[Federal Register: October 5, 2009 (Volume 74, Number 191)]
[Notices]
[Page 51197-51203]
[DOCID:fr05oc09-94]

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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28933; File No. 812-13628]

Charles Schwab Investment Management, Inc., et al.; Notice of
Application

September 28, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application for an order under section 6(c) of the
Investment Company Act of 1940 (the ``Act'') for an exemption from
sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act and rule 22c-1
under the Act, under sections 6(c) and 17(b) of the Act for an
exemption from sections 17(a)(1) and 17(a)(2) of the Act, and under
section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and 12(d)(1)(B) of the Act.

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SUMMARY OF APPLICATION: Applicants request an order that would permit
(a) certain open-end management investment companies and their series
to issue shares (``Shares'') that can be redeemed only in large
aggregations (``Creation Units''); (b) secondary market transactions in
Shares to occur at negotiated prices; (c) certain series to pay
redemption proceeds, under certain circumstances, more than seven days
after the tender of Shares for redemption; (d) certain affiliated
persons of the series to deposit securities into, and receive
securities from, the series in connection with the purchase and
redemption of Creation Units; and (e) certain registered management
investment companies and unit investment trusts outside of the same
group of investment companies as the series to acquire Shares.

APPLICANTS: Schwab Strategic Trust (``Trust'') and Charles Schwab
Investment Management, Inc. (``Adviser'').

FILING DATES: The application was filed on January 30, 2009, and
amended on June 30, 2009, and September 25, 2009.

HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on October 22, 2009, and should be accompanied by proof of service
on applicants, in the form of an affidavit, or for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street,
NE., Washington, DC 20549-1090; Applicants, c/o Charles Schwab
Investment Management, Inc., 101 Montgomery Street, SF120 KNY-14-101,
San Francisco, CA 94104.

FOR FURTHER INFORMATION CONTACT: Emerson S. Davis, Sr., Senior Counsel
at<PHONE_NUMBER>, or Julia Kim Gilmer, Branch Chief, at<PHONE_NUMBER>
(Division of Investment Management, Office of Investment Company
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling<PHONE_NUMBER>.

Applicants' Representations

    1. The Trust is registered as an open-end management investment
company that will offer multiple series and is organized as a Delaware
statutory trust. The Trust will initially offer Shares of eight series
(the ``Initial Funds'').\1\ Applicants request that the order apply to
any future series of the Trust or of other open-end management
companies, advised by the Adviser or an entity controlling, controlled
by or under common control with the Adviser, that comply with the terms
and conditions of this application whose performance will closely
correspond to the price and yield performance of securities indices
(collectively with the Initial Funds, the ``Funds'').\2\
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    \1\ The Initial Funds are the: Schwab U.S. Broad Market ETF
TM, Schwab U.S. Large-Cap ETF TM, Schwab U.S.
Large-Cap Growth ETF TM, Schwab U.S. Large-Cap Value ETF
TM, Schwab U.S. Small-Cap ETF TM
(collectively, the ``Domestic Initial Funds''), Schwab International
Equity ETF TM, Schwab International Small-Cap Equity ETF
TM and Schwab Emerging Markets Equity ETF TM.
    \2\ All entities that intend to rely on the order are named as
applicants. Any other entity that relies on the order in the future
will comply with the terms and conditions of the application. An
Investing Fund (as defined below) may rely on the order only to
invest in the Funds and not in any other registered investment
company.
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    2. The Adviser or an entity controlling, controlled by or under
common control with the Adviser will serve as the investment adviser to
the Funds. The Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the ``Advisers Act''). In
the future, the Adviser may enter into sub-advisory agreements with one
or more additional investment advisers to act as subadvisers to Funds
(``Subadvisers''). Any Subadviser will be registered under the Advisers
Act. A broker-dealer registered under the Securities Exchange Act of
1934 (the ``Exchange Act'') will act as distributor and the principal
underwriter of the Funds (a ``Distributor''). The Distributor will not
be affiliated with the Adviser or a national securities exchange as
defined in section 2(a)(26) of the Act (``Exchange'').
    3. Each Fund will consist of a portfolio of securities and other
instruments (``Portfolio Securities'') selected to correspond to the
price and yield performance of a specified securities index (each
securities index is an ``Underlying Index'').\3\ Certain of the Funds
may invest in equity securities or fixed income securities traded in
foreign markets and seek investment results that closely correspond to
the price and yield performance of Underlying Indices whose component
securities include

such securities (``International Funds''). No entity that creates,
compiles, sponsors or maintains an Underlying Index (``Index
Provider'') is or will be an affiliated person, as defined in section
2(a)(3) of the Act, or an affiliated person of an affiliated person, of
the Trust or a Fund, a promoter, the Adviser, a Subadviser, or a
Distributor.\4\
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    \3\ Applicants represent that each Fund will invest at least 80%
of its total assets in the component securities that comprise its
Underlying Index (``Component Securities'') and depositary receipts
representing such securities. ``Depositary Receipts'' will typically
be American Depositary Receipts, but may also include Global
Depositary Receipts and European Depositary Receipts. Each Fund also
may invest up to 20% of its assets in futures, options and swap
contracts, cash and cash equivalents, as well as in stocks not
included in its Underlying Index, but which the Adviser or
Subadviser believes will help the Fund track its Underlying Index.
    \4\ The Index Providers to the Initial Funds are Dow Jones &
Company, the Financial Times Limited and the London Exchange plc.
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    4. The investment objective of each Fund will be to provide
investment returns that closely correspond to the price and yield
performance of its Underlying Index.\5\ The value of an Underlying
Index will be updated at regular intervals throughout the trading day.
For Domestic Initial Funds, the Underlying Index value will be
disseminated every 15 seconds, and for International Funds the
underlying index value will be disseminated every 60 seconds throughout
the trading day. Each Fund's prospectus (``Prospectus'') will indicate
whether the Fund will follow a replication or representative sampling
strategy.\6\ A Fund using a replication strategy will invest in
substantially all of the securities comprising its Underlying Index in
the same approximate proportions as in the Underlying Index. In certain
circumstances, such as when there are practical difficulties or
substantial costs involved in compiling an entire Underlying Index or
when a Component Security of an Underlying Index is illiquid, a Fund
may use a representative sampling strategy pursuant to which it will
invest in some, but not all of the Component Securities of its
Underlying Index.\7\ Applicants expect that each Fund will have a
tracking error relative to the performance of its Underlying Index of
no more than 5 percent.
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    \5\ The Underlying Indices for the Initial Funds are the: Dow
Jones U.S. Broad Stock Market Index \SM\, Dow Jones U.S. Large-Cap
Total Stock Market Index \SM\, Dow Jones U.S. Large-Cap Growth Total
Stock Market Index \SM\, Dow Jones U.S. Large-Cap Value Total Stock
Market Index \SM\, Dow Jones U.S. Small-Cap Total Stock Market Index
\SM\, FTSE Developed ex-US Index, FTSE Developed Small Cap ex-US
Liquid Index and FTSE All-Emerging Index.
    \6\ All representations and conditions contained in the
application that require a Fund to disclose particular information
in the Fund's Prospectus and/or annual report shall be effective
with respect to the Fund until the time that the Fund complies with
the disclosure requirements adopted by the Commission in Investment
Company Act Release No. 28584 (Jan. 13, 2009).
    \7\ Using the sampling strategy, the Adviser or Subadviser will
select each security for inclusion in the Fund's portfolio to have
aggregate investment characteristics, fundamental characteristics,
and liquidity measures similar to those of the Fund's Underlying
Index, taken in its entirety.
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    5. The initial price of Shares is expected to range between $25 and
$100, and the initial price of Creation Units is expected to range from
$625,000 to $10,000,000. Creation Units will be aggregations of least
25,000 Shares. Orders to purchase Creation Units must be placed with
the Distributor, by or through a party that has entered into an
agreement with the Distributor (``Authorized Participant''). The
Distributor will be responsible for transmitting the orders to the
Funds. An Authorized Participant must be either: (a) A broker-dealer or
other participant in the continuous net settlement system of the
National Securities Clearing Corporation, a clearing agency registered
with the Commission, or (b) a participant in the Depository Trust
Company (``DTC,'' and such participant, ``DTC Participant''). Shares of
each Fund generally will be sold in Creation Units in exchange for an
in-kind deposit by the purchaser of a portfolio of securities
designated by the Adviser (the ``Deposit Securities''), together with
the deposit or refund of a specified cash payment (``Cash Component'').
The Cash Component is an amount equal to the difference between, if
any, (a) the net asset value (``NAV'') (per Creation Unit) of a Fund
and (b) the market value (per Creation Unit) of the Deposit
Securities.\8\ Each Fund may permit or require, under certain
circumstances, an in-kind purchaser of Creation Units to substitute
cash in lieu of depositing some or all of the Deposit Securities if the
Adviser believes such method would substantially minimize the Fund's
transactional costs or would enhance the Fund's operational
efficiencies.\9\
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    \8\ Each Fund will sell and redeem Creation Units on each day
that a Fund is open, which includes any day that a Fund is required
to be open under Section 22(e) of the Act (``Business Day''). Each
Business Day, prior to the opening of trading on the Exchange, the
list of names and amount of each security constituting the current
Deposit Securities and the Cash Component will be made available.
Any Exchange on which Shares are listed will disseminate, every 15
seconds during its regular trading hours, through the facilities of
the Consolidated Tape Association an amount representing, on a per
Share basis, the sum of the current value of the Deposit Securities
and the estimated Cash Component.
    \9\ When a rebalancing of a Fund's portfolio is required, the
Adviser might prefer to receive cash rather than in-kind stocks so
that the Fund may avoid transaction costs involved in liquidating
part of its portfolio to achieve the rebalancing. Additionally, in
some circumstances or in certain countries, it may not be
practicable or convenient, or permissible under the laws of certain
countries or the regulations of certain foreign stock exchanges for
an International Fund to operate exclusively on an in-kind basis.
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    6. An investor purchasing or redeeming a Creation Unit from a Fund
will be charged a fee (``Transaction Fee'') to prevent the dilution of
the interests of the remaining shareholders resulting from costs in
connection with the purchase or redemption of Creation Units.\10\ The
Transaction Fees relevant to each Fund and the method of calculating
these Transaction Fees, which will be the same for purchase and
redemption transactions, will be fully disclosed in the Prospectus of
such Fund or statement of additional information (``SAI''). The
Distributor will be responsible for delivering the Fund's Prospectus to
those persons purchasing Creation Units and for maintaining records of
both the orders placed with it and the confirmations of acceptance
furnished by it. In addition, the Distributor will maintain a record of
the instructions given to the applicable Fund to implement the delivery
of its Shares.
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    \10\ Where a Fund permits an in-kind purchaser to substitute
cash in lieu of depositing a portion of the Deposit Securities, the
purchaser may be assessed a higher Transaction Fee to cover the cost
of purchasing those securities including operational processing and
brokerage costs, and part or all of the spread between the bid and
the offer side of the market.
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    7. Purchasers of Shares in Creation Units may hold such Shares or
may sell such Shares into the secondary market. Shares will be listed
and traded on an Exchange. It is expected that one or more member firms
of an Exchange on which the Shares are listed will be designated to act
as a specialist or a market maker and maintain a market for Shares
trading on such Exchange. Prices of Shares trading on an Exchange will
be based on the current bid/ask market. Shares sold in the secondary
market will be subject to customary brokerage commissions and charges.
    8. Applicants expect that purchasers of Creation Units will include
institutional investors and arbitrageurs. A specialist or market maker,
in providing a fair and orderly secondary market for the Shares, also
may purchase Creation Units for use in its market-making activities.
Applicants expect that secondary market purchasers of Shares will
include both institutional investors and retail investors.\11\
Applicants expect that the price at which Shares trade will be
disciplined by arbitrage opportunities created by the option to
continually purchase or redeem Creation Units at their NAV, which
should ensure that Shares will not trade at a material

discount or premium in relation to their NAV.
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    \11\ Shares will be registered in book-entry form only. DTC or
its nominee will be the registered owner of all outstanding Shares.
DTC or DTC Participants will maintain records reflecting beneficial
owners of Shares.
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    9. Shares will not be individually redeemable, and owners of Shares
may acquire those Shares from the Fund, or tender such Shares for
redemption to the Fund, in Creation Units only. To redeem, an investor
will have to accumulate enough Shares to constitute a Creation Unit.
Redemption orders must be placed by or through an Authorized
Participant. An investor redeeming a Creation Unit generally will
receive (a) a particular portfolio of securities designated to be
delivered for Creation Unit redemptions (``Fund Securities'') on the
Business Day that the request for redemption is submitted \12\ and (b)
a ``Cash Redemption Amount,'' consisting of an amount equal to the
difference between the NAV of the Shares being redeemed and the market
value of the Fund Securities. An investor may receive the cash
equivalent of a Fund Security in certain circumstances, such as if the
investor is constrained from effecting transactions in the security by
regulation or policy.
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    \12\ As a general matter, the Deposit Securities and Fund
Securities will correspond pro rata to a Fund's portfolio, but Fund
Securities received on redemption may not always be identical to
Deposit Securities deposited in connection with the purchase of
Creation Units for the same day. A Fund will comply with the federal
securities laws in accepting Deposit Securities and satisfying
redemptions with Fund Securities, including that the Deposit
Securities and Fund Securities are sold in transactions that would
be exempt from registration under the Securities Act.
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    10. Neither the Trust nor any Fund will be marketed or otherwise
held out as a traditional open-end investment company or a mutual fund.
Instead, each Fund will be marketed as an ``exchange-traded fund.'' All
marketing materials that describe the features or method of obtaining,
buying or selling Creation Units or refer to redeemability, will
prominently disclose that Shares are not individually redeemable and
that the owners of Shares may purchase or redeem Shares from the Fund
in Creation Units only. The same approach will be followed in the
Prospectus, SAI, shareholder reports and any marketing or advertising
materials. The Funds will provide copies of their annual and semi-
annual shareholder reports to DTC Participants for distribution to
shareholders.

Applicants' Legal Analysis

    1. Applicants request an order under section 6(c) of the Act for an
exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e) of the Act
and rule 22c-1 under the Act, under sections 6(c) and 17(b) of the Act
for an exemption from sections 17(a)(1) and 17(a)(2) of the Act, and
under section 12(d)(1)(J) of the Act for an exemption from sections
12(d)(1)(A) and (B) of the Act.
    2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction, or any class of persons,
securities or transactions, from any provision of the Act, if and to
the extent that such exemption is necessary or appropriate in the
public interest and consistent with the protection of investors and the
purposes fairly intended by the policy and provisions of the Act.
Section 17(b) of the Act authorizes the Commission to exempt a proposed
transaction from section 17(a) of the Act if evidence establishes that
the terms of the transaction, including the consideration to be paid or
received, are reasonable and fair and do not involve overreaching on
the part of any person concerned, and the proposed transaction is
consistent with the policies of the registered investment company and
the general provisions of the Act. Section 12(d)(1)(J) of the Act
provides that the Commission may exempt any person, security, or
transaction, or any class or classes of persons, securities or
transactions, from any provisions of section 12(d)(1) if the exemption
is consistent with the public interest and the protection of investors.

Sections 5(a)(1) and 2(a)(32) of the Act

    3. Section 5(a)(1) of the Act defines an ``open-end company'' as a
management investment company that is offering for sale or has
outstanding any redeemable security of which it is the issuer. Section
2(a)(32) of the Act defines a redeemable security as any security,
other than short-term paper, under the terms of which the owner, upon
its presentation to the issuer, is entitled to receive approximately
his proportionate share of the issuer's current net assets, or the cash
equivalent. Because Shares will not be individually redeemable,
applicants request an order that would permit the Trust or a Fund to
register as an open-end management investment company and issue Shares
that are redeemable in Creation Units only. Applicants state that
investors may purchase Shares in Creation Units and redeem Creation
Units from each Fund. Applicants state that because Creation Units may
always be purchased and redeemed at NAV, the market price of the Shares
should not vary substantially from their NAV.

Section 22(d) of the Act and Rule 22c-1 Under the Act

    4. Section 22(d) of the Act, among other things, prohibits a dealer
from selling a redeemable security, which is currently being offered to
the public by or through a principal underwriter, except at a current
public offering price described in the prospectus. Rule 22c-1 under the
Act generally requires that a dealer selling, redeeming or repurchasing
a redeemable security do so only at a price based on its NAV.
Applicants state that secondary market trading in Shares will take
place at negotiated prices, not at a current offering price described
in a Fund's Prospectus, and not at a price based on NAV. Thus,
purchases and sales of Shares in the secondary market will not comply
with section 22(d) of the Act and rule 22c-1 under the Act. Applicants
request an exemption under section 6(c) from these provisions.
    5. Applicants assert that the concerns sought to be addressed by
section 22(d) of the Act and rule 22c-1 under the Act with respect to
pricing are equally satisfied by the proposed method of pricing Shares.
Applicants maintain that while there is little legislative history
regarding section 22(d), its provisions, as well as those of rule 22c-
1, appear to have been designed to (a) prevent dilution caused by
certain riskless-trading schemes by principal underwriters and contract
dealers, (b) prevent unjust discrimination or preferential treatment
among buyers, and (c) assure an orderly distribution of investment
company shares by eliminating price competition from dealers offering
shares at less than the published sales price and repurchasing shares
at more than the published redemption price.
    6. Applicants believe that none of these purposes will be thwarted
by permitting Shares to trade in the secondary market at negotiated
prices. Applicants state that (a) secondary market trading in Shares
does not involve a Fund as a party and will not result in dilution of
an investment in Shares, and (b) to the extent different prices exist
during a given trading day, or from day to day, such variances occur as
a result of third-party market forces, such as supply and demand.
Therefore, applicants assert that secondary market transactions in
Shares will not lead to discrimination or preferential treatment among
purchasers. Finally, applicants contend that the proposed distribution
system will be orderly because arbitrage activity should ensure that
the difference between the market price of Shares and their NAV remains
narrow.

Section 22(e)

    7. Section 22(e) of the Act generally prohibits a registered
investment company from suspending the right of

redemption or postponing the date of payment of redemption proceeds for
more than seven days after the tender of a security for redemption.
Applicants state that settlement of redemptions of Creation Units of
the International Funds is contingent not only on the settlement cycle
of the United States securities markets, but also on the delivery
cycles present in foreign markets for underlying foreign Portfolio
Securities held by the International Funds. Applicants state that in
certain circumstances delivery cycles for transferring Fund Securities
to redeeming investors, coupled with local market holiday schedules,
will require a delivery process of up to twelve calendar days for
certain International Funds. Applicants request relief under section
6(c) of the Act from section 22(e) to allow the International Funds to
pay redemption proceeds up to twelve calendar days after a redemption
request is received and in proper form. Except as disclosed in the
relevant International Fund's Prospectus and/or SAI, applicants expect
that each International Fund will be able to deliver redemption
proceeds within seven days.\13\
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    \13\ Rule 15c6-1 under the Exchange Act requires that most
securities transactions be settled within three business days of the
trade. Applicants acknowledge that no relief obtained from the
requirements of Section 22(e) will affect any obligations applicants
may have under Rule 15c6-1.
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    8. Applicants state that section 22(e) was designed to prevent
unreasonable, undisclosed and unforeseen delays in the payment of
redemption proceeds. Applicants assert that the requested relief will
not lead to the problems that section 22(e) was designed to prevent.
Applicants state that the SAI will disclose those local holidays in a
given year that are expected to prevent the delivery of redemption
proceeds in seven calendar days, and the maximum number of days, up to
twelve calendar days, needed to deliver the proceeds for the relevant
International Fund. Applicants are not seeking relief from section
22(e) with respect to International Funds that do not effect
redemptions of Creation Units in-kind.

Section 12(d)(1)

    9. Section 12(d)(1)(A) of the Act, in relevant part, prohibits a
registered investment company from acquiring securities of an
investment company if such securities represent more than 3% of the
total outstanding voting stock of the acquired company, more than 5% of
the total assets of the acquiring company, or, together with the
securities of any other investment companies, more than 10% of the
total assets of the acquiring company. Section 12(d)(1)(B) of the Act
prohibits a registered open-end investment company, its principal
underwriter and any other broker-dealer from selling the investment
company's shares to another investment company if the sale will cause
the acquiring company to own more than 3% of the acquired company's
voting stock, or if the sale will cause more than 10% of the acquired
company's voting stock to be owned by investment companies generally.
    10. Applicants request an exemption to permit management investment
companies and unit investment trusts registered under the Act that are
not sponsored or advised by the Adviser or any entity controlling,
controlled by, or under common control with the Adviser and are not
part of the same ``group of investment companies,'' as defined in
section 12(d)(1)(G)(ii) of the Act, as the Funds and that have entered
into a participation agreement with a Fund (such agreement, a ``FOF
Participation Agreement,'' such management investment companies, the
``Investing Management Companies,'' such unit investment trusts, the
``Investing Trusts,'' and the Investing Trusts, together with the
Investing Management Companies, the ``Investing Funds'') to acquire
shares of a Fund beyond the limits of section 12(d)(1)(A). Investing
Funds do not include the Funds. In addition, applicants seek relief to
permit the Funds, the Distributor and any other broker or dealer that
is registered under the Exchange Act to sell Shares to an Investing
Fund in excess of the limits of section 12(d)(1)(B).
    11. Each Investing Management Company will be advised by an
investment adviser within the meaning of section 2(a)(20)(A) of the Act
(the ``Investing Fund Adviser'') and may be subadvised by one or more
investment advisers within the meaning of section 2(a)(20)(B) of the
Act (each an ``Investing Fund Subadviser''). Each Investing Fund
Adviser and any Investing Fund Subadviser will be registered under the
Advisers Act. Each Investing Trust will be sponsored by a sponsor
(``Sponsor'').
    12. Applicants submit that the proposed conditions to the requested
relief adequately address the concerns underlying the limits in
sections 12(d)(1)(A) and (B), which include concerns about undue
influence by a fund of funds over underlying funds, excessive layering
of fees and overly complex fund structures. Applicants believe that the
requested exemption is consistent with the public interest and the
protection of investors.
    13. Applicants believe that neither the Investing Funds nor an
Investing Fund Affiliate would be able to exert undue influence over
the Funds.\14\ To limit the control that an Investing Fund may have
over a Fund, applicants propose a condition prohibiting an Investing
Fund Adviser or a Sponsor, any person controlling, controlled by, or
under common control with an Investing Fund Adviser or Sponsor, and any
investment company and any issuer that would be an investment company
but for sections 3(c)(1) or 3(c)(7) of the Act that is advised or
sponsored by an Investing Fund Adviser or Sponsor, or any person
controlling, controlled by, or under common control with an Investing
Fund Adviser or Sponsor (``Investing Fund's Advisory Group'') from
controlling (individually or in the aggregate) a Fund within the
meaning of section 2(a)(9) of the Act. The same prohibition would apply
to any Investing Fund Subadviser, any person controlling, controlled
by, or under common control with the Investing Fund Subadviser, and any
investment company or issuer that would be an investment company but
for sections 3(c)(1) or 3(c)(7) of the Act (or portion of such
investment company or issuer) advised or sponsored by the Investing
Fund Subadviser or any person controlling, controlled by, or under
common control with the Investing Fund Subadviser (``Investing Fund's
Subadvisory Group''). Applicants propose other conditions to limit the
potential for undue influence over the Funds, including that no
Investing Fund or Investing Fund Affiliate (except to the extent it is
acting in its capacity as an investment adviser to a Fund) will cause a
Fund to purchase a security in any offering of securities during the
existence of any underwriting or selling syndicate of which a principal
underwriter is an Underwriting Affiliate (``Affiliated Underwriting'').
An ``Underwriting Affiliate'' is a principal underwriter in any
underwriting or selling syndicate that is an officer, director, member
of an advisory board, Investing Fund Adviser, Investing Fund
Subadviser, employee or Sponsor of the Investing Fund, or a person of
which any such officer, director, member of an advisory board,

Investing Fund Adviser, Investing Fund Subadviser, employee, or Sponsor
is an affiliated person (except that any person whose relationship to
the Fund is covered by section 10(f) of the Act is not an Underwriting
Affiliate).
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    \14\ An ``Investing Fund Affiliate'' is an Investing Fund
Adviser, Investing Fund Subadviser, Sponsor, promoter, and principal
underwriter of an Investing Fund, and any person controlling,
controlled by, or under common control with any of these entities. A
``Fund Affiliate'' is an investment adviser, promoter, or principal
underwriter of a Fund and any person controlling, controlled by or
under common control with any of these entities.
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    14. Applicants assert that several proposed conditions address any
concerns regarding excessive layering of fees. The board of directors
or trustees of any Investing Management Company, including a majority
of the directors or trustees who are not ``interested persons'' within
the meaning of section 2(a)(19) of the Act (``independent directors or
trustees''), will be required to find that the advisory fees charged to
the Investing Management Company are based on services provided that
will be in addition to, rather than duplicative of, services provided
under the advisory contract(s) of any Fund in which the Investing
Management Company may invest. In addition, except as provided in
condition B.5, an Investing Fund Adviser or a trustee of an Investing
Fund (``Trustee'') or Sponsor of an Investing Trust will, as
applicable, waive fees otherwise payable to it by the Investing Fund in
an amount at least equal to any compensation (including fees received
pursuant to any plan adopted by a Fund under rule 12b-1 under the Act)
received by the Investing Fund Adviser or Trustee or Sponsor or an
affiliated person of the Investing Fund Adviser, Trustee or Sponsor,
from the Fund in connection with the investment by the Investing Fund
in the Fund. Applicants state that any sales loads or service fees
charged with respect to shares of an Investing Fund will not exceed the
limits applicable to a fund of funds set forth in Conduct Rule 2830 of
the National Association of Securities Dealers (``NASD'').\15\
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    \15\ Any references to NASD Conduct Rule 2830 include any
successor or replacement Rule to NASD Conduct Rule 2830 that may be
adopted by the Financial Industry Regulatory Authority.
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    15. Applicants submit that the proposed arrangement will not create
an overly complex fund structure. Applicants note that no Fund will
acquire securities of any investment company or company relying on
sections 3(c)(1) or 3(c)(7) of the Act in excess of the limits
contained in section 12(d)(1)(A) of the Act. To ensure that Investing
Funds comply with the terms and conditions of the requested relief from
section 12(d)(1), any Investing Fund that intends to invest in a Fund
in reliance on the requested order will enter into a FOF Participation
Agreement requiring the Investing Fund to adhere to the terms and
conditions of the requested order. The FOF Participation Agreement also
will include an acknowledgement from the Investing Fund that it may
rely on the requested order only to invest in the Funds and not in any
other investment company.
    16. Applicants also note that a Fund may choose to reject a direct
purchase of in Creation Units by an Investing Fund. To the extent that
an Investing Fund purchases Shares in the secondary market, a Fund
would still retain its ability to reject initial purchases of Shares
made in reliance on the requested order by declining to enter into the
FOF Participation Agreement prior to any investment by an Investing
Fund in excess of the limits of section 12(d)(1)(A).

Sections 17(a)(1) and (2) of the Act

    17. Section 17(a) of the Act generally prohibits an affiliated
person of a registered investment company, or an affiliated person of
such a person (``Second-Tier Affiliate''), from selling any security to
or purchasing any security from the company. Section 2(a)(3) of the Act
defines ``affiliated person'' to include (a) any person directly or
indirectly owning, controlling or holding with power to vote 5% or more
of the outstanding voting securities of the other person, (b) any
person 5% or more of whose outstanding voting securities are directly
or indirectly owned, controlled or held with the power to vote by the
other person, and (c) any person directly or indirectly controlling,
controlled by or under common control with the other person. Section
2(a)(9) of the Act provides that a control relationship will be
presumed where one person owns more than 25% of another person's voting
securities.
    18. Applicants request an exemption from section 17(a) of the Act
pursuant to sections 17(b) and 6(c) of the Act in order to permit in-
kind purchases and redemptions of Creation Units from the Funds by
persons that are affiliated persons of the Fund or Second-Tier
Affiliates solely by virtue of one or more of the following: (a)
Holding 5% or more, or in excess of 25%, of the outstanding Shares of
the Trust or one or more Funds; (b) having an affiliation with a person
with an ownership interest described in (a); or (c) holding 5% or more,
or more than 25%, of the shares of one or more other registered
investment companies (or series thereof) advised by the Adviser or an
entity controlling, controlled by or under common control with Adviser.
    19. Applicants assert that no useful purpose would be served by
prohibiting these types of affiliated persons from purchasing or
redeeming Creation Units through ``in-kind'' transactions. The
composition of the basket of securities and cash for both in-kind
purchases and in-kind redemptions of Creation Units will be the same
for all purchasers and redeemers. Deposit Securities and Fund
Securities will be valued in the same manner as Portfolio Securities.
Therefore, applicants state that in-kind purchases and redemptions will
afford no opportunity for the specified affiliated persons, or Second-
Tier Affiliates, of a Fund to effect a transaction detrimental to other
holders of Shares. Applicants also believe that in-kind purchases and
redemptions will not result in self-dealing or overreaching of the
Fund.
    20. Applicants also seek relief from section 17(a) to permit a Fund
that is an affiliated person of an Investing Fund to sell its Shares to
and redeem its Shares from an Investing Fund, and to engage in the
accompanying in-kind transactions with the Investing Fund.\16\
Applicants state that the terms of the transactions are fair and
reasonable and do not involve overreaching. Applicants note that any
consideration paid by an Investing Fund for the purchase or redemption
of Shares directly from a Fund will be based on the NAV of the
Shares.\17\ Applicants believe that any proposed transactions directly
between the Funds and Investing Funds will be consistent with the
policies of each Investing Fund. The proposed transactions will comply
with the investment restrictions of the Investing Fund and be
consistent with its investment policies as set forth in its
registration statement. The FOF Participation Agreement will require
any Investing Fund that relies on the relief to purchase Shares
directly from a Fund to represent that its purchases are permitted
under its investment restrictions and consistent with the investment
policies described in its registration statement.
---------------------------------------------------------------------------

    \16\ Applicants acknowledge that the receipt of compensation by
(a) an affiliated person of an Investing Fund, or an affiliated
person of such person, for the purchase by the Investing Fund of
Shares of a Fund or (b) an affiliated person of a Fund, or an
affiliated person of such person, for the sale by the Fund of its
Shares to an Investing Fund, may be prohibited by Section 17(e)(1)
of the Act. The FOF Participation Agreement also will include this
acknowledgment.
    \17\ Applicants believe that an Investing Fund generally will
purchase Shares in the secondary market and will not purchase or
redeem Creation Units directly from a Fund. However, the requested
relief would apply to direct sales of Creation Units by a Fund to an
Investing Fund and in-kind redemptions of those Shares.

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

Applicants' Conditions

    Applicants agree that any order granting the requested relief will
be subject to the following conditions: \18\
---------------------------------------------------------------------------

    \18\ See note 6, supra.
---------------------------------------------------------------------------

A. Exchange-Traded Fund Relief

    1. Each Prospectus will clearly disclose that, for purposes of the
Act, Shares are issued by a registered investment company and that the
acquisition of Shares by investment companies and companies relying on
sections 3(c)(1) or 3(c)(7) of the Act is subject to the restrictions
of section 12(d)(1) of the Act, except as permitted by an exemptive
order that permits registered investment companies to invest in a Fund
beyond the limits in section 12(d)(1), subject to certain terms and
conditions, including that the registered investment company enter into
a FOF Participation Agreement with the Fund regarding the terms of the
investment.
    2. As long as the Funds operate in reliance on the requested order,
the Shares of the Funds will be listed on an Exchange.
    3. Neither the Trust nor any Fund will be advertised or marketed as
an open-end investment company or a mutual fund. Each Prospectus will
prominently disclose that the Shares are not individually redeemable
shares and will disclose that the owners of the Shares may acquire
those Shares from the Fund and tender those Shares for redemption to
the Fund in Creation Units only. Any advertising material that
describes the purchase or sale of Creation Units or refers to
redeemability will prominently disclose that the Shares are not
individually redeemable and that owners of the Shares may acquire those
Shares from the Fund and tender those Shares for redemption to the Fund
in Creation Units only.
    4. The Web site for the Funds, which is and will be publicly
accessible at no charge, will contain the following information, on a
per Share basis, for each Fund: (a) the prior Business Day's NAV and
the Bid/Ask Price, and a calculation of the premium or discount of the
Bid/Ask Price against such NAV; and (b) data in chart format displaying
the frequency distribution of discounts and premiums of the daily Bid/
Ask Price against the NAV, within appropriate ranges, for each of the
four previous calendar quarters (or for the life of the Fund, if
shorter).
    5. The Prospectus and annual report for each Fund will also
include: (a) the information listed in condition A.4(b), (i) in the
case of the Prospectus, for the most recently completed year (and the
most recently completed quarter or quarters, as applicable) and (ii) in
the case of the annual report, for the immediately preceding five years
(or for the life of the Fund, if shorter), and (b) calculated on a per
Share basis for one, five and ten year periods (or life of the Fund),
(i) the cumulative total return and the average annual total return
based on NAV and Bid/Ask Price, and (ii) the cumulative total return of
the relevant Underlying Index.
    6. The requested relief to permit ETF operations will expire on the
effective date of any Commission rule under the Act that provides
relief permitting the operation of index-based exchange-traded funds.

B. Section 12(d)(1) Relief

    1. The members of the Investing Fund's Advisory Group will not
control (individually or in the aggregate) a Fund within the meaning of
section 2(a)(9) of the Act. The members of the Investing Fund's
Subadvisory Group will not control (individually or in the aggregate) a
Fund within the meaning of section 2(a)(9) of the Act. If, as a result
of a decrease in the outstanding Shares of a Fund, the Investing Fund's
Advisory Group or the Investing Fund's Subadvisory Group, each in the
aggregate, becomes a holder of more than 25 percent of the outstanding
Shares of a Fund, it will vote its Shares of the Fund in the same
proportion as the vote of all other holders of the Fund's Shares. This
condition does not apply to the Investing Fund's Subadvisory Group with
respect to a Fund for which the Investing Fund Subadviser or a person
controlling, controlled by or under common control with the Investing
Fund Subadviser acts as the investment adviser within the meaning of
section 2(a)(20)(A) of the Act.
    2. No Investing Fund or Investing Fund Affiliate will cause any
existing or potential investment by the Investing Fund in a Fund to
influence the terms of any services or transactions between the
Investing Fund or an Investing Fund Affiliate and the Fund or a Fund
Affiliate.
    3. The board of directors or trustees of an Investing Management
Company, including a majority of the independent directors or trustees,
will adopt procedures reasonably designed to assure that the Investing
Fund Adviser and any Investing Fund Subadviser are conducting the
investment program of the Investing Management Company without taking
into account any consideration received by the Investing Management
Company or an Investing Fund Affiliate from a Fund or a Fund Affiliate
in connection with any services or transactions.
    4. Once an investment by an Investing Fund in Fund Shares exceeds
the limit in section l2(d)(1)(A)(i) of the Act, the Board of a Fund,
including a majority of the independent Board members, will determine
that any consideration paid by the Fund to the Investing Fund or an
Investing Fund Affiliate in connection with any services or
transactions: (i) Is fair and reasonable in relation to the nature and
quality of the services and benefits received by the Fund; (ii) is
within the range of consideration that the Fund would be required to
pay to another unaffiliated entity in connection with the same services
or transactions; and (iii) does not involve overreaching on the part of
any person concerned. This condition does not apply with respect to any
services or transactions between a Fund and its investment adviser(s),
or any person controlling, controlled by or under common control with
such investment adviser(s).
    5. The Investing Fund Adviser, or Trustee or Sponsor, as
applicable, will waive fees otherwise payable to it by the Investing
Fund in an amount at least equal to any compensation (including fees
received pursuant to any plan adopted by a Fund under rule 12b-l under
the Act) received from a Fund by the Investing Fund Adviser, or Trustee
or Sponsor, or an affiliated person of the Investing Fund Adviser, or
Trustee or Sponsor, other than any advisory fees paid to the Investing
Fund Adviser, or Trustee or Sponsor, or its affiliated person by the
Fund, in connection with the investment by the Investing Fund in the
Fund. Any Investing Fund Subadviser will waive fees otherwise payable
to the Investing Fund Subadviser, directly or indirectly, by the
Investing Management Company in an amount at least equal to any
compensation received from a Fund by the Investing Fund Subadviser, or
an affiliated person of the Investing Fund Subadviser, other than any
advisory fees paid to the Investing Fund Subadviser or its affiliated
person by the Fund, in connection with the investment by the Investing
Management Company in the Fund made at the direction of the Investing
Fund Subadviser. In the event that the Investing Fund Subadviser waives
fees, the benefit of the waiver will be passed through to the Investing
Management Company.
    6. No Investing Fund or Investing Fund Affiliate (except to the
extent it is acting in its capacity as an investment adviser to a Fund)
will cause a Fund to purchase a security in an Affiliated Underwriting.

    7. The Board of the Fund, including a majority of the independent
Board members, will adopt procedures reasonably designed to monitor any
purchases of securities by the Fund in an Affiliated Underwriting, once
an investment by an Investing Fund in Fund Shares exceeds the limit of
section 12(d)(1)(A)(i) of the Act, including any purchases made
directly from an Underwriting Affiliate. The Board will review these
purchases periodically, but no less frequently than annually, to
determine whether the purchases were influenced by the investment by
the Investing Fund in the Fund. The Board will consider, among other
things: (i) Whether the purchases were consistent with the investment
objectives and policies of the Fund; (ii) how the performance of
securities purchased in an Affiliated Underwriting compares to the
performance of comparable securities purchased during a comparable
period of time in underwritings other than Affiliated Underwritings or
to a benchmark such as a comparable market index; and (iii) whether the
amount of securities purchased by the Fund in Affiliated Underwritings
and the amount purchased directly from an Underwriting Affiliate have
changed significantly from prior years. The Board will take any
appropriate actions based on its review, including, if appropriate, the
institution of procedures designed to assure that purchases of
securities in Affiliated Underwritings are in the best interest of
shareholders of the Fund.
    8. Each Fund will maintain and preserve permanently in an easily
accessible place a written copy of the procedures described in the
preceding condition, and any modifications to such procedures, and will
maintain and preserve for a period of not less than six years from the
end of the fiscal year in which any purchase in an Affiliated
Underwriting occurred, the first two years in an easily accessible
place, a written record of each purchase of securities in Affiliated
Underwritings once an investment by an Investing Fund in the securities
of the Fund exceeds the limit of section 12(d)(1)(A)(i) of the Act,
setting forth from whom the securities were acquired, the identity of
the underwriting syndicate's members, the terms of the purchase, and
the information or materials upon which the Board's determinations were
made.
    9. Before investing in Fund Shares in excess of the limits in
section 12(d)(1)(A), an Investing Fund will execute a FOF Participation
Agreement with the Fund stating that their respective boards of
directors or trustees and their investment advisers, or Trustee and
Sponsor, as applicable, understand the terms and conditions of the
order, and agree to fulfill their responsibilities under the order. At
the time of its investment in Fund Shares in excess of the limit in
section 12(d)(1)(A)(i), an Investing Fund will notify the Fund of the
investment. At such time, the Investing Fund will also transmit to the
Fund a list of the names of each Investing Fund Affiliate and
Underwriting Affiliate. The Investing Fund will notify the Fund of any
changes to the list as soon as reasonably practicable after a change
occurs. The Fund and the Investing Fund will maintain and preserve a
copy of the order, the FOF Participation Agreement, and the list with
any updated information for the duration of the investment and for a
period of not less than six years thereafter, the first two years in an
easily accessible place.
    10. Before approving any advisory contract under section 15 of the
Act, the board of directors or trustees of each Investing Management
Company, including a majority of the independent directors or trustees,
will find that the advisory fees charged under such contract are based
on services provided that will be in addition to, rather than
duplicative of, the services provided under the advisory contract(s) of
any Fund in which the Investing Management Company may invest. These
findings and their basis will be recorded fully in the minute books of
the appropriate Investing Management Company.
    11. Any sales charges and/or service fees charged with respect to
shares of an Investing Fund will not exceed the limits applicable to a
fund of funds as set forth in Conduct Rule 2830 of the NASD.
    12. No Fund will acquire securities of any investment company or
company relying on section 3(c)(1) or 3(c)(7) of the Act in excess of
the limits contained in section 12(d)(1)(A) of the Act.

    For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Florence E. Harmon,
 Deputy Secretary.
[FR Doc. E9-23891 Filed 10-2-09; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register Volume 77, Number 201 (Wednesday, October 17, 2012)]
[Notices]
[Pages 63903-63905]
[FR Doc No: 2012-25541]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68041; File No. SR-BX-2012-065]

Self-Regulatory Organizations; NASDAQ OMX BX, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Add an
Additional Execution Algorithm and Priority Overlays To Govern the
Priority of Orders

 October 11, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on October 2, 2012, NASDAQ OMX BX, Inc. (the ``Exchange'' or ``BX'')
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 Exchange. 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.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to add an additional execution algorithm and
priority overlays to govern the priority of orders. The text of the
proposed rule change is available at http://nasdaqomxbx.cchwallstreet.com, at the Exchange's principal office, and
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The BX Options market launched on June 29, 2012 as a fully
automated, price/time priority execution system built on the core
functionality of the NASDAQ Options Market (``NOM'').\3\ BX Options
operates as an all-electronic system (``System'' or ``Trading System'')
with no physical trading floor and provides for the electronic display
and execution of orders in price/time priority without regard to the
status of the entities that are entering orders. The BX Options market
closely resembles NOM, including, most prominently, by offering true
price/time priority across all orders and participants rather than
differentiating between participant/trading interest. Like on NOM, all
trading interest entered into the System is automatically executable.
---------------------------------------------------------------------------

    \3\ See BX Options Rules, Chapter VI, Section 1(e)(11).
Securities Exchange Act Release No. 67256 (June 26, 2012), 77 FR
39277 (July 2, 2012) (SR-BX-2012-030) (Approving the establishment
of the BX Options market).
---------------------------------------------------------------------------

    In its proposed rule change to create the BX Options market, BX
stated that, initially, BX Options would have the same market structure
and rules as NOM, focusing on a price/time priority market.\4\
---------------------------------------------------------------------------

    \4\ See id. at 39278.
---------------------------------------------------------------------------

    BX further stated that, over time, as the BX Options market secured
more participants, it would introduce additional, innovative
technology.\5\ At this time, BX proposes its first enhancement to BX
Options by offering a different priority rule. Currently, Chapter VI,
Section 10, Book Processing, provides that the System, like NOM, will
have a single execution algorithm based on price/time priority. The
System and rules provide for the ranking, display, and execution of all
orders in price/time priority without regard to the status of the
entity entering an order. For each order, among equally priced or
better-priced trading interest, the System currently executes against
available contra-side displayed contract amounts in full, in price/time
priority.
---------------------------------------------------------------------------

    \5\ Securities Exchange Act Release No. 66983 (May 14, 2012), 77
FR 29730 (May 18, 2012) (Notice of filing of SR-BX-2012-030).
---------------------------------------------------------------------------

    At this time, the Exchange proposes to amend Chapter VI, Section
10, to provide for a Size Pro-Rata execution algorithm. In order to
make clear that only one of the two execution algorithms is applicable
to a particular option, BX proposes to add introductory language to
Section 10(1) to state that the Exchange will determine to apply, for
each option, one of the execution algorithms described in subparagraphs
(A) \6\ or (B). The Exchange will issue an Options Alert specifying
which execution algorithm will govern which options any time a change
is made.
---------------------------------------------------------------------------

    \6\ BX is also proposing to amend subparagraph (A) to provide
that, respecting the price/time execution algorithm, within each
price level, if there are two or more quotes or orders at the best
price, trading interest will be executed in time priority. This is
intended to be clearer and match the new language in subparagraph
(B).
---------------------------------------------------------------------------

    Further, BX proposes to adopt new subparagraph (B) to provide that
when the Size Pro-Rata execution algorithm is in effect the System
shall execute trading interest in price priority, meaning it will
execute all trading interest at the best price level within the System
before executing trading interest at the next best price. Within each
price level, if there are two or more quotes or orders at the best
price, trading interest will be executed based on the size of each
Participant's quote or order as a percentage of the total size of all
orders and quotes resting at that price. If this is not a whole number,
it will be rounded down to the nearest whole number. If there are
residual contracts remaining after rounding, such contracts will be
distributed one contract at a time to the remaining Participants in
time priority. The Size Pro-Rata execution algorithm will, initially,
always operate with the priority overlays, as described further below.
The Size Pro-Rata execution algorithm is similar to the Pro-Rata
Priority provision in CBOE Rule 6.45A(a)(ii), which provides that
resting quotes and orders in the book are prioritized according to
price. CBOE Rule 6.45A(a)(ii) further provides that if there are two or
more quotes or orders at the best price then trades are allocated
proportionally according to size (in a pro-rata fashion). The
executable quantity is allocated to the nearest whole number, with
fractions \1/2\ or greater rounded up and fractions less than \1/2\
rounded down. If there are two market participants that both are
entitled to an additional \1/2\ contract and there is only one contract
remaining to be distributed, the additional contract will be
distributed to the market participant whose quote or order has time
priority. This is substantially similar to the proposal at hand.\7\
However, CBOE provides for rounding to the nearest whole number, while
the proposal at hand provides for the BX Options market to round down
in each case to the nearest whole number. BX does not believe this is a
significant difference between the two methods. The following examples
demonstrate how rounding differs between CBOE's rule and BX's proposal:
---------------------------------------------------------------------------

    \7\ Meaning, BX's general pro-rata priority rule is
substantially similar to CBOE's operating without a customer or
market maker priority overlay, which are discussed below.
---------------------------------------------------------------------------

Example 1 \8\--CBOE rounding approach
---------------------------------------------------------------------------

    \8\ In each example, the orders and quotes are listed in the
order in which they were received. Example 1 is intended to show how
rounding works pursuant to CBOE's rules, but does not include the
operation of the priority overlays, which will, as described below,
initially always operate with the Size Pro-Rata execution algorithm.

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

    Order 1: Buy 10 contracts for 1.84, Non-Market Maker broker-dealer
    Order 2: Buy 10 contracts for 1.84, Public Customer
    Quote: 1.84 (70) x 1.86 (10) MM1
    Order 3: Buy 10 contracts for 1.84, Market Maker
    Market: 1.84 (100 contracts total) x 1.86 (10 contracts)
    Sell order received: Sell 25 contracts at 1.84
Execution:
    Order 1 represents 10 of 100 (10%) total contracts at 1.84.
    10% of 25 contracts (which is the sell order) execute = 2.5, rounds
up to 3 contracts.
    Order 2 represents 10 of 100 (10%) total contracts at 1.84.
    10% of 25 contracts (which is the sell order) execute = 2.5, rounds
up to 3 contracts.
    MM1's quote represents 70 of 100 (70%) total contracts at 1.84.
    Again, 70% of 25 contracts execute = 17.5, rounds up to 18
contracts but to avoid over-allocation, MM1 receives 17.
    Order 3 represents 10 of 100 (10%) total contracts at 1.84.
    10% of 25 contracts (which is the sell order) execute = 2.5, rounds
up to 3 contracts but to avoid over-allocation, Order 3 receives 2.
Example 2--BX Options proposed rounding approach \9\
---------------------------------------------------------------------------

    \9\ CBOE and BX methodology results in the same allocation in
this example, but there could be instances where the result differs,
depending on the number of contracts involved.
---------------------------------------------------------------------------

    Order 1: Buy 10 contracts for 1.84, Non-Market Maker broker-dealer
    Order 2: Buy 10 contracts for 1.84, Public Customer
    Quote: 1.84 (70) x 1.86 (10) MM1
    Order 3: Buy 10 contracts for 1.84, Market Maker
    Market: 1.84 (100 contracts total) x 1.86 (10 contracts)
    Sell order received: Sell 25 contracts at 1.84
Execution:
    Order 1 represents 10 of 100 (10%) total contracts at 1.84.
    10% of 25 contracts (which is the sell order) execute = 2.5, rounds
down to 2 contracts.
    Order 2 represents 10 of 100 (10%) total contracts at 1.84.
    10% of 25 contracts (which is the sell order) execute = 2.5, rounds
down to 2 contracts.
    MM1's quote represents 70 of 100 (70%) total contracts at 1.84.
    Again, 70% of 25 contracts execute = 17.5, rounds down to 17
contracts.
    Order 3 represents 10 of 100 (10%) total contracts at 1.84.
    10% of 25 contracts (which is the sell order) execute = 2.5, rounds
down to 2 contracts.
    Total executed: 23. There are 2 residual contracts remaining from
the 25 contract sell order. The remaining 2 contracts are allocated one
at a time based on time as follows:
    Order 1 receives 1 additional residual contract.
    Order 2 receives 1 additional residual contract.
    The 25 contract sell order is now completely executed.

    BX believes that this rounding method is appropriate and fair, and
will be clear to Participants. In particular, BX has chosen to round
down because it is a more efficient way to calculate the distribution
of non-whole number allocations. Rather than having to break a tie by
time whenever there are two or more Participants entitled to \1/2\ a
contract, BX will simply round down in all cases and distribute any
residual one contract at a time to each Participant based on time
priority as illustrated in Example 2 above.
    In addition, BX proposes to adopt two priority overlays. The new
subparagraph (C), Priority Overlays Applicable to Size Pro-Rata
Execution Algorithm, will provide that the Exchange will apply these
priority overlays. BX plans to initially implement the Size Pro-Rata
execution algorithm with both the Public Customer and Market Maker
priority overlays.
    The first priority overlay, Public Customer Priority, is proposed
to be subparagraph (1)(C)(i). Under this priority overlay, interest at
the highest bid and lowest offer shall have priority except that Public
Customer orders shall have priority over non-Public Customer orders at
the same price. If there are two or more Public Customer orders for the
same options series at the same price, priority shall be afforded to
such Public Customer orders in the sequence in which they are received
by the System. For purposes of this Rule, a Public Customer order does
not include a Professional Order. This is substantially similar to CBOE
Rule 6.45A(a)(ii)(1) and ISE Rule 713(d).
    The second proposed priority overlay is contained in subparagraph
(1)(C)(ii), Market Maker Priority. Under this priority overlay, the
highest bid and lowest offer shall have priority except that BX Options
Market Maker orders, after all Public Customer orders have been fully
executed in time priority, shall have priority over all other
Participant orders at the same price. The Public Customer priority is
always a part of the Market Maker Priority overlay and both overlays
will always apply to the Size Pro-Rata execution algorithm
initially.\10\ If there are two or more BX Options Market Maker quotes
and orders for the same options series at the same price, those orders
shall be executed based on the Size Pro-Rata execution algorithm.\11\
If there are contracts remaining after all Market Maker interest has
been fully executed (meaning, Non-Public Customer and Non-Market
Maker), such contracts shall be executed based on the Size Pro-Rata
execution algorithm.\12\
---------------------------------------------------------------------------

    \10\ BX may later file a proposed rule change to make available
the Size Pro-Rata execution algorithm without the Public Customer or
Market Maker priority overlays, or with just the Public Customer
priority overlay.
    \11\ This is similar to Phlx Rule 1014(g)(vii)(B)(1)(b).
    \12\ This is similar to Phlx Rule 1014(g)(vii)(B)(1)(d).
---------------------------------------------------------------------------

    The following is an example of the Public Customer and Market Maker
priority overlays applied to the proposed Size Pro-Rata execution
algorithm:
Example 3:
    Order 1: Buy 10 contracts for 1.84, Non-MM broker-dealer
    Order 2: Buy 10 contracts for 1.84, Public Customer
    Quote MM1: 1.84 (10) x 1.86 (10)
    Order 3: Buy MM 1.84 (10)
    Sell order received: Sell 21 contracts at 1.84
Execution:
    Order 2 allocated 10 contracts because of Public Customer priority
    Quote MM1 represents 10 of 20 (50%) total MM contracts at 1.84. 50%
of 11 contracts to execute = 5.5, rounds down to 5 contracts.
    Order 3 represents 10 of 20 (50%) total MM contracts at 1.84. 50%
of 11 contracts to execute = 5.5, rounds down to 5 contracts.
    Remaining 1 contract is allocated to MM1 based on time among MMs.
    Order 1 is not executed because Market Makers have priority over
non-Market Maker broker-dealers. Order 1 would only be executed if all
interest at the Public Customer priority level and the Market Maker
level was first completely executed.

    In summary, this proposed rule change will allow for a different
execution algorithm for BX Options. To be clear, two different
execution algorithms will not operate in the same option. In addition,
when the Size Pro-Rata execution algorithm is selected by BX, the
proposed new priority overlays

will be applied first as part of the execution algorithm used to
allocate the order. These additional priority overlays are Public
Customer priority and Market Maker priority, which will only apply to
the Size Pro-Rata execution algorithm. BX notes that the execution
algorithm will be selected and communicated by BX to its Participants.
The Public Customer and Market Maker priority overlays will, initially,
always operate with the Size Pro-Rata execution algorithm.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act \13\ in general, and furthers the objectives of Section
6(b)(5) of the Act \14\ in particular, in that it is designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, to foster cooperation and
coordination with persons engaged in facilitating transactions in
securities, and to remove impediments to and perfect the mechanisms of
a free and open market and a national market system, and, in general,
to protect investors and the public interest, because it will provide
additional execution algorithms and priority overlays on BX Options,
which operate on other exchanges, as explained in detail below. These
additional execution algorithms and priority overlays provide
Participants with additional choices among the many competing exchanges
with regard to their execution needs and strategies. The Exchange
believes that adding this flexibility to its rules will allow for
greater customization, resulting in enhanced service to its customers
and users, which would continue to be a purely objective method for
allocating option trades. Furthermore, BX Options operates in an
intensely competitive environment and seeks to offer the same services
that its competitors offer and in which its customers would find value.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\16\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    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. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-BX-2012-065 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2012-065. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2012-065 and should be
submitted on or before November 7, 2012.

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

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

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25541 Filed 10-16-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 83, Number 8 (Thursday, January 11, 2018)]
[Proposed Rules]
[Pages 1319-1320]
[FR Doc No: 2018-00370]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 73

[Docket No. FAA-2017-1109; Airspace Docket No. 17-ASO-22]

Proposed Amendment for Restricted Area R-4403A; Stennis Space
Center, MS

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

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

SUMMARY: This action proposes to amend the time of designation for
restricted area R-4403A, Stennis Space Center, MS, from ``Intermittent,
1000 to 0300 local time, as activated by NOTAM at least 24 hours in
advance,'' to ``Intermittent by NOTAM at least 24 hours in advance.''
The National Aeronautics and Space Administration (NASA) requested the
change to meet requirements of the Space Launch System (SLS) Core Stage
test program.

DATES: Comments must be received on or before February 26, 2018.

ADDRESSES: Send comments on this proposal to the U.S. Department of
Transportation, Docket Operations, 1200 New Jersey Avenue SE, West
Building Ground Floor, Room W12-140, Washington, DC 20590; telephone: 1
(800) 647-5527, or<PHONE_NUMBER>. You must identify FAA Docket No.
FAA-2017-1109 and Airspace Docket No. 17-ASO-22, at the beginning of
your comments. You may also submit comments through the internet at
http://www.regulations.gov. Comments on environmental and land use
aspects should be directed to: Mr. David Lorance, P.E., Center
Environmental Officer, Center Operations Directorate, NASA Stennis
Space Center, Roy S. Estess Building 1100, Mail Code RA02, Stennis
Space Center, MS 39529-6000.

FOR FURTHER INFORMATION CONTACT: Paul Gallant, Airspace Policy Group,
Office of Airspace Services, Federal Aviation Administration, 800
Independence Avenue SW, Washington, DC 20591; telephone: (202) 267-
8783.

SUPPLEMENTARY INFORMATION:

Authority for This Rulemaking

    The FAA's authority to issue rules regarding aviation safety is
found in Title 49 of the United States Code. Subtitle I, Section 106
describes the authority of the FAA Administrator. Subtitle VII,
Aviation Programs, describes in more detail the scope of the agency's
authority. This rulemaking is promulgated under the authority described
in Subtitle VII, Part A, Subpart I, Section 40103. Under that section,
the FAA is charged with prescribing regulations to assign the use of
the airspace necessary to ensure the safety of aircraft and the
efficient use of airspace. This regulation is within the scope of that
authority as it would support a change in the time of designation for
restricted area R-4403A, Stennis Space Center, MS, to accommodate NASA
rocket engine test activities.

Comments Invited

    Interested parties are invited to participate in this proposed
rulemaking by submitting such written data, views, or arguments as they
may desire. Comments that provide the factual basis supporting the
views and suggestions presented are particularly helpful in developing
reasoned regulatory decisions on the proposal. Comments are
specifically invited on the overall regulatory, aeronautical, economic,
environmental, and energy-related aspects of the proposal.
    Communications should identify both docket numbers (FAA Docket No.
FAA-2017-1109 and Airspace Docket No. 17-ASO-22) and be submitted in
triplicate to the Docket Office at the address listed above. You may
also submit comments through the internet at www.regulations.gov.
    Commenters wishing the FAA to acknowledge receipt of their comments
on this action must submit with those comments a self-addressed,
stamped postcard on which the following statement is made: ``Comments
to FAA Docket No. FAA-2017-1109 and Airspace Docket No. 17-ASO-22.''
The postcard will be date/time stamped and returned to the commenter.
    All communications received on or before the specified closing date
for comments will be considered before taking action on the proposed
rule. The proposal contained in this action may

be changed in light of comments received. All comments submitted will
be available for examination in the public docket both before and after
the closing date for comments. A report summarizing each substantive
public contact with FAA personnel concerned with this rulemaking will
be filed in the docket.

Availability of NPRMs

    An electronic copy of this document may be downloaded through the
internet at www.regulations.gov.
    You may review the public docket containing the proposal, any
comments received and any final disposition in person at the Docket
Office (see ADDRESSES section for address and phone number) between
9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal
holidays. An informal docket may also be examined during normal
business hours at the office of the Operations Support Group, Eastern
Service Center, Federal Aviation Administration, 1701 Columbia Ave.,
College Park, GA 30337.

Background

    R-4403A was established by a final rule published in the Federal
Register on March 29, 2016 (81 FR 17379) Docket No. 2017-0370, as part
of the expansion of the former restricted area R-4403. R-4403A was
designated to contain hazards associated with rocket engine testing.
The current time of designation, ``Intermittent, 1000 to 0300 local
time, as activated by NOTAM at least 24 hours in advance,'' allows for
up to 17 hours of daily use. However, NASA's Space Launch System (SLS)
Core Stage test program will require activation of R-4403A for periods
of 24 to 48 hours which will exceed the current time designation for
the restricted area.
    The current boundaries and altitudes of R-4403A are sufficient to
contain the hazards from hydrogen flaring profiles associated with
propulsion testing and are not affected by this proposal. Additionaly,
the need for on-going single rocket engine testing in R-4403A remains
at approximately 20-40 times per year. On average, NASA activates R-
4403A for 7 hours for each event. If technical difficulties or other
conditions require, R-4403A has been activated for up to 12 hours.
However, the SLS Core Stage testing program entails the simultaneous
testing of four rocket engines. The flaring of hydrogen fuel will
require NASA to activate R-4403A for up to 48 hours because SLS Core
Stage testing cannot confine the hydrogen flare stack hazards within
the existing 17-hour daily window available for R-4403A. This
requirement is expected to occur 2-3 times per year.

The Proposal

    The FAA proposes an amendment to 14 CFR part 73 to change the time
of designation for restricted area R-4403A, Stennis Space Center, MS,
from ``Intermittent, 1000 to 0300 local time, as activated by NOTAM at
least 24 hours in advance,'' to ``Intermittent by NOTAM at least 24
hours in advance.''
    This change is required to provide the additional restricted area
activation time needed to accommodate NASA's SLS Core Stage engine
testing program. The current boundaries and designated altitude for R-
4403A remain unchanged by this proposal.

Regulatory Notices and Analyses

    The FAA has determined that this proposed regulation only involves
an established body of technical regulations for which frequent and
routine amendments are necessary to keep them operationally current.
It, therefore: (1) Is not a ``significant regulatory action'' under
Executive Order 12866; (2) is not a ``significant rule'' under
Department of Transportation (DOT) Regulatory Policies and Procedures
(44 FR 11034; February 26, 1979); and (3) does not warrant preparation
of a regulatory evaluation as the anticipated impact is so minimal.
Since this is a routine matter that will only affect air traffic
procedures and air navigation, it is certified that this proposed rule,
when promulgated, will not have a significant economic impact on a
substantial number of small entities under the criteria of the
Regulatory Flexibility Act.

Environmental Review

    This proposal will be subjected to an environmental analysis in
accordance with FAA Order 1050.1F, ``Environmental Impacts: Policies
and Procedures,'' prior to any FAA final regulatory action.

List of Subjects in 14 CFR Part 73

    Airspace, Prohibited areas, Restricted areas.

The Proposed Amendment

    In consideration of the foregoing, the Federal Aviation
Administration proposes to amend 14 CFR part 73 as follows:

PART 73--SPECIAL USE AIRSPACE

0
1. The authority citation for part 73 continues to read as follows:

    Authority: 49 U.S.C. 106(f), 106(g); 40103, 40113, 40120; E.O.
10854, 24 FR 9565, 3 CFR, 1959-1963 Comp., p. 389.

Sec.  73.44  Mississippi [Amended]

0
2. Sec.  73.44 is amended as follows:
* * * * *

R-4403A Stennis Space Center, MS [Amended]

    By removing the words ``Time of Designation. Intermittent, 1000 to
0300 local time, as activated by NOTAM at least 24 hours in advance,''
and adding in their place:
    Time of designation. Intermittent by NOTAM at least 24 hours in
advance.

    Issued in Washington, DC, on January 8, 2018.
Rodger A. Dean, Jr.,
Manager, Airspace Policy Group.
[FR Doc. 2018-00370 Filed 1-10-18; 8:45 am]
BILLING CODE 4910-13-P


[Federal Register: December 7, 2005 (Volume 70, Number 234)]
[Notices]
[Page 72827-72829]
[DOCID:fr07de05-79]

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ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OPP-2005-0061; FRL-7742-6]

Azinphos-methyl Ecological Risk Assessment, Grower Impact
Assessments; Notice of Availability

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice.

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

SUMMARY: This notice announces the availability of EPA's environmental
fate and effects risk assessment, grower impact assessments, and
related documents for the organophosphate pesticide azinphos-methyl,
and opens a 60-day public comment period on these documents. EPA is in
the process of reevaluating the remaining uses for azinphos-methyl,
consistent with the Interim Reregistration Eligibility Decision (IRED)
issued in 2001 and the May 2002 Memorandum of Agreement between EPA and
the technical registrants for azinphos-methyl.

DATES: Comments must be received on or before February 6, 2006.

ADDRESSES:  Comments, identified by docket identification (ID) number
EPA-HQ-OPP-2005-0061, may be submitted electronically, by mail, or
through hand delivery/courier. Follow the detailed instructions as
provided in Unit I. of the SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Diane Isbell, Special Review and
Reregistration Division (7508C), Office of Pesticide Programs,
Environmental Protection Agency, 1200 Pennsylvania Ave., NW.,
Washington, DC 20460-0001; telephone number:<PHONE_NUMBER>; fax
number:<PHONE_NUMBER>; e-mail address<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this Action Apply to Me?

     This action is directed to the public in general, and may be of
interest to a wide range of stakeholders including environmental, human
health, and agricultural advocates; the chemical industry; pesticide
users; and members of the public interested in the sale, distribution,
or use of pesticides. Since others also may be interested, the Agency
has not attempted to describe all the specific entities that may be
affected by this action. If you have any questions regarding the
applicability of this action to a particular entity, consult the person
listed under FOR FURTHER INFORMATION CONTACT.

B. How Can I Get Copies of this Document and Other Related Information?

    1. Docket. EPA has established an official public docket for this
action under docket ID number EPA-HQ-OPP-2005-0061. The official public
docket consists of the documents specifically referenced in this
action, any public comments received, and other information related to
this action. Although a part of the official docket, the public docket
does not include Confidential Business Information (CBI) or other
information whose disclosure is restricted by statute. The official
public docket is the collection of materials that is available for
public viewing at the Public Information and Records Integrity Branch
(PIRIB), Rm. 119, Crystal Mall 2, 1801 S. Bell St., Arlington,
VA. This 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>.
    2. Electronic access. You may access this Federal Register document
electronically through the EPA Internet under the ``Federal Register''
listings at http://www.epa.gov/fedrgstr/.

    Agency Website. EDOCKET, EPA's electronic public docket and comment
system was replaced on November 25, 2005, by an enhanced federal-wide
electronic docket management and comment system located at http://www.regulations.gov.
 Follow the online instructions.

    An electronic version of the public docket is available through
EPA's electronic public docket and comment system, EPA Dockets. You may
use EPA Dockets at http://www.epa.gov/edocket/

 to submit or view public comments, to access the index listing of the
contents of the official public docket, and to access those documents
in the public docket that are available electronically. Once in the
system, select ``search,'' then key in the appropriate docket ID
number.
    Certain types of information will not be placed in the EPA Dockets.
Information claimed as CBI and other information whose disclosure is
restricted by statute, which is not included in the official public
docket, will not be available for public viewing in EPA's electronic
public docket. EPA's policy is that copyrighted material will not be
placed in EPA's electronic public docket but will be available only in
printed, paper form in the official public docket. To the extent
feasible, publicly available docket materials will be made available in
EPA's electronic public docket. When a document is selected from the
index list in EPA Dockets, the system will identify whether the
document is available for viewing in EPA's electronic public docket.
Although not all docket materials may be available electronically, you
may still access any of the publicly available docket materials through
the docket facility identified in Unit I.B.1. EPA intends to work
towards providing electronic access to all of the publicly available
docket materials through EPA's electronic public docket.
    For public commenters, it is important to note that EPA's policy is
that public comments, whether submitted electronically or in paper,
will be made available for public viewing in EPA's electronic public
docket as EPA receives them and without change, unless the comment
contains copyrighted material, CBI, or other information whose
disclosure is restricted by statute. When EPA identifies a comment
containing copyrighted material, EPA will provide a reference to that
material in the version of the comment that is placed in EPA's
electronic public docket. The entire printed comment, including the
copyrighted material, will be available in the public docket.
    Public comments submitted on computer disks that are mailed or
delivered to the docket will be transferred to EPA's electronic public
docket. Public comments that are mailed or delivered to the docket will
be scanned and placed in EPA's electronic public docket. Where
practical, physical objects will be photographed, and the photograph
will be placed in EPA's electronic public docket along with a brief
description written by the docket staff.

C. How and to Whom Do I Submit Comments?

    You may submit comments electronically, by mail, or through hand
delivery/courier. To ensure proper receipt by EPA, identify the
appropriate docket ID number in the subject line on the first page of
your comment. Please ensure that your comments are submitted within the
specified comment period. Comments received after the close of the
comment period will be marked ``late.'' EPA is not required to consider
these late comments. If you wish to submit CBI or information that is
otherwise protected by statute, please follow the instructions in Unit
I.D. Do not use EPA Dockets or e-mail to submit CBI or information
protected by statute.
    1. Electronically. If you submit an electronic comment as
prescribed in this unit, EPA recommends that you include your name,
mailing address, and an e-mail address or other contact information in
the body of your comment. Also include this contact information on the
outside of any disk or CD ROM you submit, and in any cover letter
accompanying the disk or CD ROM. This ensures that you can be
identified as the submitter of the comment and allows EPA to contact
you in case EPA cannot read your comment due to technical difficulties
or needs further information on the substance of your comment. EPA's
policy is that EPA will not edit your comment, and any identifying or
contact information provided in the body of a comment will be included
as part of the comment that is placed in the official public docket,
and made available in EPA's electronic public docket. If EPA cannot
read your comment due to technical difficulties and cannot contact you
for clarification, EPA may not be able to consider your comment.
    i.  EPA Dockets. Your use of EPA's electronic public docket to
submit comments to EPA electronically is EPA's preferred method for
receiving comments. Go directly to EPA Dockets at http://www.epa.gov/edocket/
, and follow the online instructions for submitting comments.

Once in the system, select ``search,'' and then key in docket ID number
EPA-HQ-OPP-2005-0061. The system is an ``anonymous access'' system,
which means EPA will not know your identity, e-mail address, or other
contact information unless you provide it in the body of your comment.
    ii. E-mail. Comments may be sent by e-mail to<EMAIL_ADDRESS>
Attention: Docket ID Number EPA-HQ-OPP-2005-0061. In contrast to EPA's
electronic public docket, EPA's e-mail system is not an ``anonymous
access'' system. If you send an e-mail comment directly to the docket
without going through EPA's electronic public docket, EPA's e-mail
system automatically captures your e-mail address. E-mail addresses
that are automatically captured by EPA's e-mail system are included as
part of the comment that is placed in the official public docket, and
made available in EPA's electronic public docket.
    iii. Disk or CD ROM. You may submit comments on a disk or CD ROM
that you mail to the mailing address identified in Unit I.C.2. These
electronic submissions will be accepted in WordPerfect or ASCII file
format. Avoid the use of special characters and any form of encryption.
    2. By mail. Send your comments to: Public Information and Records
Integrity Branch (PIRIB) (7502C), Office of Pesticide Programs (OPP),
Environmental Protection Agency, 1200 Pennsylvania Ave., NW.,
Washington, DC 20460-0001, Attention: Docket ID Number EPA-HQ-OPP-2005-
0061.
    3. By hand delivery or courier. Deliver your comments to: Public
Information and Records Integrity Branch (PIRIB), Office of Pesticide
Programs (OPP), Environmental Protection Agency, Rm. 119, Crystal Mall
2, 1801 S. Bell St., Arlington, VA, Attention: Docket ID
Number EPA-HQ-OPP-2005-0061. Such deliveries are only accepted during
the docket's normal hours of operation as identified in Unit I.B.1.

D. How Should I Submit CBI to the Agency?

     Do not submit information that you consider to be CBI
electronically through EPA's electronic public docket or by e-mail. You
may claim information that you submit to EPA as CBI by marking any part
or all of that information as CBI (if you submit CBI on disk or CD ROM,
mark the outside of the disk or CD ROM as CBI and then identify
electronically within the disk or CD ROM the specific information that
is CBI). Information so marked will not be disclosed except in
accordance with procedures set forth in 40 CFR part 2.
    In addition to one complete version of the comment that includes
any information claimed as CBI, a copy of the comment that does not
contain the information claimed as CBI must be submitted for inclusion
in the public docket and EPA's electronic public docket. If you submit
the copy that does not contain CBI on disk or CD ROM, mark the outside
of the disk or CD ROM clearly that it does not contain CBI. Information
not marked as CBI will be included in the public docket and EPA's
electronic public docket without prior

notice. If you have any questions about CBI or the procedures for
claiming CBI, please consult the person listed under FOR FURTHER
INFORMATION CONTACT.

E. What Should I Consider as I Prepare My Comments for EPA?

    You may find the following suggestions helpful for preparing your
comments:
    1. Explain your views as clearly as possible.
    2. Describe any assumptions that you used.
    3. Provide any technical information and/or data you used that
support your views.
    4. If you estimate potential burden or costs, explain how you
arrived at your estimate.
    5. Provide specific examples to illustrate your concerns.
    6. Offer alternatives.
    7. Make sure to submit your comments by the comment period deadline
identified.
    8. To ensure proper receipt by EPA, identify the appropriate docket
ID number in the subject line on the first page of your response. It
would also be helpful if you provide the name, date, and Federal
Register citation related to your comments.

II. Background

A. What Action is the Agency Taking?

    EPA is making available the environmental fate and ecological
effects risk assessment, and the grower impact assessments for
azinphos-methyl. Azinphos-methyl is an organophosphate insecticide
first registered in 1959, and is used in agriculture on orchard fruits,
berries, nuts, and other crops. The Interim Reregistration Eligibility
Decision for azinphos-methyl was issued in October 2001. During the
development of the IRED, EPA evaluated the risks and benefits
associated with azinphos-methyl use, considered all relevant risk
mitigation options and implemented a variety of mitigation measures,
including reductions in the rate and frequency of applications and
precautionary labeling to reduce risks. Despite these mitigation
measures, calculated risks to workers and the environment from
azinphos-methyl use still indicated potential concerns. The technical
registrants of azinphos-methyl entered into a Memorandum of Agreement
(MOA) with EPA that was signed on May 23, 2002, which provided for the
deletion or phase out of most azinphos-methyl uses. The remaining 10
uses have time-limited registrations pending the submission and
evaluation of biomonitoring, product efficacy and other data. These
uses include: Almonds; apples and crab apples; blueberries, lowbush and
highbush; Brussels sprouts; sweet and tart cherries; nursery stock;
parsley; pears; pistachios; and walnuts. EPA intends to complete its
evaluation of these uses and propose a decision in 2006.
    EPA is providing an opportunity, through this notice, for
interested parties to provide comments and input on the Agency's
ecological risk and grower impact assessments for azinphos-methyl. Such
comments and input could address, for example, the availability of
additional data to further refine the risk or grower impact
assessments, information about a specific pest problem not addressed or
evaluated in the assessment, or could address the Agency's risk
assessment methodologies and assumptions as applied to this specific
pesticide. Some sample questions are provided in a memorandum to the
docket, dated November 29, 2005. These questions may be used as a guide
for commenting on the assessments available in this docket.
    Comments should be limited to issues raised within the assessments
and associated documents. Failure to comment on any such issues as part
of this opportunity will not limit a commenter's opportunity to
participate in any later notice and comment processes on this matter.
All comments should be submitted using the methods in Unit I. of the
SUPPLEMENTARY INFORMATION, and must be received by EPA on or before the
closing date. Comments will become part of the Agency Docket for
azinphos-methyl. Comments received after the close of the comment
period will be marked ``late.'' EPA is not required to consider these
late comments.

B. What is the Agency's Authority for Taking this Action?

    The Agency is issuing this Notice in connection with decisions it
will make in 2006 pursuant to section 3(c)(5) of the Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA) regarding uses of
azinphos-methyl and phosmet.

List of Subjects

    Environmental protection, Pesticides and pests.

    Dated: November 23, 2005.
Debra Edwards,
Director, Special Review and Reregistration Division, Office of
Pesticide Programs.
[FR Doc. 05-23719 Filed 12-2-05; 1:05 pm]

BILLING CODE 6560-50-S