mentioned above, once members are effectively reporting to the
CAT and the CAT's accuracy and reliability meet certain standards, OATS
reporting will be a duplicate effort. Accordingly, FINRA is proposing
to add introductory language to Rule 7400 that facilitates the deletion
of the Rule 7400 Series, upon announcement by FINRA that CAT has
achieved the accuracy and reliability targets.
Economic Baseline
    Currently all FINRA members that do business in equity securities
are required to report equity audit trail information to OATS. As noted
above, Small Industry OATS Reporters and Large Industry Members were
required to begin reporting to CAT on the same date, June 22, 2020, as
part of the broader plan to implement the CAT and retire other systems.
The proposed rule change lays out a plan by which FINRA will retire
OATS to eventually eliminate the need for duplicative reporting and
records maintenance.
    Costs and benefits associated with establishing the CAT, including
the economic impacts associated with retiring existing systems, have
been established as a part of the Plan approved by the SEC. The
proposed framework in Appendix C, Section C.9. serves as the baseline
to evaluate the economic impacts of the proposed rule change.
Accordingly, the next section addresses the potential impacts stemming
from:
    (1) Revising the reporting timeline to require that Small Industry
Members that currently report to OATS begin reporting to the CAT on the
same date as Large Industry Members (June 22, 2020);
    (2) implementing a single cut-over from OATS to CAT for all firms
provided that average error rate thresholds over a 180-day period are
met and FINRA has determined that its usage of the CAT Data has not
revealed material issues; and
    (3) imposing a 2% post-correction error rate, in addition to the 5%
initial Error Rate as defined in the Plan, as a condition for retiring
of OATS.
Economic Impacts
    In creating the proposal to retire OATS, FINRA is seeking to
carefully balance the additional costs incurred by member firms
associated with continuing to maintain duplicate systems and records
created by the CAT NMS Plan and existing rules with the risks to
effective and efficient surveillance that could arise from eliminating
access to existing data systems before a high-quality alternative has
been tested and verified. The costs of maintaining duplicate systems
and records include, among other things, system maintenance, quality
control oversight and staff to maintain the systems and records.
Because the CAT NMS Plan created the need to have duplicate systems and
required a plan for the retirement of duplicate systems and processes,
the Economic Impact Assessment will focus on the proposed choices made
by FINRA in implementing the retirement plan.
    The proposed rule change will impact all OATS-reporting firms. As
of June 30, 2019, 616 (of 936) large FINRA member broker-dealers and
221 (of 476) small FINRA member broker-dealers report to OATS. Of the
221 Small Industry Members that report to OATS, all but nine of them
currently report through other firms or service providers.\49\ Of the
nine that self-report, eight of them report very few orders to
OATS.\50\ The approximately 575 FINRA member

broker-dealers that are currently exempt or excluded from OATS
reporting are not impacted by this proposed rule change because they
currently incur no costs in maintaining directly or indirectly systems
for OATS compliance. Accordingly, the analysis here focuses on the
impact of the proposed plan for retiring OATS on OATS-reporting firms
only.
---------------------------------------------------------------------------

    \49\ All of the clearing firms that report to OATS on behalf of
Small Industry Members were required to begin reporting to CAT on
June 22, 2020. In addition, the service providers that report to
OATS on behalf of Small Industry Members have a mix of small and
large clients for whom they provide this service and, therefore,
began CAT reporting on behalf of their clients on June 22, 2020.
    \50\ As noted above, FINRA has identified approximately 221
member firms that currently report to OATS and meet the definition
of ``Small Industry Member;'' however, only nine of these firms
submit information to OATS on their own behalf, and five of the nine
firms report very few orders to OATS. For example, in one recent
month, five of the nine firms submitted fewer than 25 reports during
the month, with four firms submitting fewer than 10.
---------------------------------------------------------------------------

    First, FINRA's proposal recommends a requirement that there be a
single cut-over from OATS to CAT rather than a firm-by-firm cut-over.
The primary beneficiary of this proposal will be the investing public.
This approach eliminates the need to merge OATS and CAT data in order
to execute surveillance in accordance with SEC rules and SRO
obligations. The integration process would be technologically costly
and difficult and could introduce errors into the data being surveilled
that did not exist prior to integration. Conducting market surveillance
from a single audit trail system increases the efficiency and
effectiveness of the process and improves the integrity of the markets.
In addition, there are direct benefits of this approach to firms.
Specifically, other than during the time period during which the
accuracy and reliability of CAT data is validated, a single cut-over
approach would eliminate the need for firms that report on other firms'
behalf to create a technological solution for receiving and reporting
on data structured for both OATS and CAT simultaneously. Such a
practice would increase costs to ensure compliance with the proper
reporting mechanism. These costs would likely be incorporated into the
fees for the service charged to introducing firms and could eventually
be borne by customers through higher fees based on the price elasticity
for brokerage services.
    The potential costs associated with the single cut-over approach
will be borne by firms that could meet the maximum error thresholds for
reporting to CAT earlier than the single cut-over approach would allow.
These firms would bear the technology and compliance costs associated
with dual reporting for a longer period than they might otherwise.
    Another potential cost of the single cut-over method is that there
will likely be firms reporting to CAT that do not meet the maximum
error rate thresholds, leading to lower quality data available for
surveillance. If firms were individually permitted to end OATS
reporting only when meeting a maximum error rate, every firm's
reporting would meet the minimum criterion. Requiring an aggregate
error rate may permit individual firms to end OATS reporting even while
their CAT reporting does not meet the specified error rate as long as
the error rate is low enough for the industry. Thus, surveillance of
market activity for those firms may not be as efficient or effective
due to the higher error rates. Taken further, it is possible that a
single cut-over may reduce the incentives for any one firm to put
significant effort and costs into meeting or beating the threshold
error rates because the benefits are shared among all firms while
greater cost is borne by the firms whose compliance rates satisfy the
minimum error rate thresholds. This disincentive is likely to be small
for firms with significant reporting obligations, who would seek to end
duplicative reporting as quickly as possible and who represent the vast
majority of OATS reports, but may, at the margin, extend the time
necessary to meet the error reporting threshold. However, significant
error rates could constitute a rule violation and subject firms to
possible disciplinary action.\51\ Thus, firms that delay reducing error
rates to threshold levels would over time incur higher costs through
enforcement actions and be incentivized to improve their compliance
rates.
---------------------------------------------------------------------------

    \51\ See CAT NMS Plan, Appendix C, Section 3(b) (discussing
firm-specific compliance thresholds).
---------------------------------------------------------------------------

    With respect to the revised timeline requiring that all firms that
report to OATS begin CAT reporting on June 22, 2020, this requirement
means that 221 Small Industry Members were required to begin reporting
to the CAT on the same timeframe as Large Industry Members. The primary
benefit of this approach is that it allows the OATS system to be
retired up to a year earlier, saving firms the costs of maintaining
duplicate reporting systems. Of the estimated 221 firms that would be
impacted by this proposal, 212 report to OATS through clearing firms or
other third party providers, all of whom were required to begin CAT
reporting on June 22, 2020 either by the requirement in the Plan or on
behalf of clients who are required to in the Plan. Thus, there should
be limited additional technical requirements or costs to facilitate
reporting for these firms. In fact, requiring Small Industry OATS
Reporters to report to the CAT on the same timeframe as Large Industry
Members will likely allow the introducing and clearing firms to avoid
the costs associated with maintaining two systems for reporting during
the additional transition year. The other nine small firms will be
required to incur costs associated with the changeover to CAT a year
earlier. The magnitude of these costs is dependent on several factors,
including the volume of trades expected to be reported to CAT as well
as the technological differences between the OATS system specifications
and CAT system specifications.
    Third, FINRA proposes that the official retirement of OATS occurs
only once CAT has met minimum accuracy and reliability standards
defined as a maximum error rate of 5% on a pre-correction basis and 2%
on a post-correction basis for all CAT submissions averaged over a 180-
day period in applicable categories, and FINRA has determined that its
usage of the CAT Data has not revealed material issues that have not
been corrected, confirmed that the CAT includes all data necessary to
allow FINRA to continue to meet its surveillance obligations and
confirmed that the Plan Processor is sufficiently meeting its
obligations under the CAT NMS Plan relating to the reporting and
linkage of Phase 2a Industry Member Data. FINRA believes that a minimum
of 180 days is required to provide sufficient time to ensure that
future error rates below the maximum thresholds are able to be
maintained and that the CAT data can otherwise be relied upon for
conducting effective market surveillance. The trade-offs of lengthening
or shortening the phase-in period and raising or lowering error rate
thresholds are increased costs to member firms for maintaining
duplicate reporting systems and records versus reliable surveillance
and effective investigations of market activity, whose benefits
eventually accrues to investors. Note that the current OATS error rates
are significantly lower than 2%; however, OATS reporting errors have
decreased over time with additional experience by firms, and CAT
reporting is anticipated to be more complex and new to some firms and
therefore more likely to contain errors when initially reported.
Alternatives Considered
    In considering how to best meet its regulatory objectives, FINRA
considered several alternatives in the design of the proposed rule
changes. Among these alternatives, FINRA assessed whether Small
Industry Members should be subject to a different effective date for
CAT reporting. It was determined that Small Industry OATS Reporters
should begin reporting to CAT on the same date that Large Industry
Members begin reporting, to enable linkages across order lifecycle
events, enhancing surveillance and potentially permitting OATS to be
retired more quickly.

    FINRA also considered a firm-by-firm approach, for exempting
members from the OATS reporting requirements, as an alternative to
single cut-over from OATS to CAT. FINRA determined that this approach
represented a higher threshold for the industry to meet, likely
increasing costs and the period where both CAT and OATS would be
required simultaneously. Further, such an approach would also
potentially reduce the efficacy of the audit trail, creating no
substantial benefit to investor protection. Therefore, FINRA is
proposing to implement a single cut-over approach for retirement of
OATS.

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

    As discussed above, FINRA provided similar views and mechanisms for
eliminating the OATS Rules in the original proposal.\52\ Four comment
letters were submitted in response,\53\ and FINRA subsequently filed an
amendment to the original proposal, which summarized and responded to
the comments received.\54\ Three of the four commenters filed
additional comment letters in response to the amendment,\55\ and FINRA
filed a response to comments.\56\ In addition, prior to the original
proposal, FIF and SIFMA submitted letters to the Participants regarding
the retirement of systems related to the CAT.\57\ The comment letters,
as well as FINRA's partial amendment and subsequent response to
comments (which were filed with the Commission as comment letters), are
available on the Commission's website.
---------------------------------------------------------------------------

    \52\ See supra note 12.
    \53\ See Letters from Marc R. Bryant, Senior Vice President and
Deputy General Counsel, Fidelity Investments, to Robert W. Errett,
Deputy Secretary, SEC, dated June 22, 2017 (``Fidelity''); William
H. Hebert, Managing Director, Financial Information Forum, to Robert
W. Errett, Deputy Secretary, SEC, dated June 22, 2017 (``FIF'');
Manisha Kimmel, Chief Regulatory Officer, Wealth Management, Thomson
Reuters, to Brent J. Fields, Secretary, SEC, dated June 22, 2017
(``Thomson Reuters''); and Ellen Greene, Managing Director &
Theodore R. Lazo, Managing Director and Associate General Counsel,
Securities Industry and Financial Markets Association, to Brent J.
Fields, Secretary, SEC, dated June 23, 2017 (``SIFMA'').
    \54\ See Securities Exchange Act Release No. 81499 (August 30,
2017), 82 FR 42168 (September 6, 2017); see also Letter from Brant
K. Brown, Associate General Counsel, FINRA, to Brent J. Fields,
Secretary, SEC, dated August 28, 2017.
    \55\ See Letters from Manisha Kimmel, Chief Regulatory Officer,
Wealth Management, Thomson Reuters, to Brent J. Fields, Secretary,
SEC, dated September 27, 2017; William H. Hebert, Managing Director,
FIF, to Heather Seidel, Acting Director, Division of Trading and
Markets, SEC, dated September 29, 2017; and Ellen Greene, Managing
Director & Theodore R. Lazo, Managing Director and Associate General
Counsel, SIFMA, to Brent J. Fields, Secretary, SEC, dated September
29, 2017.
    \56\ See Letter from Brant K. Brown, Associate General Counsel,
FINRA, to Brent J. Fields, Secretary, SEC, dated October 11, 2017.
    \57\ See Letter from Kenneth E. Bentsen, Jr., SIFMA, to
Participants re: Selection of Thesys as CAT Processor, dated April
4, 2017, at 2; Letter from William H. Hebert, FIF, to Participants
re: Milestone for Participants' rule change filings to eliminate/
modify duplicative rules, dated April 12, 2017.
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III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 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 90 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 or disapprove such 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 email to<EMAIL_ADDRESS>Please include
File Number SR-FINRA-2020-024 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-FINRA-2020-024. 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 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. Persons submitting comments are cautioned that
we do not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
FINRA-2020-024 and should be submitted on or before September 22, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\58\
---------------------------------------------------------------------------

    \58\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2020-19192 Filed 8-31-20; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 83, Number 24 (Monday, February 5, 2018)]
[Notices]
[Pages 5153-5154]
[FR Doc No: 2018-02169]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 32998; File No. 812-14842]

Columbia Funds Series Trust, et al.

January 30, 2018.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice.

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    Notice of an application for an order pursuant to: (a) Section 6(c)
of the Investment Company Act of 1940 (``Act'') granting an exemption
from sections 18(f) and 21(b) of the Act; (b) section 12(d)(1)(J) of
the Act granting an exemption from section 12(d)(1) of the Act; (c)
sections 6(c) and 17(b) of the Act granting an exemption from sections
17(a)(1), 17(a)(2) and 17(a)(3) of the Act; and (d) section 17(d) of
the Act and rule 17d-1 under the Act to permit certain joint
arrangements and transactions. Applicants request an order that would
permit certain registered open-end management investment companies to
participate in a joint lending and borrowing facility.\1\
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    \1\ The requested order would supersede an exemptive order
issued by the Commission on October 24, 2006, with the result that
no person will continue to rely on the prior order if the order is
granted. RiverSource Diversified Income Series, Inc., et al.,
Investment Company Act Release Nos. 27506 (September 28, 2006)
(notice) and 27525 (October 24, 2016) (order). All existing entities
that currently intend to rely on the order have been named as
applicants. Any other existing or future entity that relies on the
order in the future will comply with the terms and conditions of the
application.

Applicants:  Columbia Funds Series Trust, Columbia Funds Series Trust
I, Columbia Funds Series Trust II, Columbia Funds Variable Insurance
Trust, Columbia Funds Variable Series Trust II, Columbia ETF Trust I
and Columbia ETF Trust II (each a ``Trust'' and collectively, the
``Trusts''), each registered under the Act as open-end management
investment companies with one or more series, and Columbia Management
Investment Advisers, LLC (``Columbia Management''), registered as an
---------------------------------------------------------------------------
investment adviser under the Investment Advisers Act of 1940.

Filing Date:  The application was filed on November 9, 2017.

Hearing or Notification of Hearing:  An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicants with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on February 26, 2018 and should be accompanied by proof of
service on the applicants, in the form of an affidavit, or, for
lawyers, a certificate of service. Pursuant to Rule 0-5 under the Act,
hearing requests should state the nature of the writer's interest, any
facts bearing upon the desirability of a hearing on the matter, the
reason for the request, and the issues contested. Persons who wish to
be notified of a hearing may request notification by writing to the
Commission's Secretary.

ADDRESSES:  Secretary, U.S. Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549-1090; Applicants: c/o Brian D. McCabe,
Esq. and Nathan D. Somogie, Esq., Rope & Gray LLP, Prudential Tower,
800 Boylston Street, Boston, MA 02199.

FOR FURTHER INFORMATION CONTACT:  Hae-Sung Lee, Attorney-Adviser, at
(202) 551-7345 or Robert H. Shapiro, Branch Chief, at<PHONE_NUMBER>
(Division of Investment Management, Chief Counsel's Office).

SUPPLEMENTARY INFORMATION:  The following is a summary of the
application. The complete application may be obtained via the
Commission's website by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling<PHONE_NUMBER>.

Summary of the Application

    1. Applicants request an order that would permit the applicants to
participate in an interfund lending facility where each Fund could lend
money directly to and borrow money directly from other Funds to cover
unanticipated cash shortfalls, such as unanticipated redemptions or
trade fails.\2\ The Funds will not borrow under the facility for
leverage purposes and the loans' duration will be no more than 7
days.\3\
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    \2\ Applicants request that the order apply to the applicants
and to any existing or future series of the Trusts and to any other
registered open-end or closed-end management investment company or
its series for which Columbia Management and each successor thereto
or a person controlling, controlled by, or under common control with
Columbia Management serves as investment adviser (each such
investment adviser may be referred to as an ``Adviser'' and
collectively, the ``Advisers''). For purposes of the requested
order, ``successor'' is limited to any entity that results from a
reorganization into another jurisdiction or a change in the type of
a business organization. The Funds that are closed-end management
investment companies will not participate as borrowers in the
interfund lending facility.
    \3\ Any Fund, however, will be able to call a loan on one
business day's notice.
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    2. Applicants anticipate that the proposed facility would provide a
borrowing Fund with a source of liquidity at a rate lower than the bank
borrowing rate at times when the cash position of the Fund is
insufficient to meet temporary cash requirements. In addition, Funds
making short-term cash loans directly to other Funds would earn
interest at a rate higher than they otherwise could obtain from
investing their cash in repurchase agreements or certain other short
term money market instruments. Thus, applicants assert that the
facility would benefit both borrowing and lending Funds.
    3. Applicants agree that any order granting the requested relief
will be subject to the terms and conditions stated in the Application.
Among others, the Adviser, through a designated committee, would
administer the facility as a disinterested fiduciary as part of its
duties under the investment management and administrative agreements
with the Funds and would receive no additional fee as compensation for
its services in connection with the administration of the facility. The
facility would be subject to oversight and certain approvals by the
Funds' Board, including, among others, approval of the interest rate
formula and of the method for allocating loans across Funds, as well as
review of the process in place to evaluate the liquidity implications
for the Funds. A Fund's aggregate outstanding interfund loans will not
exceed 15% of its net assets, and the Fund's loans to any one Fund will
not exceed 5% of the lending Fund's net assets.\4\
---------------------------------------------------------------------------

    \4\ Under certain circumstances, a borrowing Fund will be
required to pledge collateral to secure the loan.
---------------------------------------------------------------------------

    4. Applicants assert that the facility does not raise the concerns
underlying section 12(d)(1) of the Act given that the Funds are part of
the same group of investment companies and there will be no duplicative
costs or fees to the Funds.\5\ Applicants also assert that the proposed
transactions do not raise the concerns underlying sections 17(a)(1),
17(a)(3), 17(d) and 21(b) of the Act as the Funds would not engage in
lending transactions that unfairly benefit

insiders or are detrimental to the Funds. Applicants state that the
facility will offer both reduced borrowing costs and enhanced returns
on loaned funds to all participating Funds and each Fund would have an
equal opportunity to borrow and lend on equal terms based on an
interest rate formula that is objective and verifiable. With respect to
the relief from section 17(a)(2) of the Act, applicants note that any
collateral pledged to secure an interfund loan would be subject to the
same conditions imposed by any other lender to a Fund that imposes
conditions on the quality of or access to collateral for a borrowing
(if the lender is another Fund) or the same or better conditions (in
any other circumstance).\6\
---------------------------------------------------------------------------

    \5\ Applicants state that the obligation to repay an interfund
loan could be deemed to constitute a security for the purposes of
sections 17(a)(1) and 12(d)(1) of the Act.
    \6\ Applicants state that any pledge of securities to secure an
interfund loan could constitute a purchase of securities for
purposes of section 17(a)(2) of the Act.
---------------------------------------------------------------------------

    5. Applicants also believe that the limited relief from section
18(f)(1) of the Act that is necessary to implement the facility
(because the lending Funds are not banks) is appropriate in light of
the conditions and safeguards described in the application and because
the Funds would remain subject to the requirement of section 18(f)(1)
that all borrowings of a Fund, including combined interfund loans and
bank borrowings, have at least 300% asset coverage.
    6. Section 6(c) of the Act permits the Commission to exempt any
persons or transactions from any provision of the Act if such exemption
is necessary or appropriate in the public interest and consistent with
the protection of investors and the purposes fairly intended by the
policy and provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities, or
transactions, from any provision of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.
Section 17(b) of the Act authorizes the Commission to grant an order
permitting a transaction otherwise prohibited by section 17(a) if it
finds that (a) the terms of the proposed transaction are fair and
reasonable and do not involve overreaching on the part of any person
concerned; (b) the proposed transaction is consistent with the policies
of each registered investment company involved; and (c) the proposed
transaction is consistent with the general purposes of the Act. Rule
17d-1(b) under the Act provides that in passing upon an application
filed under the rule, the Commission will consider whether the
participation of the registered investment company in a joint
enterprise, joint arrangement or profit sharing plan on the basis
proposed is consistent with the provisions, policies and purposes of
the Act and the extent to which such participation is on a basis
different from or less advantageous than that of the other
participants.

    For the Commission, by the Division of Investment Management,
under delegated authority.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02169 Filed 2-2-18; 8:45 am]
 BILLING CODE 8011-01-P


UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

WASHINGTON, D.C.  20460

OFFICE OF PREVENTION

 PESTICIDES AND

TOXIC SUBSTANCES

									01 March 2007

MEMORANDUM

SUBJECT:	Chlorflurenol: Human Health Risk Assessment Addendum for the
Reregistration Eligibility Decision Document.

FROM:	Shanna Recore

		P. Yvonne Barnes

		Reregistration Branch 2

		Health Effects Division (7509P)

TO:		Tracy Perry

			Reregistration Branch 3

		Special Review and Reregistration Division (7508P)

THROUGH:	Alan Nielsen, Senior Scientist

		William Hazel, Chief

		Reregistration Branch 2

		Health Effects Division (7509P)

DP Barcode:		D337213

Pesticide Chemical Codes:  	098801

	This document serves as an addendum to HED’s 07/10/2006 human health
risk assessment (D323832). It reflects dietary (drinking water),
residential and occupational exposures and risks revised to reflect
reduced application rates for chlorflurenol committed to by the
registrant after the 07/10/2006 assessment. A portion of the attached
summary is excerpted from Chlorflurenol: Revised Occupational and
Residential Exposure Assessment for the Reregistration Eligibility
Decision Document (Recore 02/27/2007). 1.0	 REVISED OCCUPATIONAL AND
RESIDENTIAL EXPOSURE/RISK 	ASSESSMENT SUMMARY

	Chlorflurenol Methyl Ester (chlorflurenol) is an herbicide, plant
growth retardant, and plant growth regulator that is used in
agricultural, commercial, and residential settings.  As an herbicide
and/or plant growth retardant, chlorflurenol is used for the
postemergent control of annual grasses, broadleaf weeds, trees, shrubs,
and vines. As a plant growth regulator, chlorflurenol is in the
production of pineapple planting material (sliplets). Chlorflurenol is
registered as emulsifiable concentrate and granular formulations. The
emulsifiable concentrate formulations are applied using groundboom
sprayer, rights-of-way sprayer, handgun sprayer, low pressure handwand
sprayer, and airblast sprayer. Granular formulations are applied using a
bellygrinder, push-type spreader, and tractor-drawn spreader.  Table 1a,
1b, and 1c show the current application rates used in the revised
occupational and residential assessment.

  SEQ CHAPTER \h \r 1 Table 1a: Summary of Maximum Application Rates
for Registered Chlorflurenol Agricultural Uses

Crop Site	Target of Application	Maximum Application Rate	Application
Equipment	Area Treated or Amount Handled Per Day

Liquid Formulations

Pineapple plants:

for plant material production (non food use)	Plant growth regulator	1 lb
ai/A	groundboom	80 acres

	airblast	40 acres

  SEQ CHAPTER \h \r 1 Table 1b: Summary of Maximum Application Rates for
Registered Chlorflurenol Commercial Uses

Crop Site	Target of Application	Maximum Application Rate	Application
Equipment	Area Treated or Amount Handled Per Day

Liquid Formulations

Turf:  ornamental and lawns, golf courses, parks	Broadleaf weeds and
plant growth retardant	0.5 lb ai/A	handgun	Lawns and Ornamental:

5 acres for A and M/L/A

100 acres for M/L (for 20 LCOs)

	low pressure handwand	5 acres

	groundboom	40 acres

Weed Turf:

growing in culverts, ROW, median strips, ditches, under security fences

Weed Hardwoods: growing under utility lines, as screens or ground cover,
adjacent to highways

Weed Hedges/Vines: growing under utility lines as screens or ground
cover, ROW, hedgerows	Plant growth regulator	1.0 lb ai/acre
rights-of-way sprayer 	80 acres

	handgun	5 acres

	low-pressure handwand	5 acres

Weed Gymnosperms	Plant growth retardant	0.25 lb ai/A	rights-of-way
sprayer 	80 acres

	handgun	5 acres

	low pressure handwand 	5 acres

Trees:

bark banding	Plant growth retardant	0.083 lb ai/gal	low-pressure
handwand	40 gallons

Ornamental/Shade Trees (e.g., olives, oranges)	Plant growth regulator
1.0 lb ai/acre	handgun	5 acres

	low-pressure handwand	5 acres

High Density Forestry Management	Plant growth regulator	2.0 lb ai/acre
low-pressure handwand	5 acres

Granular Formulations

Turf:  Lawns and Ornamental Turf  (including golf course and parks)
Broadleaf weeds	0.5 lb ai/acre	tractor-drawn spreader	40 acres

	push-type spreader	5 acres

	belly grinder	1 acre

  SEQ CHAPTER \h \r 1 Table 1c: Summary of Maximum Application Rates
for Registered Chlorflurenol Residential Uses

Crop Site	Target of Application	Maximum Application Rate	Application
Equipment	Area Treated or Amount Handled Per Day

Granular Formulations

Turf:  lawns	Broadleaf weeds	0.25 lb ai/A	push-type spreader	0.5 acre

	belly grinder	1,000 ft2

Hazard Concerns

  SEQ CHAPTER \h \r 1 Adverse effects were identified at durations of
exposure ranging from short-term (up to 30 days) to long-term (> 6
months).  The short- and intermediate-term dermal, inhalation, and
incidental oral endpoints are based on a NOAEL of 31 mg/kg/day from a
chronic 2-year feeding study in dogs where the LOAEL is 90 mg/kg/day.
The LOAEL is based on decreased erythrocyte, hemoglobin and hematocrit
at 4 weeks. Long-term exposures to chlorflurenol (i.e., greater than 6
months) are not expected for current registered uses.  Additionally, no
cancer endpoint was identified; therefore cancer risks are not assessed.

	HED’s level of concern (LOC) for chlorflurenol occupational and
residential dermal and inhalation exposures is 100 (i.e., a margin of
exposure (MOE) less than 100 exceeds HED’s level of concern).  The
dermal and inhalation margins of exposure were combined for the
occupational and residential handler risk assessments because the
toxicity endpoints for the dermal and inhalation routes of exposure are
based on the same toxicological effects.  For incidental oral exposures,
HED’s level of concern is 300 (i.e., a margin of exposure (MOE) less
than 300 exceeds HED’s level of concern). The dermal and incidental
oral ingestion margins of exposure for the residential postapplication
risk assessments for toddlers were also aggregated because the toxicity
endpoints for the dermal and oral routes of exposure are based on the
same toxicological effects.

Occupational Handler Risks

	HED has determined that there are potential exposures to mixers,
loaders, applicators, and other handlers during the usual use-patterns
associated with chlorflurenol. These risks were calculated assuming
maximum application rates from the product labels or using the proposed
maximum application rates reported by the Registrant.

	For all occupational scenarios, the inhalation risks were below HED’s
level of concern at the baseline level.

	For the scenarios listed below, the dermal and total risks were of
concern at baseline level of mitigation, but were not a concern with
single layer attire plus gloves.

mixing/loading liquid concentrates for all scenarios, except
mixing/loading liquid concentrates to support handgun applications to
ornamental/shade trees and to  weeds (turf, hardwoods, hedges, and
vines, and gymnosperms);

applying liquid concentrates with rights-of-way equipment for weed
gymnosperms; and

mixing/loading/applying liquid concentrates with low pressure handwand
(PHED data and ORETF ground-directed data) for all scenarios.

For the one scenario listed below, the dermal and total risks remained
at concern with the highest level of mitigation (double layer clothing
plus gloves), though risks were only slightly below HED’s level of
concern of 100.

applying liquid concentrates with rights of way equipment for weed turf,
hardwoods, hedges, and vines (dermal MOE = 94 and total MOE = 92).

For four scenarios listed below, the dermal and total risks remained at
concern with the only data available – baseline attire.  However,
since both the PHED data and the ORETF ground-directed data for
low-pressure handwand equipment have similar risks at baseline, but
dermal risks are not of concern with the addition of chemical-resistant
gloves, it could be assumed that these scenarios would not be of concern
with the addition of chemical-resistant gloves.

Mixing/loading/applying liquid concentrates with low-pressure handwand
equipment using ORETF data for upward-directed sprays on weed hardwoods,
hedges, and vines (dermal MOE = 14 and total MOE = 14).

Mixing/loading/applying liquid concentrates with low-pressure handwand
equipment using ORETF data for upward-directed sprays on ornamental and
shade trees (dermal MOE = 14 and total MOE = 14).

Mixing/loading/applying liquid concentrates with low-pressure handwand
equipment using ORETF data for upward-directed sprays on weed
gymnosperms (dermal MOE = 58 and total MOE = 58).

Mixing/loading/applying liquid concentrates with low-pressure handwand
equipment using ORETF data for upward-directed sprays for high density
forest management (dermal MOE = 7.2 and total MOE = 7.2).

	There are no data to assess baseline dermal risks for application via
handgun equipment and mixing/loading/applying via handgun equipment.
Dermal risks are below HED’s level of concern for handlers of these
scenarios with a single layer attire plus gloves.

Occupational Postapplication Risks

	HED has determined that there are potential exposures to
postapplication occupational workers during the usual use-patterns
associated with chlorflurenol.  Specifically, HED is concerned about
postapplication exposures from treatment of pineapples and golf course
turf. To develop a postapplication assessment, HED considers the types
of tasks and activities that individuals are likely to be doing in areas
recently treated with a pesticide. In agricultural crop settings, the
use of personal protective equipment or other types of equipment to
mitigate postapplication exposures to workers is not considered a viable
alternative for the regulatory process. Instead, an administrative
approach – a Restricted Entry Interval or REI – is used to mitigate
postapplication risks following applications to crops.  The REI is time
period following a pesticide application during which entry into the
treated area is restricted.  Postapplication risk levels are generally
calculated in the risk assessment process on a chemical-, crop-, and
activity-specific basis.  To establish REIs, HED considers
postapplication risks on varying days after application. For pineapple
and golf course turf applications, the MOEs are greater than 100 on day
0 (REI = 12 hours) for all of the activity levels.

Residential Handler Risks

	HED has determined that there are potential exposures to residential
handlers during the usual use-patterns associated with chlorflurenol.
All non-cancer risks (i.e., MOEs) to handlers associated with the
scenarios are not of concern, because they exceed HED’s uncertainty
factor of 100.

Residential Postapplication Risks

	The following residential postapplication scenarios were identified:

dermal exposure from residue on lawns and turf (adult, youth and
toddler),

hand-to-mouth transfer of residues on lawns (toddler),

ingestion of pesticide residue on treated grass (toddler), and

incidental ingestion of soil from pesticide-treated residential areas
(toddler).

For the adult, youth and toddler populations, all postapplication
non-cancer risks were below HED’s level of concern. Calculated
combined risks to toddlers (i.e., dermal high contact activity plus hand
to mouth activity plus object to mouth activity on treated turf plus
incidental soil ingestion of pesticide residue from treated turf areas)
were also below HED’s level of concern.

2.0 	 REVISED DIETARY EXPOSURE/RISK ASSESSMENT SUMMARY

	 Dietary Exposure/Risk Characterization    TC \l1 "5.0	Dietary
Exposure/Risk Characterization

	Chlorflurenol methyl ester is a nonfood use pesticide having no
tolerances to reassess.  Consequently, there are no residue chemistry
data requirements and thus, dietary exposure and risk assessments are
not applicable.  Chlorflurenol methyl ester is used on pineapple after
fruit harvest to stimulate production of vegetative planting material
(slips).  The time between pesticide treatment and the first harvest of
pineapple fruit would be 1.5 to 2 years.  No residues are expected in
the fruit according to a HED Greybeard Committee decision in 1995 [TXR#
012504].  HED upholds this decision in this addendum.

	Drinking Water Residue Profile TC \l3 "5.1.9	Drinking Water Residue
Profile

	It should be noted that drinking water exposure to chlorflurenol methyl
ester is very limited.  Due to the limited number of pounds per year
used, this water contamination is likely limited to use areas only.  It
follows that expanded use, would result in additional contamination.

	Chronic drinking water exposure were modeled by Dietary Exposure
Evaluation Model (DEEM-FCID(, Version 2.03), which uses food consumption
data from the USDA’s Continuing Surveys of Food Intakes by Individuals
(CSFII) from 1994-1996 and 1998 using surface water concentration, which
showed all groups were exposed to levels below the chronic oral endpoint
of 0.1 mg/kg/day.  Non-nursing infants and all infants (< 1 year) were
exposed to the highest percentage of the RfD at 0.4% and 0.3%
respectively.  All other groups were exposed to residues in drinking
water at 0.1% to 0.2% of the oral chronic RfD of 0.1 mg/kg/day.  These
levels are below EPA’s level of concern see (Table 2A).

Table 2A.  Chlorflurenol:  Selected population exposures (selected for
surface water exposures within a group)

Population subgroup	mg/kg/day 	Percent of the endpoint of

0.10 mg/kg/day

US population (summer season)	0.000113	0.1

Western region	0.000121	0.1

Hispanics	0.000120	0.1

Non-hispanic blacks	0.000100	0.1

Non-hispanic/non-white/non-black	0.000129	0.1

All infants (<1 year)	0.000346	0.3

Nursing infants	0.000128	0.1

Non-nursing infants 	0.000428	0.4

Females 20+ (not pregnant or nursing)	0.000105	0.1

Females 13-50 years	0.000102	0.1

Females 13+ nursing	0.000146	0.1

Males 20+ yrs	0.000094	0.1

Seniors 55+	0.000103	0.1

Children 1-2 years	0.000156	0.2

Children 3-5 years	0.000147	0.1

Children 6-12 years	0.000101	0.1

Youths 13-19 yrs	0.000076	0.1

For drinking water, the Deem software was modeled using surface water
concentration at 5.0 ppb.

	Chronic drinking water exposures were also modeled by the DEEM software
using the estimated ground water concentration.  Non-nursing infants and
all infants (< 1 year) were exposed to the highest percentage of the RfD
at 3.7% and 3.0% respectively.  All other groups were exposed to
drinking water at 0.7% to 1.3% of the oral chronic RfD of 0.1 mg/kg/day.
 These levels are below EPA’s level of concern see (Table 2B).

Table 2B.  Chlorflurenol:  Selected population exposures (selected for
ground water exposures within a group)

Population subgroup	mg/kg/day	Percent of the endpoint of

0.10 mg/kg/day

US population (summer season)	0.000967	1.0

Western region	0.001031	1.0

Hispanics	0.001022	1.0

Non-hispanic blacks	0.000854	0.9

Non-hispanic/non-white/non-black	0.001103	1.1

All infants (<1 year)	0.002951	3.0

Nursing infants	0.001094	1.1

Non-nursing infants 	0.003655	3.7

Females 20+ (not pregnant or nursing)	0.000898	0.9

Females 13-50 years	0.000871	0.9

Females 13+ nursing	0.001247	1.2

Males 20+ yrs	0.000806	0.8

Seniors 55+	0.000884	0.9

Children 1-2 years	0.001337	1.3

Children 3-5 years	0.001251	1.3

Children 6-12 years	0.000863	0.9

Youths 13-19 yrs	0.000651	0.7

For drinking water, the Deem software was modeled using ground water
concentration at 42.7 ppb.

	Potential drinking water residues were estimated for groundwater from
Tier I SCIGROW and surface water from Tier II PRZM and EXAMS models.
The OPP/EFED Florida turf scenario was selected for this assessment.
For this assessment, it was assumed that 1 application of chlorflurenol
methyl ester was applied to turf grass at a rate of 0.5 pounds active
ingredient per acre and the pesticide is stable in the environment.
This would represent a maximum concentration in a shallow, private well
in a high usage area.  Surface water concentrations are 9.4 ppb for
acute concentration; 5.0 ppb for chronic non-cancer: and 42.7 ppb for
ground water concentration (see Table 3).

Table 3. 	Summary of Estimated Surface Water and Groundwater
Concentrations for Chlorflurenol

Application

Rate (lbs/ac)	Number of Applications per Year	Acute Surface
(ppb)	Chronic non-cancer (ppb)	Chronic cancer (ppb)	Groundwater

(ppb)

0.5	1	9.4	5.0	2.5	42.7

	PHYSICAL CHEMICAL PROPERTIES

	The product chemistry data gap in Table 4/page 12 of the document
Chlorflurenol Methyl Ester.  HED Chapter of the Reregistration
Eligibility Decision Document (RED), dated 10 July 2006 is outlined in
OPPTS Guideline Series 830-7050 UV/Visible Absorption. The rationale for
the requirement is stated below.

UV/Visible Absorption Data Gap

Product Properties Test Guidelines require data pertaining to UV/Visible
absorption for the pure active ingredient.  Determination of the
UV/Visible absorption spectrum of a pesticide provides some indication
of the wavelengths at which the compound may be susceptible to
photochemical degradation.  This study is required of all pesticide
chemicals as additional characterization of the active ingredient's
properties.

Attachments:

Attachment 1. Chronic Results (Surface Water)

Attachment 2. Chronic Results (Ground Water)

Attachment 1.  Chronic Results (Surface Water)

U.S. Environmental Protection Agency                                Ver.
2.00

DEEM-FCID Chronic analysis for CHLORFLURENOL                    (1994-98
data)

Residue file name: C:\Documents and
Settings\pbarnes\Desktop\chlorflurenol 6 13 2006\new water only
runs\chlorflurenol 03 01 2007.R98

                                                Adjustment factor #2 NOT
used.

Analysis Date 03-01-2007/09:42:27     Residue file dated:
03-01-2007/09:41:47/8

Reference dose (RfD, Chronic) = .1 mg/kg bw/day

COMMENT 1: Application Rate 0.5 lbs/acre

========================================================================
=====

                    Total exposure by population subgroup

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

                                                    Total Exposure

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

          Population                         mg/kg             Percent
of

           Subgroup                       body wt/day             Rfd

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

U.S. Population (total)                     0.000105
0.1%

U.S. Population (spring season)             0.000104
0.1%

U.S. Population (summer season)             0.000113
0.1%

U.S. Population (autumn season)             0.000102
0.1%

U.S. Population (winter season)             0.000102
0.1%

Northeast region                            0.000096
0.1%

Midwest region                              0.000107
0.1%

Southern region                             0.000100
0.1%

Western region                              0.000121
0.1%

Hispanics                                   0.000120
0.1%

Non-hispanic whites                         0.000103
0.1%

Non-hispanic blacks                         0.000100
0.1%

Non-hisp/non-white/non-black                0.000129
0.1%

All infants (< 1 year)                      0.000346
0.3%

Nursing infants                             0.000128
0.1%

Non-nursing infants                         0.000428
0.4%

Children 1-6  yrs                           0.000147
0.1%

Children 7-12 yrs                           0.000096
0.1%

Females 13-19 (not preg or nursing)         0.000074
0.1%

Females 20+ (not preg or nursing)           0.000105
0.1%

Females 13-50 yrs                           0.000102
0.1%

Females 13+ (preg/not nursing)              0.000102
0.1%

Females 13+ (nursing)                       0.000146
0.1%

Males 13-19 yrs                             0.000078
0.1%

Males 20+ yrs                               0.000094
0.1%

Seniors 55+                                 0.000103
0.1%

Children 1-2 yrs                            0.000156
0.2%

Children 3-5 yrs                            0.000147
0.1%

Children 6-12 yrs                           0.000101
0.1%

Youth 13-19 yrs                             0.000076
0.1%

Adults 20-49 yrs                            0.000098
0.1%

Adults 50+ yrs                              0.000104
0.1%

Females 13-49 yrs                           0.000098
0.1%

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

Attachment 2.  Chronic Results (Ground Water)

U.S. Environmental Protection Agency                                Ver.
2.00

DEEM-FCID Chronic analysis for CHLORFLURENOL                    (1994-98
data)

Residue file name: C:\Documents and
Settings\pbarnes\Desktop\chlorflurenol 6 13 2006\new water only
runs\chlorflurenol  03 01 2007 ground water only.R98

                                                Adjustment factor #2 NOT
used.

Analysis Date 03-01-2007/09:46:24     Residue file dated:
03-01-2007/09:45:50/8

Reference dose (RfD, Chronic) = .1 mg/kg bw/day

COMMENT 1: ground water

========================================================================
=====

                    Total exposure by population subgroup

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

                                                    Total Exposure

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

          Population                         mg/kg             Percent
of

           Subgroup                       body wt/day             Rfd

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

U.S. Population (total)                     0.000900
0.9%

U.S. Population (spring season)             0.000892
0.9%

U.S. Population (summer season)             0.000967
1.0%

U.S. Population (autumn season)             0.000870
0.9%

U.S. Population (winter season)             0.000870
0.9%

Northeast region                            0.000821
0.8%

Midwest region                              0.000910
0.9%

Southern region                             0.000855
0.9%

Western region                              0.001031
1.0%

Hispanics                                   0.001022
1.0%

Non-hispanic whites                         0.000878
0.9%

Non-hispanic blacks                         0.000854
0.9%

Non-hisp/non-white/non-black                0.001103
1.1%

All infants (< 1 year)                      0.002951
3.0%

Nursing infants                             0.001094
1.1%

Non-nursing infants                         0.003655
3.7%

Children 1-6  yrs                           0.001257
1.3%

Children 7-12 yrs                           0.000818
0.8%

Females 13-19 (not preg or nursing)         0.000633
0.6%

Females 20+ (not preg or nursing)           0.000898
0.9%

Females 13-50 yrs                           0.000871
0.9%

Females 13+ (preg/not nursing)              0.000875
0.9%

Females 13+ (nursing)                       0.001247
1.2%

Males 13-19 yrs                             0.000662
0.7%

Males 20+ yrs                               0.000806
0.8%

Seniors 55+                                 0.000884
0.9%

Children 1-2 yrs                            0.001337
1.3%

Children 3-5 yrs                            0.001251
1.3%

Children 6-12 yrs                           0.000863
0.9%

Youth 13-19 yrs                             0.000651
0.7%

Adults 20-49 yrs                            0.000840
0.8%

Adults 50+ yrs                              0.000884
0.9%

Females 13-49 yrs                           0.000837
0.8%

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

Page   PAGE  1  of   NUMPAGES  11