[Federal Register Volume 77, Number 200 (Tuesday, October 16, 2012)]
[Notices]
[Pages 63370-63380]
[FR Doc No: 2012-25407]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68033; File No. SR-CHX-2012-13]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change, as Modified by Amendments
Nos. 1 and 2, To Establish Listing Standards for Issuers' Compensation
Committees

October 10, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\, and Rule 19b-4 \2\ thereunder, notice is hereby given
that on September 26, 2012, the Chicago Stock Exchange, Inc. (``CHX''
or the ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which filing was amended and replaced in its entirety by
Amendment No. 2 thereto on October 10, 2012, which Items have been
prepared by the Exchange.\3\ The Commission is publishing this notice
to solicit comments on the proposed rule change from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission notes that Amendment No. 1 was submitted on
October 2, 2012 to indicate that the Board of Directors had approved
the proposal.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change

    The Exchange proposes to amend Article 22, Rule 2 (Admittance to
Listing), Rule 4 (Removal of Securities) and Rule 19 (Corporate
Governance) to comport with Section 10(C) of the Exchange Act \4\ and
Rule 10C-1 \5\ thereunder that directs the Exchange to establish
listing standards, among other things, that require each member of a
listed issuer's compensation committee to be an independent member of
its board of directors and relating to compensation committees and
their use of compensation consultants, independent legal counsel and
other advisers (collectively, ``compensation advisers''). The text of
this proposed rule change is available on the Exchange's Web site at
(www.chx.com) and in the Commission's Public Reference Room.
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    \4\ 15 U.S.C. 78j-3.
    \5\ 17 CFR 240.10C-1.
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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 CHX included statements
concerning the purpose of and basis for the proposed rule changes and
discussed any comments it received regarding the proposal. The text of
these statements may be examined at the places specified in Item IV
below. The CHX 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
    This Amendment No. 2 to SR-CHX-2012-13 (the ``filing'') amends and
replaces in its entirety the Filing as originally submitted on
September 26, 2012. Amendment No. 2 corrects several technical errors
under this Rule 19b-4 form, Exhibit 1 and Exhibit 5. Moreover,
substantive amendments were made to the Exhibit 5 and corresponding
amendments were also made to this Exhibit 1 and 19b-4 form. Item 2 of
this 19b-4 filing has been amended to indicate that this proposal was
approved by the Exchange's Board of Directors on September 27, 2012.\6\
Proposed Rule 19(d)(1) was amended to require issuers to have a
compensation committee composed entirely of independent directors,
subject to the general independence requirements of proposed Rule
19(p)(3)(A) and additional specific requirements for compensation
committees under proposed Rule 19(p)(3)(B). Moreover, proposed Rule
19(d)(1) was amended to define ``compensation committee'' as
independent directors functioning within either formal committees of
the board of directors or a non-committee group. Proposed Rule 19(d)(2)
was amended to include a charter requirement for compensation
committees and removes the definition of ``compensation committee'' and
``functional equivalent,'' which has been restated under proposed Rule
19(d)(1)(A)-(C). The exceptions under proposed Rule 19(d)(5)(B) were
amended to be numerically consistent with proposed paragraph .03 of the
Interpretations and Policies of Rule 19. Proposed Rule 19(d)(5)(B)(iii)
was amended to narrow the scope of the passive business organizations

exemption. Proposed Rule 19(d)(5)(B)(iv) was amended to include a
phase-in period for foreign issuers who no longer qualify as such.
Proposed Rule 19(d)(5)(C) was amended to solely refer to the smaller
reporting companies exemption and includes a phase-in period for
issuers that no longer qualify as such. Proposed Rule 19(p)(3) was
amended to reorganize the bright line tests for independent directors
and to allow the inclusion of proposed paragraph (B), which outlines
additional independent director requirements specific to compensation
committee membership. Proposed Rule 19(p)(5) was amended to make the
terms ``small business issuer'' and ``smaller reporting company''
interchangeable for the purposes of CHX rules. Proposed paragraph .03
of the Interpretations and Policies of Rule 19 was amended to remove a
listed exemption for small business issuers. Finally, proposed
paragraph .05(6) of the Interpretations and Policies of Rule 19
outlines an amended transition period for compliance with the proposed
listing standards.
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    \6\ The Commission notes that this change was filed as Amendment
No. 1. See supra note 3.
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    The Exchange proposes to amend Article 22, Rule 2 (Admittance to
Listing), Rule 4 (Removal of Securities) and Rule 19 (Corporate
Governance) to comport with Section 10(C) of the Exchange Act \7\ and
Rule 10C-1 \8\ thereunder, which directs the Exchange to establish
listing standards that require each member of a listed issuer's
compensation committee to be an independent member of its board of
directors and listing standards relating to compensation committees and
their use of compensation advisers.
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    \7\ Supra note 4.
    \8\ Supra note 5.
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    The Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (``Dodd-Frank Act'') established Section 10C of the Exchange Act,
which directed the Securities and Exchange Commission (``Commission''
or ``SEC'') to require national securities exchanges and associations
to prohibit the listing of any equity security of an issuer that is not
in compliance with Section 10C's compensation committee and
compensation adviser requirements.\9\ Specifically, section 10C(a)(1)
of the Exchange Act required the Commission to adopt rules directing
the exchanges to establish listing standards that require each member
of a listed issuer's compensation committee to be a member of the board
of directors and to be ``independent.'' \10\ Moreover, Section
10C(a)(4) \11\ of the Exchange Act required the Commission to permit
the exchanges to exempt particular relationships from the independence
requirements, as each exchange determines is appropriate, taking into
consideration the size of an issuer and any other relevant factors and
section 10C(f)(3) \12\ required the Commission to permit the exchanges
to exempt categories of issuers from the requirements of section 10C,
as each exchange determines is appropriate, taking into consideration
of the impact of section 10C on smaller reporting issuers. In addition,
Section 10C(f) \13\ of the Exchange Act required the Commission to
adopt rules directing the exchanges to establish listing standards that
provide for requirements relating to compensation committees and
compensation consultants, independent legal counsel and other advisers
(collectively, ``compensation advisers''), as set forth in paragraphs
(b)-(e) of Section 10C. Finally, Section 10C(c)(2) required each issuer
to disclose in any proxy or consent solicitation material for an annual
meeting of shareholders (or a special meeting in lieu of the annual
meeting), in accordance with Commission regulations, whether the
issuer's compensation committee retained or obtained the advice of a
compensation consultant; whether the work of the compensation
consultant has raised any conflict of interest; and, if so, the nature
of the conflict and how the conflict is being addressed.\14\
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    \9\ 15 U.S.C. 78j-3.
    \10\ 15 U.S.C. 78j-3(a).
    \11\ 15 U.S.C. 78j-3(a)(4).
    \12\ 15 U.S.C. 78j-3(f)(3)(A).
    \13\ 15 U.S.C. 78j-3(f).
    \14\ 15 U.S.C. 78j-3(c)(2).
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    On June 27, 2012, the Commission promulgated Exchange Act Rule 10C-
1 to implement the compensation committee listing requirements of
Sections 10C of the Exchange Act. As such, the Exchange now proposes to
amend its rules to comport with the new requirements.
Proposed Amendments to CHX Article 22
    The Exchange proposes to amend portions of Article 22, Rule 2
(Admittance to Listing), Rule 4 (Removal of Securities) and Rule 19
(Corporate Governance) to establish listing standards that require each
member of a listed issuer's compensation committee to be an
``independent'' member of its board of directors, to adopt standards
relating to compensation committees' authority to use compensation
advisers and to clarify the consequences to issuers for failure to
comply with these proposed amendments. It is important to note that
virtually all of the proposed amendments are in Rule 19(d), which
currently outlines all of the listing standards with respect to
issuers' compensation committees.
Proposed Rule 2 and Rule 4(a)
    Proposed Rule 2 provides that the Exchange's Board of Governors may
list securities once the requirements of Article 22 are met and upon
terms, conditions and payment of fees as the Exchange's board of
directors may from time to time prescribe. In doing so, proposed Rule 2
adopts much of the current Rule 2, while only clarifying that the Board
of Governors may only admit securities ``once the requirements of this
Article are met.'' Also, proposed Rule 4(a) provides that securities
may be removed from the list, with notice, by either the issuer or the
Exchange, for any reason, including an issuer's failure to comply with
the listing standards of this Article 22. In doing so, proposed Rule
4(a) adopts much of the current Rule 4(a), while inserting language
that states that securities may be delisted by either the issuer or the
Exchange and clarifies that securities may be removed for any reason,
including an issuer's failure to comply with the requirements of this
Article, which includes proposed Rule 19(d). Current Rule 4(b)-(g)
establish the procedures under which a security may be delisted, to
which the Exchange proposes no amendments.
    As such, proposed Rule 2 and Rule 4, considered in conjunction with
current Article 22, Rule 1 \15\, comport with Exchange Act Rule 10C-
1(a)(1) that requires the Exchange to ``prohibit the initial and
continued listing of any equity security of an issuer that is not in
compliance with the requirements of any portion of paragraph (b) or (c)
of this section.'' That is, the purpose of these proposed amendments is
to clarify the potential consequences of an issuer's failure to comply
with CHX Article 22, which includes the proposed compensation committee
listing standards.
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    \15\ CHX Article 22, Rule 1 states, in pertinent part, that
``the requirements, set forth in this Article, must be met in order
for the Exchange to entertain an application for listing.''
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Proposed Rule 19(d)(1) and 19(p)(3)
    Proposed Rule 19(d)(1) \16\ states that an issuers must have a
``compensation

committee'' composed entirely of ``independent directors,'' as defined
under proposed Rule 19(p)(3) and that also meet the additional
independence requirements specific to compensation committees, under
proposed Rule 19(p)(3)(B). The proposed rule continues to define
``compensation committee'' as: (A) a committee of the board of
directors that is designated as the compensation committee; (B) in the
absence of a committee of the board of directors that is designated as
the compensation committee, a committee of the board of directors
performing functions typically performed by a compensation committee,
including oversight of the executive compensation, even if it is not
designated as the compensation committee or also performs other
functions; or (C) in the absence of one of the aforementioned
committees, the members of the board of directors who oversee executive
compensation matters on behalf of the board of directors, who together
must comprise a majority of the board's independent directors.
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    \16\ In order to implement proposed Rule 19(d)(1), the Exchange
proposes to delete current Rule 19(d)(1), which outlines how the
compensation of a chief executive officer is to be determined and
current Rule 19(d)(2), which outlines how a the compensation of
other officers are to be determined, and restate those rules with
amendments, as proposed Rule 19(d)(4), which is discussed below.
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    In turn, proposed Rule 19(p)(3) defines ``independent director'' as
a person who is a member of the issuer's board of directors, other than
an officer or employee of the issuer or its subsidiaries or any other
individual having a relationship, which, in the opinion of the issuer's
board of directors, would interfere with the exercise of independent
judgment in carrying out the responsibilities of an independent
director and places the affirmative duty of making such a determination
on the board of directors. Furthermore, proposed Rule 19(p)(3)(A)
provides that a director may not be deemed to be independent if such
director has a relationship with the issuer which violates any one of
seven ``bright line'' tests.\17\ Proposed Rule 19(p)(3)(B) establishes
additional independent director requirements specific to compensation
committees that states that in affirmatively determining the
independence of any director who will serve on the compensation
committee of the issuer's board of directors, the board must consider
all factors specifically relevant to determining whether a director has
a relationship to the issuer which is material to that director's
ability to be independent from management in connection with the duties
of a compensation committee member, including, but not limited to, two
factors. First, (i) the board must consider the source of compensation
of such director, including any consulting, advisory or other
compensatory fee paid by the issuer to such director. Proposed
subparagraph (i) explains that this factor requires that when
considering the sources of a director's compensation, the board should
consider whether the director receives compensation from any person or
entity that would impair her ability to make independent judgments
about the issuer's executive compensation. Second, (ii) the board must
consider whether such director is affiliated with the issuer, a
subsidiary of the issuer or an affiliate of a subsidiary of the issuer.
The proposed subparagraph (ii) explains that this factor requires that
when considering such affiliate relationships in determining her
independence for purposes of compensation committee service, the board
should consider whether the affiliate relationship places the director
under the direct or indirect control of the issuer or its senior
management, or creates a direct relationship between the director and
members of senior management, in each case of a nature that would
impair her ability to make independent judgments about the issuer's
executive compensation.
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    \17\Proposed Rule 19(p)(3)(A)(i)-(vii) virtually adopts current
Rule 19(p)(3)(A)-(G) and provides that the following persons shall
not be considered independent: (i) A director who is, or during the
past three years, was employed by the issuer or its parent or
subsidiary; (ii) a director or an immediately family member of a
director who had accepted payments from the issuer or its parent or
subsidiary in excess of $120,000 in the current fiscal year or any
of the past three fiscal years, with exceptions for payments
received for services to the board, payments arising from
investments in the issuer's securities, compensation paid to an
immediate family member who is an employee, but not an executive
officer, of the issuer, benefits under a tax-qualified retirement
plan, non-discretionary compensation or loans permitted under
Section 13(k) of the Exchange Act; (iii) a director who is an
immediate family member of an individual who is, or at any time
during the past three years was, employed by the issuer or by any
parent or subsidiary of the issuer as an executive officer; (iv) a
director who is, or has an immediate family member who is, a partner
in, or a controlling shareholder or an executive officer of, any
organization to which the issuer made, or from which the issuer
received, payments for property or services, in the current or any
of the past three fiscal years, that exceed 5% of the recipient's
consolidated gross revenues for that year, or $200,000, whichever is
more, other than payments arising solely from investments in the
issuer's securities or payments under non-discretionary charitable
contribution matching programs; (v) a director of the issuer who is,
or has an immediate family member who is, employed as an executive
officer of another entity where, at any time during the past three
years, any of the executive officers of the issuer served on the
compensation committee of such other entity; (vi) A director who is,
or has an immediate family member who is, a current partner of the
issuer's outside auditor, or who has a partner or employee of the
issuer's outside auditor who worked on the issuer's audit at any
time during the past three years; (vii) In the case of an investment
company, in lieu of paragraphs (i)-(vi), a director who is an
``interested person'' of the company as defined in section 2(a)(19)
of the Investment Company Act of 1940, other than in his or her
capacity as a member of the board of directors or any board
committee.
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    As such, proposed Rule 19(d)(1) and Rule 19(p)(3) comport with the
requirements of Exchange Act Rule 10C-1(b)(1)(i) and (ii). Initially,
as mandated by Exchange Act Rule 10C-1(b)(1)(i), which states, ``each
member of a compensation committee must be a member of the board of
directors of the listed issuer, and must otherwise be independent,''
proposed Rule 19(d)(1) requires members of an issuer's compensation
committee be ``independent directors'' and, in turn, proposed Rule
19(p)(3) defines a ``director,'' in relevant part, as a ``person who is
member of the issuer's board of directors.'' Additionally, the Exchange
proposes to require issuers to have a compensation committee, similar
to Section 303A.05 of the NYSE Listed Company Manual.\18\ The Exchange
submits that its proposed definition of ``compensation committee,''
which adopts Exchange Act Rule 10C-1(c)(2) \19\ almost verbatim, does
not require issuers to do anything more than what they are already
required to do, which is to have either ``a majority of the independent
directors or a compensation committee comprised solely of independent
directors'' determine or recommend executive compensation.\20\
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    \18\ Section 303A.05 of the NYSE Listed Company Manual states,
``listed companies must have a compensation committee composed
entirely of independent directors.''
    \19\ 17 CFR 240.10C-1(c)(2).
    \20\ CHX Article 22, Rule 19(d)(1) and Rule 19(d)(2).
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    Moreover, proposed Rule 19(p)(3) comports with Exchange Act Rule
10C-1(b)(1)(ii). Specifically, Exchange Act Rule 10C-1(b)(1)(ii)(A)
requires the Exchange to consider ``the source of compensation of a
member of the board of directors of an issuer, including any
consulting, advisory or other compensatory fee paid by the issuer to
such a member of the board of directors,'' whereas Exchange Act Rule
10C-1(b)(1)(ii)(B) requires the Exchange to consider ``whether a member
of the board of directors of an issuer is affiliated with the
issuer,\21\ a subsidiary of the issuer or an affiliate of a subsidiary
of the issuer.'' The Exchange

submits that Exchange Act Rule 10C-1(b)(1)(ii) is largely already
addressed via proposed Rule 19(p)(3)(A)(i)-(vii) \22\ and is fully
incorporated through proposed Rule 19(p)(3)(B).
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    \21\ The Exchange understands ``affiliated with issuer'' to have
a similar meaning as ``affiliated with a specified person'' defined
under Exchange Act Rule 12b-2 [17 CFR 240.12b02 [sic] as ``a person
that directly, or indirectly through one more intermediaries,
controls, or is controlled by, or is under common control with, the
person specified.''
    \22\ As mentioned above, supra note 16, proposed Rule
19(p)(3)(A)(i)-(vii) virtually mirrors current Rule 19(p)(3)(A)-(G),
but for a few minor substantive amendments, that are discussed
below.
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    Proposed Rule 19(p)(3)(A)(i) precludes from being considered
independent a director who currently is or was, during the past three
years, employed by the issuer or parent or subsidiary of the issuer.
This preclusion is based, in part, on Exchange Act Rule 16b-
3(b)(3)(i),\23\ which excludes from the definition of a ``non-employee
director'' a director who is an officer of the issuer or a parent or
subsidiary of the issuer, or otherwise currently employed by the issuer
or a parent or subsidiary of the issuer. The Exchange submits that a
director who is or was an executive officer or employee of the issuer
should not be considered independent due to the nature of the
professional relationships that are formed in an employment setting and
the consequences therefrom. For example, a director who is employed by
the issuer may have her employee compensation (i.e. salary, bonuses,
etc. * * *) affected by her actions as a member of the compensation
committee. Moreover, a director who recently ended her employment with
the issuer may still maintain personal relationships with executive
officers that may compromise independent judgment. Consequently, the
look-back provision is necessary, because the nature of such personal
relationships may remain unchanged for sometime after the director
ceased being employed by the issuer.
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    \23\ 17 CFR 240.16b-3(b)(3)(i).
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    Proposed Rule 19(p)(3)(A)(ii) precludes from being considered
independent a director who had or an immediate family member of the
director who had accepted payments from the issuer or parent or
subsidiary of the issuer in excess of $120,000 in the current fiscal
year or any of the past three fiscal years, excluding (1) compensation
for board or board committee service; (2) payments arising solely from
investments in the issuer's securities; (3) compensation paid to an
immediate family member who is a non-executive employee of the issuer
or a parent or subsidiary of the issuer; (4) benefits under a tax-
qualified retirement plan; (5) non-discretionary compensation; or (6)
loans permitted under Section 13(k) of the Act. The only difference
between proposed Rule 19(p)(3)(A)(ii) and current Rule 19(p)(3)(B) is
the proposal to increase the cap amount from $60,000 to $120,000, so as
to remain in lockstep with other exchanges, such as BATS \24\ and
disclosure guidelines under Item 404(a) of Regulation S-K,\25\ both of
which set threshold amounts at $120,000.
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    \24\ BATS Rule 14.10(c)(1)(B) states, in pertinent part, that an
```independent director' means a person other than an Executive
Officer or employee of the Company or any other individual having a
relationship which, in the opinion of the Company's board of
directors, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director'' and paragraph
(c)(1)(B)(ii) precludes from being considered independent ``a
director who accepted or who has a Family Member who accepted any
compensation from the Company in excess of $120,000 during any
period of twelve consecutive months within the three years preceding
the determination of independence.''
    \25\ 17 CFR 229.404.
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    Similar to subparagraph (i), proposed subparagraph (ii) is also
based in part on Exchange Act Rule 16b-3(b)(3)(i), which excludes from
the definition of ``non-employee director,'' a director who receives
compensation, either directly or indirectly, from the issuer or a
parent or subsidiary of the issuer for services rendered as a
consultant or in any capacity other than as a director, except for an
amount that does not exceed $120,000, pursuant to Item 404(a) of
Regulation S-K.\26\ The Exchange acknowledges that a director who meets
the definition of a ``non-employee director'' is not necessarily
``independent.'' However, the Exchange submits that a cap of $120,000
on affected payments are adequately high to allow a director or
immediate family member to receive payments for permissible services to
the issuer, while sufficiently low as to not preclude director
independence. Moreover, a cap on such payments is preferable to an
absolute rule that precludes director independence for any payments
made. This is because the category of services contemplated by this
subparagraph (ii), such as consulting services, are inherently
independent from the ordinary business function of the issuer, in
contrast to payments received in the context of employment. Given these
considerations, the Exchange submits that payments that arise from
independent permissible services should not per se disqualify a
director from being considered independent.
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    \26\ Item 404(a) of Regulation S-K [17 CFR 229.404] mandates
disclosure requirements for transactions exceeding $120,000 in which
the registrant was a participant and in which any ``related person''
has a direct or indirect material interest. In the context of Item
404(a), a ``related person'' includes any director of the
registrant.
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    Moreover, due to the intimate nature of the relationship between a
director and an immediate family member,\27\ the Exchange submits that
immediate family members of a director that fall under the purview of
subparagraph (ii) should also preclude such a director from being
considered independent. For the same reason, the Exchange has also
included a director's relationship to such immediate family members
within the purview of paragraphs (iii)-(vi). With respect to the six
categories of payments that excluded [sic] from the cap requirement of
this subparagraph (B), the Exchange submits that such exceptions are
appropriate because those payments are nondiscretionary and/or
predetermined payments. As such, these payments are immaterial to a
director's ability to be independent, where it is unlikely that these
payments could be unilaterally altered by any executive officer, at
least without the knowledge of the board of directors.
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    \27\ Pursuant to CHX Rule 19(p)(2), an ``immediate family
member'' includes a person's spouse, parents, children, siblings,
mothers and fathers-in-law, sons and daughters-in-law, brothers and
sisters-in-law and any person who has the same residence.
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    Proposed Rule 19(p)(3)(A)(iii) precludes a director who is an
immediate family member of an individual who currently is or was,
during the past three years, employed as an executive officer of the
issuer or parent or subsidiary of the issuer. Given the intimate nature
of the relationship between immediate family members, the Exchange
submits that where a director's immediate family member is an executive
officer of the issuer, the director is per se not independent. This is
because the nature of the personal relationship between the director
and immediate family member who is an executive officer will likely
compromise independent judgment, especially in the context of
determining the compensation of the immediate family member. It is
important to note that although this paragraph does not include
immediate family members who are non-executive employees of the issuer,
Rule 19(p)(3) still allows for a board of directors to nonetheless find
that such a relationship would preclude a director from being
independent. However, the Exchange submits that establishing an
absolute rule would be inappropriate and that an issuer's boards of
directors is better equipped to assess such relationships on a case by
case basis.
    Proposed Rule 19(p)(3)(A)(iv) precludes from being independent a
director who is or has an immediate family member who is a partner in
or a

controlling shareholder or an executive officer of any organization to
which the issuer made or from which received payments for property or
services, in the current or any of the past three fiscal years, that
exceed 5% of the recipient's consolidated gross revenues for that year,
or $200,000, whichever is more, excluding payments arising (1) solely
from investments in the issuer's securities or (2) payment under non-
discretionary charitable contribution matching programs. The purpose of
this rule is to scrutinize directors who benefit from their business
activities with the issuer when determining their ability to exercise
independent judgment. Similar to subparagraph (ii), the Exchange
submits that placing a cap on value of property or services received or
given is preferable to a rule that precludes director independence for
any such activity. This is because the nature of corporate governance
is as such that directors are frequently affiliated with multiple
corporate entities in the same or related fields and inevitably, these
various entities deal with each other in the ordinary course of their
respective businesses. Thus, the Exchange submits that so long as such
activities do not exceed 5% of the payment recipient's consolidated
gross revenues for that year or $200,000, whichever is more, the
activity is ordinary enough so as to not preclude director
independence. In addition, the exclusions to this paragraph are
necessary so as to exclude categories of payments that are non-
discretionary and pre-determined, therefore immaterial to the
independence assessment.
    Proposed Rule 19(p)(3)(A)(v) precludes from being independent a
director who is or has an immediate family member who is employed as an
executive officer of another entity where, at any time during the past
three years, any of the executive officers of the issuer served on the
compensation committee of the other entity. The Exchange submits that a
director cannot be independent where the director is charged with
determining the compensation of an executive, who in turn, is charged
with determining the director's compensation in her capacity as an
executive officer of the other entity. This scenario is obviously
improper, as it may open the door to, among other things, undue
influence and breaches of fiduciary duty. Certainly, a director
subjected to such forces would not be able to exercise independent
judgment. Also, given the personal nature of family relationships,
directors who have immediate family members who are employed as
executive officers by the aforementioned other entity should also be
disqualified from being considered independent.
    Proposed Rule 19(p)(3)(A)(vi) precludes from being independent a
director (1) who is or has an immediate family member who is a current
partner of the issuer's outside auditor or (2) who was a partner or
employee of the issuer's outside auditor who worked on the issuer's
audit at any time during the past three years. The primary purpose of
this subparagraph is to prevent a director, who has or had a direct
association with the issuer's outside auditor, from being placed on the
issuer's audit committee.
    Proposed Rule 19(p)(3)(A)(vii) applies to investment companies in
lieu of subparagraphs (i)-(vi) and precludes from being independent a
director who is an ``interested person,'' as that term is defined under
section 2(a)(19) of the Investment Company Act of 1940 (``Investment
Company Act'').\28\ The Exchange proposes to maintain the exemption of
open-ended and closed-ended investment companies, as those terms are
defined under section 4 and 5(a) of the Investment Company Act,\29\
from the compensation committee requirements of this proposed Rule
19(d). The exemptions are discussed in detail below through proposed
Rule 19(d)(5)(B)(ii).
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    \28\ 15 USCS [sic] 80a-2(a)(19).
    \29\ Pursuant to Section 4 and 5(a)(1) of the Investment Company
Act [15 USCS [sic] 80a-4 and 80a-5(a)(1)], an ``open-end company''
means a management company, other than a unit investment trust or
face-amount certificate company, which is offering for sale or has
outstanding any redeemable security of which it is the issuer.
Pursuant to section 5(a)(2) [15 USCS 80a-5(a)], a ``closed-end
company'' means any management company other than an open-end
company.
---------------------------------------------------------------------------

    Moreover, proposed Rule 19(p)(3)(B) comports with Exchange Act Rule
10C-1(b)(ii) by requiring an issuer's board of directors to consider
all factors specifically relevant to determining whether a director has
a relationship to the issuer which is material to that director's
ability to be independent from management in connection with the duties
of a compensation committee member, including, but not limited to, the
two factors explicitly enumerated in Rule 10C-1(b)(ii). When
considering the sources of a director's compensation in determining her
independence for purposes of compensation committee service, proposed
Rule 19(p)(3)(B)(i) states the board should consider whether the
director receives compensation from any person or entity that would
impair her ability to make independent judgments about the issuer's
executive compensation. Similarly, when considering any affiliate
relationship a director has with the issuer, a subsidiary of the
issuer, or an affiliate of a subsidiary of the issuer, in determining
her independence for purposes of compensation committee service, the
proposed Rule 19(p)(3)(B)(ii) provides that the board should consider
whether the affiliate relationship places the director under the direct
or indirect control of the issuer or its senior management, or creates
a direct relationship between the director and members of senior
management, in each case of a nature that would impair her ability to
make independent judgments about the issuer's executive compensation.
    However, the Exchange does not propose to adopt any specific
numerical tests with respect to the factors specified in proposed Rule
19(p)(3)(B) or to adopt a requirement to consider any other specific
factors. In particular, the Exchange does not intend to adopt an
absolute prohibition on a board making an affirmative finding that a
director is independent solely on the basis that the director or any of
the director's affiliates are shareholders owning more than some
specified percentage of the issuer. In the adopting release for Rule
10C-1 (``adopting release''),\30\ the SEC recognized that the exchange
might determine that not all affiliate relationships would adversely
affect a director's ability to be independent from management.\31\
Consistent with the view of commentators on the SEC's rules as
originally proposed, the Exchange believes that, rather than adversely
affecting a director's ability to be independent from management as a
compensation committee member, share ownership in the issuer aligns the
director's interest with those of unaffiliated shareholders, as their
stock ownership gives then the same economic interest in ensuring that
the issuer's executive compensation is not excessive.
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    \30\ See Listing Standards for Compensation Committees, Release
No. 33-9330 (June 27, 2012) [17 CFR Parts 229 and 240].
    \31\ See Adopting Release at 24.
---------------------------------------------------------------------------

    In sum, the Exchange believes that its existing ``bright line''
independence standards as set forth in proposed Rule 19(p)(3)(A) and
the additional independence requirement as set forth in proposed Rule
19(p)(3)(B) are sufficiently broad to encompass the types of
relationships which would generally be material to a director's
independence for compensation committee service. In addition, there is
language in current Rule 19(p)(3), adopted in proposed Rule 19(p)(3)
that already requires the board to consider

any other material relationships between the director and the issuer or
its management that are not subject of ``bright line'' tests in
proposed Rule 19(p)(3)(A). The Exchange believes that these
requirements with respect to general director independence, when
combined with the additional requirements of proposed Rule 19(p)(3)(B),
represent an appropriate standard for compensation committee
independence that is consistent with the requirements of Exchange Act
Rule 10C-1.
Proposed Rule 19(d)(2)
    Proposed Rule 19(d)(2) establishes a formal written charter or
board resolution requirement for all issuers, with respect to
compensation committees. Specifically, the proposed rule states that
each issuer must adopt a formal written charter or board resolution, as
applicable, addressing at minimum (A) the scope of the compensation
committee's responsibilities and how it carries out those
responsibilities, including structure, process and membership
requirements; (B) the compensation committee's responsibility for
determining or recommending to the board for determination, the
compensation of the chief executive officer and all other officers of
the issuer as set forth in proposed Rule 19(d)(3); and (C) the specific
compensation committee responsibilities and authority set forth in
proposed Rule 19(d)(4).
    The Exchange submits that requiring issuers to adopt such a charter
or board resolution is necessary to facilitate compliance with the
proposed amendments to the compensation committee listing standards.
Moreover, the proposed rule is consistent with other CHX corporate
governance rules requiring a written charter or board resolution \32\
and is also modeled on proposed NASDAQ Rule 5065(d)(1).\33\
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    \32\ Proposed Rule 19(d)(3) is modeled on CHX Article 22, Rule
19(c)(2), which requires each issuer to adopt a formal written
charter or board resolution, as applicable, addressing the
nominations process and any related matters as may be required under
federal securities law.
    \33\ Proposed NASDAQ Rule 5605(d)(1) states, ``each Company must
certify that it has adopted a formal written compensation committee
charter and that the compensation committee will review and reassess
the adequacy of the formal written charter on an annual basis. The
charter must specify: (A) The scope of the compensation committee's
responsibilities, and how it carries out those responsibilities,
including structure, process and membership requirements; (B) the
compensation committee's responsibility for determining or
recommending to the board for determination, the compensation of the
chief executive officer and all other Executive Officers of the
Company; (C) that the chief executive officer may not be present
during voting or deliberations on his or her compensation; and (D)
the specific compensation committee responsibilities and authority
set forth in Rule 5605(d)(3).''
---------------------------------------------------------------------------

Proposed Rule 19(d)(3)
    Proposed Rule 19(d)(3) is a consolidated restatement of current
Rule 19(d)(1) and 19(d)(2). In doing so, current Rule 19(d)(3)(A) has
been deleted and restated as proposed Rule 19(d)(5)(A)(i), with some
syntax amendments to improve logical flow and organization and current
Rule 19(d)(3)(B) has been deleted and restated under proposed Rule
19(d)(5)(B)(i). Specifically, proposed Rule 19(d)(3) states that the
function of a compensation committee or functional equivalent is to
determine or recommend to the issuer's board of directors for
determination the compensation of issuer's chief executive officer and
other officers. It continues that the chief executive officer shall not
be present during the deliberations regarding her own compensation, but
that the chief executive officer may be present during deliberations
regarding compensation of other officers, but may not vote. Aside from
syntax, the only difference between this proposed rule and current Rule
19(d)(1) and Rule 19(d)(2) is that the proposed rule omits the portions
of the current rules that mention that compensation of executive
officers shall be determined or recommended to the board ``either by
(A) a majority of the issuer's independent directors or (B) a
compensation committee comprised solely of independent directors.''
\34\ The reason for this omission is that ``compensation committee''
and ``majority of the issuer's independent directors'' have been
combined and defined under proposed Rule 19(d)(1) as ``compensation
committee.'' The Exchange submits that this organizational amendment is
necessary for the logical flow of the proposed Rule 19(d).
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    \34\ Currently, CHX Article 22, Rule 19(d)(1) states
``compensation of the issuer's chief executive officer shall be
determined, or recommended to the board for determination, either by
(A) a majority of the independent directors or (B) a compensation
committee comprised solely of independent directors. The chief
executive officer may not be present during voting or
deliberations'' and Rule 19(d)(2) states ``compensation of the
issuer's other officers, as that term is defined in Section 16 of
the Act, shall be determined, or recommended to the board for
determination, either by (A) a majority of the issuer's independent
directors or (B) a compensation committee comprised solely of
independent directors. The chief executive officer may be present
during deliberations regarding compensation of other officers, but
may not vote.''
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Proposed Rule 19(d)(4)
    Proposed Rule 19(d)(4)(A)-(E) outlines listing standards mandated
under Exchange Act Rule 10C-1(b)(2), concerning the authority of
compensation committees to retain compensation consultants, outside
legal counsel and other advisers (collectively ``compensation
advisers'').
    Specifically, pursuant to Exchange Act Rule 10C-1(b)(2)(i),
proposed subparagraph (A) provides that a compensation committee may,
in its sole discretion, retain or obtain the advice of a compensation
consultant, independent legal counsel or other adviser. Also, pursuant
to Exchange Act Rule 10C-1(c)(2)(iii), proposed subparagraph (A)
continues by stating that it shall not apply to issuers that do not
maintain a formal committee of the board of directors for determining
executive compensation. The reason behind this exclusion is that since
an action by independent directors acting outside of a formal committee
structure would generally be considered action by the full board of
directors, it is unnecessary to apply this requirement to directors
acting outside of a formal committee structure, as they retain all the
powers of the board of directors in making executive compensation
determinations.\35\
---------------------------------------------------------------------------

    \35\ See Listing Standards for Compensation Committees, Release
No. 33-9330 (June 27, 2012) [17 CFR Parts 229 and 240], at p. 12.
---------------------------------------------------------------------------

    Also, pursuant to Exchange Act Rule 10C-1(b)(2)(ii), proposed
subparagraph (B) provides that the compensation committee shall be
directly responsible for the appointment, compensation and oversight of
the work of any compensation consultant, independent legal counsel and
other adviser retained by the compensation committee. Furthermore,
pursuant to Exchange Act Rule 10C-1(b)(2)(iii), proposed subparagraph
(C) states that nothing in this proposed Rule 19(d)(3) shall be
construed to require the compensation committee to implement or act
consistently with the advice or recommendations of the compensation
consultant, independent legal counsel or other adviser nor to affect
the ability or obligation of a compensation committee to exercise its
own judgment in fulfillment of its duties.
    Moreover, pursuant to Exchange Act Rule 10C-1(b)(3), proposed
subparagraph (D) states that an issuer that maintains a compensation
committee shall provide for appropriate funding, as determined by the
compensation committee, for payment of reasonable compensation to a
compensation consultant, independent legal counsel or any other adviser
retained by the compensation committee. Similar to proposed

subparagraph (A), pursuant to Exchange Act Rule 10C-1(c)(2)(iii),
proposed subparagraph (D) continues by stating that it shall not apply
to issuers that do not maintain a formal committee of the board of
directors, pursuant to Exchange Act Rule 10C-1(c)(2)(iii).\36\
---------------------------------------------------------------------------

    \36\ Id.
---------------------------------------------------------------------------

    Finally, pursuant to Exchange Act Rule 10C-1(b)(4), proposed
subparagraph (E) states that the compensation committee may select a
compensation consultant, legal counsel or other adviser, other than in-
house legal counsel, only after taking into consideration the following
six factors: (i) The provision of other services to the issuer by the
person that employs the compensation consultant, legal counsel or other
adviser; (ii) the amount of fees received from the issuer by the person
that employs the compensation consultant, legal counsel or other
adviser, as a percentage of the total revenue of the person that
employs the compensation consultant, legal counsel or other adviser;
(iii) the policies and procedures of the person that employs the
compensation consultant, legal counsel or other adviser that are
designed to prevent conflicts of interest; (iv) any business or
personal relationship of the compensation consultant, legal counsel or
other adviser with a member of the compensation committee; (v) any
stock of the issuer owned by the compensation consultant, legal counsel
or other adviser; and (vi) any business or personal relationship of the
compensation consultant, legal counsel, or other adviser or the person
employing the adviser with an executive officer of the issuer. The
Exchange agrees with the Commission that these six factors, when
considered together, are competitively neutral, as they will require
compensation committees and functional equivalents to consider a
variety of factors that may bear upon the likelihood that a
compensation adviser can provide independent advice to the compensation
committee, but will not prohibit committees from choosing any
particular adviser or type of adviser.\37\ Therefore, the Exchange
proposes to add no further requirements or factors to be considered
under this subparagraph (E).
---------------------------------------------------------------------------

    \37\ See Listing Standards for Compensation Committees, Release
No. 33-9330 (June 27, 2012) [17 CFR Parts 229 and 240], at p. 40.
---------------------------------------------------------------------------

Proposed Rule 19(d)(5), Rule 19(p)(5) and Paragraph .03 of the
Interpretations and Policies of Rule 19
    Proposed Rule 19(d)(5) outlines exceptions to the listing standards
of this proposed Rule 19(d), pursuant to Exchange Act Rule 10C-
1(b)(1)(iii), which exempts specified categories of issuers and gives
the Exchange discretion to exempt certain director relationships from
the requirements of Rule 10C-1(b)(1) and Rule 10C-1(b)(5), which gives
the Exchange discretion to exempt from the requirements of Exchange Act
Rule 10C-1 any category of issuer, after considering relevant factors.
In establishing these exemptions, proposed Rule 19(d)(5) distinguishes
between (A) temporary exemptions, (B) general exemptions and a (C)
limited exemption for smaller reporting companies.
    Proposed Rule 19(d)(5) lists the temporary exemptions from proposed
Rule 19(d). Proposed Rule 19(d)(5)(A)(i) is a restatement of current
Rule 19(d)(3), which allows an issuer, under exceptional and limited
circumstances, to temporarily appoint a non-independent director to its
compensation or functional equivalent one director who is not
independent, for a term that shall not exceed two years from the date
of appointment (unless the director becomes independent prior to the
end of the two year period), if (1) the compensation committee or
functional equivalent is comprised of at least three persons, including
the proposed non-independent director; (2) the non-independent director
is not a current officer or employee nor is an immediate family member
of a current officer or employee; and (3) the issuer's board of
directors determines that (a) the membership of the non-independent
director on the compensation committee or functional equivalent is
required by the best interests of the company and its shareholders and
(b) the board discloses, in the proxy statement for the next annual
meeting subsequent to such determination (or, if the issuer does not
file a proxy, in its Form 10-K or 20-F), the nature of the relationship
and the reasons for the determination.
    The purpose of this exemption is to allow issuers to efficiently
deal with unforeseen and exceptional circumstances, so as to ensure the
smooth function of its compensation committee or functional equivalent.
While doing so, the exemption clearly establishes guidelines to
minimize the risk of abuse by requiring that the non-independent
director's appointment be temporary, that such a director will not be
an employee of the issuer and that such a director's appointment is
made clear to the shareholders via a proxy statement or Form 10-K or
20F. Furthermore, the Exchange submits that it would not be in the
public interest to burden issuers confronted with unforeseen and
exceptional circumstances, especially where inaction by a compensation
committee may result in a loss of executive talent to the detriment of
shareholders. It is important to note that the same temporary
exemption, with some differences for context, can be found in CHX
Article 22, Rule 19(b)(1)(C)(i) \38\ and given the similarities between
that rule for audit committees and this proposed rule for compensation
committees, the Exchange submits that this exemption is wholly
appropriate and necessary.
---------------------------------------------------------------------------

    \38\ CHX Article 22, Rule 19(b) governs listing standards for
``audit committees'' and Rule 19(b)(1)(C)(i) states ``one director
who is not independent as required by section (b)(1)(A)(i) above,
but who meets the criteria set forth in SEC Rule 10A-3 and who is
not a current officer or employee (or an immediate family member of
a current officer or employee) may be appointed to the audit
committee, if the issuer's board under exceptional and limited
circumstances, determines that membership on the committee by the
individual is required by the best interests of the corporation and
its shareholders, and the board discloses, in the proxy statement
for the next annual meeting subsequent to such determination (or, if
the issuer does not file a proxy, in its Form 10-K, 20-F or other
applicable annual disclosure filed with the SEC), the nature of the
relationship and the reasons for that determination. A member
appointed under this exception may not serve on the audit committee
for more than two years under this exception (unless he or she
ultimately satisfies the definition of an independent director) and
may not chair the audit committee.''
---------------------------------------------------------------------------

    In addition, proposed Rule 19(d)(5)(A)(ii) outlines an opportunity
to cure defects, almost precisely as stated in Exchange Act Rule 10C-
1(a)(3) and current CHX Article 22, Rule 19(b)(1)(C)(ii).\39\
Specifically, it states that if a member of an issuer's compensation
committee or functional equivalent ceases to be an independent director
for reasons outside the member's reasonable control, that member, with
prompt notice by the issuer to the Exchange, may remain a member of the
compensation committee or functional equivalent until the earlier of
the next annual shareholders meeting of the issuer or one year from the
occurrence of the event that caused the member to be no longer an
independent director.
---------------------------------------------------------------------------

    \39\ CHX Article 22, Rule 19(b) governs listing standards for
``audit committees'' and Rule 19(b)(1)(C)(ii) and Rule
19(b)(1)(C)(ii) states ``if a member of an audit committee ceases to
meet the independence criteria set forth in SEC Rule 10A-3 for
reasons outside the person's reasonable control, that person may
remain a member of the committee until the earlier of the next
annual shareholders' meeting or one year from the occurrence of the
event that caused the member to no longer meet the independence
criteria. The issuer must promptly notify the Exchange if this
circumstance occurs.''
---------------------------------------------------------------------------

    Proposed Rule 19(d)(5)(B)(i)-(viii) list the general exemptions
from proposed Rule 19(d). All of the exemptions listed under this
subparagraph are (1) specific

exemptions required under Exchange Act Rule 10C-1(b)(5); (2) proposed
expansions of specific exemptions listed under Exchange Act Rule 10C-
1(b)(1)(iii); or (3) exemptions already in effect under CHX Rules and
proposed pursuant to Exchange Act Rule 10C-1(b)(5)(i). Some of the
proposed exemptions fall under one or more of these categories and each
exemption will discussed in this context.
    Proposed subparagraph (i) exempts limited partnerships and
companies in bankruptcies from the requirements of proposed Rule 19(d).
Such issuers are already exempt from the current compensation committee
requirements under paragraph .03(1) of the Interpretations and Policies
of Rule 19.\40\ Although Exchange Act Rule 10C-1(b)(1)(iii)(A)(1) and
(2) already mandate that such companies be exempt from the independence
requirements, subparagraph (ii) proposes to expand that exemption to
all requirements under Exchange Act Rule 10C-1, pursuant to the
Exchange's authority granted under Exchange Act Rule 10C-1(b)(5)(i). A
``limited partnership'' is defined as a form of business ownership and
association consisting of one or more general partners who are fully
liable for the debts and obligations of the partnership and one or more
limited partners whose liability is limited to the amount invested.\41\
As such, limited partnerships are already exempt from the current
compensation committee requirements because the ownership/management
structure of limited partnerships renders the independent director
requirements inapplicable. The Exchange submits that this same
reasoning renders the compensation adviser requirements unnecessary as
well. With respect to companies in bankruptcy, the purpose behind this
exemption is to not overburden issuers that are struggling to emerge
from bankruptcy. That is, it would not be in public interest to burden
such companies with additional listing standards where such companies
are subject to a host of bankruptcy requirements that will
fundamentally impact its survival. Given these considerations, the
Exchange submits that it would be wholly appropriate to exempt limited
partnerships and companies in bankruptcy from all of the requirements
of proposed Rule 19(d).
---------------------------------------------------------------------------

    \40\ Paragraph .03(1) of the Interpretations and Policies of
Rule 19 states that ``limited partnerships and companies in
bankruptcies are not required to comply with sections (a), (c) and
(d) above.''
    \41\ See Unif. Ltd. P'ship Act sections 102, 303 and 404 (2001).
---------------------------------------------------------------------------

    Proposed subparagraph (ii) exempts from the requirements of
proposed Rule 19(d) ``closed-end and open-end management companies''
registered under the Investment Company Act,\42\ as already stated in
CHX rules as paragraph .03(2) of the Interpretations and Policies of
Rule 19.\43\ Although Exchange Act Rule 10C-1(b)(1)(iii)(A)(3) only
exempts open-end management investment companies from the independence
requirement of the Rule 10C-1(b), the Exchange proposes to expand that
exemption, pursuant to Rule 10C-1(b)(5)(i) to include both open-end and
closed-end management investment companies and to apply the exemption
to all the requirements of Rule 10C-1. The Exchange submits that since
registered investment companies are already subject to the requirements
of the Investment Company Act, including, in particular, requirements
concerning potential conflicts of interest related to investment
adviser compensation,\44\ requiring such companies to comport with the
requirements of this proposed Rule 19(d) would be duplicative and
unnecessary.
---------------------------------------------------------------------------

    \42\ Supra note 29.
    \43\ Paragraph .03(2) of the Interpretations and Policies of
Rule 19 entitled, ``Closed-End and Open-End Management Companies''
states, ``(A) Closed-end management companies that are registered
under the Investment Company Act of 1940 are not required to comply
with sections (a) through (f) of this Rule; except that closed-end
funds must (i) maintain an audit committee of at least three
persons; and (ii) comply with the provisions of SEC Rule 10A-3 and
the provisions of paragraphs (b)(1)(A)(iv), (b)(1)(B), (b)(2),
(b)(3) and (f), above, subject to applicable exceptions.
Additionally, these issuers must establish procedures for the
confidential, anonymous submission of concerns regarding
questionable accounting or auditing matters by employees of the
investment adviser, administrator, principal underwriter, or any
other provider of accounting related services for the investment
company, as well as employees of the investment company. (B)
Business development companies, which are a type of closed-end
management investment company defined in Section 2(a)(48) of the
Investment Company Act of 1940 that are not registered under that
Act, are required to comply with all of the provisions of this Rule.
(C) Open-end funds (including open-end funds that can be listed or
traded as investment company units) are not required to comply with
the provisions of sections (a) through (f) of this Rule; except that
these funds must comply with the provisions of sections (b) and
(f)(2), above, to the extent required by SEC Rule 10A-3.
Additionally, these issuers must establish procedures for the
confidential, anonymous submission of concerns regarding
questionable accounting or auditing matters by employees of the
investment adviser, administrator, principal underwriter, or any
other provider of accounting related services for the investment
company, as well as employees of the investment company and must
address this responsibility in the audit committee charter.''
    \44\ 15 USCS 80a-2, 15 USCS 80a-3, 15 USCS 80a-15, 15 USCS 80a-
17, 15 USCS 80a-35 [sic].
---------------------------------------------------------------------------

    Proposed subparagraph (iii) exempts from the requirements of
proposed Rule 19(d) passive business organizations, such as royalty
trusts, or derivatives and special purpose entities, pursuant to the
Exchange's discretion to exempt certain categories of issuers under
Exchange Act Rule 10C-1(b)(5)(iii). Such issuers are already exempt
from the current compensation committee requirements under paragraph
.03(3) of the Interpretations and Policies of Rule 19.\45\ The
reasoning behind exempting passive business organizations, such as
royalty trusts, is that such entities are structured fundamentally
different from conventional equities issuers. For instance, in the case
of royalty trusts, such entities do not have employees and virtually
all profits earned are distributed to shareholders. As such, these
entities have no need for compensation committees. Moreover, special
purpose entities are frequently utilized to securitize receivables,
such as loans. Similar to the reasoning behind exempting clearing
agencies \46\ that issue futures products and standardized options,
purchasers of securities issued by such special purpose entities do not
make an investment decision based on the issuer, but rather, the
underlying security. As a result, information about the special purpose
entities, its officers and directors and its financial statements is
much less relevant to investors in these securities than information
about the underlying security.
---------------------------------------------------------------------------

    \45\ Paragraph .03(3) of the Interpretations and Policies of
Rule 19 states, ``passive business organizations (such as royalty
trusts) or derivatives and special purpose entities that are exempt
from the requirements of SEC Rule 10A-3 are not subject to any
requirement under sections (a) through (f) of this rule. To the
extent that Rule 10A-3 applies to a passive business organization,
derivative or special purpose security, such entities are required
to comply with the provisions of paragraphs (b) and (f)(2) above, to
the extent required by SEC Rule 10A-3.''
    \46\ See Listing Standards for Compensation Committees, Release
No. 33-9330 (June 27, 2012) [17 CFR Parts 229 and 240], at p. 51.
---------------------------------------------------------------------------

    Proposed subparagraph (iv) exempts from the requirements of
proposed Rule 19(d) any ``foreign private issuer'' that discloses in
its annual report the reasons that it does not have an independent
compensation committee, subject to the additional requirements of
paragraph .03(4) of the Interpretations and Policies of Rule 19.\47\
Moreover,

subparagraph (v) adopts the definition of ``foreign private issuer'' as
stated under Exchange Act Rule 3b-4.\48\ Pursuant to Exchange Act Rule
10C-1(b)(4)(ii), the Exchange proposes to expand the Exchange Act Rule
10C-1(b)(1)(iii)(A)(4) exemption of foreign private issuers from only
the independence requirements to all requirements under Rule 10C-1.
This is because foreign private issuers are already subject to
corporate regulations of their respective home countries and requiring
such issuers to comport with Exchange Act Rule 10C-1 would be
cumulative, if not contradictory. In addition, the Exchange further
proposes include a phase-in provision, nearly identical to proposed
Section 303A.00 (Compliance Dates/A Company Ceases to Qualify as a
Foreign Private Issuer) of the NYSE Listing Company Manual,\49\ which
requires compliance with the proposed compensation committee rules
within six months of the date on which it failed to qualify as a
foreign private issuer.
---------------------------------------------------------------------------

    \47\ Paragraph .03(4) of the Interpretations and Policies of
Rule 19 states, ``foreign issuers will be permitted to comply with
their home country practices with respect to corporate governance
(and thus are exempt from the requirements of sections (a)-(f),
above), except to the extent that SEC Rule 10A-3 requires compliance
with specific audit committee requirements in sections (b) and
(f)(2) above. Foreign issuers must provide English language
disclosure of any significant ways in which their corporate
governance practices differ from those required for domestic issuers
under this Rule 19. This disclosure may be provided either on the
issuer's Web site or in the annual report distributed to
shareholders in the U.S. If the disclosure is made only on an
issuer's Web site, the issuer must note that fact in its annual
report and provide the Web address at which the disclosure may be
reviewed.''
    \48\ Exchange Act Rule 3b-4(c) [17 CFR 240.3b-4(c)] defines
``foreign private issuer'' as ``any foreign issuer other than a
foreign government, except for an issuer that has more than 50% of
its outstanding voting securities held of record by U.S. residents
and any of the following: A majority of its officers and directors
are citizens or residents of the United States, more than 50% of its
assets are located in the United States, or its business is
principally administered in the United States.''
    \49\ Section 303A.00 (Compliance Dates/A Company Ceases to
Qualify as a Foreign Private Issuer) of the NYSE Listing Company
Manual states, in pertinent part, ``to the extent a foreign private
issuer ceases to qualify as such under SEC rules (so that is
required to file on domestic forms with the SEC), such company is
required to comply with Section 303A domestic company requirements
as follows: [* * *] The company must have fully independent
nominating and compensation committees as required by Sections
303A.04 and 303A.05, if applicable, within six months of the Foreign
Private Issuer Determination Date.'' The Commission notes that a
portion of this language is proposed in NYSE-2012-049.
---------------------------------------------------------------------------

    Proposed subparagraph (v) exempts from the requirements of proposed
Rule 19(d) issuers listing only preferred or debt securities on the
Exchange that are subject to the multiple listing exception described
in paragraph .04 of the Interpretations and Policies of Rule 19,
pursuant to the Exchange's discretion to exempt certain categories of
issuers under Exchange Act Rule 10C-1(b)(5)(iii). Such issuers are
already exempt from the current compensation committee requirements
under paragraph .03(5) of the Interpretations and Policies of Rule
19.\50\ The reasoning behind this exemption is that issuers of
preferred or debt securities are already subject to the requirements of
the rules of the exchange on which they are primarily listed. As such,
this proposed exemption prevents such issuers from having to comport
with multiple sets of rules. Moreover, holders of listed preferred
stock have significantly greater protections with respect to their
rights to receive dividends and a liquidation preference upon
dissolution of the issuer. In addition, investors typically regard
preferred stocks as a fixed income investment comparable to debt
securities. Furthermore, debt securities are not equity securities, as
they do not impart an ownership interest to the holder of such
securities. Given these considerations, preferred and debt securities
fall outside the scope of Exchange Act Rule 10C-1(a)(1) and should be
generally exempt.
---------------------------------------------------------------------------

    \50\ Paragraph .03(5) of the Interpretations of Policies of Rule
19 states, ``issuers listing only preferred or debt securities on
the Exchange typically will not be required to adhere to the
requirements set out in sections (a)-(f) because they will be
subject to the multiple listing exception described in
Interpretation .04, below. To the extent required by SEC Rule 10A-3,
these issuers will only be required to comply with sections (b) and
(f)(2) above.''
---------------------------------------------------------------------------

    Proposed subparagraph (vi) exempts controlled companies from the
requirements of proposed Rule 19(d), as mandated by Exchange Act Rule
10C-1(b)(5)(ii), with certain additional requirements.\51\ Such issuers
are already exempt from the current compensation committee requirements
under current Rule 19(d)(3)(B).\52\ Under Rule 19(p)(1), a ``controlled
company'' is defined as a company in which an individual, group or
another company, holds more than 50 percent of the voting power. This
definition is consistent with Exchange Act Rule 10C-1(c)(3), which
defines a ``controlled company'' as an issuer that is listed on a
national securities exchange or by national securities association and
of which more than 50 percent of the voting power for the election of
directors is held by an individual, a group or another company. The
Exchange further proposes to include this exemption under paragraph .03
of the Interpretations and Policies of Rule 19, as proposed paragraph
.03(6).
---------------------------------------------------------------------------

    \51\ Pursuant to CHX paragraph .02 of the Interpretations and
Policies of Rule 19, controlled companies that rely on this
exemption are required to disclose in its annual proxy (or Form 10-
K, 20-F, or other applicable annual disclosure filed with the SEC)
that it is a controlled company and the basis for that
determination.
    \52\ Current Rule 19(d)(3)(B) states, ``controlled company is
exempt from the requirements of this paragraph (d).''
---------------------------------------------------------------------------

    Proposed subparagraph (vii) exempts from the requirements of
proposed Rule 19(d) clearing agencies that are registered pursuant to
Section 17A of the Exchange Act or that are exempt from the
registration requirements of section 17A(b)(7)(A) of the Exchange Act
that clear and list a security futures product or standardized option,
pursuant to Exchange Act Rule 10C-1(b)(5)(iii) and (b)(5)(iv). The
Exchange further proposes to include this exemption under paragraph .03
of the Interpretations and Policies of Rule 19, as proposed paragraph
.03(7).
    Moreover, proposed Rule 19(d)(5)(C) establishes a limited exemption
for smaller reporting companies to proposed Rule 19(d) and proposed
Rule 19(p)(5) merely states that the terms ``small business issuer''
and ``smaller reporting company'' means any issuer that meets the
definition of ``smaller reporting company'' set out in SEC Rule 12b-2.
Specifically, the limited exemption narrows the scope of the general
exemption under Exchange Act Rule 10C-1(b)(5)(ii) and exempts smaller
reporting companies only from the compensation adviser requirements of
proposed Rule 19(d)(4) and the additional independent director
requirements specific to compensation committees of proposed Rule
19(p)(3)(B). This is because under current CHX rules, small business
issuers are already subject to independent director requirements for
its compensation committees and, as such, the Exchange submits that
requiring such issuers to continue to comply with similar proposed
rules is not overly burdensome. Moreover, the proposed rule includes a
phase-in provision similar to proposed Rule 19(d)(5)(B)(iv) for foreign
private issuers and proposed Section 303A.00 (Compliance Dates/A
Company Ceases to Qualify as a Smaller Reporting Company) of the NYSE
Listing Company Manual,\53\ which states that if the smaller reporting
company ceases to qualify as such under SEC rules, it is required to
(i) meet the additional

independent director requirements of proposed Rule 19(p)(3)(B) within
six months of the date on which the issuer failed to qualify as a
smaller reporting company and (ii) comply with the compensation adviser
requirements of proposed Rule 19(d)(4) as of the date on which the
issuer failed to qualify as a smaller reporting company.
---------------------------------------------------------------------------

    \53\ Section 303A.00 (Compliance Dates/A Company Ceases to
Qualify as a Smaller Reporting Company) states, in pertinent part,
``under SEC Rule 12b-2, a company tests its status as a smaller
reporting company on an annual basis at the end of its most recently
completed second fiscal quarter [* * *] To the extent a smaller
reporting company ceases to qualify as such under SEC rules, it is
required, if applicable, to: (1) Have a compensation committee of
which all of the members meet the independence standards of Section
303A.02(a)(ii) within six months of the Smaller Reporting Company
Determination Date; and (II) comply with Section 303A.05(c)(iv) as
of the Smaller Reporting Company Determination Date.'' The
Commission notes that this is language proposed in NYSE-2012-049.
---------------------------------------------------------------------------

Proposed Paragraph .05 of the Interpretations and Policies
    Pursuant to the exemptive authority provided to the exchanges under
Exchange Act Rule 10C-1(b)(1)(iii), the Exchange proposes to amend
paragraph .05 (Transition Periods and Compliance Dates) of the
Interpretations and Policies of Rule 19 to establish a transition
period for issuers to conform to the requirements of proposed Rule 19,
as proposed paragraph .05(6). Specifically, proposed paragraph .05(6)
establishes that proposed Rule 19(d), Rule 19(p)(3), Rule 19(p)(5) and
paragraphs .03 and .05 of the Interpretations and Policies of Rule 19
(which are all of the provisions that have been amended under this
proposed rule filing) will become immediately operative upon approval
by the SEC. However, issuers shall have until the earlier of its first
annual shareholders meeting after January 15, 2014 or October 31, 2014
to comply with the compensation committee charter requirements of
proposed Rule 19(d)(2), the compensation adviser requirements of
proposed Rule 19(d)(4) and the additional independent director
requirements of proposed Rule 19(p)(3)(B). That is, the amendments that
do not require issuers to do anything in addition to what they are
already required to do, under current rules, will become operative
immediately upon approval and the amendments that place additional
requirements on the issuers will be subject to the longer transition
period.
    This proposed transition period is similar to proposed Section
303A.00 (Transition Periods for Compensation Committee Requirements) of
the NYSE Listed Company Manual, which provides that listed companies
will have until the earlier of their first annual meeting after January
15, 2014 or October 31, 2004, to comply with the new standards with
respect to compensation committees. The only difference between the
NYSE proposed transition period and this proposed paragraph .05(6) is
that the NYSE proposes to maintain current rule language operative
through June 30, 2013, whereas the Exchange proposes to make amended
rule language that does not substantively change the current
compensation committee listing standards immediately operative.
However, the Exchange submits that both approaches are practically
similar and the differences are based on how CHX rules are organized.
2. Statutory Basis
    The proposed rule change in relation to the Exchange's compensation
committee requirements and the proposed compensation committee
consultant independence requirements are consistent with the
requirements of Rule 10C-1, with respect to the adoption by national
securities exchange of compensation committee listing standards.
Moreover, the proposed rule changes are consistent with Section 6(b) of
the Act \54\ in general, and furthers the objectives of Section 6(b)(5)
\55\ in particular, in that it is designed to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transaction in securities, to
remove impediments and perfect the mechanisms of a free and open
market, and, in general, to protect investors and the public interest.
Specifically, the Exchange believes that the proposed rule change
supports the objective of the Exchange Act by providing harmonization
between CHX Rules and rules of all other organization subject to the
requirements of Exchange Act Rule 10C-1, which would result in less
burdensome and more efficient regulatory compliance. Moreover, the
Exchange submits that the proposed amendments to its compensation
committee listing standards are consistent with the protection of
investors and the public interest in that they strengthen the
independence requirements for compensation committee membership,
provide additional authority to compensation committees and require
compensation committees to consider the independence of compensation
consultants.
---------------------------------------------------------------------------

    \54\ 15 U.S.C. 78f(b).
    \55\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Furthermore, the Exchange submits that the exemptions from the
proposed requirements that it is granting to limited partnerships and
companies in bankruptcies, management companies registered under the
Investment Company Act of 1940, passive business organizations or
derivatives and special purpose entities that are exempt from the
requirements of Exchange Act 10A-3, foreign private issuers, issuer's
listing only preferred or debt securities, controlled companies and
clearing agencies that clear and list securities futures products or
standardized options are consistent with Section 10C and Rule 10C-1 for
the reasons stated above in the ``Purpose'' section. Specifically, Rule
10C-1(b)(5)(ii) explicitly exempts smaller reporting companies and
foreign private issuers will comply with their home country law and, if
they avail themselves of the exemption, will be required to disclose
that fact under existing Exchange listing requirements. Moreover, the
Exchange submits it is an appropriate use of its exemptive authority
under Rule 10C-1(b)(5)(i), and that it is not unfairly discriminatory
under Section 6(b)(5) of the Act, to provide general exemptions under
the proposed rules to issuers whose only listed class of equity
securities on the Exchange is a preferred stock, as holders of listed
preferred stock have significantly greater protections with respect to
their rights to receive dividends and a liquidation preference upon
dissolution of the issuer, and preferred stocks are typically regarded
by investors as a fixed income investment comparable to debt
securities, the issuers of which are exempt from compliance with Rule
10C-1. In addition, the Exchange submits that it is an appropriate use
of its exemptive authority under Rule 10C-1(b)(5)(i) and that is not
unfairly discriminatory under Section 6(b)(5) of the Exchange Act, to
provide general exemptions under the proposed rules for all of the
other categories of issuers that are not currently subject to the
Exchange's compensation committee requirement, for the structural
reasons discussed in the ``Purpose'' section and because it would be a
significant and unnecessarily burdensome alteration in their governance
structures to require them to comply with the proposed new
requirements.

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

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

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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i)

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-CHX-2012-13 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-CHX-2012-13. 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 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 offices 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-CHX-2012-13, and should be submitted on or before
November 6, 2012.
    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\56\
---------------------------------------------------------------------------

    \56\ 17 CFR 200.30-3(a)(12).

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25407 Filed 10-15-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 77, Number 236 (Friday, December 7, 2012)]
[Rules and Regulations]
[Pages 72968-72970]
[FR Doc No: 2012-29117]

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

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R09-OAR-2012-0120; FRL-9710-3]

Revisions to the California State Implementation Plan, for
Imperial County, Placer County and Ventura County Air Pollution Control
Districts

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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

SUMMARY: EPA is taking direct final action to approve revisions to the
Imperial County Air Pollution Control District (ICAPCD), Placer County
Air Pollution Control District (PCAPCD) and Ventura County Air
Pollution Control District (PCAPCD) portions of the California State
Implementation Plan (SIP). Under authority of the Clean Air Act as
amended in 1990 (CAA or the Act), we are approving local rules that
address emission statements for ICAPCD and PCAPCD and definitions for
VCAPCD.

DATES: This rule is effective on February 5, 2013 without further
notice, unless EPA receives adverse comments by January 7, 2013. If we
receive such comments, we will publish a timely withdrawal in the
Federal Register to notify the public that this direct final rule will
not take effect.

ADDRESSES: Submit comments, identified by docket number EPA-R09-OAR-
2012-0120, by one of the following methods:
    1. Federal eRulemaking Portal: www.regulations.gov. Follow the on-
line instructions.
    2. Email<EMAIL_ADDRESS>    3. Mail or Deliver: Andrew Steckel (Air-4), U.S. Environmental
Protection Agency Region IX, 75 Hawthorne Street, San Francisco, CA
94105-3901.
    Instructions: All comments will be included in the public docket
without change and may be made available online at www.regulations.gov,
including any personal information provided, unless the comment
includes Confidential Business Information (CBI) or other information
whose disclosure is restricted by statute. Information that you
consider CBI or otherwise protected should be clearly identified as
such and should not be submitted through www.regulations.gov or email.
www.regulations.gov is an ``anonymous access'' system, and EPA will not
know your identity or contact information unless you provide it in the
body of your comment. If you send email directly to EPA, your email
address will be automatically captured and included as part of the
public comment. 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.
    Docket: Generally, documents in the docket for this action are
available electronically at www.regulations.gov and in hard copy at EPA
Region IX, 75 Hawthorne Street, San Francisco, California. While all
documents in the docket are listed at www.regulations.gov, some
information may be publicly available only at the hard copy location
(e.g., copyrighted material, large maps), and some may not be publicly
available in either location (e.g., CBI). To inspect the hard copy
materials, please schedule an appointment during normal business hours
with the contact listed in the FOR FURTHER INFORMATION CONTACT section.

FOR FURTHER INFORMATION CONTACT: Cynthia Allen, EPA Region IX, (415)
947-4120<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Throughout this document, ``we,'' ``us'' and
``our'' refer to EPA.

Table of Contents

I. The State's Submittal
    A. What rules did the State submit?
    B. Are there other versions of these rules?
    C. What is the purpose of the submitted rules revisions?
II. EPA's Evaluation and Action
    A. How is EPA evaluating the rules?
    B. Do the rules meet the evaluation criteria?
    C. Public Comment and Final Action
III. Statutory and Executive Order Reviews

I. The State's Submittal

A. What rules did the State submit?

    Table 1 lists the rules we are approving with the dates that they
were adopted by the local air agencies and submitted by the California
Air Resources Board (CARB).

                                            Table 1--Submitted Rules
----------------------------------------------------------------------------------------------------------------
                                                                                Adopted/
           Local agency               Rule No.               Rule title               amended        Submitted
----------------------------------------------------------------------------------------------------------------
ICAPCD...........................             116  Emissions Statement and              02/23/10        07/20/10
                                                    Certification.

PCAPCD...........................             503  Emission Statement...........        08/10/10        12/10/10
VCAPCD...........................               2  Definitions..................        04/12/11        09/27/11
----------------------------------------------------------------------------------------------------------------

    On August 25, 2010, EPA determined that the submittal for ICAPCD
Rule 116 met the completeness criteria in 40 CFR Part 51 Appendix V,
which must be met before formal EPA review. On January 13, 2011, and
October 24, 2011, respectively, the submittals of PCAPCD Rule 503 and
VCAPCD Rule 2 were determined to meet the completeness criteria.

B. Are there other versions of these rules?

    There are no previous versions of ICAPCD Rule 116 and PCAPCD Rule
503 in the SIP. We approved an earlier version of VCAPCD Rule 2 into
the SIP on March 7, 2011 (76 FR 12280).

C. What is the purpose of the submitted rules revisions?

    Section 110(a) of the CAA requires states to submit regulations
that control volatile organic compounds, oxides of nitrogen,
particulate matter, and other air pollutants which harm human health
and the environment. These rules were developed as part of the local
agency's program to control these pollutants.
    ICAPCD Rule 116 will require owners and/or operators of stationary
sources emitting VOC or NOX emissions to provide the ICAPCD
with an annual statement of actual emissions of these pollutants
certified by a responsible official of the company.
    PCAPCD Rule 503 details how every stationary source permitted by
the District with actual or potential emissions in excess of 10 tons
per year or more of NOX or VOC report their actual
emissions. The rule describes the District's current emissions
reporting system using the Renewal Information Request.
    VCAPCD Rule 2 is being amended by adding new definitions and
revisions to existing definitions.
    EPA's technical support documents (TSD) have more information about
these rules.

II. EPA's Evaluation and Action

A. How is EPA evaluating the rules?

    These rules describe administrative provisions and definitions that
support emission controls found in other local agency requirements. In
combination with the other requirements, these rules must be
enforceable (see section 110(a) of the Act) and must not relax existing
requirements (see sections 110(l) and 193). EPA policy that we used to
evaluate enforceability requirements consistently includes the Bluebook
(``Issues Relating to VOC Regulation Cutpoints, Deficiencies, and
Deviations,'' EPA, May 25, 1988) and the Little Bluebook (``Guidance
Document for Correcting Common VOC & Other Rule Deficiencies,'' EPA
Region 9, August 21, 2001).

B. Do the rules meet the evaluation criteria?

    We believe these rules are consistent with the relevant policy and
guidance regarding enforceability and SIP relaxations. The TSDs have
more information on our evaluation.

C. Public Comment and Final Action

    As authorized in section 110(k)(3) of the Act, EPA is fully
approving the submitted rules because we believe they fulfill all
relevant requirements. We do not think anyone will object to this
approval, so we are finalizing it without proposing it in advance.
However, in the Proposed Rules section of this Federal Register, we are
simultaneously proposing approval of the same submitted rules. If we
receive adverse comments by January 7, 2013, we will publish a timely
withdrawal in the Federal Register to notify the public that the direct
final approval will not take effect and we will address the comments in
a subsequent final action based on the proposal. If we do not receive
timely adverse comments, the direct final approval will be effective
without further notice on February 5, 2013. This will incorporate these
rules into the federally enforceable SIP.
    Please note that if EPA receives adverse comment on an amendment,
paragraph, or section of this rule and if that provision may be severed
from the remainder of the rule, EPA may adopt as final those provisions
of the rule that are not the subject of an adverse comment.

III. Statutory and Executive Order Reviews

    Under the Clean Air Act, the Administrator is required to approve a
SIP submission that complies with the provisions of the Act and
applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a).
Thus, in reviewing SIP submissions, EPA's role is to approve State
choices, provided that they meet the criteria of the Clean Air Act.
Accordingly, this action merely approves State law as meeting Federal
requirements and does not impose additional requirements beyond those
imposed by State law. For that reason, this action:
     Is not a ``significant regulatory action'' subject to
review by the Office of Management and Budget under Executive Order
12866 (58 FR 51735, October 4, 1993);
     Does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     Does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     Does not have Federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     Is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of Section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the Clean Air Act; and
     Does not provide EPA with the discretionary authority to
address disproportionate human health or environmental effects with
practical, appropriate, and legally permissible methods under Executive
Order 12898 (59 FR 7629, February 16, 1994).

In addition, this rule does not have tribal implications as specified
by Executive Order 13175 (65 FR 67249, November 9, 2000), because the
SIP is not approved to apply in Indian country

located in the State, and EPA notes that it will not impose substantial
direct costs on tribal governments or preempt tribal law.
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this action and
other required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2).
    Under section 307(b)(1) of the Clean Air Act, petitions for
judicial review of this action must be filed in the United States Court
of Appeals for the appropriate circuit by February 5, 2013. Filing a
petition for reconsideration by the Administrator of this final rule
does not affect the finality of this action for the purposes of
judicial review nor does it extend the time within which a petition for
judicial review may be filed, and shall not postpone the effectiveness
of such rule or action. Parties with objections to this direct final
rule are encouraged to file a comment in response to the parallel
notice of proposed rulemaking for this action published in the Proposed
Rules section of today's Federal Register, rather than file an
immediate petition for judicial review of this direct final rule, so
that EPA can withdraw this direct final rule and address the comment in
the proposed rulemaking. This action may not be challenged later in
proceedings to enforce its requirements (see section 307(b)(2)).

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Incorporation by
reference, Intergovernmental relations, Ozone, Reporting and
recordkeeping requirements, Volatile organic compounds.

    Dated: July 19, 2012.
Jared Blumenfeld,
Regional Administrator, Region IX.
    Part 52, Chapter I, Title 40 of the Code of Federal Regulations is
amended as follows:

PART 52--APPROVAL AND PROMULGATION OF IMPLEMENTATION PLANS

0
1. The authority citation for Part 52 continues to read as follows:

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

Subpart F--California

0
2. Section 52.220 is amended by adding paragraphs (c)(381)(i)(A)(6),
(389)(i)(B)(4), and (404)(i)(C) to read as follows:

Sec.  52.220  Identification of plan.

* * * * *
    (c) * * *
    (381) * * *
    (i) * * *
    (A) * * *
    (6) Rule 116, ``Emissions Statement and Certification,'' adopted on
February 23, 2010.
* * * * *
    (389) * * *
    (i) * * *
    (B) * * *
    (4) Rule 503, ``Emission Statement,'' amended on August 12, 2010.
* * * * *
    (404) * * *
    (i) * * *
    (C) Ventura County Air Pollution Control District.
    (1) Rule 2, ``Definitions,'' adopted on October 22, 1968, as
revised through April 12, 2011.
* * * * *
[FR Doc. 2012-29117 Filed 12-6-12; 8:45 am]
BILLING CODE 6560-50-P


F:  0, 3.5, 6.7, 13.7 mg/kg/day	NOAEL= M/F: 2.7/3.5 mg/kg/day,

LOAEL= M/F: 5.6/6.7 mg/kg/day based on neuromuscular findings (tremors,
changes in grip strength and landing foot-splay).

870.6300	Developmental Neurotoxicity (rat)	46750501 (2006)

Acceptable/non-guideline

0, 3.6, 7.2 and 9.0 mg/kg/day (gestation)

0, 8.3, 16.2 and 20.7 mg/kg/day (lactation)	Maternal NOAEL = 3.6
mg/kg/day during gestation and 8.3 mg/kg/day during lactation,

LOAEL = 7.2 mg/kg/day during gestation and 16.2 mg/kg/day during
lactation based on clinical signs of neurotoxicity (tremors, clonic
convulsions, and increased grooming counts).

Developmental NOAEL =3.6 mg/kg/day during gestation and 8.3 mg/kg/day
during lactation.

Developmental LOAEL = 7.2 mg/kg/day during gestation and 16.2 mg/kg/day
during lactation based on clinical signs of neurotoxicity (increased
grooming counts).

Bifenthrin	Human-Health Risk Assessment	PC Code: 128825

________________________________________________________________________

Page   PAGE  26  of   NUMPAGES  55

Bifenthrin	Human-Health Risk Assessment	PC Code: 128825