[Federal Register: September 6, 2006 (Volume 71, Number 172)]
[Rules and Regulations]
[Page 52483-52487]
[DOCID:fr06se06-22]

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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 180

EPA-HQ-OPP-2006-0504; FRL-8091-4

Propoxycarbazone; Pesticide Tolerance

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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

SUMMARY: This regulation establishes increased tolerances for residues
of propoxycarbazone in or on wheat forage, meat byproducts and milk.
Bayer CropScience requested this tolerance under the Federal Food,
Drug, and Cosmetic Act (FFDCA), as amended by the Food Quality
Protection Act of 1996 (FQPA).

DATES: This regulation is effective September 6, 2006. Objections and
requests for hearings must be received on or before November 6, 2006,
and must be filed in accordance with the instructions provided in 40
CFR part 178 (see also Unit I.C. of the SUPPLEMENTARY INFORMATION).

ADDRESSES: EPA has established a docket for this action under docket
identification (ID) number EPA-HQ-OPP-2006-0504. All documents in the
docket are listed in the index for the docket. Although listed in the
index, some information is not publicly available, e.g., Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. Certain other material, such as copyrighted
material, is not placed on the Internet and will be publicly available
only in hard copy form. Publicly available docket materials are
available in the electronic docket at http://www.regulations.gov, or,

if only available in hard copy, at the OPP Regulatory Public Docket in
Rm. S-4400, One Potomac Yard (South Building), 2777 S. Crystal Drive,
Arlington, VA. The Docket Facility is open from 8:30 a.m. to 4 p.m.,
Monday through Friday, excluding legal holidays. The Docket telephone
number is<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: Joanne I. Miller, Registration
Division

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

I. General Information

A. Does this Action Apply to Me?

    You may be potentially affected by this action if you are an
agricultural producer, food manufacturer, or pesticide manufacturer.
Potentially affected entities may include, but are not limited to:
     Crop production (NAICS 111), e.g., agricultural workers;
greenhouse, nursery, and floriculture workers; farmers.
     Animal production (NAICS 112), e.g., cattle ranchers and
farmers, dairy cattle farmers, livestock farmers.
     Food manufacturing (NAICS 311), e.g., agricultural
workers; farmers; greenhouse, nursery, and floriculture workers;
ranchers; pesticide applicators.
     Pesticide manufacturing (NAICS 32532), e.g., agricultural
workers; commercial applicators; farmers; greenhouse, nursery, and
floriculture workers; residential users.
    This listing is not intended to be exhaustive, but rather provides
a guide for readers regarding entities likely to be affected by this
action. Other types of entities not listed in this unit could also be
affected. The North American Industrial Classification System (NAICS)
codes have been provided to assist you and others in determining
whether this action might apply to certain entities. If you have any
questions regarding the applicability of this action to a particular
entity, consult the person listed under FOR FURTHER INFORMATION
CONTACT.

B. How Can I Access Electronic Copies of this Document?

    In addition to accessing an electronic copy of this Federal
Register document through the electronic docket at http://www.regulations.gov
, you may access this Federal Register document

electronically through the EPA Internet under the ``Federal Register''
listings at http://www.epa.gov/fedrgstr. You may also access a

frequently updated electronic version of 40 CFR part 180 through the
Government Printing Office's pilot e-CFR site at http://www.gpoaccess.gov/ecfr
.

C. Can I File an Objection or Hearing Request?

    Under section 408(g) of the FFDCA, as amended by the FQPA, any
person may file an objection to any aspect of this regulation and may
also request a hearing on those objections. The EPA procedural
regulations which govern the submission of objections and requests for
hearings appear in 40 CFR part 178. You must file your objection or
request a hearing on this regulation in accordance with the
instructions provided in 40 CFR part 178. To ensure proper receipt by
EPA, you must identify docket ID number EPA-HQ-OPP-2006-0504 in the
subject line on the first page of your submission. All requests must be
in writing, and must be mailed or delivered to the Hearing Clerk on or
before November 6, 2006.
    In addition to filing an objection or hearing request with the
Hearing Clerk as described in 40 CFR part 178, please submit a copy of
the filing that does not contain any CBI for inclusion in the public
docket that is described in ADDRESSES. Information not marked
confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA
without prior notice. Submit your copies, identified by docket ID
number EPA-HQ-OPP-2006-0504, by one of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov.

Follow the on-line instructions for submitting comments.
     Mail: Office of Pesticide Programs (OPP) Regulatory Public
Docket (7502P), Environmental Protection Agency, 1200 Pennsylvania
Ave., NW., Washington, DC 20460-0001.
     Delivery: OPP Regulatory Public Docket (7502P),
Environmental Protection Agency, Rm. S-4400, One Potomac Yard (South
Building), 2777 S. Crystal Drive, Arlington, VA. Deliveries are only
accepted during the Docket's normal hours of operation (8:30 a.m. to 4
p.m., Monday through Friday, excluding legal holidays). Special
arrangements should be made for deliveries of boxed information. The
Docket telephone number is<PHONE_NUMBER>.

II. Background and Statutory Findings

    In the Federal Register of July 5, 2006 (71 FR 38151) (FRL-8073-5),
EPA issued a notice pursuant to section 408(d)(3) of FFDCA, 21 U.S.C.
346a(d)(3), announcing the filing of a pesticide petition (PP 5F6959)
by Bayer CropScience, 2 T.W. Alexander Drive, P.O. Box 12014, Research
Triangle Park, NC 27709. The petition requested that 40 CFR 180. 600 be
amended by increasing tolerances for residues of the herbicide
propoxycarbazone, methyl 2-[[[(4,5-dihydro-4-methyl-5-oxo-3-propoxy-1H-
1,2,4-triazol-1-yl)carbonyl]amino]sulfonyl]benzoate (MKH-6561) and its
metabolite, methyl 2-[[[(4,5-dihydro-3-(2-hydroxypropoxy)-4-methyl-5-
oxo-1H-1,2,4-triazol-1-yl)carbonyl]amino]sulfonyl] benzoate (Pr-2-OH
MKH-6561), in or on wheat, forage from 1.5 parts per million (ppm) to
11 ppm; and of propoxycarbazone in or on animal commodities cattle/
goat/horse/sheep, meat byproducts from 0.05 ppm to 0.30 ppm; and milk
from 0.004 ppm to 0.03 ppm. Based on the scientific review of the
residue chemistry data, EPA is raising the wheat forage tolerance to 17
ppm. The petitioner proposed raising the tolerances in order that wheat
forage may be grazed by livestock immediately after the herbicide's
application. Comments were received on the notice of filing. EPA's
response to these comments is discussed in Unit IV.C.
    Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a
tolerance (the legal limit for a pesticide chemical residue in or on a
food) only if EPA determines that the tolerance is ``safe.'' Section
408(b)(2)(A)(ii) of FFDCA defines ``safe'' to mean that ``there is a
reasonable certainty that no harm will result from aggregate exposure
to the pesticide chemical residue, including all anticipated dietary
exposures and all other exposures for which there is reliable
information.'' This includes exposure through drinking water and in
residential settings, but does not include occupational exposure.
Section 408(b)(2)(C) of FFDCA requires EPA to give special
consideration to exposure of infants and children to the pesticide
chemical residue in establishing a tolerance and to ``ensure that there
is a reasonable certainty that no harm will result to infants and
children from aggregate exposure to the pesticide chemical
residue....''
    EPA performs a number of analyses to determine the risks from
aggregate exposure to pesticide residues. For further discussion of the
regulatory requirements of section 408 of the FFDCA and a complete
description of the risk assessment process, see http://www.epa.gov/fedrgstr/
[fxsp0]EPA-PEST/1997/November/[fxsp0]Day-26/p30948.htm.

III. Aggregate Risk Assessment and Determination of Safety

    Consistent with section 408(b)(2)(D) of FFDCA, EPA has reviewed the
available scientific data and other relevant information in support of
this action. EPA has sufficient data to assess the hazards of and to
make a determination on aggregate exposure, consistent with section
408(b)(2) of FFDCA, for increasing tolerances for residues of the
herbicide propoxycarbazone and its metabolite in or on wheat, forage to
17 ppm; and for

propoxycarbazone in or on animal commodities cattle/goat/horse/sheep,
meat byproducts to 0.30 ppm; and milk to 0.03 ppm. EPA's assessment of
exposures and risks associated with establishing the tolerance follows.

A. Toxicological Profile

    EPA has evaluated the available toxicity data and considered its
validity, completeness, and reliability as well as the relationship of
the results of the studies to human risk. EPA has also considered
available information concerning the variability of the sensitivities
of major identifiable subgroups of consumers, including infants and
children. Specific information on the studies received and the nature
of the toxic effects caused by propoxycarbazone as well as the no-
observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-
effect-level (LOAEL) from the toxicity studies are discussed in the
Federal Register of July 7, 2004 (69 FR 40774) (FRL-7365-7).

B. Toxicological Endpoints

    For hazards that have a threshold below which there is no
appreciable risk, the dose at which no adverse effects are observed
(the NOAEL) from the toxicology study identified as appropriate for use
in risk assessment is used to estimate the toxicological level of
concern (LOC). However, the lowest dose at which adverse effects of
concern are identified (the LOAEL) is sometimes used for risk
assessment if no NOAEL was achieved in the toxicology study selected.
An uncertainty factor (UF) is applied to reflect uncertainties inherent
in the extrapolation from laboratory animal data to humans and in the
variations in sensitivity among members of the human population as well
as other unknowns.
    The linear default risk methodology (Q*) is the primary method
currently used by the Agency to quantify non-threshold hazards such as
cancer. The Q* approach assumes that any amount of exposure will lead
to some degree of cancer risk, estimates risk in terms of the
probability of occurrence of additional cancer cases.
    A summary of the toxicological endpoints for propoxycarbazone used
for human risk assessment is discussed in Unit III.B. of the final rule
published in the Federal Register of July 7, 2004 (69 FR 40774) (FRL-
7365-7).

C. Exposure Assessment

    1. Dietary exposure from food and feed uses. Tolerances have been
established (40 CFR 180.600) for the residues of propoxycarbazone, in
or on a variety of raw agricultural commodities. Risk assessments were
conducted by EPA to assess dietary exposures from propoxycarbazone in
food as follows:
    i. Acute exposure. Quantitative acute dietary exposure and risk
assessments are performed for a food-use pesticide, if a toxicological
study has indicated the possibility of an effect of concern occurring
as a result of a one-day or single exposure.
     No such effects were identified in the toxicological studies for
propoxycarbazone therefore, a quantitative acute dietary exposure
assessment is unnecessary.
    ii. Chronic exposure. In conducting the chronic dietary exposure
assessment EPA used the Dietary Exposure Evaluation Model software with
the Food Commodity Intake Database (DEEM-FCID\TM\), which incorporates
food consumption data as reported by respondents in the USDA 1994-1996
and 1998 Nationwide Continuing Surveys of Food Intake by Individuals
(CSFII), and accumulated exposure to the chemical for each commodity.
The following assumptions were made for the chronic exposure
assessments: For the chronic analyses, tolerance-level residues were
assumed for all food commodities with current or proposed
propoxycarbazone-sodium tolerances, and it was assumed that all of the
crops included in the analysis were treated. Percent Crop Treated (PCT)
and/or anticipated residues were not used in the chronic risk
assessment.
    2. Dietary exposure from drinking water. The Agency lacks
sufficient monitoring exposure data to complete a comprehensive dietary
exposure analysis and risk assessment for propoxycarbazone in drinking
water. Because the Agency does not have comprehensive monitoring data,
drinking water concentration estimates are made by reliance on
simulation or modeling taking into account data on the physical
characteristics of propoxycarbazone.
    The Agency uses the FQPA Index Reservoir Screening Tool (FIRST) or
the Pesticide Root Zone Model/Exposure Analysis Modeling System (PRZM/
EXAMS), to produce estimates of pesticide concentrations in an index
reservoir. The SCI-GROW model is used to predict pesticide
concentrations in shallow ground water. For a screening-level
assessment for surface water EPA will use FIRST (a tier 1 model) before
using PRZM/EXAMS (a tier 2 model). The FIRST model is a subset of the
PRZM/EXAMS model that uses a specific high-end runoff scenario for
pesticides. Both FIRST and PRZM/EXAMS incorporate an index reservoir
environment, and both models include a percent crop area factor as an
adjustment to account for the maximum percent crop coverage within a
watershed or drainage basin.
    None of these models include consideration of the impact processing
(mixing, dilution, or treatment) of raw water for distribution as
drinking water would likely have on the removal of pesticides from the
source water. The primary use of these models by the Agency at this
stage is to provide a screen for sorting out pesticides for which it is
unlikely that drinking water concentrations would exceed human health
levels of concern.
    Since the models used are considered to be screening tools in the
risk assessment process, the Agency uses the estimated environmental
concentrations (EECs), which are the model estimates of a pesticide's
concentration in water. EECs derived from these models are used to
quantify drinking water exposure and risk as a %RfD or %PAD.
    Based on the FIRST and SCI-GROW models, the estimated environmental
concentrations (EECs) of propoxycarbazone for chronic exposures are
estimated to be 0.9 ppb for surface water and 0.4 ppb for ground water.
    3. From non-dietary exposure. The term ``residential exposure'' is
used in this document to refer to non-occupational, non-dietary
exposure (e.g., for lawn and garden pest control, indoor pest control,
termiticides, and flea and tick control on pets).
    Propoxycarbazone is not registered for use on any sites that would
result in residential exposure.
    4. Cumulative effects from substances with a common mechanism of
toxicity. Section 408(b)(2)(D)(v) of the FFDCA requires that, when
considering whether to establish, modify, or revoke a tolerance, the
Agency consider ``available information'' concerning the cumulative
effects of a particular pesticide's residues and ``other substances
that have a common mechanism of toxicity.''
    Unlike other pesticides for which EPA has followed a cumulative
risk approach based on a common mechanism of toxicity, EPA has not made
a common mechanism of toxicity finding as to propoxycarbazone and any
other substances and propoxycarbazone does not appear to produce a
toxic metabolite produced by other substances. For the purposes of this
tolerance action, therefore, EPA has not assumed that propoxycarbazone
has a common mechanism of toxicity with other substances. For
information regarding EPA's efforts to determine which

chemicals have a common mechanism of toxicity and to evaluate the
cumulative effects of such chemicals, see the policy statements
released by EPA's Office of Pesticide Programs concerning common
mechanism determinations and procedures for cumulating effects from
substances found to have a common mechanism on EPA's website at http://www.epa.gov/pesticides/cumulative
.

D. Safety Factor for Infants and Children

    1. In general. Section 408 of FFDCA provides that EPA shall apply
an additional tenfold margin of safety for infants and children in the
case of threshold effects to account for prenatal and postnatal
toxicity and the completeness of the data base on toxicity and exposure
unless EPA determines based on reliable data that a different margin of
safety will be safe for infants and children. Margins of safety are
incorporated into EPA risk assessments either directly through use of a
MOE analysis or through using uncertainty (safety) factors in
calculating a dose level that poses no appreciable risk to humans. In
applying this provision, EPA either retains the default value of 10X
when reliable data do not support the choice of a different factor, or,
if reliable data are available, EPA uses a different additional safety
factor value based on the use of traditional uncertainty factors and/or
special FQPA safety factors, as appropriate.
    2. Conclusion. EPA has determined that there is reliable data
showing that it will be safe for infants and children to remove the
FQPA safety factor. The FQPA factor is removed based on the following:
    i. There is no quantitative or qualitative evidence of increased
susceptibility of rat and rabbit fetuses to in utero exposure to
propoxycarbazone-sodium in developmental toxicity studies. There is no
quantitative or qualitative evidence of increased susceptibility to
propoxycarbazone-sodium following pre-/post-natal exposure to a 2-
generation reproduction study;
    ii. There is no concern for developmental neurotoxicity resulting
from exposure to propoxycarbazone-sodium. A developmental neurotoxicity
study (DNT) study is not required;
    iii. The toxicological database is complete for FQPA assessment;
    iv. The chronic dietary food exposure assessment utilizes HED
recommended tolerance level residues and 100% CT information for all
commodities. By using these screening-level assessments, actual
exposures/risks will not be underestimated; and
    v. The dietary drinking water assessment utilizes water
concentration values generated by model and associated modeling
parameters which are designed to provide conservative, health
protective, high-end estimates of water concentrations which will not
likely be exceeded.

E. Aggregate Risks and Determination of Safety

    1. Acute risk. An effect of concern attributable to a single
exposure (dose) was not identified from the oral toxicity studies
including the developmental toxicity studies in rat and rabbits. No
acute risk is expected from exposure to propoxycarbazone-sodium.
    2. Chronic risk. Using the exposure assumptions described in this
unit for chronic exposure, EPA has concluded that exposure to
propoxycarbazone from food and drinking water will utilize <  1 % of the
cPAD for the U.S. population, and <  1 % of the cPAD for Children 1-2
years old. There are no residential uses for propoxycarbazone that
result in chronic residential exposure to propoxycarbazone.
    3. Short-term risk. Propoxycarbazone is not registered for use on
any sites that would result in residential exposure. Therefore, the
aggregate risk is the sum of the risk from food and water, which do not
exceed the Agency's level of concern.
    4. Determination of safety. Based on these risk assessments, EPA
concludes that there is a reasonable certainty that no harm will result
to the general population and to infants and children from aggregate
exposure to propoxycarbazone residues.

IV. Other Considerations

A. Analytical Enforcement Methodology

    Adequate enforcement methodology (liquid chromatography/mass
spectroscopy) is available to enforce the tolerance expression. The
method may be requested from: Chief, Analytical Chemistry Branch,
Environmental Science Center, 701 Mapes Rd., Ft. Meade, MD 20755-5350;
telephone number:<PHONE_NUMBER>; e-mail address:
<EMAIL_ADDRESS>

B. International Residue Limits

    There are no Codex, Canadian or Mexican maximum residue limits
established for propoxycarbazone-sodium on wheat, meat, meat byproducts
or milk.

C. Response to Comments

    Public comments were received from B. Sachau who objected to the
proposed tolerances because of the amounts of pesticides already
consumed and carried by the American population. She further indicated
that testing conducted on animals have absolutely no validity and are
cruel to the test animals. B. Sachau's comments contained no scientific
data or evidence to rebut the Agency's conclusion that there is a
reasonable certainty that no harm will result from aggregate exposure
to propoxycarbazone, including all anticipated dietary exposures and
all other exposures for which there is reliable information. EPA has
responded to B. Sachau's generalized comments on numerous previous
occasions. [January 7, 2005, 70 FR 1349, 1354 (FRL-7691-4); October 29,
2004, 69 FR 63083, 63096 (FRL-7681-9)].

V. Conclusion

    Therefore, the tolerances are increased for residues of the
herbicide propoxycarbazone and its metabolite in or on wheat, forage to
17 ppm; and for propoxycarbazone in or on animal commodities cattle/
goat/horse/sheep, meat byproducts to 0.30 ppm; and milk to 0.03 ppm.

VI. Statutory and Executive Order Reviews

    This final rule establishes a tolerance under section 408(d) of
FFDCA in response to a petition submitted to the Agency. The Office of
Management and Budget (OMB) has exempted these types of actions from
review under Executive Order 12866, entitled Regulatory Planning and
Review (58 FR 51735, October 4, 1993). Because this rule has been
exempted from review under Executive Order 12866 due to its lack of
significance, this rule is not subject to Executive Order 13211,
Actions Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use (66 FR 28355, May 22, 2001). This final rule does
not contain any information collections subject to OMB approval under
the Paperwork Reduction Act (PRA), 44 U.S.C. 3501 et seq., or impose
any enforceable duty or contain any unfunded mandate as described under
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) (Public Law
104-4). Nor does it require any special considerations under Executive
Order 12898, entitled Federal Actions to Address Environmental Justice
in Minority Populations and Low-Income Populations (59 FR 7629,
February 16, 1994); or OMB review or any Agency action under Executive
Order 13045, entitled Protection of Children from Environmental Health
Risks and Safety

Risks (62 FR 19885, April 23, 1997). This action does not involve any
technical standards that would require Agency consideration of
voluntary consensus standards pursuant to section 12(d) of the National
Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law
104-113, section 12(d) (15 U.S.C. 272 note). Since tolerances and
exemptions that are established on the basis of a petition under
section 408(d) of FFDCA, such as the tolerance in this final rule, do
not require the issuance of a proposed rule, the requirements of the
Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) do not apply.
In addition, the Agency has determined that this action will not have a
substantial direct effect on States, on the relationship between the
national government and the States, or on the distribution of power and
responsibilities among the various levels of government, as specified
in Executive Order 13132, entitled Federalism(64 FR 43255, August 10,
1999). Executive Order 13132 requires EPA to develop an accountable
process to ensure ``meaningful and timely input by State and local
officials in the development of regulatory policies that have
federalism implications.'' ``Policies that have federalism
implications'' is defined in the Executive order to include regulations
that have ``substantial direct effects on the States, on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government.'' This final rule directly regulates growers, food
processors, food handlers and food retailers, not States. This action
does not alter the relationships or distribution of power and
responsibilities established by Congress in the preemption provisions
of section 408(n)(4) of FFDCA. For these same reasons, the Agency has
determined that this rule does not have any ``tribal implications'' as
described in Executive Order 13175, entitled Consultation and
Coordination with Indian Tribal Governments (65 FR 67249, November 6,
2000). Executive Order 13175, requires EPA to develop an accountable
process to ensure ``meaningful and timely input by tribal officials in
the development of regulatory policies that have tribal implications.''
``Policies that have tribal implications'' is defined in the Executive
order to include regulations that have ``substantial direct effects on
one or more Indian tribes, on the relationship between the Federal
Government and the Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes.''
This rule will not have substantial direct effects on tribal
governments, on the relationship between the Federal Government and
Indian tribes, or on the distribution of power and responsibilities
between the Federal Government and Indian tribes, as specified in
Executive Order 13175. Thus, Executive Order 13175 does not apply to
this rule.

VII. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this rule and other
required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of this final rule in the Federal Register. This final
rule is not a ``major rule'' as defined by 5 U.S.C. 804(2).

List of Subjects in 40 CFR Part 180

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

    Dated: August 28, 2006.
Donald R. Stubbs,
Acting Director, Registration Division, Office of Pesticide Programs.

0
Therefore, 40 CFR chapter I is amended as follows:

PART 180--[AMENDED]

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

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

0
2. Section 180.600 is amended by revising the tolerance levels for
wheat, forage in the table in paragraph (a)(1) and for cattle, meat
byproducts; goat, meat byproducts; horse, meat byproducts; milk; and
sheep, meat byproducts in the table in paragraph (a)(2) to read as
follows:

Sec.  180.600  Propoxycarbazone; tolerances for residues.

    (a) General. (1) * * *

------------------------------------------------------------------------
                      Commodity                        Parts per million
------------------------------------------------------------------------
Wheat, forage........................................                 17
                                * * * * *
------------------------------------------------------------------------

    (2) * * *

------------------------------------------------------------------------
                      Commodity                        Parts per million
------------------------------------------------------------------------
                                * * * * *
Cattle, meat byproducts..............................                0.3
                                * * * * *
Goat, meat byproducts................................                0.3
                                * * * * *
Horse, meat byproducts...............................                0.3
Milk.................................................               0.03
                                * * * * *
Sheep, meat byproducts...............................                0.3
------------------------------------------------------------------------

* * * * *
[FR Doc. E6-14641 Filed 9-5-06; 8:45 am]

BILLING CODE 6560-50-S


[Federal Register Volume 83, Number 141 (Monday, July 23, 2018)]
[Notices]
[Pages 34901-34907]
[FR Doc No: 2018-15646]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83654; File No. SR-NSCC-2018-003]

Self-Regulatory Organizations; National Securities Clearing
Corporation; Notice of Filing of and Immediate Effectiveness of a
Proposed Rule Change To Clarify and Enhance Rules Related to the CNS
Reorganization Processing System and NSCC's Authority To Reveal the
Identity of Counterparties in Certain Circumstances

July 17, 2018.
    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 July 9, 2018, National Securities Clearing Corporation (``NSCC'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I, II and III below, which
Items have been prepared by the clearing agency. NSCC filed the
proposed rule change pursuant to Section 19(b)(3)(A) of the Act \3\ and
Rule 19b-4(f)(4) thereunder.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(4).
---------------------------------------------------------------------------

I. Clearing Agency's Statement of the Terms of Substance of the
Proposed Rule Change

    The proposed rule change consists of modifications to the Rules and
Procedures of NSCC (``Rules'') \5\ in order to (1) clarify, correct,
and enhance the description of the procedures by which NSCC processes
transactions in securities that are eligible for its Continuous Net
Settlement (``CNS'') system (``CNS Securities'') \6\ and are subject to
a corporate reorganization event through the CNS Reorganization
Processing System; and (2) describe NSCC's authority to identify to
Members their counterparties for their positions in a subject security
as of the critical date of an applicable payment or event, as described
in greater detail below.
---------------------------------------------------------------------------

    \5\ The Rules are available at http://www.dtcc.com/legal/rules-and-procedures. Capitalized terms used herein and not otherwise
defined shall have the meaning assigned to such terms in the Rules.
    \6\ CNS and its operation are described in Rule 11 and Procedure
VII of the Rules. Id.
---------------------------------------------------------------------------

II. Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

    In its filing with the Commission, the clearing agency 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 clearing agency has prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.

(A) Clearing Agency's Statement of the Purpose of, and Statutory Basis
for, the Proposed Rule Change

1. Purpose
    NSCC is proposing to make certain revisions to Procedure VII,
Section H of the Rules, which describes, among other matters, NSCC's
CNS Reorganization Processing System.
    First, the proposed changes would clarify, correct, and enhance the
description of the CNS Reorganization Processing System by (1) revising
the description of the scope of corporate reorganization events that
may be processed through the CNS Reorganization Processing System; (2)
revising the description of the processing of voluntary reorganizations
through the CNS Reorganization Processing System; and (3) making
technical revisions to Section H of

Procedure VII of the Rules, including correcting the use of defined
terms and typographical and other drafting errors. NSCC believes these
proposed changes would improve the clarity and transparency of these
procedures.
    Second, the proposed changes would add a new subsection to
Procedure VII, Section H of the Rules to describe that NSCC may (1) at
its discretion, apply asset servicing events \7\ to transactions in CNS
Securities; (2) determine that such asset servicing events be processed
outside its facilities; and (3) assist its Members in processing
certain asset servicing events by identifying to those Members their
respective counterparties for their positions in the subject security
as of the critical date of that event.
---------------------------------------------------------------------------

    \7\ For purposes of this filing, an ``asset servicing event''
refers to asset servicing or other events that may or may not relate
to corporate reorganizations or payments, for example, payments
pursuant to litigation or other disputes, distributions on class
actions, bankruptcy payments, consent solicitations, other
distributions, claims or fees.
---------------------------------------------------------------------------

i. Overview of the CNS Reorganization Processing System and Section H
of Procedure VII of the Rules
    Under the CNS system, all eligible compared and recorded
transactions for a particular settlement date are netted by issue into
one net long (buy), net short (sell) or flat position per Member. As a
continuous net system, those positions are further netted with
positions of the same issue that remain open after their originally
scheduled settlement date (usually T+2), so that trades scheduled to
settle on any day are netted with fail positions which results in a
single deliver or receive obligation for each Member for each issue in
which the Member has activity.
    Through the CNS Reorganization Processing System, NSCC may apply
eligible corporate reorganization events to its Members' positions in
CNS Securities when such events occur during the settlement cycle.
Corporate reorganization events that NSCC may apply to these
transactions in the subject securities include (1) mandatory
reorganizations (for example, mergers, full redemptions, liquidations,
reverse splits, and name changes); and (2) voluntary reorganizations
(for example, mergers with elections, tender offers, and exchange
offers). As set forth in Section H of Procedure VII of the Rules, NSCC
has the discretion to (1) exclude certain corporate reorganization
events (including those for which operational difficulties would
prevent the processing through the CNS Reorganization Processing
System); and (2) process corporate reorganization events that would
otherwise be ineligible if NSCC determines that it has the capability
to do so.
    Section H of Procedure VII of the Rules describes the timeline of
actions that must occur in connection with the processing of eligible
corporate reorganization events, and states that NSCC would provide
Members with notice detailing how corporate reorganization events would
be processed if they would otherwise be ineligible for processing. As
described in the Rules, the processing of mandatory reorganizations
occurs automatically. The processing of voluntary reorganizations
through the CNS Reorganization Processing System, however, requires
certain actions to be taken by both NSCC and by Members with positions
in the subject security during the period of time leading up to and
following the expiration of the event. This period of time is referred
to in the Rules as the ``protect period'' and is defined by reference
to the expiration date, or ``E,'' of a voluntary reorganization (e.g.,
``E+1'' is one day past the expiration date of the event). Currently,
Section H of Procedure VII of the Rules describes the rules and actions
applicable to voluntary reorganizations with a protect period of two
days in roughly chronological order. A table within Section H of
Procedure VII of the Rules identifies the timeline of rules and actions
applicable to voluntary reorganizations that have a protect period of
one day or that do not have a protect period.
    NSCC may assist its Members by applying to CNS Securities
applicable asset servicing events. NSCC may also determine that
operational difficulties prevent it from applying certain asset
servicing events, in which case, Members must work directly with each
other to process those asset servicing events. As a result of CNS
netting, counterparties to obligations are not known to each other.
Therefore, in order to process asset servicing events away from NSCC,
Members occasionally request that NSCC identify their counterparty to a
particular obligation over the critical event date (e.g., the record
date or the position capture date). In these circumstances, NSCC
applies a random allocation procedure (utilizing the same allocation
procedure described in Procedure VII, Section H, 1 of the Rules) to
match counterparties. After matching counterparties through this
allocation procedure, NSCC contacts each of the counterparties via
email or telephone to receive authority to identify the counterparties
to the requesting Member.
ii. Rationale for Proposed Rule Changes
    In connection with a review of its Rules, NSCC identified
opportunities to improve Section H of Procedure VII of the Rules in
order to more clearly describe the operation of the CNS Reorganization
Processing System. NSCC also determined that this section of the Rules
should be revised to correct drafting errors in, and make other
technical corrections to, the current descriptions within the Rules.
    Currently, the Rules do not address the application of asset
servicing events, which are applied automatically by NSCC and do not
require any action by Members. However, NSCC believes it would improve
the transparency of the Rules to include a section in Procedure VII,
Section H of the Rules that would describe NSCC's authority to apply
asset servicing events, identify examples of asset servicing events
that it may not apply, and describe how NSCC may assist Members to
process asset servicing events outside of its facilities, as described
further below.
    NSCC believes these proposed changes would improve Members'
understanding of their rights and obligations, and NSCC's rights and
obligations, in connection with the CNS Reorganization Processing
System and the processing of assets servicing events and, thereby,
would improve the operation of these services.
iii. Proposed Changes to Description of CNS Reorganization Processing
System
    The proposed changes, described below, would improve and update the
Rules that describe the operation of the CNS Reorganization Processing
System, by clarifying and enhancing the descriptions to make them
clearer to Members. NSCC believes making these descriptions clearer
would enhance Members' understanding of their rights and obligations in
connection with this service.
Proposed Clarifications to the Scope of Corporate Reorganization Event
Processing
    Under the introduction to ``Corporate Reorganizations,'' in Section
H, 4 of Procedure VII of the Rules, NSCC is proposing changes to
clarify and correct the descriptions of which corporate reorganization
events may be processed through the CNS Reorganization Processing
System and NSCC's authority to exclude certain corporate reorganization
events from such processing.
    Revising the Non-Exhaustive List of Corporate Reorganization Events
that May be Applied by NSCC. The proposed

changes to Procedure VII, Section H, 4 of the Rules would retain the
existing list of the most common types of events that NSCC may process,
but would clarify that this is a non-exhaustive list of examples. The
proposed change would also revise the reference from ``redemptions'' to
``full redemptions'' within the list of examples of mandatory
reorganizations that NSCC may process. The current use of the term
``redemptions'' was intended to refer to full redemptions, which are
generally processed by NSCC. However, without using the qualifier
``full,'' NSCC believes Members may misunderstand and believe that NSCC
would process partial redemptions. Partial redemptions are not
processed by NSCC. Therefore the proposed change would clarify which
type of redemptions are processed by NSCC and were intended to be
included in this list.
    The proposed change would also add mergers with elections to the
list of voluntary reorganizations that may be processed through the CNS
Reorganization Processing System as these events are applied relatively
frequently and NSCC believes including these events in this non-
exhaustive list would improve the transparency of the Rules. Within
this section, NSCC is also proposing to revise the defined term from
``tender offers'' to ``voluntary offers,'' because this defined term,
as used in this section of Procedure VII of the Rules, refers to two
types of voluntary offers--both tender offers and exchange offers. This
proposed change would improve the clarity of these procedures where the
current defined term may incorrectly imply that exchange offers are not
included when this defined term is used.
    NSCC is also proposing to revise the list of securities that would
not be processed through the CNS Reorganization Processing System by
changing ``securities subject to redemption if there is a conversion
privilege attached'' \8\ to ``securities subject to a conversion
event.'' While NSCC would not process conversion events due to
operational difficulties, as described below, it generally would, as
stated above, process full redemptions. The current language in this
list was intended to reflect that NSCC would process a redemption
event, but, if that event has a conversion privilege attached, it would
not process the related conversion. The proposed change would clarify
the meaning and would mitigate any confusion about the eligibility of
these events for processing by providing greater transparency in the
Rules with respect to the treatment of both full redemption events and
conversion events.
---------------------------------------------------------------------------

    \8\ A ``redemption'' is a reorganization event that occurs on a
maturity date when the issuer makes a payment on debt securities for
the principal amount plus any accrued interest. A redemption may
include a conversion privilege, which would entitle the security
holder to convert the security in lieu of the redemption payment.
---------------------------------------------------------------------------

    Removing Descriptions of Corporate Reorganization Events that are
Not Supported by the CNS Reorganization Processing System. NSCC is
proposing to remove descriptions of the processing of two types of
voluntary reorganizations that it does not support in the CNS
Reorganization Processing System: (1) Voluntary reorganizations that
have a protect period longer than two business days and (2) conversion
events for convertible securities. As described below, NSCC has
generally exercised its existing authority provided under Procedure
VII, Section H of the Rules and declined to process these events due to
operational difficulties. Therefore, while these changes would revise
the Rules as written, the changes would not result in any change in the
current operation of the service. Rather, the proposed change would
reflect NSCC's longstanding exercise of its authority to decline to
process these events. As such, NSCC does not believe that either of
these changes would alter the respective rights or obligations of NSCC
or Members using this service. NSCC believes these proposed changes
would mitigate any confusion by Members regarding the availability of
this service.
    First, NSCC is proposing to add a sentence to this Section H, 4 of
Procedure VII of the Rules to make clear that NSCC generally would not
process voluntary reorganizations that have a protect period longer
than two business days. These types of events are extremely rare as the
vast majority of voluntary reorganizations have a protect period of two
business days or less. Additionally, industry feedback provided to NSCC
has indicated that there is a preference that these events be processed
outside NSCC's facilities.\9\
---------------------------------------------------------------------------

    \9\ The Corporate Actions Section of the Operations & Technical
Society of Securities Industry and Financial Markets Association
(``SIFMA'') meets periodically to discuss issues related to
corporate reorganization processing. NSCC staff attends these
meetings. As recently as September 2017, this group requested that
NSCC exercise the discretion currently provided to it in Procedure
VII, Section H of the Rules to no longer process voluntary
reorganization events with a protect period longer than two business
days due to operational challenges in processing these events. This
request was not solicited by NSCC.
---------------------------------------------------------------------------

    In connection with this proposed change, NSCC would also remove
from Section H, 4(b) of Procedure VII of the Rules descriptions of the
special rules that govern the processing of events with a protect
period longer than two business days. Some of the descriptions of these
special processing rules currently in Section 4(b) do not clearly
indicate that they are only applicable to these types of events, which
could cause Members confusion about whether these descriptions are
applicable to the processing of all voluntary reorganizations. Further,
if NSCC does decide to process an event with a protect period longer
than two business days, it would provide Members with a notice
detailing the applicable processing rules, as currently stated in the
introduction to ``Corporate Reorganizations,'' in Section H, 4 of
Procedure VII of the Rules.
    Therefore, NSCC is proposing to remove a sentence in the
introduction to Section H, 4(b) of Procedure VII of the Rules that
states the rules within this subsection apply to voluntary
reorganizations with a protect period longer than two business days
unless otherwise stated. Additionally, within this section under new
subheading ``On and Following E+3,'' NSCC is proposing to remove the
statement that positions may be removed from the CNS Reorganization
Sub-Account as a result of the CNS allocation process because only
voluntary reorganizations that have a protect period longer than two
business days would reach the CNS allocation process after NSCC has
frozen positions in the CNS Reorganization Sub-Account. NSCC would also
remove a paragraph under this subheading that describes the effect of
the CNS allocation process on positions subject to a voluntary
reorganization because, as stated above, only voluntary reorganizations
that have a protect period longer than two business days would reach
the CNS allocation process at this point in the processing timeline.
    Second, NSCC would remove Section H, 5 of Procedure VII of the
Rules which describes the special processing rules that apply to a
conversion event for convertible securities. For at least the past 10
years, NSCC has exercised its existing authority to decline to process
these reorganization events for convertible securities due to
operational difficulties. Therefore, the proposed rule change would
reflect the longstanding operation of the CNS Reorganization Processing
System, and would mitigate any confusion by Members regarding the
availability of this service.
    NSCC does not believe these proposed changes would alter the
respective rights or obligations of NSCC or its Members using this
service.

Proposed Clarifications to Voluntary Reorganization Processing Rules
    NSCC is also proposing changes that would clarify and enhance the
description of rules applicable to voluntary reorganizations under
Section H, 4(b) of Procedure VII of the Rules.
    Adding Chronological Subheadings and Reordering the Processing
Rules. In order to better organize these rules and improve the
transparency regarding when certain rules apply within the
reorganization processing timeline, NSCC is proposing to add
chronological subheadings within this section. Within the descriptions
of the rules under each new subheading, NSCC would revise statements by
removing redundant references to timing because the timing of that
applicable statement or rule would be clear from the new subheadings.
This proposed change would simplify these descriptions of the
applicable rules, making them clearer and more easily understood by
Members.
    NSCC is also proposing to reorder certain statements within this
section of Procedure II to be more closely aligned to chronological
order. While the chronology of processing has not changed, over time
various revisions to these Rules have added descriptions to this
section that are out of chronological order. NSCC is proposing to move
the description of the processing that occurs on E+1 to follow the
description of processing that occurs after the CNS night cycle
processing on E+1. Additionally, NSCC is proposing to move two
statements regarding the regular CNS allocation process to the new
subheading ``On E+2 (Protect Period Expiration Date).'' These two
statements describe the occurrence of the regular CNS allocation
process and the priority within that allocation process of certain
positions. Currently, these statements appear lower in the timeline.
    Revisions Under ``On E+2 (Protect Period Expiration Date).'' Under
the new subheading ``On E+2 (Protect Period Expiration Date),'' NSCC is
proposing to clarify that Members are prohibited from moving subject
securities between the Fully-Paid-For Subaccount and the CNS General
Account either on the protect expiration date or on the expiration of
the voluntary reorganization when there is no protect period, as
applicable. Currently, the Rules simply refer to the Fully-Paid-For
Subaccount as a ``non-reorganization subaccount.'' NSCC believes the
proposed change would improve the transparency of the Rules by more
clearly identifying the subaccount that is subject to this restriction.
NSCC is also proposing to move this statement earlier under the new
heading ``On E+2 (Protect Period Expiration Date)'' because this
restriction is applicable throughout during E+2 (rather than only after
the day cycle, where it is currently listed). Finally, as described
further below, NSCC is proposing to add this rule to the table within
this section because this rule also applies to the events addressed by
this table. This proposed change would improve the transparency of the
Rules by making the table more comprehensive.
    Revisions Under ``After Day Cycle--E+2.'' Under the new subheading
``After Day Cycle--E+2,'' NSCC is proposing to remove a sentence from
the Rules that is a statement of fact that Members may have a partial
allocation of positions in the CNS Reorganization Sub-Account. While
accurate, this statement does not describe the rights or obligations of
either NSCC or its Members in connection with the processing of
corporate reorganization events, nor does it provide any material
information that NSCC believes would be relevant to Members in their
understanding of the operation of this service. NSCC is proposing to
simplify the Rules by removing statements that do not provide important
information to Members regarding the operation of this service and NSCC
believes this proposed change would make the Rules clearer and more
easily understood by Members.
    Also under this new subheading, NSCC is proposing to revise the
description of the process by which a Member may request that NSCC move
a long position in a subject security from the CNS Reorganization Sub-
Account back to the CNS General Account. The proposed change would
clarify that, where one Member may make the request, the Member with
the corresponding long or short position must approve that request
before NSCC would take action. This proposed change would improve the
transparency of the Rules by including a description of this necessary
step in the processing of these requests that is not currently stated
in the Rules.
    Under the new subheading ``After Day Cycle--E+2,'' NSCC is
proposing to remove the description of the process by which NSCC would
exit a security from the CNS System if it is subject to more tender
offers than available CNS Reorganization Sub-Accounts. In the event
that a CNS Security is subject to more tender offers than available CNS
Reorganization Sub-Accounts, NSCC would exercise its discretion, as
stated earlier in Section H, 4 of Procedure VII, and would not process
the voluntary reorganization due to operational difficulties.
Therefore, while this statement, which appears later in this section,
is accurate, NSCC does not believe it is necessary to include this
additional statement in the Rules. NSCC's decision not to process the
voluntary reorganization due to operational difficulties would occur
earlier in the chronology and is already covered by the earlier,
broader statement regarding the scope of corporate reorganization event
processing. This proposed change would simplify the Rules by removing
an unnecessary statement that is redundant of an earlier statement and
would make the Rules clearer.
    Revisions Under ``On and Following E+3.'' Under the new subheading
``On and Following E+3,'' NSCC is proposing to improve the description
of the circumstances in which positions in the CNS Reorganization Sub-
Account would be returned to the Members' CNS General Account by
including a description of when a voluntary reorganization is canceled
or when the expiration date of a voluntary reorganization is extended.
This proposed change would make this description more comprehensive
and, therefore, improve the transparency of the Rules.
    Also under this new subheading, NSCC is proposing to remove a
paragraph that describes the process for reflecting a delivery of a
subject security outside NSCC's facilities because NSCC believes this
is a repetitive description of the process by which Members may request
that their positions be removed from the CNS Reorganization Sub-Account
back to the CNS General Account. This process is already described in
the Rules under the new subheading ``On and Following E+3.'' Therefore,
the proposed change would simplify the Rules by removing a redundant
statement that does not provide Members with additional information
regarding the process described above.
    Revisions to the Processing Rules Table. NSCC is also proposing
changes that would improve the information within the table in this
section of the Rules. This table identifies the timeframes for
processing (1) voluntary reorganizations with a protect period of one
day and (2) voluntary reorganizations with no protect period. The
proposed changes to this table would clarify in the introduction to
this table that the table applies to these two types of events, where
it currently states it is applicable to processing of

voluntary reorganizations with protect period of one day ``or less.''
NSCC is also proposing to include in this table the rule that Members
are prohibited from moving positions in subject securities between the
CNS General Account and Fully-Paid-For Subaccount either on the protect
period expiration date (in this case, E+1) or, when there is no protect
period, on the event expiration date (in this case, E). Including this
rule, which is applicable to the processing of these events, would make
this table more comprehensive and improve the transparency of the
Rules.
Proposed Technical Revisions To Improve, Clarify and Simplify
Descriptions
    NSCC is proposing technical revisions to the descriptions
throughout Section H of Procedure VII of the Rules that would enhance
the clarity and transparency of these procedures. Such changes would
correct the use of defined terms and typographical and other drafting
errors, revise statements for clarity and consistency, and improve
internal cross-references within the Rules. Additionally, NSCC would
propose to add ``money balances'' to Section H, 1 of Procedure VII,
which describes the types of adjustments NSCC may make within the CNS
system and which may appear on the Members' Miscellaneous Activity
Report. Currently, this section only refers to ``positions'' which
could be interpreted to mean only securities positions. Because NSCC
may make adjustments to either securities positions or money balances
within CNS, the proposed change would clarify this statement and
improve the transparency of this section of the Rules.
    As another example of the technical revisions being proposed, NSCC
would also revise references within these procedures from ``short
positions'' or ``long positions'' that are being processed through the
CNS Reorganization Processing System to ``short positions in the
subject security'' and ``long positions in the subject security.'' NSCC
would also propose to amend this section by revising references to the
``Sub-Account'' to the complete defined term, the ``CNS Reorganization
Sub-Account.''
    NSCC believes the proposed technical revisions would create clearer
descriptions of the rules that apply to the services described in this
section of Procedure VII of the Rules and would improve the
transparency of these processing procedures.
iv. Proposed Changes To Describe Processing of Asset Servicing Events
and Authority To Reveal Counterparties
    NSCC is proposing to amend Section H of Procedure VII of the Rules
to include a new subsection 7 that would (1) disclose NSCC's authority
to determine when it may or may not process certain asset servicing
events; (2) provide examples of asset servicing events that NSCC may
determine shall be processed outside its facilities; and (3) describe
the process by which NSCC may assist its Members in applying asset
servicing events outside its facilities, including NSCC's authority to
match counterparties as of the critical date of that asset servicing
event and reveal those counterparties to those Members.
NSCC's Authority To Apply or Decline To Apply Asset Servicing Events
    NSCC currently may assist its Members by applying certain asset
servicing events to Members' positions in CNS Securities that are
subject to that event on the relevant event date or payment date. NSCC
may also, in its discretion, determine that operational difficulties or
other circumstances would prevent the processing of such asset
servicing events within its facilities. NSCC is proposing to add a new
Section H, 7 of Procedure VII of the Rules to provide transparency
regarding its discretion in supporting asset servicing events with
respect to transactions in CNS Securities, and its discretion in
determining when it may be appropriate that an asset servicing event be
processed outside its facilities due to operational difficulties or
other concerns regarding the event.
Identify Examples of Asset Servicing Events That NSCC May Not Process
    NSCC is also proposing to include in this new Section H, 7 of
Procedure VII of the Rules examples of the types of asset servicing
events NSCC may determine shall be processed outside its facilities.
These events may include payments pursuant to litigation or other
disputes, distributions on class actions, bankruptcy payments, consent
solicitations, other distributions, claims, fees, or events with
respect to which a Member has notified the Corporation that it either
has incurred or anticipates that it will incur liabilities greater than
the terms of the reorganization event.
    In connection with this change, NSCC is proposing to remove the
last paragraph in Section H, 4 of Procedure VII of the Rules that
describes the process by which it would remove positions in subject
securities from the CNS System if a Member has notified NSCC that it
either has incurred or anticipates it will incur liabilities greater
than the terms of the reorganization event. Instead, NSCC would include
these events in the list of asset servicing events that may be
processed outside of NSCC's facilities within the proposed new Section
H, 7 of Procedure VII of the Rules. This proposed change would ensure
the Rules continue to provide Members with an appropriate level of
transparency regarding how these events are treated without providing
unnecessary details regarding actions that are taken by NSCC in order
to effect the exit of these positions from the CNS System. Therefore,
the proposed change would simplify the Rules, which improves its
overall clarity.
NSCC Authority To Reveal Counterparties To Assist Members in Processing
Asset Servicing Events Away From NSCC
    The proposed rule change would also include a description in this
new Section H, 7 of the Rules of NSCC's authority to use a random
allocation procedure to match counterparties and identify those
counterparties to Members. As stated earlier, counterparties to
obligations in CNS Securities are not known to each other as a result
of the continuous netting of transactions within CNS. Therefore,
Members occasionally request that NSCC identify their counterparty to a
particular obligation over a critical event or payment date in order to
(1) assist them in the processing of an asset servicing event outside
of NSCC's facilities, or (2) address claims, disputes, or information
requests related to an event that NSCC has processed and that requires
the Member to work directly with the counterparty. In these
circumstances, NSCC applies a random allocation procedure (utilizing
the same allocation procedure described in Procedure VII, Section H, 1
of the Rules) to match counterparties. Currently, after matching
counterparties through its allocation procedure, NSCC contacts each of
the counterparties via email or telephone to receive authority to
identify the counterparties to the requesting Member.
    As a result of the proposed change, NSCC would continue its
practice of applying a random allocation procedure (utilizing the same
allocation procedure described in Procedure VII, Section H, 1 of the
Rules) to match counterparties when requested by a Member. The proposed
rule change would provide Members with notice that NSCC may reveal
counterparties to a requesting Member in these circumstances. By

providing this notice in the Rules, NSCC would no longer contact the
counterparty to receive authority to reveal that counterparty's
identity to the requesting Member. Therefore, NSCC would be able to
expedite the process and provide Members with the information they need
to process asset servicing events or address other related requests
outside of its facilities more quickly.
    Given that Members often request this information from NSCC and
NSCC generally receives the requested authority to reveal the identity
to its relevant counterparty, NSCC believes the proposed change would
improve the transparency of its Rules, improve the processing of these
events, and help NSCC continue to provide Members with a beneficial
service.
(b) Statutory Basis
    For the reasons described below, NSCC believes that the proposed
changes are consistent with the Section 17A(b)(3)(F) of the Act, which
requires, in part, that the rules of a registered clearing agency be
designed to promote the prompt and accurate clearance and settlement of
securities transactions.\10\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------

    The proposed rule change would improve the transparency of the
Rules and would clarify and correct the descriptions within Section H
of Procedure VII of the Rules, particularly the procedures applicable
to the CNS Reorganization Processing System. Specifically, the proposal
to add a description of the processing of asset servicing events,
including NSCC's discretion to determine that such events should be
processed outside its facilities, would also improve the transparency
of the Rules regarding these matters.
    The CNS Reorganization Processing System allows transactions in
eligible CNS Securities to be processed for clearance and settlement
through NSCC's CNS Accounting System notwithstanding the occurrence of
a corporate reorganization event. By creating clearer Rules regarding
the processing of both corporate reorganization events and asset
servicing events to CNS Securities, and by increasing transparency
regarding Members' and NSCC's rights and obligations in this regard,
the proposed changes would better facilitate the operation of CNS
Reorganization Processing System and would better facilitate the
application of asset servicing events. Therefore, the proposed change
would also better facilitate the operation of the CNS system and, in
this way, would promote the prompt and accurate clearance and
settlement of securities transactions, consistent with Section
17A(b)(3)(F) of the Act.\11\
---------------------------------------------------------------------------

    \11\ Id.
---------------------------------------------------------------------------

    Additionally, by providing Members with notice through the new
Section H, 7 of Procedure VII of the Rules that NSCC may, when
requested, identify their respective counterparties as of the critical
event date, NSCC would no longer need to seek specific approval from
each Member in order to do so. Therefore, the proposed changes would
expedite Members' ability to process asset servicing events outside of
NSCC's facilities. By assisting Members to process asset servicing
events applicable to CNS Securities outside of NSCC's facilities, the
proposed changes would also promote the prompt and accurate clearance
and settlement of securities transactions, consistent with Section
17A(b)(3)(F) of the Act.\12\
---------------------------------------------------------------------------

    \12\ Id.
---------------------------------------------------------------------------

    Rule 17Ad-22(e)(23)(i) under the Act requires, in part, that NSCC
establish, implement, maintain and enforce written policies and
procedures reasonably designed to provide for publicly disclosing all
relevant rules and material procedures.\13\ As described above, the
proposed rule change would improve the transparency, clarity, and
accuracy of the Rules, such that these provisions of the Rules would
better publicly disclose all relevant and material procedures regarding
the aspects of the operation of NSCC's CNS Reorganization Processing
System and the processing of asset servicing and other events and
payments. Therefore, NSCC believes the proposed rule changes are
consistent with Rule 17Ad-22(e)(23)(i).\14\
---------------------------------------------------------------------------

    \13\ See 17 CFR 240.17Ad-22(e)(23)(i).
    \14\ Id.
---------------------------------------------------------------------------

(B) Clearing Agency's Statement on Burden on Competition

    NSCC does not believe that the proposed rule changes would have any
impact, or impose any burden, on competition. The proposed rule changes
would improve Members' understanding of their rights and obligations
with respect to the operation of the CNS Reorganization Processing
System and would improve transparency regarding the processing of asset
servicing and other events and payments. These proposed changes would
be applicable to all Members that utilize these services and would not
alter Members' rights or obligations.
    The proposed rule change to remove descriptions of processing
events that NSCC generally does not process due to operational
difficulties, pursuant to its existing authority, would not result in
any change in the current operation of the service. Rather, the change
would update the Rules to reflect current practice. These changes would
not alter Members' rights or obligations with respect to this service.
    Therefore, NSCC does not believe that the proposed rule changes
would have any impact on competition.

(C) Clearing Agency's Statement on Comments on the Proposed Rule Change
Received From Members, Participants, or Others

    NSCC has not solicited or received any written comments relating to
this proposal. NSCC will notify the Commission of any written comments
that it receives.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A) of the Act \15\ and paragraph (f) of Rule 19b-4
thereunder.\16\ 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
necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

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 protected]. Please include
File Number SR-NSCC-2018-003 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NSCC-2018-003. This file
number should be included on the subject line if email is used. To help
the Commission process and review your

comments more efficiently, please use only one method. The Commission
will post all comments on the Commission's internet website (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent
amendments, all written statements with respect to the proposed rule
change that are filed with the Commission, and all written
communications relating to the proposed rule change between the
Commission and any person, other than those that may be withheld from
the public in accordance with the provisions of 5 U.S.C. 552, will be
available for website viewing and printing in the Commission's Public
Reference Room, 100 F Street NE, Washington, DC 20549 on official
business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of
the filing also will be available for inspection and copying at the
principal office of NSCC and on DTCC's website (http://dtcc.com/legal/sec-rule-filings.aspx). All comments received will be posted without
change. Persons submitting comments are cautioned that we do not redact
or edit personal identifying information from comment submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-NSCC-2018-003
and should be submitted on or before August 13, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

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

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-15646 Filed 7-20-18; 8:45 am]
 BILLING CODE 8011-01-P