[Federal Register Volume 78, Number 36 (Friday, February 22, 2013)]
[Proposed Rules]
[Pages 12267-12269]
[FR Doc No: 2013-04000]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R09-OAR-2013-0094; FRL-9783-2]

Revision of Air Quality Implementation Plan; California; Placer
County Air Pollution Control District and Feather River Air Quality
Management District; Stationary Source Permits

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing a limited approval and limited disapproval of
permitting rules submitted by California as a revision to the Placer
County Air Pollution Control District (PCAPCD) and Feather River Air
Quality Management District (FRAQMD) portion of the California State
Implementation Plan (SIP). These rules were adopted by the PCAPCD and
FRAQMD to regulate the construction and modification of stationary
sources of air pollution within each District. EPA is proposing to
approve these SIP revisions based on the Agency's conclusion that the
rules are consistent with applicable Clean Air Act (CAA) requirements,
policies and guidance. Final approval of these rules would make the
rules federally enforceable and correct program deficiencies identified
in a previous EPA rulemaking (76 FR 44809, July 27, 2011).

DATES: Any comments must arrive by March 25, 2013.

ADDRESSES: Submit comments, identified by docket number EPA-R09-OAR-
2013-0094, by one of the following methods:
    1. Federal eRulemaking Portal: http:[sol][sol]www.regulations.gov.
Follow the on-line instructions.
    2. Email<EMAIL_ADDRESS>    3. Mail or deliver: Gerardo Rios (Air-3), U.S. Environmental
Protection Agency Region IX, 75 Hawthorne Street, San Francisco, CA
94105-3901.
    Instructions: All comments will be included in the public docket
without change and may be made available online at
http:[sol][sol]www.regulations.gov, including any personal information
provided, unless the comment includes Confidential Business Information
(CBI) or other information whose disclosure is restricted by statute.
Information that you consider CBI or otherwise protected should be
clearly identified as such and should not be submitted through
http:[sol][sol]www.regulations.gov or email.
http:[sol][sol]www.regulations.gov is an ``anonymous access'' system,
and EPA will not know your identity or contact information unless you
provide it in the body of your comment. If you send email directly to
EPA, your email address will be automatically captured and included as
part of the public comment. If EPA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EPA
may not be able to consider your comment. Electronic files should avoid
the use of special characters, any form of encryption, and be free of
any defects or viruses.
    Docket: EPA has established a docket for this action under EPA-R09-
OAR-2013-0094. Generally, documents in the docket for this action are
available electronically at http:[sol][sol]www.regulations.gov or in
hard copy at EPA Region IX, 75 Hawthorne Street, San Francisco,
California. While all documents are listed at http:[sol][sol]

www.regulations.gov, some information may be publicly available only at
the hard copy location (e.g., copyrighted material, large maps, multi-
volume reports), and some may not be publicly available in either
location (e.g., CBI). To inspect the hard copy materials, please
schedule an appointment during normal business hours with the contact
listed in the FOR FURTHER INFORMATION CONTACT section.

FOR FURTHER INFORMATION CONTACT: Laura Yannayon, EPA Region IX, (415)
972-3534<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Throughout this document, ``we,'' ``us'' and
``our'' refer to EPA.

Table of Contents

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

I. The State's Submittal

A. What rules did the State submit?

    Table 1 lists the rules addressed by this proposal, including the
dates they were adopted by the local air agency and submitted by the
California Air Resources Board (CARB).

                                            Table 1--Submitted Rules
----------------------------------------------------------------------------------------------------------------
             Local agency                  Rule No.            Rule title             Amended        Submitted
----------------------------------------------------------------------------------------------------------------
PCAPCD...............................            502    New Source Review.......        10/31/11        11/18/11
FRAQMD...............................             10.1  New Source Review.......          2/7/12         9/21/12
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    CARB's SIP submittal includes evidence of public notice and
adoption of these regulations. We find that the submittals for PCAPCD
and FRAQMD Rules 502 and 10.1, respectively, meet the completeness
criteria in 40 CFR part 51, appendix V, which must be met before formal
EPA review.

B. Are there other versions of these rules?

    EPA approved a previous version of Rules 502 and 10.1, into the SIP
on July 27, 2011 (76 FR 44809).\1\
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    \1\ In our previous action, we stated that Rule 502, New Source
Review would replace existing SIP approved Rule 508, New Source
Review. However, in our final action, we did not include the proper
regulatory text to remove Rule 508 from the SIP. As part of this
action, we will include the necessary regulatory text to remove Rule
508 from the SIP, since it has already been replaced by Rule 502.
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C. What is the purpose of the submitted rules?

    Section 110(a)(2) of the CAA requires that each SIP include, among
other things, a preconstruction permit program to provide for
regulation of the construction and modification of stationary sources
within the areas covered by the plan as necessary to assure that the
National Ambient Air Quality Standards (NAAQS) are achieved, including
a permit program as required in parts C and D of title I of the CAA.
For areas designated as nonattainment for one or more NAAQS, the SIP
must include preconstruction permit requirements for new or modified
major stationary sources of such nonattainment pollutant(s), commonly
referred to as ``Nonattainment New Source Review'' or ``NSR.'' CAA
172(c)(5).
    The Sacramento Valley Air Basin and Mountain Counties Air Basin
portions of Placer County are currently designated and classified as
severe nonattainment for the 1997 and 2008 8-hour ozone NAAQS. The
Sacramento Valley Air Basin portion of Placer County is currently
designated nonattainment for the 2006 24-hour PM2.5 NAAQS.
See 40 CFR 81.305.
    The FRAQMD contains all or parts of the Sacramento Valley (Sutter
County portion), the Yuba City-Marysville (all of Sutter County and a
portion of Yuba County) and the Sutter Buttes (Sutter County portion)
Air Basins. The Sacramento Valley portion is currently designated and
classified as severe nonattainment for the 1997 and 2008 8-hour ozone
NAAQS and designated nonattainment for the 2006 24-hour
PM2.5 NAAQS. The Sutter Buttes portion is currently
designated and classified as moderate nonattainment for the 1997 8-hour
ozone NAAQS and designated nonattainment for the 2006 24-hour
PM2.5 NAAQS. The Yuba City-Marysville portion is currently
designated nonattainment for the 2006 24-hour PM2.5 NAAQS.
See 40 CFR 81.305.
    Therefore, California is required under part D of title I of the
Act to adopt and implement a SIP-approved NSR program for the
nonattainment portions of each District that applies, at a minimum, to
new or modified major stationary sources of the following pollutants:
volatile organic compounds (VOCs), nitrogen oxides (NOX),
particular matter of 2.5 microns or less (PM2.5) and sulfur
oxides (SOX).\2\
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    \2\ VOCs and NOX are subject to NSR as precursors to
ozone, and NOX and SOX are subject to NSR as
precursors to PM2.5 in both Districts. See 40 CFR
51.165(a)(1)(xxxvii)(C).
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    Rule 502 (New Source Review) and Rule 10.1 (New Source Review)
implement the NSR requirements under part D of title I of the CAA for
new or modified major stationary sources of these nonattainment
pollutants within each District. The PCAPCD and FRAQMD amended Rules
502 and 10.1, respectively, to correct program deficiencies identified
by EPA on July 27, 2011 (76 FR 44809).

II. EPA's Evaluation and Proposed Action

A. How is EPA evaluating the rules?

    EPA has reviewed the submitted permitting rules for compliance with
the CAA's general requirements for SIPs in CAA section 110(a)(2), EPA's
regulations for stationary source permit programs in 40 CFR part 51,
subpart I (``Review of New Sources and Modifications''), and the CAA
requirements for SIP revisions in CAA section 110(l).\3\ As explained
below, EPA is proposing a limited approval and limited disapproval for
each of the submitted rules.
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    \3\ Section 110(l) of the CAA requires SIP revisions to be
subject to reasonable notice and public hearing prior to adoption
and submittal by states to EPA and prohibits EPA from approving any
SIP revision that would interfere with any applicable requirement
concerning attainment and reasonable further progress or any other
applicable requirement of the Act.
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B. Do the rules meet the evaluation criteria?

    With respect to procedures, CAA sections 110(a) and 110(l) require
that revisions to a SIP be adopted by the State after reasonable notice
and public hearing. EPA has promulgated specific procedural
requirements for SIP revisions in 40 CFR part 51, subpart F. These
requirements include publication of notices, by prominent advertisement

in the relevant geographic area, of a public hearing on the proposed
revisions, a public comment period of at least 30 days, and an
opportunity for a public hearing.
    Based on our review of the public process documentation included in
the PCAPCD's November 18, 2011 and FRAQMD's September 21, 2012 rule
submittals, we find that the State has provided sufficient evidence of
public notice and opportunity for comment and public hearings prior to
adoption and submittal of these rules to EPA.
    With respect to substantive requirements, EPA has reviewed the
submitted rules in accordance with the CAA and regulatory requirements
that apply to NSR permit programs under part D of title I of the Act.
Based on our evaluation of these rules, except for the deficiencies
noted in the TSDs and summarized in the Proposed Action section of this
notice, we are proposing to find that the rules meet the CAA and
regulatory requirements for NSR permit programs in part D of title I of
the Act and EPA's NSR implementing regulations in 40 CFR section 51.165
for new or modified major stationary sources proposing to locate within
each District. Final approval of Rule 502 and Rule 10.1 would correct
all deficiencies in PCAPCD's and FRAQMD's permit programs identified in
our July 27, 2011 final rule. See 76 FR 44809. The Technical Support
Documents (TSD) for this action contains a more detailed discussion of
our evaluation.

C. Proposed Action and Request for Public Comment

    For the reasons given above, under CAA section 110(k)(3) and
301(a), we are proposing a limited approval and limited disapproval of
Rule 502 and Rule 10.1 because, although each rule would strengthen the
SIP and they meet the applicable requirements for SIPs in general, they
contain certain deficiencies related to NSR SIPs in particular that
prevent our full approval. The primary deficiencies for Rule 502
pertain to an inadequate definition of the term ``Regulated NSR
Pollutant'' and a missing justification for the stated PM2.5
interpollutant offset ratios. The primary deficiencies for Rule 10.1
pertain to an inadequate definition of the term ``Regulated NSR
Pollutant'' and certain language in new Sections B.4 and B.5 which
exempts pollutants which are designated nonattainment when EPA approves
a redesignation to attainment for that pollutant. As worded, the
provision is too broad, in that it exempts such pollutants from all the
requirements of Section E of the rule, rather than just those
provisions which apply to major sources of nonattainment pollutants.
Please refer to the TSD for this action for additional information. The
deficiencies can be remedied by each District by revising their rule to
update the definition of ``Regulated Air Pollutant'' and correcting the
rule language cited above. If EPA finalizes the limited approval and
limited disapproval action, as proposed, then a sanctions clock, and
EPA's obligation to promulgate a Federal implementation plan, would be
triggered because the revisions to the District rule for which a
limited approval and limited disapproval is proposed is required under
the 8-hour ozone standard and 24-hr PM2.5 standard.
    We will accept comments from the public on this proposal for the
next 30 days.

III. Statutory and Executive Order Reviews

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

In addition, this proposed rule does not have tribal implications as
specified by Executive Order 13175 (65 FR 67249, November 9, 2000),
because the SIP is not approved to apply in Indian country located in
the State, and EPA notes that it will not impose substantial direct
costs on tribal governments or preempt tribal law.

List of Subjects in 40 CFR Part 52

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

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

    Dated: February 12, 2013.
Jared Blumenfeld,
Regional Administrator, Region IX.
[FR Doc. 2013-04000 Filed 2-21-13; 8:45 am]
BILLING CODE 6560-50-P


[Federal Register: April 12, 2006 (Volume 71, Number 70)]
[Rules and Regulations]
[Page 18650-18654]
[DOCID:fr12ap06-12]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 799

[EPA-HQ-OPPT-2003-0006; FRL-7751-7]
RIN 2070-AD42

Revocation of TSCA Section 4 Testing Requirements for Certain
Chemical Substances

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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SUMMARY: EPA is taking direct final action to amend the final test
rule, ``In Vitro Dermal Absorption Rate Testing of Certain Chemicals of
Interest to the Occupational Safety and Health Administration,''
promulgated under section 4 of the Toxic Substances Control Act (TSCA).
This amendment removes dimethyl sulfate (DMS) from the list of chemical
substances regulated under the test rule and also removes the
requirement that testing be conducted to determine a permeability
constant (Kp) for methyl isoamyl ketone (MIAK) and dipropylene glycol
methyl ether (DPGME). However, the requirement to conduct testing to
measure short-term dermal absorption rates remains for MIAK and DPGME.
EPA is basing its decisions to take these actions on information it
received since publication of the final rule. Also, upon the effective
date of the revocation of the TSCA section 4 testing requirements for
DMS, persons who export or intend to export DMS will no longer be
subject to the TSCA section 12(b) export notification requirements to
the extent that they were triggered by the testing requirements being
revoked by this action.

DATES: This direct final rule is effective June 12, 2006 without
further notice, unless EPA receives adverse comment in writing, or a
request to present comment orally, on or before May 12, 2006. If EPA
receives adverse comment, or a written request for an opportunity to
present oral comments, EPA will publish a timely withdrawal in the
Federal Register informing the public that this direct final rule, or
relevant portions of this direct final rule, will not take effect. If
you write EPA to request an opportunity to present oral comments on or
before May 12, 2006, EPA will hold a public meeting on this direct
final rule in Washington, DC. The announcement of such a meeting would
be published in the Federal Register.

ADDRESSES: Submit your comments, identified by docket identification
(ID) number EPA-HQ-OPPT-2003-0006, by one of the following methods:
     http://www.regulations.gov. Follow the on-line

instructions for submitting comments.
     Mail: Document Control Office (7407M), Office of Pollution
Prevention and Toxics (OPPT), Environmental Protection Agency, 1200
Pennsylvania Ave., NW., Washington, DC 20460-0001.
     Hand Delivery: OPPT Document Control Office (DCO), EPA
East, Rm. 6428, 1201 Constitution Ave., NW., Washington, DC. Attention:
Docket ID Number EPA-HQ-OPPT-2003-0006. The DCO is open from 8 a.m. to
4 p.m., Monday through Friday, excluding legal holidays. The telephone
number for the DCO is<PHONE_NUMBER>. Such deliveries are only accepted
during the DCO's normal hours of operation, and special arrangements
should be made for deliveries of boxed information.
    Instructions: Direct your comments to docket ID number EPA-HQ-OPPT-
2003-0006. EPA's policy is that all comments received will be included
in the public docket without change and may be made available on-line
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 regulations.gov or e-
mail. The regulations.gov website 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 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/docket.htm.

    Docket: All documents in the docket are listed in the
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
at http://www.regulations.gov or in hard copy at the OPPT Docket, EPA

Docket Center (EPA/DC), EPA West, Rm. B102, 1301 Constitution Ave.,
NW., Washington, DC. The EPA Docket Public Reading Room is open from
8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal
holidays. The telephone number for the Public Reading Room is (202)
566-1744, and the telephone number for the OPPT Docket is (202) 566-
0280.

FOR FURTHER INFORMATION CONTACT: For general information contact: Colby
Lintner, Regulatory Coordinator, Environmental Assistance Division
(7408M), Office of Pollution Prevention and Toxics, Environmental
Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460-
0001; telephone number:<PHONE_NUMBER>; e-mail address:
<EMAIL_ADDRESS>

    For technical information contact: John Schaeffer or Catherine
Roman, Chemical Control Division (7405M), Office of Pollution
Prevention and Toxics, Environmental Protection Agency, 1200
Pennsylvania Ave., NW., Washington, DC 20460-0001; telephone number:
(202) 564-8173 or<PHONE_NUMBER>; e-mail address:
<EMAIL_ADDRESS>or<EMAIL_ADDRESS>

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does this Action Apply to Me?

    This action is directed to the public in general, and may be of
particular interest to those persons who manufacture (defined by
statute to include import) or process DMS, DPGME, or MIAK. Also,
persons that export or intend to export DMS may have an interest in
this action, as, upon the effective date of the revocation of the TSCA
section 4 testing requirements for DMS, persons who export or intend to
export DMS will no longer be subject to the TSCA section 12(b) export
notification requirements to the extent that they were triggered by the
testing requirements being revoked by this action. Because other
persons may also be interested, the Agency has not attempted to
describe all the specific persons that may be affected by this action.
If you have any questions regarding the applicability of this action to
a particular person, consult the persons listed under FOR FURTHER
INFORMATION CONTACT.

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

    1. Submitting CBI. Do not submit CBI to EPA through 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. Requesting an opportunity to present oral comments to the
Agency. When you submit a request for an opportunity to present oral
comments, this request must be in writing. If such a request is
received on or before May 12, 2006, EPA will hold a public meeting on
this direct final rule in Washington, DC. This written request must be
submitted to the Document Control Office (7407M), Office of Pollution
Prevention and Toxics (OPPT), Environmental Protection Agency, 1200
Pennsylvania Ave., NW., Washington, DC 20460-0001. If such a request is
received, EPA will announce the scheduling of the public meeting in a
subsequent Federal Register document. If a public meeting is announced,
and if you are interested in attending or presenting oral and/or
written comments and data at the public meeting, you should follow the
instructions provided in the subsequent Federal Register document
announcing the public meeting.
    3. Tips for preparing your comments. When submitting comments,
remember to:
    i. Identify the document by docket ID number and other identifying
information (subject heading, Federal Register date and page number).
    ii. 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.
    iii. Explain why you agree or disagree; suggest alternatives and
substitute language for your requested changes.
    iv. Describe any assumptions and provide any technical information
and/or data that you used.
    v. If you estimate potential costs or burdens, explain how you
arrived at your estimate in sufficient detail to allow for it to be
reproduced.
    vi. Provide specific examples to illustrate your concerns and
suggest alternatives.
    vii. Explain your views as clearly as possible, avoiding the use of
profanity or personal threats.
    viii. Make sure to submit your comments by the comment period
deadline identified.

II. Background

A. What Action is the Agency Taking?

    Pursuant to section 4 of TSCA, EPA promulgated and published in the
Federal Register a test rule on April 26, 2004 (OSHA dermal test rule)
requiring that manufactures (including importers) and processors of 34
chemical substances of interest to the Occupational Safety and Health
Administration (OSHA) conduct in vitro dermal absorption rate testing
(Ref. 1). OSHA intends to use the data from these studies to evaluate
the need to develop ``skin designations'' for these chemicals. Skin
designations are used by OSHA to alert industrial hygienists,
employers, and workers to the potentially significant contribution of a
particular chemical to an individual's total workplace exposure to
chemicals which can occur by the cutaneous route. Skin designations
encourage employers to consider whether changes should be made to
processes involving such chemical substances in order to reduce the
potential for systemic toxicity from dermal absorption of these
chemicals.
    EPA recently received dermal absorption data on 3 of the 34
chemical substances listed in the final rule. These data have persuaded
EPA to fully withdraw the testing requirements set forth in the final
rule for dimethyl sulfate (DMS; Chemical Abstracts Service Number (CAS
No.): 77-78-1, Chemical Abstracts (CA) Index Name: Sulfuric acid,
dimethyl ester), and to partially withdraw such requirements for methyl
isoamyl ketone (MIAK; CAS No.: 110-12-3, CA Index Name: 2-Hexanone, 5-
methoxy-) and dipropylene glycol methyl ether (DPGME; CAS No.: 34590-
94-8, CA Index Name: Propanol, 1(or 2)-(2-methoxymethylethoxy)-).
    On November 2, 2004, DuPont Chemical Solutions Enterprise (DCSE)
submitted results of an exploratory skin absorption study entitled
Dimethyl Sulfate: An In Vitro Assay for Assessment of Dermal
Corrosivity Using Transcutaneous Electrical Impedance (Refs. 2 and 3).
This study clearly showed that DMS is corrosive (Ref. 3). While the
test rule requires that if a chemical ``damages the skin when applied
neat, it must be dissolved in water'' (40 CFR 799.5115(h)(5)(vi)), DMS
is also rapidly hydrolyzed in water, and would not be available as the
test substance, even for the required short-term testing (Refs. 1, 2,
and 4). These factors, considered together, render the in vitro dermal
absorption testing of DMS which is required in the test rule
technically infeasible (Ref. 5). Furthermore, EPA neither has, nor
knows of, any test standard which could successfully obtain the dermal
absorption testing data for DMS as described in the OSHA dermal test
rule. Therefore, for the dermal absorption testing requirements for
DMS, EPA can no longer meet the TSCA requirement under section
4(b)(1)(B) of TSCA regarding the inclusion of standards for development
of test data. Therefore, EPA, in this direct final rule, is revoking
the testing requirements for DMS by removing it from the list of
chemical substances in 40 CFR 799.5115(j) for which in vitro dermal
absorption rate testing is required (Ref. 1).
    EPA also received dermal absorption studies on MIAK and DPGME,
which

were conducted prior to issuance of the final test rule. On June 22,
2005, the Eastman Chemical Company submitted a study entitled Methyl
Isoamyl Ketone: Measurement of the In Vitro Rate of Percutaneous
Absorption through Human Skin (Refs. 6 and 7). The study determined an
absorption rate for MIAK of 0.215  0.15 milligrams/
centimeter squared/hour (mg/cm\2\/h) yielding a Kp (permeability
constant) of 0.000261 cm/h (Ref. 7). On September 29, 2004, EPA
received a request from the American Chemistry Council to review a
recently published study by Venier, et al. (2004) on the dermal
absorption of five glycol ethers, including DPGME (Ref. 8). This study
determined an absorption rate for DPGME of 0.106  0.038 mg/
cm\2\/h yielding a Kp of 0.00011 cm/h (Ref. 9).
    EPA and OSHA have reviewed the studies submitted for MIAK and DPGME
and have concluded that the studies are reliable and provide sufficient
data for EPA to reasonably determine the Kp for these two chemical
substances (Refs. 10, 11, and 12). Therefore, this direct final rule
revokes the requirement to conduct testing to determine the Kp for MIAK
and DPGME. However, the test data provided did not include a
determination of short-term dermal absorption rates. Therefore, EPA is
not revoking the short-term testing requirement for MIAK and DPGME. EPA
has already granted an extension of the testing deadline for the short-
term testing for these two substances to allow for the completion of
this testing, which was suspended by the test sponsors pending review
by EPA and OSHA of the submitted studies (Refs. 11 and 12).

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

    The final rule requiring in vitro dermal absorption rate testing
for DMS, DPGME, and MIAK (Ref. 1) was promulgated under section 4 of
TSCA (15 U.S.C. 2603), which mandates that EPA require that
manufacturers and/or processors of chemical substances and mixtures
conduct testing if certain findings are made by EPA (see section 4(a)
of TSCA). Section 4(b)(5) of TSCA authorizes EPA to amend or repeal
test rules issued under section 4(a) of TSCA. One of the findings that
EPA made in promulgating the OSHA dermal test rule was a determination
that testing was necessary in order to determine both a Kp and short-
term absorption rates for all of the chemicals included in the rule
(see section 4(a)(1)(B)(iii) of TSCA; see also Ref. 1).
    In this direct final rule, EPA is withdrawing the testing required
by the final test rule for DMS, and partially withdrawing the testing
required for DPGME and MIAK. The test rule requirements for DMS are
being withdrawn because the extreme corrosiveness of DMS and its rapid
rate of hydrolysis preclude obtaining a relevant rate of absorption,
and thus make it infeasible to conduct in vitro dermal absorption rate
testing for this chemical. The test requirement to determine a Kp for
DPGME and MIAK is being withdrawn because EPA has concluded the data
recently submitted to EPA on June 22, 2005, and September 29, 2004, are
sufficient to determine this value for these chemicals for the purposes
identified in the test rule. Therefore, EPA finds that testing to
determine a Kp for DPGME and MIAK is no longer necessary.

III. Economic Analysis

    In the economic analysis conducted for the final rule, the Agency
estimated the total cost of the testing to be $1.16 million for all 34
chemicals, or $33,987 per chemical (Ref. 13). This total included an
average $10,425 per chemical for the short-term dermal absorption rate
testing, $16,765 for the Kp testing, and an additional 25% ($6,797) in
administrative costs. This direct final rule would have the effect of
reducing the total testing cost by an estimated $75,899, or
approximately 7%, by eliminating the Kp testing for three chemicals and
the short-term dermal absorption rate testing for one chemical. In
addition, the 25% administrative cost would be eliminated for those
tests. The new total cost of the testing is estimated to be $1.08
million (i.e., $1.16 million minus $75,899). The annualized cost per
chemical calculated in the economic analysis, based on a 15-year
amortization period and a 7% discount rate, was $3,732. For DPGME and
MIAK, which will no longer be required to undergo the Kp testing, the
annualized cost is estimated to be reduced to $2,301 as a result of the
direct final rule.

IV. Export Notification

    Upon the effective date of the revocation of the TSCA section 4
testing requirements for DMS, persons who export or intend to export
DMS will no longer be subject to the TSCA section 12(b) export
notification requirements to the extent that they were triggered by the
testing requirements being revoked by this action. For all of the other
chemicals, including MIAK and DPGME, listed as subject to the
requirements of the OSHA dermal test rule (Ref. 1), the export
notification requirements remain the same.

V. Direct Final Rule Procedures

    EPA is publishing this direct final rule without prior proposal
because the Agency views this as a noncontroversial amendment and
anticipates no adverse comment as this action simply revokes testing
for which EPA already has adequate data or for which such testing is
not feasible. This direct final rule is effective June 12, 2006 without
further notice, unless EPA receives adverse comment or a written
request for an opportunity to present oral comments on or before May
12, 2006. If EPA receives adverse comment or a request for an
opportunity to present oral comments on one or more distinct
amendments, paragraphs, or sections of this direcct final rule, the
Agency will publish a timely withdrawal in the Federal Register
indicating which provisions will become effective and which provisions
are being withdrawn due to adverse comment. Any distinct amendment,
paragraph, or section of this direct final rule for which the Agency
does not receive adverse comment or a request for an opportunity to
present oral comments will become effective June 12, 2006,
notwithstanding any adverse comment or request on any other distinct
amendment, paragraph, or section of this direct final rule. For any
distinct amendment, paragraph, or section of this direct final rule
that is withdrawn due to adverse comment or a request for an
opportunity to present oral comments, EPA will publish a notice of
proposed rulemaking in a future edition of the Federal Register. The
Agency will address the comment or request for an opportunity to
present oral comments on any such distinct amendment, paragraph, or
section as part of that notice of proposed rulemaking.

VI. References

    1. EPA. Final Test Rule for In Vitro Dermal Absorption Rate Testing
of Certain Chemicals of Interest to the Occupational Safety and Health
Administration. Federal Register (69 FR 22402, April 26, 2004) (FRL-
7312-2). Available on-line at: http://www.epa.gov/fedrgstr/EPA-TOX/2004/April/Day-26/t9409.htm
.

    2. DCSE. Letter from Robert W. Freerksen, PhD to EPA Re: In Vitro
Dermal Absorption Test rule (69 FR 22402 (4/26/04; OPPT-2003-0006)) 40
CFR 799.5115 Dimethyl Sulfate (CAS No.77-78-1) Request for Modification
of Test Standard. November 2, 2004.
    3. Fasano, W.J. Dimethyl Sulfate: An In Vitro Assay for Assessment
of Dermal Corrosivity Using Transcutaneous Electrical Impedance. E.I.
du Pont de

Nemours and Company. Haskell Laboratory for Health and Environmental
Sciences. October 15, 2004.
    4. EPA. E-mail from Andrew Mamantov, PhD to Greg Schweer Re:
Hydrolysis rate for Dimethyl Sulfate. March 9, 2005.
    5. EPA. Note from Leonard Keifer to Greg Schweer Re: Technical
Feasibility of Performing an In Vitro Dermal Absorption Study with
Dimethyl Sulfate. March 10, 2005.
    6. Eastman Chemical Company. Letter from Marc G. Schurger to
Catherine Roman Re: In vitro dermal absorption testing on methyl
isoamyl ketone (CAS No. 110-12-3) under TSCA Section 4 Test Rule (OPPT-
2003-0006). June 22, 2004.
    7. Hill, T.S. and Taylor, L. Methyl isoamyl ketone: measurement of
the in vitro rate of percutaneous absorption through human skin. Final
Report: Toxicological Sciences Laboratory, Health and Environment
Laboratories, Eastman Kodak Company. January 29, 2001.
    8. ACC. Communication (e-mail) from Susan Lewis to Catherine Roman.
Directing EPA's attention to a recent publication (2004) on dermal
absorption of dipropylene glycol methyl ether (DPGME). September 29,
2004.
    9. Venier, M., Adami, G., Larese, F., and Renzi, N. Percutaneous
absorption of 5 glycol ethers through human skin in vitro. Toxicology
In Vitro 18:665-671. 2004.
    10. OSHA, Department of Labor. Letter from William G. Perry, CIH to
Catherine Roman dated January 26, 2005.
    11. EPA. Letter from Charles M. Auer to Marc G. Shurger Re: USEPA
and OSHA review of the dermal absorption rate study sponsored by the
Eastman Chemical Company and conducted by Toxicological Sciences
Laboratory. May 26, 2005. (OPPT-2003-0006-0270).
    12. EPA. Letter from Charles M. Auer to Susan Anderson Lewis, Ph.D.
Re: USEPA review of a recently published dermal absorption rate study
on dipropylene glycol methyl ether. May 26, 2005. (OPPT-2003-0006-
0272).
    13. EPA. Economic Impact Analysis and Small Entity Impact Analysis
for the TSCA Section 4(a) Test Rule for 34 Chemicals Targeted for In
Vitro Dermal Absorption Rate Testing. Prepared by OPPT/Economics,
Exposure, and Technology Division (EETD)/Economic and Policy Analysis
Branch (EPAB). Washington, DC. February 3, 2004.

VII. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review

    This direct final rule implements changes to 40 CFR 799.5115
resulting in a burden and cost reduction. Since this direct final rule
does not impose any new requirements, it is not subject to review by
the Office of Management and Budget (OMB) under Executive Order 12866,
entitled Regulatory Planning and Review (58 FR 51735, October 4, 1993).

B. Paperwork Reduction Act

    This direct final rule does not contain any information collections
subject to OMB approval under the Paperwork Reduction Act (PRA), 44
U.S.C. 3501 et seq.

C. Regulatory Flexibility Act

    Because this direct final rule eliminates reporting requirements,
the Agency certifies pursuant to section 605(b) of the Regulatory
Flexibility Act (RFA) (5 U.S.C. 601 et seq.), that this revocation of
certain requirements under section 4 of TSCA will not have a
significant economic impact on a substantial number of small entities.

D. Unfunded Mandates Reform Act

    This action does not impose any enforceable duty or contain any
unfunded mandate as described under Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA) (Public Law 104-4).

E. Executive Order 13132: Federalism

    This direct final rule has no federalism implications, because it
will not have substantial direct effects on States, on the relationship
between the national government and the States, or on the distribution
of power and responsibilities among the various levels of government,
as specified in Executive Order 13132, entitled Federalism (64 FR
43255, August 10, 1999).

F. Executive Order 13175: Consultation and Coordination with Indian
Tribal Governments

    This direct final rule has no tribal implications because it will
not have substantial direct effects on one or more Indian tribes, on
the relationship between the Federal Government and Indian tribes, nor
on the distribution of power and responsibilities between the Federal
Government and Indian tribes as specified in Executive Order 13175,
entitled Consultation and Coordination with Indian Tribal Governments
(65 FR 67249, November 6, 2000).

G. Executive Order 13045: Protection of Children from Environmental
Health Risks and Safety Risks

    This action is not subject to Executive Order 13045, entitled
Protection of Children from Environmental Health Risks and Safety Risks
(62 FR 19885, April 23, 1997), because this is not an economically
significant regulatory action as defined under Executive Order 12866,
and it does not address environmental health or safety risks
disproportionately affecting children.

H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use

    This direct final rule is not subject to Executive Order 13211,
entitled Actions Concerning Regulations That Significantly Affect
Energy Supply, Distribution, or Use (66 FR 28355, May 22, 2001),
because this action is not expected to affect energy supply,
distribution, or use.

I. National Technology Transfer Advancement Act

    Because this action does not involve any technical standards,
section 12(d) of the National Technology Transfer and Advancement Act
of 1995 (NTTAA), Public Law 104-113, section 12(d) (15 U.S.C. 272
note), does not apply to this action.

VIII. Congressional Review Act

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

List of Subjects in 40 CFR Part 799

    Environmental protection, Chemicals, Hazardous substances,
Reporting and recordkeeping requirements.

    Dated: April 3, 2006.
Susan B. Hazen,
Acting Assistant Administrator, Office of Prevention, Pesticides and
Toxic Substances.

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

PART 799--AMENDED

0
1. The authority citation for part 799 continues to read as follows:

    Authority: 15 U.S.C. 2603, 2611, 2625.

0
2. Amend Sec. 799.5115 by revising the first sentence of paragraph
(h)(5)(vii)(A) in Sec.  799.5115 to read as follows and by removing the
entry ``CAS No. 77-78-1 Dimethyl sulfate'' in Table 2 of paragraph (j)
in Sec.  799.5115.

Sec.  799.5115  Chemical testing requirements for certain chemicals of
interest to the Occupational Safety and Health Administration.

* * * * *
    (h) * * *
    (5) * * *
    (vii) * * *
    (A) Kp. A Kp must be determined for each test chemical, except for
methyl isoamyl ketone (MIAK; CAS No.: 110-12-3, Chemical Abstracts (CA)
Index Name: 2-Hexanone, 5-methoxy-) and dipropylene glycol methyl ether
(DPGME; CAS No.: 34590-94-8, CA Index Name: Propanol, 1(or 2)-(2-
methoxymethylethoxy)-). * * *
* * * * *
[FR Doc. 06-3491 Filed 4-11-06; 8:45 am]

BILLING CODE 6560-50-S


[Federal Register Volume 88, Number 6 (Tuesday, January 10, 2023)]
[Notices]
[Pages 1438-1443]
[FR Doc No: 2023-00209]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96600; File No. SR-NASDAQ-2022-079]

Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing of Proposed Rule Change To Amend Rules 4702(b)(14) and
(b)(15) Concerning Dynamic M-ELO Holding Periods

January 4, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on December 21, 2022, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II, below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend Rules 4702(b)(14) and (b)(15) of the
Exchange's Rulebook to replace the static holding period requirements
for Midpoint Extended Life Orders and Midpoint Extended Life Orders
Plus Continuous Book with dynamic holding periods.
    The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.

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

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

forth in sections A, B, and C below, of the most significant aspects of
such statements.

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

1. Purpose
    The Exchange proposes to amend Rules 4702(b)(14) and (15) of the
Exchange's Rulebook to replace the static 10 millisecond holding period
requirements for its Midpoint Extended Life Order (``M-ELO'') and
Midpoint Extended Life Order Plus Continuous Book (``M-ELO+CB'') Order
Types with dynamic holding periods (``Dynamic M-ELO and M-ELO+CB'' or
collectively, ``Dynamic M-ELO'').
Background
    In 2018, the Exchange introduced the M-ELO, which is a Non-
Displayed Order priced at the Midpoint between the National Best Bid
and Offer (``NBBO'') and which is eligible for execution only against
other eligible M-ELOs and only after a minimum of one-half second
passes from the time that the System accepts the order (the ``Holding
Period'').\3\ In 2019, the Exchange introduced the M-ELO+CB, which
closely resembles the M-ELO, except that a M-ELO+CB may execute at the
midpoint of the NBBO, not only against other eligible M-ELOs (and M-
ELO+CBs), but also against Non-Displayed Orders with Midpoint Pegging
and Midpoint Peg Post-Only Orders (``Midpoint Orders'') that rest on
the Continuous Book for at least one-half second and have Trade Now
enabled.\4\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 34-82825 (March 7,
2018), 83 FR 10937 (March 13, 2018) (SR-NASDAQ-2017-074) (``M-ELO
Approval Order'').
    \4\ See Securities Exchange Act Release No. 34-86938 (September
11, 2019), 84 FR 48978 (September 17, 2019) (SR-NASDAQ-2019-048)
(``M-ELO+CB Approval Order'').
---------------------------------------------------------------------------

    When the Exchange designed M-ELO, it originally set the length of
the Holding Period at one-half second because it determined that this
time period would be sufficient to ensure that likeminded investors
would interact only with each other, and with minimal market impacts.
The Exchange believed that the longer length of the M-ELO Holding
Period and its simplicity in design would provide greater protection
for participants than they could achieve through competing delay
mechanisms.
    In 2020, however, the Exchange shortened the length of the Holding
Period to 10 milliseconds.\5\ The Exchange did so after studying two
years of actual use and performance of M-ELOs, as well as customer
feedback. That is, the Exchange came to understand that, while users of
M-ELO and M-ELO+CB are less concerned with achieving rapid executions
of their Orders than are other participants, they are not indifferent
about the length of time in which their M-ELOs and M-ELO+CBs must wait
before they are eligible for execution. Indeed, participants informed
the Exchange that in certain circumstances, such as when they sought to
trade symbols that on average had a lower time-to-execution than a
half-second, they were reticent to enter M-ELOs or M-ELO+CBs. They
indicated that the associated Holding Periods for these Order Types
were longer than necessary to achieve the desired protections and that,
during the residual portion of the Holding Periods, they risked losing
out on favorable execution opportunities that would otherwise be
available to them had they placed a non-MELO order.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 34-88743 (April 24,
2020), 85 FR 24068 (April 30, 2020) (SR-NASDAQ-2020-011) (``M-ELO
Timer Approval Order'').
---------------------------------------------------------------------------

    Based upon this feedback, the Exchange studied the potential
effects of reducing the length of the Holding Periods for both M-ELOs
and M-ELO+CBs (as well as for Midpoint Orders that would execute
against M-ELO+CBs). Ultimately, the Exchange determined that it could
reduce the Holding Periods to 10 milliseconds without compromising the
protective power that M-ELO and M-ELO+CB are intended to provide to
participants and investors.\6\ Thus, the Exchange determined that
shortening the Holding Periods to 10 milliseconds for M-ELOs and M-
ELO+CBs would increase the efficacy of the mechanism while not
undermining the power of those Order Types to fulfill their underlying
purpose of minimizing market impacts. At the same time, the Exchange
determined that a reduction in the Holding Periods to 10 milliseconds
would dramatically add to the circumstances in which M-ELOs and M-
ELO+CBs would be useful to participants. In its M-ELO Timer Approval
Order, the Commission agreed with the Exchange:
---------------------------------------------------------------------------

    \6\ The Exchange examined each of its historical M-ELO
executions to determine at what Midpoints of the NBBO the M-ELOs
would have executed if their Holding Periods had been shorter than
one-half second (500 milliseconds). After examining the historical
effects of shorter Holding Periods of between 10 milliseconds and
400 milliseconds, the Exchange determined that a reduction of the M-
ELO Holding Period to as short as 10 milliseconds would have caused
an average impact on markouts of only 0.10 basis points (across all
symbols). In other words, compared to the execution price of an
average M-ELO with a one-half second Holding Period, the Exchange
found that a M-ELO with a 10 millisecond Holding Period would have
had an average post-execution impact that was only a tenth of a
basis point per share--a difference in protective effect that is
immaterial. See Nasdaq, ``The Midpoint Extended Life Order (M-ELO);
M-ELO Holding Period,'' available at https://www.nasdaq.com/articles/the-midpoint-extended-life-order-m-elo%3A-m-elo-holding-period-2020-02-13 (analyzing effects of shortened Holding Periods on
M-ELO performance).

    The Commission notes that, with the proposed ten-millisecond
Holding Period and Resting Period, M-ELOs and M-ELO+CBs would
continue to be optional order types that are available to investors
with longer investment time horizons, including institutional
investors. The Commission also believes that the proposal could make
M-ELOs and M-ELO+CBs more attractive for securities that on average
have a time-to-execution of less than one-half second and, for
investors who currently do not use M-ELOs and M-ELO+CBs for these
securities, provide optional order types that could enhance their
ability to participate effectively on the Exchange. The Commission
notes that, if market participants determine that the proposal would
make M-ELOs and M-ELO+CBs less attractive for their particular
investment objectives, such market participants may elect to reduce
or eliminate their use of these optional order types. Moreover, as
noted above, the Exchange will continue to conduct real-time
surveillance to monitor the use of M-ELOs and M-ELO+CBs to ensure
that such usage remains appropriately tied to the intent of the
order types. If, as a result of such surveillance, the Exchange
determines that the shortened Holding Period does not serve its
intended purpose or adversely impacts market quality, the Exchange
would seek to make further recalibrations.\7\
---------------------------------------------------------------------------

    \7\ M-ELO Timer Approval Order, supra, at 85 FR 24069.

    For similar reasons and with even better potential results for
participants, the Exchange now proposes to further refine the length of
the Holding Periods for M-ELOs and M-ELO+CBs, this time through the
application of innovative and patent pending machine learning
technology.
Dynamic M-ELO
    After receiving feedback from participants that even 10 millisecond
Holding Periods for M-ELO and M-ELO+CB may, at times, exceed what is
necessary to accomplish the underlying intent of these Order Types, the
Exchange began to experiment with making further refinements to the
duration of the Holding Periods. Ultimately, the Exchange concluded
that shorter Holding Periods could achieve the same, if not better
results for participants in terms of mark-outs, but not in all
circumstances. That is, where prices of the underlying securities are

stable, and not subject to imminent unfavorable changes, M-ELOs and M-
ELO+CBs face lower risks of confronting spread-crossing orders, such
that shorter Holding Periods could suffice to protect M-ELOs and M-
ELO+CB from such orders. In periods of heightened price volatility,
however, M-ELOs and M-ELO+CBs also face heightened risks, such that
longer Holding Periods would continue to be beneficial in protecting M-
ELOs and M-ELO+CBs from such risks. Thus, the Exchange determined that
another across-the-board reduction of the static 10 millisecond Holding
Periods would be sub-optimal because it could impact the performance of
the M-ELO and M-ELO+CB Order Types during periods of heightened
volatility.
    In light of these observations, the Exchange tasked its artificial
intelligence and machine learning laboratory (the ``AI Core Development
Group'') to explore whether it could employ these innovative
technologies to optimize the length of M-ELO and M-ELO+CB Holding
Periods during various states of price volatility, and then to vary the
lengths of the Holding Periods dynamically during the lifecycles of M-
ELOs and M-ELO+CBs, with the objectives of improving the performance of
these Order Types while also further reducing opportunity costs.
    As the Exchange explains in greater depth in the attached white
paper,\8\ the AI Core Development Group proceeded to develop an
artificial intelligence-based timer control system that will achieve
these objectives.\9\ The AI Core Development Group did so by using
reinforcement learning techniques--machine learning paradigms which
develop optimal solutions to problems over time by taking actions to
solve them, generating feedback on the results of such actions,
applying that feedback to direct and improve the next round of
solutions, and then repeating the feedback loop until the paradigm
achieves optimized solutions.
---------------------------------------------------------------------------

    \8\ See Diana Kafkes et al., ``Applying Artificial Intelligence
& Reinforcement Learning Methods Towards Improving Execution
Outcomes,'' SSRN, October 19, 2022, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4243985 (attached hereto
as Exhibit 3) (the ``White Paper'').
    \9\ Although the AI Core Development Group acknowledges that an
optimal Holding Period would update with every incoming order, it
determined that training a reinforcement learning model on every
order would be too difficult to program and too difficult to
implement given the nanosecond latency requirements of the Exchange.
The Group then investigated more feasible update cadences and
determined the point at which optimal outcomes were best balanced
with the level of programming and implementation difficulty to be
between 15 and 30 second updates. Ultimately, the Group chose a 30
second update cadence to give the model the greatest opportunity to
learn between potential actions.
---------------------------------------------------------------------------

    In this instance, the AI Core Development Group applied
reinforcement learning techniques to a simulation of the M-ELO Book
that it constructed using a representative data set from the first
quarter of 2022 (the ``Training Period''). The Training Period data
consisted of 380 out of the 6,257 symbols on the M-ELO Book (accounting
for approximately 67 percent of M-ELO volume). The symbols chosen
reflect both actively-traded and thinly-traded securities, and both
low-priced and high-priced securities.
    The AI Core Development Group then developed a machine learning
model with more than 140 features \10\ and applied it to the Training
Period data. The Group programmed the model to value the achievement of
higher fill rates or lower mark-outs than that which occurred in a
historical simulation of M-ELOs and M-ELO+CBs involving the Training
Period data.\11\ The Group then programmed the model to seek to achieve
its goals by taking one of five possible actions with respect to the
duration of the Holding Periods at 30 second intervals \12\ for each
symbol during each trading day of the Training Period. That is, at each
30 second internal, the model evaluated market conditions for each
symbol over the prior 30 second period and either kept the Holding
Periods the same, increased/decreased them by 0.25 milliseconds, or
increased/decreased them by 0.50 milliseconds.\13\ After each decision-
making round, the model utilized the results to inform its actions at
the next 30 second increment.
---------------------------------------------------------------------------

    \10\ See White Paper, supra, at 31, for a description of these
features.
    \11\ As the White Paper explains, the Group developed a model to
simulate activity on the Exchange involving M-ELOs and M-ELO+CBs
during the Training Period. See White Paper, supra, at 10.
    \12\ See id.
    \13\ The AI Core Development Group experimented with a range of
permissible Holding Period durations. Ultimately, it concluded that
it could produce better outcomes for M-ELO and M-ELO+CB participants
than the existing approach using Holding Periods as low as 0.25
milliseconds and as high as 2.5 milliseconds, under normal market
conditions.
---------------------------------------------------------------------------

    In making its decisions, the model considered 142 categories of
data points. A confluence of data points that correlated with an
increase in volatility tended to cause the model to increase the
durations of Holding Periods, including increases in the standard
deviation of NBBO prices, the number of unique participants placing
sell orders on M-ELO and M-ELO+CB, and the volume-weighted average of
the NBBO spread. Conversely, a confluence of data points that
correlated with greater price stability tended to cause the model to
decrease the durations of Holding periods, such as an increase in the
median and max number of shares per trade and the number of resting
bids left in the M-ELO and M-ELO+CB Book.
    The AI Core Development Team produced variations of its model that
prioritized achievement of the lowest mark-outs, the highest fill
rates, and a blend of these two objectives.\14\ Through a process of
learning and experimentation, the AI Core Development Group settled on
a Dynamic M-ELO model that achieved substantial performance
improvements for users of M-ELO and M-ELO+CB--both in terms of markouts
and fill rates--as compared to the static 10 millisecond Holding
Periods. As the White Paper explains in greater detail, Dynamic M-ELO
yielded an average combined volume-weighted improvement of 31.7
percent, including a 20.3 percent increase in fill rates and a 11.4
percent reduction in mark-outs.\15\ The White Paper provides a more
fulsome explanation of these improvements.\16\
---------------------------------------------------------------------------

    \14\ The AI Core Development Group also applied to the model a
paradigm called ``retraining'' to combat the degradation of model
performance that can otherwise occur as the reference data it uses
for initial comparison becomes stale. Finally, the AI Core
Development group added a stability protection mechanism to the
model to provide maximum production to participants in the event
that the model observes extraordinary levels of instability in the
National Best Bid and Offer during the prior three seconds as
compared to reference data. When the model detects such instability,
it is programmed to increase the length of the Holding Period to 12
milliseconds for a period of 750 milliseconds.
    \15\ See White Paper, supra, at 22.
    \16\ See id.
---------------------------------------------------------------------------

    Based upon these exciting results, the Exchange now proposes to
amend Rule 4702(b)(14) and (15) to replace the static 10 millisecond
timers applicable to M-ELO and M-ELO+CB with Dynamic M-ELO Holding
Periods. Using the Exchange's proprietary and patent pending
technology, the Dynamic M-ELO system will evaluate and, as it deems
necessary, adjust the length of the Holding Periods for each symbol
comprising M-ELOs and M-ELO+CBs (and Midpoint Orders on the Continuous
Book that opt to interact with M-ELO+CBs after resting on the Book)
every 30 seconds throughout the Market Hours (each such 30 second
interval, a ``Change Event''). In so doing, Dynamic M-ELO will help
participants to achieve a more optimized blend of the underlying
purposes of the M-ELO

and M-ELO+CB Order Types: protection against adverse selection (low
mark-outs) without sacrificing opportunities to achieve high-quality
executions (high fill rates).
    A proposed M-ELO or M-ELO+CB with a Dynamic Holding Period will
operate as follows. At the outset of Market Hours (approximately
9:30:00 a.m.), the Exchange will impose initial Holding Periods of 1.25
milliseconds for M-ELOs and M-ELO+CBs in all symbols. Thereafter,
Holding Periods for a given symbol will become eligible to change
dynamically from the initial duration beginning at 9:30:30AM and then
at 30 second intervals thereafter during Market Hours. The Exchange
will then apply to the M-ELO or M-ELO+CB Order a Holding Period that is
of the duration that prevailed at the time of entry. For example, if
participant A enters a M-ELO for symbol XYZ at 9:30:25 a.m., then
Holding Period for that M-ELO will be 1.25 milliseconds. If at
9:30:30:00 a.m., the System decides to lower the duration of the
Holding Period by 0.50 milliseconds, and then participant B enters a M-
ELO for symbol XYZ at 9:30:45 a.m., then the System will assign a 0.75
millisecond Holding Period to participant B's M-ELO. To be clear, the
System will determine Dynamic M-ELO Holding Periods independently for
M-ELOs and M-ELO+CBs in each symbol.
    During normal market conditions, the range of potential Holding
Period durations for M-ELOs and M-ELO+CBs will be between 0.25-2.50
milliseconds, with the Holding Period duration being eligible to change
by increments of either 0.25 or 0.50 milliseconds at each Change Event.
Thus, if the Holding Period for a M-ELO in symbol XYZ is set at 0.75
milliseconds at 2:22:11 p.m., and at 2:22:41 p.m., the System
determines to increase the duration of the Holding Period, it may do so
only by 0.25 or 0.50 milliseconds during that event.
    When a Change Event occurs, and the System determines to adjust the
duration of a Holding Period for a symbol, that adjustment will apply,
not only to all M-ELOs and M-ELO+CBs for that symbol entered within the
30 second period after the Change Event occurs, but also to M-ELOs and
M-ELO+CBs entered prior to the Change Event with unexpired Holding
Periods (with applicability retroactive to the time of Order
acceptance). Thus, if a participant enters a M-ELO in symbol XYZ at
1:14:299 p.m., and the prevailing Holding Period applicable to that M-
ELO is 2 milliseconds, and at 1:14:30 p.m., the System modifies the
Holding Period to be 1.5 milliseconds, then the M-ELO will become
eligible to execute at 1:14:3005 p.m. This is the case because the M-
ELO will have already expended 1 millisecond of its Holding Period as
of the time of the Change Event; thereafter, the M-ELO will need to
rest only another 0.5 milliseconds to become eligible to execute under
the new 1.5 millisecond Holding Period (as measured from 1:14:299
p.m.). This last feature ensures that the M-ELO Book maintains time
priority among M-ELOs and M-ELO+CBs in a dynamic environment. That is,
it ensures that no M-ELO or M-ELO+CB with an unexpired Holding Period
at the time of a Change Event will end up becoming eligible to execute
later than a M-ELO entered after the Change Event which has a shorter
Holding Period applicable to it.
    If at any time, the System detects extraordinary instability in a
symbol, then the System will activate a ``stability protection
mechanism'' to provide an extra layer of protection to M-ELO and M-ELO
users from the heightened risks of adverse selection that exists during
such periods of instability.\17\ The stability protection mechanism
will override the prevailing Holding Periods for M-ELOs and M-ELO+CBs
in a symbol experiencing extraordinary instability and immediately
increase the duration of those Holding Periods to 12 milliseconds for a
period of 750 milliseconds. The System may activate the stability
protection mechanism even between Change Events. The System will
evaluate, at each NBBO update, whether market conditions remain
extraordinarily unstable and, if so, it will restart the 750
millisecond Stability Protected Period and maintain the 12 millisecond
Holding Period until conditions stabilize. Once the System determines
that market conditions have stabilized (i.e., all measurements for the
symbol are at or below the threshold value throughout the duration of
the prevailing Stability Protected Period), the System will revert the
duration of the Holding Periods to that which prevailed as of the
Change Event that occurred immediately prior to the activation of the
stability protection mechanism or, if the stability protection
mechanism was active when a Change Event occurred, to the duration
selected at the immediately preceding Change Event. The System will
then proceed to reevaluate the duration of the Holding Periods as per
the regular schedule of Change Events.
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    \17\ For purposes of this Rule, the System determines that
``extraordinary instability'' for a symbol exists through
observations it makes following every change in the NBBO for that
symbol that occurs during the trading day. When the NBBO changes,
the System looks back at the prior three seconds of trading and
measures the difference between the highest and the lowest NBBO
midpoint values that occurred during that period, and then it
compares that measurement to a threshold value for the symbol. The
System concludes that extraordinary instability exists for a symbol
if the measurement exceeds the threshold value.
     The threshold value for a symbol, in turn, is the difference
between the highest and the lowest NBBO midpoint values for the
symbol that, if applied to its trading activity during the prior
trading day, would have caused the System to deem trading in the
symbol to be extraordinarily unstable for as close to one percent of
that day as possible.
---------------------------------------------------------------------------

    The following is an illustration of the operation of the stability
protection mechanism. At 11:10:04 a.m., the prevailing Holding Period
for M-ELOs in symbol XYZ is 1.5 milliseconds. At the same time, the
NBBO for symbol XYZ updates. The System looks back at the prior three
seconds of trading in symbol XYZ and finds that during that period, the
highest observed NBBO midpoint was $10.05, and the lowest was $10.00,
such that the difference between these two values is a range of $0.05.
The System then looks back at trading behavior for symbol XYZ during
the immediately preceding trading day. In doing so, the System
calculates the value of the threshold that would have caused the symbol
to be deemed extraordinarily unstable for one percent of the trading
day; the System determines that this threshold value is a range of
$0.03. The System then compares the $0.03 threshold to its measurement
of the prior three seconds of NBBO changes ($0.05), and concludes that
over these past three seconds, the symbol is extraordinarily unstable.
Accordingly, the System activates the stability protection mechanism
and the Holding Period for M-ELOs in symbol XYZ immediately increases
to 12 milliseconds for a period of 750 milliseconds. However, 5
milliseconds after the Stability Protection Period commences, the NBBO
updates again, thus prompting the System to repeat its assessment of
the stability of the symbol in light of the update. This reassessment
reveals that the symbol remains unstable, such that a new Stability
Protection Period of 750 milliseconds begins at that time (overriding
the pre-existing Period). Over the course of this new Stability
Protection Period, the NBBO shifts two more times, but each of the
ensuing reassessments indicate that the NBBO ranges for the symbol have
fallen below the $0.03 threshold. The Stability Protection Period
elapses 750 milliseconds after it began with the symbol remaining
stable. Thus, the Holding Period reverts to 1.5 milliseconds.
    If the Exchange halts trading in a symbol, then upon resumption of

trading, any new M-ELO or M-ELO+CB in that symbol and any pending M-ELO
or M-ELO+CB in that symbol with an unexpired Holding Period will be
subject to a new 12 milliseconds Holding Period (running from the time
when trading resumes) until the next scheduled Change Event, at which
point the System may determine to adjust that Holding Period to a
duration within the range applicable under normal market
conditions.\18\ If, however, the System determines that extraordinary
instability in the symbol exists, it may instead determine to activate
the stability protection mechanism and maintain the duration of the
Holding Period at 12 milliseconds for another 750 milliseconds. This
design will help to ensure that M-ELOs and M-ELO+CBs receive added
protection coming out of halt conditions.\19\
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    \18\ Prior to commencement of a new 12 millisecond Holding
Period for a new or pending M-ELO or M-ELO+CB following a Halt, the
System will first determine whether the M-ELO or M-ELO+CB is or
remains eligible for execution. That is, the Holding Period will
commence only if, upon commencement of trading following the Halt,
the midpoint price for the Order is within the limit set by the
participant. If not, the System will hold the Order until the
midpoint falls within the limit set by the participant, at which
time the 12 millisecond Holding Period will commence.
    \19\ Also as a safeguard, the System will apply a default
Holding Period of 12 milliseconds to a M-ELO or M-ELO+CB if ever it
fails to receive a signal during a Change Event as to whether the
System should adjust or maintain the duration of the prevailing
Holding Period. The System will continue to apply the default 12
millisecond Holding Period until the next Change Event where the
signal is restored and the System is able to act dynamically again.
---------------------------------------------------------------------------

    The Exchange notes that same dynamic process described above will
also apply to and govern the time periods during which Midpoint Orders
on the Continuous Book must rest before they will become eligible to
interact with M-ELO+CBs (provided that participants have opted for
their Midpoint Orders to interact with M-ELO+CBs). Thus, the same
Holding Period duration that the System sets for a M-ELO+CB in a symbol
during Regular Market Hours will also be the length of time that a
Midpoint Order must rest on the Continuous Book must rest before it may
interact with a M-ELO+CB.
    Apart from these impacts of Dynamic Holding Periods, M-ELOs and M-
ELO+CBs will continue to behave as they do now in all respects, and as
set forth in Rules 4702(b)(14) and (15).
    It is important to note that within the parameters discussed herein
and in the White Paper, the Exchange will continue to re-train Dynamic
M-ELO and M-ELO+CB regularly so that the model will continue to learn
from and act upon the basis of new data, and further improve its
performance over time. However, the Exchange will not modify the
underlying structure of Dynamic M-ELO and M-ELO+CB without first
obtaining the Commission's approval to do so, including modifications
to the conditions under which the model will adjust the duration of
Holding Periods, the frequency with which the model my adjust the
Holding Periods, and the range of Holding Period durations available to
M-ELOs and M-ELO+CBs.\20\
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    \20\ In addition to the proposed changes described above, the
Exchange proposes to delete an extraneous reference in Rule
4702(b)(15) to M-ELO+CB being eligible to execute against a Midpoint
Order on the Continuous Book if the Continuous Book order has the
``Midpoint'' Trade Now Attribute enabled. In a prior filing, the
Exchange folded the concept of ``Midpoint Trade Now'' into the
general ``Trade Now'' Attribute. See Securities Exchange Act Release
No. 34-92180 (June 15, 2021), 86 FR 33420 (June 24, 2021)(SR-NASDAQ-
2021-044).
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Implementation
    The Exchange intends to make the proposed change effective for M-
ELOs and M-ELO+CBs in the Second or Third Quarter of 2023, but that
time frame is subject to change. The Exchange will publish a Trader
Alert in advance of making the proposed change effective.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\21\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\22\ in particular, in that it is designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general to protect investors and the public
interest, by allowing for more widespread use of M-ELOs and M-ELO+CBs.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b).
    \22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    When the Commission approved the M-ELO and the M-ELO+CB, it
determined that these Order Types are consistent with the Act because
they ``could create additional and more efficient trading opportunities
on the Exchange for investors with longer investment time horizons,
including institutional investors, and could provide these investors
with an ability to limit the information leakage and the market impact
that could result from their orders.'' \23\ Nothing about the
Exchange's proposal should cause the Commission to revisit or rethink
this determination. Indeed, the proposal will not alter the fundamental
design of these Order Types, the manner in which they operate, or their
effects.
---------------------------------------------------------------------------

    \23\ M-ELO Approval Order, supra 83 FR at 10938-39; M-ELO+CB
Approval Order, supra, 84 FR at 48980.
---------------------------------------------------------------------------

    Even with Dynamic M-ELO Holding Periods, M-ELOs and M-ELO+CBs will
continue to provide their users with protection against information
leakage and adverse selection--and they will do so at levels which are
substantially undiminished from that which they provide now.\24\
---------------------------------------------------------------------------

    \24\ See note 6, supra.
---------------------------------------------------------------------------

    At the same time, however, the proposal will benefit market
participants and investors by reducing the opportunity costs of
utilizing M-ELOs and M-ELO+CBs. The proposal, in other words, will re-
calibrate the lengths of the Holding Periods so that M-ELOs and M-
ELO+CBs will operate in the ``Goldilocks'' zone--their Holding Periods
will not be so short as to render them unable to provide meaningful
protections against information leakage and adverse selection, but the
Holding Periods also will not be too long so as to cause participants
and investors to miss out on favorable execution opportunities. Nasdaq
believes the proposal will render M-ELOs and M-ELO+CBs more useful and
attractive to market participants and investors, and this increased
utility and attractiveness, in turn, will spur an increase in M-ELO and
M-ELO+CB use cases on the Exchange, both from new and existing users of
M-ELOs and M-ELO+CBs. Ultimately, the proposal should enhance market
quality by increasing opportunities for midpoint executions on the
Exchange.
    The Exchange notes that use of Dynamic M-ELOs and M-ELO+CBs remains
voluntary for all market participants. Accordingly, if any market
participant feels that the dynamic Holding Periods are still too long
or too short or because competing venues offer more attractive delay
mechanisms, then the participants are free to pursue other trading
strategies or utilize other trading venues. They need not utilize
Dynamic M-ELOs or M-ELO+CBs.
    Finally, the Exchange notes that it will continue to conduct real-
time surveillance to monitor the use of M-ELOs and M-ELO+CBs to ensure
that such usage remains appropriately tied to the intent of the Order
Types. If, as a result of such surveillance, the Exchange determines
that the Dynamic M-ELO Holding Periods do not serve their intended
purposes, or adversely impact market quality, then the Exchange will
seek to make further re-calibrations.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. To the contrary, the Exchange
believes that this proposal will promote the competitiveness of the
Exchange by rendering its M-ELO and M-ELO+CB Order Types more
attractive to participants.
    The Exchange adopted the M-ELO and M-ELO+CB as pro-competitive
measures intended to increase participation on the Exchange by allowing
certain market participants that may currently be underserved on
regulated exchanges to compete based on elements other than speed. The
proposed change continues to achieve this purpose. With Dynamic M-ELO
Holding Periods, both M-ELOs and M-ELO+CBs will afford their users with
a level of protection from information leakage and adverse selection
that is better from what is achievable at present.\25\ At the same
time, the Dynamic Holding Periods will increase opportunities to
interact with other like-minded investors with longer time horizons
while also lowering the opportunity costs for participants that utilize
M-ELOs and M-ELO+CBs, particularly for securities that trade within the
``Goldilocks'' zone. In sum, the proposed changes will not burden
competition, but instead may promote competition for liquidity in M-
ELOs and M-ELO+CBs by broadening the circumstances in which market
participants may find such Orders to be useful. With the proposed
changes, market participants will be more likely to determine that the
benefits of entering M-ELOs and M-ELO+CBs outweigh the risks of doing
so.
---------------------------------------------------------------------------

    \25\ See White Paper, supra.
---------------------------------------------------------------------------

    The proposed change will not place a burden on competition among
market venues, as any market may adopt an order type that operates
similarly to a M-ELO or a M-ELO+CB with Dynamic M-ELO Holding Periods.

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

    No written comments were either solicited or received.

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

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days of such
date (i) as the Commission may designate if it finds such longer period
to be appropriate and publishes its reasons for so finding or (ii) as
to which the Exchange consents, the Commission shall: (a) by order
approve or disapprove such proposed rule change, or (b) institute
proceedings to determine whether the proposed rule change should be
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-NASDAQ-2022-079 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NASDAQ-2022-079. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
    Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact edit personal identifying information
from comment submissions. You should submit only information that you
wish to make available publicly. All submissions should refer to File
Number SR-NASDAQ-2022-079 and should be submitted on or before January
31, 2023.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-00209 Filed 1-9-23; 8:45 am]
BILLING CODE 8011-01-P