``delta'') is 1: For a $1 increase (decrease) in the price of an
underlying security, the theoretical price of its security future
increases (decreases) by $1.
    \112\ See supra note 109.
    \113\ In these respects, a security future functions like a
cleared total return swap.
---------------------------------------------------------------------------

    Currently only one U.S. exchange, OCX, provides trading in security
futures. OCX is a designated contract market regulated by the CFTC and
a notice-registered national securities exchange.\114\ As of the end of
2017, 13,652 security futures contracts on 1,759 names were traded on
the exchange.\115\ Of these 13,652 contracts, 730 had open interest at
the end of the year. Total open interest at the end of the year was
476,430 contracts, with a gross notional value of $3 billion. Annual
trading volume in 2017 was 15 million contracts, an increase of 39%
from the prior year. Although growing, the security futures market is
currently very small. For comparison, as of the end of 2017, open
interest in equity options was 290 million contracts with annual
trading volume of 3.7 billion contracts.\116\
---------------------------------------------------------------------------

    \114\ Section 6(g) of the Exchange Act permits a notice of
registration to be filed by an exchange registering as a national
securities exchange for the sole purpose of trading security futures
products. 15 U.S.C. 78f(g). See also Rule 6a-4 (Notice of
registration under Section 6(g) of the Act, amendment to such
notice, and supplemental materials to be filed by exchanges
registered under Section 6(g) of the Act). 17 CFR 240.6a-4.
    \115\ Security futures data from OCX, available at https://ftp.onechicago.com/market_data/.
    \116\ Options data from OCC, available at https://www.theocc.com/webapps/historical-volume-query.
---------------------------------------------------------------------------

    According to OCX, almost all security futures positions were
carried in futures accounts of CFTC-regulated FCMs and introducing
brokers (``IBs'').\117\ Consequently, the SEC believes only a small
fraction of security futures accounts fall under the SEC's margin
rules. The SEC believes that none of the accounts that are subject to
the SEC's margin rules are currently using risk-based portfolio
margining.\118\ Therefore, the SEC believes that all of the accounts
falling under the SEC's margin rules are currently subject to the
general margin requirement and the associated strategy-based
offsets.\119\
---------------------------------------------------------------------------

    \117\ See OCX Petition.
    \118\ If security futures positions were held in accounts
eligible for portfolio margining, they would be included in the
risk-based portfolio margin calculation and thus effectively subject
to a lower (i.e., 15%) margin requirement under the baseline. There
are approximately 18 broker-dealers that have been approved by SROs
to offer portfolio margining and are members of OCC to clear
security futures. However, based on an analysis of FOCUS filings
from year-end 2017, no broker-dealers had collected margin for
security futures accounts subject to portfolio margining. See infra
note 138. See also Exchange Act Release No. 54919 (Dec. 12, 2006),
71 FR 75781 (Dec. 18, 2006) (SR-CBOE 2006-14, relating to amendments
to CBOE's portfolio margin pilot program to include security
futures); Exchange Act Release No. 54125 (Jul. 11, 2006), 71 FR
40766 (Jul. 18, 2006) (SR-NYSE-2005-93, relating to amendments to
the NYSE's portfolio margin pilot program to include security
futures).
    \119\ See supra note 25 and accompanying text.
---------------------------------------------------------------------------

    The SEC is seeking comment on the characterization of the market
for security futures:
     What are the principal motives for participants
transacting in security futures? What are the advantages of these
markets (vis-[agrave]-vis options or equity markets)? What are the
disadvantages?
     Do customers transact in security futures through
securities accounts ? Why or why not?
     To the extent that customers transact security futures
transactions through securities accounts, are these accounts subject to
portfolio margining? If not, why not?
ii. Regulation
    Under existing SEC rules the minimum margin requirement for a
customer's unhedged security futures position not subject to an
exemption is 20%.\120\ SROs may allow margin levels lower than 20%for
accounts with ``strategy-based offsets'' (i.e., hedged positions).\121\
Strategy-based offsets can involve security futures as well as one or
more related securities or futures positions. Accounts subject to an
SRO's approved portfolio margining system are also exempt from the
minimum margin requirement.\122\ Under currently approved SRO portfolio
margining systems, the effective margin requirement for an unhedged
exposure to a security futures position on a narrow-based index or an
individual equity would be 15%.\123\ Under current rules, only customer
securities accounts held through SEC-regulated broker-dealers could
potentially be subject to portfolio margining; however, the SEC is not
aware of any broker-dealers offering such accounts. Margin requirements
for security futures positions of clearing members (i.e., their
accounts at a clearing agency or DCO) are not subject to the
aforementioned margin requirements.\124\
---------------------------------------------------------------------------

    \120\ See supra notes 20-23 and accompanying text.
    \121\ See supra note 25 and accompanying text.
    \122\ See CFTC Rule 41.42(c)(2)(i), 17 CFR 41.42(c)(2)(i); SEC
Rule 400(c)(2)(i), 17 CFR 242.400(c)(2)(i).
    \123\ This follows from the methodology of current SRO risk-
based portfolio margining rules as applied to delta one securities.
See supra notes 47 and 111.
    \124\ See SEC Rule 400(c)(2)(i)-(v). 17 CFR 242.400(c)(2)(i)-
(v). Clearing members are instead subject to margin rules of the
clearing organization as approved by the SEC pursuant to Section
19(b)(2) of the Exchange Act, 15 U.S.C. 78s(b)(2). See notes 42-44
and accompanying text.

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

3. Analysis of the Proposals
    The SEC is proposing to amend SEC Rule 403(b)(1) to reduce the
minimum initial and maintenance margin levels for unhedged security
futures to 15% from the current requirement of 20%.\125\ To the extent
that the SROs file proposed rule changes and the SEC approves them,
this would have the effect of reducing minimum margin on security
futures positions held in customer securities accounts at broker-
dealers that are not currently authorized to use a portfolio margining
system.\126\ As described in the previous section, the vast majority of
security futures positions are held in futures accounts at CFTC-
regulated entities. Consequently, the proposed changes to the margin
requirements are expected to have very limited effects.\127\
---------------------------------------------------------------------------

    \125\ 17 CFR 242.403(b)(1). In addition, the Commissions are
proposing to publish a re-stated table of offsets to reflect the
proposed reduction in margin. See section II.B. above. This table of
offsets is not part of the Code of Federal Regulations. See 2002
Final Rules, 67 FR at 53159. SROs seeking to permit trading in
security futures may modify their rules to parallel the levels
identified in the re-stated table of offsets.
    \126\ Specifically, the SEC expects broker-dealers that become
subject to lower regulatory minimum customer margin requirements on
security futures to reduce customer margin requirements on security
futures positions that are currently set at the regulatory lower
bound (i.e., 20%). See supra text accompanying note 100.
    \127\ Concurrently, the CFTC is proposing to similarly amend
CFTC Rule 41.45(b), affecting security futures positions held in
futures accounts at CFTC-regulated entities. See supra section II.A.
---------------------------------------------------------------------------

i. Benefits
    The SEC believes that the proposed amendment to SEC Rule 403(b)(1)
\128\ would benefit customers currently trading security futures
through securities accounts not subject to portfolio margining and
whose house margin requirement is set (by the broker-dealer) to the
current regulatory minimum. To the extent that customers with security
futures accounts held at broker-dealers are currently subject to margin
levels reflecting the regulatory minimums,\129\ the proposed reductions
to margin requirements could reduce these customers' costs of engaging
in security futures transactions, increase their liquidity, and provide
an opportunity for greater leverage. The SEC believes that these
benefits are likely to result in increased position-taking by
customers, with attendant benefits to broker-dealers providing security
futures trading accounts, and to security futures trading
exchanges.\130\
---------------------------------------------------------------------------

    \128\ Throughout, the analysis of costs and benefits is limited
to the effects of the SEC's rule change, and does not reflect costs
and benefits resulting from corresponding changes to CFTC rules.
    \129\ Security futures accounts may be subject to ``house''
margin requirements that exceed the regulatory minimums.
    \130\ Increased position-taking by customers is expected to
increase fees collected related to security futures transactions
effected by broker-dealers and security futures exchanges.
---------------------------------------------------------------------------

    Based on data provided by OCX, at the end of 2017, open interest in
the U.S. security futures markets was 476,430 contracts, with a gross
notional value of $3 billion.\131\ SEC staff understands that
approximately 2% of these contracts are believed to involve securities
accounts subject to SEC margin requirements. None of these accounts are
believed to be subject to portfolio margining.\132\ The SEC constructed
an estimate of the upper bound of margin collected under SEC margin
rules as the sum (across all contracts listed on OCX) of twice \133\
the product of: The contract settlement price, 20% (current margin
requirement), the contract's open interest, and 2% (the fraction of
accounts believed to be subject to SEC customer margin rules). Because
some of the contracts held in securities accounts may be subject to
strategy offsets (that would result in lower margin requirements), this
represents an upper bound. The SEC estimates that the margin
requirements on customers' security futures positions held in
securities accounts was no more than $24 million. To the extent that
the proposed reduction in regulatory minimums is passed on to
customers, the SEC estimates that the amount of margin required to
secure security futures transactions in securities accounts could be
reduced by as much as $6 million. This reduction would benefit affected
customers by improving their liquidity.\134\
---------------------------------------------------------------------------

    \131\ See supra note 115.
    \132\ See supra note 118.
    \133\ Both sides of a security futures contract may potentially
be subject to SEC customer margin requirements.
    \134\ See Telser, Lester G., ``Why There Are Organized Futures
Markets,'' The Journal of Law and Economics 24, no. 1 (Apr. 1,
1981): 1-22.
---------------------------------------------------------------------------

    As part of this rulemaking, the Commissions are proposing to
publish a restated table of offsets for hedged security futures
positions.\135\ This restatement would make the table of offsets
conform to the proposed 15% minimum margin requirement on unhedged
positions.\136\ These revisions to the offset table would provide
guidance consistent with the lower general margin levels on unhedged
positions that the SEC is proposing. Because the SEC does not have data
on specific hedged positions held in broker-dealers' customer accounts
subject to SEC margin rules, the SEC is unable to further quantify the
reductions in margin that would be attributable specifically to any
potential SRO rules that follow the restatement of the offset table.
---------------------------------------------------------------------------

    \135\ See 2002 Final Rules, 67 FR at 53159.
    \136\ See 17 CFR 242.403(b)(2).
---------------------------------------------------------------------------

    The reductions to margin requirements the SEC is proposing will
have the immediate effect of improving the liquidity of customers
trading security futures through broker-dealer accounts. These
improvements to liquidity could lead to increased participation in
security futures markets with attendant benefits to broker-dealers
providing security futures accounts, security futures exchanges, and
clearing agencies.\137\
---------------------------------------------------------------------------

    \137\ See supra note 130.
---------------------------------------------------------------------------

    In addition, the SEC believes that the proposed rule amendments may
reduce costs for participants in the security futures markets through
improved operational efficiency. In particular, the customers of
broker-dealers that do not offer portfolio margining may be able to
avail themselves of lower margin requirements on security futures
transactions without having to maintain separate accounts with broker-
dealers that do provide portfolio margining.
    It is not possible for the SEC to estimate broker-dealers'
customers' sensitivity to margin requirements on security futures due
to an absence of historical data. The SEC also does not possess data on
current customer margin requirements (broker-dealers may set
requirements above regulatory minimums),\138\ nor does the SEC possess
data on broker-dealers',\139\ security futures exchanges',\140\ or
clearing agencies' \141\ profits related to security futures
transactions, as this information is not reported to the SEC. Because
the SEC lacks these data, the SEC is currently unable to quantify the
benefits to broker-dealers, security futures exchanges, and clearing
agencies resulting from any reduction to minimum margin requirements.
---------------------------------------------------------------------------

    \138\ With respect to security futures, the SEC currently
requires broker-dealers to provide only one item on quarterly
regulatory filings: The amount of margin collected from accounts
subject to portfolio margining rules (FOCUS item 4467). In the
fourth quarter of 2017, no broker-dealer reported collecting any
such margin; see also supra note 118.
    \139\ See id.
    \140\ OCX does not release financial statements.
    \141\ OCC's annual financial reports do not provide a breakdown
of profits based on the type of product cleared.
---------------------------------------------------------------------------

ii. Costs
    Because broker-dealers may set customer margin levels higher than
the proposed regulatory minimums, the proposed rule amendments do not

impose direct conduct costs on broker-dealers. The SEC believes that
broker-dealers will weigh any additional private costs associated with
lower margin requirements against the private benefits of lower margin
requirements.\142\ In so doing they may opt to leave margins at a
higher level than the regulatory minimum.\143\
---------------------------------------------------------------------------

    \142\ That is, in weighing the costs and benefits the SEC does
not expect broker-dealers to consider externalities resulting from
their choices.
    \143\ Under broker-dealer margin rules, broker-dealers also can
establish ``house'' margin requirements as long as they are at least
as restrictive as the Federal Reserve and SRO margin rules. See,
e.g., FINRA Rule 4210(d).
---------------------------------------------------------------------------

    If the reduction to the minimum margin requirement on security
futures is--as the SEC expects--passed on to customers, it will lower
the costs of customer position taking and provide opportunities for
greater leverage. As described above, the SEC believes this will
generally benefit investors trading in security futures.\144\ However,
to the extent that unsophisticated retail investors who trade security
futures are not fully aware of the risks,\145\ reducing margin
requirements would increase the potential for them to suffer unexpected
losses.\146\ Thus, the proposed reduction in margin requirements could
impose indirect costs on unsophisticated retail investors. Under the
baseline, retail investors are believed to represent a very small
fraction (less than 1%) of open interest in security futures. Thus, the
SEC believes that the potential costs borne by unsophisticated retail
investors will be low. Moreover, the ability of margin requirements to
serve as an efficient instrument of customer protection is
questionable.\147\
---------------------------------------------------------------------------

    \144\ To the extent that regulatory margin requirements serve a
micro-prudential function, these benefits may be reduced or
eliminated. However the SEC does not believe that micro-prudential
effects are a major consideration here. See infra note 152.
    \145\ See FINRA, Security Futures--Know Your Risks, or Risk Your
Future, available at http://www.finra.org/Investors/InvestmentChoices/P005912 and National Futures Association, Security
Futures, An Introduction to Their Uses and Risks (2002), available
at https://www.nfa.futures.org/members/member-resources/files/security-futures.pdf.
    \146\ The judgement of retail investors receives significant
criticism in the academic literature. See e.g., Odean, Terrance.
``Do Investors Trade Too Much?'' The American Economic Review 89,
no. 5 (1999): 1279-98. See also Barber, Brad M, and Terrance Odean.
``Trading Is Hazardous to Your Wealth: The Common Stock Investment
Performance of Individual Investors.'' The Journal of Finance 55,
no. 2 (April 1, 2000): 773-806. See also Heimer, Rawley Z, and Alp
Simsek. ``Should Retail Investors' Leverage Be Limited?'' Working
Paper. National Bureau of Economic Research, December 2017.
    \147\ Fixed margin requirements cannot differentiate between
different types of customers (e.g., sophisticated vs.
unsophisticated, financially constrained vs. unconstrained) or the
risk of the position. See Figlewski Stephen, ``Margins and Market
Integrity: Margin Setting for Stock Index Futures and Options,''
Journal of Futures Markets 4, no. 3 (1984): 385-416. See also FRB, A
Review and Evaluation of Federal Margin Regulation: A Study (1984).
---------------------------------------------------------------------------

    In addition, to the extent that the proposed reductions in
regulatory margin requirements lead broker-dealers to decrease customer
margin requirements, they could increase the risk of the broker-dealer
defaulting. Such a default may impose costs on the defaulting broker-
dealer's customers as well as its counterparties. However, broker-
dealers participating in security futures markets are subject to
clearing organizations' prudential margin requirements and the SEC
believes that such requirements are reasonably designed to mitigate the
risk of a broker-dealers' default.\148\ In addition, the SEC believes
that in the event of such a default, the SEC's customer protection rule
would protect customers' assets held in a securities account.\149\
---------------------------------------------------------------------------

    \148\ See supra notes 42-44 and accompanying text.
    \149\ See Rule 15c3-3, 17 CFR 240.15c3-3. See also Applicability
of CFTC and SEC Customer Protection, Recordkeeping, Reporting, and
Bankruptcy Rules and the Securities Investor Protection Act of 1970
to Accounts Holding Security Futures Products, Final Rule, Exchange
Act Release No. 46473 (Sept. 9, 2002), 67 FR 58284 (Sept. 13, 2002).
---------------------------------------------------------------------------

    Because broker-dealers affected by the proposed amendments are
already subject to a regulatory minimum level for customer margin
requirements, and because they would be under no obligation to alter
their existing customer margin requirements, the SEC believes that the
compliance costs resulting from the proposed reduction to said minimum
would be de minimis.\150\ In addition, the SEC does not believe that
the affected entities would bear any additional compliance costs as a
result of the proposed rule amendments.
---------------------------------------------------------------------------

    \150\ Under the proposed rule, broker-dealers could maintain
existing customer margin requirements and avoid incurring any
implementation costs.
---------------------------------------------------------------------------

    The SEC requests comments, data, and estimates on all aspects of
the costs and benefits associated with the proposed calculations for
margin on security futures. The SEC requests data to quantify the
potential costs and benefits described above. The SEC seeks estimates
of these costs and benefits, as well as any costs and benefits that the
SEC has not identified that may result from the adoption of these
proposed rule amendments. The SEC also requests qualitative feedback on
the nature of the potential benefits and costs described above and any
benefits and costs the SEC may have overlooked.
iii. Effects on Efficiency, Competition, and Capital Formation
    In addition to the specific costs and benefits discussed above, the
reductions to margin requirements on security futures that the SEC is
proposing may have broader effects on efficiency, competition, and
capital formation. The SEC believes that these effects will generally
be positive, but unlikely to be significant. The SEC discusses these
effects in more detail in the remainder of this section. The SEC
requests comment on all aspects of this analysis of the burden on
competition and promotion of efficiency, competition, and capital
formation.
a. Efficiency
    As discussed in the previous section, the SEC believes that broker-
dealers will weigh the costs associated with customer defaults against
the benefits of lower margin requirements when setting margin
requirements for their customers. Although private considerations would
render market-determined margin levels optimal from a broker-dealer's
perspective, market imperfections could lead broker-dealers to impose
margin requirements that are not economically efficient.\151\ The
relevant market imperfections in the context of margin requirements
relate to externalities on financial stability arising from excessive
leverage.\152\
---------------------------------------------------------------------------

    \151\ See supra note 142.
    \152\ The SEC acknowledges that other market imperfections
(e.g., asymmetric information, adverse selection) may also play a
role, although the SEC believes these to be less relevant to this
context. Asymmetric information about market participants' quality
can lead privately-negotiated margin levels to be inefficient. For
example, competition among broker-dealers may lead to a ``race to
the bottom'' in margin requirements when customers' ``quality'' is
not perfectly observable. See e.g., Santos, Tano, and Jose A.
Scheinkman, ``Competition among Exchanges,'' The Quarterly Journal
of Economics 116, no. 3 (Aug. 1, 2001): 1027-61. Alternatively,
problems of adverse selection (e.g., potential to re-invest customer
margin in risky investments) or moral hazard (e.g., expectations of
government rescue) may also create incentives for broker-dealers to
offer margin requirements that are too low. Asymmetric information
about broker-dealer quality may make it impossible for customers to
provide sufficient market discipline, leading to a problem similar
to that faced by bank depositors. See Dewatripont, Mathias, and Jean
Tirole, ``Efficient Governance Structure: Implications for Banking
Regulation,'' Capital Markets and Financial Intermediation, 1993,
12-35.
---------------------------------------------------------------------------

    Historically, a key aspect of the rationale for regulatory margin
requirements on securities transactions was the belief that such
requirements could improve economic efficiency by limiting stock market
volatility resulting from ``pyramiding credit.'' \153\ Leveraged

exposures built up during price run ups could lead to the collapse of
prices when a small shock triggers margin calls and a cascade of de-
leveraging. The utility of margin requirements in limiting such
``excess'' volatility and the contribution of derivative markets to
such volatility have been a perennial topic of debate in the academic
literature, rekindled periodically by crisis episodes.\154\ Most
recently, the 2007-2008 financial crisis saw similar concerns (i.e.,
procyclical leverage, margin call-induced selling spirals) raised in
the securitized debt markets.\155\ While the SEC believes that lower
margin requirements can increase the risk and severity of market
dislocations, the SEC does not believe--given the current limited scale
of the security futures markets and the limited role played by SEC
registrants in these markets--that the proposed reductions to minimum
margin requirements present a material financial stability
concern.\156\
---------------------------------------------------------------------------

    \153\ See Moore, Thomas Gale, ``Stock Market Margin
Requirements,'' Journal of Political Economy 74, no. 2 (April 1,
1966): 158-67.
    \154\ See id. See also Figlewski, Stephen, ``Futures Trading and
Volatility in the GNMA Market,'' The Journal of Finance 36, no. 2
(1981): 445-56. See also Edwards, Franklin R, ``Does Futures Trading
Increase Stock Market Volatility?,'' Financial Analysts Journal 44,
no. 1 (1988): 63-69. See also Kupiec, Paul H, ``Margin Requirements,
Volatility, and Market Integrity: What Have We Learned Since the
Crash?,'' Journal of Financial Services Research 13, no. 3 (June 1,
1998): 231-55.
    \155\ See e.g., Adrian, Tobias, and Hyun Song Shin, ``Liquidity
and Leverage,'' Journal of Financial Intermediation 19, no. 3
(2010): 418-437.
    \156\ If the security futures market were to significantly
increase in size as a result of these proposed changes or other
factors, the impact of lower margin requirements on overall market
stability would be greater than the minimal impact the SEC expects
under current market conditions. However, for reasons described in
notes 106-108 and accompanying text, above, the SEC does not believe
this type of significant growth is likely in the foreseeable future.
---------------------------------------------------------------------------

b. Competition
    Under the baseline, risk-based portfolio margining is not available
to customers holding security futures positions in futures accounts,
and these positions are thus subject to the 20% margin requirement. The
proposed reduction in margin would permit customers holding security
futures in futures accounts to receive margin treatment consistent with
margin treatment for customers holding security futures positions in a
securities account permitted under the current SRO securities portfolio
margining rules.\157\ This could establish a more level playing field
between options exchanges and security futures exchanges, and between
broker-dealers/securities accounts and FCMs/futures accounts.
---------------------------------------------------------------------------

    \157\ See OCX Petition.
---------------------------------------------------------------------------

    In principle, a more level playing field should enhance competition
among broker-dealers and FCMs for security futures business. In
practice however, the majority of security futures transactions are
already conducted through futures accounts, and of those that are not,
none are subject to portfolio margining.\158\ It is therefore unlikely
that the proposed changes will have an immediate impact on competition
among existing intermediaries of security futures transactions (i.e.,
broker-dealers and FCMs). However, it is likely that the reduction in
margin levels will increase participation in the security futures
markets. If sufficiently large, such increased participation may spur
additional broker-dealers and FCMs to offer security futures trading.
---------------------------------------------------------------------------

    \158\ See supra note 118.
---------------------------------------------------------------------------

    More broadly, by aligning margin requirements applicable to a
security futures position (which generally are not portfolio margined)
with those applicable to equivalent options positions \159\ (which
generally are subject to portfolio margining), the proposed amendment
could be expected to encourage growth of the security futures market.
The security futures market can provide a low-friction means of
obtaining delta exposures, and relatively high margin requirements
(vis-[agrave]-vis comparable options positions) which may have played a
role in restraining its development. To the extent that reducing margin
requirements leads to significant growth of this market, it may have
additional--less direct--competitive implications. For example,
increased liquidity in security futures may lead to increased use of
this market to obtain short exposures, which could, in turn, adversely
affect intermediaries' securities lending business.
---------------------------------------------------------------------------

    \159\ A long (short) security future position can be replicated
by a portfolio containing one long (short) at-the-money call and one
short (long) at-the-money put. The margin requirement applicable to
the latter under approved portfolio margin systems is 15%.
---------------------------------------------------------------------------

c. Capital Formation
    The proposed rule changes are not expected to have an immediate
material impact on capital formation. To the extent that the proposed
reductions in margin requirements encourage significant growth in the
security futures markets, it may, in time, improve price discovery for
underlying securities. In particular, a more active security futures
market can reduce the frictions associated with shorting equity
exposures, making it easier for negative information about a firm's
fundamentals to be incorporated into security prices. This could
promote more efficient capital allocations by facilitating the flow of
financial resources to their most productive uses.
    The SEC generally requests comment on all aspects of this analysis
of the burden on competition and promotion of efficiency, competition,
and capital formation.
iv. Alternatives Considered
    The SEC believes that reducing minimum customer margin requirements
for security futures to a level between 15% and 20% would maintain
inconsistencies in margin requirements across security futures and
options, without providing significant benefits as compared to the
proposed amendments. Accordingly, in light of the objectives of this
particular rulemaking, and in the context of the statutory framework
discussed above, the SEC does not believe that there are reasonable
alternatives to the proposal to reduce the minimum initial and
maintenance margin levels for unhedged security futures to 15%.

V. Regulatory Flexibility Act

A. CFTC

    The Regulatory Flexibility Act (``RFA'') requires that federal
agencies, in promulgating rules, consider the impact of those rules on
small entities.\160\ The proposed amendments will affect designated
contract markets, FCMs, and customers who trade in security futures.
The CFTC has previously established certain definitions of ``small
entities'' to be used by the CFTC in evaluating the impact of its rules
on small entities in accordance with the RFA.\161\
---------------------------------------------------------------------------

    \160\ 5 U.S.C. 601 et seq.
    \161\ Policy Statement and Establishment of Definitions of
``Small Entities'' for Purposes of the Regulatory Flexibility Act,
47 FR 18618, 18618-21 (Apr. 30, 1982).
---------------------------------------------------------------------------

    In its previous determinations, the CFTC has concluded that
contract markets are not small entities for purposes of the RFA, based
on the vital role contract markets play in the national economy and the
significant amount of resources required to operate as SROs.\162\ The
CFTC also has determined that notice-designated contract markets are
not small entities for purposes of the RFA.\163\
---------------------------------------------------------------------------

    \162\ Id. at 18619.
    \163\ Designated Contract Markets in Security Futures Products:
Notice-Designation Requirements, Continuing Obligations,
Applications for Exemptive Orders, and Exempt Provisions, 66 FR
44960, 44964 (Aug. 27, 2001).
---------------------------------------------------------------------------

    The CFTC has previously determined that FCMs are not small entities
for purposes of the RFA, based on the fiduciary nature of FCM-customer

relationships as well as the requirements that FCMs meet certain
minimum financial requirements.\164\ In addition, the CFTC has
determined that notice-registered FCMs,\165\ for the reasons applicable
to FCMs registered in accordance with Section 4f(a)(1) of the CEA,\166\
are not small entities for purposes of the RFA.\167\
---------------------------------------------------------------------------

    \164\ Supra note 159 at 18619.
    \165\ A broker or dealer that is registered with the SEC and
that limits its futures activities to those involving security
futures products may notice register with the CFTC as an FCM in
accordance with Section 4f(a)(2) of the CEA (7 U.S.C. 6f(a)(2)).
    \166\ 7 U.S.C. 6f(a)(1).
    \167\ 2002 Final Rules, 67 FR at 53171.
---------------------------------------------------------------------------

    Finally, the CFTC notes that according to data from OCX, 99% of all
customers transacting in security futures as of March 1, 2016 and March
1, 2017 qualified as ECPs. The CFTC has found that ECPs should not be
considered small entities for the purposes of the RFA.\168\ An
overwhelming majority of the customers transacting in security futures
currently are ECPs and are not small entities. Therefore, a change in
the margin level for security futures is not anticipated to affect
small entities.
---------------------------------------------------------------------------

    \168\ Opting Out of Segregation, 66 FR 20740, 20743 (Apr. 25,
2001).
---------------------------------------------------------------------------

    Accordingly, the CFTC Chairman, on behalf of the CFTC, hereby
certifies pursuant to 5 U.S.C. 605(b), that the proposed amendments
will not have a significant economic impact on a substantial number of
small entities. The CFTC invites public comments on this determination.

B. SEC

    The RFA requires that federal agencies, in promulgating rules,
consider the impact of those rules on small entities.\169\ Section 3(a)
\170\ of the RFA generally requires the SEC to undertake a regulatory
flexibility analysis of all proposed rules to determine the impact of
such rulemaking on small entities unless the SEC certifies that the
rule amendments, if adopted, would not have a significant economic
impact on a substantial number of small entities.\171\
---------------------------------------------------------------------------

    \169\ 5 U.S.C. 601 et seq.
    \170\ 5 U.S.C. 603.
    \171\ 5 U.S.C. 605(b). The proposed amendments are discussed in
detail in section II. above. The SEC discusses the potential
economic consequences of the amendments in section IV. (Economic
Analysis) above. As discussed in section III (Paperwork Reduction
Act) above, the proposed amendments do not contain a ``collection of
information'' requirement within the meaning of the Paperwork
Reduction Act.
---------------------------------------------------------------------------

    For purposes of SEC rulemaking in connection with the RFA,\172\ a
small entity includes a broker-dealer that had total capital (net worth
plus subordinated liabilities) of less than $500,000 on the date in the
prior fiscal year as of which its audited financial statements were
prepared pursuant to SEC Rule 17a-5(d) (under the Exchange Act),\173\
or, if not required to file such statements, a broker-dealer with total
capital (net worth plus subordinated liabilities) of less than $500,000
on the last day of the preceding fiscal year (or in the time that it
has been in business, if shorter); and is not affiliated with any
person (other than a natural person) that is not a small business or
small organization.\174\ The proposed rule amendments would reduce the
required margin for security futures from 20% to 15%. The proposed rule
amendments would affect brokers, dealers, and members of national
securities exchanges, including FCMs required to register as broker-
dealers under Section 15(b)(11) of the Exchange Act, relating to
security futures.\175\
---------------------------------------------------------------------------

    \172\ Although Section 601 of the RFA defines the term ``small
entity,'' the statute permits agencies to formulate their own
definitions. The SEC has adopted definitions for the term ``small
entity'' for the purposes of SEC rulemaking in accordance with the
RFA. Those definitions, as relevant to this proposed rulemaking, are
set forth in SEC Rule 0-10 (under the Exchange Act), 17 CFR 240.0-
10. See Statement of Management on Internal Accounting Control,
Exchange Act Release No. 18451 (Jan. 28, 1982), 47 FR 5215 (Feb. 4,
1982).
    \173\ 17 CFR 240.17a-5(d).
    \174\ See 17 CFR 240.0-10(c).
    \175\ See SEC Rule 400(a), 17 CFR 242.400(a).
---------------------------------------------------------------------------

    IBs and FCMs may register as broker-dealers by filing Form BD-
N.\176\ However, because such IBs may not collect customer margin they
are not subject to these rules. In addition, the CFTC has concluded
that FCMs are not considered small entities for purposes of the
RFA.\177\ Accordingly, there are no IBs or FCMs that are small entities
for purposes of the RFA that would be subject to the proposed rule
amendments.
---------------------------------------------------------------------------

    \176\ These notice-registered broker-dealers are not included in
the 1,060 small broker-dealers discussed below, as they are not
required to file FOCUS Reports with the SEC. See SEC Rule 17a-
5(m)(4), 17 CFR 240.17a-5(m)(4).
    \177\ See 47 FR 18618, 18618-21 (Apr. 30, 1982). See also 66 FR
14262, 14268 (Mar. 9, 2001).
---------------------------------------------------------------------------

    In addition, all members of national securities exchanges
registered under Section 6(a) of the Exchange Act are registered
broker-dealers.\178\ The SEC estimates that as of December 31, 2017,
there were approximately 1,060 broker-dealers that were ``small'' for
the purposes of SEC Rule 0-10. Of these, the SEC estimates that there
are less than ten broker-dealers that are carrying broker-dealers
(i.e., can carry customer margin accounts and extend credit). However,
based on December 31, 2017 FOCUS Report data, none of these small
carrying broker-dealers carried debit balances. This means these
``small'' carrying firms are not extending margin credit to their
customers, and therefore, the proposed rules likely would not apply to
them. Therefore, while SEC believes that some small broker-dealers
could be affected by the proposed amendments, the amendments will not
have a significant impact on a substantial number of small broker-
dealers.
---------------------------------------------------------------------------

    \178\ National securities exchanges registered under Section
6(g) of the Exchange Act--notice registration of security futures
product exchanges--may have members who are floor brokers or floor
traders who are not registered broker-dealers; however, these
entities cannot clear securities transactions or collect customer
margin, and, therefore, the proposed rules would not apply to them.
---------------------------------------------------------------------------

    Accordingly, the SEC certifies that the proposed rule amendments
would not have a significant economic impact on a substantial number of
small entities for purposes of the RFA. The SEC encourages written
comments regarding this certification. The SEC solicits comment as to
whether the proposed rule amendments could have an effect on small
entities that has not been considered. The SEC requests that commenters
describe the nature of any impact on small entities and provide
empirical data to support the extent of such impact.

VI. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, or ``SBREFA,'' \179\ a rule is considered ``major'' where,
if adopted, it results or is likely to result in:
---------------------------------------------------------------------------

    \179\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various Sections of 5 U.S.C., 15 U.S.C. and as a note
to 5 U.S.C. 601).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or
individual industries; or
     Significant adverse effect on competition, investment or
innovation.
    If a rule is ``major,'' its effectiveness will generally be delayed
for 60 days pending Congressional review. The Commissions request
comment on the potential impact of the proposed amendments for margin
requirements for security futures on:
     The U.S. economy on an annual basis;
     Any potential increase in costs or prices for consumers or
individual industries; and
     Any potential effect on competition, investment, or
innovation.
    Commenters are requested to provide empirical data and other
factual support for their view to the extent possible.

VII. Anti-Trust Considerations

    Section 15(b) of the CEA requires the CFTC to ``take into
consideration the public interest to be protected by the antitrust laws
and endeavor to take the least anticompetitive means of achieving the
purposes of [the CEA], in issuing any order or adopting any [CFTC] rule
or regulation (including any exemption under Section 4(c) or 4c(b)), or
in requiring or approving any bylaw, rule, or regulation of a contract
market or registered futures association established pursuant to
Section 17 of [the CEA].'' \180\ The CFTC believes that the public
interest to be protected by the antitrust laws is generally to protect
competition. The CFTC requests comment on whether this proposal
implicates any other specific public interest to be protected by the
antitrust laws.
---------------------------------------------------------------------------

    \180\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

    The CFTC has considered the proposal to determine whether it is
anticompetitive and has preliminarily identified no anticompetitive
effects. The CFTC requests comment on whether the proposal is
anticompetitive and, if it is, what the anticompetitive effects are.
    Because the CFTC has preliminarily determined that the proposal is
not anticompetitive and has no anticompetitive effects, the CFTC has
not identified any less anticompetitive means of achieving the purposes
of the CEA. The CFTC requests comment on whether there are less
anticompetitive means of achieving the relevant purposes of the CEA
that would otherwise be served by adopting the proposal.

VIII. Statutory Basis

    The SEC is proposing the amendment to SEC Rule 403(b)(1) pursuant
to the Exchange Act, particularly Sections 3(b), 6, 7(c), 15A and
23(a). Further, these amendments are proposed pursuant to the authority
delegated jointly to the SEC, together with the CFTC, by the Federal
Reserve Board in accordance with Exchange Act Section 7(c)(2)(A).

Text of Rules

List of Subjects

17 CFR Part 41

    Brokers, Margin, Reporting and recordkeeping requirements, Security
futures products.

17 CFR Part 242

    Brokers, Confidential business information, Reporting and
recordkeeping requirements, Securities.

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 41

    For the reasons discussed in the preamble, the Commodity Futures
Trading Commission proposes to amend 17 CFR part 41 as set forth below:

PART 41--SECURITY FUTURES PRODUCTS

0
1. The authority citation for part 41 continues to read as follows:

    Authority:  Sections 206, 251 and 252, Pub. L. 106-554, 114
Stat. 2763; 7 U.S.C. 1a, 2, 6f, 6j, 7aa-2, 12a; 15 U.S.C. 78g(c)(2).

0
2. Amend Sec.  41.45 by revising paragraph (b)(1) to read as follows:

Sec.  41.45  Required margin.

* * * * *
    (b) Required margin. (1) General rule. The required margin for each
long or short position in a security future shall be fifteen (15)
percent of the current market value of such security future.
* * * * *

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

    In accordance with the foregoing Title 17, chapter II, part 242 of
the Code of Federal Regulations is proposed to be amended as follows:

PART 242--REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER
MARGIN REQUIREMENTS FOR SECURITY FUTURES

0
3. The authority citation for part 242 continues to read as follows:

    Authority:  15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2),
78i(a), 78j, 78ka-1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g),
78q(a), 78q(b), 78q(h), 78w(a), 78dda-1, 78mm, 80aa-23, 80aa-29, and
80aa-37.

0
4. Section 242.403 is amended by revising paragraph (b)(1) to read as
follows:

Sec.  242.403  Required margin.

* * * * *
    (b) Required margin. (1) General rule. The required margin for each
long or short position in a security future shall be fifteen (15)
percent of the current market value of such security future.
* * * * *

    By the Securities and Exchange Commission.

    Dated: July 3, 2019.
Vanessa A. Countryman,
Secretary.
    Issued in Washington, DC, on July 9, 2019, by the Commodity
Futures Trading Commission.
Christopher Kirkpatrick,
Secretary of the Commission.

    Note:  The following appendices will not appear in the Code of
Federal Regulations.

Commodity Futures Trading Commission (CFTC) Appendices to Customer
Margin Rules Relating to Security Futures--CFTC Voting Summary and CFTC
Commissioner's Statement

Appendix 1--CFTC Voting Summary

    On this matter, Chairman Giancarlo and Commissioners Quintenz,
Behnam, Stump, and Berkovitz voted in the affirmative. No
Commissioner voted in the negative.

Appendix 2--Statement of CFTC Commissioner Dan M. Berkovitz

    I support issuing the joint notice of proposed rulemaking
(``Proposal'') with the Securities Exchange Commission (``SEC'')
(collectively with the CFTC, ``Commissions'') to amend the security
futures margin requirements.
    In 2000, Congress passed the Commodity Futures Modernization Act
(``CFMA'') which permitted security futures trading.\1\ The CFMA
provides that customer margin requirements for security futures
shall be set at levels that:
---------------------------------------------------------------------------

    \1\ See App. E of Public Law 106-554, 114 Stat. 2,763 (2000).
---------------------------------------------------------------------------

    (1) Require (a) consistency with the margin requirements for
comparable exchange-traded options and (b) margin levels not lower
than the lowest level of margin, exclusive of premium, required for
any comparable exchange-traded options,
    (2) preserve the financial integrity of markets trading security
futures products,
    (3) prevent systemic risk, and
    (4) are and remain consistent with certain margin requirements
established by the Federal Reserve Board under its Regulation T.\2\
---------------------------------------------------------------------------

    \2\ See 15 U.S.C. 78g(c)(2)(B) (2018).
---------------------------------------------------------------------------

    The Proposal would decrease the required minimum margin from 20
percent to 15 percent of the current market value. The Proposal
reasons that amending the minimum required margin reflects the
current stress level percentage of 15 percent set for unhedged
exchange-traded options in self-regulated organization risk-based
portfolio margining programs.\3\ This action would increase
consistency in the markets by bringing the margin requirement for
security futures held outside of a securities portfolio margin
account into alignment with the margining for security futures under
risk-based portfolio margining methodologies.\4\
---------------------------------------------------------------------------

    \3\ Proposal, section II.A.5.
    \4\ See 15 U.S.C. 78g(c)(2)(B) (2018).
---------------------------------------------------------------------------

    The 20 percent level was originally set by the Commissions in
2002. Markets have

evolved since that time and it is appropriate to reconsider the
margin level in light of the subsequent adoption of the risk-based
portfolio margining programs. In doing so, the Proposal has followed
the statutory mandate to set the security futures margin requirement
at levels consistent with, and not lower than, levels for similar
options.
    In conclusion, I commend the joint work by the Commissions'
respective staffs in preparing the Proposal. The Proposal represents
an opportunity for the Commissions to gain more knowledge about the
security futures markets, reevaluate the status quo, and establish a
more effective regulatory standard. I look forward to public
comments in response to the Proposal, particularly comments that
provide additional data and analysis regarding the appropriateness
of the 15 percent level under each of the statutory factors the
Commissions must consider.

[FR Doc. 2019-15400 Filed 7-25-19; 8:45 am]
 BILLING CODE 6351-01-P


PUBLIC HEARING ATTENDEE REGISTRATION Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone ( Clean Air Interstate Rule): Reconsideration U. S. Environmental Protection Agency Headquarters 1310 L Street, Rooms 152 and 154 Washington, DC 20460 December 14, 2005   9: 00 a. m. to 12: 00 p. m.

1 NAME E MAIL ADDRESS AFFILIATION ADDRESS PHONE NUMBER Joe Araiza jaraiza@ reliant. com Reliant 1000 Main Houston, TX 77002 713 488 7167 Michael Ball michael. ball@ argusmediagroup. com Air Daily 1012 14th Street NW Washington, DC 20005 202 349 2861 Lynn Butts Michael Cashin mcashin@ mnpower. com Minnesota Power ( ALLETA) 30 West Superior Street Duluth, MN 55802 218 772 5642 x3339 Tom Coda coda. tom@ epa. gov U. S. Environmental Protection Agency Research Triangle Park, NC 919 541 3037 Angelica Codd ( contractor to USEPA) angelica@ pechan. com E. H. Pechan & Associates, Inc 5528 B Hempstead Way Springfield, VA 22151 703 813 6700 x180 Michael Cohen cohen. michael@ epa. gov U. S. Environmental Protection Agency Washington, DC 202 343 9497 Steven Cook BNA 1231 25th Street NW Washington, DC 20037 202 452 4331 Martin Coyne martin. coyne@ platts. com Platts Emissions Daily 1200 G Street NW, Suite 1000 Washington, DC 20005 202 383 2011 Elliot Lieberman lieberman. elliot@ epa. gov U. S. Environmental Protection Agency Washington, DC 202 343 9136 PUBLIC HEARING ATTENDEE REGISTRATION Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone ( Clean Air Interstate Rule): Reconsideration U. S. Environmental Protection Agency Headquarters 1310 L Street, Rooms 152 and 154 Washington, DC 20460 December 14, 2005   9: 00 a. m. to 12: 00 p. m.

2 Gary Leckonby gary. leckonby@ aes. com AES 703 682 6309 Annita Matusiak ( contractor to USEPA) annita@ pechan. com E. H. Pechan & Associates, Inc 5528 B Hempstead Way Springfield, VA 22151 703 813 6700 x158 Ranola Musante Ranola. musante@ mirant. com Mirant 601 13th St. NW Suite 580N Washington, DC 20005 202 585 3832 Sam Napolitano napolitano. sam@ epa. gov U. S. Environmental Protection Agency Washington, DC 202 343 9751 Moneen Nasmith mnasmith@ willkie. com Willkie Farr & Gallagher 202 303 1268 Jessica Ottney jottney@ adirondackcouncil. org The Adirondack Council 342 Hamilton St. Albany, NY 12210 918 432 1770 Sonja Rodman rodman. sonja@ epa. gov U. S. Environmental Protection Agency Washington, DC 202 564 4079 Tamara Saltman saltman. tamara@ epa. gov U. S. Environmental Protection Agency Washington, DC 202 343 9621 Rick Sanborn Court Reporter rsvideopro@ aol. com Rick Sanborn Video Productions 8323 Blowing Rock Road Alexandria, VA 22309 772 619 8428 Meg Victor victor. meg@ epa. gov U. S. Environmental Protection Agency Washington, DC 202 343 9193 Sam Waltzer waltzer. sam@ epa. gov U. S. Environmental Protection Agency Washington, DC 202 343 4175 Suzie Young young. suzanne@ epa. gov U. S. Environmental Protection Agency Washington, DC 202 343 9544 PUBLIC HEARING ATTENDEE REGISTRATION Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone ( Clean Air Interstate Rule): Reconsideration U. S. Environmental Protection Agency Headquarters 1310 L Street, Rooms 152 and 154 Washington, DC 20460 December 14, 2005   9: 00 a. m. to 12: 00 p. m.

3


produce sufficient nitrate (NO3-) to interfere
with measurements of very low Br- levels. Dissociating
chloride salts (e.g., ammonium chloride) at elevated temperatures
interfere with halogen acid measurement in this method. Maintaining
particulate probe/filter temperatures between 120 [deg]C and 134
[deg]C (248 [deg]F and 273 [deg]F) minimizes this interference.
* * * * *
    8.1.6 Post-Test Moisture Removal (Optional). When the optional
cyclone is included in the sampling train or when liquid is visible
on the filter at the end of a sample run even in the absence of a
cyclone, perform the following procedure. Upon completion of the
test run, connect the ambient air conditioning tube at the probe
inlet and operate the train with the filter heating system between
120 and 134 [deg]C (248 and 273 [deg]F) at a low flow rate (e.g.,
[Delta]H = 1 in. H2O) to vaporize any liquid and hydrogen
halides in the cyclone or on the filter and pull them through the
train into the impingers. After 30 minutes, turn off the flow,
remove the conditioning tube, and examine the cyclone and filter for
any visible liquid. If liquid is visible, repeat this step for 15
minutes and observe again. Keep repeating until the cyclone is dry.

    Note:  It is critical that this procedure is repeated until the
cyclone is completely dry.

* * * * *

Method 29--Determination of Metals Emissions From Stationary Sources

* * * * *
    <IP_ADDRESS> Wash the two permanganate impingers with 25 ml of 8 N
HCl, and place the wash in a separate sample container labeled No.
5C containing 200 ml of water. First, place 200 ml of water in the
container. Then wash the impinger walls and stem with the 8 N HCl by
turning the impinger on its side and rotating it so that the HCl
contacts all inside surfaces. Use a total of only 25 ml of 8 N HCl
for rinsing both permanganate impingers combined. Rinse the first
impinger, then pour the actual rinse used for the first impinger
into the second impinger for its rinse. Finally, pour the 25 ml of 8
N HCl rinse carefully into the container with the 200 ml of water.
Mark the height of the fluid level on the outside of the container
in order to determine if leakage occurs during transport.
* * * * *
    10.4 Field Balance Calibration Check. Check the calibration of
the balance used to weigh impingers with a weight that is at least
500g or within 50g of a loaded impinger. The weight must be ASTM
E617-13 ``Standard Specification for Laboratory Weights and
Precision Mass Standards'' (incorporated by reference-see 40 CFR
60.17) Class 6 (or better). Daily before use, the field balance must
measure the weight within 0.5g of the certified mass. If
the daily balance calibration check fails, perform corrective
measures and repeat the check before using balance.
    10.5 Analytical Balance Calibration. Perform a multipoint
calibration (at least five points spanning the operational range) of
the analytical balance before the first use, and semiannually
thereafter. The calibration of the analytical balance must be
conducted using ASTM E617-13 ``Standard Specification for Laboratory
Weights and Precision Mass Standards'' (incorporated by reference--
see 40 CFR 60.17) Class 2 (or better) tolerance weights. Audit the
balance each day it is used for gravimetric measurements by weighing
at least one ASTM E617-13 Class 2 tolerance (or better) calibration
weight that corresponds to 50 to 150 percent of the weight of one
filter or between 1g and 5g. If the scale cannot reproduce the value
of the calibration weight to within 0.5 mg of the certified mass,
perform corrective measures, and conduct the multipoint calibration
before use.
* * * * *

Method 30A--Determination of Total Vapor Phase Mercury Emissions From
Stationary Sources (Instrumental Analyzer Procedure)

* * * * *
    8.1 Selection of Sampling Sites and Sampling Points * * *
* * * * *

Method 30B--Determination of Total Vapor Phase Mercury Emissions From
Coal-Fired Combustion Sources Using Carbon Sorbent Traps

* * * * *
    8.1 Selection of Sampling Sites and Sampling Points * * *
* * * * *
    <IP_ADDRESS> Sample Handling, Preservation, Storage, and Transport.
While the performance criteria of this approach provides for
verification of appropriate sample handling, it is still important
that the user consider, determine and plan for suitable sample
preservation, storage, transport, and holding times for these
measurements. Therefore, procedures in ASTM D6911-15 ``Standard
Guide for Packaging and Shipping Environmental Samples for
Laboratory Analysis'' (incorporated by reference-see 40 CFR 60.17)
shall be followed for all samples, where appropriate. To avoid Hg
contamination of the samples, special attention should be paid to
cleanliness during transport, field handling, sampling, recovery,
and laboratory analysis, as well as during preparation of the
sorbent cartridges. Collection and analysis of blank samples (e.g.,
reagent, sorbent, field, etc.) is useful in verifying the absence or
source of contaminant Hg.
* * * * *

0
17. In appendix B to part 60:
0
a. Add the entry ``Performance Specification 16--Specifications and
Test Procedures for Predictive Emission Monitoring Systems in
Stationary Sources'' at the end of the table of contents for appendix B
to part 60.
0
b. Add a sentence to the end of section 8.1(2)(i) in Performance
Specification 1.
0
c. Revise sections 3.11, 6.1.1, 6.1.2, 16.3.2, and section 18.0 in
Performance Specification 2.
0
d. Revise section 13.2 in Performance Specification 3.
0
e. Revise sections 8.3, 8.3.1, and 13.3 in Performance Specification
4A.
0
f. Revise sections 12.1 and 13.1 in Performance Specification 11.
0
g. Revise section 9.1.2 in Performance Specification 15.
0
h. Add reserved sections 14.0 and 15.0 in Performance Specification 15.
0
i. Revise the introductory text of section 12.2.3 in Performance
Specification 16.
0
j. Revise table 16-1 in Performance Specification 16.
    The revisions and additions read as follows:

Appendix B to Part 60--Performance Specifications

* * * * *

Performance Specification 1--Specifications and Test Procedures for
Continuous Opacity Monitoring Systems in Stationary Sources

* * * * *
    8.1 * * *
    (2) * * *
    (i) * * * Alternatively, you may select a measurement location
specified in paragraph 8.1(2)(ii) or 8.1(2)(iii).
* * * * *

Performance Specification 2--Specifications and Test Procedures for
SO2 and NOX Continuous Emission Monitoring
Systems in Stationary Sources

* * * * *
    3.11 Span Value means the calibration portion of the measurement
range as specified in the applicable regulation or other
requirement. If the span is not specified in the applicable
regulation or other requirement, then it must be a value
approximately equivalent to two times the emission standard. For
spans less than 500 ppm, the span value may either be rounded upward
to the next highest multiple of 10 ppm, or to the next highest
multiple of 100 ppm such that the equivalent emission concentration
is not less than 30 percent of the selected span value.
* * * * *

    6.1.1 Data Recorder. The portion of the CEMS that provides a
record of analyzer output. The data recorder may record other
pertinent data such as effluent flow rates, various instrument
temperatures or abnormal CEMS operation. The data recorder output
range must include the full range of expected concentration values
in the gas stream to be sampled including zero and span values.
    6.1.2 The CEMS design should also allow the determination of
calibration drift at the zero and span values. If this is not
possible or practical, the design must allow these determinations to
be conducted at a low-level value (zero to 20 percent of the span
value) and at a value between 50 and 100 percent of the span value.
In special cases, the Administrator may approve a single-point
calibration drift determination.
* * * * *
    16.3.2 For diluent CEMS:

RA=d; <=0.7 percent O2 or CO2, as applicable.

    Note:  Waiver of the relative accuracy test in favor of the
alternative RA procedure does not preclude the requirements to
complete the CD tests nor any other requirements specified in an
applicable subpart for reporting CEMS data and performing CEMS drift
checks or audits.

* * * * *

18.0 Tables, Diagrams, Flowcharts, and Validation Data

                                                                   Table 2-1--t-Values
--------------------------------------------------------------------------------------------------------------------------------------------------------
                          n \a\                                  t0.975             n \a\              t0.975             n \a\              t0.975
--------------------------------------------------------------------------------------------------------------------------------------------------------
2........................................................             12.706                  7              2.447                 12              2.201
3........................................................              4.303                  8              2.365                 13              2.179
4........................................................              3.182                  9              2.306                 14              2.160
5........................................................              2.776                 10              2.262                 15              2.145
6........................................................              2.571                 11              2.228                 16              2.131
--------------------------------------------------------------------------------------------------------------------------------------------------------
\a\ The values in this table are already corrected for n-1 degrees of freedom. Use n equal to the number of individual values.

                      Table 2-2--Measurement Range
------------------------------------------------------------------------
                                               Diluent monitor for
  Measurement point       Pollutant    ---------------------------------
                           monitor            CO2               O2
------------------------------------------------------------------------
1....................  20-30% of span   5-8% by volume.  4-6% by volume.
                        value.
2....................  50-60% of span   10-14% by        8-12% by
                        value.           volume.          volume.
------------------------------------------------------------------------

BILLING CODE 6560-50-P

[GRAPHIC] [TIFF OMITTED] TR30AU16.014

[GRAPHIC] [TIFF OMITTED] TR30AU16.015

 \a\ For Steam generators.
\b\ Average of three samples.
\c\ Make sure that RM and CEMS data are on a consistent basis, either
  wet or dry.

BILLING CODE 6560-50-C
* * * * *

Performance Specification 3--Specifications and Test Procedures for
O2 and CO2 Continuous Emission Monitoring Systems
in Stationary Sources

* * * * *
    13.2 CEMS Relative Accuracy Performance Specification. The RA of
the CEMS must be no greater than 20.0 percent of the mean value of
the reference method (RM) data when calculated using equation 3-1.
The results are also acceptable if the result of Equation 3-2 is
less than or equal to 1.0 percent O2 (or CO2).

[GRAPHIC] [TIFF OMITTED] TR30AU16.016

* * * * *

Performance Specification 4A--Specifications and Test Procedures for
Carbon Monoxide Continuous Emission Monitoring Systems in Stationary
Sources

* * * * *
    8.3 Response Time Test Procedure. The response time test applies
to all types of CEMS, but will generally have significance only for
extractive systems. The entire system is checked with this procedure
including applicable sample extraction and transport, sample
conditioning, gas analyses, and data recording.
    8.3.1 Introduce zero gas into the system. When the system output
has stabilized (no change greater than 1 percent of full scale for
30 sec), introduce an upscale calibration gas and wait for a stable
value. Record the time (upscale response time) required to reach 95
percent of the final stable value. Next, reintroduce the zero gas
and wait for a stable reading before recording the response time
(downscale response time). Repeat the entire procedure until you
have three sets of data to determine the mean upscale and downscale
response times. The slower or longer of the two means is the system
response time.
* * * * *
    13.3 Response Time. The CEMS response time shall not exceed 240
seconds to achieve 95 percent of the final stable value.
* * * * *

Performance Specification 11--Specifications and Test Procedures for
Particulate Matter Continuous Emission Monitoring Systems at Stationary
Sources

* * * * *
    12.1 How do I calculate upscale drift and zero drift? You must
determine the difference in your PM CEMS output readings from the
established reference values (zero and upscale check values) after a
stated period of operation during which you performed no unscheduled
maintenance, repair or adjustment.
    (1) Calculate the upscale drift (UD) using Equation 11-1:
    [GRAPHIC] [TIFF OMITTED] TR30AU16.017

Where:

UD = The upscale (high-level) drift of your PM CEMS in percent,
RCEM = The measured PM CEMS response to the upscale
reference standard,
RU = The pre-established numerical value of the upscale
reference standard, and
Rr = The response range of the analyzer.

    (2) Calculate the zero drift (ZD) using Equation 11-2:

[GRAPHIC] [TIFF OMITTED] TR30AU16.018

Where:

ZD = The zero (low-level) drift of your PM CEMS in percent,
RCEM = The measured PM CEMS response to the zero
reference standard,
RL = The pre-established numerical value of the zero
reference standard, and
Rr = The response range of the analyzer.

    (3) Summarize the results on a data sheet similar to that shown
in Table 2 (see section 17).
* * * * *
    13.1 What is the 7-day drift check performance specification?
Your daily PM CEMS internal drift checks must demonstrate that the
average daily drift of your PM CEMS does not deviate from the value
of the reference light, optical filter, Beta attenuation signal, or
other technology-suitable reference standard by more than 2 percent
of the response range. If your CEMS includes diluent and/or
auxiliary monitors (for temperature, pressure, and/or moisture) that
are employed as a necessary part of this performance specification,
you must determine the calibration drift separately for each
ancillary monitor in terms of its respective output (see the
appropriate performance specification for the diluent CEMS
specification). None of the calibration drifts may exceed their
individual specification.
* * * * *

Performance Specification 15--Performance Specification for Extractive
FTIR Continuous Emissions Monitor Systems in Stationary Sources

* * * * *
    9.1.2 Test Procedure. Spike the audit sample using the analyte
spike procedure in section 11. The audit sample is measured directly
by the FTIR system (undiluted) and then spiked into the effluent at
a known dilution ratio. Measure a series of spiked and unspiked
samples using the same procedures as those used to analyze the stack
gas. Analyze the results using sections 12.1 and 12.2. The measured
concentration of each analyte must be within 5 percent
of the expected concentration (plus the uncertainty), i.e., the
calculated correction factor must be within 0.93 and 1.07 for an
audit with an analyte uncertainty of 2 percent.
* * * * *

14.0 Pollution Prevention [Reserved]

15.0 Waste Management [Reserved]

* * * * *

Performance Specification 16--Specifications and Test Procedures for
Predictive Emission Monitoring Systems in Stationary Sources

* * * * *

12.0 Calculations and Data Analysis

* * * * *
    12.2.3 Confidence Coefficient. Calculate the confidence
coefficient using Equation 16-3 and Table 16-1 for n-1 degrees of
freedom.
* * * * *

17.0 Tables, Diagrams, Flowcharts, and Validation Data

        Table 16-1--t-Values for One-sided, 97.5 Percent Confidence Intervals for Selected Sample Sizes *
----------------------------------------------------------------------------------------------------------------
                n-1 *                          t-value                    n-1                    t-value
----------------------------------------------------------------------------------------------------------------
1....................................                   12.706                       15                    2.131
2....................................                    4.303                       16                    2.120
3....................................                    3.182                       17                    2.110
4....................................                    2.776                       18                    2.101
5....................................                    2.571                       19                    2.093
6....................................                    2.447                       20                    2.086
7....................................                    2.365                       21                    2.080
8....................................                    2.306                       22                    2.074
9....................................                    2.262                       23                    2.069
10...................................                    2.228                       24                    2.064
11...................................                    2.201                       25                    2.060
12...................................                    2.179                       26                    2.056
13...................................                    2.160                       27                    2.052
14...................................                    2.145                      >28                  t-Table
----------------------------------------------------------------------------------------------------------------
* The value n is the number of RM runs; n-1 equals the degrees of freedom.

* * * * *

0
18. Revise section 12.0 paragraphs (3) and (4) in Procedure 2 of
appendix F to part 60 to read as follows:

Appendix F to Part 60--Quality Assurance Procedures

* * * * *

Procedure 2--Quality Assurance Requirements for Particulate Matter
Continuous Emission Monitoring Systems at Stationary Sources

* * * * *

12.0 What calculations and data analysis must I perform for my PM
CEMS?

* * * * *
    (3) How do I calculate daily upscale and zero drift? You must
calculate the upscale drift using Equation 2-2 and the zero drift
using Equation 2-3:
[GRAPHIC] [TIFF OMITTED] TR30AU16.019

Where:

UD = The upscale drift of your PM CEMS, in percent,
RCEM = Your PM CEMS response to the upscale check value,
RU = The upscale check value, and
Rr = The response range of the analyzer.

[GRAPHIC] [TIFF OMITTED] TR30AU16.020

Where:

ZD = The zero (low-level) drift of your PM CEMS, in percent,
RCEM = Your PM CEMS response of the zero check value,
RL = The zero check value, and
Rr = The response range of the analyzer.

    (4) How do I calculate SVA accuracy? You must use Equation 2-4
to calculate the accuracy, in percent, for each of the three SVA
tests or the daily sample volume check:
[GRAPHIC] [TIFF OMITTED] TR30AU16.021

Where:

SVA Accuracy = The SVA accuracy at each audit point, in percent,
VM = Sample gas volume determined/reported by your PM
CEMS (e.g., dscm), and
VR = Sample gas volume measured by the independent
calibrated reference device (e.g., dscm) for the SVA or the
reference value for the daily sample volume check.

    Note: Before calculating SVA accuracy, you must correct the
sample gas volumes measured by your PM CEMS and the independent
calibrated reference device to the same basis of temperature,
pressure, and moisture content. You must document all data and
calculations.

* * * * *

PART 61--NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANTS

0
19. The authority citation for part 61 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

0
20. In Sec.  61.13, revise paragraph (e)(1)(i) to read as follows:

Sec.  61.13  Emission tests and waiver of emission tests.

* * * * *
    (e) * * *
    (1) * * *
    (i) The source owner, operator, or representative of the tested
facility shall obtain an audit sample, if commercially available, from
an AASP for each test method used for regulatory compliance purposes.
No audit samples are required for the following test methods: Methods
3A and 3C of appendix A-3 of part 60 of this chapter; Methods 6C, 7E,
9, and 10 of appendix A-4 of part 60; Method 18 and 19 of appendix A-6
of part 60; Methods 20, 22, and 25A of appendix A-7 of part 60; Methods
30A and 30B of appendix A-8 of part 60; and Methods 303, 318, 320, and
321 of appendix A of part 63 of this chapter. If multiple sources at a
single facility are tested during a compliance test event, only one
audit sample is required for each method used during a compliance test.
The compliance authority responsible for the compliance test may waive
the requirement to include an audit sample if they believe that an
audit sample is not necessary. ``Commercially available'' means that
two or more independent AASPs have blind audit samples available for
purchase. If the source owner, operator, or representative cannot find
an audit sample for a specific method, the owner, operator, or
representative shall consult the EPA Web site at the following URL,
www.epa.gov/ttn/emc, to confirm whether there is a source that can
supply an audit sample for that method. If the EPA Web site does not
list an available audit sample at least 60 days prior to the beginning
of the compliance test, the source owner, operator, or representative
shall not be required to include an audit sample as part of the quality
assurance program for the compliance test. When ordering an audit
sample, the source owner, operator, or representative shall give the
sample provider an estimate for the concentration of each pollutant
that is emitted by the source or the estimated concentration of each
pollutant based on the permitted level and the name, address, and phone
number of the compliance authority. The source owner, operator, or
representative shall report the results for the audit sample along with
a summary of the emission test results for the audited pollutant to the
compliance authority and shall report the results of the audit sample
to the AASP. The source owner, operator, or representative shall make
both reports at the same time and in the same manner or shall report to
the compliance authority first and then report to the AASP. If the
method being audited is a method that allows the samples to be analyzed
in the field and the tester plans to analyze the samples in the field,
the tester may analyze the audit samples prior to collecting the
emission samples provided a representative of the compliance authority
is present at the testing site. The tester may request, and the
compliance authority may grant, a waiver to the requirement that a
representative of the compliance authority must be present at the
testing site during the field analysis of an audit sample. The source
owner, operator, or representative may report the results of the audit
sample to the compliance authority and then report the results of the
audit sample to the AASP prior to collecting any emission samples. The
test protocol and final test report shall document whether an audit
sample was ordered and utilized and the pass/fail results as
applicable.
* * * * *

0
21. Revise the section heading for section 11.7.3 in Method 107 of
appendix B to part 61 to read as follows:

Appendix B to Part 61--Test Methods

* * * * *

Method 107--Determination of Vinyl Chloride Content of In-Process
Wastewater Samples, and Vinyl Chloride Content of Polyvinyl Chloride
Resin Slurry, Wet Cake, and Latex Samples

* * * * *

11.0 Analytical Procedure

* * * * *
    11.7.3 Dispersion Resin Slurry and Latex Samples. * * *
* * * * *

PART 63--NATIONAL EMISSION STANDARDS FOR HAZARDOUS AIR POLLUTANTS
FOR SOURCE CATEGORIES

0
22. The authority citation for part 63 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

0
23. In Sec.  63.7:
0
a. Revise paragraph (c)(2)(iii)(A).
0
b. Add paragraph (g)(2).
    The revision and addition read as follows:

Sec.  63.7  Performance testing requirements.

* * * * *
    (c) * * *
    (2) * * *
    (iii) * * *
    (A) The source owner, operator, or representative of the tested
facility shall

obtain an audit sample, if commercially available, from an AASP for
each test method used for regulatory compliance purposes. No audit
samples are required for the following test methods: Methods 3A and 3C
of appendix A-3 of part 60 of this chapter; Methods 6C, 7E, 9, and 10
of appendix A-4 of part 60; Methods 18 and 19 of appendix A-6 of part
60; Methods 20, 22, and 25A of appendix A-7 of part 60; Methods 30A and
30B of appendix A-8 of part 60; and Methods 303, 318, 320, and 321 of
appendix A of this part. If multiple sources at a single facility are
tested during a compliance test event, only one audit sample is
required for each method used during a compliance test. The compliance
authority responsible for the compliance test may waive the requirement
to include an audit sample if they believe that an audit sample is not
necessary. ``Commercially available'' means that two or more
independent AASPs have blind audit samples available for purchase. If
the source owner, operator, or representative cannot find an audit
sample for a specific method, the owner, operator, or representative
shall consult the EPA Web site at the following URL, www.epa.gov/ttn/emc, to confirm whether there is a source that can supply an audit
sample for that method. If the EPA Web site does not list an available
audit sample at least 60 days prior to the beginning of the compliance
test, the source owner, operator, or representative shall not be
required to include an audit sample as part of the quality assurance
program for the compliance test. When ordering an audit sample, the
source owner, operator, or representative shall give the sample
provider an estimate for the concentration of each pollutant that is
emitted by the source or the estimated concentration of each pollutant
based on the permitted level and the name, address, and phone number of
the compliance authority. The source owner, operator, or representative
shall report the results for the audit sample along with a summary of
the emission test results for the audited pollutant to the compliance
authority and shall report the results of the audit sample to the AASP.
The source owner, operator, or representative shall make both reports
at the same time and in the same manner or shall report to the
compliance authority first and then report to the AASP. If the method
being audited is a method that allows the samples to be analyzed in the
field and the tester plans to analyze the samples in the field, the
tester may analyze the audit samples prior to collecting the emission
samples provided a representative of the compliance authority is
present at the testing site. The tester may request, and the compliance
authority may grant, a waiver to the requirement that a representative
of the compliance authority must be present at the testing site during
the field analysis of an audit sample. The source owner, operator, or
representative may report the results of the audit sample to the
compliance authority and then report the results of the audit sample to
the AASP prior to collecting any emission samples. The test protocol
and final test report shall document whether an audit sample was
ordered and utilized and the pass/fail results as applicable.
* * * * *
    (g) * * *
    (2) Contents of report (electronic or paper submitted copy). Unless
otherwise specified in a relevant standard or test method, or as
otherwise approved by the Administrator in writing, the report for a
performance test shall include the elements identified in paragraphs
(g)(2)(i) through (vi) of this section.
    (i) General identification information for the facility including a
mailing address, the physical address, the owner or operator or
responsible official (where applicable) and his/her email address, and
the appropriate Federal Registry System (FRS) number for the facility.
    (ii) Purpose of the test including the applicable regulation
requiring the test, the pollutant(s) and other parameters being
measured, the applicable emission standard, and any process parameter
component, and a brief process description.
    (iii) Description of the emission unit tested including fuel
burned, control devices, and vent characteristics; the appropriate
source classification code (SCC); the permitted maximum process rate
(where applicable); and the sampling location.
    (iv) Description of sampling and analysis procedures used and any
modifications to standard procedures, quality assurance procedures and
results, record of process operating conditions that demonstrate the
applicable test conditions are met, and values for any operating
parameters for which limits were being set during the test.
    (v) Where a test method requires you record or report, the
following shall be included in your report: Record of preparation of
standards, record of calibrations, raw data sheets for field sampling,
raw data sheets for field and laboratory analyses, chain-of-custody
documentation, and example calculations for reported results.
    (vi) Identification of the company conducting the performance test
including the primary office address, telephone number, and the contact
for this test including his/her email address.
* * * * *

0
24. Revise sections 13.1, 13.4, and 13.4.1 in Method 320 of appendix A
to part 63 to read as follows:

Appendix A to Part 63--Test Methods Pollutant Measurement Methods From
Various Waste Media

* * * * *

Method 320--Measurement of Vapor Phase Organic and Inorganic Emissions
by Extractive Fourier Transform Infrared (FTIR) Spectroscopy

* * * * *

13.0 Method Validation Procedure

* * * * *
    13.1 Section 6.0 of Method 301 (40 CFR part 63, appendix A), the
Analyte Spike procedure, is used with these modifications. The
statistical analysis of the results follows section 12.0 of EPA
Method 301. Section 3 of this method defines terms that are not
defined in Method 301.
* * * * *
    13.4 Statistical Treatment. The statistical procedure of EPA
Method 301 of this appendix, section 12.0 is used to evaluate the
bias and precision. For FTIR testing a validation ``run'' is defined
as spectra of 24 independent samples, 12 of which are spiked with
the analyte(s) and 12 of which are not spiked.
    13.4.1 Bias. Determine the bias (defined by EPA Method 301 of
this appendix, section 12.1.1) using equation 7:

B=Sm - CS

Where:

B = Bias at spike level.
Sm = Mean concentration of the analyte spiked samples.
CS = Expected concentration of the spiked samples.
* * * * *
[FR Doc. 2016-19642 Filed 8-29-16; 8:45 am]
 BILLING CODE 6560-50-P