[Federal Register Volume 84, Number 196 (Wednesday, October 9, 2019)]
[Proposed Rules]
[Pages 54080-54086]
[FR Doc No: 2019-21862]

=======================================================================
-----------------------------------------------------------------------

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R04-OAR-2019-0203; FRL-10000-75-Region 4]

Air Quality Plans; Tennessee; Infrastructure Requirements for the
2015 8-Hour Ozone National Ambient Air Quality Standard

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

SUMMARY: The Environmental Protection Agency (EPA) is proposing to
approve the State Implementation Plan (SIP) submission, provided by the
State of Tennessee, through the Tennessee Department of Environment and
Conservation (TDEC), through a letter dated September 13, 2018, for
inclusion into the Tennessee SIP. This proposal pertains to the
infrastructure requirements of the Clean Air Act (CAA or Act) for the
2015 8-hour ozone national ambient air quality standard (NAAQS).
Whenever EPA promulgates a new or revised NAAQS, the CAA requires that
each state adopt and submit a SIP for the implementation, maintenance,
and enforcement of each NAAQS promulgated by EPA. TDEC certified that
the Tennessee SIP contains provisions that ensure the 2015 8-hour ozone
NAAQS is implemented, enforced, and maintained in Tennessee. EPA is
proposing to determine that portions of Tennessee's SIP submission
satisfy certain required infrastructure elements for the 2015 8-hour
ozone NAAQS.

DATES: Written comments must be received on or before November 8, 2019.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R04-
OAR-2019-0203 at http://www.regulations.gov. Follow the online
instructions for submitting comments. Once submitted, comments cannot
be edited or removed from Regulations.gov. EPA may publish any comment
received to its public docket. Do not submit electronically any
information you consider to be Confidential Business Information (CBI)
or other information whose disclosure is restricted by statute.
Multimedia submissions (audio, video, etc.) must be accompanied by a
written comment. The written comment is considered the official comment
and should include discussion of all points you wish to make. EPA will
generally not consider comments or comment contents located outside of
the primary submission (i.e., on the web, cloud, or other file sharing
system). For additional submission methods, the full EPA public comment
policy, information about CBI or multimedia submissions, and general
guidance on making effective comments, please visit http://www2.epa.gov/dockets/commenting-epa-dockets.

FOR FURTHER INFORMATION CONTACT: Tiereny Bell, Air Regulatory
Management Section, Air Planning and Implementation Branch, Air and
Radiation Division, U.S. Environmental Protection Agency, Region 4, 61
Forsyth Street SW, Atlanta, 30303-8960. Ms. Bell can be reached via
electronic mail at<EMAIL_ADDRESS>or via telephone at (404) 562-
9088.

SUPPLEMENTARY INFORMATION:

I. Background and Overview

    On October 1, 2015 (published October 26, 2015, see 80 FR 65292),
EPA promulgated a revised primary and secondary NAAQS for ozone
revising the 8-hour ozone NAAQS from 0.075 parts per million to a new
more protective level of 0.070 ppm. Pursuant to section 110(a)(1) of
the CAA, states are required to submit SIP revisions meeting the
applicable requirements of section 110(a)(2) within three years after
promulgation of a new or revised NAAQS or within such shorter period as
EPA may prescribe. Section 110(a)(2) requires states to address basic
SIP elements such as requirements for monitoring, basic program
requirements, and legal authority that are designed to assure
attainment and maintenance of the NAAQS. This particular type of SIP is
commonly referred to as an ``infrastructure SIP.'' States were required
to submit such SIPs for the 2015 8-hour ozone NAAQS to EPA no later
than October 1, 2018.\1\
---------------------------------------------------------------------------

    \1\ In these infrastructure SIP submissions, states generally
certify evidence of compliance with sections 110(a)(1) and (2) of
the CAA through a combination of state regulations and statutes,
some of which have been incorporated into the federally-approved
SIP. In addition, certain federally-approved, non-SIP regulations
may also be appropriate for demonstrating compliance with sections
110(a)(1) and (2).

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

    This action is proposing to approve Tennessee's September 13,
2018,\2\ revision submitted to EPA through TDEC for the applicable
infrastructure SIP requirements of the 2015 8-hour ozone NAAQS, with
the exception of the interstate transport provisions of section
110(a)(2)(D)(i)(I) pertaining to contribution to nonattainment or
interference with maintenance in other states, and the prevention of
significant deterioration (PSD) provisions related to major sources
under sections 110(a)(2)(C), 110(a)(2)(D)(i)(II), and 110(a)(2)(J).
With respect to the interstate transport provisions of section
110(a)(2)(D)(i)(I) and the PSD provisions related to major sources
under sections 110(a)(2)(C), 110(a)(2)(D)(i)(II), and 110(a)(2)(J), EPA
will address these in separate rulemaking actions.
---------------------------------------------------------------------------

    \2\ The September 13, 2018, SIP submission submitted by TDEC was
received by EPA on September 17, 2018.
---------------------------------------------------------------------------

II. What elements are required under Sections 110(a)(1) and 110(a)(2)?

    Section 110(a) of the CAA requires states to submit SIPs to provide
for the implementation, maintenance, and enforcement of a new or
revised NAAQS within three years following the promulgation of such
NAAQS, or within such shorter period as EPA may prescribe. Section
110(a) imposes the obligation upon states to make a SIP submission to
EPA for a new or revised NAAQS, but the contents of that submission may
vary depending upon the facts and circumstances. In particular, the
data and analytical tools available at the time the state develops and
submits the SIP for a new or revised NAAQS affects the content of the
submission. The contents of such SIP submissions may also vary
depending upon what provisions the state's existing SIP already
contains.\3\
---------------------------------------------------------------------------

    \3\ Throughout this rulemaking, unless otherwise indicated, the
term ``Tennessee Air Pollution Control Regulations'' or
``Regulation'' indicates that the cited regulation has been approved
into Tennessee's federally-approved SIP. The term ``Tennessee
Annotated Code'', or ``TCA'', indicates cited Tennessee state
statutes, which are not a part of the SIP unless otherwise
indicated.
---------------------------------------------------------------------------

    More specifically, section 110(a)(1) provides the procedural and
timing requirements for SIPs. Section 110(a)(2) lists specific elements
that states must meet for infrastructure SIP requirements related to a
newly established or revised NAAQS. As mentioned above, these
requirements include basic SIP elements such as requirements for
monitoring, basic program requirements, and legal authority that are
designed to assure attainment and maintenance of the NAAQS. The
requirements of section 110(a)(2) are summarized in section IV, below,
and in EPA's September 13, 2013, memorandum entitled ``Guidance on
Infrastructure State Implementation Plan (SIP) Elements under Clean Air
Act Sections 110(a)(1) and 110(a)(2).'' \4\
---------------------------------------------------------------------------

    \4\ Two elements identified in section 110(a)(2) are not
governed by the three-year submission deadline of section 110(a)(1)
because SIPs incorporating necessary local nonattainment area
controls are not due within three years after promulgation of a new
or revised NAAQS, but rather are due at the time the nonattainment
area plan requirements are due pursuant to section 172. These
elements are: (1) Submissions required by section 110(a)(2)(C) to
the extent that subsection refers to a permit program as required in
part D, title I of the CAA; and (2) submissions required by section
110(a)(2)(I) which pertain to the nonattainment planning
requirements of part D, title I of the CAA. This proposed rulemaking
does not address infrastructure elements related to section
110(a)(2)(I) or the nonattainment permitting requirements of
110(a)(2)(C).

 110(a)(2)(A): Emission Limits and Other Control Measures
 110(a)(2)(B): Ambient Air Quality Monitoring/Data System
 110(a)(2)(C): Programs for Enforcement of Control Measures and
for Construction or Modification of Stationary Sources \5\
---------------------------------------------------------------------------

    \5\ As mentioned above, the Part D permit program for
construction and modification of stationary sources is not relevant
to this proposed rulemaking.
---------------------------------------------------------------------------

 110(a)(2)(D)(i)(I) and (II): Interstate Pollution Transport
 110(a)(2)(D)(ii): Interstate Pollution Abatement and
International Air Pollution
 110(a)(2)(E): Adequate Resources and Authority, Conflict of
Interest, and Oversight of Local Governments and Regional Agencies
 110(a)(2)(F): Stationary Source Monitoring and Reporting
 110(a)(2)(G): Emergency Powers
 110(a)(2)(H): SIP Revisions
 110(a)(2)(I): Plan Revisions for Nonattainment Areas \6\
---------------------------------------------------------------------------

    \6\ As also mentioned above, this element is not relevant to
this proposed rulemaking.
---------------------------------------------------------------------------

 110(a)(2)(J): Consultation with Government Officials, Public
Notification, and Prevention of Significant Deterioration (PSD) and
Visibility Protection
 110(a)(2)(K): Air Quality Modeling and Submission of Modeling
Data
 110(a)(2)(L): Permitting fees
 110(a)(2)(M): Consultation and Participation by Affected Local
Entities

III. What is EPA's approach to the review of infrastructure SIP
submissions?

    EPA is acting upon the SIP submission from Tennessee that addresses
the infrastructure requirements of CAA sections 110(a)(1) and 110(a)(2)
for the 2015 8-hour ozone NAAQS. Whenever EPA promulgates a new or
revised NAAQS, CAA section 110(a)(1) requires states to make SIP
submissions to provide for the implementation, maintenance, and
enforcement of the NAAQS, commonly referred to as an ``infrastructure
SIP.'' These infrastructure SIP submissions must meet the various
requirements of CAA section 110(a)(2), as applicable. Due to ambiguity
in some of the language of CAA section 110(a)(2), EPA believes that it
is appropriate to interpret these provisions in the specific context of
acting on infrastructure SIP submissions. EPA has previously provided
comprehensive guidance on the application of these provisions through a
guidance document for infrastructure SIP submissions and through
regional actions on infrastructure submissions.\7\ Unless otherwise
noted below, we are following that existing approach in acting on this
submission. In addition, in the context of acting on such
infrastructure submissions, EPA evaluates the submitting state's SIP
for facial compliance with statutory and regulatory requirements, not
for the state's implementation of its SIP.\8\ EPA has other authority
to address any issues concerning a state's implementation of the rules,
regulations, consent orders, etc. that comprise its SIP.
---------------------------------------------------------------------------

    \7\ EPA explains and elaborates on these ambiguities and its
approach to address them in its September 13, 2013 Infrastructure
SIP Guidance (available at https://www3.epa.gov/airquality/urbanair/sipstatus/docs/Guidance_on_Infrastructure_SIP_Elements_Multipollutant_FINAL_Sept_2013.pdf), as well as in numerous agency actions, including EPA's prior
action on Tennessee's infrastructure SIP to address the 2010
Nitrogen Dioxide NAAQS (81 FR 45438 (July 14, 2016)).
    \8\ See Mont. Envtl. Info. Ctr. v. Thomas, 902 F.3d 971 (9th
Cir. 2018).
---------------------------------------------------------------------------

IV. What is EPA's analysis of how Tennessee addressed the elements of
the Sections 110(a)(1) and (2) ``Infrastructure'' provisions?

    The Tennessee infrastructure SIP submission addresses the
provisions of sections 110(a)(1) and (2) as described below.
    1. 110(a)(2)(A) Emission Limits and Other Control Measures: Section
110(a)(2)(A) requires that each implementation plan include enforceable
emission limitations and other control measures, means, or techniques
(including economic incentives such as fees, marketable permits, and
auctions of emissions rights), as well as schedules and timetables for
compliance, as may be necessary or appropriate to meet the applicable
requirements. Several regulations within Tennessee's SIP are

relevant to emission limits and other air quality control measures.
These regulations include enforceable emission limitations and other
control measures within the following rule chapters: SIP-approved
Tennessee Air Pollution Control Regulations (TAPCR) 1200-03-03, Ambient
Air Quality Standards, 1200-03-04, Open Burning; 1200-03-06, Non-
process Emission Standards; 1200-03-07, Process Emission Standards;
1200-03-09, Construction and Operating Permits; 1200-03-18, Volatile
Organic Compounds; 1200-03-21, General Alternate Emission Standards;
1200-03-24, Good Engineering Practice Stack Height Regulations; and
1200-03-27, Nitrogen Oxides. Collectively, these regulations establish
enforceable emissions limitations and other control measures, means, or
techniques for activities that contribute to ozone concentrations in
the ambient air, and provide authority for TDEC to establish such
limits and measures as well as schedules for compliance to meet the
applicable requirements of the CAA. Additionally, State statutes
established in the Tennessee Air Quality Act and adopted in the
Tennessee Code Annotated (TCA) section 68-201-105(a), Powers and duties
of board--Notification of vacancy--Termination due to vacancy, provide
the Board and TDEC's Division of Air Pollution Control the authority to
take actions in support of this infrastructure element such as issue
permits, promulgate regulations, and issue orders to implement the
Tennessee Air Quality Act and the CAA, as relevant. EPA has made the
preliminary determination that the provisions contained in these State
regulations and State statute satisfy Section 110(a)(2)(A) for the 2015
8-hour ozone NAAQS in the State.
    2. 110(a)(2)(B) Ambient Air Quality Monitoring/Data System: Section
110(a)(2)(B) requires SIPs to provide for establishment and operation
of appropriate devices, methods, systems, and procedures necessary to
(i) monitor, compile, and analyze data on ambient air quality, and (ii)
upon request, make such data available to the Administrator. TCA 68-
201-105(b)(4) gives TDEC the authority to provide technical,
scientific, and other services as may be required to implement the
provisions of the Tennessee Air Quality Act. Annually, states develop
and submit to EPA for approval statewide ambient monitoring network
plans consistent with the requirements of 40 CFR parts 50, 53, and 58.
The annual network plan involves an evaluation of any proposed changes
to the monitoring network, includes the annual ambient monitoring
network design plan, and includes a certified evaluation of the
agency's ambient monitors and auxiliary support equipment.\9\
---------------------------------------------------------------------------

    \9\ The annual network plans are approved by EPA in accordance
with 40 CFR part 58, and, on occasion, proposed changes to the
monitoring network are evaluated outside of the network plan
approval process in accordance with 40 CFR part 58.
---------------------------------------------------------------------------

    On July 10, 2018, Tennessee submitted its most recent plan to EPA,
which was approved by EPA on September 19, 2018. Tennessee's monitoring
network plan can be accessed at www.regulations.gov using Docket ID No.
EPA-R04-OAR-2019-0203. EPA has made the preliminary determination that
Tennessee's SIP and practices are adequate for the ambient air quality
monitoring and data availability requirements related to the 2015 8-
hour ozone NAAQS.
    3. 110(a)(2)(C) Programs for Enforcement of Control Measures and
for Construction or Modification of Stationary Sources: This element
consists of three sub-elements: Enforcement, state-wide regulation of
new and modified minor sources and minor modifications of major
sources, and preconstruction permitting of major sources and major
modifications in areas designated attainment or unclassifiable for the
subject NAAQS as required by CAA title I part C (i.e., the major source
PSD program). TDEC's 2015 8-hour ozone NAAQS infrastructure SIP
submission cites a number of SIP provisions to address these
requirements. EPA's rationale for its proposed action regarding each
sub-element is described below.
    Enforcement: The following SIP-approved regulation provides TDEC
with authority for enforcement of ozone emission limits and control
measures. TAPCR 1200-03-13-.01, Violation Statement, states that,
``Failure to comply with any of the provisions of these regulations
shall constitute a violation thereof and shall subject the person or
persons responsible therefore to any and all the penalties provided by
law.'' Also note, under TCA 68-201-116, Orders and assessments of
damages and civil penalty--Appeal, the State's Technical Secretary is
authorized to issue orders requiring correction of violations of any
part of the Tennessee Air Quality Act, or of any regulation promulgated
under this State statute. Violators are subject to civil penalties of
up to $25,000 per day for each day of violation and for any damages to
the State resulting from the violations.
    Preconstruction PSD Permitting for Major Sources: With regard to
section 110(a)(2)(C) related to the programs for preconstruction PSD
permitting for major sources, EPA is not proposing any action in this
rulemaking. EPA will consider these requirements in relation to
Tennessee's 2015 8-hour ozone NAAQS infrastructure submission in a
separate rulemaking.
    Regulation of minor sources and modifications: Section 110(a)(2)(C)
also requires the SIP to include provisions that govern the minor
source program that regulates emissions of the 2015 8-hour ozone NAAQS.
TAPCR 1200-03-09-.01, Construction Permits, and TAPCR 1200-03-09-.03,
General Provisions, collectively govern the preconstruction permitting
of modifications and construction of minor stationary sources, and
minor modifications of major stationary sources.
    EPA has made the preliminary determination that Tennessee's SIP is
adequate for program enforcement of control measures, and regulation of
minor sources and modifications related to the 2015 8-hour ozone NAAQS.
    4. 110(a)(2)(D)(i)(I) and (II) Interstate Pollution Transport:
Section 110(a)(2)(D)(i) has two components: 110(a)(2)(D)(i)(I) and
110(a)(2)(D)(i)(II). Each of these components has two subparts
resulting in four distinct components, commonly referred to as
``prongs,'' that must be addressed in infrastructure SIP submissions.
The first two prongs, which are codified in section 110(a)(2)(D)(i)(I),
are provisions that prohibit any source or other type of emissions
activity in one state from contributing significantly to nonattainment
of the NAAQS in another state (``prong 1'') and interfering with
maintenance of the NAAQS in another state (``prong 2''). The third and
fourth prongs, which are codified in section 110(a)(2)(D)(i)(II), are
provisions that prohibit emissions activity in one state from
interfering with measures required to prevent significant deterioration
of air quality in another state (``prong 3''), or to protect visibility
in another state (``prong 4'').
    110(a)(2)(D)(i)(I)--prongs 1 and 2: EPA is not proposing any action
in this rulemaking related to the interstate transport provisions
pertaining to the contribution to nonattainment or interference with
maintenance in other states of section 110(a)(2)(D)(i)(I) (prongs 1 and
2). EPA will consider these requirements in relation to Tennessee's
2015 8-hour ozone NAAQS infrastructure submission in a separate
rulemaking.
    110(a)(2)(D)(i)(II)--prong 3: With regard to section
110(a)(2)(D)(i)(II), the PSD element, referred to as prong 3,

EPA is not proposing any action in this rulemaking. EPA will consider
these requirements in relation to Tennessee's 2015 8-hour ozone NAAQS
infrastructure submission in a separate rulemaking.
    110(a)(2)(D)(i)(II)--prong 4: Section 110(a)(2)(D)(i)(II) requires
that the SIP contain adequate provisions to protect visibility in other
states. This requirement is satisfied for any relevant NAAQS when the
state has a fully approved regional haze SIP. Tennessee's submission
relied on the State's regional haze SIP submission to address the prong
4 requirements of section 110(a)(2)(D)(i) for the 2015 8-hour ozone
NAAQS. EPA approved Tennessee's regional haze SIP on September 24, 2018
(83 FR 48237). EPA's approval of Tennessee's regional haze SIP
therefore ensures that emissions from Tennessee are not interfering
with measures to protect visibility in other states, satisfying the
requirements of prong 4 of section 110(a)(2)(D)(i)(II) for the 2015 8-
hour ozone NAAQS. Thus, EPA has made the preliminary determination that
Tennessee's infrastructure SIP submissions for the 2015 8-hour ozone
NAAQS meets the requirements of prong 4 of section 110(a)(2)(D)(i)(II).
    5. 110(a)(2)(D)(ii): Interstate Pollution Abatement and
International Air Pollution: Section 110(a)(2)(D)(ii) requires SIPs to
include provisions ensuring compliance with sections 115 and 126 of the
Act, relating to interstate and international pollution abatement.
TAPCR 1200-03-09-3.04(4)(l)2, General Provisions, requires the
permitting authority to notify air agencies whose areas may be affected
by emissions from a source, which satisfies CAA section 126(a).
Additionally, Tennessee does not have any pending obligation under
sections 115 or 126(b) of the CAA relating to international or
interstate pollution abatement. EPA has made the preliminary
determination that Tennessee's SIP and practices are adequate for
ensuring compliance with the applicable requirements relating to
interstate and international pollution abatement for the 2015 8-hour
ozone NAAQS.
    6. 110(a)(2)(E) Adequate Resources and Authority, Conflict of
Interest, and Oversight of Local Governments and Regional Agencies:
Section 110(a)(2)(E) requires that each implementation plan provide:
(i) Necessary assurances that the state will have adequate personnel,
funding, and authority under state law to carry out its implementation
plan, (ii) that the state comply with the requirements respecting state
boards pursuant to section 128 of the Act, and (iii) necessary
assurances that, where the state has relied on a local or regional
government, agency, or instrumentality for the implementation of any
plan provision, the state has responsibility for ensuring adequate
implementation of such plan provisions. EPA is proposing to approve
Tennessee's infrastructure SIP submission as meeting the requirements
of sub-elements 110(a)(2)(E)(i), (ii), and (iii). EPA's rationale for
today's proposal respecting each element of 110(a)(2)(E) is described
in turn below.
    In support of EPA's proposal to approve sub-elements
110(a)(2)(E)(i) and (iii), TCA 68-201-105, Powers and duties of board--
Notification of vacancy--Termination due to vacancy, gives the Board
the power and duty to promulgate rules and regulations to implement the
Tennessee Air Quality Act. The Board may define ambient air quality
standards, set emission standards, set forth general policies or plans,
establish a system of permits, and identify a schedule of fees for
review of plans and specifications, issuance or renewal of permits or
inspection of air contaminant sources.
    TAPCR 1200-03-26, Administrative Fees Schedule, establishes
construction fees, annual emission fees, and permit review fees
sufficient to supplement existing State and Federal funding and to
cover reasonable costs associated with the administration of
Tennessee's air pollution control program. These costs include costs
associated with the review of permit applications and reports, issuance
of permits, source inspections and emission unit observations, review
and evaluation of stack and/or ambient monitoring results, modeling,
and costs associated with enforcement actions.
    TCA 68-201-115, Local pollution control programs--Exemption from
state supervision--Applicability of part to air contaminant sources
burning wood waste--Open burning of wood waste, states that ``Any
municipality or county in this state may enact, by ordinance or
resolution respectively, air pollution control regulations not less
stringent than the standards adopted for the state pursuant to this
part, or any such municipality or county may also adopt or repeal an
ordinance or resolution which incorporates by reference any or all of
the regulations of the board, or any federal regulations including any
changes in such regulations, when such regulations are properly
identified as to date and source.'' Before such ordinances or
resolutions become effective, the municipality or county must receive a
certificate of exemption from the Board to enact local regulations in
the State. In granting any certificate of exemption, the State of
Tennessee reserves the right to enforce any applicable resolution,
ordinance, or regulation of the local program.
    TCA 68-201-115 also directs TDEC to ``frequently determine whether
or not any exempted municipality or county meets the terms of the
exemption granted and continues to comply with this section.'' If TDEC
determines that the local program does not meet the terms of the
exemption or does not otherwise comply with the law, the Board may
suspend the exemption in whole or in part until the local program
complies with the State standards.
    As evidence of the adequacy of TDEC's resources with respect to
sub-elements (i) and (iii), EPA submitted a letter to Tennessee on
March 25, 2019, outlining section 105 grant commitments and the current
status of these commitments for fiscal year 2018. The letter EPA
submitted to Tennessee can be accessed at www.regulations.gov using
Docket ID No. EPA-R04-OAR-2019-0203. Annually, states update these
grant commitments based on current SIP requirements, air quality
planning, and applicable requirements related to the NAAQS. Tennessee
satisfactorily met all commitments agreed to in the Air Planning
Agreement for fiscal year 2018, therefore Tennessee's grants were
finalized and closed out. EPA has made the preliminary determination
that Tennessee has adequate resources and authority for implementation
of the 2015 8-hour ozone NAAQS.
    Section 110(a)(2)(E)(ii) requires that the state comply with
section 128 of the CAA. Section 128 requires that the SIP contain
requirements providing that: (a)(1) The majority of members of the
state board or body which approves permits or enforcement orders
represent the public interest and do not derive any significant portion
of their income from persons subject to permitting or enforcement
orders under the CAA; and (a)(2) any potential conflicts of interest by
such board or body, or the head of an executive agency with similar
powers be adequately disclosed. Section 110(a)(2)(E)(ii) obligations
and the requirements of CAA section 128 are met in Tennessee Regulation
0400-30-17, Conflict of Interest. Under this regulation, the Board has
authority over air permits and enforcement orders and is required to
determine annually and after receiving a new member that at least a
majority of its members represent the public interest and do not derive
any significant portion of income from persons subject to such permits
and enforcement orders. Further, the Board

cannot act to hear contested cases until it has determined it can do so
consistent with CAA section 128. The regulation also requires TDEC's
Technical Secretary and Board members to declare any conflict-of-
interest in writing prior to the issuance of any permit, variance or
enforcement order that requires action on their part.
    EPA has made the preliminary determination that Tennessee's SIP
adequately addresses the requirements of section 128, and accordingly
has met the requirements of section 110(a)(2)(E)(ii) with respect to
infrastructure SIP requirements. Therefore, EPA is proposing to approve
Tennessee's infrastructure SIP submission as meeting the requirements
of sub-elements 110(a)(2)(E)(i), (ii) and (iii).
    7. 110(a)(2)(F) Stationary Source Monitoring and Reporting: Section
110(a)(2)(F) requires SIPs to meet applicable requirements addressing:
(i) The installation, maintenance, and replacement of equipment, and
the implementation of other necessary steps, by owners or operators of
stationary sources to monitor emissions from such sources, (ii)
periodic reports on the nature and amounts of emissions and emissions
related data from such sources, and (iii) correlation of such reports
by the state agency with any emission limitations or standards
established pursuant to this section, which reports shall be available
at reasonable times for public inspection. EPA's rules regarding how
SIPs need to address source monitoring requirements at 40 CFR 51.212
require SIPs to exclude any provision that would prevent the use of
credible evidence of noncompliance. TDEC's infrastructure SIP
submission identifies TAPCR 1200-03-10, Required Sampling, Recording,
and Reporting, which gives the State's Technical Secretary the
authority to monitor emissions at stationary sources, and to require
these sources to conduct emissions monitoring and to submit periodic
emissions reports. This rule requires owners or operators of stationary
sources to monitor emissions, submit periodic reports of such emissions
and maintain records as specified by various regulations and permits.
The monitoring data collected, and records of operations serve as the
basis for a source to certify compliance and can be used by Tennessee
as direct evidence of an enforceable violation of the underlying
emission limitation or standard.
    Additionally, Tennessee is required to submit emissions data to EPA
for purposes of the National Emissions Inventory (NEI) pursuant to
Subpart A to 40 CFR part 51--``Air Emissions Reporting Requirements.''
The NEI is EPA's central repository for air emissions data.
Specifically, all states are required to submit a comprehensive
emission inventory every three years and report emissions for certain
larger sources annually through EPA's online Emissions Inventory
System. States report emissions data for the six criteria pollutants
and the precursors that form them--nitrogen oxides, sulfur dioxides,
ammonia, lead, carbon monoxide, particulate matter, and volatile
organic compounds. Many states also voluntarily report emissions of
hazardous air pollutants.
    The most recently published triennial compiled emissions
information is available as part of the 2014 NEI. EPA has made the
preliminary determination that Tennessee's SIP and practices are
adequate for the stationary source monitoring systems related to the
2015 8-hour ozone NAAQS.
    Regarding credible evidence, TAPCR 1200-3-10-.04, Sampling,
Recording, and Reporting Required for Major Stationary Sources, states
that: ``the Technical Secretary is authorized to require by permit
condition any periodic or enhanced monitoring, recording and reporting
that he deems necessary for the verification of the source's compliance
with the applicable requirements as defined in paragraph 1200-03-
09-.02(11).'' TDEC states that the Tennessee SIP does not preclude the
use of credible evidence and directs TDEC to give due consideration of
all pertinent facts. Additionally, EPA is not aware of any SIP
provision preventing the use of credible evidence. EPA has made the
preliminary determination that Tennessee's SIP and practices are
adequate for the stationary source monitoring systems related to the
2015 8-hour ozone NAAQS. Accordingly, EPA is proposing to approve
Tennessee's infrastructure SIP submission with respect to section
110(a)(2)(F).
    8. 110(a)(2)(G): Emergency Powers: Section 110(a)(2)(G) of the Act
requires that states demonstrate authority comparable with section 303
of the CAA and adequate contingency plans to implement such authority.
Tennessee's emergency powers are outlined in TAPCR 1200-03-15,
Emergency Episode Plan, which establishes the criteria for declaring an
air pollution episode (air pollution alert, air pollution warning, or
air pollution emergency), specific emissions reductions for each
episode level, and emergency episode plan requirements for major
sources located in or significantly impacting a nonattainment area.
Additional emergency powers are codified in TCA 68-201-109, Emergency
Stop Orders for Air Contaminant Sources. Under TCA 68-201-109, if the
Commissioner of TDEC finds that emissions from the operation of one or
more sources are causing imminent danger to human health and safety,
the Commissioner may, with the approval of the Governor, order the
source(s) responsible to reduce or discontinue immediately its (their)
air emissions. Additionally, this State law requires a hearing to be
held before the Commissioner within 24 hours of any such order.
    Regarding the public welfare and environment, TCA 68-201-106,
Matters to be considered in exercising powers, states that ``In
exercising powers to prevent, abate and control air pollution, the
board or department shall give due consideration to all pertinent
facts, including, but not necessarily limited to: (1) The character and
degree of injury to, or interference with, the protection of the
health, general welfare and physical property of the people . . .''
Also, TCA 68-201-116, Orders and assessments of damages and civil
penalty Appeal, provides in subsection (a) that if the Tennessee
Technical Secretary discovers that any State air quality regulation has
been violated, the Tennessee Technical Secretary may issue an order to
correct the violation, and this order shall be complied with within the
time limit specified in the order. EPA has made the preliminary
determination that Tennessee's SIP and practices are adequate for
emergency powers related to the 2015 8-hour ozone NAAQS. Accordingly,
EPA is proposing to approve Tennessee's infrastructure SIP submission
with respect to section 110(a)(2)(G).
    9. 110(a)(2)(H) SIP Revisions: Section 110(a)(2)(H), in summary,
requires each SIP to provide for revisions of such plan: (i) As may be
necessary to take account of revisions of such national primary or
secondary ambient air quality standard or the availability of improved
or more expeditious methods of attaining such standard, and (ii)
whenever the Administrator finds that the plan is substantially
inadequate to attain the NAAQS or to otherwise comply with any
additional applicable requirements.
    As previously discussed, TDEC is responsible for adopting air
quality rules and revising SIPs as needed to attain or maintain the
NAAQS in Tennessee. Specifically, Section 68-201-105(a) of the
Tennessee Air Quality Act authorizes the Board to promulgate rules and
regulations to implement this State statute, including setting and
implementing ambient air quality

standards, emission standards, general policies or plans, a permits
system, and a schedule of fees for review of plans and specifications,
issuance or renewal of permits, and inspection of sources. EPA has made
the preliminary determination that Tennessee's SIP and practices
adequately demonstrate a commitment to provide future SIP revisions
related to the 2015 8-hour ozone NAAQS when necessary. Accordingly, EPA
is proposing to approve Tennessee's infrastructure SIP submission with
respect to section 110(a)(2)(H).
    10. 110(a)(2)(J) Consultation with Government Officials, Public
Notification, and PSD and Visibility Protection: EPA is proposing to
approve Tennessee's infrastructure SIP submission for the 2015 8-hour
ozone NAAQS with respect to the general requirement in section
110(a)(2)(J) to include a program in the SIP that complies with the
applicable consultation requirements of section 121, and the public
notification requirements of section 127. EPA's rationale for each sub-
element is described below.
    Consultation with government officials (121 consultation): Section
110(a)(2)(J) of the CAA requires states to meet the requirements of
section 121 relating to consultation with local governments, designated
organizations, and Federal Land Managers (FLMs) carrying out NAAQS
implementation requirements. TAPCR 1200-03-34, Conformity, as well as
the State's Regional Haze Implementation Plan (which allows for
consultation between appropriate state, local, and tribal air pollution
control agencies as well as the corresponding FLMs), provide for
consultation with government officials whose jurisdictions might be
affected by SIP development activities. TAPCR 1200-03-34 provides for
interagency consultation on transportation and general conformity
issues. Tennessee adopted state-wide consultation procedures for the
implementation of transportation conformity which includes the
development of mobile inventories for SIP development. These
consultation procedures were developed in coordination with the
transportation partners in the State and are consistent with the
approaches used for development of mobile inventories for SIPs.
Required partners covered by Tennessee's consultation procedures
include Federal, state, and local transportation and air quality agency
officials. EPA has made the preliminary determination that Tennessee's
SIP and practices adequately demonstrate consultation with government
officials related to the 2015 8-hour ozone NAAQS when necessary.
Accordingly, EPA is proposing to approve Tennessee's infrastructure SIP
submission with respect to section 110(a)(2)(J) consultation with
government officials.
    Public notification: With respect to public notification, section
110(a)(2)(J) of the CAA requires states to notify the public of NAAQS
exceedances and associated health hazards, and to enhance public
awareness of measures that can prevent such exceedances. These
requirements are met through the State's existing Air Quality Index and
Air Quality Forecasting programs, which provide a method to alert the
public if any NAAQS is exceeded in an area. Additionally, the State's
annual monitoring plan update is sent out each year for public review
and comment. EPA has made the preliminary determination that
Tennessee's SIP and practices adequately demonstrate the State's
ability to provide public notification related to the 2015 8-hour ozone
NAAQS when necessary. Accordingly, EPA is proposing to approve
Tennessee's infrastructure SIP submission with respect to section
110(a)(2)(J) public notification.
    PSD: With regard to the PSD element of section 110(a)(2)(J), EPA is
not proposing any action in this rulemaking. EPA will consider these
requirements in relation to Tennessee's 2015 8-hour ozone NAAQS
infrastructure submission in a separate rulemaking.
    Visibility protection: EPA's 2013 Guidance notes that it does not
treat the visibility protection aspects of section 110(a)(2)(J) as
applicable for purposes of the infrastructure SIP approval process. EPA
recognizes that states are subject to visibility protection and
regional haze program requirements under part C of the Act (which
includes sections 169A and 169B). However, there are no newly
applicable visibility protection obligations after the promulgation of
a new or revised NAAQS. Thus, EPA has determined that states do not
need to address the visibility component of 110(a)(2)(J) in
infrastructure SIP submittals. As such, Tennessee's infrastructure SIP
submission related to the 2015 8-hour ozone NAAQS does not address the
visibility protection element of section 110(a)(2)(J).
    11. 110(a)(2)(K) Air Quality Modeling and Submission of Modeling
Data: Section 110(a)(2)(K) of the CAA requires that SIPs provide for
performing air quality modeling so that effects on air quality of
emissions from NAAQS pollutants can be predicted and submission of such
data to EPA can be made. Tennessee states that attainment
demonstrations submitted to EPA will provide any required air quality
modeling, which will comply with EPA's final guidance on the use of
models and will use the latest methods and techniques. Tennessee cites
to TCA 68-201-105(b)(7), which authorizes TDEC to develop plans for a
comprehensive air pollution control program for the State and provide
technical, scientific, and other services to develop such plans, and
notes that air quality modeling is part of the scientific and technical
support for developing SIPs. Tennessee also states that it has
personnel with training and experience to conduct dispersion modeling
consistent with models approved by EPA protocols. Additionally,
Tennessee participates in a regional effort to coordinate the
development of emissions inventories and conduct regional modeling for
several NAAQS, including the 2015 8-hour ozone NAAQS, for the
Southeastern states. Taken as a whole, Tennessee's air quality
regulations and practices demonstrate that TDEC has the authority to
provide relevant data for the purpose of predicting the effect on
ambient air quality of the 8-hour ozone NAAQS. EPA has made the
preliminary determination that Tennessee's SIP and practices adequately
demonstrate the State's ability to provide for air quality modeling,
along with analysis of the associated data, related to the 2015 8-hour
ozone NAAQS. Accordingly, EPA is proposing to approve Tennessee's
infrastructure SIP submission with respect to section 110(a)(2)(K).
    12. 110(a)(2)(L) Permitting fees: Section 110(a)(2)(L) requires the
owner or operator of each major stationary source to pay to the
permitting authority, as a condition of any permit required under the
CAA, a fee sufficient to cover: (i) The reasonable costs of reviewing
and acting upon any application for such a permit, and (ii) if the
owner or operator receives a permit for such source, the reasonable
costs of implementing and enforcing the terms and conditions of any
such permit (not including any court costs or other costs associated
with any enforcement action), until such fee requirement is superseded
with respect to such sources by the Administrator's approval of a fee
program under title V.
    In Tennessee, funding for review of PSD and NNSR permits comes from
permit-specific fees that are charged to new applicants and from annual
emission fees charged to existing title V emission sources that are
applying for major modifications under PSD or NNSR. The cost of
reviewing, approving, implementing, and enforcing

PSD and major NNSR permits are covered under the following State
regulations: (1) TAPCR 1200-03-26-.02(5) requires each new major
stationary source to pay a construction permit application filing/
processing fee and (2) TAPCR 1200-03-26-.02(9), Annual Emission Fees
for Major Sources,\10\ mandates that existing major stationary sources
pay annual title V emission fees, which are used to cover the
permitting costs for any new construction or modifications at these
facilities as well as implementation and enforcement of PSD and NNSR
permits after they have been issued. EPA has made the preliminary
determination that Tennessee adequately provides for permitting fees
related to the 2015 8-hour ozone NAAQS when necessary. Accordingly, EPA
is proposing to approve Tennessee's infrastructure SIP submission with
respect to section 110(a)(2)(L).
---------------------------------------------------------------------------

    \10\ Title V program regulations are federally-approved but not
incorporated into the federally-approved SIP.
---------------------------------------------------------------------------

    13. 110(a)(2)(M) Consultation/participation by affected local
entities: Section 110(a)(2)(M) of the Act requires states to provide
for consultation and participation in SIP development by local
political subdivisions affected by the SIP. TCA 68-201-105, Powers and
duties of board Notification of vacancy Termination due to vacancy,
authorizes and requires the Board to promulgate rules and regulations
under the provisions of the State's Uniform Administrative Procedures
Act. TCA 4-5-202, When hearings required, requires agencies to precede
all rulemaking with a notice and public hearing, except for exemptions.
TCA 4-5-203, Notice of hearing, states that whenever an agency is
required by law to hold a public hearing as part of its rulemaking
process, the agency shall: ``(1) Transmit written notice of the
hearings to the secretary of state for publication in the notice
section of the administrative register website . . . and (2) Take such
other steps as it deems necessary to convey effective notice to persons
who are likely to have an interest in the proposed rulemaking.'' TCA
68-201-105(b)(7) authorizes and requires TDEC to ``encourage voluntary
cooperation of affected persons or groups in preserving and restoring a
reasonable degree of air purity; advise, consult and cooperate with
other agencies, persons or groups in matters pertaining to air
pollution; and encourage authorized air pollution agencies of political
subdivisions to handle air pollution problems within their respective
jurisdictions to the greatest extent possible and to provide technical
assistance to political subdivisions . . .'' TAPCR 1200-03-34,
Conformity, requires interagency consultation on transportation and
general conformity issues. Additionally, TDEC has, in practice,
consulted with local entities for the development of its transportation
conformity SIP and has worked with the FLMs as a requirement of EPA's
regional haze rule. EPA has made the preliminary determination that
Tennessee's SIP and practices adequately demonstrate consultation with
affected local entities related to the 2015 8-hour ozone NAAQS.
Accordingly, EPA is proposing to approve Tennessee's infrastructure SIP
submission with respect to section 110(a)(2)(M).

V. Proposed Action

    With the exception of interstate transport provisions of section
110(a)(2)(D)(i)(I) and (II) (prongs 1 and 2) pertaining to the
contribution to nonattainment or interference with maintenance in other
states and PSD provisions related to major sources under sections
110(a)(2)(C), 110(a)(2)(D)(i)(II) (prong 3) and 110(a)(2)(J), EPA is
proposing to approve Tennessee's September 13, 2018, infrastructure
submission for the 2015 8-hour ozone NAAQS for the above described
infrastructure SIP requirements. EPA is proposing to approve
Tennessee's infrastructure SIP submission for the 2015 8-hour ozone
NAAQS because the submission is consistent with section 110 of the CAA.

VI. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP
submission that complies with the provisions of the Act and applicable
federal regulations. See 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 CAA. Accordingly, this
proposed action merely proposes to approve state law as meeting federal
requirements and does not propose additional requirements beyond those
imposed by state law. For that reason, this proposed action:
     Is not a significant regulatory action subject to review
by the Office of Management and Budget under Executive Orders 12866 (58
FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
     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 (Public Law 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 CAA; and
     Does not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, the SIP is not approved to apply on any Indian
reservation land or in any other area where EPA or an Indian tribe has
demonstrated that a tribe has jurisdiction. In those areas of Indian
country, the rule does not have tribal implications as specified by
Executive Order 13175 (65 FR 67249, November 9, 2000), nor will it
impose substantial direct costs on tribal governments or preempt tribal
law.

List of Subjects in 40 CFR Part 52

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

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

    Dated: September 23, 2019.
Mary S. Walker,
Regional Administrator, Region 4.
[FR Doc. 2019-21862 Filed 10-8-19; 8:45 am]
 BILLING CODE 6560-50-P


[Federal Register: October 8, 2008 (Volume 73, Number 196)]
[Notices]
[Page 58950-58952]
[DOCID:fr08oc08-53]

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

ENVIRONMENTAL PROTECTION AGENCY

[EPA-HQ-OAR-2006-0922; FRL-8724-4]

Draft Risk and Exposure Assessment Report for Nitrogen Dioxide
(NO2)

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of draft report for public review and comment.

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

SUMMARY: On or about October 3, 2008, the Office of Air Quality
Planning and Standards (OAQPS) of EPA is making available for public
review and comment additional sections of a draft document titled, Risk
and Exposure Assessment to Support the Review of the NO 2 Primary
National Ambient Air Quality Standard: Second Draft which was
originally announced in a September 2, 2008 Federal Register notice (73
FR 51297). The additional sections being released at this time are
Chapter 8 and a revised Appendix B. The purposes of these two sections
are to convey the approach taken to characterize NO2
exposures, to convey the approach taken to characterize health risks
associated with those exposures, and to present the results of those
analyses.

DATES: Comments on the additional sections of the above report must be
received on or before October 22, 2008.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-
OAR-2006-0922, by one of the following methods:
     http://www.regulations.gov: Follow the on-line
instructions for submitting comments.
     E-mail: Comments may be sent by electronic mail (e-mail)
to<EMAIL_ADDRESS>Attention Docket ID No. EPA-HQ-OAR-2006-
0922.
     Fax: Fax your comments to<PHONE_NUMBER>, Attention Docket
ID. No. EPA-HQ-OAR-2006-0922.
     Mail: Send your comments to: Air and Radiation Docket and
Information Center, Environmental Protection Agency, Mailcode: 2822T,
1200 Pennsylvania Ave., NW., Washington, DC 20460, Attention Docket ID
No. EPA-HQ-OAR-2006-0922.
     Hand Delivery or Courier: Deliver your comments to: EPA
Docket Center, 1301 Constitution Ave., NW., Room 3334, Washington, DC.
Such deliveries are only accepted during the Docket's normal hours of
operation, and special arrangements should be made for deliveries of
boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2006-0922. The EPA's policy is that all comments received will be
included in the public docket without change and may be made available
online at http://www.regulations.gov, including any personal
information provided, unless the comment includes information claimed
to be Confidential Business Information (CBI) or other information
whose disclosure is restricted by statute. Do not submit information
that you consider to be CBI or otherwise protected through http://

www.regulations.gov or e-mail. The http://www.regulations.gov Web site
is an ``anonymous access'' system, which means EPA will not know your
identity or contact information unless you provide it in the body of
your comment. If you send an e-mail comment directly to EPA without
going through http://www.regulations.gov, your e-mail address will be
automatically captured and included as part of the comment that is
placed in the public docket and made available on the Internet. If you
submit an electronic comment, EPA recommends that you include your name
and other contact information in the body of your comment and with any
disk or CD-ROM you submit. 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. Electronic files should avoid
the use of special characters, any form of encryption, and be free of
any defects or viruses. For additional information about EPA's public
docket visit the EPA Docket Center homepage at http://www.epa.gov/
epahome/dockets.htm.
    Docket: All documents in the docket are listed in the http://
www.regulations.gov index. Although listed in the index, some
information is not publicly available, e.g., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, will be publicly available only in hard copy.
Publicly available docket materials are available either electronically
in http://www.regulations.gov or in hard copy at the Air Docket in the
EPA Docket Center, EPA West, Room 3334, 1301 Constitution Ave., NW.,
Washington, DC. This Docket Facility is open from 8:30 a.m. to 4:30
p.m. Monday through Friday, excluding legal holidays. The Docket
telephone number is<PHONE_NUMBER>; fax<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: Dr. Scott Jenkins, Office of Air
Quality Planning and Standards (Mail Code C504-06), U.S. Environmental
Protection Agency, Research Triangle Park, NC 27711; e-mail:
<EMAIL_ADDRESS>telephone:<PHONE_NUMBER>; fax:<PHONE_NUMBER>.

General Information

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

    1. Submitting CBI. Do not submit this information to EPA through
http://www.regulations.gov or e-mail. Clearly mark the part or all of
the information that you claim to be CBI. For CBI information in a disk
or CD-ROM that you mail to EPA, mark the outside of the disk or CD-ROM
as CBI and then identify electronically within the disk or CD-ROM the
specific information that is claimed as CBI. In addition to one
complete version of the comment that includes information claimed as
CBI, a copy of the comment that does not contain the information
claimed as CBI must be submitted for inclusion in the public docket.
Information so marked will not be disclosed except in accordance with
procedures set forth in 40 CFR part 2.
    2. Tips for Preparing Your Comments. When submitting comments,
remember to:
     Identify the rulemaking by docket number and other
identifying information (subject heading, Federal Register date and
page number).
     Follow directions--The agency may ask you to respond to
specific questions or organize comments by referencing a Code of
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree; suggest alternatives
and substitute language for your requested changes.
     Describe any assumptions and provide any technical
information and/or data that you used.
     If you estimate potential costs or burdens, explain how
you arrived at your estimate in sufficient detail to allow for it to be
reproduced.
     Provide specific examples to illustrate your concerns, and
suggest alternatives.
     Explain your views as clearly as possible, avoiding the
use of profanity or personal threats.
     Make sure to submit your comments by the comment period
deadline identified.

SUPPLEMENTARY INFORMATION: Under section 108(a) of the Clean Air Act
(CAA), the Administrator identifies and lists certain pollutants which
``cause or contribute to air pollution which may reasonably be
anticipated to endanger public health or welfare.'' The EPA then issues
air quality criteria for listed pollutants, which are commonly referred
to as ``criteria pollutants.'' The air quality criteria are to
``accurately reflect the latest scientific knowledge useful in
indicating the kind and extent of all identifiable effects on public
health or welfare which may be expected from the presence of [a]
pollutant in the ambient air, in varying quantities.'' Under section
109 of the CAA, EPA establishes national ambient air quality standards
(NAAQS) for each listed pollutant, with the NAAQS based on the air
quality criteria. Section 109(d) of the CAA requires periodic review
and, if appropriate, revision of existing air quality criteria. The
revised air quality criteria reflect advances in scientific knowledge
on the effects of the pollutant on public health or welfare. The EPA is
also required to periodically review and revise the NAAQS, if
appropriate, based on the revised criteria.
    Air quality criteria have been established for the nitrogen oxides
(NOX) and NAAQS have been established for nitrogen dioxide
(NO2), an indicator for gaseous NOX. Presently,
EPA is in the process of reviewing the NAAQS for NO2. As
part of its review of the NAAQS, EPA is preparing an assessment of
exposures and health risks associated with ambient NO2. A
draft plan describing the proposed approaches to assessing exposures
and risks is described in the draft document, Nitrogen Dioxide Health
Assessment Plan: Scope and Methods for Exposure and Risk Assessment.
This document was released for public review and comment in September,
2007 and was the subject of a consultation with the Clean Air
Scientific Advisory Committee (CASAC) on October 24 and 25, 2007.
Comments received from that consultation were considered in developing
the document titled, Risk and Exposure Assessment to Support the Review
of the NO 2 Primary National Ambient Air Quality Standard: First Draft,
which was released for public review and comment in April 2008. This
document was the subject of a CASAC review on May 1 and 2, 2008.
Comments received from that review have been considered in developing
the document titled, Risk and Exposure Assessment to Support the Review
of the NO 2 Primary National Ambient Air Quality Standard: Second
Draft, which was released (except for chapter 8 and part of appendix B)
for public review and comment in August 2008. The EPA solicited advice
and recommendations from the CASAC by means of a review of this draft
document at a public meeting that was held on September 9-10, 2008 in
Research Triangle Park, North Carolina. Chapter 8 of this document, and
a revised appendix B, are being released on or about October 3, 2008.
    Chapter 8 and the revised appendix B will be available online at:
http://www.epa.gov/ttn/naaqs/standards/nox/s_nox_cr_rea.html . Their
purposes are to convey the approach taken to characterize
NO2 exposures, to convey the approach taken to characterize
health risks associated with those exposures, and to present the
results of those analyses. The EPA is soliciting advice and
recommendations from the

CASAC by means of a review of chapter 8 and the revised appendix B at a
public teleconference that will be held on October 22, 2008.
Information on that meeting has been announced separately in the
Federal Register . In preparing a final risk and exposure assessment
report, EPA will consider comments received from the CASAC and the
public at the meeting held on September 9-10 and at the teleconference
to be held on October 22 as well as written comments received during
the public comment periods.

    Dated: September 18, 2008.
Jenny Edmonds,
Acting Director, Office of Air Quality Planning and Standards.
 [FR Doc. E8-23856 Filed 10-7-08; 8:45 am]

BILLING CODE 6560-50-P


[Federal Register: November 17, 2008 (Volume 73, Number 222)]
[Notices]
[Page 67905-67909]
[DOCID:fr17no08-100]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58903; File No. SR-FINRA-2008-011]

Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Amend the
Trade Reporting Structure and Require Submission of Non-Tape Reports
That Identify Other Members Who Participated in Agency and Riskless
Principal Transactions as Modified by Amendments Nos. 1 and 2

November 5, 2008.

I. Introduction

    On March 28, 2008, the Financial Industry Regulatory Authority,
Inc., (``FINRA'') filed with the Securities and Exchange Commission
(``SEC'') pursuant to Section 19(b)(1) of the Securities Exchange Act
of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to amend its trade reporting rules applicable to over-the-
counter (``OTC'') equity transactions. The proposed rule change was
published for comment in the Federal Register on April 24, 2008.\3\ The
Commission received four comment letters on the proposed rule
change.\4\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57681 (April 17,
2008), 73 FR 22186 (``Notice'').
    \4\ See letters from Romeo Bermudez, Chief Compliance Officer,
Direct Edge ECN LLC, to Florence E. Harmon, Acting Secretary,
Commission, dated May 13, 2008 (``Direct Edge Letter''); Eric
Swanson, General Counsel, BATS Trading, Inc, to Florence E. Harmon,
Acting Secretary, Commission, dated May 14, 2008 (``BATS Letter'');
Ann Vlcek, Managing Director and Associate General Counsel,
Securities Industry and Financial Markets Association (``SIFMA'') to
Florence E. Harmon, Acting Secretary, Commission, dated May 15, 2008
(``SIFMA Letter''); Philip M. Pinc, Vice President, Counsel,
National Stock Exchange, Inc. (``NSX''), to Florence E. Harmon,
Acting Secretary, Commission, dated May 29, 2008 (``NSX Letter'').
---------------------------------------------------------------------------

    On October 9, 2008, FINRA filed Amendment No. 1 to the proposed
rule change.\5\ November 3, 2008, FINRA filed Amendment No. 2.\6\ This
order approves the proposed rule change, as amended.
---------------------------------------------------------------------------

    \5\ In Amendment No. 1, FINRA made technical changes to the rule
text to reflect changes approved by the Commission in SR-FINRA-2008-
021, which renumbered certain rules and replaced references to
``NASD'' with ``FINRA.'' See Securities Exchange Act Release No.
58643 (September 25, 2008), 73 FR 57174 (October 1, 2008).
    \6\ In Amendment No. 2, FINRA clarified that the implementation
date for this proposed rule change would be 180 days from the date
of this approval order. The Commission is not publishing the
amendment for comment.
---------------------------------------------------------------------------

II. Description of Proposed Rule Change

A. Summary

    FINRA has proposed to amend its trade reporting rules applicable to
OTC equity transactions \7\ to: (1) Replace the current market maker-
based trade reporting framework with an ``executing party'' framework;
and (2) require that any member with the trade reporting obligation
under FINRA rules that is acting in a riskless principal or agency
capacity on behalf of one or more other members submit non-tape reports
to FINRA, as necessary, to identify such other member(s) as a party to
the trade.
---------------------------------------------------------------------------

    \7\ Specifically, OTC equity transactions are: (1) Transactions
in NMS stocks, as defined in Rule 600(b) of Regulation NMS under the
Act, effected otherwise than on an exchange, which are reported
through the Alternative Display Facility (``ADF'') or a Trade
Reporting Facility (``TRF''); and (2) transactions in ``OTC Equity
Securities,'' as defined in NASD Rule 6610 (e.g., OTC Bulletin Board
and Pink Sheets securities), Direct Participation Program (``DPP'')
securities and PORTAL equity securities, which are reported through
the OTC Reporting Facility (``ORF''). The ADF, TRFs and ORF are
collectively referred to herein as the ``FINRA Facilities.''
---------------------------------------------------------------------------

B. Description of Proposed Rule Change

1. Trade Reporting Structure
    Currently, the following structure is in place for purposes of
reporting most OTC equity transactions to FINRA: (1) In transactions
between two market makers, the sell-side reports; (2) in transactions
between a market maker and a non-market maker, the market maker
reports; (3) in transactions between two non-market makers, the sell-
side reports; and (4) in transactions between a member and either a
non-member or customer, the member reports. FINRA has proposed to amend
its rules to require that for transactions between members, the
``executing party'' reports the trade to FINRA and

for transactions between a member and a non-member or customer, the
member reports the trade.
    FINRA has proposed to define ``executing party'' as the member that
receives an order for handling or execution or is presented an order
against its quote, does not subsequently re-route the order, and
executes the transaction. In circumstances where both parties to the
transaction are members, and both satisfy the definition of executing
party, the member representing the sell-side would report the
transaction to FINRA, unless the parties agree otherwise and the member
representing the sell-side contemporaneously documents their agreement.
In such instances, the sell-side would be presumed to be the member
with the trade reporting obligation unless it can demonstrate that
there was an agreement to the contrary.
    Under the proposed rule change, an alternative trade system,
(``ATS''), including an electronic communications network, (``ECN''),
would be the executing party and would have the reporting obligation
where the transaction is executed on the ATS. If an ATS routed an order
to another member for handling and/or execution, then the other member
would be the executing party and would have the reporting obligation
under the proposed rule change. If an ATS routed an order to a non-
member that was executed OTC, then the ATS would report the trade.
2. Submission of Non-Tape Reports to Identify Other Members for Agency
and Riskless Principal Transactions
    FINRA trade reporting rules require that trade reports submitted to
FINRA identify the member that is a party to an OTC trade. Each trade
report submitted for public dissemination purposes (``tape report'')
generally only allows for the identification of two parties. This trade
reporting structure is based on a two-party model where a broker-dealer
acts as principal or as agent for a non-broker-dealer customer. The
rules do not specifically speak to reporting obligations for riskless
principal transactions in which one broker-dealer acts as agent or
riskless principal for another broker-dealer or when order management
systems and ATSs simultaneously match one or more broker-dealer orders
on one or both sides of a trade. In these situations, where a FINRA
member executes a trade in a riskless principal capacity \8\ on behalf
of another member, or matches, as agent, the orders of two or more
members, the tape report does not identify all members involved in the
trade.\9\
---------------------------------------------------------------------------

    \8\ For purposes of FINRA trade reporting rules applicable to
equity securities, a ``riskless principal'' transaction is a
transaction in which a member, after having received an order to buy
(sell) a security, purchases (sells) the security as principal and
satisfies the original order by selling (buying) as principal at the
same price.
    \9\ According to FINRA, some members submit non-tape reports
identifying the other members involved in the trade.
---------------------------------------------------------------------------

    FINRA represented that industry business models have evolved to
include more trades where one broker-dealer acts as agent or in a
riskless principal capacity for another broker-dealer and order
management systems and ATSs simultaneously match one or more broker-
dealer orders on one or both sides of a trade. Therefore, FINRA has
proposed to require that any member with the obligation to report the
trade under FINRA rules that is acting in a riskless principal or
agency capacity on behalf of one or more other members, submit to FINRA
one or more non-tape reports identifying such other member(s) as a
party to the transaction, if such other member(s) is not identified on
the initial trade report or a report submitted to FINRA to reflect the
offsetting leg of a riskless principal transaction. This proposed
reporting requirement would also be applicable to PORTAL equity
security transactions.
    The proposed reporting requirement would only apply to the member
that has the responsibility under FINRA rules to report the trade to
FINRA (i.e., the ``executing party'' in a trade between two members, as
discussed above). It would not negate or modify the requirements for
reporting riskless principal transactions under FINRA rules and would
not change the reporting requirements applicable to riskless principal
transactions with a customer.
    The proposed reporting requirement would not apply to transactions
that are executed on and reported through an exchange. Today, where the
initial leg of a riskless principal or agency transaction is executed
on an exchange, members are not required to report either leg of the
transaction to FINRA. The initial leg of the transaction is reported
through the exchange (and therefore must not be reported to FINRA), and
members have the option of submitting a non-tape (typically, a
clearing-only) report to FINRA for the offsetting leg of the
transaction. Pursuant to the proposed rule change, members would
continue to have the option of submitting a non-tape report for
riskless principal and agency transactions where the initial leg is
executed on an exchange; there would continue to be no obligation to
submit a non-tape report for such trades.
    Because members would be submitting non-tape reports, the 90-second
reporting requirement under FINRA trade reporting rules would not
apply. Members generally would have until the end of the day on trade
date to submit the requisite non-tape reports.\10\
---------------------------------------------------------------------------

    \10\ In certain circumstances, however, members must submit non-
tape reports contemporaneously with trade execution, e.g., to
qualify for the exemption from the requirements of IM-2110-2
(Trading Ahead of Customer Limit Order) for riskless principal
transactions.
---------------------------------------------------------------------------

III. Summary of Comments

    The Commission received four comment letters in response to the
proposed rule change addressing different aspects of the proposal.\11\
FINRA submitted a response to these comment letters.\12\
---------------------------------------------------------------------------

    \11\ See supra note 5.
    \12\ See Letter from Lisa C. Horrigan, Associate General
Counsel, FINRA, to Florence E. Harmon, Acting Secretary, Commission,
dated September 9, 2008 (``FINRA Letter'').
---------------------------------------------------------------------------

A. Executing Party Trade Reporting Structure Proposal

    SIFMA expressed support for the proposed executing party trade
reporting structure and stated that the proposal presents workable
standards for clearly identifying the member with the responsibility
for reporting a trade.\13\
---------------------------------------------------------------------------

    \13\ See SIFMA Letter, supra note 5.
---------------------------------------------------------------------------

    SIFMA requested further clarification with respect to several
issues, however. First, SIMFA questioned whether members that manually
negotiate a trade and seek to modify the proposed sell-side reporting
default may use a previously executed ``Attachment II'' or other
agreement to satisfy the documentation requirement under the proposed
rule change. In its response to comments, FINRA explained that in a
situation where two members have entered into a ``give up agreement,''
\14\ one member can ``give up'' or report on behalf of another member.
However, where the contra party is giving up or reporting on behalf of
the member with the trade reporting obligation under FINRA rules, the
give up agreement does not shift the trade reporting obligation to the
contra party. FINRA explained that the member with the trade reporting
obligation remains responsible for compliance with FINRA trade
reporting rules and, for example, could be charged with late reporting
if the member reporting on its behalf fails to submit the tape report
within 90 seconds of execution. The give up

agreement only permits one member to submit a trade report on behalf of
another member. FINRA stated that, by contrast, the contemporaneous
agreement in the context of manually negotiated trades under the
proposed rule change can shift the trade reporting obligation under
FINRA rules.\15\
---------------------------------------------------------------------------

    \14\ The ``Attachment II'' is a form of give up agreement.
    \15\ See FINRA Letter, supra note 10.
---------------------------------------------------------------------------

    Second, SIFMA requested that FINRA confirm that the member with the
trade reporting obligation--whether the executing broker, sell-side
broker, or as agreed upon by members negotiating manual trades pursuant
to the proposed rule change--was responsible for timely and accurate
trade reporting.\16\ In particular, SIMFA requested confirmation that
when two members in a manually negotiated trade have properly
documented an agreement as to which member is responsible for reporting
the trade, the other member is not responsible for reporting
deficiencies with respect to the trade.\17\
---------------------------------------------------------------------------

    \16\ See SIFMA Letter, supra note 5.
    \17\ Id.
---------------------------------------------------------------------------

    FINRA confirmed that under the proposed rule change, the member
with the trade reporting obligation would be that party responsible for
timely and accurate trade reporting.\18\ FINRA explained that where the
trade reporting obligation is shifted to the member representing the
buy-side by virtue of a contemporaneously documented agreement under
the proposed rule change, the member representing the sell-side is not
responsible for such trade reporting deficiencies as the buy-side
member's failure to submit the tape report within 90 seconds of
execution.\19\
---------------------------------------------------------------------------

    \18\ See FINRA Letter, supra note 10.
    \19\ Id.
---------------------------------------------------------------------------

    At SIFMA's request, FINRA also clarified in its response to
comments that the proposed executing party trade reporting structure
would not affect the processing of regulatory transaction fees pursuant
to Section 3 of Schedule A to the By-Laws (``Section 3''). FINRA
represented that it always bills Section 3 fees to the clearing member
identified as the sell-side on the tape report, and as such, it makes
no difference for billing purposes which member appears on the tape
report as the reporting party and which member appears as the contra
party.\20\
---------------------------------------------------------------------------

    \20\ See FINRA Letter, supra note 10.
---------------------------------------------------------------------------

B. Non-Tape Reporting Proposal

    All four commenters addressed this aspect of the proposed rule
change and raised the following issues.
    First, Direct Edge, BATS, and NSX asserted that the proposed rule
change does not meet the requirements of Section 15A(b)(5) of the Act
\21\ because it does not address the fees associated with the
submission of non-tape reports.\22\ The commenters explained that FINRA
charges each TRF for regulation based on the volume of tape and non-
tape reports submitted to the TRF and that the proposed rule change
will increase the number of non-tape reports submitted to the TRFs,
which will increase the regulatory charges paid to FINRA by the
TRFs.\23\ The commenters further explain that these increased
regulatory charges will, in turn, be passed along to FINRA members
because one of the TRFs, the FINRA/NSX TRF, imposes a fee on TRF
participants for the submission of non-tape reports designed to
generate revenues for the TRF to cover some of its regulatory
costs.\24\ Therefore, the commenters believe FINRA should be required
to demonstrate the basis for its regulatory charges to the TRFs under
Section 15A(b)(5) of the Act. Without such a showing, the commenters
claim that the TRFs and FINRA members are unable to make a
determination as to the reasonableness of such charges.\25\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78o-3(b)(5). This section provides that ``[a]n
association of brokers and dealers shall not be registered as a
national securities association unless the Commission determines
that the rules of the association provide for the equitable
allocation of reasonable dues, fees, and other charges among members
and issuers and other persons using any facility or system which the
association operates or controls.''
    \22\ See Direct Edge Letter, BATS Letter and NSX Letter, supra
note 5.
    \23\ Id.
    \24\ Id.
    \25\ Id.
---------------------------------------------------------------------------

    NSX, a TRF Business Member, further argues that it is competitively
disadvantaged by FINRA's proposal because it has difficulty passing on
FINRA's regulatory charges to its TRF customers due to the lack of
transparency and predictability of those charges.\26\ NSX contends that
FINRA should publish for notice and comment a complete schedule of its
charges for TRF regulation and explain the regulatory work that it
performs relating to non-tape reports.\27\
---------------------------------------------------------------------------

    \26\ See NSX Letter, supra note 5.
    \27\ Id.
---------------------------------------------------------------------------

    In its response to these comments, FINRA stated that it believes
that these arguments are not germane to the proposed rule change.\28\
FINRA explained that its charges for regulation of TRFs are assessed
pursuant to a contract between FINRA and the respective TRF Business
Members and are not subject to Section 15A(b)(5) of the Act.\29\ FINRA
argued that the fact that a TRF Business Member may determine that, for
competitive reasons, the TRF should charge TRF participants a fee to
generate revenues to cover some of the regulatory costs owed to FINRA
under the contract does not bring these regulatory costs within the
scope of the Act and that any issue that NSX or the other TRF Business
Members may have pertaining to FINRA's regulatory charges or the
regulatory work FINRA performs is a matter of contract.\30\
---------------------------------------------------------------------------

    \28\ See FINRA Letter, supra note 10.
    \29\ Id.
    \30\ Id.
---------------------------------------------------------------------------

    BATS argued that if the Commission fails to require FINRA to
demonstrate the reasonableness of the regulatory charges it imposes on
the TRFs, members ultimately will be charged a fee that has never been
subject to regulatory scrutiny.\31\ FINRA responded to this comment by
explaining that the proposed rule change does not seek to modify
FINRA's charges for regulation of the TRFs, and reiterating that those
charges are a matter of private contract.\32\ FINRA stated that any
proposed rule change to impose a fee on TRF participants would be filed
with the Commission.\33\
---------------------------------------------------------------------------

    \31\ See BATS Letter, supra note 5.
    \32\ See FINRA Letter, supra note 10.
    \33\ See, e.g., Securities Exchange Act Release No. 57299
(February 8, 2008), 73 FR 8915 (February 15, 2008).
---------------------------------------------------------------------------

    Second, DirectEdge and BATS argued that the proposed rule change
would impose a requirement on members that would be duplicative of
FINRA's Order Audit Trail System (``OATS'') requirements and that FINRA
did not explain why it could not get this information from OATS.\34\
---------------------------------------------------------------------------

    \34\ See Direct Edge Letter and BATS Letter, supra note 5.
---------------------------------------------------------------------------

    In response to these comments, FINRA explained that the OATS rules
apply only to Nasdaq-listed securities and OTC Equity Securities and
not to non-Nasdaq exchange-listed securities.\35\ FINRA represented
that it does not receive OATS information for a large segment of
transactions taking place in the OTC market today. FINRA also stated
that while there is some overlap, OATS captures the life-cycle of an
order, while the trade reporting rules are designed to capture
information relating to executed trades. FINRA believes that the more
logical place to require and store information regarding the parties to
an executed trade is in the context of trade reporting rules.\36\
---------------------------------------------------------------------------

    \35\ See FINRA Letter, supra note 10.
    \36\ Id.
---------------------------------------------------------------------------

    BATS argued that it should be a ``fairly easy exercise'' to match
the ultimate buyer and seller of a trade executed on an ATS or ECN
using

OATS execution reports.\37\ However, FINRA explained that its rules do
not mandate the submission of OATS data in the manner described by the
commenter and not all ATSs and ECNs report this way, and therefore the
process of matching OATS execution reports is not as easy as the
commenter suggests.\38\
---------------------------------------------------------------------------

    \37\ See BATS Letter, supra note 5.
    \38\ See FINRA Letter, supra note 10.
---------------------------------------------------------------------------

    Third, BATS asserted that FINRA failed to justify its need for non-
tape reports, when, according to BATS, FINRA can request information
relating to the ultimate buyer and seller in a given transaction
directly from the executing member.\39\ BATS argued that FINRA should
be required to explain what has changed, either in the quality of the
information it is receiving about transactions or in the regulatory
requirements under which it is operating, that now makes the non-tape
reports necessary or appropriate.
---------------------------------------------------------------------------

    \39\ See BATS Letter, supra note 5.
---------------------------------------------------------------------------

    In response, FINRA explained that its current trade reporting rules
generally reflect the traditional two-party trade model where a broker-
dealer acts as principal or as agent for a non-broker-dealer customer.
The rules do not adequately deal with industry business models that
have evolved to include more trades where one broker-dealer acts as
agent or in a riskless principal capacity for another broker-dealer and
where order management systems and ATSs simultaneously match one or
more broker-dealer orders on one or both sides of a trade.\40\ FINRA
noted that because the current trade reporting rules generally only
allow for the identification of two parties, the tape report does not
identify all members involved in the trade and consequently FINRA's
audit trail is incomplete.\41\ FINRA argued that the proposed rule
change would enhance FINRA staff's ability to create a complete,
accurate audit trail and assist in the automated surveillance of
various customer protection and market integrity rules (e.g., to enable
automated surveillance for wash sales, the audit trail must reflect the
ultimate buyer and seller for any given transaction).\42\
---------------------------------------------------------------------------

    \40\ See FINRA Letter, supra note 10.
    \41\ Id.
    \42\ Id.
---------------------------------------------------------------------------

    Fourth, SIMFA requested that the Commission and FINRA defer
consideration of this aspect of the proposed rule change to permit
FINRA and the New York Stock Exchange LLC (``NYSE'') to collaborate
with each other and the industry on a more uniform approach for
regulatory reporting of riskless principal and agency trades.\43\ FINRA
responded that while it recognizes the benefits in harmonizing
regulatory reporting requirements where possible, it is important to
note that the proposed rule change and the new NYSE requirement cited
by SIFMA are not identical.\44\ FINRA explained that the NYSE
requirement relates to the mechanics of reporting riskless principal
transactions effected on the NYSE by mandating the electronic linking
of executions of facilitated orders to all underlying orders to qualify
for an exception to NYSE Rule 92 (Limitations on Members' Trading
Because of Customers' Orders).\45\
---------------------------------------------------------------------------

    \43\ See SIFMA Letter, supra note 5.
    \44\ See FINRA Letter, supra note 10.
    \45\ Id.
---------------------------------------------------------------------------

    Finally, SIFMA requested clarification on several points if
consideration of this aspect of the proposed rule change is not
deferred. First, SIFMA asked how the requirement to submit non-tape
reports for ``Manning'' purposes will be reconciled with the proposed
end-of-day submission of non-tape reports under the proposed rule
change.\46\ FINRA explained that although the 90-second reporting
requirement would not apply to the submission of non-tape reports under
the proposed rule change, in certain circumstances, members must submit
non-tape reports contemporaneously with trade execution.\47\ For
example, FINRA explained, to qualify for the exemption from the
requirements of NASD IM-21 10-2 (the ``Manning Rule'') for riskless
principal transactions, a member must submit, contemporaneously with
the execution of the facilitated order, a non-tape report reflecting
the offsetting ``riskless'' leg of the transaction.\48\ For purposes of
the Manning Rule, ``contemporaneously'' has been interpreted to require
execution as soon as possible, but absent reasonable and documented
justification, within one minute.\49\ FINRA represented that this is an
existing requirement and it would not be affected by the proposed rule
change, and therefore, under the proposed rule change, members would
continue to report as they do today to qualify for the exemption under
NASD IM-21l0-2(c)(3).\50\
---------------------------------------------------------------------------

    \46\ See SIFMA Letter, supra note 5.
    \47\ See FINRA Letter, supra note 10.
    \48\ See NASD IM-2110-2(c)(3)
    \49\ See NASD Notices to Members 95-67 (August 1995) and 98-78
(September 1998).
    \50\ See FINRA Letter, supra note 10.
---------------------------------------------------------------------------

    Second, SIFMA asked whether the requirement to submit non-tape
reports identifying all members involved in a trade would affect OATS
matching requirements.\51\ FINRA explained that under its current
rules, where an OATS execution report is related to a trade report
submitted to a FINRA facility, the OATS report must match the related
trade report and FINRA stated that this requirement would apply to any
non-tape report submitted under the proposed rule change.\52\
---------------------------------------------------------------------------

    \51\ See SIFMA Letter, supra note 5.
    \52\ See FINRA Letter, supra note 10.
---------------------------------------------------------------------------

C. Proposed Implementation

    FINRA proposed that the implementation date would be (1) at least
90 days following Commission approval for transactions executed on
ATSs, including ECNs; and (2) at least 180 days following Commission
approval with respect to all other transactions. The commenters raise
the following issues with respect to this proposed implementation
schedule.
    BATS stated that it did not object to the shorter period for
ATSs,\53\ while Direct Edge opposed the shorter implementation period
for ATSs and asserted that FINRA failed to justify this approach.\54\
SIFMA argued that certain ATSs should be permitted to comply with the
latter of the two dates in light of the systems changes they would be
required to make (e.g., an ATS that trade reports and identifies its
subscriber as the reporting party or has its subscriber report the
trade, or an ATS that does not submit non-tape reports today).\55\
SIMFA also requested clarification that the shorter period would apply
only to systems that qualify as an exchange under the Act and operate
under Regulation ATS. In response to these comments, FINRA proposed to
implement the proposed rule change on the same date for all members,
including ATSs, at least 180 days from the date of approval by the
Commission.\56\
---------------------------------------------------------------------------

    \53\ See BATS Letter, supra note 5.
    \54\ See Direct Edge Letter, supra note 5.
    \55\ See SIFMA Letter, supra, note 5.
    \56\ See FINRA Letter, supra note 10.
---------------------------------------------------------------------------

    SIFMA also requested that FINRA not implement the proposed rule
change until it had published revised technical specifications.\57\ In
response, FINRA stated that it does not believe that the proposed rule
change will result in any significant changes to applicable technical
specifications, and that members would continue to populate and submit
to FINRA tape and non-tape reports in the same manner as they do
today.\58\ Thus, FINRA does not believe that the implementation date
needs to

be linked to the publication of specific technical specifications.
---------------------------------------------------------------------------

    \57\ See SIFMA Letter, supra, note 5.
    \58\ See FINRA Letter, supra note 10.
---------------------------------------------------------------------------

    Finally, SIFMA suggested that the non-tape reporting proposal be
implemented approximately six months following implementation of the
executing party trade reporting structure.\59\ FINRA responded that
SIFMA did not provide any reason why the system changes necessary to
comply with both aspects of the proposed rule change could not be made
and tested simultaneously and reiterated its position that 180 days
should provide sufficient time to make all necessary systems
changes.\60\
---------------------------------------------------------------------------

    \59\ See SIFMA Letter, supra, note 5.
    \60\ See FINRA Letter, supra note 10.
---------------------------------------------------------------------------

IV. Discussion

    After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
association.\61\ In particular, the Commission believes the proposal is
consistent with Section 15A(b)(6) of the Act,\62\ which requires, among
other things, that the Association's rules be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and, in general, to protect investors
and the public interest. The Commission believes that FINRA adequately
addressed the comments raised in response to the notice of this
proposed rule change.
---------------------------------------------------------------------------

    \61\ In approving this rule proposal, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
    \62\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

    The primary purpose of this proposed rule change is to modify the
rules governing trade reporting in OTC equity transactions by replacing
the current market maker-based trade reporting framework with an
``executing party'' framework and by requiring that any member with the
trade reporting obligation under FINRA rules that is acting in a
riskless principal or agency capacity on behalf of one or more other
members, submit non-tape reports to FINRA, as necessary, to identify
such other member(s) as a party to the trade.

A. Trade Reporting Structure

    The Commission believes that FINRA's proposal to require that for
transactions between members, the ``executing party'' would report the
trade to FINRA and for transactions between a member and a non-member
or customer, the member would report the trade, establishes an
objective standard for determining the reporting obligation in these
circumstances, while still affording the parties flexibility to enter
into agreements to shift the trade reporting obligation, when
appropriate, at the parties' discretion. The proposed rule change
should help to ensure that the member with the trade reporting
obligation is the party that knows the material terms and details of
the transaction. Therefore, the Commission believes that this will help
increase overall compliance with trade reporting rules and increase the
amount of accurate trade information available to FINRA.

B. Non-Tape Reporting Proposal

    FINRA has also proposed to require that any member with the
obligation to report a trade under FINRA rules that is acting in a
riskless principal or agency capacity on behalf of one or more other
members submit to FINRA one or more non-tape reports identifying such
other member(s) as a party to the transaction, if such other member is
not identified on the initial trade report or a report submitted to
FINRA to reflect the offsetting leg of a riskless principal
transactions. The Commission believes that this proposed requirement
will help to modernize FINRA's rules to adapt to the increase in trades
involving riskless principal transactions. The proposed changes should
help to ensure that FINRA staff is able to create a complete, accurate
audit trail through the execution of trades. The Commission believes
that the information proposed to be collected by FINRA is an
appropriate supplement to that already collected pursuant to FINRA's
OATS requirements and will assist FINRA in automated surveillance to
ensure compliance with various customer protection and market integrity
rules.\63\
---------------------------------------------------------------------------

    \63\ With respect to the Commenters' concerns that this proposed
rule change should be reviewed as a fee filing, the Commission
agrees with FINRA that this is a matter of contract and is not the
subject of this proposed rule change.
---------------------------------------------------------------------------

C. Implementation

    In its response to comments, FINRA stated that it intended to
implement the proposed rule change at least 180 days from the date of
this approval order.\64\ For purposes of clarity, in Amendment No. 2,
FINRA requested that the proposed rule change be implemented 180 days
from the date of this approval order. The Commission believes that this
is an appropriate time frame for members to prepare to comply with the
proposed rules.
---------------------------------------------------------------------------

    \64\ See FINRA Letter, supra note 10.
---------------------------------------------------------------------------

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\65\ that the proposed rule change (SR-FINRA-2008-011), as amended,
is approved.
---------------------------------------------------------------------------

    \65\ 15 U.S.C. 78s(b)(2).
    \66\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\66\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-27141 Filed 11-14-08; 8:45 am]

BILLING CODE 8011-01-P