[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Notices]
[Pages 20784-20788]
[FR Doc No: 2011-8793]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64245; File No. SR-CBOE-2011-026]

Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of a Proposed Rule Change To Trade
Options on Individual Stock Based Volatility Indexes and Certain
Exchange-Traded Fund Based Volatility Indexes

April 7, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on March 29, 2011, the Chicago Board Options Exchange,
Incorporated (``Exchange'' or ``CBOE'') filed with the Securities and
Exchange Commission (the ``Commission'') the proposed rule change as
described in Items I and II 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

    CBOE proposes to amend its rules to list and trade options on
individual stock based volatility indexes and certain exchange-traded
fund based volatility indexes. CBOE will list a total of 40 combined
individual stock and exchange-traded fund based volatility indexes.
These are in addition to options on the CBOE Gold ETF Volatility Index
(``GVZ''), which has already been approved for trading by the
Commission. Such volatility index options must be based on an
individual stock option or exchange-traded fund option that already
trades on CBOE. The proposed options will be cash-settled and will have
European-style exercise. The text of the rule proposal is available on
the Exchange's Web site (http://www.cboe.org/legal), at the Exchange's

Office of the Secretary 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 self-regulatory organization
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 those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

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

1. Purpose
    The purpose of this proposed rule change is to permit the Exchange
to list and trade cash-settled, European-style options on individual
stock-based volatility indexes and select exchange-traded fund based
volatility indexes (collectively, ``Vol Indexes''). CBOE proposes to
list a total of 40 combined Vol Indexes. Initially, CBOE proposes to
list options on Vol Indexes comprised of options on the following
individual stocks: Apple Computer, Amazon, IBM, Google, and Goldman
Sachs. In addition, CBOE will list Vol Indexes comprised of options on
the following exchange-traded funds (``ETFs''): The US Oil Fund, LP
(``USO''), the iShares MSCI Emerging Markets Index Fund (``EEM''), the
iShares FTSE China 25 Index Fund (``FXI''), the iShares MSCI Brazil
Index Fund (``EWZ''), the Market Vectors Gold Miners ETF (``GDX''), and
the Energy Select Sector SPDR ETF (``XLE''). These are in addition to
options on the CBOE Gold ETF Volatility Index (``GVZ''), which has
already been approved for trading by the Commission.\3\ From time to
time, CBOE will announce the remaining Vol Indexes options it will
trade.
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    \3\ See Securities Exchange Act Release No. 62139 (May 19, 2010)
75 FR 29597 (May 26, 2010) (order approving proposal to list and
trade GVZ options on the CBOE).
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    In addition to GVZ, CBOE currently has approval to trade options on
other volatility indexes that measure the volatility of broad-based
indexes.\4\ The Exchange now wants to add volatility index options
based on individual stock options that are very actively traded and on
certain ETF options. This proposal would permit the Exchange to trade a
Vol Index using any ETF option currently trading and eligible for
options trading under Interpretations and Policies .06 and .07 to Rule
5.3 other than those ETFs specifically identified in Interpretation and
Policy .06(iv). CBOE will continue to trade GVZ options under the prior
approval issued by the Commission. The calculation of any Vol Index
will use the same methodology, as described below, as is currently used
for CBOE Volatility Index (``VIX'') and GVZ options.
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    \4\ See Rule 24.9(a)(4) which identifies, inter alia, CBOE
Volatility Index, CBOE Nasdaq 100 Volatility Index, CBOE Dow Jones
Industrial Average Volatility Index and CBOE Russell 2000 Volatility
Index as A.M.-settled index options eligible for options trading on
CBOE.
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Index Design and Calculation
    The calculation of a Vol Index will be based on the VIX and GVZ
methodology applied to options on the individual stock or exchange-
traded fund that is the subject of the particular Vol Index. A Vol
Index is an up-to-the-minute market estimate of the expected volatility
of the underlying individual stock or exchange-traded fund calculated
by using real-time bid/ask quotes of CBOE listed options on the
underlying instruments. A Vol Index uses nearby and second nearby
options with at least 8 days left to expiration and then weights them
to yield a constant, 30-day measure of the expected (implied)
volatility.\5\
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    \5\ See proposed new definitions of ``Exchange-Traded Fund and
Individual Stock Based Volatility Index'' set forth in Rule
24.1(bb).
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    For each contract month, CBOE will determine the at-the-money
strike price. The Exchange will then select the at-the-money and out-
of-the money series with non-zero bid prices and determine the midpoint
of the bid-ask quote for each of these series. The midpoint quote of
each series is then weighted so that the further away that series is
from the at-the-money strike, the less weight that is accorded to the
quote. Then, to compute the index level, CBOE will calculate a
volatility measure for the nearby options and then for the second
nearby options. This is done using the weighted mid-point of the
prevailing bid-ask quotes for all included option series with the same
expiration date. These volatility measures are then interpolated to
arrive at a single, constant 30-day measure of volatility.\6\
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    \6\ CBOE will be the reporting authority for any Vol Index.
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    CBOE will compute values for Vol Index underlying option series on
a real-time basis throughout each trading day, from 8:30 a.m. until 3
p.m. (Chicago time) (or until 3:15 p.m. (Chicago time) as applicable
for certain Exchange-Traded Fund Based Volatility Index options). Vol
Index levels will be calculated by CBOE and disseminated at 15-second
intervals to major market data vendors.
Options Trading
    Vol Index options will be quoted in index points and fractions and
one point will equal $100. The minimum tick size for series trading
below $3 will be 0.05 ($5.00) and above $3 will be 0.10 ($10).00).
Initially, the Exchange will list in-, at- and out-of-the-money strike
prices and the procedures for adding additional series are provided in
Rule 5.5.\7\ Dollar strikes (or greater) will be permitted for Vol
Index options where the strike price is $200 or less and $5 or greater
where the strike price is greater than $200.
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    \7\ See Rule 5.5(c). ``Additional series of options of the same
class may be opened for trading on the Exchange when the Exchange
deems it necessary to maintain an orderly market, to meet customer
demand or when the market price of the underlying * * * moves
substantially from the initial exercise price or prices.'' For
purposes of this rule, ``market price'' shall mean the implied
forward level based on any corresponding futures price or the
calculated forward value of the respective Vol index.
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    Transactions in Vol Index options may be effected on the Exchange
between the hours of 8:30 a.m. Chicago time and 3:15 p.m. (Chicago
time), except (for Exchange-Trade Fund Based Volatility Index options)
if the closing time for traditional options on the exchange-traded fund
is earlier than 3:15 p.m. (Chicago time), the earlier closing time
shall apply. The Exchange is proposing to permit different closing
times for Exchange-Traded Fund Based Volatility Index options because
the trading hours for traditional options on ETFs vary.
Exercise and Settlement
    The proposed options will typically expire on the Wednesday that is
30 days prior to the third Friday of the calendar month immediately
following the expiration month (the expiration date of the options used
in the calculation of the index). If the third Friday of the calendar
month immediately following the expiring month is a CBOE holiday, the
expiration date will be 30 days prior to the CBOE business day
immediately preceding that Friday. For example, November 2011 Vol Index
options would expire on Wednesday, November 16, 2011, exactly 30 days
prior to the third Friday of the calendar month immediately following
the expiring month.
    Trading in the expiring contract month will normally cease at 3:00
pm (Chicago time) (or at 3:15 p.m. (Chicago

time) as applicable for Exchange-Traded Fund Based Volatility Index
options) on the business day immediately preceding the expiration
date.\8\ Exercise will result in delivery of cash on the business day
following expiration. Vol Index options will be A.M.-settled.\9\ The
exercise settlement value will be determined by a Special Opening
Quotations (``SOQ'') of a Vol Index calculated from the sequence of
opening prices of a single strip of options expiring 30 days after the
settlement date. The opening price for any series in which there are is
no trade shall be the average of that options' bid price and ask price
as determined at the opening of trading.\10\
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    \8\ See proposed amendment to Rule 24.6, Days and Hours of
Business.
    \9\ See proposed amendment to Rule 24.9(a)(4) (adding Exchange-
traded fund volatility indexes and Individual stock volatility
indexes to the list of A.M.-settled index options approved for
trading on the Exchange).
    \10\ See proposed amendment to Rule 24.9(a)(5) (revising rule to
make ``Volatility Index'' options generic for purposes of this
provision, which sets forth the method of determining the day that
the exercise settlement value is calculated and of determining the
expiration date and the last trading day for CBOE Volatility Index
Options). The Exchange is also proposing to make technical changes
to this rule provision as well.
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    The exercise-settlement amount will be equal to the difference
between the exercise-settlement value and the exercise price of the
option, multiplied by $100. When the last trading day is moved because
of a CBOE holiday, the last trading day for expiring options will be
the day immediately preceding the last regularly-scheduled trading day.
Position and Exercise Limits
    For regular options trading, the Exchange is proposing to establish
position limits for Vol Index options at 50,000 contracts on either
side of the market and no more than 30,000 contracts in the nearest
expiration month. CBOE believes that a 50,000 contract position limit
is appropriate due to the fact that the options which are the
underlying components for a Vol Index are among the most actively
traded option classes currently listed. In determining compliance with
these proposed position limits, Vol Index options will not be
aggregated with the underlying exchange-traded fund or individual stock
options. Exercise limits will be the equivalent to the proposed
position limits.\11\ Vol Index options will be subject to the same
reporting requirements triggered for other options dealt in on the
Exchange.
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    \11\ See proposed amendment to rule 24.5 and proposed new
Interpretations and Policy .04 to rule 24.5.
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    For FLEX options trading, the Exchange is proposing that the
position limits for FLEX Vol Index Options will be equal to the
position limits for Non-FLEX Options on the same Vol Index. Similarly,
the Exchange is proposing that the exercise limits for FLEX Vol Index
Options will be equivalent to the position limits established pursuant
to Rule 24.4. The proposed position and exercise limits for FLEX Vol
Index Options are consistent with the treatment of position and
exercise limits for Flex GVZ and other Flex Index Options. The Exchange
is also proposing to amend subparagraph (4) to Rules 24A.7(d) and
24B.7(d) to provide that as long as the options positions remain open,
positions in FLEX Vol Index Options that expire on the same day as Non-
FLEX Vol Index Options, as determined pursuant to Rule 24.9(a)(5),
shall be aggregated with positions in Non-FLEX Vol Index Options and
shall be subject to the position limits set forth in Rules 4.11, 24.4,
24.4A and 24.4B, and the exercise limits set forth in Rules 4.12 and
24.5.
    The Exchange is proposing to establish a Vol Index Hedge Exemption,
which would be in addition to the standard limit and other exemptions
available under Exchange rules, interpretations and policies. The
Exchange proposes to establish the following procedures and criteria
which must be satisfied to qualify for a Vol Index hedge exemption:
     The account in which the exempt option positions are held
(``hedge exemption account'') has received prior Exchange approval for
the hedge exemption specifying the maximum number of contracts which
may be exempt under the proposed new Interpretation. The hedge
exemption account has provided all information required on Exchange-
approved forms and has kept such information current. Exchange approval
may be granted on the basis of verbal representations, in which event
the hedge exemption account shall within two (2) business days or such
other time period designated by the Department of Market Regulation
furnish the Department of Market Regulation with appropriate forms and
documentation substantiating the basis for the exemption. The hedge
exemption account may apply from time to time for an increase in the
maximum number of contracts exempt from the position limits.
     A hedge exemption account that is not carried by a CBOE
member organization must be carried by a member of a self-regulatory
organization participating in the Intermarket Surveillance Group.
     The hedge exemption account maintains a qualified
portfolio, or will effect transactions necessary to obtain a qualified
portfolio concurrent with or at or about the same time as the execution
of the exempt options positions, of a net long or short position in
Equity-Based Volatility Index futures contracts or in options on Vol
Index futures contracts, or long or short positions in Vol Index
options, for which the underlying Vol Index is included in the same
margin or cross-margin product group cleared at the Clearing
Corporation as the Vol Index option class to which the hedge exemption
applies. To remain qualified, a portfolio must at all times meet these
standards notwithstanding trading activity.
     The exemption applies to positions in Vol Index options
dealt in on the Exchange and is applicable to the unhedged value of the
qualified portfolio. The unhedged value will be determined as follows:
(1) The values of the net long or short positions of all qualifying
products in the portfolio are totaled; (2) for positions in excess of
the standard limit, the underlying market value (a) of any economically
equivalent opposite side of the market calls and puts in broad-based
index options, and (b) of any opposite side of the market positions in
Vol Index futures, options on Vol Index futures, and any economically
equivalent opposite side of the market positions, assuming no other
hedges for these contracts exist, is subtracted from the qualified
portfolio; and (3) the market value of the resulting unhedged portfolio
is equated to the appropriate number of exempt contracts as follows--
the unhedged qualified portfolio is divided by the correspondent
closing index value and the quotient is then divided by the index
multiplier or 100.
     Only the following qualified hedging transactions and
positions will be eligible for purposes of hedging a qualified
portfolio (i.e. futures and options) pursuant to the proposed new
Interpretation .01:
    [cir] Long put(s) used to hedge the holdings of a qualified
portfolio;
    [cir] Long call(s) used to hedge a short position in a qualified
portfolio;
    [cir] Short call(s) used to hedge the holdings of a qualified
portfolio; and
    [cir] Short put(s) used to hedge a short position in a qualified
portfolio.
     The following strategies may be effected only in
conjunction with a qualified stock portfolio:
    [cir] A short call position accompanied by long put(s), where the
short call(s) expires with the long put(s), and the strike price of the
short call(s) equals or exceeds the strike price of the long put(s) (a
``collar''). Neither side of the collar transaction can be in-the-money

at the time the position is established. For purposes of determining
compliance with Rules 4.11 and proposed Rule 24.4C, a collar position
will be treated as one (1) contract;
    [cir] A long put position coupled with a short put position
overlying the same Vol Index and having an equivalent underlying
aggregate index value, where the short put(s) expires with the long
put(s), and the strike price of the long put(s) exceeds the strike
price of the short put(s) (a ``debit put spread position''); and
    [cir] A short call position accompanied by a debit put spread
position, where the short call(s) expires with the puts and the strike
price of the short call(s) equals or exceeds the strike price of the
long put(s). Neither side of the short call, long put transaction can
be in-the-money at the time the position is established. For purposes
of determining compliance with Rules 4.11 and proposed Rule 24.4C, the
short call and long put positions will be treated as one (1) contract.
     The hedge exemption account shall:
    [cir] Liquidate and establish options, their equivalent or other
qualified portfolio products in an orderly fashion; not initiate or
liquidate positions in a manner calculated to cause unreasonable price
fluctuations or unwarranted price changes.
    [cir] Liquidate any options prior to or contemporaneously with a
decrease in the hedged value of the qualified portfolio which options
would thereby be rendered excessive.
    [cir] Promptly notify the Exchange of any material change in the
qualified portfolio which materially affects the unhedged value of the
qualified portfolio.
     If an exemption is granted, it will be effective at the
time the decision is communicated. Retroactive exemptions will not be
granted.
Exchange Rules Applicable
    Except as modified herein, the rules in Chapters I through XIX,
XXIV, XXIVA, and XXIVB will equally apply to Vol Index options.
    The Exchange is proposing that the margin requirements for Vol
Index options be set at the same levels that apply to equity options
under Exchange Rule 12.3. Margin of up to 100% of the current market
value of the option, plus 20% of the underlying volatility index value
must be deposited and maintained. The pertinent provisions of Rule
12.3, Margin Requirements, have been amended to reflect these proposed
revisions. Additional margin may be required pursuant to Exchange Rule
12.10.
    The Exchange hereby designates Vol Index options as eligible for
trading as Flexible Exchange Options as provided for in Chapters XXIVA
(Flexible Exchange Options) and XXIVB (FLEX Hybrid Trading System). The
Exchange notes that Vol Index FLEX Options will only expire on business
days that non-FLEX options on Vol Indexes expire. This is because the
term ``exercise settlement value'' in Rules 24A.4(b)(3) and
24B.4(b)(3), Special Terms for FLEX Index Options, has the same meaning
set forth in Rule 24.9(5). As is described earlier, the Exchange is
proposing to amend Rule 24.9(a)(5) to provide that the exercise
settlement value of Vol Index options for all purposes under CBOE Rules
will be calculated as the Wednesday that is thirty days prior to the
third Friday of the calendar month immediately following the month in
which a Vol Index options expire.
Capacity
    CBOE has analyzed its capacity and represents that it believes the
Exchange and the Options Price Reporting Authority have the necessary
systems capacity to handle the additional traffic associated with the
listing of new series that would result from the introduction of Vol
Index options.
Surveillance
    The Exchange will use the same surveillance procedures currently
utilized for each of the Exchange's other index options to monitor
trading in Vol Index options. The Exchange further represents that
these surveillance procedures shall be adequate to monitor trading in
options on these volatility indexes. For surveillance purposes, the
Exchange will have complete access to information regarding trading
activity in the pertinent underlying securities.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with
the Act \12\ and the rules and regulations thereunder and, in
particular, the requirements of Section 6(b) of the Act.\13\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \14\ requirements that the rules of
an exchange be designed to promote just and equitable principles of
trade, to prevent fraudulent and manipulative acts, to remove
impediments to and to perfect the mechanism for a free and open market
and a national market system, and, in general, to protect investors and
the public interest. The Exchange believes that the introduction of Vol
Index options will attract order flow to the Exchange, increase the
variety of listed options to investors, and provide a valuable hedging
tool to investors.
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    \12\ 15 U.S.C. 78s(b)(1).
    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    CBOE 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.

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

    No written comments were solicited or received with respect to the
proposed rule change.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number SR-CBOE-2011-026 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-CBOE-2011-026. This file
number should be included on the

subject line if e-mail is used. To help the Commission process and
review your comments more efficiently, please use only one method. The
Commission will post all comments on the Commission's Internet Web site
(http://www.sec.gov/rules/sro.shtml). Copies of the submission, all
subsequent amendments, all written statements with respect to the
proposed rule change that are filed with the Commission, and all
written communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for Web site viewing and printing in the Commission's Public
Reference Room, 100 F Street, NE., Washington, DC 20549, on official
business days between the hours of 10 a.m. and 3 p.m. Copies of such
filing also will be available for inspection and copying at the
principal office of the Exchange. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make publicly available. All submissions should refer to
File Number SR-CBOE-2011-026 and should be submitted on or before May
4, 2011.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8793 Filed 4-12-11; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 82, Number 4 (Friday, January 6, 2017)]
[Notices]
[Page 1733]
[FR Doc No: 2017-00055]

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ENVIRONMENTAL PROTECTION AGENCY

[ER-FRL-9031-2]

Environmental Impact Statements; Notice of Availability

    Responsible Agency: Office of Federal Activities, General
Information<PHONE_NUMBER> or http://www.epa.gov/nepa.

Weekly receipt of Environmental Impact Statements (EISs)
Filed 12/26/2016 Through 12/30/2016
Pursuant to 40 CFR 1506.9.

    Notice: Section 309(a) of the Clean Air Act requires that EPA make
public its comments on EISs issued by other Federal agencies. EPA's
comment letters on EISs are available at: http://www.epa.gov/compliance/nepa/eisdata.html.

EIS No. 20160319, Draft, BLM, CA, Central Coast Field Office Draft
Resource Management Plan Amendment for the Oil and Gas Leasing and
Development, Comment Period Ends: 02/21/2017, Contact: Melinda Moffitt
916-978-4376
EIS No. 20160320, Final, USFS, OR, Magone Project, Review Period Ends:
02/13/2017, Contact: Sasha Fertig<PHONE_NUMBER>
EIS No. 20160321, Draft Supplement, FTA, CA, BART Silicon Valley Phase
II Extension Project, Comment Period Ends: 02/20/2017, Contact: Mary
Nguyen<PHONE_NUMBER>
EIS No. 20160322, Final, FRA, AZ, Arizona Passenger Rail Corridor:
Tucson to Phoenix, Review Period Ends: 03/10/2017, Contact: Andrea
Martin<PHONE_NUMBER>
EIS No. 20160323, Draft, NOAA, WI, Wisconsin--Lake Michigan National
Marine Sanctuary, Comment Period Ends: 03/31/2017, Contact: Russ Green
920-459-4425
EIS No. 20160324, Draft, NOAA, MD, Mallows Bay--Potomac River National
Marine Sanctuary Designation, Comment Period Ends: 03/31/2017, Contact:
Paul Orlando<PHONE_NUMBER>
EIS No. 20160325, Draft, FERC, VA, Atlantic Coast Pipeline and Supply
Header Project, Comment Period Ends: 04/06/2017, Contact: Kevin Bowman
202-502-6287
EIS No. 20160326, Final, FERC, PA, Atlantic Sunrise Project, Review
Period Ends: 02/06/2017, Contact: Joanne Wachholder<PHONE_NUMBER>
EIS No. 20160327, Final Supplement, USN, CA, Land Acquisition and
Airspace Establishment to Support Large-Scale Marine Air Ground Task
Force Live-Fire Training Marine Corps Combat Center Twentynine Palms,
Review Period Ends: 02/06/2017, Contact: Jesse Martinez<PHONE_NUMBER>
EIS No. 20160328, Draft Supplement, USACE, LA, Mississippi River, Baton
Rouge to the Gulf of Mexico Mississippi River-Gulf Outlet, Louisiana,
New Industrial Canal Lock and Connecting Channels Project, Comment
Period Ends: 02/20/2017, Contact: Mark Lahare<PHONE_NUMBER>

    Dated: January 3, 2017.
Dawn Roberts,
Management Analyst, NEPA Compliance Division, Office of Federal
Activities.
[FR Doc. 2017-00055 Filed 1-5-17; 8:45 am]
 BILLING CODE 6560-50-P


[Federal Register: December 8, 2009 (Volume 74, Number 234)]
[Notices]
[Page 64783-64786]
[DOCID:fr08de09-114]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61086; File No. SR-ISE-2009-103]

Self-Regulatory Organizations; International Securities Exchange,
LLC; Notice of Filing of Proposed Rule Change Relating to Market Data
Fees

December 1, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 25, 2009, the International Securities Exchange, LLC
(the ``Exchange'' or the ``ISE'') filed with the Securities and
Exchange Commission the proposed rule change as described in Items I,
II, and III below, which items have been prepared by the self-
regulatory organization. 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 ISE is proposing to amend its Schedule of Fees to (1) increase
the annual subscription rate for the ISE Open/Close Trade Profile, (2)
adopt subscription fees for the sale of three new market data
offerings, all of which are based on the ISE Open/Close Trade Profile,
and (3) increase the annual subscription and ad-hoc request rates for
ISE's Historical Options Tick Data. The text of the proposed rule
change is available on the Exchange's Web site (http://www.ise.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 self-regulatory organization
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 self-regulatory organization
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
    ISE proposes to amend its Schedule of Fees to (1) increase the
annual subscription rate for the ISE Open/Close Trade Profile, (2)
adopt subscription fees for the sale of three new market data
offerings, all of which are based on the ISE Open/Close Trade Profile,
and (3) increase the annual subscription and ad-hoc request rates for
ISE's Historical Options Tick Data. These proposed fee changes will be
operative on January 4, 2010.

ISE Open/Close Trade Profile

    ISE currently sells a market data offering comprised of the entire
opening and closing trade data of ISE listed options of both customers
and firms, referred to by the Exchange as the ISE Open/Close Trade
Profile.\3\ The ISE Open/Close Trade Profile offering is subdivided by
origin code (i.e., customer or firm) and the customer data is then
further subdivided by order size. The volume data is summarized by day
and series (i.e., symbol, expiration date, strike price, call or put).
The ISE Open/Close Trade Profile enables subscribers to create their
own proprietary put/call calculations. The data is compiled and
formatted by ISE as an end of day file. This market data offering is
currently available to both members and non-members on annual [sic]
subscription basis. The current subscription rate for both members and
non-members is $600 per month. Over the course of the last two years,
ISE has added numerous additional fields to this offering. As a result,
ISE's costs of gathering and storing the voluminous data underlying the
ISE Open/Close Trade Profile have increased. As a result, ISE proposes
to increase the subscription rate for both members and non-members to
$750 per month, effective January 1, 2010. [sic] \4\
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    \3\ See Securities Exchange Act Release No. 56254 (August 15,
2007), 72 FR 47104 (August 22, 2007) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change Relating to ISE Open/Close
Trade Profile Fees) (SR-ISE-2007-70).
    \4\ ISE intends to implement the new fees on January 4, 2010.
See supra the first paragraph of Section II.A.1.
---------------------------------------------------------------------------

    ISE also sells historical ISE Open/Close Trade Profile, a market
data offering comprised of the entire opening and closing trade data of
both customers and firms that dates back to May 2005, to both members
and non-members, on an ad-hoc basis or as a complete set that dates
back to May 2005. Ad-hoc subscribers can purchase this data for any
number of months, beginning from May 2005 through the current month.
Alternatively, subscribers can purchase the entire set of this data,
beginning from May 2005 through the current month. The historical ISE
Open/Close Trade Profile is compiled and formatted by ISE and sold as a
zipped file. ISE charges ad-hoc subscribers $600 per request for each
month of data and a discounted fee of $500 per request per month for
subscribers that want the complete set, i.e., from May 2005 to the
present month. ISE is not proposing any changes to the fee for
historical ISE Open/Close Trade Profile.

ISE Open/Close Trade Profile Intraday

    The Exchange now proposes to expand its suite of ISE Open/Close
Trade Profile market data offerings with three new products.
1. ISE Open/Close Trade Profile Intraday
    The ISE Open/Close Trade Profile Intraday offering uses the same
process as that used for the ISE Open/Close Trade Profile. The ISE
Open/Close Trade Profile Intraday has the same trade-related fields
contained in the ISE Open/Close Trade Profile. The ISE

Open/Close Trade Profile Intraday file contains data that is updated at
10-minute intervals throughout the trading day. ISE proposes to charge
both members and non-members $2,000 per month on an annual subscription
basis.
2. Historical ISE Open/Close Trade Profile Intraday
    The Historical ISE Open/Close Trade Profile Intraday offering is a
compilation of the ISE Open/Close Trade Profile Intraday files. The
Exchange has received numerous requests for this type of data,
especially from proprietary trading firms and hedge funds that use this
type of data for their quantitative models. ISE proposes to sell
Historical ISE Open/Close Trade Profile Intraday on an ad-hoc basis. An
ad-hoc request can be for any number of months, quarters or years for
which the data is available. Members and non-members will be able to
purchase this data by paying a one-time fee of $1,000 per month, $2,000
per quarter or $8,000 per year. For example, a subscriber that wants to
purchase data for August 2009 will pay $1,000; a subscriber that wants
to purchase data for July, August and September of 2009 will pay
$2,000; a subscriber that wants to purchase data for all twelve months
of 2009 will pay $8,000.
3. ISE Open/Close Trade Profile and ISE Open/Close Trade Profile
Intraday
    As noted above, the Exchange already sells the ISE Open/Close Trade
Profile end of day data. The Exchange believes that current subscribers
to the ISE Open/Close Trade Profile are likely to subscribe to the ISE
Open/Close Trade Profile Intraday offering. However, to further
incentivize current subscribers of ISE Open/Close Trade Profile to also
subscribe to the ISE Open/Close Trade Profile Intraday offering, the
Exchange proposes to offer a discounted subscription rate. Subscribers
to both the ISE Open/Close Trade Profile and the ISE Open/Close Trade
Profile Intraday will pay an annual subscription rate of $2,500.\5\
---------------------------------------------------------------------------

    \5\ The Commission notes that this proposed annual subscription
rate would be $2,500 per month (see Exhibit 5 to the Form 19b-4).
---------------------------------------------------------------------------

    All of the ISE Open/Close Trade Profile market data offerings,
including the new products proposed herein are compiled and formatted
by ISE and sold as a zipped file.
Historical Options Tick Data
    ISE currently creates market data that consists of options quotes
and orders that are generated by our members and all trades that are
executed on the Exchange. ISE also produces a Best Bid/Offer, or BBO,
with the aggregate size from all outstanding quotes and orders at the
top price level, or the ``top of the book.'' This data is formatted
according to Options Price Reporting Authority (``OPRA'') specification
and sent to OPRA for redistribution. OPRA processes ISE data along with
the same data sets from the other six options exchanges and creates a
National BBO, or ``NBBO,'' from all seven options exchanges.
    ISE also captures the OPRA tick data \6\ and makes it available as
an ``end of day'' file \7\ or as a ``historical'' file \8\ for ISE
members and non-ISE members alike. ISE has data available from June
2005 through the present month. ISE currently charges all subscribers
of Historical Options Tick Data $1,500 per month per firm on an annual
subscription basis. For ad-hoc requests, ISE charges $85 per day, with
a minimum order size of $1,000 plus a processing fee to pay for hard
drives and shipping. ISE also currently charges a processing fee of
$499 per order for up to 400 Giga Bytes (GB). An order that exceeds 400
GB is currently charged an additional $399 for up to another 400 GB.\9\
---------------------------------------------------------------------------

    \6\ The Exchange collects this data throughout each trading day
and at the end of each trading day, the Exchange compresses the data
and uploads it onto a server. Once the data is loaded onto the
server, it is then made available to subscribers.
    \7\ An end of day file refers to OPRA tick data for a trading
day that is distributed prior to the opening of the next trading
day. An end of day file is made available to subscribers as soon as
practicable at the end of each trading day on an on-going basis
pursuant to an annual subscription or through an ad-hoc request.
    \8\ An end of day file that is distributed after the start of
the next trading day is called a historical file. A historical file
is available to customers for a pre-determined date range by ad-hoc
requests only.
    \9\ See Securities Exchange Act Release Nos. 53212 (February 2,
2006), 71 FR 6803 (February 9, 2006) (Notice of Filing and Immediate
Effectiveness of Proposed Rule Change Establishing Fees for
Historical Options Tick Market Data) (SR-ISE-2006-07); and 53390
(February 28, 2006), 71 FR 11457 (March 7, 2006) (Order Granting
Accelerated Approval of a Proposed Rule Change Establishing Fees for
Historical Options Tick Market Data for Non-Members) (SR-ISE-2006-
08).
---------------------------------------------------------------------------

    The Exchange now proposes to increase the annual subscription rate
to $2,000 per month per firm. For ad-hoc requests, the Exchange
proposes to increase the rate to $120 per day. The minimum order size
of $1,000 will remain unchanged as will the processing fees of $499 and
$399. As the size of the data has increased since the Exchange first
introduced this product, the Exchange is also increasing the size
allowance for ad-hoc requests from 400 Giga Bytes to 1.5 Terabytes
(TB). Pursuant to this proposed rule change, for ad-hoc requests, the
Exchange will charge a processing fee of $499 per order for up to 1.5
TB. An order that exceeds 1.5 TB will be charged an additional $399 for
up to another 1.5 TB. These fee changes will be made effective by the
Exchange on January 1, 2010. [sic] \10\
---------------------------------------------------------------------------

    \10\ ISE plans to implement the new fees on January 4, 2010. See
supra the first paragraph of Section II.A.1.
---------------------------------------------------------------------------

    The Exchange's market research indicates that OPRA tick data is
primarily used by market participants in the financial services
industry for back-testing trading models, post-trade analysis,
compliance purposes and analyzing time and sales information. This
market data offering provides both ISE members and non-members with a
choice to subscribe to a service that provides a daily file on an on-
going basis (end of day file), or simply request data on an ad-hoc
basis for a pre-determined date range (historical file).
2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Exchange
Act'') for this proposed rule change is the requirement under Section
6(b)(4), that an exchange have an equitable allocation of reasonable
dues, fees and other charges among its members and other persons using
its facilities. The Exchange believes introduction of the new products,
all of which are based on the ISE Open/Close Trade Profile, will
provide market participants with an opportunity to obtain additional
data in furtherance of their investment decisions. The ISE Open/Close
Trade Profile and the Historical Options Tick Data offerings, which
have been available for a number of years, have provided subscribers
with valuable market data since they were first introduced. The
Exchange has made numerous enhancements to both these market data
offerings and believes the proposed fee change is reasonable and
equitable in that the fee increase is nominal in light of the increased
costs borne by the Exchange for the enhancements.
    The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\11\ in general, and with
Sections 6(b)(4) of the Act,\12\ in particular, in that it provides for
the equitable allocation of reasonable dues, fees and other charges
among members and issuers and other persons using any facility or
system which ISE operates or controls.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also
consistent

with the provisions of Section 6(b)(5) of the Act,\13\ in that it is
designed to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, 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;
and is not designed to permit unfair discrimination between customers,
issuers, brokers, or dealers, or to regulate by virtue of any authority
conferred by the Act matters not related to the purposes of the Act or
the administration of the Exchange.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also
consistent with Section 6(b)(8) of the Act \14\ in that it does not
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act, as set forth in more detail
below.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In adopting Regulation NMS, the Commission granted self-regulatory
organizations and broker-dealers increased authority and flexibility to
offer new and unique market data to the public. It was believed that
this authority would expand the amount of data available to consumers,
and also spur innovation and competition for the provision of market
data.
    The Commission has recently issued an order firmly establishing
that in reviewing non-core data products such as the ISE Open/Close
Trade Profile, the ISE Open/Close Trade Profile Intraday and ISE's
Historical Options Tick Data, the Commission will utilize a market-
based approach that relies primarily on competitive forces to determine
the terms on which non-core data is made available to investors.\15\
The Commission adopted a two-part test:
---------------------------------------------------------------------------

    \15\ Securities Exchange Act Release No. 57917 (Dec. 2, 2008)
(``NetCoalition Order'' resolving File No. SRNYSEArca-2006-21).

    The first is to ask whether the exchange was subject to
significant competitive forces in setting the terms of its proposal
for non-core data, including the level of any fees. If an exchange
was subject to significant competitive forces in setting the terms
of a proposal, the Commission will approve the proposal unless it
determines that there is a substantial countervailing basis to find
that the terms nevertheless fail to meet an applicable requirement
of the Exchange Act or the rules thereunder. If, however, the
exchange was not subject to significant competitive forces in
setting the terms of a proposal for non-core data, the Commission
will require the exchange to provide a substantial basis, other than
competitive forces, in its proposed rule change demonstrating that
the terms of the proposal are equitable, fair, reasonable, and not
unreasonably discriminatory.\16\
---------------------------------------------------------------------------

    \16\ Id. at 48-49.

    This standard begins from the premise that no Commission rule
requires exchanges or market participants either to distribute non-core
data to the public or to display non-core data to investors.\17\
---------------------------------------------------------------------------

    \17\ Id. at 4.
---------------------------------------------------------------------------

    In its NetCoalition Order the Commission concluded that ``at least
two broad types of significant competitive forces applied to NYSE Arca
in setting the terms of its proposal to distribute the ArcaBook data:
(1) NYSE Arca's compelling need to attract order flow from market
participants; and (2) the availability to market participants of
alternatives to purchasing the ArcaBook data. The Commission conducted
an exhaustive 14-page review of these two competitive forces before
concluding that the availability of alternatives, as well as the
compelling need to attract order flow, imposed significant competitive
pressure on that exchange's need to act equitably, fairly, and
reasonably in setting the terms of the fees for its non-core data
product.\18\
---------------------------------------------------------------------------

    \18\ Id. at 51--65. The Commission then spent an additional 36
pages (65-101) analyzing and refuting comments challenging the
Commission's competition analysis.
---------------------------------------------------------------------------

    The market data provided in the ISE Open/Close Trade Profile, the
ISE Open/Close Trade Profile Intraday and ISE's Historical Options Tick
Data is non-core data that is governed by the same analysis the
Commission set forth in the NetCoalition Order. As with the NYSE Arca
depth-of-book product, no rule requires ISE or any other exchange to
offer this data; nor are vendors required to purchase or display this
data.
    Additionally, ISE is constrained by the same two competitive forces
in the options market as the Commission found were present in the
NetCoalition Order. First, ISE has a compelling need to attract order
flow from market participants in order to maintain its share of trading
volume. This compelling need to attract order flow imposes significant
pressure on ISE to act reasonably in setting the fees for its market
data offerings, particularly given that the market participants that
will pay such fees often will be the same market participants from whom
ISE must attract order flow. These market participants include broker-
dealers that control the handling of a large volume of customer and
proprietary order flow. Given the portability of order flow from one
exchange to another, any exchange that sought to charge unreasonably
high market data fees would risk alienating many of the same customers
on whose orders it depends for competitive survival.
    Second, the Exchange is constrained in pricing the ISE Open/Close
Trade Profile, the ISE Open/Close Trade Profile Intraday and Historical
Options Tick Data by the availability to market participants of
alternatives to purchasing ISE's market data offerings. ISE must
consider the extent to which market participants would choose one or
more alternatives instead of purchasing the exchange's data. For
example, although ISE's Historical Options Tick Data is separate from
the core data feed available by the Options Price Reporting Authority
(``OPRA''), all the information available in this market data offering
are included in the core data feed. The core OPRA data is widely
distributed, thus constraining ISE's ability to price its market data
offerings. Additionally, the CBOE, which enjoys greater market share
than ISE, is also a potential competitor as it too sells an open/close
market data offering that market participants may choose to purchase
instead.
    In the aftermath of the NetCoalition Order, the Exchange believes
that the competition among exchanges for order flow and the competition
among exchanges for market data products subject ISE's proposed market
data offerings to significant competitive forces. In addition, the
Exchange believes that no substantial countervailing basis exists to
support a finding that the proposed fees fail to meet the requirement
of the Act. In sum, the availability of alternative sources of
information imposes significant competitive pressures on the ISE Open/
Close Trade Profile, the ISE Open/Close Trade Profile Intraday and
ISE's Historical Options Tick Data and ISE's compelling need to attract
order flow imposes significant competitive pressure on the Exchange to
act equitably, fairly, and reasonably in setting its fees.

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

    The proposed rule change does not impose any burden on competition
that is not necessary or appropriate in furtherance of the purposes of
the Act.

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

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

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

    Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
    (a) By order approve such proposed rule change; or
    (b) Institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File No. SR-ISE-2009-103 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2009-103. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/
sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Room, on official business
days between the hours of 10 a.m. and 3 p.m. Copies of such filing also
will be available for inspection and copying at the principal office of
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-ISE-
2009-103 and should be submitted on or before December 29, 2009.
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-29137 Filed 12-7-09; 8:45 am]

BILLING CODE 8011-01-P


Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 1 For the reasons set out in the preamble, title 40, chapter I of the Code of Federal Regulations is amended as follows:

PART 51  [ AMENDED]

1. The authority citation for part 51 continues to read as follows:

Authority: 23 U. S. C. 101; 42 U. S. C. 7401 7671q.

Subpart I  [ Amended]

2. Section 51.165 is amended:

a. By revising paragraph ( a)( 1)( v)( C)( 1).

b. By adding paragraphs ( a)( 1)( xliii) through ( xlvi),

and paragraphs ( h) and ( i).

The revision and additions read as follows:

§ 51.165 Permit requirements.

( a) * * *

( 1) * * *

( v) * * *

( C) * * *

( 1) Routine maintenance, repair and replacement.

Routine maintenance, repair and replacement shall include,

but not be limited to, any activity( s) that meets the requirements of the equipment replacement provisions contained in paragraph ( h) of this section.

* * * * * Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 2 ( xliii)( A) In general, process unit means any collection of structures and/ or equipment that processes,

assembles, applies, blends, or otherwise uses material inputs to produce or store an intermediate or a completed product. A single stationary source may contain more than one process unit, and a process unit may contain more than one emissions unit.

( B) Pollution control equipment is not part of the process unit, unless it serves a dual function as both process and control equipment. Administrative and warehousing facilities are not part of the process unit.

( C) For replacement cost purposes, parts shared between two or more process units are proportionately allocated based on capacity.

( D) The following list identifies the process units at specific categories of stationary sources.

( 1) For a steam electric generating facility, the process unit consists of those portions of the plant that contribute directly to the production of electricity. For example, at a pulverized coal fired facility, the process unit would generally be the combination of those systems from the coal receiving equipment through the emission stack ( excluding post combustion pollution controls), including Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 3 the coal handling equipment, pulverizers or coal crushers,

feedwater heaters, ash handling, boiler, burners,

turbinegenerator set, air preheaters, and operating control systems. Each separate generating unit is a separate process unit.

( 2) For a petroleum refinery, there are several categories of process units: those that separate and/ or distill petroleum feedstocks; those that change molecular structures; petroleum treating processes; auxiliary facilities, such as steam generators and hydrogen production units; and those that load, unload, blend or store intermediate or completed products.

( 3) For an incinerator, the process unit would consist of components from the feed pit or refuse pit to the stack,

including conveyors, combustion devices, heat exchangers and steam generators, quench tanks, and fans.

( xliv) Functionally equivalent part means a part that serves the same purpose as the replaced part.

( xlv) Fixed capital cost means the capital needed to provide all the depreciable components. " Depreciable components" refers to all components of fixed capital cost and is calculated by subtracting land and working capital from the total capital investment, as defined in paragraph Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 4 ( a)( 1)( xlvi) of this section.

( xlvi) Total capital investment means the sum of the following: all costs required to purchase needed process equipment ( purchased equipment costs); the costs of labor and materials for installing that equipment ( direct installation costs); the costs of site preparation and buildings; other costs such as engineering, construction and field expenses, fees to contractors, startup and performance tests, and contingencies ( indirect installation costs); land for the process equipment; and working capital for the process equipment.

* * * * *

( h) Equipment Replacement Provision. Routine maintenance, repair and replacement includes, but is not limited to, the replacement of any part of a process unit with an identical or functionally equivalent part( s), and all maintenance orand repair activity( ies) if it is associated with that are part of the replacement of a part( s) activity, without regard to other considerations,

provided that all of the requirements in paragraphs ( h)( 1)

through ( 3) of this section are met. RA repair andor maintenance activities are associated with the replacement of a part of the process unit if they areactivity is part of Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 5 a replacement activity if it is conducted in conjunction with the replacement.

( 1) Capital Cost threshold for Equipment Replacement ( i) For an electric utility steam generating unit, as defined in 51.165( a)( 1)( xx), the fixed capital cost of the replacement part( s) plus the cost of any associated maintenance and repair activities shall not exceed 20 percent of the replacement value of the process unit, at the time the equipment is replaced.

( ii) For a process unit that is not an electric utility steam generating unit the fixed capital cost of the replacement part( s) plus the cost of any associated maintenance and repair activities shall not exceed 20 percent of the replacement value of the process unit.

( iii) A, at the time the owner or operator commences the replacement activity, the owner or operator shall determineequipment is replaced.

( iii) In determining the replacement value of the process unit; and, except as otherwise allowed under paragraph ( h)( 1)( iv) of this section, the owner or operator shall base the replacement value of the process unit shall be based on an estimate of the fixed capital cost of constructing a new process unit, or on the current appraised Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 6 value of the process unit.

( iv) As an alternative to paragraph ( h)( 1)( iii) of this section for determining the replacement value of a process unit, an owner or operator may choose to use insurance value ( where the insurance value covers only complete replacement), investment value adjusted for inflation, or another accounting procedure if such procedure is based on Generally Accepted Accounting Principles,

provided that the owner or operator sends a notice to the reviewing authority at the beginning of the process unit's fiscal year. Unless the owner or operator submits a notice to the reviewing authority, then paragraph ( h)( 1)( iii) of this section will be used to establish the replacement value of the process unit. Once the owner or operator submits a notice to use an alternative accounting procedure, theythe owner or operator must continue to use that procedure for the entire fiscal year for that process unit. In subsequent fiscal years, the owner or operator must continue to use this selected procedure unless an another notice is sent to the reviewing authority selecting another procedure consistent with this paragraph or paragraph ( h)( 1)( iii) of this section at the beginning of such fiscal year.

( 2) Basic Design Parameters. The replacement does not Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 7 change the basic design parameter( s) of the process unit to which the activity pertains.

( i) Except as provided in paragraph ( h)( 2)( iii) of this section, for a process unit at a steam electric generating facility, one basic design parameter is maximum hourly heat input and the owner or operator may select any one of the following for the others its basic design parameter: parameters either maximum hourly heat input and maximum hourly fuel consumption rate or maximum hourly electric output rate, and maximum steam flow rate, or maximum hourly fuel consumption rate. When establishing fuel consumption specifications in terms of rateweight or volume, the minimum fuel quality based on British Thermal Units content shall be used for determining the basic design parameter( s) for a coal fired electric utility steam generating unit.

( ii) Except as provided in paragraph ( h)( 2)( iii) of this section, the basic design parameter( s) for any process unit that is not at a steam electric generating facility are maximum rate of fuel input, maximum rate of material input,

or maximum rate of product output. Combustion process units will typically use maximum rate of fuel input. For sources having multiple end products and raw materials, the owner or Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 8 operator must select the appropriate parameter for the dominant emission source of the process unit.

( iii) If the owner or operator believes the basic design parameter( s) in paragraphs ( h)( 2)( i) and ( ii) of this section is not appropriate for a specific industry or type of process unit, the owner or operator may propose to the reviewing authority an alternative basic design parameter( s)

for the source's process unit( s). If the reviewing authority approves of the use of an alternative basic design parameter( s), the reviewing authority shall issue a permit that is legally enforceable that records such basic design parameter( s) and requires the owner or operator to comply with such parameter( s).

( iv) The magnitude of the basic design parameter( s)

specified in paragraphs ( h)( 2)( i) and ( ii) of this section shall be established by the owner or operator usingshall use credible information, such as results of historic maximum capability tests, design information from the manufacturer,

or engineering calculations, in establishing the magnitude of the basic design parameter( s) specified in paragraphs ( h)( 2)( i) and ( ii) of this section.

( v) If design information is not available for a process unit, then the owner or operator shall determine the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 9 process unit's basic design parameter( s) using the maximum value achieved by the process unit in the five year period immediately preceding the planned activity.

( vi) Efficiency of a process unit is not a basic design parameter.

( 3) The replacement activity shall not cause the process unit to exceed any emission limitation, or operational limitation ( that has the effect of constraining emissions), that applies to any part of the process unit and that is legally enforceable. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 10 3. Section 51.166 is amended:

a. By revising paragraph ( b)( 2)( iii)( a).

b. By adding paragraphs ( b)( 53) through ( 56), and paragraphs ( y) and ( z).

The revision and additions read as follows:

§ 51.166 Prevention of significant deterioration of air quality.

( b) * * *

( 2) * * *

( iii) * * *

( a) Routine maintenance, repair and replacement.

Routine maintenance, repair and replacement shall include,

but not be limited to, any activity( s) that meets the requirements of the equipment replacement provisions contained in paragraph ( y) of this section.

* * * * *

( 53)( i) In general, process unit means any collection of structures and/ or equipment that processes, assembles,

applies, blends, or otherwise uses material inputs to produce or store an intermediate or a completed product. A single stationary source may contain more than one process unit, and a process unit may contain more than one emissions unit. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 11 ( ii) Pollution control equipment is not part of the process unit, unless it serves a dual function as both process and control equipment. Administrative and warehousing facilities are not part of the process unit.

( iii) For replacement cost purposes, parts shared between two or more process units are proportionately allocated based on capacity.

( iv) The following list identifies the process units at specific categories of stationary sources.

( a) For a steam electric generating facility, the process unit consists of those portions of the plant that contribute directly to the production of electricity. For example, at a pulverized coal fired facility, the process unit would generally be the combination of those systems from the coal receiving equipment through the emission stack ( excluding post combustion pollution controls), including the coal handling equipment, pulverizers or coal crushers,

feedwater heaters, ash handling, boiler, burners,

turbinegenerator set, air preheaters, and operating control systems. Each separate generating unit is a separate process unit.

( b) For a petroleum refinery, there are several categories of process units: those that separate and/ or Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 12 distill petroleum feedstocks; those that change molecular structures; petroleum treating processes; auxiliary facilities, such as steam generators and hydrogen production units; and those that load, unload, blend or store intermediate or completed products.

( c) For an incinerator, the process unit would consist of components from the feed pit or refuse pit to the stack,

including conveyors, combustion devices, heat exchangers and steam generators, quench tanks, and fans.

( 54) Functionally equivalent part means a part that serves the same purpose as the replaced part.

( 55) Fixed capital cost means the capital needed to provide all the depreciable components. " Depreciable components" refers to all components of fixed capital cost and is calculated by subtracting land and working capital from the total capital investment, as defined in paragraph ( b)( 56) of this section.

( 56) Total capital investment means the sum of the following: all costs required to purchase needed process equipment ( purchased equipment costs); the costs of labor and materials for installing that equipment ( direct installation costs); the costs of site preparation and buildings; other costs such as engineering, construction and Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 13 field expenses, fees to contractors, startup and performance tests, and contingencies ( indirect installation costs); land for the process equipment; and working capital for the process equipment.

* * * * *

( y) Equipment Replacement Provision. Routine maintenance, repair and replacement includes, but is not limited to, the replacement of any part of a process unit with an identical or functionally equivalent part( s), and all maintenance orand repair activity( ies) if it is associated with that are part of the replacement of a part( s) activity, without regard to other considerations,

provided that all of the requirements in paragraphs ( y)( 1)

through ( 3) of this section are met. RA repair andor maintenance activities are associated with the replacement of a part of the process unit if they areactivity is part of a replacement activity if it is conducted in conjunction with the replacement.

( 1) Capital Cost threshold for Equipment Replacement ( i) For an electric utility steam generating unit, as defined in 51.166( b)( 30), the fixed capital cost of the replacement part( s) plus the cost of any associated maintenance and repair activities shall not exceed 20 Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 14 percent of the replacement value of the process unit, at the time the equipment is replaced.

( ii) For a process unit that is not an electric utility steam generating unit the fixed capital cost of the replacement part( s) plus the cost of any associated maintenance and repair activities shall not exceed 20 percent of the replacement value of the process unit.

( iii) A, at the time the owner or operator commences the replacement activity, the owner or operator shall determineequipment is replaced.

( iii) In determining the replacement value of the process unit; and, except as otherwise allowed under paragraph ( y)( 1)( iv) of this section, the owner or operator shall base the replacement value of the process unit shall be based on an estimate of the fixed capital cost of constructing a new process unit, or on the current appraised value of the process unit.

( iv) As an alternative to paragraph ( y)( 1)( iii) of this section for determining the replacement value of a process unit, an owner or operator may choose to use insurance value ( where the insurance value covers only complete replacement), investment value adjusted for inflation, or another accounting procedure if such procedure Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 15 is based on Generally Accepted Accounting Principles,

provided that the owner or operator sends a notice to the reviewing authority at the beginning of the process unit's fiscal year. Unless the owner or operator submits a notice to the reviewing authority, then paragraph ( y)( 1)( iii) of this section will be used to establish the replacement value of the process unit. Once the owner or operator submits a notice to use an alternative accounting procedure, theythe owner or operator must continue to use that procedure for the entire fiscal year for that process unit. In subsequent fiscal years, the owner or operator must continue to use this selected procedure unless an another notice is sent to the reviewing authority selecting another procedure consistent with this paragraph or paragraph ( y)( 1)( iii) of this section at the beginning of such fiscal year.

( 2) Basic Design Parameters. The replacement does not change the basic design parameter( s) of the process unit to which the activity pertains.

( i) Except as provided in paragraph ( y)( 2)( iii) of this section, for a process unit at a steam electric generating facility, one basic design parameter is maximum hourly heat input and the owner or operator may select any one of the following for the others its basic design Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 16 parameter: parameters either maximum hourly heat input and maximum hourly fuel consumption rate or maximum hourly electric output rate, and maximum steam flow rate, or maximum hourly fuel consumption rate. When establishing fuel consumption specifications in terms of rateweight or volume, the minimum fuel quality based on British Thermal Units content shall be used for determining the basic design parameter( s) for a coal fired electric utility steam generating unit.

( ii) Except as provided in paragraph ( y)( 2)( iii) of this section, the basic design parameter( s) for any process unit that is not at a steam electric generating facility are maximum rate of fuel input, maximum rate of material input,

or maximum rate of product output. Combustion process units will typically use maximum rate of fuel input. For sources having multiple end products and raw materials, the owner or operator must select the appropriate parameter for the dominant emission source of the process unit.

( iii) If the owner or operator believes the basic design parameter( s) in paragraphs ( y)( 2)( i) and ( ii) of this section is not appropriate for a specific industry or type of process unit, the owner or operator may propose to the reviewing authority an alternative basic design parameter( s) Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 17 for the source's process unit( s). If the reviewing authority approves of the use of an alternative basic design parameter( s), the reviewing authority shall issue a permit that is legally enforceable that records such basic design parameter( s) and requires the owner or operator to comply with such parameter( s).

( iv) The magnitude of the basic design parameter( s)

specified in paragraphs ( y)( 2)( i) and ( ii) of this section shall be established by the owner or operator usingshall use credible information, such as results of historic maximum capability tests, design information from the manufacturer,

or engineering calculations, in establishing the magnitude of the basic design parameter( s) specified in paragraphs ( y)( 2)( i) and ( ii) of this section.

( v) If design information is not available for a process unit, then the owner or operator shall determine the process unit's basic design parameter( s) using the maximum value achieved by the process unit in the five year period immediately preceding the planned activity.

( vi) Efficiency of a process unit is not a basic design parameter.

( 3) The replacement activity shall not cause the process unit to exceed any emission limitation, or Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 18 operational limitation ( that has the effect of constraining emissions), that applies to any part of the process unit and that is legally enforceable. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 19 PART 52  [ Amended]

1. The authority citation for part 52 continues to read as follows:

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

Subpart A  [ Amended]

2. Section 52.21 is amended:

a. By revising paragraph ( b)( 2)( iii)( a).

b. By adding paragraphs ( b)( 55) through ( 58), and paragraphs ( cc) and ( dd).

The revision and additions read as follows:

§ 52.21 Prevention of significant deterioration of air quality.

( b) * * *

( 2) * * *

( iii) * * *

( a) Routine maintenance, repair and replacement.

Routine maintenance, repair and replacement shall include,

but not be limited to, any activity( s) that meets the requirements of the equipment replacement provisions contained in paragraph ( cc) of this section.

* * * * *

( 55)( i) In general, process unit means any collection of structures and/ or equipment that processes, assembles, Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 20 applies, blends, or otherwise uses material inputs to produce or store an intermediate or a completed product. A single stationary source may contain more than one process unit, and a process unit may contain more than one emissions unit.

( ii) Pollution control equipment is not part of the process unit, unless it serves a dual function as both process and control equipment. Administrative and warehousing facilities are not part of the process unit.

( iii) For replacement cost purposes, parts shared between two or more process units are proportionately allocated based on capacity.

( iv) The following list identifies the process units at specific categories of stationary sources.

( a) For a steam electric generating facility, the process unit consists of those portions of the plant that contribute directly to the production of electricity. For example, at a pulverized coal fired facility, the process unit would generally be the combination of those systems from the coal receiving equipment through the emission stack ( excluding post combustion pollution controls), including the coal handling equipment, pulverizers or coal crushers,

feedwater heaters, ash handling, boiler, burners, turbine Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 21 generator set, air preheaters, and operating control systems. Each separate generating unit is a separate process unit.

( b) For a petroleum refinery, there are several categories of process units: those that separate and/ or distill petroleum feedstocks; those that change molecular structures; petroleum treating processes; auxiliary facilities, such as steam generators and hydrogen production units; and those that load, unload, blend or store intermediate or completed products.

( c) For an incinerator, the process unit would consist of components from the feed pit or refuse pit to the stack,

including conveyors, combustion devices, heat exchangers and steam generators, quench tanks, and fans.

( 56) Functionally equivalent part means a part that serves the same purpose as the replaced part.

( 57) Fixed capital cost means the capital needed to provide all the depreciable components. " Depreciable components" refers to all components of fixed capital cost and is calculated by subtracting land and working capital from the total capital investment, as defined in paragraph ( b)( 58) of this section.

( 58) Total capital investment means the sum of the Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 22 following: all costs required to purchase needed process equipment ( purchased equipment costs); the costs of labor and materials for installing that equipment ( direct installation costs); the costs of site preparation and buildings; other costs such as engineering, construction and field expenses, fees to contractors, startup and performance tests, and contingencies ( indirect installation costs); land for the process equipment; and working capital for the process equipment.

* * * * *

( cc) Equipment Replacement Provision. Routine maintenance, repair and replacement includes, but is not limited to, the replacement of any part of a process unit with an identical or functionally equivalent part( s), and all maintenance orand repair activity( ies) if it is associated with that are part of the replacement of a part( s) activity, without regard to other considerations,

provided that all of the requirements in paragraphs ( cc)( 1)

through ( 3) of this section are met. RA repair andor maintenance activities are associated with the replacement of a part of the process unit if they areactivity is part of a replacement activity if it is conducted in conjunction with the replacement. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 23 ( 1) Capital Cost threshold for Equipment Replacement ( i) For an electric utility steam generating unit, as defined in 52.21( b)( 31), the fixed capital cost of the replacement part( s) plus the cost of any associated maintenance and repair activities shall not exceed 20 percent of the replacement value of the process unit, at the time the equipment is replaced.

( ii) For a process unit that is not an electric utility steam generating unit the fixed capital cost of the replacement part( s) plus the cost of any associated maintenance and repair activities shall not exceed 20 percent of the replacement value of the process unit.

( iii) A, at the time the owner or operator commences the replacement activity, the owner or operator shall determineequipment is replaced.

( iii) In determining the replacement value of the process unit; and, except as otherwise allowed under paragraph ( cc)( 1)( iv) of this section, the owner or operator shall base the replacement value of the process unit shall be based on an estimate of the fixed capital cost of constructing a new process unit, or on the current appraised value of the process unit.

( iv) As an alternative to paragraph ( cc)( 1)( iii) of Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 24 this section for determining the replacement value of a process unit, an owner or operator may choose to use insurance value ( where the insurance value covers only complete replacement), investment value adjusted for inflation, or another accounting procedure if such procedure is based on Generally Accepted Accounting Principles,

provided that the owner or operator sends a notice to the reviewing authority at the beginning of the process unit's fiscal year. Unless the owner or operator submits a notice to the reviewing authority, then paragraph ( cc)( 1)( iii) of this section will be used to establish the replacement value of the process unit. Once the owner or operator submits a notice to use an alternative accounting procedure, theythe owner or operator must continue to use that procedure for the entire fiscal year for that process unit. In subsequent fiscal years, the owner or operator must continue to use this selected procedure unless an another notice is sent to the reviewing authority selecting another procedure consistent with this paragraph or paragraph ( cc)( 1)( iii) of this section at the beginning of such fiscal year.

( 2) Basic Design Parameters. The replacement does not change the basic design parameter( s) of the process unit to which the activity pertains. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 25 ( i) Except as provided in paragraph ( cc)( 2)( iii) of this section, for a process unit at a steam electric generating facility, one basic design parameter is maximum hourly heat input and the owner or operator may select any one of the following for the others its basic design parameter: parameters either maximum hourly heat input and maximum hourly fuel consumption rate or maximum hourly electric output rate, and maximum steam flow rate, or maximum hourly fuel consumption rate. When establishing fuel consumption specifications in terms of rateweight or volume, the minimum fuel quality based on British Thermal Units content shall be used for determining the basic design parameter( s) for a coal fired electric utility steam generating unit.

( ii) Except as provided in paragraph ( cc)( 2)( iii) of this section, the basic design parameter( s) for any process unit that is not at a steam electric generating facility are maximum rate of fuel input, maximum rate of material input,

or maximum rate of product output. Combustion process units will typically use maximum rate of fuel input. For sources having multiple end products and raw materials, the owner or operator must select the appropriate parameter for the dominant emission source of the process unit. Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 26 ( iii) If the owner or operator believes the basic design parameter( s) in paragraphs ( cc)( 2)( i) and ( ii) of this section is not appropriate for a specific industry or type of process unit, the owner or operator may propose to the reviewing authority an alternative basic design parameter( s) for the source's process unit( s). If the reviewing authority approves of the use of an alternative basic design parameter( s), the reviewing authority shall issue a permit that is legally enforceable that records such basic design parameter( s) and requires the owner or operator to comply with such parameter( s).

( iv) The magnitude of the basic design parameter( s)

specified in paragraphs ( cc)( 2)( i) and ( ii) of this section shall be established by the owner or operator usingshall use credible information, such as results of historic maximum capability tests, design information from the manufacturer,

or engineering calculations, in establishing the magnitude of the basic design parameter( s) specified in paragraphs ( cc)( 2)( i) and ( ii) of this section.

( v) If design information is not available for a process unit, then the owner or operator shall determine the process unit's basic design parameter( s) using the maximum value achieved by the process unit in the five year period Internal and Deliberative Draft  Do not quote, cite, copy, or distribute August 22, 2003 27 immediately preceding the planned activity.

( vi) Efficiency of a process unit is not a basic design parameter.

( 3) The replacement activity shall not cause the process unit to exceed any emission limitation, or operational limitation ( that has the effect of constraining emissions), that applies to any part of the process unit and that is legally enforceable.


Record of Telephone Conversations between Jim Michael and Dr. William
Miller, General Motors Worldwide Facilities Group

1/24/06 - Call to Bill Miller regarding an inconsistency of NAICS Codes
for the GM Arlington, Texas Assembly Plant.  An OSW-EMRAD November 29,
2005 Query of the 2003 RCRA Biennial Report identified the GM Arlington,
Texas Assembly Plant as having a NAICS Code of 336211.  However, in
Section 1, Administrative Information of the Delisting Petition for the
F019 Wastewater Treatment Plant Sludge for the Arlington Assembly Plant
the NAICS Code is identified as 336112.

1/25/06 - Call from Bill Miller.  Mr. Miller confirmed that the NAICS
Code should be 336112.  Mr. Miller forwarded to me a copy of GM’s
report to the State of Texas (STEERS) which confirmed that the correct
NAICS should be 336112.  It appears that through a series of data inputs
from the State to EPA that numbers were somehow entered incorrectly.
See Attachment 1.

1/31/06 - Call to Bill Miller to discuss two issues concerning the
presence of formaldehyde in sludge samples and the potential of the
recycling/reclaiming of the F019 wastewater treatment sludge.  Joining
Mr. Miller was Todd Williams with GM’s Utility Services In the
Worldwide Facilities Group.  Also joining Jim Michael were Robert Kayser
and Chichang Chen, members of OSW’s F019 Team.

The first issue discussed concerned the presence of formaldehyde in
sludge samples.  The analytical data generally showed low totals levels
in sludge samples except for two GM facilities (GM-Oklahoma City and
GM-Lansing, MI) .  For these two facilities, samples were analyzed for
formaldehyde totals using a wet chemistry method (AOAC 931.08) which
yielded high results.  However, doing further analysis using a more
selective method (HLPC, SW-846, Method 8315) at GM-Lansing the total
formaldehyde levels dropped over 100-fold.  GM-Lansing noted that the
wet chemistry method (AOAC) is subject to interferences from other
chemicals and that the HLPC method was used during subsequent
verification testing.  Bob Kayser asked GM to provide us with any
information that they may have on problems with the AOAC method and that
the HLPC method is the appropriate method to be used when analyzing for
formaldehyde.  GM indicated that they would check with the labs that
were involved in the analysis of the sludge samples in support of the
Lansing petition.  Note: the facility in Oklahoma City did not continue
to pursue a delisting petition and did not do any further anaylsis.

The second issue we discussed concerned the potential of the
recycling/reclaiming of the F019 wastewater treatment sludge.  Mr.
Miller indicated that the issue of recycling of the F019 sludge came up
in a meeting with Region 5, State of Michigan and GM representatives in
an October 2001 meeting as the three parties were finalizing the
Memorandum of Understanding for the Expedited Delisting Project for the
auto assembly plants in the State of Michigan.  Mr. Miller indicated
that the metals concentrations in the sludge for zinc and nickel were
too low to make it economically feasible to reclaim the metals from the
sludge.