[Federal Register Volume 80, Number 214 (Thursday, November 5, 2015)]
[Notices]
[Pages 68586-68590]
[FR Doc No: 2015-28144]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76317; File No. SR-BX-2015-060]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change to the Risk
Monitor Mechanism

October 30, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on October 16, 2015, NASDAQ OMX BX, Inc. (``BX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule change as described in Items I, II,
and III, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to amend Chapter VI, Section 19 entitled
``Risk Monitor Mechanism'' by reserving this rule and relocating the
rule governing the Risk Monitor Mechanism into BX Rule at Chapter VII,
Section 6(f)(i), entitled ``Market Maker Quotations'' which contains
similar market maker \3\ risk monitor tools. The Exchange is also
modifying the language currently
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    \3\ Pursuant to BX Rules at Chapter VII, Section 5, entitled
``Obligations of Market Makers'', in registering as a market maker,
an Options Participant commits himself to various obligations.
Transactions of a BX Market Maker must constitute a course of
dealings reasonably calculated to contribute to the maintenance of a
fair and orderly market, and Market Makers should not make bids or
offers or enter into transactions that are inconsistent with such
course of dealings. Further, all Market Makers are designated as
specialists on BX for all purposes under the Act or rules
thereunder. See Chapter VII, Section 5.
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    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxbx.cchwallstreet.com/, at the principal
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The purpose of the filing is to relocate and amend the current rule
text of the Risk Monitor Mechanism at Chapter VI, Section 19.\4\ The
Exchange is proposing to relocate the rule text into Chapter VII,
Section 6, which currently describes two other risk mechanisms offered
to BX Market Makers today.\5\ Quoting across many series in an option
creates the possibility of ``rapid fire'' executions that can create
large, unintended principal positions that expose BX Market Makers, who
are required to continuously quote in assigned options, to potentially
significant market risk. The Risk Monitor Mechanism (hereinafter
``Percentage-Based Threshold'') permits BX Market Makers to monitor
risk arising from multiple executions across multiple options series of
a single underlying security.
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    \4\ The proposed amendments will conform the rule text to the
manner in which the System operates today.
    \5\ The two risk protections, Volume-Based Threshold and the
Multi-Trigger Threshold, are BX Market Maker protections, similar to
the Risk Monitor Mechanism to assist BX Market Makers to control
their trading risks.
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    The Exchange will require BX Market Makers to utilize either the
Percentage-Based Threshold or the Volume-Based Threshold.\6\ The Multi-
Trigger Threshold will be optional.\7\ Today, BX Market Makers are
required to utilize the Percentage-Based Threshold.
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    \6\ The Volume-Based Threshold is offered only to BX Market
Makers.
    \7\ The Multi-Trigger Threshold is offered only to BX Market
Makers.
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Current Rule Text in Chapter VI, Section 19
    BX Rules at Chapter VI, Section 19 specifically describes the
counting program that is maintained by the System for each Participant
in a particular option. Specifically, the counting program counts the
number of contracts traded in an option by each Participant within a
specified time period, not to exceed 15 seconds, established by each
Participant known

in this rule as the ``specified time period.''
    The specified time period commences for an option when a
transaction occurs in any series in such option. The Exchange counts
Specialized Quote Feed (``SQF'') \8\ quotes only in determining the
number of contracts traded and removed by the System. When a
Participant trades the Specified Engagement Size during the specified
time period, the Percentage-Based Threshold is triggered \9\ and the
System automatically removes such Participant's quotations from the
Exchange's orders in all series of the particular option. The
Percentage-Based Threshold is engaged when the counting program
determines that the Issue Percentage equals or exceeds a percentage
established by the Participant, not less than 100%.
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    \8\ SQF permits the receipt of quotes. SQF Auction Responses and
market sweeps are also not included.
    \9\ A trigger is defined as the event which causes the System to
automatically remove all quotes in all options series in an
underlying issue.
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    The Specified Engagement Size is automatically offset by a number
of contracts that are executed on the opposite side of the market in
the same option issue during the specified time period known as the
``Net Offset Specified Engagement Size.'' Long call positions are only
offset by short call positions, and long put positions are only offset
by short put positions. The Percentage-Based Threshold is engaged once
the Net Offset Specified Engagement Size represents a net number of
contracts executed among all series in an option issue, during the
specified time period, where the issue percentage is equal to or
greater than the Specified Percentage.\10\
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    \10\ Any marketable orders or quotes that are executable against
a Participant's disseminated quotation that are received prior to
the time the Percentage-Based Threshold is engaged are automatically
executed at the disseminated price up to the Participant's
disseminated size, regardless of whether such an execution results
in executions in excess of the Participant's Specified Engagement
Size. In the event that the specialist's quote is removed by the
Percentage-Based Threshold and there are no other Participants
quoting in the particular option, the System will automatically
provide two-sided quotes that comply with the Exchange's Rules
concerning quote spread parameters on behalf of the specialist until
such time as the specialist revises the quotation. All quotations
generated by the Exchange on behalf of a specialist shall be
considered ``firm quotations'' and shall be the obligation of the
specialist.
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    The System automatically resets the counting program and commences
a new specified time period when: (i) A previous counting period has
expired and a transaction occurs in any series in such option; or (ii)
the Participant refreshes his/her quotation, in a series for which an
order has been executed (thus commencing the specified time period)
prior to the expiration of the specified time period.
Proposed Rule
    The Exchange's amendments to the current rule text are described
below in greater detail. The Exchange proposes to amend the current
rule to first offer the Percentage-Based Threshold to BX Market Makers
only. Today, the Percentage-Based Threshold is offered to all
Participants. No other market participants, other than BX Market
Makers, currently utilize the Percentage-Based Threshold today.\11\ The
proposed term ``BX Market Maker'' will be utilized throughout proposed
Chapter VII, Section 6(f)(i).
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    \11\ The System counts SQF quotes. SQF is available only to BX
Market Makers.
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Counting Program
    Proposed Rule Chapter VII, Section 6(f)(i) provides, as in the
current rule, the Percentage-Based Threshold determines: (i) The
percentage that the number of contracts executed in that series
represents relative to the Market Maker's disseminated \12\ size of
each side in that series (``Series Percentage''); and (ii) the sum of
the Series Percentage in the option issue (``Issue Percentage''). An
offset occurs during the Percentage-Based Specified Time Period.\13\
The Exchange proposes to amend the rule text in proposed Rule Chapter
VII, Section 6(f)(i) to state that the Percentage-Based Specified Time
Period operates on a rolling basis among all series in an option in
that there may be multiple Percentage-Based Specified Time Periods
occurring simultaneously and such Percentage-Based Specified Time
periods may overlap. The Exchange proposes to amend the rule text of
proposed Rule Chapter VII, Section 6(f)(i) to state that the
Percentage-Based Specified Time Period commences for an option every
time an execution occurs in any series in such option and continues
until the System removes quotes as described in current Chapter VII,
Section 6(f)(iv), which is being amended to include the Percentage-
Based Specified Time Period, or the Percentage-Based Specified Time
Period expires.
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    \12\ The disseminated size is the original size quoted by the
Participant.
    \13\ A specified time period is established by the BX Market
Maker and may not to exceed 15 seconds. See proposed Chapter VII,
Section 6(f)(i).
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Rounding
    The Exchange proposes to add amended rule text to proposed Rule
Chapter VII, Section 6(f)(i) to state that if the Issue Percentage,
rounded to the nearest integer, equals or exceeds a percentage
established by a Market Maker, not less than 100% (``Specified
Percentage''), the System automatically removes a Market Maker's quotes
in all series of the underlying security submitted through designated
BX protocols, as specified by the Exchange, during the Percentage-Based
Specified Time Period.\14\ The current text of Chapter IV, Section 6
states that the Percentage-Based Threshold is engaged when the counting
program determines that the Issue Percentage equals or exceeds a
percentage established by the Market Maker, not less than 100%. The
Exchange's proposal adds amended rule text to proposed Rule Chapter
VII, Section 6(f)(i) to state, that if the Issue Percentage, rounded to
the nearest integer, equals or exceeds a percentage established by the
Market Maker, not less than 100% (``Specified Percentage''), the System
automatically removes a Market Maker's quotes in all series of an
underlying security submitted through designated BX protocols, as
specified by the Exchange, during the Percentage-Based Specified Time
Period.
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    \14\ The System's count of the number of contracts executed is
based on trading interest resting on the Exchange book. The Volume-
Based Specified Time Period, in current Chapter VII, Section
6(f)(ii), designated by the BX Market Maker must be the same time
period as designated for purposes of the Percentage-Based Threshold.
The Exchange references protocols more specifically in this rule.
The Exchange counts SQF quotes only in determining the number of
contracts traded and removed by the System. See note 8.
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    Today, the System tracks and calculates the net impact of positions
in the same option issue during the Percentage-Based Specified Time
Period. The System tracks transactions, i.e., the sum of buy-side put
percentages, the sum of sell-side put percentages, the sum of buy-side
call percentages, and the sum of sell-side call percentages, and then
calculates the absolute value of the difference between the buy-side
puts and the sell-side puts plus the absolute value of the difference
between the buy-side calls and the sell-side calls. With this proposal,
when these values are rounded, if that number is greater than the
Specified Percentage, the Percentage-Based Threshold would be
triggered.
Reset
    The Exchange proposes to amend the manner in which the System
resets. The System will automatically remove quotes in all option
series of an underlying security when the Percentage-Based Threshold is
reached and then the Percentage-Based Specified

Time Period is reset. The System will send a Purge Notification Message
\15\ to the Market Maker for all affected options when the threshold
has been reached. Pursuant to this proposal, when the System removes
quotes as a result of the Percentage-Based Threshold, the Market Maker
will be required to send a re-entry indicator to re-enter the
System.\16\ If a Market Maker requests the System to remove quotes in
all options series in an underlying issue, the System will
automatically reset the Percentage-Based Specified Time Period(s) and
new Percentage-Based Specified Time Period(s) will commence for the
Percentage-Based Threshold. With this proposal, when the System removes
quotes as a result of the Percentage-Based Threshold, the Market Maker
will be required to send a re-entry indicator to re-enter the System.
The proposed rule text adds specificity to the manner in which the
Market Maker re-enters the market after a trigger.
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    \15\ A message entitled ``Purge Notification Message'' is
systemically sent to the BX Market Maker upon the removal of quotes
due to the Percentage-Based Threshold. See proposed Chapter VI,
Section 6(f)(iii).
    \16\ The re-entry indicator must be marked as such to cause the
System to reset.
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Firm Quote
    The Exchange represents that its proposal operates consistently
with the firm quote obligations of a broker-dealer pursuant to Rule 602
of Regulation NMS.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \17\ in general, and furthers the objectives of Section
6(b)(5) of the Act \18\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, by enhancing the risk protections available to Exchange
members. Each of the proposed amendments do not raise a novel
regulatory issue, rather these proposed amendments provide for
operational transparency.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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    The proposed rule text continues to offer BX Market Makers a risk
protection tool, in addition to other available risk tools,\19\ to
decrease risk and increase stability. The Exchange offers this risk
tool to BX Market Makers, in order to encourage them to provide as much
liquidity as possible and encourage market making generally, the
proposal removes impediments to and perfects the mechanism of a free
and open market and a national market system and protect investors and
the public interest. Further, it is important to note that any interest
that is executable against a BX Market Maker's quotes that are received
\20\ by the Exchange prior to the trigger of the Percentage-Based
Threshold, which is processed by the System, automatically executes at
the price up to the Market Maker's size. Further, the Purge
Notification Message is accepted by the System in the order of receipt
in the queue and is processed in that order so that interest that is
already accepted into the System is processed prior to the message.
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    \19\ See note 5.
    \20\ The time of receipt for an order or quote is the time such
message is processed by the Exchange book.
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Offering the Risk Tool to Market Makers
    The Exchange believes that offering the risk tool to BX Market
Makers as compared to all Participants is just and equitable because
quoting across many series in an option creates the possibility of
``rapid fire'' executions that can create large, unintended principal
positions that expose BX Market Makers, who are required to
continuously quote in assigned options, to potentially significant
market risk. The Percentage-Based Threshold permits BX Market Makers to
monitor risk arising from multiple executions across multiple options
series of a single underlying security. Other BX Participants do not
bear the burden of the risk and do not have the obligations that BX
Market Makers are obligated by rule to comply with on a continuous
basis.\21\ Also, BX Market Makers are the only participants that
utilize the risk tool today and therefore no other market participant
is being denied access to a tool as they never had the ability to
utilize the risk tool because only SQF quotes are impacted.
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    \21\ See note 3.
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Counting Program
    The Exchange's amendment to the operation of the counting program
to describe that it operates on rolling basis, with a time window after
each transaction, not singular and sequential time segments is
consistent with the Act because the purpose of the risk tool is to
provide BX Market Makers with the ability to monitor its transactions.
The proposed counting program provides a tracking method for BX Market
Makers related to the specified time period. The System captures
information to determine whether a removal of quotes is necessary. The
proposed function of this counting program will enable the Exchange to
provide the BX Market Maker with information relative to that BX Market
Maker's interest currently at risk in the market.
Rounding
    The Exchange's amendment which states that if the Issue Percentage,
rounded to the nearest integer, equals or exceeds the Specified
Percentage, the System automatically removes a Market Maker's quotes in
all series of an underlying security is consistent with the Act because
investors will be protected by providing BX Market Makers with a risk
tool which allows BX Market Makers to properly set their risk
protections at a level that they are able to meet their obligations and
also manage their risk. This specificity provides more detail so that
BX Market Makers may properly set their risk controls. Understanding
the manner in which the System will round is important in determining
when the System will trigger a risk control. Also, today, BX discusses
rounding in its Rulebook.\22\ Rounding to the nearest integer is not
novel.
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    \22\ See BX Rules at Chapter VII, Section 5 regarding Market
Maker allocations.
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Reset
    The Exchange's proposal to amend the rule text related to resets
provides guidance to BX Market Makers as to the manner in which they
may re-enter the System after a removal of quotes. This amendment is
consistent with the Act because the Exchange desires to provide BX
Market Makers with access to the market at all times. BX Market Makers
perform an important function in the marketplace and the Exchange
desires to provide its market participants with access to the market.
If the Market Maker is removed from the market due to a trigger of the
Percentage-Based risk tool, the Exchange will permit re-entry to the
market provided the Market Maker sends a re-entry indicator to re-enter
the System. This is important because it informs the Exchange that the
Market Maker is ready to re-enter the market. Also, the Exchange
currently has risk mechanisms in place which provide guidance as to the
manner in which a Market Maker may re-enter the System after a removal
of quotes.\23\
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    \23\ See BX Chapter VI, Section 6(f)(vi).
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Quoting Obligations--Market Makers
    The Exchange further represents that the System operates
consistently with the firm quote obligations of a broker-

dealer pursuant to Rule 602 of Regulation NMS. Specifically, with
respect to BX Market Makers, their obligation to provide continuous
two-sided quotes on a daily basis is not diminished by the removal of
such quotes by the Percentage-Based Threshold. BX Market Makers are
required to provide continuous two-sided quotes on a daily basis.\24\
BX Market Makers that utilize the Percentage-Based Threshold will not
be relieved of the obligation to provide continuous two-sided quotes on
a daily basis, nor will it prohibit the Exchange from taking
disciplinary action against a Market Maker for failing to meet the
continuous quoting obligation each trading day.
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    \24\ See note 3.
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    Finally, the Exchange believes that its proposal to provide BX
Market Makers the optionality to either select the Percentage-Based
Threshold or Volume-Based Threshold as one of their risk tools will
also protect investors and is consistent with the Act. Today, BX Market
Makers are required to utilize the Percentage-Based Threshold. With
this proposal, BX Market Makers will have the ability to select their
mandatory risk as between the Percentage-Based Threshold or Volume-
Based Threshold.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The Percentage-Based Threshold
is meant to protect BX Market Makers from inadvertent exposure to
excessive risk. Accordingly, this proposal will have no impact on
competition. Specifically, the proposal does not impose a burden on
intra-market or inter-market competition, rather, it provides BX Market
Makers with the opportunity to avail themselves of similar risk tools
which are currently available on other exchanges.\25\ BX Market Makers
quote across many series in an option creates the possibility of
``rapid fire'' executions that can create large, unintended principal
positions that expose BX Market Makers. The Percentage-Based Threshold
permits BX Market Makers to monitor risk arising from multiple
executions across multiple options series of a single underlying
security.
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    \25\ See Section 8 of the 19b-4.
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    The Exchange is proposing this rule change to continue to permit BX
Market Makers to reduce their risk in the event the Market Maker is
suffering from a system issue or due to the occurrence of unusual or
unexpected market activity. Reducing such risk will enable BX Market
Makers to enter quotations without any fear of inadvertent exposure to
excessive risk, which in turn will benefit investors through increased
liquidity for the execution of their orders. Such increased liquidity
benefits investors because they receive better prices and because it
lowers volatility in the options market. Reducing risk by utilizing the
proposed risk protections enables BX Market Makers, specifically, to
enter quotations with larger size, which in turn will benefit investors
through increased liquidity for the execution of their orders. Such
increased liquidity benefits investors because they receive better
prices and because it lowers volatility in the options market.
Offering the Risk Tool to Market Makers
    The Exchange believes that offering the risk tool to BX Market
Makers as compared to all Participants does not create an undue burden
on competition because other BX Participants do not bear the burden of
the risk and do not have the obligations that BX Market Makers are
obligated by rule to comply with on a continuous basis.\26\ Also, BX
Market Makers are the only participants that utilize the risk tool
today and therefore no other market participant is being denied access
to a tool as they never had the ability to utilize the risk tool
because only SQF quotes are impacted.
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    \26\ See note 3.
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Counting Program
    The Exchange's amendment to the operation of the counting program
to describe that it operates on rolling basis, with a time window after
each transaction, not singular and sequential time segments does not
create an undue burden on competition, rather, it provides the Market
Maker with clarity as to the manner in which the System counts quotes
and thereby provides BX Market Makers with an increased ability to
monitor transactions.
Rounding
    The Exchange's amendment to add that if the Issue Percentage,
rounded to the nearest integer, equals or exceeds the Specified
Percentage, the System automatically removes a Market Maker's quotes in
all series of an underlying security does not create an undue burden on
competition because this amendment also provides the Market Maker with
clarity as to the manner in which the System will remove quotes and
thereby provides BX Market Makers with an increased ability to monitor
transactions and set risk limits.
Reset
    The amendment to the rule text concerning resetting does not create
an undue burden on competition. The Exchange proposes to amend the
manner in which a Market Maker may re-enter the System after a removal
of quotes. This amendment provides information to BX Market Makers as
to the procedure to re-enter the System after a trigger. This
information is intended to provide BX Market Makers with access to the
market.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \27\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\28\
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    \27\ 15 U.S.C. 78s(b)(3)(a)(iii).
    \28\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is: (i)
Necessary or appropriate in the public interest; (ii) for the
protection of investors; or (iii) otherwise in furtherance of the
purposes of the Act. If the Commission takes such action, the
Commission shall institute proceedings to determine whether the
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act.

Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-BX-2015-060 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2015-060. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2015-060 and should be
submitted on or before November 27, 2015.
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    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-28144 Filed 11-4-15; 8:45 am]
 BILLING CODE 8011-01-P


VII.  Comments on Personnel

(Final Subpart B)

	A.  Organization of Final Subpart B

     Proposed subpart B contained three provisions regarding personnel.
Table 3 lists the sections in final subpart B and identifies the
proposed sections that form the basis of the final rule.

Table 3.- Derivation of Sections in Final Subpart B

Final Rule

2003 CGMP Proposal

§ 111.8 What Are the Requirements Under This Subpart for Written
Procedures?

N/A

§ 111.10 What Requirements Apply for Preventing Microbial
Contamination From Sick or Infected Personnel and for Hygienic
practices?

§ 111.10

§ 111.12 What Personnel Qualification Requirements Apply?

§ 111.12

§ 111.13 What Supervisor Requirements Apply?

§ 111.13

§ 111.14 Under This Subpart, What Records Must You Make and Keep?

N/A

	B.  Highlights of Changes to the Proposed Requirements for Personnel

1. Revisions

•     The final provisions in subpart B include revisions that clarify
that the final rule applies only to persons who manufacture, package,
label or hold dietary supplements unless subject to an exclusion in §
111.1.

•	The final provisions also include revisions that clarify the
applicability of the rule to persons who perform labeling operations for
dietary supplements.

2.  Changes After Considering Comments

	The final rule

●    Requires you to establish and follow written procedures to
fulfill the requirements of subpart B;

●    Provides flexibility regarding the requirement to exclude
personnel who might be a source of microbial contamination (e.g., due to
illness or open lesions) so that such personnel must be excluded only
from operations where such contamination may occur;

●	Clarifies that the qualification of personnel and supervisors may be
done through education, training, or experience;

●	Sets forth a new requirement that you identify qualified personnel
to perform quality control operations and requires that such personnel
have distinct and separate responsibilities related to performing
quality control operations from those responsibilities that the person
otherwise has when not performing quality control operations; and

●	Sets forth a new requirement to make and keep records that document
training of personnel.

C. General Comments on Proposed Subpart B

	(Comment 67) Some comments assert one or more proposed requirements are
unconstitutionally vague under the Fifth Amendment and arbitrary and
capricious under section 706(2)(B) of the Administrative Procedure Act
(APA) and therefore should be deleted.  The comments focus on:

●    Proposed § 111.12(a) which would require “qualified
employees;” and

●	Proposed § 111.13(a) which would require “qualified personnel to
supervise.”

     In general, these comments say the proposal’s failure to define
the term “qualified” means that persons who are subject to the rule
could not discern the meaning of the term.  These comments also say the
proposal imposes no limits on enforcement officers as to what would
satisfy the requirements and, thus would represent an exercise of
unbridled discretion and disparate decisionmaking.  These comments argue
proposed § 111.12(b) which would require employees to have “the
training and experience to perform the person’s duties” and proposed
§ 111.13(b) which would require supervisors to be “qualified by
training and experience to supervise” would suffice.

      (Response)  We are not deleting § 111.12(a) and 111.13(a) as
requested by these comments.  As discussed in section V, we disagree the
terms in question are unconstitutionally vague, need to be defined, or
may result in discriminatory enforcement.  There has been sufficient
common usage of these terms in the food industry to enable
manufacturers, and those who enforce the requirements, to comprehend and
apply such terms “with a reasonable degree of certainty” to their
particular operations (See Boyce Motor Lines v. United States 342 U.S.
at 340).  Further, agencies are permitted to use qualifying terms to
enable them to address a wide variety of conditions at companies. For
these reasons, we have retained the use of the terms in the final rule.
The provisions at issue also give firms the flexibility to determine how
to comply with the regulations.  We also explain in section V that the
final rule does not violate the APA.

D.  What Are the Requirements Under This Subpart

for Written Procedures?

(Final 111.8)

     We received many comments that recommended written procedures for
various provisions.  We address the need for written procedures
generally in section IV.  We also respond to individual comments on
specific provisions in the same section.  Final § 111.8 requires you
to establish and follow written procedures to fulfill the requirements
of subpart B.  In addition, to ensure that we can evaluate firms’
compliance with their written procedures, final § 111.14 requires that
a person who manufactures, packages, labels, or holds dietary
supplements make and keep records of such procedures.  Such records
would be available to us under subpart P.

E.  What Requirements Apply for Preventing Microbial Contamination From
Sick or Infected Personnel and for Hygienic Practices?

(Final § 111.10)

	The title of this provision has been changed from proposed § 111.10
to clarify that the requirements are related to the  prevention of
microbial contamination due to the health condition of personnel and not
other sources.

1.  Final § 111.10(a)

     Final § 111.10(a) requires you to take measures to exclude from
any operations any person who might be a source of microbial
contamination, due to a health condition, where such contamination may
occur, of any material including components, dietary supplements, and
contact surfaces used in the manufacture, packaging, labeling, or
holding of a dietary supplement.  This provision is similar to proposed
§ 110.10.  We added “due to a health condition” for clarity.

     (Comment 68)  Several comments suggest that employees who are sick
should be allowed to work in areas where they will not come into contact
with components, dietary supplements, or contact surfaces, and that the
requirements of proposed § 111.10 are too strict.  These comments say
proposed § 111.10(a) is too broad in stating that such persons be
excluded “from working in any operation.”  These comments explain
that such persons may be suitable for performing other tasks, such as
warehouse functions or administrative work.  These comments would revise
§ 111.10(a) so that it is acceptable for such persons to work so long
as they will not be a vessel for microbial contamination.

     Other comments agree with proposed § 111.10(a), and state that
employees who are sick should be excluded from the plant, even from
areas where products are not processed.  These comments state excluding
such personnel should be mandatory as the microbes from an open sore,
wound, or other source of contamination could contaminate the
surrounding air, personnel, etc.  For example, if the production area is
a closed loop air handling system, then contamination could spread to
the other areas through the common air handling units/ducts.

     (Response)  We agree that some tasks may be suitable for a person
who might be a source of microbial contamination.  Certain warehouse
functions or administrative tasks may be appropriate for such a person
to do, provided that these functions or tasks do not expose components,
dietary supplements, or contact surfaces to microbial contamination from
the person, and provided that the person would not infect others who
would then expose components, dietary supplements, or contact surfaces
to microbial contamination.

	A requirement to exclude employees from being present at work would
limit potential microbial contamination, which is the basis of the point
made by some comments that employees who are sick should be excluded
from the plant.  However, the comments do not persuade us to deny firms
the flexibility to determine whether it would be appropriate for an
employee who may be a source of microbial contamination to work in some
areas of the physical plant that are sufficiently separated from areas
where product contamination could occur.  When considering whether an
employee may be permitted to work and whether he/she represents a
potential source of microbial contamination, one should look beyond the
obvious potential sources of contamination, and consider possibilities
such as the forms of indirect contamination discussed by the comments.
Therefore, we are revising § 111.10(a) to require you to take measures
to exclude “from any operations any person who might be a source of
microbial contamination, due to a health condition, where such
contamination may occur, of any material including components, dietary
supplements, and contact surfaces used in the manufacture, packaging,
labeling, or holding of a dietary supplement.”

	As one measure to reduce potential microbial contamination, final
§ 111.10(a)(1) requires you to exclude, from working in any operations
that may result in contamination, any person who, by medical
examination, the person’s acknowledgement, or supervisory observation,
is shown to have, or appears to have an illness, infection, open lesion,
or any other abnormal source of microbial contamination, that may result
in microbial contamination of components, dietary supplements, or
contact surfaces, until the health condition no longer exists.  Final
§ 111.10(a)(1) is similar to proposed § 111.10(a)(1).  We have added
that the person can acknowledge that he or she may be a source of
microbial contamination.  We are moving and modifying the prepositional
phrase concerning “working in any operation.”  We also have added
the word “infection” to clarify the sources of potential abnormal
contamination.

	(Comment 69)  Several comments suggest employees who may be the source
of microbial contamination should be permitted to work in areas of the
plant where they pose no risk of contamination, and therefore should not
be excluded unless they pose such a risk.

     (Response)  We agree with the comments and are revising
§ 111.10(a)(1) accordingly.  Therefore, you may allow persons with
certain health conditions to work in areas of a plant where they pose no
risk of contamination even though they must be excluded from other areas
where they would pose such a risk.

     Final § 111.10(a)(2) requires you to instruct your employees to
notify their supervisor(s) if they have, or if there is a reasonable
possibility that they have, a health condition discussed in paragraph
(a)(1) of this section that could contaminate any components, dietary
supplements, or any contact surface.

     We did not receive comments specific to proposed § 111.10(a)(2).

2.	Final § 111.10(b)

	Final § 111.10(b) requires, if you work in an operation during which
adulteration of the component, dietary supplement, or contact surface
may occur, you to use hygienic practices to the extent necessary to
protect against contamination of components, dietary supplements, or
contact surfaces.  Final § 111.10(b) lists nine hygienic practices,
such as wearing outer garments in a manner that protects against
contamination, washing hands thoroughly, and wearing, where appropriate,
hair nets, caps, beard covers, or other effective hair restraints.

    We did not receive any comments concerning proposed § 111.10(b)(1)
(wearing outer garments in a manner that protects against
contamination), § 111.10(b)(2) (maintaining adequate personal
cleanliness), § 111.10(b)(3) (washing hands thoroughly), §
111.10(b)(4) (removing all unsecured jewelry and other objects that
might fall into components, dietary supplements, equipment, or packaging
and removing hand jewelry that cannot be adequately sanitized), §
111.10(b)(6) (wearing, where appropriate, hair nets, caps, beard covers,
and other effective hair restraints), § 111.10(b)(7) (not storing
clothing or other personal belongings where components, dietary
supplements, or contact surfaces are exposed or where contact surfaces
are washed), and § 111.10(b)(9) (taking any other precautions necessary
to protect against contamination).

     Proposed § 111.10(b)(5) would require the hygienic practices that
you use to include maintaining gloves used in handling components,
dietary ingredients, or dietary supplements in an intact, clean, and
sanitary condition and ensuring that gloves  be of an impermeable
material.

     (Comment 70) One comment asks us to clarify the requirements for
the use of gloves in proposed § 111.10(b)(5).  The comment say there
are situations in which gloves are ineffective or cumbersome.  The
comment provides as an example, if a person is packaging a bulk material
in fiber packs with metal ring lids, bulky gloves can interfere with the
finer work such as attaching security tabs, and thin, flexible gloves
can be easily damaged by the sharp edges of the metal rings on the lid.

     (Response) Final § 111.10(b)(5) requires you to maintain gloves
in an intact, clean, and sanitary condition; it does not require you to
use gloves in any specific situation.  Although there is no requirement
for wearing gloves while performing specific operations, you must wear
gloves when they are necessary to protect against contamination of any
components, dietary supplements, or contact surfaces.

	(Comment 71) Proposed § 111.10(b)(8) would require that the hygienic
practices that you use to the extent necessary to protect against
contamination to include not eating food, chewing gum, drinking
beverages, or using tobacco products in areas where components, dietary
ingredients, dietary supplements, or any contact surfaces are exposed,
or where contact surfaces are washed.

	One comment would substitute the word “processed” for the word
“exposed” in proposed § 111.10(b)(8).  The comment says, although
areas where components, dietary supplements and contact surfaces are
exposed pose the greatest risk, adulteration is also possible where
these items are held (i.e., stored in containers and thus not exposed).
Furthermore, the comment explains the use of the word “processed,”
rather than “exposed,” would cover all areas intended to be covered
by CGMPs and would alleviate the need to specify that the requirement
applies to areas where contact surfaces are washed.

     (Response) We decline to revise the rule as suggested by the
comment.  We believe the word “exposed” covers all areas intended to
be covered by the requirement, including areas where contact surfaces
are washed.  We consider an area where contact surfaces are washed to
“expose” the contact surface.  To avoid any confusion, we are
modifying § 111.10(b)(8) to say “. . . any contact surfaces are
exposed, or where contact surfaces are washed.”  As written, the
requirement to not eat, chew gum, drink, or use tobacco products in
areas where components, dietary supplements, and contact surfaces are
exposed gives firms appropriate flexibility to determine areas where
employees may or may not, eat, chew gum, drink, or use tobacco products.

F.  What Personnel Qualification Requirements Apply?

(Final § 111.12)

      Final § 111.12(a) requires you to have qualified employees who
manufacture, package, label, or hold dietary supplements.  Final §
111.12(a) is similar to proposed § 111.12(a), except that the final
rule includes an editorial change to clarify that the requirement is to
have the qualified employees do the work rather than merely to have
qualified employees.

     (Comment 72)  The 2003 CGMP Proposal invited comment on whether
there is a minimum number of employees needed to manufacture dietary
supplements (68 FR 12157 at 12183).  Several comments state the final
rule should not include such a minimum number because firms should be
able to decide for themselves how many qualified personnel they need.

     (Response)  The final rule does not stipulate a minimum number of
employees.  However, there should be enough employees to manufacture,
package, label, and hold dietary supplements to ensure compliance with
the final rule.  In general, current good manufacturing practice
suggests the need for a minimum of two persons: one to perform the work,
and a second to check the work performed to ensure that a manufacturing
deviation or an unanticipated occurrence is not overlooked.

      (Comment 73)  Some comments about the proposed definition of
“quality control unit” say the quality control function need not be
performed by a distinct or separate unit.  These comments say the
quality control function is best performed by a person or persons
qualified by training, education, or experience in the different
processing areas.

     (Response)  As discussed, we have revised the proposed definition
and substituted the term “personnel” for “unit”.  Ffor the
definition of quality control personnelunit (see section VI), we agree
the quality control functions do not need to be performed by a distinct
or separate unit or person and that a person who is qualified by
training, education, or experience can serve a quality control function.
 Therefore, we are adding a new § 111.12(b) to clarify that you must
identify who is responsible for quality control operations.  Under final
§ 111.12(b) each person identified must be qualified to perform such
operations, and must have distinct and separate responsibilities related
to performing such operations from those responsibilities that the
person otherwise has when not performing such operations. The quality
control personnel can have dual functions within the facility but should
separately perform the different responsibilities.

	Final § 111.12(c) requires that each person engaged in manufacturing,
packaging, labeling, or holding, or in performing any quality control
operations, have the education, training, or experience to perform the
person’s assigned functions.  Final § 111.12(c) includes a revision
associated with final § 111.12(b) by including persons who perform
quality control operations as persons who also need to have the
education, training, or experience for the assigned functions.

    (Comment 74)  Several comments state we should revise the rule to
allow for any combination of “training or experience.”  These
comments explain it is not always possible for an employee to have both
“training and experience.”  These comments would revise proposed
§ 111.12(b) to read, “each person engaged in the manufacture of a
dietary product should have the proper education, training, and
experience (or any combination thereof) needed to perform the assigned
functions.  Training should be in the particular operations(s) that the
employee performs as they relate to the employee’s functions.”
Another comment asks for guidance as to what type of education,
training, or experience is required for an employee to be considered
qualified.

     (Response) We agree with the point made by the comments.  We
acknowledge that some positions will require an appropriate educational
background in addition to any on-the-job training. In the preamble to
the 2003 CGMP Proposal (68 FR 12157 at 12183) we noted “training”
may be considered a form of “education” and elected to require that
employees be qualified by “training and experience” rather than
“education, training, and experience.”   The 2003 CGMP Proposal used
the conjunction “and” because we considered “experience” to be
different from training, in that “experience” is knowledge that a
person gains over time e.g., as he or she becomes increasingly familiar
with a particular action or piece of equipment.

     These comments persuade us that the rule would be clearer if we
added “education” to the list of attributes that are used to qualify
an employee.  We also agree there are some employees who could be
qualified based solely on their education or experience and other
employees who would become qualified through, for example, on the job
training before they are left on their own to perform their assigned
duties.  Rather than revise the rule to list all three attributes and
then explain that an employee can be qualified by any combination of the
attributes, we have changed the conjunction from “and” to “or.”
Additionally, on our own initiative, we have replaced “person’s
duties” with “person’s assigned functions.”  This change
reinforces the principle that the employee’s training relates to the
functions that he or she is assigned to perform.

     We will consider whether it would be useful to provide guidance on
what type of education, training, or experience would be sufficient for
an employee to be properly qualified.  We believe that such education,
training, or experience may vary by job function and that it would be
difficult to provide generic guidance that would be sufficient for all
specific job tasks.  We decline to suggest that training should be
limited, as the comments suggest, to the particular operation(s) that
the employee performs as they relate to the person’s functions.  These
CGMP requirements apply to many types of manufacturing operations of
various size and complexity, so the training may vary depending on the
circumstances and may include more than the employee’s assigned
functions.

     (Comment 75)  One comment states we should provide training
materials such as texts, videos, internet training, or seminars, to help
companies properly train their employees.

     (Response) We have no plans at this time to provide companies with
training materials for their employees.  We expect that most companies
already have trained or will train their employees and that where
additional training is needed to comply with these regulations,
companies will develop the training materials that are appropriate for
the functions their employees perform.  We may consider providing
guidance in the future if circumstances warrant such guidance.

G.  What Supervisor Requirements Apply?

(Final § 111.13)

     Final § 111.13(a) requires you to assign qualified personnel to
supervise the manufacturing, packaging, labeling, or holding of dietary
supplements.  Final § 111.13(a) derives from proposed § 111.13(a).

	We did not receive comments specific to proposed § 111.13(a).

	Final § 111.13(b) requires each supervisor you use to be qualified by
education, training, or experience to supervise.  Final 111.13(b)
derives from proposed § 111.13(b) which would require you and your
supervisors to be qualified by training and experience to supervise.

     (Comment 76) Several comments ask us to revise the rule so that
supervisors may be qualified by any combination of training or
experience.  These comments would revise proposed § 111.13(b) to read,
“supervisors must be qualified by education, training, and experience
(or any combination thereof) to supervise the manufacturing, packaging,
or holding of dietary ingredients and dietary supplements in compliance
with this rule.”  One comment, however, would make an exception for
quality control and sanitation supervisors, stating we should require
these supervisors to have both training and experience.

     (Response) Consistent with the change we made to proposed §
111.12(c), we are revising proposed § 111.13(b) to require the
supervisors you use to be qualified by “education, training, or
experience.” We acknowledge that some supervisory personnel may need a
different range of education, training, or experience than others, and
expect firms to determine the appropriate balance of education, training
and experience.

    (Comment 77) Several comments say our use of the phrase “you and
the supervisors you use” in proposed § 111.13(b) was unclear.
According to these comments, the term “you” as defined in the
proposal, is quite expansive and could be read so broadly as to require
the Chief Executive Officer (CEO) of a company be “qualified” to
supervise.

     (Response)  We agree that the phrase “you and the supervisors you
use” could be clearer.  Therefore, we are revising proposed
§ 111.13(b) to say that “each supervisor whom you use” must be
qualified to supervise.  Section 111.13(b) applies to any person who
supervises the manufacturing, packaging, labeling, or holding of dietary
supplements, even if that person also is an executive such as the CEO.
Thus, final § 111.13(b) states, “Each supervisor whom you use must
be qualified by education, training, or experience to supervise.”

     (Comment 78)  Several comments say the term “to supervise” is
ambiguous and would revise the rule to clarify what a supervisor must be
qualified to supervise: the manufacture, packaging, or holding of
dietary ingredients and dietary supplements.  Another comment would
revise proposed § 111.13(b) to clarify what type of training and
experience are required so that firms would have more guidance as to
what is expected to confirm that personnel are qualified.

     (Response)  We decline to revise the rule as suggested by the
comments.  We disagree that the term “to supervise,” which is
commonly used in the industry, is ambiguous.  These CGMP requirements
apply to many types of manufacturing operations of various size and
complexity, and the training must be suited to the circumstances.

H.  Under this Subpart, What Records Must You Make and Keep?

(Final § 111.14)

     As discussed in this section, the final rule contains a new §
111.8 requiring you to establish and follow written procedures to
fulfill the requirements of subpart B.  Those written procedures are
records.  Therefore, we are adding a new § 111.14(a) requiring you to
make and keep records in accordance with subpart P.  Final §
111.14(b)(1) requires you to make and keep a record of the written
procedures for fulfilling the requirements of subpart B.

     The preamble to the 2003 CGMP Proposal invited comment on whether
we should require documentation and records regarding each employee’s
training (68 FR 12157 at 12183).  After considering comments and for the
reasons discussed below, § 111.14(b)(2) requires you to make and keep
documentation of training, including the date of training, the type of
training, and the person(s) trained.

     We also invited comment on whether the final rule should contain
requirements for documentation about consultants that you use (68 FR
12157 at 12183).  We specifically suggested any such requirement include
the consultant’s name, address, qualifications and a description of
services provided.  After considering the comments and for the reasons
discussed below, the final rule does not include any requirements to
make and keep records regarding consultants.

     (Comment 79)  Several comments state employee training records are
critical and should be required under the final rule.  The comments
explain that these records should show the content of the training, the
date of the training, and the signature of the employee trained.  These
comments assert that a formal (written) GMP training program is
necessary to track which employees have been trained in the CGMP
requirements.  These comments add, without a written and documented
training program, it is likely that some employees may not receive
sufficient training, or in some cases, any CGMP training at all.  These
comments say successful quality control programs are inextricably
connected to appropriate training programs, and written documentation of
employee training is an important safeguard to ensuring safe and
accurately labeled dietary supplements.  These comments also state it is
already an industry standard to document training.

	Other comments question our ability to evaluate whether a firm’s
employees have been adequately trained without written documentation of
the training.

     (Response) As discussed more fully in subpart E in section X, the
final rule focuses on ensuring the quality of the dietary supplement at
every stage of the production and process control system.  Such a system
begins with the proper training.  We agree that documentation of
employee training is necessary to track which employees have been
trained in which operations.  Therefore, final § 111.14(b)(2) requires
you to keep documentation of training, including the date of the
training, the type of training, and the person(s) trained.

      (Comment 80)  One comment says we should not require manufacturers
to document and keep records regarding each employee’s training.  The
comment says the rule should focus on end results and not on process.

     (Response) We disagree with the comment.  As we have explained in
this section, each person engaged in an activity covered by these CGMP
regulations must have the education, training, or experience to perform
the person’s assigned functions.  Some employees will be considered
qualified based in part on training taken as company employees.  To show
that such training is appropriate to the employee’s functions and has
in fact occurred, the training must be properly documented.  This
documentation is an important aspect of ensuring adequate training and,
therefore, helping to ensure the result of having qualified employees
who perform their functions properly.

	(Comment 81) Several comments state the documentation of the training
program should include the title of the person doing the training, an
evaluation of the employee’s understanding of the training, and
recommendations for the frequency of refresher training.  One comment
describes a specific method for training and for tracking training.  The
comments state an evaluation of the employee’s understanding of the
training would ensure that employees who receive training understand
what they have been taught.

     (Response) We decline to require specific additional documentation
of employee training.  We believe a firm should have some flexibility in
how it wants to document training.

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ఀveral comments say that documenting this information is useful and
could be done on a voluntary basis, but that such information is not
necessary to ensure safe and accurately labeled supplements and, thus,
should not be required.  One comment notes that recommendations from
consultants may or may not be used, and that a company should not have
to explain at a later date why such decisions were made.  Another
comment asserts that we and the company may have different opinions on
whether a consultant is qualified and that the consultant’s
qualification is not our concern if a product is not adulterated.  One
comment says documenting the name and services of the GMP consultants
should be required to facilitate contact in case of need.

     (Response) The proposal noted documentation of the name, address,
qualifications, and services rendered for each consultant may help you
know whom to contact and if questions arise concerning the advice that
the consultant has given.  Thus, our intent in suggesting such
documentation was to help you rather than to make the information
available for us to determine whether we agreed with you that a
particular individual was qualified to be a consultant.  However, the
comments persuade us that such information is not necessary to help
ensure dietary supplement quality.  Therefore, the final rule does not
require documentation regarding consultants.

FDA-Internal-Confidential-Deliberative

Final Subpart B Revisions 9-28-05, 6-26-06

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