[Federal Register Volume 77, Number 23 (Friday, February 3, 2012)]
[Notices]
[Pages 5590-5595]
[FR Doc No: 2012-2395]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66278; File No. SR-BX-2011-046]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing of Amendment No. 1, and Order Granting Accelerated Approval of
Proposed Rule Change as Modified by Amendment No. 1, To Amend the BOX
Fee Schedule With Respect to Credits and Fees for Transactions in the
BOX PIP

January 30, 2012.
    On July 15, 2011, NASDAQ OMX BX, Inc. (the ``Exchange'') filed with
the Securities and Exchange Commission (the ``Commission''), pursuant
to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Exchange
Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to amend the Fee Schedule of the Boston Options Exchange Group,
LLC (``BOX'') to increase the credits and fees for certain transactions
in the BOX Price Improvement Period (``PIP'').\3\ The proposed rule
change was immediately effective upon filing with the Commission
pursuant to Section 19(b)(3)(A) of the Act.\4\ Notice of filing of the
proposed rule change was published in the Federal Register on August 3,
2011.\5\ The Commission received four comment letters on the Notice \6\
and a response from BOX.\7\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The PIP is a mechanism in which a BOX Options Participant
submits an agency order on behalf of a customer for price
improvement, paired with a contra-order guaranteeing execution of
the agency order at or better than the National Best Bid or Offer
(``NBBO''). The contra-order could be for the account of the Options
Participant, or an order solicited from someone else. The agency
order is exposed for a one-second auction in which other BOX Options
Participants (``Initiating Participant'') may submit competing
interest at the same price or better. The initiating BOX Options
Participant is guaranteed 40% of the order (after public customers)
at the final price for the PIP order, assuming it is at the best
price. See Chapter V, Section 18 of the BOX Rules.
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ See Securities Exchange Act Release No. 64981 (July 28,
2011), 76 FR 46858 (``Notice'').
    \6\ See Letters to Elizabeth Murphy, Secretary, Commission, from
John C. Nagel, Managing Director and General Counsel, Citadel
Securities LLC (``Citadel''), dated August 12, 2011 (``Citadel
Letter''); Andrew Stevens, Legal Counsel, IMC Financial Markets
(``IMC''), dated August 15, 2011 (``IMC Letter''); Michael J. Simon,
Secretary, International Securities Exchange (``ISE''), dated August
22, 2011 (``ISE Letter''), and Christopher Nagy, Managing Director
Order Strategy, TD Ameritrade, Inc. (``TD Ameritrade''), dated
September 12, 2011 (``TD Ameritrade Letter'').
    \7\ See Letter to Elizabeth Murphy, Secretary, Commission, from
Anthony D. McCormick, Chief Executive Officer, BOX, dated September
9, 2011 (``BOX Letter'').
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    On September 13, 2011, the Commission temporarily suspended BOX's
proposal and simultaneously instituted proceedings to determine whether
to approve or disapprove the proposed rule change.\8\ On September 20,
2011, the Commission received notice of BOX's intention to petition for
review of the Division's action by delegated authority to suspend its
PIP fee filing, which triggered a stay of the suspension order. On
September 27, 2011, the Commission received BOX's petition to review
the Division of Trading and Markets' suspension by delegated
authority.\9\ On October 19, 2011, the Commission issued an order
denying BOX's petition, lifting the

automatic stay, and designating a longer comment period for the
proceedings.\10\
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    \8\ See Securities Exchange Act Release No. 65330 (September 13,
2011), 76 FR 58065 (September 19, 2011) (``Suspension Order'').
    \9\ Petition for Review of Action by Delegated Authority from
BOX, dated September 27, 2011 (``BOX Petition'').
    \10\ See Securities Exchange Act Release No. 65592, 76 FR 66103
(October 25, 2011).
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    The Commission thereafter received an additional four comment
letters on the proposal.\11\ The Exchange submitted a response letter
to the comments on December 9, 2011.\12\ The Exchange also submitted
data for the Commission's consideration under separate cover.\13\
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    \11\ See Letters to Elizabeth Murphy, Secretary, Commission,
from Anthony J. Saliba, Chief Executive Officer, LiquidPoint, LLC
(``LiquidPoint''), dated October 10, 2011 (``LiquidPoint Letter'');
Christopher Nagy, Managing Director Order Strategy, TD Ameritrade,
dated November 14, 2011 (``TD Ameritrade Letter II''); Michael J.
Simon, Secretary, ISE, dated November 17, 2011 (``ISE Letter II'');
and John C. Nagel, Managing Director and General Counsel, Citadel,
dated November 17, 2011 (``Citadel Letter II'').
    \12\ See Letter to Elizabeth Murphy, Secretary, Commission, from
Anthony D. McCormick, Chief Executive Officer, BOX, dated December
9, 2011 (``BOX Response Letter'').
    \13\ See Letter to Heather Seidel, Associate Director, Division
of Trading and Markets, Commission, from Michael J. Burbach, Vice
President, Legal Affairs, BOX, dated December 9, 2011 (``BOX Data
Letter'').
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    On January 30, 2012, the Exchange submitted Amendment No. 1 to the
proposed rule change. In Amendment No. 1, the Exchange proposed to put
its fee change on a formal pilot and undertook to provide the
Commission with data during the course of such pilot. The Commission is
publishing this notice to solicit comments on Amendment No. 1 from
interested persons and is approving the proposed rule change, as
modified by Amendment No. 1, on an accelerated basis.

I. Description of the Proposal

    The Exchange proposes to increase the credits and fees for certain
transactions in the PIP by modifying Section 7d of the BOX Fee
Schedule. Specifically, the Exchange proposes to: (1) Increase both the
credits and the fees for PIP transactions in classes that are not
subject to the Penny Pilot (``Non-Penny classes'') from $0.30 to $0.75
per contract; and (2) increase both the credits and the fees for PIP
transactions in Penny Pilot classes (other than in QQQQ, SPY, and IWM)
where the trade price is equal to or greater than $3.00 per contract
from $0.30 to $0.75 per contract. The credits and the fees for PIP
transactions QQQQ, SPY, and IWM and in all other Penny Pilot classes
where the trade price is less than $3.00 per contract will remain at
$0.30 per contract. The credits are paid by the Exchange on the agency
order that is submitted to the PIP auction on behalf of a customer. The
fees are charged by the Exchange to the order that is executed against
the agency order, whether such order is the contra order submitted by
the Initiating Participant or an order submitted by another BOX Options
Participant in response to the PIP auction (``Responding
Participant''). The credits and fees are in addition to any applicable
trading fees, as described in Sections 1 through 3 of the BOX Fee
Schedule.\14\
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    \14\ Sections 1 through 3 of the BOX Fee Schedule include a
$0.25 per contract transaction fee for contracts traded in the PIP.
Depending on its average daily volume (``ADV''), a Participant who
initiates PIP auctions may be charged a lower per contract fee. See
Section 7d. of the BOX Fee Schedule.
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    In addition, on January 30, 2012, BOX submitted Amendment No. 1 to
the proposed rule change, which added language to make the proposed
rule change, subject to Commission approval, operative on a pilot basis
beginning February 1, 2012, and continuing until February 28, 2013.
Further, BOX agreed to submit to the Commission on a quarterly basis
during the pilot period certain monthly PIP transaction data in series
traded in penny increments compared to series traded in nickel
increments, subdivided by when BOX is at the NBBO and when BOX is not
at the NBBO, including: (1) Volume by number of contracts traded; (2)
number of contracts executed by the Initiating Participant as compared
to others (``retention rate''); (3) percentage of contracts receiving
price improvement when the Initiating Participant is the contra party
and when others are the contra party; (4) average number of
participants responding in the PIP; (5) average price improvement
amount when the Initiating Participant is the contra party; (6) average
price improvement amount when others are the contra party; and (7)
percentage of contracts receiving price improvement greater than $0.01,
$0.02 and $0.03 when the Initiating Participant is the contra party and
when others are the contra party.\15\ BOX also agreed to make such data
publicly available.
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    \15\ The data set forth in Amendment No. 1 to be provided during
the pilot period includes substantially the same information as the
Order Size Cumulative data provided by BOX in pages 26 through 30 of
the BOX Data Letter.
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II. Discussion

    After careful review of the proposal and consideration of the
comment letters, the Commission finds that the proposed rule change to
amend the BOX Fee Schedule to increase the credits and fees for certain
transactions in the PIP is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange and, in particular, the requirements of Section 6
of the Act.\16\ Specifically, the Commission finds that the proposal,
as modified by Amendment No. 1, is consistent with Section 6(b)(5) of
the Act,\17\ which, among other things, requires that rules of a
national securities exchange be designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system, to protect
investors and the public interest, and to not permit unfair
discrimination between customers, issuers, brokers, or dealers, and
Section 6(b)(8) of the Act, \18\ which requires that the rules of a
national securities exchange not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act. In
addition, the Commission finds that the proposal, as modified by
Amendment No. 1, is consistent with Section 6(b)(4) of the Act,\19\
which requires that an exchange have rules that provide for the
equitable allocation of reasonable dues, fees, and other charges among
its members and issuers and other persons using its facilities.
Further, as discussed below, in approving this proposed rule change,
the Commission considered the proposal's impact on efficiency,
competition, and capital formation.\20\
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    \16\ 15 U.S.C. 78f.
    \17\ 15 U.S.C. 78f(b)(5).
    \18\ 15 U.S.C. 78f(b)(8).
    \19\ 15 U.S.C. 78f(b)(4).
    \20\ See 15 U.S.C. 78c(f).
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    As noted above, the Exchange's proposal increased: (1) Both the
credits and the fees for PIP transactions in classes that are not
subject to the Penny Pilot from $0.30 to $0.75 per contract; and (2)
both the credits and the fees for PIP transactions in Penny Pilot
classes where the trade price is equal to or greater than $3.00 per
contract (other than transactions in QQQQ, SPY, and IWM) from $0.30 to
$0.75 per contract. In other words, the Exchange's proposal applies
only to options with a minimum price variation larger than one cent.
The Exchange's proposal did not modify its existing PIP-related fees
that apply to transactions in series that have a minimum pricing
variation of one cent. Accordingly, the issue before the Commission in
this filing is whether the PIP fee changes applicable to options
quoting in an increment larger than a penny are consistent with the
Act.
    Prior to the institution of proceedings, the Commission received
four comment letters on the Exchange's proposed rule change.\21\ Three
commenters

recommended that the Commission temporarily suspend SR-BX-2011-046 and
institute proceedings to disapprove the filing.\22\ The fourth
commenter supported the Exchange's proposed rule change and urged the
Commission not to institute proceedings to disapprove the filing.\23\
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    \21\ See Citadel Letter, supra note 6, IMC Letter, supra note 6,
ISE Letter, supra note 6, and TD Ameritrade Letter, supra note 6.
    \22\ See Citadel Letter, supra note 6, at 4; IMC Letter, supra
note 6, at 1 and 4; and ISE Letter, supra note 6, at 5.
    \23\ See TD Ameritrade Letter, supra note 6, at 2.
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    Citadel argued that the magnitude of the disparity between the fees
an initiator pays and the fees a competitive responder pays, on a net
basis,\24\ make it ``economically prohibitive for anyone other than the
initiator to respond'' to a PIP auction.\25\ Citadel also argued that
the fees proposed by SR-BX-2011-046 are ``solely structured to benefit
one group of BOX participants over another,'' and thus are
discriminatory and an undue burden on competition.\26\
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    \24\ Under the proposed rule change, the Exchange would charge
both the Initiating Participant and the Responding Participant the
same fee for executing an order in the PIP. However, if the
Initiating Participant also submits the agency order into the PIP,
the Initiating Participant receives the rebate paid to the agency
order that is auctioned in the PIP. As a result, if the fee the
Initiating Participant pays is aggregated with the rebate the
Initiating Participant receives for the agency order (i.e., a
``net'' fee), the Initiating Participant would pay a lower net fee
compared to Responding Participants.
    \25\ See Citadel Letter, supra note 6, at 2.
    \26\ Id. at 3.
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    IMC also noted its belief that the BOX PIP fee structure unduly
burdened competition and unreasonably discriminated amongst
participants.\27\ It argued that the increase in fees is borne solely
by PIP competitive responders and effectively bars certain participants
from competing with initiators.\28\
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    \27\ See IMC Letter, supra note 6, at 1-2.
    \28\ See id.
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    ISE challenged BOX's assertion that the fees proposed in SR-BX-
2011-046 have a uniform application across all members, noting that the
differential in net fees between PIP initiator and competitive
responders is between $0.75 and $0.90 per contract.\29\ ISE also argued
that SR-BX-2011-046 was deficient in that it failed to: Provide an
adequate basis to determine that the proposed rule change is consistent
with the Act because it did not address the pricing differential for
participants who seek to compete with a PIP initiator; discuss the
burden on competition imposed by the pricing structure; or provide
support for its assertion that the fee change will allow it to compete
with other exchanges.\30\
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    \29\ See ISE Letter, supra note 6, at 2.
    \30\ See ISE Letter, supra note 6, at 5.
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    TD Ameritrade strongly supported the proposed rule change, noting
that it had already seen significant benefits to its retail
investors.\31\ TD Ameritrade stated that the BOX fee structure provides
incentives for market participants to submit customer order flow to BOX
and thus, creates a greater opportunity for retail customers to receive
additional price improvement.\32\
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    \31\ See TD Ameritrade Letter, supra note 6, at 1.
    \32\ See id.
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    In its response letter, BOX argued that its market model and fee
structure are intended to benefit retail customers.\33\ BOX stated that
its fee structure in the PIP is more transparent than payment for order
flow (``PFOF'') arrangements and notes its belief that the credit to
remove liquidity on BOX is generally less than what firms receive
through PFOF.\34\ BOX stated that since the PIP began operating in
2004, customers have received more than $355 million in savings through
better executions on BOX, including $7.3 million in August 2011, and
stated its belief that the proposal is consistent with the public
interest, and with the Exchange Act.\35\
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    \33\ See BOX Letter, supra note 7, at 2.
    \34\ See id.
    \35\ See id.
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    As noted above, the Commission received an additional four comment
letters on the proposal during the proceedings,\36\ in addition to
rebuttal comment from the Exchange \37\ and a separate data letter.\38\
Of these comment letters, one supported the proposal \39\ and three
opposed the proposal.\40\
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    \36\ See TD Ameritrade Letter II, supra note 11, LiquidPoint
Letter, supra note 11, ISE Letter II, supra note 11, and Citadel
Letter II, supra note 11.
    \37\ See BOX Response Letter, supra note 12.
    \38\ See BOX Data Letter, supra note 13.
    \39\ See TD Ameritrade Letter II, supra note 11.
    \40\ See LiquidPoint Letter, supra note 11, ISE Letter II, supra
note 11, and Citadel Letter II, supra note 11.
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    In support of the proposal, both BOX and TD Ameritrade stated that
they believed that the proposed fees did not inhibit competition or
foster internalization.\41\ TD Ameritrade stated that its experience
with the BOX PIP has shown ``price improvement rates superior to that
available through other programs in the market.'' \42\
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    \41\ See BOX Response Letter, supra note 12, at 3-5; TD
Ameritrade Letter II, supra note 11, at 2.
    \42\ TD Ameritrade Letter II, supra note 11, at 2.
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    The commenters opposed to the proposal all expressed concern about
the impact of the net fees on competition in the PIP, and thus on the
opportunity for price improvement for the customer order being exposed
in the auction.\43\ Citadel argues that because of the disparity
between the net fee charged to competitive responders and the
initiators, BOX effectively is discouraging competition in the PIP and
is thereby encouraging internalization at worse prices for
investors.\44\ Citadel further argues that BOX's PIP fees are not
equitably allocated and unfairly discriminate in violation of the
Act.\45\ Citadel claims that BOX's PIP fees, which it believes have
reduced competition, have resulted in PIP auctions offering price
improvement to fewer numbers of contracts and by lower amounts.\46\
Likewise, LiquidPoint maintains that the filing imposes a burden on
competition because of the higher net costs to a competitive responder
in a PIP auction, which it believes prevents responders from competing
on equal footing in the auction with the firm that submitted the
original PIP order.\47\ ISE argues that BOX's PIP fees impose an
unreasonable burden on competition and that BOX appears to be using its
PIP fees to increase interaction rates, thereby denying investors the
opportunity to receive the best possible prices for their orders.\48\
ISE notes that BOX data shows that only 15% of orders in penny classes
in the PIP receive price improvement over the NBBO and that BOX data
shows a 58% retention rate in the penny classes.\49\
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    \43\ Some of the commenters opposed to the proposal expressed
concerns about the competitiveness of the PIP in general and did not
limit their comments to the fee change applicable to non-penny
series that is before the Commission in this particular proposal.
See, e.g., Citadel Letter II, supra note 11, at 3 and ISE Letter II,
supra note 11, at 1-2.
    \44\ See Citadel Letter II, supra note 11, at 2.
    \45\ See Citadel Letter II, supra note 11, at 1.
    \46\ See Citadel Letter II, supra note 11, at 3. Citadel
provided statistics on the amount and percent of average price
improvement per month for BOX's PIP and compared it to similar price
improvement mechanisms on ISE, Phlx, and CBOE, for February to
October 2011. Although these statistics provided do show a downward
trend for price improvement on BOX's PIP during the period covered
by Citadel's statistics, the Commission notes they are not broken
out by penny and non-penny series, and thus do not show the
statistics only for the specific options subject to the fee change
in this proposed rule change.
    Citadel also argues that other BOX fees, in particular the fee
to add liquidity to the BOX book, have increased quoted spreads on
BOX and amplified the negative impact of the PIP fee by facilitating
internalization at the NBBO through PIP auctions. See Citadel Letter
II, supra note 11, at 6-7. Although the Commission has considered
the proposed fee change that is the subject of this proposed rule
change in the context of these other fees, the Commission notes that
these other BOX fees are not within the scope of this proposed rule
change.
    \47\ See LiquidPoint Letter, supra note 11, at 2.
    \48\ See ISE Letter II, supra note 11, at 2.
    \49\ See ISE Letter II, supra note 11, at 1. ISE notes that this
level of retention exceeds the 40% execution guarantee. In contrast,
ISE notes that 81% of the contracts executed through the ISE's Price
Improvement Mechanism received price improvement over the NBBO
during September 2011, whereas only 23% of PIP transactions were
executed at a price that improved the NBBO in September 2011. We
note that the BOX PIP retention rate statistics cited by ISE refer
to data on penny series, which are not affected by the fee change in
this proposed rule change.

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    To assess the impact of the proposed fee change, the Commission's
review of the data focused on issues relating to the competitiveness of
the PIP auction and extent of price improvement obtained for customers.
In the BOX Data Letter, BOX provided monthly PIP execution quality
statistics for the period of June through October 2011, broken down by
order size (1-10 contracts, 11-25 contracts, 26-50 contracts, 51-100
contracts, and 101 or more contracts). BOX also provided summary data
for the period when the fee was in effect (August 1, 2011 to October
18, 2011, excluding September 13-20, 2011), as well as NBBO data for
BOX for the period of June through October 2011. The data provided by
BOX covers the few months before and after the fee change, and includes
statistics on percent and amount of price improvement, the number of
responders to a PIP auction, and the retention rates of Initiating
Participants and those market makers who received PIP directed orders.
This data included information on both penny and non-penny series,
although, as noted, this proposed rule change only applies to PIP
transactions in non-penny series.
    The data provided by BOX in the BOX Data Letter does not
demonstrate a decline in the execution quality of orders executed in
the PIP auction, in series trading in an increment larger than a penny,
during the period that the proposed rule change was in effect as
compared to the months immediately preceding the proposed rule change.
The data does show that the nature of the PIP auction and the execution
of orders within the auction varies significantly depending on whether
the auction relates to a penny series or series with a larger
increment, and on whether BOX is quoting at the NBBO or outside the
NBBO when the auction is initiated. The following discussion of the
data focuses on the non-penny series, which are the series affected by
the proposed rule change.
    With respect to the non-penny series that were affected by the PIP
fee change, the data show that the initiated order and directed order
retention rate remained largely the same (both when BOX was outside the
NBBO and when BOX was at the NBBO) during the period the fee change was
in effect as compared to the two months prior.\50\ Specifically,
although the retention rate varied significantly between when BOX was
outside the NBBO (52%) and when BOX was at the NBBO (22%), it remained
relatively stable within those categories during the period covered by
the BOX Data Letter, varying no more than 3%.\51\
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    \50\ See BOX Data Letter, supra note 13, at 32.
    \51\ See id. The Commission does recognize that, in the non-
penny series, the number of responders declined in auctions that
were initiated when BOX was quoting outside the NBBO and increased
in auctions that were initiated when BOX was quoting at the NBBO
during this time period, as compared to the two months prior to the
fee change. For example, in July 2011, the average number of
responders when BOX was at the NBBO was 1.31. In contrast, during
the entire period that the proposed fee change was in effect, the
average number of responders when BOX was at the NBBO was 3.11.
Further, in July 2011, the average number of responders when BOX was
not at the NBBO was 2.12. In contrast, during the entire period that
the proposed fee change was in effect, the average number of
responders when BOX was not at the NBBO was 1.75. See BOX Data
Letter, supra note 13, at 29 and 31. However, as noted, even with
these changes, the retention rate during these time periods did not
change significantly.
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    For non-penny series, the price improvement percentages declined
slightly for transactions when BOX was at the NBBO (despite the
increase in the number of responders), and increased slightly when BOX
was not at the NBBO (despite the decrease in the number of responders).
Overall, the data shows that BOX's PIP provided very significant price
improvement for non-penny series both before and after the PIP fee
change.\52\ As noted below in connection with BOX's agreement to
continue to make publicly available PIP execution quality data during
the pilot period, such data is relevant for the consideration of
broker-dealers when managing their best execution obligations.
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    \52\ See BOX Data Letter, supra note 13, at 32-33. The
percentage of contracts receiving price improvement in non-penny
series ranged from 55%-57% and the average price improvement amount
ranged from $0.02 to $0.0269. See id.
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    Thus, the data provided by BOX for the non-penny series do not
suggest any significant adverse impact of the proposed PIP fee change
on the competitiveness of the PIP auction or the extent of price
improvement for orders executed in the PIP in those series.\53\ Both
ISE and Citadel emphasized low price improvement and high retention
rates, but their statistics focus on either penny classes, only part of
which are affected by the proposed rule change, or overall price
improvement statistics, which are heavily influenced by the penny
series because of the high volumes in the penny series in the BOX
PIP.\54\
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    \53\ Although the proposed rule change does not affect the PIP
fee for options series in penny classes quoting in a penny
increment, data for those series included in the BOX Data Letter
does show that the majority of BOX's PIP volume is in the series in
penny classes quoting in penny increments when BOX is quoting
outside the NBBO. See BOX Data Letter, supra note 13, at 32.
Commission staff examined the total number of contracts executed in
the PIP compared to the total number of contracts executed in penny
series when BOX is not at the NBBO, as provided by BOX. Staff
calculated that the following percentages of total monthly volume in
the PIP occurred in penny series when BOX is outside the NBBO: June
2011, 66.3%; July 2011, 63.0%; August 2011, 64.5%; September 2011,
67.0%; and October 2011, 70.9%.
    In these series, the data show high retention rates by the
Initiating Participant along with a low rate of price improvement.
See BOX Data Letter, supra note 13, at 32. The retention rates in
penny series when BOX is not at the NBBO ranges from 62% to 64%
during the time period covered by the data. Further, the overall
percentage of contracts receiving price improvement in the penny
series ranges from 15% to 21% during the time period covered by the
data (with the highest percentage being in August 2011). See id. ISE
also notes high retention rates and low price improvement
percentages in the BOX PIP in the penny classes. See ISE Letter II,
supra note 11, at 1.
    This should be considered against the low percentage of time
that BOX is at the NBBO, which one commenter argued is a result of
BOX's overall fee structure. See Citadel Letter II, supra note 11,
at 8. BOX's data show that the percentage of time BOX was at the
NBBO in all options classes ranges from 30.00% to 32.70%. See BOX
Data Letter, supra note 13, at 34. Citadel provided statistics for
60 penny pilot symbols in September and October 2011 that calculate
BOX's percentage of time at the NBBO at 18% for each month. See
Citadel Letter II, supra note 11, at 8.
    The data suggests that some market participants may seek to
route orders to BOX's PIP when BOX is not at the NBBO. We note that
BOX established comparably structured PIP fees in the penny series
in August 2010 and subsequently increased the levels of in April
2011. See Securities Exchange Act Release Nos. 62632 (August 3,
2010), 75 FR 47869 (August 9, 2010) (SR-BX-2010-049) (Notice of
Filing and Immediate Effectiveness of Proposed Rule Change) and
64198 (April 6, 2011), 76 FR 20426 (April 12, 2011) (SR-BX-2011-020)
(Notice of Filing and Immediate Effectiveness of Proposed Rule
Change).
    \54\ See BOX Data Letter, supra note 13, at 32. During the
period covered by the BOX data provided, the volume in the penny
series ranged from 77% to 82% of total volume in the PIP. See id.
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    The Commission acknowledges that data BOX provided is based on a
sample period that was both short and included an anomalous month,
August 2011, which was characterized by extraordinarily high
volatility. This fact was noted by Citadel, which stated that during
periods of high volatility, spreads tend to widen, which in turn
provides more opportunity for price improvement.\55\ Citadel also
provided data showing spikes in price improvement in price improvement
mechanisms on other exchanges during the month of August 2011.\56\ Two
commenters also cautioned that it takes time for the market to react to
fee changes.\57\ One noted that the full

impact of the proposal might not be reflected in recent data.\58\
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    \55\ See Citadel Letter II, supra note 11, at 10.
    \56\ See Citadel Letter II, supra note 11, at 12.
    \57\ See Citadel Letter II, supra note 11, at note 28 and ISE
Letter II, supra note 11, at 1.
    \58\ See Citadel Letter II, supra note 11, at note 28.
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    In the BOX Response Letter, BOX offered to put the fee change on a
pilot.\59\ As noted above, BOX filed Amendment No. 1 to the proposed
rule change on January 30, 2012, which amended the filing so that if
the Commission approved the changes to the BOX Fee Schedule, although
such changes would become effective upon any such Commission approval,
BOX would make the changes operative on a pilot basis beginning
February 1, 2012, and continuing until February 28, 2013. BOX also
represented that it will provide publicly-available data to the
Commission on a quarterly basis for the duration of the pilot, which
data would be substantially similar to that provided in the BOX Data
Letter. This will allow the Commission to further evaluate the effect
of the fee structure on competition and the extent of price improvement
for orders executed in the PIP, in the affected series, over a longer
period of time with a data set that should be more representative and
less subject to the effect of potentially anomalous periods.
---------------------------------------------------------------------------

    \59\ See BOX Response Letter, supra note 12, at 6.
---------------------------------------------------------------------------

    In light of the data received, which showed no adverse impact of
the proposed rule change on the competitiveness of the PIP auction or
the extent of price improvement in series that trade in non-penny
increments that are the subject of the current proposal before the
Commission, and the Exchange's commitment to provide data during the
course of a pilot, which will allow the Commission to further evaluate
the impact of the fee during the course of the pilot, the Commission
finds that the proposed rule change, as modified by Amendment No. 1, is
consistent with the Act.
    Further, because BOX provided data to the Commission and agreed to
make the data publicly available, broker-dealers now have access to
data on execution quality for BOX's PIP that they did not previously
have, which is relevant for their consideration when managing their
best execution obligations.\60\ On numerous occasions, the Commission
has articulated that in meeting their best-execution obligations,\61\
broker-dealers should regularly and rigorously examine execution
quality likely to be obtained from different markets trading a
security.\62\ The Commission welcomes BOX's willingness to make public
data available, and notes that the data assisted the Commission in
evaluating the proposal.
---------------------------------------------------------------------------

    \60\ This proposal, the comment letters it has generated, and
the proceedings the Commission has conducted, have highlighted the
lack of visibility into publicly-available options execution quality
statistics across all of the exchanges, including for price
improvement mechanisms. See also Citadel Letter II, supra note 11,
at note 7 (advocating the adoption of rules mandating publication of
listed options execution quality metrics similar to Regulation NMS
Rules 605 and 606) and TD Ameritrade Letter II, supra note 11, at 2-
3 (recommending expansion of Rule 605 to the options markets).
Although certain exchanges provide price improvement statistics to
the Commission for their price improvement mechanisms, the
statistics are not made publicly available.
    \61\ See, e.g., Rule 2320 of the NASD's Conduct Rules, NASD
Notice to Members 06-58, Best Execution, http://www.finra.org/web/groups/industry/@ip/<EMAIL_ADDRESS>(Oct.
2006) and NASD Notice to Members 01-22, Best Execution, http://www.finra.org/web/groups/industry/@ip/<EMAIL_ADDRESS>(April 2001).
    \62\ See, e.g., Securities Exchange Release Nos. 37619A
(September 6, 1996), 61 FR 48290, (September 12, 1996); 37046 (March
29, 1996), 61 FR 15322, (April 5, 1996) and 34902 (October 27,
1994), 59 FR 55066 (November 22, 1994). See also Securities Exchange
Act Release No. 43590 (November 17, 2000), 65 FR 75414 (December 1,
2000).
---------------------------------------------------------------------------

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
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-BX-2011-046 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2011-046. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make publicly available. All
submissions should refer to File Number SR-BX-2011-046 and should be
submitted on or before February 24, 2012.

IV. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1

    Amendment No. 1 revised the proposed rule change to, among other
things, specify that the proposed rule change will be operative on a
pilot basis, beginning February 1, 2012, and continuing until February
28, 2013. Also in Amendment No. 1, BOX committed to provide to the
Commission, on a quarterly basis, certain monthly PIP transaction data
in series traded in penny increments compared to series traded in
nickel increments, subdivided by when BOX is at the NBBO and when BOX
is not at the NBBO, including: (1) Volume by number of contracts
traded; (2) retention rate; (3) percentage of contracts receiving price
improvement when the Initiating Participant is the contra party and
when others are the contra party; (4) average number of participants
responding in the PIP; (5) average price improvement amount when the
Initiating Participant is the contra party; (6) average price
improvement amount when others are the contra party; and (7) percentage
of contracts receiving price improvement greater than $0.01, $0.02 and
$0.03 when the Initiating Participant is the contra party and when
others are the contra party. The amendment addresses potential concerns
that the data is based on a sample period that was both short and
included an anomalous month (August 2011), and will provide the
Commission with additional data with which to continue to assess the
proposed rule change during the pilot period. Accordingly, the
Commission also finds good cause, pursuant to Section 19(b)(2)

of the Act,\63\ for approving the proposed rule change, as modified by
Amendment No. 1, prior to the 30th day after the date of publication of
notice in the Federal Register.
---------------------------------------------------------------------------

    \63\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\64\ that the proposed rule change (SR-BX-2011-046), as modified by
Amendment No. 1, be, and hereby is, approved on an accelerated basis.
---------------------------------------------------------------------------

    \64\ 15 U.S.C. 78s(b)(2).
    \65\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\65\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-2395 Filed 2-2-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 76, Number 120 (Wednesday, June 22, 2011)]
[Rules and Regulations]
[Pages 36356-36362]
[FR Doc No: 2011-15269]

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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 180

[EPA-HQ-OPP-2011-0517; FRL-8876-2]

C9 Rich Aromatic Hydrocarbons, C10-11 Rich Aromatic Hydrocarbons,
and C11-12 Rich Aromatic Hydrocarbons; Exemption From the Requirement
of a Tolerance

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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

SUMMARY: This regulation establishes an exemption from the requirement
of a tolerance for residues of C9 rich aromatic
hydrocarbons; C10-11 rich aromatic hydrocarbons; and
C11-12 rich aromatic hydrocarbons, when used as inert
ingredients in pesticide formulations applied to growing crops or to
raw agricultural commodities after harvest. ExxonMobil Chemical Company
submitted a petition to EPA under the Federal Food, Drug, and Cosmetic
Act (FFDCA), requesting an exemption from the requirement of a
tolerance. This regulation eliminates the need to establish a maximum
permissible level for residues of C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons.

DATES: This regulation is effective June 22, 2011. Objections and
requests for hearings must be received on or before August 22, 2011,
and must be filed in accordance with the instructions provided in 40
CFR part 178 (see also Unit I.C. of the SUPPLEMENTARY INFORMATION).

ADDRESSES: EPA has established a docket for this action under docket
identification (ID) number EPA-HQ-OPP-2011-0517. All documents in the
docket are listed in the docket index available at http://www.regulations.gov. Although listed in the index, some information is
not publicly available, e.g., Confidential Business Information (CBI)
or other information whose disclosure is restricted by statute. Certain
other material, such as copyrighted material, is not placed on the
Internet and will be publicly available only in hard copy form.
Publicly available docket materials are available in the electronic
docket at http://www.regulations.gov, or, if only available in hard
copy, at the OPP Regulatory Public Docket in Rm. S-4400, One Potomac
Yard (South Bldg.), 2777 S. Crystal Dr., Arlington, VA. The Docket
Facility is open from 8:30 a.m. to 4 p.m., Monday through Friday,
excluding legal holidays. The Docket Facility telephone number is (703)
305-5805.

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

I. General Information

A. Does this action apply to me?

    You may be potentially affected by this action if you are an
agricultural producer, food manufacturer, or pesticide manufacturer.
Potentially affected entities may include, but are not limited to:

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

B. How can I get electronic access to other related information?

    You may access a frequently updated electronic version of 40 CFR
part 180 through the Government Printing Office's e-CFR site at http://www.gpoaccess.gov/ecfr. To access the harmonized test guidelines
referenced in this document electronically, please go to http://www.epa.gov/ocspp and select ``Test Methods and Guidelines.''

C. How can I file an objection or hearing request?

    Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an
objection to any aspect of this regulation and may also request a
hearing on those objections. You must file your objection or request a
hearing on this regulation in accordance with the instructions provided
in 40 CFR part 178. To ensure proper receipt by EPA, you must identify
docket ID number EPA-HQ-OPP-2011-0517 in the subject line on the first
page of your submission. All objections and requests for a hearing must
be in writing, and must be received by the Hearing Clerk on or before
August 22, 2011. Addresses for mail and hand delivery of objections and
hearing requests are provided in 40 CFR 178.25(b).
    In addition to filing an objection or hearing request with the
Hearing Clerk as described in 40 CFR part 178, please submit a copy of
the filing that does not contain any CBI for inclusion in the public
docket. Information not marked confidential pursuant to 40 CFR part 2
may be disclosed publicly by EPA without prior notice. Submit a copy of
your non-CBI objection or hearing request, identified by docket ID
number EPA-HQ-OPP-2011-0517, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov.
Follow the on-line instructions for submitting comments.
     Mail: Office of Pesticide Programs (OPP) Regulatory Public
Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania
Ave., NW., Washington, DC 20460-0001.
     Delivery: OPP Regulatory Public Docket (7502P),
Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South
Bldg.), 2777 S. Crystal Dr., Arlington, VA. Deliveries are only
accepted during the Docket Facility's normal hours of operation (8:30
a.m. to 4 p.m., Monday through Friday, excluding legal holidays).
Special arrangements should be made for deliveries of boxed
information. The Docket Facility telephone number is<PHONE_NUMBER>.

II. Petition for Exemption

    In the Federal Register of January 25, 2006 (71 FR 4135) (FRL-7750-
4) for C9 rich aromatic hydrocarbons, January 23, 2006 (71
FR 3512) (FRL-7750-3) for C10-11 rich aromatic hydrocarbons,
and February 1, 2006 (71 FR 5321) (FRL-7750-5) for C11-12
rich aromatic hydrocarbons, EPA issued notices pursuant to section 408
of FFDCA, 21 U.S.C. 346a, announcing the filing of pesticide petitions
(PP 5E6935, 5E6934, and 4E6937 respectively) by ExxonMobil Chemical
Company, 13501 Katy Freeway, Houston, TX 77079. The petitions requested
that 40 CFR 180.910 be amended by establishing an exemption from the
requirement of a tolerance for residues of C9 rich aromatic
hydrocarbons (CAS Reg. No. 64742-95-6), C10-11 rich aromatic
hydrocarbons (CAS Reg. No. 64742-94-5), and C11-12 rich
aromatic hydrocarbons (CAS Reg. No. 64742-94-5) when used as inert
ingredients (solvents) in pesticide formulations applied to raw
agricultural commodities and growing crops under 40 CFR 180.910. Those
notices referenced summaries of the petitions prepared by ExxonMobil,
the petitioner, which is available in the docket, http://www.regulations.gov. There were no comments received in response to the
notices of filing.

III. Inert Ingredient Definition

    Inert ingredients are all ingredients that are not active
ingredients as defined in 40 CFR 153.125 and include, but are not
limited to, the following types of ingredients (except when they have a
pesticidal efficacy of their own): Solvents such as alcohols and
hydrocarbons; surfactants such as polyoxyethylene polymers and fatty
acids; carriers such as clay and diatomaceous earth; thickeners such as
carrageenan and modified cellulose; wetting, spreading, and dispersing
agents; propellants in aerosol dispensers; microencapsulating agents;
and emulsifiers. The term ``inert'' is not intended to imply
nontoxicity; the ingredient may or may not be chemically active.
Generally, EPA has exempted inert ingredients from the requirement of a
tolerance based on the low toxicity of the individual inert
ingredients.

IV. Aggregate Risk Assessment and Determination of Safety

    Section 408(c)(2)(A)(i) of FFDCA allows EPA to establish an
exemption from the requirement for a tolerance (the legal limit for a
pesticide chemical residue in or on a food) only if EPA determines that
the tolerance is ``safe.'' Section 408(b)(2)(A)(ii) of FFDCA defines
``safe'' to mean that ``there is a reasonable certainty that no harm
will result from aggregate exposure to the pesticide chemical residue,
including all anticipated dietary exposures and all other exposures for
which there is reliable information.'' This includes exposure through
drinking water and in residential settings, but does not include
occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to
give special consideration to exposure of infants and children to the
pesticide chemical residue in establishing a tolerance and to ``ensure
that there is a reasonable certainty that no harm will result to
infants and children from aggregate exposure to the pesticide chemical
residue * * *.''
    EPA establishes exemptions from the requirement of a tolerance only
in those cases where it can be clearly demonstrated that the risks from
aggregate exposure to pesticide chemical residues under reasonably
foreseeable circumstances will pose no appreciable risks to human
health. In order to determine the risks from aggregate exposure to
pesticide inert ingredients, the Agency considers the toxicity of the
inert in conjunction with possible exposure to residues of the inert
ingredient through food, drinking water, and through other exposures
that occur as a result of pesticide use in residential settings. If EPA
is able to determine that a finite tolerance is not necessary to ensure
that there is a reasonable certainty that no harm will result from
aggregate exposure to the inert ingredient, an exemption from the
requirement of a tolerance may be established.
    Consistent with section 408(c)(2)(A) of FFDCA, and the factors
specified in FFDCA section 408(c)(2)(B), EPA has

reviewed the available scientific data and other relevant information
in support of this action. EPA has sufficient data to assess the
hazards of and to make a determination on aggregate exposure for
C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic
hydrocarbons, including exposure resulting from the exemption
established by this action. EPA's assessment of exposures and risks
associated with C9 rich aromatic hydrocarbons,
C10-11 rich aromatic hydrocarbons, and C11-12
rich aromatic hydrocarbons follows.

A. Toxicological Profile

    EPA has evaluated the available toxicity data and considered their
validity, completeness, and reliability as well as the relationship of
the results of the studies to human risk. EPA has also considered
available information concerning the variability of the sensitivities
of major identifiable subgroups of consumers, including infants and
children.
    C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
are products of the petroleum distillation and refining process. These
substances are various fractions of aromatic petroleum hydrocarbons
with specific boiling point ranges and flash points. Each of the
substances is comprised of a complex mixture of aromatic hydrocarbon
molecules in the range of 9 to 12 carbon atoms. Since C9
rich aromatic hydrocarbons, C10-11 rich aromatic
hydrocarbons, and C11-12 rich aromatic hydrocarbons differ
only in the proportions of the various hydrocarbon molecules within the
C9 to C12 range, they have similar
physicochemical and toxicological properties and have therefore been
assessed together.
    C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
exhibit low acute toxicity by oral, inhalation and dermal routes
(toxicity Category III or IV by all exposure routes). They are
minimally irritating to eyes and skin and negative for dermal
sensitization effects. Subchronic oral and inhalation toxicity studies
indicate these substances to be relatively non-toxic. Reversible
effects to the liver, thyroid, stomach, spleen, and urinary bladder
were reported at mid and high doses in a subchronic oral toxicity study
in rats. A developmental inhalation study in mice indicates no evidence
of developmental effects or any adverse effects in maternal animals at
dose levels below 715 milligrams/kilogram/day (mg/kg/day). An oral
developmental study in rats indicates maternal effects (decreased body
weight gain and food consumption) at the mid-dose (150 mg/kg/day) but
no developmental effects at the highest dose tested (450 mg/kg/day). An
inhalation reproduction study in rats indicates reduced body weight
gain in parents and offspring at mid and high doses (715 and 2,145 mg/
kg/day). Based on neurotoxicity studies, C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons are not expected to cause
any nervous system damage. Due to their complex, multi-constituent
nature, there are no substance-specific absorption, metabolism,
distribution and excretion studies done specifically on C9
rich aromatic hydrocarbons, C10-11 rich aromatic
hydrocarbons, and C11-12 rich aromatic hydrocarbons.
However, sufficient metabolism data are available on other aromatic
hydrocarbons to show that as a class they are typically well-absorbed,
widely distributed between tissues, extensively metabolized and rapidly
excreted. C9 rich aromatic hydrocarbons, C10-11
rich aromatic hydrocarbons, and C11-12 rich aromatic
hydrocarbons are of low toxicological concern for developmental and
reproductive effects, based on the available toxicity data, and are not
expected to be carcinogenic.
    Specific information on the studies received and the nature of the
adverse effects caused by C9 rich aromatic hydrocarbons,
C10-11 rich aromatic hydrocarbons, and C11-12
rich aromatic hydrocarbons as well as the no-observed-adverse-effect-
level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from
the toxicity studies can be found at http://www.regulations.gov in the
document ``Exemptions From the Requirement of a Tolerance for C9 Rich
Aromatic Hydrocarbons, C10-11 Rich Aromatic Hydrocarbons, C11-12 Rich
Aromatic Hydrocarbons,'' at pp 5-17 in docket ID number EPA-HQ-OPP-
2006-0517.

B. Toxicological Points of Departure/Levels of Concern

    Once a pesticide's toxicological profile is determined, EPA
identifies toxicological points of departure (POD) and levels of
concern to use in evaluating the risk posed by human exposure to the
pesticide. For hazards that have a threshold below which there is no
appreciable risk, the toxicological POD is used as the basis for
derivation of reference values for risk assessment. PODs are developed
based on a careful analysis of the doses in each toxicological study to
determine the dose at which no adverse effects are observed (the NOAEL)
and the lowest dose at which adverse effects of concern are identified
(the LOAEL). Uncertainty/safety factors are used in conjunction with
the POD to calculate a safe exposure level--generally referred to as a
population-adjusted dose (PAD) or a reference dose (RfD)--and a safe
margin of exposure (MOE). For non-threshold risks, the Agency assumes
that any amount of exposure will lead to some degree of risk. Thus, the
Agency estimates risk in terms of the probability of an occurrence of
the adverse effect expected in a lifetime. For more information on the
general principles EPA uses in risk characterization and a complete
description of the risk assessment process, see http://www.epa.gov/pesticides/factsheets/riskassess.htm.
    A summary of the toxicological endpoints for C9 rich
aromatic hydrocarbons, C10-11 rich aromatic
hydrocarbons, and C11-12 rich aromatic hydrocarbons used for
human risk assessment is shown in the following Table.

  Table--Summary of Toxicological Doses and Endpoints for C9, C10	11, and C11	12 Rich Aromatic Hydrocarbons for
                                          Use in Human Risk Assessment
----------------------------------------------------------------------------------------------------------------
                                        Point of departure and
          Exposure/scenario               uncertainty/safety     RfD, PAD, LOC for risk  Study and toxicological
                                               factors                 assessment                effects
----------------------------------------------------------------------------------------------------------------
Acute dietary (All populations)......  NOAEL = 150 mg/kg/day..  Acute RfD = 1.5 mg/kg/   OCSPP Harmonized Test
                                       UFA = 10x..............   day.                     Guideline 870.3700
                                       UFH = 10x..............  aPAD = 1.5 mg/kg/day...   Prenatal Developmental
                                       FQPA SF = 1x...........                            Toxicity Study in Rats
                                                                                Maternal LOAEL = 450
                                                                                mg/kg/day based on
                                                                                decreased body weight
                                                                                gain and decreased
                                                                                food consumption.

Chronic dietary (All populations)....  NOAEL= 150 mg/kg/day...  Chronic RfD = 1.5 mg/kg/ OCSPP Harmonized Test
                                       UFA = 10x..............   day.                     Guideline 870.3700
                                       UFH = 10x..............  cPAD = 1.5 mg/kg/day...   Prenatal Developmental
                                       FQPA SF = 1x...........                            Toxicity Study in Rats
                                                                                Maternal LOAEL = 450
                                                                                mg/kg/day based on
                                                                                decreased body weight
                                                                                gain and decreased
                                                                                food consumption
                                      --------------------------------------------------------------------------
Cancer (Oral, dermal, inhalation)....    Based on structure-activity relationship (SAR) analysis and structural
                                                        alerts, not expected to be carcinogenic.
----------------------------------------------------------------------------------------------------------------
UFA = extrapolation from animal to human (interspecies). UFH = potential variation in sensitivity among members
  of the human population (intraspecies). FQPA SF = Food Quality Protection Act Safety Factor. PAD = population
  adjusted dose (a = acute, c = chronic). RfD = reference dose. LOC=level of concern.

C. Exposure Assessment

    1. Dietary exposure from food and feed uses. In evaluating dietary
exposure to C9 rich aromatic hydrocarbons, C10-11
rich aromatic hydrocarbons, and C11-12 rich aromatic
hydrocarbons, EPA considered exposure under the proposed exemption from
the requirement of a tolerance. EPA assessed dietary exposures from
C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
in food as follows:
    i. Acute exposure. In conducting the acute dietary exposure
assessment for C9 rich aromatic hydrocarbons,
C10-11 rich aromatic hydrocarbons, and C11-12
rich aromatic hydrocarbons, EPA used food consumption information from
the U.S. Department of Agriculture (USDA) [1994-1996 and 1998]
Nationwide Continuing Surveys of Food Intake by Individuals (CSFII). As
to residue levels in food, no residue data were submitted for
C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic
hydrocarbons. In the absence of specific residue data, EPA has
developed an approach which uses surrogate information to derive upper
bound exposure estimates for the subject inert ingredients. Upper bound
exposure estimates are based on the highest tolerance for a given
commodity from a list of high-use insecticides, herbicides, and
fungicides. A complete description of the general approach taken to
assess inert ingredient risks in the absence of residue data can be
found at http://www.regulations.gov in the document ``Alkyl Amines
Polyalkoxylates (Cluster 4): Acute and Chronic Aggregate (Food and
Drinking Water) Dietary Exposure and Risk Assessments for the Inerts,''
in docket ID number EPA-HQ-OPP-2008-0738.
    In the dietary exposure assessment, the Agency assumed that the
residue level of the inert ingredient would be no higher than the
highest tolerance for a given commodity. Implicit in this assumption is
that there would be similar rates of degradation (if any) between the
active and inert ingredient and that the concentration of inert
ingredient in the scenarios leading to these highest of tolerances
would be no higher than the concentration of the active ingredient.
    The Agency believes the assumptions used to estimate dietary
exposures lead to an extremely conservative assessment of dietary risk
due to a series of compounded conservatisms. First, assuming that the
level of residue for an inert ingredient is equal to the level of
residue for the active ingredient will overstate exposure. The
concentrations of active ingredient in agricultural products are
generally at least 50 percent of the product and often can be much
higher. Further, pesticide products rarely have a single inert
ingredient; rather there is generally a combination of different inert
ingredients used which additionally reduces the concentration of any
single inert ingredient in the pesticide product relative to that of
the active ingredient.
    Second, the conservatism of this methodology is compounded by EPA's
decision to assume that, for each commodity, the active ingredient
which will serve as a guide to the potential level of inert ingredient
residues is the active ingredient with the highest tolerance level.
This assumption overstates residue values because it would be highly
unlikely, given the high number of inert ingredients, that a single
inert ingredient or class of ingredients would be present at the level
of the active ingredient in the highest tolerance for every commodity.
Finally, a third compounding conservatism is EPA's assumption that all
foods contain the inert ingredient at the highest tolerance level,
i.e., EPA assumed 100 percent of all foods are treated with the inert
ingredient at the rate and manner necessary to produce the highest
residue legally possible for an active ingredient. In summary, EPA
chose a very conservative method for estimating what level of inert
residue could be on food, and then used this methodology to choose the
highest possible residue that could be found on food and assumed that
all food contained this residue. No consideration was given to
potential degradation between harvest and consumption even though
monitoring data shows that tolerance level residues are typically one
to two orders of magnitude higher than actual residues in food when
distributed in commerce.
    Accordingly, although sufficient information to quantify actual
residue levels in food is not available, the compounding of these
conservative assumptions will lead to a significant exaggeration of
actual exposures. EPA does not believe that this approach
underestimates exposure in the absence of residue data.
    ii. Chronic exposure. In conducting the chronic dietary exposure
assessment for C9 rich aromatic hydrocarbons,
C10-11 rich aromatic hydrocarbons, and C11-12
rich aromatic hydrocarbons, EPA used food consumption information from
the U.S. Department of Agriculture (USDA) 1994-1996 and 1998 Nationwide
Continuing Surveys of Food Intake by Individuals (CSFII). As to residue
levels in food, no residue data were submitted for C9 rich
aromatic hydrocarbons, C10-11 rich aromatic hydrocarbons,
and C11-12 rich aromatic hydrocarbons. In the absence of
specific residue data, EPA has developed an approach which uses
surrogate information to derive upper bound chronic dietary exposure
estimates for the subject inert ingredient. This

approach is as described in Unit IV. C.1.i.
    iii. Cancer. The Agency used a qualitative structure activity
relationship (SAR) database, DEREK11, to determine if there were
structural alerts suggestive of carcinogenicity. No structural alerts
for carcinogenicity were identified. Therefore, a cancer dietary
exposure assessment is not necessary to assess cancer risk.
    2. Dietary exposure from drinking water. For the purpose of the
screening level dietary risk assessment to support this request for an
exemption from the requirement of a tolerance for C9 rich
aromatic hydrocarbons, C10-11 rich aromatic hydrocarbons,
and C11-12 rich aromatic hydrocarbons, a conservative
drinking water concentration value of 100 parts per billion (ppb) based
on screening level modeling was used to assess the contribution to
drinking water for the chronic dietary risk assessments. These values
were directly entered into the dietary exposure model.
    3. From non-dietary exposure. The term ``residential exposure'' is
used in this document to refer to non-occupational, non-dietary
exposure (e.g., textiles (clothing and diapers), carpets, swimming
pools, and hard surface disinfection on walls, floors, tables).
    C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
are not currently used as inert ingredients in pesticide products that
are registered for any use patterns that involve residential uses nor
are there any other non-pesticidal residential uses for these inert
ingredients, thus no residential exposures to C9 rich
aromatic hydrocarbons, C10-11 rich aromatic hydrocarbons,
and C11-12 rich aromatic hydrocarbons are expected. The
primary non-pesticidal uses of C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons are as gasoline additives.
Residential exposures to these substances as a result of their use as
gasoline additives could occur via inhalation during refueling and from
potential transport of gasoline containing C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons into groundwater. There
are no reliable data upon which to quantitatively assess such exposures
to C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic
hydrocarbons; however, modeled data for other gasoline additives
suggest that inhalation exposures would be at levels of <5 micrograms/
kilogram/day, and that levels in groundwater would not exceed 0.2-16
ppb.
    4. Cumulative effects from substances with a common mechanism of
toxicity. Section 408(b)(2)(D)(v) of FFDCA requires that, when
considering whether to establish, modify, or revoke a tolerance, the
Agency consider ``available information'' concerning the cumulative
effects of a particular pesticide's residues and ``other substances
that have a common mechanism of toxicity.
    EPA has not found C9 rich aromatic hydrocarbons,
C10-11 rich aromatic hydrocarbons, and C11-12
rich aromatic hydrocarbons to share a common mechanism of toxicity with
any other substances, and C9 rich aromatic hydrocarbons,
C10-11 rich aromatic hydrocarbons, and C11-12
rich aromatic hydrocarbons does not appear to produce a toxic
metabolite produced by other substances. For the purposes of this
tolerance action, therefore, EPA has assumed that C9 rich
aromatic hydrocarbons, C10-11 rich aromatic hydrocarbons,
and C11-12 rich aromatic hydrocarbons do not have a common
mechanism of toxicity with other substances. For information regarding
EPA's efforts to determine which chemicals have a common mechanism of
toxicity and to evaluate the cumulative effects of such chemicals, see
EPA's Web site at http://www.epa.gov/pesticides/cumulative.

D. Safety Factor for Infants and Children

    1. In general. Section 408(b)(2)(C) of FFDCA provides that EPA
shall apply an additional tenfold (10x) margin of safety for infants
and children in the case of threshold effects to account for prenatal
and postnatal toxicity and the completeness of the database on toxicity
and exposure unless EPA determines based on reliable data that a
different margin of safety will be safe for infants and children. This
additional margin of safety is commonly referred to as the FQPA Safety
Factor (SF). In applying this provision, EPA either retains the default
value of 10x, or uses a different additional safety factor when
reliable data available to EPA support the choice of a different
factor.
    2. Prenatal and postnatal sensitivity. The available mammalian
toxicology database for C9 rich aromatic hydrocarbons,
C10-11 rich aromatic hydrocarbons, and C11-12
rich aromatic hydrocarbons is complete with respect to assessing
increased susceptibility to infants and children. There were no adverse
effects on the offspring of rats following prenatal and postnatal
exposure in the OCSPP Harmonized Test Guideline 870.3700 oral
developmental toxicity study at the highest dose tested of 450 mg/kg/
day. In a 3-generation inhalation toxicity study in rats, reproductive
effects were seen only at dose levels above that at which parental
effects were noted.
    3. Conclusion. EPA has determined that reliable data show the
safety of infants and children would be adequately protected if the
FQPA SF were reduced to 1x. That decision is based on the following
findings:
    i. The toxicity database for C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons is largely complete,
missing only a developmental neurotoxicity study and an immunotoxicity
study. EPA has determined that an additional uncertainty factor is not
needed to account for the lack of these studies for the following
reasons:
     There were no neurotoxic effects observed at the highest
dose tested in a 90-day inhalation neurotoxicity study in rats with a
C9 aromatic hydrocarbon material. There is no evidence that
C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
are neurotoxic chemicals and there is no need for a developmental
neurotoxicity study or additional UFs to account for neurotoxicity.
     There is no evidence that C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons result in increased
susceptibility in in utero rats in the prenatal developmental studies
or in young rats in a 3-generation reproduction study.
     An immunotoxicity study is not available; however, there
is no evidence of immune system involvement in the available toxicity
database for C9 rich aromatic hydrocarbons,
C10-11 rich aromatic hydrocarbons, and C11-12
rich aromatic hydrocarbons, therefore, there is no need to add
additional UFs to account for the lack of an immunotoxicity study.
    ii. There are no residual uncertainties identified in the exposure
databases. The dietary food exposure assessments were performed based
on 100 percent crop treated (PCT) and tolerance-level residues. EPA
made conservative (protective) assumptions in the ground and surface
water modeling used to assess exposure to C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons in drinking water. These
assessments will not underestimate the exposure and risks posed by
C9 rich aromatic hydrocarbons, C10-11 rich

aromatic hydrocarbons, and C11-12 rich aromatic
hydrocarbons.

E. Aggregate Risks and Determination of Safety

    EPA determines whether acute and chronic dietary pesticide
exposures are safe by comparing aggregate exposure estimates to the
acute population adjusted dose (aPAD) and chronic population adjusted
dose (cPAD). For linear cancer risks, EPA calculates the lifetime
probability of acquiring cancer given the estimated aggregate exposure.
Short-, intermediate-, and chronic-term risks are evaluated by
comparing the estimated aggregate food, water, and residential exposure
to the appropriate PODs to ensure that an adequate MOE exists.
    1. Acute risk. Using the exposure assumptions discussed in this
unit for acute exposure, the acute dietary exposure from food and water
to C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
will occupy 2.8% of the aPAD for children (1 to 2 years old), the
population group receiving the greatest exposure. Therefore,
C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
are not expected to pose an acute risk.
    2. Chronic risk. Using the exposure assumptions described in this
unit for chronic exposure, EPA has concluded that chronic exposure to
C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
from food and water will utilize 0.6% of the cPAD for children (1 to 2
years old), the population group receiving the greatest exposure. There
are no residential pesticide uses for C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons. As noted in Unit IV.C.3.,
non-pesticidal drinking water exposure to C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons may be possible from
potential transport of gasoline containing C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons into groundwater; however,
those potential exposures are addressed by the use of a conservative
drinking water concentration value of 100 ppb used to assess the
contribution to drinking water for the chronic dietary risk
assessments, therefore no further assessment of this potential exposure
is needed.
    3. Short-term risk. Short-term aggregate exposure takes into
account short-term residential exposure plus chronic exposure to food
and water (considered to be a background exposure level). A short-term
adverse effect was identified; however, C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons are not currently used as
inert ingredients in pesticide products that are registered for any use
patterns that would result in short-term residential exposure. Short-
term risk is assessed based on short-term residential exposure plus
chronic dietary exposure. Because there is no short-term residential
exposure and chronic dietary exposure has already been assessed under
the appropriately protective cPAD (which is at least as protective as
the POD used to assess short-term risk), no further assessment of
short-term risk is necessary, and EPA relies on the chronic dietary
risk assessment for evaluating short-term risk for C9 rich
aromatic hydrocarbons, C10-11 rich aromatic hydrocarbons,
and C11-12 rich aromatic hydrocarbons. As noted in Unit
IV.C.3., there may be short-term inhalation exposures to C9
rich aromatic hydrocarbons, C10-11 rich aromatic
hydrocarbons, and C11-12 rich aromatic hydrocarbons when
these substance are present as gasoline additives during gasoline
refueling, however those exposures would be expected to be at levels at
least three orders of magnitude below any level of concern and
therefore have not been included in a quantitative short-term risk
assessment.
    4. Intermediate-term risk. Intermediate-term aggregate exposure
takes into account intermediate-term residential exposure plus chronic
exposure to food and water (considered to be a background exposure
level). An intermediate-term adverse effect was identified; however,
C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
are not currently used as inert ingredients in pesticide products that
are registered for any use patterns that would result in intermediate-
term residential exposure. Intermediate-term risk is assessed based on
intermediate-term residential exposure plus chronic dietary exposure.
Because there is no intermediate-term residential exposure and chronic
dietary exposure has already been assessed under the appropriately
protective cPAD (which is at least as protective as the POD used to
assess intermediate-term risk), no further assessment of intermediate-
term risk is necessary, and EPA relies on the chronic dietary risk
assessment for evaluating intermediate-term risk for C9 rich
aromatic hydrocarbons, C10-11 rich aromatic hydrocarbons,
and C11-12 rich aromatic hydrocarbons.
    5. Aggregate cancer risk for U.S. population. The Agency has not
identified any concerns for carcinogenicity relating to C9
rich aromatic hydrocarbons, C10-11 rich aromatic
hydrocarbons, and C11-12 rich aromatic hydrocarbons and
C9 rich aromatic hydrocarbons, C10-11 rich
aromatic hydrocarbons, and C11-12 rich aromatic hydrocarbons
are not expected to pose a cancer risk to humans.
    6. Determination of safety. Based on these risk assessments, EPA
concludes that there is a reasonable certainty that no harm will result
to the general population, or to infants and children from aggregate
exposure to C9 rich aromatic hydrocarbons, C10-11
rich aromatic hydrocarbons, and C11-12 rich aromatic
hydrocarbons residues.

V. Other Considerations

A. Analytical Enforcement Methodology

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

B. International Residue Limits

    In making its tolerance decisions, EPA seeks to harmonize U.S.
tolerances with international standards whenever possible, consistent
with U.S. food safety standards and agricultural practices. EPA
considers the international maximum residue limits (MRLs) established
by the Codex Alimentarius Commission (Codex), as required by FFDCA
section 408(b)(4). The Codex Alimentarius is a joint U.N. Food and
Agriculture Organization/World Health Organization food standards
program, and it is recognized as an international food safety
standards-setting organization in trade agreements to which the United
States is a party. EPA may establish a tolerance that is different from
a Codex MRL; however, FFDCA section 408(b)(4) requires that EPA explain
the reasons for departing from the Codex level.
    The Codex has not established MRLs for C9 rich aromatic
hydrocarbons, C10-11 rich aromatic hydrocarbons, and
C11-12 rich aromatic hydrocarbons.

VI. Conclusions

    Therefore, an exemption from the requirement of a tolerance is
established under 40 CFR 180. 910 for residues of C9 rich
aromatic hydrocarbons (CAS Reg. No. 64742-95-6), C10-11 rich
aromatic hydrocarbons (CAS Reg. No. 64742-94-5), and C11-12
rich aromatic hydrocarbons (CAS Reg. No. 64742-94-

5) when used as inert ingredients in pesticide formulations applied to
growing crops or to raw agricultural commodities after harvest.

VII. Statutory and Executive Order Reviews

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

VIII. Congressional Review Act

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

List of Subjects in 40 CFR Part 180

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

    Dated: June 10, 2011.
Lois Rossi,
Director, Registration Division, Office of Pesticide Programs.
    Therefore, 40 CFR chapter I is amended as follows:

PART 180--[AMENDED]

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

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

0
2. In Sec.  180.910 the table is amended by adding alphabetically the
following inert ingredients to read as follows:

Sec.  180.910  Inert ingredients used pre- and post-harvest; exemptions
from the requirement of a tolerance.

* * * * *

------------------------------------------------------------------------
        Inert ingredients                Limits               Uses
------------------------------------------------------------------------

                              * * * * * * *
C9 rich aromatic hydrocarbons      ..................  Solvent.
 (CAS Reg. No. 64742-95-6).

                              * * * * * * *
C10	11 rich aromatic hydrocarbons  ..................  Solvent.
 (CAS Reg. No. 64742-94-5).

                              * * * * * * *
C11	12 rich aromatic hydrocarbons  ..................  Solvent.
 (CAS Reg. No. 64742-94-5).

                              * * * * * * *
------------------------------------------------------------------------

[FR Doc. 2011-15269 Filed 6-21-11; 8:45 am]
BILLING CODE 6560-50-P