issue-1996-06-14•Federal Register final rules — 1996-06-14
Federal Register final rules — 1996-06-14
issue-1996-06-14Federal Register final rules — 1996-06-14Regulation
Published Federal Register documents, not public-inspection drafts. The GPO XML/text rendition is a research aid; the linked complete official PDF retains the printed layout and all graphics. Graphics are retained in that PDF and are not independently reproduced in this text rendition. Publication does not establish that every provision remains legally in force.
FR Doc. 96-15202 New Animal Drugs For Use In Animal Feeds; Virginiamycin
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30132-30133]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15202]
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[[Page 30133]]
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration
21 CFR Part 558
New Animal Drugs For Use In Animal Feeds; Virginiamycin
AGENCY: Food and Drug Administration, HHS.
ACTION: Final rule.
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SUMMARY: The Food and Drug Administration (FDA) is amending the animal
drug regulations to reflect approval of a supplemental new animal drug
application (NADA) filed by Pfizer Inc. The supplement provides for use
of a 30% virginiamycin formulation of a Type A medicated article to be
used for the manufacture of Type C medicated feeds for cattle fed in
confinement for slaughter.
EFFECTIVE DATE: June 14, 1996.
FOR FURTHER INFORMATION CONTACT: Russell G. Arnold, Center for
Veterinary Medicine (HFV-142), Food and Drug Administration, 7500
Standish Pl., Rockville, MD 20855, 301-594-1674.
SUPPLEMENTARY INFORMATION: Pfizer Inc., 235 East 42d St., New York, NY
10017, filed a supplement to NADA 140-998 which provided for use of a
30% virginiamycin Type A medicated article formulation to be used in a
micro-ingredient production process for the preparation of Type C
medicated feeds for cattle fed in confinement for slaughter. The Type C
medicated feed is fed at 11 to 16 grams per ton (g/t) for improved feed
efficiency, 13.5 to 16 g/t for reduction of incidence of liver
abscesses, and 16 to 22.5 g/t for increased rate of weight gain. The
feed is not for animals intended for breeding. The supplement is
approved as of May 3, 1996, and the regulations are amended in 21 CFR
558.635(b) to reflect the approval.
Approval of this supplement does not require submission of new
safety or effectiveness data. The supplement provides for use of an
additional level of Type A medicated article to make a Type C medicated
feed fed at previously approved levels and for previously approved
conditions of use.
The agency has determined under 21 CFR 25.24(d)(1)(iii) that this
action is of a type that does not individually or cumulatively have a
significant effect on the human environment. Therefore, neither an
environmental assessment nor an environmental impact statement is
required.
Under section 512(c)(2)(F)(iii) of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 360b(c)(2)(F)(iii)), this approval does not
qualify for marketing exclusivity because reports of new clinical or
field investigations (other than bioequivalence or residue studies)
and, in the case of food producing animals, human food safety studies
(other than bioequivalence or residue studies) essential to the
approval and conducted or sponsored by the applicant were not required.
List of Subjects in 21 CFR Part 558
Animal drugs, Animal feeds.
Therefore, under the Federal Food, Drug, and Cosmetic Act and under
authority delegated to the Commissioner of Food and Drugs and
redelegated to the Center for Veterinary Medicine, 21 CFR part 558 is
amended as follows:
PART 558--NEW ANIMAL DRUGS FOR USE IN ANIMAL FEEDS
1. The authority citation for 21 CFR part 558 continues to read as
follows:
Authority: Secs. 512, 701 of the Federal Food, Drug, and
Cosmetic Act (21 U.S.C. 360b, 371).
Sec. 558.635 [Amended]
2. Section 558.635 Virginiamycin is amended in paragraph (b)(1) by
removing ``to 000069'' and by adding in its place ``used as in
paragraph (f) of this section; and 30 percent activity (136.2 grams per
pound) for the manufacture of Type C medicated feed for cattle used as
in paragraph (f)(3); to 000069''.
Dated: June 7, 1996.
Andrew J. Beaulieau,
Deputy Director, Office of New Animal Drug Evaluation, Center for
Veterinary Medicine.
[FR Doc. 96-15202 Filed 6-13-96; 8:45 am]
BILLING CODE 4160-01-F
Complete official Federal Register PDF
FR Doc. 96-15195 Sodium Salt of Acifluorfen; Pesticide Tolerance
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30163-30165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15195]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 180
[PP-0E3821/R2242; FRL-5371-4]
RIN 2070-AB78
Sodium Salt of Acifluorfen; Pesticide Tolerance
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
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SUMMARY: This document establishes a tolerance for combined residues of
the herbicide sodium salt of acifluorfen and its metabolites in or on
the raw agricultural commodity strawberry. The Interregional Research
Project No. 4 (IR-4) requested the regulation to establish a maximum
permissible level for residues of the herbicide pursuant to the Federal
Food, Drug and Cosmetic Act (FFDCA).
EFFECTIVE DATE: This regulation becomes effective June 14, 1996
ADDRESSES: Written objections and hearing requests, identified by the
document control number, [PP 0E3821/R2242], may be submitted to:
Hearing Clerk (1900), Environmental Protection Agency, Rm. M3708, 401 M
St., SW., Washington, DC 20460. Fees
[[Page 30164]]
accompanying objections and hearing requests shall be labeled
``Tolerance Petition Fees'' and forwarded to: EPA Headquarters
Accounting Operations Branch, OPP (Tolerance Fees), P.O. Box 360277M,
Pittsburgh, PA 15251. A copy of any objections and hearing requests
filed with the Hearing Clerk should be identified by the document
control number and submitted to: Public Response and Program Resources
Branch, Field Operations Division (7506C), Office of Pesticide
Programs, Environmental Protection Agency, 401 M St., SW., Washington,
DC 20460. In person, bring copy of objections and hearing requests to
Rm. 1132, CM #2, 1921 Jefferson Davis Hwy., Arlington, VA 22202.
A copy of objections and hearing requests filed with the Hearing
Clerk may also be submitted electronically by sending electronic mail
(e-mail) to: [email protected].
Copies of objections and hearing requests must be submitted as an
ASCII file avoiding the use of special characters and any form of
encryption. Copies of objections and hearing requests will also be
accepted on disks in WordPerfect 5.1 file format or ASCII file format.
All copies of objections and hearing requests in electronic form must
be identified by the docket number [PP 0E3821/R2242]. No Confidential
Business Information (CBI) should be submitted through e-mail.
Electronic copies of objections and hearing requests on this rule may
be filed online at many Federal Depository Libraries. Additional
information on electronic submissions can be found below in this
document.
FOR FURTHER INFORMATION CONTACT: By mail: Hoyt L. Jamerson,
Registration Division (7505W), Environmental Protection Agency, 401 M
St., SW., Washington , DC 20460. Office location and telephone number:
Sixth Floor, Crystal Station #1, 2800 Jefferson Davis Highway,
Arlington, VA 22202. (703) 308-8783; e-mail:
[email protected].
SUPPLEMENTARY INFORMATION: In the Federal Register of April 17, 1996
(61 FR 16740), EPA issued a proposed rule (FRL-5356-6) that gave notice
that the Interregional Research Project No. 4 (IR-4), New Jersey
Agricultural Experiment Station, P.O. Box 231, New Brunswick, NJ 08903,
had submitted pesticide petition (PP) 0E3821 to EPA on behalf of the
Agricultural Experiment Stations of Alabama, Arkansas, California,
Connecticut, Florida, Indiana, Maryland, Michigan, New York, North
Carolina, Oklahoma, Oregon, Tennessee, Virginia, and Washington. This
petition requests that the Administrator, pursuant to section 408(e) of
the Federal Food, Drug and Cosmetic Act (FFDCA), 21 U.S.C. 346a(e)
amend 40 CFR 180.383 by establishing a tolerance for combined residues
of the herbicide sodium salt of acifluorfen (sodium 5-[2-chloro-4-
(trifluoromethyl)phenoxy]-2-nitrobenzoic acid) and its metabolites (the
corresponding acid, methyl ester and amino analogues) in or on the raw
agricultural commodity strawberry at 0.05 part per million (ppm). There
were no comments or requests for referral to an advisory committee
received in response to the proposed rule.
The data submitted with the proposal and other relevant material
have been evaluated and discussed in the proposed rule. Based on the
data and information considered, the Agency concludes that the
tolerance will protect the public health. Therefore, the tolerance is
established as set forth below.
Any person adversely affected by this regulation may, within 30
days after publication of this document in the Federal Register, file
written objections to the regulation and may also request a hearing on
those objections. Objections and hearing requests must be filed with
the Hearing Clerk, at the address given above (40 CFR 178.20). A copy
of the objections and/or hearing requests filed with the Hearing Clerk
should be submitted to the OPP docket for this rulemaking. The
objections submitted must specify the provisions of the regulation
deemed objectionable and the grounds for the objections (40 CFR
178.25). Each objection must be accompanied by the fee prescribed by 40
CFR 180.33(i). If a hearing is requested, the objections must include a
statement of the factual issue(s) on which a hearing is requested, the
requestor's contentions on such issues, and a summary of any evidence
relied upon by the objector (40 CFR 178.27). A request for a hearing
will be granted if the Administrator determines that the material
submitted shows the following: There is genuine and substantial issue
of fact; there is a reasonable possibility that available evidence
identified by the requestor would, if established, resolve one or more
of such issues in favor of the requestor, taking into account
uncontested claims or facts to the contrary; and resolution of the
factual issue(s) in the manner sought by the requestor would be
adequate to justify the action requested (40 CFR 178.32).
A record has been established for this rulemaking under docket
number [PP 0E3821/R2242] (including any objections and hearing requests
submitted electronically as described below). A public version of this
record, including printed, paper versions of electronic comments which
does not include any information claimed as CBI, is available for
inspection from 8 a.m. to 4:30 p.m., Monday through Friday, excluding
legal holidays. The public record is located in Room 1132 of the Public
Response and Program Resources Branch, Field Operations Division
(7506C), Office of Pesticide Programs, Environmental Protection Agency,
Crystal Mall #2, 1921 Jefferson Davis Highway, Arlington, VA.
The official record for this rulemaking, as well as the public
version, as described above will be kept in paper form. Accordingly,
EPA will transfer any copies of objections and hearing requests
received electronically into printed, paper form as they are received
and will place the paper copies in the official rulemaking record which
will also include all comments submitted directly in writing. The
official rulemaking record is the paper record maintained at the
address in ``ADDRESSES'' at the beginning of this document.
Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to all the requirements of the Executive Order
(i.e., Regulatory Impact Analysis, review by the Office of Management
and Budget (OMB)). Under section 3(f), the order defines ``a
significant regulatory action'' as an action that is likely to result
in a rule (1) having an annual effect on the economy of $100 million or
more, or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement, grants, user fees, or loan programs or the rights and
obligations thereof; or (4) raising novel legal or policy issues
arising out of legal mandates, the President's priorities, or the
principles set forth in this Executive Order.
Pursuant to the terms of this Executive Order, EPA has determined
that this rule is not ``significant'' and is therefore not subject to
OMB review.
This action does not impose any enforceable duty, or contain any
``unfunded mandates'' as described in Title II of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), or require prior consultation as
specified
[[Page 30165]]
by Executive Order 12875 (58 FR 58093, October 28, 1993), entitled
Enhancing the Intergovernmental Partnership, or special consideration
as reqired by Executive Order 12898 (59 FR 7629, February 16, 1994).
Pursuant to the requirements of the Regulatory Flexibility Act (5
U.S.C. 601-612), the Administrator has determined that regulations
establishing new tolerances or raising tolerance levels or establishing
exemptions from tolerance requirements do not have a significant
economic impact on a substantial number of small entities. A
certification statement explaining the factual basis for this
determination was published in the Federal Register of May 4, 1981 (46
FR 24950).
List of Subjects in 40 CFR Part 180
Environmental protection, Administrative practice and procedure,
Agricultural commodities, Pesticides and pests, Reporting and
recordkeeping requirements.
Dated: June 3, 1996.
Stephen L. Johnson,
Director, Registration Division, Office of Pesticide Programs.
Therefore, 40 CFR part 180 is amended as follows:
PART 180--[AMENDED]
1. The authority citation for part 180 continues to read as
follows:
Authority: 21 U.S.C. 346a and 371.
2. In Sec. 180.383, the table is amended by adding alphabetically
the entry for strawberry, to read as follows:
Sec. 180.383 Sodium salt of acifluorfen; tolerances for residues.
* * * * *
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Parts per
Commodity million
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* * * * *
Strawberry................................................. 0.05
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[FR Doc. 96-15195 Filed 6-13-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-15194 Triflusulfuron Methyl; Pesticide Tolerance
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30167-30170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15194]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 180
RIN 2070-AB78
[PP 4F4278/R2239; FRL-5377-7]
Triflusulfuron Methyl; Pesticide Tolerance
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final Rule.
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SUMMARY: This document establishes time-limited tolerances for residues
of the herbicide triflusulfuron methyl, methyl 2-[[[[[4-
(dimethylamino)-6-(2,2,2-trifluroroethoxy)-1,3,5-triazin-2-
yl]amino]carbonyl]amino]sulfonyl]-3-methylbenzoate, in or on the raw
agricultural commodities sugar beet tops and sugar beet roots. Because
additional time is needed for the petitioner to submit additional
product chemistry data for an updated manufacturing process, the Agency
is granting the tolerances for sugar beet root and top with a 3-year
expiration date. E.I. duPont de Nemours Company requested these
tolerances in a petition submitted to EPA pursuant to the Federal Food,
Drug, and Cosmetic Act (FFDCA).
EFFECTIVE DATE: June 14, 1996.
ADDRESSES: Written objections and hearing requests, identified by the
docket number, [PP PP 4F4278/R2239], may be submitted to: Hearing Clerk
(1900), Environmental Protection Agency, Rm M3708, 401 M St., SW
Washington, DC 20460. Fees accompanying objections shall be labeled
``Tolerance Petition Fees'' and forwarded to EPA Headquarters
Accounting Office Branch, OPP (Tolerance Fees), P.O. Box 360277M,
Pittsburgh, PA 15251. A copy of any objections and hearing requests
filed with the Hearing Clerk should be identified by the docket number
and submitted to: Public Response and Program Resources Branch, Field
Operations Division (7506C), Office of Pesticide Programs,
Environmental Protection Agency, 401 M St. SW, Washington, DC 20460. In
person, bring copy of objections and hearing request to: Rm 1132, CM
#2, 1921 Jefferson Davis Hwy., Arlington, VA 22202.
A copy of objections and hearing requests filed with the Hearing
Clerk may also be submitted electronically by sending electronic mail
(e-mail) to: [email protected]. Copies of objections and hearing
must submitted as an ACSII file avoiding the use of special characters
and any firm of encryption. Copies of objections and hearing requests
will also be accepted on disks in Word Perfect in 5.1 file format or
ASCII file format. All copies of objections and hearing requests in
electronic hearing requests in electronic form must be identified by
the docket number [PP 4F4278/R2239]. No confidential Business
Information (CBI) should be submitted through e-mail. Electronic copies
of objections and hearing requests on this rule may be filed online at
many Federal Depository Libraries. Additional information on electronic
submissions can be found below in this document.
FOR FURTHER INFORMATION CONTACT: By mail, Robert J. Taylor, Product
Manager (PM 25), Registration Division (7505C), Office of Pesticide
Programs, Environmental Protection Agency, 401 M St., SW, Washington,
DC 20460. Office location and telephone number: Rm. 241, CM #2, 1921
Jefferson Davis Hwy., Arlington, VA 22202, (703) 305-6027; e-mail:
[email protected].
SUPPLEMENTARY INFORMATION: EPA issued a notice, published in the
Federal Register of August 17, 1995 (60 FR 42884) (FRL-4963-7) which
announced that E.I. DuPont de Nemours Co., Barley Mill Plaza, Walkers
Mill Building 37, Post Office Box 80038, Wilmington, DE 19880-0038, had
submitted a pesticide petition (PP 4F4278) which proposed to amend 40
CFR part 180 by establishing a regulation to permit residues of the
herbicide triflusulfuron methyl (methyl 2-[[[[[4-(dimethylamino)-6-
(trifluoroethoxy)-1,3.5-(triazin-2-yl]amino]carbonyl]amino] sulfonyl]-
3-methylbenzoate) in or on the raw agricultural commodities sugar beet
root and sugar beet top at 0.05 ppm. No comments or request for
referral to an advisory committee were received in response to this
notice of filing.
The scientific data submitted in the petitions and other relevant
material have been evaluated. The toxicological data considered in
support of the proposed tolerances are listed below.
1. Several acute toxicology studies placing technical grade
triflusulfuron methyl in toxicity Category III for acute dermal
toxicity and primary eye irritation and toxicity Category IV for acute
oral toxicity, acute inhalation toxicity and primary dermal irritation.
Technical triflusulfuron methyl was not a skin sensitizer.
2. An acute neurotoxicity screening battery with rats fed dosages
of 500, 1,000 or 2,000 milligrams/kilograms/day (mg/kg/day) with a no-
observed-effect level (NOEL) of 2,000 mg/kg/day (limit dose).
3. A 21-day dermal toxicity study with rabbits fed dosages of 50,
300, or 1,000 mg/kg/day with a systemic toxicity NOEL equal to or
greater than 1,000 mg/kg for males and females and a dermal toxicity
NOEL equal to or greater than 1,000 mg/kg/day for males and females.
4. A subchronic neurotoxicity study with rats fed dosages of 0,
6.1, 46.1, 92.7, or 186.2 mg/kg/day (males) or 7.1, 51.6, 104.1 or
205.2 mg/kg/day (females) with a NOEL of 92.7 mg/kg/day (males) and 7.1
mg/kg/day (females) based on decreased body weight/body weight gain at
the lowest observed effect level (LOEL) of 186.2 mg/kg/day (males) and
51.6 mg/kg/day (females).
5. A 1 year oral toxicity study with dogs fed dosages of 1.0, 26.9,
111.6 mg/kg/day (males) and 1.2, 27.7, and 95.5 mg/kg/day (females)
with a NOEL of 26.9 mg/kg/day (males) based on increases in alkaline
phosphatase; liver weight, and incidence of minimal centrilobular
hepatocellular hypertrophy at the LOEL of 111.6 (males) and a NOEL of
27.7 mg/kg/day (females) based on increased liver weight and increased
incidence of minimal centrilobular hepatocellular hypertrophy at the
LOEL of 95.5 mg/kg/day (females).
6. In an 18-month carcinogenicity study mice were fed dosages of
1.37, 20.9, 349 and 1,024 mg/kg/day (males) and 1.86, 27.7, 488 and
1,360 mg/kg/day (females). Male mice had statistically significant
positive trends for hepatocellular adenomas and for combined adenoma/
carcinoma (driven entirely by adenomas) at 349 and 1,024
[[Page 30168]]
mg/kg/day. These increases were not significant in pair-wise
comparisons with control groups and were determined not to be
carcinogenic effects by the Carcinogenicity Peer Review Committee
(CPRC).
7. In the combined chronic toxicity/carcinogenicity study rats were
fed dosages of 0, 0.406, 4.06, 30.6 and 64.5 mg/kg/day (males) and 0,
0.546, 5.47, 41.5, and 87.7 mg/kg/day (females). Male rats had a
significant increasing trend and significant differences in pair-wise
comparisons of the 30.6 and 64.5 mg/kg/day dose groups with controls
for interstitial cell ademonas. This effect was determined to be a
carcinogenic effect by the CPRC. No carcinogenic effects were noted in
females up to and including 87.7 mg/kg/day (highest dose tested (HDT)).
The LOEL for chronic toxicity is 30.6 mg/kg/day (males) and 41.5 mg/kg/
day (females) based on decreased body weight and body weight gain,
alterations in the hematology parameters (males predominately) and an
increased incidence of interstitial cell hyperplasia in males. The NOEL
for chronic toxicity is 4,06 mg/kg/day (males) and 5.47 mg/kg/day
(females). This value is adjusted to the lowest concentration level of
the chemical at this dosage (60%) resulting in NOELs 2.44 mg/kg/day
(males) and 3.28 mg/kg/day (females).
8. In a developmental study rats were fed dosages of 0, 30, 120,
350, and 1,000 mg/kg/day with a developmental NOEL equal to or greater
than 1,000 mg/kg/day (HDT) and a maternal toxicity NOEL of 120 mg/kg/
day with a LOEL of 350 mg/kg/day based on reduced body weight gain in
the 350 and 1,000 mg/kg/day animals, reduced food consumption in the
1,000 mg/kg/day animals and lower food efficiency in the 350 and 1,000
mg/kg/day groups.
9. In a developmental study rabbits were fed dosages of 0, 15, 90,
270, and 800 mg/kg/day with a NOEL for developmental toxicity of 90 mg/
kg/day with a LOEL of 270 mg/kg/day based on the increase in abortions
and a decrease in mean fetal body weight. The NOEL for maternal
toxicity is 90 mg/kg/day with a LOEL of 270 mg/kg/day based on maternal
death and abortions, an increase in clinical signs noted in the mid-
high and high dose groups, decreased food efficiency and increased post
mortem finding describing gastrointestinal effects.
10. In a two-generation rat reproduction study rats were fed
dosages of 0, 0.588, 5.81, 44.0 and 89.5 mg/kg/day (males) and 0,
0.764, 7.75, 58 and 115 mg/kg/day (females) with a reproductive
toxicity NOEL equal to or greater than 89.5 and 115 mg/kg/day for males
and females, respectively, based on the absence of reproductive effects
in rats at the highest dose level. The NOEL for systemic toxicity was
5.81 and 7.75 for males and females, respectively, based on decreased
body weight/body weight gain and food efficiency in males and females,
and decreased weights of offspring from the Fo generation on days 14
and 21 post-partum at 44.0 and 58.0 mg/kg/day in males and females
respectively.
11. Mutagenicity data submitted for the parent compound,
triflusulfuron methyl included a reverse mutation assay (Ames Test)
which was negative at concentrations up to 1,000 g/plate, the
highest level tested; a Salmonella typhimurium plate incorporation
assay which was negative at concentration up to 3,000 g/plate,
the highest level tested; and a CHO/HPRT assay which was negative at
concentrations up to 2,000 mg/kg/day, the highest level tested. A
chromosomal aberration/human lymphocyte assay was positive in the
presence of metabolic activation at concentrations greater than or
equal to 1,500 g/ml. A second chromosomal aberration/human
lymphocyte assay was positive in the presence of metabolitic activation
at concentrations of 2,000 g/ml. Results in the absence of
metabolic activation were inconclusive for both chromosomal aberration
studies. The mouse bone marrow micronucleus test was negative at doses
up to 5,000 mg/kg, the highest dose level tested. In three Salmonella
typhimurium plate incorporation assays metabolites of triflusulfuron
methyl were negative up to 5,000 g/plate, the highest level
tested.
12. A series of in vivo and in vitro studies were conducted in male
rats to investigate the mechanism by which triflusulfuron methyl
induces Leydig cell tumors in the testes. The studies demonstrated that
triflusulfuron methyl produces a dose dependent decrease in the
aromatase activity in vitro. However, the effects of the chemical on
the enzyme in vivo are not conclusive since no inhibition of activity
at extremely high dose levels after a 2-week exposure period were
observed. Further, the hypothesis that this effect is mediated by a
chronic depression in estradiol altering the negative feedback
mechanism for LH upon the Leydig cells of the testes has been suggested
but not clearly demonstrated. A trend but not pairwise statistical
significance has been shown for either the 750 or 1,500 ppm serum
levels of testosterone or estradiol after 1 year of exposure. In
addition, no elevation in serum levels of LH were noted at either dose
level.
The Carcinogenicity Peer Review Committee (CPRC) of Health Effects
Division (HED) has evaluated the rat and mouse cancer studies on
triflusulfuron methyl along with other short term toxicity studies,
mutagenicity studies and structure activity relationships. The CPRC
agreed that triflusulfuron methyl should be classified as a Group C-
possible human carcinogen and that for the purpose of risk
characterization the Reference Dose (RfD) approach should be used for
quantification of human risk.
This decision was based on evidence of highly significant, dose-
related increase in the incidence of interstitial cell adenomas in the
rat at two doses. Evidence of a hormonal basis for these tumors was
suggestive, but not conclusive. There was some evidence of clastogenic
activity for triflusulfuron methyl which needs further study. A DNA
damage/repair test in germ cells (e.g. alkaline elution assay) is being
requested to clarify this. The evidence from structurally related
analogs was mixed, of 12 chemicals in this class (sulfonylureas),
primisulfuron methyl, prosulfuron, and tribenuron methyl have been
associated with carcinogenic activity in rodents. The RfD approach for
risk quantification was chosen because the tumors (testicular
interstitial cell) were benign.
Based on an NOEL of 2.44 mg/kg bwt/day in the 2 year rat feeding
study, and using a 100-fold safety factor, the reference dose RfD for
triflusulfuron methyl is calculated to be 0.024 mg/kg bwt/day. The
theoretical maximum residue contribution (TMRC) for these tolerances is
0.000017 mg/kg/day which represents 0.069% of the RfD for the overall
U. S. population. For U. S. subgroup population, children aged 1 to 6,
the TMRC for these tolerances is 0.000041 which represents 0.17% of the
RfD assuming residue levels are at established tolerances and that 100
percent of the crop is treated. No other tolerances are published for
triflusulfuron methyl.
Data desirable but lacking for this chemical include additional
product chemistry data on an updated manufacturing process and a DNA
damage/repair test on germ cells. The Agency is granting the tolerances
for sugar beet top and sugar beet root with a 3-year expiration date to
allow the petitioner E.I. DuPont de Nemours Company to provide the
additional product chemistry data.
There are currently no regulations against the registration of this
chemical for use on sugar beets. Even though triflusulfuron methyl is
classified as a C-carcinogen, EPA believes that the
[[Page 30169]]
establishment of these tolerances will not pose an unreasonable risk to
humans as a result of dietary exposure. The establishment of these
tolerances utilize less than 1% (0.069%) of the RfD.
The pesticide is useful for the purpose for which the tolerances
are sought. The nature of the residue in plants and animals is
adequately understood for the purposes of establishing these
tolerances. Adequate analytical methodology (high pressure liquid
chromatography (HPLC) using a C-8 or C-18 reverse phase analytical
column) is available for enforcement purposes. Because of the long
lead-time from establishing tolerances to publication, the enforcement
methodology is being made available in the interim to anyone interested
in pesticide enforcement. Request by mail from Calvin Furlow, Public
Response Program Resources Branch, Field Operations Division (H7506C),
Office of Pesticide Programs, Environmental Protection Agency, 401 M
Street, SW., Washington DC 20460. Office location and telephone number:
Rm. 1130A, CM #2, 1921 Jefferson Davis Hwy, Arlington, VA 22202. No
detectable secondary residues are expected in milk; eggs; meat, fat,
and meat byproducts of cattle, goats, hogs, horses, sheep, or poultry
from this use.
Based on the information and data considered, the Agency has
determined that the tolerances established by amending 40 CFR part 180
would protect the public health. Therefore, EPA is establishing the
tolerances as set forth below.
Any person adversely affected by this regulation may, within 30
days after publication of this document in the Federal Register, file
written objections with the Hearing Clerk, at the address given above,
40 CFR 178.20. A copy of the objections and/or hearing requests filed
with the Hearing Clerk should be submitted to the OPP docket for this
rulemaking. The objections submitted must specify the provisions of the
regulation deemed objectionable and the grounds for the objections. 40
CFR 178.25. Each objection must be accompanied by the fee prescribed by
40 CFR 180.33(i). If a hearing is requested, the objections must
include a statement of the factual issue(s) on which a hearing is
requested, the requestor`s contentions on each such issue, and a
summary of any evidence relied upon by the objector, 40 CFR 178,27. A
request for a hearing will be granted if the Administrator determines
that the material submitted shows the following: There is a genuine and
substantial issue of fact; there is a reasonable possibility that
available evidence identified by the requestor would, if established,
resolve one or more of such issues in favor of the requestor, taking
into account uncontested claims or facts to the contrary; and
resolution of the factual issue(s) in the manner sought by the
requestor would be adequate to justify the action requested. 40 CFR
178.32.
A record has been established for this rulemaking under docket
number [PP 4F4278/R2239] (including objections and hearing requests
submitted electronically as described below). A public version of this
record, including printed, paper versions of electronic comments, which
does not include any information claimed as CBI, is available for
inspection from 8 a.m. to 4:30 p,m., Monday through Friday, excluding
legal holidays. The public record is located in Room 1132 of the Public
Response and Program Resources Branch, Field Operations Division
(7506C), Office of Pesticide Programs, Environmental Protection Agency,
Crystal Mall #2, 1921 Jefferson Davis Highway, Arlington, VA.
Written objections and hearing requests, identified by the docket
number [PP 4F4278/R2239], may be submitted to the Hearing Clerk (1900),
Environmental Protection Agency, Rm 3708, 401 M St., SW., Washington,
DC 20460. A copy of electronic objections and hearing requests filed
with the Hearing Clerk can be sent directly to EPA at:opp-
D[email protected].
A copy of electronic objections and hearing requests filed with the
Hearing Clerk must be submitted as an ASCII file avoiding the use of
special characters and any form of encryption.
The official record for this rulemaking, as well as the public
version, as describes above will be kept in paper form. Accordingly,
EPA will transfer any objections and hearing requests received
electronically into printed, paper form as they are received and will
place the paper copies in the official rulemaking record which will
also include all objections and hearing requests submitted directly in
writing. The official rulemaking record is a paper record maintained at
the Virginia address in ``ADDRESSES'' at the beginning of this
document.
Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to review by the Office Of Management and Budget
(OMB) and the requirements of the Executive Order. Under section 3(f),
the order defines a ``significant regulatory action'' as an action that
is likely to result in a rule (1) having an annual effect on the
economy of $100 million or more, or adversely and materially affecting
a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or tribal
governments or communities (also referred to as
``economicallysignificant''); (2) creating serious inconsistency or
otherwise interfering with an action taken or planned by another
agency; (3) materially altering the budgetary impacts of entitlement,
grants, user fees, or loan programs or the rights and obligation of
recipients thereof; or (4) raising novel legal or policy issues arising
out of legal mandates, the President`s priorities, or the principles
set forth in this Executive Order. Pursuant to the terms of the
Executive Order, EPA has determined that this rule is not
``significant'' and is therefore not subject to OMB review.
This action does not impose any enforceable duty, or contain any
``unfunded mandates'' as described in Title II of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), or require prior consultation as
specified by Executive Order 12875 (58 FR 58093, October 28, 1993),
entitled Enhancing the Intergovernmental Partnership; or special
consideration as required by Executive Order 12898 (59 FR 7629,
February 16, 1994).
Pursuant to the requirements of the Regulatory Flexibility Act (Pub
L. 96-354, 94 Stat. 1164, 5 U.S.C. 601-612), the Administrator has
determined that regulations establishing new tolerances or raising
tolerance levels or establishing exemptions from tolerance requirements
do not have a significant economic impact on a substantial number of
small entities. A certification statement to this effect was published
in the Federal Register of May 4, 1981 (46 FR 24950).
List of Subjects in 40 CFR Part 180
Environmental protection, Administrative practice and procedure,
Agricultural commodities, Food additive, Pesticides and pests,
Reporting and recordkeeping requirements.
Dated: June 3, 1996.
Daniel M. Barolo,
Director, Office of Pesticide Programs.
Therefore, 40 CFR Part 180 is amended as follows:
PART 180--[AMENDED]
1. The authority citation for part 180 continues to read as
follows:
Authority: 21 U.S.C. 346a and 371.
[[Page 30170]]
2. By adding Sec. 180.492 to subpart C to read as follows;
Sec. 180.492 Triflusulfuron Methyl; Tolerances for Residues
Tolerances to expire as shown in the table below are established
for residues of the herbicide, triflusulfuron methyl, methyl 2-[[[[[4-
(dimethylamino)-6-(2,2,2-trifluorothoxy)-1,3,5-triazin-2-
yl]amino]carbonyl]amino]sulfonyl]-3-methylbenzoate, in or on the raw
agricultural commodities:
------------------------------------------------------------------------
Parts per
Commodity million Expiration date
------------------------------------------------------------------------
Sugar beet, root................... 0.05 June 14, 1999.
Sugar beet, top.................... 0.05 June 14, 1999.
------------------------------------------------------------------------
[FR Doc. 96-15194 Filed 6-13-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-15193 Diquat; Pesticide Tolerances
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30165-30167]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15193]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 180
[PP 4E4365 and 4E4376/R2244; FRL-5372-5]
RIN 2070-AB78
Diquat; Pesticide Tolerances
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document establishes a tolerance for the plant growth
regulator diquat [6,7-dihydrodipyrido (1,2-a:2',1'-c) pyrazinediium]
derived from application of the dibromide salt and calculated as the
cation in or on the imported raw agricultural commodities bananas and
coffee at 0.05 part per million (ppm). Zeneca, Inc., petitioned EPA to
to establish a maximum permissible level for the residues of the plant
growth regulator.
EFFECTIVE DATE: This regulation is effective June 14, 1996.
ADDRESSES: Written objections and hearing requests, identified by the
document control number, [PP 4E4365 and 4E4376/R2244], may be submitted
to: Hearing Clerk (1900), Environmental Protection Agency, Rm. M3708,
401 M St., SW., Washington, DC 20460. Fees accompanying objections and
hearing requests shall be labeled ``Tolerance Petition Fees'' and
forwarded to: EPA Headquarters Accounting Operations Branch, OPP
(Tolerance Fees), P.O. Box 360277M, Pittsburgh, PA 15251. A copy of any
objections and hearing requests filed with the Hearing Clerk should be
identified by the document control number and submitted to: Public
Response and Program Resources Branch, Field Operations Division
(7506C), Office of Pesticide Programs, Environmental Protection Agency,
401 M St., SW., Washington, DC 20460. In person, bring copy of
objections and hearing requests to: Rm. 1132, CM #2, 1921 Jefferson
Davis Hwy., Arlington, VA 22202.
A copy of objections and hearing requests filed with the Hearing
Clerk may also be submitted electronically by sending electronic mail
(e-mail) to: [email protected]. Copies of objections and
hearing requests must be submitted as an ASCII file avoiding the use of
special characters and any form of encryption. Copies of objections and
hearing requests will also be accepted on disks in WordPerfect in 5.1
file format or ASCII file format. All copies of objections and hearing
requests in electronic form must be identified by the docket number [PP
4E4365 and 4E4376/R2244]. No Confidential Business Information (CBI)
should be
[[Page 30166]]
submitted through e-mail. Electronic copies of objections and hearing
requests on this rule may be filed online at many Federal Depository
Libraries. Additional information on electronic submissions can be
found below in this document.
FOR FURTHER INFORMATION CONTACT: By mail: Joanne I. Miller, Product
Manager (PM-23), Registration Division (7505C), Office of Pesticide
Programs, Environmental Protection Agency, 401 M St., SW., Washington,
DC 20460. Office location, telephone number, and e-mail address: Rm.
237, CM #2, 1921 Jefferson Davis Highway, Arlington, VA, (703) 3056224;
e-mail: [email protected].
SUPPLEMENTARY INFORMATION: In the Federal Register of March 27, 1996
(61 FR 13474), EPA issued a proposed rule (FRL-5348-1) that gave notice
that Zeneca, Inc., P.O. Box 15458, Wilmington, DE 19850, has submitted
pesticide petition (PP 4E4365 and 4E4376) to EPA. This petition
requested that the Administrator, pursuant to the Federal Food, Drug,
and Cosmetic Act (FFDCA), 21 U.S.C. 346a(e), establish a tolerance for
residues of the plant growth regulator diquat [6,7-dihydrodipyrido
(1,2-a:2',1'-c) pyrazinediium derived from application of the dibromide
salt and calculated as the cation in or on the raw agricultural
commodity bananas at 0.02 ppm and coffee at 0.05 ppm. The petition for
bananas was subsequently amended to raise the tolerance level to 0.05
ppm. There were no comments or requests for referral to an advisory
committee received in response to the proposed rule.
The data submitted with the proposed rule and other relevant
material have been evaluated and discussed in the proposed rule. Based
on the data and information considered. the Agency concludes that the
tolerance will protect the public health. Therefore, the tolerance is
established as set forth below.
Any person adversely affected by this regulation may, within 30
days after publication of this document in the Federal Register, file
written objections to the regulation and may also request a hearing on
those objections. Objections and hearing requests must be filed with
the Hearing Clerk, at the address given above (40 CFR 178.20). A copy
of the objections and/or hearing requests filed with the Hearing Clerk
should be submitted to the OPP docket for this rulemaking. The
objections submitted must specify the provisions of the regulation
deemed objectionable and the grounds for the objections (40 CFR
178.25). Each objection must be accompanied by the fee prescribed by 40
CFR 180.33(i). If a hearing is requested, the objections must include a
statement of the factual issue(s) on which a hearing is requested, the
requestor's contentions on such issues, and a summary of any evidence
relied upon by the objector (40 CFR 178.27). A request for a hearing
will be granted if the Administrator determines that the material
submitted shows the following: There is genuine and substantial issue
of fact; there is a reasonable possibility that available evidence
identified by the requestor would, if established, resolve one or more
of such issues in favor of the requestor, taking into account
uncontested claims or facts to the contrary; and resolution of the
factual issue(s) in the manner sought by the requestor would be
adequate to justify the action requested (40 CFR 178.32).
EPA has established a record for this rulemaking under docket
number [PP 4E4365 and 4E4376/R2244] (including any comments and data
submitted electronically). A public version of this record, including
printed, paper versions of electronic comments, which does not include
any information claimed as CBI, is available for inspection from 8 a.m.
to 4:30 p.m., Monday through Friday, excluding legal holidays. The
public record is located in Room 1132 of the Public Response and
Program Resources Branch, Field Operations Division (7506C), Office of
Pesticide Programs, Environmental Protection Agency, Crystal Mall #2,
1921 Jefferson Davis Highway, Arlington, VA.
Electronic comments may be sent directly to EPA at:
[email protected].
Electronic comments must be submitted as an ASCII file avoiding the
use of special characters and any form of encryption.
The official record for this rulemaking, as well as the public
version, as described above will be kept in paper form. Accordingly,
EPA will transfer any copies of objections and hearing requests
received electronically into printed, paper form as they are received
and will place the paper copies in the official rulemaking record which
will also include all comments submitted directly in writing. The
official rulemaking record is the paper record maintained at the
address in ``ADDRESSES'' at the beginning of this document.
Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to all the requirements of the Executive Order
(i.e., Regulatory Impact Analysis, review by the Office of Management
and Budget (OMB)). Under section 3(f), the order defines
``significant'' as those actions likely to lead to a rule (1) having an
annual effect on the economy of $100 million or more, or adversely and
materially affecting a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local or tribal governments or communities (also known as
``economically significant''); (2) creating serious inconsistency or
otherwise interfering with an action taken or planned by another
agency; (3) materially altering the budgetary impacts of entitlement,
grants, user fees, or loan programs; or (4) raising novel legal or
policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in this Executive Order.
Pursuant to the terms of this Executive Order, EPA has determined
that this rule is not ``significant'' and is therefore not subject to
OMB review.
This action does not impose any enforceable duty, or contain any
``unfunded mandates'' as described in Title II of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), or require prior consultation as
specified by Executive Order 12875 (58 FR 58093, October 28, 1993),
entitled Enhancing the Intergovernmental Partnership, or special
consideration as required by Executive Order 12898 (59 FR 7629,
February 16, 1994).
Pursuant to the requirements of the Regulatory Flexibility Act
(Pub. L. 96-354, 94 Stat. 1164, 5 U.S.C. 601-612), the Administrator
has determined that regulations establishing new tolerances or raising
tolerance levels or establishing exemptions from tolerance requirements
do not have a significant economic impact on a substantial number of
small entities. A certification statement to this effect was published
in the Federal Register of May 4, 1981 (46 FR 24950).
List of Subjects in 40 CFR Part 180
Environmental protection, Administrative practice and procedure,
Agricultural commodities, Pesticides and pests, Reporting and
recordkeeping requirements.
Dated: May 31, 1996.
Stephen L. Johnson,
Director, Registration Division, Office of Pesticide Programs.
Therefore, 40 CFR part 180 is amended as follows:
[[Page 30167]]
PART 180--[AMENDED]
1. The authority citation for part 180 continues to read as
follows:
Authority: 21 U.S.C. 346a and 371.
2. In Sec. 180.226, by adding new paragraph (c) to read as follows:
Sec. 180.226 Diquat; tolerances for residues.
* * * * *
(c)(1) Tolerances are established for the plant growth regulator
diquat [6,7-dihydrodipyrido (1,2-a:2',1'-c) pyrazinediium] derived from
application of the dibromide salt and calculated as the cation in or on
the following raw agricultural commodities:
------------------------------------------------------------------------
Parts per
Commodity million
------------------------------------------------------------------------
Bananas.................................................... 0.05
Coffee..................................................... 0.05
------------------------------------------------------------------------
(2) There are no U.S. registrations as of December 6, 1995.
[FR Doc. 96-15193 Filed 6-13-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-15191 Diflubenzuron; Pesticide Tolerance for use on Artichokes
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30170-30171]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15191]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 180
[PP 0E3835/R2241; FRL-5370-8]
RIN 2070-AB78
Diflubenzuron; Pesticide Tolerance for use on Artichokes
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document establishes a tolerance for the insecticide
diflubenzuron in or on the raw agricultural commodity artichokes. The
Interregional Research Project No. 4 (IR-4) requested the regulation to
establish a maximum permissible level for residues of the insecticide
pursuant to the Federal Food, Drug and Cosmetici Act (FFDCA).
EFFECTIVE DATE: This regulations is effective June 14, 1996.
ADDRESSES: Written objections and hearing requests, identified by the
docket number, [PP 0E3835/R2241], may be submitted to: Hearing Clerk
(1900), Environmental Protection Agency, Rm. M3708, 401 M St., SW.,
Washington, DC 20460. A copy of any objections and hearing requests
filed with the Hearing Clerk should be identified by the docket number
and submitted to: Public Response and Program Resources Branch, Field
Operations Division (7506C), Office of Pesticide Programs,
Environmental Protection Agency, 401 M St., SW., Washington, DC 20460.
In person, bring copy of objections and hearing requests to Rm. 1132,
CM #2, 1921 Jefferson Davis Hwy., Arlington, VA 22202. Fees
accompanying objections shall be labeled ``Tolerance Petition Fees''
and forwarded: EPA Headquarters Accounting Operations Branch, OPP
(Tolerance Fees), P.O. Box 360277M, Pittsburgh, PA 15251. A copy of
objections and hearing requests filed with the Hearing Clerk may also
be submitted by sending electronic mail (e-mail) to: opp-
[email protected]. Copies of electronic objections and hearing
requests must be submitted as an ASCII file avoiding the use of special
characters and any form of encryption. Copies of electronic objections
and hearing requests will also be accepted on disks in WordPerfect 5.1
file format or ASCII file format. All copies of electronic objections
and hearing requests must be identified by the docket number [PP
0E3835/R2241]. No Confidential Business Information (CBI) should be
submitted through e-mail. Copies of electronic objections and hearing
requests on this rule may be filed online at many Federal Depository
Libraries. Additional information on electronic submissions can be
found below in this document.
FOR FURTHER INFORMATION CONTACT: By mail: Hoyt L. Jamerson,
Registration Division (7505C), Environmental Protection Agency, 401 M
St., SW., Washington, DC 20460. Office location and telephone number:
Sixth Floor, Crystal Station #1, 2800 Jefferson Davis Highway,
Arlington, VA 22202; 703-308-8783; e-
mail:[email protected].
SUPPLEMENTARY INFORMATION: In the Federal Register of April 17, 1996
(61 FR 16745), EPA issued a proposed rule (FRL-5356-5) that gave notice
that the Interregional Research Project No.4 (IR-4), New Jersey
Agricultural Experiment Station, P.O. Box 231, New Brunswick, NJ 08903,
had submitted pesticide petition (PP) 0E3835 to EPA on behalf of the
Agricultural Experiment Station of California. This petition requests
that the Administrator, pursuant to section 408(e) of the FFDCA, 21
U.S.C. 346a(e) amend 40 CFR 180.377 by establishing a tolerance for
residues of the insectide diflubenzuron (N-[[4-
chlorophenyl)amino]carbonyl]-2,6-diflubenzamide) in or on the raw
agricultural commodity artichokes at 6.0 parts per million (ppm). There
were no comments or request for referral to an advisory committee
received in response to the proposed rule.
The data submitted with the proposal and other relevant material
have been evaluated and discussed in the proposed rule. Based on the
data and information considered, the Agency concludes that the
tolerance will protect the public health. Therefore, the tolerance is
established as set forth below.
Any person adversely affected by this regulation may, within 30
days after publication of this document in the Federal Register, file
written objections to the regulation and may also request a hearing on
those objections. Objections and hearing requests must be filed with
the Hearing Clerk, at the address given above (40 CFR 178.20). A copy
of the objections and/or hearing requests filed with the Hearing Clerk
should be submitted to the OPP docket for this rulemaking. The
objections submitted must specify the provisions of the regulation
deemed objectionable and the grounds for the objections (40 CFR
178.25). Each objection must be accompanied by the fee prescribed by 40
CFR 180.33(i). If a hearing is requested, the objections must include a
statement of the factual issue(s) on which a hearing is requested, the
requestor's contentions on such issues, and a summary of any evidence
relied upon by the objector (40 CFR 178.27). A request for a hearing
will be granted if the Administrator determines that the material
submitted shows the following: There is genuine and substantial issue
of fact; there is a reasonable possibility that available evidence
identified by the requestor would, if established, resolve one or more
of such issues in favor of the requestor, taking into account
uncontested claims or facts to the contrary; and resolution of the
factual issue(s) in the manner sought by the requestor would be
adequate to justify the action requested (40 CFR 178.32).
EPA has established a record for this rulemaking under docket
number [OPP-300401A] (including any comments and data submitted
electronically). A public version of this record, including printed,
paper versions of electronic comments, which does not include any
information claimed as CBI, is available for inspection from 8 a.m. to
4:30 p.m., Monday through Friday, excluding legal holidays. The public
record is located in Room 1132 of the Public Response and Program
Resources Branch, Field Operations Division (7506C), Office of
Pesticide Programs, Environmental Protection Agency, Crystal Mall #2,
1921 Jefferson Davis Highway, Arlington, VA.
Electronic comments may be sent directly to EPA at:
[email protected].
Electronic comments must be submitted as an ASCII file avoiding the
[[Page 30171]]
use of special characters and any form of encryption.
The official record for this rulemaking, as well as the public
version, as described above will be kept in paper form. Accordingly,
EPA will transfer any copies of objections and hearing requests
received electronically into printed, paper form as they are received
and will place the paper copies in the official rulemaking record which
will also include all comments submitted directly in writing. The
official rulemaking record is the paper record maintained at the
address in ``ADDRESSES'' at the beginning of this document.
Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to all the requirements of the Executive Order
(i.e., Regulatory Impact Analysis, review by the Office of Management
and Budget (OMB)). Under section 3(f), the order defines
``significant'' as those actions likely to lead to a rule (1) having an
annual effect on the economy of $100 million or more, or adversely and
materially affecting a sector of the economy, productivity,
competition, jobs, the environment, public health or safety, or State,
local or tribal governments or communities (also known as
``economically significant''); (2) creating serious inconsistency or
otherwise interfering with an action taken or planned by another
agency; (3) materially altering the budgetary impacts of entitlement,
grants, user fees, or loan programs; or (4) raising novel legal or
policy issues arising out of legal mandates, the President's
priorities, or the principles set forth in this Executive Order.
Pursuant to the terms of this Executive Order, EPA has determined
that this rule is not ``significant'' and is therefore not subject to
OMB review.
This action does not impose any enforceable duty, or contain any
``unfunded mandates'' as described in Title II of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), or require prior consultation as
specified by Executive Order 12875 (58 FR 58093, October 28, 1993),
entitled Enhancing the Intergovernmental Partnership, or special
consideration as required by Executive Order 12898 (59 FR 7629,
February 16, 1994).
Pursuant to the requirements of the Regulatory Flexibility Act (5
U.S.C. 601-612), the Administrator has determined that regulations
establishing new tolerances or raising tolerance levels or establishing
exemptions from tolerance requirements do not have a significant
economic impact on a substantial number of small entities. A
certification statement explaining the factual basis of this
determination was published in the Federal Register of May 4, 1981 (46
FR 24950).
List of Subjects in 40 CFR Part 180
Environmental protection, Administrative practice and procedure,
Agricultural commodities, Pesticides and pests, Reporting and
recordkeeping requirements.
Dated: June 3, 1996.
Stephen L. Johnson,
Director, Registration Division, Office of Pesticide Programs.
Therefore, 40 CFR part 180 is amended as follows:
PART 180--[AMENDED]
1. The authority citation for part 180 continues to read as
follows:
Authority: 21 U.S.C. 346a and 371.
2. In Sec. 180.377, the table to paragraph (a) is amended by adding
alphabetically the entry for artichokes, to read as follows:
Sec. 180.377 Diflubenzuron; tolerance for residues.
(a) * * *
------------------------------------------------------------------------
Parts per
Commodity million
------------------------------------------------------------------------
Artichokes................................................. 6.0
* * * * *
------------------------------------------------------------------------
[FR Doc. 96-15191 Filed 6-13-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-15190 Fenoxaprop-Ethyl; Extension of Study Due Date and Time-Limited Tolerances; Correction
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Page 30165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15190]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 180
[PP 9F3714/R2214A; FRL-5372-4]
RIN 2070-AB78
Fenoxaprop-Ethyl; Extension of Study Due Date and Time-Limited
Tolerances; Correction
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule, correction.
-----------------------------------------------------------------------
SUMMARY: In the Federal Register of May 10, 1996, EPA issued an
extended time-limited tolerance for fenoxaprop-ethyl from April 12,
l996 to November 1, l997. With this document, EPA is correcting the
tolerance for residues of fenoxaprop ethyl on wheat, straw.
EFFECTIVE DATE: June 14, 1996.
FOR FURTHER INFORMATION CONTACT: By mail: Joanne Miller (PM 23),
Registration Division (7505C), Office of Pesticide Programs, U. S.
Environmental Protection Agency, 401 M St., SW., Washington, DC 20460.
Office location and telephone number: Rm. 237, CM #2, 1921 Jefferson
Davis Hwy., Arlington, VA 22202, (Telephone No. (703-305-6224), e-mail:
[email protected].
SUPPLEMENTARY INFORMATION: In the Federal Register of May 10, 1996, EPA
issued a final rule which, among other things, extended the time-limit
for residues of fenoxaprop-ethyl on certain raw agricultural
commodities. EPA revised Sec. 180.430 to change the expiration date for
the time-limited tolerance from April 12, 1996 to November 1, 1997. The
tolerance for wheat, straw was shown incorrectly in the table as 0.05
ppm. This document corrects that error as follows:
In FR Doc. 96-11338, published at 61 FR 21378, May 10, 1996, in
Sec. 180.430, the entry in the table for ``Wheat, straw ..... 0.05,''
should be corrected to read ``Wheat, straw..... 0.50.''
List of Subjects in 40 CFR Part 180
Environmental protection, Administrative practice and procedure,
Agricultural commodities, Pesticides and pests, Reporting and
recordkeeping requirements.
Dated: May 31, 1996.
Stephen L. Johnson,
Director, Registration Division, Office of Pesticide Programs.
[FR Doc. 96-15190 Filed 6-13-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-15187 Control of Air Pollution; Removal and Modification of Obsolete, Superfluous or Burdensome Rules
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30162-30163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15187]
=======================================================================
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 51
[FRL-5520-1]
Control of Air Pollution; Removal and Modification of Obsolete,
Superfluous or Burdensome Rules
AGENCY: Environmental Protection Agency.
ACTION: Revision of direct final rule.
-----------------------------------------------------------------------
SUMMARY: On April 11, 1996, EPA published a direct final rule under the
Clean Air Act deleting superfluous, obsolete or burdensome regulations
from the Code of Federal Regulations (CFR). This action was published
without prior proposal because EPA anticipated no adverse comment.
Because EPA received adverse comments on a few discrete portions of
this action, EPA is withdrawing those aspects the final rule. EPA will
address all public comments received on those portions in a subsequent
final rule based on the proposed rule also published on April 11, 1996.
EFFECTIVE DATE: June 14, 1996.
FOR FURTHER INFORMATION CONTACT: Maureen Delaney, Office of Air and
Radiation, Office of Policy Analysis and Review, (202) 260-7431.
SUPPLEMENTARY INFORMATION: On April 11, 1996, EPA published a final
rule to delete numerous obsolete, superfluous or burdensome rules from
the CFR (61 FR 16050). Among the rules to be deleted were 40 CFR
51.100(o), definition of reasonably available control technology
(RACT); Sec. 51.101, stipulations; Sec. 51.110(g), attainment and
maintenance of national standards; and Sec. 51.213, transportation
control measures. EPA promulgated this direct final rulemaking without
prior proposal because the Agency viewed it as non-controversial and
anticipated no adverse comments. The final rule was published in the
Federal Register with a provision for a 30-day comment period. At the
same time, EPA published a proposed rule which announced that in the
event that adverse comments were submitted to EPA within 30 days of
publication of the rule in the Federal Register (61 FR 16068), those
portions of the final rule that were the subject of those comments
would convert to a proposed rule through EPA's publishing a notice
announcing withdrawal of those provisions.
EPA received adverse comment within the prescribed comment period
on the following rules: 40 CFR 51.100(o), 51.101, 51.110(g) and 51.213.
Therefore, EPA is withdrawing the April 11, 1996 final rulemaking
action pertaining to those rules. EPA will not institute a second
comment period on this document. The portions of the April 11, 1996
rule that were not the subject of adverse comments remain final and
effective as published.
List of Subjects in 40 CFR Part 51
Environmental protection, Air pollution control.
Dated: June 6, 1996.
Carol M. Browner,
Administrator.
PART 51--[AMENDED]
40 CFR part 51 is amended as follows:
1. The authority citation for part 51 continues to read as follows:
Authority: 42 U.S.C. 7401-7671q.
2. Section 51.100 is amended by adding paragraph (o) to read as
follows:
Sec. 51.100 Definitions.
* * * * *
(o) Reasonably available control technology (RACT) means devices,
systems, process modifications, or other apparatus or techniques that
are reasonably available taking into account:
(1) The necessity of imposing such controls in order to attain and
maintain a national ambient air quality standard;
[[Page 30163]]
(2) The social, environmental, and economic impact of such
controls; and
(3) Alternative means of providing for attainment and maintenance
of such standard, (This provision defines RACT for the purposes of
Secs. 51.110(c)(2) and 51.341(b) only.)
* * * * *
3. Section 51.101 is added to read as follows:
Sec. 51.101 Stipulations.
Nothing in this part will be construed in any manner:
(a) To encourage a State to prepare, adopt, or submit a plan which
does not provide for the protection and enhancement of air quality so
as to promote the public health and welfare and productive capacity.
(b) To encourage a State to adopt any particular control strategy
without taking into consideration the cost-effectiveness of such
control strategy in relation to that of alternative control strategies.
(c) To preclude a State from employing techniques other than those
specified in this part for purposes of estimating air quality or
demonstrating the adequacy of a control strategy, provided that such
other techniques are shown to be adequate and appropriate for such
purposes.
(d) To encourage a State to prepare, adopt, or submit a plan
without taking into consideration the social and economic impact of the
control strategy set forth in such plan, including, but not limited to,
impact on availability of fuels, energy, transportation, and
employment.
(e) To preclude a State from preparing, adopting, or submitting a
plan which provides for attainment and maintenance of a national
standard through the application of a control strategy not specifically
identified or described in this part.
(f) To preclude a State or political subdivision thereof from
adopting or enforcing any emission limitations or other measures or
combinations thereof to attain and maintain air quality better than
that required by a national standard.
(g) To encourage a State to adopt a control strategy uniformly
applicable throughout a region unless there is no satisfactory
alternative way of providing for attainment and maintenance of a
national standard throughout such region.
4. Section 51.110 is amended by adding and reserving paragraphs (c)
through (f) and by adding paragraph (g) to read as follows:
Sec. 51.110 Attainment and maintenance of national standards.
* * * * *
(g) During developing of the plan, EPA encourages States to
identify alternative control strategies, as well as the costs and
benefits of each such alternative for attainment or maintenance of the
national standard.
5. Section 51.213 is added to read as follows:
Sec. 51.213 Transportation control measures.
(a) The plan must contain procedures for obtaining and maintaining
data on actual emissions reductions achieved as a result of
implementing transportation control measures.
(b) In the case of measures based on traffic flow changes or
reductions in vehicle use, the data must include observed changes in
vehicle miles traveled and average speeds.
(c) The data must be maintained in such a way as to facilitate
comparison of the planned and actual efficacy of the transportation
control measures.
[FR Doc. 96-15187 Filed 6-13-96; 8:45 am]
BILLING CODE 6560-50-P
Complete official Federal Register PDF
FR Doc. 96-15161 The Municipality of Anchorage, AKNotices for Rate Increases for Alaska Intermodal Motor/Water Traffic; Petition for Rulemaking
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30181-30182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15161]
-----------------------------------------------------------------------
DEPARTMENT OF TRANSPORTATION
Surface Transportation Board 1
---------------------------------------------------------------------------
\1\ The ICC Termination Act of 1995, Pub. L. No. 104-88, 109
Stat. 803 (the ICCTA), which was enacted on December 29, 1995, and
took effect on January 1, 1996, abolished the Interstate Commerce
Commission (ICC or Commission) and transferred certain functions and
proceedings to the Surface Transportation Board (Board). While
section 204(b)(1) of the ICCTA provides, in general, that
proceedings pending before the ICC on the effective date of that
legislation shall be decided under the law in effect prior to
January 1, 1996, insofar as they involve functions retained by the
ICCTA, the action at issue here, the adoption of new rules with
application to future transportation and future tariff filings,
necessitates analysis under the new law, and, therefore, this
document applies the law in effect after enactment of the ICCTA.
Citations are to the current sections of the statute, unless
otherwise indicated. This document relates to a proceeding that was
pending with the ICC prior to January 1, 1996, and to functions that
are subject to Board jurisdiction pursuant to 49 U.S.C. 13701-02 and
13521.
---------------------------------------------------------------------------
49 CFR Part 1312
[Ex Parte No. MC-220]
The Municipality of Anchorage, AK--Notices for Rate Increases for
Alaska Intermodal Motor/Water Traffic; Petition for Rulemaking
AGENCY: Surface Transportation Board.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Board is adopting a change in its regulations to require
carriers filing new short-notice publications to send the filings to
the subscriber not later than the time the copies for official filing
are sent to the Board (unless the subscriber agrees in advance in
writing that the publication may be sent to the subscriber within 5
working days after the time the copies are sent to the Board). This
change will give subscribers earlier notice before the new rate goes
into effect.
EFFECTIVE DATE: The final rule is effective July 14, 1996.
[[Page 30182]]
FOR FURTHER INFORMATION CONTACT: Joseph H. Dettmar, (202) 927-5660.
[TDD for the hearing impaired: (202) 927-5721.]
SUPPLEMENTARY INFORMATION: The Commission instituted a rulemaking
proceeding (60 FR 39143, August 1, 1995) in response to a petition
filed May 25, 1994, by the Municipality of Anchorage, AK. Petitioner
requested, inter alia, that short notice increase publications for
intermodal motor/water service to and from Alaska be sent to
subscribers the same day the filings are sent to the Commission
[Board]. The full text of the new regulation is set forth below. The
Board is requiring that short notice publications, including (1) short
notice publications involving all noncontiguous domestic trade traffic,
and not only the intermodal Alaska trade; and (2) rate decreases as
well as increases, generally be sent to subscribers on the date the
publications are sent to the Board for filing.
Additional information is contained in the Board's decision. To
obtain a copy of the full decision, write to, call, or pick up in
person from: DC NEWS & DATA, INC., Room 2229, 1201 Constitution Avenue,
N.W., Washington, DC 20423. Telephone: (202) 289-4357/4359. [Assistance
for the hearing impaired is available through TDD services (202) 927-
5721.]
Regulatory Flexibility Analysis
We certify that the new regulation will not have a significant
economic impact on a substantial number of small entities within the
meaning of the Regulatory Flexibility Act (5 U.S.C. 601, et seq.)
because the rule affects only the mailing date for notification.
Environmental and Energy Considerations
The rule will not significantly affect either the quality of the
human environment or the conservation of energy resources because the
proposal merely changes time frames for notice. We conclude that an
environmental assessment is not necessary under our regulations because
the proposed action would not result in changes in carrier operations
that exceed the thresholds established in our regulations. See 49 CFR
1105.6(c)(2).
List of Subjects in 49 CFR Part 1312
Freight forwarders, Maritime carriers, Motor carriers, Moving of
household goods, Pipelines.
Decided: May 29, 1996.
By the Board, Chairman Morgan, Vice Chairman Simmons, and
Commissioner Owen.
Vernon A. Williams,
Secretary.
For the reasons set forth in the preamble, title 49, chapter X,
part 1312 is amended as follows:
PART 1312--REGULATIONS FOR THE PUBLICATION, POSTING AND FILING OF
TARIFFS, SCHEDULES AND RELATED DOCUMENTS OF MOTOR, PIPELINE AND
WATER CARRIERS, AND HOUSEHOLD GOODS FREIGHT FORWARDERS
1. The authority citation for part 1312 is revised to read as
follows:
Authority: 5 U.S.C. 553; 49 U.S.C. 721, 13701, 13702, and 13521.
2. Section 1312.6, paragraph (b)(2) is revised to read as follows:
Sec. 1312.6 Furnishing copies of tariff publications.
* * * * *
(b) * * *
(2) Newly-issued tariffs, supplements, or loose-leaf pages,
including short-notice publications, shall be sent to each subscriber
not later than the time the copies for official filing are sent to the
Board, except that with the advance, written permission of the
subscriber, any publication may be sent not later than 5 working days
after the time the copies are sent to the Board.
* * * * *
[FR Doc. 96-15161 Filed 6-13-96; 8:45 am]
BILLING CODE 4915-00-P
Complete official Federal Register PDF
FR Doc. 96-15155 Production and Utilization Facilities; Emergency Planning and Preparedness Exercise Requirements
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30129-30132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15155]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
========================================================================
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Rules
and Regulations
[[Page 30129]]
NUCLEAR REGULATORY COMMISSION
10 CFR Part 50
RIN 3150-AF20
Production and Utilization Facilities; Emergency Planning and
Preparedness Exercise Requirements
AGENCY: Nuclear Regulatory Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Nuclear Regulatory Commission (NRC) is revising its
emergency planning regulations. This amendment allows greater
flexibility in the licensee's emergency preparedness training
activities in the 2-year period between biennial full-participation
exercises. The amendment preserves the requirement that each licensee,
at each site, conduct an emergency preparedness exercise biennially,
with full participation by State and local governments that are within
the plume exposure pathway emergency planning zone (EPZ); reduces the
required frequency of exercising the licensee's onsite emergency plan
from annual to biennial; requires licensees to ensure that adequate
emergency response capabilities are maintained between biennial
exercises by conducting drills, at least one of which must involve some
of the principal functional areas of the licensee's onsite emergency
response capabilities; and requires licensees to continue enabling
State and local governments that are in the plume exposure pathway
emergency planning zones (EPZs) to participate in drills. With this
amendment, the Commission is granting, in part, a petition for
rulemaking submitted by the Virginia Electric Power Company on December
9, 1992 (PRM-50-58).
EFFECTIVE DATE: July 15, 1996.
FOR FURTHER INFORMATION: Contact Michael T. Jamgochian, Office of
Nuclear Regulatory Research, U.S. Nuclear Regulatory Commission,
Washington, DC 20555 (301-415-6534); E-mail MTJ[email protected].
SUPPLEMENTARY INFORMATION:
Background
The NRC received a petition for rulemaking submitted on December 9,
1992, by the Virginia Electric Power Company that was assigned Docket
No. PRM-50-58. The petitioner requested that the NRC amend, Section
IV.F.2., of 10 CFR part 50, appendix E, ``Emergency Planning and
Preparedness for Production and Utilization Facilities,'' to change the
requirement that each site exercise its emergency plan biennially
rather than annually. The petitioner's proposed amendment would have
required each licensee to conduct a biennial full participation
exercise of the emergency plan at each site and to take actions
necessary to ensure that its emergency response capability is
maintained during the 2-year interval. The petitioner believes that the
annual graded exercise is but one of many indicators designed to
provide reasonable assurance that actions can and will be taken during
an emergency situation that will provide for the health and safety of
the public. The NRC published a notice of receipt for the petition on
March 4, 1993 (58 FR 12341). A total of 32 comment letters were
received and considered when developing a proposed rule concerning the
issues raised by the petitions.
A notice of proposed rulemaking was published in the Federal
Register on April 14, 1995 (60 FR 19002). Public comments were
requested by July 13, 1995. A total of 18 comment letters were
received, of which 12 utilities, 2 State emergency management agencies,
and the Nuclear Energy Institute (NEI) supported the proposed rule
change. One State emergency management agency and an environmental
group opposed the proposed rule change. One letter received from a
State emergency management agency had no comment on the proposed rule
change.
NRC Response to Public Comments
The comment letters that were received provided many thought-
provoking and constructive comments. The Commission's evaluation of and
response to these comments is presented in the following section.
Issue 1. While the biennial exercise provides the opportunity for
broad based State and local participation in exercising offsite plans
and procedures, the annual graded utility exercises enhance the
biennial exercise process by providing State liaison personnel and
their utility counterparts the opportunity to remain proficient. A 2-
year gap will lessen proficiency.
Response. It is clearly not the Commission's intent to lessen the
proficiency at any level of the emergency planning organization (onsite
or offsite) with the rule change. The Commission believes that
interaction and training problems that might arise as a result of
deleting the annual onsite exercise would be resolved by requiring
licensees to enable any State or local Government to participate in the
licensee's drills when requested by the State or local Government. The
Commission is confident that, if a State governmental emergency
response agency feels the need to participate in a drill that would
require specific offsite interaction and decisionmaking capability, the
licensee would accommodate the State agency's request within the
framework of the drills that the licensee conducts throughout the 2-
year period between the biennial full participation exercise. In fact,
a State who was originally against granting the petition for rulemaking
because of similar concerns stated the following in their comment on
the proposed rule.
``We were among those initially opposed to the Virginia Electric
Power Company petition that prompted this rule change, primarily
because of a perceived potential for a diminution of emergency
preparedness capability on the part of licensees. However, we
acknowledge that the compromise embodied in the Commission's
proposed rule change offers adequate assurance that ongoing licensee
emergency preparedness activities will continue at a reasonable
level. Because of the number of licensees and the capacity of the
State's emergency response organizations, when appropriate (this
State) will invoke the language of the proposed rule change that
requires licensees to `* * * enable any State or local government
located within the plume exposure pathway EPZ to participate in the
licensee's drills when requested by such State or local government.'
''
Issue 2. County, State, and utility emergency preparedness will
degrade under a biennial schedule. Mini-drills will not take the place
of annual
[[Page 30130]]
exercises as now constituted. Further, States have been encouraging
more Federal exercise participation by the Federal Emergency Management
Agency (FEMA) and NRC. The proposed change would cut back on the
opportunities to test current personnel and train new personnel.
Response. The Commission disagrees. The rule change does not
require ``mini-drills'' to replace annual exercises. The rule change
does require that ``the licensee shall take actions necessary to ensure
that adequate emergency response capabilities are maintained * * * by
conducting drills, including at least one drill involving a combination
of some of the principal functional areas of the licensee's onsite
emergency response capabilities.'' (10 CFR part 50, appendix E,
IV.F.2.b.)
Additionally, the opportunity to test and train new personnel is
provided by requiring that ``Licensees shall enable any State or local
Government * * * to participate in the licensee's drills.'' (Id at
IV.F.2.e.)
Issue 3. There is a need for clarity regarding State and local
participation in the exercises and drills that are proposed to replace
the annual NRC graded exercise. At 60 FR 19002; dated April 14, 1995,
licensees are charged to ``enable'' States and local governments to
participate in these exercises and drills, but at 60 FR 19006,
activating all response facilities (Technical Support Center, (TSC);
Operations Support Center (OSC), and the Emergency Operations Facility
(EOF)) is not necessary. Because State and local governments coordinate
interaction through the EOF and Media Centers, clarification is
required. For example, perhaps the utility would be charged with
exercising the EOF and Media Centers as a part of at least one exercise
and/or drill each year.
Response. Based on the extensive coordination and cooperation
between licensees and State and local governments over the last 15
years, the Commission is confident that, if a State or local
governmental emergency response agency felt the need to participate in
a drill that included interaction at the EOF and Media Centers, the
licensee would accommodate the request within the framework of the
drills that the licensee conducts throughout the 2-year period between
the biennial full participation exercises.
Issue 4. Rather than eliminating any requirements, it is suggested
that each site initially be granted a waiver for ``off-year''
integrated exercises. The waiver would be effective only as long as an
acceptable level of emergency response capability is maintained.
Response. The Commission disagrees. The Commission believes that
the proposed rule would accomplish the commenter's objective without
the extensive NRC resources that implementing the commenter's
suggestion would require.
Issue 5. The Commission does not appear to have addressed the
quantitative question about expected turnover rates that would be
important in determining whether biennial exercises could substantially
reduce local team skills.
Response. Please see the response to Issue 1. Additionally, the
Commission has always been and continues to be committed to the
principle that there exists ``reasonable assurance that adequate
protective measures can and will be taken in the event of a
radiological emergency.'' If, this finding is jeopardized either at the
State or local governmental level, additional training would be
warranted and would be provided by participating in the drills the
licensee conducts between biennial exercises.
Issue 6. The Commission has not adequately addressed local
Government comments on the importance of regular exercises for
improving coordination and communication.
Response. The Commission did not receive any comments from local
governments relating to this petition for rulemaking. Nonetheless, the
Commission is confident that if a local Government wished to improve
its coordination and communication capabilities, licensees would
welcome its participation in one or more of the onsite drills that will
be conducted between the biennial exercises.
Issue 7. The Commission has not addressed the FEMA concern that
regular cooperation with offsite teams may play a critical role in
their preparedness, which may be especially important in view of the
potential role such teams may play as first responders in actual
emergencies.
Response. Prior to publishing the proposed rule, the Commission
received FEMA's assurance that their concerns with the petition for
rulemaking had been resolved. Nonetheless, regular cooperation between
offsite and licensee emergency response teams will be ensured by the
requirement that licensees enable any state or local Government within
the plume exposure pathway emergency planning zone to participate in
the licensee's drills upon request.
Issues Raised by Petitioner
The petitioner characterizes the present requirement as one that is
resource intensive but of marginal importance to safety. The petitioner
has identified grounds for change for a number of issues associated
with the current requirement to conduct an emergency plan exercise
annually. The issues presented by the petitioner follow:
(1) The requirement to conduct an integrated annual exercise is not
clearly defined. Therefore, the regulation should be clarified.
(2) The existing regulation, 10 CFR part 50, appendix E, is
inconsistent with other regulations that govern the frequency of
offsite response organization integrated exercises (i.e., 44 CFR part
350).
(3) The performance of offsite response organizations during
biennial exercises has confirmed that a biennial frequency is
sufficient to provide the reasonable assurance finding.
(4) The existing regulation, 10 CFR 50.54(t), provides for an
independent review of the adequacy of the program.
(5) The existing requirement to conduct an annual exercise is not
necessary to achieve the underlying purpose of the rule. A biennial
exercise is sufficient to provide an acceptable formal confirmation of
capability.
(6) Reconsideration of the requirement is warranted in light of the
completion and implementation of enhanced emergency preparedness
facilities, the current level of industry proficiency and performance,
and the increased industry sensitivity to emergency preparedness.
(7) Personnel could be utilized more effectively in their normal
professional function rather than by participating in a resource-
intensive integrated test that only serves to confirm the already
existing level of the response capability.
(8) Emergency planning resources could be utilized more effectively
to further the development and maintenance of emergency preparedness
activities.
Commission Response
The Commission believes that it is important, in light of public
comment, as well as the discussion provided in the petition, to clarify
NRC's intent (under the existing rule) that licensees need not conduct
annual exercises with scenarios that progress to severe core damage or
result in offsite releases. Historically, these scenarios were used in
both the biennial full-participation exercise of offsite emergency
plans and the annual exercise of the licensee's
[[Page 30131]]
onsite emergency plan; this is no longer necessary for the currently
required annual exercises of the licensee's onsite emergency plan.
Information Notice (IN) 87-54, ``Emergency Response Exercises,'' was
issued to clarify NRC intent in this regard and to provide detailed
guidance, specifically on the types of ``off-year'' training activities
that licensees can perform during the interval between the biennial
full participation exercises to maintain adequate EP response
capabilities and to satisfy the rule.
Some licensees have availed themselves of the flexibility afforded
by the IN 87-54 guidance to conduct realistic, interactive ``off-year''
training activities that simulate less severe events, such as a minor
fire, loss of electric power, or equipment failure, and focus on the
capability of the onsite emergency response organization to diagnose
problems and develop actions to successfully mitigate the scenario
event. However, as noted in the petition, many licensees continue to
employ severe accident scenarios in annual exercises of their onsite
emergency plans.
Accordingly, the Commission is revising Section IV.F.2.b. of 10 CFR
part 50, appendix E, to (1) reduce from annual to biennial the
frequency of exercising the licensee's onsite emergency plan (which may
be included in the biennial full participation exercise specified in
IV.F.2.c.) and (2) require licensees to conduct training drills,
including at least one drill involving a combination of some of the
principal functional areas of the licensee's onsite emergency response
capabilities. This drill would be conducted between biennial full
participation exercises to ensure that adequate emergency response
capabilities are maintained. The principal functional areas of
emergency response include activities such as management and
coordination of emergency response, accident assessment, protective
action decisionmaking, and plant system repair and corrective actions.
This approach is consistent with a comment from one State that
favored the petition for rulemaking but preferred that some guidelines
be included in appendix E requiring plant specific internal exercises
during the ``off-year'' to ensure plant personnel familiarity with
their response plans rather than the vague expectancy that this
activity will be done. Furthermore, licensees would continue to enable
State and local governments in the plume exposure pathway EPZs to
participate in drills in the interval between exercises, thus,
preserving their training opportunities.
The Commission believes that the final rule may result in the
reallocation and more effective utilization of resources in some
licensees' emergency preparedness (EP) programs as they further the
development and maintenance of emergency preparedness capabilities
during the ``off-year'' periods. However, it is not clear that these
changes will result in significant overall cost savings. The Commission
cautions specifically against expectations that the final rule will
necessarily result in significant reductions in NRC inspection activity
concerning licensees' ``off-year'' EP maintenance activities. Also,
licensees will, upon request, submit scenarios for NRC review as may be
deemed necessary by NRC in support of future inspections.
Conclusion
Having considered the arguments presented by the petitioner as well
as evaluating all public comments received, and based on a further
understanding of the issues involved gained from 14 years of experience
evaluating licensee emergency preparedness exercises, the Commission
concludes that (1) the required frequency for exercising the licensee's
onsite emergency plan should be reduced from annual to biennial, (2)
the means by which licensees are expected to train and maintain their
emergency response capabilities and readiness in the 2-year interval
between evaluated exercises should be changed to require licensees to
conduct drills, including at least one drill involving a combination of
some of the principal functional areas of the licensee's onsite
emergency response capabilities, and (3) opportunities for training of
State and local Government personnel must be preserved.
The principal functional areas of emergency response include
management and coordination of emergency response, accident assessment,
protective action decisionmaking, and plant system repair and
corrective actions.
During the specified drills, activation of all of the licensee's
emergency response facilities (Technical Support Center (TSC),
Operations Support Center (OSC); and the Emergency Operations Facility
(EOF)) would not be necessary. Licensees would have the opportunity to
consider accident management strategies, supervised instruction would
be permitted, operating staff would have the opportunity to resolve
problems (success paths) rather than have controllers intervene, and
the drills could focus on onsite training objectives.
The final rule relieves licensees from the current requirement to
conduct a full formal exercise of the licensee's onsite emergency plan
annually, and gives licensees the flexibility to choose the activities
to be conducted in the 2-year period between biennial full-
participation exercises in order to maintain their emergency response
capabilities. Greater flexibility in the training of the onsite
emergency response organization can provide significant benefits to
some licensees. For example, licensees can eliminate the practice of
developing scenarios that proceed to severe core damage, offsite
releases, or to higher emergency classification levels. Licensees will
have greater opportunity to conduct realistic emergency response
training with supervised instruction that allows the operating staff to
consider accident management strategies, diagnose problems, and be
given credit for actions that would mitigate scenario events.
This approach is also responsive to public commenters who expressed
concern about a possible decrease in licensee training and readiness in
the period between biennial exercises. Under this approach, licensees
will still be required to conduct emergency response training and
drills of the onsite emergency response organization, as well as
provide training opportunities to State and local Government personnel
during the interval between biennial exercises. The final rule
completes NRC action in response to PRM-50-58. The final rule grants
the petitioner's request that the frequency of required onsite
emergency response plan exercises be reduced from annual to biennial.
Additionally, 10 CFR 50.47(a)(1) is being revised in order to
correct a typographical error that appeared in the 1993 edition of
Title 10, Parts 0 to 50 of the Code of Federal Regulations. In the 1993
edition, the word ``protection'' was substituted for ``protective
measures'' in 10 CFR 50.47(a)(1). This action corrects this paragraph
to read as follows: ``* * * reasonable assurance that adequate
protective measures can and will be taken * * *''
Finding of No Significant Environmental Impact: Availability
The Commission has determined under the National Environmental
Policy Act of 1969, as amended, and the Commission's regulations in 10
CFR part 51, subpart A, that this rule is not a major Federal action
significantly
[[Page 30132]]
affecting the quality of the human environment and therefore, an
environmental impact statement is not required. The rule will update
and clarify the emergency planning regulations relating to exercises.
It does not involve any modification to any plant or revise the need
for or the standards for emergency plans. There is no adverse effect on
the quality of the environment. The environmental assessment and
finding of no significant impact on which this determination is based
are available for inspection at the NRC Public Document Room, 2120 L
Street, NW. (Lower Level), Washington, DC.
Paperwork Reduction Act Statement
This final rule does not contain a new or amended information
collection requirement subject to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et. seq.). Existing requirements were approved by the
Office of Management and Budget approval Number 3150-0011.
Regulatory Analysis
The Commission has prepared a regulatory analysis on this final
regulation. The analysis examines the costs and benefits of the
alternatives considered by the Commission. The analysis is available
for inspection in the NRC Public Document Room, 2120 L Street, NW.
(Lower Level), Washington, DC. Single copies of the analysis may be
obtained from Michael T. Jamgochian, Office of Nuclear Regulatory
Research, U.S. Nuclear Regulatory Commission, Washington, DC 20555-
0001; Telephone: (301) 415-6534.
Regulatory Flexibility Act Certification
The final rule does not have a significant impact on a substantial
number of small entities. The final rule updates and clarifies the
emergency planning regulations relating to exercises at nuclear power
plants. Nuclear power plant licensees do not fall within the definition
of small business in Section 3 of the Small Business Act (15 U.S.C.
632), the Small Business Size Standards of the Small Business
Administration in 13 CFR part 121, or the Commission's Size Standards
published at 56 FR 56671 (November 6, 1991). As required by the
Regulatory Flexibility Act of 1980, 5 U.S.C. 605(b), the Commission
hereby certifies that the final rule will not have a significant
economic impact on a substantial number of small entities. Therefore, a
regulatory flexibility analysis is not required.
Backfit Analysis
The final rule clarifies the intent of the existing regulation and
facilitates greater flexibility in licensees' conduct of ``off-year''
emergency response training activities. This action does not seek to
impose any new or increased requirements in this area. The changes
permit, but do not require, licensees to change their existing
emergency plans and procedures to employ scenarios in ``off-year''
training or drills that do not go to severe core damage or result in
offsite exposures. No backfitting is intended or approved in connection
with this final rule change.
List of Subjects in 10 CFR Part 50
Antitrust, Classified information, Criminal penalties, Fire
protection, Intergovernmental relations, Nuclear power plants and
reactors, Penalty, Radiation protection, Reactor siting criteria,
reporting and record keeping requirements.
For the reasons set out in the preamble, and under the authority of
the Atomic Energy Act of 1954, as amended; the Energy Reorganization
Act of 1974, as amended; and 5 U.S.C. 553; the NRC is adopting the
following amendments to 10 CFR part 50.
PART 50--DOMESTIC LICENSING OF PRODUCTION AND UTILIZATION
FACILITIES
1. The authority citation for Part 50 continues to read as follows:
Authority: Secs. 102, 103, 104, 105, 161, 182, 183, 186, 189, 68
Stat. 936, 937, 938, 948, 953, 954, 955, 956, as amended, sec. 234,
83 Stat. 1244, as amended (42 U.S.C. 2132, 2133, 2134, 2135, 2201,
2232, 2233, 2236, 2239, 2282); secs. 201, as amended, 202, 206, 88
Stat. 1242, as amended, 1244, 1246 (42 U.S.C. 5841, 5842, 5846).
2. In Sec. 50.47, paragraph (a)(1) is revised to read as follows:
Sec. 50.47 Emergency plans.
(a)(1) Except as provided in paragraph (d) of this section, no
initial operating license for a nuclear power reactor will be issued
unless a finding is made by the NRC that there is reasonable assurance
that adequate protective measures can and will be taken in the event of
a radiological emergency. No finding under this section is necessary
for issuance of a renewed nuclear power reactor operating license.
* * * * *
3. Appendix E to part 50 is amended by revising section IV, F.
paragraphs 2.b., and e. to read as follows:
Appendix E--Emergency Planning and Preparedness for Production and
Utilization Facilities
IV. Content of Emergency Plans
F. Training
* * * * *
2. * * *
b. Each licensee at each site shall conduct an exercise of its
onsite emergency plan every 2 years. The exercise may be included in
the full participation biennial exercise required by paragraph 2.c. of
this section. In addition, the licensee shall take actions necessary to
ensure that adequate emergency response capabilities are maintained
during the interval between biennial exercises by conducting drills,
including at least one drill involving a combination of some of the
principal functional areas of the licensee's onsite emergency response
capabilities. The principal functional areas of emergency response
include activities such as management and coordination of emergency
response, accident assessment, protective action decisionmaking, and
plant system repair and corrective actions. During these drills,
activation of all of the licensee's emergency response facilities
(Technical Support Center (TSC), Operations Support Center (OSC), and
the Emergency Operations Facility (EOF)) would not be necessary,
licensees would have the opportunity to consider accident management
strategies, supervised instruction would be permitted, operating staff
would have the opportunity to resolve problems (success paths) rather
than have controllers intervene, and the drills could focus on onsite
training objectives.
* * * * *
e. Licensees shall enable any State or local Government located
within the plume exposure pathway EPZ to participate in the
licensee's drills when requested by such State or local Government.
* * * * *
Dated at Rockville, MD., this 10th day of June, 1996.
For the Nuclear Regulatory Commission.
John C. Hoyle,
Secretary of the Commission.
[FR Doc. 96-15155 Filed 6-13-96; 8:45 am]
BILLING CODE 7590-01-P
Complete official Federal Register PDF
FR Doc. 96-15153 Valuation of Plan Benefits in Single-Employer Plans; Valuation of Plan Benefits and Plan Assets Following Mass Withdrawal; Amendments Adopting Additional PBGC Rates
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30160-30162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15153]
=======================================================================
-----------------------------------------------------------------------
PENSION BENEFIT GUARANTY CORPORATION
29 CFR Parts 2619 and 2676
Valuation of Plan Benefits in Single-Employer Plans; Valuation of
Plan Benefits and Plan Assets Following Mass Withdrawal; Amendments
Adopting Additional PBGC Rates
AGENCY: Pension Benefit Guaranty Corporation.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule amends the Pension Benefit Guaranty
Corporation's regulations on Valuation of Plan Benefits in Single-
Employer Plans and Valuation of Plan Benefits and Plan Assets Following
Mass Withdrawal. The former regulation contains the interest
assumptions that the PBGC uses to value benefits under terminating
single-employer plans. The latter regulation contains the interest
assumptions for valuations of multiemployer plans that have undergone
mass withdrawal. The amendments set out in this final rule adopt the
interest assumptions applicable to single-employer plans with
termination dates in July 1996, and to multiemployer plans with
valuation dates in July 1996. The effect of these amendments is to
advise the public of the adoption of these assumptions.
EFFECTIVE DATE: July 1, 1996.
FOR FURTHER INFORMATION CONTACT: Harold J. Ashner, Assistant General
Counsel, Office of the General Counsel, Pension Benefit Guaranty
Corporation, 1200 K Street, NW., Washington, DC 20005, 202-326-4024
(202-326-4179 for TTY and TDD).
SUPPLEMENTARY INFORMATION: This rule adopts the July 1996 interest
assumptions to be used under the Pension Benefit Guaranty Corporation's
regulations on Valuation of Plan Benefits in Single-Employer Plans (29
CFR part 2619, the ``single-employer regulation'') and Valuation of
Plan Benefits and Plan Assets Following Mass Withdrawal (29 CFR part
2676, the ``multiemployer regulation'').
Part 2619 sets forth the methods for valuing plan benefits of
terminating single-employer plans covered under title IV of the
Employee Retirement Income Security Act of 1974, as amended. Under
ERISA section 4041(c), all single-employer plans wishing to terminate
in a distress termination must value guaranteed benefits and ``benefit
liabilities,'' i.e., all benefits provided under the plan as of the
plan termination date, using the formulas set forth in part 2619,
subpart C. (Plans terminating in a standard termination may, for
purposes of the Standard Termination Notice filed with PBGC, use these
formulas to value benefit liabilities, although this is not required.)
In addition, when the PBGC terminates an underfunded plan involuntarily
pursuant to ERISA section 4042(a), it uses the subpart C formulas to
determine the amount of the plan's underfunding. Part 2676 prescribes
rules for valuing benefits and certain assets of multiemployer plans
under sections 4219(c)(1)(D) and 4281(b) of ERISA.
Appendix B to part 2619 sets forth the interest rates and factors
under the single-employer regulation. Appendix B to part 2676 sets
forth the interest rates and factors under the multiemployer
regulation. Because these rates and factors are intended to reflect
current conditions in the financial and annuity markets, it is
necessary to update the rates and factors periodically.
The PBGC issues two sets of interest rates and factors, one set to
be used for the valuation of benefits to be paid as annuities and one
set for the valuation of benefits to be paid as lump sums. The same
assumptions apply to terminating single-employer plans and to
multiemployer plans that have undergone a mass withdrawal. This
amendment adds to appendix B to parts 2619 and 2676 sets of interest
rates and factors for valuing benefits in single-employer plans that
have termination dates during July 1996 and multiemployer plans that
have undergone mass withdrawal and have valuation dates during July
1996.
For annuity benefits, the interest rates will be 6.20% for the
first 20 years following the valuation date and 4.75% thereafter. For
benefits to be paid as lump sums, the interest assumptions to be used
by the PBGC will be 5.00% for the period during which benefits are in
pay status, 4.25% during the seven-year period directly preceding the
benefit's placement in pay status, and 4.0% during any other years
preceding the benefit's placement in pay status. These annuity and lump
sum interest assumptions are unchanged from those in effect for June
1996.
Generally, the interest rates and factors under these regulations
are in effect for at least one month. However, the PBGC publishes its
interest assumptions each month regardless of whether they represent a
change from the previous month's assumptions. The assumptions normally
will be published in the Federal Register by the 15th of the preceding
month or as close to that date as circumstances permit.
The PBGC has determined that notice and public comment on these
amendments are impracticable and contrary to the public interest. This
finding is based on the need to determine and issue new interest rates
and factors promptly so that the rates and factors can reflect, as
accurately as possible, current market conditions.
Because of the need to provide immediate guidance for the valuation
of benefits in single-employer plans whose termination dates fall
during July 1996, and in multiemployer plans that have undergone mass
withdrawal and have valuation dates during July 1996, the PBGC finds
that good cause exists for making the rates and factors set forth in
this amendment effective less than 30 days after publication.
The PBGC has determined that this action is not a ``significant
regulatory action'' under the criteria set forth in Executive Order
12866.
Because no general notice of proposed rulemaking is required for
this amendment, the Regulatory Flexibility Act of 1980 does not apply.
See 5 U.S.C. 601(2).
List of Subjects
29 CFR Part 2619
Employee benefit plans, Pension insurance, and Pensions.
29 CFR Part 2676
Employee benefit plans and Pensions.
In consideration of the foregoing, parts 2619 and 2676 of chapter
XXVI, title 29, Code of Federal Regulations, are hereby amended as
follows:
PART 2619--[AMENDED]
1. The authority citation for part 2619 continues to read as
follows:
Authority: 29 U.S.C. 1301(a), 1302(b)(3), 1341, 1344, 1362.
[[Page 30161]]
2. In appendix B, Rate Set 33 is added to Table I, and a new entry
is added to Table II, as set forth below. The introductory text of both
tables is republished for the convenience of the reader and remains
unchanged.
Appendix B to Part 2619--Interest Rates Used to Value Lump Sums and
Annuities
Lump Sum Valuations
In determining the value of interest factors of the form
v0:n (as defined in Sec. 2619.49(b)(1)) for purposes of
applying the formulas set forth in Sec. 2619.49 (b) through (i) and
in determining the value of any interest factor used in valuing
benefits under this subpart to be paid as lump sums (including the
return of accumulated employee contributions upon death), the PBGC
shall employ the values of it set out in Table I hereof as
follows:
(1) For benefits for which the participant or beneficiary is
entitled to be in pay status on the valuation date, the immediate
annuity rate shall apply.
(2) For benefits for which the deferral period is y years (y is
an integer and 0 < y n1), interest rate i1
shall apply from the valuation date for a period of y years;
thereafter the immediate annuity rate shall apply.
(3) For benefits for which the deferral period is y years (y is
an integer and n1 < y n1 + n2), interest
rate i2 shall apply from the valuation date for a period of y -
n1 years, interest rate i1 shall apply for the following
n1 years; thereafter the immediate annuity rate shall apply.
(4) For benefits for which the deferral period is y years (y is
an integer and y > n1 + n2), interest rate i3 shall
apply from the valuation date for a period of y - n1 - n2
years, interest rate i2 shall apply for the following n2
years, interest rate i1 shall apply for the following n1
years; thereafter the immediate annuity rate shall apply.
Table I
[Lump Sum Valuations]
--------------------------------------------------------------------------------------------------------------------------------------------------------
For plans with a valuation date Immediate Deferred annuities (percent)
Rate set ---------------------------------- annuity rate ------------------------------------------------------------------------------------
On or after Before (percent) i1 i2 i3 n1 n2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* * * * * * *
33.............. 07-1-96 08-1-96 5.00 4.25 4.00 4.00 7 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annuity Valuations
In determining the value of interest factors of the form
v0:n (as defined in Sec. 2619.49(b)(1)) for purposes of
applying the formulas set forth in Sec. 2619.49 (b) through (i) and
in determining the value of any interest factor used in valuing
annuity benefits under this subpart, the plan administrator shall
use the values of it prescribed in Table II hereof.
The following table tabulates, for each calendar month of
valuation ending after the effective date of this part, the interest
rates (denoted by i1, i2, * * *, and referred to generally
as it) assumed to be in effect between specified anniversaries
of a valuation date that occurs within that calendar month; those
anniversaries are specified in the columns adjacent to the rates.
The last listed rate is assumed to be in effect after the last
listed anniversary date.
Table II
[Annuity Valuations]
----------------------------------------------------------------------------------------------------------------
The values of it are:
For valuation dates occurring ----------------------------------------------------------------------------------
in the month-- it for t = it for t = it for t =
----------------------------------------------------------------------------------------------------------------
* * * * * *
*
July 1996.................... .0620 1-20 .0475 >20 N/A N/A
----------------------------------------------------------------------------------------------------------------
PART 2676--[AMENDED]
3. The authority citation for part 2676 continues to read as
follows:
Authority: 29 U.S.C. 1302(b)(3), 1399(c)(1)(D), 1441(b)(1).
4. In appendix B, Rate Set 33 is added to Table I, and a new entry
is added to Table II, as set forth below. The introductory text of both
tables is republished for the convenience of the reader and remains
unchanged.
Appendix B to Part 2676--Interest Rates Used to Value Lump Sums and
Annuities
Lump Sum Valuations
In determining the value of interest factors of the form
v0:n (as defined in Sec. 2676.13(b)(1)) for purposes of
applying the formulas set forth in Sec. 2676.13(b) through (i) and
in determining the value of any interest factor used in valuing
benefits under this subpart to be paid as lump sums, the PBGC shall
use the values of it prescribed in Table I hereof. The interest
rates set forth in Table I shall be used by the PBGC to calculate
benefits payable as lump sum benefits as follows:
(1) For benefits for which the participant or beneficiary is
entitled to be in pay status on the valuation date, the immediate
annuity rate shall apply.
(2) For benefits for which the deferral period is y years (y is
an integer and 0 < y n1), interest rate i1
shall apply from the valuation date for a period of y years;
thereafter the immediate annuity rate shall apply.
(3) For benefits for which the deferral period is y years (y is
an integer and n1 < y n1 + n2), interest
rate i2 shall apply from the valuation date for a period of y -
n1 years, interest rate i1 shall apply for the following
n1 years; thereafter the immediate annuity rate shall apply.
(4) For benefits for which the deferral period is y years (y is
an integer and y > n1 + n2), interest rate i3 shall
apply from the valuation date for a period of y - n1 - n2
years, interest rate i2 shall apply for the following n2
years, interest rate i1 shall apply for the following n1
years; thereafter the immediate annuity rate shall apply.
[[Page 30162]]
Table I
[Lump Sum Valuations]
--------------------------------------------------------------------------------------------------------------------------------------------------------
For plans with a valuation date Immediate Deferred annuities (percent)
Rate set ---------------------------------- annuity rate ------------------------------------------------------------------------------------
On or after Before (percent) i1 i2 i3 n1 n2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* * * * * * *
33.............. 07-1-96 08-1-96 5.00 4.25 4.00 4.00 7 8
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annuity Valuations
In determining the value of interest factors of the form
v0:n (as defined in Sec. 2676.13(b)(1)) for purposes of
applying the formulas set forth in Sec. 2676.13(b) through (i) and
in determining the value of any interest factor used in valuing
annuity benefits under this subpart, the plan administrator shall
use the values of it prescribed in the table below.
The following table tabulates, for each calendar month of
valuation ending after the effective date of this part, the interest
rates (denoted by i1, i2, * * * , and referred to
generally as it) assumed to be in effect between specified
anniversaries of a valuation date that occurs within that calendar
month; those anniversaries are specified in the columns adjacent to
the rates. The last listed rate is assumed to be in effect after the
last listed anniversary date.
Table II
[Annuity Valuations]
----------------------------------------------------------------------------------------------------------------
The values of it are:
For valuation dates occurring ----------------------------------------------------------------------------------
in the month-- it for t = it for t = it for t =
----------------------------------------------------------------------------------------------------------------
* * * * * *
*
July 1996.................... .0620 1-20 .0475 >20 N/A........... N/A
----------------------------------------------------------------------------------------------------------------
Issued in Washington, DC, on this 11th day of June 1996.
Martin Slate,
Executive Director, Pension Benefit Guaranty Corporation
[FR Doc. 96-15153 Filed 6-13-96; 8:45 am]
BILLING CODE 7708-01-P
Complete official Federal Register PDF
FR Doc. 96-15115 Atlantic Tuna Fisheries; Annual Quotas and Effort Controls
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30183-30187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15115]
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
50 CFR Part 285
[Docket No. 960416112-6164-02; I.D. 030896D]
RIN 0648-AI29
Atlantic Tuna Fisheries; Annual Quotas and Effort Controls
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: NMFS amends the regulations governing the Atlantic tuna
fisheries to: Set Atlantic bluefin tuna (ABT) fishing category quotas
for the 1996 fishing year, revise allocations to monthly quota periods
and establish the effort control schedule in the ABT General category,
allow the partial transfer of quotas among Purse Seine category permit
holders and amend landing requirements, and increase minimum sizes for
Atlantic yellowfin and bigeye tunas. The regulatory amendments are
necessary to implement the 1994 recommendation of the International
Commission for the Conservation of Atlantic Tunas (ICCAT) regarding
fishing quotas for bluefin tuna, as required by the Atlantic Tunas
Convention Act (ATCA), and to achieve domestic management objectives.
EFFECTIVE DATE: The rule is effective June 18, 1996.
ADDRESSES: Copies of supporting documents, including an Environmental
Assessment Regulatory Impact Review (EA/RIR), are available from,
William Hogarth, Acting Chief, Highly Migratory Species Management
Division, Office of Fisheries Conservation and Management (F/CM), NMFS,
1315 East-West Highway, Silver Spring, MD 20910-3282.
FOR FURTHER INFORMATION CONTACT: William Hogarth, 301-713-2347.
SUPPLEMENTARY INFORMATION: The Atlantic tuna fisheries are managed
under regulations at 50 CFR part 285 issued under the authority of
ATCA. ATCA authorizes the Secretary of Commerce (Secretary) to
implement regulations as may be necessary to carry out the
recommendations of ICCAT. The authority to implement ICCAT
recommendations has been delegated from the Secretary to the Assistant
Administrator for Fisheries, NOAA (AA).
Background information about the need for revisions to Atlantic
tunas fishery regulations was provided in the proposed rule (61 FR
18366, April 25, 1996) and is not repeated here. These regulatory
changes will improve NMFS' ability to implement the ICCAT
recommendations and further the management objectives for the Atlantic
tuna fisheries:
Fishing Category Quotas
The ABT fishing category quotas for the 1996 fishing year are as
follows: General category--541 mt; Harpoon Boat category--53 mt; Purse
Seine category--251 mt; Angling category--243 mt; Incidental category--
110 mt; and Reserve--108 mt.
The Angling category quota is subdivided as follows: No more than 5
mt may be large medium or giant ABT; no more than 138 mt may be school
ABT; and the quota for school ABT is further subdivided as 65 mt for
the southern area and 73 mt for the northern area.
The Incidental category quota is subdivided as follows: 109 mt for
longline vessels, no more than 86 mt in the southern area; and 1 mt for
vessels taking ABT incidental to fishing with other authorized gear.
General Category Effort Controls
The General category quota is distributed as follows: 25 percent in
June-July; 35 percent in August; 30 percent in September; and 10
percent in October-December. These percentages are applied only to the
base quota of 531 mt, with the remaining 10 mt being reserved for the
New York Bight fishery in October. Thus, of the 531 mt total, 133 mt is
available in the period beginning June 1 and ending July 31; 186 mt is
available in the period beginning August 1 and ending August 31; 159 mt
is available in the period beginning September 1 and ending September
30; and 63 mt (53 mt based on 10 percent, plus 10 mt New York Bight
fishery) is available in the period beginning October 1 and ending
December 31.
Attainment of quota in any period will result in a closure until
the subsequent period, whereupon any underharvest or overharvest would
be carried over to the subsequent period to adjust the base quota for
that period. Inseason closures will be filed at the Office of the
Federal Register, stating the effective date of closure, and announced
through local media and over NOAA weather radio.
In 1995, daily closures (Sunday, Monday, and Wednesday) were
implemented to lengthen the fishing season. This rule removes Wednesday
as a restricted fishing day and includes Tuesday as a restricted
fishing day. Having three consecutive days closed will increase the
likelihood of accomplishing the objective of temporarily extending the
fishing season by facilitating enforcement of the daily closures.
Under this rule, the effective period of the effort controls is
limited to mid-July through mid-September, corresponding to the
historical period when catch rates are highest. Also, some adjustments
to the effort control schedule are made to reflect increased fishing
activity on holiday weekends and market closures in Japan. Thus,
persons aboard vessels permitted in the General category or the
Charterboat/Headboat category would not be allowed to fish for, catch,
retain or land large medium or giant ABT on designated restricted
fishing days: July 14, 15, 16, 21, 22, 23, 28, 29, and 30; August 4, 5,
6, 9, 10, 11, 12, 18, 19, 20, 25, 26, and 27; and September 3, 8, 9,
10, 15.
Purse Seine Requirements
This rule implements, for the Purse Seine category alone, a more
flexible method of allocation of the domestic U.S. quota. Individual
purse seine allocations of bluefin tuna quota are transferable, in
whole or in part, to any other purse seine vessel permitted in the
Atlantic tunas fisheries. Wholesale or partial transfers of allocation
require written notice to NMFS 3 days in
[[Page 30184]]
advance of landing any bluefin tuna transferred from another purse
seine vessel's annual allocation. In addition, purse seine vessel
operators may land ABT in dressed, rather than round, form.
Minimum Size for Yellowfin and Bigeye Tuna
NMFS increases the yellowfin and bigeye tuna minimum size limits to
27 inches (69 cm) according to the curved measurement method. This
measure will improve compliance with the ICCAT recommendation on ABT
minimum size by facilitating enforcement and reducing problems
associated with misidentification of juvenile tunas.
Comments and Responses
Quota Allocations
Comment: Many fishery participants stated the need, based on
increased participation rates and the usefulness of scientific data
obtained, to increase the allocation to the Angling and General
categories.
Response: NMFS agrees that participation in the General and Angling
categories has increased in recent years and has resulted in early
closures for these categories. Because of the reliance on the large
fish and small fish catch-per-unit-effort indices for stock assessment,
the General and Angling category fisheries should be kept open as long
as possible to achieve high survey sampling rates over the widest
possible geographic area. Also, NMFS, in response to recommendations
from the National Research Council, has increased scientific sampling,
working with outside organizations, for genetic studies,
microconstituent analysis, sexual maturity determination, tagging
studies, and age and growth studies. For these reasons, NMFS has
reallocated 42 mt from the Incidental category to the Reserve category.
A total reserve of 108 mt will allow NMFS to transfer tonnage into
other categories, as needed, to keep fisheries open for the longest
period possible to maximize scientific data collection. The criteria
for such inseason transfers are stipulated in the regulations and are
not changed by this rule.
Comment: Many fishery participants expressed concern that the
proposed transfer of 95 mt from the Reserve to the Angling category
would increase the take of small fish, thus increasing fishing
mortality in a manner inconsistent with the ICCAT rebuilding schedule
for ABT.
Response: The Final Environmental Impact Statement (FEIS) published
in July 1995 (copies available from NMFS, see ADDRESSES) as part of the
1995 final rulemaking process, included a wide variety of
``alternative'' quota allocations. These were analyzed in a bio-
economic model based on the stock assessment parameters at that time
(which may be modified with the 1996 stock assessment) as well as
economic parameters. The model is based on a 17-year time horizon, and
present value calculations for net economic benefits from the
commercial and recreational fishery. Given the difficulty in updating
the bio-economic model for examining a new alternative, the effect of
the 95-mt transfer is considered given a similar case among the
alternatives in the FEIS.
The ``Quota Allocation C'' considers the effect of a total closure
of the Purse Seine category, with the quota being allocated
proportionally to the remaining gear categories. This would result in
approximately 89 mt being transferred to the Angling category, which is
fairly close to the proposed 95-mt transfer.
Assuming a 2200-mt total quota (as adopted), stocks do recover
under Allocation C, although slower than for other allocations, due to
the relatively higher amount of quota for the small fish fishery
(Figure 4.1-B, page 137). However, mid-year biomass is less than 5
percent lower by the end of the 17-year horizon under this reallocation
than under the status quo allocation. Also, net economic benefits fall
4 percent in the commercial fishery and rise 14 percent in the
recreational fishery under Allocation C. Since the FEIS analyzed a
permanent transfer, NMFS believes that the effect of this one-time
transfer is insignificant.
Comment: Some fishery participants expressed concern that transfers
of ABT to the Angling category would increase the likelihood of
exceeding the ICCAT quota, since landings by anglers are monitored by
survey rather than dealer reports.
Response: As proposed, the Angling category quota does not exceed
the ICCAT 8% limit for school ABT as applied on a biannual basis. The
need for adjusting the 1996 Angling category quota above the 1992 base
level has been generated in part because of the difficulty in
monitoring recreational catch on a real-time basis; the unprecedented
catches off North Carolina between January and March 1996; and the
catch limits in effect in early 1996. NMFS intends to address each of
those issues to improve the monitoring and management of this fishing
category. In the short term, changes in the survey methodology are
being implemented. In the long term, NMFS is working with industry to
develop new approaches, including use of individual tags for retained
ABT, mandatory self reporting techniques, and an examination of the
benefits of mandatory catch and release fishing for ABT from January
through June. In addition, simultaneous with this final rule, NMFS is
adjusting the daily catch limits for ABT to 1 school/large school per
angler per day and 1 small medium per vessel per day. This catch limit
is lower than that authorized in 1995 and should ensure that the
Angling category quota is not exceeded.
General Category Effort Controls
Comment: Most commenters supported the use of days off as a means
to extend the fishing season for large medium and giant ABT. Many
recommend the implementation of consecutive days off (Sunday, Monday,
and Tuesday) to facilitate enforcement and to make travel plans easier
for part-time fishermen. There were a few comments in support of
maintaining the existing days off (Sunday, Monday, and Wednesday),
because of the Japanese market schedule. Some General category
participants suggested keeping August 12 and 13 as fishing days in
order to be prepared for the re-opening of the Japanese market on
August 17. Most commenters requested that days off continue beyond the
last listed date in the proposed rule (Sept. 15).
Response: NMFS recognizes that one of the objectives of the General
category effort control schedule is to improve marketing opportunities
for the U.S. industry. However, restricted fishing days are easier to
enforce when they are consecutive, thereby increasing the likelihood
that the objectives of effort controls are realized. Recognizing the
significance of the market re-opening, NMFS has adjusted the schedule
to allow fishing on August 13, 1996. Also, given the increasing
likelihood of bad weather days after mid-September, the need for
scheduled effort controls is diminished. However, if necessary, NMFS
could make inseason adjustments to the effort control schedule.
Comment: Regarding the line defining the New York Bight area,
several people commented that a line originating at Montauk Point does
not accurately define the traditional Mud Hole fishery and encourages
New England fishermen to continue fishing after the General category
fishery is closed and land in Long Island. The line should originate at
Moriches Inlet as it did in past seasons. It was also noted, that the
proposed boundary line at Montauk point would preclude vessels from
landing ABT in Montauk Harbor, because it would be
[[Page 30185]]
necessary to leave the set-aside area in rounding Montauk Point.
Response: In 1995, NMFS addressed concerns about participation in
the Mud Hole fishery by Montauk vessels by defining the set-aside area
to originate at Shinnecock inlet, as opposed to Moriches inlet in prior
years. Due to concerns about preserving traditional participation in
the Mud Hole fishery and enforcement of the requirement to land ABT
within the set-aside area, NMFS again sets the boundary at Shinnecock
inlet.
Purse Seine Requirements
Comment: Many commenters oppose the transfer of individual quota
allocations by purse seine vessels either to other purse seine vessels
or vessels permitted in other categories.
Response: NMFS is allowing transfers only within the Purse Seine
category. Such transfers, in part or in whole, will improve marketing
conditions for purse seine vessel operators while reducing discard
rates.
Permits and Reporting
Comment: Some commenters are concerned that the category
classifications defined in 1995 have allowed too many vessels into the
General category. Redefinition is necessary to keep anglers from
keeping and selling too many large medium and giant ABT.
Response: In 1995, NMFS had proposed a strict separation of the
General and Angling category fisheries. The majority of permit holders
claimed that participation in fisheries for both large and small ABT
was essential to their commercial and recreational fishing operations.
It was further claimed that the proposed separation would result in
decreased effort and needless adverse economic impacts. NMFS received
similar comments during three limited access workshops held in recent
months. NMFS continues to accept comments on the potential impacts of
limited access on the Atlantic tuna fisheries.
Size Limits
Comment: Many anglers catch both yellowfin and bluefin. Most
commenters agree that it is difficult to differentiate juvenile
Atlantic tunas. Although 22 inches (56 cm) is the ICCAT minimum, NMFS
should reduce confusion and possible violation of ICCAT minimum size by
having a consistent yellowfin, bigeye, and bluefin tuna minimum size of
27 inches (69 cm).
Response: NMFS agrees, and this rule effects these changes.
Comment: Some people recommended that NMFS set an even higher size
limit for yellowfin and bigeye to allow fish to spawn at least once.
Response: From a biological perspective, NMFS agrees that further
increasing the minimum size could be beneficial, theoretically
increasing yield per recruit and spawning per recruit ratios. However,
more information is needed on the potential impact for both
recreational and commercial sectors, especially the effect on discard
rates and an analysis of release mortality before other minimum size
limits are proposed.
Comment: Some fishermen and NMFS enforcement agents expressed
concern that the instructions for taking a curved length measurement
were unclear and could result in different determinations of size
classes.
Response: The instructions for taking a curved length measurement
are respecified in this rule.
Other Comments
Comment: Some North Carolina commenters requested that the opening
date of the General category season be changed to January 1 to allow
retention and sale of large medium and giant ABT. Many commenters
oppose a January 1 opening date and the allocation of Angling and
Incidental quota to North Carolina at this time. Some feel that,
because the bluefin fishery is not traditional, commercial harvest
should not be allowed. If the stock recovers and if quotas increase, a
geographical quota could be considered. Some commented that because the
economic benefits derived from recreational fishing far outweigh those
of commercial fishing, the North Carolina fishery should remain as
catch-and-release only.
Response: Given the restrictive quota under the ICCAT rebuilding
schedule, NMFS first allocates available quota to traditional users.
Should quotas increase, NMFS can consider new fisheries.
Comment: Many fishermen expressed concern about the use of spotter
planes in the General category. Others suggested prohibiting the planes
from assisting vessels of all categories.
Response: The spotter plane issue will not be addressed in this
final rule. NMFS has concerns about the enforceability of spotter plane
regulations. However, NMFS will continue to monitor this situation and
will take appropriate action if necessary.
Comment: Many General category participants wrote that a 3-day
notice would be adequate for waiver of restricted fishing days or
adjustment of catch limits, especially in light of real-time reporting
mechanisms such as the NMFS Information Line and NOAA Weather Radio.
Response: NMFS concurs and, therefore, reduces the required
notification period to 3 days.
Comment: The Offshore Resource Management Corporation petitioned
NMFS to make pair trawling an authorized gear type and to establish a
swordfish bycatch limit for the pair trawl tuna fishery. Supporters of
the petition stress that the gear type is highly selective in regard to
species and size and results in low encounters with marine mammals and
protected species. Many people opposed the authorization of pair
trawling, because it would allow increased effort in an already fully-
or over-exploited fishery.
Response: NMFS is currently analyzing data collected by at-sea
observers on pair trawl vessels over the course of the 3-year
experimental fishery. NMFS will make a determination regarding the
petition for rulemaking once this analysis is complete. NMFS has also
included pair trawl representatives on the Offshore Cetaceans Take
Reduction Team as developed under the Marine Mammal Protection Act.
Comment: The Massachusetts Audubon Society (MAS) petitioned NMFS to
prohibit retention of bluefin tuna under 73 inches (185 cm) by anyone
in order to protect pre-spawning fish and therefore allow stock
recovery. MAS also requests a tag and release program for juvenile
bluefin. Many commenters wrote in support of the petition. Others
recognized the need to limit the harvest of small fish, but disagreed
with the MAS proposal. Those opposed argued the importance of the
juvenile ABT fishery to scientific monitoring and to local economies.
Response: From a biological perspective, elimination of the small
fish fishery would have the highest benefits in terms of stock
rebuilding. However, the stock is expected to rebuild anyway for all
scenarios in the ABT FEIS. From a socio-economic perspective, this
proposal is not necessarily optimal or desirable. The result would be a
shift in quota allocation and therefore an increase in commercial
revenues. However, employment associated with the recreational fishery
and expenditures in coastal communities would decline. It is not clear
that the gains in one sector would be commensurate with the losses
elsewhere.
[[Page 30186]]
Changes From the Proposed Rule
Based on consideration of comments received, and further analysis
of available data, the following changes were made to the proposed
rule: The line defining the boundary of the New York Bight set-aside
area is established at Shinnecock inlet, advance notice of inseason
adjustments is reduced to 3 days, and the method of taking a curved
measure for Atlantic tunas is respecified.
Classification
This rule is published under the authority of the ATCA, 16 U.S.C.
971 et seq. The AA has determined that the regulations contained in
this final rule are necessary to implement the recommendations of ICCAT
and are necessary for management of the Atlantic tuna fisheries.
NMFS prepared an EA for this final rule with a finding of no
significant impact on the human environment. In addition, an RIR was
prepared with a finding of no significant impact. The Assistant General
Counsel for Legislation and Regulation of the Department of Commerce
certified to the Chief Counsel for Advocacy of the Small Business
Administration that the proposed rule, if adopted, would not have a
significant economic impact on a substantial number of small entities.
For most fishing categories, quotas are proposed at levels similar to
prior years. Although the reduction in Incidental category quotas of 28
percent amounts to a significant impact on gross revenues for that
sector, the number of vessel operators affected does not exceed 5
percent of the tuna fleet. Thus, a Regulatory Flexibility Analysis was
not prepared.
This final rule has been determined to be not significant for
purposes of E.O. 12866.
NMFS has determined that there is good cause to waive partially the
30-day delay in the effective date normally required by section 553(d)
of the Administrative Procedure Act. Since this fishery is underway,
early implementation of the 1996 fishing category quotas and minimum
sizes will ensure effective implementation of the ICCAT
recommendations. Given NMFS ability to rapidly communicate these rule
changes to fishing interests through the FAX network and NOAA weather
radio, a seven day notice is deemed sufficient.
Notwithstanding any other provision of law, no person is required
to respond to nor shall a person be subject to a penalty for failure to
comply with a collection of information subject to the requirements of
the Paperwork Reduction Act (PRA) unless that collection of information
displays a currently valid Office of Management and Budget Control
Number.
Notifications of purse seine allocation transfers are not subject
to the PRA, because only a maximum of five vessels could be subject to
reporting under this requirement. Since it is impossible for 10 or more
respondents to be involved, the notifications are exempt from the PRA
clearance requirement.
List of Subjects in 50 CFR Part 285
Fisheries, Fishing, Penalties, Reporting and recordkeeping
requirements, Treaties.
Dated: June 10, 1996.
Gary Matlock,
Program Management Officer, National Marine Fisheries Service.
For the reasons set out in the preamble, 50 CFR part 285 is amended
as follows:
PART 285--ATLANTIC TUNA FISHERIES
1. The authority citation for part 285 continues to read as
follows:
Authority: 16 U.S.C. 971 et seq.
2. In Sec. 285.2, the definition of ``Curved fork length'' is
revised to read as follows:
Sec. 285.2 Definitions.
* * * * *
Curved fork length means a measurement of the length of Atlantic
tuna taken in a line tracing the contour of the body from the tip of
the upper jaw to the fork of the tail, which abuts the ventral side of
the pectoral fin and the ventral side of the caudal keel.
* * * * *
3. In Sec. 285.22, paragraphs (a)(1), (a)(3), (b), (c), (d), (e),
and the first sentence of paragraph (f) introductory text are revised
to read as follows:
Sec. 285.22 Quotas.
* * * * *
(a) General. (1) The total annual amount of large medium and giant
Atlantic bluefin tuna that may be caught, retained, possessed or landed
in the regulatory area by vessels permitted in the General category
under Sec. 285.21(b) is 541 mt, of which 133 mt are available in the
period beginning June 1 and ending July 31; 186 mt are available in the
period beginning August 1 and ending August 31; 159 mt are available in
the period beginning September 1 and ending September 30; and 63 mt are
available beginning October 1.
* * * * *
(3) When the October General category catch is projected to have
reached a total of 10 mt less than the overall October quota, the
Director will publish a notification in the Federal Register to set
aside the remaining quota for an area comprising the waters south and
west of a straight line originating at a point on the southern shore of
Long Island at 72 deg.27' W. long. (Shinnecock Inlet) and running SSE
150 deg. true. The daily catch limit for the set-aside area will be one
large medium or giant Atlantic bluefin tuna per vessel per day. Upon
the effective date of the set-aside, fishing for, retaining, or landing
large medium or giant Atlantic bluefin tuna must cease in all waters
outside of the set-aside area.
(b) Harpoon Boat. The total annual amount of large medium and giant
Atlantic bluefin tuna that may be caught, retained, possessed, or
landed in the regulatory area by vessels permitted in the Harpoon Boat
category under Sec. 285.21(b) is 53 mt.
(c) Purse Seine. The total amount of large medium and giant
Atlantic bluefin tuna that may be caught, retained, possessed, or
landed in the regulatory area by vessels permitted in the Purse Seine
category under Sec. 285.21(b) is 251 mt.
(d) Angling. The total annual amount of Atlantic bluefin tuna that
may be caught, retained, possessed, or landed in the regulatory area by
anglers is 243 mt. No more than 5 mt of this quota may be large medium
or giant bluefin tuna quota. No more than 138 mt of this quota may be
school Atlantic bluefin tuna. The quota for school Atlantic bluefin
tuna is further subdivided as follows:
(1) 65 mt of school Atlantic bluefin tuna may be caught, retained,
possessed, or landed south of 38 deg.47' N. lat.
(2) 73 mt of school Atlantic bluefin tuna may be caught, retained,
possessed, or landed north of 38 deg.47' N. lat.
(e) Incidental. The total annual amount of large medium and giant
Atlantic bluefin tuna that may be caught, retained, possessed, or
landed in the regulatory area by vessels permitted in the Incidental
Catch category under Sec. 285.21(b) is 110 mt. This quota is further
subdivided as follows:
(1) 109 mt for longline vessels. No more than 86 mt may be caught,
retained, possessed, or landed in the area south of 34 deg.00' N. lat.
(2) For vessels fishing under Sec. 285.23 (a) and (b), 1 mt may be
caught, retained, possessed, or landed in the regulatory area.
[[Page 30187]]
(f) Inseason adjustment amount. The total amount of Atlantic
bluefin tuna that will be held in reserve for inseason adjustments is
108 mt. * * *
* * * * *
4. In Sec. 285.24, paragraphs (a)(1), (a)(2), and (d)(3) are
revised to read as follows:
Sec. 285.24 Catch limits.
(a) General category. (1) From the start of each fishing year,
except on designated restricted fishing days, only one large medium or
giant Atlantic bluefin tuna may be possessed or landed per day from a
vessel for which a General category permit has been issued under
Sec. 285.21. On designated restricted fishing days, persons aboard such
vessels may not possess, retain or land any large medium or giant
Atlantic bluefin tuna. For calendar year 1996, designated restricted
fishing days are: July 14, 15, 16, 21, 22, 23, 28, 29, and 30; August
4, 5, 6, 9, 10, 11, 12, 18, 19, 20, 25, 26, and 27; and September 3, 8,
9, 10, 15.
(2) The Assistant Administrator may increase or reduce the catch
limit over a range from zero (restricted fishing days) to a maximum of
three large medium or giant Atlantic bluefin tuna per day per vessel
based on a review of dealer reports, daily landing trends, availability
of the species on the fishing grounds, and any other relevant factors,
to provide for maximum utilization of the quota. The Assistant
Administrator will publish a document in the Federal Register of any
adjustment in the allowable daily catch limit made under this
paragraph. Other than fishery closures pursuant to attainment of quotas
in any period, such notice of catch limit adjustment shall be filed at
the Office of the Federal Register at least 3 calendar days prior to
the change becoming effective.
* * * * *
(d) * * *
(3) The Assistant Administrator may increase or reduce the per
angler catch limit for any size class bluefin tuna or may change the
per angler limit to a per boat limit or a per boat limit to a per
angler limit based on a review of daily landing trends, availability of
the species on the fishing grounds, and any other relevant factors, to
provide for maximum utilization of the quota spread over the longest
possible period of time. The Assistant Administrator will publish a
document in the Federal Register of any adjustment in the allowable
daily catch limit made under this paragraph. Other than fishery
closures pursuant to attainment of quotas in any period, such notice of
catch limit adjustment shall be filed at the Office of the Federal
Register at least 3 calendar days prior to the change becoming
effective.
* * * * *
5. In Sec. 285.25, the last sentence of paragraph (c), and
paragraph (d)(2) are revised to read as follows:
Sec. 285.25 Purse seine vessel requirements.
* * * * *
(c) * * * Purse seine vessel owners must have each large medium and
giant bluefin tuna in their catch weighed, measured, and the
information recorded on the landing card required under Sec. 285.28(a)
at the time of offloading and prior to transporting said tuna from the
area of offloading.
(d) * * *
(2) The Regional Director will review applications for allocations
of Atlantic bluefin tuna on or about May 1, and will make equal
allocations of the available size classes of Atlantic bluefin tuna
among vessel owners so requesting. Such allocations are freely
transferable, in whole or in part, among purse seine vessel permit
holders. Any purse seine vessel permit holder intending to land bluefin
tuna under an allocation transferred from another purse seine vessel
permit holder must provide written notice of such intent to the
Regional Director 3 days before landing any such bluefin tuna. Such
notification must include the transfer date, amount (mt) transferred,
and the permit numbers of vessels involved in the transfer. Trip or
seasonal catch limits otherwise applicable under Sec. 285.24(c) are not
altered by transfers of bluefin tuna allocation. Purse seine vessel
permit holders who, through landing and/or transfer, have no remaining
bluefin tuna allocation may not use their permitted vessels in any
fishery in which Atlantic bluefin tuna might be caught.
* * * * *
6. In Sec. 285.26, the paragraph preceding the table is revised to
read as follows:
Sec. 285.26 Size classes.
Total curved fork length will be the sole criterion for determining
the size class of whole (head on) Atlantic bluefin tuna. For this
purpose, all measurements must be taken in a line tracing the contour
of the body from the tip of the upper jaw to the fork of the tail,
which abuts the ventral side of the pectoral fin and the ventral side
of the caudal keel. For any Atlantic bluefin tuna found with the head
removed, it is deemed, for purposes of this subpart, that the tuna,
when caught, fell into a size class in accordance with the following
formula: Total curved fork length equals pectoral fin curved fork
length multiplied by a factor of 1.35. The pectoral fin curved fork
length will be the sole criterion for determining the size class of a
beheaded Atlantic bluefin tuna. For this purpose, all measurements must
be taken in a line tracing the contour of the body from the ventral
side of the pectoral fin to the fork of the tail, which abuts the
ventral side of the caudal keel.
* * * * *
7. In Sec. 285.31, paragraph (a)(4) is revised to read as follows:
Sec. 285.31 Prohibitions.
(a) * * *
(4) Fish for, catch, possess or retain Atlantic bluefin tuna in
excess of the catch limits specified in Sec. 285.24, or to possess or
retain large medium or giant ABT on designated restricted fishing days,
except that fish may be caught and released under the provisions of
Sec. 285.27.
* * * * *
8. Section 285.52 is revised to read as follows:
Sec. 285.52 Size limits.
(a) Fishing for, catching, retaining, or possessing of Atlantic
yellowfin and bigeye tunas in the regulatory area by persons aboard
fishing vessels subject to the jurisdiction of the United States is
authorized only for yellowfin or bigeye tuna measuring 27 inches (69
cm) or more in total curved fork length.
(b) Total curved fork length is the sole criterion for determining
the size class of whole (head on) Atlantic yellowfin and bigeye tuna.
For this purpose, all measurements must be taken in a line tracing the
contour of the body from the tip of the upper jaw to the fork of the
tail, which abuts the ventral side of the pectoral fin and the ventral
side of the caudal keel.
[FR Doc. 96-15115 Filed 6-11-96; 9:47 am]
BILLING CODE 3510-22-P
Complete official Federal Register PDF
FR Doc. 96-15114 Atlantic Tuna Fisheries; Bluefin Tuna Adjustments
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30182-30183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15114]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric Administration
50 CFR Part 285
[I.D. 060596A]
Atlantic Tuna Fisheries; Bluefin Tuna Adjustments
AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA), Commerce.
ACTION: Bluefin tuna catch limit adjustment.
-----------------------------------------------------------------------
SUMMARY: NMFS takes this inseason action to reopen the Angling category
fishery for large school and small medium Atlantic Bluefin Tuna (ABT)
and to adjust daily catch limits for the Angling category fishery to
one fish per angler, which may be from the school or large school size
class, and, in addition, one fish per vessel from the small medium size
class ABT. This action is being taken to lengthen the fishing season
and ensure reasonable fishing opportunities in all geographic areas
without risking overharvest of this category.
EFFECTIVE DATE: The daily catch limit adjustment is effective June 18,
1996, through December 31, 1996.
FOR FURTHER INFORMATION CONTACT: William Hogarth, 301-713-2347.
SUPPLEMENTARY INFORMATION: Regulations implemented under the authority
of the Atlantic Tunas Convention Act (16 U.S.C. 971 et seq.) governing
the harvest of ABT by persons and vessels subject to U.S. jurisdiction
are found at 50 CFR part 285.
Implementing regulations for the Atlantic tuna fisheries at
Sec. 285.24 allow for inseason adjustments to the daily catch limits in
order to lengthen the fishing season and ensure reasonable fishing
opportunities for all geographic areas. The Assistant Administrator for
Fisheries, NOAA, may increase or reduce the per-angler catch limit for
any size class bluefin tuna or may change the per-angler limit to a
per-boat limit or a per-boat limit to a per-angler limit.
The 1996 quota of ABT allocated to the Angling category has been
adjusted to 243 metric tons (mt) by a final rule effective June 18,
1996. The portion of this recreational catch that may be taken in large
school and small medium ABT is 100 mt. As of June 5, 1996, preliminary
estimates of recreational fishery landings of ABT between 47 inches
(119 cm) and 73 inches (185 cm) total 60 mt. Due to earlier projections
on ABT catch by this fishing category, the daily catch limit for ABT
was set at one fish per vessel per day (61 FR 8223, March 4, 1996), and
subsequently, the fishery for large school and small medium ABT was
closed (61 FR 11336, March 20, 1996).
With the adjusted quota for the Angling category and the revised
catch estimates, sufficient quota remains to exercise the regulatory
authority for inseason adjustments to reopen the large school/small
medium category. In addition, the daily catch limit for ABT is adjusted
to one fish per angler, which may be from the school or large school
size class, and one small medium size class ABT may be landed per
vessel.
Fishing for, retention, possessing, or landing large medium or
giant ABT by vessels in the Angling category or Charter/Headboat
category was previously closed (61 FR 8223, March 4, 1996) to prevent
overharvest of the quota established for that category. This
[[Page 30183]]
current action has no effect on that prior closure. Recreational
anglers may continue to fish for large medium and giant ABT under the
NMFS tag-and-release program (Sec. 285.27).
Subsequent adjustments to the daily catch limit, if any, shall be
announced through publication in the Federal Register. In addition,
anglers may call the Highly Migratory Species Information Line at 301-
713-1279 for updates on quota monitoring and catch limit adjustments.
Anglers aboard Charter/Headboat and General category vessels, when
engaged in recreational fishing for school, large school, and small
medium ABT, are subject to the same rules as anglers aboard Angling
category vessels.
Classification
This action is taken under 50 CFR 285.20(b) and 50 CFR 285.22 and
is exempt from review under E.O. 12866.
Authority: 16 U.S.C. 971 et seq.
Dated: June 10, 1996.
Richard H. Schaefer,
Director, Office of Fisheries Conservation and Management, National
Marine Fisheries Service.
[FR Doc. 96-15114 Filed 6-11-96; 9:47 am]
BILLING CODE 3510-22-P
Complete official Federal Register PDF
FR Doc. 96-15070 Advisory Guidance; Offering, Accepting, and Transporting Hazardous Materials
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30444-30447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15070]
[[Page 30443]]
_______________________________________________________________________
Part VI
Department of Transportation
_______________________________________________________________________
Research and Special Programs Administration
_______________________________________________________________________
49 CFR Chapter I
Advisory Guidance; Offering, Accepting, and Transporting Hazardous
Materials; Final Rule
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Rules
and Regulations
[[Page 30444]]
DEPARTMENT OF TRANSPORTATION
Research and Special Programs Administration
49 CFR Chapter I
[Notice No. 96-10]
Advisory Guidance; Offering, Accepting, and Transporting
Hazardous Materials
AGENCY: Research and Special Programs Administration (RSPA), DOT.
ACTION: Advisory guidance.
-----------------------------------------------------------------------
SUMMARY: Preliminary findings in the investigation of a recent
passenger aircraft accident in Florida indicate a possibility that
hazardous materials carried as cargo aboard the aircraft may have
caused or contributed to the severity of the accident. This is advisory
guidance to remind persons involved in the transportation of hazardous
materials of their responsibilities to ensure that hazardous materials
are properly identified, packaged, authorized for transportation,
handled, loaded, and transported in conformance with the Hazardous
Materials Regulations.
FOR FURTHER INFORMATION CONTACT: Edward T. Mazzullo, Director, Office
of Hazardous Materials Standards, RSPA, Department of Transportation,
400 Seventh Street, S.W., Washington, DC 20590-0001, Telephone (202)
366-8553.
SUPPLEMENTARY INFORMATION:
I. General
A. Background
A May 11, 1996 aircraft accident in Florida resulted in 110
fatalities. Preliminary evidence indicates that oxygen generators
(chemical) were carried as cargo on board the aircraft and may have
caused or contributed to the severity of the accident. In an interim
final rule published on May 24, 1996 (61 FR 26418), RSPA has
temporarily prohibited the transportation of oxygen generators
(chemical) as cargo on passenger aircraft, while RSPA and the Federal
Aviation Administration (FAA) determine what further regulatory actions
may be necessary.
This accident serves to point out the risks posed by hazardous
materials in transportation. RSPA is publishing this advisory notice to
remind persons who offer, accept for transportation, or transport
hazardous materials of their responsibilities to ensure that authorized
hazardous materials are transported safely and that prohibited
hazardous materials are not offered for transportation or transported.
B. Regulation of Hazardous Materials Transportation in Commerce
The Hazardous Materials Regulations (HMR; 49 CFR Parts 171-180)
specify requirements for the safe transportation of hazardous materials
in commerce by rail car, aircraft, vessel, and motor vehicle. These
comprehensive regulations govern transportation-related activities by
offerors (e.g., shippers, brokers, forwarding agents, freight
forwarders, and warehousers); carriers (i.e., common, contract, and
private); packaging manufacturers, reconditioners, testers, and
retesters; and independent inspection agencies. The HMR apply to each
person who performs, or causes to be performed, functions related to
the transportation of hazardous materials such as determination of, and
compliance with, basic conditions for offering; filling packages;
marking and labeling packages; preparing shipping papers; handling,
loading, securing and segregating packages within a transport vehicle,
freight container or cargo hold; and transporting hazardous materials.
In general, the HMR prescribe requirements for classification,
packaging, hazard communication, incident reporting, handling and
transportation of hazardous materials. The HMR are enforced by RSPA and
DOT's modal administrations: the FAA, the Federal Highway
Administration (FHWA), the Federal Railroad Administration (FRA), and
the United States Coast Guard (USCG). Federal law provides for civil
penalties of not more than $25,000 and not less than $250 for each
violation. An individual who willfully violates a provision of the HMR
may be fined, under Title 18 U.S.C., up to $250,000, be imprisoned for
not more than 5 years, or both; a business entity may be fined up to
$500,000.
The information presented in this document highlights some of the
requirements of the HMR which can affect transportation safety, but
does not address many of the specific provisions and exceptions
contained in the HMR. This advisory notice is intended to provide
general guidance. It should not be used as a substitute for the HMR to
determine compliance.
II. Basic Requirements
A. Training
The terms ``hazmat employee'' and ``hazmat employer'' are defined
in detail in 49 CFR 171.8. Stated briefly, a hazmat employee is anyone
who directly affects hazardous materials transportation safety, and a
hazmat employer is anyone who uses employees in connection with
transporting hazardous materials in commerce, causing hazardous
materials to be transported, or manufacturing or offering packagings as
authorized for use in transportation of hazardous materials.
Before any hazmat employee performs a function subject to the HMR,
that person must be provided initial training in the performance of
that function. Also, if a new regulation is adopted, or an existing
regulation is changed that relates to a function performed by a hazmat
employee, that hazmat employee first must be instructed in those new or
revised function-specific requirements. For example, if a new
requirement is added to the shipping paper requirements, a hazmat
employee must be instructed regarding the new requirement prior to
performance of a function affected by the new or revised rule. As an
interim measure, a hazmat employee may perform a required function
under the direct supervision of a properly trained and knowledgeable
hazmat employee for a period of 90 days, or until the required training
is provided, whichever comes first.
Each hazmat employee must be initially trained, and periodically
retrained at least every three years (previously two years; see final
rule under Docket HM-222B; 61 FR 27166, May 30, 1996) in three areas:
General awareness/ familiarization training designed to provide
familiarity with requirements of the HMR and to enable the employee to
recognize and identify hazardous materials; function-specific training
concerning requirements of the HMR which are specifically applicable to
the functions the employee performs; and safety training concerning
emergency response information, measures to protect the employee from
the hazards posed by materials, and methods and procedures for avoiding
accidents.
Hazmat employers are responsible for training. Each hazmat employee
must be trained and tested, and the employer must keep a record of
training to include certification of training and testing, date of
training, a description of the training material, and the name and
address of the person providing the training.
RSPA stresses the importance of hazmat employer compliance with the
hazmat employee training requirement. Effective training of hazmat
employees reduces the potential for incidents and accidents and is
essential for the protection of people (employees,
[[Page 30445]]
passengers, emergency response personnel, and the general public),
property, and the environment.
See Subpart H (Training) of Part 172 for detailed requirements.
B. Classification and Identification of Hazardous Materials.
The HMR set forth the procedures and criteria for determining the
hazard class (see Sec. 173.2) and the proper shipping name (see
Sec. 172.101) for hazardous materials. Some materials are so hazardous
that they are specifically designated as ``forbidden'' in the Hazardous
Materials Table in Sec. 172.101 (the Table) and may not be offered for
transportation or transported in commerce. Some require special review
and approval. Others are designated as ``forbidden'' from
transportation by specific modes, such as air transportation. Section
173.21 extends the ``forbidden'' designation beyond those materials
listed by name in the Table to additional general categories, including
materials (other than materials classed as explosives) that will
detonate in a fire; combinations of materials that are likely to cause
a dangerous evolution of heat, create flammable or poisonous gases or
vapors, or produce corrosive materials; and packages that give off a
flammable gas or vapor likely to create a flammable mixture with air in
a transport vehicle. In the May 24, 1996 interim final rule, RSPA added
a provision to Sec. 173.21 to temporarily prohibit the transportation
of oxygen generators (chemical) as cargo in passenger aircraft.
The Table lists, by name, several thousand of the most commonly
transported hazardous materials. Tens of thousands of other hazardous
materials that pose similar hazards as specifically listed materials
are addressed by generic descriptions like ``flammable liquids,
n.o.s.'' (``n.o.s.'' means not otherwise specified).
The Table is a key element and primary guide to offerors, carriers,
and enforcement personnel in determining compliance with the
regulations. For each entry, the Table specifies the proper shipping
name, hazard class or division, identification number, packing group,
required hazard warning labels, packaging authorizations, per-package
quantity limitations for passenger and cargo aircraft, and special
provisions.
C. Protective Packaging.
The packaging required for a hazardous material is the first line
of defense in ensuring that the material is not released during
transportation. An inadequately packaged hazardous material may not be
offered for transportation, accepted or transported.
Generally, the HMR specify various performance levels for
packagings for hazardous materials, based on the nature and level of
hazards posed by the specific material to be packaged therein. All
packagings must be designed to ensure that under normal conditions of
transportation there will be no release of the contents, and that the
effectiveness of the packaging will not be substantially reduced by
temperature changes. Packagings used to transport liquids by aircraft
must be able to withstand significant changes in ambient pressure. In
the case of combination packagings, the inner packagings containing a
liquid must be packed so that the closures are properly installed and
tight, are upright, and the outer packaging must be marked to show the
proper orientation. All inner packagings must be adequately secured and
cushioned within the outer packaging to prevent breakage or leakage and
to control their movement within the outer packaging under conditions
normally incident to transportation. Substances that may react
dangerously with each other may not be placed within the same package.
See Subpart B (Preparation of Hazardous Materials for
Transportation) of Part 173 for general packaging requirements.
D. Hazard Communication.
Essential elements of hazard warning information are required to be
communicated through shipping documents, package markings and labels,
placards on transport vehicles and bulk packagings, written emergency
response information, and emergency response telephone numbers to be
used in the event of an emergency involving the hazardous material.
Shipping papers can be in the form of a bill of lading, freight
bill, hazardous waste manifest, or other shipping document. At a
minimum, a properly prepared shipping paper clearly identifies a
hazardous material by its proper shipping name, hazard class or
division number, identification number, packing group (if any), and
total quantity. Additional hazard warning and handling information,
such as ``POISON'' and ``CARGO AIRCRAFT ONLY,'' must be entered on the
shipping paper. This information is intended to enhance safety by
informing hazmat employees of the presence of hazardous materials and
prompting them to ensure that required actions, such as placarding and
segregation of incompatible materials, are accomplished. This same
information is used by emergency responders in responding to incidents
and accidents involving hazardous materials.
The ``shipper's certification'' is a positive endorsement that the
offeror is required to provide when tendering a shipment of hazardous
materials to a carrier for transportation. The person signing the
certification must be trained in appropriate areas of the HMR (e.g.,
classification, description, packaging, marking, and labeling)
pertaining to the shipment.
See Subpart C (Shipping papers) of Part 172 and related sections
for detailed requirements.
Package markings and labels convey information on packages, such as
the proper shipping name, identification number, and hazard class of a
hazardous material. This information readily identifies that a package
contains a hazardous material. It is used by carriers and other persons
to ensure compliance with loading and stowage requirements designed to
prevent potentially dangerous situations that may occur with
incompatible hazardous materials, or to prevent contamination of
foodstuffs, feed, or other edible materials. Also, the information
provided by package markings and hazard warning labels can be used by
emergency responders when shipping papers are destroyed or otherwise
not immediately available. Hazardous materials markings must be
durable, in English, and unobscured by other information appearing on
the package. Hazard warning labels must conform to size and color
specifications, be placed on the package near the marked proper
shipping name, be clearly visible and be unobscured by other
information.
See Subparts D (Marking) and E (Labeling) of Part 172 and related
sections for detailed requirements.
Hazard warning placards and identification numbers are displayed on
the outside of motor vehicles, freight containers, and bulk packagings
loaded with hazardous materials. They provide a readily visible warning
that hazardous materials are present. The information they provide can
be critical to emergency responders in mitigating the impacts of a
hazardous materials incident or accident.
See Subparts D (Marking) and F (Placarding) of Part 172 and related
sections for detailed requirements.
Emergency response information and an emergency response telephone
number must be provided by the offeror and maintained by the carrier
for use in the mitigation of an accident or incident involving the
hazardous material. The offeror must provide information concerning
immediate hazards to
[[Page 30446]]
health, risks of fire or explosion, immediate precautions to be taken
in event of an accident or incident, immediate methods for handling
fires, initial methods for handling spills or leaks in the absence of
fire, and preliminary first-aid measures. Furthermore, the shipping
paper must contain the emergency response telephone number of a person
who is either knowledgeable of the hazardous material and has
comprehensive emergency response and incident mitigation information
for that material, or has immediate access to a person who possesses
such knowledge and information.
The required emergency response information provided by the offeror
must be immediately accessible to train crew personnel, drivers of
motor vehicles, flight crew members, and bridge personnel on vessels.
See Subpart G (Emergency Response Information) of Part 172 and
related sections for detailed requirements.
E. Incident Reporting and Modal-Specific Requirements.
Incident Reporting
The HMR require carriers to report incidents involving hazardous
materials. These incident reports are maintained by RSPA in its
automated Hazardous Materials Information System (HMIS) database. RSPA
uses this information to identify problems, such as inadequate or
improper packagings; operational problems occurring during loading,
unloading, or handling of packages; and inadequate blocking, bracing,
or securing of packages within transport vehicles, freight containers,
and cargo holds. When potentially serious problems are detected,
regulatory or enforcement actions may be initiated.
Each person who discovers a discrepancy relative to the shipment of
a hazardous material following its acceptance for transportation aboard
an aircraft is required to notify the nearest FAA Civil Aviation
Security Office, by telephone, as soon as practicable following
discovery. This reporting requirement (see Sec. 175.31) applies to
packages which are found to contain hazardous materials that are: other
than as described or certified on shipping papers; in quantities
exceeding authorized limits; in inside containers which are not
authorized or have improper closures; in inside containers not oriented
as shown by package markings; or with insufficient or improper
absorption materials, when required. Also, a telephonic report is
required when a package or bag is found to contain a hazardous material
subsequent to its being offered and accepted as other than a hazardous
material shipment.
See Secs. 171.15, 171.16, 175.31, 176.48 and related sections for
detailed requirements concerning the reporting of incidents,
discrepancies, and other hazardous conditions.
Stowage and Segregation
Hazard warning labels and package markings are used by carrier
personnel and other persons to ensure that hazardous materials are
properly segregated or stowed, when required. For example, the HMR
generally prohibit the loading of Class 8 (corrosive) material above or
adjacent to Division 4.1 (flammable solid) materials or Division 5.1
(oxidizing) materials. Furthermore, there are modal-specific rules,
such as quantity limitation requirements for transportation by
passenger aircraft.
See Secs. 173.21, 173.24, 173.24a, 174.81, 175.75, 175.78, 176.83,
177.848 and related sections for detailed stowage and segregation
requirements.
III. Common-Sense Reminders
The HMR are only effective when persons who engage in day-to-day
transportation-related activities make a concerted effort to ensure
their own compliance, as well as that of others from whom they may
receive shipments. The following reminders, as a minimum, are provided
for consideration to ensure that hazardous materials are recognized and
handled safely in conformance with the regulations.
A. Know Your Customer
Does your customer manufacture, ship or transport products that are
hazardous materials? If so, what kind and in what quantities?
B. Know the Packaging
Is each hazardous material packaged in an authorized packaging that
conforms to a DOT specification or United Nations standard, or other
packaging authorization of the HMR? (See Parts 172, 173, 178-180,
including Secs. 172.101, 173.24, 173.24a, and 173.27).
C. Know/Verify the Proper Hazardous Material Description
Does the shipping description used match the proper shipping name,
hazard class or division, identification number, and packing group
listed in the Hazardous Materials Table in Sec. 172.101? Is there a
conflict between the documentation and the package marking? Is there an
emergency response telephone number on the shipping paper? Does
emergency response information accompany the shipping paper? Is the
shipper's certification entered on the shipping paper, as required by
Sec. 172.204?
D. Visually Inspect Shipments
Is there damage to a package that makes it unsuitable for
transportation? Are hazardous materials warning labels clearly visible?
Is the transport vehicle, freight container, or bulk packaging properly
marked and placarded?
E. Advise Your Customer of Possible Discrepancies
Do not take independent action to correct known or suspected
deficiencies. DON'T GUESS. If you know or suspect there is a problem,
advise your customer and work together to bring the shipment into
conformance with the HMR.
F. Report Violations
RSPA operates a toll-free telephone number (800-467-4922) that may
be used to voluntarily report suspected violations of the HMR. Reported
violations that concern a single mode of transportation are forwarded
to the appropriate DOT modal administration for follow-up action.
IV. Obtaining Federal Assistance in Complying With the HMR
Numerous resources of the Department of Transportation are readily
available to assist offerors, carriers, packaging manufacturers and
other persons in understanding particular requirements of the HMR. RSPA
operates a hazardous materials information center that responds to
inquiries regarding the HMR. The information center operates during
normal business hours. After-hours callers may leave a recorded
message. Calls will be returned by the end of the next business day.
The telephone number is 800-467-4922 or, in Washington, DC, 202-366-
4488.
Modal-specific information may be obtained directly from DOT's
modal administrations (i.e., FAA, FHWA, FRA, and USCG) at their
Washington, DC headquarters or local field offices.
RSPA has a variety of training materials and compliance guides
available in limited quantities to interested persons. Information on
those publications and related materials is available via the Internet
@ hmix.dis.anl.gov (146.137.100.54) or by calling 800-467-4922, ext. 3.
[[Page 30447]]
Issued in Washington, DC on June 7, 1996.
Alan I. Roberts,
Associate Administrator for Hazardous Materials Safety.
[FR Doc. 96-15070 Filed 6-13-96; 8:45 am]
BILLING CODE 4910-60-P
Complete official Federal Register PDF
FR Doc. 96-15040 Quizalofop-P Ethyl Ester; Pesticide Tolerance and Feed Additive Regulation
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30171-30175]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15040]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 180 and 186
[PP3F4268, FAP5720/R2247; FRL-5375-6]
Quizalofop-P Ethyl Ester; Pesticide Tolerance and Feed Additive
Regulation
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This document increases the current tolerance for cotton seeds
to 0.1 part per million (ppm) for the combined residues of the
herbicide quizalofop-p-ethyl ester [ethyl (R)-2[4-((6-chloroquinoxalin-
2-yl)oxy)phenoxyl]propanoate], and its acid metabolite quizalofop-p [R-
(2-[4-((6-chloroquinoxalin-2-yl)oxy)phenoxy]) propanoic acid], and the
S enantiomers of both the ester and the acid, all expressed as
quizalofop-p-ethyl ester; establishes time limited tolerances with an
expiration date for quizalofop-p-ethyl ester in or on the raw
agricultural commodities legume vegetables (succulent or dried) group
at 0.25 ppm, foliage of legume vegetables (except soybeans) at 3.0 ppm,
sugarbeet root at 0.1 ppm, sugarbeet top at 0.5 ppm; and establishes a
time limited feed additive tolerance with an expiration date for
quizalofop-p-ethyl ester for sugarbeet molasses at 0.2 ppm. Because
there has been insufficient time since the imposition of the additional
data requirements for specific geographical representation for
sugarbeet and bean field trials to generate the necessary residue data
and additional time is necessary to further refine a revised analytical
method and complete the tolerance method validation (TMV), the Agency
is granting the tolerances for legume vegetables (succulent and dried)
group, foliage of legume vegetables (except soybeans), sugarbeet top
and sugarbeet root with a 3-year expiration date]. E.I. du Pont de
Nemours Co., requested these tolerances and feed additive regulations
in petitions submitted to the EPA pursuant to the Federal Food, Drug,
and Cosmetic Act (FFDCA).
EFFECTIVE DATE: These regulations become effective June 14, 1996.
ADDRESSES: Written objection and hearing requests, identified by the
document control number, [PP3F4268, FAP5H5720/R2247], may be submitted
to: Hearing Clerk (1900), Environmental Protection Agency, Rm. 3708,
401 M St., SW., Washington DC 20460. Fees accompanying objections shall
be labeled ``Tolerance Fees'' and forwarded to: EPA Headquarters
Accounting Branch, OPP (Tolerance Fees), P.O. Box 360277M, Pittsburgh,
PA 15251. A copy of any objections and hearing request filed with the
Hearing Clerk may also be identified by the document control number and
submitted to: Public Response and Program Resources Branch, Field
Operations Division (7506C) , Office of Pesticide Programs,
Environmental Protection Agency, 401 M St., SW., Washington, DC 20460.
In person, bring a copy of objections and hearing requests to: Rm.
1132, CM #2, 1921 Jefferson Davis Hwy., Arlington, VA 22202. A copy of
objections and hearing requests filed with the Hearing Clerk may also
be submitted electronically by sending electronic mail (e-mail) to:
[email protected].
Copies of objections and hearing requests must be submitted as an
ASCII file avoiding the use of special characters and any form of
encryption.
[[Page 30172]]
copies of objections and hearing requests will also be acceptable on
disks in Word Perfect 5.1 file format or ASCII file format. All copies
of objections and hearing requests electronic form must be identified
by the docket number [PP3F4268, FAP5H5720/R2247]. No Confidential
Business Information (CBI) should be submitted through e-mail.
Electronic copies of objections and hearing requests on this rule may
be filed online at many Federal Depository Libraries. Additional
information on electronic submission can be found below in this
document.
FOR FURTHER INFORMATION CONTACT: By mail, Robert J. Taylor, Product
Manager (PM 25), Registration Division (7505C), Office of Pesticide
Programs, Environmental Protection Agency, 401 M St., SW., Washington,
DC 20460. Office location, telephone number, and e-mail address: Rm.
241, CM #2, 1921 Jefferson Davis Hwy., Arlington, VA 703-305-6027; e-
mail: [email protected].
SUPPLEMENTARY INFORMATION: EPA issued a notice, published in the
Federal Register August 17, 1995 (60 FR 42884) (FRL-4963-7), which
announced that the E.I. du Pont de Nemours Co., Inc., Walkers Mill
Bldg, Barley Mill Plaza, Wilmington, DE 19880, had submitted pesticide
petition (PP) 3F4268 to EPA proposing that 40 CFR part 180 be amended
by establishing a regulation to permit the combined residues of the
herbicide quizalofop-p-ethyl ester (ethyl R-2-(4-(6-chloroquinoxalin-2-
yl)oxy)phenoxy)propanoic acid) and the S enantiomers of the ester and
acid, all expressed as quizolofop-p-ethyl ester, in or on the raw
agricultural commodities legume vegetable (succulent or dried) group at
0.3 ppm, foilage of legume vegetables (except soybeans and bean hay) at
0.7 ppm; sugar beet root at 0.1 ppm; sugar beet top at 0.5 ppm and
cottonseed at 0.1 ppm. Dupont also submitted feed additive petition
(FAP) 5H5720 proposing to amend 40 CFR part 186 by establishing a
regulation to permit residues of the herbicide quizalofop-p-ethyl ester
[ethyl R-2-(4-((6-chloroquinoxalin-2-yl)oxy)phenoxy)propanoic acid, and
the senantiomers of the ester and the acid all expressed as quizalofop-
p-ethyl ester, in or on the animal feed sugar beet molasses at 0.2 ppm.
No comments or requests for referral to an advisory committee were
received in response to these notices of filing.
Subsequently, the petitioner amended these petitions by submitting
revised section Fs. Amended filing notices were published in the
Federal Register of September 13, 1995 (60 FR 47577) (FRL-4975-3),
proposing these changes.
PP 3F4268. DuPont amended this petition by proposing a regulation
to permit the combined residues of the herbicide quizalofop-p-ethyl
ester and its acid metabolite, quizalofop-p-[R-(4-((6-chloroquinoxalin-
2-yl)oxy)phenoxy)propanoic acid), and the S enantiomers of the ester
and the acid all expressed as quizalofop-p-ethyl ester in or on the
following raw agricultural commodities (RACs): cotton seed at 0.1 ppm,
legume vegetable (succulent or dried) group at 0.3 ppm; foliage of
legume vegetable (except soybeans and bean hay) at 0.7 ppm; sugar beet
root at 0.1 ppm; and sugar beet top at 0.5 ppm.
FAP 5H5720. DuPont amended this petition by proposing that 40 CFR
part 186 be amended by establishing a regulation to permit the combined
residues of the herbicide quizalofop-p-ethyl ester and its acid
metabolite quizalofop-p-(R-(2-(4-(6-chloroquinoxalin-2-
yl)oxy)phenoxy)propanoic acid and the S-enantiomers of the ester and
the acid, all expressed as quizalofop-p-ethyl ester, in or on the feed
commodity sugar beet molasses at 0.5 ppm.
The Agency received one comment opposing the tolerances stated in
the amended filing notices published September 13, 1995. The
commenter's opposition to the tolerances was based upon toxicological
concerns including the concept of ``NOEL'' (no observed effect level);
the use of animal testing to represent human reaction to potentially
toxic substances (pesticides); the indications of a link between
pesticide exposure and Parkinson's Disease (PD).
The Agency has reviewed the comment and decided to proceed with
these tolerances. The Agency, made the decision that a wide variety of
toxicological studies would serve as the basis for determining if a
pesticide could be requested and used without an reasonable risk. It is
true that animal models do not and cannot predict every human reaction
to pesticides, but the general consensus is that they offer the best
information as to what a pesticide might do to humans. Usually, the
Agency requires and reviews long-term studies in rodents and non-
rodents to determine a dose which causes no observed adverse effects.
The NOEL is divided by an uncertainty factor-often at least 100-to
arrive at doses or exposures that should not cause harmful effects on
humans. This is a long established procedure and EPA believes is
protective of public health.
The Agency understands that the testing of one pesticide does not
predict all the possible adverse interactions with other pesticides--or
for that matter other drugs or environmental pollutants. The Agency is
exploring ways of testing the interactions of pesticides having a
similar toxicity endpoint, but progress in that area is slow. The
commenter presented no evidence showing quizalofop-p-ethyl ester would
interact with other pesticides.
With reference to the indications of a link between pesticide
exposure and Parkinson's disease, the Agency is aware that many
researchers are investigating the potential reaction of pesticide
exposures to chronic neurological diseases including Parkinson`s
Disease, and additional research is need to study this important area.
Available studies in humans or animals have not yet established any
relationship between pesticide exposures and Parkinson's Disease.
During the course of the review of these petitions, the Agency
determined that the tolerances proposed for cottonseed, legume
vegetables (succulent of dried), foliage of legume vegetables (except
soybean and bean hay), and the proposed feed additive regulation for
sugarbeet molasses need revisions. The petitioner subsequently
submitted a revised section F proposing that tolerances be established
for the combined residues of the herbicide quizalofop-p-ethyl ester
[ethyl] (R)[2-[4-((6-chloroquinoxalin-2-yl)oxy)phenoxy)propanoate], and
its acid metabolite quizalofop-p [R-(2-4-((6-chloroquinoxalin-2-
yl)oxy)phenoxy)propanoic acid), and the acid, all expressed as
quizalofop-p-ethyl ester in or on the following raw agricultural
commodities: cottonseed at 0.1 ppm; legume vegetable (succulent or
dried) group at 0.25 ppm; foliage of legume vegetables (except
soybeans) at 3.0 ppm; sugar beet root at 0.1 ppm; and sugar beet top at
0.5 ppm. A revised section F was submitted for FAP 5H5720 proposing the
establishment of a feed additive tolerance for the combined residues of
the herbicide quizalofop-p-ethyl ester [ethyl] (R)-(2-[4-((6-
chloroquinoxalin-2-yl)oxy)phenoxy)propanoate], and its acid metabolite
quizalofop-p [R-(2-(4-(6-chloroquinoxalin-2-yl)oxy)phenoxy)propanoic
acid), and the S enantioners of the ester and the acid, all expressed
as quizalofop-p-ethyl ester be established on sugarbeet molasses at 0.2
ppm. The 3.0 ppm tolerance for foliage of legume vegetables was
previously proposed under PP 5F4545 on February 1, 1996 (61 FR 3696)
(FRL-4994-3). The proposed tolerance for sugarbeet molasses was
previously proposed.
[[Page 30173]]
The data submitted in the petition and other relevant material have
been evaluated. The toxicology data listed below considered in support
of this tolerance.
1. Several acute toxicology studies placing technical grade
quizalofop ethyl in toxicity Category III.
2. An 18-month carcinogenicity study with CD-1 mice fed dosages of
0, 0.3, 1.5, 12, and 48 mg/kg/day with no carcinogenic effects observed
under the conditions of the study at levels up to and including 12 mg/
kg/day and a marginal increase in the incidence of hepatocellular
tumors at 48 mg/kg/day HDT (highest dose tested) which exceeded the
maximum tolerated dose (MTD). (Please see the discussion by the HED
Carcinogenicity Peer Review Committee.)
3. A 2-year chronic toxicity/carcinogenicity study in rats fed
dosages of 0, 0.9, 3.7, and 15.5 mg/kg/day for males and 0, 1.1, 4.6,
and 18.6 mg/kg/day for females, with no carcinogenic effects observed
under the conditions of the study at levels up to and including 18.6 g/
kg/day (HDT) and a systemic NOEL of 0.9 mg/kg/day based on altered red
cell parameters and slight/minimal centrilobular enlargement of the
liver at 3.7 mg/kg/day.
4. A 1-year feeding study in dogs fed dosages of 0. 0.625, 2.5, and
10 mg/kg/day with NOEL of 10 mg/kg/day (HDT).
5. A developmental toxicity study in rats fed dosage levels of 0,
30, 100, and 300 mg/kg/day (HDT), with a maternal toxicity NOEL of 30
mg/kg/day and a developmental toxicity NOEL of greater than 300 mg/kg/
day (HDT).
6. A developmental toxicity study in rabbits fed dosage levels of
0, 7, 20, and 60 mg/kg/day with no developmental effects noted at 60
mg/kg/day (HDT), and a maternal toxicity NOEL of 20 mg/kg/day based on
decreases in food consumption and body weight gain at 60 mg/kg/day
(HDT).
7. A two-generation reproduction study in rats fed dosages of 1,
1.25, 5, and 20 mg/kg/day with a reproductive (developmental) NOEL of
1.25 mg/kg/day based on an increase in liver weight and increase in the
incidence of eosinophilic changes in the liver at 5.0 mg/kg/day and a
parental NOEL of 5.0 mg/kg/day based on decreased body weight and
premating weight gain in males at 20 mg/kg/day (HDT).
8. Mutagenicity data included gene mutation assays with E. coli and
S. typhimurium (negative); DNA damage assays with B. subtillis
(negative) and a chromosomal aberration test in Chinese hamster cells
(negative).
The Carcinogenicity Peer Review Committee (CPRC) of HED has
evaluated the rat and mouse cancer studies on quizalofop along with
other relevant short-term toxicity studies, mutagenicity studies, and
structure activity relationships. The CPRC concluded, after three
meetings and an evaluation by the OPP Science Advisory Panel, that the
classification should be a Category D (not classifiable as to human
cancer potential). No new cancer studies were required.
The first CPRC review tentatively concluded that quizalofop should
be classified as a Category B2 (probable human carcinogen). That
classification was based on liver tumors in female rats, ovarian tumors
in female mice, and liver tumors in male mice. This classification was
downgraded to a Category C (possible human carcinogen) at a second CPRC
review. The change in classification was due to a reexamination of the
liver tumors in female rats and ovarian tumors in female mice. The
first peer review had found a statistically significant positive trend
for liver carcinomas in female rats. Subsequent to this conclusion the
tumor data was reevaluated, and the reevaluation showed a reduced
number of carcinomas. Although there remained a statistically
significant positive trend for carcinomas in the study, the CPRC
concluded that the carcinomas were not biologically significant given
the few carcinomas identified (one at the mid-dose and two at the high
dose). Noting that this level of carcinomas was within historical
levels, the CPRC concluded that administration of quizalofop did not
appear to be associated with the liver carcinomas.
As to the ovarian tumors in female mice, the CPRC had first
attached importance to the fact that these tumors were statistically
significant at the high dose as compared to historical control values
although statistically significant when compared to concurrent
controls. However, review of further historical control data showed
that the level of ovarian tumors in the quizalofop study was similar to
the background rate in several other studies. Given this information
and that the quizalofop study showed no hyperplasia of the ovary, no
signs of endocrine activity related to ovarian function, and no dose
response relationship, the CPRC concluded that the ovarian tumors were
probably not compound-related.
The findings of the second CPRC review were presented to EPA's
Scientific Advisory Panel (SAP). The SAP concurred with the CPRC
conclusion that the liver tumors in female rats and the ovary tumors in
female mice showed no evidence of carcinogenicity. However, the SAP
disagreed with CPRC's classification of quizalofop as a Category C
based on the liver tumors in male mice. The SAP concluded that the
mouse liver tumors did support such a classification because the tumors
occurred at a dose above the maximum-tolerated dose (MTD) and because
they were not statistically significant if a ``p'' value of less than
.01 was used instead of a ``p'' value of less than .05. The SAP
believed that such greater statistical rigor was appropriate for
variable tumor endpoints such as male mouse liver tumors.
Following the SAP review, the CPRC changed the classification for
quizalofop to Category D. The Category D classification is based on an
approximate doubling in the incidence of male mice liver tumors between
controls and the high dose. This finding was not considered strong
enough to warrant the finding of a Category C (possible human
carcinogen) since the increase was of marginal statistical
significance, occurred at a high dose which exceeded the predicted MTD,
and occurred in a study in which the concurrent control for liver
tumors was somewhat low as compared to the historical controls, while
the high dose control group was at the upper end of previous historical
control-groups.
EPA has found the evidence on the carcinogenicity of quizalofop-p-
ethyl ester in animals to be equivocal and therefore concludes that
quizalofop-p-ethyl ester does not induce cancer in animals within the
meaning of the Delaney clause. Important to this conclusion was the
following evidence: (1) The only statistically significant tumor
response that appears compound-related was seen at a single dose in a
single sex in a single species; (2) the response was only marginally
statistically significant; (3) the response was only significant when
benign and malignant tumors were combined; (4) the tumors were in the
male mouse liver; (5) the tumors were within historical controls; and
(6) the mutagenicity studies were negative. Although in some
circumstances a finding of animal carcinogenicity could be made despite
any one, or even several, of the six factors noted, the combination of
all of these factors here cast sufficient doubt on the reproducibility
of the response in the high dose male mouse that EPA concludes the
evidence on carcinogenicity is equivocal.
Based on the NOEL of 0.9 mg/kg/bwt/day in the 2-year rat feeding
study, and using a hundred-fold uncertainty factor, the reference dose
(RFD) for quiazalofop ethyl is calculated to be 0.009 mg/kg/
[[Page 30174]]
bwt/day. The theoretical maximum residue contribution (TMRC) is
0.000218 mg/kg/bwt/day for existing tolerances for the overall U.S.
population. The current action will increase the TMRC by less than
0.000260 mg/kg/bwt/day. These tolerances and previously established
tolerances utilize a total of 5.3 percent of the RFD for the overall
U.S. populations, with all exposure coming from published uses. For
U.S. subgroup populations, non-nursing infants and children aged 1 to 6
years, the current action and previously established tolerances
utilize, respectively a total of 18.8 percent and 11.9 percent of the
RfD, assuming that residue levels are at the established tolerances and
that 100 percent of the crop is tested.
Data desirable but lacking for this chemical include additional
sugarbeet and bean residue field trials and completion of a tolerance
method validation (TMV) for a revised analytical method. The additional
residue data are needed in response to a recent change in EPA
guidelines. The Agency is granting the tolerances for legume vegetables
(succulent or dried) group, foliage of legume vegetables (except
soybeans), sugarbeet root and sugarbeet top with a 3-year expiration
date to allow the petitioner, E.I. duPont de Nemours and Company to
gather additional residue data and to further refine the analytical
method and allow the Agency to complete the TMV.
The nature of the residue in plants and livestock is adequately
understood. An adequate amount of geographically represenative crop
field reidue data were presented which show that the proposed
tolerances should not be exceeded when quizalofop-p ethyl ester is
formulated into ASSURE II and used as directed. An adequate analytical
method (high-pressure liquid chromatography using either ultraviolet or
fluorescence detection) is available for enforcement purposes in Vol.
II of the Food and Drug Administration Pesticide Analytical Method (PAM
II, Method I). There are currently no actions pending against the
registration of this chemical. Any secondary residues expected to occur
in milk, eggs, and meat, fat, and meat byproducts of cattle, goats,
hogs, horses, sheep, and poultry will be covered by existing
tolerances.
The pesticide is considered useful for the purpose for which the
regulation is sought and is capable of achieving the intended physical
or technical effect.
Based on the information cited above, the Agency has determined
that the establishment of tolerances by amending 40 CFR part 180 will
protect the public health, and the establishment of feed additive
regulations by amending 40 CFR part 186 will be safe. Therefore, EPA is
establishing the tolerances and feed additive regulation as set forth
below.
Any person adversely affected by this regulation may, within 30
days after publication of this document in the Federal Register, file
written objections with the Hearing Clerk, at the address given above,
40 CFR 178.20. A copy of the objections and/or hearing requests filed
with the Hearing Clerk should be submitted to the OPP docket for this
rulemaking. The objections submitted must specify the provisions of the
regulation deemed objectionable and the grounds for the objections. 40
CFR 178.25. Each objection must be accompanied by the fee prescribed by
40 CFR 180.33 (i). If a hearing is requested, the objections must
include a statement of the factual issue(s) on which the hearing is
requested, the requestor`s contentions on each such issue, and a
summary of any evidence relied upon by the objector. 40 CFR 178.27. A
request for a hearing will be granted if the Administrator determines
that the material submitted shows the following: There is a genuine and
substantial issue of fact; there is a reasonable possibility that
available evidence identified by the requestor would, if established,
resolve one or more issues in favor of the requestor, taking into
account uncontested claims or facts to the contrary; and resolution of
the factual issue(s) in the manner sought by the requestor would be
adequate to justify the action requested. 40 CFR 178.32.
A record has been established for this rulemaking under docket
number [PP3F4268, FAP5H5720/R2247] (including objections and hearing
requests submitted electronically as described below). A public version
of this record, including printed paper versions of electronic
comments, which does not include any information claimed as CBI, is
available for inspection from 8 a.m. to 4:30 p.m., Monday through
Friday, excluding legal holidays. The public record is located in Rm.
1132 of the Public Response and Program Resources Branch, Field
Operations Division (7506C), Office of Pesticide Programs,
Environmental Protection Agency, Crystal Mall #2, 1921 Jefferson Davis
Highway, Arlington, VA.
Written objections and hearing requests, identified by the document
control number [PP3F4268, FAP5H5720/R2247] may be submitted to the
Hearing Clerk (1900), Environmental Protection Agency, Rm. 3708, 401 M
St., SW., Washington, DC 20460. A copy of electronic objections and
hearing requests filed with the Hearing Clerk can be sent directly to
EPA at: [email protected].
A copy of electronic objections and hearing requests filed with the
Hearing Clerk must be submitted as an ASCII file avoiding the use of
special characters and any form of encryption.
The official record for this rulemaking, as well as the public
version, as described above will be kept in paper form. Accordingly,
EPA will transfer any objections and hearing requests received
electronically into printed, paper form as they are received and will
place the paper copies in the official rulemaking record which will
also include all objections and hearing requests submitted directly in
writing. The official rulemaking record is the paper record maintained
at the address in ``ADDRESSES'' at the beginning of this document.
Under Executive Order 12866 (58 FR 51735, October 4, 1993), the
Agency must determine whether the regulatory action is ``significant''
and therefore subject to review by the Office of Management and Budget
(OMB) and the requirements of the Executive Order. Under Section 3(f),
the order defines a ``significant regulatory action'' as an action that
is likely to result in a rule (1) Having an annual effect on the
economy of $100 million or more, or adversely and materially affecting
a sector of the economy, productivity, completion, jobs, the
environment, public health or safety, or State, local, or tribal
governments or communities (also referred to as ``economically
significant''); (2) creating serious inconsistency or otherwise
interfering with an action taken or planned by another agency; (3)
materially altering the budgetary impacts of entitlement, grants, user
fees, or loan programs or the rights and obligation of recipients
thereof; or (4) raising novel legal or policy issues arising out of
legal mandates, the President's priorities, or the principles set forth
in this Executive Order. Pursuant to the terms of this Executive Order,
EPA has determined that this rule is not ``significant'' and therefore
not subject to OMB review.
This action does not impose any enforceable duty, or contain any
``unfunded mandates'' as described in Title II of the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), or require prior consultation as
specified by Executive Order 12875 (58 FR 58093, October 28, 1993),
entitled Enhancing the Intergovernmental Partnership; or special
consideration as required by
[[Page 30175]]
Executive Order 12898 (59 FR 7629, February 16, 1994).
Pursuant to the requirements of the Regulatory Flexibility Act (5
U.S.C. 601-612), the Administrator has determined that regulations
establishing new tolerances or raising tolerance levels or establishing
exemptions from tolerance requirements do not have a significant
economic impact on a substantial number of small entities. A
certification statement explaining the factual basis for this
determination was published in the Federal Register of May 4, 1981 (46
FR 24950).
List of Subjects in 40 CFR Part 180
Environmental protection, Administrative practice and procedure,
Agricultural commodities, Pesticides and pests.
List of Subjects in 40 CFR Part 186
Environmental protection, Animals feeds, Pesticides and pests.
Dated: May 29, 1996.
Stephen L. Johnson,
Director, Registration Division, Office of Pesticide Programs.
Therefore, 40 CFR chapter I is amended as follows:
PART 180--[AMENDED]
1. In part 180:
a. The authority citation for part 180 continues to read as
follows:
Authority: 21 U.S.C. 346a and 371.
b. In 180.441, by revising paragraph (c) and adding paragraph (d)
to read as follows:
Sec. 180.441 Quizalofop ethyl; tolerances for residues.
* * * * *
(c) Tolerances are established for the combined residues of the
herbicide quizalofop-p ethyl ester [ethyl (R)-(2-[4-((6-
chloroquinoxalin-2-yl)oxy)phenoxy)propanoate], and its acid metabolite
quizalofop-p [R-(2-(4-((6-quinoxalin-2-yl)oxy)phenoxy)propanoic acid],
and the S enantiomers of both the ester and the acid, all expressed as
quizalofop-p-ethyl ester, in or on the following raw agricultural
commodities;
------------------------------------------------------------------------
Commodity Parts per million
------------------------------------------------------------------------
cottonseed................................ 0.1
lentils................................... 0.05
------------------------------------------------------------------------
(d) Time limited tolerances to expire on June 14, 1999 are
established for the combined residues of the herbicide quizalofop-p
ethyl ester (ethyl (R)-(2-(4-((6-chloroquinoxalin-2-
yl)oxy)phenoxy)propanoate) and it acid metabolite quizalofop-p [R-(2-
(4-((6-chloroquinoxalin-2-yl)oxy)phenoxy)propanoic acid), and the S
enantiomers of both the ester and the acid, all expressed as
quizalofop-p-ethyl ester in or on the following raw agricultural
commodities:
------------------------------------------------------------------------
Commodities Parts per million
------------------------------------------------------------------------
foliage of legume vegetables (except 3.0
soybeans).
legume vegetables (succulent or dried) 0.25
group.
sugarbeet, root........................... 0.1
sugarbeet, top............................ 0.5
------------------------------------------------------------------------
PART 186--[AMENDED]
2. In part 186:
a. The authority for part 186 continues to read as follows:
Authority: 21 U.S.C. 342, 348, and 701.
b. In 186.5250, by redesignating the existing paragraph and table
as paragraph (a) and adding paragraph (b) to read as follows:
Sec. 186.5250 Quizalofop ethyl.
* * * * *
(b) A feed additive regulation to expire (insert date 3 years from
date of publication in the Federal Register) is established to permit
the combined residues of the herbicide quizalofop-p-ethyl ester [ethyl]
(R)-2-[4-((6-chloroquinoxalin-2-yl)oxy)phenoxy)propanoate], and its
acid metabolite quizalofop-p [R-(2-(4-((6-chloroquinoxalin-2-
yl)oxy)phenoxy)propanoic acid), and the S enantiomers of the ester and
the acid, all expressed as quizalofop-p-ethyl ester in or on sugar beet
molasses at 0.2 part per million (ppm)
[FR Doc. 96-15040 Filed 6-13-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-15039 Notification Procedures for Pesticide Registration Modifications; Notification to the Secretary of Agriculture
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Page 30163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15039]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 152
[OPP-250117; FRL-5372-9]
Notification Procedures for Pesticide Registration Modifications;
Notification to the Secretary of Agriculture
AGENCY: Environmental Protection Agency (EPA).
ACTION: Notification to the Secretary of Agriculture.
-----------------------------------------------------------------------
SUMMARY: Notice is given that the Administrator of EPA has forwarded to
the Secretary of Agriculture a final regulation under section 25(a) of
the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA). The
rule amends EPA's notification and non-notification procedures for
certain registration modifications. This action is required by FIFRA
section 25(a)(2).
FOR FURTHER INFORMATION CONTACT: Jeff Kempter, Registration Division
(7505W), Office of Pesticide Programs, Environmental Protection Agency,
401 M St., SW., Washington, DC 20460. Office location, telephone
number, and e-mail address: Rm. 713, CM#2, 1921 Jefferson Davis Hwy.,
Arlington, VA 22202, Telephone: 703-305-5448, e-mail:
[email protected].
SUPPLEMENTARY INFORMATION: Section 25(a)(2) of FIFRA provides that the
Administrator shall provide the Secretary of Agriculture with a copy of
any final regulation at least 30 days before signing it for publication
in the Federal Register. If the Secretary comments in writing regarding
the final regulation within 15 days after receiving it, the
Administrator shall issue for publication in the Federal Register, with
the final regulation, the comments of the Secretary, if requested by
the Secretary, and the response of the Administrator concerning the
Secretary's comments. If the Secretary does not comment in writing
within 15 days after receiving the final regulation, the Administrator
may sign the regulation for publication in the Federal Register anytime
thereafter. As required by FIFRA section 25(a)(3), a copy of the final
regulation has been forwarded to the Committee on Agriculture of the
House of Representatives and the Committee on Agriculture, Nutrition,
and Forestry of the Senate.
List of Subjects in Part 152
Environmental protection, Administrative practice and procedure,
Pesticides and pests, Reporting and recordkeeping requirements.
Authority: 7 U.S.C. 136 et seq.
Dated: May 24, 1996.
Daniel M. Barolo,
Director, Office of Pesticide Programs.
[FR Doc. 96-15039 Filed 6-13-96; 8:45 am]
BILLING CODE 6560-50-F
Complete official Federal Register PDF
FR Doc. 96-14918 Debt Instruments With Original Issue Discount; Contingent Payments; Anti-Abuse Rule
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30133-30160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14918]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 8674]
RIN 1545-AQ86; 1545-AS35
Debt Instruments With Original Issue Discount; Contingent
Payments; Anti-Abuse Rule
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations relating to the tax
treatment of debt instruments that provide for one or more contingent
payments. This document also contains final regulations that treat a
debt instrument and a related hedge as an integrated transaction. In
addition, this document contains amendments to the original issue
discount regulations, and finalizes the anti-abuse rule relating to
those regulations. The final regulations in this document provide
needed guidance to holders and issuers of contingent payment debt
instruments.
DATES: Except as noted below, the regulations are effective August 13,
1996. The amendments to Sec. 1.1275-5 are effective June 14, 1996,
except for paragraphs (a)(6), (b)(2), and (c)(1), which are effective
August 13, 1996. The removal of Sec. 1.483-2T is effective June 14,
1996. The removal of Sec. 1.1275-2T is effective August 13, 1996.
For dates of applicability of these regulations, see Effective
Dates under Supplementary Information.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations (other than
Sec. 1.1275-6), William E. Blanchard, (202) 622-3950, or Jeffrey W.
Maddrey, (202) 622-3940; or concerning Sec. 1.1275-6, Michael S. Novey,
(202) 622-3900 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations
have been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1450. Responses to these collections of information
are required to determine a taxpayer's interest income or deductions on
a contingent payment debt instrument.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per respondent/recordkeeper varies from
.3 hours to .5 hours, depending on individual circumstances, with an
estimated average of .47 hours.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,
DC 20224, and to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to the collections of information must be
retained as long as their contents may become material in the
administration
[[Page 30134]]
of any internal revenue law. Generally, tax returns and tax return
information are confidential, as required by 26 U.S.C. 6103.
Background
Section 1275(d) of the Internal Revenue Code (Code) grants the
Secretary the authority to prescribe regulations under the original
issue discount (OID) provisions of the Code (sections 163(e) and 1271
through 1275), including regulations relating to debt instruments that
provide for contingent payments. On February 2, 1994, the IRS published
final OID regulations in the Federal Register (59 FR 4799). However,
the final OID regulations did not contain rules for contingent payment
debt instruments.
On December 16, 1994, the IRS published a notice of proposed
rulemaking in the Federal Register (59 FR 62884) relating to the tax
treatment of debt instruments that provide for one or more contingent
payments. The notice also contained proposed amendments to the
regulations under sections 483 (relating to unstated interest), 1001
(relating to the amount realized on a sale, exchange, or other
disposition of property), 1272 (relating to the accrual of OID), 1274
(relating to debt instruments issued for nonpublicly traded property),
and 1275(c) (relating to OID information reporting requirements), and
to Sec. 1.1275-5 (relating to variable rate debt instruments). In
addition, the notice contained proposed regulations relating to the
integration of a contingent payment or variable rate debt instrument
with a related hedge. The notice withdrew the proposed regulations
relating to contingent payment debt instruments that were previously
published in the Federal Register on April 8, 1986 (51 FR 12087), and
February 28, 1991 (56 FR 8308).
On March 16, 1995, the IRS held a public hearing on the proposed
regulations. In addition, the IRS received a number of written comments
on the proposed regulations. The proposed regulations, with certain
changes to respond to comments, are adopted as final regulations. In
addition, certain clarifying and conforming amendments are made to the
OID regulations that were published in the Federal Register on February
2, 1994. The comments and significant changes are discussed below.
Explanation of Provisions
Section 1.1275-4 Contingent Payment Debt Instruments
A. Noncontingent Bond Method
Under the noncontingent bond method in the proposed regulations, a
taxpayer computes interest accruals on a contingent payment debt
instrument by setting a payment schedule as of the issue date and
applying the OID rules to the payment schedule. The payment schedule
consists of all fixed payments on the debt instrument and a projected
amount for each contingent payment. For market-based contingencies
(i.e., contingencies for which price quotes are readily available), the
projected amount is the forward price of the contingency. For other
contingencies, the issuer first determines a reasonable yield for the
debt instrument and then sets projected amounts equal to the relative
expected payments on the contingencies so that the payment schedule
produces the reasonable yield. These rules were designed to produce a
yield similar to the yield the issuer would obtain on a fixed rate debt
instrument.
Commentators suggested that the regulations could be simplified if
they used the same basic methodology for both market-based and non-
market-based contingencies. In addition, commentators suggested that
forward price quotes would be variable or manipulable and that
taxpayers will set more appropriate payment schedules if they first
determine yield and then set the payment schedule to fit the yield.
The final regulations adopt these suggestions and generally conform
the treatment of debt instruments that provide for either market-based
or non-market-based contingent payments. Thus, for any contingent
payment debt instrument subject to the noncontingent bond method, a
taxpayer first determines the yield on the instrument and then sets the
payment schedule to fit the yield. The yield is determined by the yield
at which the issuer would issue a fixed rate debt instrument with terms
and conditions similar to the contingent payment debt instrument (the
comparable yield). Relevant terms and conditions include the level of
subordination, term, timing of payments, and general market conditions.
For example, if a hedge is available such that the issuer or holder
could integrate the debt instrument and the hedge into a synthetic
fixed-rate debt instrument under the rules of Sec. 1.1275-6, the
comparable yield is the yield that the synthetic fixed-rate debt
instrument would have. If a Sec. 1.1275-6 hedge (or the substantial
equivalent) is not available, but similar fixed rate debt instruments
of the issuer trade at a price that reflects a spread above a benchmark
rate, the comparable yield is the sum of the value of the benchmark
rate on the issue date and the spread. In all cases, the yield must be
a reasonable yield for the issuer and may not be less than the
applicable Federal rate (AFR).
Once the comparable yield is determined, the payment schedule is
set to produce the comparable yield. The final regulations retain the
general approach of the proposed regulations in determining the payment
schedule. Thus, for market-based payments, the projected payment is the
forward price of the payment. For non-market-based payments, the
projected payment is the expected amount of the payment as of the issue
date.
Commentators were concerned that a taxpayer could overstate the
yield on a contingent payment debt instrument and, therefore, claim
excess interest deductions during the term of the instrument. They were
particularly concerned about a long-term debt instrument that has non-
market-based payments because the taxpayer's determination would be
hard to verify and any excess interest deductions would not be
recaptured for a long time.
The final regulations address this concern by providing that the
comparable yield for a debt instrument is presumed to be the AFR if the
instrument provides for a non-market-based payment and is part of an
issue that is marketed or sold in substantial part to tax-exempt
investors or other investors for whom the treatment of the debt
instrument is not expected to have a substantial effect on their U.S.
tax liability. A taxpayer may overcome this presumption only with clear
and convincing evidence that the comparable yield for the debt
instrument should be a specific yield that is higher than the AFR.
Appraisals and other valuations of nonpublicly traded property cannot
be used to overcome the presumption, nor can references to general
market rates. An issuer may, for example, overcome the presumption by
showing that recently issued similar debt instruments of the issuer
trade at a price that reflects a specific yield.
One commentator suggested that the use of the term projected
payment schedule caused securities law problems because the issuer
could be seen as making representations to the holder about the
expected payments. The comparable yield and projected payment schedule
determined under these regulations are for tax purposes only and are
not assurances by the
[[Page 30135]]
issuer with respect to the payments. The final regulations retain the
term projected payment schedule, but an issuer may use a different term
to describe the payment schedule (e.g., payment schedule determined
under Sec. 1.1275-4) if the language used by the issuer is clear.
Under the proposed regulations, projected payments rather than
actual payments are used to determine the adjusted issue price of a
debt instrument, the holder's basis in a debt instrument, and the
amount of any contingent payment treated as made on the scheduled
retirement of a debt instrument. One commentator questioned the use of
projected payments to make these determinations. The approach in the
proposed regulations is appropriate, however, because a positive or
negative adjustment is used to take into account the difference between
the actual amount and the projected amount of a contingent payment.
This difference would be counted twice if the adjusted issue price, the
holder's basis, and the amount deemed paid on retirement were based on
the actual amount rather than the projected amount of a contingent
payment. Thus, the approach used in the proposed regulations is
retained in the final regulations.
B. Tax-Exempt Obligations
In response to comments, the rules contained in Sec. 1.1275-4(d)
relating to tax-exempt contingent payment obligations have been
revised. Under the proposed regulations, tax-exempt obligations are
generally subject to the noncontingent bond method, with the following
modifications: (1) The yield on which interest accruals are based may
not exceed the greater of the yield on the obligation, determined
without regard to the non-market-based contingent payments, and the
tax-exempt AFR that applies to the obligation; (2) Positive adjustments
are treated as gain from the sale or exchange of the obligation rather
than as interest; and (3) Negative adjustments reduce the amount of
tax-exempt interest, and, therefore, are generally not taken into
account as deductible losses. These modifications to the noncontingent
bond method for tax-exempt obligations were added because the IRS and
Treasury believe that when a property right is embedded in a tax-exempt
obligation it is generally inappropriate to treat payments on the right
as interest on an obligation of a state or political subdivision.
Several commentators suggested that the proposed regulations
relating to tax-exempt obligations are overly restrictive. These
commentators questioned the reason for limiting the rate of accrual to
the tax-exempt AFR and characterizing positive adjustments as taxable
gain rather than interest. They also questioned the fairness of
treating negative adjustments as nondeductible adjustments to tax-
exempt interest when positive adjustments are treated as taxable gain.
Some of the commentators suggested that, at a minimum, the interest
limitations should not apply to contingent obligations that pay
interest based on interest rate formulas that reflect the cost of funds
rather than changes in the value of embedded property rights. Finally,
commentators noted that programs involving municipal refinancings of
real estate projects (for example, low-income multi-family housing
projects) would be jeopardized by the proposed regulations because
payments on tax-exempt obligations issued to finance these projects are
in certain cases contingent in part on the revenues or appreciation in
value of the project.
The IRS and Treasury continue to believe that gain from a property
right should not be recharacterized as tax-exempt interest merely
because the property right is embedded in a tax- exempt obligation. The
IRS and Treasury nevertheless recognize that certain types of
traditional tax-exempt financings should not be subject to the interest
limitations of the proposed regulations (e.g., financings on which
interest is computed in a manner that relates to the cost of funds).
Accordingly, Sec. 1.1275-4(d) has been revised to include a category of
tax-exempt obligations that will be subject to the noncontingent bond
method without the tax-exempt interest limitations contained in the
proposed regulations. This category of tax-exempt obligations includes
(1) obligations that would qualify as variable rate debt instruments
(VRDIs) except for the failure to meet certain of the technical
requirements of the VRDI definition (such as the cap and floor
limitations, or the requirement that interest be paid or compounded at
least annually), and (2) certain obligations issued to refinance an
obligation, the proceeds of which were used to finance a project.
For other tax-exempt obligations, the interest restrictions of the
proposed regulations are adopted in final form. Section 1.1275-4(d) has
been revised, however, to provide that a negative adjustment is treated
as a taxable loss from the sale or exchange of the obligation, rather
than as a nondeductible adjustment to tax-exempt interest.
C. Prepaid Tuition Plans
A number of commentators asked whether contracts issued under
state-sponsored prepaid tuition plans are subject to Sec. 1.1275-4.
Although the terms of the contracts vary, the contracts generally are
issued pursuant to a plan created by a state to enable the participants
in the plan to save for post- secondary education for themselves or
other designated beneficiaries. In addition, the plans generally
provide protection against increases in the costs of higher education
or otherwise subsidize these costs, often by providing for contingent
payments that are linked to the future costs of post-secondary
education.
The commentators argue that Sec. 1.1275-4 does not apply to the
contracts because the contracts are not debt instruments for federal
income tax purposes. In addition, the commentators argue that, even if
the contracts are debt instruments, the noncontingent bond method would
be unduly burdensome and inappropriate for contracts of this type.
The final regulations under Sec. 1.1275-4 do not affect the
treatment of contracts issued pursuant to state-sponsored prepaid
tuition plans, whether or not the contracts are debt instruments. The
final regulations, like the proposed regulations, only apply to debt
instruments. Thus, the final regulations do not apply to contracts
issued pursuant to a plan created by a state to enable participants to
save for post-secondary education if the contracts are not debt
instruments. In addition, the final regulations provide an exception
for any debt instrument issued pursuant to a state-sponsored prepaid
tuition plan.
This exception applies to a contract issued pursuant to a plan or
arrangement if: The plan or arrangement is created by a state statute;
the plan or arrangement has a primary objective of enabling the
participants to pay for the costs of post-secondary education for
themselves or their designated beneficiaries; and the contingencies
under the contract are related to such purpose. These characteristics
are intended to describe all existing state-sponsored prepaid tuition
plans. Therefore, the final regulations do not change the tax treatment
of a contract issued pursuant to these plans. As a result, if the
contract is a debt instrument, the contingent payments on the contract
are not taken into account by an individual until the payments are
made.
The exception in the final regulations is intended to apply only to
the existing
[[Page 30136]]
state-sponsored prepaid tuition plans and to any future plans that are
substantially similar to the existing plans. In addition, no inference
is intended as to whether contracts issued by any state-sponsored
prepaid tuition plan are debt instruments.
D. Debt Instruments Subject to Section 1274
The proposed regulations provide a method for contingent payment
debt instruments not subject to the noncontingent bond method (i.e., a
nonpublicly traded debt instrument issued in a sale or exchange of
nonpublicly traded property). Under the method, a debt instrument's
noncontingent payments are treated as a separate debt instrument, which
is generally taxed under the rules for noncontingent debt instruments.
The debt instrument's contingent payments are taken into account when
made. A portion of each contingent payment is treated as principal,
based on the amount determined by discounting the payment at the AFR
from the payment date to the issue date, and the remainder is treated
as interest. Special rules are provided if a contingent payment becomes
fixed more than 6 months before it is due.
The final regulations generally adopt the method in the proposed
regulations. In addition, the final regulations contain rules for a
holder whose basis in a debt instrument is different from the
instrument's adjusted issue price (e.g., a subsequent holder).
E. Inflation-Indexed Bonds
The Treasury recently announced that it was considering issuing
bonds indexed to inflation (61 FR 25164). Depending on their ultimate
structure, the noncontingent bond method might be inappropriate for
these bonds. If the Treasury issues these bonds, the Treasury and IRS
may issue regulations to provide a simplified tax treatment for the
bonds. The treatment would require current accrual of the inflation
component.
Other Amendments to the OID Regulations
A. Alternative Payment Schedules Under Sec. 1.1272-1(c)
Section 1.1272-1(c) provides rules to determine the yield and
maturity of certain debt instruments that provide for one or more
alternative payment schedules applicable upon the occurrence of a
contingency (or contingencies), provided that the timing and amounts of
the payments that comprise each payment schedule are known as of the
issue date. Under these rules, the yield and maturity of a debt
instrument are generally determined by assuming that the payments will
be made under the payment schedule most likely to occur (based on all
the facts and circumstances as of the issue date). Special rules are
provided for unconditional options and mandatory sinking funds.
The general rules in Sec. 1.1272-1(c) produce a reasonable result
when a debt instrument has one stated payment schedule that is very
likely to occur and one or more alternative payment schedules that are
unlikely to occur. In this case, adherence to the stated payment
schedule will result in accruals on the debt instrument that reasonably
reflect the expected return on the instrument. The rules can lead to
unreasonable results, however, if a debt instrument provides for a
stated payment schedule and one or more alternative payment schedules
that differ significantly and that have a comparable likelihood of
occurring. In this case, the accruals based on the payment schedule
identified as most likely to occur could differ significantly from the
expected return on the debt instrument, which would reflect all the
payment schedules and their relative probabilities of occurrence.
Because the general rules of Sec. 1.1272-1(c) could produce
unreasonable results, these rules have been modified. Under the final
regulations, if a single payment schedule is significantly more likely
than not to occur, the yield and maturity of the debt instrument are
calculated based on that payment schedule. As a result, any other debt
instrument that provides for an alternative payment schedule (other
than because of an unconditional option or mandatory sinking fund) will
generally be subject to the rules in Sec. 1.1275-4 for contingent
payment debt instruments. The final regulations generally retain the
rules for mandatory sinking funds and unconditional options.
B. Remote and Incidental Contingencies
The proposed regulations provide that a payment subject to a remote
or incidental contingency is not considered a contingent payment for
purposes of Sec. 1.1275-4. In response to a comment, the rule relating
to remote and incidental contingencies has been broadened, through the
addition of new Sec. 1.1275-2(h), to provide that remote and incidental
contingencies are generally ignored for purposes of sections 163(e)
(other than section 163(e)(5)) and 1271 through 1275 and the
regulations thereunder. Thus, for example, if an otherwise fixed
payment debt instrument provides for an additional payment that will be
made upon the occurrence of a contingency and there is a remote
likelihood that the contingency will occur, the contingent payment is
ignored for purposes of computing OID accruals on the instrument. If
the contingency occurs, however, then, solely for purposes of sections
1272 and 1273, the debt instrument is treated as reissued. Therefore,
OID on the debt instrument is redetermined.
C. Definition of Qualified Stated Interest
The addition of the rules for remote or incidental contingencies
and the changes to the rules for alternative payment schedules allow
simplification of the definition of qualified stated interest. Under
Sec. 1.1273-1(c), as published in the Federal Register on February 2,
1994, qualified stated interest must be unconditionally payable in cash
or property at least annually at a single fixed rate. Interest is
unconditionally payable only if late payment (other than a late payment
that occurs within a reasonable grace period) or nonpayment is expected
to be penalized or reasonable remedies exist to compel payment.
This definition of unconditionally payable can be read to conflict
with the alternative payment schedule rules. For example, if a debt
instrument has two alternative payment schedules, one schedule can be
stated as the required payment schedule and the other schedule can be
stated as a penalty if the required payments are not made. The required
payments might then be treated as unconditionally payable and,
therefore, as being qualified stated interest even if they would not be
qualified stated interest if treated under the alternative payment
schedule rules. Under this treatment, if a payment is not made, the
reissuance rules of the alternative payment schedule regime do not
apply. Holders can thus argue that no OID would accrue with respect to
the debt instrument even though OID would accrue if the instrument were
treated as having an alternative payment schedule and holders fully
expect any unmade payment to be made in the future.
The remote or incidental rules in Sec. 1.1275-2(h) provide a better
mechanism for determining whether a payment is qualified stated
interest and determining the treatment if no payment is made. Thus, the
final regulations modify the definition of unconditionally payable so
that interest is unconditionally payable only if reasonable legal
remedies exist to compel payment or the debt instrument otherwise
provides terms and
[[Page 30137]]
conditions that make the likelihood of late payment (other than a late
payment that occurs within a reasonable grace period) or nonpayment
remote. If the payment is not made (other than because of insolvency,
default, or similar circumstances), the final regulations require a
deemed reissuance for OID purposes, which ensures that OID will accrue.
This approach should simplify the treatment of many debt instruments
and yet ensure that OID accrues in appropriate circumstances.
D. OID Anti-Abuse Rule
On February 2, 1994, the IRS published in the Federal Register
temporary and proposed regulations that contained an anti-abuse rule
for purposes of the OID regulations (Sec. 1.1275-2T (59 FR 4831);
Sec. 1.1275-2(g) (59 FR 4878)). Under the anti-abuse rule, the
Commissioner can apply or depart from the regulations under section
163(e) or sections 1271 through 1275 as necessary to achieve a
reasonable result if a principal purpose in structuring a debt
instrument or engaging in a transaction is to achieve a result under
the regulations that is unreasonable in light of the applicable
statutes. This rule is adopted as a final regulation with some
clarifying changes and the addition of an example to illustrate its
application to certain contingent payment debt instruments.
E. Determination of Issue Price Under Section 1274
Under the proposed regulations, the issue price of a contingent
payment debt instrument that is subject to section 1274 (i.e., a debt
instrument issued in exchange for nonpublicly traded property) is
determined without taking into account the instrument's contingent
payments. Thus, the issue price of the debt instrument (and the buyer's
initial basis in the property) is limited to an amount determined by
taking into account only the noncontingent payments. The buyer's basis
in the property, however, is increased by the amount of a contingent
payment treated as principal. This approach was adopted primarily
because it is inappropriate to allow a buyer a basis in property that
reflects anticipated contingent payments that are uncertain in amount.
In addition, this approach limits the ability of the buyer to overstate
interest deductions over the term of the debt instrument. The approach
of the proposed regulations has been adopted in the final regulations
for taxable debt instruments subject to section 1274. See Sec. 1.1274-
2(g).
It is not appropriate, however, to apply this approach to tax-
exempt contingent payment obligations subject to section 1274. Because
the present value of projected contingent payments generally is not
included in the issue price of a taxable debt instrument subject to
section 1274, the instrument is accounted for under Sec. 1.1275-4(c).
This regime is not appropriate for tax-exempt obligations because it
does not distinguish between tax-exempt interest and gain attributable
to an embedded property right. Thus, in order to permit tax-exempt
obligations to be subject to the noncontingent bond method under
Sec. 1.1275-4(b), the final regulations provide special rules to
determine the issue price of a tax-exempt contingent payment obligation
subject to section 1274.
Under these rules, the issue price of a tax-exempt contingent
payment obligation subject to section 1274 is equal to the fair market
value of the obligation on the issue date (or, in the case of an
obligation that provides for interest-based or revenue-based payments,
the greater of the obligation's fair market value or stated principal
amount). In addition, the obligation is subject to the rules of
Sec. 1.1275-4(d) (the noncontingent bond method for tax-exempt
contingent payment obligations) rather than Sec. 1.1275-4(c). However,
to ensure that the buyer's basis is the same as if the buyer had issued
a taxable debt instrument, the final regulations limit the buyer's
basis to the present value of the fixed payments.
Section 1.1275-6 Integration Rules
Commentators generally approved of the integration rules in the
proposed regulations, and those rules are adopted with only two
significant changes.
First, the final regulations allow (but do not require) the
integration of a hedge with a fixed rate debt instrument. For example,
a taxpayer may integrate a fixed rate debt instrument and a swap into a
VRDI. Although the hedging transaction regulations (Sec. 1.446-4) cover
many of these transactions, the integration rules provide more certain
treatment. The final regulations, however, do not allow the
Commissioner to integrate a hedge with either a fixed rate debt
instrument or a VRDI that provides for interest at a qualified floating
rate. In these cases, treating the hedge and the debt instrument
separately is a longstanding rule that generally clearly reflects
income.
Second, in limited circumstances, the final regulations allow a
hedge to be entered into prior to the date the taxpayer issues or
acquires the debt instrument. In these circumstances, however, the
taxpayer must identify the hedge as part of an integrated transaction
on the day the hedge is entered into by the taxpayer. Under the final
regulations, if the hedging transaction has not yet had any cash flows
(including amounts paid to enter into or purchase the hedge), the
integration rules work appropriately so that any built-in gain or loss
on the hedge at the time of integration is included over the term of
the synthetic debt instrument. Thus, the final regulations put no
restriction on the time the hedging transaction has to be entered into
in this case. If there have been cash flows on the hedge, the final
regulations require the hedge to be entered into no earlier than a date
that is substantially contemporaneous with the date on which the debt
instrument is acquired. This approach should allow commercially
reasonable transactions to be integrated without the need to create
complex rules to determine the treatment of prior cash flows on the
hedging transaction.
The rules for remote and incidental contingencies in Sec. 1.1275-
2(h) apply for purposes of the integration rules. Thus, if there is an
incidental mismatch between a Sec. 1.1275-6 hedge and a qualifying debt
instrument, a taxpayer may still integrate the hedge and the
instrument. The mismatch is dealt with according to the rules for
incidental contingencies.
The final regulations also clarify the timing of income,
deductions, gains, and losses from a hedge of a contingent payment debt
instrument not subject to integration. Under Sec. 1.446-4, the income,
deductions, gains, and losses must match the income, deductions, gains,
and losses from the debt instrument. The final regulations clarify that
gain or loss realized on a transaction that hedges a contingent payment
on a debt instrument subject to Sec. 1.1275-4(c) is taken into account
when the contingent payment is taken into account under Sec. 1.1275-
4(c). This treatment does not allow the taxpayer to change the timing
of the income, deductions, gains, and losses from the debt instrument.
Effective Dates
In general, the final regulations apply to debt instruments issued
on or after August 13, 1996. Section 1.1275-6 applies to a qualifying
debt instrument issued on or after August 13, 1996. Section 1.1275-6
also applies to a qualifying debt instrument acquired by the taxpayer
on or after August 13, 1996, if the qualifying debt instrument is a
fixed rate debt instrument or a VRDI or if the qualifying debt
instrument and the Sec. 1.1275-6 hedge are acquired by the
[[Page 30138]]
taxpayer substantially contemporaneously. Except as otherwise provided
in the regulations, the changes to Sec. 1.1275-5 apply to debt
instruments issued on or after April 4, 1994.
Debt Instruments Issued Before the Effective Date of the Final
Regulations
For a contingent payment debt instrument issued before August 13,
1996, a taxpayer may use any reasonable method to account for the debt
instrument, including a method that would have been required under the
proposed regulations when the debt instrument was issued. However,
unless Sec. 1.1275-6 applies to the debt instrument, integration is not
a reasonable method to account for the instrument.
Consent To Change Accounting Method
The Commissioner grants consent for a taxpayer to change its method
of accounting to follow the final regulations in this document. This
consent is granted, however, only for a change for the first taxable
year in which the taxpayer must account for a debt instrument under the
final regulations. The change is made on a cut-off basis (i.e., the new
method only applies to debt instruments issued on or after August 13,
1996. Therefore, no items of income or deduction are omitted or
duplicated, and no adjustment under section 481 is allowed.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
the notice of proposed rulemaking preceding these regulations was
submitted to the Small Business Administration for comment on its
impact on small business.
Drafting Information
Several persons from the Office of Chief Counsel and the Treasury
Department, including Andrew C. Kittler, formerly of the Office of the
Assistant Chief Counsel (Financial Institutions and Products),
participated in developing these regulations.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
removing the entry for Sec. 1.1275-2T and adding two entries in
numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.483-4 also issued under 26 U.S.C. 483(f). * * *
Section 1.1275-6 also issued under 26 U.S.C. 1275(d). * * *
Par. 2. Section 1.163-7 is amended by adding a sentence at the end
of paragraph (a) to read as follows:
Sec. 1.163-7 Deduction for OID on certain debt instruments.
(a) * * * To determine the amount of interest (OID) that is
deductible each year on a debt instrument that provides for contingent
payments, see Sec. 1.1275-4.
* * * * *
Par. 3. Section 1.446-4 is amended by:
1. Redesignating paragraphs (a)(2)(ii) and (a)(2)(iii) as
paragraphs (a)(2)(iii) and (a)(2)(iv), respectively.
2. Adding a new paragraph (a)(2)(ii).
3. Adding a sentence at the end of paragraph (e)(4).
The additions read as follows:
Sec. 1.446-4 Hedging transactions.
(a) * * *
(2) * * *
(ii) An integrated transaction subject to Sec. 1.1275-6;
* * * * *
(e) * * *
(4) * * * Similarly, gain or loss realized on a transaction that
hedges a contingent payment on a debt instrument subject to
Sec. 1.1275-4(c) (a contingent payment debt instrument issued for
nonpublicly traded property) is taken into account when the contingent
payment is taken into account under Sec. 1.1275-4(c).
* * * * *
Sec. 1.483-2T [Removed]
Par. 4. Section 1.483-2T is removed effective June 14, 1996.
Par. 5. Section 1.483-4 is added to read as follows:
Sec. 1.483-4 Contingent payments.
(a) In general. This section applies to a contract for the sale or
exchange of property (the overall contract) if the contract provides
for one or more contingent payments and the contract is subject to
section 483. This section applies even if the contract provides for
adequate stated interest under Sec. 1.483-2. If this section applies to
a contract, interest under the contract is generally computed and
accounted for using rules similar to those that would apply if the
contract were a debt instrument subject to Sec. 1.1275-4(c).
Consequently, all noncontingent payments under the overall contract are
treated as if made under a separate contract, and interest accruals on
this separate contract are computed under rules similar to those
contained in Sec. 1.1275-4(c)(3). Each contingent payment under the
overall contract is characterized as principal and interest under rules
similar to those contained in Sec. 1.1275-4(c)(4). However, any
interest, or amount treated as interest, on a contract subject to this
section is taken into account by a taxpayer under the taxpayer's
regular method of accounting (e.g., an accrual method or the cash
receipts and disbursements method).
(b) Examples. The following examples illustrate the provisions of
paragraph (a) of this section:
Example 1. Deferred payment sale with contingent interest--(i)
Facts. On December 31, 1996, A sells depreciable personal property
to B. As consideration for the sale, B issues to A a debt instrument
with a maturity date of December 31, 2001. The debt instrument
provides for a principal payment of $200,000 on the maturity date,
and a payment of interest on December 31 of each year, beginning in
1997, equal to a percentage of the total gross income derived from
the property in that year. However, the total interest payable on
the debt instrument over its entire term is limited to a maximum of
$50,000. Assume that on December 31, 1996, the short-term applicable
Federal rate is 4 percent, compounded annually, and the mid-term
applicable Federal rate is 5 percent, compounded annually.
(ii) Treatment of noncontingent payment as separate contract.
Each payment of interest is a contingent payment. Accordingly, under
paragraph (a) of this section, for purposes of applying section 483
to the debt instrument, the right to the noncontingent payment of
$200,000 is treated as a separate contract. The amount of unstated
interest on this separate contract is equal to $43,295, which is the
amount by which the payment ($200,000) exceeds the present value of
the payment ($156,705), calculated using the test rate of 5 percent,
compounded annually. The $200,000 payment is thus treated as
consisting of a
[[Page 30139]]
payment of interest of $43,295 and a payment of principal of
$156,705. The interest is includible in A's gross income, and
deductible by B, under their respective methods of accounting.
(iii) Treatment of contingent payments. Assume that the amount
of the contingent payment that is paid on December 31, 1997, is
$20,000. Under paragraph (a) of this section, the $20,000 payment is
treated as a payment of principal of $19,231 (the present value, as
of the date of sale, of the $20,000 payment, calculated using a test
rate equal to 4 percent, compounded annually) and a payment of
interest of $769. The $769 interest payment is includible in A's
gross income, and deductible by B, in their respective taxable years
in which the payment occurs. The amount treated as principal gives B
additional basis in the property on December 31, 1997. The remaining
contingent payments on the debt instrument are accounted for
similarly, using a test rate of 4 percent, compounded annually, for
the payments made on December 31, 1998, and December 31, 1999, and a
test rate of 5 percent, compounded annually, for the payments made
on December 31, 2000, and December 31, 2001.
Example 2. Contingent stock payout--(i) Facts. M Corporation and
N Corporation each owns one-half of the stock of O Corporation. On
December 31, 1996, pursuant to a reorganization qualifying under
section 368(a)(1)(B), M acquires the one-half interest of O held by
N in exchange for 30,000 shares of M voting stock and a non-
assignable right to receive up to 10,000 additional shares of M's
voting stock during the next 3 years, provided the net profits of O
exceed certain amounts specified in the contract. No interest is
provided for in the contract. No additional shares are received in
1997 or in 1998. In 1999, the annual earnings of O exceed the
specified amount, and, on December 31, 1999, an additional 3,000 M
voting shares are transferred to N. The fair market value of the
3,000 shares on December 31, 1999, is $300,000. Assume that on
December 31, 1996, the short-term applicable Federal rate is 4
percent, compounded annually. M and N are calendar year taxpayers.
(ii) Allocation of interest. Section 1274 does not apply to the
right to receive the additional shares because the right is not a
debt instrument for federal income tax purposes. As a result, the
transfer of the 3,000 M voting shares to N is a deferred payment
subject to section 483 and a portion of the shares is treated as
unstated interest under that section. The amount of interest
allocable to the shares is equal to the excess of $300,000 (the fair
market value of the shares on December 31, 1999) over $266,699 (the
present value of $300,000, determined by discounting the payment at
the test rate of 4 percent, compounded annually, from December 31,
1999, to December 31, 1996). As a result, the amount of interest
allocable to the payment of the shares is $33,301 ($300,000-
$266,699). Both M and N take the interest into account in 1999.
(c) Effective date. This section applies to sales and exchanges
that occur on or after August 13, 1996.
Par. 6. Section 1.1001-1 is amended by revising paragraph (g) to
read as follows:
Sec. 1.1001-1 Computation of gain or loss.
* * * * *
(g) Debt instruments issued in exchange for property--(1) In
general. If a debt instrument is issued in exchange for property, the
amount realized attributable to the debt instrument is the issue price
of the debt instrument as determined under Sec. 1.1273-2 or
Sec. 1.1274-2, whichever is applicable. If, however, the issue price of
the debt instrument is determined under section 1273(b)(4), the amount
realized attributable to the debt instrument is its stated principal
amount reduced by any unstated interest (as determined under section
483).
(2) Certain debt instruments that provide for contingent payments--
(i) In general. Paragraph (g)(1) of this section does not apply to a
debt instrument subject to either Sec. 1.483-4 or Sec. 1.1275-4(c)
(certain contingent payment debt instruments issued for nonpublicly
traded property).
(ii) Special rule to determine amount realized. If a debt
instrument subject to Sec. 1.1275-4(c) is issued in exchange for
property, and the income from the exchange is not reported under the
installment method of section 453, the amount realized attributable to
the debt instrument is the issue price of the debt instrument as
determined under Sec. 1.1274-2(g), increased by the fair market value
of the contingent payments payable on the debt instrument. If a debt
instrument subject to Sec. 1.483-4 is issued in exchange for property,
and the income from the exchange is not reported under the installment
method of section 453, the amount realized attributable to the debt
instrument is its stated principal amount, reduced by any unstated
interest (as determined under section 483), and increased by the fair
market value of the contingent payments payable on the debt instrument.
This paragraph (g)(2)(ii), however, does not apply to a debt instrument
if the fair market value of the contingent payments is not reasonably
ascertainable. Only in rare and extraordinary cases will the fair
market value of the contingent payments be treated as not reasonably
ascertainable.
(3) Coordination with section 453. If a debt instrument is issued
in exchange for property, and the income from the exchange is not
reported under the installment method of section 453, this paragraph
(g) applies rather than Sec. 15a.453-1(d)(2) to determine the
taxpayer's amount realized attributable to the debt instrument.
(4) Effective date. This paragraph (g) applies to sales or
exchanges that occur on or after August 13, 1996.
Par. 7. Section 1.1012-1 is amended by revising paragraph (g) to
read as follows:
Sec. 1.1012-1 Basis of property.
* * * * *
(g) Debt instruments issued in exchange for property--(1) In
general. For purposes of paragraph (a) of this section, if a debt
instrument is issued in exchange for property, the cost of the property
that is attributable to the debt instrument is the issue price of the
debt instrument as determined under Sec. 1.1273-2 or Sec. 1.1274-2,
whichever is applicable. If, however, the issue price of the debt
instrument is determined under section 1273(b)(4), the cost of the
property attributable to the debt instrument is its stated principal
amount reduced by any unstated interest (as determined under section
483).
(2) Certain tax-exempt obligations. This paragraph (g)(2) applies
to a tax-exempt obligation (as defined in section 1275(a)(3)) that is
issued in exchange for property and that has an issue price determined
under Sec. 1.1274-2(j) (concerning tax-exempt contingent payment
obligations and certain tax-exempt variable rate debt instruments
subject to section 1274). Notwithstanding paragraph (g)(1) of this
section, if this paragraph (g)(2) applies to a tax-exempt obligation,
for purposes of paragraph (a) of this section, the cost of the property
that is attributable to the obligation is the sum of the present values
of the noncontingent payments (as determined under Sec. 1.1274-2(c)).
(3) Effective date. This paragraph (g) applies to sales or
exchanges that occur on or after August 13, 1996.
Par. 8. Section 1.1271-0(b) is amended by:
1. Revising the entries for paragraphs (c)(2), (c)(3), (c)(4), and
(d) of Sec. 1.1272-1.
2. Adding an entry for paragraph (c)(7) of Sec. 1.1272-1.
3. Revising the entry for paragraph (g) and adding entries for
paragraphs (i) and (j) of Sec. 1.1274-2.
4. Revising the entry for paragraph (g) and adding entries for
paragraphs (g), (h), (i), and (j) of Sec. 1.1275-2.
5. Removing the entries for Sec. 1.1275-2T.
6. Adding entries for Sec. 1.1275-4.
7. Adding entries for paragraphs (a)(5) and (a)(6) of Sec. 1.1275-
5.
8. Revising the entries for paragraphs (c)(1) and (c)(5) of
Sec. 1.1275-5.
[[Page 30140]]
9. Adding entries for Sec. 1.1275-6.
The revisions and additions read as follows:
Sec. 1.1271-0 Original issue discount; effective date; table of
contents.
* * * * *
(b) * * *
* * * * *
Sec. 1.1272-1 Current Inclusion of OID in Income
* * * * *
(c) * * *
(2) Payment schedule that is significantly more likely than not
to occur.
(3) Mandatory sinking fund provision.
(4) Consistency rule. [Reserved]
* * * * *
(7) Effective date.
(d) Certain debt instruments that provide for a fixed yield.
* * * * *
Sec. 1.1274-2 Issue Price of Debt Instruments to Which Section
1274 Applies
* * * * *
(g) Treatment of contingent payment debt instrument.
* * * * *
(i) [Reserved]
(j) Special rules for tax-exempt obligations.
(1) Certain variable rate debt instruments.
(2) Contingent payment debt instruments.
(3) Effective date.
* * * * *
Sec. 1.1275-2 Special Rules Relating to Debt Instruments
* * * * *
(g) Anti-abuse rule.
(1) In general.
(2) Unreasonable result.
(3) Examples.
(4) Effective date.
(h) Remote and incidental contingencies.
(1) In general.
(2) Remote contingencies.
(3) Incidental contingencies.
(4) Aggregation rule.
(5) Consistency rule.
(6) Subsequent adjustments.
(7) Effective date.
(i) [Reserved]
(j) Treatment of certain modifications.
* * * * *
Sec. 1.1275-4 Contingent Payment Debt Instruments
(a) Applicability.
(1) In general.
(2) Exceptions.
(3) Insolvency and default.
(4) Convertible debt instruments.
(5) Remote and incidental contingencies.
(b) Noncontingent bond method.
(1) Applicability.
(2) In general.
(3) Description of method.
(4) Comparable yield and projected payment schedule.
(5) Qualified stated interest.
(6) Adjustments.
(7) Adjusted issue price, adjusted basis, and retirement.
(8) Character on sale, exchange, or retirement.
(9) Operating rules.
(c) Method for debt instruments not subject to the noncontingent
bond method.
(1) Applicability.
(2) Separation into components.
(3) Treatment of noncontingent payments.
(4) Treatment of contingent payments.
(5) Basis different from adjusted issue price.
(6) Treatment of a holder on sale, exchange, or retirement.
(7) Examples.
(d) Rules for tax-exempt obligations.
(1) In general.
(2) Certain tax-exempt obligations with interest-based or
revenue-based payments
(3) All other tax-exempt obligations.
(4) Basis different from adjusted issue price.
(e) Amounts treated as interest under this section.
(f) Effective date.
Sec. 1.1275-5 Variable Rate Debt Instruments
(a) * * *
(5) No contingent principal payments.
(6) Special rule for debt instruments issued for nonpublicly
traded property.
* * * * *
(c) * * *
(1) Definition.
* * * * *
(5) Tax-exempt obligations.
* * * * *
Sec. 1.1275-6 Integration of Qualifying Debt Instruments
(a) In general.
(b) Definitions.
(1) Qualifying debt instrument.
(2) Section 1.1275-6 hedge.
(3) Financial instrument.
(4) Synthetic debt instrument.
(c) Integrated transaction.
(1) Integration by taxpayer.
(2) Integration by Commissioner.
(d) Special rules for legging into and legging out of an
integrated transaction.
(1) Legging into.
(2) Legging out.
(e) Identification requirements.
(f) Taxation of integrated transactions.
(1) General rule.
(2) Issue date.
(3) Term.
(4) Issue price.
(5) Adjusted issue price.
(6) Qualified stated interest.
(7) Stated redemption price at maturity.
(8) Source of interest income and allocation of expense.
(9) Effectively connected income.
(10) Not a short-term obligation.
(11) Special rules in the event of integration by the
Commissioner.
(12) Retention of separate transaction rules for certain
purposes.
(13) Coordination with consolidated return rules.
(g) Predecessors and successors.
(h) Examples.
(i) [Reserved]
(j) Effective date.
Par. 9. Section 1.1272-1 is amended by:
1. Revising paragraphs (b)(2)(ii), (c), and (d).
2. Adding a sentence at the end of paragraph (f)(2).
3. Removing the language ``determining yield and maturity'' from
the first sentence of paragraph (j) Example 5 (iii) and adding the
language ``sections 1272 and 1273'' in its place.
4. Removing the language ``determining yield and maturity'' from
the second sentence of paragraph (j) Example 7 (v) and adding the
language ``sections 1272 and 1273'' in its place.
The revisions and addition read as follows:
Sec. 1.1272-1 Current inclusion of OID in income.
* * * * *
(b) * * *
(2) * * *
(ii) A debt instrument that provides for contingent payments, other
than a debt instrument described in paragraph (c) or (d) of this
section or except as provided in Sec. 1.1275-4; or
* * * * *
(c) Yield and maturity of certain debt instruments subject to
contingencies--(1) Applicability. This paragraph (c) provides rules to
determine the yield and maturity of certain debt instruments that
provide for an alternative payment schedule (or schedules) applicable
upon the occurrence of a contingency (or contingencies). This paragraph
(c) applies, however, only if the timing and amounts of the payments
that comprise each payment schedule are known as of the issue date and
the debt instrument is subject to paragraph (c) (2), (3), or (5) of
this section. A debt instrument does not provide for an alternative
payment schedule merely because there is a possibility of impairment of
a payment (or payments) by insolvency, default, or similar
circumstances. See Sec. 1.1275-4 for the treatment of a debt instrument
that provides for a contingency that is not described in this paragraph
(c). See Sec. 1.1273-1(c) to determine whether stated interest on a
debt instrument subject to this paragraph (c) is qualified stated
interest.
(2) Payment schedule that is significantly more likely than not to
occur. If, based on all the facts and circumstances as of the issue
date, a single payment schedule for a debt instrument, including the
stated payment schedule, is significantly more likely than not to
occur, the yield and maturity of the debt instrument are computed based
on this payment schedule.
[[Page 30141]]
(3) Mandatory sinking fund provision. Notwithstanding paragraph
(c)(2) of this section, if a debt instrument is subject to a mandatory
sinking fund provision, the provision is ignored for purposes of
computing the yield and maturity of the debt instrument if the use and
terms of the provision meet reasonable commercial standards. For
purposes of the preceding sentence, a mandatory sinking fund provision
is a provision that meets the following requirements:
(i) The provision requires the issuer to redeem a certain amount of
debt instruments in an issue prior to maturity.
(ii) The debt instruments actually redeemed are chosen by lot or
purchased by the issuer either in the open market or pursuant to an
offer made to all holders (with any proration determined by lot).
(iii) On the issue date, the specific debt instruments that will be
redeemed on any date prior to maturity cannot be identified.
(4) Consistency rule. [Reserved]
(5) Treatment of certain options. Notwithstanding paragraphs (c)
(2) and (3) of this section, the rules of this paragraph (c)(5)
determine the yield and maturity of a debt instrument that provides the
holder or issuer with an unconditional option or options, exercisable
on one or more dates during the term of the debt instrument, that, if
exercised, require payments to be made on the debt instrument under an
alternative payment schedule or schedules (e.g., an option to extend or
an option to call a debt instrument at a fixed premium). Under this
paragraph (c)(5), an issuer is deemed to exercise or not exercise an
option or combination of options in a manner that minimizes the yield
on the debt instrument, and a holder is deemed to exercise or not
exercise an option or combination of options in a manner that maximizes
the yield on the debt instrument. If both the issuer and the holder
have options, the rules of this paragraph (c)(5) are applied to the
options in the order that they may be exercised. See paragraph (j)
Example 5 through Example 8 of this section.
(6) Subsequent adjustments. If a contingency described in this
paragraph (c) (including the exercise of an option described in
paragraph (c)(5) of this section) actually occurs or does not occur,
contrary to the assumption made pursuant to this paragraph (c) (a
change in circumstances), then, solely for purposes of sections 1272
and 1273, the debt instrument is treated as retired and then reissued
on the date of the change in circumstances for an amount equal to its
adjusted issue price on that date. See paragraph (j) Example 5 and
Example 7 of this section. If, however, the change in circumstances
results in a substantially contemporaneous pro-rata prepayment as
defined in Sec. 1.1275-2(f)(2), the pro-rata prepayment is treated as a
payment in retirement of a portion of the debt instrument, which may
result in gain or loss to the holder. See paragraph (j) Example 6 and
Example 8 of this section.
(7) Effective date. This paragraph (c) applies to debt instruments
issued on or after August 13, 1996.
(d) Certain debt instruments that provide for a fixed yield. If a
debt instrument provides for one or more contingent payments but all
possible payment schedules under the terms of the instrument result in
the same fixed yield, the yield of the debt instrument is the fixed
yield. For example, the yield of a debt instrument with principal
payments that are fixed in total amount but that are uncertain as to
time (such as a demand loan) is the stated interest rate if the issue
price of the instrument is equal to the stated principal amount and
interest is paid or compounded at a fixed rate over the entire term of
the instrument. This paragraph (d) applies to debt instruments issued
on or after August 13, 1996.
* * * * *
(f) * * *
(2) * * * For purposes of the preceding sentence, the last possible
date that the debt instrument could be outstanding is determined
without regard to Sec. 1.1275-2(h) (relating to payments subject to
remote or incidental contingencies).
* * * * *
Par. 10. Section 1.1273-1 is amended by:
1. Removing the language ``principal payments uncertain as to
time'' in the fourth sentence of paragraph (a) and adding the language
``a fixed yield'' in its place.
2. Revising paragraph (c)(1)(ii).
3. Revising paragraph (f) Example 4.
The revisions read as follows:
Sec. 1.1273-1 Definition of OID.
* * * * *
(c) * * * (1) * * *
(ii) Unconditionally payable. Interest is unconditionally payable
only if reasonable legal remedies exist to compel timely payment or the
debt instrument otherwise provides terms and conditions that make the
likelihood of late payment (other than a late payment that occurs
within a reasonable grace period) or nonpayment a remote contingency
(within the meaning of Sec. 1.1275-2(h)). For purposes of the preceding
sentence, remedies or other terms and conditions are not taken into
account if the lending transaction does not reflect arm's length
dealing and the holder does not intend to enforce the remedies or other
terms and conditions. For purposes of determining whether interest is
unconditionally payable, the possibility of nonpayment due to default,
insolvency, or similar circumstances, or due to the exercise of a
conversion option described in Sec. 1.1272-1(e) is ignored. This
paragraph (c)(1)(ii) applies to debt instruments issued on or after
August 13, 1996.
* * * * *
(f) * * *
Example 4. Qualified stated interest on a debt instrument that
is subject to an option--(i) Facts. On January 1, 1997, A issues,
for $100,000, a 10-year debt instrument that provides for a $100,000
principal payment at maturity and for annual interest payments of
$10,000. Under the terms of the debt instrument, A has the option,
exercisable on January 1, 2002, to lower the annual interest
payments to $8,000. In addition, the debt instrument gives the
holder an unconditional right to put the debt instrument back to A,
exercisable on January 1, 2002, in return for $100,000.
(ii) Amount of qualified stated interest. Under paragraph (c)(2)
of this section, the debt instrument provides for qualified stated
interest to the extent of the lowest fixed rate at which qualified
stated interest would be payable under any payment schedule. If the
payment schedule determined by assuming that the issuer's option
will be exercised and the put option will not be exercised were
treated as the debt instrument's sole payment schedule, only $8,000
of each annual interest payment would be qualified stated interest.
Under any other payment schedule, the debt instrument would provide
for annual qualified stated interest payments of $10,000.
Accordingly, only $8,000 of each annual interest payment is
qualified stated interest. Any excess of each annual interest
payment over $8,000 is included in the debt instrument's stated
redemption price at maturity.
* * * * *
Par. 11. Section 1.1274-2 is amended by:
1. Removing the language ``Sec. 1.1272-1(c)(3)(ii)'' from paragraph
(e) and adding the language ``Sec. 1.1272-1(c)(3)'' in its place.
2. Revising paragraph (g).
3. Adding and reserving paragraph (i) and adding paragraph (j).
The revisions and additions read as follows:
Sec. 1.1274-2 Issue price of debt instruments to which section 1274
applies.
* * * * *
(g) Treatment of contingent payment debt instruments.
Notwithstanding paragraph (b) of this section, if a debt instrument
subject to section 1274 provides for one or more contingent
[[Page 30142]]
payments, the issue price of the debt instrument is the lesser of the
instrument's noncontingent principal payments and the sum of the
present values of the noncontingent payments (as determined under
paragraph (c) of this section). However, if the debt instrument is
issued in a potentially abusive situation, the issue price of the debt
instrument is the fair market value of the noncontingent payments. For
additional rules relating to a debt instrument that provides for one or
more contingent payments, see Sec. 1.1275-4. This paragraph (g) applies
to debt instruments issued on or after August 13, 1996.
* * * * *
(i) [Reserved]
(j) Special rules for tax-exempt obligations--(1) Certain variable
rate debt instruments. Notwithstanding paragraph (b) of this section,
if a tax-exempt obligation (as defined in section 1275(a)(3)) is a
variable rate debt instrument (within the meaning of Sec. 1.1275-5)
that pays interest at an objective rate and is subject to section 1274,
the issue price of the obligation is the greater of the obligation's
fair market value and its stated principal amount.
(2) Contingent payment debt instruments. Notwithstanding paragraphs
(b) and (g) of this section, if a tax-exempt obligation (as defined in
section 1275(a)(3)) is subject to section 1274 and Sec. 1.1275-4, the
issue price of the obligation is the fair market value of the
obligation. However, in the case of a tax-exempt obligation that is
subject to Sec. 1.1275-4(d)(2) (an obligation that provides for
interest-based or revenue-based payments), the issue price of the
obligation is the greater of the obligation's fair market value and its
stated principal amount.
(3) Effective date. This paragraph (j) applies to debt instruments
issued on or after August 13, 1996.
Par. 12. Section 1.1275-2 is amended by adding the text of
paragraph (g), and adding paragraph (h), adding and reserving paragraph
(i), and adding paragraph (j) to read as follows:
Sec. 1.1275-2 Special rules relating to debt instruments.
* * * * *
(g) Anti-abuse rule--(1) In general. If a principal purpose in
structuring a debt instrument or engaging in a transaction is to
achieve a result that is unreasonable in light of the purposes of
section 163(e), sections 1271 through 1275, or any related section of
the Code, the Commissioner can apply or depart from the regulations
under the applicable sections as necessary or appropriate to achieve a
reasonable result. For example, if this paragraph (g) applies to a debt
instrument that provides for a contingent payment, the Commissioner can
treat the contingency as if it were a separate position.
(2) Unreasonable result. Whether a result is unreasonable is
determined based on all the facts and circumstances. In making this
determination, a significant fact is whether the treatment of the debt
instrument is expected to have a substantial effect on the issuer's or
a holder's U.S. tax liability. In the case of a contingent payment debt
instrument, another significant fact is whether the result is
obtainable without the application of Sec. 1.1275-4 and any related
provisions (e.g., if the debt instrument and the contingency were
entered into separately). A result will not be considered unreasonable,
however, in the absence of an expected substantial effect on the
present value of a taxpayer's tax liability.
(3) Examples. The following examples illustrate the provisions of
this paragraph (g):
Example 1. A issues a current-pay, increasing-rate note that
provides for an early call option. Although the option is deemed
exercised on the call date under Sec. 1.1272-1(c)(5), the option is
not expected to be exercised by A. In addition, a principal purpose
of including the option in the terms of the note is to limit the
amount of interest income includible by the holder in the period
prior to the call date by virtue of the option rules in Sec. 1.1272-
1(c)(5). Moreover, the application of the option rules is expected
to substantially reduce the present value of the holder's tax
liability. Based on these facts, the application of Sec. 1.1272-
1(c)(5) produces an unreasonable result. Therefore, under this
paragraph (g), the Commissioner can apply the regulations (in whole
or in part) to the note without regard to Sec. 1.1272-1(c)(5).
Example 2. C, a foreign corporation not subject to U.S.
taxation, issues to a U.S. holder a debt instrument that provides
for a contingent payment. The debt instrument is issued for cash and
is subject to the noncontingent bond method in Sec. 1.1275-4(b). Six
months after issuance, C and the holder modify the debt instrument
so that there is a deemed reissuance of the instrument under section
1001. The new debt instrument is subject to the rules of
Sec. 1.1275-4(c) rather than Sec. 1.1275-4(b). The application of
Sec. 1.1275-4(c) is expected to substantially reduce the present
value of the holder's tax liability as compared to the application
of Sec. 1.1275-4(b). In addition, a principal purpose of the
modification is to substantially reduce the present value of the
holder's tax liability through the application of Sec. 1.1275-4(c).
Based on these facts, the application of Sec. 1.1275-4(c) produces
an unreasonable result. Therefore, under this paragraph (g), the
Commissioner can apply the noncontingent bond method to the modified
debt instrument.
Example 3. D issues a convertible debt instrument rather than an
economically equivalent investment unit consisting of a debt
instrument and a warrant. The convertible debt instrument is issued
at par and provides for annual payments of interest. D issues the
convertible debt instrument rather than the investment unit so that
the debt instrument would not have OID. See Sec. 1.1273-2(j). In
general, this is a reasonable result in light of the purposes of the
applicable statutes. Therefore, the Commissioner generally will not
use the authority under this paragraph (g) to depart from the
application of Sec. 1.1273-2(j) in this case.
(4) Effective date. This paragraph (g) applies to debt instruments
issued on or after August 13, 1996.
(h) Remote and incidental contingencies--(1) In general. This
paragraph (h) applies to a debt instrument if one or more payments on
the instrument are subject to either a remote or incidental
contingency. Whether a contingency is remote or incidental is
determined as of the issue date of the debt instrument, including any
date there is a deemed reissuance of the debt instrument under
paragraph (h)(6) (ii) or (j) of this section or Sec. 1.1272-1(c)(6).
Except as otherwise provided, the treatment of the contingency under
this paragraph (h) applies for all purposes of sections 163(e) (other
than sections 163(e)(5)) and 1271 through 1275 and the regulations
thereunder. For purposes of this paragraph (h), the possibility of
impairment of a payment by insolvency, default, or similar
circumstances is not a contingency.
(2) Remote contingencies. A contingency is remote if there is a
remote likelihood either that the contingency will occur or that the
contingency will not occur. If there is a remote likelihood that the
contingency will occur, it is assumed that the contingency will not
occur. If there is a remote likelihood that the contingency will not
occur, it is assumed that the contingency will occur.
(3) Incidental contingencies--(i) Contingency relating to amount. A
contingency relating to the amount of a payment is incidental if, under
all reasonably expected market conditions, the potential amount of the
payment is insignificant relative to the total expected amount of the
remaining payments on the debt instrument. If a payment on a debt
instrument is subject to an incidental contingency described in this
paragraph (h)(3)(i), the payment is ignored until the payment is made.
However, see paragraph (h)(6)(i)(B) of this section for the treatment
of the debt instrument if a change in circumstances
[[Page 30143]]
occurs prior to the date the payment is made.
(ii) Contingency relating to time. A contingency relating to the
timing of a payment is incidental if, under all reasonably expected
market conditions, the potential difference in the timing of the
payment (from the earliest date to the latest date) is insignificant.
If a payment on a debt instrument is subject to an incidental
contingency described in this paragraph (h)(3)(ii), the payment is
treated as made on the earliest date that the payment could be made
pursuant to the contingency. If the payment is not made on this date, a
taxpayer makes appropriate adjustments to take into account the delay
in payment. However, see paragraph (h)(6)(i)(C) of this section for the
treatment of the debt instrument if the delay is not insignificant.
(4) Aggregation rule. For purposes of paragraph (h)(2) of this
section, if a debt instrument provides for multiple contingencies each
of which has a remote likelihood of occurring but, when all of the
contingencies are considered together, there is a greater than remote
likelihood that at least one of the contingencies will occur, none of
the contingencies is treated as a remote contingency. For purposes of
paragraph (h)(3)(i) of this section, if a debt instrument provides for
multiple contingencies each of which is incidental but the potential
total amount of all of the payments subject to the contingencies is
not, under reasonably expected market conditions, insignificant
relative to the total expected amount of the remaining payments on the
debt instrument, none of the contingencies is treated as incidental.
(5) Consistency rule. For purposes of paragraphs (h)(2) and (3) of
this section, the issuer's determination that a contingency is either
remote or incidental is binding on all holders. However, the issuer's
determination is not binding on a holder that explicitly discloses that
its determination is different from the issuer's determination. Unless
otherwise prescribed by the Commissioner, the disclosure must be made
on a statement attached to the holder's timely filed federal income tax
return for the taxable year that includes the acquisition date of the
debt instrument. See Sec. 1.1275-2(e) for rules relating to the
issuer's obligation to disclose certain information to holders.
(6) Subsequent adjustments--(i) Applicability. This paragraph
(h)(6) applies to a debt instrument when there is a change in
circumstances. For purposes of the preceding sentence, there is a
change in circumstances if--
(A) A remote contingency actually occurs or does not occur,
contrary to the assumption made in paragraph (h)(2) of this section;
(B) A payment subject to an incidental contingency described in
paragraph (h)(3)(i) of this section becomes fixed in an amount that is
not insignificant relative to the total expected amount of the
remaining payments on the debt instrument; or
(C) A payment subject to an incidental contingency described in
paragraph (h)(3)(ii) of this section becomes fixed such that the
difference between the assumed payment date and the due date of the
payment is not insignificant.
(ii) In general. If a change in circumstances occurs, solely for
purposes of sections 1272 and 1273, the debt instrument is treated as
retired and then reissued on the date of the change in circumstances
for an amount equal to the instrument's adjusted issue price on that
date.
(iii) Contingent payment debt instruments. Notwithstanding
paragraph (h)(6)(ii) of this section, in the case of a contingent
payment debt instrument subject to Sec. 1.1275-4, if a change in
circumstances occurs, no retirement or reissuance is treated as
occurring, but any payment that is fixed as a result of the change in
circumstances is governed by the rules in Sec. 1.1275-4 that apply when
the amount of a contingent payment becomes fixed.
(7) Effective date. This paragraph (h) applies to debt instruments
issued on or after August 13, 1996.
(i) [Reserved]
(j) Treatment of certain modifications. If the terms of a debt
instrument are modified to defer one or more payments, and the
modification does not cause an exchange under section 1001, then,
solely for purposes of sections 1272 and 1273, the debt instrument is
treated as retired and then reissued on the date of the modification
for an amount equal to the instrument's adjusted issue price on that
date. This paragraph (j) applies to debt instruments issued on or after
August 13, 1996.
Sec. 1.1275-2T [Removed]
Par. 13. Section 1.1275-2T is removed effective Aug
FR Doc. 96-14918 Debt Instruments With Original Issue Discount; Contingent Payments; Anti-Abuse Rule
ust 13, 1996.
Par. 14. In Sec. 1.1275-3, paragraph (b)(1)(i) is revised to read
as follows:
Sec. 1.1275-3 OID information reporting requirements.
* * * * *
(b) * * * (1) * * *
(i) Set forth on the face of the debt instrument the issue price,
the amount of OID, the issue date, the yield to maturity, and, in the
case of a debt instrument subject to the rules of Sec. 1.1275-4(b), the
comparable yield and projected payment schedule; or
* * * * *
Par. 15. Section 1.1275-4 is added to read as follows:
Sec. 1.1275-4 Contingent payment debt instruments.
(a) Applicability--(1) In general. Except as provided in paragraph
(a)(2) of this section, this section applies to any debt instrument
that provides for one or more contingent payments. In general,
paragraph (b) of this section applies to a contingent payment debt
instrument that is issued for money or publicly traded property and
paragraph (c) of this section applies to a contingent payment debt
instrument that is issued for nonpublicly traded property. Paragraph
(d) of this section provides special rules for tax-exempt obligations.
See Sec. 1.1275-6 for a taxpayer's treatment of a contingent payment
debt instrument and a hedge.
(2) Exceptions. This section does not apply to--
(i) A debt instrument that has an issue price determined under
section 1273(b)(4) (e.g., a debt instrument subject to section 483);
(ii) A variable rate debt instrument (as defined in Sec. 1.1275-5);
(iii) A debt instrument subject to Sec. 1.1272-1(c) (a debt
instrument that provides for certain contingencies) or Sec. 1.1272-1(d)
(a debt instrument that provides for a fixed yield);
(iv) A debt instrument subject to section 988 (except as provided
in section 988 and the regulations thereunder);
(v) A debt instrument to which section 1272(a)(6) applies (certain
interests in or mortgages held by a REMIC, and certain other debt
instruments with payments subject to acceleration);
(vi) A debt instrument (other than a tax-exempt obligation)
described in section 1272(a)(2) (e.g., U.S. savings bonds, certain
loans between natural persons, and short-term taxable obligations); or
(vii) A debt instrument issued pursuant to a plan or arrangement
if--
(A) The plan or arrangement is created by a state statute;
(B) A primary objective of the plan or arrangement is to enable the
participants to pay for the costs of post-secondary education for
themselves or their designated beneficiaries; and
(C) Contingent payments on the debt instrument are related to such
objective.
[[Page 30144]]
(3) Insolvency and default. A payment is not contingent merely
because of the possibility of impairment by insolvency, default, or
similar circumstances.
(4) Convertible debt instruments. A debt instrument does not
provide for contingent payments merely because it provides for an
option to convert the debt instrument into the stock of the issuer,
into the stock or debt of a related party (within the meaning of
section 267(b) or 707(b)(1)), or into cash or other property in an
amount equal to the approximate value of such stock or debt.
(5) Remote and incidental contingencies. A payment is not a
contingent payment merely because of a contingency that, as of the
issue date, is either remote or incidental. See Sec. 1.1275-2(h) for
the treatment of remote and incidental contingencies.
(b) Noncontingent bond method--(1) Applicability. The noncontingent
bond method described in this paragraph (b) applies to a contingent
payment debt instrument that has an issue price determined under
Sec. 1.1273-2 (e.g., a contingent payment debt instrument that is
issued for money or publicly traded property).
(2) In general. Under the noncontingent bond method, interest on a
debt instrument must be taken into account whether or not the amount of
any payment is fixed or determinable in the taxable year. The amount of
interest that is taken into account for each accrual period is
determined by constructing a projected payment schedule for the debt
instrument and applying rules similar to those for accruing OID on a
noncontingent debt instrument. If the actual amount of a contingent
payment is not equal to the projected amount, appropriate adjustments
are made to reflect the difference.
(3) Description of method. The following steps describe how to
compute the amount of income, deductions, gain, and loss under the
noncontingent bond method:
(i) Step one: Determine the comparable yield. Determine the
comparable yield for the debt instrument under the rules of paragraph
(b)(4) of this section. The comparable yield is determined as of the
debt instrument's issue date.
(ii) Step two: Determine the projected payment schedule. Determine
the projected payment schedule for the debt instrument under the rules
of paragraph (b)(4) of this section. The projected payment schedule is
determined as of the issue date and remains fixed throughout the term
of the debt instrument (except under paragraph (b)(9)(ii) of this
section, which applies to a payment that is fixed more than 6 months
before it is due).
(iii) Step three: Determine the daily portions of interest.
Determine the daily portions of interest on the debt instrument for a
taxable year as follows. The amount of interest that accrues in each
accrual period is the product of the comparable yield of the debt
instrument (properly adjusted for the length of the accrual period) and
the debt instrument's adjusted issue price at the beginning of the
accrual period. See paragraph (b)(7)(ii) of this section to determine
the adjusted issue price of the debt instrument. The daily portions of
interest are determined by allocating to each day in the accrual period
the ratable portion of the interest that accrues in the accrual period.
Except as modified by paragraph (b)(3)(iv) of this section, the daily
portions of interest are includible in income by a holder for each day
in the holder's taxable year on which the holder held the debt
instrument and are deductible by the issuer for each day during the
issuer's taxable year on which the issuer was primarily liable on the
debt instrument.
(iv) Step four: Adjust the amount of income or deductions for
differences between projected and actual contingent payments. Make
appropriate adjustments to the amount of income or deductions
attributable to the debt instrument in a taxable year for any
differences between projected and actual contingent payments. See
paragraph (b)(6) of this section to determine the amount of an
adjustment and the treatment of the adjustment.
(4) Comparable yield and projected payment schedule. This paragraph
(b)(4) provides rules for determining the comparable yield and
projected payment schedule for a debt instrument. The comparable yield
and projected payment schedule must be supported by contemporaneous
documentation showing that both are reasonable, are based on reliable,
complete, and accurate data, and are made in good faith.
(i) Comparable yield--(A) In general. Except as provided in
paragraph (b)(4)(i)(B) of this section, the comparable yield for a debt
instrument is the yield at which the issuer would issue a fixed rate
debt instrument with terms and conditions similar to those of the
contingent payment debt instrument (the comparable fixed rate debt
instrument), including the level of subordination, term, timing of
payments, and general market conditions. For example, if a Sec. 1.1275-
6 hedge (or the substantial equivalent) is available, the comparable
yield is the yield on the synthetic fixed rate debt instrument that
would result if the issuer entered into the Sec. 1.1275-6 hedge. If a
Sec. 1.1275-6 hedge (or the substantial equivalent) is not available,
but similar fixed rate debt instruments of the issuer trade at a price
that reflects a spread above a benchmark rate, the comparable yield is
the sum of the value of the benchmark rate on the issue date and the
spread. In determining the comparable yield, no adjustments are made
for the riskiness of the contingencies or the liquidity of the debt
instrument. The comparable yield must be a reasonable yield for the
issuer and must not be less than the applicable Federal rate (based on
the overall maturity of the debt instrument).
(B) Presumption for certain debt instruments. This paragraph
(b)(4)(i)(B) applies to a debt instrument if the instrument provides
for one or more contingent payments not based on market information and
the instrument is part of an issue that is marketed or sold in
substantial part to persons for whom the inclusion of interest under
this paragraph (b) is not expected to have a substantial effect on
their U.S. tax liability. If this paragraph (b)(4)(i)(B) applies to a
debt instrument, the instrument's comparable yield is presumed to be
the applicable Federal rate (based on the overall maturity of the debt
instrument). A taxpayer may overcome this presumption only with clear
and convincing evidence that the comparable yield for the debt
instrument should be a specific yield (determined using the principles
in paragraph (b)(4)(i)(A) of this section) that is higher than the
applicable Federal rate. The presumption may not be overcome with
appraisals or other valuations of nonpublicly traded property. Evidence
used to overcome the presumption must be specific to the issuer and
must not be based on comparable issuers or general market conditions.
(ii) Projected payment schedule. The projected payment schedule for
a debt instrument includes each noncontingent payment and an amount for
each contingent payment determined as follows:
(A) Market-based payments. If a contingent payment is based on
market information (a market-based payment), the amount of the
projected payment is the forward price of the contingent payment. The
forward price of a contingent payment is the amount one party would
agree, as of the issue date, to pay an unrelated party for the right to
the contingent payment on the settlement date (e.g., the date the
contingent payment is made). For example, if the right to a contingent
[[Page 30145]]
payment is substantially similar to an exchange-traded option, the
forward price is the spot price of the option (the option premium)
compounded at the applicable Federal rate from the issue date to the
date the contingent payment is due.
(B) Other payments. If a contingent payment is not based on market
information (a non-market-based payment), the amount of the projected
payment is the expected value of the contingent payment as of the issue
date.
(C) Adjustments to the projected payment schedule. The projected
payment schedule must produce the comparable yield. If the projected
payment schedule does not produce the comparable yield, the schedule
must be adjusted consistent with the principles of this paragraph
(b)(4) to produce the comparable yield. For example, the adjusted
amounts of non-market-based payments must reasonably reflect the
relative expected values of the payments and must not be set to
accelerate or defer income or deductions. If the debt instrument
contains both market-based and non-market-based payments, adjustments
are generally made first to the non-market-based payments because more
objective information is available for the market-based payments.
(iii) Market information. For purposes of this paragraph (b),
market information is any information on which an objective rate can be
based under Sec. 1.1275-5(c)(1) or (2).
(iv) Issuer/holder consistency. The issuer's projected payment
schedule is used to determine the holder's interest accruals and
adjustments. The issuer must provide the projected payment schedule to
the holder in a manner consistent with the issuer disclosure rules of
Sec. 1.1275-2(e). If the issuer does not create a projected payment
schedule for a debt instrument or the issuer's projected payment
schedule is unreasonable, the holder of the debt instrument must
determine the comparable yield and projected payment schedule for the
debt instrument under the rules of this paragraph (b)(4). A holder that
determines its own projected payment schedule must explicitly disclose
this fact and the reason why the holder set its own schedule (e.g., why
the issuer's projected payment schedule is unreasonable). Unless
otherwise prescribed by the Commissioner, the disclosure must be made
on a statement attached to the holder's timely filed federal income tax
return for the taxable year that includes the acquisition date of the
debt instrument.
(v) Issuer's determination respected--(A) In general. If the issuer
maintains the contemporaneous documentation required by this paragraph
(b)(4), the issuer's determination of the comparable yield and
projected payment schedule will be respected unless either is
unreasonable.
(B) Unreasonable determination. For purposes of paragraph
(b)(4)(v)(A) of this section, a comparable yield or projected payment
schedule generally will be considered unreasonable if it is set with a
purpose to overstate, understate, accelerate, or defer interest
accruals on the debt instrument. In a determination of whether a
comparable yield or projected payment schedule is unreasonable,
consideration will be given to whether the treatment of the debt
instrument under this section is expected to have a substantial effect
on the issuer's or holder's U.S. tax liability. For example, if a
taxable issuer markets a debt instrument to a holder not subject to
U.S. taxation, the comparable yield will be given close scrutiny and
will not be respected unless contemporaneous documentation shows that
the yield is not too high.
(C) Exception. Paragraph (b)(4)(v)(A) of this section does not
apply to a debt instrument subject to paragraph (b)(4)(i)(B) of this
section (concerning a yield presumption for certain debt instruments
that provide for non-market-based payments).
(vi) Examples. The following examples illustrate the provisions of
this paragraph (b)(4). In each example, assume that the instrument
described is a debt instrument for federal income tax purposes. No
inference is intended, however, as to whether the instrument is a debt
instrument for federal income tax purposes.
Example 1. Market-based payment--(i) Facts. On December 31,
1996, X corporation issues for $1,000,000 a debt instrument that
matures on December 31, 2006. The debt instrument provides for
annual payments of interest, beginning in 1997, at the rate of 6
percent and for a payment at maturity equal to $1,000,000 plus the
excess, if any, of the price of 10,000 shares of publicly traded
stock in an unrelated corporation on the maturity date over
$350,000, or less the excess, if any, of $350,000 over the price of
10,000 shares of the stock on the maturity date. On the issue date,
the forward price to purchase 10,000 shares of the stock on December
31, 2006, is $350,000.
(ii) Comparable yield. Under paragraph (b)(4)(i) of this
section, the debt instrument's comparable yield is the yield on the
synthetic debt instrument that would result if X corporation entered
into a Sec. 1.1275-6 hedge. A Sec. 1.1275-6 hedge in this case is a
forward contract to purchase 10,000 shares of the stock on December
31, 2006. If X corporation entered into this hedge, the resulting
synthetic debt instrument would yield 6 percent, compounded
annually. Thus, the comparable yield on the debt instrument is 6
percent, compounded annually.
(iii) Projected payment schedule. Under paragraph (b)(4)(ii) of
this section, the projected payment schedule for the debt instrument
consists of 10 annual payments of $60,000 and a projected amount for
the contingent payment at maturity. Because the right to the
contingent payment is based on market information, the projected
amount of the contingent payment is the forward price of the
payment. The right to the contingent payment is substantially
similar to a right to a payment of $1,000,000 combined with a cash-
settled forward contract for the purchase of 10,000 shares of the
stock for $350,000 on December 31, 2006. Because the forward price
to purchase 10,000 shares of the stock on December 31, 2006, is
$350,000, the amount to be received or paid under the forward
contract is projected to be zero. As a result, the projected amount
of the contingent payment at maturity is $1,000,000, consisting of
the $1,000,000 base amount and no additional amount to be received
or paid under the forward contract.
(A) Assume, alternatively, that on the issue date the forward
price to purchase 10,000 shares of the stock on December 31, 2006,
is $370,000. If X corporation entered into a Sec. 1.1275-6 hedge (a
forward contract to purchase the shares for $370,000), the resulting
synthetic debt instrument would yield 6.15 percent, compounded
annually. Thus, the comparable yield on the debt instrument is 6.15
percent, compounded annually. The projected payment schedule for the
debt instrument consists of 10 annual payments of $60,000 and a
projected amount for the contingent payment at maturity. The
projected amount of the contingent payment is $1,020,000, consisting
of the $1,000,000 base amount plus the excess $20,000 of the forward
price of the stock over the purchase price of the stock under the
forward contract.
(B) Assume, alternatively, that on the issue date the forward
price to purchase 10,000 shares of the stock on December 31, 2006,
is $330,000. If X corporation entered into a Sec. 1.1275-6 hedge,
the resulting synthetic debt instrument would yield 5.85 percent,
compounded annually. Thus, the comparable yield on the debt
instrument is 5.85 percent, compounded annually. The projected
payment schedule for the debt instrument consists of 10 annual
payments of $60,000 and a projected amount for the contingent
payment at maturity. The projected amount of the contingent payment
is $980,000, consisting of the $1,000,000 base amount minus the
excess $20,000 of the purchase price of the stock under the forward
contract over the forward price of the stock.
Example 2. Non-market-based payments--(i) Facts. On December 31,
1996, Y issues to Z for $1,000,000 a debt instrument that matures on
December 31, 2000. The debt instrument has a stated principal amount
of $1,000,000, payable at maturity, and provides for payments on
December 31 of each year, beginning in 1997, of $20,000 plus 1
percent of Y's gross receipts, if any, for the year. On the issue
date, Y has outstanding fixed rate debt instruments with maturities
of 2 to 10 years that trade at a price that reflects an average of
100 basis points over Treasury
[[Page 30146]]
bonds. These debt instruments have terms and conditions similar to
those of the debt instrument. Assume that on December 31, 1996, 4-
year Treasury bonds have a yield of 6.5 percent, compounded
annually, and that no Sec. 1.1275-6 hedge is available for the debt
instrument. In addition, assume that the interest inclusions
attributable to the debt instrument are expected to have a
substantial effect on Z's U.S. tax liability.
(ii) Comparable yield. The comparable yield for the debt
instrument is equal to the value of the benchmark rate (i.e., the
yield on 4-year Treasury bonds) on the issue date plus the spread.
Thus, the debt instrument's comparable yield is 7.5 percent,
compounded annually.
(iii) Projected payment schedule. Y anticipates that it will
have no gross receipts in 1997, but that it will have gross receipts
in later years, and those gross receipts will grow each year for the
next three years. Based on its business projections, Y believes that
it is not unreasonable to expect that its gross receipts in 1999 and
each year thereafter will grow by between 6 percent and 13 percent
over the prior year. Thus, Y must take these expectations into
account in establishing a projected payment schedule for the debt
instrument that results in a yield of 7.5 percent, compounded
annually. Accordingly, Y could reasonably set the following
projected payment schedule for the debt instrument:
------------------------------------------------------------------------
Noncontingent Contingent
Date payment payment
------------------------------------------------------------------------
12/31/1997................................... $20,000 0
12/31/1998................................... 20,000 70,000
12/31/1999................................... 20,000 75,600
12/31/2000................................... 1,020,000 83,850
------------------------------------------------------------------------
(5) Qualified stated interest. No amounts payable on a debt
instrument to which this paragraph (b) applies are qualified stated
interest within the meaning of Sec. 1.1273-1(c).
(6) Adjustments. This paragraph (b)(6) provides rules for the
treatment of positive and negative adjustments under the noncontingent
bond method. A taxpayer takes into account only those adjustments that
occur during a taxable year while the debt instrument is held by the
taxpayer or while the taxpayer is primarily liable on the debt
instrument.
(i) Determination of positive and negative adjustments. If the
amount of a contingent payment is more than the projected amount of the
contingent payment, the difference is a positive adjustment on the date
of the payment. If the amount of a contingent payment is less than the
projected amount of the contingent payment, the difference is a
negative adjustment on the date of the payment (or on the scheduled
date of the payment if the amount of the payment is zero).
(ii) Treatment of net positive adjustments. The amount, if any, by
which total positive adjustments on a debt instrument in a taxable year
exceed the total negative adjustments on the debt instrument in the
taxable year is a net positive adjustment. A net positive adjustment is
treated as additional interest for the taxable year.
(iii) Treatment of net negative adjustments. The amount, if any, by
which total negative adjustments on a debt instrument in a taxable year
exceed the total positive adjustments on the debt instrument in the
taxable year is a net negative adjustment. A taxpayer's net negative
adjustment on a debt instrument for a taxable year is treated as
follows:
(A) Reduction of interest accruals. A net negative adjustment first
reduces interest for the taxable year that the taxpayer would otherwise
account for on the debt instrument under paragraph (b)(3)(iii) of this
section.
(B) Ordinary income or loss. If the net negative adjustment exceeds
the interest for the taxable year that the taxpayer would otherwise
account for on the debt instrument under paragraph (b)(3)(iii) of this
section, the excess is treated as ordinary loss by a holder and
ordinary income by an issuer. However, the amount treated as ordinary
loss by a holder is limited to the amount by which the holder's total
interest inclusions on the debt instrument exceed the total amount of
the holder's net negative adjustments treated as ordinary loss on the
debt instrument in prior taxable years. The amount treated as ordinary
income by an issuer is limited to the amount by which the issuer's
total interest deductions on the debt instrument exceed the total
amount of the issuer's net negative adjustments treated as ordinary
income on the debt instrument in prior taxable years.
(C) Carryforward. If the net negative adjustment exceeds the sum of
the amounts treated by the taxpayer as a reduction of interest and as
ordinary income or loss (as the case may be) on the debt instrument for
the taxable year, the excess is a negative adjustment carryforward for
the taxable year. In general, a taxpayer treats a negative adjustment
carryforward for a taxable year as a negative adjustment on the debt
instrument on the first day of the succeeding taxable year. However, if
a holder of a debt instrument has a negative adjustment carryforward on
the debt instrument in a taxable year in which the debt instrument is
sold, exchanged, or retired, the negative adjustment carryforward
reduces the holder's amount realized on the sale, exchange, or
retirement. If an issuer of a debt instrument has a negative adjustment
carryforward on the debt instrument for a taxable year in which the
debt instrument is retired, the issuer takes the negative adjustment
carryforward into account as ordinary income.
(D) Treatment under section 67. A net negative adjustment is not
subject to section 67 (the 2-percent floor on miscellaneous itemized
deductions).
(iv) Cross-references. If a holder has a basis in a debt instrument
that is different from the debt instrument's adjusted issue price, the
holder may have additional positive or negative adjustments under
paragraph (b)(9)(i) of this section. If the amount of a contingent
payment is fixed more than 6 months before the date it is due, the
amount and timing of the adjustment are determined under paragraph
(b)(9)(ii) of this section.
(7) Adjusted issue price, adjusted basis, and retirement--(i) In
general. If a debt instrument is subject to the noncontingent bond
method, this paragraph (b)(7) provides rules to determine the adjusted
issue price of the debt instrument, the holder's basis in the debt
instrument, and the treatment of any scheduled or unscheduled
retirements. In general, because any difference between the actual
amount of a contingent payment and the projected amount of the payment
is taken into account as an adjustment to income or deduction, the
projected payments are treated as the actual payments for purposes of
making adjustments to issue price and basis and determining the amount
of any contingent payment made on a scheduled retirement.
(ii) Definition of adjusted issue price. The adjusted issue price
of a debt instrument is equal to the debt instrument's issue price,
increased by the interest previously accrued on the debt instrument
under paragraph (b)(3)(iii) of this section (determined without regard
to any adjustments taken into account under paragraph (b)(3)(iv) of
this section), and decreased by the amount of any noncontingent payment
and the projected amount of any contingent payment previously made on
the debt instrument. See paragraph (b)(9)(ii) of this section for
special rules that apply when a contingent payment is fixed more than 6
months before it is due.
(iii) Adjustments to basis. A holder's basis in a debt instrument
is increased by the interest previously accrued by the holder on the
debt instrument under paragraph (b)(3)(iii) of this section (determined
without regard to any adjustments taken into account under paragraph
(b)(3)(iv) of this section), and decreased by the amount of any
noncontingent payment and the
[[Page 30147]]
projected amount of any contingent payment previously made on the debt
instrument to the holder. See paragraph (b)(9)(i) of this section for
special rules that apply when basis is different from adjusted issue
price and paragraph (b)(9)(ii) of this section for special rules that
apply when a contingent payment is fixed more than 6 months before it
is due.
(iv) Scheduled retirements. For purposes of determining the amount
realized by a holder and the repurchase price paid by the issuer on the
scheduled retirement of a debt instrument, a holder is treated as
receiving, and the issuer is treated as paying, the projected amount of
any contingent payment due at maturity. If the amount paid or received
is different from the projected amount, see paragraph (b)(6) of this
section for the treatment of the difference by the taxpayer. Under
paragraph (b)(6)(iii)(C) of this section, the amount realized by a
holder on the retirement of a debt instrument is reduced by any
negative adjustment carryforward determined in the taxable year of the
retirement.
(v) Unscheduled retirements. An unscheduled retirement of a debt
instrument (or the receipt of a pro-rata prepayment that is treated as
a retirement of a portion of a debt instrument under Sec. 1.1275-2(f))
is treated as a repurchase of the debt instrument (or a pro-rata
portion of the debt instrument) by the issuer from the holder for the
amount paid by the issuer to the holder.
(vi) Examples. The following examples illustrate the provisions of
paragraphs (b) (6) and (7) of this section. In each example, assume
that the instrument described is a debt instrument for federal income
tax purposes. No inference is intended, however, as to whether the
instrument is a debt instrument for federal income tax purposes.
Example 1. Treatment of positive and negative adjustments--(i)
Facts. On December 31, 1996, Z, a calendar year taxpayer, purchases
a debt instrument subject to this paragraph (b) at original issue
for $1,000. The debt instrument's comparable yield is 10 percent,
compounded annually, and the projected payment schedule provides for
payments of $500 on December 31, 1997 (consisting of a noncontingent
payment of $375 and a projected amount of $125) and $660 on December
31, 1998 (consisting of a noncontingent payment of $600 and a
projected amount of $60). The debt instrument is a capital asset in
the hands of Z.
(ii) Adjustment in 1997. Based on the projected payment
schedule, Z's total daily portions of interest on the debt
instrument are $100 for 1997 (issue price of $1,000 x 10 percent).
Assume that the payment actually made on December 31, 1997, is $375,
rather than the projected $500. Under paragraph (b)(6)(i) of this
section, Z has a negative adjustment of $125 on December 31, 1997,
attributable to the difference between the amount of the actual
payment and the amount of the projected payment. Because Z has no
positive adjustments for 1997, Z has a net negative adjustment of
$125 on the debt instrument for 1997. This net negative adjustment
reduces to zero the $100 total daily portions of interest Z would
otherwise include in income in 1997. Accordingly, Z has no interest
income on the debt instrument for 1997. Because Z had no interest
inclusions on the debt instrument for prior taxable years, the
remaining $25 of the net negative adjustment is a negative
adjustment carryforward for 1997 that results in a negative
adjustment of $25 on January 1, 1998.
(iii) Adjustment to issue price and basis. Z's total daily
portions of interest on the debt instrument are $100 for 1997. The
adjusted issue price of the debt instrument and Z's adjusted basis
in the debt instrument are increased by this amount, despite the
fact that Z does not include this amount in income because of the
net negative adjustment for 1997. In addition, the adjusted issue
price of the debt instrument and Z's adjusted basis in the debt
instrument are decreased on December 31, 1997, by the projected
amount of the payment on that date ($500). Thus, on January 1, 1998,
Z's adjusted basis in the debt instrument and the adjusted issue
price of the debt instrument are $600.
(iv) Adjustments in 1998. Based on the projected payment
schedule, Z's total daily portions of interest are $60 for 1998
(adjusted issue price of $600 x 10 percent). Assume that the payment
actually made on December 31, 1998, is $700, rather than the
projected $660. Under paragraph (b)(6)(i) of this section, Z has a
positive adjustment of $40 on December 31, 1998, attributable to the
difference between the amount of the actual payment and the amount
of the projected payment. Because Z also has a negative adjustment
of $25 on January 1, 1998, Z has a net positive adjustment of $15 on
the debt instrument for 1998 (the excess of the $40 positive
adjustment over the $25 negative adjustment). As a result, Z has $75
of interest income on the debt instrument for 1998 (the $15 net
positive adjustment plus the $60 total daily portions of interest
that are taken into account by Z in that year).
(v) Retirement. Based on the projected payment schedule, Z's
adjusted basis in the debt instrument immediately before the payment
at maturity is $660 ($600 plus $60 total daily portions of interest
for 1998). Even though Z receives $700 at maturity, for purposes of
determining the amount realized by Z on retirement of the debt
instrument, Z is treated as receiving the projected amount of the
contingent payment on December 31, 1998. Therefore, Z is treated as
receiving $660 on December 31, 1998. Because Z's adjusted basis in
the debt instrument immediately before its retirement is $660, Z
recognizes no gain or loss on the retirement.
Example 2. Negative adjustment carryforward for year of sale--
(i) Facts. Assume the same facts as in Example 1 of this paragraph
(b)(7)(vi), except that Z sells the debt instrument on January 1,
1998, for $630.
(ii) Gain on sale. On the date the debt instrument is sold, Z's
adjusted basis in the debt instrument is $600. Because Z has a
negative adjustment of $25 on the debt instrument on January 1,
1998, and has no positive adjustments on the debt instrument in
1998, Z has a net negative adjustment for 1998 of $25. Because Z has
not included in income any interest on the debt instrument, the
entire $25 net negative adjustment is a negative adjustment
carryforward for the taxable year of the sale. Under paragraph
(b)(6)(iii)(C) of this section, the $25 negative adjustment
carryforward reduces the amount realized by Z on the sale of the
debt instrument from $630 to $605. Thus, Z has a gain on the sale of
$5 ($605-$600). Under paragraph (b)(8)(i) of this section, the gain
is treated as interest income.
Example 3. Negative adjustment carryforward for year of
retirement--(i) Facts. Assume the same facts as in Example 1 of this
paragraph (b)(7)(vi), except that the payment actually made on
December 31, 1998, is $615, rather than the projected $660.
(ii) Adjustments in 1998. Under paragraph (b)(6)(i) of this
section, Z has a negative adjustment of $45 on December 31, 1998,
attributable to the difference between the amount of the actual
payment and the amount of the projected payment. In addition, Z has
a negative adjustment of $25 on January 1, 1998. See Example 1(ii)
of this paragraph (b)(7)(vi). Because Z has no positive adjustments
in 1998, Z has a net negative adjustment of $70 for 1998. This net
negative adjustment reduces to zero the $60 total daily portions of
interest Z would otherwise include in income for 1998. Therefore, Z
has no interest income on the debt instrument for 1998. Because Z
had no interest inclusions on the debt instrument for 1997, the
remaining $10 of the net negative adjustment is a negative
adjustment carryforward for 1998 that reduces the amount realized by
Z on retirement of the debt instrument.
(iii) Loss on retirement. Immediately before the payment at
maturity, Z's adjusted basis in the debt instrument is $660. Under
paragraph (b)(7)(iv) of this section, Z is treated as receiving the
projected amount of the contingent payment, or $660, as the payment
at maturity. Under paragraph (b)(6)(iii)(C) of this section,
however, this amount is reduced by any negative adjustment
carryforward determined for the taxable year of retirement to
calculate the amount Z realizes on retirement of the debt
instrument. Thus, Z has a loss of $10 on the retirement of the debt
instrument, equal to the amount by which Z's adjusted basis in the
debt instrument ($660) exceeds the amount Z realizes on the
retirement of the debt instrument ($660 minus the $10 negative
adjustment carryforward). Under paragraph (b)(8)(ii) of this
section, the loss is a capital loss.
(8) Character on sale, exchange, or retirement--(i) Gain. Any gain
recognized by a holder on the sale,
[[Page 30148]]
exchange, or retirement of a debt instrument subject to this paragraph
(b) is interest income.
(ii) Loss. Any loss recognized by a holder on the sale, exchange,
or retirement of a debt instrument subject to this paragraph (b) is
ordinary loss to the extent that the holder's total interest inclusions
on the debt instrument exceed the total net negative adjustments on the
debt instrument the holder took into account as ordinary loss. Any
additional loss is treated as loss from the sale, exchange, or
retirement of the debt instrument. However, any loss that would
otherwise be ordinary under this paragraph (b)(8)(ii) and that is
attributable to the holder's basis that could not be amortized under
section 171(b)(4) is loss from the sale, exchange, or retirement of the
debt instrument.
(iii) Special rule if there are no remaining contingent payments on
the debt instrument--(A) In general. Notwithstanding paragraphs (b)(8)
(i) and (ii) of this section, if, at the time of the sale, exchange, or
retirement of the debt instrument, there are no remaining contingent
payments due on the debt instrument under the projected payment
schedule, any gain or loss recognized by the holder is gain or loss
from the sale, exchange, or retirement of the debt instrument. See
paragraph (b)(9)(ii) of this section to determine whether there are no
remaining contingent payments on a debt instrument that provides for
fixed but deferred contingent payments.
(B) Exception for certain positive adjustments. Notwithstanding
paragraph (b)(8)(iii)(A) of this section, if a positive adjustment on a
debt instrument is spread under paragraph (b)(9)(ii) (F) or (G) of this
section, any gain recognized by the holder on the sale, exchange, or
retirement of the instrument is treated as interest income to the
extent of the positive adjustment that has not yet been accrued and
included in income by the holder.
(iv) Examples. The following examples illustrate the provisions of
this paragraph (b)(8). In each example, assume that the instrument
described is a debt instrument for federal income tax purposes. No
inference is intended, however, as to whether the instrument is a debt
instrument for federal income tax purposes.
Example 1. Gain on sale--(i) Facts. On January 1, 1998, D, a
calendar year taxpayer, sells a debt instrument that is subject to
paragraph (b) of this section for $1,350. The projected payment
schedule for the debt instrument provides for contingent payments
after January 1, 1998. On January 1, 1998, D has an adjusted basis
in the debt instrument of $1,200. In addition, D has a negative
adjustment carryforward of $50 for 1997 that, under paragraph
(b)(6)(iii)(C) of this section, results in a negative adjustment of
$50 on January 1, 1998. D has no positive adjustments on the debt
instrument on January 1, 1998.
(ii) Character of gain. Under paragraph (b)(6) of this section,
the $50 negative adjustment on January 1, 1998, results in a
negative adjustment carryforward for 1998, the taxable year of the
sale of the debt instrument. Under paragraph (b)(6)(iii)(C) of this
section, the negative adjustment carryforward reduces the amount
realized by D on the sale of the debt instrument from $1,350 to
$1,300. As a result, D realizes a $100 gain on the sale of the debt
instrument, equal to the $1,300 amount realized minus D's $1,200
adjusted basis in the debt instrument. Under paragraph (b)(8)(i) of
this section, the gain is interest income to D.
Example 2. Loss on sale--(i) Facts. On December 31, 1996, E, a
calendar year taxpayer, purchases a debt instrument at original
issue for $1,000. The debt instrument is a capital asset in the
hands of E. The debt instrument provides for a single payment on
December 31, 1998 (the maturity date of the instrument), of $1,000
plus an amount based on the increase, if any, in the price of a
specified commodity over the term of the instrument. The comparable
yield for the debt instrument is 9.54 percent, compounded annually,
and the projected payment schedule provides for a payment of $1,200
on December 31, 1998. Based on the projected payment schedule, the
total daily portions of interest are $95 for 1997 and $105 for 1998.
(ii) Ordinary loss. Assume that E sells the debt instrument for
$1,050 on December 31, 1997. On that date, E has an adjusted basis
in the debt instrument of $1,095 ($1,000 original basis, plus total
daily portions of $95 for 1997). Therefore, E realizes a $45 loss on
the sale of the debt instrument ($1,050-$1,095). The loss is
ordinary to the extent E's total interest inclusions on the debt
instrument ($95) exceed the total net negative adjustments on the
instrument that E took into account as an ordinary loss. Because E
has not had any net negative adjustments on the debt instrument, the
$45 loss is an ordinary loss.
(iii) Capital loss. Alternatively, assume that E sells the debt
instrument for $990 on December 31, 1997. E realizes a $105 loss on
the sale of the debt instrument ($990 - $1,095). The loss is
ordinary to the extent E's total interest inclusions on the debt
instrument ($95) exceed the total net negative adjustments on the
instrument that E took into account as an ordinary loss. Because E
has not had any net negative adjustments on the debt instrument, $95
of the $105 loss is an ordinary loss. The remaining $10 of the $105
loss is a capital loss.
(9) Operating rules. The rules of this paragraph (b)(9) apply to a
debt instrument subject to the noncontingent bond method
notwithstanding any other rule of this paragraph (b).
(i) Basis different from adjusted issue price. This paragraph
(b)(9)(i) provides rules for a holder whose basis in a debt instrument
is different from the adjusted issue price of the debt instrument
(e.g., a subsequent holder that purchases the debt instrument for more
or less than the instrument's adjusted issue price).
(A) General rule. The holder accrues interest under paragraph
(b)(3)(iii) of this section and makes adjustments under paragraph
(b)(3)(iv) of this section based on the projected payment schedule
determined as of the issue date of the debt instrument. However, upon
acquiring the debt instrument, the holder must reasonably allocate any
difference between the adjusted issue price and the basis to daily
portions of interest or projected payments over the remaining term of
the debt instrument. Allocations are taken into account under
paragraphs (b)(9)(i) (B) and (C) of this section.
(B) Basis greater than adjusted issue price. If the holder's basis
in the debt instrument exceeds the debt instrument's adjusted issue
price, the amount of the difference allocated to a daily portion of
interest or to a projected payment is treated as a negative adjustment
on the date the daily portion accrues or the payment is made. On the
date of the adjustment, the holder's adjusted basis in the debt
instrument is reduced by the amount the holder treats as a negative
adjustment under this paragraph (b)(9)(i)(B). See paragraph
(b)(9)(ii)(E) of this section for a special rule that applies when a
contingent payment is fixed more than 6 months before it is due.
(C) Basis less than adjusted issue price. If the holder's basis in
the debt instrument is less than the debt instrument's adjusted issue
price, the amount of the difference allocated to a daily portion of
interest or to a projected payment is treated as a positive adjustment
on the date the daily portion accrues or the payment is made. On the
date of the adjustment, the holder's adjusted basis in the debt
instrument is increased by the amount the holder treats as a positive
adjustment under this paragraph (b)(9)(i)(C). See paragraph
(b)(9)(ii)(E) of this section for a special rule that applies when a
contingent payment is fixed more than 6 months before it is due.
(D) Premium and discount rules do not apply. The rules for accruing
premium and discount in sections 171, 1272(a)(7), 1276, and 1281 do not
apply. Other rules of those sections, such as section 171(b)(4),
continue to apply to the extent relevant.
(E) Safe harbor for exchange listed debt instruments. If the debt
instrument is exchange listed property (within the meaning of
Sec. 1.1273-2(f)(2)), it is reasonable for the holder to allocate any
difference between the holder's basis
[[Page 30149]]
and the adjusted issue price of the debt instrument pro-rata to daily
portions of interest (as determined under paragraph (b)(3)(iii) of this
section) over the remaining term of the debt instrument. A pro-rata
allocation is not reasonable, however, to the extent the holder's yield
on the debt instrument, determined after taking into account the
amounts allocated under this paragraph (b)(9)(i)(E), is less than the
applicable Federal rate for the instrument. For purposes of the
preceding sentence, the applicable Federal rate for the debt instrument
is determined as if the purchase date were the issue date and the
remaining term of the instrument were the term of the instrument.
(F) Examples. The following examples illustrate the provisions of
this paragraph (b)(9)(i). In each example, assume that the instrument
described is a debt instrument for federal income tax purposes. No
inference is intended, however, as to whether the instrument is a debt
instrument for federal income tax purposes. In addition, assume that
each instrument is not exchange listed property.
Example 1. Basis greater than adjusted issue price--(i) Facts.
On July 1, 1998, Z purchases for $1,405 a debt instrument that
matures on December 31, 1999, and promises to pay on the maturity
date $1,000 plus the increase, if any, in the price of a specified
amount of a commodity from the issue date to the maturity date. The
debt instrument was originally issued on December 31, 1996, for an
issue price of $1,000. The comparable yield for the debt instrument
is 10.25 percent, compounded semiannually, and the projected payment
schedule for the debt instrument (determined as of the issue date)
provides for a single payment at maturity of $1,350. At the time of
the purchase, the debt instrument has an adjusted issue price of
$1,162, assuming semiannual accrual periods ending on December 31
and June 30 of each year. The increase in the value of the debt
instrument over its adjusted issue price is due to an increase in
the expected amount of the contingent payment and not to a decrease
in market interest rates. The debt instrument is a capital asset in
the hands of Z. Z is a calendar year taxpayer.
(ii) Allocation of the difference between basis and adjusted
issue price. Z's basis in the debt instrument on July 1, 1998, is
$1,405. Under paragraph (b)(9)(i)(A) of this section, Z allocates
the $243 difference between basis ($1,405) and adjusted issue price
($1,162) to the contingent payment at maturity. Z's allocation of
the difference between basis and adjusted issue price is reasonable
because the increase in the value of the debt instrument over its
adjusted issue price is due to an increase in the expected amount of
the contingent payment.
(iii) Treatment of debt instrument for 1998. Based on the
projected payment schedule, $60 of interest accrues on the debt
instrument from July 1, 1998 to December 31, 1998 (the product of
the debt instrument's adjusted issue price on July 1, 1998 ($1,162)
and the comparable yield properly adjusted for the length of the
accrual period (10.25 percent/2)). Z has no net negative or positive
adjustments for 1998. Thus, Z includes in income $60 of total daily
portions of interest for 1998. On December 31, 1998, Z's adjusted
basis in the debt instrument is $1,465 ($1,405 original basis, plus
total daily portions of $60 for 1998).
(iv) Effect of allocation to contingent payment at maturity.
Assume that the payment actually made on December 31, 1999, is
$1,400, rather than the projected $1,350. Thus, under paragraph
(b)(6)(i) of this section, Z has a positive adjustment of $50 on
December 31, 1999. In addition, under paragraph (b)(9)(i)(B) of this
section, Z has a negative adjustment of $243 on December 31, 1999,
which is attributable to the difference between Z's basis in the
debt instrument on July 1, 1998, and the instrument's adjusted issue
price on that date. As a result, Z has a net negative adjustment of
$193 for 1999. This net negative adjustment reduces to zero the $128
total daily portions of interest Z would otherwise include in income
in 1999. Accordingly, Z has no interest income on the debt
instrument for 1999. Because Z had $60 of interest inclusions for
1998, $60 of the remaining $65 net negative adjustment is treated by
Z as an ordinary loss for 1999. The remaining $5 of the net negative
adjustment is a negative adjustment carryforward for 1999 that
reduces the amount realized by Z on the retirement of the debt
instrument from $1,350 to $1,345.
(v) Loss at maturity. On December 31, 1999, Z's basis in the
debt instrument is $1,350 ($1,405 original basis, plus total daily
portions of $60 for 1998 and $128 for 1999, minus the negative
adjustment of $243). As a result, Z realizes a loss of $5 on the
retirement of the debt instrument (the difference between the amount
realized on the retirement ($1,345) and Z's adjusted basis in the
debt instrument ($1,350)). Under paragraph (b)(8)(ii) of this
section, the $5 loss is treated as loss from the retirement of the
debt instrument. Consequently, Z realizes a total loss of $65 on the
debt instrument for 1999 (a $60 ordinary loss and a $5 capital
loss).
Example 2. Basis less than adjusted issue price--(i) Facts. On
January 1, 1999, Y purchases for $910 a debt instrument that pays 7
percent interest semiannually on June 30 and December 31 of each
year, and that promises to pay on December 31, 2001, $1,000 plus or
minus $10 times the positive or negative difference, if any, between
a specified amount and the value of an index on December 31, 2001.
However, the payment on December 31, 2001, may not be less than
$650. The debt instrument was originally issued on December 31,
1996, for an issue price of $1,000. The comparable yield for the
debt instrument is 9.80 percent, compounded semiannually, and the
projected payment schedule for the debt instrument (determined as of
the issue date) provides for semiannual payments of $35 and a
contingent payment at maturity of $1,175. On January 1, 1999, the
debt instrument has an adjusted issue price of $1,060, assuming
semiannual accrual periods ending on December 31 and June 30 of each
year. Y is a calendar year taxpayer.
(ii) Allocation of the difference between basis and adjusted
issue price. Y's basis in the debt instrument on January 1, 1999, is
$910. Under paragraph (b)(9)(i)(A) of this section, Y must allocate
the $150 difference between basis ($910) and adjusted issue price
($1,060) to daily portions of interest or to projected payments.
These amounts will be positive adjustments taken into account at the
time the daily portions accrue or the payments are made.
(A) Assume that, because of a decrease in the relevant index,
the expected value of the payment at maturity has declined by about
9 percent. Based on forward prices on January 1, 1999, Y determines
that approximately $105 of the difference between basis and adjusted
issue price is allocable to the contingent payment. Y allocates the
remaining $45 to daily portions of interest on a pro-rata basis
(i.e., the amount allocated to an accrual period equals the product
of $45 and a fraction, the numerator of which is the total daily
portions for the accrual period and the denominator of which is the
total daily portions remaining on the debt instrument on January 1,
1999). This allocation is reasonable.
(B) Assume alternatively that, based on yields of comparable
debt instruments and its purchase price for the debt instrument, Y
determines that an appropriate yield for the debt instrument is 13
percent, compounded semiannually. Based on this determination, Y
allocates $55.75 of the difference between basis and adjusted issue
price to daily portions of interest as follows: $15.19 to the daily
portions of interest for the taxable year ending December 31, 1999;
$18.40 to the daily portions of interest for the taxable year ending
December 31, 2000; and $22.16 to the daily portions of interest for
the taxable year ending December 31, 2001. Y allocates the remaining
$94.25 to the contingent payment at maturity. This allocation is
reasonable.
(ii) Fixed but deferred contingent payments. This paragraph
(b)(9)(ii) provides rules that apply when the amount of a contingent
payment becomes fixed before the payment is due. For purposes of
paragraph (b) of this section, if a contingent payment becomes fixed
within the 6-month period ending on the due date of the payment, the
payment is treated as a contingent payment even after the payment is
fixed. If a contingent payment becomes fixed more than 6 months before
the payment is due, the following rules apply to the debt instrument.
(A) Determining adjustments. The amount of the adjustment
attributable to the contingent payment is equal to the difference
between the present value of the amount that is fixed and the present
value of the projected amount of the contingent payment. The present
value of each amount is determined by discounting the amount from the
date the payment is due to the date the
[[Page 30150]]
payment becomes fixed, using a discount rate equal to the comparable
yield on the debt instrument. The adjustment is treated as a positive
or negative adjustment, as appropriate, on the date the contingent
payment becomes fixed. See paragraph (b)(9)(ii)(G) of this section to
determine the timing of the adjustment if all remaining contingent
payments on the debt instrument become fixed substantially
contemporaneously.
(B) Payment schedule. The contingent payment is no longer treated
as a contingent payment after the date the amount of the payment
becomes fixed. On the date the contingent payment becomes fixed, the
projected payment schedule for the debt instrument is modified
prospectively to reflect the fixed amount of the payment. Therefore, no
adjustment is made under paragraph (b)(3)(iv) of this section when the
contingent payment is actually made.
(C) Accrual period. Notwithstanding the determination under
Sec. 1.1272-1(b)(1)(ii) of accrual periods for the debt instrument, an
accrual period ends on the day the contingent payment becomes fixed,
and a new accrual period begins on the day after the day the contingent
payment becomes fixed.
(D) Adjustments to basis and adjusted issue price. The amount of
any positive adjustment on a debt instrument determined under paragraph
(b)(9)(ii)(A) of this section increases the adjusted issue price of the
instrument and the holder's adjusted basis in the instrument.
Similarly, the amount of any negative adjustment on a debt instrument
determined under paragraph (b)(9)(ii)(A) of this section decreases the
adjusted issue price of the instrument and the holder's adjusted basis
in the instrument.
(E) Basis different from adjusted issue price. If a holder's basis
in a debt instrument exceeds the debt instrument's adjusted issue
price, the amount allocated to a projected payment under paragraph
(b)(9)(i) of this section is treated as a negative adjustment on the
date the payment becomes fixed. If a holder's basis in a debt
instrument is less than the debt instrument's adjusted issue price, the
amount allocated to a projected payment under paragraph (b)(9)(i) of
this section is treated as a positive adjustment on the date the
payment becomes fixed.
(F) Special rule for certain contingent interest payments.
Notwithstanding paragraph (b)(9)(ii)(A) of this section, this paragraph
(b)(9)(ii)(F) applies to contingent stated interest payments that are
adjusted to compensate for contingencies regarding the reasonableness
of the debt instrument's stated rate of interest. For example, this
paragraph (b)(9)(ii)(F) applies to a debt instrument that provides for
an increase in the stated rate of interest if the credit quality of the
issuer or liquidity of the debt instrument deteriorates. Contingent
stated interest payments of this type are recognized over the period to
which they relate in a reasonable manner.
(G) Special rule when all contingent payments become fixed.
Notwithstanding paragraph (b)(9)(ii)(A) of this section, if all the
remaining contingent payments on a debt instrument become fixed
substantially contemporaneously, any positive or negative adjustments
on the instrument are taken into account in a reasonable manner over
the period to which they relate. For purposes of the preceding
sentence, a payment is treated as a fixed payment if all remaining
contingencies with respect to the payment are remote or incidental
(within the meaning of Sec. 1.1275-2(h)).
(H) Example. The following example illustrates the provisions of
this paragraph (b)(9)(ii). In this example, assume that the instrument
described is a debt instrument for federal income tax purposes. No
inference is intended, however, as to whether the instrument is a debt
instrument for federal income tax purposes.
Example. Fixed but deferred payments--(i) Facts. On December 31,
1996, B, a calendar year taxpayer, purchases a debt instrument at
original issue for $1,000. The debt instrument matures on December
31, 2002, and provides for a payment of $1,000 at maturity. In
addition, on December 31, 1999, and December 31, 2002, the debt
instrument provides for payments equal to the excess of the average
daily value of an index for the 6-month period ending on September
30 of the preceding year over a specified amount. The debt
instrument's comparable yield is 10 percent, compounded annually,
and the instrument's projected payment schedule consists of a
payment of $250 on December 31, 1999, and a payment of $1,439 on
December 31, 2002. B uses annual accrual periods.
(ii) Interest accrual for 1997. Based on the projected payment
schedule, B includes a total of $100 of daily portions of interest
in income in 1997. B's adjusted basis in the debt instrument and the
debt instrument's adjusted issue price on December 31, 1997, is
$1,100.
(iii) Interest accrual for 1998--(A) Adjustment. Based on the
projected payment schedule, B would include $110 of total daily
portions of interest in income in 1998. However, assume that on
September 30, 1998, the payment due on December 31, 1999, fixes at
$300, rather than the projected $250. Thus, on September 30, 1998, B
has an adjustment equal to the difference between the present value
of the $300 fixed amount and the present value of the $250 projected
amount of the contingent payment. The present values of the two
payments are determined by discounting each payment from the date
the payment is due (December 31, 1999) to the date the payment
becomes fixed (September 30, 1998), using a discount rate equal to
10 percent, compounded annually. The present value of the fixed
payment is $266.30 and the present value of the projected amount of
the contingent payment is $221.91. Thus, on September 30, 1998, B
has a positive adjustment of $44.39 ($266.30-$221.91).
(B) Effect of adjustment. Under paragraph (b)(9)(ii)(C) of this
section, B's accrual period ends on September 30, 1998. The daily
portions of interest on the debt instrument for the period from
January 1, 1998 to September 30, 1998 total $81.51. The adjusted
issue price of the debt instrument and B's adjusted basis in the
debt instrument are thus increased over this period by $125.90 (the
sum of the daily portions of interest of $81.51 and the positive
adjustment of $44.39 made at the end of the period) to $1,225.90.
For purposes of all future accrual periods, including the new
accrual period from October 1, 1998, to December 31, 1998, the debt
instrument's projected payment schedule is modified to reflect a
fixed payment of $300 on December 31, 1999. Based on the new
adjusted issue price of the debt instrument and the new projected
payment schedule, the yield on the debt instrument does not change.
(C) Interest accrual for 1998. Based on the modified projected
payment schedule, $29.56 of interest accrues during the accrual
period that ends on December 31, 1998. Because B has no other
adjustments during 1998, the $44.39 positive adjustment on September
30, 1998, results in a net positive adjustment for 1998, which is
additional interest for that year. Thus, B includes $155.46
($81.51+$29.56+$44.39) of interest in income in 1998. B's adjusted
basis in the debt instrument and the debt instrument's adjusted
issue price on December 31, 1998, is $1,255.46 ($1,225.90 from the
end of the prior accrual period plus $29.56 total daily portions for
the current accrual period).
(iii) Timing contingencies. This paragraph (b)(9)(iii) provides
rules for debt instruments that have payments that are contingent as to
time.
(A) Treatment of certain options. If a taxpayer has an
unconditional option to put or call the debt instrument, to exchange
the debt instrument for other property, or to extend the maturity date
of the debt instrument, the projected payment schedule is determined by
using the principles of Sec. 1.1272-1(c)(5).
(B) Other timing contingencies. [Reserved]
(iv) Cross-border transactions--(A) Allocation of deductions. For
purposes of Sec. 1.861-8, the holder of a debt instrument shall treat
any deduction or loss treated as an ordinary loss under paragraph
(b)(6)(iii)(B) or (b)(8)(ii) of this section as a deduction that is
definitely related to the class of gross
[[Page 30151]]
income to which income from such debt instrument belongs. Accordingly,
if a U.S. person holds a debt instrument issued by a related controlled
foreign corporation and, pursuant to section 904(d)(3) and the
regulations thereunder, any interest accrued by such U.S. person with
respect to such debt instrument would be treated as foreign source
general limitation income, any deductions relating to a net negative
adjustment will reduce the U.S. person's foreign source general
limitation income. The holder shall apply the general rules relating to
allocation and apportionment of deductions to any other deduction or
loss realized by the holder with respect to the debt instrument.
(B) Investments in United States real property. Notwithstanding
paragraph (b)(8)(i) of this section, gain on the sale, exchange, or
retirement of a debt instrument that is a United States real property
interest is treated as gain for purposes of sections 897, 1445, and
6039C.
(v) Coordination with subchapter M and related provisions. For
purposes of sections 852(c)(2) and 4982 and Sec. 1.852-11, any positive
adjustment, negative adjustment, income, or loss on a debt instrument
that occurs after October 31 of a taxable year is treated in the same
manner as foreign currency gain or loss that is attributable to a
section 988 transaction.
(vi) Coordination with section 1092. A holder treats a negative
adjustment and an issuer treats a positive adjustment as a loss with
respect to a position in a straddle if the debt instrument is a
position in a straddle and the contingency (or any portion of the
contingency) to which the adjustment relates would be part of the
straddle if entered into as a separate position.
(c) Method for debt instruments not subject to the noncontingent
bond method--(1) Applicability. This paragraph (c) applies to a
contingent payment debt instrument (other than a tax-exempt obligation)
that has an issue price determined under Sec. 1.1274-2. For example,
this paragraph (c) generally applies to a contingent payment debt
instrument that is issued for nonpublicly traded property.
(2) Separation into components. If paragraph (c) of this section
applies to a debt instrument (the overall debt instrument), the
noncontingent payments are subject to the rules in paragraph (c)(3) of
this section, and the contingent payments are accounted for separately
under the rules in paragraph (c)(4) of this section.
(3) Treatment of noncontingent payments. The noncontingent payments
are treated as a separate debt instrument. The issue price of the
separate debt instrument is the issue price of the overall debt
instrument, determined under Sec. 1.1274-2(g). No interest payments on
the separate debt instrument are qualified stated interest payments
(within the meaning of Sec. 1.1273-1(c)) and the de minimis rules of
section 1273(a)(3) and Sec. 1.1273-1(d) do not apply to the separate
debt instrument.
(4) Treatment of contingent payments--(i) In general. Except as
provided in paragraph (c)(4)(iii) of this section, the portion of a
contingent payment treated as interest under paragraph (c)(4)(ii) of
this section is includible in gross income by the holder and deductible
from gross income by the issuer in their respective taxable years in
which the payment is made.
(ii) Characterization of contingent payments as principal and
interest--(A) General rule. A contingent payment is treated as a
payment of principal in an amount equal to the present value of the
payment, determined by discounting the payment at the test rate from
the date the payment is made to the issue date. The amount of the
payment in excess of the amount treated as principal under the
preceding sentence is treated as a payment of interest.
(B) Test rate. The test rate used for purposes of paragraph
(c)(4)(ii)(A) of this section is the rate that would be the test rate
for the overall debt instrument under Sec. 1.1274-4 if the term of the
overall debt instrument began on the issue date of the overall debt
instrument and ended on the date the contingent payment is made.
However, in the case of a contingent payment that consists of a payment
of stated principal accompanied by a payment of stated interest at a
rate that exceeds the test rate determined under the preceding
sentence, the test rate is the stated interest rate.
(iii) Certain delayed contingent payments--(A) General rule.
Notwithstanding paragraph (c)(4)(ii) of this section, if a contingent
payment becomes fixed more than 6 months before the payment is due, the
issuer and holder are treated as if the issuer had issued a separate
debt instrument on the date the payment becomes fixed, maturing on the
date the payment is due. This separate debt instrument is treated as a
debt instrument to which section 1274 applies. The stated principal
amount of this separate debt instrument is the amount of the payment
that becomes fixed. An amount equal to the issue price of this debt
instrument is characterized as interest or principal under the rules of
paragraph (c)(4)(ii) of this section and accounted for as if this
amount had been paid by the issuer to the holder on the date that the
amount of the payment becomes fixed. To determine the issue price of
the separate debt instrument, the payment is discounted at the test
rate from the maturity date of the separate debt instrument to the date
that the amount of the payment becomes fixed.
(B) Test rate. The test rate used for purposes of paragraph
(c)(4)(iii)(A) of this section is determined in the same manner as the
test rate under paragraph (c)(4)(ii)(B) of this section is determined
except that the date the contingent payment is due is used rather than
the date the contingent payment is made.
(5) Basis different from adjusted issue price. This paragraph
(c)(5) provides rules for a holder whose basis in a debt instrument is
different from the instrument's adjusted issue price (e.g., a
subsequent holder). This paragraph (c)(5), however, does not apply if
the holder is reporting income under the installment method of section
453.
(i) Allocation of basis. The holder must allocate basis to the
noncontingent component (i.e., the right to the noncontingent payments)
and to any separate debt instruments described in paragraph (c)(4)(iii)
of this section in an amount up to the total of the adjusted issue
price of the noncontingent component and the adjusted issue prices of
the separate debt instruments. The holder must allocate the remaining
basis, if any, to the contingent component (i.e., the right to the
contingent payments).
(ii) Noncontingent component. Any difference between the holder's
basis in the noncontingent component and the adjusted issue price of
the noncontingent component, and any difference between the holder's
basis in a separate debt instrument and the adjusted issue price of the
separate debt instrument, is taken into account under the rules for
market discount, premium, and acquisition premium that apply to a
noncontingent debt instrument.
(iii) Contingent component. Amounts received by the holder that are
treated as principal payments under paragraph (c)(4)(ii) of this
section reduce the holder's basis in the contingent component. If the
holder's basis in the contingent component is reduced to zero, any
additional principal payments on the contingent component are treated
as gain from the sale or exchange of the debt instrument. Any basis
remaining on the contingent component on the date the final contingent
payment is made increases the holder's adjusted basis in the
noncontingent component
[[Page 30152]]
(or, if there are no remaining noncontingent payments, is treated as
loss from the sale or exchange of the debt instrument).
(6) Treatment of a holder on sale, exchange, or retirement. This
paragraph (c)(6) provides rules for the treatment of a holder on the
sale, exchange, or retirement of a debt instrument subject to this
paragraph (c). Under this paragraph (c)(6), the holder must allocate
the amount received from the sale, exchange, or retirement of a debt
instrument first to the noncontingent component and to any separate
debt instruments described in paragraph (c)(4)(iii) of this section in
an amount up to the total of the adjusted issue price of the
noncontingent component and the adjusted issue prices of the separate
debt instruments. The holder must allocate the remaining amount
received, if any, to the contingent component.
(i) Amount allocated to the noncontingent component. The amount
allocated to the noncontingent component and any separate debt
instruments is treated as an amount realized from the sale, exchange,
or retirement of the noncontingent component or separate debt
instrument.
(ii) Amount allocated to the contingent component. The amount
allocated to the contingent component is treated as a contingent
payment that is made on the date of the sale, exchange, or retirement
and is characterized as interest and principal under the rules of
paragraph (c)(4)(ii) of this section.
(7) Examples. The following examples illustrate the provisions of
this paragraph (c). In each example, assume that the instrument
described is a debt instrument for federal income tax purposes. No
inference is intended, however, as to whether the instrument is a debt
instrument for federal income tax purposes.
Example 1. Contingent interest payments--(i) Facts. A owns
Blackacre, unencumbered depreciable real estate. On January 1, 1997,
A sells Blackacre to B. As consideration for the sale, B makes a
downpayment of $1,000,000 and issues to A a debt instrument that
matures on December 31, 2001. The debt instrument provides for a
payment of principal at maturity of $5,000,000 and a contingent
payment of interest on December 31 of each year equal to a fixed
percentage of the gross rents B receives from Blackacre in that
year. Assume that the debt instrument is not issued in a potentially
abusive situation. Assume also that on January 1, 1997, the short-
term applicable Federal rate is 5 percent, compounded annually, and
the mid-term applicable Federal rate is 6 percent, compounded
annually.
(ii) Determination of issue price. Under Sec. 1.1274-2(g), the
issue price of the debt instrument is $3,736,291, which is the
present value, as of the issue date, of the $5,000,000 noncontingent
payment due at maturity, calculated using a discount rate equal to
the mid-term applicable Federal rate. Under Sec. 1.1012-1(g)(1), B's
basis in Blackacre on January 1, 1997, is $4,736,291 ($1,000,000
down payment plus the $3,736,291 issue price of the debt
instrument).
(iii) Noncontingent payment treated as separate debt instrument.
Under paragraph (c)(3) of this section, the right to the
noncontingent payment of principal at maturity is treated as a
separate debt instrument. The issue price of this separate debt
instrument is $3,736,291 (the issue price of the overall debt
instrument). The separate debt instrument has a stated redemption
price at maturity of $5,000,000 and, therefore, OID of $1,263,709.
(iv) Treatment of contingent payments. Assume that the amount of
contingent interest that is fixed and paid on December 31, 1997, is
$200,000. Under paragraph (c)(4)(ii) of this section, this payment
is treated as consisting of a payment of principal of $190,476,
which is the present value of the payment, determined by discounting
the payment at the test rate of 5 percent, compounded annually, from
the date the payment is made to the issue date. The remainder of the
$200,000 payment ($9,524) is treated as interest. The additional
amount treated as principal gives B additional basis in Blackacre on
December 31, 1997. The portion of the payment treated as interest is
includible in gross income by A and deductible by B in their
respective taxable years in which December 31, 1997 occurs. The
remaining contingent payments on the debt instrument are accounted
for similarly, using a test rate of 5 percent, compounded annually,
for the contingent payments due on December 31, 1998, and December
31, 1999, and a test rate of 6 percent, compounded annually, for the
contingent payments due on December 31, 2000, and December 31, 2001.
Example 2. Fixed but deferred payment--(i) Facts. The facts are
the same as in paragraph (c)(7) Example 1 of this section, except
that the contingent payment of interest that is fixed o
FR Doc. 96-14918 Debt Instruments With Original Issue Discount; Contingent Payments; Anti-Abuse Rule
n December
31, 1997, is not payable until December 31, 2001, the maturity date.
(ii) Treatment of deferred contingent payment. Assume that the
amount of the payment that becomes fixed on December 31, 1997, is
$200,000. Because this amount is not payable until December 31,
2001, under paragraph (c)(4)(iii) of this section, a separate debt
instrument to which section 1274 applies is treated as issued by B
on December 31, 1997 (the date the payment is fixed). The maturity
date of this separate debt instrument is December 31, 2001 (the date
on which the payment is due). The stated principal amount of this
separate debt instrument is $200,000, the amount of the payment that
becomes fixed. The imputed principal amount of the separate debt
instrument is $158,419, which is the present value, as of December
31, 1997, of the $200,000 payment, computed using a discount rate
equal to the test rate of the overall debt instrument (6 percent,
compounded annually). An amount equal to the issue price of the
separate debt instrument is treated as an amount paid on December
31, 1997, and characterized as interest and principal under the
rules of paragraph (c)(4)(ii) of this section. The amount of the
deemed payment characterized as principal is equal to $150,875,
which is the present value, as of January 1, 1997 (the issue date of
the overall debt instrument), of the deemed payment, computed using
a discount rate of 5 percent, compounded annually. The amount of the
deemed payment characterized as interest is $7,544 ($158,419
-$150,875), which is includible in gross income by A and deductible
by B in their respective taxable years in which December 31, 1997
occurs.
(d) Rules for tax-exempt obligations--(1) In general. Except as
modified by this paragraph (d), the noncontingent bond method described
in paragraph (b) of this section applies to a tax-exempt obligation (as
defined in section 1275(a)(3)) to which this section applies. Paragraph
(d)(2) of this section applies to certain tax-exempt obligations that
provide for interest-based payments or revenue-based payments and
paragraph (d)(3) of this section applies to all other obligations.
Paragraph (d)(4) of this section provides rules for a holder whose
basis in a tax-exempt obligation is different from the adjusted issue
price of the obligation.
(2) Certain tax-exempt obligations with interest-based or revenue-
based payments--(i) Applicability. This paragraph (d)(2) applies to a
tax-exempt obligation that provides for interest- based payments or
revenue-based payments.
(ii) Interest-based payments. A tax-exempt obligation provides for
interest-based payments if the obligation would otherwise qualify as a
variable rate debt instrument under Sec. 1.1275-5 except that--
(A) The obligation provides for more than one fixed rate;
(B) The obligation provides for one or more caps, floors, or
governors (or similar restrictions) that are fixed as of the issue
date;
(C) The interest on the obligation is not compounded or paid at
least annually; or
(D) The obligation provides for interest at one or more rates equal
to the product of a qualified floating rate and a fixed multiple
greater than zero and less than .65, or at one or more rates equal to
the product of a qualified floating rate and a fixed multiple greater
than zero and less than .65, increased or decreased by a fixed rate.
(iii) Revenue-based payments. A tax-exempt obligation provides for
revenue-based payments if the obligation--
(A) Is issued to refinance (including a series of refinancings) an
obligation (in a series of refinancings, the original
[[Page 30153]]
obligation), the proceeds of which were used to finance a project or
enterprise; and
(B) Would otherwise qualify as a variable rate debt instrument
under Sec. 1.1275-5 except that it provides for stated interest
payments at least annually based on a single fixed percentage of the
revenue, value, change in value, or other similar measure of the
performance of the refinanced project or enterprise.
(iv) Modifications to the noncontingent bond method. If a tax-
exempt obligation is subject to this paragraph (d)(2), the following
modifications to the noncontingent bond method described in paragraph
(b) of this section apply to the obligation.
(A) Daily portions and net positive adjustments. The daily portions
of interest determined under paragraph (b)(3)(iii) of this section and
any net positive adjustment on the obligation are interest for purposes
of section 103.
(B) Net negative adjustments. A net negative adjustment for a
taxable year reduces the amount of tax-exempt interest the holder would
otherwise account for on the obligation for the taxable year under
paragraph (b)(3)(iii) of this section. If the net negative adjustment
exceeds this amount, the excess is a nondeductible, noncapitalizable
loss. If a regulated investment company (RIC) within the meaning of
section 851 has a net negative adjustment in a taxable year that would
be a nondeductible, noncapitalizable loss under the prior sentence, the
RIC must use this loss to reduce its tax-exempt interest income on
other tax-exempt obligations held during the taxable year.
(C) Gains. Any gain recognized on the sale, exchange, or retirement
of the obligation is gain from the sale or exchange of the obligation.
(D) Losses. Any loss recognized on the sale, exchange, or
retirement of the obligation is treated the same as a net negative
adjustment under paragraph (d)(2)(iv)(B) of this section.
(E) Special rule for losses and net negative adjustments.
Notwithstanding paragraphs (d)(2)(iv) (B) and (D) of this section, on
the sale, exchange, or retirement of the obligation, the holder may
claim a loss from the sale or exchange of the obligation to the extent
the holder has not received in cash or property the sum of its original
investment in the obligation and any amounts included in income under
paragraph (d)(4)(ii) of this section.
(3) All other tax-exempt obligations--(i) Applicability. This
paragraph (d)(3) applies to a tax-exempt obligation that is not subject
to paragraph (d)(2) of this section.
(ii) Modifications to the noncontingent bond method. If a tax-
exempt obligation is subject to this paragraph (d)(3), the following
modifications to the noncontingent bond method described in paragraph
(b) of this section apply to the obligation.
(A) Modification to projected payment schedule. The comparable
yield for the obligation is the greater of the obligation's yield,
determined without regard to the contingent payments, and the tax-
exempt applicable Federal rate that applies to the obligation. The
Internal Revenue Service publishes the tax-exempt applicable Federal
rate for each month in the Internal Revenue Bulletin (see
Sec. 601.601(d)(2)(ii) of this chapter).
(B) Daily portions. The daily portions of interest determined under
paragraph (b)(3)(iii) of this section are interest for purposes of
section 103.
(C) Adjustments. A net positive adjustment on the obligation is
treated as gain to the holder from the sale or exchange of the
obligation in the taxable year of the adjustment. A net negative
adjustment on the obligation is treated as a loss to the holder from
the sale or exchange of the obligation in the taxable year of the
adjustment.
(D) Gains and losses. Any gain or loss recognized on the sale,
exchange, or retirement of the obligation is gain or loss from the sale
or exchange of the obligation.
(4) Basis different from adjusted issue price. This paragraph
(d)(4) provides rules for a holder whose basis in a tax-exempt
obligation is different from the adjusted issue price of the
obligation. The rules of paragraph (b)(9)(i) of this section do not
apply to tax-exempt obligations.
(i) Basis greater than adjusted issue price. If the holder's basis
in the obligation exceeds the obligation's adjusted issue price, the
holder, upon acquiring the obligation, must allocate this difference to
daily portions of interest on a yield to maturity basis over the
remaining term of the obligation. The amount allocated to a daily
portion of interest is not deductible by the holder. However, the
holder's basis in the obligation is reduced by the amount allocated to
a daily portion of interest on the date the daily portion accrues.
(ii) Basis less than adjusted issue price. If the holder's basis in
the obligation is less than the obligation's adjusted issue price, the
holder, upon acquiring the obligation, must allocate this difference to
daily portions of interest on a yield to maturity basis over the
remaining term of the obligation. The amount allocated to a daily
portion of interest is includible in income by the holder as ordinary
income on the date the daily portion accrues. The holder's adjusted
basis in the obligation is increased by the amount includible in income
by the holder under this paragraph (d)(4)(ii) on the date the daily
portion accrues.
(iii) Premium and discount rules do not apply. The rules for
accruing premium and discount in sections 171, 1276, and 1288 do not
apply. Other rules of those sections continue to apply to the extent
relevant.
(e) Amounts treated as interest under this section. Amounts treated
as interest under this section are treated as OID for all purposes of
the Internal Revenue Code.
(f) Effective date. This section applies to debt instruments issued
on or after August 13, 1996.
Par. 16. Section 1.1275-5 is amended by:
1. Revising paragraph (a)(1).
2. Removing the language ``The debt instrument must provide for
stated interest'' from the introductory language of paragraph (a)(3)(i)
and adding the language ``The debt instrument must not provide for any
stated interest other than stated interest'' in its place.
3. Removing the language ``less than 1 year'' from the first
sentence of paragraph (a)(3)(ii) and adding the language ``1 year or
less'' in its place.
4. Adding paragraphs (a)(5) and (a)(6).
5. Revising paragraph (b)(2).
6. Revising paragraphs (c)(1) and (c)(5).
7. Removing the language ``cost of newly borrowed funds'' from
paragraph (c)(3)(ii) and adding the language ``qualified floating
rate'' in its place.
8. Revising paragraph (d) introductory text; revising Examples 4
through 9; and adding Example 10.
9. Revising paragraph (e)(2).
10. Revising paragraph (e)(3)(v) introductory text; revising
Example 3 (ii); and removing Example 3 (iii).
The revisions and additions read as follows:
Sec. 1.1275-5 Variable rate debt instruments.
(a) Applicability--(1) In general. This section provides rules for
variable rate debt instruments. Except as provided in paragraph (a)(6)
of this section, a variable rate debt instrument is a debt instrument
that meets the conditions described in paragraphs (a)(2), (3), (4), and
(5) of this section. If a debt instrument that provides for a variable
rate of interest does not qualify as a variable rate debt instrument,
the debt instrument is a contingent payment debt instrument. See
Sec. 1.1275-4 for the
[[Page 30154]]
treatment of a contingent payment debt instrument. See Sec. 1.1275-6
for a taxpayer's treatment of a variable rate debt instrument and a
hedge.
* * * * *
(5) No contingent principal payments. Except as provided in
paragraph (a)(2) of this section, the debt instrument must not provide
for any principal payments that are contingent (within the meaning of
Sec. 1.1275-4(a)).
(6) Special rule for debt instruments issued for nonpublicly traded
property. A debt instrument (other than a tax-exempt obligation) that
would otherwise qualify as a variable rate debt instrument under this
section is not a variable rate debt instrument if section 1274 applies
to the instrument and any stated interest payments on the instrument
are treated as contingent payments under Sec. 1.1274-2. This paragraph
(a)(6) applies to debt instruments issued on or after August 13, 1996.
(b) * * *
(2) Certain rates based on a qualified floating rate. For a debt
instrument issued on or after August 13, 1996, a variable rate is a
qualified floating rate if it is equal to either--
(i) The product of a qualified floating rate described in paragraph
(b)(1) of this section and a fixed multiple that is greater than .65
but not more than 1.35; or
(ii) The product of a qualified floating rate described in
paragraph (b)(1) of this section and a fixed multiple that is greater
than .65 but not more than 1.35, increased or decreased by a fixed
rate.
* * * * *
(c) Objective rate--(1) Definition--(i) In general. For debt
instruments issued on or after August 13, 1996, an objective rate is a
rate (other than a qualified floating rate) that is determined using a
single fixed formula and that is based on objective financial or
economic information. For example, an objective rate generally includes
a rate that is based on one or more qualified floating rates or on the
yield of actively traded personal property (within the meaning of
section 1092(d)(1)).
(ii) Exception. For purposes of paragraph (c)(1)(i) of this
section, an objective rate does not include a rate based on information
that is within the control of the issuer (or a related party within the
meaning of section 267(b) or 707(b)(1)) or that is unique to the
circumstances of the issuer (or a related party within the meaning of
section 267(b) or 707(b)(1)), such as dividends, profits, or the value
of the issuer's stock. However, a rate does not fail to be an objective
rate merely because it is based on the credit quality of the issuer.
* * * * *
(5) Tax-exempt obligations. Notwithstanding paragraph (c)(1) of
this section, in the case of a tax-exempt obligation (within the
meaning of section 1275(a)(3)), a variable rate is an objective rate
only if it is a qualified inverse floating rate or a qualified
inflation rate. A rate is a qualified inflation rate if the rate
measures contemporaneous changes in inflation based on a general
inflation index.
(d) Examples. The following examples illustrate the rules of
paragraphs (b) and (c) of this section. For purposes of these examples,
assume that the debt instrument is not a tax-exempt obligation. In
addition, unless otherwise provided, assume that the rate is not
reasonably expected to result in a significant front-loading or back-
loading of interest and that the rate is not based on objective
financial or economic information that is within the control of the
issuer (or a related party) or that is unique to the circumstances of
the issuer (or a related party).
* * * * *
Example 4. Rate based on changes in the value of a commodity
index. On January 1, 1997, X issues a debt instrument that provides
for annual interest payments at the end of each year at a rate equal
to the percentage increase, if any, in the value of an index for the
year immediately preceding the payment. The index is based on the
prices of several actively traded commodities. Variations in the
value of this interest rate cannot reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds.
Accordingly, the rate is not a qualified floating rate. However,
because the rate is based on objective financial information using a
single fixed formula, the rate is an objective rate.
Example 5. Rate based on a percentage of S&P 500 Index. On
January 1, 1997, X issues a debt instrument that provides for annual
interest payments at the end of each year based on a fixed
percentage of the value of the S&P 500 Index. Variations in the
value of this interest rate cannot reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds and,
therefore, the rate is not a qualified floating rate. Although the
rate is described in paragraph (c)(1)(i) of this section, the rate
is not an objective rate because, based on historical data, it is
reasonably expected that the average value of the rate during the
first half of the instrument's term will be significantly less than
the average value of the rate during the final half of the
instrument's term.
Example 6. Rate based on issuer's profits. On January 1, 1997, Z
issues a debt instrument that provides for annual interest payments
equal to 1 percent of Z's gross profits earned during the year
immediately preceding the payment. Variations in the value of this
interest rate cannot reasonably be expected to measure
contemporaneous variations in the cost of newly borrowed funds.
Accordingly, the rate is not a qualified floating rate. In addition,
because the rate is based on information that is unique to the
issuer's circumstances, the rate is not an objective rate.
Example 7. Rate based on a multiple of an interest index. On
January 1, 1997, Z issues a debt instrument with annual interest
payments at a rate equal to two times the value of 1-year LIBOR as
of the payment date. Because the rate is a multiple greater than
1.35 times a qualified floating rate, the rate is not a qualified
floating rate. However, because the rate is based on objective
financial information using a single fixed formula, the rate is an
objective rate.
Example 8. Variable rate based on the cost of borrowed funds in
a foreign currency. On January 1, 1997, Y issues a 5-year dollar
denominated debt instrument that provides for annual interest
payments at a rate equal to the value of 1-year French franc LIBOR
as of the payment date. Variations in the value of French franc
LIBOR do not measure contemporaneous changes in the cost of newly
borrowed funds in dollars. As a result, the rate is not a qualified
floating rate for an instrument denominated in dollars. However,
because the rate is based on objective financial information using a
single fixed formula, the rate is an objective rate.
Example 9. Qualified inverse floating rate. On January 1, 1997,
X issues a debt instrument that provides for annual interest
payments at the end of each year at a rate equal to 12 percent minus
the value of 1-year LIBOR as of the payment date. On the issue date,
the value of 1-year LIBOR is 6 percent. Because the rate can
reasonably be expected to inversely reflect contemporaneous
variations in 1-year LIBOR, it is a qualified inverse floating rate.
However, if the value of 1-year LIBOR on the issue date were 11
percent rather than 6 percent, the rate would not be a qualified
inverse floating rate because the rate could not reasonably be
expected to inversely reflect contemporaneous variations in 1-year
LIBOR.
Example 10. Rate based on an inflation index. On January 1,
1997, X issues a debt instrument that provides for annual interest
payments at the end of each year at a rate equal to 400 basis points
(4 percent) plus the annual percentage change in a general inflation
index (e.g., the Consumer Price Index, U.S. City Average, All Items,
for all Urban Consumers, seasonally unadjusted). The rate, however,
may not be less than zero. Variations in the value of this interest
rate cannot reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds. Accordingly, the
rate is not a qualified floating rate. However, because the rate is
based on objective economic information using a single fixed
formula, the rate is an objective rate.
(e) * * *
(2) Variable rate debt instrument that provides for annual payments
of interest at a single variable rate. If a variable rate debt
instrument provides for stated interest at a single qualified floating
rate
[[Page 30155]]
or objective rate and the interest is unconditionally payable in cash
or in property (other than debt instruments of the issuer), or will be
constructively received under section 451, at least annually, the
following rules apply to the instrument:
(i) All stated interest with respect to the debt instrument is
qualified stated interest.
(ii) The amount of qualified stated interest and the amount of OID,
if any, that accrues during an accrual period is determined under the
rules applicable to fixed rate debt instruments by assuming that the
variable rate is a fixed rate equal to--
(A) In the case of a qualified floating rate or qualified inverse
floating rate, the value, as of the issue date, of the qualified
floating rate or qualified inverse floating rate; or
(B) In the case of an objective rate (other than a qualified
inverse floating rate), a fixed rate that reflects the yield that is
reasonably expected for the debt instrument.
(iii) The qualified stated interest allocable to an accrual period
is increased (or decreased) if the interest actually paid during an
accrual period exceeds (or is less than) the interest assumed to be
paid during the accrual period under paragraph (e)(2)(ii) of this
section.
(3) * * *
(v) Examples. The following examples illustrate the rules in
paragraphs (e) (2) and (3) of this section:
* * * * *
Example 3. * * *
(ii) Accrual of OID and qualified stated interest. Under
paragraph (e)(2) of this section, the variable rate debt instrument
is treated as a 2-year debt instrument that has an issue price of
$90,000, a stated principal amount of $100,000, and interest
payments of $5,000 at the end of each year. The debt instrument has
$10,000 of OID and the annual interest payments of $5,000 are
qualified stated interest payments. Under Sec. 1.1272-1, the debt
instrument has a yield of 10.82 percent, compounded annually. The
amount of OID allocable to the first annual accrual period (assuming
Z uses annual accrual periods) is $4,743.25 (($90,000 x .1082)-
$5,000), and the amount of OID allocable to the second annual
accrual period is $5,256.75 ($100,000-$94,743.25). Under paragraph
(e)(2)(iii) of this section, the $2,000 difference between the
$7,000 interest payment actually made at maturity and the $5,000
interest payment assumed to be made at maturity under the equivalent
fixed rate debt instrument is treated as additional qualified stated
interest for the period.
* * * * *
Par. 17. Section 1.1275-6 is added to read as follows:
Sec. 1.1275-6 Integration of qualifying debt instruments.
(a) In general. This section generally provides for the integration
of a qualifying debt instrument with a hedge or combination of hedges
if the combined cash flows of the components are substantially
equivalent to the cash flows on a fixed or variable rate debt
instrument. The integrated transaction is generally subject to the
rules of this section rather than the rules to which each component of
the transaction would be subject on a separate basis. The purpose of
this section is to permit a more appropriate determination of the
character and timing of income, deductions, gains, or losses than would
be permitted by separate treatment of the components. The rules of this
section affect only the taxpayer who holds (or issues) the qualifying
debt instrument and enters into the hedge.
(b) Definitions--(1) Qualifying debt instrument. A qualifying debt
instrument is any debt instrument (including an integrated transaction
as defined in paragraph (c) of this section) other than--
(i) A tax-exempt obligation as defined in section 1275(a)(3);
(ii) A debt instrument to which section 1272(a)(6) applies (certain
interests in or mortgages held by a REMIC, and certain other debt
instruments with payments subject to acceleration); or
(iii) A debt instrument that is subject to Sec. 1.483-4 or
Sec. 1.1275-4(c) (certain contingent payment debt instruments issued
for nonpublicly traded property).
(2) Section 1.1275-6 hedge--(i) In general. A Sec. 1.1275-6 hedge
is any financial instrument (as defined in paragraph (b)(3) of this
section) if the combined cash flows of the financial instrument and the
qualifying debt instrument permit the calculation of a yield to
maturity (under the principles of section 1272), or the right to the
combined cash flows would qualify under Sec. 1.1275-5 as a variable
rate debt instrument that pays interest at a qualified floating rate or
rates (except for the requirement that the interest payments be stated
as interest). A financial instrument is not a Sec. 1.1275-6 hedge,
however, if the resulting synthetic debt instrument does not have the
same term as the remaining term of the qualifying debt instrument. A
financial instrument that hedges currency risk is not a Sec. 1.1275-6
hedge.
(ii) Limitations--(A) A debt instrument issued by a taxpayer and a
debt instrument held by the taxpayer cannot be part of the same
integrated transaction.
(B) A debt instrument can be a Sec. 1.1275-6 hedge only if it is
issued substantially contemporaneously with, and has the same maturity
(including rights to accelerate or delay payments) as, the qualifying
debt instrument.
(3) Financial instrument. For purposes of this section, a financial
instrument is a spot, forward, or futures contract, an option, a
notional principal contract, a debt instrument, or a similar
instrument, or combination or series of financial instruments. Stock is
not a financial instrument for purposes of this section.
(4) Synthetic debt instrument. The synthetic debt instrument is the
hypothetical debt instrument with the same cash flows as the combined
cash flows of the qualifying debt instrument and the Sec. 1.1275-6
hedge.
(c) Integrated transaction--(1) Integration by taxpayer. Except as
otherwise provided in this section, a qualifying debt instrument and a
Sec. 1.1275-6 hedge are an integrated transaction if all of the
following requirements are satisfied:
(i) The taxpayer satisfies the identification requirements of
paragraph (e) of this section on or before the date the taxpayer enters
into the Sec. 1.1275-6 hedge.
(ii) None of the parties to the Sec. 1.1275-6 hedge are related
within the meaning of section 267(b) or 707(b)(1), or, if the parties
are related, the party providing the hedge uses, for federal income tax
purposes, a mark-to-market method of accounting for the hedge and all
similar or related transactions.
(iii) Both the qualifying debt instrument and the Sec. 1.1275-6
hedge are entered into by the same individual, partnership, trust,
estate, or corporation (regardless of whether the corporation is a
member of an affiliated group of corporations that files a consolidated
return).
(iv) If the taxpayer is a foreign person engaged in a U.S. trade or
business and the taxpayer issues or acquires a qualifying debt
instrument, or enters into a Sec. 1.1275-6 hedge, through the trade or
business, all items of income and expense associated with the
qualifying debt instrument and the Sec. 1.1275-6 hedge (other than
interest expense that is subject to Sec. 1.882-5) would have been
effectively connected with the U.S. trade or business throughout the
term of the qualifying debt instrument had this section not applied.
(v) Neither the qualifying debt instrument, nor any other debt
instrument that is part of the same issue as the qualifying debt
instrument, nor the Sec. 1.1275-6 hedge was, with respect
[[Page 30156]]
to the taxpayer, part of an integrated transaction that was terminated
or otherwise legged out of within the 30 days immediately preceding the
date that would be the issue date of the synthetic debt instrument.
(vi) The qualifying debt instrument is issued or acquired by the
taxpayer on or before the date of the first payment on the Sec. 1.1275-
6 hedge, whether made or received by the taxpayer (including a payment
made to purchase the hedge). If the qualifying debt instrument is
issued or acquired by the taxpayer after, but substantially
contemporaneously with, the date of the first payment on the
Sec. 1.1275-6 hedge, the qualifying debt instrument is treated, solely
for purposes of this paragraph (c)(1)(vi), as meeting the requirements
of the preceding sentence.
(vii) Neither the Sec. 1.1275-6 hedge nor the qualifying debt
instrument was, with respect to the taxpayer, part of a straddle (as
defined in section 1092(c)) prior to the issue date of the synthetic
debt instrument.
(2) Integration by Commissioner. The Commissioner may treat a
qualifying debt instrument and a financial instrument (whether entered
into by the taxpayer or by a related party) as an integrated
transaction if the combined cash flows on the qualifying debt
instrument and financial instrument are substantially the same as the
combined cash flows required for the financial instrument to be a
Sec. 1.1275-6 hedge. The Commissioner, however, may not integrate a
transaction unless the qualifying debt instrument either is subject to
Sec. 1.1275-4 or is subject to Sec. 1.1275-5 and pays interest at an
objective rate. The circumstances under which the Commissioner may
require integration include, but are not limited to, the following:
(i) A taxpayer fails to identify a qualifying debt instrument and
the Sec. 1.1275-6 hedge under paragraph (e) of this section.
(ii) A taxpayer issues or acquires a qualifying debt instrument and
a related party (within the meaning of section 267(b) or 707(b)(1))
enters into the Sec. 1.1275-6 hedge.
(iii) A taxpayer issues or acquires a qualifying debt instrument
and enters into the Sec. 1.1275-6 hedge with a related party (within
the meaning of section 267(b) or 707(b)(1)).
(iv) The taxpayer legs out of an integrated transaction and within
30 days enters into a new Sec. 1.1275-6 hedge with respect to the same
qualifying debt instrument or another debt instrument that is part of
the same issue.
(d) Special rules for legging into and legging out of an integrated
transaction--(1) Legging into--(i) Definition. Legging into an
integrated transaction under this section means that a Sec. 1.1275-6
hedge is entered into after the date the qualifying debt instrument is
issued or acquired by the taxpayer, and the requirements of paragraph
(c)(1) of this section are satisfied on the date the Sec. 1.1275-6
hedge is entered into (the leg-in date).
(ii) Treatment. If a taxpayer legs into an integrated transaction,
the taxpayer treats the qualifying debt instrument under the applicable
rules for taking interest and OID into account up to the leg-in date,
except that the day before the leg-in date is treated as the end of an
accrual period. As of the leg-in date, the qualifying debt instrument
is subject to the rules of paragraph (f) of this section.
(iii) Anti-abuse rule. If a taxpayer legs into an integrated
transaction with a principal purpose of deferring or accelerating
income or deductions on the qualifying debt instrument, the
Commissioner may--
(A) Treat the qualifying debt instrument as sold for its fair
market value on the leg-in date; or
(B) Refuse to allow the taxpayer to integrate the qualifying debt
instrument and the Sec. 1.1275-6 hedge.
(2) Legging out--(i) Definition--(A) Legging out if the taxpayer
has integrated. If a taxpayer has integrated a qualifying debt
instrument and a Sec. 1.1275-6 hedge under paragraph (c)(1) of this
section, legging out means that, prior to the maturity of the synthetic
debt instrument, the Sec. 1.1275-6 hedge ceases to meet the
requirements for a Sec. 1.1275-6 hedge, the taxpayer fails to meet any
requirement of paragraph (c)(1) of this section, or the taxpayer
disposes of or otherwise terminates all or a part of the qualifying
debt instrument or Sec. 1.1275-6 hedge. If the taxpayer fails to meet
the requirements of paragraph (c)(1) of this section but meets the
requirements of paragraph (c)(2) of this section, the Commissioner may
treat the taxpayer as not legging out.
(B) Legging out if the Commissioner has integrated. If the
Commissioner has integrated a qualifying debt instrument and a
financial instrument under paragraph (c)(2) of this section, legging
out means that, prior to the maturity of the synthetic debt instrument,
the requirements for Commissioner integration under paragraph (c)(2) of
this section are not met or the taxpayer fails to meet the requirements
for taxpayer integration under paragraph (c)(1) of this section and the
Commissioner agrees to allow the taxpayer to be treated as legging out.
(C) Exception for certain nonrecognition transactions. If, in a
single nonrecognition transaction, a taxpayer disposes of, or ceases to
be primarily liable on, the qualifying debt instrument and the
Sec. 1.1275-6 hedge, the taxpayer is not treated as legging out.
Instead, the integrated transaction is treated under the rules
governing the nonrecognition transaction. For example, if a holder of
an integrated transaction is acquired in a reorganization under section
368(a)(1)(A), the holder is treated as disposing of the synthetic debt
instrument in the reorganization rather than legging out. If the
successor holder is not eligible for integrated treatment, the
successor is treated as legging out.
(ii) Operating rules. If a taxpayer legs out (or is treated as
legging out) of an integrated transaction, the following rules apply:
(A) The transaction is treated as an integrated transaction during
the time the requirements of paragraph (c)(1) or (2) of this section,
as appropriate, are satisfied.
(B) Immediately before the taxpayer legs out, the taxpayer is
treated as selling or otherwise terminating the synthetic debt
instrument for its fair market value and, except as provided in
paragraph (d)(2)(ii)(D) of this section, any income, deduction, gain,
or loss is realized and recognized at that time.
(C) If, immediately after the taxpayer legs out, the taxpayer holds
or remains primarily liable on the qualifying debt instrument,
adjustments are made to reflect any difference between the fair market
value of the qualifying debt instrument and the adjusted issue price of
the qualifying debt instrument. If, immediately after the taxpayer legs
out, the taxpayer is a party to a Sec. 1.1275-6 hedge, the Sec. 1.1275-
6 hedge is treated as entered into at its fair market value.
(D) If a taxpayer legs out of an integrated transaction by
disposing of or otherwise terminating a Sec. 1.1275-6 hedge within 30
days of legging into the integrated transaction, then any loss or
deduction determined under paragraph (d)(2)(ii)(B) of this section is
not allowed. Appropriate adjustments are made to the qualifying debt
instrument for any disallowed loss. The adjustments are taken into
account on a yield to maturity basis over the remaining term of the
qualifying debt instrument.
(E) If a holder of a debt instrument subject to Sec. 1.1275-4 legs
into an integrated transaction with respect to the instrument and
subsequently legs out of the integrated transaction, any gain
recognized under paragraph (d)(2)(ii)(B) or (C) of this section is
[[Page 30157]]
treated as interest income to the extent determined under the
principles of Sec. 1.1275-4(b)(8)(iii)(B) (rules for determining the
character of gain on the sale of a debt instrument all of the payments
on which have been fixed). If the synthetic debt instrument would
qualify as a variable rate debt instrument, the equivalent fixed rate
debt instrument determined under Sec. 1.1275-5(e) is used for this
purpose.
(e) Identification requirements. For each integrated transaction, a
taxpayer must enter and retain as part of its books and records the
following information--
(1) The date the qualifying debt instrument was issued or acquired
(or is expected to be issued or acquired) by the taxpayer and the date
the Sec. 1.1275-6 hedge was entered into by the taxpayer;
(2) A description of the qualifying debt instrument and the
Sec. 1.1275-6 hedge; and
(3) A summary of the cash flows and accruals resulting from
treating the qualifying debt instrument and the Sec. 1.1275-6 hedge as
an integrated transaction (i.e., the cash flows and accruals on the
synthetic debt instrument).
(f) Taxation of integrated transactions--(1) General rule. An
integrated transaction is generally treated as a single transaction by
the taxpayer during the period that the transaction qualifies as an
integrated transaction. Except as provided in paragraph (f)(12) of this
section, while a qualifying debt instrument and a Sec. 1.1275-6 hedge
are part of an integrated transaction, neither the qualifying debt
instrument nor the Sec. 1.1275-6 hedge is subject to the rules that
would apply on a separate basis to the debt instrument and the
Sec. 1.1275-6 hedge, including section 1092 or Sec. 1.446-4. The rules
that would govern the treatment of the synthetic debt instrument
generally govern the treatment of the integrated transaction. For
example, the integrated transaction may be subject to section 263(g)
or, if the synthetic debt instrument would be part of a straddle,
section 1092. Generally, the synthetic debt instrument is subject to
sections 163(e) and 1271 through 1275, with terms as set forth in
paragraphs (f)(2) through (13) of this section.
(2) Issue date. The issue date of the synthetic debt instrument is
the first date on which the taxpayer entered into all of the components
of the synthetic debt instrument.
(3) Term. The term of the synthetic debt instrument is the period
beginning on the issue date of the synthetic debt instrument and ending
on the maturity date of the qualifying debt instrument.
(4) Issue price. The issue price of the synthetic debt instrument
is the adjusted issue price of the qualifying debt instrument on the
issue date of the synthetic debt instrument. If, as a result of
entering into the Sec. 1.1275-6 hedge, the taxpayer pays or receives
one or more payments that are substantially contemporaneous with the
issue date of the synthetic debt instrument, the payments reduce or
increase the issue price as appropriate.
(5) Adjusted issue price. In general, the adjusted issue price of
the synthetic debt instrument is determined under the principles of
Sec. 1.1275-1(b).
(6) Qualified stated interest. No amounts payable on the synthetic
debt instrument are qualified stated interest within the meaning of
Sec. 1.1273-1(c).
(7) Stated redemption price at maturity--(i) Synthetic debt
instruments that are borrowings. In general, if the synthetic debt
instrument is a borrowing, the instrument's stated redemption price at
maturity is the sum of all amounts paid or to be paid on the qualifying
debt instrument and the Sec. 1.1275-6 hedge, reduced by any amounts
received or to be received on the Sec. 1.1275-6 hedge.
(ii) Synthetic debt instruments that are held by the taxpayer. In
general, if the synthetic debt instrument is held by the taxpayer, the
instrument's stated redemption price at maturity is the sum of all
amounts received or to be received by the taxpayer on the qualifying
debt instrument and the Sec. 1.1275-6 hedge, reduced by any amounts
paid or to be paid by the taxpayer on the Sec. 1.1275-6 hedge.
(iii) Certain amounts ignored. For purposes of this paragraph
(f)(7), if an amount paid or received on the Sec. 1.1275-6 hedge is
taken into account under paragraph (f)(4) of this section to determine
the issue price of the synthetic debt instrument, the amount is not
taken into account to determine the synthetic debt instrument's stated
redemption price at maturity.
(8) Source of interest income and allocation of expense. The source
of interest income from the synthetic debt instrument is determined by
reference to the source of income of the qualifying debt instrument
under sections 861(a)(1) and 862(a)(1). For purposes of section 904,
the character of interest from the synthetic debt instrument is
determined by reference to the character of the interest income from
the qualifying debt instrument. Interest expense is allocated and
apportioned under regulations under section 861 or under Sec. 1.882-5.
(9) Effectively connected income. If the requirements of paragraph
(c)(1)(iv) of this section are satisfied, any interest income resulting
from the synthetic debt instrument entered into by the foreign person
is treated as effectively connected with a U.S. trade or business, and
any interest expense resulting from the synthetic debt instrument
entered into by the foreign person is allocated and apportioned under
Sec. 1.882-5.
(10) Not a short-term obligation. For purposes of section
1272(a)(2)(C), a synthetic debt instrument is not treated as a short-
term obligation.
(11) Special rules in the event of integration by the Commissioner.
If the Commissioner requires integration, appropriate adjustments are
made to the treatment of the synthetic debt instrument, and, if
necessary, the qualifying debt instrument and financial instrument. For
example, the Commissioner may treat a financial instrument that is not
a Sec. 1.1275-6 hedge as a Sec. 1.1275-6 hedge when applying the rules
of this section. The issue date of the synthetic debt instrument is the
date determined appropriate by the Commissioner to require integration.
(12) Retention of separate transaction rules for certain purposes.
This paragraph (f)(12) provides for the retention of separate
transaction rules for certain purposes. In addition, by publication in
the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii) of this
chapter), the Commissioner may require use of separate transaction
rules for any aspect of an integrated transaction.
(i) Foreign persons that enter into integrated transactions giving
rise to U.S. source income not effectively connected with a U.S. trade
or business. If a foreign person enters into an integrated transaction
that gives rise to U.S. source interest income (determined under the
source rules for the synthetic debt instrument) not effectively
connected with a U.S. trade or business of the foreign person,
paragraph (f) of this section does not apply for purposes of sections
871(a), 881, 1441, 1442, and 6049. These sections of the Internal
Revenue Code are applied to the qualifying debt instrument and the
Sec. 1.1275-6 hedge on a separate basis.
(ii) Relationship between taxpayer and other persons. Because the
rules of this section affect only the taxpayer that enters into an
integrated transaction (i.e., either the issuer or a particular holder
of a qualifying debt instrument), any provisions of the Internal
Revenue Code or regulations that govern the relationship between the
taxpayer and any other person are applied on a separate basis. For
example, taxpayers
[[Page 30158]]
must comply with any reporting or disclosure requirements on any
qualifying debt instrument as if it were not part of an integrated
transaction. Thus, if required under Sec. 1.1275-4(b)(4), an issuer of
a contingent payment debt instrument subject to integrated treatment
must provide the projected payment schedule to holders. Similarly, if a
U.S. corporation enters into an integrated transaction that includes a
notional principal contract, the source of any payment received by the
counterparty on the notional principal contract is determined under
Sec. 1.863-7 as if the contract were not part of an integrated
transaction, and, if received by a foreign person who is not engaged in
a U.S. trade or business, the payment is non-U.S. source income that is
not subject to U.S. withholding tax.
(13) Coordination with consolidated return rules. If a taxpayer
enters into a Sec. 1.1275-6 hedge with a member of the same
consolidated group (the counterparty) and the Sec. 1.1275-6 hedge is
part of an integrated transaction for the taxpayer, the Sec. 1.1275-6
hedge is not treated as an intercompany transaction for purposes of
Sec. 1.1502-13. If the taxpayer legs out of integrated treatment, the
taxpayer and the counterparty are each treated as disposing of its
position in the Sec. 1.1275-6 hedge under the principles of paragraph
(d)(2) of this section. If the Sec. 1.1275-6 hedge remains in existence
after the leg-out date, the Sec. 1.1275-6 hedge is treated under the
rules that would otherwise apply to the transaction (including
Sec. 1.1502-13 if the transaction is between members).
(g) Predecessors and successors. For purposes of this section, any
reference to a taxpayer, holder, issuer, or person includes, where
appropriate, a reference to a predecessor or successor. For purposes of
the preceding sentence, a predecessor is a transferor of an asset or
liability (including an integrated transaction) to a transferee (the
successor) in a nonrecognition transaction. Appropriate adjustments, if
necessary, are made in the application of this section to predecessors
and successors.
(h) Examples. The following examples illustrate the provisions of
this section. In each example, assume that the qualifying debt
instrument is a debt instrument for federal income tax purposes. No
inference is intended, however, as to whether the debt instrument is a
debt instrument for federal income tax purposes.
Example 1. Issuer hedge--(i) Facts. On January 1, 1997, V, a
domestic corporation, issues a 5-year debt instrument for $1,000.
The debt instrument provides for annual payments of interest at a
rate equal to the value of 1-year LIBOR and a principal payment of
$1,000 at maturity. On the same day, V enters into a 5-year interest
rate swap agreement with an unrelated party. Under the swap, V pays
6 percent and receives 1-year LIBOR on a notional principal amount
of $1,000. The payments on the swap are fixed and made on the same
days as the payments on the debt instrument. On January 1, 1997, V
identifies the debt instrument and the swap as an integrated
transaction in accordance with the requirements of paragraph (e) of
this section.
(ii) Eligibility for integration. The debt instrument is a
qualifying debt instrument. The swap is a Sec. 1.1275-6 hedge
because it is a financial instrument and a yield to maturity on the
combined cash flows of the swap and the debt instrument can be
calculated. V has met the identification requirements, and the other
requirements of paragraph (c)(1) of this section are satisfied.
Therefore, the transaction is an integrated transaction under this
section.
(iii) Treatment of the synthetic debt instrument. The synthetic
debt instrument is a 5-year debt instrument that has an issue price
of $1,000 and provides for annual interest payments of $60 and a
principal payment of $1,000 at maturity. Under paragraph (f)(6) of
this section, no amounts payable on the synthetic debt instrument
are qualified stated interest. Thus, under paragraph (f)(7)(i) of
this section, the synthetic debt instrument has a stated redemption
price at maturity of $1,300 (the sum of all amounts to be paid on
the qualifying debt instrument and the swap, reduced by amounts to
be received on the swap). The synthetic debt instrument, therefore,
has $300 of OID.
Example 2. Issuer hedge with an option--(i) Facts. On December
31, 1996, W, a domestic corporation, issues for $1,000 a debt
instrument that matures on December 31, 1999. The debt instrument
has a stated principal amount of $1,000 payable at maturity. The
debt instrument also provides for a payment at maturity equal to $10
times the increase, if any, in the value of a nationally known
composite index of stocks from December 31, 1996, to the maturity
date. On December 31, 1996, W purchases from an unrelated party an
option that pays $10 times the increase, if any, in the stock index
from December 31, 1996, to December 31, 1999. W pays $250 for the
option. On December 31, 1996, W identifies the debt instrument and
option as an integrated transaction in accordance with the
requirements of paragraph (e) of this section.
(ii) Eligibility for integration. The debt instrument is a
qualifying debt instrument. The option is a Sec. 1.1275-6 hedge
because it is a financial instrument and a yield to maturity on the
combined cash flows of the option and the debt instrument can be
calculated. W has met the identification requirements, and the other
requirements of paragraph (c)(1) of this section are satisfied.
Therefore, the transaction is an integrated transaction under this
section.
(iii) Treatment of the synthetic debt instrument. Under
paragraph (f)(4) of this section, the issue price of the synthetic
debt instrument is equal to the issue price of the debt instrument
($1,000) reduced by the payment for the option ($250). As a result,
the synthetic debt instrument is a 3-year debt instrument with an
issue price of $750. Under paragraph (f)(7) of this section, the
synthetic debt instrument has a stated redemption price at maturity
of $1,000 (the $250 payment for the option is not taken into
account). The synthetic debt instrument, therefore, has $250 of OID.
Example 3. Hedge with prepaid swap--(i) Facts. On January 1,
1997, H purchases for 1,000 a 5-year debt instrument
that provides for semiannual payments based on 6-month pound LIBOR
and a payment of the 1,000 principal at maturity. On the
same day, H enters into a swap with an unrelated third party under
which H receives semiannual payments, in pounds, of 10 percent,
compounded semiannually, and makes semiannual payments, in pounds,
of 6-month pound LIBOR on a notional principal amount of
1,000. Payments on the swap are fixed and made on the
same dates as the payments on the debt instrument. H also makes a
162 prepayment on the swap. On January 1, 1997, H
identifies the swap and the debt instrument as an integrated
transaction in accordance with the requirements of paragraph (e) of
this section.
(ii) Eligibility for integration. The debt instrument is a
qualifying debt instrument. The swap is a Sec. 1.1275-6 hedge
because it is a financial instrument and a yield to maturity on the
combined cash flows of the swap and the debt instrument can be
calculated. Although the debt instrument is denominated in pounds,
the swap hedges only interest rate risk, not currency risk.
Therefore, the transaction is an integrated transaction under this
section. See Sec. 1.988-5(a) for the treatment of a debt instrument
and a swap if the swap hedges currency risk.
(iii) Treatment of the synthetic debt instrument. Under
paragraph (f)(4) of this section, the issue price of the synthetic
debt instrument is equal to the issue price of the debt instrument
(1,000) increased by the prepayment on the swap
(162). As a result, the synthetic debt instrument is a
5-year debt instrument that has an issue price of 1,162
and provides for semiannual interest payments of 50 and
a principal payment of 1,000 at maturity. Under
paragraph (f)(6) of this section, no amounts payable on the
synthetic debt instrument are qualified stated interest. Thus, under
paragraph (f)(7)(ii) of this section, the synthetic debt
instrument's stated redemption price at maturity is
1,500 (the sum of all amounts to be received on the
qualifying debt instrument and the Sec. 1.1275-6 hedge, reduced by
all amounts to be paid on the Sec. 1.1275-6 hedge other than the
162 prepayment for the swap). The synthetic debt
instrument, therefore, has 338 of OID.
Example 4. Legging into an integrated transaction by a holder--
(i) Facts. On December 31, 1996, X corporation purchases for
$1,000,000 a debt instrument that matures on December 31, 2006. The
debt instrument provides for annual payments of interest at the rate
of 6 percent and for a payment at maturity equal to $1,000,000,
increased by the excess, if any, of the price of 1,000 units of a
commodity on December 31, 2006, over
[[Page 30159]]
$350,000, and decreased by the excess, if any, of $350,000 over the
price of 1,000 units of the commodity on that date. The projected
amount of the payment at maturity determined under Sec. 1.1275-
4(b)(4) is $1,020,000. On December 31, 1999, X enters into a cash-
settled forward contract with an unrelated party to sell 1,000 units
of the commodity on December 31, 2006, for $450,000. On December 31,
1999, X also identifies the debt instrument and the forward contract
as an integrated transaction in accordance with the requirements of
paragraph (e) of this section.
(ii) Eligibility for integration. X meets the requirements for
integration as of December 31, 1999. Therefore, X legged into an
integrated transaction on that date. Prior to that date, X treats
the debt instrument under the applicable rules of Sec. 1.1275-4.
(iii) Treatment of the synthetic debt instrument. As of December
31, 1999, the debt instrument and the forward contract are treated
as an integrated transaction. The issue price of the synthetic debt
instrument is equal to the adjusted issue price of the qualifying
debt instrument on the leg-in date, $1,004,804 (assuming one year
accrual periods). The term of the synthetic debt instrument is from
December 31, 1999, to December 31, 2006. The synthetic debt
instrument provides for annual interest payments of $60,000 and a
principal payment at maturity of $1,100,000 ($1,000,000 + $450,000 -
$350,000). Under paragraph (f)(6) of this section, no amounts
payable on the synthetic debt instrument are qualified stated
interest. Thus, under paragraph (f)(7)(ii) of this section, the
synthetic debt instrument's stated redemption price at maturity is
$1,520,000 (the sum of all amounts to be received by X on the
qualifying debt instrument and the Sec. 1.1275-6 hedge, reduced by
all amounts to be paid by X on the Sec. 1.1275-6 hedge). The
synthetic debt instrument, therefore, has $515,196 of OID.
Example 5. Abusive leg-in--(i) Facts. On January 1, 1997, Y
corporation purchases for $1,000,000 a debt instrument that matures
on December 31, 2001. The debt instrument provides for annual
payments of interest at the rate of 6 percent, a payment on December
31, 1999, of the increase, if any, in the price of a commodity from
January 1, 1997, to December 31, 1999, and a payment at maturity of
$1,000,000 and the increase, if any, in the price of the commodity
from December 31, 1999 to maturity. Because the debt instrument is a
contingent payment debt instrument subject to Sec. 1.1275-4, Y
accrues interest based on the projected payment schedule.
(ii) Leg-in. By late 1999, the price of the commodity has
substantially increased, and Y expects a positive adjustment on
December 31, 1999. In late 1999, Y enters into an agreement to
exchange the two commodity based payments on the debt instrument for
two payments on the same dates of $100,000 each. Y identifies the
transaction as an integrated transaction in accordance with the
requirements of paragraph (e) of this section. Y disposes of the
hedge in early 2000.
(iii) Treatment. The legging into an integrated transaction has
the effect of deferring the positive adjustment from 1999 to 2000.
Because Y legged into the integrated transaction with a principal
purpose to defer the positive adjustment, the Commissioner may treat
the debt instrument as sold for its fair market value on the leg-in
date or refuse to allow integration.
Example 6. Integration of offsetting debt instruments--(i)
Facts. On January 1, 1997, Z issues two 10-year debt instruments.
The first, Issue 1, has an issue price of $1,000, pays interest
annually at 6 percent, and, at maturity, pays $1,000, increased by
$1 times the increase, if any, in the value of the S&P 100 Index
over the term of the instrument and reduced by $1 times the
decrease, if any, in the value of the S&P 100 Index over the term of
the instrument. However, the amount paid at maturity may not be less
than $500 or more than $1,500. The second, Issue 2, has an issue
price of $1,000, pays interest annually at 8 percent, and, at
maturity, pays $1,000, reduced by $1 times the increase, if any, in
the value of the S&P 100 Index over the term of the instrument and
increased by $1 times the decrease, if any, in the value of the S&P
100 Index over the term of the instrument. The amount paid at
maturity may not be less than $500 or more than $1,500. On January
1, 1997, Z identifies Issue 1 as the qualifying debt instrument,
Issue 2 as a Sec. 1.1275-6 hedge, and otherwise meets the
identification requirements of paragraph (e) of this section.
(ii) Eligibility for integration. Both Issue 1 and Issue 2 are
qualifying debt instruments. Z has met the identification
requirements by identifying Issue 1 as the qualifying debt
instrument and Issue 2 as the Sec. 1.1275-6 hedge. The other
requirements of paragraph (c)(1) of this section are satisfied.
Therefore, the transaction is an integrated transaction under this
section.
(iii) Treatment of the synthetic debt instrument. The synthetic
debt instrument has an issue price of $2,000, provides for a payment
at maturity of $2,000, and, in addition, provides for annual
payments of $140. Under paragraph (f)(6) of this section, no amounts
payable on the synthetic debt instrument are qualified stated
interest. Thus, under paragraph (f)(7)(i) of this section, the
synthetic debt instrument's stated redemption price at maturity is
$3,400 (the sum of all amounts to be paid on the qualifying debt
instrument and the Sec. 1.1275-6 hedge, reduced by amounts to be
received on the Sec. 1.1275-6 hedge other than the $1,000 payment
received on the issue date). The synthetic debt instrument,
therefore, has $1,400 of OID.
Example 7. Integrated transaction entered into by a foreign
person--(i) Facts. X, a foreign person, enters into an integrated
transaction by purchasing a qualifying debt instrument that pays
U.S. source interest and entering into a notional principal contract
with a U.S. corporation. Neither the income from the qualifying debt
instrument nor the income from the notional principal contract is
effectively connected with a U.S. trade or business. The notional
principal contract is a Sec. 1.1275-6 hedge.
(ii) Treatment of integrated transaction. Under paragraph (f)(8)
of this section, X will receive U.S. source income from the
integrated transaction. However, under paragraph (f)(12)(i) of this
section, the qualifying debt instrument and the notional principal
contract are treated as if they are not part of an integrated
transaction for purposes of determining whether tax is due and must
be withheld on income. Accordingly, because the Sec. 1.1275-6 hedge
would produce foreign source income under Sec. 1.863-7 to X if it
were not part of an integrated transaction, any income on the
Sec. 1.1275-6 hedge generally will not be subject to tax under
sections 871(a) and 881, and the U.S. corporation that is the
counterparty will not be required to withhold tax on payments under
the Sec. 1.1275-6 hedge under sections 1441 and 1442.
(i) [Reserved]
(j) Effective date. This section applies to a qualifying debt
instrument issued on or after August 13, 1996. This section also
applies to a qualifying debt instrument acquired by the taxpayer on or
after August 13, 1996, if--
(1) The qualifying debt instrument is a fixed rate debt instrument
or a variable rate debt instrument; or
(2) The qualifying debt instrument and the Sec. 1.1275-6 hedge are
acquired by the taxpayer substantially contemporaneously.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 18. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 19. Section 602.101, paragraph (c) is amended by:
1. Removing the following entries from the table:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.1272-1(c)(4)............................................. 1545-1353
* * * * *
1.1275-3(b)................................................ 1545-1353
1.1275-3(c)................................................ 1545-0887
* * * * *
------------------------------------------------------------------------
2. Adding entries in numerical order to the table to read as
follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
[[Page 30160]]
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.1275-2................................................... 1545-1450
1.1275-3................................................... 1545-0887
1545-1353
1545-1450
1.1275-4................................................... 1545-1450
1.1275-6................................................... 1545-1450
* * * * *
------------------------------------------------------------------------
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: March 22, 1996.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 96-14918 Filed 6-11-96; 8:45 am]
BILLING CODE 4830-01-P
Complete official Federal Register PDF
FR Doc. 96-14565 Operating Requirements: Domestic Flag, Supplemental, Commuter, and On-Demand Operations: Corrections and Editorial Changes
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30432-30435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14565]
[[Page 30431]]
_______________________________________________________________________
Part IV
Department of Transportation
_______________________________________________________________________
Federal Aviation Administration
_______________________________________________________________________
14 CFR Parts 119, 121, and 135
Operating Requirements: Domestic, Flag, Supplemental, Commuter, and On-
Demand Operations: Corrections and Editorial Changes; Final Rule
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Rules
and Regulations
[[Page 30432]]
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Parts 119, 121 and 135
[Docket No. 28154; Amendment Nos. 119-2, 121-259, and 135-65]
Rin 2120-AG03
Operating Requirements: Domestic Flag, Supplemental, Commuter,
and On-Demand Operations: Corrections and Editorial Changes
AGENCY: Federal Aviation Administration (FAA), DOT.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This amendment adopts changes that are editorial or
typographical in nature in parts 119, 121, and 135. The changes are
necessary to correct errors or clarify the intent of the regulations
published on December 20, 1995 (60 FR 65832). The changes in this
amendment will not impose any additional restrictions on persons
affected by these regulations.
EFFECTIVE DATE: July 15, 1996.
FOR FURTHER INFORMATION CONTACT:
Linda Williams, Office of Rulemaking (ARM-100); Federal Aviation
Administration, 800 Independence Avenue, SW, Washington, DC 20591;
telephone (202) 267-9685.
SUPPLEMENTARY INFORMATION:
Background
On December 20, 1995, new part 119, Certification: Air Carriers and
Commercial Operators, was published in the Federal Register (60 FR
65832; December 20, 1995). Part 119 reorganizes, into one part,
certification and operations specifications requirements that formerly
existed in SFAR 38-2 and in parts 121 and 135. The final rule for new
part 119 also deleted or changed certain sections in part 121, Subparts
A through D, and part 135, Subpart A, because the requirements in those
subparts have been recodified in part 119. Also on December 20, 1995, a
final rule was published that upgrades the training requirements for
part 121 operators and requires certain part 135 operators to conduct
their training under the requirements of part 121 (60 FR 65940). On
January 26, 1996, another final rule was published (61 FR 2608)
affecting parts 119, 121, and 135. That amendment made editorial and
terminology changes in the remaining subparts of parts 121 and 135 to
conform those parts to the language of part 119 and to make certain
other changes.
Part 119 was issued as part of a large rulemaking effort to upgrade
the requirements that apply to scheduled operations conducted in
airplanes that seat 10 to 30 passengers. These operations will in the
future be conducted under the requirements of part 121, in accordance
with the final rule published on December 20, 1995.
The changes in this final rule are necessary because, as a result
of the implementation of part 119 and the beginning of the transition
process for commuter operations affected by the final rule published on
December 20, 1995, a number of questions of interpretation have been
raised and errors in previous final rules have been identified. The
changes in this document make necessary corrections and will help to
clarify the intent of part 119, the training rule, and the commuter
rule.
Preamble Correction
In the preamble to the commuter final rule, the FAA attributed a
comment incorrectly. The statement on 60 FR 65872 that the Regional
Airline Association recommends that the FAA require each certificate
holder to equip its airplanes with TCAS II and a Mode S transponder was
incorrect. This recommendation was made by the Air Line Pilots
Association.
Editorial Changes
A number of changes are necessary in parts 119, 121, and 135 to
correct typographical errors, to make minor editorial changes that help
clarify the intent of the rules, or to make editorial changes that make
related rules consistent with each other. These types of changes are
not individually explained. However, a number of changes are being made
that require some explanation, which follows:
1. Section 119.2 and SFAR 38-2 are amended to reinstate certain
part 121 and 135 sections that were removed by the commuter rule to
make it clear that persons who originally were certificated under SFAR
38-2 must continue to comply with those sections in parts 121 and 135,
that have been recodified into part 119, until they receive new
operations specifications issued under part 119, or until March 20,
1997, whichever occurs first.
2. New paragraph (j) is added to Sec. 121.2 to clarify how
crewmembers and certificate holders transitioning to part 121 can
obtain credit for training and qualification obtained under part 135.
3. Section 121.404 is amended by correcting the date in the
introductory paragraph to March 19, 1998, as was originally published
in the Air Carrier and Commercial Operator Training Programs (60 FR
65940, December 20, 1995).
4. Sections 121.721, 121.723, and 135.43 are amended to clarify the
status of international crewmember certificates. The FAA no longer
issues these certificates because the State Department no longer
processes them; however crewmembers who already have been issued these
certificates may continue to use them.
5. Sections 121.431 and 135.3 are revised to remove the redundant
phrase ``* * *or with airplanes having a passenger seating
configuration of 10 seats or more.''
Corrections to Tables
Several additional corrections are necessary for Tables 2-4, which
were originally published on December 20, 1995 (60 FR 65850, 65888,
65890) and were republished on January 26, 1996 (61 FR 2618, 2619, and
2621), as follows:
1. In Table 2--Comparable Sections in Parts 121 and 135, the word
``underwater'' in the listing under Subpart K should be ``overwater.''
2. In Table 4--Distribution Table for Part 119, correct the listing
for Sec. 121.5, which was replaced by Sec. 119.21(a), not
Sec. 119.49(a).
Federalism Implications
The regulations do not have substantial direct effects on the
states, on the relationship between the national government and the
states, or on the distribution of power and responsibilities among
various levels of government. Thus, in accordance with Executive Order
12612, it is determined that such a regulation does not have federalism
implications warranting the preparation of a Federalism Assessment.
Paperwork Reduction Act
The information collection requirements associated with this rule
have already been approved. There will be a decrease in the paperwork
requirements as a result of the elimination of the issuance of the
certificate formerly issued to crewmembers engaged in international
travel in accordance with sections 121.723 and 135.43.
Good Cause Justification for Immediate Adoption
This amendment is needed to make editorial corrections in parts
119, 121, and 135. In view of the need to expedite these changes, and
because the amendment is editorial in nature and would impose no
additional burden on the public, I find that notice and
[[Page 30433]]
opportunity for public comment before adopting this amendment is
unnecessary.
Conclusion
The FAA has determined that this regulation imposes no additional
burden on any person. Accordingly, it has been determined that the
action: (1) Is not a significant rule under Executive Order 12866; and
(2) is not a significant rule under Department of Transportation
Regulatory Policies and Procedures (44 FR 11034; February 26, 1979);
Also because this regulation is of editorial nature, no impact is
expected to result and a full regulatory evaluation is not required. In
addition, the FAA certifies that the rule will not have a significant
economic impact, positive or negative, on a substantial number of small
entities under the criteria of the Regulatory Flexibility Act.
List of Subjects
14 CFR Part 119
Administrative practice and procedures, Air carriers, Air taxis,
Aircraft, Aviation safety, Charter flights, Commuter operations,
Reporting and recordkeeping requirements.
14 CFR Part 121
Air carriers, Aircraft, Airmen, Aviation safety, Charter flights,
Reporting and recordkeeping requirements.
14 CFR Part 135
Aircraft, Airplanes, Airworthiness, Air transportation.
The Amendments
In consideration of the foregoing, the Federal Aviation
Administration amends the Federal Aviation Regulations (14 CFR parts
119, 121, and 135) as follows:
PART 119--CERTIFICATION: AIR CARRIERS AND COMMERCIAL OPERATORS
1. The authority citation for part 119 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 1153, 40101, 40102, 40103, 44105,
44106, 44111, 44701-44717, 44717, 44722, 44901, 44903, 44904, 44906,
44912, 44914, 44936, 44938, 46103, 46105.
2. Section 119.2 is revised to read as follows:
Sec. 119.2 Compliance with 14 CFR part 119 or SFAR 38-2 of parts 121
and 135 of this chapter.
(a) Each certificate holder that before January 19, 1996, was
issued an air carrier certificate or operating certificate and
operations specifications under the requirements of part 121, 135, or
SFAR 38-2 of parts 121 and 135 of this chapter shall continue to comply
with SFAR 38-2 of parts 121 and 135 of this chapter until March 20,
1997, or until the date on which the certificate holder is issued
operations specifications in accordance with part 119, whichever occurs
first. In addition, persons conducting operations under SFAR 38-2 of
parts 121 and 135 of this chapter shall continue to comply with the
applicable requirements of Secs. 121.6, 121.57, 121.59, 121.61, 121.71
through 121.83. 135.5. 135.11(c), 135.15, 135.17, 135.27. 135.29,
135.33, 135.35. 135.37. and 135.39 of this chapter as in effect on
January 18, 1996, until March 20, 1997, or until the date on which the
certificate holder is issued operations specifications in accordance
with part 119, whichever occurs first. If a certificate holder is
issued operations specifications in accordance with part 119 before
March 20, 1997, then, notwithstanding all provisions in SFAR 38-2 of
parts 121 and 135 of this chapter, such certificate holder shall comply
with the provisions of part 119.
A copy of these regulations may be obtained from the Federal
Aviation Administration, Office of Rulemaking (ARM), 800 Independence
Ave., SW., Washington, DC 20591, or by phone (202) 267-9677.
(b) Each person who on or after January 19, 1996, applies for or
obtains an initial air carrier certificate or operating certificate and
operations specifications to conduct operations under part 121 or 135
of this chapter shall comply with this part, notwithstanding all
provisions of SFAR 38-2 of parts 121 and 135 of this chapter.
3. Section 119.3 is amended by revising the introductory text of
the definition for ``commuter operation,'' revising paragraph (1)(ii)
of the definition for ``on-demand operation,'' revising paragraphs
(1)(iii) and (2)(i) and adding pargarph (1)(iv) of the definition for
``supplemental operation,'' and revising the introductory text of the
definition for ``when common carriage is not involved or operations not
involving common carriage'' to read as follows:
Sec. 119.3 Definitions.
* * * * *
Commuter operation means any scheduled operation conducted by any
person operating one of the following types of aircraft with a
frequency of operations of at least five round trips per week on at
least one route between two or more points according to the published
flight schedules:
* * * * *
On-demand operation * * *
(1) * * *
(ii) Noncommon or private carriage operations conducted with
airplanes having a passenger-seat configuration of less than 20 seats,
excluding each crewmember seat, and a payload capacity of less than
6,000 pounds; or
* * * * *
Supplemental operation * * *
(1) * * *
(iii) Each propeller-powered airplane having a passenger-seat
configuration of more than 9 seats and less than 31 seats, excluding
each crewmember seat, that is also used in domestic or flag operations
and that is so listed in the operations specifications as required by
Sec. 119.49(a)(4) for those operations; or
(iv) Each turbojet powered airplane having a passenger seat
configuration of 1 or more and less than 31 seats, excluding each
crewmember seat, that is also used in domestic or flag operations and
that is so listed in the operations specifications as required by
Sec. 119.49(a)(4) for those operations.
(2) * * *
(i) Passenger-carrying operations for which the departure time,
departure location, and arrival location are specifically negotiated
with the customer or the customer's representative; or
* * * * *
When common carriage is not involved or operations not involving
common carriage means any of the following:
* * * * *
4. Section 119.21 is amended by revising the section heading and by
revising paragraph (a) introductory text, and (a)(3) to read as
follows:
Sec. 119.21 Commercial operators engaged in intrastate common
carriage and direct air carriers.
(a) Each person who conducts airplane operations as a commercial
operator engaged in intrastate common carriage of persons or property
for compensation or hire in air commerce, or as a direct air carrier,
shall comply with the certification and operations specifications
requirements in subpart C of this part, and shall conduct its:
* * * * *
(3) Supplemental operations in accordance with the applicable
requirements of part 121 of this chapter, and shall be issued
operations specifications for those operations in accordance with those
requirements. However, based on a determination of
[[Page 30434]]
safety in air commerce, the Administrator may authorize or require
those operations to be conducted under paragraph (a)(1) or (a)(2) of
this section.
* * * * *
5. Section 119.23 is amended by revising the introductory text of
paragraph (b) to read as follows:
Sec. 119.23 Operators engaged in passenger-carrying operations, cargo
operations, or both with airplanes when common carriage is not
involved.
* * * * *
(b) Each person who conducts noncommon carriage (except as provided
in Sec. 91.501(b) of this chapter) or private carriage operations for
compensation or hire with airplanes having a passenger-seat
configuration of less than 20 seats, excluding each crewmember seat,
and a payload capacity of less than 6,000 pounds shall--
* * * * *
6. Section 119.33 is amended by revising the first sentence of
paragraph (c) to read as follows:
Sec. 119.33 General requirements.
* * * * *
(c) Each applicant for a certificate under this part and each
applicant for operations specifications authorizing a new kind of
operation that is subject to Sec. 121.163 or Sec. 135.145 of this
chapter shall conduct proving tests as authorized by the Administrator
during the application process for authority to conduct operations
under part 121 or part 135 of this chapter.* * *
* * * * *
7. Section 119.63 is amended by revising the introductory text of
paragraph (b) to read as follows:
Sec. 119.63 Recency of operation.
* * * * *
(b) If a certificate holder does not conduct a kind of operation
for which it is authorized in its operations specifications within the
number of calendar days specified in paragraph (a) of this section, it
shall not conduct such kind of operation unless--
* * * * *
8. Section 119.67 is amended by revising paragraph (d)(3) to read
as follows:
Sec. 119.67 Management personnel: Qualifications for operations
conducted under part 121 of this chapter.
* * * * *
(d) * * *
(3) Have at least 1 year of experience in a supervisory capacity
maintaining the same category and class of aircraft as the certificate
holder uses.
PART 121--OPERATING REQUIREMENTS: DOMESTIC, FLAG, AND SUPPLEMENTAL
OPERATIONS
8. The authority citation for part 121 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40113, 40119, 44101, 44701-44702,
44705, 44709-44711, 44713, 44716-44717, 44722, 44901, 44903-44904,
44912, 46105.
9. Special Federal Aviation Regulation 38-2 is amended by adding a
new paragraph (d) to section 1 to read as follows:
SFAR No. 38-2--Certification and Operating Requirements
1. * * *
(d) Persons conducting operations under this SFAR shall continue
to comply with the applicable requirements of Secs. 121.6, 121.57,
121.59, 121.61, 121.71 through 121.83, 135.5, 135.11(c), 135.15,
135.17, 135.27, 135.29, 135.33, 135.35, 135.37, and 135.39 of this
chapter as in effect on January 18, 1996, until March 20, 1997, or
until the date on which the certificate holder is issued operations
specifications in accordance with part 119, whichever occurs first.
A copy of these regulations may be obtained from the Federal
Aviation Administration, Office of Rulemaking (ARM), 800
Independence Ave., SW., Washington, DC 20591, or by phone (202) 267-
9677.
* * * * *
10. Section 121.2 is amended by revising paragraphs (d)(1)
introductory text and (d)(2) introductory text, (d)(2)(ii) and (h); and
adding new paragraph (j) to read as follows:
Sec. 121.2 Compliance schedule for operators that transition to part
121; certain new entrant operators.
* * * * *
(d) * * *
(1) Nontransport category turbopropeller powered airplanes type
certificated after December 31, 1964, that have a passenger seat
configuration of 10-19 seats. No certificate holder may operate under
this part an airplane that is described in paragraph (a)(10(i) of this
section on or after a date listed in paragraph (d)(1) of this section
unless that airplane meets the applicable requirement listed in
paragraph (d)(1) of this section:
* * * * *
(2) Transport category turbopropeller powered airplanes that have a
passenger seat configuration of 20-30 seats. No certificate holder may
operate under this part an airplane that is described in paragraph
(a)(1)(ii) of this section on or after a date listed in paragraph
(d)(2) of this section unless that airplane meets the applicable
requirement listed in paragraph (d)(2) of this section:
* * * * *
(ii) December 20, 2010: Sec. 121.305(j), third attitude indicator.
* * * * *
(h) Continuing requirements. A certificate holder described in
paragraph (a) of this section shall comply with the applicable airplane
operating and equipment requirements of part 135 of this chapter for
the airplanes described in paragraph (a)(1) of this section, until the
airplane meets the specific compliance dates in paragraphs (d) and (e)
of this section.
* * * * *
(j) Any training or qualification obtained by a crewmember under
part 135 of this chapter before March 20, 1997, is entitled to credit
under this part for the purpose of meeting the requirements of this
part, as determined by the Administrator. Records kept by a certificate
holder under part 135 of this chapter before March 20, 1997, can be
annotated, with the approval of the Administrator, to reflect
crewmember training and qualification credited toward part 121
requirements.
11. Section 121.157 is amended by revising paragraph (e) and the
introductory text of paragraph (f) to read as follows:
Sec. 121.157 Aircraft certification and equipment requirements.
* * * * *
(e) Commuter category airplanes. Except as provided in paragraph
(f) of this section, no certificate holder may operate under this part
a nontransport category airplane type certificated after December 31,
1964, and before March 30, 1995, unless it meets the applicable
requirements of Sec. 121.173 (a), (b), (d), and (e), and was type
certificated in the commuter category.
(f) Other nontransport category airplanes. No certificate holder
may operate under this part a nontransport category airplane type
certificated after December 31, 1964, unless it meets the applicable
requirements of Sec. 121.173 (a), (b), (d), and (e), was manufactured
before March 20, 1997, and meets one of the following:
* * * * *
Sec. 121.317 [Amended]
12. Section 121.317(l) is amended by changing the date ``December
22, 1997'' to ``December 20, 1997.''
13. Section 121.385(c) is revised to read as follows:
Sec. 121.385 Composition of flight crew.
* * * * *
(c) The minimum pilot crew is two pilots and the certificate holder
shall
[[Page 30435]]
designate one pilot as pilot in command and the other second in
command.
* * * * *
14. Section 121.404 is revised to read as follows:
Sec. 121.404 Compliance dates: Crew and dispatcher resource management
training.
After March 19, 1998, no certificate holder may use a person as a
flight crewmember, and after March 19, 1999, no certificate holder may
use a person as a flight attendant or aircraft dispatcher unless that
person has completed approved crew resource management (CRM) or
dispatcher resource management (DRM) initial training, as applicable,
with that certificate holder or with another certificate holder.
15. Section 121.406 is amended by revising the section heading to
read as follows:
Sec. 121.406 Credit for previous CRM/DRM training.
* * * * *
16. Section 121.431 is amended by revising the second sentence of
paragraph (a) to read as follows:
Sec. 121.431 Applicability.
(a) * * * The qualification requirements of this subpart also apply
to each certificate holder that conducts commuter operations under part
135 of this chapter with airplanes for which two pilots are required by
the aircraft type certification rules of this chapter * * *
* * * * *
17. Section 121.721 is revised to read as follows:
Sec. 121.721 Applicability.
This section describes the certificates that were issued to United
States citizens who were employed by air carriers at the time of
issuance as flight crewmembers on United States registered aircraft
engaged in international air commerce. The purpose of the certificate
is to facilitate the entry and clearance of those crewmembers into ICAO
contracting states. They were issued under Annex 9, as amended, to the
Convention on International Civil Aviation.
18. Section 121.723 is revised to read as follows:
Sec. 121.723 Surrender of international crewmember certificate.
The holder of a certificate issued under this section, or the air
carrier by whom the holder is employed, shall surrender the certificate
for cancellation at the nearest FAA Flight Standards District Office at
the termination of the holder's employment with that air carrier.
PART 135--OPERATING REQUIREMENTS: COMMUTER AND ON-DEMAND OPERATIONS
19. The authority citation for part 135 continues to read as
follows:
Authority: 49 U.S.C. 106(g), 40113, 44701-44702, 44705, 44709,
44711-44713, 44715-44717, 44722.
20. Section 135.2 is amended by removing paragraphs (h) and (i), by
revising the first sentence of paragraph (c), and by revising (d)(1)
introductory text, and (d)(2) introductory text to read as follows:
Sec. 135.2 Compliance schedule for operators that transition to part
121 of this chapter; certain new entrant operators.
* * * * *
(c) Regular or accelerated compliance. Except as provided in
paragraphs (d), and (e) of this section, each certificate holder
described in paragraph (a)(1) of this section shall comply with each
applicable requirement of part 121 of this chapter on and after March
20, 1997 or on and after the date on which the certificate holder is
issued operations specifications under this part, whichever occurs
first. * * *
(d) * * *
(1) Nontransport category turbopropeller powered airplanes type
certificated after December 31, 1964, that have a passenger seat
configuration of 10-19 seats. No certificate holder may operate under
this part an airplane that is described in paragraph (a)(1)(i) of this
section on or after a date listed in paragraph (d)(1) of this section
unless that airplane meets the applicable requirement listed in
paragraph (d)(1) of this section:
* * * * *
(2) Transport category turbopropeller powered airplanes that have a
passenger seat configuration of 20-30 seats. No certificate holder may
operate under this part an airplane that is described in paragraph
(a)(1)(ii) of this section on or after a date listed in paragraph
(d)(2) of this section unless that airplane meets the applicable
requirement listed in paragraph (d)(2) of this section:
* * * * *
21. Section 135.3 is amended by revising the first sentence of
paragraph (b) to read as follows:
Sec. 135.3 Rules applicable to operations subject to this part.
* * * * *
(b) After March 19, 1997, each certificate holder that conducts
commuter operations under this part with airplanes in which two pilots
are required by the type certification rules of this chapter shall
comply with subparts N and O of part 121 of this chapter instead of the
requirements of subparts E, G, and H of this part. * * *
* * * * *
22. Section 135.43 is revised to read as follows:
Sec. 135.43 Crewmember certificates: International operations.
(a) This section describes the certificates that were issued to
United States citizens who were employed by air carriers at the time of
issuance as flight crewmembers on United States registered aircraft
engaged in international air commerce. The purpose of the certificate
is to facilitate the entry and clearance of those crewmembers into ICAO
contracting states. They were issued under Annex 9, as amended, to the
Convention on International Civil Aviation.
(b) The holder of a certificate issued under this section, or the
air carrier by whom the holder is employed, shall surrender the
certificate for cancellation at the nearest FAA Flight Standards
District Office at the termination of the holder's employment with that
air carrier.
23. Section 135.64 is amended by revising paragraph (b)(2) to read
as follows:
Sec. 135.64 Retention of contracts and amendments: Commercial
operators who conduct intrastate operations for compensation or hire.
* * * * *
(b) * * *
(2) The information required by Sec. 119.35(g)(2), (g)(7), and
(g)(8) of this chapter;
* * * * *
Issued in Washington, DC, on June 4, 1996.
Donald P. Byrne,
Assistant Chief Counsel for Regulations.
[FR Doc. 96-14565 Filed 6-13-96; 8:45 am]
BILLING CODE 4910-13-M
Complete official Federal Register PDF
FR Doc. 96-14371 Direct Final Rule Procedure; Petitions for Rulemaking
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30175-30181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14371]
=======================================================================
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DEPARTMENT OF TRANSPORTATION
Research and Special Programs Administration
49 CFR Part 106
[Docket No. RSP-1, Amdt. No. 106-11]
RIN 2137-ACXX
Direct Final Rule Procedure; Petitions for Rulemaking
AGENCY: Research and Special Programs Administration (RSPA), DOT.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: To further the goals of Executive Order 12866 on Regulatory
Planning and Review, and in response to the recommendations of the
National Performance Review (NPR) and the former Administrative
Conference of the United States, RSPA is implementing a new and more
efficient procedure for adopting noncontroversial rules. This ``direct
final rule'' procedure involves issuing a final rule providing notice
and an opportunity to comment and stating that the rule will become
effective on a specified date without further publication of the text
of the rule if RSPA does not receive an adverse comment or notice of
intent to file an adverse comment. If no adverse comment or notice of
intent to file an adverse comment were received, RSPA would issue a
subsequent notice in the Federal Register to confirm that fact and
reiterate the effective date. If an adverse comment or notice of intent
to file an adverse comment were received, RSPA would issue a subsequent
notice in the Federal Register to confirm that fact and withdraw the
direct final rule before it goes into effect.
RSPA is also amending its rulemaking procedures to specify in more
detail the required contents of a petition for rulemaking and provide
that petitions for rulemaking and petitions for reconsideration will be
reviewed and acted upon by the appropriate Associate Administrator or
the Chief Counsel and that decisions of the Associate Administrator may
be appealed to the Administrator.
EFFECTIVE DATE: July 15, 1996.
FOR FURTHER INFORMATION CONTACT: Nancy E. Machado, Office of the Chief
Counsel, RSPA, Department of Transportation, 400 Seventh Street, SW.,
Washington, DC 20590-0001; Telephone (202) 366-4400.
SUPPLEMENTARY INFORMATION:
I. Background
In Executive Order 12866, ``Regulatory Planning and Review'' (58 FR
51735; October 4, 1993), the President set forth the Administration's
regulatory philosophy and principles. The Executive Order contemplates
an efficient and effective rulemaking process, including the
conservation of limited government resources for carrying out its
regulatory functions. Furthermore, ``Improving Regulatory Systems,'' an
Accompanying Report of the National Performance Review, recognized the
need to streamline the regulatory process and recommended the use of
``direct final'' rulemaking
[[Page 30176]]
procedures to reduce needless double review of noncontroversial rules.
The former Administrative Conference of the United States (ACUS)
adopted Recommendation 95-4, ``Procedures for Noncontroversial and
Expedited Rulemaking,'' which endorses direct final rulemaking as a
procedure that can expedite rules in appropriate cases. (See 60 FR
43108; August 18, 1995.) (ACUS studied the efficiency, adequacy and
fairness of the administrative procedures used by Federal agencies in
carrying out administrative programs, and made recommendations for
improvements to the agencies, collectively or individually, and to the
President, Congress, and the Judicial Conference of the United States.)
ACUS found direct final rulemaking appropriate where a rule is expected
to generate no significant adverse comment. ACUS defined a significant
adverse comment as one where the commenter explains why the rule would
be inappropriate, including challenges to the rule's underlying premise
or approach, or would be ineffective or unacceptable without a change.
Under ACUS Recommendation 95-4, an agency would issue a final rule
with a statement that the rule becomes effective automatically at a
specified time, if the agency received no significant adverse comments.
This would eliminate a second round of intra- and inter-agency review.
If a significant adverse comment were received, the agency would
withdraw the rule before the effective date and issue a notice of
proposed rulemaking. As noted in the report, ``this approach avoids the
second round of clearances and review, which otherwise delays rules,
wastes time, and should be superfluous * * *. Theoretically, the second
review ought to be very quick, but clearing any document through
numerous government offices takes time. The paper shuffling also wastes
reviewers' time by requiring them to look at something twice when once
would have sufficed.'' (``Improving Regulatory Systems,'' p. 42.)
The Secretary of Transportation has directed administrations within
the Department of Transportation (DOT) to focus on improvements that
can be made in the way in which they propose and adopt regulations.
This is consistent with both the letter and the spirit of the Executive
Order and the NPR Recommendations.
II. Proposed Rule
In its December 18, 1995 Notice of Proposed Rulemaking (NPRM), 60
FR 65210, RSPA proposed to adopt, in a new Sec. 106.39, direct final
rulemaking procedures for noncontroversial rules, such as minor,
substantive changes to regulations; incorporation by reference of the
latest editions of technical or industry standards; and extensions of
compliance dates. RSPA solicited comment on the advisability of using
direct final rules for these categories of rules, as well as
suggestions for other types of rules that could be issued as direct
final rules.
RSPA stated that if it believed a rulemaking in these categories
would be unlikely to result in significant adverse comment, it would
use its proposed direct final rulemaking procedures. Under those
proposed procedures, a direct final rule would advise the public that
no significant adverse comments are anticipated and, unless a
significant adverse comment or intent to submit a significant adverse
comment is received, in writing, within a certain period of time
(generally 60 days), the rule would become effective on a specified
date (generally 90 days after publication). If no significant adverse
comment or notice of intent to file significant adverse comment were
received, RSPA proposed to issue a subsequent document advising the
public of that fact and that the rule would become, or did become,
effective on the date previously specified in the direct final rule.
RSPA stated in the NPRM that direct final rules would not be subject to
petitions for reconsideration under 49 CFR 106.35.
In the NPRM, RSPA also stated that if it received a significant
adverse comment or notice of intent to file a significant adverse
comment, it would publish a document in the Federal Register
withdrawing the direct final rule, in whole or in part. If RSPA
believed it could incorporate the adverse comment in a subsequent
direct final rulemaking, without generating further significant adverse
comment, RSPA proposed to do so. If RSPA believed that the significant
adverse comment raised an issue serious enough to warrant a substantive
response in a notice-and-comment process, RSPA stated that it could
publish a notice of proposed rulemaking, following the procedures
provided in 49 CFR Secs. 106.11-106.29, which would give an opportunity
to comment to persons who may not have commented earlier because they
wanted the rule to go into effect immediately. RSPA proposed that,
where a significant adverse comment applied to part of a rule and that
part could be severed from the remainder of the rule (for example where
a rule deleted several unrelated regulations), RSPA would adopt as
final those parts of the rule that were not the subject of a
significant adverse comment.
Furthermore, RSPA proposed to adopt ACUS's definition of
``significant adverse comment.'' Specifically, a significant adverse
comment would be one that explains why the rule would be inappropriate,
including a challenge to the rule's underlying premise or approach, or
would be ineffective or unacceptable without a change. RSPA noted that
frivolous or insubstantial comments would not be considered adverse
under this procedure. A comment recommending a rule change in addition
to the rule would not be considered a significant adverse comment,
unless the commenter stated why the rule would be ineffective without
the additional change.
RSPA also proposed to amend Sec. 106.3 to clarify that RSPA's Chief
Counsel has the delegated authority to conduct rulemaking proceedings,
Sec. 106.17 to clarify the procedures for participation by interested
parties in the rulemaking process, and Sec. 106.31 to specify in more
detail the required contents of a petition for rulemaking.
RSPA further proposed to amend 49 CFR Secs. 106.31, 106.33, 106.35
and 106.37 to provide that petitions for rulemaking and petitions for
reconsideration be filed with the appropriate Associate Administrator
or the Chief Counsel, who will review and issue determinations granting
or denying the petitions in whole or part. RSPA also proposed to add a
new Sec. 106.38 to provide that any interested party may appeal a
decision of an Associate Administrator or the Chief Counsel to RSPA's
Administrator.
III. Discussion of Comments
RSPA received 25 written comments on the NPRM. The comments were
submitted by chemical manufacturers, trade associations, transporters
and one State agency. Commenters uniformly supported RSPA's efforts to
streamline and clarify rulemaking procedures, cut costs and reduce
regulatory burdens. Twenty-two of the commenters supported RSPA's
proposal, with 14 of them suggesting changes to the proposal or
requesting clarification. Only three commenters opposed the proposal.
Two objected based on their belief that the proposal abrogated notice-
and-comment procedures of the Administrative Procedure Act (APA), 5
U.S.C. 553. The third commenter asserted that RSPA failed to adequately
justify the reasons for the proposed changes to the agency's regulatory
procedures.
A detailed discussion of the comments, and RSPA's response to
[[Page 30177]]
them, is provided in the following summary.
A. ``Noncontroversial'' Rules
In the NPRM, RSPA proposed to implement direct final rulemaking
procedures for adopting ``noncontroversial rules, such as minor,
substantive changes to regulations, incorporation by reference of the
latest edition of technical or industry standards, extensions of
compliance dates . . . .'' RSPA received numerous requests for
clarification of what constitutes a ``noncontroversial'' rule,
including requests that RSPA provide a list of the types of rules that
it considers noncontroversial. RSPA also received several comments
stating that the proposed rule gives RSPA too much discretion to
determine what is or is not controversial.
First, it would be impossible for RSPA to provide an all-inclusive
list of the types of rules that would be handled under direct final
rulemaking procedures. RSPA cannot accurately envision every type of
rule that the agency might issue in the future. Also, RSPA cannot
accurately predict whether those types of rules might lend themselves
to direct final rulemaking procedures in every instance. Furthermore,
developing such a list could lead to the inadvertent exclusion of some
types of rules that are ideally suited to the direct final rule
process. RSPA will not attempt to develop an all-inclusive list of the
types of rules subject to direct final rule procedures. RSPA will, as
proposed, review each rule on its individual merits to determine
whether the agency believes the rule will be noncontroversial.
Commenters are correct that, as proposed in the NPRM, the agency
has sole discretion in determining whether a rule is or is not
controversial. RSPA does not agree, however, that this discretion is
overly broad or subject to abuse. The nature of the proposed direct
final rule process ensures that RSPA will make a good faith effort to
ascertain which rules are truly noncontroversial. As proposed in the
NPRM, a mere notice of intent to file an adverse comment is sufficient
to terminate the direct final rule process. This alone ensures that
RSPA will not waste its limited resources knowingly trying to
promulgate a controversial rule under direct final rulemaking
procedures. To the extent that the agency miscalculates the
contentiousness of a rule, it will have to withdraw that rule. If the
agency again decides to move forward on the same issue, it either would
be with another direct final rule which addresses the concern voiced in
the adverse comment and is, itself, open to public comment, or with a
notice of proposed rulemaking using traditional notice-and-comment
procedures. Consequently, it is in RSPA's best interest to make every
reasonable effort to accurately determine the contentiousness of a rule
before deciding to use direct final rulemaking procedures.
Several commenters also remarked that the incorporation of
technical standards and industry standards into the Hazardous Materials
Regulations (HMR) may be a controversial agency action. RSPA agrees
that incorporating technical and industry standards into the HMR may be
controversial. On the other hand, there are instances where industry
itself has petitioned the agency to incorporate changes into the HMR,
and the agency has done so by issuing those changes as a final rule--
which was not preceded by an NPRM--without receiving any adverse
comments. See, e.g., RSPA Docket HM-166Z, Transportation of Hazardous
Materials; Miscellaneous Amendments (59 FR 28487; June 2, 1994)
(incorporating by reference the most recent editions of the American
National Standards Institute, Inc. Standard N14.1, American
Pyrotechnics Association Standard 87-1, Association of American
Railroads Specification M-1102, Compressed Gas Association Pamphlet C-
7, and Institute of Makers of Explosives Standard 22). Consequently,
RSPA will continue to incorporate technical and industry standards into
the HMR, without prior opportunity to comment, when the agency
reasonably believes that the rule will be noncontroversial. The direct
final rule process is an additional tool that the agency may use to do
so.
Finally, several commenters expressed concern over RSPA's statement
that minor substantive changes to the HMR may be noncontroversial and,
thus, subject to direct final rulemaking procedures. Commenters
questioned how a change can be minor, substantive and, at the same
time, noncontroversial. On numerous occasions, RSPA has made minor,
substantive changes to the HMR, without generating adverse comment. For
example, in RSPA Docket HM-166Z, discussed above, RSPA revised 49 CFR
173.34(e)(15)(v) to permit cylinders manufactured after December 31,
1945, to be stamped with a five-point star. This action was taken in
order to maintain consistency with 49 CFR 173.34(e)(15)(i), which was
revised in RSPA Docket HM-166X (58 FR 50496; Sept. 27, 1993). As noted
above, no adverse comments were received. Although the change to
Sec. 173.34(e)(15)(v) was substantive, it was minor in that it followed
logically from significant changes that were made to
Sec. 173.34(e)(15)(i), and was necessary to maintain consistency.
Also, in RSPA Docket 222B (61 FR 6478; Feb. 20, 1996) RSPA proposed
to amend 49 CFR 172.402 to add an exception from the requirement for
subsidiary hazard labeling for certain packages of Class 7
(radioactive) materials that also meet the definition of another hazard
class, except Class 9. Only one comment was received to RSPA's proposal
to amend Sec. 172.402, and that comment was fully supportive of RSPA's
proposal. These actions made or proposed to make substantive yet minor
changes to the HMR, and drew no adverse comment. Consequently, as
proposed, RSPA will issue these types of substantive, yet minor
amendments to the HMR through use of direct final rulemaking
procedures.
B. Significant Adverse Comments
RSPA stated in its proposal that if, after publishing a direct
final rule, it received no ``significant adverse comments'' or notice
of an intent to file a significant adverse comment, the rule would
become effective on a specified date without further publication of the
text of the rule. RSPA defined ``significant adverse comment'' as one
where ``the commenter explains why the rule would be inappropriate,
including challenges to the rule's underlying premise or approach, or
would be ineffective or unacceptable without a change.'' No commenter
objected to the proposed definition of the term ``significant adverse
comment,'' but several commenters objected to the word ``significant,''
stating that the term placed the burden of proof on industry and that
the agency would have too much discretion to determine what is
``significant.'' Because no commenter found the proposed definition
objectionable, only the terminology, RSPA will adopt the definition of
``significant adverse comment'', as proposed, but will delete the word
``significant'' from the term ``significant adverse comment.''
In addition, several commenters asked RSPA to clarify whether
comments alleging increased costs, comments that agree with a proposal
but suggest improvements, or comments requesting clarification would be
considered sufficiently adverse to require withdrawal of a direct final
rule. A comment alleging increased costs would generally be considered
adverse. RSPA will not use the direct final rule process where it can
reasonably anticipate that
[[Page 30178]]
a rule will result in increased costs. However, where the allegation of
increased costs is, for example, clearly erroneous, the comment would
not be considered sufficient to warrant withdrawal of the direct final
rule.
A comment that agrees with the proposal but suggests an improvement
would not generally be considered adverse. RSPA stated in the NPRM that
``a comment recommending a rule change in addition to the rule should
not be considered a significant adverse comment, unless the commenter
states why the rule would be ineffective without the additional
change.'' By that statement, RSPA intended to convey that a comment
would be considered adverse if it states that the rule would be
intrinsically inappropriate without the suggested improvement or if it
states that RSPA would be acting inappropriately if it were to adopt
the rule without the suggested improvement. On the other hand, a
comment might not be considered adverse where RSPA reasonably believes
that incorporating the suggested improvement would be noncontroversial,
e.g., where the commenter identifies a section of the HMR that should
be revised in order to maintain consistency between the identified
section and a section amended in a direct final rule, such as the
changes made in RSPA Docket HM-166Z to 49 CFR 173.34(e)(15)(v),
discussed above. In that instance, after the direct final rule at issue
becomes effective, RSPA would make the technical correction in a
subsequent miscellaneous correction rulemaking.
Comments requesting clarification would not, in all cases, be
considered adverse. For example, a commenter might ask the agency to
clarify a particular proposal and at the same time give its own view of
what it believes the agency intended. If the commenter has correctly
understood the agency's intention, the comment is not adverse and
should not result in the withdrawal of a direct final rule. On the
other hand, if there is a substantive difference between the
commenter's understanding and the agency's intention, and the commenter
urges the agency to adopt the commenter's interpretation, the comment
would more than likely be considered adverse.
In the NPRM, RSPA stated that frivolous or insubstantial comments
would not be considered adverse. Several commenters asked RSPA to
clarify those terms. Webster's Ninth New Collegiate Dictionary (1991)
defines ``frivolous'' as ``1: of little weight or importance 2 a:
lacking in seriousness * * *.'' ``Insubstantial'' is defined as
``lacking in substance or material nature.'' RSPA will only consider
comments to be adverse where the commenter demonstrates some minimum
level of seriousness of purpose--if RSPA would have responded to a
comment in the course of a notice-and-comment rulemaking proceeding, it
will consider that comment adverse under the direct final rule
procedures. See, e.g., Center for Auto Safety v. Peck, 751 F.2d 1336,
1355 n. 15 (D.C. Cir. 1985) (agency need not respond to remote or
insignificant comments); Portland Cement Ass'n v. Ruckelshaus, 486 F.2d
375, 394 (D.C. Cir. 1973) (``lack of agency response or consideration
becomes of concern'' when comment is ``significant enough to step over
the threshold requirement of materiality.'')
One commenter suggested that adverse comments be published in the
Federal Register. As proposed, RSPA will publish a document in the
Federal Register advising the public that an adverse comment or notice
of intent to file an adverse comment has been received and that the
direct final rule is being withdrawn. RSPA will not publish the full
text of an adverse comment in that document, but will identify the
commenter and the substance of its adverse comment. The full text of
all comments will be available to the public through RSPA's public
docket room, Room 8419, Department of Transportation, 400 Seventh
Street, SW., Washington, DC 20590-0001.
Finally, several commenters expressed concern with regard to RSPA's
statement in the NPRM that ``[i]f RSPA believed it could incorporate
[an] adverse comment in a subsequent direct final rulemaking, without
generating further significant adverse comment, it could do so.'' Two
commenters stated that this would circumvent notice-and-comment
procedures under the APA. Another stated that a ``proposed'' direct
final rule should look the same as the ``final'' direct final rule.
RSPA believes that the commenters misconstrued RSPA's statement to mean
that it might incorporate an adverse comment into a direct final rule
that would not be subject to further public comment. RSPA merely
intended to indicate by that statement that if the agency received an
adverse comment, it would terminate the direct final rule at issue but
might later initiate another direct final rule proceeding which
incorporated the adverse comment. This second direct final rule
proceeding, like the first, would be open for public comment.
C. Notice of Intent To File a Significant Adverse Comment
In the notice, RSPA proposed that the filing of a notice of intent
to submit an adverse comment would be sufficient to cause the agency to
withdraw a direct final rule. One commenter cautioned against giving
the public an open-ended opportunity to halt a direct final rule
proceeding on the strength of a notice of intent to file an adverse
comment. The commenter suggested that RSPA set a time-frame by which an
entity filing a notice of intent to file an adverse comment must
actually submit its adverse comment; failure to actually submit the
adverse comment would allow the direct final rule proceeding to
continue, in the absence of any other adverse comments. Another
commenter stated that a notice of intent to file an adverse comment
should not derail a direct final rule, and argued that a minimum 60-day
comment period was sufficient for the filing of substantive comments.
The same commenter also noted that comments following a notice of
intent to file adverse comments might not actually be adverse. A third
commenter suggested that, in lieu of allowing commenters to file a
notice of intent to file an adverse comment, the agency allow
commenters to request an extension of the comment period when
necessary.
RSPA has considered the comments on this issue and will adopt its
original proposal. Nevertheless, RSPA will revisit this issue in a
future rulemaking if it finds that commenters are abusing the procedure
by failing to file adverse comments after they have notified the agency
that they intend to do so and after the agency has withdrawn a direct
final rule.
D. Severability
RSPA stated in the NPRM that if an adverse comment applies to part
of a rule and that part can be severed from the remainder of the rule
(for example where a rule deletes several unrelated regulations), RSPA
would adopt as final those parts of the rule that were not the subject
of the adverse comment. Three commenters expressed the opinion that
RSPA should only sever provisions of a direct final rule when they are
clearly unrelated to the portion of the rule that was the subject of
the adverse comment. RSPA agrees with the commenters that unless a
provision of a direct final rule is clearly unrelated to a provision
that is the subject of an adverse comment, as where a rule deletes
several unrelated regulations, it will withdraw the entire rule.
[[Page 30179]]
E. Publication of Direct Final Rule in Federal Register
Two commenters suggested that RSPA follow the U.S. Coast Guard's
procedure for publishing a direct final rule in the Federal Register--
specifically, they suggest that RSPA publish the text of a direct final
rule in the ``Rules'' section of the Federal Register and a cross-
reference in the ``Proposed Rules'' section to ensure adequate public
notice. RSPA will not adopt the recommended procedure at this time.
However, if RSPA finds that publication of direct final rules in the
``Rules'' section of the Federal Register is not providing adequate
notice to the public, the agency will revisit this issue.
F. Effective Date of Direct Final Rule
Section 553(d) of the APA states,
The required publication or service of a substantive rule shall
be made not less than 30 days before its effective date, except--
(1) a substantive rule which grants or recognizes an exemption
or relieves a restriction;
(2) interpretative rules and statements of policy; or
(3) as otherwise provided by the agency for good cause found and
published with the rule.
5 U.S.C. 553(d). Two commenters questioned whether RSPA's proposal
would satisfy the 30-day notice requirement of Sec. 553(d).
Specifically, if no adverse comment or notice of intent to file one
were received, RSPA proposed to issue a subsequent document advising
the public of that fact and that the rule will become or did become
effective on the date previously specified in the direct final rule.
RSPA agrees that its proposed procedure might result in less than 30
days' notice because the document advising that a direct final rule
will or did become effective might be published less than 30 days
before the effective date of the direct final rule. One of the
commenters suggested that RSPA (1) Identify in each direct final rule a
date after the close of the comment period by which RSPA will notify
the public when or if the rule will become effective and (2) specify an
effective date that is at least 30 days after the public notice date.
RSPA believes that the commenter's suggestion is a good one and,
therefore, will adopt it as part of its direct final rule procedures.
G. Petitions for Reconsideration
Several commenters objected to RSPA's proposal not to allow
petitions for reconsideration of direct final rules. They argued that
the expedited nature of the direct final rule procedure dictates that
petition for reconsideration procedures be kept in place to protect the
public interest. After reviewing the comments on this issue, RSPA
agrees that a party who has filed what it believes to be adverse
comments with the agency may petition the agency for reconsideration if
a direct final rule becomes effective despite its comments. Because of
the expedited nature of direct final rule procedures, however,
petitions for reconsideration of a direct final rule will not be
accepted from anyone who did not participate in the comment phase of
the direct final rule proceeding. The public interest is adequately
protected by commenters' ability to cause the withdrawal of a direct
final rule by the filing of a notice of intent to file adverse
comments.
H. Administrative Procedure Act
Two commenters argued that direct final rule procedures abrogate
the protections afforded to the public under the APA. One commenter
stated that ``procedural due process protections afforded in the [APA]
should not be truncated by unilateral agency action. Prior notice-and-
comment rulemaking is an essential element of regulatory justice and
provides legitimacy for agency actions.'' The other commenter stated
that RSPA's proposal would ``curtail the procedural protections of the
[APA] and simultaneously restrict review of actions taken under the new
procedure.''
In recommending that agencies adopt direct final rule procedures,
ACUS recognized and discussed the issue of compliance with APA notice-
and-comment requirements. In Recommendation 95-4, ACUS stated,
Under current law, direct final rulemaking is supported by two
rationales. First, it is justified by the Administrative Procedure
Act's ``good cause'' exemption from notice-and-comment procedures
where they are found to be ``unnecessary.'' The agency's
solicitation of public comment does not undercut this argument, but
rather is used to validate the agency's initial determination.
Alternatively, direct final rulemaking also complies with the basic
notice-and-comment requirements in section 553 of the APA. The
agency provides notice and opportunity to comment on the rule
through its Federal Register notice; the publication requirements
are met, although the information has been published earlier in the
process than normal; and the requisite advance notice of the
effective date required by the APA is provided.
60 FR 43111
The direct final rule procedures that RSPA is adopting are
justified by the APA's ``good cause'' exemption from notice-and-comment
procedures. Nevertheless, the procedures adopted by RSPA also give the
public the opportunity to submit comments--where no adverse comments
are received, the agency's determination that the rule would be
noncontroversial is validated. Consequently, the interests of the
public in the rulemaking process are adequately protected under RSPA's
direct final rule procedures.
I. Petitions for Rulemaking
In proposed Sec. 106.31(c), RSPA stated that where the potential
impact of an action proposed in a petition for rulemaking is
substantial, and information and data related to that impact are
available to the petitioner, the agency may request the petitioner to
provide information and data to assist in rulemaking analyses required
under Executive Orders 12866 and 12612, the Regulatory Flexibility Act,
the Paperwork Reduction Act and the National Environmental Policy Act.
RSPA stated that it may request a petitioner to provide specific
information regarding costs and benefits, direct effects, regulatory
burdens, recordkeeping and reporting requirements, and environmental
impacts of its proposed action, where such information is ``available
to the petitioner.'' By ``available,'' RSPA means that the information
is in petitioner's possession or obtainable by the petitioner. RSPA's
proposal is consistent with ACUS Recommendation 86-6, Petitions for
Rulemaking, which suggests how agencies may improve the handling of
petitions for the issuance of rules. See 51 FR 46985; Dec. 30, 1986.
Several commenters supported RSPA's proposal while several others
objected to RSPA's proposal as a shifting of governmental functions to
industry.
The APA requires Federal agencies to give interested persons the
right to petition for the issuance, amendment or repeal of a rule and
requires that Federal agencies give prompt notice of a denial of a
petition, including a brief statement of the grounds for the denial. 5
U.S.C. 555(e). RSPA encourages the filing of well-supported petitions
for rulemaking with the agency, and will consider all petitions that
meet the criteria set forth in proposed Sec. 106.31. RSPA's proposed
requirements are intended to provide the agency with information that
is essential to the agency's review of petitions for rulemaking that
have a substantial impact on the public.
The APA does not require agencies to accept all petitions for
rulemaking. Consequently, the agency will not consider a petition for
rulemaking that is frivolous, that is unsupported, or that fails to
adequately set forth information that the agency deems critical to a
thorough evaluation of the petition. In
[[Page 30180]]
filing a petition for rulemaking, the burden is on the petitioner to
provide supporting information and arguments as to why the agency
should commit itself to the rulemaking proceeding being advocated by
the petitioner.
J. Appeal to Administrator
RSPA received only one comment with respect to its proposal to add
a new Sec. 106.38 to provide that any interested party may appeal a
decision of an Associate Administrator under Sec. 106.33 or Sec. 106.37
(concerning petitions for rulemaking and petitions for reconsideration,
respectively) to the Administrator. The commenter supported RSPA's
proposal but noted a lack of detail as to the required contents of a
written appeal document. This final rule adopts Sec. 106.38 as proposed
and adds the right to appeal a decision of the Chief Counsel to the
Administrator. At the appeal stage, all relevant documents that were
considered by an Associate Administrator or the Chief Counsel in
reaching his decision will be provided by the Associate Administrator
or Chief Counsel to the Administrator for review; the party appealing
the decision need not provide that information to the agency again. An
appeal to the Administrator should identify the decision that is being
appealed, state with particularity the aspects of the decision being
appealed, and include any new information or arguments that the
Administrator is being asked to consider.
K. Miscellaneous
One commenter asked RSPA to distinguish between the interim final
rule procedures the agency has used in the past and the agency's
proposed direct final rule procedures. Essentially, when an agency uses
interim final rulemaking, it adopts a rule without prior public input,
makes it immediately effective, and then invites post-promulgation
comments directed towards the issue of whether the rule should be
changed sometime in the future. The receipt of comments adverse to the
interim final rule will not necessarily cause the agency to withdraw
the interim final rule, but may lead to future amendments if the agency
is persuaded that amendments are necessary. On the other hand, when an
agency proposes a rule using direct final rule procedures, a single
adverse comment or notice of intent to file an adverse comment will
cause the agency to withdraw the rule, whether or not the agency is
persuaded that amendments to the rule are necessary.
IV. Rulemaking Analysis and Notices
Executive Order 12866 and DOT Regulatory Policies and Procedures
This final rule is not considered a significant regulatory action
under section 3(f) of Executive Order 12866 and, therefore, was not
reviewed by the Office of Management and Budget. The rule is not
significant according to the Regulatory Policies and Procedures of the
Department of Transportation (44 FR 11034). The changes adopted in this
rule do not result in any additional costs but result in modest cost
savings to the public and to the agency. Because of the minimal
economic impact of this rule, preparation of a regulatory evaluation is
not warranted.
Executive Order 12612
This final rule has been analyzed in accordance with the principles
and criteria in Executive Order 12612 (``Federalism'') and does not
have sufficient Federalism impacts to warrant the preparation of a
federalism assessment.
Regulatory Flexibility Act
I certify that this final rule will not have a significant economic
impact on a substantial number of small entities. This rule does not
impose any new requirements; thus, there are no direct or indirect
adverse economic impacts for small units of government, businesses or
other organizations.
Paperwork Reduction Act
There are no new information collection requirements in this final
rule.
Regulation Identifier Number
A regulation identifier number (RIN) is assigned to each regulatory
action listed in the Unified Agenda of Federal Regulations. The
Regulatory Information Service Center publishes the Unified Agenda in
April and October of each year. The RIN number contained in the heading
of this document can be used to cross-reference this action with the
Unified Agenda.
List of Subjects in 49 CFR Part 106
Administrative practice and procedure, Hazardous materials
transportation, Oil, Pipeline safety.
In consideration of the foregoing, 49 CFR Part 106 is amended as
follows:
PART 106--RULEMAKING PROCEDURES
1. The authority citation for part 106 continues to read as
follows:
Authority: 33 U.S.C. 1321; 49 U.S.C. 5101-5127, 40113, 60101-
60125; 49 CFR 1.53.
2. In Sec. 106.3, a new paragraph (d) is added to read as follows:
Sec. 106.3 Delegations.
* * * * *
(d) Chief Counsel.
3. In Sec. 106.17, paragraph (a) is revised to read as follows:
Sec. 106.17 Participation by interested persons.
(a) Any interested person may participate in rulemaking proceedings
by submitting comments in writing containing information, views or
arguments in accordance with instructions for participation in the
rulemaking document.
* * * * *
4. Section 106.31 is revised to read as follows:
Sec. 106.31 Petitions for rulemaking.
(a) Any interested person may petition the Associate Administrator
to establish, amend, or repeal a substantive regulation, or may
petition the Chief Counsel to establish, amend, or repeal a procedural
regulation in parts 106 or 107.
(b) Each petition filed under this section must--
(1) Summarize the proposed action and explain its purpose;
(2) State the text of the proposed rule or amendment, or specify
the rule proposed to be repealed;
(3) Explain the petitioner's interest in the proposed action and
the interest of any party the petitioner represents; and
(4) Provide information and arguments that support the proposed
action, including relevant technical, scientific or other data as
available to the petitioner, and any specific known cases that
illustrate the need for the proposed action.
(c) If the potential impact of the proposed action is substantial,
and information and data related to that impact are available to the
petitioner, the Associate Administrator or the Chief Counsel may
request the petitioner to provide--
(1) The costs and benefits to society and identifiable groups
within society, quantifiable and otherwise;
(2) The direct effects (including preemption effects) of the
proposed action on States, on the relationship between the Federal
Government and the States, and on the distribution of power and
responsibilities among the various levels of government;
(3) The regulatory burden on small businesses, small organizations
and small governmental jurisdictions;
(4) The recordkeeping and reporting requirements and to whom they
would apply; and
[[Page 30181]]
(5) Impacts on the quality of the natural and social environments.
(d) The Associate Administrator or Chief Counsel may return a
petition that does not comply with the requirements of this section,
accompanied by a written statement indicating the deficiencies in the
petition.
Sec. 106.33 [Amended]
5. Section 106.33 is amended by replacing the word
``Administrator'' with the words ``Associate Administrator or the Chief
Counsel'' wherever it appears.
6. Section 106.33, paragraph (d) is revised to read as follows:
Sec. 106.33 Processing of Petition.
* * * * *
(d) Notification. The Associate Administrator or the Chief Counsel
will notify a petitioner, in writing, of his decision to grant or deny
a petition for rulemaking.
7. In Sec. 106.35, the first sentence of paragraph (a) is revised
to read as follows:
Sec. 106.35 Petitions for reconsideration.
(a) Except as provided in Sec. 106.39(d), any interested person may
petition the Associate Administrator for reconsideration of any
regulation issued under this part, or may petition the Chief Counsel
for reconsideration of any procedural regulation issued under this part
and contained in this part or in Part 107 of this Chapter. * * *
* * * * *
Sec. 106.35 [Amended]
8. In addition, in Sec. 106.35, paragraphs (b), (c), and (d), the
word ``Administrator'' is amended to read ``Associate Administrator or
the Chief Counsel'' wherever it appears.
Sec. 106.37 [Amended]
9. In Sec. 106.37, the word ``Administrator'' is amended to read
``Associate Administrator or the Chief Counsel'' wherever it appears.
10. Part 106 is amended by adding a new Sec. 106.38 to read as
follows:
Sec. 106.38 Appeals.
(a) Any interested person may appeal a decision of the Associate
Administrator or the Chief Counsel, issued under Sec. 106.33 or
Sec. 106.37, to the Administrator.
(b) An appeal must be received within 20 days of service of written
notice to petitioner of the Associate Administrator's or the Chief
Counsel's decision, or within 20 days from the date of publication of
the decision in the Federal Register, and should set forth the
contested aspects of the decision as well as any new arguments or
information.
(c) It is requested, but not required, that three copies of the
appeal be submitted to the Administrator.
(d) Unless the Administrator otherwise provides, the filing of an
appeal under this section does not stay the effectiveness of any rule.
11. Part 106 is amended by adding a new Sec. 106.39 to read as
follows:
Sec. 106.39 Direct final rulemaking.
(a) Where practicable, the Administrator will use direct final
rulemaking to issue the following types of rules:
(1) Minor, substantive changes to regulations;
(2) Incorporation by reference of the latest edition of technical
or industry standards;
(3) Extensions of compliance dates; and
(4) Other noncontroversial rules where the Administrator determines
that use of direct final rulemaking is in the public interest, and that
a regulation is unlikely to result in adverse comment.
(b) The direct final rule will state an effective date. The direct
final rule will also state that unless an adverse comment or notice of
intent to file an adverse comment is received within the specified
comment period, generally 60 days after publication of the direct final
rule in the Federal Register, the Administrator will issue a
confirmation document, generally within 15 days after the close of the
comment period, advising the public that the direct final rule will
either become effective on the date stated in the direct final rule or
at least 30 days after the publication date of the confirmation
document, whichever is later.
(c) For purposes of this section, an adverse comment is one which
explains why the rule would be inappropriate, including a challenge to
the rule's underlying premise or approach, or would be ineffective or
unacceptable without a change. Comments that are frivolous or
insubstantial will not be considered adverse under this procedure. A
comment recommending a rule change in addition to the rule will not be
considered an adverse comment, unless the commenter states why the rule
would be ineffective without the additional change.
(d) Only parties who filed comments to a direct final rule issued
under this section may petition under Sec. 106.35 for reconsideration
of that direct final rule.
(e) If an adverse comment or notice of intent to file an adverse
comment is received, a timely document will be published in the Federal
Register advising the public and withdrawing the direct final rule in
whole or in part. The Administrator may then incorporate the adverse
comment into a subsequent direct final rule or may publish a notice of
proposed rulemaking. A notice of proposed rulemaking will provide an
opportunity for public comment, generally a minimum of 60 days, and
will be processed in accordance with Secs. 106.11-106.29.
Issued in Washington, D.C. on May 31, 1996, under the authority
delegated in 49 CFR part 1.53 and RSPA Order 1100.2A (May 19, 1992).
Kelley S. Coyner,
Deputy Administrator.
[FR Doc. 96-14371 Filed 6-13-96; 8:45 am]
BILLING CODE 4910-60-P
Complete official Federal Register PDF
FR Doc. 96-14185 Employee Benefit Plan Exemptive Rules Under Section 16 of the Securities Exchange Act of 1934
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30396-30397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14185]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release Nos. 34-37261; 35-26525; IC-21998]
RIN 3235-AB14
Employee Benefit Plan Exemptive Rules Under Section 16 of the
Securities Exchange Act of 1934
AGENCY: Securities and Exchange Commission.
ACTION: Extension of phase-in period for rule 16b-3.
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SUMMARY: The Commission today is extending the phase-in period for
compliance with the substantive conditions of new Rule 16b-3 regarding
employee benefit plan transactions under the Securities Exchange Act of
1934.
DATES: Effective June 14, 1996. The phase-in period for compliance with
new Sec. 240.16b-3, which previously has been extended to September 1,
1996, is extended until November 1, 1996.
FOR FURTHER INFORMATION CONTACT: Anne M. Krauskopf, Office of the Chief
Counsel, Division of Corporation Finance, at (202) 942-2900.
SUPPLEMENTARY INFORMATION: On February 8, 1991, the Commission adopted
comprehensive revisions to the rules under section 16 1 of the
Securities Exchange Act of 1934 (``Exchange Act'').2 The new
regulatory scheme generally became effective on May 1, 1991, but a 16
month phase-in period was provided with respect to specified rules
affecting employee benefit plans, in order to give registrants ample
time to review the rule changes and amend their plans
accordingly.3 The Adopting Release provided that registrants could
continue to rely on the exemptions from section 16(b) of the Exchange
Act 4 afforded by former Rules 16a-8(b),5 16a-8(g)(3),6
and 16b-3 7 after May 1, 1991, but would be required to adopt the
substantive conditions of new Rule 16b-3 8 by September 1,
1992.9
\1\ 15 U.S.C. 78p (1988).
\2\ 15 U.S.C. 78a et seq. (1988).
\3\ Exchange Act Release No. 28869 (February 8, 1991) (56 FR
7242) (``Adopting Release''). See Section VII of the Adopting
Release for transition provisions generally and Section VII.C for
transition provisions relating to employee benefit plans.
\4\ 15 U.S.C. 78p(b).
\5\ 17 CFR 240.16a-8(b).
\6\ 17 CFR 240.16a-8(g)(3).
\7\ 17 CFR 240.16b-3 (1990).
\8\ 17 CFR 240.16b-3 (1991).
\9\ The phase-in period applies only to the exemption from
section 16(b), not to the revised reporting requirements under
section 16(a) that became effective on May 1, 1991 and the further
revisions adopted today.
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The Rule 16b-3 phase-in period was extended until September 1,
1996, or such different date as set by the Commission, pending
completion of further rulemaking under section 16 with regard to
employee benefit plans.10 The amendments to the rules under
section 16 adopted today, which become effective August 15, 1996,
complete this rulemaking effort.11 While new Rule 16b-3 becomes
available for issuers that wish to use it on August 15, 1996, the
phase-in period for Rule 16b-3 is extended until November 1,
1996.12
[[Page 30397]]
Consistent with the transition provisions adopted today, current Rule
16b-3 and former Rules 16a-8(b), 16a-8(g) and 16b-3 will remain
available for transactions effected prior to November 1, 1996.
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\10\ Exchange Act Release No. 36063 (August 7, 1995) (60 FR
40994).
\11\ Exchange Act Release No. 34-37260, Section VII.
\12\ When an issuer adopts a plan that complies with new Rule
16b-3 or converts one of its existing plans to the new rule, all
plans must be converted, provided that any transaction between an
issuer and its officers or directors that occurs outside the scope
of a formal plan or pursuant to a plan that permits only the
issuance of cash-only instruments may rely on new Rule 16b-3 without
triggering this conversion requirement.
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Dated: May 31, 1996.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-14185 Filed 6-13-96; 8:45 am]
BILLING CODE 8010-01-P
Complete official Federal Register PDF
FR Doc. 96-14184 Ownership Reports and Trading by Officers, Directors and Principal Security Holders
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30376-30396]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14184]
[[Page 30375]]
_______________________________________________________________________
Part III
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Part 228, et al.
Ownership Reports and Trading by Officers, Directors and Principal
Security Holders; Extension of Phase-In Period for 16b-3; Disclosure
Simplification: Phase One and Phase Two Recommendations of Task Force;
Final and Proposed Rules
Federal Register / Vol. 61, No. 116 / Friday, June 14, 1996 / Rules
and Regulations
[[Page 30376]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 228, 229, 240 and 249
[Release Nos. 34-37260; 35-26524; IC-21997; File No. S7-21-94]
RIN 3235-AF66
Ownership Reports and Trading by Officers, Directors and
Principal Security Holders
AGENCY: Securities and Exchange Commission.
ACTION: Final rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting amendments to its rules and forms regarding the filing of
ownership reports by officers, directors, and principal security
holders, and the exemption of certain transactions by those persons
from the short-swing profit recovery provisions of section 16 of the
Securities Exchange Act of 1934 (``Exchange Act'') and related
provisions of the Investment Company Act of 1940 (``Investment Company
Act'') and the Public Utility Holding Company Act of 1935. The revised
rules are intended to streamline the Section 16 regulatory scheme,
particularly with respect to transactions between an issuer and its
officers and directors; simplify the reporting system; broaden
exemptions from short-swing profit recovery where consistent with the
statutory purposes; and codify several staff interpretive positions.
DATES: Effective date: August 15, 1996. The phase-in period for Rule
16b-3 is extended until November 1, 1996 pursuant to Release No. 34-
37261. For a discussion of transition provisions, see Section VII.
FOR FURTHER INFORMATION CONTACT: Anne M. Krauskopf, Special Counsel,
Office of Chief Counsel, or Elizabeth M. Murphy, Special Counsel,
Office of Disclosure Policy, at (202) 942-2900, Division of Corporation
Finance, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC. 20549.
SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to
Rules 16a-1, 16a-2, 16a-3, 16a-4, 16a-6, 16a-8, 16a-9, 16b-3, and 16b-6
\1\ promulgated under section 16 \2\ of the Exchange Act.\3\ The
Commission also is amending Rule 16b-2 \4\ and redesignating it as Rule
16a-11,\5\ and adopting new Rules 16a-12 and 16a-13.\6\ Finally, the
Commission is adopting revisions to Item 405 of Regulation S-K \7\ and
Regulation S-B,\8\ as well as to Forms 3, 4, and 5.\9\
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\1\ 17 CFR 240.16a-1, 16a-2, 16a-3, 16a-4, 16a-6, 16a-8, 16a-9,
16b-3, and 16b-6. Throughout this release, the term ``current Rule
or Form'' refers to the regulation as in effect before today's
amendments, while ``new Rule or Form'' refers to the regulations as
amended or adopted in this release.
\2\ 15 U.S.C. 78p.
\3\ 15 U.S.C. 78a et seq.
\4\ 17 CFR 240.16b-2.
\5\ 17 CFR 240.16a-11.
\6\ 17 CFR 240.16a-12 and 16a-13.
\7\ 17 CFR 229.405.
\8\ 17 CFR 228.405.
\9\ 17 CFR 249.103, 104 and 105.
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Table of Contents
I. Executive Summary and Background
II. Transactions Between an Issuer and its Directors or Officers
A. General Approach
B. Tax-Conditioned Plans
C. Discretionary Transactions
D. Grants, Awards and Other Acquisitions from the Issuer
1. General; Participant-Directed Acquisitions
2. Alternative Conditions
3. Scope of Approval Required
4. Non-Employee Director Definition
E. Dispositions to the Issuer
III. Derivative Securities
A. Compensatory Cash-Only Instruments
B. Over-Allotment Options
C. Surrender and Withholding Rights in Connection with Exercise
or Tax Withholding
D. Value Derived from Market Price of an Equity Security
IV. Revisions to Reporting System
A. Overall Approach
B. Transactions No Longer Reported at All
C. Transactions to be Reported on Form 5
D. Transactions to be Reported on Form 4
E. Joint and Group Reporting
F. Trust Transactions
G. Compliance with the Reporting Requirements
H. Equity Swaps
I. Changes in Forms and Reporting Codes
V. Additional Exemptions and Revisions
A. Dividend or Interest Reinvestment Plans
B. New Exemption for Domestic Relations Orders
C. Exemption for Stock Dividend Transactions
VI. 1995 Solicitation of Comment Regarding the on-Going Merit of the
Short-Swing Profit Recovery Provisions of Section 16
VII. Transition to New Rules
A. General Application
B. New Rule 16b-3
VIII. Cost-Benefit Analysis
IX. Summary of Final Regulatory Flexibility Analysis
X. Statutory Basis and Text of the Amendments
I. Executive Summary and Background
In February 1991, in response to developments in the trading of
derivative securities, the growth of complex and diverse employee
benefit plans, and substantial filing delinquencies, the Commission
adopted comprehensive changes to the beneficial ownership and short-
swing profit recovery rules and forms applicable to insiders 10
pursuant to section 16.11 While many aspects of the new section 16
rules were favorably received, unanticipated practical difficulties
arose in implementing the new rules, particularly with respect to
thrift and similar employee benefit plans. In particular, issuers and
insiders stated that the application of current Rule 16b-3 to these
plans is cumbersome, presents significant record-keeping problems and
discourages insiders from participation in plan funds holding employer
securities.
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\10\ The term ``insider,'' as used in this release, refers to
officers and directors of issuers with a class of equity securities
registered pursuant to section 12 of the Exchange Act, and holders
of more than ten percent of a class of equity securities so
registered. When referring to an issuer with securities registered
under section 12, this release includes securities of closed-end
investment companies subject to section 30(f) of the Investment
Company Act (15 U.S.C. 80a-29(f) (1988)) and public utility holding
companies subject to Section 17 of the Public Utility Holding
Company Act of 1935 (15 U.S.C. 79q (1988)). The insiders of a
closed-end investment company also include the adviser and any
affiliated person of the adviser. Section 2(a)(3) of the Investment
Company Act (15 U.S.C. 80a-2(a)(3) (1988)).
\11\ Release No. 34-28869 (February 8, 1991) [56 FR 7242]
(``Adopting Release''). The rules generally became effective on May
1, 1991, except for the phase-in period for compliance with the
substantive conditions of new Rule 16b-3. The phase-in period
previously was extended until September 1, 1996 or such different
date as may be set in further rulemaking (Release 34-36063 (August
7, 1995) (60 FR 40994) (``1995 Phase-in Release'')). It is being
further extended to November 1, 1996 to accommodate the transition
to the new rules. Issuers may use new Rule 16b-3 for transactions on
or after the August 15, 1996 effective date, but are not required to
use the new rule until the end of the phase-in period. See Section
VII, below.
Following the Adopting Release, the Commission issued two other
releases relating to the revised rules; one set forth the
Commission's views regarding shareholder approval for amendments to
employee benefit plans under Rule 16b-3, as well as certain
technical amendments (Release No. 34-29131 (April 26, 1991) (56 FR
19925)), while the other adopted a technical amendment to Form 4
(Release No. 34-28869B (April 10, 1991) (56 FR 14467)).
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In order to address these concerns, in 1994 the Commission proposed
further rule changes designed to streamline the Section 16 regulatory
scheme adopted in 1991. The proposals were designed to facilitate the
operation of employee benefit plans; broaden exemptions from Section
16(b) 12 short-swing profit recovery where consistent with
statutory purposes; and codify several staff interpretive
positions.13 Comment also was solicited on various suggested
[[Page 30377]]
modifications to the section 16(a) 14 reporting requirements.
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\12\ 15 U.S.C. 78p(b).
\13\ Release No. 34-34514 (August 10, 1994) (59 FR 42449)
(``1994 Release'').
\14\ 15 U.S.C. 78p(a).
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A follow-up release 15 solicited further comment on the
treatment of compensatory cash-only instruments based on the value of
the issuer's equity securities. Such instruments currently are not
subject to Section 16 if they meet specified conditions. The Commission
requested comment as to whether the current exclusion is appropriate in
light of the fact that equity-based securities provide identical
opportunities for profit predicated on the underlying stock price
movement, whether settled exclusively in cash or stock, and whether,
from the perspective of shareholders and analysts, cash-only
instruments have the same section 16(a) informational value as
instruments that may be settled in stock.
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\15\ Release No. 34-34681 (September 16, 1994) (59 FR 48579)
(``Cash-only Release'').
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Finally, additional rule proposals were published in 1995 16
to provide a broader exemption from short-swing profit recovery for
transactions between an issuer and its directors or officers, whether
or not in the context of employee benefit plans; broaden the exemption
for transactions in dividend and interest reinvestment plans; and
revise the section 16(a) reporting scheme.
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\16\ Release No. 34-36356 (October 11, 1995) (60 FR 53832), as
corrected in Release No. 34-36356A (October 29, 1995) (60 FR 54823),
(together, the ``1995 Release'').
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The 1995 proposals presented a simplified, flexible approach based
on the premise that transactions between an issuer and its officers and
directors are intended to provide a benefit or other form of
compensation to reward service or to incentivize performance.
Generally, these transactions do not appear to present the same
opportunities for insider profit on the basis of non-public information
as do market transactions by officers and directors. Typically, where
the issuer, rather than the trading markets, is on the other side of an
officer or director's transaction in the issuer's equity securities,
any profit obtained is not at the expense of uninformed shareholders
and other market participants of the type contemplated by the
statute.17 Based on its experience with the Section 16 rules, the
Commission is persuaded that transactions between the issuer and its
officers and directors that are pursuant to plans meeting the
administrative requirements and nondiscrimination standards of the
Internal Revenue Code 18 and the Employee Retirement Income
Security Act of 1974 (``ERISA''),19 or that satisfy other
objective gate-keeping conditions, are not vehicles for the speculative
abuse that section 16(b) was designed to prevent. Accordingly, these
transactions are exempted by new Rule 16b-3 as adopted.20
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\17\ An insider's breach of fiduciary duty to profit from self-
dealing transactions with the company is a concern of state
corporate law. Generally, states have created potent deterrents to
insider self-dealing and other breaches of fiduciary duty. See 3
Fletcher Cyc. Corp. Sec. 837.60 (Perm. ed. 1994); D. Block, S. Radin
and N. Barton, The Business Judgment Rule: Fiduciary Duties of
Corporate Directors 124-37 (4th ed. 1993). There are also potential
liability considerations under Rule 10b-5 [17 CFR 240.10b-5].
\18\ 26 U.S.C. et seq. (1986) (``Internal Revenue Code'').
\19\ 29 U.S.C. 1001 et seq. (1986).
\20\ See Section II, below.
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As a corollary to this approach, it was proposed that cash-only
instruments would be subject to section 16 to the same extent as other
instruments that embody the opportunity for profit based on price
movement in the issuer's stock. These instruments would be eligible for
exemption from section 16(b), but reportable under section 16(a), to
the same extent as other issuer equity securities in transactions
between an issuer and its officers and directors. The Commission has
determined to adopt this proposal as an integral part of its revised
approach to transactions between an issuer and its officers and
directors.
As a further corollary to the 1995 proposal, the Commission
indicated that it contemplated simplifying the reporting system.
Certain routine transactions were proposed to be exempted from
reporting, while other transactions exempt pursuant to Rule 16b-3 would
be reported on Form 4 within ten days after the end of the month in
which the transaction occurred. The Commission has determined to revise
the reporting system so that most transactions exempt pursuant to new
Rule 16b-3 will be reported on an annual basis on Form 5, and to
eliminate the class of transactions currently reportable on the earlier
of the next required Form 4 or Form 5 by requiring that option
exercises be reported on Form 4 and small acquisitions on Form 5. A
number of exempt transactions of a routine nature, such as acquisitions
pursuant to tax-conditioned plans and dividend and interest
reinvestment plans, will not be required to be reported at all.21
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\21\ See Section IV, below.
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Eighty-nine letters of comment were received in response to the
1994 Release and the Cash-only Release, and 38 letters were received in
response to the 1995 Release.22 In general, the commenters
expressed strong support for the tenor of the proposals, with most
preferring the 1995 version of Rule 16b-3 to the 1994 version. These
commenters thought that the revisions would alleviate many of the
practical issues and uncertainties that have arisen since adoption of
the comprehensive section 16 amendments in 1991. Many commenters
suggested modifications to the proposals, some of which are addressed
in this Release, as discussed throughout.
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\22\ These comment letters, together with two Summaries of
Comments prepared by Commission staff, are available for inspection
and copying in the Commission's Public Reference Room, 450 Fifth
Street, NW., Washington DC 20549. Persons seeking these materials
should make reference to File No. S7-21-94.
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The rules adopted today essentially implement the 1995 proposals,
as well as the elements of the 1994 proposals not addressed in
1995.23 Changes from the proposals are discussed in the release
below. Highlights of changes from the current rules are as follows:
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\23\ Pursuant to Release 33-7300 issued today, the Commission
also is rescinding Rules 16b-1(c) and 16b-4 and amending Rule 16a-
3(i) to permit typed signatures, consistent with the recommendations
of the Task Force on Disclosure Simplification.
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A. Transactions Between an Issuer and its Directors or Officers
Generally, transactions between an issuer (including an
employee benefit plan sponsored by an issuer) and its directors or
officers will be exempt from section 16(b) if they satisfy the
applicable conditions of new Rule 16b-3, as set forth below:
Routine transactions pursuant to specified tax-conditioned
plans (such as thrift plans, stock purchase plans and excess benefit
plans) will be exempt from section 16(b) without further condition.
Fund-switching transactions or volitional cash withdrawals
from an issuer equity securities fund will be exempt if the election to
engage in the transaction is at least six months after the last
election to engage in such a transaction that was opposite-way (i.e., a
previous acquisition if the transaction to be exempted is a
disposition, and vice versa).
Other acquisitions by an officer or director from the
issuer, including grants, awards and participant-directed transactions,
will be exempt upon satisfaction of any one of three alternative
conditions:
Approval of the transaction by the board of directors of
the issuer or a committee of two or more Non-Employee Directors;
[[Page 30378]]
Approval or ratification of the transaction by the holders
of the majority of the issuer's securities; or
Satisfaction of a six-month holding period following the
date of acquisition.
Other dispositions by an officer or director to the issuer
will be exempt if approved by the board of directors of the issuer, a
committee of two or more ``Non-Employee Directors,'' as defined, or the
holders of the majority of the issuer's securities.
B. Derivative Securities
The current section 16 exclusion from the definition of
``derivative securities'' for instruments based on the value of the
issuer's equity securities but settled exclusively in cash 24 is
rescinded. However, these instruments are eligible for exemption
pursuant to new Rule 16b-3.
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\24\ Current Rule 16a-1(c)(3).
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Options granted to an underwriter in a registered public
offering to satisfy over-allotments are expressly excluded from the
definition of ``derivative security.'' 25
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\25\ New Rule 16a-1(c)(7), which will codify the interpretive
positions set forth in Video Technology (Overseas) Limited/Davis
Polk & Wardwell (June 17, 1992) and Davis Polk & Wardwell (July 16,
1992).
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Rights to withhold or surrender a security in satisfaction
of the exercise price of a derivative security, or in satisfaction of
the tax-withholding consequences applicable to the receipt, exercise or
vesting of an issuer equity security (including a derivative security)
are excluded from the definition of ``derivative security.'' 26
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\26\ New Rule 16a-1(c)(3) (proposed as Rule 16a-1(c)(8)).
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C. Reporting
A number of transactions exempt from Section 16(b) that
currently must be reported on Form 5 no longer will be required to be
reported at all, among them:
Exempt transactions pursuant to tax-conditioned plans
(other than fund-switching transactions and volitional cash withdrawals
from an issuer equity securities fund);
Transactions pursuant to dividend or interest reinvestment
plans 27 and domestic relations orders;28
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\27\ New Rule 16a-11 (current Rule 16b-2).
\28\ New Rule 16a-12.
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Transactions that change only the form of beneficial
ownership;29
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\29\ New Rule 16a-13.
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Certain transactions by a person who has ceased to be an
insider;30 and
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\30\ New Rule 16a-2(b).
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Expirations or cancellations of certain derivative
securities. 31
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\31\ New Rule 16a-4(d).
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Exercises and conversions of derivative securities,
including employee stock options, whether or not exempt from Section
16(b), will be reported on Form 4.
All other exempt transactions and small acquisitions
32 will be reported annually on Form 5, with earlier reporting on
Form 4 permitted.
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\32\ These transactions, which do not exceed $10,000 in the
aggregate, are eligible for deferred reporting pursuant to current
and new Rule 16a-6.
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Reporting will be permitted on a joint basis when more
than one person subject to Section 16 is deemed to be a beneficial
owner of the same issuer equity securities.33
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\33\ New Rule 16a-3(j).
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A trust will be subject to Section 16 only if the trust is
the beneficial owner of more than ten percent of a class of issuer
equity securities registered pursuant to Section 12 of the Act.34
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\34\ Current Rule 16a-8(a)(1)(ii), which makes a trust subject
to Section 16 if the trustee otherwise is subject to section 16 and
exercises or shares investment control of issuer securities held by
the trust and the trustee or a member of the trustee's immediate
family has a pecuniary interest in such issuer securities, is
rescinded. Other obligations applicable to trusts, trustees,
beneficiaries and settlors pursuant to current Rule 16a-8 are not
affected by this change.
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Item 405 of Regulations S-K and S-B 35 is revised to
clarify the nature of the issuer's obligation to review insiders'
filings in order to determine whether there are any delinquent reports
that require disclosure. Item 405 disclosure will be required to be
placed under a separate caption.
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\35\ 17 CFR 229.405 and 228.405.
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Insiders' obligation to report equity swap transactions is
reiterated and clarified, and a new reporting code is added for equity
swaps.
D. Other Issues
The exemption for the reinvestment of dividends and
interest pursuant to dividend and interest reinvestment plans 36
is revised to eliminate the requirement that the plan be made available
on the same terms to all holders of the class of securities.
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\36\ New Rule 16a-11 (current Rule 16b-2).
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A new exemption is provided for transactions pursuant to
domestic relations orders.37
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\37\ New Rule 16a-12.
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The exemption for stock splits, stock dividends and pro
rata rights 38 is expanded to exempt stock dividends paid in the
securities of a different issuer, such as spinoff distributions.
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\38\ Current and new Rule 16a-9.
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A transaction that occurs after a person ceases to be an
officer or director will be subject to section 16 only if it is not
otherwise exempt from section 16(b) and is executed within six months
of an opposite-way transaction subject to section 16(b) that occurred
while the person was an officer or director.39
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\39\ New Rule 16a-2(b).
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II. Transactions Between an Issuer and Its Directors or Officers
A. General Approach
The amendments to Rule 16b-3 adopted today implement the approach
set forth in the 1995 proposal to align better the regulatory
requirements under the rule with the statutory goals underlying section
16.40 Moreover, since benefit plans and compensation payments and
programs vary widely in design and purpose, the Commission is convinced
that a ``one size fits all'' regulatory scheme is impractical. The
proliferation of unique plan features over the last decade has led to
legal uncertainty regarding the application of Rule 16b-3 to these
innovations. Rather than react to present plan developments, the
Commission intends to provide greater regulatory flexibility to
accommodate future developments.
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\40\ See Section I, above.
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New Rule 16b-3 exempts from short-swing profit recovery any
acquisitions and dispositions of issuer equity securities (including
those that occur upon the exercise or conversion of a derivative
security, whether in- or out-of-the-money) 41 between an officer
or director and the issuer, subject to simplified conditions.42 A
transaction with an employee benefit plan sponsored by the issuer will
be treated the same as a transaction with the issuer.43 However,
unlike the current
[[Page 30379]]
rule, a transaction need not be pursuant to an employee benefit plan or
any compensatory program to be exempt, nor need it specifically have a
compensatory element.
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\41\ As indicated in Note (1) to new Rule 16b-3, the exercise or
conversion of a derivative security that does not satisfy the
conditions of this rule will continue to be eligible for exemption
from section 16(b) pursuant to Rule 16b-6(b) [17 CFR 240.16b-6(b)].
Similarly, a note is added to new Rule 16b-6(b) as a reminder that
exercises or conversions also may be exempted by new Rule 16b-3.
\42\ Like current Rule 16b-3, new Rule 16b-3 does not provide an
exemption for persons who are subject to section 16 solely because
they beneficially own greater than ten percent of a class of an
issuer's equity securities. Officers and directors owe certain
fiduciary duties to a corporation. See n. 17, above. Such duties,
which act as an independent constraint on self-dealing, may not
extend to ten percent holders. The lack of other constraints argues
against making new Rule 16b-3 available to ten percent holders.
However, new Rule 16b-3 is available to such a person who is also
subject to section 16 by virtue of being an officer or director with
respect to transactions with the issuer.
\43\ New Rule 16b-3(a). Although some transactions between
officers or directors and issuer-sponsored employee benefit plans
technically are not transactions with the issuer, such transactions
should be within the scope of an exemption premised on the nature of
insiders' transactions with issuers. Employee benefit plans are the
most common vehicle by which issuers provide for securities-based
compensation of employees, including officers and directors, that
otherwise would be satisfied through direct compensation from the
issuer.
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A transaction will be exempt if it satisfies the appropriate
conditions set forth among four alternative categories: Tax-Conditioned
and Related Plans; Discretionary Transactions; Grants, Awards and Other
Acquisitions from the Issuer; and Dispositions to the Issuer.44
New Rule 16b-3 eliminates many of the conditions of current Rule 16b-3,
such as general written plan conditions,45 the prohibition against
transfer of derivative securities, shareholder approval as a general
condition for plan exemption, the six-month holding period as a general
condition for the exemption of grant and award transactions, the
disinterested administration or formula plan requirements regarding
grant transactions, and the window period requirement for fund-
switching transactions and stock appreciation right exercises.
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\44\ In addition to the conditions for exemption, as discussed
below, Note (2) has been added to new Rule 16b-3 to reference the
reporting rules applicable to transactions exempted by the new rule.
See Section IV, below.
\45\ Because a plan no longer will be required to set forth in
writing either the price at which securities may be offered and the
amount of securities to be awarded, or the method by which such
price and amount are to be determined, the manner in which shares
are counted no longer will present interpretive issues. As noted at
n. 69 to the 1994 Release, interpretive letters regarding this
subject for purposes of the requirements of current Rule 16b-3(a)(1)
no longer are required to be followed.
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B. Tax-Conditioned Plans
The exemption for transactions pursuant to tax-conditioned plans
46 is adopted substantially as proposed in 1995. This exemption is
premised on the view that an adequate safeguard against speculative
abuse is provided when a plan satisfies certain conditions imposed by
the Internal Revenue Code and ERISA.47 Accordingly, any
acquisition or disposition of issuer equity securities, except as
discussed below, will be exempt without further condition if made
pursuant to a plan that satisfies the definition of a ``Qualified
Plan,'' 48 an ``Excess Benefit Plan,'' 49 or a ``Stock
Purchase Plan.'' 50 Thus, for example, routine acquisitions
pursuant to thrift and stock purchase plans generally will be exempt
under this provision. The tax code coverage and participation
requirements provide readily accessible, objective standards for
designing an exempt plan.
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\46\ New Rule 16b-3(c).
\47\ The rule does not require the plan to be tax-qualified, but
instead either to satisfy specified conditions applicable to tax-
qualified plans, or, in certain circumstances, to be operated in
connection with a plan that satisfies those conditions.
\48\ New Rule 16b-3(b)(4). The definition of ``Qualified Plan''
is adopted as proposed, i.e., an employee benefit plan that
satisfies the coverage and participation requirements of Sections
410 and 401(a)(26) of the Internal Revenue Code of 1986, or any
successor provisions thereof.
\49\ New Rule 16b-3(b)(2). The definition of ``Excess Benefit
Plan'' has been revised to eliminate references to specific I.R.C.
Sections so as to ensure that plans qualifying for an exemption
under section 201(2) of ERISA would be covered by the exemption. The
revised definition requires that such a plan be operated in
conjunction with a Qualified Plan, and provide only the benefits and
contributions that would be provided under the Qualified Plan but
for any benefit or contribution limitations set forth in the
Internal Revenue Code. As was proposed, the amended rule does not
require transactions pursuant to an Excess Benefit Plan to be in
tandem with transactions in the related Qualified Plan to be
eligible for exemption.
\50\ New Rule 16b-3(b)(5). The definition of ``Stock Purchase
Plan'' has been revised to indicate that satisfaction of the
coverage and participation standards of Section 410 of the Internal
Revenue Code is an alternative to satisfaction of Internal Revenue
Code Sections 423(b)(3) and 423(b)(5), rather than an additional
requirement. The purpose of including this alternative standard is
to make the exemption available to stock purchase plans that do not
satisfy the standards of Internal Revenue Code Section 423, but
nevertheless are operated in a broad-based manner.
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While most transactions pursuant to tax-conditioned plans may rely
on this exemption, fund-switching and cash withdrawal transactions
arising solely from an insider's volitional investment decision,
defined as ``Discretionary Transactions,'' instead must satisfy a
timing requirement.51
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\51\ See Section II.C, below.
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As proposed, the exemption for tax-conditioned plans would have
exempted without further condition any acquisition pursuant to a plan
or transaction that satisfied the conditions applicable to performance-
based compensation imposed by section 162(m) of the Internal Revenue
Code and the regulations thereunder.52 Commenters expressed
divergent views on whether this basis for exemption would be useful.
The Commission is not adopting the section 162(m) provision, since it
appears unnecessary in view of the expanded availability of the
exemption for grants, awards and other acquisitions.53
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\52\ Internal Revenue Code Section 162(m) and Regulation
Sec. 1.162-27(e), which set forth the conditions pursuant to which
an issuer may deduct compensation in excess of $1 million paid to
its chief executive officer and four other most highly compensated
officers for whom disclosure is required to be reported in Exchange
Act filings.
\53\ See Section II.D, below.
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C. Discretionary Transactions
Many contributory employee benefit plans permit a participant to
choose one of several funds in which to invest (e.g., an issuer stock
fund, a bond fund, or a money market fund). Plan participants typically
are given the opportunity to engage in ``fund-switching'' transactions,
permitting the transfer of assets from one fund to another, at periodic
intervals. Plan participants also commonly have the right to withdraw
their investments in cash from a fund containing equity securities of
the issuer. Fund-switching transactions involving an issuer equity
securities fund and cash distributions from these funds 54 may
present opportunities for abuse because the investment decision is
similar to that involved in a market transaction. Moreover, the plan
may buy and sell issuer equity securities in the market in order to
effect these transactions, so that the real party on the other side of
the transaction is not the issuer but instead a market participant.
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\54\ No exemption has been provided in new Rule 16b-3 for a
withdrawal in kind of issuer equity securities because such a
transaction would be a change in form of beneficial ownership from
indirect to direct, which will be exempt from Section 16 pursuant to
new Rule 16a-13. See Section IV.B, below.
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In order to foreclose opportunities for abuse, the 1995 proposal
contemplated that such transactions in a tax-conditioned plan would be
exempt only if effected pursuant to an election made at least six
months following the date of the most recent prior such election. As
adopted, this provision has been made applicable to these transactions
pursuant to any plan, whether or not tax-conditioned,55 given that
it is the nature of the transaction, without regard to the type of
plan, that presents an opportunity for abuse. Accordingly, these
transactions are defined separately as ``Discretionary Transactions,''
56 and the exemption is placed in a separate paragraph rather than
included with the exemption for tax-conditioned plans.
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\55\ New Rule 16b-3(f).
\56\ New Rule 16b-3(b)(1).
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As favored by many commenters, the six month condition will apply
only to ``opposite way'' transactions; i.e., elections that effect
acquisitions and dispositions must be six months apart, but prior
``same-way'' elections within the preceding six months do not render
the exemption unavailable. 57 The six month condition will apply
if a prior election by the officer or director effecting an ``opposite
way''
[[Page 30380]]
Discretionary Transaction was made pursuant to any plan of the issuer
in which the officer or director participates. Some commenters favored
an exemption premised on transactions taking place during a window
period. The Commission, however, prefers a more simple approach that is
more consistent with the statutory purpose.
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\57\ Because it is anticipated that the actual date on which
such a plan transaction occurs may be outside the control of an
insider participant, the rule is premised on a six-month interval
between the date of subsequent ``opposite way'' elections. The rule
does not require that such an election be made six months in advance
of the related transaction.
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The definition of ``Discretionary Transaction'' excludes a number
of transactions that are primarily for retirement planning.58
Transactions resulting from an election to receive, or to defer the
receipt of, securities and/or cash in connection with death,
disability, retirement or termination of employment,59 as well as
transactions that effect a diversification or distribution which the
Internal Revenue Code requires an employee benefit plan to make
available to a participant,60 need not comply with the six-month
condition.61 Thus, these transactions are eligible for exemption
pursuant to other applicable provisions of the amended rule (most
likely the exemption for tax-conditioned plans). Although such
transactions have an element of volition, the insider's opportunity to
speculate in the context of a death, disability, retirement or
termination of employment would seem well circumscribed, as is also the
case with regard to the specified diversification and distribution
elections.
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\58\ The items enumerated are the same as those in the rule as
proposed, although they were not set forth in a separate definition.
\59\ Such transactions are exempted by current Rule 16b-
3(d)(1)(ii).
\60\ Such transactions include diversification elections and
distributions provided for by Internal Revenue Code Section
401(a)(28), and distributions required by Internal Revenue Code
Section 401(a)(9).
\61\ A loan funded by the disposition of issuer equity
securities will be considered a cash distribution involving a
volitional disposition of an issuer equity security unless the
insider continues to bear the risk of loss with respect to such
issuer equity securities during the term of the loan. Involuntary
distributions of cash for the purpose of satisfying the limitations
on employee elective contributions and employer matching
contributions imposed by the Internal Revenue Code will be exempt
without condition because such transactions do not occur at the
insider's volition.
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D. Grants, Awards and Other Acquisitions From the Issuer
1. General; Participant-Directed Acquisitions
Plans that authorize ``grant and award'' transactions provide
issuer equity securities to participants on a basis that does not
require either the contribution of assets or the exercise of investment
discretion by the participants. For example, awards of bonus stock
pursuant to a salary-based formula and grants of options or restricted
stock are grant and award transactions. In contrast, a ``participant-
directed transaction'' requires the participant to exercise investment
discretion as to either the timing of the transaction or the assets
into which the investment is made. For example, the exercise of an
option and a participant's election pursuant to a thrift plan to invest
either the employee or the employer contribution in issuer equity
securities are participant-directed transactions.
Both the current and the new rules provide a specific exemption for
the grant or award of issuer equity securities. The new rule makes the
exemption more readily available, since only one of three alternative
conditions need be satisfied.62 Commenters responded favorably to
this proposal. They expressed concern, however, that some participant-
directed transactions (such as deferrals of bonuses into phantom stock
and other deferred compensation programs) that are exempt under the
current rule 63 would lack an exemption under the new rule.
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\62\ New Rule 16b-3(d).
\63\ Many such transactions are now exempt pursuant to the six
month advance election provided by current Rule 16b-3(d)(1)(i).
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The 1995 proposal was intended to permit such transactions, which
ordinarily do not present opportunities for abuse, an opportunity for
exemption.
Accordingly, as adopted, the proposed grant and award exemption has
been retitled ``Grants, Awards and Other Acquisitions from the Issuer''
to make it clear that participant-directed acquisitions that are not
pursuant to tax-conditioned plans may rely on this exemption.64
However, if a participant-directed transaction is a ``Discretionary
Transaction,'' as defined in the new rule, it must instead satisfy the
conditions designed specifically for Discretionary Transactions in
order to be exempt.65
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\64\ Participant-directed dispositions are eligible for the
``Dispositions to the Issuer'' exemption, discussed in Section II.E,
below.
\65\ See Section II.C, above.
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2. Alternative Conditions
The new rule provides three alternative bases for exempting the
acquisition of issuer equity securities (including derivative
securities). The first two conditions exempt an acquisition that is
either: (i) Approved in advance by the board of directors or a
committee of the board composed solely of two or more ``Non-Employee
Directors;'' 66 or (ii) approved in advance, or subsequently
ratified not later than the date of the next annual meeting of
shareholders, by shareholders.67 If a transaction has satisfied
more than one of the alternative approval conditions specified in the
new rule (for example, if board approval is followed by shareholder
approval) the issuer may rely on any condition that provides the basis
for the exemption.
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\66\ New Rule 16b-3(d)(1).
\67\ New Rule 16b-3(d)(2). Like current Rule 16b-3(b), this
standard would require the affirmative vote of the holders of the
majority of the issuer's securities present or represented and
entitled to vote at a meeting duly held in accordance with the
applicable laws of the state or other jurisdiction in which the
issuer is incorporated, or the written consent of the majority of
the issuer's securities entitled to vote, solicited in compliance
with Section 14 of the Securities Exchange Act (15 U.S.C. 78n).
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Alternatively, an acquisition that does not satisfy any of the
approval conditions will be exempt if the securities acquired are held
by the insider for six months following the date of acquisition, or in
the case of a derivative security, at least six months elapse between
the date of acquisition of the derivative security and the date of
disposition of the underlying security.68 The six-month holding
period for dividend equivalent rights (``DERs'') and shares purchased
pursuant to the automatic reinvestment of dividends will be deemed to
commence on the date of acquisition of the shares on which the DERs or
dividends are paid.69
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\68\ New Rule 16b-3(d)(3). The 1995 Release solicited comment as
to whether a grant or award that satisfies any of the three
alternative conditions should be exempt only if the officer or
director to whom the grant is made had not disposed of issuer equity
securities on a non-exempt basis during the previous six months at a
price higher than that at which the grant is made. New Rule 16b-
3(d), as adopted, does not require satisfaction of this condition
with respect to any acquisition.
\69\ This position is consistent with the amendment to current
Rule 16b-3(c)(1) proposed in 1994, which would have reversed current
interpretation providing that the six-month holding period is deemed
to commence on the date the dividend or DER is granted or allocated
to the participant. See Hewitt Associates (Apr. 30, 1991) Q. 2(b);
and Davis Polk & Wardwell (Aug. 23, 1991). Under new Rule 16b-3,
DERs and shares purchased pursuant to the receipt of dividends will
need to satisfy a six-month holding period only if the securities on
which the dividends or DERs are paid rely on a six-month holding
period as the basis for exemption. Moreover, pro rata dividends paid
in stock with respect to all securities of a class will continue to
be exempt pursuant to Rule 16a-9.
---------------------------------------------------------------------------
Commenters who addressed this segment of the 1995 proposal
favorably noted both its simplicity and flexibility. The Commission is
persuaded that satisfaction of any of the three conditions is a
sufficient basis to exempt an acquisition of issuer equity securities
from the issuer.
[[Page 30381]]
3. Scope of Approval Required
When the rule requires ``Non-Employee Director,'' 70 full
board or shareholder approval, the Commission intends that the approval
relate to specific transactions rather than the plan in its entirety.
However, approval of a plan pursuant to which the specific terms and
conditions of each acquisition are fixed in advance, such as a formula
plan,71 will satisfy this condition, and the exemption also will
be available for a plan with an appendix providing for specific grants
to specific individuals. Note (3) has been added to the new rule,
making the specific nature of the approval required clear.
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\70\ This term is defined in new Rule 16b-3(b)(3). See Section
II.D.4, below.
\71\ A plan that constitutes a ``formula plan'' under staff
interpretations of current Rule 16b-3(c)(2)(ii) will be considered a
formula plan for this purpose.
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The note also provides that where the terms of a subsequent
transaction are provided for at the time a transaction is initially
approved, the subsequent transaction will not require further specific
approval. If the terms of an award as approved provide for a subsequent
participant-directed election, that election will be exempt without
further condition if effected pursuant to those terms. For example, if
an award of restricted stock as approved permits an insider awardee to
defer receipt pursuant to a related deferred compensation plan, the
insider's election to defer will be exempt without further condition.
In the same manner, the acquisition of underlying issuer equity
securities that occurs upon the exercise or conversion of a derivative
security will be exempt, provided that the exercise is pursuant to
terms provided in the derivative security originally approved in its
acquisition.72 Similarly, if an award as originally approved
specifically provided for the automatic grant of reload options, each
resultant grant of reload options pursuant to those terms will not
require subsequent approval.
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\72\ The disposition of the derivative security that occurs upon
exercise similarly will be exempt pursuant to new Rule 16b-3(e). See
Section II.E, below.
A derivative security that did not satisfy the Non-Employee
Director committee, board of directors or shareholder approval
conditions (such as a derivative security issued in reliance on the
six-month holding period of new Rule 16b-3(d)(3) or a derivative
security acquired other than directly from the issuer) could be
exercised or converted and the underlying issuer equity securities
acquired on an exempt basis pursuant to Rule 16b-6(b), if the
conditions of that rule are met (fixed exercise price and exercise
not out-of-the-money unless necessary to comport with the sequential
exercise provisions of Internal Revenue Code Section 422A).
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4. Non-Employee Director Definition
With respect to committee approval as a basis for exemption, ``Non-
Employee Director'' as proposed in 1995 was defined as a director who
is not currently an officer of, or otherwise employed by or a
consultant to, the issuer, its parent or its subsidiary. The 1995
Release further elaborated that, for this purpose, ``consultant'' would
include attorneys, accountants or others who indirectly receive
compensation from the issuer through firms that provide services to the
issuer.
However, commenters criticized the ``Non-Employee Director''
definition to the extent that it would prohibit any consulting
arrangement with the issuer. These commenters cited definitional
uncertainty, the special expertise provided by retired senior
executives and other consultants, and the absence of problems stemming
from such persons' service as disinterested directors under the current
rules 73 as reasons for not imposing an absolute ban on consulting
arrangements.
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\73\ Current Rule 16b-3(c)(2)(i).
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The Commission is persuaded that the reasoning supporting these
comments justifies permitting directors with limited consulting
relationships with the issuer to serve as Non-Employee Directors. Under
the rule as adopted,74 a ``Non-Employee Director'' will be a
director who is not currently an officer or otherwise employed by the
issuer, or a parent or subsidiary of the issuer; does not receive
compensation directly or indirectly from the issuer, its parent or
subsidiary for services rendered as a consultant or in any capacity
other than as a director, except for an amount for which disclosure
would not be required pursuant to Item 404(a) of Regulation S-K;75
does not possess an interest in any other transaction for which
disclosure would be required pursuant to Item 404(a) of Regulation S-K;
and is not engaged in a business relationship for which disclosure
would be required pursuant to Item 404(b) of Regulation S-K. 76
With respect to a closed-end investment company, a ``Non-Employee
Director'' 77 will be a director who is not an ``interested
person'' of the issuer, as that term is defined in section 2(a)(19) of
the Investment Company Act.78
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\74\ New Rule 16b-3(b)(3)(i).
\75\ 17 CFR 229.404(a). This item generally requires disclosure
of related party transactions where the amount involved exceeds
$60,000. For purposes of the definition of ``Non-Employee
Director,'' each test that refers to S-K Item 404 will be measured
by reference to the Regulation S-K disclosure Item, whether the
disclosure requirements applicable to the issuer are governed by
Regulation S-K or S-B.
\76\ 17 CFR 229.404(b). This item generally requires disclosure
of business relationships with the registrant where the amount
involved exceeds greater than five percent of the consolidated gross
revenue of either the registrant or the other entity.
\77\ New Rule 16b-3(b)(3)(ii).
\78\ 15 U.S.C. 80a-2(a)(19).
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Although the new rule would not prohibit Non-Employee Directors or
the full board from awarding themselves grants of issuer equity
securities, such grants would be subject to state laws governing
corporate self-dealing. 79 The Commission believes that
traditional state law fiduciary duties facilitate compliance with the
underlying purposes of section 16 by creating effective prophylactics
against possible insider trading abuses.
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\79\ See n. 17, above.
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E. Dispositions to the Issuer
Both as proposed in 1995 and as adopted, the new rule exempts any
transaction involving a disposition of issuer equity securities to the
issuer, provided that such disposition is approved in advance by the
board of directors, a committee of Non-Employee Directors, or the
shareholders.80 However, if a disposition is a Discretionary
Transaction, as defined in the new rule, it must instead satisfy the
conditions specifically applicable to Discretionary Transactions to be
exempt.81
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\80\ New Rule 16b-3(e).
\81\ See Section II.C, above.
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The 1994 Release proposed amendments to current Rule 16b-3(f) to
exempt exercise withholding rights and the surrender or withholding of
issuer equity securities in satisfaction of a tax-withholding
obligation. These proposed amendments are not adopted because the same
transactions will be exempted pursuant to the broad scope of the new
rule.82 For example, the new rule will exempt dispositions of
issuer equity securities to the issuer pursuant to: (1) The right to
have securities withheld, or to deliver securities already owned,
either in payment of the exercise price of an option or to satisfy the
tax withholding consequences of an option exercise or the vesting of
restricted securities, (2) the expiration, cancellation, or surrender
to the issuer of a stock option or stock appreciation right in
connection with the grant of a replacement option or right, or (3) the
election to receive, and the receipt of, cash in complete or partial
settlement of a stock appreciation right. Additionally, the new rule
will give the issuer the
[[Page 30382]]
flexibility to redeem its equity securities from insiders in connection
with non-exempt replacement grants, and in discrete compensatory
situations such as individual buy-backs in connection with estate
planning.
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\82\ Like most other exempt transactions, these transactions
will be reportable on Form 5. See Section IV.C, below. However,
where the surrender or withholding transaction is in connection with
the exercise or conversion of a derivative security, it should be
reported on the same Form 4 as the exercise or conversion. See
Section IV.D, below.
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The exemption, which was favorably received by commenters, is
adopted substantially as proposed.83 A note has been added to the
new rule to clarify that if the terms of a subsequent transaction are
provided for in the transaction as initially approved, the subsequent
transaction does not require further specific approval.84 For
example, the exemption will apply to the disposition to the issuer of a
derivative security upon its exercise or conversion, if such exercise
is pursuant to the terms provided in the derivative security as
initially approved in its acquisition.
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\83\ The 1995 Release solicited comment as to whether a
disposition that satisfies either condition should be exempt only if
the officer or director making the disposition had not acquired
issuer equity securities on a non-exempt basis during the previous
six months at a price lower than that at which the disposition was
made. New Rule 16b-3(e), as adopted, does not require satisfaction
of this condition with respect to any disposition.
\84\ Note (3) to new Rule 16b-3. See Section II.D.3, above.
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In the context of a merger, the new rule will exempt the
disposition of issuer equity securities (including derivative
securities) solely to the issuer, provided the conditions of the rule
are satisfied.85 Dispositions of such securities to parties other
than the issuer, such as an acquiror, are not covered by the rule and
consequently would not be eligible for exemption under the rule. The
specific terms of the disposition, including price, will require prior
approval of either the full board, the committee of Non-Employee
Directors or shareholders. If shareholder approval is solicited and is
to be the condition relied upon for exemption, the proxy card and proxy
statement both should provide that a vote to approve the merger also
shall constitute a vote to approve insiders' exempt dispositions of
issuer equity securities to the issuer.86
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\85\ If such securities were acquired in reliance on new Rule
16b-3(d)(3), the six-month holding period will need to be satisfied
prior to such disposition in order for the acquisition to be exempt.
\86\ Any such proxy statement should describe the security
holdings of each officer and director as to which approval of an
exempt disposition is solicited. See Item 5 of Schedule 14A (17 CFR
240.14a-101), which requires, in a solicitation made on behalf of
the registrant, a brief description by security holdings of any
direct or indirect substantial interest in any matter to be acted
upon of each person who has been a director or executive officer of
the registrant at any time since the beginning of the last fiscal
year, unless such interest gives rise to a benefit that is shared on
a pro rata basis by all other holders of the same class. See also
Item 3 of Schedule 14C (17 CFR 240.14c-101).
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III. Derivative Securities
A. Compensatory Cash-Only Instruments
The proposal to apply Section 16 and the rules thereunder to
compensatory instruments that can be redeemed or exercised solely for
cash (``cash-only instruments'') elicited divergent views. Cash-only
instruments provide performance-based cash compensation to employees,
using stock price as a measure of company performance. Although such
instruments do not provide employees with an equity interest in the
employer that may be traded in securities markets, they do provide the
equivalent opportunity to profit based on an increase in market price.
Currently, a cash-only instrument whose value is derived from the
market value of an issuer equity security 87 is excluded from the
definition of derivative security if it: (i) Is awarded pursuant to an
employee benefit plan that satisfies specified provisions of Rule 16b-
3,88 or (ii) may be redeemed or exercised only upon a fixed date
or dates at least six months after award, or upon death, retirement,
disability or termination of employment.89 The 1994 Release
included a proposed modification of the derivative security definition
that would have excluded all cash-only instruments issued in the
context of an employer-employee compensation arrangement, including
compensation arrangements between a company and its non-employee
directors. As discussed above,90 the subsequent Cash-Only Release
solicited comment as to whether the existing exclusion for cash-only
instruments is overly broad in light of the purposes of Section 16.
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\87\ An instrument whose value is not derived from the value of
an issuer equity security is not currently and, under the rules as
adopted, will not be subject to section 16.
\88\ Current Rule 16a-1(c)(3)(i), which references the
provisions of Rules 16b-3(a)(1) (written plan requirements), 16b-
3(a)(2) (transferability restriction) and 16b-3(c)(2) (disinterested
administration or formula plan).
\89\ Current Rule 16b-3(c)(3)(ii).
\90\ See Section I, above.
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Most commenters responding to the Cash-Only Release favored an
unconditional exemption for cash-only instruments, stressing that such
instruments are not transferable and hence do not give rise to market
transactions. However, the 1995 Release indicated that, as a corollary
to broadening the Rule 16b-3 exemption, the Commission contemplated
rescinding the exclusion for cash-only instruments. Such instruments
thus would be on a par with stock options and other instruments settled
in stock, and would be both reportable and eligible for exemption under
Rule 16b-3 to the same extent. This approach is consistent with the
purpose of the 1995 proposals to eliminate bias toward compensation
paid in cash by exempting from the short-swing profit recovery
provisions of section 16(b) virtually all compensatory transactions
between an issuer and its officers and directors. Commenters addressing
this aspect of the 1995 proposals divided in their views; some
indicated that the exclusion should be eliminated because the insider
retains the same opportunity to profit as presented by an equity-
settled instrument, while most favored retention of the exclusion
because transactions in these instruments do not affect securities
markets.
As an integral aspect of the 1995 approach, the Commission has
determined to rescind Rule 16a-1(c)(3) as contemplated. The Commission
believes that because the opportunity for profit based on price
movement in the underlying stock embodied in a cash-only instrument is
the same as for an instrument settled in stock, cash-only instruments
should be subject to Section 16 to the same extent as other issuer
equity securities. However, the Commission also recognizes that cash-
only instruments generally are not traded in market transactions by
insiders. Accordingly, transactions in these instruments are made
eligible for exemption on the same basis as other transactions in
issuer equity securities between an issuer and its officers and
directors.
This change renders uniform the application of a simplified set of
rules applying to all compensatory instruments that provide an
opportunity to profit based on issuer equity performance. It is
anticipated that, by eliminating the more burdensome aspects of Rule
16b-3 and bringing cash-only instruments within its scope, the rules
adopted today will reduce the regulatory complexity and uncertainty
that has discouraged the use of equity as compensation. Accordingly,
although transactions in cash-only instruments will be reportable
following effectiveness of the amended rules,91 such instruments
will be eligible, and should usually qualify, for exemption from
section 16(b) pursuant to new Rule 16b-3.92 Commenters' concerns
[[Page 30383]]
regarding the lack of an exemption for participant-directed
transactions in cash-only instruments, such as the deferral of salary
or fees into phantom stock, have been addressed by expanding the
proposed exemption for grants and awards to cover participant-directed
acquisitions of issuer equity securities.93
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\91\ See the discussion of reporting at Section VII.A, below,
concerning the transition to the new rules.
\92\ Most of these instruments are acquired from the issuer and
meet the other conditions of the new Rule. Of course, the
acquisition of a cash-only instrument from a party other than the
issuer would not be within the scope of the Rule.
\93\ See Section II.D.1, above.
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B. Over-Allotment Options
Over-allotment options (sometimes referred to as ``Green Shoe
options'') facilitate public offerings and do not lend themselves to
the speculative abuse Section 16 was designed to prevent. Accordingly,
in 1994 the Commission proposed codification of staff interpretive
relief 94 that would specifically exclude from the definition of
``derivative security'' options granted to an underwriter in a
registered public offering for the purpose of satisfying over-
allotments.
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\94\ See Video Technology (Overseas) Limited/Davis Polk &
Wardwell (June 17, 1992), and Davis Polk & Wardwell (July 16, 1992).
Absent this relief, an over-allotment option written by an insider
could be characterized as the establishment of a put equivalent
position and deemed sale of the underlying stock. Subsequent
expiration of the unexercised option arguably could constitute a
purchase of the underlying security, matchable with the over-
allotment option grant or other sales by the insider within a six-
month period.
---------------------------------------------------------------------------
In response, some commenters suggested that the exclusion should
not be limited to over-allotment options granted in registered public
offerings, as proposed. Other commenters differed in their responses to
the request for comment as to whether the exclusion should be limited
specifically to those over-allotment options that comply with the
National Association of Securities Dealers (``NASD'') regulation
stating that it is ``unfair and unreasonable'' for an over-allotment
option in connection with a firm commitment undertaking to exceed 15
percent of the amount of securities offered, exclusive of the over-
allotment option.95 However, given that the primary need for the
exclusion relates to over-allotment options granted in registered
public offerings, which as a practical matter generally are subject to
the NASD regulation, the rule is adopted in the form proposed,96
without a specific requirement for compliance with the NASD regulation.
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\95\ Paragraph (c)(6)(B)(ix) of Article III, Section 44 of the
NASD Rules of Fair Practice (the Corporate Financing Rule).
\96\ New Rule 16a-1(c)(7).
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C. Surrender and Withholding Rights in Connection With Exercise or Tax
Withholding
As discussed above,97 the exercise of a right to surrender or
withhold securities in connection with the exercise of a derivative
security or satisfaction of a tax obligation will be an exempt
disposition of issuer equity securities to the issuer. Whether such a
right, when granted, constitutes a derivative security is a separate
issue.
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\97\ See Section II.E, above.
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Currently, the right to withhold securities in satisfaction of a
tax obligation is treated as a derivative security separate from the
equity or derivative security to which it relates.98 However, this
right, as well as the right to have securities withheld in satisfaction
of an exercise price, properly may be viewed as an integral feature of
the related security.99 Accordingly, the 1994 Release proposed a
new rule that would exclude from the definition of ``derivative
security'' these withholding rights, as well as rights to surrender
previously owned securities in satisfaction of either an exercise price
or a tax obligation incurred upon the exercise of derivative securities
or the vesting of restricted shares.
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\98\ As an alternative to separate reporting, a tax withholding
right currently may be noted as a feature of the equity or
derivative security to which it relates. See The Clorox Company
(Mar. 27, 1992). An insider's failure to report such right does not
give rise to a disclosure obligation under Item 405 of Regulation S-
B or Regulation S-K. See Skadden, Arps, Slate, Meagher & Flom (June
8, 1992).
\99\ Cf. Xerox Corporation (Jul. 7, 1992) (the staff reached
this conclusion with respect to a mandatory tax withholding
feature).
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Commenters suggested that the proposed rule's reference to
``restricted shares'' circumscribed too narrowly the class of
securities, other than derivative securities, to which withholding and
surrender rights apply. Commenters indicated that the receipt of a
security also could be a taxable event. In response to these comments,
the rule as adopted 100 has been broadened to exempt also
withholding and surrender rights that apply to ``equity securities''
rather than only ``restricted shares,'' and that arise with respect to
the receipt as well as the exercise or vesting of a derivative or
equity security. With respect to a tax-withholding right, the exclusion
from the definition of ``derivative security'' is not limited to the
insider's marginal tax rate with respect to the underlying transaction.
However, the amount withheld must be applied to the tax obligation
generated by the underlying transaction.
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\100\ New Rule 16a-1(c)(3) (proposed as Rule 16a-1(c)(8)).
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D. Value Derived from Market Price of an Equity Security
In the 1994 Release the Commission proposed an amendment to the
definition of ``derivative security'' 101 to codify the staff
interpretive position that an instrument is not within the scope of
Section 16 if it includes a material non-market price based condition
(such as return on equity) to exercise or settlement.102 Although
the Commission endorses the application of this analysis to date, the
Commission also recognizes the advantage in retaining the interpretive
role of the staff to modify or develop further this analysis as may be
appropriate with respect to new instruments that may be developed in
the future. Accordingly, the proposed amendment is not adopted, and
questions regarding this analysis should continue to be addressed to
the staff. For purposes of this interpretive analysis, a condition will
be considered ``material'' only if it possesses substance independent
of the passage of time or continued employment.
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\101\ Proposed Rule 16a-1(c)(9).
\102\ This is an interpretation of current Rule 16a-1(c), which
requires a derivative security to have ``an exercise or conversion
privilege at a price related to an equity security, or * * * a
value derived from the value of an equity security.'' See General
Mills, Inc. (Jan. 31, 1992); and Certilman Balin Adler & Hyman (Apr.
20, 1992). See also Boston Edison Company (Mar. 19, 1992); Merrill
Lynch & Co. (Aug. 28, 1992) Q. 4. (Registrant discretion to adjust
the applicable performance measure, as to either duration or level
of performance, excludes a performance unit from being a derivative
security.)
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Most importantly, the Commission believes that under the new rule
much of the incentive to characterize these instruments one way or the
other will evaporate. In almost all cases, they will be exempt from
Section 16(b) because they will be able to satisfy easily one of the
simplified approval conditions. Consequently, the only effect of a
particular characterization is on the need for and timing of any
reporting under section 16(a). The Commission does not believe that
relief generally will be needed for this purpose.
IV. Revisions to Reporting System
A. Overall Approach
In the 1994 Release, the Commission stated that it was
reconsidering its approach to the reporting of transactions pursuant to
the Section 16 regulatory scheme. The release, without endorsing a
specific proposal, solicited comment on five alternative proposals
seeking to simplify reporting through the following three different
FR Doc. 96-14184 Ownership Reports and Trading by Officers, Directors and Principal Security Holders
basic approaches: (1) Deleting or substantially reducing the reporting
of exempt transactions; (2)
[[Page 30384]]
reducing the flexibility currently provided insiders with respect to
use of Form 4 or 5 to report a number of exempt transactions; and (3)
requiring issuer annual reporting of insider holdings and information
as to transactions during the fiscal year.
These varied approaches highlighted several questions as to what
extent, if at all, investors need information with respect to exempt
transactions and whether investors need a reconciliation of insiders'
equity holdings from year to year. The 1994 Release also requested
comment on whether exercises and conversions of derivative securities
exempt from section 16(b), as well as small acquisitions, should
continue to be reported on an insider's next required Form 4 or 5,
whichever is earlier.
As a corollary to the amendments to Rule 16b-3 proposed in 1995,
the 1995 Release requested comment on an additional reporting approach.
Pursuant to the scheme contemplated by the 1995 Release, several types
of transactions, such as routine acquisitions in broad-based employer
plans, would not need to be reported at all. The remaining
transactions, including grants and awards exempt under Rule 16b-3,
generally would be reported on a Form 4 no later than ten days
following the end of the month in which the transaction occurred.
Exempt option exercises either would have remained reportable on an
insider's next required Form 4 or 5, or would have been reported on
Form 4.
The approach selected by the Commission is based on the 1995
approach, but includes elements from the 1994 Release. As outlined in
Sections IV.B through D below, the revisions simplify the reporting
framework by providing that several types of transactions exempt from
section 16(b) no longer will be required to be reported at all.
Transactions exempt from short-swing profit recovery that still must be
reported will be reported on Form 5, and non-exempt transactions will
be reported on Form 4, except that exercises and conversions of
derivative securities (whether or not exempt) will be reported on Form
4, and small acquisitions will be reported on Form 5. There no longer
will be a category of transactions reported on a ``next required Form 4
or Form 5, whichever is earlier'' basis, which commenters have
criticized as being confusing and possibly leading to inadvertent late
filings. The Commission believes that this new approach simplifies
insiders' reporting obligations without adversely affecting the timing
and amount of information that is significant to investors.
The 1994 Release solicited comment on whether the Commission should
eliminate the ``total holdings'' column in Forms 4 and 5 or simplify
the data provided by insiders to reconcile their total holdings.
Alternatively, commenters were asked to consider whether a new column
should be added to Forms 4 and 5 requiring insiders to reconcile their
current holdings with those reported in a previous filing, particularly
if exempt transactions no longer were to be reported.
Although several commenters supported elimination of the total
holdings columns, they are being retained. Form 4 disclosure of total
holdings assists users of Section 16 information in evaluating the
significance of a transaction to a particular insider, and Form 5 total
holdings provide a useful reconciliation of changes in holdings
resulting from exempt and other types of transactions permitted to be
reported on a deferred basis.
The Commission also has decided not to impose any new
reconciliation requirements on insiders. Instead, as currently, the
requirement to report total holdings on Forms 4 and 5 will remain
limited to the class of securities to which a transaction is reported,
and changes in holdings associated with transactions eligible for
deferred reporting on Form 5 will not have to be reflected in the
month-end total holdings reported on Form 4, unless the transaction
voluntarily has been reported earlier on Form 4.103
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\103\ Instruction 4(a)(i) to Form 4.
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Also in keeping with current practice, insiders will reflect
changes in holdings resulting from transactions that are exempt from
section 16 reporting in the holdings column of the next otherwise
required Form 4 or 5 filed to report a transaction involving the same
class of securities. Insiders may choose, but are not required, to
include footnote disclosure indicating the date and nature of
transactions not required to be reported. To the extent that
information about a transaction not required to be reported under the
revised rules is not readily available, the insider should provide a
``best estimate'' of the change in holdings resulting from the
transaction.104 The purpose of the best estimate is not indirectly
to require insiders to report transactions exempt from Section 16(a),
but rather, to provide users of section 16 information with holdings
information that is as accurate as reasonably possible.105
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\104\ There may not be sufficient information available
concerning certain types of transactions that are not required to be
reported under the revised rules, e.g., periodic purchases in tax-
conditioned employee benefit plans, to establish a best estimate
regarding changes in holdings. In those cases, the holdings column
will not be updated until the information becomes available.
\105\ When accurate information concerning holdings that were
estimated by an insider becomes available, it should be reflected on
the next otherwise required Form 4 or 5 that references the same
class of securities. Modifications in holdings information to
reflect variances in actual holdings from estimated holdings will
not trigger the disclosure requirements of Item 405 of Regulations
S-K and S-B.
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In a separate effort to facilitate the filing of Section 16(a)
reports and encourage the speedy dissemination of information
considered valuable by many members of the investment community, the
Commission has expanded the capacity of the EDGAR system to accommodate
the electronic filing of those reports.106 Insiders have been able
to electronically file their section 16 reports on a voluntary basis
since December 18, 1995.107
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\106\ See Release Nos. 33-7231 (October 5, 1995) (FR) and 33-
7241 (November 13, 1995) (60 FR 57682). At the same time, the EDGAR
system was expanded to accommodate the electronic filing of reports
pursuant to Rule 144 [17 CFR 230.144] under the Securities Act (15
U.S.C. 77a et seq.).
\107\ Instruction 3 to Form 3 and Instruction 2 to Forms 4 and 5
have been amended to add a reference to electronic filing.
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B. Transactions No Longer Reported at All
``Spinoff'' or other dividend transactions in which equity
securities of a different issuer are distributed to insiders of an
issuer 108
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\108\ New Rule 16a-9(a). The current exemption for stock splits
and dividends has been expanded to include specifically a stock
dividend in which equity securities of a different issuer are
distributed. See Section V.C, below.
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Acquisitions pursuant to a dividend or interest
reinvestment plan 109
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\109\ New Rule 16a-11. See Section V.A, below.
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Transactions in a tax-conditioned plan,110 except for
discretionary intra-plan transfers and cash distributions 111
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\110\ New Rules 16a-3(f)(1)(i)(B) and 16b-3(c). Current
Instruction 4(a)(ii) to Form 5 sets forth information regarding the
reporting of transactions and holdings in ongoing securities
acquisition plans. Among other things, it states that transactions
and holdings may be reported as of the most recent date for which
information is available, and that acquisitions may be reported on
an aggregate basis. The 1994 Release proposed amendments to
Instructions 4(a) (ii) and (iv) to Form 5 and the Note to
Instruction 4(a)(ii) to Form 4 to codify interpretations regarding
aggregated reporting. Because these acquisitions no longer are
required to be reported under the revised rules, the proposed
amendments are not adopted. Further, current Instruction 4(a)(ii) to
Form 5 is rescinded since the transactions addressed will not be
reported under the revised rules.
\111\ Defined as ``Discretionary Transactions'' pursuant to new
Rule 16b-3(b)(1). See Section II.C, above. These transactions will
continue to be reported on Form 5, as discussed in Section IV.C
below.
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[[Page 30385]]
Post-termination transactions by a former officer or
director that are exempt from section 16(b) or that do not occur within
six months of an opposite non-exempt transaction 112
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\112\ New Rule 16a-2(b).
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Acquisitions or dispositions of securities pursuant to a
domestic relations order meeting certain conditions of the Internal
Revenue Code 113
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\113\ New Rule 16a-12. See Section V.B below for further
discussion of this new rule, which expands the existing exemption
relating to Qualified Domestic Relations Orders.
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Transactions reflecting a mere change in form of
beneficial ownership 114
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\114\ New Rule 16a-13.
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Exempt cancellations or expirations of a long derivative
security where no value is received 115
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\115\ New Rule 16a-4(d).
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The above are transactions that must be reported under current
rules, but will not be reported under the revised rules.116 In
addition to providing a means for enforcing section 16(b) short-swing
profit liability, section 16(a) reporting serves the separate purpose
of informing the market of transactions that reflect insiders' views of
their companies' prospects. Because the transactions listed above
generally do not provide investors meaningful information consistent
with this purpose, the Commission deems it appropriate to relieve
insiders from unnecessary burdens by exempting these transactions from
reporting. There was nearly unanimous support among the commenters for
these revisions, which are adopted substantially as proposed.
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\116\ Under the current and revised requirements, stock splits,
stock dividends with respect to the same issuer and the acquisition
of certain pro rata rights do not have to be reported pursuant to
Rule 16a-9. Further, transactions by odd-lot dealers in odd-lots are
exempt from current and revised reporting requirements pursuant to
Rule 16a-5. Cash-only instruments also are not now reported since
they are excluded from the definition of ``derivative securities''
under current Rule 16a-1(c)(3) if they meet certain conditions, but
they will be reported under the new rules.
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The revised rules provide a specific exemption from section 16 for
changes in the form of beneficial ownership (but not in the extent of
an insider's pecuniary interest in the subject securities).117
Although commenters generally supported the proposal to add a new
transaction code to Form 5 to facilitate the reporting of these
transactions, several commenters suggested eliminating any reporting
requirement regarding changes in the form of beneficial stock
ownership. Since these transactions do not reflect any change in an
insider's pecuniary interest in an issuer's equity securities,
reporting seems to serve little purpose, and the Commission has
determined that they should be exempt from reporting.118
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\117\ New Rule 16a-13. For example, distributions of equity
securities from an employee benefit plan to an insider participant
would be a mere change in the form of beneficial ownership from
indirect to direct where the securities previously had been
attributed to the insider.
\118\ Accordingly, the proposed transaction code is not adopted.
The new rule makes it clear that exercises and conversions of
derivative securities and the deposit or withdrawal of shares into
or from a voting trust are not to be regarded as mere changes in the
form of beneficial ownership, and will continue to be reported. If a
deposit or withdrawal of shares into or from a voting trust
satisfies the conditions of Rule 16b-8 (17 CFR 240.16b-8), the
transaction is exempt from section 16(b).
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C. Transactions To Be Reported on Form 5
Transactions exempt from section 16(b), except for: (1)
Transactions listed in Section IV.B above that are not required to be
reported at all pursuant to the changes being adopted; and (2) exempt
exercises and conversions of derivative securities 119
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\119\ New Rule 16a-3(f)(1)(i).
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Small acquisitions 120
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\120\ New Rule 16a-6.
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A substantial number of commenters supported an alternative
reporting approach described in the 1994 Release involving elimination
of the requirement to report transactions exempt from section 16(b)
liability, and many also supported the elimination of Form 5. In
contrast, however, a number of commenters thought that the requirement
to report exempt transactions should be retained, and indicated that
Form 5 is a useful document.
As discussed above, the Commission is eliminating the reporting of
several classes of exempt transactions, including non-volitional
transactions in tax-conditioned plans. The Commission expects that
elimination of reporting of these routine plan transactions will
greatly alleviate insiders' burden of reporting exempt transactions
without resulting in any significant loss of information that users of
Section 16 information find valuable.
The Commission believes, however, that the reporting of other types
of exempt transactions, such as option grants and other acquisitions
and dispositions of securities in plans that are not tax-conditioned,
may provide the marketplace with useful information. These transactions
typically are less automatic and may reflect insiders' views of their
companies' prospects. The Commission also believes that continued
annual reporting of these transactions on Form 5 is appropriate.
In view of the change discussed above concerning the treatment of
cash-only instruments that derive value from the market value of equity
securities of the issuer,121 transactions involving such
instruments will be reported on Form 4 or 5, depending on whether they
are exempt. It is anticipated that most of these will be exempt
pursuant to new Rule 16b-3 and thus reportable on Form 5.
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\121\ See Section III.A, above.
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Pursuant to the reporting scheme contemplated by the 1995 Release,
exempt grants, awards and dispositions of securities in plans that are
not tax-conditioned, as well as intra-plan transfers and cash
distributions in tax-conditioned plans, would have been reported on
Form 4 no later than ten days after the close of the month in which the
transaction occurred. The Commission has determined to require
reporting of these transactions on Form 5 rather than Form 4, in view
of the remarks of many commenters who felt that the accelerated
reporting of exempt transactions on Form 4 would prove unworkable as
the result of the necessary plan information not being available in
sufficient time to meet Form 4 filing deadlines. Further, while some
commenters expressed a preference for reporting transactions on Form 4
rather than waiting until year-end to file a Form 5 and possibly
overlooking a transaction, others expressed a need for flexibility and
indicated that annual reporting is preferable. Those who prefer
voluntarily to report exempt transactions on Form 4, of course, may
continue to do so, as is currently permitted.
The 1995 Release also proposed elimination of the requirement that
gifts be reported. Since some commenters find gift activity to be a
useful indication of an insider's view of the company's prospects (for
example, where a large charitable gift effects a significant
disposition) the requirement to report gifts on Form 5 is retained.
Small acquisitions, which currently are reported on a next required
Form 4 or Form 5 basis, will be reported on Form 5.122 The 1994
Release solicited
[[Page 30386]]
comment as to whether reporting could be made more convenient for
insiders, consistent with the informational needs of the investing
public, by permitting small acquisitions to be reported solely on Form
5, and the majority of commenters favored this approach.123
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\122\ New Rule 16a-6, like the current rule, provides only a
deferral, not an exemption, from reporting. All small acquisitions,
unless otherwise exempt, must be reported on Form 5. As is currently
the case, if an acquisition no longer qualifies for the reporting
deferral in paragraph (a) of Rule 16a-6, all such acquisitions that
have not yet been reported will continue to be reported on Form 4
within ten days after the close of the calendar month in which the
conditions of that paragraph no longer are met. See Rule 16a-6(b)
(17 CFR 240.16a-6(b)).
\123\ As discussed below, exempt exercises and conversions of
derivative securities will be reported on Form 4 under the revised
rules.
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Additionally, as proposed in the 1994 Release, the small
acquisitions reporting rule is revised to exclude from the $10,000
threshold acquisitions occurring within the prior six months of the
current acquisition that were exempted by rule from Section 16(b), or
previously reported on Form 4 or 5. The revised rule also clarifies, as
proposed, that the current acquisition cannot be disregarded in
calculating the $10,000 threshold. All the commenters remarking on
these clarifications supported them.
D. Transactions to be Reported on Form 4
Transactions not exempt from Section 16(b), except for
small acquisitions 124
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\124\ New Rule 16a-3(g)(1).
---------------------------------------------------------------------------
Exercises or conversions of a derivative security, whether
or not exempt from Section 16(b) 125
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\125\ Id.
---------------------------------------------------------------------------
Transactions not exempt from short-swing profit recovery that
currently are reported on Form 4 generally will continue to be reported
on Form 4, including non-exempt exercises and conversions of derivative
securities. In addition, as a change from the current system, exercises
and conversions of derivative securities exempt from short-swing profit
recovery under either new Rule 16b-3 or Rule 16b-6(b) always will be
reported on Form 4,126 since the Commission is eliminating the
current method of reporting these transactions on a next Form 4 or Form
5 basis. Reporting of these transactions has been shifted to Form 4
rather than Form 5 due to concerns expressed by commenters that the
timing of option exercises represents an important indication of
insiders' views of their companies' prospects.
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\126\ If a derivative security is exercised or converted before
its exempt grant otherwise must be reported, the grant should be
reported at the same time as the exercise or conversion.
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E. Joint and Group Reporting
Currently, when more than one person subject to Section 16 is
deemed to be a beneficial owner of the same equity securities, all such
persons must report as beneficial owners and file separate reports. To
reduce this duplicative reporting, the Commission is adopting rules
that permit such persons to file their reports either separately or
jointly, as proposed in the 1994 Release.127
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\127\ New Rules 16a-3(j) and 16a-1(a)(3) reflect this change.
Forms 3, 4 and 5 and the Instructions thereto also are modified to
permit joint and group filings. In response to a commenter's request
for clarification, the revised instructions to the forms indicate
that, for their convenience, joint filers may reflect transactions
in separately owned securities either in an individually filed or
jointly filed report.
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Under the new reporting scheme, where persons in a group have
reporting obligations, the filing of collective reports on behalf of
all group members is permitted.128 Such joint and group filings,
and any amendments, may be submitted by any designated constituent
beneficial owner. Required information must be given for each
beneficial owner, and such filings must be signed by, or on behalf of,
each beneficial owner by an authorized person, with statements
confirming the delegation of signature authority attached to the
filing.
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\128\ Joint and group filings can be used, for example, by
parents and subsidiaries, trusts and trust beneficiaries,
partnerships, or Schedule 13D groups (17 CFR 240.13d-101). The group
itself is not a reporting person for section 16 purposes, but under
the revised rules, group members may choose to file collective
reports to satisfy their individual filing obligations. A group
member is not required to report transactions by another group
member, however, unless he or she has or shares a pecuniary interest
in the securities held by such other member.
---------------------------------------------------------------------------
Beneficial owners making a joint or group filing may authorize one
of the beneficial owners or a third party to sign on their behalf,
provided that confirming statements are attached to the filing, or are
provided by amendment as soon as practicable, with respect to each
owner delegating signature authority, unless such a confirmation still
in effect is on file with the Commission.129 Of course, to the
extent a sufficiently broad power of attorney previously was filed,
such as with a Schedule 13D, that power of attorney may be incorporated
by reference in a Section 16(a) filing. Each beneficial owner will
retain individual liability for compliance with the filing
requirements, including the obligation to assure that the filing is
timely and accurately made.130
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\129\ Currently, General Instruction 7 to Forms 3, 4 and 5
permits a form filed for an individual to be signed on behalf of the
individual by an authorized person. This instruction remains the
same. General Instruction 5 to Form 3 and General Instruction 4 to
Forms 4 and 5 are amended to specify the means of reporting
pecuniary interest of multiple beneficial owners. A corresponding
amendment also has been made to General Instruction 6 to each Form.
\130\ Cf. In the Matter of Bettina Bancroft, Release No. 34-
32033, AP 3-7999 (Mar. 23, 1993).
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Comment was solicited in the 1994 Release as to whether, in the
alternative, authority to make a group Section 16 filing could be
presumed based on the filing of a group Schedule 13D, such that all
group members thereby would be deemed to have granted authority to any
group member to file a Section 16 form. The commenters rejected the
creation of such a presumption under any circumstances other than a
sufficiently broad power of attorney, i.e., one that specifically
authorizes the beneficial owner to file Section 16 reports on his or
her behalf. One of the commenters noted that a Schedule 13D group
member could file Section 16 reports on behalf of another group member
who may not even be aware that he or she has become subject to Section
16, or who may file duplicative reports. Therefore, authority to make a
group Section 16 filing will not be presumed based upon the filing of a
group Schedule 13D.
F. Trust Transactions
Under the revised rules, and as proposed in the 1994 Release, a
trust is subject to section 16 only if it beneficially owns more than
ten percent of a class of registered equity securities of an
issuer.131 The Commission has rescinded the provision imposing
section 16 reporting obligations on a trust that does not own more than
ten percent of an issuer's securities if it has an insider trustee with
investment control over the issuer's securities held by the trust, and
the trustee or a member of the trustee's immediate family has a
pecuniary interest in the securities.132 Since the primary effect
of the current dual reporting standard is to create duplicative
reporting obligations, particularly with respect to family trusts, the
imposition of independent Section 16 obligations on the trusts does not
appear necessary.
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\131\ New Rule 16a-8(a)(1). See Proskauer Rose Goetz &
Mendelsohn (Apr. 29, 1991) (a trust that holds more than ten percent
of a class of equity securities registered under section 12 is the
beneficial owner of those securities for purposes of section 16).
\132\ Current Rule 16a-8(a)(1)(ii) (17 CFR 240.16a-8(a)(1)(ii)).
A conforming amendment to Rule 16a-2(d)(2) (17 CFR 16a-2(d)(2))
reflects the rescission of Rule 16a-8(a)(1)(ii).
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There will continue to be some instances where a trust and a trust
beneficiary that both are subject to Section 16 must report separately
with respect to the same transaction because they share investment
control. The 1994 Release proposed adding a new note to the reporting
rules to provide that transactions attributed to a trust beneficiary
may be reported by the trustee on behalf of the beneficiary. A
[[Page 30387]]
commenter objected to the proposed note on grounds that a trustee
should not report on behalf of a trust beneficiary unless formally
authorized to do so. Therefore, the note has been modified to indicate
that, as currently, a trustee may file a separate report on behalf of a
beneficiary if a statement confirming the delegation of signature
authority is filed with the Commission.133 The trustee also may
file a consolidated report on behalf of the trust and one or more trust
beneficiaries if authorized to do so by the beneficiaries. Regardless
of whether the trustee reports on behalf of a beneficiary or the
beneficiary personally files reports, the beneficiary subject to a
reporting requirement retains individual liability for compliance with
that requirement.
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\133\ Note to new Rule 16a-8(b)(3).
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G. Compliance With the Reporting Requirements
Under the revised rules, as proposed, registrants will be required
to set off any disclosure required by Item 405 of Regulation S-K or S-B
of insider non-compliance with Section 16(a) reporting obligations
under an appropriate and discrete caption.134 In response to
commenters' remarks, this new caption will read ``Section 16(a)
Beneficial Ownership Reporting Compliance'' rather than ``Section 16(a)
Reporting Delinquencies,'' as proposed in the 1994 Release. The new
caption should enable interested parties readily to locate this
disclosure, which often consists of only a sentence or two, and prevent
the information from being buried among unrelated disclosure.
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\134\ New Item 405(a)(1) of Regulations S-K and S-B.
Additionally, a technical amendment has been made to Item 405 of
Regulation S-B to correct the reference to Rule 16a-3(d) (17 CFR
240.16a-(d)) by replacing it with a reference to Rule 16a-3(e) (17
CFR 240.16a-3(e)).
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In addition, Item 405 is revised to clarify the nature of the
issuer's obligation to review insiders' filings in order to determine
whether there are any delinquent reports that must be disclosed. The
issuer is entitled to rely on the Forms 3, 4 and 5 furnished to it, as
well as written representations by the insider that no Form 5 is
required.
New language has been added, as proposed, to make it clear that the
issuer is obligated to consider the absence of certain forms.135
The absence of a Form 3 is an indication that disclosure is required.
Similarly, the absence of a Form 5 is an indication that disclosure is
required, unless the issuer has received a written representation that
no Form 5 is required, or otherwise knows that no such filing is
required.136 While some commenters objected to this clarification
on grounds that it would place an inappropriate burden of investigation
on issuers to determine that a form is not required, the Commission
views it merely as a codification of previous Commission guidance
concerning issuers' obligations.
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\135\ New Item 405(a)(2) of Regulations S-K and S-B. This
obligation was set forth in the 1991 Adopting Release, n. 231 and
surrounding text.
\136\ A ``safe harbor'' from disclosure is available for an
issuer who receives a written representation and keeps it for two
years. See Item 405(b)(2).
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The 1994 Release solicited comment on whether Item 405 should
require issuers to include in their filings an affirmative statement
that no section 16(a) delinquencies were required to be reported, if
such was the case. It had been suggested that an affirmative statement
requirement would prevent issuers from overlooking the Item 405
disclosure requirement. Since most of the commenters addressing the
issue opposed an affirmative statement requirement, and there is little
evidence that issuers are overlooking Item 405 disclosure, the
Commission is not adopting such a requirement.
Finally, as noted in the 1994 Release, the Commission is aware of
and encourages the practice of many issuers to assist their officers
and directors in complying with their section 16(a) reporting
obligations. 137 Since the use of powers of attorney is permitted,
it is also possible for an issuer to coordinate the filing of its
officers' and directors' reports by having the corporate secretary or
other agent obtain powers of attorney from these reporting persons,
collect information every month about their transactions subject to
Section 16, and file required reports by the due date.138
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\137\ On February 14, 1996, the Commission included in the SEC
News Digest and posted on the Commission's Internet Web Site an
announcement encouraging the electronic filing of Forms 3, 4 and 5
(as well as Form 144) and providing guidance on how companies that
choose to do so may assist filers in the electronic filing process.
\138\ Of course, insiders giving powers of attorney would still
retain individual liability for compliance. See n. 130, above.
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H. Equity Swaps
The 1994 Release contained a section analyzing Section 16 issues
relating to equity swaps, and soliciting comments upon the analysis and
related issues.139 Equity swaps are individually negotiated
contracts in which the specific terms may vary from agreement to
agreement. For instance, an equity swap may take the form of an
agreement in which one party holding shares of equity securities agrees
to pay, or ``swap,'' the return 140 on those securities in
exchange for the return on an equity index, basket of equities, or an
interest rate-based cash flow. Generally, commenters agreed that the
Commission's analysis of equity swaps as involving the economic
equivalent of tandem stock appreciation and depreciation rights
reflects economic reality. Some, however, suggested simplified
approaches to analysis and reporting.
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\139\ See Section III.G of the 1994 Release for the Commission's
detailed analysis.
\140\ For purposes of this analysis, ``return'' may include
dividends paid on the equity instrument, as well as the change in
market value.
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The Commission reiterates that Section 16 consequences arise from
an equity swap transaction where either party to the transaction is a
Section 16 insider with respect to a security to which the swap
agreement relates.141 The Commission agrees with commenters,
however, that any manner of reporting an equity swap, or an instrument
with similar characteristics, that provides an adequate description is
appropriate. The specific method of reporting described in the 1994
Release is not the only acceptable method. However, there are certain
items of information that must be set forth for an adequate
presentation. To provide an adequate description, an insider must
report the entry into and termination of the equity swap, as well as
any interim events to the extent such events change the insider's call
or put equivalent position.142 To be adequate, each report must
provide the following information: (1) The date of the transaction; (2)
the term; (3) the number of underlying shares; (4) the exercise price
(i.e., the dollar value locked in); (5) the non-
[[Page 30388]]
exempt disposition (acquisition) of shares at the outset of the term;
(6) the non-exempt acquisition (disposition) of shares at the end of
the term (and at such earlier dates, if any, where events under the
equity swap cause a change in a call or put equivalent position); (7)
the total number of shares held after the transaction; and (8) any
other material terms.143
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\141\ This analysis addresses solely the application of Section
16 to equity swaps to the extent that they are engaged in by
insiders. The discussion does not analyze the status of these
transactions or the parties thereto under any other provision of the
federal securities laws.
However, as stated in the 1994 Release, no Section 16
consequences would flow from an equity swap to the extent that the
equity swap relates solely to interests in securities comprising
part of a broad-based, publicly traded market basket or index of
stocks, approved for trading by the appropriate federal governmental
authority, that are deemed not to confer beneficial ownership for
purposes of section 16 pursuant to Rule 16a-1(a)(5)(iii) (17 CFR
240.16a-1(a)(5)(iii)) and/or are excluded from the definition of
``derivative securities'' pursuant to current Rule 16a-1(c)(4).
\142\ See 1994 Release n. 106, which stated that to the extent
settlement of the parties' obligations occurs on an interim basis
during the term of the swap the insider's section 16 obligations
would arise with respect to each settlement, commenters expressed
concern over the need to report interim events. As noted above and
consistent with the section 16 reporting scheme in general, such
events need be reported only to the extent that they cause a change
in an insider's call or put equivalent position.
\143\ New Code K is added to Forms 4 and 5 for reporting equity
swaps and instruments with similar characteristics. See Section
IV.I, below.
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Some commenters suggested that equity swaps in general or certain
aspects of them should be regarded as excluded or exempt from Section
16. The Commission is not persuaded, however, that any exclusion or
exemption currently is available or that equity swaps should be so
excluded or exempted.
Numerous issues are raised under the federal securities laws by
equity swaps and other instruments that shift some or all of the
economic interests and risks of an equity security. Since record and
beneficial ownership does not necessarily reflect who holds the voting,
investment or income interests of a security, it may be appropriate in
areas other than Section 16 to assure that the regulatory structure
reflects the economic realities of these transactions. The Commission
is continuing to consider the legal and disclosure issues raised by
these arrangements under the federal securities laws, including
Schedule 13D reporting, Rule 144,144 Rule 144A, Regulation
S,145 and disclosure of security holdings and executive
compensation.146
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\144\ See Release No. 33-7187 (June 27, 1995) (60 FR 35645).
\145\ See Release No. 33-7190 (June 27, 1995) (60 FR 35663).
\146\ See the Commission's Report of the Task Force on
Disclosure Simplification, Part III.A.3.b.
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I. Changes in Forms and Reporting Codes
As proposed in the 1994 Release, when an insider exercises an
option acquired pursuant to a Rule 16b-3 plan and immediately sells a
portion of the shares to pay the exercise price under a cashless
exercise program, the insider will be able to reflect the sale of the
portion of shares necessary to satisfy the exercise price by using the
transaction code for payment of an option exercise price by delivery or
withholding of securities,147 rather than the general sale of
security code,148 provided that the sale is to the issuer.
Commenters agreed that it was appropriate to use the same code for
these transactions since they all constitute cashless exercises.
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\147\ Transaction code ``F.'' The sale of shares to pay the
exercise price of an option under a cashless exercise program is
exempt from Section 16(b) if the issuer is the purchaser, but not if
the shares are sold on the open market by a broker or other third
party. Code ``F'' may be used to reflect only exempt transactions.
The amendments clarify that code ``F'' also should be used to report
the withholding of securities incident to satisfaction of tax
liability incurred upon the receipt, exercise or vesting of a
security.
\148\ Transaction code ``S.''
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A new transaction code also has been included in Forms 4 and 5 to
be used for transactions in equity swaps and instruments with similar
characteristics.149 This will be in addition to whatever other
codes are used to describe the transaction.150 The new code will
assist the Commission and users of Section 16 information in
identifying these transactions.
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\149\ New transaction code ``K'' and General Instruction 8 to
Forms 4 and 5.
\150\ For example, an equity swap transaction reported as a
disposition will be reported as S/K, using the codes for ``sale''
and ``equity swap.''
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Additionally, the Instructions to Forms 3, 4 and 5 are revised to
state that the forms may be submitted to the Commission in electronic
format at the option of the reporting person.151 The Instructions
also are modified to indicate that insiders may attach a page of 8\1/2\
by 11 inch white paper to reflect additional comments to the forms, if
the space provided on the forms is insufficient.152 The current
rules require insiders to reflect supplemental information on
additional copies of the forms.
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\151\ General Instruction 3(a) to Form 3, and General
Instruction 2(a) to Forms 4 and 5.
\152\ General Instruction 6 to Forms 3, 4 and 5. Specified
information must be included at the top of the page so that the
filing can be identified if the page is detached.
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Several transaction codes have been modified or deleted from the
Instructions to Forms 4 and 5 in accordance with the revisions.153
Finally, Forms 3, 4 and 5 have been revised to accommodate joint and
group filing.154
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\153\ Transaction codes ``A,'' ``F,'' ``H,'' ``I,'' and ``M''
have been modified and codes ``B,'' ``N,'' ``Q,'' ``R'' and ``T''
have been deleted.
\154\ Item 1 of the forms has been revised to explain how the
names and addresses of more than one reporting person should be
indicated, and a new Item 7 has been added to the forms to indicate
whether the form is being filed by one or more reporting persons.
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V. Additional Exemptions and Revisions
A. Dividend or Interest Reinvestment Plans
Current Rule 16b-2 exempts from the short-swing profit recovery
provisions of section 16(b) the acquisition of issuer equity securities
resulting from reinvestment of dividends or interest on securities of
the same class, if made pursuant to a plan, available on the same terms
to all holders of that class of securities, providing for regular
reinvestment of dividends or interest. Concerns have been expressed
that the requirement that the plan be made available to all holders of
the class (the ``all-holders requirement'') can impose significant
burdens, such as the outlay of significant sums to comply with laws
governing securities offerings in foreign jurisdictions, on companies
that wish to allow for insider participation.
Accordingly, in 1995 the Commission proposed to modify this
requirement, noting that such a stringent participation requirement did
not appear necessary to preclude the opportunity for speculative abuse
by insiders. The rule was proposed to be amended to exempt acquisitions
resulting from reinvestment of dividends or interest on securities of
the same class if made pursuant to a plan that meets three conditions:
First, it must provide for the regular reinvestment of dividends or
interest. Second, the plan must be broad-based and not discriminate in
favor of employees of the issuer.155 Third, the plan must operate
on substantially the same terms for all plan participants.156
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\155\ This standard would be evaluated by reference to all
shareholders of the class. For example, the requirement would not be
satisfied merely by making the plan available to all employees of
the issuer.
\156\ Consistent with current interpretation, the rule as
amended would exempt only the reinvestment of dividends or interest.
Additional securities acquired through voluntary cash contributions
to such plans will not be exempt pursuant to this rule, but may be
exempt under new Rule 16b-3, assuming other conditions are met. See
Release No. 34-28869, n. 89. The amended rule also continues to
exempt the acquisition of issuer equity securities pursuant to a
dividend reinvestment feature of an employee benefit plan so long as
the company maintains a separate dividend reinvestment plan that
satisfies the conditions of the rule. See Simpson Thacher & Bartlett
(Jun. 19, 1991) and Release No. 34-18114, Q. 76. Finally, consistent
with current interpretations, the amended rule will continue to be
available to exempt the reinvestment of dividends in the securities
of a publicly traded parent or subsidiary, and will exempt the
reinvestment of all pro rata distributions to security holders, not
just dividends and interest. See Middle South Utilities, Inc. (Aug.
21, 1982) and Investment Company Institute (Sept. 18, 1992).
---------------------------------------------------------------------------
Commenters agreed that the proposed modification is appropriate and
serves the goal of reducing administrative burdens while protecting
against possible speculative abuse by officers and directors.
Commenters noted particularly that the ``all-holders'' provision is not
essential to eliminate abuse, and that modification of this provision
would substantially reduce the costs imposed by the requirement that
such plans be made available to
[[Page 30389]]
odd-lot holders and shareholders domiciled abroad. The amendment is
adopted as proposed, with minor clarifying changes.157
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\157\ New Rule 16a-11. The rule has been renumbered as a Section
16(a) rule, since reporting of these transactions no longer will be
required, as discussed above.
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B. New Exemption for Domestic Relations Orders
The current rules limit the exemption for the disposition of
securities pursuant to a qualified domestic relations order (``QDRO''),
as defined in the Internal Revenue Code or Title I of ERISA, and the
rules thereunder, to employee plan securities.158 Since such
dispositions are unlikely to be influenced by access to inside
information, this limitation appears unnecessary. Accordingly, the 1994
proposal included a general exemption for such dispositions.
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\158\ Current Rule 16b-3(f)(3).
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By interpretation, the current exemption has been construed to
permit the transfer of securities, issued under a plan that is not
subject to Section 401(a) of the Internal Revenue Code, pursuant to a
``domestic relations order'' that satisfies certain conditions of the
Internal Revenue Code,159 but does not satisfy QDRO
standards.160 Comment was requested as to whether the proposed
exemption should require satisfaction of the QDRO standards in all
circumstances, or whether satisfaction of the Internal Revenue Code
``domestic relations order'' standards would suffice.
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\159\ I.R.C. Sections 414(p)(1)(A) and (B). Among other things,
the order must create or recognize an alternate payee's right to
receive all or a portion of the benefits payable to a participant
under a plan; relate to the provisions of child support, alimony
payments, or marital property rights to a spouse, former spouse,
child, or other dependent of the participant; and be made pursuant
to a state domestic relations law (including a community property
law).
\160\ The order need not satisfy, among other things, conditions
applicable to payments made after the participant's earliest
retirement age, and requirements to treat the former spouse as
surviving spouse for purposes of determining survivor benefits. See
Premark International, Inc. (Mar. 6, 1992), which further provides
that the plan may permit such transfers consistent with the
transferability restriction of current Rule 16b-3(a)(2).
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Commenters who addressed this proposal supported it overwhelmingly,
noting that these dispositions are unlikely to give rise to the types
of abuse of inside information that the section 16 rules are designed
to prevent and that satisfaction of the ``domestic relations order''
standards should suffice. Commenters also suggested that the rule
should exempt acquisitions as well as dispositions. The Commission is
persuaded that the likelihood of abuse is equally remote whether the
transaction is an acquisition or disposition, so long as the ``domestic
relations order'' standards are satisfied. The rule as adopted reflects
these modifications.161
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\161\ New Rule 16a-12, which replaces current Rule 16b-3(f)(3).
This amendment was proposed in the 1994 Release as proposed Rule
16b-5(b), but instead is adopted as a section 16(a) rule since
reporting of these transactions no longer will be required, as
discussed above.
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C. Exemption for Stock Dividend Transactions
The Commission proposed in 1994 to expand the exemption for stock
splits and stock dividends to include specifically a stock dividend in
which equity securities of a different issuer are distributed. The
primary application of this exemption would be to ``spinoff''
transactions, in which assets previously owned by the issuer are
distributed pro rata to shareholders in the form of equity securities
of another issuer.
The Division has interpreted the current rule to apply to stock
splits or stock dividends involving the issuance, on a pro rata basis,
of a different class of equity securities of the same issuer.162
Commenters addressing this proposal expressed support, noting that this
type of dividend involves the distribution of an ownership interest
already held indirectly through the distributing entity, and thus
involves a change in the form of ownership from indirect through the
distributing entity to direct by the recipient. Commenters also noted
that since there is no purchase or sale, there is no significant
opportunity for abuse. The proposal is adopted substantially as
proposed, with minor technical revisions.163
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\162\ See Emergent Group, Inc. (Apr. 6, 1992).
\163\ New Rule 16a-9(a).
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VI. 1995 Solicitation of Comment Regarding the On-Going Merit of the
Short-Swing Profit Recovery Provisions of Section 16
The 1995 Release solicited comment as to whether the Commission
should recommend that Congress rescind the short-swing profit recovery
provisions of section 16(b). Commenters were asked to address whether
insider trading and market manipulation would be deterred adequately by
Rule 10b-5, as interpreted by case law, and whether state laws
establishing a fiduciary duty on the part of officers and directors
would protect adequately the interests of public company shareholders.
Although the majority of commenters addressing this issue favored
the legislative rescission of section 16(b), the Commission is of the
view that the short-swing profit recovery provisions continue to
fulfill a useful and effective role in maintaining investor confidence
in the integrity of United States securities markets and accordingly
should be retained. Instead, the Commission has attempted to craft the
amended rules in a manner that retains the market protections provided
by section 16(b) while curtailing compliance costs, thereby striking an
appropriate balance between benefits and costs.
VII. Transition to New Rules
A. General Application
All of the rules adopted today, except for new Rule 16b-3, become
effective August 15, 1996 (the ``Effective Date''). Accordingly, the
section 16 treatment of all transactions effected on or after the
Effective Date will be governed by the new rules. As discussed below, a
phase-in period until November 1, 1996 is provided for new Rule 16b-3.
Of course, to the extent that the new rules codify current interpretive
positions,164 those positions continue to be valid before the
Effective Date. Trusts currently subject to section 16 that will be
relieved of section 16 obligations under the new rules will not be
subject to any post-termination reporting obligations or required to
file a final Form 4 or Form 5. The amendments to Item 405 of
Regulations S-K and S-B will apply to documents containing Item 405
disclosure that are filed after the Effective Date. The new Forms
should be used for filings made on and after the Effective Date.
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\164\ E.g., new Rule 16a-1(c)(7) and Item 405(a)(2) of
Regulations S-K and S-B.
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Cash-only instruments excludable from the definition of
``derivative security'' under current Rule 16a-1(c)(3) originally
issued before the Effective Date will remain exempt from the reporting
requirements of section 16(a) after the Effective Date. With respect to
such cash-only securities, a transaction on or after the Effective Date
that is consistent with the conditions of the exclusion pursuant to
which the security was issued also will not to be subject to Section
16.165
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\165\ Post-Effective Date transactions in cash-only securities
that were originally issued prior to May 1, 1991 will continue not
to be subject to section 16 to the extent provided in Cravath,
Swaine & Moore (Oct. 22, 1991).
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Transactions not exempt from section 16(b) under the current rules
that are conducted prior to the Effective Date will continue to be
matchable with non-exempt transactions conducted after the Effective
Date for short-swing profit recovery purposes.
[[Page 30390]]
B. New Rule 16b-3
In extending the phase-in date for current Rule 16b-3, the
Commission stated that this period would continue until September 1,
1996.166 However, given the timing of the adoption of new Rule
16b-3, the Commission is extending the phase-in date until November 1,
1996.167 While new Rule 16b-3 will become available for issuers
that wish to use it on August 15, 1996, current and former Rule 16b-3
168 will remain available for transactions effected prior to
November 1, 1996. When an issuer adopts a plan that complies with new
Rule 16b-3 or converts one of its existing plans to the new rule, all
plans must be converted,169 provided that any transaction between
an issuer and its officers or directors that occurs outside the scope
of a formal plan or pursuant to a plan that permits only the issuance
of cash-only instruments may rely on new Rule 16b-3 without triggering
this conversion requirement. Current and former Rule 16b-3 may not
continue to be relied on by issuers and insiders after November 1,
1996. Transactions exempt under current and former Rule 16b-3 should be
reported as provided by the new rules during the phase-in
period.170
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\166\ See the 1995 Phase-in Release.
\167\ See Release No. 34-37261, issued today.
\168\ Former Rules 16a-8(b) and 16a-8(g)(3) also remain
available for purposes of providing an exemption from Section 16(b).
See the 1991 Adopting Release at Section VII.C.
\169\ Following conversion of an existing plan to new Rule 16b-
3, the amendment of outstanding derivative securities to permit
their transfer will not be deemed a cancellation of such securities
and a grant of new securities for Section 16 purposes. Compare Time
Warner (Dec. 18, 1992) Q.3 and Jesse M. Brill (Mar. 25, 1994) Q.4,
where following amendment outstanding options no longer were exempt
pursuant to current and former Rule 16b-3, respectively.
\170\ The new reporting exemption for tax-conditioned plans will
not be available until new Rule 16b-3 is used because that reporting
exemption applies only to transactions exempted by new Rule 16b-
3(c).
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As stated above, the new Forms should be used for filings made on
and after the Effective Date. Since the new transaction codes are keyed
to transactions exempted by new Rule 16b-3, insiders reporting
transactions under the former or current rule may either use the new
code most analogous to the transaction or code ``J'' (for ``other''
transactions) with an explanatory footnote.
VIII. Cost-Benefit Analysis
The amendments adopted herein are expected to decrease
significantly the compliance burden imposed on persons subject to
Section 16 and attendant costs without undercutting the statutory
objectives of disclosing information concerning insider trading and
discouraging speculative short-term insider trading.
The simplified treatment of transactions between an issuer and its
officers and directors, whether or not pursuant to a formal employee
benefit plan, will constitute the most important reduction in
compliance burden. With respect to these transactions, the conditions
that must be met for an exemption to be available have been
substantially simplified. The amended rules also will simplify issuers'
administration of dividend and interest reinvestment plans, and expand
the exemption for stock splits and stock dividends to include stock
dividends in which securities of a different issuer are distributed.
The rules also will reduce compliance costs by: providing that many
transactions no longer need be reported at all; permitting joint and
group reporting where more than one person is deemed to be a beneficial
owner of the same securities; providing that section 16 applies to a
trust only if the trust beneficially owns more than ten percent of a
class of registered equity securities; and limiting officers' and
directors' post-termination reporting obligations. Where the amendments
may increase compliance costs, such as by requiring reporting with
respect to transactions in cash-only securities and by accelerating the
reporting of option exercises, such costs should be outweighed by the
benefit of having additional information available to the public on an
accelerated basis, as well as the ease of compliance with a simplified
reporting scheme. The amendments also will eliminate regulatory
complexity and uncertainty that discourages the use of equity as
compensation.
IX. Summary of Final Regulatory Flexibility Analysis
The Commission has prepared a final regulatory flexibility analysis
in accordance with 5 U.S.C. 604 regarding the adoption of new Rules
16a-11, 16a-12 and 16a-13, and the changes to Rules 16a-1, 16a-2, 16a-
3, 16a-4, 16a-6, 16a-8, 16a-9, 16b-3 and 16b-6, Forms 3, 4 and 5, and
Item 405 of Regulations S-B and S-K. A summary of the corresponding
Initial Regulatory Flexibility Analysis was included in the 1994
Release and the 1995 Release. A copy of the final regulatory
flexibility analysis may be obtained by contacting Anne M. Krauskopf,
Division of Corporation Finance, U.S. Securities and Exchange
Commission, 450 Fifth Street NW., Washington, DC 20549 at (202) 942-
2900.
As more fully discussed in the analysis, since 1994 the Commission
has been engaged in rulemaking to modify the Rules under Section 16,
particularly to alleviate unanticipated practical difficulties that
arose since adoption of the 1991 amendments, simplify section 16
requirements applicable to employee benefit plans, and codify several
staff interpretive positions. The amendments to Rule 16b-3 adopted
today will significantly expand the exemption as it applies to broad-
based non-discriminatory plans, will impose different conditions
applicable to grants, awards and other acquisitions from the issuer,
and will provide new exemptions for the disposition of issuer equity
securities to the issuer.
Other rule amendments will modify the section 16(a) reporting
system to provide that most exempt transactions and small acquisitions
will be reported annually on Form 5, with earlier reporting on Form 4
permitted. Exercises and conversions of derivative securities, whether
or not exempt from section 16(b), will be reported on Form 4. However,
routine transactions pursuant to tax-conditioned plans, dividend or
interest reinvestment plan transactions, transactions pursuant to
domestic relations orders and transactions that change only the form of
beneficial ownership will be exempt from reporting. The exemption for
reinvestment transactions pursuant to dividend and interest
reinvestment plans is amended to replace the requirement that such a
plan must be available to all holders of the class of securities with a
condition that the plan require both wide participation and equal
treatment of all participants.
No significant issues were raised by public comment in response to
the initial regulatory flexibility analysis.
The amendments adopted today primarily will affect individuals who
are corporate insiders, the majority of whom may fall within the
definition of ``small business'' under the Exchange Act. To the extent
that these persons are affected, it is expected that the proposals will
reduce their compliance burdens associated with section 16.
It is expected that the amendments adopted today will result in a
material decrease in reporting and compliance requirements since they
will streamline the requirements applicable to employee benefit plans.
Although exercises and conversions of derivative securities will be
reported earlier than previously required, and certain types of cash-
only instruments will become
[[Page 30391]]
reportable, many other transactions no longer will be reported at all,
and the overall reporting scheme will be simplified as a result.
The amendments adopted today will benefit corporate insiders by
simplifying the section 16 rules and eliminating unnecessary
requirements. Separate requirements for small issuers are inappropriate
because most of the corporate insiders subject to the section 16 rules
are individuals who meet the small business definition. The use of
performance rather than design standards for small issuers is
inconsistent with the Commission's mandate of investor protection.
Other proposals to further reduce the compliance requirements were
considered but rejected on grounds that they would be inconsistent with
the section 16 statutory objectives.
X. Statutory Basis
The amendments to Regulation S-B, Regulation S-K, and the section
16 rules and forms are adopted by the Commission pursuant to Exchange
Act sections 3(a)(11),171 3(a)(12),172 3(b),173
9(b),174 10(a),175 12(h),176 13(a),177 14,178
16, and 23(a). As the Section 16 rules and forms relate to the
Investment Company Act and the Public Utility Holding Company Act, they
also are adopted pursuant to Investment Company Act sections 30
179 and 38,180 and Public Utility Holding Company Act
Sections 17 181 and 20,182 respectively.
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\171\ 15 U.S.C. 78c(a)(11).
\172\ 15 U.S.C. 78c(a)(12).
\173\ 15 U.S.C. 78c(b).
\174\ 15 U.S.C. 78i(b).
\175\ 15 U.S.C. 78j(a).
\176\ 15 U.S.C. 78l(h).
\177\ 15 U.S.C. 78m(a).
\178\ 15 U.S.C. 78n.
\179\ 15 U.S.C. 80a-29.
\180\ 15 U.S.C. 80a-37.
\181\ 15 U.S.C. 79q.
\182\ 15 U.S.C. 79t.
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List of Subjects in 17 CFR 228, 229, 240, and 249
Reporting, Recordkeeping requirements, and Securities.
Text of the Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is amended as follows:
PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS
1. The authority citation for part 228 continues to read as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss,
78l, 78m, 78n, 78o, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37, 80b-
11, unless otherwise noted.
2. By amending Sec. 228.405 by revising the reference to ``Rule
16a-3(d)'' in paragraph (a) to read ``Rule 16a-3(e)'' and by revising
paragraphs (a)(1) and (a)(2) before the Note to read as follows:
Sec. 228.405 (Item 405) Compliance with section 16(a) of the Exchange
Act.
* * * * *
(a) * * *
(1) Under the caption ``Section 16(a) Beneficial Ownership
Reporting Compliance,'' identify each person who, at any time during
the fiscal year, was a director, officer, beneficial owner of more than
ten percent of any class of equity securities of the registrant
registered pursuant to section 12 (``reporting person'') that failed to
file on a timely basis, as disclosed in the above Forms, reports
required by section 16(a) of the Exchange Act during the most recent
fiscal year or prior fiscal years.
(2) For each such person, set forth the number of late reports, the
number of transactions that were not reported on a timely basis, and
any known failure to file a required Form. A known failure to file
would include, but not be limited to, a failure to file a Form 3, which
is required of all reporting persons, and a failure to file a Form 5 in
the absence of the written representation referred to in paragraph
(b)(2)(i) of this section, unless the registrant otherwise knows that
no Form 5 is required.
* * * * *
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
3. The authority citation for part 229 continues to read in part as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn,
77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79e, 79n,
79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise noted.
* * * * *
4. By amending Sec. 229.405 by revising paragraphs (a)(1) and
(a)(2) before the Note to read as follows:
Sec. 229.405 (Item 405) Compliance with section 16(a) of the Exchange
Act.
* * * * *
(a) * * *
(1) Under the caption ``Section 16(a) Beneficial Ownership
Reporting Compliance,'' identify each person who, at any time during
the fiscal year, was a director, officer, beneficial owner of more than
ten percent of any class of equity securities of the registrant
registered pursuant to section 12 of the Exchange Act, or any other
person subject to section 16 of the Exchange Act with respect to the
registrant because of the requirements of section 30 of the Investment
Company Act or section 17 of the Public Utility Holding Company Act
(``reporting person'') that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the
Exchange Act during the most recent fiscal year or prior fiscal years.
(2) For each such person, set forth the number of late reports, the
number of transactions that were not reported on a timely basis, and
any known failure to file a required Form. A known failure to file
would include, but not be limited to, a failure to file a Form 3, which
is required of all reporting persons, and a failure to file a Form 5 in
the absence of the written representation referred to in paragraph
(b)(2)(i) of this section, unless the registrant otherwise knows that
no Form 5 is required.
* * * * *
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
5. The authority citation for part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-
37, 80b-3, 80b-4, and 80b-11, unless otherwise noted.
* * * * *
6. By amending Sec. 240.16a-1 by revising paragraphs (a)(3) and
(c)(3), removing the word ``or'' at the end of paragraph (c)(5),
replacing the period at the end of paragraph (c)(6) with a semi-colon
followed by the word ``or'', and adding paragraph (c)(7) to read as
follows:
Sec. 240.16a-1 Definition of terms.
* * * * *
(a) * * *
(3) Where more than one person subject to section 16 of the Act is
deemed to be a beneficial owner of the same equity securities, all such
persons must report as beneficial owners of the securities, either
separately or jointly, as provided in Sec. 240.16a-3(j). In such cases,
the amount of short-swing profit recoverable shall not be increased
above
[[Page 30392]]
the amount recoverable if there were only one beneficial owner.
* * * * *
(c) * * *
(3) Rights or obligations to surrender a security, or have a
security withheld, upon the receipt or exercise of a derivative
security or the receipt or vesting of equity securities, in order to
satisfy the exercise price or the tax withholding consequences of
receipt, exercise or vesting;
* * * * *
(7) Options granted to an underwriter in a registered public
offering for the purpose of satisfying over-allotments in such
offering.
* * * * *
7. By amending Sec. 240.16a-2 by revising paragraphs (b) and (d)(2)
to read as follows:
Sec. 240.16a-2 Persons and transactions subject to section 16.
* * * * *
(b) A transaction(s) following the cessation of director or officer
status shall be subject to section 16 of the Act only if:
(1) Executed within a period of less than six months of an opposite
transaction subject to section 16(b) of the Act that occurred while
that person was a director or officer; and
(2) Not otherwise exempted from section 16(b) of the Act pursuant
to the provisions of this chapter.
Note to Paragraph (b): For purposes of this paragraph, an
acquisition and a disposition each shall be an opposite transaction
with respect to the other.
* * * * *
(d)(1) * * *
(2) Transactions by such person or entity acting in a capacity
specified in paragraph (d)(1) of this section after the period
specified in that paragraph shall be subject to section 16 of the Act
only where the estate, trust or other entity is a beneficial owner of
more than ten percent of any class of equity security registered
pursuant to section 12 of the Act.
8. By amending Sec. 240.16a-3 by revising paragraph (f)(1)(i),
redesignating paragraphs (f)(1)(ii) and (f)(1)(iii) as (f)(1)(iii) and
(f)(1)(iv), adding paragraph (f)(1)(ii), revising paragraph (g), and
adding paragraph (j) to read as follows:
Sec. 240.16a-3 Reporting transactions and holdings.
* * * * *
(f)(1) * * *
(i) All transactions during the most recent fiscal year that were
exempt from section 16(b) of the Act, except:
(A) Exercises and conversions of derivative securities exempt under
either Sec. 240.16b-3 or Sec. 240.16b-6(b) (these are required to be
reported on Form 4);
(B) Transactions exempt from section 16(b) of the Act pursuant to
Sec. 240.16b-3(c), which shall be exempt from section 16(a) of the Act;
and
(C) Transactions exempt from section 16(a) of the Act pursuant to
another rule;
(ii) Transactions that constituted small acquisitions pursuant to
Sec. 240.16a-6(a);
* * * * *
(g) (1) A Form 4 shall be filed to report all transactions not
exempt from section 16(b) of the Act and all exercises and conversions
of derivative securities, regardless of whether exempt from section
16(b) of the Act.
(2) At the option of the reporting person, transactions that are
reportable on Form 5 may be reported on Form 4, provided that the Form
4 is filed no later than the due date of the Form 5 with respect to the
fiscal year in which the transaction occurred.
* * * * *
(j) Where more than one person subject to section 16 of the Act is
deemed to be a beneficial owner of the same equity securities, all such
persons must report as beneficial owners of the securities, either
separately or jointly. Where persons in a group are deemed to be
beneficial owners of equity securities pursuant to Sec. 240.16a-1(a)(1)
due to the aggregation of holdings, a single Form 3, 4 or 5 may be
filed on behalf of all persons in the group. Joint and group filings
must include all required information for each beneficial owner, and
such filings must be signed by each beneficial owner, or on behalf of
such owner by an authorized person.
9. By amending Sec. 240.16a-4 by revising paragraphs (b), (c) and
(d) and the Not
FR Doc. 96-14184 Ownership Reports and Trading by Officers, Directors and Principal Security Holders
e to read as follows:
Sec. 240.16a-4 Derivative securities.
* * * * *
(b) The exercise or conversion of a call equivalent position shall
be reported on Form 4 and treated for reporting purposes as:
(1) A purchase of the underlying security; and
(2) A closing of the derivative security position.
(c) The exercise or conversion of a put equivalent position shall
be reported on Form 4 and treated for reporting purposes as:
(1) A sale of the underlying security; and
(2) A closing of the derivative security position.
(d) The disposition or closing of a long derivative security
position, as a result of cancellation or expiration, shall be exempt
from section 16(a) of the Act if exempt from section 16(b) of the Act
pursuant to Sec. 240.16b-6(d).
Note to Sec. 240.16a-4: A purchase or sale resulting from an
exercise or conversion of a derivative security may be exempt from
section 16(b) of the Act pursuant to Sec. 240.16b-3 or Sec. 240.16b-
6(b).
10. By amending Sec. 240.16a-6 by revising paragraph (a) and
removing paragraph (c) to read as follows:
Sec. 240.16a-6 Small acquisitions.
(a) Any acquisition of an equity security not exceeding $10,000 in
market value, or of the right to acquire such securities, shall be
reported on Form 5, subject to the following conditions:
(1) Such acquisition, when aggregated with other acquisitions of
securities of the same class (including securities underlying
derivative securities, but excluding acquisitions exempted by rule from
section 16(b) or previously reported on Form 4 or Form 5) within the
prior six months, does not exceed a total of $10,000 in market value;
and
(2) The person making the acquisition does not within six months
thereafter make any disposition, other than by a transaction exempt
from section 16(b) of the Act.
* * * * *
11. By amending Sec. 240.16a-8 by revising paragraph (a)(1) and
adding a note at the end of paragraph (b)(3) to read as follows:
Sec. 240.16a-8 Trusts.
(a) Persons subject to section 16.--(1) Trusts. A trust shall be
subject to section 16 of the Act with respect to securities of the
issuer if the trust is a beneficial owner, pursuant to Sec. 240.16a-
1(a)(1), of more than ten percent of any class of equity securities of
the issuer registered pursuant to section 12 of the Act (``ten percent
beneficial owner'').
* * * * *
(b) Trust holdings and transactions. * * *
(3) Beneficiaries. * * *
Note to Paragraph (b)(3): Transactions and holdings attributed
to a trust beneficiary may be reported by the trustee on behalf of
the beneficiary, provided that the report is signed by the
beneficiary or other authorized person. Where the transactions and
holdings are attributed both to the trustee and trust beneficiary, a
joint report may be filed in accordance with Sec. 240.16a-3(j).
* * * * *
12. By amending Sec. 240.16a-9 by revising paragraph (a) to read as
follows:
[[Page 30393]]
Sec. 240.16a-9 Stock splits, stock dividends, and pro rata rights.
* * * * *
(a) The increase or decrease in the number of securities held as a
result of a stock split or stock dividend applying equally to all
securities of a class, including a stock dividend in which equity
securities of a different issuer are distributed; and
* * * * *
13. By adding Sec. 240.16a-11 to read as follows:
Sec. 240.16a-11 Dividend or interest reinvestment plans.
Any acquisition of securities resulting from the reinvestment of
dividends or interest on securities of the same issuer shall be exempt
from section 16 of the Act if the acquisition is made pursuant to a
plan providing for the regular reinvestment of dividends or interest
and the plan provides for broad-based participation, does not
discriminate in favor of employees of the issuer, and operates on
substantially the same terms for all plan participants.
14. By adding Sec. 240.16a-12 to read as follows:
Sec. 240.16a-12 Domestic relations orders.
The acquisition or disposition of equity securities pursuant to a
domestic relations order, as defined in the Internal Revenue Code or
Title I of the Employee Retirement Income Security Act, or the rules
thereunder, shall be exempt from section 16 of the Act.
15. By adding Sec. 240.16a-13 to read as follows:
Sec. 240.16a-13 Change in form of beneficial ownership.
A transaction, other than the exercise or conversion of a
derivative security or deposit into or withdrawal from a voting trust,
that effects only a change in the form of beneficial ownership without
changing a person's pecuniary interest in the subject equity securities
shall be exempt from section 16 of the Act.
Sec. 240.16b-2 [Removed and reserved]
16. By removing and reserving Sec. 240.16b-2.
17. By revising Sec. 240.16b-3 to read as follows:
Sec. 240.16b-3 Transactions between an issuer and its officers or
directors.
(a) General. A transaction between the issuer (including an
employee benefit plan sponsored by the issuer) and an officer or
director of the issuer that involves issuer equity securities shall be
exempt from section 16(b) of the Act if the transaction satisfies the
applicable conditions set forth in this section.
(b) Definitions.
(1) A Discretionary Transaction shall mean a transaction pursuant
to an employee benefit plan that:
(i) Is at the volition of a plan participant;
(ii) Is not made in connection with the participant's death,
disability, retirement or termination of employment;
(iii) Is not required to be made available to a plan participant
pursuant to a provision of the Internal Revenue Code; and
(iv) Results in either an intra-plan transfer involving an issuer
equity securities fund, or a cash distribution funded by a volitional
disposition of an issuer equity security.
(2) An Excess Benefit Plan shall mean an employee benefit plan that
is operated in conjunction with a Qualified Plan, and provides only the
benefits or contributions that would be provided under a Qualified Plan
but for any benefit or contribution limitations set forth in the
Internal Revenue Code of 1986, or any successor provisions thereof.
(3) (i) A Non-Employee Director shall mean a director who:
(A) Is not currently an officer (as defined in Sec. 240.16a-1(f))
of the issuer or a parent or subsidiary of the issuer, or otherwise
currently employed by the issuer or a parent or subsidiary of the
issuer;
(B) Does not receive compensation, either directly or indirectly,
from the issuer or a parent or subsidiary of the issuer, for services
rendered as a consultant or in any capacity other than as a director,
except for an amount that does not exceed the dollar amount for which
disclosure would be required pursuant to Sec. 229.404(a) of this
chapter;
(C) Does not possess an interest in any other transaction for which
disclosure would be required pursuant to Sec. 229.404(a) of this
chapter; and
(D) Is not engaged in a business relationship for which disclosure
would be required pursuant to Sec. 229.404(b) of this chapter.
(ii) Notwithstanding paragraph (b)(3)(i) of this section, a Non-
Employee Director of a closed-end investment company shall mean a
director who is not an ``interested person'' of the issuer, as that
term is defined in Section 2(a)(19) of the Investment Company Act of
1940.
(4) A Qualified Plan shall mean an employee benefit plan that
satisfies the coverage and participation requirements of sections 410
and 401(a)(26) of the Internal Revenue Code of 1986, or any successor
provisions thereof.
(5) A Stock Purchase Plan shall mean an employee benefit plan that
satisfies the coverage and participation requirements of sections
423(b)(3) and 423(b)(5), or section 410, of the Internal Revenue Code
of 1986, or any successor provisions thereof.
(c) Tax-conditioned plans. Any transaction (other than a
Discretionary Transaction) pursuant to a Qualified Plan, an Excess
Benefit Plan, or a Stock Purchase Plan shall be exempt without
condition.
(d) Grants, awards and other acquisitions from the issuer. Any
transaction involving a grant, award or other acquisition from the
issuer (other than a Discretionary Transaction) shall be exempt if:
(1) The transaction is approved by the board of directors of the
issuer, or a committee of the board of directors that is composed
solely of two or more Non-Employee Directors;
(2) The transaction is approved or ratified, in compliance with
section 14 of the Act, by either: the affirmative votes of the holders
of a majority of the securities of the issuer present, or represented,
and entitled to vote at a meeting duly held in accordance with the
applicable laws of the state or other jurisdiction in which the issuer
is incorporated; or the written consent of the holders of a majority of
the securities of the issuer entitled to vote; provided that such
ratification occurs no later than the date of the next annual meeting
of shareholders; or
(3) The issuer equity securities so acquired are held by the
officer or director for a period of six months following the date of
such acquisition, provided that this condition shall be satisfied with
respect to a derivative security if at least six months elapse from the
date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or
conversion) or its underlying equity security.
(e) Dispositions to the issuer. Any transaction involving the
disposition to the issuer of issuer equity securities (other than a
Discretionary Transaction) shall be exempt, provided that the terms of
such disposition are approved in advance in the manner prescribed by
either paragraph (d)(1) or paragraph (d)(2) of this section.
(f) Discretionary Transactions. A Discretionary Transaction shall
be exempt only if effected pursuant to an election made at least six
months following the date of the most recent election, with respect to
any plan of the issuer, that effected a Discretionary Transaction that
was:
(1) An acquisition, if the transaction to be exempted would be a
disposition; or
[[Page 30394]]
(2) A disposition, if the transaction to be exempted would be an
acquisition.
Notes to Sec. 240.16b-3
Note (1): The exercise or conversion of a derivative security
that does not satisfy the conditions of this section is eligible for
exemption from section 16(b) of the Act to the extent that the
conditions of Sec. 240.16b-6(b) are satisfied.
Note (2): Section 16(a) reporting requirements applicable to
transactions exempt pursuant to this section are set forth in
Sec. 240.16a-3(f) and (g) and Sec. 240.16a-4.
Note (3): The approval conditions of paragraphs (d)(1), (d)(2)
and (e) of this section require the approval of each specific
transaction, and are not satisfied by approval of a plan in its
entirety except for the approval of a plan pursuant to which the
terms and conditions of each transaction are fixed in advance, such
as a formula plan. Where the terms of a subsequent transaction (such
as the exercise price of an option, or the provision of an exercise
or tax withholding right) are provided for in a transaction as
initially approved pursuant to paragraphs (d)(1), (d)(2) or (e),
such subsequent transaction shall not require further specific
approval.
18. By amending Sec. 240.16b-6 by adding a note following paragraph
(b) to read as follows:
Sec. 240.16b-6 Derivative securities.
* * * * *
Note to Paragraph (b): The exercise or conversion of a
derivative security that does not satisfy the conditions of this
section is eligible for exemption from section 16(b) of the Act to
the extent that the conditions of Sec. 240.16b-3 are satisfied.
* * * * *
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
19. The authority citation for part 249 continues to read in part
as follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;
* * * * *
20. By amending Form 3 (referenced in Sec. 249.103) and the General
Instructions thereto by adding a sentence at the end of paragraph (a)
to General Instruction 3 after the note, adding paragraph (b)(v) to
General Instruction 5, by revising General Instruction 6, and by
revising Item 1 and adding Item 7 to the information preceding Table I
to read as follows:
Note: The text of Form 3 does not and this amendment will not
appear in the Code of Federal Regulations.
Form 3 Initial Statement of Beneficial Ownership of Securities
* * * * *
General Instructions
* * * * *
3. Where Form Must be Filed
(a) * * * Alternatively, this Form is permitted to be submitted
to the Commission in electronic format at the option of the
reporting person pursuant to Sec. 232.101(b)(4) of this chapter.
* * * * *
5. Holdings Required to be Reported
* * * * *
(b) Beneficial Ownership Reported (Pecuniary Interest)
* * * * *
(v) Where more than one person beneficially owns the same equity
securities, such owners may file Form 3 individually or jointly.
Joint and group filings may be made by any designated beneficial
owner. Holdings of securities owned separately by any joint or group
filer are permitted to be included in the joint filing. Indicate
only the name and address of the designated filer in Item 1 of Form
3 and attach a listing of the names and IRS or social security
numbers (or addresses in lieu thereof) of each other reporting
person. Joint and group filings must include all required
information for each beneficial owner, and such filings must be
signed by each beneficial owner, or on behalf of such owner by an
authorized person. If the space provided for signatures is
insufficient, attach a signature page. Submit any attached listing
of names or signatures on another Form 3, copy of Form 3 or separate
page of 8\1/2\ by 11 inch white paper, indicate the number of pages
comprising the report (Form plus attachments) at the bottom of each
report page (e.g., 1 of 3, 2 of 3, 3 of 3), and include the name of
the designated filer and information required by Items 2 and 4 of
the Form on the attachment.
* * * * *
6. Additional Information
If the space provided in the line items of this Form or space
provided for additional comments is insufficient, attach another
Form 3, copy of Form 3 or a separate page of 8\1/2\ by 11 inch white
paper to Form 3, completed as appropriate to include the additional
comments. Each attached page must include information required in
Items 1, 2 and 4 of the Form. The number of pages comprising the
report (Form plus attachments) shall be indicated at the bottom of
each report page (e.g., 1 of 3, 2 of 3, 3 of 3). If additional
information is not provided in this manner, it will be assumed that
no additional information was provided.
* * * * *
1. Name and Address of Reporting Person*
(Last) (First) (Middle)
(Street)
(City) (State) (Zip)
* If the Form is filed by more than one Reporting Person, see
Instruction 5(b)(v).
* * * * *
7. Individual or Joint/Group Filing
(Check applicable line)
________ Form filed by One Reporting Person
________ Form Filed by More than One Reporting Person
* * * * *
21. By amending Form 4 (referenced in Sec. 249.104) and the General
Instructions thereto by adding a sentence at the end of paragraph (a)
of General Instruction 2 after the note; by revising paragraph (a)(i)
of General Instruction 4; by revising the Note following General
Instruction 4(a)(ii) and adding paragraph (b)(v) to General Instruction
4; by revising General Instruction 6; in General Instruction 8 by
adding a sentence at the end of the paragraph appearing under the
``Transaction Codes'' caption and revising the Transaction Codes; and
by revising Item 1 and adding Item 7 to the information preceding Table
I to read as follows:
Note: The text of Form 4 does not and this amendment will not
appear in the Code of Federal Regulations.
Form 4 Statement of Changes in Beneficial Ownership of Securities
* * * * *
General Instructions
* * * * *
2. Where Form Must be Filed
(a) * * * Alternatively, this Form is permitted to be submitted
to the Commission in electronic format at the option of the
reporting person pursuant to Sec. 232.101(b)(4) of this chapter.
* * * * *
4. Transactions and Holdings Required to be Reported
* * * * *
(a) General Requirements
(i) Report, in accordance with Rule 16a-3(g), all transactions
not exempt from section 16(b) of the Act and all exercises and
conversions of derivative securities, regardless of whether exempt
from section 16(b) of the Act, resulting in a change of beneficial
ownership in the issuer's securities. Every transaction shall be
reported even though acquisitions and dispositions during the month
are equal. Report total beneficial ownership as of the end of the
month for each class of securities in which a transaction was
reported.
Note: * * *
(ii) * * *
Note: Transactions reportable on Form 5 may, at the option of
the reporting person, be reported on a Form 4 filed before the due
date of the Form 5. (See Instruction 8 for the code for voluntarily
reported transactions.)
(b) Beneficial Ownership Reported (Pecuniary Interest)
* * * * *
(v) Where more than one beneficial owner of the same equity
securities must report transactions on Form 4, such owners may file
Form 4 individually or jointly. Joint and group filings may be made
by any designated beneficial owner. Transactions with respect to
securities owned separately by any joint or group filer are
permitted to be included in the joint filing. Indicate only the name
and address of the designated filer in Item 1 of
[[Page 30395]]
Form 4 and attach a listing of the names and IRS or social security
numbers (or addresses in lieu thereof) of each other reporting
person. Joint and group filings must include all required
information for each beneficial owner, and such filings must be
signed by each beneficial owner, or on behalf of such owner by an
authorized person. If the space provided for signatures is
insufficient, attach a signature page. Submit any attached listing
of names or signatures on another Form 4, copy of Form 4 or separate
page of 8\1/2\ by 11 inch white paper, indicate the number of pages
comprising the report (Form plus attachments) at the bottom of each
report page (e.g., 1 of 3, 2 of 3, 3 of 3), and include the name of
the designated filer and information required by Items 2 and 4 of
the Form on the attachment.
* * * * *
6. Additional Information
If the space provided in the line items of this Form or space
provided for additional comments is insufficient, attach another
Form 4, copy of Form 4 or a separate page of 8\1/2\ by 11 inch white
paper to Form 4, completed as appropriate to include the additional
comments. Each attached page must include information required in
Items 1, 2 and 4 of the Form. The number of pages comprising the
report (Form plus attachments) shall be indicated at the bottom of
each report page (e.g., 1 of 3, 2 of 3, 3 of 3). If additional
information is not provided in this manner, it will be assumed that
no additional information was provided.
* * * * *
8. Transaction Codes
* * * If a transaction involves an equity swap or instrument
with similar characteristics, use transaction Code ``K'' in addition
to the code(s) that most appropriately describes the transaction,
e.g., ``S/K'' or ``P/K.''
General Transaction Codes
P--Open market or private purchase of non-derivative or derivative
security
S--Open market or private sale of non-derivative or derivative
security
V--Transaction voluntarily reported earlier than required
Rule 16b-3 Transaction Codes
A--Grant, award or other acquisition pursuant to Rule 16b-3(d)
D--Disposition to the issuer of issuer equity securities pursuant to
Rule 16b-3(e)
F--Payment of exercise price or tax liability by delivering or
withholding securities incident to the receipt, exercise, or vesting
of a security issued in accordance with Rule 16b-3
I--Discretionary transaction in accordance with Rule 16b-3(f)
resulting in acquisition or disposition of issuer securities
M--Exercise or conversion of derivative security exempted pursuant
to Rule 16b-3
Derivative Securities Codes (Except for transactions exempted pursuant
to Rule 16b-3)
C--Conversion of derivative security
E--Expiration of short derivative position
H--Expiration (or cancellation) of long derivative position with
value received
O--Exercise of out-of-the-money derivative security
X--Exercise of in-the-money or at-the-money derivative security
Other Section 16(b) Exempt Transaction and Small Acquisition Codes
(except for Rule 16b-3 codes above)
G--Bona fide gift
L--Small acquisition under Rule 16a-6
W--Acquisition or disposition by will or the laws of descent and
distribution
Z--Deposit into or withdrawal from voting trust
Other Transaction Codes
J--Other acquisition or disposition (describe transaction)
K--Transaction in equity swap or instrument with similar
characteristics
U--Disposition pursuant to a tender of shares in a change of control
transaction
* * * * *
1. Name and Address of Reporting Person*
(Last) (First) (Middle)
(Street)
(City) (State) (Zip)
*If the Form is filed by more than one Reporting Person, see
Instruction 4(b)(v).
* * * * *
7. Individual or Joint/Group Filing
(Check applicable line)
________Form filed by One Reporting Person
________Form Filed by More than One Reporting Person
* * * * *
22. By amending Form 5 (referenced in Sec. 249.105) and the General
Instructions thereto by adding a sentence at the end of paragraph (a)
of General Instruction 2 after the note; by revising General
Instruction 4(a)(i)(A); by removing General Instruction 4(a)(ii); by
redesignating paragraphs (a)(iii) and (a)(iv) of General Instruction 4
as paragraphs (a)(ii) and (a)(iii); by revising newly designated
paragraph 4(a)(iii) and adding paragraph (b)(v) to General Instruction
4; by revising General Instruction 6; in General Instruction 8 by
adding a sentence at the end of the paragraph appearing under the
``Transaction Codes'' caption and revising the Transaction Codes; by
revising the last paragraph in the General Instructions, following the
Transaction Codes, and caption thereto; and by revising Item 1 and
adding Item 7 to the information preceding Table I to read as follows:
Note: The text of Form 5 does not and this amendment will not
appear in the Code of Federal Regulations.
Form 5 Annual Statement of Beneficial Ownership of Securities
* * * * *
General Instructions
* * * * *
2. Where Form Must be Filed
(a) * * * Alternatively, this Form is permitted to be submitted
to the Commission in electronic format at the option of the
reporting person pursuant to Sec. 232.101(b)(4) of this chapter.
* * * * *
4. Transactions and Holdings Required to be Reported
(a) General Requirements
* * * * *
(i) * * *
(A) any transaction during the issuer's most recent fiscal year
that was exempt from section 16(b) of the Act, except: (1) any
exercise or conversion of derivative securities exempt under either
Sec. 240.16b-3 or Sec. 240.16b-6(b) (these are required to be
reported on Form 4); (2) any transaction exempt from section 16(b)
of the Act pursuant to Rule 16b-3(c) of this section, which is
exempt from section 16(a) of the Act; and (3) any transaction exempt
from section 16 of the Act pursuant to another section 16(a) rule;
* * * * *
(iii) Every transaction shall be reported even though
acquisitions and dispositions with respect to a class of securities
are equal. Report total beneficial ownership as of the end of the
issuer's fiscal year for all classes of securities in which a
transaction was reported.
(b) Beneficial Ownership Reported (Pecuniary Interest)
* * * * *
(v) Where more than one beneficial owner of the same equity
securities must report on Form 5, such owners may file Form 5
individually or jointly. Joint and group filings may be made by any
designated beneficial owner. Transactions and holdings with respect
to securities owned separately by any joint or group filer are
permitted to be included in the joint filing. Indicate only the name
and address of the designated filer in Item 1 of Form 5 and attach a
listing of the names and IRS or social security numbers (or
addresses in lieu thereof) of each other reporting person. Joint and
group filings must include all required information for each
beneficial owner, and such filings must be signed by each beneficial
owner, or on behalf of such owner by an authorized person. If the
space provided for signatures is insufficient, attach a signature
page. Submit any attached listing of names or signatures on another
Form 5, copy of Form 5 or separate page of 8\1/2\ by 11 inch white
paper, indicate the number of pages comprising the report (Form plus
attachments) at the bottom of each report page (e.g., 1 of 3, 2 of
3, 3 of 3), and include the name of the designated filer and
information required by Items 2 and 4 of the Form on the attachment.
* * * * *
[[Page 30396]]
6. Additional Information
If the space provided in the line items of this Form or space
provided for additional comments is insufficient, attach another
Form 5, copy of Form 5 or a separate page of 8\1/2\ by 11 inch white
paper to Form 5, completed as appropriate to include the additional
comments. Each attached page must include information required in
Items 1, 2 and 4 of the Form. The number of pages comprising the
report (Form plus attachments) shall be indicated at the bottom of
each report page (e.g., 1 of 3, 2 of 3, 3 of 3). If additional
information is not provided in this manner, it will be assumed that
no additional information was provided.
* * * * *
8. Transaction Codes
* * * If a transaction involves an equity swap or instrument
with similar characteristics, use transaction Code ``K'' in addition
to the code(s) that most appropriately describes the transaction,
e.g., ``S/K'' or ``P/K.''
General Transaction Codes
P--Open market or private purchase of non-derivative or derivative
security
S--Open market or private sale of non-derivative or derivative
security
Rule 16b-3 Transaction Codes
A--Grant, award or other acquisition pursuant to Rule 16b-3(d)
D--Disposition to the issuer of issuer equity securities pursuant to
Rule 16b-3(e)
F--Payment of exercise price or tax liability by delivering or
withholding securities incident to the receipt, exercise or vesting
of a security issued in accordance with Rule 16b-3
I--Discretionary transaction in accordance with Rule 16b-3(f)
resulting in acquisition or disposition of issuer securities
M--Exercise or conversion of derivative security exempted pursuant
to Rule 16b-3
Derivative Securities Codes (Except for transactions exempted pursuant
to Rule 16b-3)
C--Conversion of derivative security
E--Expiration of short derivative position
H--Expiration (or cancellation) of long derivative position with
value received
O--Exercise of out-of-the-money derivative security
X--Exercise of in-the-money or at-the-money derivative security
Other Section 16(b) Exempt Transaction and Small Acquisition Codes
(except for Rule 16b-3 codes above)
G--Bona fide gift
L--Small acquisition under Rule 16a-6
W--Acquisition or disposition by will or the laws of descent and
distribution
Z--Deposit into or withdrawal from voting trust
Other Transaction Codes
J--Other acquisition or disposition (describe transaction)
K--Transaction in equity swap or instrument with similar
characteristics
U--Disposition pursuant to a tender of shares in a change of control
transaction
To indicate that a holding should have been reported previously
on Form 3, place a ``3'' in Table I, column 3 or Table II, column 4,
as appropriate. Indicate in the space provided for explanation of
responses the event triggering the Form 3 filing obligation. To
indicate that a transaction should have been reported previously on
Form 4, place a ``4'' next to the transaction code reported in Table
I, column 3 or Table II, column 4 (e.g, an open market purchase of a
non-derivative security that should have been reported previously on
Form 4 should be designated as ``P4''). To indicate that a
transaction should have been reported on a previous Form 5, place a
``5'' in Table I, column 3 or Table II, column 4, as appropriate. In
addition, the appropriate box on the front page of the Form should
be checked.
* * * * *
1. Name and Address of Reporting Person*
(Last) (First) (Middle)
(Street)
(City) (State) (Zip)
* If the Form is filed by more than one Reporting Person, see
Instruction 4(b)(v).
* * * * *
7. Individual or Joint/Group Filing
(Check applicable line)
________Form Filed by One Reporting Person
________Form Filed by More than One Reporting Person
* * * * *
Dated: May 31, 1996.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-14184 Filed 6-13-96; 8:45 am]
BILLING CODE 8010-01-P
Complete official Federal Register PDF
FR Doc. 96-14182 Phase One Recommendations of Task Force on Disclosure Simplification
[Federal Register Volume 61, Number 116 (Friday, June 14, 1996)]
[Rules and Regulations]
[Pages 30397-30404]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14182]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 210, 228, 229, 230, 232, 239, 240, and 249
[Release Nos. 33-7300 and 34-37262; S7-6-96]
RIN 3235-AG75
Phase One Recommendations of Task Force on Disclosure
Simplification
AGENCY: Securities and Exchange Commission.
ACTION: Final rules.
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SUMMARY: In connection with its consideration of certain of the
recommendations contained in the Task Force on Disclosure
Simplification's Report (``Task Force Report''), the Securities and
Exchange Commission (``Commission'') is eliminating 44 rules and four
forms that it has determined are no longer necessary or appropriate in
the public interest or for the protection of investors. It also is
adopting other minor or technical rule changes or corrections. Other
proposals designed to improve the disclosure process, both for
investors and those subject to the Commission's disclosure
requirements, will be forthcoming in future releases following the
Commission's further consideration of the remaining Task Force
recommendations.
EFFECTIVE DATE: The amendments will become effective July 15, 1996.
FOR FURTHER INFORMATION CONTACT: James R. Budge, Office of Disclosure
Policy, Division of Corporation Finance, at (202) 942-2910 and Douglas
G. Tanner, Office of Chief Accountant, Division of Corporation Finance
at (202) 942-2960.
SUPPLEMENTARY INFORMATION: To begin implementing certain of the
recommendations of the Task Force on Disclosure Simplification, the
Commission today is eliminating Rules 3-16,1 4-05,2 4-
06,3 and 4-10(b) through (h) 4 of Regulation S-X,5
Industry Guide 1,6 Rule 148 7 under the Securities Act of
1933 (``Securities Act''),8 Regulation B 9 (including Forms
1-G and 3-G and Schedules A, B, C and D thereunder 10), Rules
445,11 446,12 and 447 13 of Regulation C under the
Securities Act,14 Regulation F,15 (including Form 1-F
16), Securities Act Rules 702(T) 17 and 703(T),18 Form
701,19 Rule 13a-17 20 under the Securities Exchange Act of
1934 (``Exchange Act''),21 Exchange Act Rules 15d-17,22 16b-
1(c) 23 and 16b-4,24 General Instruction I of Form 10-
K,25 and Form 10-C.26 In addition, amendments are being
adopted with respect to the following rules and forms: Item 501 27
of Regulation S-K,28 Item 601(b) 29 of Regulations S-B
30 and S-K, Rule 252(h)(2) 31 of Regulation A,32 Rules
402,33 406,34 464,35 471,36 472 37 and 473
38 of Regulation C, Rule 504 39 of Regulation D,40, Rule
902 41 of Regulation S,42 Rule 311 43 of Regulation S-
T,44 Form F-6,45 Form F-7,46 Form F-8,47 Form F-
9,48 Form F-10, 49 Form F-80,50 and Exchange Act Rules
12b-11,51 13a-13,52 14d-1,53 15d-13,54 16a-
3,55 and 24b-2.56
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\1\ 17 CFR 210.3-16.
\2\ 17 CFR 210.4-05.
\3\ 17 CFR 210.4-06.
\4\ 17 CFR 210.4-10 (a) through (h).
\5\ 17 CFR Part 210.
\6\ 17 CFR 229.801(a) and 229.802(a).
\7\ 17 CFR 230.148.
\8\ 15 U.S.C. 77a et seq.
\9\ 17 CFR 230.300 through 230.346.
\10\ Referenced in 17 CFR 239.101.
\11\ 17 CFR 230.445.
\12\ 17 CFR 230.446.
\13\ 17 CFR 230.447.
\14\ 17 CFR 230.400 through 230.494.
\15\ 17 CFR 230.651 through 230.656.
\16\ 17 CFR 239.300.
\17\ 17 CFR 230.702(T).
\18\ 17 CFR 230.703(T).
\19\ 17 CFR 239.701.
\20\ 17 CFR 240.13a-17.
\21\ 15 U.S.C. 78a et seq.
\22\ 17 CFR 240.15d-17.
\23\ 17 CFR 240.16b-1.
\24\ 17 CFR 240.16b-4.
\25\ 17 CFR 249.310.
\26\ 17 CFR 249.310c.
\27\ 17 CFR 229.501.
\28\ 17 CFR Part 229.
\29\ 17 CFR 228.601(b) and 17 CFR 229.601(b).
\30\ 17 CFR Part 228.
\31\ 17 CFR 230.252(h)(2).
\32\ 17 CFR 230.251 through 230.263.
\33\ 17 CFR 230.402.
\34\ 17 CFR 230.406.
\35\ 17 CFR 230.464.
\36\ 17 CFR 230.471.
\37\ 17 CFR 230.472.
\38\ 17 CFR 230.473.
\39\ 17 CFR 230.504.
\40\ 17 CFR 230.501 through 230.508.
\41\ 17 CFR 230.902.
\42\ 17 CFR 230.901 through 230.904.
\43\ 17 CFR 232.311.
\44\ 17 CFR Part 232.
\45\ 17 CFR 239.36.
\46\ 17 CFR 239.37.
\47\ 17 CFR 239.38.
\48\ 17 CFR 239.39.
\49\ 17 CFR 239.40.
\50\ 17 CFR 239.41.
\51\ 17 CFR 240.12b-11.
\52\ 17 CFR 240.13a-13.
\53\ 17 CFR 240.14d-1.
\54\ 17 CFR 240.15d-13.
\55\ 17 CFR 240.16a-3.
\56\ 17 CFR 240.24b-2.
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I. Background
Chairman Arthur Levitt organized the Task Force on Disclosure
Simplification (``Task Force'') in August 1995 to review forms and
rules relating to capital-raising transactions, periodic reporting
pursuant to the Exchange Act, proxy solicitations, and tender offers
and beneficial ownership reports under the Williams Act. The goal was
to simplify the disclosure process and to make regulation of capital
formation more effective and efficient where consistent with investor
protection.
In the course of its review, the Task Force met with issuing
companies, investor groups, underwriters, accounting firms, law firms
and others who participate daily in the capital markets. The Task Force
prepared a report summarizing its findings and setting forth
recommendations and suggestions of areas for further Commission study.
The Task Force Report was presented to the Commission at an open
meeting on March 5, 1996.57
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\57\ The Report is available for inspection and copying in the
Commission's public reference room. The Report also is posted on the
Commission's Internet web site (http://www.sec.gov). Persons
interested in commenting on the Report may do so by referring to
File No. S7-6-96.
---------------------------------------------------------------------------
The Task Force recommended that the Commission eliminate or modify
many rules and forms, as well as simplify several key aspects of
securities offerings. At the time the report was authorized for
publication, the Commission had the opportunity to consider a
relatively small number of those recommendations. It determined to act
on several of those recommendations to begin the simplification
process, and issued a release (``Proposing Release'') 58 proposing
for public comment the elimination of 45 rules and 4 forms in
conjunction with the publication of the Task Force Report. A number of
other revisions, including minor and technical amendments, also were
proposed. This was done with the view
[[Page 30398]]
that other proposals designed to improve the disclosure process, both
for investors and those subject to the Commission's disclosure
requirements, would be forthcoming in future releases following the
Commission's further consideration of the Task Force
recommendations.59
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\58\ Release No. 33-7271 (March 5, 1996) (61 FR 9848).
\59\ Pursuant to this policy, the Commission today has issued
additional proposals to implement other Task Force recommendations.
See Release No. 33-7301 (May 31, 1996).
---------------------------------------------------------------------------
The Commission received nine comment letters responding to the
Proposing Release. The letters generally expressed support for the
proposed actions.60 Based on the Commission's views articulated in
the Proposing Release,61 the comment letters received, and the
Commission's further consideration of the proposals, the Commission has
determined that the rules and forms proposed to be eliminated are no
longer necessary or appropriate in the public interest or for the
protection of investors; consequently, they are being eliminated as
proposed, with three exceptions noted below. The other rule changes
also are being adopted as proposed. By issuing these rule and form
changes, the Commission is not expressing its views with respect to the
remaining recommendations or suggestions in the Task Force Report that
it has not yet fully considered.
---------------------------------------------------------------------------
\60\ The comment letters are available for inspection and
copying in the Commission's public reference room. Refer to file
number S7-6-96. Comment letters that were submitted via electronic
mail may be viewed at the Commission's web site: http://www.sec.gov.
\61\ Additional background information relating to each of the
rules, schedules and forms affected is found in the Proposing
Release.
---------------------------------------------------------------------------
II. Non-Financial Disclosure
A. Securities Act Rules
1. Regulation B (Rules 300-346), and Accompanying Schedules A, B, C,
and D, and Forms 1-G and 3-G
The Commission has determined that Regulation B and its
accompanying schedules and forms no longer are useful to investors and
issuers and that the availability of other exemptions, such as the
limited offering exemption from registration set forth in Regulation D,
or the private placement exemption under section 4(2) of the Securities
Act,62 have rendered Regulation B obsolete. Consequently, this
regulation is being eliminated, as proposed.
---------------------------------------------------------------------------
\62\ 15 U.S.C. 77d(2).
---------------------------------------------------------------------------
2. Regulation F (Rules 651-656) and Accompanying Form 1-F
Regulation F provided a conditional limited exemption from
Securities Act registration for assessments levied on assessable stock
and for resales of forfeited assessable stock. The Commission has
determined that Regulation F and accompanying schedules and forms no
longer are useful to investors and issuers and that the availability of
other exemptions, such as the limited offering exemption from
registration set forth in Regulation D, or the private placement
exemption under section 4(2) of the Securities Act, have rendered
Regulation F obsolete. In light of this, Regulation F is being
eliminated, as proposed.
3. Securities Act Rule 148
Rule 148, originally a counterpart to Rule 144, provided a safe
harbor for the resales of certain categories of securities acquired in
bankruptcy proceedings. The Commission has determined that Rule 148 no
longer serves a useful purpose and that it is not necessary to retain
it for securities issued under the repealed Bankruptcy Act. The
Bankruptcy Code, which replaced the repealed Bankruptcy Act, provides
an exemption from Securities Act registration, as well as a safe harbor
for the resales of securities received under a plan of reorganization.
Therefore, the rule is being eliminated, as proposed.
4. Securities Act Rules 445, 446, and 447
Rules 445, 446 and 447, which govern registration statements filed
in connection with securities to be offered through competitive bidding
(e.g., by means of a solicitation of competitive proposals from
underwriters), appear to be rarely used. The Commission believes that
these rules are no longer needed because issuers may use Rule 430A
63 to satisfy their filing obligations when they engage in
competitive bidding currently covered by the rules being rescinded.
Thus, these rules are being eliminated, as proposed.
---------------------------------------------------------------------------
\63\ 17 CFR 230.430A.
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5. Securities Act Rule 494
The Commission proposed eliminating Rule 494, which accommodates
the practice of advertising securities issued by foreign national
governments. It appears that this rule continues to be useful to
foreign governments in their capital-raising efforts; consequently, the
rule is being retained without change.
B. Exchange Act Rules
1. Paragraph (c) of Exchange Act Rule 16b-1 64
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\64\ The Commission has adopted other amendments to its rules
under Section 16 of the Exchange Act in Release No. 34-37260 (May
31, 1996).
---------------------------------------------------------------------------
This rule exempted the acquisition of securities resulting from a
reorganization of a railroad or other carrier approved by the
Interstate Commerce Commission (``ICC''), an agency that was abolished
as of January 1, 1996. The function of approving such reorganizations
has now been transferred to the Surface Transportation Board, an
independent agency of the Department of Transportation. The Commission
believes that the exemption provided by this rule no longer serves a
useful purpose and is therefore being eliminated.
2. Exchange Act Rule 16b-4
Rule 16b-4 provided an exemption from the requirements of Section
16(b) for certain holding company redemption transactions. Currently,
there are few situations where a holding company owns securities in
only one company and desires to exchange its own shares through a
redemption for those of such company. If such a situation arose,
equivalent relief would be available through other means, for example,
Rule 16b-6. 65 Accordingly, Rule 16b-4 is being rescinded, as
proposed.
---------------------------------------------------------------------------
\65\ 17 CFR 240.16b-6.
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C. Disclosure Requirements
1. Item 501(b) of Regulation S-K
Item 501(b) of Regulation S-K required registrants to provide a
cross-reference sheet immediately following the facing page in
prospectuses, showing the location of the information required to be
included in response to the items in the form. This cross-reference
sheet is not necessary because affected filings otherwise contain a
reasonably detailed table of contents required by Regulation S-K Item
502(g). 66
---------------------------------------------------------------------------
\66\ References to the cross reference sheet have deleted from
Securities Act Rule 472.
---------------------------------------------------------------------------
2. Item 501(c)(8) of Regulation S-K 67
---------------------------------------------------------------------------
\67\ 17 CFR 229.501(c)(8).
---------------------------------------------------------------------------
The red ink requirement applicable to the prospectus caption
``Subject to Completion'' and related legend is being eliminated,
thereby reducing issuer costs and conforming the requirements of
Regulation S-K with the requirements of Regulation S-B.
[[Page 30399]]
3. Exhibits
The Commission is deleting the following from the required list of
exhibits in Regulation S-K and Regulation S-B 68 because the
information in each such exhibit either appears to be infrequently used
or is otherwise available. The specific exhibits to be eliminated are:
Opinion regarding discount on capital shares (Exhibit 6); 69
Opinion regarding liquidation preference (Exhibit 7); Material foreign
patents (Exhibit 14); and Information from reports furnished to State
insurance regulatory authorities (Exhibit 28). 70
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\68\ Item 601(b) of Regulation S-B and Regulation S-K.
\69\ This exhibit currently is not required in Regulation S-B;
consequently, no change is necessary.
\70\ Regulation S-T Rule 311(c), providing that exhibits filed
by electronic filers pursuant to paragraph (b)(28) may be filed in
paper under cover of Form SE (17 CFR 239.64, 249.444, 269.8) also
has been eliminated.
---------------------------------------------------------------------------
The Commission also had proposed to eliminate Exhibit 11 of Item
601(b) of Regulations S-K and S-B, ``Statement Regarding Computation of
Per Share Earnings'' because the exhibit appeared to be infrequently
used. While some commenters supported the elimination of this exhibit,
others indicated that this information may be used by investors and
analysts. Furthermore, the Financial Accounting Standards Board
(``FASB'') has issued a Proposed Statement of Financial Accounting
Standards, ``Earnings per Share and Disclosure of Information about
Capital Structure.'' \71\ In light of the comments received, and FASB's
proposals to make changes in this area, the Commission has decided to
postpone acting on its proposal to eliminate Exhibit 11, pending
further consideration.
---------------------------------------------------------------------------
\71\ The comment period on FASB's Exposure Draft of the Proposed
Statement expires on May 31, 1996.
---------------------------------------------------------------------------
4. Industry Guide 1
Guide 1 required disclosure of the principal sources of electric
and gas revenues and the classes of services offered by the registrant
in certain registration statements as well as annual reports on Form
10-K. In addition, if equity securities were being registered and
issued at a price below book value per share, Guide 1 required
disclosure of the effects, if any, on the registrant's business of
issuing such shares at a price below the underlying book value per
share. The Commission is eliminating Guide 1 because the information
requested by the Guide also is within the coverage of other rules of
the Commission, including Items 101 and 303 of Regulation S-K. 72
---------------------------------------------------------------------------
\72\ 17 CFR 229.101 and 229.303, respectively.
---------------------------------------------------------------------------
D. Forms
1. Form 701
The Commission is deleting expired Form 701 (Notice of sales
pursuant to an exemption under Section 701 73) and the rules that
required its filing (Securities Act Rules 702(T) and 703(T)) in order
to remove them from the Code of Federal Regulations. By their terms,
Rules 702(T) and 703(T), and thus Form 701, were effective only until
1993. One commenter indicated that the Commission should reinstate Form
701 to allow it to more easily track who is relying on the Section 701
exemption. The Commission believes that investor interests have not
been compromised as a result of the sunset of this form and that its
reinstitution would serve little purpose. Consequently, the form and
its implementing rules are being eliminated, as proposed.
---------------------------------------------------------------------------
\73\ 17 CFR 230.701.
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2. Form F-6
The Commission is eliminating Items 3(e) and 4(a) of Form F-6,
governing the registration of depositary shares evidenced by American
Depositary Receipts (``ADRs''), because the elicited information
appears to be of little use to investors or the marketplace at large.
3. Form 10-C
The Commission is eliminating Form 10-C and Rules 13a-17 and 15d-
17, which required issuers registered under the Exchange Act and quoted
on Nasdaq to report to the Commission and the NASD changes in corporate
name, as well as aggregate increases or decreases of a class of
securities that exceeds 5% of the amount of securities of the class
outstanding. The information regarding changes in number of shares
outstanding typically is reflected in an issuer's financial statements.
III. Financial Disclosure
The Commission also is implementing certain of the recommendations
in the Task Force Report relating to accounting disclosure rules, as
set forth below. These rules were identified as being largely
duplicative of generally accepted accounting principles (``GAAP'') or
other Commission rules. These changes are not intended to alter current
accounting standards or disclosure practices. Most of the comment
letters addressed the accounting issues raised in the proposals,
generally supporting the changes.
1. Rule 3-16 of Regulation S-X
Rule 3-16(a) of Regulation S-X set forth the requirement that a
registrant that has emerged from a significant reorganization disclose
in its financial statements a brief explanation of such reorganization.
In addition, if the registrant were about to emerge from a
reorganization, Rule 3-16(b) of Regulation S-X would require a balance
sheet giving effect to the plan of reorganization with separate
presentation of the registrant's balance sheet before the
reorganization, the changes to be effected in the reorganization, and
the balance sheet of the registrant after the reorganization.
Registrants have historically satisfied the requirements of Rule 3-
16(b) with pro forma financial information.
The Commission is eliminating Rule 3-16 of Regulation S-X, as
proposed, because the information requested by that Rule also is within
the scope of Article 11 of Regulation S-X, and the disclosure
requirements of the AICPA Statement of Position (``SOP'') 90-7,
Accounting Research Bulletin No. 43 (``ARB 43''), Section 210 of the
Financial Reporting Codification and SAB 78.
2. Rule 4-05 of Regulation S-X
The Commission is eliminating Rule 4-05 of Regulation S-X, relating
to current assets and current liabilities when a company's operating
cycle is longer than one year, because Chapter 3A of ARB 43 and current
accounting practices require the same presentation and information.
3. Rule 4-06 of Regulation S-X
Rule 4-06 of Regulation S-X, which provided that reacquired
indebtedness of a registrant must be deducted from the appropriate
liability caption on the registrant's balance sheet, is being
eliminated. GAAP, including Accounting Principles Board Opinion
(``APB'') 26 and Statement of Financial Accounting Standards No.
(``SFAS'') 76, requires that such items be considered extinguished and
deducted from the appropriate caption on the balance sheet. Further,
with respect to the provisions of Rule 4-06 relating to reacquired
indebtedness held for pension and other special funds, SFAS 87 and SFAS
106 prescribe the definition of, and accounting for, plan assets for
pension plans and other post-employment benefit plans.
4. Rule 4-10 of Regulation S-X
The successful efforts method of accounting codified into Rule 4-10
is duplicative of the accounting standards adopted by the FASB in SFAS
19. Because of such duplication, the Commission is eliminating the
portions of Rule 4-10 that duplicate SFAS 19--
[[Page 30400]]
paragraph (b) through (h) of the Rule. In response to comments, the
adopted language clarifies that entities following the successful
efforts method shall continue to comply with the accounting and
financial reporting disclosure requirements of SFAS 19.
IV. Miscellaneous Minor and Technical Changes
The Commission also is making the following technical changes to
certain rules and forms under the Securities Act and the Exchange Act.
Correct a number of out-of-date cross references in
certain Securities Act rules and forms.74
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\74\ Amendments to Rule 406, 464 and 473 of Regulation C and
Forms F-7, F-8, F-9, F-10 and F-80.
---------------------------------------------------------------------------
Allow the addition or withdrawal of a delaying notation
under Regulation A 75 or the filing of a delaying or other
amendment under Rule 473 76 by facsimile transmission, so as to
provide issuers with additional flexibility in filing documents with
the Commission.
---------------------------------------------------------------------------
\75\ Amendment to 17 CFR 230.252(h)(2).
\76\ 17 CFR 230.473.
---------------------------------------------------------------------------
Modify and clarify signature requirements to allow manual,
typed, duplicated or faxed signatures on paper filings, with a manual
signature retention requirement for typed, duplicated or faxed
signatures.77 This change clarifies the rules and also extends to
paper filers the option of filing typed signature pages, thus providing
comparable treatment to both paper and electronic filers.78 The
language retains the five-year manual signature retention requirement
of Regulation S-T Rule 302(b).
---------------------------------------------------------------------------
\77\ Amendments to Rule 402 and 471 of Regulation C, and
Exchange Act Rules 12b-11, 14d-1 and 16a-3.
\78\ See Rule 302 of Regulation S-T (17 CFR 232.302).
---------------------------------------------------------------------------
Revise provisions in Rule 406 of Regulation C and Exchange
Act Rule 24b-2 to emphasize the fact that confidential treatment
requests should not be submitted electronically, but rather, should be
submitted in paper. This is intended to minimize the chances of a
confidential document being erroneously submitted as part of a public
filing.79
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\79\ The Commission encourages issuers to use electronic media
to satisfy their obligations under the Federal securities laws, and
in fact requires most filings made with the Commission to be
submitted electronically via the Electronic Data Gathering,
Analysis, and Retrieval (``EDGAR'') system. However, requests for
confidential treatment currently are not processed through EDGAR,
and therefore must be submitted in paper. Electronic submission of
these documents may be permitted or required at a future date;
Commission rules would be amended accordingly.
---------------------------------------------------------------------------
Modify Rule 504 of Regulation D 80 so that the rule
itself states that there is no information delivery requirement in
connection with Rule 504 offerings. This is intended to eliminate
confusion resulting from the current language of Regulation D.
---------------------------------------------------------------------------
\80\ Amendment to 17 CFR 230.504.
---------------------------------------------------------------------------
Update the Regulation S definition of ``Designated
Offshore Securities Market'' to include markets that have been
recognized as such by the Division of Corporation Finance pursuant to
delegated authority since the adoption of the regulation.81
---------------------------------------------------------------------------
\81\ Amendment to Rule 902 of Regulation S. Since the proposal
of the amendment, the Irish Stock Exchange has become a designated
offshore securities market; consequently, it has been added to the
final rule.
---------------------------------------------------------------------------
Eliminate provisions exempting small life insurance
companies from filing quarterly financial results and Management's
Discussion and Analysis in Part I of Form 10-Q and Form 10-QSB.82
The exemption for mutual life companies is not being eliminated as
proposed because a number of companies that file with the Division of
Investment Management continue to rely on the exemption.
---------------------------------------------------------------------------
\82\ Amendment to Exchange Act Rules 13a-13 and 15d-13. The
exemption for small life insurance companies expired by its terms on
December 20, 1983.
---------------------------------------------------------------------------
Eliminate a general instruction to Form 10-K 83
referring to filings on Form S-18, which was replaced by other small
business forms in 1992.
---------------------------------------------------------------------------
\83\ General Instruction I.
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V. Cost-Benefit Analysis
Commenters almost universally agreed that the foregoing rule
changes were desirable and would reduce unnecessary duplication in the
Commission's rules, schedules and forms, as well as duplication with
other accounting requirements. Those with compliance obligations under
the federal securities laws should benefit from the simplification and
clarification of rules and by the elimination of rules and forms that
are outdated or rarely used for other reasons. The Commission's view
that there will be no anticipated detrimental effects to investors was
supported by the comment as well. It is not believed, however, that the
changes outlined herein will affect significantly the overall costs and
burdens associated with filing requirements generally, because many of
the changes are being made to eliminate superfluous and redundant
requirements.
VI. Summary of Final Regulatory Flexibility Analysis
A final regulatory flexibility analysis has been prepared in
accordance with 5 U.S.C. 604 concerning these amendments. As stated in
the final analysis, no public commenter specifically addressed the
issues outlined in the initial regulatory flexibility analysis. Most
persons commenting generally on the proposals supported the changes.
Where commenters expressed concerns about the proposed elimination of
Exhibit 11, the Commission responded by deferring final action on that
point. The analysis describes the types of entities that are
denominated small entities under the Commission's rules and indicates
that it is difficult to estimate the number of small entities that will
be affected by the rule changes adopted in this release. The analysis
also states that it is anticipated that most compliance obligations are
expected to remain the same after the rules become effective. Where
obligations are impacted, it is expected that the rule amendments will
lessen regulatory burdens somewhat, both for small and large entities
alike. Finally, the analysis explains that the Commission has attempted
to help small entities, together with larger companies, by eliminating
redundant rules and reducing compliance obligations. Exempting or
otherwise treating small entities in a disparate manner would place
them at a disadvantage. The analysis indicates that special
consideration of small entities under other aspects of the federal
securities laws will be undertaken in future rulemaking.
A copy of the final regulatory flexibility analysis may be obtained
by contacting James R. Budge, Office of Disclosure Policy, Division of
Corporation Finance, Mail Stop 3-7, 450 Fifth Street, NW., Washington,
DC 20549.
VII. Paperwork Reduction Act
The staff has consulted with the Office of Management and Budget
(``OMB'') and has submitted the proposals for review in accordance with
the Paperwork Reduction Act of 1995 (``the Act'') (44 U.S.C. 3501 et
seq.). The Commission solicited comment on the compliance burdens
associated with the proposals, and received no public comment in
response. As stated in the Proposing Release, it is anticipated that
the changes that eliminate certain exhibits from Item 601(b) of
Regulations
[[Page 30401]]
S-K and S-B 84 would reduce the existing information collection
requirements that are associated with the forms identified in the
exhibit tables in those regulations. The net reduction for all affected
information collection requirements would be an estimated 62,663 hours,
or about .3% of the total burden hours associated with past
requirements.
---------------------------------------------------------------------------
\84\ The titles of the affected information collection
requirements are ``Regulation S-K'' and ``Regulation S-B.''
---------------------------------------------------------------------------
With respect to the elimination of certain requirements within Form
F-6,85 the supporting statement indicates that registrants no
longer would be required to furnish the name of each dealer known to it
or depositary who: (1) Has deposited shares against the issuance of
ADRs within the past six months, (2) proposes to deposit shares against
issuance of ADRs, or (3) assisted or participated in the creation of
the plan of the issuance of the ADRs or the selection of the deposited
securities. This rule change will reduce the total information burden
of affected registrants (currently 339 hours) by approximately .1 hour
per submission, for a total reduction of 33.9 hours for all
submissions.
---------------------------------------------------------------------------
\85\ This information collection is entitled ``Form F-6,'' OMB
Control Number 3235-0292. The collection is in accordance with the
clearance requirements of 44 U.S.C. 3507. The collection of
information in Form F-6 is mandatory where the form is applicable.
Information reported on Form F-6 is made available to the public.
The form displays the OMB control number and expiration date; if
this information is not displayed, the agency may not sponsor or
conduct, or require a response to, the information collection.
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X. Statutory Basis for the Proposals
The foregoing amendments are being adopted pursuant to sections 6,
7, 8, 10 and 19(a) of the Securities Act, sections 3, 12, 13, 14,
15(d), 23(a) and 35A of the Exchange Act.
List of Subjects in 17 CFR Parts 210, 228, 229, 230, 232, 239, 240,
and 249
Accountants, Confidential business information, Registration
requirements, Reporting and recordkeeping requirements, Securities.
Text of the Amendments
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is amended as follows:
PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL
STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF
1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT
COMPANY ACT OF 1940, AND ENERGY POLICY AND CONSERVATION ACT OF 1975
1. The authority citation for part 210 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77aa(25),
77aa(26), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79e(b), 79j(a),
79n, 79t(a), 80a-8, 80a-20, 80a-29, 80a-30, 80a-37, unless otherwise
noted.
Sec. 210.3-16 [Removed and reserved]
2. By removing and reserving Sec. 210.3-16.
Sec. 210.4-05 [Removed and reserved]
3. By removing and reserving Sec. 210.4-05.
Sec. 210.4-06 [Removed and reserved]
4. By removing and reserving Sec. 210.4-06.
5. By amending Sec. 210.4-10 by removing paragraphs (c) through (h)
and redesignating paragraphs (i) and (j) as paragraphs (c) and (d), and
by revising paragraph (b) following the undesignated heading to read as
follows:
Sec. 210.4-10 Financial accounting and reporting for oil and gas
producing activities pursuant to the Federal securities laws and the
Energy Policy and Conservation Act of 1975.
* * * * *
(b) A reporting entity that follows the successful efforts method
shall comply with the accounting and financial reporting disclosure
requirements of Statement of Financial Accounting Standards No. 19, as
amended.
* * * * *
PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS
6. The authority citation for part 228 continues to read as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss,
78l, 78m, 78n, 78o, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37, 80b-
11, unless otherwise noted.
Sec. 228.601 [Amended]
7. By amending Sec. 228.601 (Item 601 of Regulation S-B) in the
exhibit table, by removing and reserving exhibit numbers (7), (14) and
(28), and by removing and reserving paragraphs (b)(7), (b)(14) and
(b)(28).
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
8. The authority citation continues to read in part as follow:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn,
77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79e, 79n,
79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise noted.
* * * * *
Sec. 229.501 [Amended]
9. By amending Sec. 229.501 (Item 501 of Regulation S-K) by
removing paragraph (b), redesignating paragraph (c) as paragraph (b),
and in newly designated paragraph (b)(8) by removing the words ``, in
red ink''.
Sec. 229.601 [Amended]
10. By amending Sec. 229.601 (Item 601 of Regulation S-K) in the
exhibit table, by removing and reserving exhibit numbers (6), (7), (14)
and (28), and by removing and reserving paragraphs (b)(6), (b)(7),
(b)(14) and (b)(28).
Secs. 229.801, 229.802 [Amended]
11. By amending Sec. 229.801 and Sec. 229.802 by removing and
reserving paragraph (a) Industry Guide 1 in both sections.
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
12. The authority citation for part 230 continues to read in part
as follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30,
and 80a-37, unless otherwise noted.
* * * * *
Sec. 240.148 [Removed and reserved]
13. By removing and reserving Sec. 230.148.
14. By amending Sec. 230.252 by revising paragraph (h)(2) to read
as follows:
Sec. 230.252 Offering statement.
* * * * *
(h) Amendments.
(1) * * *
(2) An amendment to include a delaying notation pursuant to
paragraph (g)(2) or to remove one pursuant to paragraph (g)(3) of this
section after the initial filing of an offering statement may be made
by telegram, letter or facsimile transmission. Each such telegraphic
amendment shall be
[[Page 30402]]
confirmed in writing within a reasonable time by filing a signed copy.
Such confirmation shall not be deemed an amendment.
Secs. 230.300 through 230.346 (Regulation B) [Removed and reserved]
15. By removing the undesignated center heading--Regulation B--and
removing and reserving Secs. 230.300 through 230.346 (Regulation B)
(The undesignated center heading ``Attention Electronic Filers'' and
the paragraph immediately following remain unchanged).
16. By amending Sec. 230.402 by removing the word ``manually'' from
the fourth sentence of paragraph (a), and from the fourth sentence of
paragraph (c), and by revising paragraph (e) to read as follows:
Sec. 230.402 Number of copies; binding; signatures.
* * * * *
(e) Signatures. Where the Act or the rules thereunder, including
paragraphs (a) and (c) of this section, require a document filed with
or furnished to the Commission to be signed, such document shall be
manually signed, or signed using either typed signatures or duplicated
or facsimile versions of manual signatures. Where typed, duplicated or
facsimile signatures are used, each signatory to the filing shall
manually sign a signature page or other document authenticating,
acknowledging or otherwise adopting his or her signature that appears
in the filing. Such document shall be executed before or at the time
the filing is made and shall be retained by the registrant for a period
of five years. Upon request, the registrant shall furnish to the
Commission or its staff a copy of any or all documents retained
pursuant to this section.
17. By amending Sec. 230.406 by revising the heading ``Preliminary
Note'' to read ``Preliminary Notes'', by designating the preliminary
note as preliminary note 1, adding preliminary note 2, removing from
paragraph (a) the words ``or on Form F-4 (Sec. 239.34 of this chapter)
complying with General Instruction F of that Form'', and removing
paragraph (j) to read as follows:
Sec. 230.406 Confidential treatment of information filed with the
Commission.
Preliminary Notes: (1) * * *
(2) All confidential treatment requests shall be submitted in
paper format only, whether or not the filer is an electronic filer.
See Rule 101(c)(1)(i) of Regulation S-T (Sec. 232.101(c)(1)(i) of
this chapter).
* * * * *
Undesignated Center Heading and Secs. 230.445-230.447 [Removed and
reserved]
18. By removing the undesignated center heading Competitive Bids
and removing and reserving Secs. 230.445 through 230.447.
Sec. 230.464 [Amended]
19. By amending Sec. 230.464 by revising the heading to read
``Effective date of post-effective amendments to registration
statements filed on Form S-8 and on certain Forms S-3, S-4, F-2 and F-
3.'' and by removing from the introductory text the words ``or on Form
F-4 (Sec. 239.34 of this chapter) that there is continued compliance
with General Instruction F of that Form'' and from paragraph (b) the
words ``or a Form F-4 registration statement complying with General
Instruction F of that Form''.
20. By amending Sec. 230.471 by designating the text as paragraph
(a) and adding paragraph (b) to read as follows:
Sec. 230.471 Signatures to amendments.
(a) * * *
(b) Where the Act or the rules thereunder require a document filed
with or furnished to the Commission to be signed, such document shall
be manually signed, or signed using either typed signatures or
duplicated or facsimile versions of manual signatures. Where typed,
duplicated or facsimile signatures are used, each signatory to the
filing shall manually sign a signature page or other document
authenticating, acknowledging or otherwise adopting his or her
signature that appears in the filing. Such document shall be executed
before or at the time the filing is made and shall be retained by the
registrant for a period of five years. Upon request, the registrant
shall furnish to the Commission or its staff a copy of any or all
documents retained pursuant to this section.
21. By amending Sec. 230.472 by revising the second sentence of
paragraph (b) to read as follows:
Sec. 230.472 Filing of amendments; number of copies.
* * * * *
(b) * * * Each such copy of the amended prospectus shall be
accompanied by a copy of the cross reference sheet required by Rule
481(a) (Sec. 230.481(a)), where applicable, if the amendment of the
prospectus resulted in any change in the accuracy of the cross
reference sheet previously filed. * * *
* * * * *
22. By amending Sec. 230.473 by revising the second sentence of
paragraph (c) and by removing from paragraph (d) the words ``or on Form
F-4 (Sec. 239.34 of this chapter) complying with General Instruction F
of that Form'' to read as follows:
Sec. 230.473 Delaying amendments.
* * * * *
(c) * * * Any such amendment filed after the filing of the
registration statement, any amendment altering the proposed date of
public sale of the securities being registered, or any amendment filed
pursuant to paragraph (b) of this section may be made by telegram,
letter or facsimile transmission. * * *
* * * * *
23. By amending Sec. 230.504 by revising paragraph (b)(1) to read
as follows:
Sec. 230.504 Exemption for limited offerings and sales of securities
not exceeding $1,000,000.
* * * * *
(b) Conditions to be met. (1) To qualify for exemption under this
Sec. 230.504, offers and sales must satisfy the terms and conditions of
Secs. 230.501 and 230.502(a).
* * * * *
Undesignated center heading and Secs. 230.651-230.656 (Reg. F)
[Removed and reserved]
24. By removing the undesignated center heading and by removing and
reserving Secs. 230.651 through 230.656 (Regulation F).
Sec. 230.702(T) [Removed]
25. By removing Sec. 230.702(T).
Sec. 230.703(T) [Removed]
26. By removing Sec. 230.703(T).
Sec. 230.902 [Amended]
27. By amending Sec. 230.902 at the end of paragraph (a)(1) before
the word ``and'', add the words ``the Helsinki Stock Exchange; the
Alberta Stock Exchange; the Oslo Stock Exchange; the Mexico Stock
Exchange; the Istanbul Stock Exchange; and the Irish Stock Exchange''.
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
28. The authority citation for part 232 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll, 79t(a), 80a-8, 80a-29,
80a-30 and 80a-37.
Sec. 232.311 [Amended]
29. By amending Sec. 232.311 by removing paragraph (c) and
redesignating paragraphs (d) through (i) as paragraphs (c) through (h).
[[Page 30403]]
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
30. The authority citation for part 239 continues to read in part
as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 78l,
78m, 78n, 78o(d), 78w(a), 78ll(d), 79e, 79f, 79g, 79j, 79l, 79m,
79n, 79q, 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless otherwise
noted.
* * * * *
31. By amending Form F-6 (referenced in Sec. 239.36) by removing
Items 3(e) and 4(a) and by redesignating Item 3(f) as Item 3(e) and
Items 4(b) and 4(c) as Items 4(a) and 4(b).
Note: The text of Form F-6 does not, and the amendments thereto
will not, appear in the Code of Federal Regulations.
32. By amending Form F-7 (referenced in Sec. 239.37) in Part I,
Item 3 by removing the words ``Rule 24 of the Commission's Rules of
Practice'' from the second sentence and inserting ``Item 10(d) of
Regulation S-K'' in its place.
Note: The text of Form F-7 does not, and the amendments thereto
will not, appear in the Code of Federal Regulations.
33. By amending Form F-8 (referenced in Sec. 239.38) in Part I,
Item 3 by removing the words ``Rule 24 of the Commission's Rules of
Practice'' from the second sentence and inserting ``Item 10(d) of
Regulation S-K'' in its place.
Note: The text of Form F-8 does not, and the amendments thereto
will not, appear in the Code of Federal Regulations.
34. By amending Form F-9 (referenced in Sec. 239.39) in Part I,
Item 3 by removing the words ``Rule 24 of the Commission's Rules of
Practice'' from the second sentence and inserting ``Item 10(d) of
Regulation S-K'' in its place.
Note: The text of Form F-9 does not, and the amendments thereto
will not, appear in the Code of Federal Regulations.
35. By amending Form F-10 (referenced in Sec. 239.40) in Part I,
Item 4 by removing the words ``Rule 24 of the Commission's Rules of
Practice'' from the second sentence and inserting ``Item 10(d) of
Regulation S-K'' in its place.
Note: The text of Form F-10 does not, and the amendments thereto
will not, appear in the Code of Federal Regulations.
36. By amending Form F-80 (referenced in Sec. 239.41) in Part I,
Item 3 by removing the words ``Rule 24 of the Commission's Rules of
Practice'' from the second sentence and inserting ``Item 10(d) of
Regulation S-K'' in its place.
Note: The text of Form F-80 does not, and the amendments thereto
will not, appear in the Code of Federal Regulations.
Sec. 239.101 [Removed and reserved]
37. By removing and reserving Sec. 239.101 and by removing
Schedules A, B, C, D and Forms 1-G and 3-G referenced in that section.
Sec. 239.300 [Removed and reserved]
38. By removing and reserving Sec. 239.300 and by removing Form 1-
F.
Sec. 239.701 [Removed and reserved]
39. By removing and reserving Sec. 239.701 and by removing Form
701.
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
40. The authority citation for part 240 continues to read in part
as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-
37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
41. By amending Sec. 240.12b-11 by removing the word ``manually''
from paragraph (b) and by revising paragraph (d) to read as follows:
Sec. 240.12b-11 Number of copies; signatures; binding.
* * * * *
(d) Signatures. Where the Act or the rules, forms, reports or
schedules thereunder, including paragraph (b) of this section, require
a document filed with or furnished to the Commission to be signed, such
document shall be manually signed, or signed using either typed
signatures or duplicated or facsimile versions of manual signatures.
Where typed, duplicated or facsimile signatures are used, each
signatory to the filing shall manually sign a signature page or other
document authenticating, acknowledging or otherwise adopting his or her
signature that appears in the filing. Such document shall be executed
before or at the time the filing is made and shall be retained by the
filer for a period of five years. Upon request, the filer shall furnish
to the Commission or its staff a copy of any or all documents retained
pursuant to this section.
42. By amending Sec. 240.13a-13 by revising the section heading and
paragraph (c) to read as follow:
Sec. 240.13a-13 Quarterly reports on Form 10-Q and Form 10-QSB
(Sec. 249.308a and Sec. 249.308b of this chapter).
* * * * *
(c) Part I of the quarterly reports on Form 10-Q or Form 10-QSB
need not be filed by:
(1) Mutual life insurance companies; or
(2) Mining companies not in the production stage but engaged
primarily in the exploration for the development of mineral deposits
other than oil, gas or coal, if all of the following conditions are
met:
(i) The registrant has not been in production during the current
fiscal year or the two years immediately prior thereto; except that
being in production for an aggregate period of not more than eight
months over the three-year period shall not be a violation of this
condition.
(ii) Receipts from the sale of mineral products or from the
operations of mineral producing properties by the registrant and its
subsidiaries combined have not exceeded $500,000 in any of the most
recent six years and have not aggregated more than $1,500,000 in the
most recent six fiscal years.
* * * * *
Sec. 240.13a-17 [Removed and reserved]
43. By removing and reserving Sec. 240.13a-17.
44. By amending Sec. 240.14d-1 by revising paragraph (d) to read as
follows:
Sec. 240.14d-1 Scope of and definitions applicable to Regulations 14D
and 14E.
* * * * *
(d) Signatures. Where the Act or the rules, forms, reports or
schedules thereunder require a document filed with or furnished to the
Commission to be signed, such document shall be manually signed, or
signed using either typed signatures or duplicated or facsimile
versions of manual signatures. Where typed, duplicated or facsimile
signatures are used, each signatory to the filing shall manually sign a
signature page or other document authenticating, acknowledging or
otherwise adopting his or her signature that appears in the filing.
Such document shall be executed before or at the time the filing is
made and shall be retained by the filer for a period of five years.
Upon request, the filer shall furnish to the Commission or its staff a
copy of any or all documents retained pursuant to this section.
45. By amending Sec. 240.15d-13 by revising the section heading and
paragraph (c) to read as follows:
Sec. 240.15d-13 Quarterly reports on Form 10-Q and Form 10-QSB
(Sec. 249.308a and Sec. 249.308b of this chapter).
* * * * *
(c) Part I of the quarterly reports on Form 10-Q or Form 10-QSB
need not be filed by:
(1) Mutual life insurance companies; or
(2) Mining companies not in the production stage but engaged
primarily
[[Page 30404]]
in the exploration for the development of mineral deposits other than
oil, gas or coal, if all of the following conditions are met:
(i) The registrant has not been in production during the current
fiscal year or the two years immediately prior thereto; except that
being in production for an aggregate period of not more than eight
months over the three-year period shall not be a violation of this
condition.
(ii) Receipts from the sale of mineral products or from the
operations of mineral producing properties by the registrant and its
subsidiaries combined have not exceeded $500,000 in any of the most
recent six years and have not aggregated more than $1,500,000 in the
most recent six fiscal years.
* * * * *
Sec. 240.15d-17 [Removed and reserved]
46. By removing and reserving Sec. 240.15d-17.
47. By amending Sec. 240.16a-3 by revising paragraph (i) to read as
follows:
Sec. 240.16a-3 Reporting transactions and holdings.
* * * * *
(i) Signatures. Where Section 16 of the Act, or the rules or forms
thereunder, require a document filed with or furnished to the
Commission to be signed, such document shall be manually signed, or
signed using either typed signatures or duplicated or facsimile
versions of manual signatures. Where typed, duplicated or facsimile
signatures are used, each signatory to the filing shall manually sign a
signature page or other document authenticating, acknowledging or
otherwise adopting his or her signature that appears in the filing.
Such document shall be executed before or at the time the filing is
made and shall be retained by the filer for a period of five years.
Upon request, the filer shall furnish to the Commission or its staff a
copy of any or all documents retained pursuant to this section.
Sec. 240.166-1 [Amended]
48. By amending Sec. 240.16b-1 by removing paragraph (c).
Sec. 240.166-4 [Removed and reserved]
49. By removing and reserving Sec. 240.16b-4.
50. By amending Sec. 240.24b-2 by adding a preliminary note
preceding the text of paragraph (a) and by removing paragraph (g), to
read as follows:
Sec. 240.24b-2 Nondisclosure of information filed with the Commission
and with any exchange.
Preliminary Note
Confidential treatment requests shall be submitted in paper
format only, whether or not the filer is required to submit a filing
in electronic format.
* * * * *
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
51. The authority citation for Part 249 continues to read in part
as follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;
* * * * *
52. By amending Form 10-K (referenced in Sec. 249.310) by removing
general instruction I. and redesignating general instruction J. as
general instruction I.
Note: The text of Form 10-K does not, and the amendments thereto
will not, appear in the Code of Federal Regulations.
Sec. 249.310c [Removed and reserved]
53. By removing and reserving Sec. 249.310c and by removing Form
10-C.
By the Commission.
Dated: May 31, 1996.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-14182 Filed 6-13-96; 8:45 am]
BILLING CODE 8010-01-P
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